Q2 2023 The Beachbody Company Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to the Beach body Company second quarter earnings call. Currently all participants are in listen mode. All night. Following the presentation, we will conduct a question and answer session.
<unk> will be provided at the time at the start to queue up for questions. If anyone has any difficulties hearing the conference. Please press start zero for operator assistance.
I would like to remind everyone that this conference call is being recorded and I will now turn the call over to Bruce Williams, managing director of ICR Investor Relations.
Welcome everyone and thank you for joining us for a second quarter earnings call with me on the call today I'll call <unk> co founder and Chief Executive Officer of the Beach body Company, Mark Goldston Executive Chairman.
<unk> Chief Financial Officer, following the prepared remarks will open to call. It up for questions before we get started I would like to remind you of the company Safe Harbor language statement obtained 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.
1995.
Actual future results may differ materially from dose suggested in such statements due to a number of risks and uncertainties all of which are described in the company's filings with the SEC, which includes today's press release.
Today's call will include references to non-GAAP financial measures such as adjusted EBITDA.
Reconciliation of these non-GAAP financial measures to the 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.
Hello, and good afternoon. Thank you for joining us today on our last call, we announced several changes taking place at body and most recently announced that Mark Goldston joined the team is executive Chairman Mark is the season, the consumer products fitness and Internet leader with valuable experience, having run public companies for decades.
This edition signals, an exciting time for the company and for me to personally have the opportunity to work beside an executive of March experience, particularly as we're all eager to achieve a turnaround in our profitability and the performance of our stock when.
When our board member Kevin Mayor introduced me to Mark we discovered that we shared a common vision on how to drive long term growth for body and I could see that his experience running public companies would add incredible value to the management team I want to take this opportunity to let mark share. His perspective on his first 50 days with body, but let me reiterate.
Right a few key things about March arrangement with the company first.
As the executive Chairman Mark is a board member and has an executive officer role actively participating in the management and decision making processes of the company with a focus on the more transformational initiatives.
Driven by his belief in the underlying value of body. He chose to take all of this compensation in equity stock options. The majority of which best based on stock performance and this transaction was so important to my determination to turn around the company and my enthusiasm for partnering with an executive who has done this kind of turnaround many times, but.
Before I forfeited 8 million common shares that I personally owned to minimize dilution of marks equity grant to the rest of the shareholders.
Building on March deep digital and consumer experience. His role is to help us turn cash flow positive as soon as possible Mark and I are working closely together along with other senior executives and the benefits are already materializing now let me turn it over to Mark to share his perspective, which I think can be insightful to our shareholders and investors Mark.
Thank you very much Carl and I really appreciate the warm welcome to the body team I'm. So delighted to be part of this exciting story and use my broad range of experience to contribute to the success of the company you know Carla.
Carl and I started talking back in mid May and I've had a considerable amount of time with him the board and the executive team in that time I've been very impressed by Carl and the team he's assembled.
Really enjoyed working closely with them in the past two months I've run many public companies dating back to 1991 and my expertise has been focused on corporate turnarounds unlocking their intrinsic value while rearchitecting their infrastructure to drive increases in revenue and profitability actually wrote a book called the turnaround prescription many years ago, which focused.
Repositioning of restructuring companies.
So many people have asked it why would agree to join body. At this time my answer was that I truly could not believe the body was trading at 44 cents a share with a market cap of roughly $150 million given what I'd learned about the company I believe this company is incredibly valuable assets to work with as it is arguably got the finest broadest.
And most comprehensive digital fitness library in the world, It's gotten extremely valuable lineup of nutritional products and a great team of people not only does the company have tremendous brand equity with this powerful stable of digital nutritional products, but it also has a very valuable customer database containing more than 14 million former customers some of them can.
And be activated easily and very profitably with aggressive wingback programs to grow the business. If you consider the company's historical CAC customer acquisition cost this existing body customer E Mail database in excess of 14 million people most of which are former customers has generated billions of dollars of historical Rev.
