Good afternoon, ladies and gentlemen. Welcome to The Beachbody Company's Fourth Quarter and Full-Year 2022 Earnings Call. At this time, all participants are in listen-only mode. 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 call over to your host Bruce Williams, Managing Director of ICR Investor Relations. Please go ahead.

Welcome everyone and thank you for joining us for our fourth quarter and full-year 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 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, Bruce, and good afternoon everyone. Okay, first, let's get caught up. On our last earnings call, we presented our expectations for the fourth quarter and our plan to continue bringing costs in line with the dynamic environment, all while we pursue our significant strategic innovation plans for 2023. I'm pleased to say we delivered fourth quarter revenue in line with our expectations and adjusted EBITDA that was well ahead of our guidance. 2022 was a demanding year, and I'm proud of what our team achieved despite the challenging economic backdrop and the headwinds faced by our industry. But we met or exceeded guidance in all four quarters of 2022, and we executed on our one brand strategy that we announced exactly a year ago during our 2021 Q4 earnings call. Actually, to put this all in perspective, let me step through the highlights of what we said we would do and the actions we executed in 2022. As you might remember, we made the decision to consolidate the business into one platform to focus capital allocation and centralize all our technology, marketing and content investment. In July, we initiated the migration of the openfit platform, content and subscribers into the Beachbody on-demand platform and began engineering the consolidation of the Beachbody on-demand subscription, together with our premium BODi subscription to create one simplified, but extremely compelling offer. I'm proud to report that work was completed on time and under budget just a couple of weeks ago. And we're now launching the world's first complete health esteem platform under the BODi brand. With the greatest digital fitness catalog in the business and its stream of compelling new content every month. A full nutrition section with two incredibly popular eating programs and over 1000 healthy recipes, plus a brand new…

Thanks, Carl, and good afternoon, everyone. We are pleased with our fourth quarter results, which came in at the high end of our expectations. Fourth quarter revenue exceeded the midpoint of our guidance. Adjusted EBITDA was $3.5 million, compared to a loss of $26.6 million in the prior-year period. Notably, our fourth quarter results are a substantial improvement towards attaining a goal of generating profitable adjusted EBITDA on a recurring quarterly basis by the end of 2023. The actions that we implemented in 2022, coupled with our new healthless team initiatives, set the stage for sustainable revenue growth. On our third quarter call, we discussed our strategic initiatives relating to pricing, nutrition and cost reduction. Let me give an update on these three initiatives. With regards to pricing, and building on what Carl just shared, we introduced the new BODi pricing in September 2022. We adjusted the BODi Premium app to $179 annually from $298 and as of this month, you can only subscribe or renew on the BODi Premium app. As a reminder, the majority of our existing subscribers are involved only the basic library of all our programs at $120. Since we launched the new BODi pricing in September, our BODi subscriber file size has been growing in a healthy way. So while our overall digital subscriber base in Q4 contracted BODi is growing, additionally, we are finding that BODi subscribers have a much higher nutritional attach rate. These measures validate our vision of creating a higher value customer that is more engaged across our entire platform, including fitness, nutrition and mindset. We expect that the customer lifetime value will be higher because first, we will generate a higher initial ARPU due to pricing. Second, we will experience lower churn given the higher engagement enabled by the new…

Thank you. [Operator Instructions]. Our first question is from the line of Joanna Zhao with Bank of America. Please go ahead.

Hey, thanks for taking my question. Thank you so much for the overview on the rebranding, and congrats on that. My question is just to help everybody to flesh it out a little bit more. Just trying to understand what percentage of today's digital subscribers are actually on BODi already. And also, as you foresee people either renew the subscription onto BODi from the status quo or prior program, how do you foresee the ASP will play out for digital subscribers, but also on nutrition subscription as well as connected fitness, because I understand that you're trying to integrate all three components into one so that people can get access to nutrition through your Superworld dessert, but also the bike as well? So just trying to really better understand how that really will impact the driver from revenue side, if that makes sense? And then I have a follow-up.

