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spk05: Good morning, good afternoon, good evening. My name is Catherine and I'll be your conference operator today. At this time, I would like to welcome everyone to the Beachbody Company second quarter fiscal 2021 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this session, simply press star, then followed by the number one on your telephone keypad. If you would like to withdraw your questions, press the pound key. Thank you. I would now like to turn the conference over to Eddie Plank, Beach Buddies Group VP of Investor Relations. Mr. Plank, you may begin your conference.
spk03: Good afternoon, everyone, and thank you for joining us for our second quarter 2021 earnings call. With me on the call today is Carl Deichler, co-founder, chairman, and chief executive officer of Beachbody, and Sue Collins, president and chief financial officer. Following Carl's and Sue's prepared remarks, we'll open the call up for questions. Before we get started, I would like to remind you of the company's safe harbor language. The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties, all of which are described in the company's 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.
spk01: Thanks, Eddie. Good afternoon, everyone, and thank you for joining us today for Beachbody's first earnings call as a publicly traded company after closing our three-way business combination with Mixed Fitness and Forest Road Acquisition Corp on June 25th. With the addition of Connected Fitness to the Beachbody business model and the strengthening of our balance sheet with over $347 million in cash, we believe we've set the stage for a multi-year period of accelerated growth. Now, I know many of you listening are new to the Beachbody Company story. So before we go into a review of our recent performance, I want to spend some time discussing our business and operating model. Then our CFO, Sue Collins, will talk through our second quarter financial results and our full year 2021 outlook. So over the past 22 years, Beachbody has grown from a pioneer in creating and marketing innovative, effective fitness and nutrition programs to into a leading subscription health and wellness company augmenting our core competencies in our massive content library with compelling new digital fitness content and proprietary nutritional products proven to deliver results for our millions of customers now while the fitness industry is undergoing a significant transition in this digital age The underlying premise remains the same as when we hung the mission statement on the wall of our small startup two decades ago. And that mission is to help people achieve their goals and enjoy healthy, fulfilling lives. Now, today, this mission puts Beachbody at the forefront of a $1.5 trillion health and wellness industry that's expanding at a time when When consumers are increasingly looking for effective, affordable, at-home, digitally-enabled fitness and nutrition solutions, with approximately 72% of Americans overweight or obese, and research validating the importance of good health and physical activity in promoting resistance to COVID, we take our mission very seriously. I believe it's more critical than ever that we execute in a way that delivers exceptional value to our customers, provides a compelling opportunity for thousands of coaches and influencers to inspire new customers to be more proactive about their health, and builds long-term value for our shareholders. We believe we're uniquely positioned to capture a meaningful share of the increased focus and spending on health and wellness. And our newly combined company creates a wide moat and unique competitive advantages to deliver cost-effective results to the mass market. That includes the deepest library of premium digital fitness content in the industry. tools to support customers who are looking for healthy results, providing effective step-by-step programs that include meal planning and proprietary nutrition products, and now a high-quality, cost-effective, at-home connected fitness solution with our mixed stationary bike and its 360-degree touchscreen swivel tablet, all underpinned by two scalable platforms that leverage our expertise in distribution, marketing, and compelling content creation. Now, those two platforms are Beachbody On Demand, or what we call BOD, which delivers our extensive and growing content library of fitness programs and new live subscription tier, which I'll describe that in a minute. And OpenFit, what we call the master class of fitness, centered around celebrities and major influencers, offering live instructional workouts and a unique gamified fitness experience. And soon both of these platforms will be available to customers of the Mixed Fitness Bike, which we like to call that the stationary bike for the 99% because of its cost-effective price. But it's also one of the highest quality commercial-grade bikes on the market, and it'll offer a range of content for all fitness levels and preferences. Now, what's unique about our business model is that we've created a compelling value proposition for our customers. So they have all the tools they need to get healthy results in one place. We bundle our content with meal planning and nutritional subscriptions based on the customer's individual goals. For $99 a year, for instance, we bundle our Beachbody On Demand digital streaming platform along with discounts on various Beachbody nutritional products based on a customer's specific needs. We're following the same model with OpenFit for $96 a year, bundled with discounts on ladder nutritional supplements, which was that supplement line was developed and used by LeBron James and Arnold Schwarzenegger. Now, BOD was launched in 2016, and now that platform features over 3,600 on-demand streaming workouts across 87 completely different programs. That's a lot of variety right there. combining fitness and nutrition plans, meditation, and our own internal social media component, kind of like our own Facebook groups and daily progress tracking. OpenFit launched in 2019 using the same core competencies in content development. But OpenFit was built around a unique technology that creates a virtual live small group exercise experience where certified trainers supervise over 400 live classes a week in a variety of workouts, including strength training, Pilates, kickboxing, yoga, and meditation, to name just a few. Now, these classes allow for guidance with a live certified personal trainer who can help the subscriber during the workouts using the camera on their smartphone or tablet. While the entry door to Beachbody or OpenFit is often through our fitness content, another entry point and driver of lifetime revenue is through supplement subscriptions and meal planning. This creates this synergy of providing a one-stop resource for fitness and nutrition, harmonizes the experience of the product, increases lifetime value, and ultimately improves gives customers the best results. We currently offer 25 different proprietary nutrition products created by our world-class R&D and product development teams to meet specific needs and solve nutritional gaps for our customers. For example, Shakeology, our well-known nutritional shake formulated with superfoods, phytonutrients, herbs, free and probiotics, and clean protein. That helps Beachbody On Demand customers get healthy while they make changes in their diet that supports their overall goals. And on OpenFit, we feature ladder supplements, which were originally created, like I said, to optimize LeBron James on-court performance, but can do the same for any customer who's becoming more active. We acquired the ladder business in Q3 of 2020 and are in the process of expanding and scaling distribution of the ladder product line. Our comprehensive approach is now enhanced with the addition of stationary cycling to both the Beachbody and OpenFit