Good afternoon. Thank you for attending today's Beachbody Company, Inc. First Quarter 2025 Earnings Conference Call. My name is Victoria and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with the opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to your host, Bruce Williams, Managing Director of ICR. You may proceed, Bruce.

Welcome everyone and thank you for joining us for our first 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 Brad Ramberg, Interim 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. 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 by 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 flow and 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. I'd like to welcome all of you to the BODi Q1 2025 earnings call. As we stated previously, Q1 2025 marked our first quarter operating under a completely revamped business model, one that is fundamentally different from the old MLM model that the company employed over the last decade. I joined the Beachbody Company, now called BODi, as Executive Chairman almost two years ago in June of 2023 with a clear mandate develop a roadmap for executing a major turnaround. Having spent a great deal of my career conducting corporate turnarounds and having written a book on the subject called The Turnaround Prescription. This was a challenge I was excited about because of my deep belief in the phenomenal digital library of more than 135 titles, the highly efficacious nutritional supplement products in the BODi portfolio of brands, and the vision of the Company's Co-Founder, Carl Daikeler, who was the pioneer of bringing home fitness programs to the masses. To put the scale of this turnaround in context, since going public in 2021, the Company had not recorded positive EBITDA in any quarter through Q3 of 2023. The Company had a $900 million plus cash breakeven level in 2022, $50 million of debt, declining gross margins, and a legacy MLM model that, like many others, struggled to motivate an independent group of salespeople who largely viewed their work as part time. Since my arrival in June 2023, we've conducted a dramatic turnaround of the company's financial fortune. We generated positive adjusted EBITDA for the first time since the 2021 IPO in Q4 of 2023, and we've now registered six consecutive quarters of positive adjusted EBITDA, delivering a healthy guidance beating $3.7 million of adjusted EBITDA in Q1 of 2025 and bringing the sixth consecutive quarter cumulative adjusted EBITDA…

Thanks Mark. In our last earnings call, we outlined several key initiatives aimed at refining our business model and enhancing customer engagement, including the transition from the MLM to an affiliate model, addressing the women's hormone health market as well as the GLP-1 weight loss drug market, optimizing ad spending for profitability and fast return on ad spend and leaning into our Total Solution bundle, combining our digital subscription with a monthly subscription to Shakeology. And I'm pleased to report that we've made real progress in the first quarter. We completed the transition to our new affiliate model on December 31, 2024, which completed what was a productive chapter of our business model. But for creating our next chapter of scale and helping the most possible, we removed the MLM stigma from our overall business model. We're now focused on helping as many people as possible get healthy and fit and on expanding the opportunity to increase our addressable market. This change has improved profitability and as we hoped, we retained our most enthusiastic subscribers, many of whom are truly committed to helping people get healthy results. The next chapter in this transition happens in June when we launch a much simplified platform for our affiliates that will feature a central supportive community, an easier signup process, and improved online conversion tools. We're also introducing a Refer a Friend program to incentivize sharing and engagement for all our subscribers. Our launch into women's hormone health with the Belle Vitale fitness and nutrition program was affected by the transition out of the network model. However, we’re pleased that our customers are seeing better than expected results with the program and the Belle Vitale program is evolving similarly to what we saw when we first launched P90X. We’re in the early days…

Thank you, Carl, and thank you, everyone for joining the call today. I will review our Q1 results and provide our outlook for the second quarter. As a reminder, the first quarter was our first full quarter under our new model and the company generated revenue of $72.4 million, which exceeded the high end of our guidance range of $60 million to $70 million. Adjusted EBITDA of $3.7 million significantly exceeded our guidance range of a $2 million loss to $2 million and we generated our sixth consecutive quarter of positive adjusted EBITDA. Now I would like to provide more details about the quarter. Total revenues of $72.4 million declined 16.2% sequentially and declined 39.7% year-over-year in line with our expectations as we continue our strategic transition. Revenues were impacted in the near-term by the shift from a multi-level marketing platform to an omni-channel model. We strongly believe that the shift to the new omni-channel model will provide additional flexibility and ultimately revenue growth over the next 24 months. Consolidated Q1 gross margins were 71.2% reflecting an increase of 70 basis points over the prior quarter and an increase of 350 basis points compared to the prior year. We are pleased to report that consolidated gross margins exceeded the high end of our long-term target of 65% to 70%, underscoring the strength of our operational execution. Moving to Digital and Nutrition revenues. Digital revenue decreased 14.8% from the prior quarter to $42.9 million and decreased 30.2% year-over-year. Revenues were impacted by continued pressure on our digital subscriber count, which decreased 5.1% sequentially to $1.02 million and declined 16.6% compared to the same period a year ago. While we’ve experienced some expected declines in the digital fitness subscriptions in the early days of the new business model, the transition away from…

