Q3 2023 The Beachbody Company Inc Earnings Call
Speaker 1: Good afternoon ladies and gentlemen. Welcome to the Beachbody Company third quarter earnings call. At this time all participants are in listen-only mode. Following the presentation we will conduct a question and answer session.
Good afternoon, ladies and gentlemen, welcome to the Beach body Company third quarter earnings call. At this time, all participants are in listen only mode.
Following the presentation, we will conduct a question and answer session.
Speaker 1: Instructions will be provided at that time for you to queue up for questions. If anyone has any 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. I'll now turn the conference over to your host, Bruce Williams, Managing Director of ICR investor relations. Please go ahead.
Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the country. Please press star zero for operator assistance at any time.
I would like to remind everyone that this conference call is being recorded I'll now turn the conference over to host Bruce Williams, managing director of ICR Investor Relations. Please go ahead.
Speaker 2: Welcome everyone and thank you for joining us for our third quarter earnings call with me on the call today are Mark Goldston, executive chairman of the Beachbody Company. Carl Dichler, co-founder and chief executive officer and Mark Sweetanne chief financial.
Welcome everyone and thank you for joining us for our third quarter earnings call with me on the call today are Mark Goldston Executive Chairman at the Beach body company.
Declare co founder and Chief Executive Officer, and Mark, Sweden, Chief Financial Officer.
Speaker 2: Following the prepared remarks, we'll open the call up for questions.
Following the prepared remarks, we will open the call up for questions 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 19.
Speaker 2: Before we get started, I would like to remind you of the company's safe hardware language. The 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 filings with the SEC, which includes today's press release.
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 filings with the SEC, which includes today's press release todays call will include references to non-GAAP financial measures such as adjusted EBITDA and <unk>.
Speaker 2: Today's call will include references to non-GAAP financial measures such as adjusted evening
Speaker 2: A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be used to
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.
Speaker 2: Now I would like to turn the call over to Mark Goldson. Mark. Hello, good afternoon.
Now I would like to turn the call over to Mark <unk> Mark.
Hello. Good afternoon. Thank you for joining us today I'm thrilled to be part of this exciting journey into crude tribute my extensive experience to the company's success.
Speaker 3: I'm thrilled to be part of this exciting journey and to contribute my extensive experience to the company's success. I want to make three key points that are really important for investors and analysts to gain a perspective on where we are and where we're going. First, as you know, we intend to execute a reverse stock split later this month. We should get this stock into a range that will attract institutional investors.
I want to make three key points that are really important for investors and analysts again, a perspective about where we are and where we're going.
First as you know.
Tend to execute a reverse stock split later this month this should get this stack into a range that will attract institutional investors.
Speaker 3: Second and critically, we must lower the breakeven of the company. We previously have taken out $125 million in costs and Mark Sweden, our CFO , will talk about an additional $40 million that we've identified in cost.
And critically we must lower the breakeven of the company.
Previously you've taken out a $125 million in cost and Mark Sweden, Our CFO will talk about an additional $40 million that we've identified and cost savings. We expect to realize these additional savings in 2023, bringing the total to $165 million in aggregate annualized.
Speaker 3: We expect to realize these additional savings in 2023, bringing the total to $165 million in aggregate annualized cost savings since 2021.
Cost savings since 2021.
Speaker 3: And third, we have begun the implementation of the turnaround plan we architected after my arrival in June of 2023. As part of that plan, we'll be aggressively pursuing ways to win back some of the 14 million people in our extremely valuable CRM base who are either former subscribers or qualified leads that were added to our database since 2016.
And third we have begun the implementation of the turnaround plan. We architected. After my arrival in June of 2023.
As part of that plan will be aggressively pursuing ways to win back some of that 14 million people and are extremely valuable CRM base, who are either former subscribers or qualified leads that were added to our database since 2016.
Speaker 3: In addition, we fortified the product offering for our direct sales organization with the addition of growth day. This was developed by the dynamic world renowned Brendan Burchard, and we're aggressively pursuing outside partnerships and additional direct to consumer channels to help diversify our beta and create additional revenue streams from those untapped channels.
In addition, we fortified the product offering for our direct sales organization with the addition of growth day. This was developed by the dynamic world renowned Brendan Bouchard and we're aggressively pursuing outside partnerships and additional direct to consumer channels to help diversify our beta and create additional revenue.
Streams from those untapped channels.
Speaker 3: Last quarter, I told investors that our main focus is on the generation of cash in the near to mid-term, and we're developing programs designed to deliver on that goal. As a result of the $165 million in expected cost savings, along with the key elements of the turnaround plan I just spoke about, we believe there's a clear path to becoming cash flow positive, which would indeed be a milestone for the turnaround effort at Baja.
Last quarter I told investors that our main focus is on the generation of cash in the near to mid term and we are developing programs designed to deliver on that goal.
As a result of the $165 million and expected cost savings along with the key elements of the turnaround plan that I just spoke about we believe there is a clear path to becoming cash flow positive, which will indeed be a milestone for the turnaround effort and body.
Speaker 3: Body possesses invaluable assets, including what we believe to be the world's most extensive digital fitness library, a valuable range of nutritional products, a massive database of current and past customers, and importantly, a highly skilled leadership.
Body possesses in valuable assets, including what we believe to be the world's most extensive digital library.
You have a range of nutritional products.
Massive database of current and past customers and importantly, a highly skilled leadership team.
Speaker 3: Last quarter, we developed a plan that prioritized profitable revenue over growth at all costs and a drastically reduced time frame for return on investment capital.
Last quarter, we developed a plan that prioritizes profitable revenue over growth at all costs and have drastically reduced timeframe for return on invested capital.
