The Beachbody Company, Inc. (BODI) Q1 2026 Earnings Report, Transcript and Summary

Good afternoon. Thank you for attending today's Beachbody Company, Inc. First Quarter 2026 Earnings Conference Call. My name is Elizabeth, and I will be your moderator for today's call. [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 Beachbody Company; Todd 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.

Thanks very much, Bruce, and good afternoon, everyone. Welcome to the Body Q1 2026 Earnings Call. Last quarter, we reported our Q4 and full year '25 results, a transformational year where we achieved positive operating income and adjusted net income for the first time since going public. Today, I'm pleased to report the momentum continued in Q1 of 2026. Let me start with the numbers and the Q1 '26 financial highlights. Total revenue for Q1 was $54.3 million, which came in above the high end of our guidance. As a reminder, and as we've consistently noted, Q3 2026 will mark the first quarter where we can make direct year-over-year comparisons that fully reflect our new business model as the legacy MLM business will have completely cycled out of both periods. More importantly, we delivered our third consecutive quarter of net income at $2.3 million compared to a net loss of $5.7 million in Q1 of 2025. Operating income was $3.1 million, marking our third consecutive quarter of profitability on this metric. We posted our 10th consecutive quarter of positive adjusted EBITDA at $8 million, up from $3.7 million in the prior year, and gross margin remained strong at 71.8% and within our guidance. As of March 31, our cash balance was $36.6 million against outstanding debt principal of approximately $25 million, providing financial flexibility to execute our growth strategy. The operational discipline that we've built in over the past 2-plus years is now embedded in how we run the business. We've lowered our EBITDA breakeven from over $900 million in 2022 to approximately $180 million currently, giving us tremendous operating leverage and the ability to invest strategically in growth initiatives without sacrificing profitability. As we discussed in March, 2026 is the year we're unleashing our innovation pipeline. With our strong balance sheet and substantially improved financial position, we've got the flexibility to fund our retail expansion and the innovation pipeline without compromising the financial discipline that delivered this turnaround. The cornerstone of our growth strategy is a pivot towards a heavier emphasis on nutrition, and that will be executed through an omnichannel strategy spanning direct-to-consumer to retail distribution. This represents entry into a nutrition products category with a market opportunity that is more than 12x the size of the digital fitness category. We're bringing iconic brand names like P90X and Insanity and Shakeology to retail with very high aided brand awareness. Now we're freed from the MLM commission constraints, and we can price our new nutritional products at dramatically lower price points than we have done in the past. And in the case of Shakeology, we can utilize a much smaller form factor, the 7 serving size, which will give us a $34.95 retail price point versus our previous price point, which was $129 for a 30-serve pack. This represents a significant opportunity for us. As many of you may know, in my career, I've got a long history in the consumer products or CPG industry from my days at Johnson & Johnson and Bristol-Myers, Clarel, Cheesebrough Ponds, Revlon and as President of Fabberget, which became Fabberget Elizabeth Arden. And I got background at Reebok, L.A. Gear and the huge flower company, FTD. I've been responsible for the creation and/or marketing of billions of dollars worth of some of the most successful consumer products of all time sold through retail distribution. And that's one of our major areas of expansion that I brought to body. The process of submitting samples through our broker sales organization, Advantage Solutions, securing buyer commitments and then waiting for the retailer shelf set planogram to be updated is about a 6- to 12-month process with inflexible adherence dates. We're right now in the midst of that process. And over the next 60 to 90 days, we expect to see which retailers will be adding Shakeology and the P90x line of nutritional supplements. Look, I'm sure you've seen the recent state of acquisitions in the CPG industry, whether it be Fuel, Grooms, Bloom, Alani, Poppy and a host of other companies that have sold for between $1 billion to $2 billion in the past year with brand names that while we have great respect for, are not nearly as well known as the P90X and even Shakeology brand names. So the potential for creating massive brand equity value for shareholders of body within the nutritional supplement and energy drink industry for body is potentially the single largest mid- to long-term opportunity that we've got at the company. Speaking of securing retail distribution, last week, we announced that Shakeology will be carried in more than 80 Sprouts Farmers Market stores around the country, starting in late May, early June. And we just secured a partnership with Kahi Distributors, which is one of the 2 largest distributors of natural organic and fresh products to the grocery industry. And this will give us the opportunity to reach the 30,000 grocery, supermarket and online channels that are covered by the KiHi distribution network. And in late-breaking news, we just announced in a press release yesterday that Shakeology will now be carried by Vitamin Shoppe across its more than 640 stores all over the U.S.A. later this year, with Vitamin Shop taking all 5 of the Shakeology flavor variants in our new 7-serve $34.99 retail price packaging. This exciting news, along with the Sprouts Farmers market news and the Kihi distribution deal will mark the first time that Shakeology, which is a $4 billion cumulative sales brand with more than 1 billion cumulative servings, the first time it will be available in retail stores across the U.S.A. On the next quarterly earnings call, we hope to have an update on more exciting retail partners for the Shakeology brand and new retailers signed up to carry the P90x line of supplements and the retail stores who will be carrying the Insanity and P90x energy drinks in the Southern California test market will be running later this summer. One of the truly unique and compelling aspects of the new body retail distribution initiative as a consumer product company is that we fundamentally created a virtual consumer products company. So what do I mean by that? Well, we've outsourced virtually every aspect of our supply chain and distribution infrastructure. Manufacturing is outsourced to best-in-class contract manufacturers. Sales and retail distribution are managed through our outside partner, Advantage Solutions. Fulfillment and logistics of all of the retail orders are handled by a third-party logistics provider or a 3PL, and we're evaluating the use of purchase order financing and accounts receivable factoring to optimize our working capital as it relates to the retail project. What we keep in-house are the core competencies that drive our competitive advantage. Those are marketing, brand management, product innovation and R&D. So this asset-light model gives us exceptional financial flexibility, minimal capital requirements and importantly, the ability to scale rapidly without proportional increases in fixed costs since this structure moves the majority of those costs to a variable base cost based on usage and demand. So in conclusion, our financial turnaround has created massive operating leverage, giving us the ability to invest strategically in high-return initiatives while maintaining profitability. We're excited about the opportunities ahead, particularly as we move into the second half of 2026 and then beyond. This year marks the opening of our nutritional innovation pipeline. We are actively in the process of developing new products, securing retail placement and building market acceptance. While we expect to see initial traction in the second half of 2026, the substantial yield from these initiatives will materialize in 2027 and beyond as our retail presence expands and our multichannel strategy fully takes hold. We've built a resilient financial foundation that positions us to capitalize on significant growth opportunities in both nutrition and digital fitness, and we're taking a disciplined, methodical approach to ensure we execute this transition successfully. I'll now turn it over to Carl to discuss our operational progress and product innovation strategy. Carl?