Q and was the principal driver behind body being a very profitable company for 21 of its 24 years of existence, if a competitive fitness and nutrition company, where do attempt to a massive database similar to the 14 million people on the body database given the current customer acquisition costs in this industry it would cost literally billions.
Dollars and take many years to reach the size database that body has today for those reasons I strongly believe in the intrinsic value of this company just on the component parts basis alone is vastly greater than a where the stock trades today. That's the major reason I decided to take 100 per cent of my comp and stock options.
I received no cash because I wanted to be totally aligned with all of you the shareholders as we navigate this journey together.
We spent virtually every day since I joined the company almost two months ago building in the turnaround plan, we've been prioritizing revenue generating initiatives, we've created a lever analysis, which identified additional cash generation moves if needed and setting the stage for monetizing. These incredible digital nutritional database assets to turn this company Prof.
Portable with that our goal is to prioritize profitable revenue not growth at all costs as one of the largest digital fitness companies today scale is not the primary issue for this company, what we need to develop our higher quality revenue streams that generate healthy contribution margins to increase the bottom line are.
Primary focus will be on cash flow generation, and creating incremental revenue opportunities, which focus on their ability to instantly generate cash flow through profitability. We've constructed a powerful turnaround plan for the company and we will be vigilant and our focus and execution as we move our way through the priority list to help transform.
[noise] body into a very profitable cash rich company. The next few months will be a period of positive and deliberate transformation. So I'm going to ask that you. Please be patient with us as we tap into new revenue streams, new audiences and new marketing tactics that the company has not previously utilized.
I feel great about the prospects were successful turnaround in body and I'm looking forward to profitable growth ahead with that let me turn the call back over to you Carl.
Thanks, Mark I totally agree let's continue now with a high level overview of our second quarter results in operational highlights landmarks, we than our Chief financial Officer will provide additional detail on queue to financial results and guidance for Q3.
For the second quarter, our revenues and EBITDA were within our guidance range and I want to thank our team for the continued hard work and driving our transformation, while our overall digital subscriber count decreased by 12% to 1.53 million in Q2 from Q1 of 2023.
Our new digital premium subscription body grew subscribers by 77% to 711000 and Q2 over Q1.
Let me briefly talk about our transformation last year, we set a plan with three major components simplifying our platforms into one complete digital solution, including fitness nutrition and personal development.
Invigorating, our sales and marketing for new customer acquisition and adjusting our cost structure as we discussed on our last earnings call. Our new consolidated digital subscription product, what we call body. That's B O D. I was launched on schedule and under budget and is exceeding expectations as demonstrated by our second car.
Porter customer renewals, our existing customers largely the basic beach body on demand customers have continued to renew at approximately 60% into this body premium subscription with an annual price of $179 compared to the prior $99 subscription. This renewal rate continues to beat <unk>.
Spectation, which tells us that customers are responding well to our new format and monthly body block programming.
In addition, we saw an uptake in nutrition retention for the first half of the year driven by our new content based retention tactics. While we're pleased by the increase nutrition retention. We also still have a significant opportunity to increase the penetration of nutrition into our existing digital subscriber base and that remains a prior.
Already.
We are aggressively working on strategies to increase that take rate, while we're confident in our strategic product direction. We've also been keenly focused on sales and marketing strategies to optimize our opportunities. Let me take you through some of our strategic initiatives that we discussed in our last earnings call and then I'll talk about some new strategy.
First our coach and partner network activation during the quarter, we had our partner leadership summit, which was attended by about 12000 coaches and partners. We held this event to train our partners on our new body premium solution or new bundled and to reinforce the breakthrough of the health esteem category.
We also deployed a new sales incentive in Q2 and in July we launched a new tool to help partners and leaders develop a sales action plan to teach them how to collaborate as teams in September our top leaders will hold impersonal leadership academies and various key markets to continue training new sales leaders as you can see where <unk>.
Personally focused on training and activating our coach and partner network.
