Good afternoon, ladies and gentlemen. Welcome to the Beachbody Company Third Quarter Fiscal 2020 Earnings Call. At this time, all participants are in listen-only mode. [Operator Instructions] I would like -- this call is being recorded. And I will now turn the conference over to Eddie Plank Richards Group Vice President of Investor Relations. Please go ahead.

Welcome, everyone, and thank you for joining us on our third quarter 2021 earnings call. With me on the call today is Carl Daikeler, Co-Founder, Chairman and Chief Executive Officer of The Beachbody Company; and Sue Collyns, President and Chief Financial Officer. Following Karl'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 SEC filings, which includes today's press release. Today's call will include references to non-GAAP financial measures, such as 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. And now, I would like to turn the call over to Carl.

Thank you, Eddie, and good afternoon, everyone. On today's call, I'd like to provide some context on the current environment, including the shifts we've seen in consumer dynamics, what we've learned from them and the actions we're taking to optimize Beach Body's performance against a challenging backdrop. Before turning to the details of the quarter, I'd like to underscore two important points about our business. First, we have a differentiated offering, a leading position in the mass market and an extremely resilient business model with 3 million highly loyal and engaged customers that provides us with a significant opportunity to drive LTV through our diverse catalog and comprehensive product offering. Second, the solid subscription growth we delivered versus the 2019 baseline reflects the strong long-term secular trend of demand for digital fitness and quality nutrition. Taken together, I'm confident in our future prospects despite the confluence of factors that impacted us during the quarter. Now, let me get into specifics. After results in July and August that were generally in line with our expectations, September was more challenging than we anticipated. -- softer consumer demand, a challenging media environment and delays in key product launches and rollouts resulted in new subscriber acquisitions that were below our expectations. This was despite strong retention among existing subscribers. The team and I are taking decisive steps to respond to results, improve customer acquisition and lifetime value metrics and get us back on course to deliver on our long-term outlook. Make no mistake, as the single largest shareholder as well as CEO of Beachbody, but more so because I believe in the importance of our mission to serve as many people as possible; this is deeply personal to me. Our results are unacceptable. But at the same time, I can see very clearly the…

Thanks, Carl, and good afternoon, everyone. I'll start with a review of our third quarter results and then provide additional context around our updated guidance. Like others in the industry, the volatility in consumer demand we experienced in the third quarter as the economy began to reopen, was greater than anticipated. But looking past the near-term turbulence, we remain confident in our unique value proposition and the long-term secular tailwinds at our back. In the meantime, we're controlling what we can control, maintaining our strong cost discipline and using the flexibility of our business model to our advantage. Importantly, our performance versus 2019 is evidence of strong digital fitness adoption and retention and reinforces our conviction in the market opportunity ahead. During my remarks today, I'll include comparisons to 2019 and 2020 as each provides [indiscernible] context. Turning to our Q3 results. Total GAAP revenue of $208.1 million decreased 17% year-over-year, however, increased 6% over the third quarter of 2019. As Carl mentioned, July and August performed largely in line with our forecast. Approximately 75% of our Q3 revenue shortfall versus forecast occurred in the month of September, driven by the delays in product launches, a more pronounced slowdown in consumer demand and a media investment that fell short of subscriber acquisition goals. Moving on to the components of revenue. Digital revenue was $94.1 million, a 5% decrease compared to Q3 of 2020 due to the reasons I just described above, but increased 38% compared to Q3 of 2019. Compared to last year, digital subscriptions increased 1% to approximately $2.6 million in the third quarter and increased 55% over 2019. In terms of engagement, daily active users to monthly active users or down now was 29.6%, down 250 basis points versus prior year, but up 20 basis points versus 2019.…

