Q3 2021 Beachbody Company Inc Earnings Call
Yeah.
Good afternoon, ladies and gentlemen, welcome to the Beach body company third quarter fiscal 2021 earnings call. At this time all participants are in listen only mode. Following the presentation. We will conduct a question and answer session and instructions will be provided at the time for you to queue up for.
Questions.
Anyone has default difficulties hearing the conference. Please press star zero for operator assistance at any time.
I would like to remind everyone that this conference call is being recorded.
And I will now turn the conference over to Eddie Plank Beach Buddies Group, Vice President of Investor Relations. Please go ahead.
Welcome everyone and thank you for joining us on our third quarter 2021 earnings call with me on the call today is Carl Dayquil co founder Chairman and Chief Executive Officer of the Beach body Company, and Sue Collyns, President and Chief Financial Officer.
Following calls in <unk> prepared remarks, we'll open the call up for questions before.
Before we get started I would like to remind you of the Companys Safe Harbor language.
Statements contained in this conference call, which are not historical facts may be deemed to constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties all of which are described in the company's SEC filings, which includes today's press release.
Today's call will include references to non-GAAP financial measures such as adjusted EBITDA.
A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website.
Now I would like to turn the call over to Carl.
Thank you Eddie and good afternoon, everyone on today's call I'd like to provide some context on the current environment, including the shifts we've seen in consumer dynamics, what we've learned from them and the actions, we're taking to optimize beach body's performance against the challenging backdrop before turning to the details of the quarter I'd like to underscore.
Two important points about our business.
We have a differentiated offering our leading position in the mass market and then extremely resilient business model with 3 million highly loyal and engaged customers that provides us with a significant opportunity to drive LTV to our diverse catalog and comprehensive product offering second the solid.
Subscription growth, we delivered versus the 2019 baseline reflects the strong long term secular trend of demand for digital fitness and quality nutrition taken together I'm.
I'm confident in our future prospects. Despite the confluence of factors that impacted us during the quarter.
Now, let me get into specifics.
After our results in July and August that were generally in line with our expectations September was more challenging than we anticipated softer consumer demand a challenging media environment and delays in key product launches and Rollouts resulted in new subscriber acquisitions that were below our expectations and this was despite strong.
Among existing subscribers.
The team and I are taking decisive steps to respond to results improve customer acquisition and lifetime value metrics and get us back on course to deliver on our long term outlook make no mistake as the single largest shareholder as well as CEO of beach body, but more so because I believe in the importance of our mission to serve.
<unk> as many people as possible. This is deeply personal to me.
Our results are unacceptable, but at the same time I can see very clearly the reasons behind those results and how best to respond I am laser focused on growing the business and ensuring that we are positioned to create value for our shareholders and deliver on our mission over.
Over the past two decades, we've grown this business across a variety of economic cycles technology disruptions and changing consumer preferences in sentiment we've successfully navigated market dislocations before we know firsthand that environments like this may be challenging, but they also present.
Good insights and opportunities frankly, confronting challenging circumstances lead us to see the opportunity to create innovations like P 90 X and to introduce shake allergy as long as the focus remains on the customer and getting them results in the most cost effective way possible the strategy of providing the total solution of <unk>.
Fitness nutrition and community and affordable price always regains traction and mass market customer demand returns.
Please put plainly at home fitness is not a passing trend that grew out of the pandemic is here to stay or performance versus 2019, including solid growth in subscriptions and solid retention and engagement is evidence of that long term trend. There's no denying the consumer is experiencing a moment of.
Action during the quarter, we saw people returned to traveling socializing and spending time outside the home after more than a year and a half of quarantines and social distancing.
Softer demand also coincided with a more challenging media environment rising media costs and the new privacy settings associated with Apple's iOS 14.5 made performance marketing more costly and less efficient, resulting in ROI below historic levels added to that our results were impacted with the launch of Bard and <unk>.
<unk>, what we call body, our new premium tier live group fitness subscription was delayed from the first half of September to late October we needed additional time to ensure the technology would deliver the immersive personalized and interactive experience that we envisioned before we started selling the subscription <unk>.
Interactive is an important step forward our customers have been asking for as we use technology to deliver engaging affordable and compelling content with a live interactive experience. Unlike anything else in the marketplace. However, this delay limited the ability of our coach network to drive new subscriber acquisition and sales of corresponding nutritional.