The second on our customer database reactivation initiative, we've spoken on the last couple of calls about reactivating are large churns database now with the right team in place we successfully kicked off several aggressive wind back marketing campaigns at the end of July and the campaigns are showing US which offers are the most effective and convert.
Hurting past churned customers into current paying subscribers were leaning into this strategy in scale and the third and fourth quarter.
Third on performance marketing or enhancements in Q2 resulted in greater digital subscriber starts over Q1 and at the higher price of the body premium tier in fact, our conversion ratio of visitors to subscribers increased by 27% in Q2 over Q1 driven by improvements.
Audience targeting messaging and digital landing pages, we continue to monitor and manage the order funneled very closely to ensure a conversion continues to improve.
We're also piloting additional new strategies, including scaling on Amazon and launching a new free preview tier late in the third quarter.
With regards to Amazon, we plan to expand our nutrition portfolio. There Q4 of 2023, our plan is to launch and start actively marketing across a broader set of categories. While we currently have a small variety of products on Amazon, we haven't been prioritising the channel and our latest tests indicate this is a <unk>.
Large growth opportunity without undermining our other sales channels. So we're in the process of selecting an experienced partner with best in class capabilities that will help us drive growth on Amazon with proven best practices next we're creating a free preview layer of digital content for prospects to engage with our extensive library of samples.
[noise] of our most popular content, while visitors consider subscribing. This will enable our database activation team to convert visitors to pain digital and supplement subscribers with sophisticated conversion funnels as Mark said these initiatives have already been defined prioritized and just launched in the last couple of weeks and there'll be <unk>.
Banded over the coming quarters will provide updates on shifting our revenues to higher contribution margin revenue, while we continue to manage our cost structure as we navigate this turnaround.
I Echo Mark's comments that it'll take time to see all our initiatives through but we're making significant progress in this transformation and with that I'll turn it over to CFO marks we Dan who will walk through the results for the quarter in more detail Mark.
Thank you Carl and good afternoon everybody.
We met our guidance on revenue EBIT I'm cash flows in the second quarter.
This is the seventh consecutive quarter that we have achieved or exceeded or guidance.
I will discuss our results for the second quarter are kpis and guidance for the third quarter.
We recently announced that we amended our <unk> capital financing agreement.
We work with little dogs to agree on covenants that are more aligned to our business strategy.
We shared with them or plan to transition the company through more profitable revenues, thereby accelerating our process of becoming cash flow positive.
<unk> supports our approach and agreed to lower revenue covenants associated with her credit agreement, providing us with the flexibility to implement a good around the glass.
Given our past two positive cash flow and higher margin revenues, we agreed to pay down $15 million is a dead.
Which will lower annualized interest expense and reduce or outstanding that principle to approximately $35 million.
And that is a result is a positive development as the amendments align with our strategy of building a profitable and sustainable business focused on cash generation.
Moving onto the result of the second quarter, let me start with revenues revenues were $134 $9 million, which was above the midpoint of guidance and 7% below the prior quarter. This is consistent with seasonality of the fitness industry.
Would not elaborate on each of our three product lines.
Given all the changes in the past year I will focus my comments on sequential revenue performance.
This still revenue was $65.2 million.
From $64.8 million in Q1.
Our overall digital subscriber count as $153 million down 12% from $1 $75 million in the first quarter. However, our bodies subscriber file size, which is our premium platform and the only way subscribed to now increased by 77% from the prior quarter to 711000.
There were questions in our previous earnings call about the customer propensity to renew from $99 to $179.
I'm happy that we exceeded our expectations and customers are renewing a 60 per cent.
We are moving to a higher value customers that will drive more profitable revenues. This.
This is reflected in both our digital LTV, which increased in Q2 over two one and then our deferred revenues, which increased over the past two quarters.
We are looking to reactivate a large number of fast customers those reactivation of minimal customer acquisition costs and will result in very healthy cash contribution margins.
Nutrition revenue with $64 $6 million down, 13% from $74 $1 million in the prior quarter.
Nutrition subscriber file size is 195000.