Speaker 3: If you look at the P&L of the company, you can see that scale is really not our primary concern.
If you look at the P&L of the company you can see that scale is really not our primary concern.
Speaker 3: We believe we've got the girth and the scale to be profitable in the revised cost structure that we've created. And the potential for generating operating leverage during the course of 2024 exists largely as a result of those major cost-saving conditions.
We believe we've got the girl and the scale to be profitable and the revised cost structure that we've created and the potential for generating operating leverage during the course of 2024 exist largely as a result of those major cost savings initiatives.
Speaker 3: I've now been here for five months and I am more convinced than ever that we've got the product
I've now been here for five months and I am more convinced than ever that we've got the products.
Speaker 3: team, the total adjustable market size or TAM, and the turnaround plan to return body to its position as a dominant, highly profitable company, but one that is architected in a much more efficient manner.
<unk> total addressable market size of our Tam and the turnaround plan to return body to its position as a dominant highly profitable company, but one that is architected in a much more efficient manner.
Speaker 3: As I stated on last quarter's earnings call, turnarounds are not linear and there will definitely be some bumps in the road. But our turnaround plan has been meticulously crafted and we're making good progress. In the coming months, you should expect to see additional positive and purposeful changes taking place in the company. Our product...
As I stated on last quarter's earnings call turnarounds are not linear and they will definitely be some bumps in the road.
But our turnaround plan has been meticulously crafted and we're making good progress in the coming months, you should expect to see additional positive and purposeful changes taking place in the company.
Our products are world class and I believe this because I'm, a fitness enthusiasts and I've got significant experience in this athletic space with leading companies like Reebok L. A gear converse and athletic propulsion labs or APL. This is my wheelhouse now that we're in the process of focusing on improving the balance sheet.
Speaker 3: And I believe this because I'm a fitness enthusiast and I've got significant experience in this athletic space with leading companies like Reebok, LA Gear, Converse and Athletic Propulsion Labs or APL. This is my wheelhouse. Now that we're in the process of focusing on improving the balance.
And implementing strategies to expand our sales and marketing ecosystem.
Speaker 3: and implementing strategies to expand our sales and marketing ecosystem. I firmly believe that we're on our way to driving more profitable revenues and importantly, building relationships.
Certainly believe that we're on our way to driving more profitable revenues and importantly building cash.
Speaker 3: I'm focused on helping the team optimize our LTV to CAC to additional monetization opportunities that will drive cash to profit.
I'm focused on helping the team optimize our LTV to CAC to additional monetization opportunities that will drive cash and profitability, we have significant opportunities in front of us and we're just getting started.
Speaker 3: We have significant opportunities in front of us and we're just getting started.
Speaker 3: You'll note that on our investor relations presentation on our website, we expect our selling and marketing costs as a percentage of revenue to decline 1000 basis points to 45% during 2024.
You'll note that on our Investor relations presentation on our website, we expect our selling and marketing costs as a percentage of revenue declined 1000 basis points to 45% during 2024.
Take a moment to reflect on this change.
Speaker 3: This 1000 basis point reduction should result in an additional 10% of revenue flowing through to the bottom line in 2024. That's a game changer and it's going to be critical in helping us to be cash flow positive in the future.
This 1000 basis point reduction should result in an additional 10% of revenue flowing through to the bottom line in 2024, that's a game changer and it's going to be critical in helping us to be cash flow positive in the future.
Speaker 3: I'd now like to turn the mic over to Carl, who will give you more insight into the company's transformation. Carl?
I'd now like to turn the mic over to Carl who will give you more insight into the company's transformation Carl.
Speaker 3: Thank you so much, Mark. And let me start by saying how great it is to work with Mark as executive chairman and have the benefit of his experience turning around public companies and strategizing how we can unlock the value we've created over the last 25 years, which. Maybe we've taken the underlying value of the business for granted a little bit, and it's such a great partnership to work with Mark. Okay.
Thank you so much mark and let me start by saying how great. It is to work with Mark as executive Chairman and have the benefit of his experience turning around public companies and strategizing, how we can unlock the value we've created over the last 25 years, which maybe we've taken the underlying value of the business for granted a little bit.
Such a great partnership to work with Mark Okay.
Speaker 3: So let's talk about the third quarter. First, a high level overview of results and operational highlights. Then Mark Sweden, our Chief Financial Officer, will give additional detail on Q3 financial results and guidance for Q4.
So let's talk about the third quarter first a high level overview of results and operational highlights then March. We then our chief financial Officer will give additional detail on Q3 financial results and guidance for Q4.
Speaker 2: We've made significant progress implementing our turnaround plan this quarter, where our primary focus is on cashflow generation and creating new incremental revenue opportunities.
We've made significant progress implementing our turnaround plan this quarter, where our primary focus is on cash flow generation and creating new incremental revenue opportunities.
Speaker 3: Q3 revenues and adjusted EBITDA were within our guidance range. And while our overall digital subscriber count decreased by 10% sequentially to 1.38 million in Q3, as we mentioned last quarter, the more meaningful metric is our premium digital subscription FODI, spelled B-O-D-I, which grew by 27% in Q3 over Q2 to exceed 900,000 subscribers at the end of Q3.
Q3 revenues and adjusted EBITDA were within our guidance range and while our overall digital subscriber count decreased by 10% sequentially to $1 $38 million in Q3, as we mentioned last quarter. The more meaningful metric is our premium digital subscription fun spelled.
Which grew by 27% in Q3 over Q2 to exceed 900000 subscribers at the end of Q3.
Speaker 4: And you've no doubt heard of the emergence of GLP-1 weight loss drugs, which have generated a considerable amount of attention and even questions to their effect on demand for services like ours.