Bundles.
Given that the bought interactive subscription also includes our interactive cycling content. The October launch had a domino effect on bike sales within our customer base. As a result, we did not begin to aggressively promote the bike in our coach network and on social media until late October as we needed the Bod interactive launch to be able to truly.
Unlock the full value proposition.
We're now executing on our business plan as we go into the holidays and then onto the seasonally important first quarter when people refocused on health and wellness, while external factors will always play a role in our results as they do for everyone. In the sector. We are committed to controlling what we can control our strategy and our actions.
With that in mind I'd like to take some time to walk you through the action plan that is in progress to improve near term results and prioritize ROI, while continuing to advance our long term growth strategy across six key focus areas marketing.
Both initiatives the coach network.
Attrition.
Spencers and leadership.
So, let's start with marketing, where we're sharpening the focus.
Given the current environment, we're taking a very disciplined approach to prioritize performance marketing in the near term to maximize response in ROI through direct channels. We're also addressing the gap created by the iOS 14, five changes, we're working closely with various media platforms to develop new solutions as well as harnessing.
Our own data and advanced attribution models to optimize media.
In an environment like the one we're in today agility is Paramount and this is why we've streamlined our marketing organization and are now operating with a significantly faster feedback loop between our creative team media strategy and data and analytics. This allows us to move quickly to find winners and invest behind them well.
Tightly managing acquisition costs of the most valuable customer cohorts.
While we continue to believe top of the funnel brand marketing can serve as a powerful accelerant, we paused brand spend in the near term.
Our intention is to resume these activities after the holiday season, when consumers typically refocused on their personal goals and overall wellness.
Second let's talk about growth, we're allocating resources to the highest return demand creation activities, we want to make sure that the organization has got the right levels of resources and that everyone is aggressively focused on solid execution with the launch of bought interactive in late October we now have a powerful lever.
To drive acquisition, upsell and increase lifetime value with an offering that replicates, the immersive and personalized experience of boutique fitness classes in a digital context.
Also we're continuing to scale our connected fitness business. While this remains a competitive market, we have a clear and differentiated value proposition and existing base of 3 million subscriptions, a superior quality bike and touch screen best in class fitness content, that's personalised and heart rate driven and then ability to pay.
Our fitness offerings with high quality effective nutrition plans and supplements, we expect sales of the connected bike will significantly enhance the lifetime value of our customer base by increasing penetration of highly retentive digital subscriptions at a very attractive gross margin.
Heading into the holidays in the first quarter. We are now fully operational on both the beach body on demand and open fit platforms. Our focus is on continuing to refine our marketing to optimize the combination of creative and media through this test and learn approach that will power customer acquisition and boost lifetime value while tightly managing.
Acquisition cost efficiency, that's the power of our model.
The Cogent network.
With the return of in person live events, and a robust pipeline of product or once again in a position to maximize the impact of our network of coaches. Our coach network is not immune to the environment that I referenced at the beginning of this call, but with our first live event in over 18 months in October the launch of bought interactive and the <unk>.
Edition of the bike to our lineup we have brought the field back to focus and put them in a powerful position to drive subscriber growth and lifetime value.
Last month I attended events with thousands of coaches in four different cities and the passion for the beach body mission and the excitement for the new bought interactive subscription tier and the connected bike was on full display.
We are excited about the innovations we've recently launched and are already anticipating the next program called job won our first program by Super trainer, Jennifer Jacobs, which will rollout in December. This program brings it all together great content, our nutrition programs and obviously the prospect of combining it with rides created by one of them.
<unk> sought after trainers and cycling that is synergy.
Fourth with respect to nutrition, we will invigorate, our nutrition business one of the advantages of our business model is that as momentum returns to digital fitness subscription starts. This willpower nutritional starts as part of our bundled product offerings also we have some exciting new products planned for 2022.
That have received very positive feedback from in home user testing.
Fifth.
With respect to our expense profile, we remain laser focused on growing the business and Reaccelerate. The top line, but at the same time, we are always focused on controlling expenses and smart capital allocation.
And sixth we've made four key appointments to strengthen our leadership team I am pleased to announce that John cognate My cofounder will become vice chairman, where will work more closely together on critical long term strategy business development and M&A opportunities over the past two decades, John and I have partnered together to.