Thanks, Brad. That was a very fulsome summary by the prepared remarks. Victoria, can we please start the queue for the question and answers?

Of course. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Susan Anderson with Canaccord Genuity. Your line is now open.

Hi, good evening. Alec Legg on for Susan. Really nice job on the quarter. I guess, the question is on just the retention or the transition of sellers in the old model to the new direct affiliate model. Are you able to provide any color there? Is it performing in line with initial expectations?

Yes. Thanks for joining us. We – I would say that we have – we're pleased with the performance of some of the outliers. We've got some really strong affiliates. But I would say, overall, the platform that we're working with is a little bit more institutional than we had hoped for. So we're actually making a transition in mid-June to a very user friendly model that will actually deputize many more of our subscribers to become affiliates for us, because it's much simpler and easy for them to promote the program that they love so much. So while we do see productivity from the affiliate program, it hasn't lived up to our expectations because we didn't make it simple enough for more of our subscribers to get involved. So while it's productive, we're looking forward to the next few quarters to actually see growth in that area.

Perfect, that makes sense. And then just to follow-up, how are we – how should we think about selling and marketing going forward and how is management thinking about balancing maybe reinvesting some of the savings from the change in the business model into your own marketing and brand building activities?

Brad?

Hi, this is Brad. Good to talk to you again. Now that we're in a new business model, our selling and marketing percentage of revenue has changed. In the old network model, the amount that we paid to our partners was significantly higher than we're paying under the new model. I'll tell you, as we gain traction in the new model, we will continue to use cash generated to reinvest into selling and marketing. Because at the end of the day, what we care most about is gross profit dollars. But we're very conscious of our relationship between LTV and CAC, but we will continue to invest to generate the highest level of gross profit dollars that we can.

Yes. We have more room in the P&L because we don't have all that residual comp.

That makes sense.

Okay, thank you so much. Yeah, of course. Thank you so much for your question. Our next question comes from the line of George Kelly with Roth Capital Partners. Your line is now open.

Hey everybody, thanks for taking my questions. Maybe if we could circle back just to the first question that was just asked about the affiliate platform. Can you expand on sort of what changes you're making with the new platform, how you're making it simpler and the plan to attract more affiliates in your network?

Yes. Thanks, George. Good to hear from you again. It's Carl. So really excited about it. The company we're going to be working with called SocialLadder has made it their business to really focus on, I would call it, the mom and pop affiliate, which is our bread and butter. That's what built the MLM. And frankly, the transition from the MLM was in order to reward the seller with 100% of the earnings potential from the demand that they create. So what SocialLadder does is combines a community. This will be a centralized community for all our subscribers to participate in for free. And within that community sits right next to that is the affiliate program. So they don't have to go to a separate platform, they don't have to go through a separate sign on process. And all the tools that they need and references and links and promo codes all sit right within our BODi.com ecosystem. It's much simpler. I was super impressed with the platform and it's just a different approach where the traditional affiliate model is more institutional for people who have blogs or listicles that they're running. What we're doing is we're helping people who lose 20, 30, 50 pounds with our programs and they – whenever they walk into a room, they create demand for their stunning results. We want to make it as easy as possible for them to help their friends and family order and they get the credit. And that's what the SocialLadder platform does by taking out a lot of the extraneous business stuff that a more institutional platform is built for. So that'll launch in mid-June. We've already done user acceptance testing of that with a group of current affiliates and they are super excited about the usability of this platform.