Thank you, Sue. Before opening the call for Q&A, I wanted to provide some perspective on the long-term opportunity for Beachbody. My confidence in our future is unwavering. There are millions of people out there who are looking to transform their lives to be healthier and happier. Our solution is unique in its ability to enable them to get to a healthy lifestyle through rich experiences created by bringing together the best fitness content and nutrition products alongside community support and accountability. Nobody does it quite like Beachbody because we don't cut corners, and we focus on the best possible customer experience and results. The pandemic showed people that working out at home is effective, efficient and economical. And technology, combined with an emerging hybrid work model means now more than ever, the home can and should be the greatest health center in everyone's life. And it's not just technology for the sake of technology. It's about technology, enhancing the human experience, the connection and accountability that is so critical in helping people achieve their goals. That's the premise of BOD Interactive, of Openfit, of the Connected Bike and of many of the exciting new products in our pipeline, and we'll continue to do what we've done for 23 years, invent, innovate and refine with a relentless commitment to our mission of helping millions of people achieve healthy and fulfilling lives. That is what we do. We'll stay agile, adjusting and adapting and [Technical Difficulty].

Marketing spend. I guess I would expect Gusto maybe decline again sequentially in the fourth quarter. Is that a fair assumption? And then if that's the case, -- So you head into the first part of 2022 would possibly subs actually down year-over-year?

Yes, it wouldn't surprise you, Linda. I think your instinct is right, that what happens in Q4, even though we have a lot of renewals on the digital side of the portfolio, customers typically make other nutritional choices in Q4 from Thanksgiving on. And so we'd expect that nutritional file to continue to decline, and that's in line with seasonal trends. As we go into Q1 of next year, even though the heavy lifting has been done in terms of many of the product launches associated by interactive as well as the integration of mix on to both platforms. We are lapping a pretty big increase in digital subscribers and nutritional subscribers from last year, and would expect that to take time to build?

The only thing I would add, Linda, if I could, is December marks one of the biggest launches of the year for us, which takes us our coach network into the first quarter. This year, it happens to be a program called -- I mentioned called Job 1, which is 20 minutes a day, five days a week. And as you can imagine, quite marketable. So the seasonality of what Sue was mentioning, is offset to a certain degree by the fact that the coaches and the indications that we're getting are quite enthusiastic about this program, and we do see quite a bit of activity around that launch, which kicks off in the first week of December.

Okay. And then can you just talk about -- when you talk about events with the coach network, are you talking about a convention like a live convention versus a virtual convention. And if so, usually those live convention expenses are quite a bit more than virtual. So are we facing a real negative expense comparison in that business kind of going into 2022?

Not at all. First, just to describe that. I'll let Sue speak to the actual expense. But we've been doing events with this business model for over 10 years, and they're actually quite productive for us. But there's two kind of events that we finally got to experience in October. One was a leadership event where we get to get -- we get to bring our most proactive coaches, the people who are helping the most people together to talk about the product launches that are coming in the third and fourth quarter and into the first quarter. This is where we got to celebrate the addition of the bike to the platform and the launch of our BOD Interactive platform. The other type of event is something that we call a Super Weekend, which happens actually at the coach expense where what we call market councils pulled together and put on many conventions on their own. We do send our super trainers and I also travel to many of these events, and it gives us an opportunity to meet with the other coaches that didn't come to leadership to give them that same visibility to the product lineup ahead of us. So this particular event was the combination of leadership and then explaining what's coming to the entire network in the fourth and first quarter in our quarterly super-weak event.

Yes. And just back on that question, Linda. All events costs will be part of the guidance we share for FY '22. But I'll just tell you directionally, they'll be in line with sort of pre-pandemic expenses and nothing out of the ordinary.

Okay. And then, there's a lot going on with Peloton. And one of the things going on is they seem to have lowered the price of kind of their entry-level bike. So the price gap between you and Peloton has probably narrowed. So is that the case? Are you taking action to kind of maintain the gap in pricing? Or can you just talk about kind of the pricing environment on the bike side?