platforms. The acquisition of MIX, enables us to offer high-quality, connected fitness to more people with a commercial-grade bike that offers an indoor cycling experience based on the rider's heart rate for a truly personalized experience. The mixed product line is priced approximately 20% to 30% lower than the competition, depending on the configuration. Both the BOD and OpenFit subscriptions can be streamed onto the Mix 360-degree swivel touchscreen, which gives customers the greatest variety from which to choose, with access to our comprehensive library of proven on- and off-bike fitness services. meditation and nutrition content. It's an unprecedented value proposition and will also allow us to cross-sell other products right there on the touchscreen by delivering personalized offers to customers. We're the only provider in the connected fitness market with the ability to cross-sell our products directly through the tablet. And beyond this compelling bundling synergy with our business model, what attracted us to Mix was their focus on getting people results. Mix found that there's this fast audience who are intimidated by the pressure of the leaderboard on other platforms. Most users surveyed said they prefer a less competitive experience based more on their own results and personalized workout intensity as measured by their heart rate. We believe that pairing our content with the technology that Mix has developed allows us to create an innovative and compelling experience that will drive acquisition of customers who want healthy results that come from our total solution. This entire ecosystem, both our digital platforms and the Mix bike, is now being supported by strategic marketing investments that drive that customer acquisition, retention, and cross-sell opportunities. This isn't new to the company. We've been executing on a refined approach to direct marketing over the past two decades, and we view our approach as a key competitive advantage. But now, we have the product lineup, capital, and the resources to drive real growth. We currently acquire new customers in two ways. through performance marketing or paid advertising, and through our substantial micro-influencer network, which consists of roughly 400,000 people. We call them coaches. They serve as the foundation of our online community. And with the merger just complete, our proven business model gives us a real competitive edge with $347 million of cash on our balance sheet, the broadest fitness content library in the world, the ability to cross-sell products on Connected Fitness, And this 400,000-strong army of influencers, we're in the best position in our history to accelerate growth in the years ahead. Now, our plans with this capital and our plans to go forward include, first, accelerating customer acquisition. Beachbody has always acquired customers opportunistically, and we believe... we can supercharge growth by doubling down on customer acquisition with this same disciplined approach that we've used for the past 20 years, enhanced by the leverage created by our first branded advertising campaign. Second, expanding internationally. Beachbody is currently a 99% North America-based business. We believe we can scale the business model into new international markets, particularly in parts of Europe. Third, increasing technology and data and analytics investments. Our September launch of the BOD interactive platform is a good example of leveraging existing resources and skill sets to dramatically expand the TAM with live interactive content featuring our very popular super trainers. We believe this can expand lifetime value by adding an additional subscription tier of $19.95 a month to our BOD membership while maintaining the low entry membership price of $99 a year for BOD. Likewise, We're investing in significant data and analytics expertise and technology to leverage the substantial user insights we receive from our multiple subscription offerings. This vastly improves our ability to ensure customers have the best possible experience and to help steer future capital allocation in the direction that will create the most enterprise value. And fourth, opportunistic M&A. We're seeing many attractive inbound M&A opportunities in the market that would benefit from Beachbody's scale, distribution, and marketing expertise. Over the last two years, we've acquired the Gixxo Technology Platform, Ladder Supplements, and of course, most recently, Mixed Fitness. And we're excited to pursue additional M&A activity that supports our growth plans. Now, turning to our recent performance. As we noted in our press release, Completion of the merger was delayed by approximately a quarter, but despite this delay, we continued to execute our business model during the second quarter, introducing new digital content and nutritional products that have been well-received by new and existing subscribers. On BOD, this included an all-new dance fitness program led by super trainer Sean T. called Let's Get Up, which has already been streamed nearly 3 million times since its launch in April. OpenFit announced a new initiative to bundle OpenFit streaming content with gym memberships, starting with an agreement with Fitness International and their LA Fitness Gym members. This demonstrates our focus on continuing to capitalize on innovative distribution opportunities with OpenFit. And finally, we've made a strategic minority investment in Feed Media Group, the company behind Feed FM, the leading B2B music licensing subscription service in the fitness space. This followed our agreement with FeedFM to implement its cost-effective solution to further elevate the experience of our fitness content with popular music. With FeedFM's unique business model, users can follow the trainer's curated playlist or choose from multiple stations so they can work out to music of their choice while staying on the beat with the rest of the class. We're excited to feature this innovative service in the BOD Interactive subscription that I mentioned. With the merger complete, the business is now poised to accelerate via several drivers, including our first-ever Beachbody brand advertising campaign launching this month across social, digital, and TV, as well as an incremental $33 million investment in marketing above our prior plans to spend $156 million on a combined full-year basis for a total of $189 million on a combined basis in 2021. This is a 112% increase over 2020 or a 250% increase over 2019. Finally, starting late this quarter, we'll begin offering the recently upgraded mixed bike to our database and powerful network of coaches. This is something they have been asking for. Purchase intent is high, and we're increasing our forecasted bike units by roughly 30% from approximately 73,000 units to 95,000 units for 2021. So, in summary, We're very excited for what lies ahead for the Beachbody Company. No doubt the challenging macro backdrop and its impact on the predictability of consumer behavior right now does present some near-term unknowns, which we're watching and reacting to on a day-by-day basis to do what's best for the business. I won't sugarcoat the volatility of the current environment. And that said... I couldn't be more optimistic about our long-term prospects. With entry points across multiple platforms and our long history of successfully acquiring, engaging, and retaining customers, I'm confident that we will efficiently deploy our substantial financial resources to scale the business and create significant shareholder value over the long term. The business we've built provides a strong foundation for growth, combined with the many levers we have to drive both revenue and earnings acceleration, and most importantly, allocate capital in a way that will help tens of millions more people get healthy. So I'll now turn the call over to Sue to discuss the second quarter results and our guidance for the remainder of fiscal 2021.
