Good morning. Good afternoon. Good evening. My name is Katherine, and I'll be your conference operator today. At this time, I would like to welcome everyone to The Beachbody Company Second Quarter Fiscal 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Eddie Plank, Beachbody Group VP of Investor Relations. Mr. Plank, you may begin your conference.

Good afternoon, everyone. And thank you for joining us for our second quarter 2021 earnings call. With me on the call today is Carl Daikeler, Co-Founder, Chairman and Chief Executive Officer of Beachbody; and Sue Collyns, President and Chief Financial Officer. Following Carl's and Sue's prepared remarks, we'll open the call up for questions. Before we get started, I would like to remind you of the company's Safe Harbor 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. Today's call will include references to non-GAAP financial measures, such as the adjusted EBITDA. A 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. Now, I would like to turn the call over to Carl.

Thanks, Eddie. Good afternoon, everyone. And thank you for joining us today for Beachbody's first earnings call as a publicly traded company, after closing our three-way business combination with Myx Fitness and Forest Road Acquisition Corp. on June 25th. With the addition of connected fitness to the Beachbody business model and the strengthening of our balance sheet with over $347 million in cash, we believe we've set the stage for a multi-year period of accelerated growth. Now, I know many of you listening are new to The Beachbody Company story. So before we go into a review of our recent performance, I want to spend some time discussing our business and operating model. Then our CFO, Sue Collyns, will talk through our second quarter financial results and our full year 2021 outlook. So over the past 22 years, Beachbody has grown from a pioneer in creating and marketing innovative, effective fitness and nutrition programs into a leading subscription health and wellness company, augmenting our core competencies and our massive content library with compelling new digital fitness content and proprietary nutritional products, proven to deliver results for our millions of customers. Now, while the fitness industry is undergoing a significant transition in this digital age, the underlying premise remains the same, as when we hung the mission statement on the wall of our small startup two decades ago. And that mission is to help people achieve their goals and enjoy healthy fulfilling lives. Today, this mission puts Beachbody at the forefront of a $1.5 trillion health and wellness industry that's expanding at a time when consumers are increasingly looking for effective affordable at-home digitally-enabled fitness and nutrition solutions with approximately 72% of Americans overweight or obese. And research validating the importance of good health and physical activity in promoting resistance to…

Thanks very much, Carl, and good afternoon, everyone. I'll start with a review of our second quarter and six months results to June 30, and then share our guidance for the full year. As Carl mentioned, our three-way business combination with Myx Fitness Holdings and Forest Road Acquisition Corp. was completed on June the 25th. And as a result, I've got the financials for the second quarter and six months ended June 30 only included five days of results for Myx. For full details regarding our financial results, please refer to our earnings press release and Form 10-Q filed with SEC, which are available on the Investor Relations section of our website. Before I begin, I just would like set the table on a few data points that impacted our second quarter results and have resulted in us updating 2021 full year guidance. First, last year’s COVID environment resulted in challenging comparisons beginning with the second quarter of 2020, as consumers began to engage in activities outside the home, which is why we thought it would be helpful to share the 2019 pre-COVID period as additional context. Second, the quarter delay and our closing of the merger with Myx resulted in a deferring approximately $12 million of Q2 previously planned media investment until the second half of this year. This impacted the sales momentum previously forecasted in our digital subscriptions toward the end of the second quarter and corresponding momentum into the second half of 2021. Finally, transparency has been extremely important to us. So let me reinforce Carl's point that we won’t sugar quote volatility of the current environment, nor the uncertainty and consumer behavior created by COVID variants and other macro conditions, which is why we're updating our full year 2021 guidance. Now, turning on to our Q2…

Thank you, ma'am. [Operator instructions]. And our first question from Jonathan Komp of Baird. You may ask your question.

I guess the first question I wanted to ask, when you talk about some of the volatility, and really more of what you're seeing in the current environment, could you just share a little bit more of what you're seeing from the core consumer, and any thoughts about how that plays out, maybe into the back half here?