And you've no doubt heard of the emergence of DLP, one weight loss drugs, which have generated a considerable amount of attention even questions to their effect on demand for services like ours.
Speaker 4: We're actually encouraged about treatments that can help some of the 74% of Americans that are overweight or obese. But we also recognize that a chemical solution is only a single step towards sustaining a healthy lifestyle and does nothing to improve skeletal muscle mass, which is critical to health and functioning in the world. It's really vital that people supplement these weight loss drugs with healthier lifestyle choices, including fitness and nutrition. That's where we come in.
We're actually encouraged about treatments that can help some of the 74% of Americans that are overweight or obese, but we also recognize that our chemical solution is only a single step towards sustaining a healthy lifestyle and does nothing to improve skeletal muscle mass, which is critical to health and functioning in the world.
It's really vital that people supplement these weight loss drugs with healthier lifestyle choices, including fitness and nutrition, that's where we come in bonds approach to help us team helps people feel good as they create sustainable healthy habits honestly the significant investment people can make it a pharmaceutical.
Speaker 4: BAI's approach to health esteem helps people feel good as they create sustainable, healthy habits. Honestly, the significant investment people can make in a pharmaceutical solution is wasted without lifestyle change. And we have the lifestyle solutions for GLP-1 users, including a broad array of structured, step-by-step fitness and nutrition programs, plus personal development and mindset tools.
<unk> is wasted without lifestyle change and we have the lifestyle solutions for <unk>, one users, including a broad array of structured step by step fitness and nutrition programs, plus personal development and mindset tools as a result.
Speaker 4: We don't see GLP-1 treatments as a headwind for us, but rather a very significant tailwind. As it brings the importance of reducing obesity to the forefront and makes lifestyle change an important component of that decision.
We don't see <unk> treatments as a headwind for us, but rather a very significant tailwind as it brings the importance of reducing obesity to the forefront and makes lifestyle change and important component of that decision.
Speaker 4: That's just another reason that we're excited about how our position in the market puts us in a unique position to capitalize on these long term industry tailwinds. And our turnaround plan aligns with responding to these tailwinds.
That's just another reason that we're excited about how our position in the market puts us in a unique position to capitalize on these long term industry tailwind in our turnaround plan aligns with responding to these tailwind when we started this turnaround there were three key pillars to our transformation first we had the massively re.
Speaker 4: When we started this turnaround, there were three key pillars to our transformation. First, we had to massively re-architect our construction.
Our cost structure by end of 2023, we expect to realize a $165 million in annual cost savings and we continue to carefully scrutinize capital allocation to make the company as cost efficient as possible second we initiated a reinvention and simplification of our digital platform, which was completed early.
Speaker 4: By end of 2023, we expect to realize $165 million in annual cost savings, and we continue to carefully scrutinize capital allocation to make the company as cost efficient as possible. Second, we initiated a reinvention and simplification of our digital platform, which was completed earlier this year.
For this year.
Speaker 4: Since the introduction of our premium digital platform, subscribers continue to renew from the former Beachbody On Demand subscription to the new Body subscription at a 60% rate, which exceeds our original expectations.
Since the introduction of our premium digital platform subscribers continued to renew from the former beach body on demand subscription to the new bond subscription at a 60% rate, which exceeds our original expectations.
Speaker 4: Third, we need to restructure sales and marketing with a focus on delivering higher cash generating revenues and lowering customer acquisition.
We need to restructure sales and marketing with a focus on delivering higher cash generating revenues and lowering customer acquisition costs. So let's use this call to detail our progress on that third pillar.
Speaker 4: So let's use this call to detail our progress on that third pillar. Overall, there are five key initiatives that we're executing against, which we believe will drive new memberships and generate profitable revenues. James, talk about those options first. Under the currentIN there is one possible solution to my new experience at this
Overall, there are five key initiatives that we're executing against which we believe will drive new memberships and generate profitable revenues.
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Speaker 4: Partner Network Activation. Restoring momentum to our coach and partner network is a central initiative to our turnaround plan, as our partner network is our largest and most effective go-to-market strategy.
Partner network activation restoring momentum to our coach and partner network is a central initiative to our turnaround plan as our partner network is our largest and most effective go to market strategy.
Speaker 4: The initiative we call the Body Growth Game Plan is designed to help partners improve the overall productivity of their team.
The initiative, we call the body growth game plan is designed to help partners improve the overall productivity of their teams as they help current and potential customers achieve an improvement in their helped US team health is team is the category of the industry, which shifts the focus from our results at all cost mentality to that feeling good.
Speaker 4: as they help current and potential customers achieve an improvement in their health esteem. Health esteem is the category of the industry which shifts the focus from a results at all costs mentality to that of feeling good at every step of the process to achieving an extraordinary lifestyle transformation.
Every step of the process to achieving an extraordinary lifestyle transformation and that includes adding positive mindset and high performance habits to the equation.
Speaker 4: and that includes adding positive mindset and high performance habits to the equation.
Speaker 4: To that end, we're excited by the appointment of New York Times best-selling author and motivational speaker, Brendan Richard, to the role of chief growth and performance advisor.
To that end, we're excited by the appointment of New York Times, Best selling author and motivational speaker Brendon Richard to the role of chief growth and performance adviser.
Speaker 4: Brendan's famous for being one of the world's leading high performance coaches, and he's assisting the company's partner network in achieving optimal performance. So more people unlock the potential of this supplemental income opportunity for themselves. Our relationship with Brendan is built around a revenue sharing partnership to incorporate Brendan's growth day app into our product offering. That's an additional new revenue opportunity for the company and our partners. And that kicks off in just a few days on November 9.
