Good afternoon, ladies and gentlemen. Welcome to the Beachbody Company First Quarter 2024 Earnings Call. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded. And I will now turn the conference over to our host, Bruce Williams, Managing Director of ICR Investor Relations.

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 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, Bruce, and good afternoon, everyone. 2024 is off to a strong start as we continue to deliver against our strategic initiatives and remain steadfast in our turnaround plan. With our efforts thus far in 2024, we have some great news to announce. First, I'm thrilled to share that we beat the midpoint of our revenue guidance and achieved quarter-over-quarter revenue growth for the first time since Q4 of 2021. Second, we exceeded the midpoint of our adjusted EBITDA guidance, and we've now delivered positive adjusted EBITDA for 2 consecutive quarters. And today, we reported our highest adjusted EBITDA since going public back in 2021. And third, we reached a critical milestone of becoming free cash flow positive this quarter, once again, a first for our company since 2020. As a reminder, the goal of our turnaround strategy centers on one, continuing to enhance our cash position and balance sheet. Two, transforming our cost base and rearchitecting the enterprise to dramatically reduce our breakeven point without compromising the core business model that generates revenue. And three, launching a series of initiatives to refine the business model and drive top line growth. In terms of where we stand in the turnaround process, we feel that we are considerably ahead of schedule. Let me walk through the details of our 3 key turnaround strategies. First is enhancing our cash liquidity and balance sheet position. We reported our first positive free cash flow quarter since 2020. During the quarter, we took additional strategic actions to fortify our liquidity position by engaging in a sale leaseback transaction and divesting a noncore investment, which resulted in a $7 million debt reduction. As a direct outcome of that, our loan balance has been cut in half since I joined in June of 2023 from a…

Thanks, Mark, and thank you, everyone, for joining our first quarter earnings call. Achieving our first free cash flow positive quarter since 2020 is a major milestone in our turnaround, and we look forward to sharing more proof points now as every quarter unfolds. I'll walk through our key revenue initiatives, which align with our overall mission to help people achieve their goals and live healthy fulfilling lives. First, we just launched our digital program purchase initiative that we're extremely excited about. Think of it as the iTunes model of buying music, but for fitness programs where customers can now buy and stream programs from our fitness and nutrition library without a subscription. We believe there's latent demand for our library of content from programs that were best sellers and famous on DVD like [indiscernible], INSANITY to other popular programs, which have never been on DVD, like 80-Day Obsession, Lyft 4; and ShaunT's latest program called DIG DEEPER. We're now giving consumers the ability to purchase the individual programs, which is actually the business model that propelled the business for 20 years. Each month, we'll be offering additional titles from our library of over 120 programs for sale in BODi's new shop programs store at bodi.com. And we're confident that this new initiative will cater to people who prefer to buy a specific program rather than subscribe to the entire library. We believe that we're the only major player in home fitness who has a catalog that makes this kind of commerce viable. And again, we believe that expanding access to our content provides an extremely compelling marketing opportunity. And then we can introduce those new customers to the benefits of our fitness and supplement subscriptions once they experience the efficiency of our tested approach to step-by-step training. We're in…

Thanks, Carl, and thank you, everyone, for joining the call today. I am very pleased with our Q1 results that we just released. As Mark and Carl mentioned, we have hit several key milestones in our turnaround journey. We remain on track to achieve approximately $250 million in cash cost savings in 2024, in line with our business rearchitecture plan that we began back in 2021. I will now provide a review of our first quarter financials, starting with revenues. Revenues were $120 million for the quarter, which was above the midpoint of the guidance range and an increase from Q4 of 2023. This would mark the first sequential revenue growth in the past 8 quarters. Compared to the prior year first quarter, revenues declined 17% year-over-year. Digital revenue decreased 4% from the prior quarter to $62 million and decreased 5% year-over-year. We believe that digital revenue continue to be relatively stable. We ran a successful BOGO promotion, which stands for by 1 year, get the second year for free that resulted in strong cash generation. However, less digital revenues were recognized this quarter due to the BOGO promotion as we defer digital subscription revenue over the 2-year period of the promotion. Our overall digital subscriber count was $1.2 million, of which 100% are now in the BODi premium platform. Nutrition revenue increased 7% from the prior quarter to $56 million and decreased 25% year-over-year. This marks our first sequential nutrition revenue increase since Q1 of 2022. We are pleased that our Nutrition revenue grew this quarter sequentially, showing early signs of improvements within our turnaround plan. 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. At the end…

Absolutely. We will now begin the Q&A session. [Operator Instructions]. Our first question today comes from George Kelly with Roth MKM.