Create and then reinvent this business several times over and we work best when operating alongside each other rather than on separate efforts as a result of this move I will directly oversee all marketing and product development, including open fit.
To further expand our reach we've also added John Michel Fournier <unk> in the newly created role of President Global partnerships and corporate development, John Michelle joined the Beach body company from less Mills media as CEO at less Mills, John Michel oversaw significant growth in the company's digital fitness business he'll play a critical role.
We'll and accelerating digital subscribers to open fit through collaborations across corporate brand and other wellness partners. While also organizing beach bodies international expansion.
We also recently appointed Kristina Cartwright to the role of senior Vice President Nutrition reporting directly to me.
This newly created role brings together all our nutrition businesses under one leader in this role Christine will deploy her deep knowledge and extensive experience in driving subscriber growth drawing on our experience at dollar Shave club and Abbott laboratories, where she oversaw significant growth of the PD assure MPD light brands.
Lastly, we recently added Blake Bilsted as Chief legal Officer, and corporate Secretary Blake has significant public company and M&A experience as well as a deep understanding of high growth technology driven content companies that include the WWE.
The plan I just outlined for you is already underway and as I said at the outset my confidence in our future is stronger than ever we've built our business on appealing to a broad base of customers with an emphasis on helping the mass market get healthy and fit as we continue to add to our offering we intend to grow.
Our market share by delivering proven and accessible fitness and nutrition solutions that I would put head to head with anything else in the marketplace at any price point, our content offerings and subscription driven business model remain a source of strength and resilience are 3 million digital fitness and nutrition subscriptions power or more.
75% recurring revenue base with monthly digital retention levels that remain above 95%. This is all driven by our engaging content paired with high quality nutrition that gets people results.
It's that content that not only drives our flywheel, but also allows us to remain relevant in a way no. One else can we reinvent ourselves through our content, we respond to customer needs and emerging trends and fitness with new innovative and relevant programming that content powers new customer acquisition.
And drives engagement and loyalty within our subscriber base, although external factors will continue to be outside our control, we will focus on solid execution and keeping our eye on the ball, while we anticipate continued pressure in the fourth quarter I expect to see these actions begin to move the needle on the top and bottom line.
In a meaningful way as we move into 2022.
With that I'll turn the call over to Sue Collins, our CFO to walk through the details of the quarter.
Thanks, Karl and good afternoon, everyone.
I'll start with a review of our third quarter results and then provide additional context around our updated guidance.
Like others in the industry volatility in consumer demand, we experienced in the third quarter as the economy began to reopen was greater than anticipated, but looking past the near term turbulence, we remain confident in our unique value proposition and the long term secular tailwind to that back in the meantime, we can.
Trolling, what we can control maintaining our strong cost discipline and using the flexibility of our business model to advantage.
Importantly, our performance 2019 is evidenced strong digital fitness adoption and retention and reinforces our conviction in the market opportunity ahead.
In my remarks today I'll include comparison to 2019 and 2020 as each provide helpful context.
Turning to our Q3 results.
Total GAAP revenue of 291 million decreased 17% year over year, However, increased 6% over the third quarter of 2019.
As Colin mentioned July and August performed largely in line with that forecast approximately 17, 5%. Although Q3 revenue shortfall. This with full cost occurred in the month of September driven by the delays in product launches a more pronounced slowdown in consumer demand and our media investment that fell short.
Our subscriber acquisition goes.
Moving onto the components of revenue.
Digital revenue was $94 1 million, a 5% decrease compared to Q3 of 2020, it's usually the reasons I just described about but increased 38% compared to Q3 of 2019 compared to last year digital subscriptions increased 1% to approximately $2 6 million in the third quarter an increase.
55% over 2019.
In terms of engagement daily active users monthly active users down now with 29, 6% down 250 basis points versus prior year, but up 20 basis points versus 2019.
Finally, digital streams were down 26% versus last year, but up 5% compared with the third quarter of 2019.
We're encouraged to see that engagement remained high on a two year basis, and that's a positive indicator for the long term.
Additionally, average digital retention increased 50 basis points over last year, and 40 basis points over Q3 of 2019, demonstrating the retentive power of that model.
Connected fitness revenue was $5 9 million in the third quarter with 14700 bikes sold compared to 8600 bikes sold in Q3 of 2020 on a pro forma basis.