Brendan famous for being one of the worlds, leading high performance coaches and he is assisting the company's partner network in achieving optimal performance. So more people unlock the potential of this supplemental income opportunity for themselves.
Our relationship with Brendan is built around our revenue sharing partnership to incorporate brendan's growth day into our product offering that's an additional new revenue opportunity for the company and our partners and that kicks off in just a few days on November nine.
Speaker 4: In addition, we recently announced that early next year, we are implementing new results-oriented compensation incentives for our partners, which will reward high performance, especially for new partners, while aligning the overall compensation structure with generating profitable revenue.
In addition, we recently announced that early next year, we are implementing new results oriented compensation incentives for our partners, which will reward high performance, especially for new partners, while aligning the overall compensation structure with generating profitable revenues.
Second customer database reactivation, we've begun aggressively mining of our customer database of over 14 million prospect E. Mail addresses we started testing our broader database mining campaign in August with special offers and while it's still early in the process the opportunity to activate this massive database with men.
Speaker 4: Second, customer database reactivation. We've begun aggressively mining our customer database of over 14 million prospect email addresses. We started testing our broader database mining campaign in August with special offers, and while it's still early in the process, the opportunity to activate this massive database with minimal reactivation costs can have significant upside. We'll continue to refine and expand this initiative and update you on our progress in the upcoming quarters. Third.
Reactivation costs can have significant upside we will continue to refine and expand this initiative and update you on our progress in the upcoming quarters.
Third performance marketing, we've been deploying more efficient direct marketing tactics that are producing stronger results for instance, we've optimized our media placement, resulting in a 25% increase in our conversion ratio in Q3 over Q2, bringing us to two 5% which is the industry norm.
Speaker 4: We've been deploying more efficient direct marketing tactics that are producing stronger results. For instance, we've optimized our media placement resulting in a 25% increase in our conversion ratio in Q3 over Q2, bringing us to 2.5%, which is the industry norm. Also, this quarter, we launched affiliate distribution with Rakuten and Cartera, offering consumers new opportunities to earn rewards when they shop.
So this quarter, we launched affiliate distribution with Rakuten and Cartera offering consumers new opportunities to earn rewards when they shop with us and we launched our refer a friend pilot, enabling us to give incentives to those refer friends to subscribe the body.
Speaker 4: and we launched a refer a friend pilot, enabling us to give incentives to those that refer friends to subscribe to us.
Speaker 4: Fourth, our free preview tier. Last quarter, we announced our plan to introduce a new free preview tier to give prospects better visibility to the superior experience of structured programs, which leads the user through a step-by-step process to get real healthy results.
Fourth our free preview tier last quarter, we announced our plan to introduce a new free preview tier to give prospects better visibility to the superior experience of structured programs, which leads the user to a step by step process to get real healthy results. This tier will let people try over 120.
Speaker 4: This tier will let people try over 120 samples of our structure of business programs and nutrition plans. Plus, our personal development content and see the real distinction of our approach to lifestyle transformation.
<unk> of our structured fitness programs and nutrition plant plus our personal development content and see the real distinction of our approach to lifestyle transformation that content has been locked behind the paywall until now which you can imagine has been an impediment to converting new prospects into subscribers.
Speaker 4: That content has been locked behind the paywall until now, which you can imagine has been an impediment to converting new prospects into subscribers.
Speaker 4: The launch of body previews is scheduled for mid-November. Let me elaborate on how significant this opportunity is.
Launch of body previews is scheduled for mid November and let me elaborate on how significant this opportunity is.
Speaker 4: Like I said, currently we're converting 2.5% of our visitors into paying subscribers, which is an industry standard.
Like I said currently we're converting two 5% of our visitors into paying subscribers, which is an industry standard, but with our popular content like <unk> and Sandy 21 day fix in over 120 programs. We believe the free preview model, including a version which will attract traffic on Youtube.
Speaker 4: with our popular content like P90X and Sandy 21 Day Fix and over 120 programs.
Speaker 4: We believe the free preview model, including a version which will attract traffic on YouTube.
Speaker 4: gives us an opportunity to showcase our most powerful asset.
US an opportunity to showcase our most powerful asset are structured content and introduce more people to our proven approach. We believe this new tier will drive a higher conversion rate of visitors to paying subscribers, while attracting even more prospects to our platform.
Speaker 4: our structured content and introduce more people to our proven approach.
Speaker 4: We believe this new tier will drive a higher conversion rate of visitors to paying subscribers, while attracting even more prospects to our platform.
Speaker 4: And fifth, Amazon. We're excited to expand our presence on Amazon. Although body products have been previously sold on Amazon, we've never treated the platform as a real sales channel for us. By partnering with one of the largest Amazon resellers, we'll broaden our nutrition and fitness offerings and we expect to capture the latent demand of significant search volume for our brand on Amazon, as well as optimizing our product listings on the platform.
And fifth Amazon, we're excited to expand our presence on Amazon, Although body products had been previously sold on Amazon. We've never created the platform is a real sales channel for us.
By partnering with one of the largest Amazon resellers will broaden our nutrition and fitness offerings and we expect to capture the latent demand of significant search volume for our brands on Amazon as well as optimizing our product listings on the platform. This is just getting started as we go into the fourth quarter. So we will provide updates on future earnings calls.
Speaker 4: This is just getting started as we go into the fourth quarter. So we'll provide updates on future earnings.
Yeah.
Speaker 4: All this is to demonstrate that we are laser focused on generating profitable revenues and expanding the visibility of our 25 years of content to this massive tamp, which has maybe only heard of P9DS.