So maybe I'll start on the Nutrition business. I'm curious, you showed nice sequential growth there. And I'm just curious what drove that. Was that [indiscernible] is there something else that was meaningful in that sequential improvement?

George, this is Marc have you on. Yes, I would say it's a mix of things. One, it is definitely early green shoots of our turnaround happening in Nutrition. Some things to note there is in addition to better volume of orders. There was also the discount that went from 25% to 20%, which effectively increases revenue and then also, there's some earned events because that line is called Nutrition and other. But overall, George, I would say it's the early green shoots of that business starting to turn around, which is good news.

Okay. That's helpful. And then second topic I wanted to cover is on some of the new growth initiatives that you spent time discussing. Specifically, I was hoping you could share a little bit more about what you've seen in the month since you launched the entitlement campaign? And then secondly, if you could cover, Carl, I know you mentioned that the reactivation campaign is taking a bit longer than you hoped. I'm just curious why that hasn't been more successful.

Yes. Thanks, George. So the entitlement campaign is happening in stages. So it launched literally last week of March. So it's just ramping up. So it's a balance between marketing subscriptions and marketing specific programs that solve a specific problem. So as we've always done in our 25 years, we're building up the marketing at a ratio of customer acquisition to lifetime value. as that marketing matures and we increase lifetime value, that marketing will scale. So we're really in the early days of that scale as we continue to add new or new programs available for single program purchase. Each of those will now scale and that will start to compound. But it's very early at in this chapter of selling specific programs, but I will say this is literally what the company has been doing for 25 years when we really came out of the gate selling specific programs on VHS tape and then DVDs, now we're just doing it digitally. So very excited about what that means in the coming months, but it's early days on it. In terms of the pace of reactivation. You need to be very careful with cans ban laws and regulations to make sure that we're not spanning people. So we've got to be just careful with how many e-mails we send to what cohorts in the prospect list. So what is a very large bucket of e-mails. We just want to be appropriate so that we're both respecting the recipients of those e-mails and also being as efficient as possible with those e-mails so that we're not scorching the database. So we're building a relationship with them. And gradually, over time, we expect it to be more and more productive, obviously, without the cost of acquisition because we already own the name. Does that help?

It does. Yes, understood. And then last question for me is on the selling and marketing line. I'm curious the sequential decline in selling in the absolute amount of selling and marketing dollars spent was pretty modest, less than $1 million compared to 4Q. And so I'm curious if the commission changes, A, are they fully in that 1Q number? And B, are you choosing to reinvest some of that savings in other advertising campaigns? And should we expect that going forward that you'll divert some of those savings into other marketing-related initiatives?

So George, this is Marc again, the CFO. So what I'll say is there's cash spend and then there's accounting spend. So what happens is at the end of Q4 of last year, we accrued expenses at the old structure but we benefited from a cash spend profile in Q1, while the deferred costs from the balance sheet was working in onto the balance sheet. So that's number one, why you didn't see as much of a benefit there as anticipated. Number two, Q4 is always a quarter where we spend the least on media just because for seasonality purposes, while Q1, we spend more. So that's another factor why it goes up in Q1 over Q2. And then number three, like I said earlier, part of that 1,000 basis points is going to come in the form of enhanced revenue, about 200 and, I'd say, about 200 to 250 basis points because the discounts are lower. So our changes were in many places. So that's where the benefits are coming from. So from a cash standpoint, we're seeing the benefit, and you see it in the EBITDA line, and you're going to see it perfects itself more quarter-over-quarter. I would say on the reinvestment question, that's a good one, George. I would say whatever we reinvest is going to be within our desired P&L structure and our LTV to CAC discipline.

Yes, Marc. It's Mark Goldston, George, just to add on to that. Given that we are still in the turnaround mode and we are absolutely driving -- obviously, we've had 2 consecutive quarters of adjusted EBITDA and positive free cash flow. We're really not in reinvestment mode. We will be, but that's not really where we are right now. Right now, we're trying to run a very profitable company with a radically revised cost structure and we're vigilant about our ROIC numbers that we use in our marketing. So we have allowables or thresholds that we will spend up to beyond which we don't get the ROI yield that we're looking for, so we curtail spending beyond that. So when we've fully turned the company around, we will be in a position where we can do more investment spending and elongate the horizon for the return on the invested capital. But right now in the middle of a turnaround, that's not what you want to do.

