Good afternoon, ladies and gentlemen. Welcome to The Beachbody Company’s Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a Q&A session I would like to remind everyone that this conference call is being recorded. And I would now like to turn the conference over to our host James Carbonara with Hayden IR. James, you may proceed.

Welcome everyone and thank you for joining us for our second quarter earnings call. With me on the call today are Mark Goldston, Executive Chairman of The Beachbody Company; Carl Daikeler, Co-Founder and Chief Executive Officer; and Marc Suidan, Chief Financial Officer. Following the 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, net cash and free cash flows. 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 Mark.

Thank you, James, and good afternoon everyone. Q2 2024 was a continuation of Q1’s strong start as we continue to deliver against our strategic initiatives and remain steadfast in our turnaround plan. Starting with financial performance, I’m thrilled to share that revenue was ahead of the midpoint of guidance. Second, we beat net loss guidance that coming in with a lower net loss than we were guiding to. And third, adjusted EBITDA also beat guidance. Additionally, we’re pleased to announce that we had our lowest net loss since going public, and this was our third consecutive quarter of positive adjusted EBITDA. Another key performance metric we’re proud to announce is that we’ve reported an overall gross margin of 69%, our best gross margin since 2021. Digital fitness gross margin came in at an impressive 81%, also the highest since 2021, while nutrition also outperformed on gross margin, reaching a 61% level, a level not seen in our nutrition business since 2020. These margin gains are key because they provide the operating leverage we always highlight. With this stronger structural foundation, incremental revenue will flow through at a much higher rate, really amplifying the impact of our growth initiatives. Moving to key progress made in our turnaround, I want to reiterate the details of our three key turnaround strategies. The first strategy is to enhance our cash liquidity and balance sheet position. In Q1, we reported our first positive free cash flow quarter since 2020, and here in Q2 we took additional strategic actions to fortify our liquidity position in April by proactively amending our revenue covenants for our term loan with Blue Torch Capital. Our amended debt covenant lowered the quarterly revenue threshold from $120 million down to $100 million per quarter, and this will last until December 31, 2024,…

Mark, thank you. I’ll walk through the initiatives to grow revenue over the coming year that we’ve outlined on prior calls, including the launch of the digital program purchase option to give people an alternative option to access our content, our nutrition strategy and some new launches, expanding our sales channels, new partnerships, the status of our network and international expansion. Okay, first, we continue to expand our digital program purchase initiative that launched at the beginning of the quarter with some promising results. We should recall, this allows us to recapture the power of the DVD model, selling specific programs such as P90X or 80 Day Obsession rather than only offering a subscription. And since the digital purchase option entitles the buyer to access their program through the app forever, we also then have a permanent relationship with that customer to make additional offers. And that’s something we were never able to do during our peak years of the DVD business. So this is an incredible opportunity to do lifecycle marketing to these customers, offering additional programs for sale, supplements based on their personal needs and in many cases, upgrading them to a full subscription. This alternative to purchase fitness content is unique to BODi and its approach to fitness programs, and it recently powered the successful launch of our new BODi LAVA program at the end of June, which exceeded our expectations and has achieved strong engagement in its initial month on the app. The digital program purchase option has been particularly useful as we expand our partnership discussions like we just did with a company called CAP Barbell, where we entered into a partnership to offer one BODi program purchase to anyone who bought their dumbbell set. The quality of results people get with our specific program…

Thanks, Carl, and thank you, everyone for joining the call today. I am pleased with the Q2 results that we just released. As previously described and in line with our turnaround plan, we remain on track to achieve approximately $250 million in cash cost savings in 2024 over 2021. I will now provide a review of our second quarter financials, starting with revenues. Revenues were $110 million for the quarter, which was above the mid-point of the guidance range compared to the prior quarter, revenues declined 8% and year-over-year revenues declined 18%. We are very pleased to announce that gross margin continues to show improvement and remains aligned to our vision of margins in the high 60s. We finished Q2 with 69% in gross margin, representing a 160 basis points improvement from the prior quarter and an 800 basis points improvement from the prior year. This was the highest gross margin reported by the company in three years. Let me now comment on our digital and nutrition revenue and gross margins, which make up well over 95% of our revenues. Digital revenue decreased 4% from the prior quarter to $59 million and decreased 10% year-over-year. Our digital subscriber count was 1.15 million compared to 1.22 million in the prior quarter. Nutrition revenue decreased 10% from the prior quarter to $50 million and decreased 22% year-over-year. It is important to note that we are still in the early stages of reinvigorating our nutrition business and it will take more time to grow the nutrition business sustainably. As both Mark and Carl mentioned, several changes should start taking place in the second half of this year and the results should start to bear fruit over the coming year. At the end of Q2 2024, our nutrition subscriptions were 145,000 compared to 150,000…

