The Beachbody Company, Inc. (BODI) Earnings Call Transcript & Summary

Great. So next, I would like to introduce Carl Daikeler and Sue Collyns, Beachbody's CEO and CFO. For those less familiar, Beachbody is a worldwide leading digital fitness and subscription company with over 2 decades of creating innovative content and powerful brands. Beachbody recently completed a three-way merger with Forest Road Acquisition Corp. and Myx Fitness Holdings, and recently reported its first earnings as a publicly traded company. So first, for those who are less familiar with Beachbody, could you give us a brief overview of the business?

Yes. Great. Thanks, Max. I'm so excited, actually, to be here. This is the first conference that we've had as a public company and looking forward to any Q&A. But to share a few quick thoughts, particularly for anybody, well, everybody who's just getting to know Beachbody as a brand, they might know us for our products like P90X, INSANITY. But while BODY, that's the symbol, is a new public company on the New York Stock Exchange, we're not a new company. We've been leaders actually in the at-home fitness category for more than 2 decades. And in that time, we've been focused on innovation that has set the business up for this next stage of growth with a very simple focus, help subscribers get healthy and fit. And by serving those subscribers well, achieve the highest lifetime revenue per subscriber possible. Now Beachbody is the only company that offers a complete wellness solution that brings together best-in-class digital fitness content and integrates it with easy-to-follow meal plans and high-quality nutrition and supplements. That, as a system, is what's proven to get customer results. We've been doing this for 2 decades. And we do it at a price point that's accessible to the mass market. That's an incredible opportunity because this is an incredible moment and, frankly, the evolution of fitness. Digital technology is transforming when and how and where people are working out. And we were early in digital adoption in this space, combining streaming technology with our deep library of what we consider to be the best content in the space. And this is what has allowed us to scale our business to what is today the leading subscription company in health and fitness. We have more than 3 million subscriptions. That's recurring revenue, which now accounts for roughly a full 75% of our revenue, along with some of the best margins in the industry. And it's important to note that we've achieved all this really by bootstrapping the business, largely financing it through operating cash flow. Now with the proceeds from this merger, we're poised to accelerate our growth and invest to grow our platforms, add connected indoor cycling through the acquisition of Myx Fitness and continuing to meet the needs of millions of members and what their preferences are and now really scale. And honestly, I've never been more excited about the future for this company. I'm surrounded by an outstanding management team. Joining me today, Sue Collyns, the President and CFO of the company. And just the quality of the business model, the focus of the business model and this moment in time, that's why I'm in it for the long haul, which is why I didn't sell a single share in the transaction actually. I'm all in. So guys, thank you for having us. Looking forward to taking any questions.

Great. That's incredibly helpful. So you guys have 2 different platforms, Beachbody On Demand and Openfit. Could you talk about the growth opportunity at each one? And then separately, how often do you generate new content? And how often do members use the platforms?

Okay. Well, let me take a minute to set it up. That's right, we have Beachbody On Demand, which is really the mother ship, the one that everybody knows, and this more boutique brand, Openfit. BOD is kind of like the Netflix of fitness, if you will. It's got more than 3,600 workouts, highly produced across 87 programs. And that, again, is -- the brand's P90X are the one -- that's sort of the one that is most familiar, even though it's 15 years old. Openfit is more like a master class of fitness, highly personalized, interactive and gamified. It's a completely separate experience and app, and the technology is a little bit more highly involved because it literally was launched for the purpose of serving people in a more personalized gamified way. And we've got incredible engagement with -- we're going to -- we're forecasting -- or we had 190 million streamed views in the last 12 months through Q2. It's a significant opportunity for growth across both platforms. But let me set it up if I can. When I say digital disruption of fitness, I want to put it in the context of seeing Beachbody's opportunity to really explain it. Think of it like the transition from big mainframe computers to the personal computer. People were intimidated by this idea of massive computing power, right? But it was a big part of business. Then Apple came along and simplified it and basically attached a typewriter to a screen and showed people that power was available to them. And the same thing is happening here. But in this case, you've got tens of millions of people who know they should be working out and eating better, but making the time to go to the gym or hiring a nutritionist to figure out how to get their food and fitness under control is impossible and intimidating to them. But here, Beachbody has simplified it with these 2 platforms. We put all this variety on these platforms and combine short workouts with the greatest trainers in the world that you can do in your living room with some dumbbells or a stationary bike like the MYX bike. And you combine them with easy step-by-step nutrition plans. And just like that, the solution is available to everybody. That's the digital disruption of health and fitness. People take Netflix and Disney+ for granted now. It's hard to remember life when we didn't have access to all this content in our homes. Well, here comes The Beachbody Company. And soon it's going to be hard to remember why we ever drove to the gym or went from fad diet to fad diet when this total solution that Beachbody represents makes it so easy and affordable. That is the digital disruption of health and fitness. And Beachbody is the only company set up to really scale into that opportunity.