6% from 209000 in the prior quarter.
The nutrition revenue decrease was more pronounced than the subscriber decrease because we sold more digital nutrition bundles, which results in higher applications of revenue to digital.
Additionally, we are launching in Q3, a new monthly digital the nutrition bundle at a competitive introductory price.
For consumers impacted by the macro inflationary environment. This will reduce the entry point without sacrificing profitability.
Connected fitness revenue is $5.1 million down 15% from $6 million in Q1.
We delivered 5500 bikes versus 4700 bytes in Q1 eight.
A 17% increase the increasing units delivered and the lower revenue reflect the plan promotion during Q through for our partners we've.
We continue to see a bike sales as a valuable lever to drive higher LTV across with subscriber base as vice customers to a more engagement and lower chart.
Moving to gross margin.
We achieved the gross margin of 61.3% for the quarter, which is a 1260 basis points improvement from the same period last year and 170 basis points below the prior quarter.
This is still gross margin was 75% for the quarter, which is 150 basis points less than the same period last year.
The lower gross margin is due to deleveraging of fixed costs against lower revenue.
Compared to the prior quarter. This so gross margin was 190 basis points less due to a higher depreciation from a recent body platform investments and higher customer service expense given the large migration of customers from <unk>.
Nutrition gross margin was 58% for the quarter, which is a 430 basis point improvement from the same period last year.
Better inventory management, and lower shipping costs drove the improvement compared to the prior quarter nutrition gross margin remain consistent.
Connected fitness gross margin was minus 70% for the quarter, a significant improvement versus minus 197% a year ago, driven by lower cost basis on bikes and fewer reserve charges for instance.
Compared to the prior quarter connected fitness gross margin declined 44% this points.
Connected fitness gross margins declined sequentially due to an inventory reserves charge and promotional offerings during the quarter.
Sales are generating taxes, we continue to wind down the bike inventory purchase three years ago.
Next are operating expenses were $170 million, representing a 25 million dollar reduction in in 19% improvement from the same period last year.
We continue to evaluate our expenses and remain committed to lowering our cost structure.
Let me walk through our three Opex slides sales.
Sales and marketing was 57% of revenue compared to 48% in the prior year and 53% in the prior quarter.
The higher spending as a percentage of revenues unique the queue to have this year as we have our annual summit event, which had 12000 participants.
For competitive purposes in 2022 this event occurred in Q3.
Enterprise technology, and development was 14% of revenue compared to 14% in the prior year and 13% in the prior quarter.
We have maintained our spend as a percentage of revenue, but reduce the daughters been by 23% from last year, while delivering our tech changes.
I'm in below budget.
Gana was 9% of revenue and improvement from 11% of revenue in the prior year and 12% in the prior quarter.
<unk> was not in approximately 40% from last year, we continue to aggressively manage our DNA, reducing our spend both as a percentage of revenue and in total dollars spent.
Overall, we deliver on our commitment to dramatically cut costs and we are pleased with both the gross margin and operating expense improvement.
Net loss improve through $25 $7 million compared to a net loss of $41.9 million in the prior year and a net loss of $29 $2 million in the prior quarter.
Adjusted EBITDA with the loss of $4.8 million compared to a loss of $1.5 million in the prior year and a loss of zero point $9 million in the prior quarter.
Adjusted EBITDA was ahead of our guidance, excluding the summit expensive $7 million adjusted EBITDA would've been profitable.
Moving to the balance sheet and cash flows.
Our cash balance was $59 million compared to $66 million in the prior quarter.
The decrease in the cash balance improve my 50% from $14 million to $7 million this quarter.
Inventory was $43 million down from $48 million in the prior quarter.
We continue to manage our inventory balances to minimize right off exposure, we have been pretty successful at demand and supply climbing, which is reducing our need for inventory commitments.
Or cashews and operations in the second quarter was $6.5 million versus breakeven in the prior year and seven $9 million cash used in the prior quarter.