This was below our initial expectations as the delayed launch of Bud Interactive limited our ability to effectively market. The bike in September revenue was also impacted by a timing shift as GAAP only allows revenue recognition upon physical goods delivery.
Given the significant number of late September bike sales only 44% of Q Street bikes sold were actually delivered in the quarter and the remaining 56%. We delivered in early Q4 and they'll be recorded as part of our Q4 revenue.
Looking ahead like sales have accelerated thus far into Q4 as compared to Q3. However, given the current environment. We're now taking a more conservative view of bike forecast to be sold as well as banks delivered in the fourth quarter.
Nutrition and other revenue of $108 1 million was down 29% compared to Q3, 2020 and down 16% compared to Q3 2019, primarily June to 23% lower nutritional subscriptions and one time purchases of nutritional products I'd.
I'd like to reinforce <unk> point that nutritional start are linked to digital subscriptions and says the demand headwinds launch delays and marketing inefficiencies that impacted digital also had a domino effect on how nutrition business.
Gross profit dollars were 135 million digital gross margin was 87, 1% and declined by 300 basis points versus 2020, primarily due to an increased amount of content and associated production costs compared to last year.
Fitness gross margin was negative 73, 1%, which was in line with our expectations and reflected the high end near term price and distribution expenses caused by widespread supply chain pressures. This margin pressure with less impactful to that total gross margin rate of 64, 9%.
Connected fitness accounted for less than 3% of that total sales mix in the quarter.
Nutrition and other gross margin was 53, 1% compared with 59, 9% in the prior year period with the decrease primarily due to higher shipping and freight costs associated with Covid related disruptions.
Deleverage of fixed costs, given the revenue decline.
Moving down the P&L, despite the factors that negatively impacted our revenue.
Cost control during the quarter did allow us to deliver Q3 EBITDA results that were in line with our internal forecast.
Selling and marketing expenses increased to $153 $8 million or 73, 9% of revenue from $124 million or 49.3% revenue last year.
<unk> deleverage was driven by both an increase in absolute media dollars as well as launching the brand awareness campaign.
Highly inefficient media rates, we've reassessed that RLI and materially reducing brand marketing until the new year.
Enterprise technology, and development expenses totaled $29 7 million or 14.3% of revenue compared to nine point <unk> revenue in the prior year period the.
The increase was primarily due to strategic investments to drive future growth, including higher personnel and the enterprise system related expenses.
G&A expenses were $23 3 million or 11, 2% of revenue versus six 6% of revenue in Q3 of 2020.
The increase was primarily due to higher D&O insurance personnel costs and other public company expenses.
Moving on to other income.
The most material component of other income for us with the change in fair value of the liability, perhaps 15.3 million warrants, which resulted in a noncash accounting benefit of $33 million in Q3.
Our adjusted EBITDA loss was $43 4 million and a net loss for Q3 was $59 9 million or a loss of 13 cents per basic and diluted share.
Turning to our balance sheet.
As of September 30, we had approximately 200 million of cash and no debt at changing cash from Q2 was primarily driven by full items, one a $50 million media spend to capital investment as we built the bought interactive platform tree the acquisition.
Our content production studio.
And for approximately $17 million of inventory for connected fitness bikes to mitigate supply chain disruptions.
Our cash position and access to the capital markets provides us with ample financial resources to ensure adequate liquidity to execute on our growth strategy.
Now I'd like to move to our updated full year 2021 guidance.
As I mentioned the majority of the Q3 revenue declined versus forecast occurred in September.
And thus far into Q4 media rates remain elevated and consumer demand continues to be difficult to predict making for an overall challenging operating environment. Additionally.
Additionally, because Q3 sales were below expectations, we began the fourth quarter with the lowest subscription base from which to build revenue.
So in light of these factors, we're taking a more conservative view to 2021 sales and we now expect total GAAP revenue of between $820 million to $813 million versus prior guidance of 900, and sushi to $960 million.
As noted in our press release, despite reducing our overall revenue guidance, our adjusted Ebitdas loss remains in line with our prior guidance of negative 110 to negative $100 million.
Part of the reason, we're able to maintain EBIT guidance is due to our strong cost management, which is in our DNA and the two drivers of this specific cost management in Q4 of one refocusing our marketing on the most efficient media to drive customer acquisition, which is forecasted to reduce spend by more than 20 million.