Sure, I’m happy to respond and then Carl feel free to jump in. So -- and I’d actually like to point that, relative to the front part of the year and also talk about some current trends we're seeing in terms of July and August activity. So to be very clear, the front part of the year was very strong for us. And we were -- on Beachbody side, our revenue was within -- actually less than 1% of budget mix. So, we essentially hit on target on the revenue side and also we actually beat our target on the EBITDA side, that is a result of the media delay. The new product releases launched on time and are doing very well. We're executing on the initiatives. And of course, now we've got some increased purchase intent from our coaches from the MYX bikes, which has involved us to increase the forecast. And of course, we're now ramping up media by that additional $33 million. So, first half of the year was very strong. The timing difference in some of that volatility that you see reflected in the forecast for revenue is really that campaign launching, which isn't really launching until later this week, earlier next week, which is forecasted to take a couple of months to build momentum, or incrementality in terms of subscribers, but our base is strong. And to share some insights into July as an example, DAU/MAU is below prior year by 330 basis points, but it's still up to 80 basis points over 2019. Retention, as I look at that metric, is also very strong. So far, it's actually 60 basis points better than prior year, and 10 basis points better than 2019. And stream, you might know that we had a peak, the July and August were peak COVID spike in the second half of 2020. But our streams so far in Q3 are below 2020 with a [52%] over 2019. So, the business is holding up very well. And what you really see in terms of that revenue reduction is essentially driven by that media deferral.

Yes, and I also think that, the -- despite the delay in the transaction, which has a bit of a ripple effect on how -- on things that we can actually put into the marketplace in-year. We are very excited by the launch of what we're calling BOD Interactive, and if you recall from earlier presentations, this idea of adding an additional subscription tier for $19.95 a month, basically is upgrade for our base Beachbody On Demand subscriber. That went into beta testing just this last couple of weeks, and we've had a very positive feedback on that additional layer to the business. It opens up our total addressable market because we're really appealing now to fitness people who want to work out 2 or 3 times in their home, maybe not follow a program, which is the traditional business model that Beachbody's followed. And now we're seeing people who might not be in the middle of a P90X round or an INSANITY round or 21 Day Fix, but they just want to work out a few times a week. And now they, for the first time ever have access to the super trainers live, a few times a week. And like I said, this has just started the beta test, but the feedback that we've gotten is incredibly positive. And it's with that layer that we'll also be able to introduce the bike to this large subscription base of Beachbody On Demand, which is why we've increased some of those forecasts because anticipation and surveys of purchase intent are very strong and we're excited to get all of that underway. Unfortunately, we just delayed by about a quarter, so we're not going to be able to get that started until late September. But based on the indications that we've got quite honestly, we feel very good about it. At the same time, we're taking a view that lets everyone know that there are uncertainties in the market, including the variants and the reaction that people have to the dynamics that are evolving every day. So we just -- we wanted to take an approach that is transparent and doesn't overpromise. But, nonetheless, feel very good about the initiatives that we finally get to put into play, now that we've closed the deal.

That's very helpful. And maybe thinking forward to the second half sort of the embedded guidance. Can you share any more thoughts of how you crafted the guidance so that -- it looks like for the second half in total, there is maybe an acceleration and sort of a two year revenue growth rate. And I know you're including Myx in the second half. So any further thoughts on how you crafted the second path? And then maybe of the initiatives you just mentioned, how should we think about the biggest drivers in terms of incremental growth that you're expecting?

Most important drivers always are incremental subscriptions. And as you mentioned, the introduction of the bike into both the Openfit ecosystem and The Beachbody ecosystem. And so, based on feedback that we've gotten from the database, we've gotten a certain degree of confidence and that is reflected in the numbers that Sue has presented. Likewise, the conversions that we've seen of The Beachbody On Demand -- current Beachbody On Demand subscriber into this upgrade of an additional $19.95 a month, has performed as good as, or better than perhaps we might've expected in the first months that we've started to message Beachbody On Demand Interactive. Finally, the introduction of the super trainer Jennifer Jacobs, who if you’ll recall, she was -- used to be a Peloton instructor. She has a program coming out in early December, which we've gotten very strong enthusiasm around that concept that called job one, a month long program of 20-minute workouts, which is a really popular formula and are sort of the lexicon of what we've created over the years. And sort of adding these multiple initiatives together, gave us the confidence that we could put these numbers forward and not be overpromising. And like I said, there are a number of dynamics that we're looking at and trying to understand and we're using the most current behavior to indicate how we go about adjusting that forecast, rather than expecting things to all of the sudden change. Or that we have a crystal ball that is more clear than it currently is with all the various dynamics going on. But it's really those -- it's the bike, it's Beachbody On Demand Interactive. It's the launch of the new program in late November, early December, and the indications that we're getting in purchase intent on those three things.