spk06: thanks very much carl and good afternoon everyone i'll start with a review of our second quarter and six months results to june 30 and then share our guidance for the full year as carl mentioned our three-way business combination with mixed fitness holdings and forest road acquisition call was completed on june the 25th and as a result our gap financials for the second quarter and six months end of june 30 only included five days of results for mix For full details regarding our financial results, please refer to our earnings press release and form 10Q filed with the SEC, which are available on the investor relations section of our website. Before I begin, I just would like to set the table on a few data points that impacted our second quarter results and have resulted in us updating 2021 full year guidance. First, last year's COVID environment resulted in challenging comparisons, beginning with the second quarter of 2020, as consumers began to engage in activities outside the home, which is why we thought it would be helpful to share the 2019 pre-COVID period as additional context. Second, the quarter delay in our closing of the merger with Nix resulted in us deferring approximately $12 million of Q2 previously planned media investment until the second half of this year. This impacted the sales momentum previously forecasted in our digital subscription toward the end of the second quarter and corresponding momentum into the second half of 2021. Finally, transparency is extremely important to us. So let me reinforce Carl's point that we won't sugarcoat the volatility of the current environment, nor the uncertainty in consumer behavior created by COVID variants and other macro conditions, which is why we're updating our full year 2021 guidance. Now turning on to our Q2 results. Total cap revenue increased 2% year over year in the second quarter to $223.1 million, but increased 21% compared to the second quarter of 2019. This increase was primarily driven by strong digital performance with digital revenue of $94.3 million, a 20% increase compared to Q2 of 2020, and a 61% increase compared to Q2 of 2019. Nutrition and other revenue was $128.8 million, an 8% decrease compared to Q2 of 2020, but a 3% increase compared to Q2 of 2019, with a year-over-year decrease driven by a shift in revenue from Shakeology as we continue to diversify our nutritional product line. On a pre-merger and pro-forma basis, we included additional historical information by quarter, including mixed revenue from Q2 of 2020 to Q2 of 2021 in item five of our second quarter 10Q, which was filed with the SEC today. This will allow you to reconcile the pre-merger and pro-forma total revenue for the three-month period of Q2 of 21, which increased 7% to $237.3 million over 2020 and increased 29% compared to 2019. You'll recall that GAAP accounting and our business combination close date of June the 25th only allows us to include $88,000 of revenue for Mix and Q2 versus the $14.3 million of Mix-generated revenue for the full quarter. Following on with that same pre-merger Q2 KPI results for MIX, MIX sold 10,000 bikes versus 5,500 a year ago and increased digital subscriptions to 41,600 from 1,800 digital subscriptions a year ago. Now I'd like to turn to our digital KPIs for the second quarter. Compared to last year, digital subscriptions increased 13% to 2.7 million subscribers and are up 61% on a two-year basis. In terms of engagement, daily active user to monthly active user, which is an important engagement metric we follow, or DOWMAP, was down 130 basis points versus prior year, but up 330 basis points versus 2019, while digital streams were down 20, versus last year, but up 75% compared with the second quarter of 2019. Moving down the P&L, our gross profit was $154.3 million, a 3% decline compared to Q2 of 2020. Digital gross margins remained consistent year over year at 88%, while nutritional and other gross margins were 56% compared to 64% in the prior period, with the decrease due to a shift in sales composition, along with approximately $1.8 million of higher shipping and associated freight and other fulfillment costs, largely as the result of COVID-related disruptions. And this $1.8 million charge is excluded in our adjusted EBITDA calculation. The operating expenses totaled $184.4 million or 82.6% of revenue compared to $171.6 million or 78.5% of revenue in the prior year period. Our operating expenses fall into three areas. One, selling and marketing. Two, enterprise technology and development. And three, general and administrative costs. And now I'll take each one of them line by line. Selling and marketing expenses primarily include the cost with coach compensation, advertising, promotions and events, as well as personnel-related expenses for employees and consultants associated with these areas. For the second quarter of 2021, selling and marketing expenses increased to $140.2 million or 62.8% of revenue from $134.7 million or 61.6% of revenue last year. The $5.5 million increase was mainly due to a $4.2 million charge for a non-refundable deposit for a sales event which was canceled due to COVID restrictions, which is also excluded in our adjusted EBITDA calculation. The remaining balance of $1.3 million was due to headcount additions in our data, analytics, and marketing teams to drive future customer acquisitions. Enterprise technology and development expenses relate primarily to technology infrastructure that supports the business. It is not directly related to sales of our products. These expenses total $26.9 million or 12% of revenue for the quarter compared to $22.4 million or 10% of revenue in the prior year. The increase was primarily due to personnel additions and general enterprise system related expenses. General and administrative expenses totaled $17.2 million, or 7.7% of revenue, compared with $14.5 million, or 6.6% of revenue, in Q2 of 2020. The increase was due to merger-related transaction costs, which totaled $1.5 million, and that's also added back to adjusted EBITDA, as well as higher personnel and general corporate expenses to support future growth. Moving on to the change in fair value of warrant liabilities. As many of you may recall, earlier this year, there was an accounting change announced to account for warrants from equity to liabilities. As such, our merger triggered a