Q4 2021 Beachbody Company Inc Earnings Call
With the investments, which we are only just starting to deploy given that we're currently facing less predictable industry dynamics, we're determined to capitalize on the strengths. We've built to do this we're moving quickly to focus on the strongest components of our business with the highest ROI and implementing actions to reduce operating and capital.
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As a result, we expect to reduce our cash burn by approximately $110 million in 2022 compared to 2021, and we're taking steps to deliver positive adjusted EBITDA in 2023.
This is a playbook, we know well we built beach body on a foundation of strong free cash flow and profitability. It's how we grew from a single at home fitness product over 20 years ago to a subscription driven health and wellness platform with the synergistic combination of effective products significant scale and attractive.
Gross margins and all of this is powered by the best Library of original content in the industry, a unique network sales channel and our commitment to constant innovation Sue will cover the financial details of the quarter shortly but first I'd like to spend some time on our go forward strategy and the actions already underway to accelerate our path to <unk>.
Profitability and to strengthen our competitive position I'll start with digital fitness.
We're implementing our one brand strategy to strengthen our ecosystem and align all our assets around a single platform a platform with the best talent.
And a complete organizational focus on building from the foundation of Beach bodies Superior economics, and strong brand position to accomplish this we're integrating the products and talent from our open fit platform with our already extensive beach body on demand library. This powerful combination will enhance our value proposition for <unk>.
All of our subscribers and as for our connected fitness bike. We believe our recently launched Q1 promotion combined with our extensive content library, all United under the Beach body brand will accelerate bike sell through and extend subscriber retention.
Second let's talk about marketing building on our actions in Q4, we are leveraging the investment we made in brand awareness in 2021 with disciplined marketing for efficient customer acquisition enhancing the ROI on media spend by pursuing only acquisition opportunities that are immediately accretive to cash flow <unk>.
Our expectation that media rates will remain elevated near term demand patterns will remain somewhat unpredictable, we're targeting our media spend in 2022 to only the strongest channels, while improving post acquisition upsells to further enhance our CAC to LTV metrics, even beyond the progress we made in Q4 and <unk>.
Addition, by offering cost effective subscription bundles will more fully unlock the power of our coach micro Influencer network that network is an absolute competitive advantage in the category. This is a channel that has consistently delivered our most profitable and productive subscribers driven by real customer proof that our <unk>.
Total solution approach works and just as importantly, our coaches provide the accountability and community that are so critical for successful lifestyle change changes that translate into strong and sustained engagement and retention among our subscribers and based on conversations we've had with our most influential coach leaders, we know that they are very <unk>.
Cited about the additional focus on synergy this one brand approach will create.
In the second half of 2021, we were managing significant expansion activities, including the launch of our preferred customer program. The rollout of body, our new premium subscription tier and working the connected bike into the business model with.
With those developments now integrated into our ecosystem, we're leveraging those enhancements with the activity that generates momentum with each new program launch and I'm incredibly excited by the cadence of new launches coming up our content launch calendar for 2022 is frankly, the strongest in our history, including a significant brand new.
Nutrition and fitness program launching in just two weeks with new content launches throughout 2022, we believe our coaches will be incredibly well equipped with an abundance of new tools to drive customer acquisition and up sells enhancing both LTV and customer results.
Next customer lifecycle management is also an incredibly important focus for us to ensure we maximize the opportunity with each new subscriber.
Our new data and analytics capabilities, we've identified attractive opportunities to drive LTV within our database of $2 8 million subscriptions that we're just scratching the surface on for instance, we are identifying any friction in the purchase funnel and making it much easier for subscribers to order additional nutrition products, which will improve the ROI.
I on each subscription and increase LTV.
And we're creating exceptionally appealing and cost effective new bundles that will accompany our content releases with our nutritional supplements plus the body premium subscription content.
Which brings me to our focus on capital efficiency. In addition to more efficient marketing spend focusing on subscriber acquisition into our one brand strategy and mobilizing around the cadence of new content launches. We're also taking a critical look at all our expenses to identify opportunities to increase organizational efficiency.
To eliminate redundancies and to significantly reduce costs to that end in January we engaged a consulting firm alixpartners to conduct a thorough technology review, we're leveraging their highly specialized expertise in assessing technology platforms to help us integrate streamline and reduce capital spending without.