We have significantly reduce our cost structure, but the decline in revenue has offset that benefit in recent quarters. Additionally, most of this cash use.
In the second quarter was related to the annual summit event and it is not a recurring quarterly event.
We will continue to adjust our cost structure. So we can generate cash flow from operations.
Our cash Capex for <unk> was 1.6 million this quarter, a significant reduction from the $6.8 million in the second quarter of last year and $3 $4 million in the first quarter of this year.
Our cash Capex for content that was $3 1 million. This quarter is substantial improvement from $5 $5 million in the prior year quarter.
It was $2.2 million in the first quarter of this year.
So total cash Capex, and Q2 was $4.7 million and that should be our approximate run right in the coming quarters.
The Capex improvements has been driven by our digital and technology platform consolidation.
Turning to our outlook for the third quarter as a reminder of guidance is based on where we stand in our transformation journey.
For the third quarter, we expect revenues to be in the range of $120 million to $130 million.
We expect adjusted EBITDA to be lost in the range of $328 million <unk>.
And we expect continued improvements in our cash usage and.
Importantly from a cash standpoint, if we come in at the lower end of our EBITDA loss guidance of $3 million, we would have euro cash used in operations.
Whereas if we were to come in at the higher end of the EBITDA loss guidance of $8 million or cashews and operations would be less than $5 million.
To summarize we are excited about the journey ahead and body, we had been adjusting to the consumer environment with a focus to drive longterm profitability and free cash flows.
Now I would like to during the call back over to Carl for some concluding remarks.
Thanks Mark.
Over the last 12 months, we've delivered against our strategic objectives, we simplified our business model upgraded our subscription platform and dramatically reduced our cost structure.
Now that we've firmly established the base we're building on that progress by focusing on five key elements first transitioning our subscriber base to a more profitable <unk> or average revenue per user.
Aggressively mining or churned database of over 14 million people from the past six years at minimal customer acquisition cost.
<unk>, we're more aggressively utilizing outside channels to acquire incremental customers for the company.
We're focusing on cash generation and targeting the most valuable subscribers and finally, our activities and decisions will reflect our efforts to maximize cash flow.
With that operator, let's open it up and see if there's any questions. If there's any questions.
If you'd like to ask a question if you like to stay close to buy one on your telephone keypad. If for any reason you would like to remove that question. Please rest are followed by two again to ask a question. It is star one.
Our first question is from Linda Bolton Wiser with da Davidson Your lines now open.
Yes, Hello, So I'm not sure I under God why if if the main reason for the EBITDA negativity in the quarter was the $7 million a convention expense and that will be in there in the third quarter, what reason that EBITDA is negative.
I have that in the third quarter for the guidance.
Ireland, it's mark.
Last year the event occurred to three so the expense within two three this year the events incurred appeared in queue too. So the expenses and Q2 it will not be in Q3, so that's $7 million will that be a recurring in subsequent quarters. This year.
Right so that wasn't that.
Make the EBITDA go like the improved <unk> quite a bad verses.
In the in the.
And the second quarter wouldn't it improve five 7 million sequentially.
Yeah, Yeah sequentially, it will improve 7 million.
As it relates to that factor, obviously, driven by the rest of the revenue outlook. So that's why we gave.
EBITDA guidance lots of $328 million.
And two three.
Okay, So I guess well alright.
Negative five nine and a quarter. So that's 567, so it would be positive to know so I guess, there's other upsetting factories that are negative.
In the third quarter.
Setting that slang is that the way to think about it.
Yeah, I mean, it's it's based on the revenue guidance we gave.
$120 million to $130 million.
Versus the actual is that we just reported in <unk>.
Okay. So I think awhile back I can't quite remember when but you had said that by the end of the year you would be consistently EBITDA positive quarter by quarter. So are you still thinking that I guess that means fourthquarter I would have to be EBITDA positive.
Is that still a target that you're thinking of or heard that change the bed.