All of this is to demonstrate that we are laser focused on generating profitable revenues and expanding the visibility of our 25 years of content to this massive Tam, which is maybe only heard of P&I Dx as proud as we are being one of the few health and fitness companies to achieve this kind of critical mass over our.
Speaker 4: As proud as we are of being one of the few health and fitness companies to achieve this kind of critical mass over our 25 years, I'm actually more enthusiastic about our potential over the next 25 years with all these new initiatives. But for now, let me turn the call over to Mark to walk through the specifics of our third-quarter financials. center.
25 years, I'm actually more enthusiastic about our potential over the next 25 years with all these new initiatives, but for now let me turn the call over to Mark to walk through the specifics of our third quarter financials Mark.
Speaker 5: Thank you Karl and Mark, and good afternoon everybody. I am pleased to announce that in the third quarter, we met our guidance on revenue, adjusted EBITDA, and cash use in operation.
Thank you Karl and Mark and good afternoon everybody.
I'm pleased to announce that in the third quarter, we met our guidance on revenue adjusted EBITDA and cash used in operations.
Speaker 5: This is the eighth consecutive quarter that we have achieved or exceeded our guidance.
This is the eighth consecutive quarter that we have achieved or exceeded our guidance.
Speaker 5: I will now discuss our results for the third quarter along with our KPIs and then provide guidance for the fourth quarter.
I will now discuss our results for the third quarter, along with our Kpis and then provide guidance for the fourth quarter.
Speaker 5: Revenues were $128.3 million, which was above the midpoint of guidance and 5% below the prior quarter.
Revenues were $128 $3 million, which was above the midpoint of guidance and 5% below the prior quarter.
Speaker 5: The year-over-year decline in quarterly revenue was 23%, down from 25% in Q2 and 27% in Q1.
The year over year decline in quarterly revenue was 23% down from 25% in Q2 and 27% in Q1.
Speaker 5: The Q3 sequential revenue change reflects the normal seasonal decline in the fitness industry.
The Q3 sequential revenue change reflects the normal seasonal decline in the fitness industry.
Speaker 5: I will elaborate on each of our three product lines and given all the changes in the past year, I will focus my comments on sequential revenue.
I will elaborate on each of our three product lines and given all the changes in the past year I'll focus my comments on sequential revenue performance.
Speaker 5: Digital revenue was $64.3 million, down 1% from $65.2 million in Q2.
Digital revenue was $64 $3 million down 1% from $65 2 million in Q2.
Speaker 5: Our overall digital subscriber count is 1.4 million, down 10% from 1.5 million in a second.
Our overall digital subscriber counts as $1 4 million down 7% from $1 5 million in the second quarter.
Speaker 5: Given the $179 annual price of the body description, the R2 is now higher. And our stable court-over-quarter digital revenue was also supported by a partner account, which remained flat over Q2. It reminded her that we have fenced up thousands of partners telling our product.
Given the $179 annual prices the body subscription the art, who is now higher than our stable quarter over quarter. Digital revenue was also supported by our partner count, which will remain flat over Q2.
A reminder, that we have tens of thousands of partners selling our products.
Nutrition revenue was $59 million.
Speaker 5: Nutrition revenue is $59 million, down 9% from $64.6 million in the prior quarter.
Down 9% from $64 6 million in the prior quarter.
Speaker 5: Our nutrition subscriber file size is 177,000, down 10% from 196,000 in the prior quarter.
Nutrition subscriber file size is 177.
10% from 196000 in the prior quarter.
Speaker 5: In Q3, we launch a new monthly digital nutrition bundle called the $99 Rebel at a competitive introductory price.
In Q3, we launched a new monthly digitally nutrition bundle called the $99 level at a competitive introductory pricing.
Speaker 5: This bundle offers strong value and we believe will resonate with consumers in this macro inflationary environment without sacrificing profit.
This bundled offer strong value and we believe will resonate with consumers is this macro inflationary environment without sacrificing profitability.
Speaker 5: We believe this new bundle and the broadening of our sales distribution channel will stand at a coin unit.
We believe this new bundle and the broadening of our sales distribution channel will stem the decline in nutrition.
Connected fitness revenue was $4 9 million down 3% from $5 $1 million in Q2.
Speaker 5: Connected fitness revenue was $4.9 million, down 3% from $5.1 million in Q.
Speaker 5: We delivered 6,500 bikes versus 5,500 bikes in the five quarter and 18%
We delivered 6500 bytes vs 5500 bikes in the prior quarter and 18% increase.
Speaker 5: We continue to see bike sales as a valuable lever to drive higher LTV across our subscriber base, as bike customers show more engagement and lower churn. The higher bike volume is driven by promotion.
We continue to see bike sales is evaluable lever to drive a higher LTV across our subscriber base.
As by customers, who are more engagements and lower churn.
The higher <unk> volume is driven by promotion.
Moving to gross margin.
Speaker 5: We achieved the gross margin of 58.5% for the quarter, which decreased 460 basis points from the same period last year, and 280 basis points below the pi quarter.
We achieved a gross margin of 58, 5% for the quarter, which decreased 460 basis points from the same period last year and 280 basis points below the prior quarter.
Speaker 5: Digital Gross Margin was 74.5% for the quarter, which is 320 basis points less than the same period.
Digital gross margin was 74, 5% for the quarter, which is 320 basis points less than the same period last year.
Speaker 5: Compared to the prior quarter, digital gross margin decreased 50 basis points. The lower gross margin is...
Compared to the prior quarter digital gross margin decreased 50 basis points.
The lower gross margin is due to sales deleverage.
Speaker 5: The nutrition gross margin was 54.7% for the quarter, which is a 50 basis point decrease from the same period last year.