And mathematically, I think the only addition I would have and you'll be able to do this math, any one on the call will. But pulling down the revenue forecast, because of those subs not coming in, in June, early July, as the media campaign would have otherwise had us budgeted results in a reduction in revenue of between $100 million to $130 million, right, between the second half of the year, and with 25% of that revenue occurring in Q3 and the balance essentially occurring in Q4. And the reason for that, of course is because even though the media campaign is launching later this week, and next week, it's going to take a while, as I mentioned in the prepared remarks to get momentum behind that. We don't anticipate subscribers really being driven until the fourth quarter. So that will help spike our Q4 earnings over the Q3 run rate. And then I think the other -- in terms of sales composition, you're obviously going to see -- because we're only able to book $88,000 of revenue that makes in second quarter for the first six months, you're obviously going to see, greater share of sales for Myx. And we're currently forecasting around 25,000 units of sales of the bike in Q3 with the balance in Q4, so that you should be able to update your models with that kind of information and get to a pretty good sales composition.

Maybe just last one for me. When you think about the plans to ramp the investment here in marketing and other initiatives, just maybe comment on what's driving your confidence relative to some of the volatility you're seeing? And then how should we gauge the payoff that you're expecting from the investments? Is that more a ‘22 expectation that we should see some benefit? Or how should we overall view the accelerated investments?

Yes, mathematically, I'm not expecting a financial benefit from that in a material way in 2021, which is why we also pulled down corresponding EBITDA guidance. So in terms of that EBITDA bridge from like the loss of negative 30 million to the range we have now of negative 100 million to 110 million. That's basically broken up, as a result of three drivers. One is that incremental $33 million of media and not expecting to driving incrementality this year. Just expecting it to drive real subscribers. And we'll see a bit about revenue in Q4, but it really help us in '22. Two, the flows through over about 25% on that reduced revenue. And three, we do have Myx costs of goods pressure in margin in the mid-teens. In the budget that we had the reality of a mid-teens to us right now. So that's impacting EBITDA. But in term LTV to CAC and the disciplined approach that we have to spending money in terms of media dollars, in terms of performance based marketing versus brand awareness and some doing some of the top of the funnel work we're doing now, we're adopting the same approach that we always have that we're expecting most of the brand awareness to accrue to 2022.

Yes, I'll also add. We've got ongoing iterative testing that we are seeing wins along the way, which is how we've always operated. So conversion of visits, click to order ratios and so on where we're seeing productive wins. And that's always the way we’ve run the business so that over the course of time, we just get more efficient and more efficient and more efficient. And then as volatility in the media marketplace starts to stabilize, we get to roll those efficiencies into our media spending. So we're excited by -- one of the reasons that we would be expanding our media buys because we've seen enough indications that it will have a positive outcome. Capital allocation is very important to us and it's exciting to have the resources now to really do that. And we feel like we've got the right makeup of the business model to invest that media into. So we're quite excited about it. But both in terms of, what it might do to obviously affect some of the numbers in the second half that undermines near term. But we do feel that long-term finally Beachbody will be on the map both as a brand and in terms of the accelerated growth that we're all expecting.

And we our next question from John Heinbockel of Guggenheim.

Carl, I want to start with, when you think about the $33 million of incremental investment, right, so BOD is an opportunity, Myx is an opportunity. And how do you think about allocating that to the various brands? And where's the biggest payback likely right over the next year or two?

I think that the investment in brand, in the Beachbody brand because of the critical mass of Beachbody and its subscriber base and our micro influencers, you can imagine how powerful the brand awareness campaign can be to the various levers. So we've got performance marketing that's already running, but now we'll get the benefit of some uplift of what quite frankly is, I'm embarrassed to say after 22 years, not as many people are as familiar with the Beachbody brand as I would like, but that is an incredible opportunity for improvement. So brand marketing going into Beachbody, plus supporting our coach influencer network with brand marketing. So they're talking about a brand that people will actually recognize. So that's a very important aspect of this increase in advertising. Likewise, Myx just came out with a second version of the bike, literally this month or in August. So, we just -- they just launched what they call MYX II, this bike exceptional from design and function and stability. It really – when -- as people start to see the marketing behind that bike and the storytelling behind that bike, it is superior to what's on the market, particularly at a price point that's 20% to 30% less than the competition. So, we've just literally in the last week started to get that word out. But as people start to understand the difference in features, the fact that you don't need to change your shoes between doing a workout on the bike and then getting off it to do some functional fitness or the fact that this little screen goes 360 degrees, so, you can do some of our Beachbody content, off the bike get on the bike. These are the things that we specialize in and have done for 22-years that to be able to apply that expertise to this new innovation in stationary cycling is extremely exciting to us because the Myx business model was very strong going into this transaction. And we expect to just complement that. Now I will say, we're going to be quite smart about the way we do that, because we're going into the third quarter, media rates are [squirrely]. So we're doing that smart. But we're doing it again, with the mindset of what we've represented to the marketplace as we went into this transaction, that we are poised for growth, we are raising this money for growth. And that's what we're investing in. We're doing it responsibly, but we understand what our directive is, and our investors are expecting a growth story. And we're applying it to the levers where we think we can achieve the highest growth and return on capital as quickly as possible.