non-cash accounting benefit of $5.4 million in the second quarter, which is primarily driven by the change in the fair value of the liability for the $15.3 million warrants between the merger date of June 25th and the period end date of June the 30th. Interest expense totaled $305,000 versus $248,000 in Q2 of 2020 and related to modestly higher interest on borrowings for normal working capital needs from our revolver. Other income totaled $1.7 million and related to a non-cash gain on the $15 million convertible instrument with MIX that was converted to equity post-merger. versus no similar investment in Q2 of 2020. This non-cash gain was also added back to our net income to adjust the EBITDA reconciliation found in our press release and 10Q filing. We realized an income tax benefit of $10.9 million in the quarter, which was also the result of the merger. As a result, we recorded a net loss of $12.4 million compared to a net loss of $10 million in the second quarter last year. But now I'd like to move on to adjusted EBITDA, which we define and calculate as net income or loss adjusted for depreciation and amortization, amortization of content assets, interest expense, income taxes, equity-based compensation and other items that are not normal or recurring operating expenses necessary to operate the company's business. Our adjusted EBITDA loss for the quarter totaled $4.4 million compared to a profit of $890,000 in the second quarter of 2020. Turning to a review of our results for the first six months of 2021, total revenue was $449.3 million a 16% increase compared to the six months ended June of 2020, and a 14% increase compared to the same period in 2019. Over the six months of 2021, the first quarter benefited from COVID mandated restrictions, which largely quarantined customers inside their homes, and we saw an increase in pre-merger revenue of 43% versus Q1 of 2020. As those restrictions eased in the second quarter, consumer behaviour was less predictable, which compounded an already challenging comparison. On a pre-merger and pro forma combined basis, total revenue for the six-month period ended June 30, increased 23% to $480.5 million. However, as previously mentioned, because our business combination date of June the 25th only allows us to recognise five days of revenue per month, which is $88,000, post-merger revenue totaled $449.3 million for the six-month period, or 60% higher than the same period in 2020, as compared to the pro forma increase of 23%, I just noted above. Digital revenue totaled $189.5 million, a 34% increase compared to the same period in 2020, and a 52% increase compared to 2019. Nutrition and other revenue totaled $259.9 million, a 5% increase compared to 2020 and a 4% decrease compared to 2019 due to a change in the sales composition as we diversified and bundled other nutritional products. Digital subscriptions totaled $2.7 million, the same as we just reviewed for the quarter period, which is a 13% increase year over year and a 61% increase compared to 2019. Our year-to-date Dow now was 33.5%, a 190 basis point increase compared to 2020, and a 440 basis point increase compared to 2019. Streams totaled 100.4 million, which was a 13% increase compared to 2020, and a 93% increase compared to 2019. Month over month, digital retention was 95.4%, a 20 basis point decrease year over year and 30 basis point increase compared to the first half of 2019. Regarding our nutrition and other revenue component of revenue, nutritional subscriptions totaled 0.4 million compared to 0.5 million in 2020 and 0.3 million in 2019. Our gross profit dollars total $312.4 million, a 12% increase over 2020. Consolidated growth margin was 70% versus 72% in the prior year period, with digital margins increasing to 88% from 87%, and nutrition and other growth margins declining to 56% from 63% due to the aforementioned product mix changes and increases in shipping, fulfillment, and personnel costs. Total operating expenses totaled $374.1 million and increased 24% compared to the prior year period. As a percent of sales, total operating expenses were 83.3% versus 77.9% in the prior year period, while the entire percentage variance was driven by a $22 million increase in media spend compared to 2020, as the revenue increase associated with that spend typically occurs over subsequent periods. A net loss for the first half of 2021 was $42.5 million compared to a net loss of $18.3 million in 2020 and net income of $27.1 million in 2019. Our adjusted EBITDA loss of $16.1 million in the first half of 2021 compared to adjusted EBITDA of $3.6 million in 2020 and $39.7 million in 2019. Our weighted average shares outstanding for the three and six months ended June 30 were approximately 247.1 million and 245 million shares respectively. This differs from the 308 million shares outstanding reported in our stockholder equity table as the calculation averages shares for the 90- and 180-day period. And as you'll recall, given the merger occurred on June the 25th, the calculation only has five additional days of shares from that merger. Turning on to our balance sheet, As of June the 30th, our cash and cash equivalent totaled $347.2 million, reflecting the proceeds from the merger and no debt. The strength of our balance sheet positions is very well to fund increased investments in marketing, as well as other strategic growth initiatives across digital, nutrition, and connected fitness over the remainder of 2021 and in the years ahead. And now I'd like to turn to our full year 2021 guidance. As we head into the second half of the year, we're executing on our previously communicated strategic initiatives, albeit with a quarter delay. We expect these results will be improved in the long term with the launch of our BOD interactive platform in September and the additional $45 million in media with the brand campaign starting next week that Carl mentioned in his comments. In fact, of that $45 million, $12 million was deferred from the first half of 2021, and the remaining $33 million is incremental and opportunistic spend for the long term. Additionally, we're increasing our full-year connected fitness bike sales forecast to 95,000 units from 73,000 units. higher freight expense and global supply chain challenges have resulted in what we believe will be a short-term increase in unit costs for each bike, which