Yes. I can't speak to their strategy necessarily, but our strategy finally can be about bringing this incredibly high-quality commercial grade like to our 3 million subscription holders and doing that with the most immersive, exciting platform frankly, in digital fitness in what we call BOD Interactive. Just today, we put up our Black Friday special, which will go up through the end of the month. So we expect to lean into this business model, which we believe has a lot of runway because as we've seen over a decade, this is a very marketable genre as Fitness goes. What started with spinning and has now evolved into the home is something that gets people results, and that's what Beachbody has been about since we launched the company. It's unnatural to be a part of what we offer. And we finally, like literally finally are getting to offer it to our database; so we're quite excited by it. We think we're price competitive, but more so, our content and total solution, including nutrition, will give the customer the results that they're looking for. So we feel quite good about the direction that it's going and especially going into the first quarter.

And I know that last quarter, you had actually raised your projection for unit by now, I believe, to 95,000. Do you wish to modify that or give any sort of a projection now for the year in terms of like sales?

Yes. I mean we're obviously taking a more conservative approach, as I said, in relation to the bike units from that guidance we shared on August 12. You're right, it was around 95,000 on a pro forma basis as if we own mix for the full year. And now, in reality, we've moved it down to about 60,000. And that's due to really three factors: one, the reduction in consumer demand and the consumer distraction that Carl spoke about to that delayed launch of BODi, which impacted the Q3 results; and three, taking those learnings from Q3 and the delivery issues during the holidays. And basically, what we've done now, Linda, is eliminated a full month of revenue in Q4 for the bike. So even with that reduction in the 60,000 units now on a pro forma basis for this year, it's still more than double the number of bikes that mix sold last year, I think it came in around 27,500...

Okay. And then, my last question is just having to do with cash flow. I mean it looks like your operating cash flow in the quarter was, I don't know, somewhere around negative $100 million something like that. So I mean, what do you think their cash balance is going to be like at year-end? I mean, do you think it will be over $100 million? Or what's kind of your view on the cash flow side of things?

Yes. Well, as of the end of Q3, as you know, we've got about $200 million of cash, and we have no debt. And of course, an extremely resilient business model with more than 75% of the revenue stream being subscription related. So that's a really strong foundation. In our Q that we actually just released , you may not have gotten to it yet, but we did terminate our credit facility in November. It is only the line that was only $35 million, and we've established premerger and the intent is always to secure a larger facility post-merger. So the termination of that line is in line with the plan. But we plan to go out, and we are very confident of securing some ample capital to fuel the growth, primarily for working capital needs, things like inventory, CapEx, marketing opportunities and in due course, possible M&A. And yes, I mean, at the end of Q4, we'll definitely be above that $100 million mark.

Okay. Thank you very much.

We have your next question from John Heinbockel with Guggenheim. Your line is open.

Carl, maybe talk about opportunities related to Ladder and cross-selling the 3 million digital subscribers nutrition, right? That would seem to be a big opportunity with not a lot of costs attached to it.

Yes. Thanks. We remain really excited about it. And it's one of the reasons that we hastened this reorganization, Christy Cartwright, who's running Ladder and now the whole nutrition component has sort of two approaches to nutritional marketing. One is the network model, which bundles nutrition with digital fitness, so that's where we get the bulk of our subscriptions. But she's also got experience where the nutrition is the lead where we actually leverage the digital subscription as value-added for people who acquire our supplements. So that's what she'll do with Ladder taking advantage of the brand opportunities since we that brand was created by LeBron James and Arnold Shwartzenager, and they're still involved in helping us promote ladder. We're looking forward to how Christy will now shape that to sell the product, and we're hoping to have some news actually I can announce towards the end of the year in terms of being a nutrition -- having a nutrition first acquisition strategy in addition to our bundling component that really built the company.

Okay. And then, maybe as a follow-up. If you think about so body, I know it's early, but your take on how many of the -- maybe order of magnitude of the 3 million subscribers might be good candidates right for that upgrade? Do you think it's 10%, 20%? What do you think?