<unk>.
And to the pandemic highlights that I work from anywhere environment is an advantage and as such we've assigned the remaining three years of our Santa Monica office lease saving approximately $5 million in 2021, and 9 million annually through 2025.
And with that I'll turn the call back over to <unk>.
Com.
Thank you Sue before opening the call for Q&A I wanted to provide some perspective on the long term opportunity for beach body.
My confidence in our future is unwavering there are millions of people out there who are looking to transform their lives to be healthier and happier. Our solution is unique in its ability to enable them to get to a healthy lifestyle through rich experiences created by bringing together the best fitness content.
And nutrition products alongside community support and accountability Nobody does it quite like beach body, because we don't cut corners, and we focus on the best possible customer experience and results.
<unk> showed people that working out at home is effective efficient and economical and technology combined with an emerging hybrid work model means now more than ever the home can and should be the greatest health center in everyone's life and it's not just technology for the sake of technology, it's about technology enhancing.
The human experience that connection and accountability that is so critical and helping people achieve their goals. That's the premise of bought interactive of open fit of the connected bike and of many of the exciting new products in our pipeline and we'll continue to do what we've done for 23 years invent innovate.
And refine with a relentless commitment to our mission of helping millions of people achieve healthy and fulfilling lives that is what we do we.
We'll stay agile adjusting and adapting and evolving but never forgetting the vision and mission and ultimately delivering value for our customers investors employees partners and communities.
With that I'd like to open it up for Q&A.
Thank you at this time I would like to remind everyone in order to ask a question. Please press star one on your telephone keypad again that is star one to ask a question.
We have your first question from Linda Bolton Weiser with D. A Davidson your line is open.
Yeah, Hi.
So I was curious about.
So I mean, the number of subs the total number actually declined.
From the second quarter.
So with the pull back of brand marketing.
Fine.
You know I I guess I would expect subs decline again sequentially in the fourth quarter is that a fair assumption and if that's the case do you head into the first part of 2022 with possibly subs actually down year over year.
Thanks.
Yeah, It wouldn't surprise you.
Our instinct is right.
What happens in Q4.
Even though we have a lot of renewals on the digital side of the portfolio.
Customers typically.
Like other nutritional choices in Q4 from Thanksgiving on.
And so we'd expect that nutritional funnel to continue to decline and that's in line with seasonal trends as.
As we go into Q1 of next year, even the heavy lifting has been done in 10 13 or many of the product launches.
Bought interactive as well as the integration of mixed onto those platforms.
We are lapping a pretty big increase in digital subscribers and nutritional subscribers from last year.
We would expect that to take time to build.
The only thing I would add Linda if I could is.
December marks one of the biggest launches of the year for us, which takes us our coach network into the first quarter. This year. It happens to be a program called that I mentioned called job, one which is 20 minutes a day five days a week and as you can imagine quite marketable.
No.
The seasonal the seasonality of but what what but sue was mentioning is offset to a certain degree by the fact that the coaches.
And the indications that we're getting are quite enthusiastic about this program and we do see.
Quite a bit of activity around that launch, which kicks off in the first week of December.
Okay.
And then.
Can you just talk about.
When you talk about that.
Our coach network are you talking about the convention like alive convention versus the virtual convention.
And if so usually those lives convention expenses are quite a bit more than virtual all so are we facing a real negative expense comparison in that business kind of going into 2022.
Not at all first just to describe that I'll, let sue speak to the actual expense.
But you know we've been doing events with this business model for over 10 years, and they're actually quite productive for us, but there's two kind of events that we finally got to experience in October one was a leadership event, where we get to get we get to bring our most proactive coaches the people who are helping them.
Most people together to talk about the product launches that are coming in the third and fourth quarter and into the first quarter. This is where we got to celebrate the fifth.
Additionally, the bike to the platform and the launch of our bought interactive platform. The other type of event is something that we call a super weekend, which happens actually at the coach expense, where what we call market Council's pulled together.
And put on many conventions on their own we do send our Super trainers and I also traveled to many of these events and it gives us an opportunity to meet with the other coaches that didn't come to leadership to give them that same visibility to the product lineup are ahead of us. So this particular event was this combination.