Nutrition gross margin was 54, 7% for the quarter, which is a 50 basis point decrease from the same period last year.
Speaker 5: Compared to the prior quarter, nutrition growth margin decreased 320 basis points due to increasing cost of raw material and a product makes...
<unk> of the prior quarter nutrition gross margin decreased 320 basis points due to increasing costs of raw materials and a product mix shift.
Connected fitness gross margin was minus 105% for the quarter versus minus 42% a year ago, when compared to the prior quarter connected fitness gross margin declined 35 percentage points.
Speaker 5: Connected fitness gross margin was minus 105% for the quarter versus minus 42% a year ago. And compared to the prior quarter, connected fitness gross margin declined 35%.
Speaker 5: The margin difference is driven by bike promotions and accounting charges for inventory.
The margin difference is driven by by promotion and accounting charges for inventory reserves.
Speaker 5: we have significantly reduced our bike inventory and are launching a new offer in December out of our existing
We have significantly reduced our bike inventory and are launching a new operator December out of our existing inventory.
Speaker 5: The new offer will appeal to price-conscious consumers. It won't have the large screen, but will connect to iPhones and Apple Watch.
The new offer will appeal to price conscious consumers, we won't have the large free but will connect to iphones and Apple watches.
Speaker 5: Our strategy continues to be focused on selling bikes to generate cash and attract long-term customers with higher lifetime value.
Our strategy continues to be focused on selling bikes, we generate cash and attract long term customers with higher lifetime value.
Speaker 5: Next, our operating expenses were $104 million, representing a $37 million reduction from the same period last year, which is a 26% improvement in the operating expenses.
Our operating expenses were $104 million rep.
Representing a $37 million reduction from the same period last year, which is a 26% improvement.
Cost reduction is a key pillar in our transformation and we continue to evaluate our cost structure on an ongoing basis.
Speaker 5: Cost reduction is a key pillar in our transformation and we continue to evaluate our cost structure and ongoing.
Speaker 5: From a fixed cost standpoint, which includes our overhead expenses and capitalized expenditures, we took out $125 million in 2022 and are on track to take out an additional $40 million in 2023 for a total of $165 million.
From a fixed cost standpoint, which includes our overhead expenses and capitalized expenditures, we took out $125 million in 2022 and are on track because they've got an additional $40 million in 2023 for a total of $165 million.
As we have stated our cost structure is fine for significant operating leverage now let me walk through our three Opex line.
Speaker 5: As we have stated, our cost structure is fine for significant operating leverage. Now let me walk through our three objects.
Speaker 5: Studying in marketing was 53.9% of revenue, compared to 56.1% in the prior year, and 56.7% in the prior quarter.
Selling and marketing was 53, 9% of revenue compared to 56, 1% in the prior year and 56, 7% in the prior quarter.
Speaker 5: As Carl detailed, the third key pillar of our transformation is restructuring our selling and dyna...
As Scott will detail the third key pillar of our transformation is restructuring our selling and marketing.
Speaker 5: We recognize that selling and marketing, which is our biggest expense, is higher than industry normal.
We recognize that selling and marketing, which is our biggest expense is higher than industry norm. So.
Speaker 5: So we have launched a series of initiatives that we expect will reduce our selling and marketing expenses from approximately 55% of revenue to 45% during 2024. Let me explain the three main drivers...
So we have launched a series of initiatives that we expect will reduce our selling and marketing expenses from approximately 55% of revenue grew 45% during 2024.
Let me explain the three main drivers of how we plan together.
Speaker 5: First, we announce on October 5 changes to our direct selling compensation.
First we announced on October five changes to our direct selling compensation plan.
Speaker 5: Second, for performance marketing, we are driving lower tech initiatives like refer a friend, new affiliate models and give
Second for performance marketing, we are driving lower Tac initiatives like refer a friend.
Most of these models.
Speaker 5: Sir, our customer database reactivation strategy will drive new test drivers with minimal customer acquisition.
Third our customer database reactivation strategy will drive new subscribers with minimal customer acquisition cost.
Speaker 5: We believe that these three drivers will lower our cash expenses for selling and marketing by documenting 1000 basis points in 2020.
We believe that these three drivers were lower cash expenses for selling and marketing by approximately 1000 basis points in 2024.
On a hypothetical basis this will represent $50 million of additional savings of $500 million of revenue.
Speaker 6: On a hypothetical basis, this will represent $50 million of additional savings on $500 million of additional savings on the
Speaker 6: This is a new and additional benefit that drives cash flow starting in January .
This is a new and additional benefits that drives cash flow starting in January.
Moving on to other operating expenses.
Speaker 6: Enterprise technology and development was 14.7% of revenue, compared to 15.5% in the prior year, and 13.8% in the prior quarter.
Enterprise Technology and development was 14, 7% of revenue compared to 15, 5% in the prior year and 13, 8% in the prior quarter.
Speaker 6: We have maintained our spend as a percentage of revenue, but reduced the dollar spend by 27% from last year.
We have maintained their spend as a percentage of revenue, but reduce the dollar spend by 27% from last year.
Speaker 6: We continue to streamline the technology and development costs while simultaneously improving our digital experience and enabling new function.
We continue to streamline our technology and development costs, while simultaneously, improving our digital experience and enabling new functionality.
Speaker 6: GNA was 11.5% of revenue compared to 11.8% in the prior year and 8.8% in the prior quarter. The dollar spend was down approximately 24% from last year.
G&A was 11, 5% of revenue compared to 11, 8% in the prior year and eight 8% in the prior quarter.