Yeah, I mean now that we've finalize our results for the first six months, we obviously wanted to see sequential improvement this year since that that hasn't happened. That's why we've implemented the turnaround plan. So we when we launch our transformation last year. We said three things are gonna happen, we're gonna launch in your digital.
Platform, which which we did having a great reception. We're good are dramatically cut back their costs, which we did and we're aiming for sequential revenue improvement since that hasn't happened. That's the essence of that turnaround plan, we implemented in all of the initiatives that called talked about would that coming about that's that's my <unk>.
More prudent we're pushing out the that's cute for guidance. We previously gave on your bill.
Okay, and then I'm, sorry, if I missed this but.
But where does the money where's the cash where did the cash come from to repay the $15 million of debt.
Yeah, Linda when you say, where it came from and we don't have the cash on the on the balance sheet. When we raised that that last year. We just finished the quarter with $58 million.
In cash.
And since our since our spend is coming in line pretty well, we're not going to be burning as much caches, we did and <unk>. So that's why we gave cash guidance as well and we said if we come in at the EBITDA loss of.
Of the $8 million, we would burn cash flow from operations in Max of five and if we come in at the $3 million range will breakeven and we're also selling more bikes, which frankly generates cash while being a drag on EBITDA, but it says some costs because it comes out of inventory.
So we felt pretty comfortable Linda that you know and coming to terms with blue torch.
Where we negotiated our our new revenue covenants, we came to agreements with them, though we could pay down $15 million of the debt and based on our turnaround plans and generating revenue that would be more hired cash contribution margin that we could pay down that part of the debt.
Oh, so sorry, I I guess I misunderstood the 15 million dollar pay down it isn't the third quarter. It didn't happen in the second quarter is that correct.
That is correct we did it after in July .
Oh, I gotcha, Okay alright.
Okay and then it was my final question is about.
Channel conflict potential I guess with direct sellers in my experience it's.
It was a really big risk when you start selling your products on Amazon and yeah, all the coaches, they're trying to sell the same product.
It usually causes a problem are you gonna be selling slightly different schemes on Amazon or how do you intend to manage the channel conflict potential.
Hi, Linda this is Carl.
Obviously, that's something that we're extremely sensitive too.
And we've got if you recall, we have the ladder line of supplements, which is the sports supplement line, which is available to us and we're.
Obviously very sensitive to the effects of channel conflict. However, what's interesting is.
The all channels benefit from a higher visibility and marketing to drive all channels rising tide floats. All ships, if you will and I got off a call yesterday with our leader.
Leadership partners and they are very eager to see us.
Return to the visibility.
I'll be channel multi sales channel company like we were in the early days of the network. So.
While the sensitivities to channel conflict are important the Tam is so broad and so available. The most important thing is that our story gets out there so that all the partners and all the channels have the benefit of that leverage so we're going to pay attention to it.
But we feel like the synergies are greater than the competition.
Okay. Thanks, that's it for me.
Banks lend it.
Our next question is from Jonathan comp with Bird. Your line is now open.
Yeah, Hi, good afternoon. Thank you Mark could I just follow up on the outlook for the back half right now you you mentioned.
Previous are you thinking you can see sequential improvement in in revenue total revenue and now they're picking has changed there could I just maybe ask further what what's changed in that I'll look.
I think previously you mentioned.
Damsel increase in your subscription costs would drive a sequential improvement. So just sending you any more thoughts on on what's changed and.
How you're planning the business going forward here.
Yeah, John you know <unk>.
<unk> I think as we said we had three major changes to deploy right. We adjusted the cost structure dramatically speak the gross fix the gross margin.
The new platform is having great renewals our customers are are loving it.
Our our new sales acquisition, you know new customer acquisition has not picked up at the base, we'd like so if you think about all of these initiatives, we talk about launching Carl mentioned quite a few of them.
That should drive revenues that are hired cash contribution margin. So it just delays.
Delays are Q4 EBITDA.
But our commitment that we've done in the past, but we feel pretty good about all of these changes that are coming about because there are higher cash contribution margin and we're really focused on.
Frankly, changing that cash balance and driving at north from where it is.