we do expect to negatively impact gross margin and adjusted EBITDA for at least 12 months and be a use of cash as we build inventory for the first quarter of 2022. However, the investment to meet anticipated demand supports our longer-term goal of subscriber growth and creating the best experience for our customers and increasing both engagement and retention in line with our strategic plan. Both the media investment and the increased bike unit sales are lifetime value investments rather than in-year profit investments and will negatively impact our adjusted EBITDA this year. Additionally, due to the lingering uncertainty created by the pandemic, we are opting for a more conservative view with respect to our outlook for the remainder of the year. Accordingly, for the full year, we are now forecasting total gap revenue of between $930 million to $960 million and adjusted EBITDA loss of between negative $110 million and $100 million, respectively. Moving on to CapEx, as a result of the increased investments we're making to integrate content onto our mixed touchscreen, launch BOD Interactive, and make improvements to our proprietary platform hosting BOD groups, we are forecasting capital expenditure of approximately $120 million for the full year. Finally, I'd like to reinforce one important point before we move to Q&A. While we felt it was important to be transparent regarding mid-term consumer uncertainty and adopt a more conservative approach given the delay of our merger, we remain very confident in the secular trends of the business, our strategy, and our long-term prospects. And with that, operator, please open the line for questions.
spk05: Thank you, ma'am. At this time, I would like to remind everyone in order to ask a question, please press star 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And our first question from Jonathan Kamp of Baird. You may ask your question.
spk07: Yeah, we can hear you, Jonathan.
spk00: Hello, can you hear me now? Yep. All right, great. Thank you. Thank you. I guess the first question I wanted to ask, when you talk about some of the volatility and really more of what you're seeing in the current environment, could you just share a little bit more of what you're seeing from the core consumer and any thoughts about how that plays out maybe into the back half here?
spk06: Sure, I'm happy to respond and then Carl, feel free to jump in. So, and I'd actually like to frame it relative to the front part of the year and also talk about some current trends we're seeing in terms of July and August activity. So to be very clear, the front part of the year was very strong for us. And we were on the Beachbody side, our revenue was within actually less than 1% of budget mess. So we essentially hit our targets on the revenue side, and also we actually beat our target on the EBITDA side, but of course that was the result of the media delay. The new product releases were all launched on time and are doing very well. We're executing on the initiatives, and of course now we've got some increased purchase intent from our coaches from the mixed bikes, which has emboldened us to increase the forecast. And of course, we're now ramping up media by that additional 33 million. So first half of the year was very strong. The timing difference in some of that volatility that you see reflected in the forecast for revenue is really that campaign launching which isn't really launching until later this week, earlier next week, which is forecasted to take a couple of months to build momentum or incrementality in terms of subscribers. But our base is strong. And to share some insights into July as an example, our Dow Mao is below prior year by 330 basis points, but it's still up 80 basis points over 2019. Retention, as I look at that metric, is also very strong. So far, it's actually 60 basis points better than prior year and 10 basis points better than 2019 and streams. And you might know that we had a peak. July and August were peak COVID spike months. in the second half of 2020, but our streams so far in Q3 are below 2020, but they're 52% over 2019. So the business is holding up very well, and what you really see in terms of that revenue reduction is essentially driven by that media deferral.
spk01: Yeah, and... I also think that despite the delay in the transaction, which has a bit of a ripple effect on things that we can actually put into the marketplace in-year, we are very excited by the launch of what we're calling Bot Interactive. And if you recall from earlier presentations, this idea of adding an additional subscription tier for $19.95 a month, basically an upgrade for our base Beachbody On Demand subscriber. That went into beta testing just this last couple weeks, and we've had very – positive feedback on that additional layer to the business. It opens up our total addressable market because we're really appealing now to fitness people who want to work out two or three times in their home, maybe not follow a program, which is the traditional business model that Beachbody's followed. And now we're seeing people who Might not be in the middle of a P90X round or an Insanity round or 21-day fix, but they just want to work out a few times a week. And now they, for the first time ever, have access to the Super Trainers live a few times a week. And like I said, this has just started the beta test, but the feedback that we've gotten is incredibly positive. positive, and it's with that layer that we'll also be able to introduce the bike to this large subscription base of Beachbody On Demand, which is why we've increased some of those forecasts because anticipation and surveys of purchase intent are very strong, and we're excited to get all that underway. Unfortunately, it was just delayed by about a quarter, so we're not going to be able to get that started until late September. But based on the indications that we've got, quite honestly, we feel very good about it. At the same time, we're taking a view that lets everyone know that there are uncertainties in the market, including the variants and the reaction that people have to the dynamics that are evolving every day. So we just wanted to take an approach that is transparent and doesn't overpromise, but nonetheless feel very good about the initiatives that we finally get to put into play now that we've closed the deal.