And mathematically, I'd just say it's about 70-30 in terms of the split between sort of the Beachbody and the Openfit side of the business versus the Myx investment in media in the second half of the year.

And then second, real quick, I know there’s a big opportunity on the cross-sell right? Digital to nutrition. How quickly can you get that? And then certainly from '21, is it something you can get up by middle of '22? Or is it after that?

You mean on the touchscreen?

No, cross-selling digital subscriptions to nutrition subscribers?

Well, that's ongoing. I mean, that's part of the model now and it is the low fruit on the tree to increase the attach rate, not just because it makes good business sense, but because it makes good sense for the customer. So, the opportunity to communicate that quite frankly, this is another one of the exciting layers that, that happens when you add content. Now -- so on the Openfit side, we create 400 live workouts per week, they have just started to institute the cross-sell strategies into those 400 live workouts to help people understand that they can get more power from a pre-workout formula or recover faster with a recovery formula. Likewise on The Beachbody On Demand side, we're now going to have 40 new workouts with our super trainers produced each week starting in late September. That's an opportunity for us to re-emphasize and reengage on the cross-sell opportunity of the supplement line. We have 25 different SKUs across our supplement line. So, that is something that we expect to only ramp up here in third quarter and particularly September, October, November and December as we roll out this live content. So, that's an important part of this, but I do want to mention we are also engineering the prospect of touch screen ordering into that tablet, that's on the MYX bike, which is a very powerful opportunity for us. And it'll be done in a couple of stages, but by the end of 2021, we expect that to be fully functional. So, that with effectively one touch, since we've got your order information, you'll be able to buy a meal replacement shake, a pre-workout shake or a recover shake. So it will be fully functional technologically by the end of the year, but it is operational right now through the advent of the live content.

And our next question from Linda Bolton Weiser of D.A. Davidson.

Hello. So, I was wondering, you have mentioned in your discussion of results some hard comparisons in prior year, I guess because of COVID driven growth. Can you just kind of elaborate on that and talk about which -- was it both sides of your business that benefitted during COVID both the digital and the nutrition side? Because I'm seeing that nutrition revenue was up about 5% in 2020, so that seems kind of normal to me. So, was it really the digital side that benefitted? Can you just talk about those COVID effects on your business? Thank you.

All right. So, the -- similar to the prior question, the nutritional business really follows the digital business by and large. So, last year we saw growth in nutrition file as we had more subscribers. But we also had people who were displacing perhaps their gym membership. And so we saw a increase in digital subscribers that was faster than the increase in nutritional subscribers. We have since gained some efficiency, but we're still seeing a shift in product mix, if you will. Shakeology has been the primary product of the company, that dominant supplement that we've sold for the last few years, and we have seen a shift in that product mix from Shakeology perhaps to our pre-workout and our post-workout formulations. But I don't necessarily think that, that shift in revenue is COVID related, not on those two, if you want to speak to that. But I don't think that we can correlate the COVID environment to the change in that relationship.

Okay. So, can you kind of like talk a little bit more about the profitability here? So your projection for the year went from a $30 million EBITDA loss to about $100 million. So $30 million or so is the incremental media marketing spend. So is there any way to put like the other $40 million of increase in the loss for the year? Is there any way of making buckets to explain to us, like the reasons for the $40 million reduction in profitability? Like, can you say that, a certain amount is supply chain and certain amount is something else? Can you just kind of bucket it for us if you could?

Sure. Hi, Linda. Yes, I think you're definitely thinking about it correctly. We definitely got pressure on EBITDA as a result of the additional $33 million in media, and then the balance is broken up into two key areas for us. One is Myx cost of goods pressure and that's what I mentioned before those, both -- that gross profit that we had in the budget, of course, is really a mid-teens loss. And so that's actually about $15 million. And the rest represents flow through on the reduced revenue estimate of between 100 million which gets you to the 930 million to not the 960 million or 130 million, which gets you to 930 million.

Thank you. That's really helpful.

Yes. The flow through is really -- if just look at the cost of goods margins and then adding the balance in coach costs you are sort of getting to a 25% flow-through on that.

