Good afternoon, ladies and gentlemen. Welcome to The Beachbody Company’s Third Quarter 2022 Earnings Call. Currently, all participants are in listen-only. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. And I will now turn over the conference to Eddie Plank, Beachbody’s Group Vice President of Investor Relations.

Welcome everyone and thank you for joining us for our third quarter 2022 earnings call. With me on the call today are Carl Daikeler, Co-Founder, Chairman and Chief Executive Officer of The Beachbody Company; and Marc Suidan, Chief Financial Officer. Following Carl's and Marc'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 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.

Thank you, Eddie, and good afternoon everyone. Our company delivered third quarter revenue and adjusted EBITDA results that were ahead of our guidance, reflecting solid progress on our efforts to stabilize business performance as we implement strategic actions to return it to growth. At the core, we've taken steps to operate more efficiently and made adjustments to pricing and bundle strategies to improve overall performance with encouraging initial results. As part of our efforts, we are laser focused on taking the actions necessary to return to positive cash flow. It's no secret that we're pursuing this goal amid substantial challenges facing our entire industry. As pioneers in the fitness space, we've navigated through many challenging times before and come out of each period stronger. In fact, we've emerged from every economic downturn in better shape than how we entered it, and I expect this to be no different. We know empirically that the number of Americans who are obese or suffering from lifestyle related diseases continues to rise despite no lack of fitness and nutrition resources intended to reverse these trends. Yet the entire industry is facing substantial challenges in breaking through and growing their user bases. We think there is something the industry at large is missing. And to serve the largest TAM, we believe what's required in this environment is simplicity and solutions that are appropriately sized and designed for a customer's goals. While I'm not going into detail today, I will say we have the resources to do just that. You're going to see it in the way we position the business and our products throughout the coming year, and we're confident this solution will be the one to break through to the tens of millions of Americans who we know want to get healthy and feel…

Thanks, Carl, and good afternoon everyone. Our performance in the third quarter demonstrates the continued progress on our strategy to stabilize the top line, further reduce cost and reposition the company for growth. We delivered top and bottom line results that were ahead of our guidance. We also enhanced our liquidity position through the previously announced debt rates, our reduced cash burn and lower capital expenditures. Third quarter revenue of $166 million exceeded the midpoint of our guidance by 7%, primarily due to the nutrition business, which remain at the same level as Q2. Adjusted EBITDA loss with $6 million, which included expenses related to our Annual Coach Summit event in July. This annual event was attended by 15,000 of our most influential coaches. These brand ambassadors are a subset of a much larger Coach network. Like Carl said, they are a massive competitive advantage for us, especially in this dynamic landscape. In addition to revenue outperformance, adjusted EBITDA also exceeded the midpoint guidance by more than $11 million. This has been achieved through continued aggressive cost management, resulting in an improvement of more than $37 million compared to last year. This progress gives us increased confidence in our goal of returning to positive free cash flow as we remain disciplined with our cost and capital. We have numerous initiatives underway to better leverage our collection of high quality assets. This will help us enhance LTV and retention across subscriber file. Let me walk through some of these key initiatives in pricing, nutrition and cost reduction. Starting with pricing, we expect to deliver significant value at our recently launched bundles. First, as Carl said, we adjusted the BOD and BODi bundle to $179 per year from $298. BODis are premium interactive digital platform that was launched last fall. While we…

[Operator Instructions] Our first question comes from John Heinbockel with Guggenheim. Your line is now open.

So Carl, on the BOD plus BODi bundle, right? So basically your pricing BODi at $5 a month in this new structure, is that – which is pretty compelling. So how do you get that message across? And then when you think about the potential there, right, do you think that will create more new subscribers or you’re going to migrate BOD subscribers into that new bundle? Which one is going to be more impactful over the next 12 months to 18 months?

I think strategically – by the way, good to talk to you, John. I think strategically, the business is moving toward that combination. We’ve got very strong customer engagement in the BOD interactive subscription tier, and that $179 price point, which comes down to $15 a month is extremely compelling when you consider it in the perspective of the competition out there. And one of the benefits that we get from that is it gives visibility to all of the content to every subscriber who’s a part of that subscription tier. So that’s the focus and the – as Marc mentioned, the simplicity that we’re looking for from the model by combining those two subscriptions into one is going to give our most valuable asset, our Coach network a much easier time in their subscriber acquisition efforts.

Yes. And John, this is Marc, great to talk to you.

Yes.