Asian of leadership, and then explaining what's coming to the entire network in the third and the fourth and first quarter in our quarterly Super weekend event.
Yes, okay.
On that question Linda all of them.
We'll be part of the guidance, we share for FY 'twenty two that I'll just tell you directionally that will be in line with sort of pre pandemic expenses.
Out of the ordinary.
Okay and then.
There's a lot going on with peloton and one of the things going on as they seem to have lowered the price of kind of their entry level bike. So the price gap between you and peloton is probably narrowed.
Was that the case or are you taking action to kind of maintain the gap in pricing or can you just talk about kind of the pricing environment on the bike side.
Yeah.
You know I can't speak to their strategy necessarily.
But our strategy finally can be about bringing this incredibly high quality commercial grade bike, two or 3 million subscription holders and doing that with the most immersive.
Exciting platform frankly in digital fitness and what we call Bot interactive just today, we put up our Black Friday special which will go up through the end of the month. So we expect to lean in to this business model, which we believe has a lot of runway because.
As we've seen over decades. This is a very marketable genre.
As Ken as fitness goes.
What started with spinning and has now evolved into the home is something that gets people results and Thats What beach body has been about since we launched the company. It's a natural to be a part of what we offer and we finally like literally finally, our getting to offer it to our database. So we're quite excited by it we think we're priced.
Imperative, but more so our content and total solution, including nutrition will give the customer the results that they're looking for so we feel quite good about the direction that its going and especially going into the first quarter.
And I know that last quarter, you had actually raised your projection for unit sales.
We used to 95000 do you wish to modify that or give any sort of a projection now for the year in terms of bike sales.
Yeah, I mean, we're obviously, taking a more conservative approach as I said in relation to the bike units.
That guidance, we shared on August 12, you're right. It was around 95000 on a pro forma basis, if we don't mix for the full year and now in reality, we've moved it down to about 60000.
And that's due to you know really three factors one the reduction in consumer demand and consumer distraction that Tom spoke about too that delayed launch of body, which impacted the Q.
Shrink results and three taking.
Taking those learnings from Q3 and the delivery issues during the holidays and basically what we've done now lender is eliminated a full month of revenue in Q4 for the bike so even with that reduction in the 60000.
Now on a pro forma basis.
For this year, it's still more than double the number of bikes that makes sold last year I think that came in around 27 and a half out.
Okay and then my last question is just having to do with cash flow.
I mean, it looks like your operating cash flow in the quarter was.
Somewhere around negative 100, <unk> hundred million.
Something like that so I mean.
What do you think your cash balance is going to be like at year end. I mean, do you think it'll be over $100 million or what's kind of your view on the cash flow side of things.
Yeah.
Well as at the end of Q3 as you know, we've got about $200 million of cash and we have no deaths.
Of course, an extremely resilient business model with more than 75% of the revenue stream being subscription related so that's a really strong foundation.
In our Q that we actually just really you may not have gotten into it yet, but we did terminate our credit facility in November.
It was done it was a line that was only $35 million.
<unk> pre merger and the intent was always to secure a larger facility post merger.
So the termination of that line is in line with the plan that we plan to go out and we are very confident of securing some ample capital to fuel the growth primarily for working capital needs things like inventory Capex marketing opportunities.
And in due course possible M&A.
Yeah, I mean at the end of Q4 will definitely be above that 100 million Mark.
Okay. Thank you very much.
We have your next question from John Hines, our coal with Guggenheim. Your line is open.
Karl maybe talk about opportunities.
Opportunities related to ladder.
Cross selling the $3 million.
Our digital subscribers nutrition right.
It seemed to be a big opportunity with not a lot of cost attached to it.
Yes. Thanks.
We remain really excited about it it was one of the reasons that we.
We.
Hasten this reorganization Crissy Cartwright who's running ladder and now the whole nutrition component has sort of two approaches to nutritional.
Our.
Marketing one is the network model, which bundles nutrition with digital fitness, So that's where we get the bulk of our subscriptions, but she's also got experience where the nutrition is the lead where we actually leverage the digital subscription as value add.
Added four people, who acquire our supplement so that's what you'll do with ladder taking advantage of the.
The brand opportunities since we.
That brand was created by Lebron, James and Arnold Schwarzenegger, and they're still involved in helping us promote ladder.