Compromising the subscriber experience. The one brand strategy is already reducing complexity as we create a leaner organization thats more agile and appropriately sized for a variety of consumer demand environments.
Through these actions as well as our technology integration efforts, we've reduced head count by approximately 10%. We're also taking a hard look at every part of our organization to focus on the highest return and proven projects and to increase the variability of our expense profile to always match the demand environment as we test and roll.
Out new concepts.
Over the past two decades, a discipline of our company has been our commitment to evaluate our business through the lens of the current reality with a willingness to adjust as conditions evolve in the past our most positive inflection points of all happened in environments. Like this when we were faced with our most challenging obstacles in 2005, we address.
Rising competition with the introduction of <unk> and a suite of supplements in 2016, we made the transition from Dvds to a digital subscription model and most recently in Q4 of 2021, we quickly and successfully retooled our performance marketing engine in the face of significant pressures in the media environment.
The changes, we're making now will serve to strengthen and more fully unlock the power of our competitive advantages. They include a reliable recurring revenue base driven by multiple subscription streams and strong margin nutritional supplements that.
Most significant content library in the industry with over 4500 streaming workouts and nutrition content.
A scaled platform with over $2 8 million subscriptions and a highly efficient marketing engine honed over two decades complemented by the coach network, our proprietary sales channel with incredible LTV.
Going forward, our activities will leverage the synergies of one brand beach body.
The comprehensive fitness and nutrition brand with the greatest critical mass of content and services incredible customer loyalty a community that supports each other on our proprietary social media platform. All built on one of the most resilient LTV models in the industry.
With a clear path to reduce 2022 cash burn by roughly $110 million and position ourselves to return to profitability in 2023, we're confident in our ability to continue to deliver on our mission to help customers achieve their goals and lead healthy fulfilling lives, while creating long term value for our stockholders.
So that's an overview of our business activities and now I'd like to turn it over to Sue Collyns to cover the financial details of the quarter.
Thanks, Karl and good afternoon.
I'll start with a review of our fourth quarter results and then provide context around that.
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As Tom mentioned in the quarter, we adapted quickly and navigate reallocated the dynamic marketplace.
We're now taking action to incentives.
To ensure we're optimizing Spain physical cost effective growth and a return to profitability in 2023.
Now turning to the details of the quarter.
Total revenue with $216 3 million.
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Increased 31% compared to the fourth quarter of 2019. These results were ahead of that equation, largely driven by stronger nutritional bundle and high connected fitness revenue.
Deliberate multi than previously guided in the quarter.
Digital revenue was $81 nine.
This represented a 14% decline to the prior year period with a 41% increase on a two year basis.
Digital subscription decreased 3% year over year.
We're up 50% compared to 2019.
And while engagement with lower compared to the pandemic elevated levels of 2020, we saw 220 basis point improvement on the full year 2019.
Importantly, quarterly retention levels also grew on both a year right.
And the two year basis.
This validates the strength of our offering and provides a solid foundation for future growth.
Connected fitness revenue.
$6 8 million with 23900 <unk>.
Compared to 12300 bikes.
For 2020 on a pre merger basis.
We were pleased with cognate responds to the integration of our content library onto the bike, which drove higher demand, particularly within our coach network.
Additionally, with bike inventory on hand, we successfully navigated a challenging supply chain and logistics environment to reduce delivery time.
This enabled approximately 11000 mobile <unk>.
Coal and indicated on and then the 15 guide.
Overall in Q4, we delivered 29700 by achieving a strong delivery to sales ratio of 124%.
This compares to the delivery sales ratio of 44% in Q3 immediately following the <unk> launch when ourselves in delivering that.
We're in the early stages of being optimized.
Nutrition and other revenue was $97 6 million down 25% compared to Q4 of 2000 times and down 9% compared to Q4 2019.
Pandemic recovery progressed throughout 2021, we've seen a return to more normalized driving demand based subscription.
Historically demand has been driven by new digital acquisition as well as new product launch it and looking to 2022 with a strong cadence of new.
Releases.
Motivated coach network and a clear plan to more effectively bundle nutritional supplement, which we believe will support improved performance over time.
Turning to gross margin.
Gross profit was $97 6 million in the fourth quarter Miss was significantly impacted by the negative gross margin in connected fitness as letter pandemic related supply chain and shipping cost increase.