What I’ll add to that is, we’re trying by increasing the simplicity of the programming while adding more content. It enables the coaches to acquire more customers. So we improve acquisitions. As Carl mentioned, the engagement is much higher on BODi, so we’re seeing churn go down, especially at this new price point, big improvements there and it’s all upside for us, right? Because we had such a low penetration of BODi. So as we migrate both the existing customer base as well as acquiring new ones, it’s – we see it all as upside across all dimensions of the LTV to CAC ratio.

Great. And then one other point on, if I look at nutrition revenue this quarter per subscriber, right? The subscriber base went down a little bit, right? So the revenue per subscriber is up. Is that more spending from subscribers or does that have something to do with the preferred revenue piece?

So listen, nutrition did stay pretty stable from Q2 to Q3, which is great news and we’re building on the momentum. I think the reason why you’re seeing higher per subscription cost, because the mix of subscription versus the seasonal launches may have been – we may have had more of the seasonal launches that have done really well. So we’re looking into that in terms of, should we make those permanent or not. So those were very well received. The other thing that fits into that number John, is not just the preferred classification fee that was in there in Q2 as well. It is rather the ticket sales from the annual Coach Summit in Q3. It’s about – I’d say, it’s about 2% of that amount. So overall, I think we’re very happy to see that nutrition stability from Q2 to Q3.

All right. Serious I guess, you would argue is fair to say that Q2 is more representative of nutrition revenue per subscriber than Q3 for the reasons you mentioned at least going forward?

Yes. I mean I think you’re looking at it purely from a per subscriber basis. I think that’s fair, yes.

Okay, thank you.

Our next question comes from Joanna Zhao with Bank of America. Your line is now open.

Hey, thanks for taking my question. So one, I have a question on the mix of bike margin. So I see that mix Bike margin has improved quite a bit this quarter. It’s around negative 40%, so great job on that. My question is what is the long-term expectation of this bike margin? I believe pre-acquisition it was possible to get the margin to negative 10% to negative 15% pursued comments a few quarters ago. Is that your long-term expectation or is it possible to get that margin close to break even. And what really needs to happen to get that margin to break even or back into a positive territory? Thank you. And what is a timeline – rough timeline on that?

Joanna, good to talk to you? Look, the way we see the bike business is really that whole is the lifetime value of the customer. And right now with this new SKU we’re pushing, which is they’re buying the bike and the three year subscription and we get all that money up front, that’s what we’re seeing as being profitable. Because the bike on a standalone basis, I mean, as you know, it’s a very challenging market in the at home fitness market. So it’s hard to predict how that price will behave over time, but at least from that long-term value, we’re pretty excited about how that new bundle with the three-year subscriptions going, right. Because that LTV value is very high for us. So that’s more – that’s definitely more profitable than just selling bikes on a standalone basis.

And we’re also focusing on the sale into the database. So that obviously doesn’t come with the same cost of acquisition that you would have if you’re out in the direct marketing space. And likewise, one of the benefits that we get is you’ve got a longer retention when somebody’s got the piece of equipment in their living room. And that also gives us more opportunity then to offer them our nutritional offerings and particularly with the new Shake & Hustle Pack that Mark mentioned with the combination of Shakeology and Energize. So all these things, simplifying the business into an appropriate price point, quite compelling, but with great long-term value prospects.

Got it. Okay, that’s helpful. My next question is just the growth in recession and on the digital subs front. So on the digital subs, I realize that net adds has been down quarter-over-quarter for last several quarters, understanding there’s macro headwind involved. But it seems that the turn subscribers actually greater than the gross sub adds, so I’m just trying to understand, what’s on your mind in terms of growth initiatives to get that net adds to the positive territory in terms of growth and understand that you launched about seven programs year-to-date, which are absolutely amazing and there are other bundles that you’re trying to work through, such as the BODi and new bike and at $60 per month. And that is also great to keep an eye out for. So what are your thinking around getting the net adds to growth – positive growth territory, but also just help us to think through this macro and reopening headwind. How are you thinking about the kind of reopening and macro challenges being different for this year or the rest of this year and next year versus the future years? Just to maybe put that all of that in context for us will be helpful.