We're looking forward to how Christie will now shape that to sell the product and what we're hoping to have some news actually I can announce towards the end of the year in terms of being a nutrition, having a nutrition first acquisition strategy. In addition to our bundling component that really built to come.
<unk>.
Okay, and then maybe.
As a follow up if you think about this ore body.
And I know, it's early but your take on how many of the maybe order of magnitude of the 3 million subscribers might be good candidates for that upgrade.
Do you think it's 10% 20.
What do you think I don't think.
I don't think I'm allowed to two.
As your any guesses on these kind of calls, but obviously, it's an important part of our strategy to maximize the crossover between these two.
Subscriber bases and.
One of the things that we're doing for instance, as an example, with job one which launches the first week of December and not only will that be a normal sort of a predictable program a beach body type of program that goes for four weeks and people can do on the beach by you on demand platform. There is also a program made in peril.
So called job, one hybrid which includes rides with Jennifer Jacobs that lives on the Bard interactive subscription layer. So for people with bikes who've enjoyed jennifer's rides on whatever platform. She has ever been on now they'll have access to her rides as part of the job one program. So it's an important part.
Of our strategy and one that I'm excited to work with our performance team and our data and analytics team to maximize conversion, which we've seen very good indications in the early days.
And then maximize retention one of the tools that we have to our disposal right now for the first time is the day pass we've never been able to give the customer the ability to buy just one day's access to beach body on demand and with the launch of bought interactive.
At the end of October we now have the ability for our coaches to invite people into the Bod interactive ecosystem or beach by you on demand ecosystem for a day to try it and then apply that.
So $7 day pass if you will apply that $7 two a full subscription. So we have like Sue mentioned now. We finally, we have all the levers at our disposal, which the timing is just perfect as we go into what we call Q five which starts as to the fifth quarter. If you will the charts. The day after Christmas and then going into.
The all important first quarter.
And then real quick last.
Where are you going to be on.
Daily hours of programming on on body, where you know where will you be by year end.
What do you think you are by the spring we.
Right now we're producing between.
130, new workouts a month on the body platform and correspondingly about 100 workouts a month on the open fit platform.
And.
And that I think will be right about there we do have some new.
Modalities or a different variety of content that we're adding to the platform in the first quarter, but.
But we think we'll be at about that rate of production through.
Through the foreseeable future.
Okay. Thank you.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
Did I hit Star one to ask a question.
We have your next question from Jonathan Komp with Baird. Your line is open.
Yeah, Hi, Thank you Sue maybe just a follow up did you share when you look at the third quarter results how close they were to your your internal projections or quantify the shortfall at all.
Yeah, what we said John was the Q3 numbers.
75% of the sales shortfall occurred in the month of September right, but overall, the scenes, where the softer consumer demand the delayed product launches that definitely had a more pronounced impact on in September and then the media investment that felt a lot of those acquisition target forecast.
75% of essential tool occurred in September what I can say that at least the digital numbers, we had met our expectations just due to the highly predictable nature.
Revenue. It was really the bikes are nutritionals that fell short of our forecast and bikes were about 70% of that shortfall nutritional with the rest.
And of course with the pipes, we were hit with nine to delay the launch which impacted our coaches ability to sell but then also the timing of that meant that.
Those bikes were not shipped within the quarter they spilled into Q4.
And I think what what's helpful to know about Q4 as we go into this and obviously the sales composition has kind of changed from Q3.
Largely as a result of those known bike deliveries right with only six weeks to go.
And specifically the bike revenue is estimated to be about 16% of Q school sales versus digital which should be about 50% with nutrition the risk because as I mentioned earlier seasonally. This is the time when you went to teammates.
Siemens makeup of nutritional choices.
We typically see a reduction in our file size, but you know as I think about Q4 revenue.
Trees that are helpful data points.
And that I think about one is that our type of revenue was in line with our expectations.
The second is that by the end of November we're forecasting a bike sales can be locked in for the quarter. So we've derisked that component of revenue frankly, the quarters out in Q3.
And then with only six weeks ago, because from now to December 31, with no highly dependent product launches there were no real internal violence and that places us in a very solid position that can talk to you today.
Okay, and if I could follow up on the sort of the core nutrition business it looks like.
It's going to be well below the 2019 levels.
Back when you had less than 2 million total digital subscriptions.