Great, hi, Joanna. This is Marc. Thanks for the question. What I would say is the BODi subscriber file size, if you recall, this started in the Fall of '21 is when we launched it, and it's basically our library. And at that time, we had the live streaming. Right now, there's 8,500 live streaming workouts plus the 120 programs. And with what we just launched last week, we now also have the BODi Block, the new fitness programming, plus the Mindset programming, and the revamp on nutrition. So going back to September, that's when we adjusted the price down for BODi from $298 to $179. And that's when the file size frankly started growing in a very healthy way. So the reaction has been very positive. We're pretty happy with the way it's growing. So even though I would say the majority of our customers today are still on BOD, BODi has grown in a very healthy way, and we're pretty happy with how it's tracking. And the ASP. As you ask, the average, let's assume the ARPU or that metric at a minimum annually would be $179. Some people may be signing up to quarterly, which is $99, right. So it only makes the ARPU higher in a smaller period. Retention has been tracking better as well as well as engagement. All the good signs we want to see for a new offering like that. And finally, what I would say is not only are they more engaged, more likely to renew, but we're also seeing a higher attach rate of subscription. So our vision of deploying, of attracting customers that are higher value in net seems to be really working out well with all the pilots we did and since launching on March 6.

Okay, got it. Thank you. And is there a way to help us understand the renewal rate from the existing subscribers and switching to BODi, if you can help us to think through that, that would be helpful. And then my other question is really on margin. I know that you presented a few weeks ago and you provided the margin on three different segments, Digital as well as Nutrition and Connected Fitness. Digital, I recall you mentioned it's towards 80%. Nutrition is hopefully getting back to the 60% and Connected Fitness close to breakeven. Can you help us to understand in terms of the timeline, what is sort of realistic or likely timeline for you to achieve these targets by, so will help us to model that? Thank you.

Yes, Joanna, let me start off with you asked about the renewal rate. So when we first increased BOD in last July from $99 to $120, it was an experiment to see how would the renewal rate be impacted. We didn't see much of a negative impact, but it was pretty good. Now we're obviously monitoring very closely BOD to BODi, now superficially this may seem like a pretty big price increase, but I'll just say the biggest starts are actually people who sign up to what we call a total solution pack. And the average total solution pack before, which is basically the combination of digital and nutrition subscription was $180, and now it's $220, right. So I would say we haven't seen any pushback at all on the price. Now, to be more prudent, that's why we're not giving full-year guidance, because there's a lot of change we've deployed. To be more prudent in our internal forecast, we factored in a lower renewal rate but in general, I would say the jump is not as big on everybody as it may seem from the get go. And then you asked about the margin across our three areas. So we're not giving specifics there. But here's what I would say. Digital right now is in the high 70s. We brought down our per episode cost by 50%. So I really think at this point, it's a question of scale. So as soon as it starts picking up in size, and I'm talking more on the revenue size, you'd be amortizing the production cost over a bigger base, and that should bring back the digital margin into the low to mid-80s. On the Nutrition side, look, it used to be at one point, mid-60s, it went down to low-50s. Right now, it's around mid-50s. Our aim is to slowly work its way back up. As you know, we've done a lot of things to improve our supply chain, like closing West Coast warehouse. We're aggressively managing inventory. As you can tell, it's down by more than half for the year. But most importantly, the product mix by pushing more Shakeology and reducing low margin products, that'll be the biggest beneficiary to that nutrition margin to get it closer to 60%. And then look on the Bikes, as you know, the bikes is the game [Indiscernible] lifetime value of that customer. So we're not going to aim to be profitable from the first sale on the bike. Our aim is to attract customers at a point where we're not losing too much money up front by gaining a customer. And our data shows that they're the most committed customer in terms of workouts and renewals so that the lifetime value of that relationship is healthy and positive.

Got it. Okay, that's super helpful. My last question is just to clarify for anybody who get on this new brand of BODi, is it optional to do the Nutrition/superworld dessert? And also, is it optional to get on the bike or all of that is a part of sort of your program that people get on the BODi will have access to all, so which means that we'll see an uplift on Nutrition subscription as well as the connected fitness units delivered.