Thanks, Marc. I want to reinforce my enthusiasm for our potential despite the challenges we faced over the last few years. The industry has been under constant pressure since the third quarter of 2021, but the opportunity remains clear and extremely significant. More people need our approach to healthy lifestyle than ever before, especially as people use weight loss pharmaceuticals and must find a way to combine that choice with nutrition and fitness that will preserve muscle mass. Likewise, the TAM for nutrition continues to grow, and I’m especially excited by the opportunity to expand the visibility and appeal of our supplement catalog. There aren’t many companies with 25 years of experience navigating the health and fitness category, and there are none that have the agility and assets in hand to create new opportunities that we do at The Beachbody Company. I appreciate the commitment and resilience of our team and our stakeholders and look forward to sharing news of our progress in the months ahead. I’ll now ask the operator to open it up for questions.

[Operator Instructions] Our first question comes from Susan Anderson with a company Canaccord Genuity. Susan, your line is now open.

Hi. Good evening. Thanks for taking my question. I guess really quick on the Nutrition segment. So it sounds like you’re much more bullish on nutrition business with the new strategies that you’re laying out. I guess what’s driven that bullishness and really kind of doubling down on the category and then also just on the Nutrition segment, is the DTC site now up and running to purchase online? And I guess if so, I’m just curious if there’s any early reads on the traction there or response from consumers. Thanks.

Thanks, Susan. Great to hear from you. So we literally just a few weeks ago, put our energized product up on thebody.com site and so we’ll be adding functionality to that to make that something that people can add to cart as they check out with a digital subscription or a digital program purchase. And we’ll be adding additional SKUs, really, every month we’ll be expanding the addition of SKUs on thebody.com site. But as you know, we also have, I believe it’s five different products up on Amazon, and we continue to see that grow for us as well. So we’re doing this gradually to make sure that we do it right and that we have the highest ratio between CAC and LTV. And we’ll start direct marketing against those nutritionals probably about mid-September.

And Susan, this is Mark Goldston. Nice to talk to you.

Hi, Mark.

Just in – to the other part of your question about what made us seemingly all of a sudden have such a bullish outlook on the nutrition category. I’ll tell you what it is. We looked at the TAM and the massive growth that some brands are having in the nutritional segment. It’s $164 billion TAM, and we’ve got these great brands that frankly up until now, 99% of which have only been sold to people who are current members of the BODi network. So if you were outside of our network, you didn’t even get presented with Shakeology other than our recent initiative on Amazon. So we looked at the this massive TAM and the fact that we’ve got superior formulation products and said, boy, we really need to go after the general market, not just the people in our current subscriber base. And that’s a huge opportunity because at one point several years ago, nutrition was an $800 million business just at BODi alone. So we did, at our peak, $800 million, as we said in the prepared remarks, while fitness, even in its glory days, was 365 million. So we’re bullish on fitness, but we really think there’s a big opportunity in nutrition and we’ve not attempted to sort of go outside the walled garden to try to get it, and now we are.

Okay, great. That’s really helpful. Yes, it definitely does seem like a great opportunity. And then I guess maybe if you could give some more color just on your win back campaign with your 14 million database. I guess I’m just curious, with those that you have targeted, what’s been the conversion rate and do you typically see pretty good retention afterwards? And then also maybe within that you could talk about just marketing spend for the back half of the year and customer acquisition spend plans. Thanks.

Okay. I’ll take the first part of that and I’ll see if I can answer the second part of that. The CRM campaign is gradually picking up steam. It’s taking a while to make sure, as I mentioned in the opening, that we’re not spamming these people. And because this is an old, large database, we need to make sure that we’re organizing them by cohorts so that we’re creating a relationship, not just giving them offers. We have started to send more frequent email messages. And in fact, the BODi LAVA launch was successful in June and early July because of the frequency and approach to the emails that we sent out. That was like a big aha for us as we now realize how we can launch a product into the larger database. But we’re starting now, the team is starting to divide them by cohorts, and that’s when we can start to get more productive and that’s when we can have a more predictable rate of conversion. But it’s early for me to report on that. I’m not sure if the finance guys will even let me report on it, but we’re seeing signs that there’s ongoing value there and we’re getting better at conversion as we are more scientific about defining the cohorts and demographics within the database. As for the media spend in the back half of the year, really what Mark said in his opening comments is really the point. Our job is to generate free cash flow and generate customers that are profitable and we get a return on ad spend as quickly as possible. So we’re maximizing cash availability to us and going into the third quarter obviously that spend in September, October, November as we get into the fourth quarter starts to get tricky in the fall months. But I’m quite excited, frankly, about the promotions that we’ve got set up for the third and fourth quarter, price point testing that we’re doing and also the products that I mentioned that we’ll be launching. So I don’t expect us to dramatically increase our spending, but I do expect that it’s sort of stay the course is the way I would put it.