Just wanted to understand with more subscriptions today, why youre not attaching nutrition at a similar level or what's going on to impact.
Some of those comparisons on nutrition.
Yeah. The biggest driver of the nutrition business is the digital fitness stark.
Their retention of nutrition is not quite as long term as the retention in digital that's why those numbers can start too.
Get misaligned, if you will so what's important this is where the launch.
The product launch and the content strategy matter. So much. So when we were delayed on the Bard interactive launch that delayed the growth in the nutrition file.
But again now that we've got those tools now that we have the whole machine working and as we look ahead to the launch of job. One we expect to rebuild those nutrition files, but that's the relationship of how.
The digital starts and nutrition file sizes work together.
Okay understood maybe one last one for me just a broader question if I if I look back in history I know in 2019, you did less than 800 million of revenue, but close to a 10% EBITDA margin and I'm just wondering as you look at the business today.
The current composition, what what type of sales levels do you think you might need to get back to flat or positive <unk>.
Margin performance in maybe a related question.
How long would you consider sort of pursuing the same strategic direction versus reevaluating some of the individual business pieces.
I think we have a very clear view of the levers that will help drive a positive EBITDA back to acceptable levels and I think it's worth knowing that this year as well as last few frankly, what material investment yields right. Because we did a few things one we acquired ladder.
Two we merge with mix and integrated the bike onto two platforms. They bought an item.
And three we built body suited platform in record time in Neilson grew our head count by 30%.
And note that head count investment. We made you know that included people like content development that further differentiate <unk>.
Digital products and increased engagement that we're seeing to have data sciences, they'll give us insights to drive acquisition and retention that we have nasal optimized 22 year history.
Those investments are really what we expect to drive revenue.
They do create leverage on that cost per song.
If I can just add to that the one thing that we have never had John is the ability to pursue partnerships and with the advent of open fit in bringing John Michel Fournier <unk> to drive that initiative that literally.
Just got started three weeks ago. So it opens up an entirely new Tam to our expertise of creating specific content to help people get results. Likewise strategically because we've seen the effect of digital subscribers on growing the all important nutrition subscriber files, we've accelerated our launch tempo into.
The first half of.
2022.
So.
And in fact, the mix the product mix going into 2022 is specifically designed to maximize.
Helping people get the type of results that they need today, including Nutritionals and like.
Like I mentioned in my opening comments I'm very excited by the in home user feedback that we're getting from two new Nutritionals coming out next year. So we.
We're not leaving anything to chance nor are we sitting on our hands just waiting for an old normal to return. It's the same reason that we our approach to responding to the iOS change.
Apple is that we're not relying on outside parties for our data and analytics, we brought that in house and have a formidable team to make sure that we're maximizing our our ROI on media. So as I think you've seen over the course of our relationship with Baird and others is.
This company is quite ambitious and aggressive about reaching as many customers as possible.
Making sure that they get results and I feel very good about our plan over the course of the next 12 months to 24 months.
Now one other point I'll add to that John just to give you a bit of insight into Q3.
As we do a postmortem on that ourselves.
Cost management is part of our DNA.
And you know we made a significant investment.
As I mentioned in 2021 last year.
We will drive leverage as revenue increases immediately.
A big opportunity and cost of goods, specifically in relation to the Pike.
And I'm also happy to report that our LTV to CAC has improved significantly from.
Around one times in Q3, where we put out put on the gas try some new things they didn't know.
So now we're tracking comfortably well over three.
0.2, or three five times in Q4, so we're able to pivot and see improvements in the business.
It's just really quickly and we're pleased with that and we know as we acquire more customers will get more leverage.
EBITDA percent revenue increase.
Okay understood. Thank you.
I'm showing no further questions at this time.
I would now like to turn the conference back to Mr. Carl Eichler CEO for any closing remarks.
Okay, well I really appreciate everyone joining us and appreciate the follow up on the questions that were provided so.
Thanks for joining us today and for your interest in Beach body. We look forward to speaking with you again, when we report our fourth quarter results and wishing everybody a healthy and safe holiday. Thanks, So much everybody.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Thank you.
[music].
Yes.
Yes.
Yes.
Yes.
Yes.
Okay.
Yes.
Okay.
[music].
Hum.
Mhm.
Yes.
Hum.
Okay.
Okay.
[music].
Yes.
Yes.
[music].
Yes.