Okay, okay, that's helpful info. Thanks. And then next question is on your nutrition business, specifically pricing. I guess, just curious how you plan to, I think, you said in your prepared remarks that you're going to – your gross margin will settle in nutrition a little bit lower than where it's been running. So I guess, is a lot of that just sort of resetting prices a bit lower and especially as you prepare for your retail launch in a bigger way later this year. How are you thinking about pricing going into that?

Well, George, part of what Brad had talked about and Carl too in the prepared remarks is, we are selling more one time nutrition. So you have to remember when we were the MLM last year, those people are 100% focused on selling subscriptions, not selling one time, because their commission would be higher. Now that we're defocused on that and we're much more focused now on bringing in new people to the franchise, we will have a higher incidence of one time purchases. So the good news to that is we'll bring in more people and potentially they then can convert to become a subscribers. Think about the magazine business, some people buy in the newsstand, some people have a subscription. There's a place for both. But what that does is that will lower your overall gross margin, because obviously if you were 95%, 98% subscription, your margins would be higher. But – because we no longer have the tens of thousands of MLM sellers and we're going out direct to the consumer, we must focus more than we did before on one time purchases. When we go into retail, end of this year and into next year, obviously, going to retail and wholesale margins will be different than the margins that we experienced in direct-to-consumer. But you will dwarf the number of people that you can reach by using food, drug, mass merchant, convenience and club stores. And so as Brad said, We are 1,000% focused on the generation of gross profit, not transfixed on the market margin per se. If we can drive many more unit sales, even at a lower margin, our gross profit will be dramatically higher. And as you know, that's what you use to cover your overhead and make a profit. So that's how we're focused. It's much more can we bring new people right now and going forward into the franchise while still managing to serve the people who have subscriptions with us.

Okay, understood. And then just two last quick ones. On your new credit facility, congrats on getting that done.

Thank you.

Can you give any of the terms such as the interest rate or any kind of covenants?

Yes.

And then secondly, in the prepared remarks, you talked about expecting to see growth I think by the end of 4Q or into 2026, were you a bit – meaning sort of sequential stability or can you just be more specific on exactly what you're expecting?

Yes. I'll start with the second one first to avoid giving guidance on that. We were talking growth in the macro sense, not in providing strict numerical. What we're talking about is when we get the retail program ready to launch and when the new affiliate program that Carl talked about, which will come into the summer, starts to take hold. Our feeling is that we will likely experience some growth from a higher level of productivity from the affiliates because they're on an easier to use platform. And then as we embark on the retail initiative and we'll have a new program that comes out as well, we hope that that will help us drive growth on that. As relates to the loan facility, yes, great thanks to Blue Torch Capital for being our partner for the past two plus years, almost three years. That loan was going to come due, as you know, in February of 2026. So we were able to retire at nine months early. We're thrilled with our new partner, Tiger Finance and SG and basically the loan that we got. And you'll see tomorrow when we file the 10-Q, George, there will be an attachment of the credit agreement to the 10-Q. But just sort of high line cliff notes. The interest rate is SOFR plus nine. So in today's numbers, that would be about a 13.33% interest rate. The interest rate we had on the old loan, just the interest alone, including the PIK [ph] was 14.68%. So we picked up about a point and a half just on the interest rate alone. And you have to remember the amortization costs of all the other things that we had in that Blue Torch loan were another 13.1%. So we were paying a notional rate of 27.8% between the interest and all the other amortized costs. And if you compare that to this loan, which only has about 2% added into the base interest rate, it's about 15.33%. So 27.8% all costs, including interest and amortized costs, 27.8% before, 15.33% now. So a big step up for us in terms of improvement. We also managed to have a one year moratorium on principal repayment. So we will have 12 months where we don't have to do that. So this is a great situation for us. We're really excited about our new partners at Tiger and SG and we really – it gives us some room. It will also give us, frankly, after the payoff of the Blue Torch loan and all the fees and legal fees we'll add about, Brad, correct me if I'm wrong, we'll add about $5 million of incremental capital to the balance sheet after paying off Blue Torch and all the legal fees associated with this.

Yes. That's correct. We will add about $5 million to the balance sheet this week.

So we feel great about this. And it's a three-year term.