I don't think I'm allowed to wager any guesses on these kind of calls. But obviously, it's an important part of our strategy to maximize the crossover between these the subscriber bases. And one of the things that we're doing, for instance, as an example, with Job 1, which launches the first week of December, not only will that be a normal sort of a predictable program, a Beachbody type of program that goes for four weeks and people can do on the Beachbody on-demand platform. There's also a program made in parallel called Job 1 hybrid, which includes rides with Jennifer Jacobs. That lives on the bad interactive subscription layer. So for people with bikes who've enjoyed Jennifer's rides on whatever platform she's ever been on, now they'll have access to her rides as part of the job 1 program. So it's an important part of our strategy and one that I'm excited to work with our performance team and our data and analytics team to maximize conversion, which we've seen very good indications in the early days and then maximize retention. One of the tools that we have to our disposal right now for the first time is the day pass. We've never been able to give the customer the ability to buy just one day's access to Beachbody On Demand. And with the launch of BOD Interactive, we -- at the end of October, we now have the ability for our coaches to invite people into the BOD Interactive ecosystem or Beachbody On Demand for a day to try it and then apply that to $7 day pass, if you will, apply that to a full subscription. So, we have -- like Sue mentioned, now we finally -- we have all the levers at our disposal, which the timing is just perfect as we go into what we call Q5, which starts into the fifth quarter, if you will, that starts the day after Christmas and then going into the all-important first quarter.

And then, one real quick last. Where are you going to be on daily hours of programming on Body? Where are you now? Where will you be by year-end? What do you think you are by the spring...

We -- right now, we're producing between 130 new work out a month on the body platform and correspondingly about 100 workouts a month on the Openfit platform. And I think we'll be right about there. We do have some new modalities or a different variety of content that we're adding to the platform in the first quarter, but we think we'll be at about that rate of production through the foreseeable future.

Okay, thank you.

[Operator Instructions] We have your next question from Jonathan Komp with Baird. Your line is open.

Hi, thank you. First, sue, maybe just a follow-up. Did you share when you look at the third quarter results, how close they were to your internal projections or quantify the shortfall at all?

Yes. What we said, John, was that the Q3 numbers, 75% of the sales shortfall occurred in the month of September, right? But overall, the themes where the softer consumer demand, the delayed product launches that definitely had a more pronounced impact in September and then the media investment that fell below those acquisition target forecast. So 75% of the sales shortfall occurred in September. What I can say though is that the digital numbers, we had met our expectations just due to the highly predictable nature of deferred revenue. It was really the bikes and nutritionals that fell short of the forecast. And bikes are about 70% of that shortfall. -- nutritional was the rest. And of course, with the bikes we were hit with knowing the delay of the launch which impacted our Coach's ability to sell. But then also the timing of that meant that those bats were not shipped within the quarter, they spilled into in Q4. And I think what's helpful to know about Q4 as we go into this is, obviously, the sales composition is going to change from Q3, largely as a result of those known by deliveries, right, with only six weeks to go. And specifically, the bank revenue is estimated to be about 15% of Q4 sales versus digital, which will be about 50% with nutrition, the rest because, as I mentioned earlier, seasonally, this is the time of the year when consumers make other nutritional choices. So, we typically see a reduction in our sales side. But as I think about Q4 revenue, there are three sort of helpful data points that I think about. One is that our October revenue was in line with our expectations. The second is that by the end of November, we're forecasting our bike sales to be locked in for the quarter. So we've derisked that component of revenue, frankly, that caught us out in Q3. And then with only six weeks to go, because from now to December 31, with no highly dependent product launches. There are no real internal derailers and that place has been very in a very solid position as we talk to you today.

Okay. And if I could follow up on the sort of the core nutrition business, it looks like it's going to be well below the 2019 levels back when you had less than two million total digital subscriptions. So I just want to understand with more subscriptions today, why you're not attaching nutrition at a similar level? Or what's going on to impact some of those comparisons on Nutrition?