spk00: Okay, that's very helpful. And maybe thinking forward to the second half, sort of the embedded guidance, can you share any more thoughts of how you crafted the guidance? It looks like for the second half in total, there's maybe an acceleration in sort of a two-year process. revenue growth rate, and I know you're including mix in the second half. So any further thoughts on how you crafted the second half and maybe of the initiatives you just mentioned, how should we think about the biggest drivers of the incremental growth that you're expecting?
spk01: The most important drivers always are incremental subscriptions and revenue as you mentioned, the introduction of the bike into both the OpenFit ecosystem and the Beachbody ecosystem. And so based on feedback that we've gotten from the database, we've gotten a certain degree of confidence and confidence That is reflected in the numbers that Suze presented. Likewise, the conversions that we've seen of the Beachbody On Demand, current Beachbody On Demand subscriber into this upgrade of an additional $19.95 a month. has performed as good as or better than perhaps we might have expected in the first month that we've started to message Beachbody On Demand Interactive. And finally, the introduction of the super trainer, Jennifer Jacobs, who, if you recall, she used to be a Peloton instructor. She has a program coming out in early December called which we have gotten very strong enthusiasm around that concept. It's called Job One, a month-long program of 20-minute workouts, which is a really popular formula in sort of the lexicon of what we've created over the years. And sort of adding these multiple initiatives together gave us the confidence that we could put these numbers together forward and not be overpromising. And like I said, there are a number of dynamics that we're looking at and trying to understand. And we're using the most current behavior to indicate how we go about adjusting that forecast rather than expecting things to all of a sudden change or that we have a crystal ball that is more clear than it currently is with all the various dynamics going on. But it's really those It's the bike. It's Beachbody On Demand Interactive. It's the launch of the new program in late November, early December, and the indications that we're getting of purchase intent on those three things.
spk06: and mathematically i think the only addition i would have and you'll be able to do this math um anyone on the call will but pulling down the revenue forecast um because of those subs not coming in in june early july as the media campaign would have otherwise um well had us budgeted um results in A reduction in revenue between $100 to $130 million, right, between the second half of the year. And with 25% of that revenue occurring in Q3 and the balance essentially occurring in Q4. The reason for that, of course, is because even though the media campaign is launching later this week and next week, It's going to take a while, as I mentioned, the prepared remarks to get momentum behind that. So we don't anticipate subscribers really being driven until the fourth quarter. So that will help spike our Q4 earnings over the Q3 run rate. And then I think the other in terms of sales composition, you're obviously going to see, you know, because we're only able to book $88,000 of revenue that makes in second quarter for the first six months. you're obviously going to see a greater share of sales for mix. And we're currently forecasting around 25,000 units of sales of the bike in Q3 with the balance in Q4. So I think you should be able to update your models with that kind of information and get to a pretty good sales composition.
spk00: Okay. Makes sense. So maybe just last one for me, when you think about plans to ramp the investment here in marketing and other initiatives. Just maybe comment on what's driving your confidence relative to some of the volatility you're seeing, and then how should we gauge the payoff that you're expecting from the investments? Is that more a 22 expectation that we should see some benefit, or how should we overall view the accelerated investments? Thank you.
spk06: Yeah, mathematically, I'm not expecting a financial benefit from that in a material way in 2021, which is why we also pulled down corresponding EBITDA guidance. So, you know, in terms of that EBITDA bridge from like the loss of negative $30 million to the range we have now of negative $100 to $100 million. Ten, it's basically broken up, you know, as a result of three drivers. One is that incremental $33 million of media, not expecting to drive any incrementality this year, just expecting it to drive real subscribers. And we'll see a bit of that revenue in Q4, but it has really helped us in 22. Two, the flow through of about 25% on that reduced revenue. And three, we do have mixed costs of goods pressure in margins from the mid-teens in the budget that we had versus the reality of a mid-teens loss right now. So that's impacting our EBITDA. But in terms of our you know, LTV to CAC and the disciplined approach that we have to spending money in terms of media dollars, in terms of performance-based marketing versus brand awareness and doing some of the top of the funnel work we're doing now. You know, we're adopting the same approach that we always have, but we're expecting most of the brand awareness to accrue to 2022.
spk01: Yeah, I'll also add we've got ongoing iterative testing that we are seeing, you know, wins along the way, which is how we've always operated. So conversion of visits, click-to-order ratios, and so on, where we're seeing improvements. productive wins. And that's always the way we've run the business so that over the course of time, we just get more efficient and more efficient and more efficient. And then as volatility in the media marketplace starts to stabilize, we get to roll those efficiencies into our media spending. So we're excited by, you know, it's one of the reasons that we would be expanding our media buys because we've seen enough indications that it will have a positive impact outcome. And capital allocation is very important to us, and it's exciting to have the resources now to really do that. And we feel like we've got the right makeup of the business model to invest that media into. So we're quite excited about it, both in terms of what it might do to obviously affect some of the numbers in the second half that undermines near term but we do feel that long term finally beach potty will be on the map both as a brand and in terms of the accelerated growth that we're all expecting okay i appreciate all the color thanks again thank you jonathan and we have our next question from john heinbuckle of guggenheim you may ask your question
spk04: Hey, Carl, I want to start with when you think about the 33 million of incremental investment, right? So, you know, body is an opportunity. Mix is an opportunity. How do you think about allocating that to the various brands? And where's the biggest payback likely right over the next year or two?