Okay, thank you, that's very helpful. And then can you just talk about your longer term views on profitability? You had really projected to be profitable on an EBITDA basis in 2022. Do you think you can still be positive EBITDA in 2022? Or -- I don't want to make projections about next year now but are we looking at positive EBITDA do you think in 2022?

So it's a little early to update our full year 2022 guidance, because, while revenue is obviously governed by GAAP, and even though we met the revenue in the first half of the year compared to our budget essentially, and we beat the EBITDA. We’ll stick on the quarters now in the second half of the year, which is why we lowered the guidance is the fact that subscribers can occur on the last day of the year. And that really drives results for the subsequent year, right? So the launch of BODi in September is obviously going to be a key data point as will be the success of the media campaign, as well as some other conversations that are currently in place, but it's too early to forecast the change to subscribers at this time or EBITDA or anything else that would impact anything other than 2021. But we’re seeing directionally how things are unfolding in the next quarter.

Okay. And then, this is just kind of like a bigger picture question on your business. Your nutrition business is a direct selling model. And as you've mentioned, you have all these coaches, 400,000 coaches out there, and they're earning commissions. So you're paying them out of your profitability commissions to the promoters of your products. So, why would your model require such a large kind of marketing or media investment on top of the investment in your network of coaches?

As I mentioned, the business model has always been or certainly for the last 15 years or so, been this combination, quite synergistic combination of performance marketing, and the coach or influencer model. That influencer model benefits from the performance marketing. Now while we still expect the performance marketing to achieve a certain profitability, and that's a bit -- that's shifting as we're adding a layer of brand marketing on top of it. Part of the premise of this entire business model is, as we support those coaches who do incredibly important work and only get paid when they are successful at bringing in new customers and helping them get results, the more we can help them have an ecosystem and a company with a reputation that they can point to and say, “Hey, this company does good work, and they handle all the transactions and they handle all the inventory and they stand behind their 30 day money back guarantee.” We need to make that, we need to sort of make that ground fertile for them and more productive. And that's something that we've benefited from frankly since we launched this company as having this dual approach of supporting them with marketing and sales efforts that tell the story of the product so that -- so if I opened up a conversation with you and said, “Hey, I'd love like right now I'm doing a program called 645.” And if I said, “I'm having an incredible experience with this.” And you could say, “I saw that, I saw that on a Instagram story ad, that looks like a pretty cool program.” Now I've got a -- I've triangulated that, and I've got a better chance of bringing you into my group. And that's the synergy that we've seen over time that we're hoping is only enhanced by the brand marketing efforts. And in fact, we have shown our brand marketing advertisements to the coach community, and they're quite excited to both share that and the -- media unto their own, but also to benefit from the additional exposure of the parent company. So it's a synergy, that's really the bottom line.

[Operator Instructions] Our next question is from Daniel Adam of Loop Capital Markets.

Sue, I think you may have mentioned this in the prepared remarks, but just to make sure I got it correct. Did you say that, that Myx contribution to revenue for the full quarter was $14.6 million if there was assuming a full quarter of contribution?

Exactly. Yes. You are seeing -- Daniel, if you go to the 10-Q and you go to Item 5, you will see the amounts by quarter going back to Q2 of 2020. Yes, so it was $14,265,000. But unfortunately, because we could $88,000 of that revenue.

Okay. Got it. And what was the EBITDA loss, I'm assuming?

We don’t report that partly because EY not mixes order sales and so we would be kind off on it. But you can imagine that given the supply chain constraints together with the general shipping and handling surcharge with everything going on, that's continuing to impact the EBITDA in a similar that it might have in the first quarter.

Okay, great. That's it for me. I appreciate it. Thanks guys.

Okay, operator I think, with that we can probably conclude the call and…

Yes, ma'am. And there are no further questions at this time. I'll turn the call over back to Carl Daikeler, CEO closing remarks.

All right. Thanks so much. Look appreciate everybody getting on the call today and more so that you care about the mission of Beachbody and the opportunity ahead for the company. We -- I feel we do some important work helping people improve their overall health and fitness and as such, our investors and thoughtful insights of the analyst community really plays a vital role in unlocking our ability to reach more people. And I know that the expectations is that, that we run this company with an emphasis on growth and with 22-years of experience and having just accumulated the resources to make our brands into household names. And with some of the most exciting innovations in our history right on the horizon, we're going to pursue that growth and look forward to sharing results at the next opportunity that we have. So thank you, everybody, and have a good night.

This concludes today's conference call. Thank you all for joining. You may now disconnect.