Yes. The biggest driver of the nutrition business is the digital fitness start. The retention of nutrition is not quite as long term as the retention in digital, that's why those numbers can start to get misaligned, if you will. So what's important, this is where the launch -- the product launch and the content strategy matters so much. So when we were delayed on the BOD interactive launch that delayed the growth in the nutrition file. But again, now that we've got those tools now that we have the whole machine working and as we look ahead to the launch of job one; we expect to rebuild those nutrition files, but that's the relationship of how the digital starts and nutrition file sizes work together.

Okay, understood. Maybe one last one for me. Just a broader question. If I look back in history, I know in 2019, you did less than $800 million of revenue, but close to a 10% EBITDA margin. And I'm just wondering, as you look at the business today and really the current composition, what type of sales level do you think you might need to get back to flat or positive margin performance? And maybe a related question, how long would you consider sort of pursuing the same strategic direction versus reevaluating some of the individual business pieces?

Well, I think we have a very clear view of the levers that will help drive a positive EBITDA back to acceptable levels. And I think it's worth knowing that this year as well as last year, frankly, were material investment years, right? Because we did a few things. One, we acquired Ladder to emerge with Mix and integrated the Bionote platforms, be bought an open pit. And three, we built body a third platform in record time, and we also grew our headcount by 30%. So -- and now that headcount investment we made, that included people like content developers that further differentiate digital products and increased engagement that we're seeing to data scientists, they'll give us insights to drive acquisition and retention that we've never optimized in our 22-year history. So those investments are really what we expect to drive revenue. And as they do, it will create leverage on our cost profile.

If I can just add to that, the one thing that we have never had, John, is the ability to pursue partnerships. And with the advent of open Fit and bringing in John Michelle Fournier to drive that initiative that literally just got started three weeks ago. So it opens up an entirely new TAM to our expertise of creating specific content to help people get results. Likewise, strategically, because we've seen the effect of digital subscribers on growing the all-important nutrition subscriber files, we've accelerated our launch tempo into the first half of 2022. And in fact, the mix, the product mix going into 2022 is specifically designed to maximize helping people get the type of results that they need today, including nutritionals. And like I mentioned in my opening comments, I'm very excited by the in-home user feedback that we're getting from two new nutritionals coming out next year. So we're not leaving anything to chance, nor are we sitting on our hands just waiting for an old normal to return. It's the same reason that we are approached to responding to the iOS change at Apple is that we're not relying on outside parties for our data and analytics. We brought that in-house and have a formidable team to make sure that we're maximizing our ROI on media. So, as I think you've seen over the course of our relationship with Baird and others is this company is quite ambitious and aggressive about reaching as many customers as possible and making sure that they get results. And I feel very good about our plan over the course of the next 12 to 24 months.

One other point I'll add to that, John, just to give you a bit of insight into Q3 as we do post more to monitor ourselves. Cost management is part of our DNA. And we made a significant investment, as I mentioned in 2021 on last year. And we'll drive leverage as revenue increases. But immediately, we know that there's a big opportunity in cost of goods, specifically in relation to the bike. And I'm also happy to report that our LTV to PAC has improved significantly from around 1x in Q3 where we put up it on the gas trite didn't all work. So now we're tracking comfortably well over 3.4%, 3.5x in Q4. So we're able to pivot and see improvements in the business relatively quickly, and we're pleased with that. And we know as we acquire more customers, we'll get more leverage and that EBITDA percent of revenue increase.

Okay, understood. Thank you.

I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Carl Daikeler, CEO, for any closing remarks.

Okay. Well, I really appreciate everyone joining us and appreciate the follow-up and the questions that were provided. So thanks for joining us today and for your interest in Beachbody. We look forward to speaking with you again when we report our fourth quarter results and wishing everybody a healthy and safe holiday. Thanks so much, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.