Our next question today comes from Jonathan Komp with Baird.

Yes. Just one question about the progression quarterly that you see. Are you expecting to stay above $100 million of revenue in the third quarter and fourth quarter? And if so, could you share by how much?

Jon, good talk to you. We're not giving guidance beyond Q2. As you know, we detailed a whole bunch of initiatives, and we're in the middle of the turnaround. As these initiatives start bearing more fruit, you'll see that percolate into the revenue line, and you'll see the revenue line going in a different direction.

And just to follow up, given typical seasonality, I'm just trying to understand how much flexibility in time you may have for those initiatives to take hold. So could you maybe just share more detail on the nature of the covenants that you have? And if those initiatives did take longer to take hold, what options you would have with the balance sheet?

I mean essentially, I think we have disclosed this publicly, our revenue covenant is $100 million a quarter between now and the end of the year. So if you look at our seasonality, and obviously, you can see our previous year's recording. Q1 typically indexes up probably about $112-ish or thereabouts. And then Q2 and Q3 are more around a 100 index level. So we planned our initiatives, as you know, they're somewhat backloaded in the second half of the year. The seasonality swings are not really that dramatic. So they don't really affect us that much. And so our goal is to have them start to take effect in the second half of the year and into Q1. And the $100 million a quarter revenue covenant was established mutually between us and Blue Torch and everybody felt comfortable with that.

Understood. And then just one more follow-up. As we think about the digital business. Can you give any insights, any line of sight you may have to the membership stabilizing or where they may start to stabilize. And as you think about measuring the success of the initiatives you have in place for the digital business, specifically what are you looking for in terms of the milestones or the key metrics to get comfortable in the direction that you're headed?

I think part of this is we might want to focus on is the fact that we're trying to broaden the aperture of the customer base in the company. The company has been, as you know, hyper-focused over the last 5, 6 years on subscription. If you go back to the Halcyon days of the Beachbody company, it was almost entirely purchasing individual programs, what we call entitlements. So what we're now trying to do is to have a mix where we still obviously are focused on the subscription business, but we believe we're leaving a lot of money on the table. And we're leaving a lot of satisfied potential customers off the grid by not offering individual programs. Might there be some level of cannibalization with regard to entitlements to subscription, it's possible. But at the end of the day, if our total engagement base, which is subscription plus entitlement is larger as a result, and therefore, the company would have more revenue and obviously be more profitable, then that absolutely plays into our core strategy. So we're going to learn more as we go down the process. We just started this. When we talked to you in Q3 and Q4 when we've been at this for 4 or 6 months, we'll have a better idea of where things settle out. But the goal here all along was to widen the overall aperture of appeal of this company in its fabulous library of well-known programs. And for the last 4 to 6 years, I would say we really haven't been maximizing that because we've been held bent on the subscription business as the sole source. Does that make sense?

Yes. No, I think the nature of the question, we're just trying to understand. I mean, $1 million to digital subscribers is down significantly from the peak and not necessarily showing signs of normal seasonality or stabilization. So it's hard to get a handle on the efforts that you just walked through paying off versus the pressure still on the core subscription business.

Yes. I would say that frankly, we're in a better position than I feel we've been for 2 decades because we never had the digital subscription business as a complement to the front-end program sales. So now that we are basically unleashing the single digital purchase component of this with the prospect of upselling the digital subscription and upselling the deep nutritional supplement catalog. We're in a position now to dramatically increase our new customer acquisition at a higher lifetime value because I've got more SKUs to offer them than we've ever had in the history of the business. So really, if you look at it from a test and learn perspective, we've got more levers in our arsenal to build lifetime value, which, of course, contributes to what you can spend on the front end. So frankly, since we've made the transition over the last 18 months by consolidating our digital subscription business into one higher-value subscription. Remember, we went through these multiple stages of reducing the number of subscription tiers that we've had and settled in at this higher price. Now we can open up, as Mark said, the aperture of the front-end acquisition using digital program purchases. And then on the back end, sell the subscription. So we think these 2 things are going to complement each other and frankly, help keep the subscription base quite stable.