So a relatively stable [indiscernible] ratio.

Okay, great. Thank you. That’s really helpful. Good luck the rest of the year.

Thank you, Susan.

Our next question comes from George Kelly with the company Roth Capital Partners. George, your line is now open.

Hey, everybody.

Hey George.

First question for you. Hey, Mark. So I’m curious, how is your partner network trended since the commission changes were implemented earlier this year?

I would say that in general, there it’s gone better than we actually could have even expected. Meaning when you make these kind of changes, it can be unsettling to a large network like this, and it could go way worse than it did. But the justification, the network wants to make sure that the company is strong so that they’re representing both products and a company that will be there to satisfy the promises that they’re making to friends and family and followers. But at the same time, overall it is a challenging environment for, I think, all network marketing companies, particularly in the domestic market. So while the reaction and response to the changes in the comp plan have been accepted without any, I would say consequence, the overall market remains fairly volatile and something that we’re constantly working to help the network get new training and understand how to leverage our products and promotions to the best benefit for them. So like I said, coming out of Summit, we had a great response to the BODi LAVA program, which was perfectly positioned as a summer program. And now we’ve got a, for instance, a promotion around shakeology that I think the network is very excited about, and that takes into account the comp plan changes that we did at the beginning of the year.

Okay, understood. And then a couple of questions for you on the nutrition business. First, maybe you’re not going to want to do this, but could you help even if you don’t give a specific number, like how big is that outside of your partner network? And how fast is it growing in these direct channels you’ve talked about? And then maybe a follow up to the prior question. If you don’t plan on materially increasing your marketing spend feeding people into Amazon or your direct website, how else can you really get attention behind these new channels?

Well, I mean, I’ll just, I’ll take part of that, George. Essentially, what we’ve done with our partner on Amazon is we put the product in front of people where previously it was there in a very de minimis manner and it wasn’t even priced accordingly. It was priced way above market. So that’s a channel that starts sort of feeds its own gas pedal right now. In terms of spend going forward I don’t believe in the past 36 months and maybe ever that the company’s ever spent direct response marketing dollars promoting nutrition, largely because you had to be in the network to buy it. So when we start spending money in direct response on nutrition, it will essentially be a first for us. And so we will use the same return on ad spend ROAS and LTV to CAC ratios that we use on the digital fitness side of the business to make sure that there’s a good return on invested capital. And with the margin structure that we’ve got, George, and the cost savings that we continue to implement, we would take available dollars and reinvest them in the incrementality that’s generated by the nutrition business so that we continue to feed the engine. So this is not something where you make an investment spend. You sit back and let’s see how it goes. We get dynamic reads every single day on our spend and we know where we optimize and where we can spend more and nutrition will be a new initiative for us. And, it’s going to take us some time, as you can imagine, to build external awareness outside of the network. But once we do, we think there’s a tremendous opportunity there.

Let me add, George. This is one of the things that fed the company very early on. And really, I think one of the reasons that it grew so fast in the early 2000s was the fact that we were the only company that could combine fitness content with nutrition. So, and that just builds that additional LTV lets you run at what we call a higher media allowable. So we actually can make our advertising go farther because now we’ll have that additional contribution to every transaction as we convert people to not just buying a digital subscription or digital program, but adding nutrition continuity to it. So it’s really going to open up the spigot, if you will, to our ability to get more leverage on every dollar we spend.

And as we move into 2025, we talked about the innovation pipeline. Carl alluded to this in the prepared remarks. We’ve got a major nutrition innovation in that pipeline that we’re working on that will come out, hopefully in 2025. That’s really exciting and opens up a whole new opportunity for us on top of what we’ve got right now in the nutrition arsenal. So from a product standpoint, we feel really strong about it. We don’t have the awareness yet outside of the network. That’s what we’re going to start to work on. And then the new product that we’re talking about in 2025 is something that will start out with a high level of awareness because of what it is.

Okay. Thank you.

Thank you.

[Operator Instructions] There are no questions registered in queue at this time. I’d like to pass the conference over to Mark Goldston for closing remarks.

Thank you very much. We appreciate everybody attending the call today. And as always, if you have any additional reason for import or questions, please reach out to the company and thank you very much. We’ll see you next quarter. Bye.

That will conclude today’s conference call. Thank you for your participation and enjoy the rest of your day.