spk01: I think that the investment in the Beachbody brand, because of the critical mass of Beachbody and its subscriber base and our micro-influencers, you can imagine how powerful – the brand awareness campaign can be to the various levers. So we've got performance marketing that's already running, but now we'll get the benefit of some uplift of what, quite frankly, is, I'm embarrassed to say, after 22 years, not as many people are as familiar with the Beachbody brand as I would like, but that is an incredible opportunity for improvement. So brand marketing going into Beachbody, plus... supporting our coach influencer network with brand marketing so they're talking about a brand that people will actually recognize. So that's a very important aspect of this increase in advertising. Likewise, Mix just came out with a second version of the bike literally this month or We're in August. So they just launched what they call Mix 2. This bike is exceptional from design and function and stability. Really, as people start to see the marketing behind that bike and the storytelling behind that bike, it is superior to what's on the market, particularly at a price point that's 20% to 30% less than the competition. So we've just literally in the last week started to get that word out. But as people start to understand the difference in features, the fact that you don't need to change your shoes between doing a workout on the bike and then getting off it to do some functional fitness, or the fact that this – Swivel screen goes 360 degrees, so you can do some of our Beachbody content off the bike and on the bike. These are the things that we specialize in and have done for 22 years. To be able to apply that expertise to this new innovation in stationary cycling is extremely exciting to us because the mixed business model was very strong going into this transaction, and we expect to just complement that. Now, I will say... We're going to be quite smart about the way we do that because we're going into the third quarter. Media rates are squirrely. So we're doing that smart, but we're doing it, again, with the mindset of what we've represented to the marketplace as we went into this transaction, that we are poised for growth. We are raising this money for growth, and that's what we're investing in. We're doing it responsibly, but we understand – what our directive is. And our investors are expecting a growth story, and we're applying it to the leverage where we think we can achieve the highest growth and return on capital as quickly as possible.
spk06: And mathematically, I'd just say it's about 70-30 in terms of the split between sort of the beach body and the open fit side of the business versus the mixed investment media in the second half of the year.
spk04: And then second, real quick... Yeah, I know there's a big opportunity on the cross-sell, right, from digital to nutrition. How quickly can you get at that? I mean, certainly it's not 21. You know, is it something you can get at by middle of 22, or is it after that?
spk01: Do you mean on the touchscreen?
spk04: No, no, no, cross-selling digital subscriptions, you know, to nutrition subscribers.
spk01: Well, that's ongoing. I mean, that's part of the model now and is low fruit on the tree to increase the attach rate, not just because it makes good business sense, but because it makes good sense for the customer. So the opportunity to communicate that, quite frankly, this is another one of the exciting layers that happens when you add content. Now, you know, so on the OpenFit side, we create 400 live workouts per week. They have just started to institute the cross-cell strategies into those 400 live workouts to help people understand that they could get more power from a pre-workout formula or recover faster with a recovery formula. Likewise, on the Beachbody On Demand side, We're now going to have 40 new workouts with our super trainers produced each week starting in late September. That's an opportunity for us to re-emphasize and re-engage on the cross-sell opportunity of the supplement line. We have 25 different SKUs across our supplement line. So that is something that we expect to only ramp up here in third quarter and particularly September, October, November, and December as we roll out this live content. So that's an important part of this. But I do want to mention we are also engineering the prospect of touch screen ordering into that tablet that's on the mixed bike, which is a very powerful opportunity for us. And it'll be done in a couple stages, but by the end of 2021, we expect that to be fully functional so that with effectively one touch, since we've got your order information, you'll be able to buy a meal replacement shake, a pre-workout shake, or a recover shake. So it will be fully functional technologically by the end of the year, but it is operational right now through the advent of the live content.
spk02: Thank you.
spk05: And our next question from Linda Bolton-Weiser of D.A. Davidson. You may ask your question, ma'am.
spk07: Yes, hello. So I was wondering, you had mentioned in your discussion of results some hard comparisons in prior year, I guess because of COVID-driven growth. Can you just kind of elaborate on that and talk about which, was it both sides of your business that benefited during COVID, both the digital and the nutrition side? um because you know i'm seeing that nutrition revenue was up about five percent in 2020 so that seemed kind of normal for me so was it really the digital side that benefited can you just talk about those coveted effects on your business thank you so yeah it
spk01: Go ahead. Please, go on. All right. So similar to the prior question, the nutritional business really follows the digital business by and large. So last year we saw growth in the nutrition file as we had more subscribers, but we also had people who were displacing perhaps their gym membership. And so we saw an increase in digital subscribers that was faster than the increase in nutritional subscribers. We have since gained some efficiency, but we're still seeing a shift in product mix, if you will. Shakeology has been the primary product of the company, the dominant supplement that we've sold for the last decade. few years, and we have seen a shift in that product mix from Shakeology perhaps to our pre-workout and our post-workout formulations. But I don't necessarily think that that shift in revenue is COVID-related. And I don't know, Sue, if you want to speak to that, but I don't think that we can correlate the COVID environment to the change in that relationship.