And the other thing is you might note, Jon, because of the pricing that we've got on the digital program purchases, we'll be able to put together a nutritional bundle with our digital program and nutrition that will give us some absolute price flexibility to make it a more attractive lower-priced entry point potentially. And then we will provide a migration path for those people who purchased the entitlement to either migrate to a full digital subscription or clearly to the nutritional subscription because they will be getting a portion of the nutrition as part of their digital bundle when they join. So we're really going back to the things that worked the best for the company several years ago with those things that we know work today. And of course, this is all dependent on the size and the nature of our digital selling organization as well as what we'll be augmenting that with our direct-to-consumer direct response business.

Next question today comes from Susan Anderson with Canaccord.

I start on the quarter. Maybe just, I guess, on the Amazon details, it sounds like the start there has been pretty successful. You sound pleased with that. I guess, does that give you confidence in expanding into other retailers or other channels? And then also, I'm curious if any of those Amazon customers, it may be a little early, but if they eventually migrate to your own site?

Thanks, Susan. Yes, we do expect the Amazon business to continue to grow, and we're also getting interest in terms of the possibility of expanding sales channels. What matters to us is that the channels that we go into continue to contribute to the cash flow and profitability of the business. So that's how we measure any opportunities that we're looking at, and there are plenty of them because of the quality of the supplement catalog that we've got. In terms of those customers from Amazon coming over to the mothership, if you will, I think it will happen in some cases, but you just can't beat the convenience for people who want to shop from Amazon. They get to shop from Amazon, and we probably would have never gotten them because they appreciate the convenience of being over there. So as long as we're managing our contribution margin of each transaction, we're sort of agnostic to where they come from. However, the good news is that the brand that goes along with every transaction is BODi and The Beachbody company. So if they do any search for who's this technology from, for instance, they're going to find the parent company and have the opportunity to come in and for instance, start a free membership of BODi previews where they can get access to 130 programs to decide what they'd like to have complement their supplement choice. So we do think there's going to be some cross collateralization, but that's not necessarily the strategy there.

And Susan, I'm sure this I'm sure you heard this in Carl's prepared remarks that our Amazon business went up 50%, both sequentially and year-over-year, granted it was a smaller base, but it's great. And the other thing is you asked about other retailers. I mean, look, if the traction holds up the way we think it will, with the appeal of our products, and moving them outside of just selling them internally, you will see us potentially look at other retail outlets in addition to Amazon because this is a huge category. It's a big TAM, and we've got superior products. So we're looking at pricing, package serving sizes, you name it. We're looking at all those things so we can maximize the arsenal of our nutritional business and Amazon is the first leg of that.

Great. Looking forward to the additional details there. Maybe also, I may have missed this, but did you parse out the buckets of the expense savings this quarter? Like, for example, how much was due to the change in commission structure, et cetera?

Susan. This is Marc. Listen, we're on track this year to achieve $250 million of savings. $200 million of that is reducing our overall operating and capital expenditures and $50 million is from our improved sales and marketing. So that's a 1,000 basis points. Some of it may come in a bit of enhanced revenue, some of it in lower sales and marketing as a percentage of revenue. But net-net, that should deliver 1,000 basis points to EBITDA this year.

Great. And then I guess last question for me. Did you give an update on the subscriber reactivation campaign. Just curious how that's going? And then any uptick that you've seen there? And then also, I'm just curious in the difference in marketing spend to try and get those customers back than you would, I guess, just normally spend to acquire a customer?

As we mentioned, the reactivation campaign is slower than expected because we got to be careful not to violate can pan regulations. However, we do see it to be ongoing -- it's an ongoing productive channel. It just hasn't hit the scale that we expect. The good news is that it doesn't really have any cost of acquisition at all because we already own the names with the exception of just the efforts to put e-mail campaigns together and/or any discounts or promotions that we put in place to reactivate those customers. And we have seen those be pretty prolific for us and effective based on results in the first quarter. So we continue to expand the reactivation campaign. And in fact, with the new leadership that we put in place, they've started to do a really good job of what we would call a fast follow. So somebody who cancels or doesn't renew their membership. The team is contacting them very quickly where you have the best window, the best opportunity to keep that customer from actually going back into the prospect list. So they're all over it. It's just slower than expected.