Certainly, that's the expectation. There's a few levers there. This is Carl, by the way. Good to hear from you again. First off, you're right. We've consolidated fitness, the eating plans and the positive mindset content into this one subscription, which comes down to about $15 a month. And you can imagine based on the number of apps out there, you'd have to have three or four apps to equate to what we're putting into this one synthesized offering. But what's beautiful about this is, for the first time now, the bulk of our subscribers have visibility to the biking content. They couldn't see it before because it was locked behind a different paywall. So now, again, the important strategy about connected fitness was selling it into the database. So now that they've got visibility into their favorite super trainers doing these rides, we expect and have seen that demand for this new offering that Marc described, it will be incremental. And likewise, same thing with this concept of eat more dessert. That is Superfood Dessert. As an additional application to Shakeology will give people within our own database who are not currently subscribed to Shakeology. An additional reason to do it, if you're going to have a bowl of ice cream, you might as well have a bowl of Shakeology Nice Cream at a third of the calories, higher protein, superfoods, fibers, all that good stuff for you and improve how you feel about your life. So all of these things are incremental. And our focus is how do we attract more of what we call super consumers who are inclined to buy -- to spend more in the ecosystem as they're having a better experience. But at the same time, we do expect there will be some people who just come in for the fitness, who just come in for the eating plans, who just come in for the superfood dessert, or they just want to ride the bike and do our great rides. So the Ala carte menu is available as well as the Everything Under the Sun menu.

Got it. That's super helpful. It just basically helps to facilitate your upsell or cross sell the programs. But it is an optional. Okay, very good. Thank you so much. Super helpful.

Thank you.

Thank you. [Operator Instructions]. The next question comes from the line of Kaumil Gajrawala with Credit Suisse. Please go ahead.

Hey, guys. I guess good afternoon for you guys. Good evening for me. A couple of questions, maybe starting with the balance between a big new launch and controlling costs. And I guess I want to ask that in the context of EBITDA profitability this quarter great. But the guide for first quarter is for a bit of a loss. So can you maybe just walk me through first that balance between launching something new and managing costs? And then layering on is the highest amount of launch costs in 1Q and that should sort of fade as we go through the year or my thinking -- am I thinking about it wrong?

Well, frankly, the launch costs are covered in the daily operating business. The cost to build this and prepare it really happened in 2022. We just launched it on March 2. So now it's running the business, running it efficiently and acquiring customers efficiently into a strong LTV. So we don't have the kind of launch costs like we're putting out a movie. This isn't a hits business. This is a business model that we've seen very strong proof of concept, really, when we started testing it back in March, then again in June, another test in September and again in November that we've seen incremental benefits from this that led to the configuration, pricing and launch structure that we've had today. So I don't think there's going to be necessarily a change without giving guidance to quarters ahead. I don't think there's going to be a dramatic change. It's not like we were digesting a big CapEx or launch budget in Q1.

Yes, and…

Okay. Sorry go ahead, Marc.

Yes, what I'll add is that simplification of consolidating all our platforms has delivered incredible results for us, right? So we've been able to revamp and relaunch and transform ourselves, while dramatically cutting down costs. And that's all enabled by having one technology spend, one marketing budget, one production library. So this massive cost reduction was all done in a way where we're able to actually deliver more, not less, right, which should be very beneficial. So our current cost structure is totally set up for this current run rate of the business. And then from here, by deploying all these changes, all the growth starts delivering the profits thereafter.

Okay, great. And I guess as a follow-up on that, are the costs now where they should be? Obviously, everything you just talked about on bringing down various technology spends, bringing down G&A, are we -- is this now the run rate or is there still more to go? And maybe just to make sure that it's clear, I think of the difference between cost cutting and efficiency. I recognize you'll continue to focus on being efficient, but that some of the big heavy lifting. Would you say that's complete now after '22 and we get on with it? Is there still more to do?