Connected fitness gross profit was negative $19 8 million.
Which included the impact of a year end net realizable value charge of $10 1 million.
This noncash charge to cost of revenue was applied to our year end inventory by ballot in accordance with GAAP.
<unk> added back to net income calculation of adjusted EBITDA.
Additionally, Q4 margin was pressured by approximately $3 million from higher freight costs.
In a challenging supply chain environment.
Now as we sell through the $80 million a bike inventory on hand, we believe we'll be well positioned to deliver positive gross margin from bikes sales from our high A&P and discuss normalize over time.
Importantly, we continue to view the connected fitness.
To really valuable product increase LTV.
<unk> high margin subscription revenue, along with our unique ability to drive cross sell.
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Gross margin was $83 six.
And declined 500 basis points in 2020, primarily due to the higher content production costs, which were driven by the successful launch of body.
Nutrition and other gross margin was 52% a 360 basis point decline from 2020 with most of the change driven by incremental COVID-19 related shipping and freight costs.
These shipping and freight costs.
Thanks to our net income in our calculation of adjusted EBITDA.
Turning to operating expenses.
Excluding an impairment charge of approximately $95 million.
I will discuss in a moment, our total operating expenses increased by approximately $11 million.
7% year over year.
The year over year change was driven by one higher operating expenses from the integration of mix and technology investment to support new program related.
Our customer acquisition engagement and retention and to buy higher public company, G&A expenses, including accounting legal and insurance costs.
Moving on to impairment.
As part of that on your balance sheet review and consolidation to the one brand strategy, We review the goodwill and intangibles on our balance sheet.
As the estimated fair value of goodwill and intangibles was less than the carrying value. We recorded a noncash impairment charge of $94 9 million in the.
Fourth quarter.
This charge is also added back to net income in our calculation of adjusted EBITDA.
Finally, our Q4 adjusted EBIT law with $26 6 million and our net loss was $146 million or negative <unk> 48.
And diluted share.
Now turning onto the balance sheet.
We ended the quarter with a cash balance of $107 million and no debt.
This cash balance and a strong line of sight to a significantly improved 2022, EBITDA and lower capex profile than last year.
Confident that we can effectively manage the business from cash flow from operations and access the capital markets as needed and we'll share more on that in future quarters.
Before I turn to outlook I'd like to provide an update on our views around demand.
Our business looks very different today than it did two years ago at the outset of the pandemic.
Since 2019, we've increased our digital subscriptions and digital revenue by 50% and 46% respectively.
And we've achieved these results by driving 220 basis points of higher engagement.
30 basis points of higher retention and a 61% increase in streams across our platform.
We've also acquired a connected fitness company and we've integrated system processes and employee while making substantial investments in inventory.
And as we look forward, we believe we have an incredibly strong product offering and continue to see significant opportunity in asthma.
As consumers prioritize health and wellness and digital experience.
More embedded.
Custom applied.
Now that said, we believe in the near term environment will remain dynamic with variability in demand pattern as we exit the pandemic and granted clearer view on the new normal.
That's why women swiftly to consolidate our streaming platform and human capital with a focus on profit maximization and cash flow generation across a variety of demand environment.
Where the business is powered by digital nutrition subscription.
Well positioned to do this and do it quickly.
As a result of these actions we expect to reduce our cash used from operating activities by approximately $110 million in 2022 with immediate and significant improvements weighted toward the back half of the year.
We'll achieve this through a series of focused actions.
Typically.
One by generating operating efficiencies as a result of the one brand strategy, including a 10% reduction headcount taken in January .
Two by reducing capital expenditure as we lap the MX integration costs and the new platform investments in 2021 as well as the clear focus on India highest return opportunity.
Tree by optimizing our media spend as we focus on performance marketing opportunities that are highly accretive to immediate cash flow.
In terms of the first quarter 2022, we expect total GAAP revenue of between $117 million to $180 million and keeping in mind that Q1 is our most challenging comparison quarter from there as we're lapping a 34% increase over Q1 of 2021.
And adjusted EBITDA loss of between 20% to $25 million as most of the cost savings, we expect to achieve through the one brand strategy when materialize until later in the year.
Now in terms of our full year 2022 outlook given the ongoing work with Alixpartners, we're not providing specific guidance on full year revenue or adjusted EBITDA at this time.