spk07: Okay. So can you just kind of like talk a little bit more about the profitability here? So your projection for the year went from a $30 million EBITDA loss to about $100 million. So $30 million or so is the incremental media marketing spend. so is there any way to put like the other 40 million of increase in the loss for the year is there any way of making buckets to explain to us like the reasons for the 40 million dollar um reduction in profitability like can you say that a certain amount is supply chain and a certain amount is something else can you just kind of bucket it for us if you could
spk06: Sure. Hi, Linda. Yeah, I think you're exactly thinking about it correctly. We definitely got pressure on EBITDA as a result of the additional 33 million media. And then the balance has broken up into two key areas for us. One is mixed cost of goods pressure. And that's what I mentioned before, that gross profit that we had in the budget, of course, is really a mid-teens loss. And so that's actually about $15 million. And the rest represent flow-through on the reduced revenue estimate of between $100 million, which gets you to the $930 million, sorry, the $960 million or the $130 million, which gets you to the $930 million. Thank you. That's very helpful. Yeah, the flow-through is really if you just look at the cost of goods margins and then add in the balance being coach costs, you're sort of getting to a 25% flow-through on that.
spk07: Okay, thank you. That's very helpful. And then can you just talk about your longer-term views on profitability and You had really projected to be profitable on an EBITDA basis in 2022. Do you think you can still be positive EBITDA in 2022? I know you don't want to make projections about next year now, but are we looking at positive EBITDA, do you think, in 2022?
spk06: So it's a little early to update our full year 2022 guidance because, you know, while revenue is obviously governed by GAAP, and even though we met the revenue in the first half of the year compared to our budget, essentially, and we beat the EBITDA, what's different, of course, now in the second half of the year, which is why we know the guidance, is the fact that subscribers can occur on the last day of the year, and that really drives results for the subsequent year, right? So the launch of BODY in September is obviously going to be a key data point, as will be the success of the media campaign, as well as some other conversations that are currently in place. But it's too early to forecast in the change to subscribers at this time or EBITDA or anything else that would impact anything other than 2021. But we'll share directionally how things are unfolding in the next quarter. OK.
spk07: And then this is just kind of like a bigger picture question on your business. You know, your nutrition business is a direct selling model. And as you've mentioned, you have all these coaches, 400,000 coaches out there, and they're earning commissions. So you're paying them out of your profitability commissions. to be promoters of your products. So why would your model require such a large kind of marketing or media investment on top of the investment in your network of coaches?
spk01: As I mentioned, the business model has always been, or certainly for the last decade, 15 years or so been this combination, quite synergistic combination of performance marketing and the coach or influencer model. That influencer model benefits from the performance marketing. Now, while we still expect the performance marketing to achieve a certain profitability, and that's a bit, that's shifting as we're adding a layer of brand marketing on top of it, Part of the premise of this entire business model is as we support those coaches who do incredibly important work and only get paid when they are successful at bringing in new customers and helping them get results, the more we can help them have an ecosystem and a company with a reputation that they can point to and say, hey, See, this company does good work and they handle all the transactions and they handle all the inventory and they stand behind their 30-day money-back guarantee. we need to make that ground fertile for them, and they're more productive. And that's something that we've benefited from, frankly, since we launched this company, is having this dual approach of supporting them with marketing and sales efforts that tell the story of the product so that So if I opened up a conversation with you and said, hey, I'd love – like right now I'm doing a program called 645. And if I said, I'm having an incredible experience with this, and you could say, I saw that. I saw that in an Instagram story ad. That looks like a pretty cool program. Now I've got – I've triangulated that, and I've got a better chance of bringing you into my group. And that's the synergy that we've seen over time that we're hoping is only enhanced – by the brand marketing efforts. And, in fact, we have shown our brand marketing advertisements to the coach community, and they're quite excited to both share that and be media unto their own, but also to benefit from the additional exposure of the parent company. So it's a synergy. That's really the bottom line.
spk07: Okay.
spk05: Thank you very much.
spk01: Thank you, Linda.
spk05: Again, if you would like to ask a question, press star one on your telephone keypad. Our next question from Daniel Adam of Loop Capital Markets. You may ask your question.
spk02: Hey, guys. Thanks for taking the question. Sue, I think you may have mentioned this in the prepared remarks, but just to Make sure I got it correct. Did you say that that mixed contribution to revenue for the full quarter was $14.6 million? If it were assuming a quarter of contribution?
spk06: Exactly. Yeah. And you'll see, Daniel, if you go to the 10Q and you go to item five, we actually, yeah, you'll see the amounts by quarter going back to Q2 of 2020. So it was $14,265,000. But unfortunately, we could only count $88,000 of that revenue. Okay. Got it. And what was the EBITDA loss, I'm assuming? We don't report that, partly because EY not mixes auditors and so wouldn't sign off on it. But you can imagine that given the supply chain constraints together with the general shipping and handling surcharge with everything going on, that's continuing to impact the EBITDA in a similar way that it might have in the first quarter.
spk02: Okay, great. That's it for me. I appreciate it. Thanks, guys.
spk06: Sure thing. Okay, operator, I think with that, we can probably conclude the call.
spk05: Yes, ma'am. There are no further questions at this time. I'll turn the call over back to Carl Deichler, CEO for Closing Remarks.
spk01: All right. Thanks so much. Well, look, appreciate everybody getting on the call today and more so that you care about the mission of Beachbody and the opportunity ahead for the company. I feel we do some important work helping people improve their overall health and fitness. And as such, our investors and the thoughtful insights of the analyst community really plays a vital role in unlocking our ability to reach more people. And I know that the expectations is that we run this company with an emphasis on growth and with 22 years of experience and having just accumulated the resources to make our brands into household names. And with some of the most exciting innovations in our history right on the horizon, we're going to pursue that growth and look forward to sharing results at the next opportunity that we have. So thank you, everybody, and have a good night.
spk05: This concludes today's conference call. Thank you all for joining. You may now disconnect.
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