Yes, I would say it's largely complete, right. There's still a few things to flow through to get the benefits. I mean, the last reduction in force we did was in January. But for the most part, we're pretty close to realizing the benefits of all the cutting we've done and driving the efficiency we want. And you could see from our CapEx spend in '22 versus '23 that's more likely to be the profile of our CapEx spend going forward. We had some one-time cost in Q1 to incur due to the reduction enforce and the severance. But once we started exiting that, I'd say we've pretty much set up the business to be able to run at this size. And then all the changes we're making is all about driving new growth, and thus the leverage model will create the profitability from there.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Jonathan Komp with Baird. Please go ahead.

Yes, hi, good afternoon. Thank you. First question I want to ask if you could be a little more specific. What's the year end cash balance that you're targeting, and could you share a bit more insight just to the key performance metrics that you're including to forecast that?

Yes, Jon, this is Marc. What I would say is, like I just said in that previous question, we have a bit more cost to incur in this quarter for one-time costs. And then afterwards, largely at this size, we've set up the business not to burn more cash. So our plans is we're trying to drive this in a way where we avoid going below our net debt balance and start generating positive cash flow from there. I think the most critical thing to watch out for in terms of KPI, given all the changes we've done is going to be the digital revenue, right? Because we're shifting to this higher value customer that line will be critical to see if we're netting out. And our plan is to net out more favorably on the revenue side, despite having a bit less subscribers.

Okay, and I guess I'm trying to understand more of the revenue assumptions you're making, given the very significant changes to the business model here. And if you could share a little bit more insight on the last comment you just had, effectively raising the price of your core product by 50%, how you expect the subscriber base to play out, and if you have any specific test data to base that on?

Yes, we have plenty of test data, Jon. What I'd start off by saying that's why we did the July price increase on BOD to test that out. And then when we brought the -- in September, the price of BODi from 298 to 179, the reaction was very positive. We've surveyed our coaches and partner network extensively. They're incredibly supportive and mainly because remember, that's what I was saying earlier. When they bring in customers, they mainly start them off on what we call a total solution pack, which is both a digital and nutrition subscription. On average, that's going up by $40, right? It's going up from an average of $180 to $220. And then it goes to the normal nutrition subscription. So all in, we don't think it's that big on most of our customers. It's still considered great value for everything they're getting. Because when you take the 179, and that's like $15 a month. So from all the research and pilots we've done, we haven't seen anything that worries us the other way around. We're seeing a lot more positive because those people are more engaged. Retention is looking healthier for the BODi cohort. The nutrition subscription attach rates looking healthier. So everything we had in our vision, we're seeing play out through all the pilots and tests we've done in since our launch.

Okay. Two more questions for me. Just as you think about the timeline for renewal, the 2 million digital subscribers that you ended with. Could you just share more insight? What time of year you expect the majority of those to renew, and how will you -- at what point will you know the success rate of your switch, and how would you react if the results are any different than you're expecting?

Yes, so the majority are on an annual subscription, which means they flow monthly through March of '24. There's a bit of skewing towards the first six months, because some are monthly, some are quarterly, some on a six month plan, but the majority are an annual. So I say a bit skewed through the first six months. But overall, we'll see that 112 come through every month, all the way through March 2024.

One of the things I'll say, Jon is -- Johnathan, is that the $179 does give us an advantage that we didn't have at the lower price point. And that is -- and we're in the middle of -- in the midst of testing customer acquisition now through our direct channels. We run that very cautiously because we're sensitive to the cash flow implications of "Buying Subscribers" that have too long of a payback. But the $179 gives us much more room to buy a customer and get return of capital within year. So we've got room to run a higher LTV or a higher LTV per start on those new digital subscribers. And if anything goes sideways on us, we've been very conservative with the way we forecast the renewal rate. But if anything goes sideways on us, we have extra room in acquisition and intend to frankly, this is where growth can come from, that we take that extra room in the margin, in the margin of the $179 versus the $119 for customer acquisition. So we can shift our emphasis over on acquisition from renewal if anything goes sideways. But again, you balance all these factors, right, because the thing we promise the market -- me the way I like to run the business is, I like to run it free cash flow positive. So our -- the first thing we need to assure for is that we're running in a positive EBITDA as soon as possible. Then we start to make sure we're investing in growth, but not the other way around. So we're balancing these things and we're doing it in a conservative rational way, given some of the other uncertain macro factors at play.