Sure. Well, there’s a lot there. First, we are still seeing the – what I would call the passing of the 2020 surge in some of that renewal. As you’ve – as we’ve all seen people once they got through the pandemic were eager to get out and about and either stop working out or go back to the gym. Although we do think that there’s a hybrid opportunity and more people seeing that working out at home is incredibly efficient. And in particular, one of the changes that we made close to, I guess, the beginning of the year was to stop chasing after subscriber growth and what we would consider to be bad revenue. So we’re not overpaying for subscribers anymore. We got our CAC-to-LTV back in line, which means that as we’re adding subscribers now they’re profitable on a CAC-to-LTV ratio, but we’re not trying to keep up with the attrition of the swell that came through in 2020. So for a little bit longer there’s a disparity as we see 2020 swell sort of rolling off at the same time. Our Coach network is exceptionally revitalized. We had two big events. One was this summer, the other one was with our top leaders at – leadership in October. And they're extremely invigorated for a couple of reasons, one, because of some of the simplifications to the business model that Mark and I described, but also what we've seen literally every time there's been an economic downturn our Coach network is extra motivated to earn that extra income during those tough times. And in fact we've come out of every downturn ahead of where we were. So we think that the prospects for us in the current environment are pretty strong, particularly going into first quarter 2023, but we have to be realists with the signals that we're getting from competitors and the environment. So we're guiding with a realistic or a more conservative view just to make sure that we don't get out over our skis.

Okay, Got it. Thank you. That's helpful.

Our next question comes from Linda Bolton Weiser with D.A. Davidson. Your line is now open.

Hi. Yes. Thank you. So in the other weight loss kind of related companies that I follow, the coaches or from the clients the companies are picking up kind of this reluctance on the part of many consumers to kind of get up off the couch and think about their health and wellness and their weight loss. There's some sort of reluctance even though people are hanging on to wait still from the pandemic. Are you seeing your Coaches talking about bad among the clients? In other words, is it like harder for them? Is there more resistant for them to kind of gather new clients?

I think Linda, that's certainly a component of the environment across the industry and sector overall. And it's frankly having done this for 23 years, it's never easy to compel somebody who is sort of like their lifestyle, but ultimately we know the trend of obesity and lifestyle disease is going up and people would rather not be overweight or – and rather not have Type 2 diabetes or hypertension and so on, things that can be affected with fitness and better nutrition. So part of our job is to make it simpler and to meet the customer where they are. And again we're not going into too much detail right here, but that's one of the reasons that we've positioned Shakeology with a slightly different approach where it's a daily dose of dense nutrition, arguably the leader in the category of superfood shakes. But it's also with this broad range of flavors, it's a gourmet superfood dessert and we've actually got a whole plan that we've just released and we'll get into more detail in the coming quarters, but helping people who literally, they just want to try to offset their dessert habits. They still want to satisfy their sweet tooth, but they want do it without the extra sugar, saturated fats and dense calories. And that's why we help them create dessert plan and that's a new aspect to the business that our coaches are embracing because it's helping them meet people where they are, particularly as we go in November and December when many people are waiting for January 1st to get started with the total solution.

Okay. And then I think previously if I'm not mistaken you had included in your press release some guidance statements about the change in cash usage for 2022 versus previous year. Have you eliminated that or is there any way to convey some sort of guidance or something? Or maybe I missed it regarding cash, cash flow performances for four quarter?

Yes. Linda, I could share right, what was – what was shared before is that our aim between 2022 EBITDA plus CapEx, that we would have $110 million to $120 million in savings and we're fully on track to achieve that. And this is where also we try to make it clear on our free cash flow. So if we take Q3 of last year it was negative $148 million, this year its negative $8 million in this quarter. So some dramatic improvement, so both on the metric you're used to seeing, we're on track to achieving that $120 million to – $120 million in adjusted EBITDA plus CapEx reduction as well as massive reduction in our free cash flow burn.

Okay. So that year-over-year like improvement will continue in the fourth quarter is what you're expecting?

Yes.

Okay.

Absolutely.

Okay. And then – all right, and then I can't quite remember, but I thought that the objective was to maybe become EBITDA positive in 2023. Was that the belief and do you still think that's possible in 2023?

Yes. Look, the – given the macro situation we're not giving guidance, but I could tell you we're laser focused on getting to free cash flow positive. And from the results that we've achieved, I feel like we're close and like I said in the prepared remarks we have quite a few initiatives, that'll further take out cost next year. And the investments we're doing in body to position it for growth is on track, its deliberate controlled investments and time bound. So yes, look we believe we're going to get there. We just don't want to specify in exact timing just given the macro economic conditions.

Okay. Thank you. That's all for me. Thank you.

There are no more questions waiting at this time. So I'll pass the call back over to the management team for closing remarks.

Okay. Well, I appreciate everybody for joining us today and thanks for your interest in The Beachbody Company. I think you're going to appreciate the ongoing progress that we're planning for the business and the strategic moves ahead of us and we look forward to speaking with you again next quarter. Thanks everybody.

That concludes the conference call. Thank you for your participation. You may now disconnect.