Got it. That's incredibly helpful. And you touched on this, but on the connected fitness side, you recently rolled out a new MYX bike that connects to both Beachbody On Demand as well as Openfit. How has the customer response been to the new bike? And could you talk about the unit economics of it?

Yes. Well, I'll defer the economics to Sue. But first, we're very excited about Myx Fitness. And in fact, this is something that we've intended to do for over 15 years because now indoor cycling is so popular just by what we've seen in the boutique fitness space. But it's important to remember, we're just getting started, but we've got the opportunity literally in a matter of a year to be a real contender in this space because of the critical mass that we've already got. We've already successfully combined the Myx subscribers with our Openfit subscriptions, and they are loving the expansion of their content because the MYX bike has this 360-degree swivel screen so they can both do the Openfit content off the bike, but also they've got that Beachbody flare for content on the bike. And that's what we're looking forward to launching the bike into the Beachbody On Demand or what we call BOD, that's a fortunate acronym. That's where we have the bulk of our subscribers, and we launched the bike into that ecosystem in late September. That's a massive subscriber pool that is already giving indications of a high degree of purchase intent. So with Myx, we've got this great opportunity to capitalize on this white space that still exists in connected fitness. We all know there's a market leader there in indoor cycling, but they really just scratched the surface in terms of the people here domestically and, frankly, worldwide. We've got a compelling price point, a high-quality, commercial-grade bike and a differentiated experience. Because rather than focus on the competitive nature of the leaderboard, we're -- this is -- the Beachbody signature is making fitness accessible and, frankly, friendly to the user. And that's very scalable where we're measuring a person's heart rate and their cadence and giving them content that makes them feel welcome and gives it a sort of a warm community experience. And we're already seeing that people appreciate the fact that, that bike in the corner of the room now is a friend of theirs not this enemy that's challenging them. And so we're extremely bullish on it. But I'll let Sue break down the economics that we're experiencing.

Yes. Thanks, Carl. In terms of the economics, and you heard me say this in the last earnings call, actually, in the near term, we do -- we are experiencing some higher freight expenses and global supply chain challenges that have resulted in what we believe will be short-term increased unit cost for each bike and that's going to impact gross margins and adjusted EBITDA. But as those constraints ease and our procurement department is also able to renegotiate some prices, it's going to reduce pressure on those gross margins. So longer term, we think we can expand the bike margin as well through some thoughtful price increases, and we'll test into that as well as some volume discounts as we grow the connected fitness business. But I guess, as we think about it holistically, the real win is LTV as those connected customers are expected to be highly retentive subscribers for both our digital as well as nutritional offerings. And I think that's the key ownable point of difference with The Beachbody Company brand and our portfolio.

Got it. That makes a lot of sense. And the question that we're asking everyone, both today and tomorrow is, what do you view as the top trends transforming the health, wellness and beauty industry? And how do you captivate Gen Z?