Understood. Just last one for me on the Connected Fitness business, it's obviously a drag on the income statement currently, so could you just share more specifics on the LTV that you see for that customer? And how do we know that it's not a broader distraction on the business, just given the size where it's at today? Thanks for taking all the questions.

Yes, Jon, thank you. Look on the Connected Fitness one, with this new bundle we've launched, it's $1,800 upfront, financed through a Buy Now Pay Later firm called The Firm. And so we get the majority of the money upfront. So cash flow wise, it's actually very beneficial. Honestly, I think it's the best deal out there you could get for Connected Bike. It does not take a lot of our attention at all. And then really, I think now that we've launched this new BODi platform and there's so much more subscribers on BODi, they'll start seeing the bike workouts, right. But they just won't be able to use it. It makes it a lot easier for us to market this to our database, so we could drive more demand.

Yes, the one thing I'll say, Jon, is that I'm very excited by this, you know this company like, we continue to innovate and test and learn, test and learn. That's what we did with to make P90X a success and INSANITY a success and Shakeology a success. And having that lever of the Connected Fitness, it's such a good customer and this rich the volume of people in our database now that they'll all have visibility to our biking content that just started on March 2. So I'm actually very excited by the prospect of the Connected Fitness business, but we're not doing it at a way that drags the business to your point. It's not a distraction, it's just an area of creativity where now we get to bring our best skills to the table and that is creating content and use cases so the people who get on that bike are going to be getting results and having a great time as they do it. And I will say, when this thing launched March 2 and people actually was the Monday the 6th that they really started to use this new content. We absolutely saw a jump, a significant jump in engagement on both the BODi platform and on the bike. So engagement is good proof of demand. So I feel like we're in a very good position. And as Marc said, the consolidation of the business and the subscriptions just made this a much more efficient business model that now our network of partners we used to call them coaches, our partners have the ability to stay focused and they're not changing gears every three months. And they've got a simplified view of how a person comes in. We're helping them. How can you make $200 a month? How simple can that be? So, like we like to say here, simplicity is velocity. And I think that's what we've just achieved here with the launch of March.

Okay. Thank you.

Thank you. Our next question comes from the line of John Heinbockel with Guggenheim. Please go ahead.

Hey, Carl. I wanted to start with when you think about getting the word out right on the new brand positioning, so what is the plan on that? And then to the extent that the partners are going to do a lot of heavy lifting on that, is there a prioritization right, that in the first, I don't know, six months, we want them to focus more on the conversion right. And educating the existing base as opposed to prospecting or not, right. You do both at the same time.

That's exactly right. Our focus is with our best customers, the current cohorts, and that's where we leverage our social media following that between corporate and our ambassadors, we got 20 million people following us, including our current subscribers. So our job is to make sure that we are surfacing the concepts, the value, the positive mindset content, the two eating plans, and all of this content, four new plans that drop every month to all of these subscribers to maximize renewal and to maximize engagement and obviously, hopefully results for those customers. Then that creates a referral engine. And that's where our partners are so powerful so now that we don't have to train them on a new program every other month. But we've got this same, what we call the BODi Block construct that they get to market month after month after month with a new wave of plans dropping the first Monday of every month. But it's the same construct, we will create velocity. So you got these two layers, right. First, priority, maximize sell through into the current subscriber base so that they understand the value that they're getting. And second, leverage the great experience. And referrals through the partner network for incremental subscriber adds at a guaranteed payout. And that's the business model that we've been running, really for the last 15 years. But now it's more simplified so that the partners can be more efficient.