That said our belief in the total addressable market and beachfront, he's unique product market fit convenience simplicity and exceptional quality gives us confidence.
Both the opportunity and.
With potential remains very strong.
And with that I'll hand, the call back over to Carl.
Thanks Sue.
There is no doubt our industry is facing some near term headwinds as we move through the pandemic recovery, but in my 23 years of experience of Beach body I can tell you we've seen challenging moments like this before and we've come out ahead every time.
The total addressable market and fitness and nutrition remains significant and I firmly believe in the fundamentals of demand for our products within this category, we're moving quickly to align behind the strongest elements of our business and a return to profitability next year as.
As the company's largest stockholder I'm confident in the long term opportunity to drive sustainable profitable growth and deliver on our mission to help millions more customers.
With that operator would you. Please open the call up for questions.
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Okay.
So first question is from the line of Jonathan Komp with Baird. You May proceed.
Yes, hi, thank you.
Maybe one clarification first sue could I can I just go back and clarify.
Are there shipping expenses that you're excluding from the adjusted EBITDA.
I missed that.
Does that carry forward into 2022 on any piece of that.
Sure.
Did that COVID-19 related shipping costs in general.
In Q4, a total of about $2 6 million and that related to incremental shipping on nutrition, we didn't add back the incremental shipping on the bike and that was because we didn't have a basis for that in the previous year that was higher than that.
Pre merger forecast, we were given by the management team from mix, but it wasn't something we experience. So we wanted to highlight it in <unk>.
But we didn't add it back in the <unk>.
A reconciliation of net loss to adjusted EBITDA. The title overall COVID-19 related costs totaled $11 7 million for the 12 months ended December 31.
And then just on the forward projection are you excluding.
Some piece of the shipping or COVID-19 related costs going forward for 2022.
No we don't have any adjustments in that.
Adjusted EBITDA.
I think Dan anything that might occur.
Ultimately would be.
Add backs associated with a reduction in force.
Okay, great. Thanks for clarifying and then Carl I wanted to I wanted to ask more about the drivers of the shift in the one brand strategy I'm curious.
Maybe a little more specifically what you see in the business in terms of the.
The drivers and the reasons and more importantly, the benefits or the impacts.
We should see.
Going forward from that move.
Yeah, Thanks, Jonathan so.
Obviously, we were excited about open fit and the prospect of <unk>.
Casting a wider net to attract as much of the.
Massive tam available to health and fitness, but in this environment.
It's a really difficult environment to allocate capital to.
Two platforms much less on newer platform. So it made much more sense for us to reduce redundancies focus on marketing and technology and content into one brand <unk>.
Particularly the beach body brand, which has.
Better cost of acquisition efficiencies and a much more mature and stronger lifetime value. So bye.
Bringing it altogether and frankly, we think that we're also treating all of the subscribers.
Cumulative better because they get access to all of this content that we've been developing over two decades. So.
Strategically we don't think we're sacrificing.
Much particularly in this environment.
As opposed to the strengths that we pick up by really taking advantage of the flagship each party brand.
Okay, Great and just last one from me Sue on the on the balance sheet. I know you said, we may hear more at a later date, but can you maybe comment on.
How long the current cash on the balance sheet with your current plans will be able to fund the business I don't know if we could think about it in a number of months or quarters or any other context around around that comment. Thank you.
Yes, sure I mean, the fact that we've obviously gotten any debt and $107 million cash at year end and it's obviously, a really strong starting position.
And the other data point that we're looking at is our budget projections for 2022 is really what gives us confidence that we can service our working capital needs for at least the next 12 months without accessing the capital market. So it doesn't mean, we wanted to access the capital markets. It just means we don't need to and part of the reason.
That of course, we've got a incredibly strong inventory bonds.
And we're doing our ability to flex on Capex media.
Yes.
Globally.
That is giving us that level of confidence.
Understood. Thank you.
Thank you Mr. Kang.
Okay.
There are no additional questions waiting at this time I would like to pass the conference.
Back over to Carl that Kelly.
For any closing.
No I think we pretty much covered it I just appreciate everyone. Joining us today I know you're busy. So we appreciate your interest in the beach body company and look forward to speaking with you again in the next few months take care everybody.
That concludes the beat Scotty company fourth quarter and full year 2021 earnings Conference call I Hope you all enjoy the rest of your day you may now disconnect your lines.
Yeah.