<unk> was down approximately 24% from last year, our G&A increase as a percentage of revenue in Q3 over Q2 because of an increase in non cash stock compensation charges.
Speaker 6: Our GNA increased as a percentage of revenue in 23 over 22 because of an increase in non-cash stock compensation.
Speaker 5: We continue to aggressively manage our GNA, looking for more cost.
We continue to aggressively manage our G&A looking for more cost savings.
Speaker 5: Net loss was $32.7 million, compared to a net loss of $33.9 million in the prior year, and a net loss of $25.7 million in the prior year.
Net loss was $32 7 million compared to a net loss of $33 9 million in the prior year and a net loss of $25 $7 million in the prior quarter.
Speaker 6: I just could even I would have lost a $5.8 million compared to a loss of $6.2 million in the prior year and it lost a $4.8 million in the prior course.
Adjusted EBITDA was a loss of $5 $8 million.
Compared to a loss of $6 2 million in the prior year and a loss of $4 8 million in the prior quarter.
Speaker 5: RQ3 adjusted EBITDA includes a Connected Business Inventory Reserve charge of $3.4 million.
Our Q3 adjusted EBITDA includes the connected fitness inventory reserve charge of $3 4 million.
Moving to the balance sheet and cash flow.
Speaker 5: Art Cash Balance was $38.2 million, compared to $58.7 million in the prior quarter.
Our cash balance was $38 2 million.
Compared to $58 7 million in the prior quarter.
Speaker 6: The decrease in the cash balance was largely driven by debt repayment of $15.3 million.
The decrease in the cash balance was largely driven by debt repayments of $15 3 million.
Speaker 5: Excluding the debt repayment, our cash balance declined by $5.2 million in Q3 versus $7.7 million in Q2 and $13.7 million in Q1.
Excluding the debt repayment, our cash balance declined by $5 $2 million in Q3 versus $7 7 million in Q2, and $13 7 million in Q1.
Speaker 5: Our cash used in operations in the third quarter was $200,000 versus $3.7 million in the prior quarter and $6.5 million cash used in the prior quarter.
Our cash used in operations in the third quarter was $200000 versus $3 7 million in the prior year and $6 5 million cash used in the prior quarter.
Our net inventory was $31 7 million at the end of the quarter down from $43 4 million at the end of the prior quarter.
Speaker 5: Our net inventory was $31.7 million at the end of the quarter, down from $43.4 million at the end of the prior quarter.
Speaker 5: which represents a 27% reduction primarily driven by our bike and
Which represents a 27% reduction primarily driven by our bike inventory.
Speaker 5: We have successfully reduced our net inventory level for eight consecutive quarters, and we continue to aggressively look at our demand and supply requirements.
We have successfully reduced our net inventory level for eight consecutive quarters and we continue to aggressively look at our demand and supply requirement we.
Speaker 6: We do not climb on allocating additional capital to bike foot.
We do not plan on allocating additional capital to bike purchases.
Speaker 5: Our CapEx for PP&E was $0.5 million this quarter, a significant reduction from the $4 million in the third quarter of last year, and $1.6 million in the second quarter of this year.
Our capex for PP&E was zero point $5 million this quarter, a significant reduction from the $4 million in the third quarter of last year and $1 6 million in the second quarter of this year.
Speaker 6: Our CapEx for content was $2.9 million this quarter, an improvement from $4.2 million in the prior quarter. It was $3.1 million in the prior quarter. It was $3.1 million in the prior quarter. It was $3.1 million in the prior quarter.
Capex for content was $2 $9 million this quarter, an improvement from $4 2 million in the prior quarter.
It was $3 1 million in the second quarter of this year.
Speaker 5: So total capex in Q3 with $3.4 million, and that should be our approximate run rate in the coming quarter.
So total capex in Q3 was $3 4 million and that should be our approximate run rate in the coming quarter.
Speaker 6: The CATX improvements have been driven by streamlining our content production and our technologies.
The Capex improvement has been driven by streamlining our content production and our technology stack.
We continue to manage our cash use and are reducing cash needs. Despite the decline in revenues as we focus on positioning the company to generate positive cash flow in.
Speaker 5: We continue to manage our cash hues and are reducing cash needs despite the decline in revenues as we focus on positioning the company to generate positive cash.
Speaker 5: In fact, when you look at our year-to-date cash use and operations and investment activities, it was $24 million. That is down from $60 million last year and $248 million in 2020.
In fact, when you look at our year to date cash used in operations and investment activity It was $24 million.
That is down from $60 million last year and $248 million in 2021.
Speaker 5: We will continue down this path of dramatically improving our use of cash as we reposition the company to generate free cash flows. Turning to our...
We will continue down this path of dramatically improving our use of cash as we reposition the company to generate free cash flows.
Going to our outlook for the fourth quarter.
Speaker 5: As a reminder, our guidance is based on where we stand in our transformation.
As a reminder, our guidance is based on where we stand in our transformation journey. As you know Q4 is seasonally the slowest quarter for the fitness industry and for our company as.
Speaker 5: As you know, two four is seasonally the slowest quarter for the fitness industry and for our company.
Speaker 5: As a result, we expect fourth quarter revenues to be in the range of $105 million to $150 million.
As a result, we expect fourth quarter revenues to be in the range of $105 million to a $115 million.
We expect a net loss in the range of 25 million to.
Speaker 5: We expected net loss in the range of $25 million to $30 million, and adjusted even a loss in the range of $1 million to $6 million. Now, I will turn the call back over to the operator to open it up for questions.
The $30 million and adjusted EBITDA loss in the range of 1 million to $6 million.
Now I will turn the call back over to the operator to open it up for questions.
Thank you.