Yes, and John, this is Marc. Let me just add to that. On the rebranding part, when we add up our social media followers or super trainers followers, our key coaches, it goes to well over 20 million. And then our e-mail database is over 10 million. So our ability to inform people and turn it into an opportunity to tell them who we are now and where we're going is not something that requires marketing spend. We're able to do it via our existing mechanisms of budgets.

All right, then my follow-up would be you talked about the nutrition attachment rate. I think in the past that was, I don't know maybe in the mid-teens or something like that. Where do you think that goes to? And then what happens to the -- and I know there's a bundle here, so maybe it's hard to parse out a nutrition ARPU, right. But I think the nutrition ARPU right in the past was quite high. Does the attachment rate go up and the ARPU go down a fair bit, or no?

Yes, John, look, you're right. Historically, it was in the very high teens. Right now, it's I mean, if you just take the numbers, it's around that 10% mark. We got to bring it back to where it was and everything we're seeing like I said earlier, the BODi file size is growing well, and the nutrition attach rate is where we want it to be, and I say that in a favorable way. And on the ARPU for nutrition, it is around, I want to say $100 to $110 a month on average for a subscription. And two-thirds of that business is subscription. One third is one-offs that through CRM and other campaigns we do or other products they want.

Yes, and John, I will add, if I can add that our CRM activities are literally of my role, my top four priorities, CRM of selling nutritionals, and particularly this idea of expanding Shakeology into the healthy dessert category is one of my top four priorities. Another one of my top priorities is to maximize sell through of our number one supplement, and that is our pre-workout Energize, which I happen to have twice a day. It's my morning coffee, and it's my afternoon pick me up. And we're seeing that through the really, that gets traction through the entire database. We've got consultants who have been helping us install what we call CRM sequences that once you install them and you understand what a five or six e-mail sequence what that productivity and return on that sequence can be, you install it and let it run. So somebody cancels or somebody lapse or pauses or changes flavor like we've got a sequence that runs, it communicates with those people in a way that now becomes predictable, additional revenue retention or additional LTV. So this is a priority. And we traditionally see a decline in the nutrition files just from Q3 to Q4, the fact of the simplification of the business, like I said in my opening remarks, we've moved it from 190 different configurations that our prospects had to wait through to five. And we've also added a new SKU, which is 20 servings of Shakeology and 20 servings of Energize. This is being used in a couple of ways. One, it's a holistic product for people so they can get both of these things and not have pantry loading, meaning they're not going to be at the end of the month, still haven't burned through their product. So the next shipment is layering on top of that. Now with just 20 servings. It's appropriate to their consumption, but also it's a sampling opportunity. And we're seeing people who are taking what we call the Shake & Hustle pack of these two products are then making a decision do they like that configuration or do they want to pick one or the other rather than cancel the one thing that they got. So these are all of the levers that we've been experimenting with in the back half of the year and going into the first quarter that give us a great deal of confidence that not only is the business model healthy, but we're making improvements to increase attach rate, which increases LTV.

That concludes the question-and-answer session. I would now like to pass the conference back to Carl Daikeler for any closing remarks.

All right, thanks so much, and I appreciate everybody jumping on. I know we went over a little bit here, but at the end of the day, the most exciting thing to take away from this call, which I hope our stakeholders see is that the hard part is behind us. The cost profile has been addressed. We've added this compelling layer of content and positioning to add appeal to like it's an entirely accretive market that the Fitness and Nutrition business hasn't been speaking to and that the people are doing nothing. The category of health esteem is creating net new demand in a market where the majority of the population is still looking for the resource to help them look and feel good without having to give up the lifestyle that they love to live. So we're very excited, excited by what 2023 has in store for us. And we're going to execute the way you've seen us execute for 24 years. So I appreciate everybody's support to build the greatest resource for a healthy, active lifestyle in the world. This is no small undertaking, but the ultimate outcome is going to be a powerful company and business and very rewarding for everybody involved. Thank you, everybody.

That concludes The Beachbody Company's fourth quarter and full-year 2022 earnings call. I hope you all enjoy the rest of your day. You may now disconnect your lines.