The the Big this is Carl Hi, John the Big lever obviously is.
Our database activation efforts, which is a very low cost of acquisition not as a minimal because we already have those customers that can be a highly cash accretive activity, but we can over estimate what it is because we're just getting it started but that opportunity exists now that we've got the team built and that's based on the testing that we've gone in.
July we feel that is going to be an important component of our turnaround efforts.
If I could follow up their Carl I know you've had a substantial database and run and operated this business successfully for many years. So.
Maybe what what haven't you done in the past and why that you have the opportunity to do now and what are the challenges today have you cut costs dramatically building new teams in implementing new strategies successfully.
Yeah, I'll start with the the last part frankly, the cost cutting has been a real gift to the business because it's simplified the operation of the overall business. So every every.
Little bit of leverage that we apply to marketing and sales benefits. The one platform that we've got rather than be spread across three different subscription tears or or the other open platform that we had so so we've got just much more leverage on SG&A, then we had even a year ago.
But you know.
There's a couple of areas that.
As you know we've known each other for a long time, the infomercial business was quite productive for us. It takes it's taken some time to rebuild the direct marketing business and understand the relationship of direct marketing and customer acquisition and how expensive that can be and the value of a name.
<unk> that is in that in the database.
And quite frankly, if there's anything that I regret, it's how slow I was to build the team and to get technologically sophisticated with understanding the value of that database is mark said in his opening comments.
It would take us literally a couple of billion dollars to acquire the critical mass that we have in that database. So now.
Now that we found the.
Expertise, we found a just a brilliant executive who has done this before and.
And frankly have the creative marketing an offer talent on the team to be able to <unk>.
Leverage that database for ongoing lifetime value in reactivation.
The one thing that I'll say that we didn't have before was the leverage of this new premium subscription tier at $179 and that gives us the flexibility to be creative with the offer structure to attract or reactivate that database. So the business.
Martel overall has mature to the point that it's simplified to the point that now we have a clear offer and message that health esteem message to bring the only total solution of fitness nutrition and mindset to that database that has already churned at compelling offers with a team who understands how to cohort it and maximize that.
<unk> for the first time I feel like we've got the sophistication to execute on this plan.
And just the last one for me if I could.
The digital subscribers can you share where you forecast the number of digital subscribers eventually to bottom.
And then you are roughly at the third quarter revenue run right around 500 million annually and is that a level that this business can be cash flow positive and if not you know any insight on what.
What level of revenue and you may need thank you.
John just to make sure I got the second part of your question you ask what level can we be Joshua positive that they catch alright.
Yeah, that's right.
Okay. Okay, Yeah, John I would say I would say are if you look at our I mean, if you look on a revenue right did it come down 25% you over a year, but our gross profit only came down five per cent you over here. So.
We've been really diligent on the gross profit side. So our gross margin I think over time will continue to enhance.
And then on the <unk> side, we still and we've done a lot, but we still got something to do.
All of that to say I think the biggest part of the Opex they'll get the benefit is by these new revenue streams that call was talking about when we talk about reactivating bash customers or creating that free to view tier subscribers that we then upsell to those have very little sales and marketing.
Cause so that that I think will <unk> will improve our sales and marketing as a percentage of revenue.
And that's what's going to help us get cash flow positive at this size were at so I think we've run it really well, where we could get cash flow positive about this site.
Terms of your questions on the subscriber base, but we're not giving guidance on that front, but I think when you look at the body subscriber base, it's up 77% quarter over quarter I mean, obviously, it's not gonna continue at this rate a percentage increase but definitely it's growing at.
At a very healthy right and and then you could do the calculus as to how many of the basic D. O D. Each body on demand subscriber basis left so as we cycled through those.
And we've previously said, we'd cycled through them through March, but obviously there are a lot more skewed to the front part of the year and then the second half of the year will become pure body subscription.
Hi, This is Marcos and you also have the 14 million database program to recapture the people through CRM. So if you think about Jon.