Speaker 1: Thank you. If you would like to ask a question, please press star followed by one on your telephone device. If any reason you would like to move that question, please press star followed by two. Again, to ask a question, please press star followed by one. As a reminder, if you aren't using a sneaker phone, please remember to pick up your handset before asking your question, and please do ensure that you are unmuted locally. We will pause here briefly as questions are registered.
I'd like to ask a question. Please press star followed by one on your telephone keypad.
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We will pause briefly as questions are registered.
Yes.
Okay.
Yeah.
Our first question today comes from the line of Darren <unk> from singular research. Please go ahead. Your line is now.
Speaker 1: Our first question today comes from the line of Darren Tuttle from Singular Research. Please go ahead, your line is now open.
Speaker 3: Yeah, thanks guys and a great quarter here. You know, my question just comes up from the debt payment here. So, that one, this latest debt payment, so that was a use of cash. Is that sort of a one-off plan or is there going to be extended plans in the following quarters to have an accelerated debt repayment schedule? Thank you.
Yeah. Thanks, guys.
Great quarter.
Here.
My question just comes up from the.
The debt payment here, so so that one.
This latest debt payment. So so that was a use of cash is that the sort of a one off plan or is there going to be extended plans in the following quarters to have an accelerated debt repayment schedule. Thank you.
Speaker 5: Hi there, and this is Mark. That was a that was a one option Q3. We paid down fifteen point three million dollars of the debt. The we continue now on the regular schedule of the debt and the total that carries out through February twenty twenty six.
Hi, Darren this is mark that was that was a one off in Q3, we paid down $15 $3 million of the debt.
We continue now on the regular schedule of the debt and the total debt.
Carries out through February 22006.
Speaker 7: Okay, okay. And was that just, you know, was that just part of cleaning up some of the balance sheet and opening up some cash flow for following quarters? Or was that more of just like a strategic allocation where, you know, you thought paying down the debt was the best incremental return for the dollar?
Okay, Okay and was that just.
Was that just part of cleaning up some of the balance sheet and opening up some cash flow for following quarters or was that more just like a strategic allocation, where you thought paying down the debt with the best incremental returns for the dollar.
Speaker 5: Yeah, listen, we spoke with our lender and if you look in early August , we filed information relating to that modification covenant. So that was all part of that negotiation with them where we changed the liquidity and revenue covenants on the debt.
Yes, listen we spoke with our with our lender and.
If you look at it.
In early August.
We filed the information relating to.
<unk> modification covenant on so that was all part of that negotiation with them.
Where we changed the liquidity and revenue covenants on the debt.
Speaker 5: And given our outlook, we're managing with the capital we got on hand and our plan allows us to execute against that. But for now, there's no there's no other plans to further pay down the debt.
Given our outlook, we're managing with.
The capital.
We got on hand in our plan that allows us to execute against that but for now there's no. There's no other plans to further pay down the debt.
Oh, okay. Okay. Thank you for that.
Thank you.
Yeah.
Speaker 1: There are no additional questions waiting at this time. So I'd like to pass the call back over to our diagnosis for any closing remarks.
There are no additional questions waiting at this time, so I'd like to pass the call back over to Todd Mckinnon for any closing remarks.
Okay. Thanks for joining us today, everybody as we continue to execute on our turnaround plan I want to leave you with four key takeaways from the call today.
Speaker 4: Okay, thanks for joining us today everybody. As we continue to execute on our turnaround plan, I want to leave you with the four key takeaways from the call today.
Speaker 4: First, we're widening the sales aperture to expand our sales channels and driving more profitable revenues through performance marketing. Our launch of the body previews free tier and Amazon.
First we're widening the sales aperture to expand our sales channels and driving more profitable revenues through performance marketing our launch of the body previews free tier and Amazon second we acknowledge that it's a difficult environment for most direct selling models, but we are increasing momentum throughout our network and.
Speaker 4: Second, we acknowledge that it's a difficult environment for most direct selling models, but we're increasing momentum throughout our network and with our partnership with Friend and Burchard and the introduction of the Growth Day Personal Development app.
With our partnership with Brendan Bouchard and the introduction of the growth day personal development App. This week and we're aligning performance incentives with partner productivity and our overall financial goals.
Speaker 4: and we're aligning performance incentives with partner productivity and our overall financial goal.
Speaker 4: Third, we believe we're well positioned in an environment where there's increased focus on weight loss with our unique approach to structured fitness, nutrition and personal development tools all at a great value to the consumer. And fourth, we're moving fast and continue to be focused on generating profitable revenues, driving free cash flow and building cash.
Third we believe we're well positioned in an environment, where there is increased focus on weight loss with our unique approach to structured fitness nutrition and personal development tools all at a great value to the consumer and fourth we're moving fast and continue to be focused on generating profitable revenues driving free cash flow and building.
Cash.
Speaker 4: I want to thank all our stakeholders for believing in this vision and for supporting the Beachbody company through this process. Our work is extremely important and I look forward to demonstrating significant progress in our next call.
Thank all our stakeholders for believing in this vision.
And for supporting the Beach body company through this process. Our work is extremely important and I look forward to demonstrating significant progress in our next call I will add that.
Speaker 4: I'll add that investors and analysts can reach out directly to Mark Sweden, our CFO , with any requests for meetings with management or with Mark.
Investors and analysts can reach out directly to marks we Dan our CFO with any requests for meetings.
With management or with Mark <unk>.
Goldston and.
We will keep you posted on our activities going forward. Thanks again, everybody I appreciate you.
This concludes today's conference call. Thank you for your participation you may now disconnect your lines.
Speaker 1: This concludes today's conference call. Thank you all for your participation. You may now disconnect your line.
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