Susan, I just might add an interesting data point. As we're getting up to speed with this CRM recapture program, most of the things that we've been doing and that we've been testing have been digital fitness, as you can imagine. An interesting anecdote to that is that we have over $1 billion a former BODi nutritional supplement users in that CRM base. So if you look at the CRM base, there's been over $1 billion of nutritional supplement purchases from BODi previously represented by that group. We have not, up to this point, attempted to remarket to them nutritional products ironically, even though there is a reservoir of $1 billion plus of form of revenue there. So as part of the new management that we brought in that group and our focus, as we scrub this list and keep ourselves off of the spam list, so to speak, having run one of the largest ISPs in the world, I'm uniquely confident that we'll avoid that. If there is a huge opportunity down the road here, to recapture a lot of these people with what we're looking at in Nutrition in terms of package sizing, pricing, et cetera, that we could go back to those people is a very compelling offer. So just stay tuned on that in the second half of the year. I think you'll see some stuff there that will impress you.

Our next question comes from BJ Cook with Singular Research.

You talked real briefly about partnerships and announced one here about a week ago or so. Can you give us some, I guess, shed some light on that partnership and maybe what your strategy is there? Would you expect to be promoting those partnerships on your side and on the partner side? Would you expect that to be meaningful to revenue near term or long term?

Yes. The partnership that you're referring to with Dr. B to allow our customers and subscribers to get reimbursement through their HSA and FSA accounts should be a meaningful contributor to help customers or people who might be on the fence about subscribing to a service like that now can realize that they can get reimbursed for it. And we actually have quite a solid pipeline of potential partnerships, particularly interesting with the advent of single digital program purchases versus a subscription offer. I'm not at liberty to make any announcements right now. We're hoping to in the next several weeks. But this is part of the reason that the overall platform of solutions, both from a fitness perspective and a nutrition perspective, fits so perfectly in the current environment where you've got GLP-1 and other pharmaceuticals for weight loss, but lifestyle is still the primary an important decision that people make to complement those decisions. That is a perfect scenario for partnership because it helps people succeed with those products. There's certainly a lot of demand for them, but lifestyle is going to have to be a part of it, and we offer the most cost-effective and proven solution for that. So we do think we're going to have some good announcements in the near future, and we think it's going to be a decent contributor to the 2024 scenario.

Fantastic. Appreciate it. You touched on the Q2 guidance here. So just quickly, I guess, the midpoint is down and so it would be sequentially as well. Could you just touch on how much is it just seasonality and also other factors?

This is Marc Suidan. Yes, there's 3 factors contributing to this. One is obviously seasonality. If you look at prior years, similar midpoint occurred quarter-over-quarter. Number two, we did say we're heavily focused on balance sheet fortification. So we're looking at improving our liquidity so that before we get back into investment model to drive growth. And number three, listen, we've detailed out quite a few initiatives that are going to drive some healthy new revenues, but these initiatives just take time to implement. And that's why we created a cost structure that gives us the runway to implement our initiatives.

This is Mark also. It's really important BJ, to keep in mind because yes, we've had 2 consecutive quarters of positive adjusted EBITDA. Yes, we have the free cash flow positive this quarter. But we're still in the turnaround. I mean we're ahead of the schedule where we thought we'd be, but we're still in the -- maximize the balance sheet, maximize expense efficiency mode. We have these programs in the pipeline, and they will start to come to 4 in the second half of the year, third quarter and fourth quarter. But just keep in mind the fact that while we've been successful and we're thrilled with where we are, we're still in the turnaround. And so we're going to continue to manage it that way as we move towards the second half of the year.

Thank you all for your questions. That will be all the questions we have in queue currently. So I will pass the conference back over to Carl for any closing remarks.

Great. Yes. Thanks so much. I'll just close by saying I'm so excited about our progress and what we've been learning about our current customer needs and our ability now to respond with exactly what they're looking for, thanks to the launch of single digital program purchases plus special digital subscription offers and these refined supplement marketing bundles that Mark is talking about. I feel like we're, frankly, back to our wheelhouse that served the company so well for the last 25 years and just extremely grateful to our stakeholders and to the team for all the support of our long-term objective of sustained profitability and helping more people achieve their goals and lead healthy fulfilling lives. Thanks for joining us, and we'll talk to you next quarter.

That will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.