Well, look, Gen Z is just coming into adulthood pretty much and trying to figure this out. And they do have a different sensibility than, say, my generation, I'll say, old people. So -- but at the end of the day, what Gen Z is growing up in is a world where well-being and fitness and activity level has a direct correlation to vulnerability of lifestyle, disease, type 2 diabetes, heart disease and obviously, COVID. The CDC has reported that your level of activity is one of the highest indicators of your vulnerability to serious consequences from COVID. And certainly, obesity is a contributing factor. So Gen Z is steeped in the imperative of making healthier food choices and staying more active. And that's why -- that's what's so beautiful about our business because while we're excited about the Myx Fitness connected bike, we get to reinvent our business literally quarterly with the content that we create. And that content is very cost effective. It's much less expensive or capital intensive to create the next P90X, the P90X for the new generation than it is to try to invent a new piece of equipment. And we drop new content into each of our platforms daily. And this is exciting, highly produced content. Some of it's live, some of it is more programs. We put 4 different programs into each library each year. So that's really where we get to use this feedback that we get from having a connected subscriber now versus the old days when we were in the DVD business. Now we're getting these inputs and learning the preferences in surveys that we take, exit interviews, exit surveys to understand what the subscriber base and then separate that into cohorts, which is so fundamental to our marketing strategy. We run a very simple business. We look for achieving the lowest cost of acquisition or the subscriber acquisition and the highest lifetime revenue to help a person achieve their results. And then we separate that pipe cohorts so our advertising is directing the right message to the right audience and that includes Gen Z. So what we're looking at is the trends, the preferences and the need states and developing fitness, and nutrition that appeals to the sensibility of that generation. And that's the beauty of Beachbody. We've been in this for 2 decades and we've had to evolve to the current sensibility at any given time. And that's again why I'm all in.

Carl and Sue, thanks for joining us. That segues nicely into our next question. Being holistic is a key competitive advantage. On the nutrition side, I'm drinking BEVVY today. What do you see here in terms of existing members trying nutrition? And what are the strategies behind having more members use nutritional supplements as well?

Well, let me be clear to the audience so that they don't think you're having a cocktail here that -- we have a supplement called BEVVY, which is a -- which helps -- it's like a sort of a tea, if you will, that's got some extra fiber. It's a very healthy way for people who want to get more water in their diet to have a drink that tastes good, have a beverage, if you will. We call it BEVVY, but it kind of sounds like you're having a cocktail. I just wanted to be clear to your audience, Oliver. But look, we've got a very strong nutritional business today. I'm surrounded by some of them here. It's roughly half of our revenue, largely through subscription, so it's recurring revenue with a broad offering. 25 different products with a number of exciting new introductions that will be coming in the next 12 months, very excited about what's happening. And again, in the need states that we're observing right now on the mass market, what is not being served to customers that will make achieving a better state of nutrition possible, easier for them. The majority of nutrition subscriptions also have fitness subscription tied to it. And we have the potential to increase our cross-sell for digital subscribers into nutrition, particularly on this touchscreen of the MYX bike. Because after a ride or during a ride, the trainer will have the ability to give people a promo code or put up a QR code, if you will, so that they can immediately directly go access the store and get the supplement that might help them, give them an energy boost, give them a recovery formula so that they get the best results. This is one of the areas that we are investing in with the proceeds from the transaction, and it's a really important fundamental to getting people the best results.

Got it. That's helpful. And I just wanted to sneak in a couple of questions that we had clients pass on to us. So first, your programs are proven for those who are consistent users. And so therefore, what are your strategies for changing consumer behavior to get those new users to become more consistent?