Sub decline in Wormwood bottom.
I only have this great 77% quarter on quarter at the 179 level. So we're not worrying about the expiration of the 99 now the cohort, but you've got this huge database of these 14 million people that when the offers has been pinpointed as to what's going to work the best and you put it out there you literally have almost zero customer acquisition.
Nation cost.
You have a modest network compensation costs, which will certainly help to fortify over the long term Sundays.
I'm, sorry, Mark if I could follow up once more I I believe last there your adjusted your gross profit. So I I would have to be adjusted gross profit down.
Down more than 5% and maybe the real question is.
The sequential gross margin looks lower than than the first quarter could you just maybe reconcile that given the higher price point in sorry, That's my last question.
Yeah on the on the gross margin, you're asking why quarter over quarter.
It was a bit lower cause it was substantially more than a year ago. As we said on the on the nutrition side. It was the same in Q1 versus Q too.
On the digital side.
Because we have a large migration of body to body. Obviously the results are more people, calling customer support. So that's that's increase a bit that that expense and also the preparation of the platform, where we capitalize that expense we started amortizing at the you tube.
And then connected fitness, we did go we did run a promotion.
Into two for our for our partners our partner network.
So that's why you can see the volume of bikes went up but the revenue.
Then went down a bit.
And that's all about driving inventory that translates to cash right and then I think is eventually.
That inventory on the connected fitness side, frankly stabilizes, that's when you'll see.
An improvement in the overall gross margin of the business.
Okay. Thanks, again for taking all the questions.
Of course, Sir.
Our next question is from Darren tunnel.
With Cingular research your line is now open.
Yeah. Thanks [noise].
Thanks for having me on here I felt just going back to the inventory purchase and service agreements for a second cause I've had some trouble.
Kind of keeping tabs on this over the last couple of quarters, if I look at.
You know the service agreement obligations that are scheduled out to 22008.
And then I'm just focusing on the next six months out to 2023.
<unk> is there still a commitment.
On the inventory purchase agreements of around 22 million to close out the end of the year does that sound about right or is that based on the pay down that you. Just recently mentioned it is it going to be less than that 22 million for the next six months. Thank you.
Yeah, they're in the majority of those commitments relate to normal course of business purchases for nutrition business inventory.
That goes into our cards so.
I know I've been asked that question before are these commitments above and beyond.
Normal course of business no for the most part these are just normal purchases, we do on the nutrition side.
So it's nothing that's gonna be.
Overly taxing in any way, so we need them to keep driving our inventory and our nutrition business. I mean, you can see our inventory balance continues to decline quarter over quarter, as we manage supply and demand finding really well.
Okay, and so would the expectation b or you know with the guidance be similar to these inventory drawdown level is being in line with maybe top line revenue or should I think about it something that's kind of a separated between.
Nutrition and the connected fitness.
Thanks.
I I think it's good to think about it separately because as it relates to our nutrition business. You you you Gotta keep you Gotta keep retooling that inventory and I think we're approaching a healthy level of inventory there I think on the bike business as you know bikes I mean, these are commercial grade bikes, they don't expire or sell.
Going through that inventory, so we're not planning any purchases anytime soon.
So that that inventory level will continue to decrease in the coming quarters.
Okay. Thank you know more questions yet.
There are no more questions. So I'll pass the call back over to Carl for closing remarks.
Alright. Thanks, Thanks again, everyone for joining us for today's call. Obviously, we appreciate our stakeholders are subscribers are partners.
And our corporate team this.
This turnaround were excited by it and we hope to be.
Bring you news of some successes that occur over the course of the third quarter our determination.
To build the category of health esteem and to help more people achieve their goals and lead healthy fulfilling lives is important to us as a company.
As an organization and I remain determined and committed to achieving.
Near term goals.
Finger fiduciaries on behalf of our stakeholders in our long term goals.
Half of our stakeholders and the customers that we serve and I appreciate everyone who supports us in this important work and look forward to updating you again in the next quarter. Thanks, everybody.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.
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