The Beachbody Company, Inc. reported a wider loss in the first quarter due in part to an inventory charge related to its connected fitness bikes. Sales declined 12 percent; however, revenue and adjusted EBITDA came in ahead of expectations.
“During the quarter, we saw a positive response to new product launches, we continued to enhance subscriber lifetime value, and we remain focused on the highest return customer acquisition opportunities, while tightly managing expenses,” said Carl Daikeler, Beachbody co-founder, chairman, and chief executive officer, on a call with analysts. “While there’s still more to do, our performance in the first quarter is an important first step; one we’ll build on as we continue to advance the strategy over the course of 2022.”
Last year, Beachbody, based in Santa Monica, merged with Forest Road Acquisition Corp., a publicly-traded special purpose acquisition company, and Myx Fitness Holdings LLC, an at-home connected fitness platform featuring a bike and home studio, to become a public company. The company owns the Beachbody On Demand streaming platform, including its live digital streaming subscription BODi.
Total revenue was $198.9 million, a 12 percent decrease compared to 2021 and a 6 percent decrease compared to 2019. Results were well above guidance calling for sales in the range of $170 million to $180 million due to successful launches, including its fitness program, Job One, in December followed by the rollout of the 4-Week Gut Protocol on March 15.
“The response to the launch of our Job One program was incredibly positive as its 20-minute format capitalizes on the need for workouts and nutrition programs that aren’t only effective, but also easily fit into our busy lives,” said Daikeler. “More recently, the launch of the 4-week Gut Protocol program outpaced early expectations, driving nutritional upsells among existing subscribers, as well as new customers. This performance supports our thesis that integrating nutrition and fitness and offering a total solution is a compelling value proposition to both existing and new subscribers.”
Digital revenue was $1.7 million, a 14 percent decline from the prior year. Two-thirds of the decline was due to a reclassification of business service fees from preferred customers out of digital and into nutrition and other revenue. Adjusting for the geographic shift, digital revenue would have declined 5 percent.
Digital subscriptions decreased year-over-year against a challenging 41 percent comp increase from the first quarter of 2021, but were up 48 percent against the first quarter of 2019, reflecting solid adoption of digital fitness compared to the pre-pandemic baseline.
Engagement was down versus the prior year but increased by 200 basis points compared to 2019. Quarterly retention levels remained solid throughout both last year and Q119.
Said Daikeler, “Our launch calendar for 2022 has so much innovation with unique Beachbody offerings that will build on this growing demand for solutions that serve our subscribers entire wellbeing, from gut health to reducing anxiety from losing weight to building muscle, that just giving people an easy-to-follow gateway to get themselves back on track.”
Connected Fitness’ revenue was $19.5 million, with 16,600 bikes delivered compared to 11,900 delivered in the first quarter of 2021 on a pre-merger basis. Engagement in the first quarter was higher amongst digital subscribers who own a bike versus subscribers who don’t own a bike.
Daikeler said home indoor cycling “is a competitive space, but the Beachbody on-demand experience is really in its own category,” pointing to the value delivered by Beachbody’s package of engaging content and nutrition guidance, including meal plans and recipes, delivered to the user’s bike screen.
“We continue to ensure that the bike and digital subscription is priced competitively,” said Daikeler. “But ultimately, it’s the superior Beachbody content and holistic experience that defines our value proposition. We’re pleased with the demand for the bike in the first quarter and we continue to build brand momentum across our entire user base with approximately 2.5 million subscriptions.”
Nutrition revenue was $97.7 million, down 25 percent. Historically, fitness innovation and digital acquisitions have been key drivers for the nutrition business, along with new product launches that serve multiple needs states. Said Daikeler, “With a strong pipeline of product innovation, and enhanced merchandising capabilities, we’re confident in our ability to return momentum to the nutrition business.”
Gross margins eroded to 47 percent of revenue in the first quarter versus 70 percent last year. Over 80 percent of the year-over-year reduction was related to the negative margin in the Connected Fitness segment that was impacted by a $14.9 million charge to quarter-end bike inventory, competitive pricing and higher shipping and freight costs. The remaining 20 percent was due to higher content production costs and additional COVID-related supply chain surcharges.
The net loss was $73.5 million, compared to a net loss of $30.1 million in 2021 and a net income of $7.5 million in 2019. Adjusted EBITDA was a loss of $19.1 million, compared to a loss of $11.7 million in 2021 and a profit of $22.0 million in 2019. The forecast has called for an adjusted EBITDA loss in the range of $20 million to $25 million.
Looking ahead, Beachbody said it expects to realize a combined adjusted EBITDA loss improvement and CAPEX reduction of approximately $120 million, $10 million more than previous guidance, compared to 2021.
For the second quarter, Beachbody expects total revenue of $175 million to $185 million and an adjusted EBITDA loss in the range of $7 million to $12 million. In the 2021 second quarter, total revenue was $223.1 million and the adjusted EBITDA loss was $4.4 million.
Said Daikeler, “Our results in the first quarter are encouraging and demonstrate the consistency and agility of our content-driven business. We aren’t bound to equipment or even technology to help customers get results. We create world-class content. We’ve done it for over two decades. And we test it to make sure it delivers results that outperform the customers’ expectations. Then, roll it out and let the coach and customer who get results be the most effective promotional channel in the industry. That creates a unique advantage. One that’s especially important when the environment is dynamic as we’ve seen over the last year.”
Photo courtesy Beachbody