That is a great question and something that I'm so excited about. We are just literally in the beta testing mode of a new tier of the Beachbody On Demand platform. And what that tier will do is evolve or add a layer to the model, which is for the more, I'll call it, casual regular fitness enthusiast, okay? So like for me, I'm in the middle of a program that's a 3-month program. And then after that program, I'll take a little break. But I don't want to lose the gains that I made from that program. So then I'm going to do workouts on this new tier that we call BOD Interactive or for short body, BODi. And that's where we have live classes every day. And what that lets me do is that lets me participate 2, 3, 4 days a week with brand-new content without having to feel like I'm committed to a program, more like going to the gym. And it's got this huge LED wall behind the trainer where we're not just featuring beautiful scenery or graphics, but we've actually literally got a thing that we call the BOD test, which is our subscribers featured on screen, about 100 of them, behind the trainer and the trainer is actually making corrections to those users, and you get one of the most well-taught class because you're literally watching these users get corrected. So things that you might have never otherwise known that you were doing wrong, you're seeing get corrected on the screen behind the trainer. And because this is live every single day, it's kind of like almost a TV show, the sort of the home shopping of fitness where you're like, I just want to have it on back there to see what's going on, see what's going to happen on live TV. And we've got shout-outs and birthday celebrations and we'll have a special Halloween celebration. So we're excited about this extra tier because on one hand, it will be great for the user like me who goes from program to then maintaining and then maybe to another program. But it also gives us a bit of an LTR advantage because we'll be charging an additional $19.95 a month which is still cheaper than some of our competitors out there. So we charge $99 a year for the base Beachbody On Demand, let's call that our Amazon Prime, for our huge library of content. And now as of mid-October, we'll be charging an additional $19.95 a month for people who want access to the live content. And that gives us the ability to do these special events and constantly be evolving our content to attract more people, particularly the 62 million gym goers who have now discovered the convenience of working out at home. So we're super excited about that launch.

It sounds very compelling and captivating for members. So just one more quick one from a client. But on the last earnings call, you mentioned that part of the miss was due to the delay in closing the merger. And as a result, not being able to launch the marketing campaign. So just curious, how is the marketing campaign progressing now?

Yes. Sue, I don't know if you want to add anything to this, but I will say, it's actually going well. We are quite excited by telling the story. The campaign is called, every body is a beach body, which has given us the ability to show a very diverse audience and that it's not just about hard bodies and abs and muscles, it's about people loving themselves where they are and feeling great about doing something for their body. And the beautiful thing about this brand campaign is this is a top-of-the-funnel strategy, which is actually we're getting great advice from Kevin from Disney, Kevin Mayer from -- who launched Disney+, launched Hulu and ESPN Digital. He's been helping us understand the leverage between this branded advertising campaign leading into the funnel of our performance marketing, which we've been doing for 20 years. And we're already seeing indications that now the familiarity of Beachbody is going up where people used to only know the sub-brands. They used to know 21 Day Fix, INSANITY, 80 Day Obsession and so on. And now they're like, oh, those things come from this company, Beachbody. So it's early days, I will say. It takes a little while to build that brand. But we are definitely seeing certain conversion improvements through the ecosystem, and we know that, overall, in the social media environment, it is being noticed by our current subscribers, which helps with engagement.

Carl and Sue, one major question is the path to profitability. What are the main levers that get you to reach breakeven and key drivers for margin expansion over time?

We've historically been very profitable. In 22 years, in fact, our EBITDA has only been negative twice. And one of the key drivers of profitability is scaling and integrating the Myx business and then that margin expansion, generating the increased customer acquisition and digital subscription revenue as well as normalizing the marketing spend that's sort of low double-digit percentage of revenue. Pre, going public, it was sort of high single digit. Right now, it's high teens. So the goal would be to move that media spend to sort of low double digit, as I said. So those are key drivers. The other key driver, of course, is adding in the connected fitness and then doubling the LTR moving from just over $400 with the combination of digital and nutritional products, which we've had historically, but now adding in the MYX bike will enable us to double that to over $800. So that will give us a very stable digital fitness and nutritional content business. And as I mentioned, over the long term, the win is really LTV because those connected customers we know will be highly retentive to digital and nutritional offerings. I guess the last thing I'd probably comment on is the profitability will be impacted in the short term. And we knew that for '22 -- sorry, for '21 and '22, and it was a deliberate business decision to invest now heavily to build brand awareness and strengthen our competitive position because we don't think a lot of people are going to survive through this consolidation over the next 2 to 3 years. And we intend to be one of those winners and remaining very confident in the long-term opportunity that we see ahead.