Okay. Understood. Thank you.

Okay. Thank you, George.

Thank you for your questions. Our next question comes from the line of Chris Sakai with Singular Research. Your line is now open.

Yes. I'm in for Gowshi. I've got a question. Nutrition subscriptions sell 47.7% year-over-year, but retail launches are pending. How are you tracking customer migration from subscriptions to one time purchases and what retention strategies are in place for this shift?

Obviously – thanks for the question. Obviously, the – just the transition from MLM alone, we knew that there would be some disruption to that file size. As I mentioned in the prepared comments, institutionalizing our own subscribe and save program, similar to the success we're seeing on Amazon, has started to rebuild the nutritional subscription file and at the same time now we can advertise in performance marketing for our nutritional. So we're generating one time orders or trial orders if you will, that now our CRM team works to win back or give special offers to the one time trial customer to convert them into a subscriber. It's early days in that. I'm sure we're not providing guidance on what those percentages are, but we've got a very strong team in terms of building that affinity against what the objective of the customer is and what the benefit to them now joining the subscription file will be. However, because of the shift from the MLM to what I would consider to be a more customer centric approach, we don't have a problem that people just buy one time every month like some people. They would prefer. You've got subscription fatigue out there. We are seeing returning customers and repeat customers in the one-time file. Like I said though, it's early, we just launched the marketing initiative against nutrition midway through the first quarter. So it's going to take us a few months if not a quarter or two to understand the customer behavior to make that predictable.

And just adding on to what Carl said when we do launch the retail initiative end of the year and into next year, obviously, by definition those are one time sales. I mean most of those people will continue to go back to whether it's a grocery store, drugstore, food, mass merchant, whatever the case may be, and buy products on their visits – on their shopping visits. And so those are always essentially one time sales. So we as a company have really never focused on it before because when we had an MLM, which we know longer have, but when we had it, their incentive was to sell subscriptions because that was a higher ticket value and therefore they could get higher commission and the ongoing payments, whether or not that was the right thing to do to actually grow your franchise story for another day. So right now we're looking at this with a completely fresh perspective.

Okay. Thanks. And so connected fitness revenue fell about 74% year-over-year, but 1500 bikes were delivered. Is this segment being phased out or are you exploring partnerships, like white label partnerships?

Yes. We – I can't comment too much, but we are absolutely both supporting the bike that we sold. And we want to make sure that those customers have a great experience, but we have essentially sold through that inventory. However, we do have the opportunity now because the bike content on our platform that we continue to produce is so good. It's actually quite attractive for, as you said, for people who are selling the equipment in other channels to be able to partner with us so that we are the content to their hardware. So we've got some of those conversations going, and we do think that it can be a part of our overall business model.

But just to be clear, going forward, we are not producing new equipment for sale. We are not selling any more bikes going forward. When the last bike is out the door, we will not be making it. As Carl said, our special sauce, our go to war skill [ph] as a company is that we are the best producers of content in this industry. And so going forward, not only can we serve the people that have our own bikes that to Carl's point, we can supply content to anyone who has a bike using our terrific content, but we will not be making any more bikes.

Okay, great. Thanks for the answers.

Sure. Thanks for the question.

Thank you for your question. No additional questions waiting at this time. I would now like to hand the call back over to Mark Goldston.

Thank you, Victoria. And thank you everybody for attending today. Just in summary, we're thrilled with the performance that we had in our sort of first quarter with our new business model. We really outperformed what we thought we would do, which is really terrific. And we are thrilled with our new Tiger Finance, financing deal that we just announced. And you will see that attached to the 10-Q that will be filed tomorrow. But it gives us a lot of flexibility and we have a lot of plans going forward that are growth plans and having this flexibility with the new loan agreement, plus the new products that we've got in the pipeline and as Carl mentioned, the revamped affiliate platform, which will be much more appealing and easier to use. We think there are great green shoots ahead of us, and we're pretty excited about it. So as always, if you have any questions, please feel free to reach out to the company and funnel them through Brad Ramberg, our CFO. And thank you for attending.

That concludes today's call. Thank you for your participation and enjoy the rest of your day.

Thank you, Victoria.