Yes, if I can just add to that. I mean look, you focus on the thing you can be best in the world at, right? That's -- any great business understands you want to be competitive. You don't want to just be in business, you want to be the best in the world at it. And Beachbody, as a company, has been creating some of the most memorable content in history. But the business model behind that is managing this relationship between cost of acquisition and lifetime revenue. And we are constantly in a state of testing, now with the addition of the MYX bike, to decrease that cost of acquisition and increase that lifetime revenue. And we do that by layering in compelling content that attracts customers. And that's what we intend to keep doing. It's just being the best in the world at creating content that engages customers and increases lifetime revenue over their subscription life. So that's what we're going to keep doing.

Got it. And then currently, international is 11% of sales. What are your plans for expansion? And what countries are your top priorities?

Yes, it's a big opportunity. Right now, we're currently 99% North American. So our initial expansion, we look at it on a sort of a market-by-market basis, but we're looking at new territories over the next 5 years where we see the most potential for our brands to go. Obviously, English-speaking countries make the most sense, Australia, South Africa. We're already in the U.K. but expanding that presence. But we see great opportunity in Germany, Mexico, Colombia, New Zealand, Italy, the Netherlands. And then we'll start to work into the Pacific Rim and Asia. But the most important thing is that we are strategic about the way we do it and smart about the way that we do it. And part of that is one of the pillars of this transaction was to have the capital to be able to contemplate some M&A opportunities. So we might not just organically expand into these markets, but we might also expand through M&A activity.

Got it. That's very helpful. And how do you approach community building online? That's something that, obviously, a lot of the in-person studios have been focused on, but how do you make it work in a digital setting?

Yes. Well, this is something we've been doing literally for 20 years. We started -- back in the day, we had message boards, which gave us sort of the indications of the sort of the 3 fundamental differences to make in-home fitness work. You got to have great fitness. You have to have great nutrition. But you need to have community that you would otherwise experience at the gym. We've done that on the Beachbody On Demand platform with a technology that we call BODgroups, which is where we allow our users to create a group. And it's a bit of a growth hack, if you will. Because what happens is they create a group inside our ecosystem and then we give them the tools to upload contacts and invite people to join them, which has sort of -- as they're coming through the front door, these are the products, these are the subscriptions that you need to use. So we've got an ecosystem called BODgroups, which connects to all of the sort of it's -- sort of our own walled garden, if you will, of fitness, connects to all of the e-commerce and content. And then on the Openfit side, it's sort of the opposite where the Openfit side gamifies the experience and lets people push their experience out into their social media. So we're giving them resource to be able to go brag a little bit about what they just did, invite people to go on walks with them, do live classes with them, but that experience is shared out in the world where the customer already is, Facebook, Instagram, TikTok and so on. So we try to work it both ways, having our own proprietary, social community inside, but also making it very easy for people to share their experience out into their own personal social network.

Got it. And just as we close out, what are your key priorities over the next several years? And then also just any closing remarks?

Yes. Thanks. Look, the #1 priority that we've got is to help people achieve their goals, to help them lead healthy fulfilling lives. And that's what it's always been. And that's our barometer for product development and investment. But obviously, we want to run a great company, too. Free cash flow is very important to me fundamentally. And I believe that what is least appreciated is how differentiated our offering is because it's this combination of fitness and nutrition. It's a powerful flywheel that when people get results with our programs and they do, they become walking billboards that attract new people to the business. And that powerful flywheel helps us get new customers, get -- make more results and drive the sustainable subscription revenue and, very soon, profitable revenue to the business. So we're constantly strengthening that business, differentiating ourselves with great content, maximizing lifetime revenue, trying to be as effective and efficient as possible to create the -- to reach the total addressable market at the lowest possible customer acquisition price. And that's why I've just never been more excited about the opportunity that's ahead and looking forward to seeing how many people we can help in the process.

Sure. So Carl and Sue, for Oliver and myself, thank you so much for joining us this morning. This was incredibly educational and captivating. Thank you.

Thanks, Max.

Thanks, Carl. Thanks, Sue.

Thank you.

Thank you, Oliver.