Thanks, Mark. Our Q1 results demonstrate the operational momentum we've been building throughout 2025 and into early 2026. The financial discipline we've established has created an extremely efficient platform with leverage to execute against a compelling innovation pipeline across multiple sales channels. P90x Generation -- next launched in early February to a packed house of media and influencers in New York City, generating millions of impressions in both earned and paid media. Early response from our subscriber base has been very enthusiastic, and we're now gathering the success stories from the first wave of participants. That's especially important as we launched our branded nutritional line extensions into P90x supplements, which will be sold direct-to-consumer on Amazon, TikTok shops, as Mark mentioned, at retail, including an entire ready-to-drink line of P90x energy drinks. This is a really big deal with very special formulations, which live up to the reputation of the best-selling extreme home fitness program of all time. We've launched a P90x preworkout, P90x hydration, P90x creatine, P90x Recovery protein and P90x fast-acting energy that can be used to fuel longer training sessions or in my case, for a midday boost of energy. Each SKU in the line has something called a P90X factor, a proprietary aspect of the formulation, which makes it fast-acting, potent and effective so you get the performance benefits as promised. The P90x supplement line launched with our long overdue transition over to the Shopify e-commerce platform, which will make it easier for us to offer special bundle configurations, subscribe and save discounts and improve AOV using Shopify's ad-to-cart recommendation engine. Combine these entire new product lines with the new ease of shopping and thousands of success stories coming in from the first wave of P90x generation next users, -- we expect that to propel momentum of the fitness program and the P90x supplement line in every channel over the next 12 months. Meanwhile, the 10-minute body initiative continues to gain traction. The category of microdose fitness, which we launched under the 10-minute body brand just before Christmas, continues to be a very popular program on the platform. Since our last call, we've expanded the catalog with three new targeted programs, 10-minute speed train by Joel Freeman, 10-minute active aging led by Debbie Sievers for those 60 and older, who'll recognize Debbie from her recent appearance on ABC's Golden Bachelor. She is also one of the first super trainers to help us launch the company. We also just launched the 10-minute GLP-1 fitness formula, specifically designed to help people on GLP-1 medications to build and preserve muscle mass. The platform now features over 400 science-backed 10-minute workouts. And this high-volume, low-price subscription at $10 a month is successfully opening up our addressable market to the over 185 million Americans who are overweight or obese and may be intimidated by longer workout programs. Okay. Looking ahead to the summer, we have a new Super Trainer joining us, Chase Collect, with the brand-new 30-day booty Boost program launching in June. This has been one of the most requested additions to the catalog by subscribers and prospects and we'll integrate the P90x supplement line to help people get the maximum gains from the program where it counts using the pre-workout, P90x creatine and P90x protein. And that's exactly how nutrition has been fundamental to our success since we founded the company, helping people get the best results from their effort. And Shakeology, the world's first superfood protein shake, which we launched in 2009, is probably our most significant nutrition innovation in the company's history. To put that in perspective, during our peak revenue years, fitness programs accounted for roughly 1/3 of total revenue, while nutrition drove about 2/3, largely driven by Shakeology. Now that we're freed from the margin and distribution constraints of the network marketing model, we can offer all our supplements, whether it's Shakeology, P90X or other brands, all at more accessible price points with healthy margins, dramatically expanding our opportunities to grow and scale in multiple sales channels like Amazon, TikTok shops and retail, as Mark outlined. But what makes this nutrition expansion especially compelling is how it transforms our customer engagement and results model. Our data continues to show that we scale customer acquisition at a lower cost when offering nutrition first and bundling fitness with it as opposed to offering digital fitness first. I believe that's because of the significant size of the nutrition market and the ease of consumption relative to the decision to start a new fitness program. By leading with nutrition in this substantially larger category, we can attract customers through a wider top of the funnel than introduce them to our digital fitness platform through free trial offers. Every customer who enters the ecosystem with a nutrition purchase is offered a free trial to join the Fitness platform, a major value add and a competitive advantage in the massive supplement market. This nutrition-first approach with fitness second enables us to deliver the total solution, the unique combination of comprehensive lifestyle change that has consistently driven our best customer results over nearly 3 decades. We think this construct could be especially potent for the digital app experience now that we've just launched the ability to add up to 4 additional profiles to membership, meaning anyone who's in a free trial of the digital app can invite up to 4 members of their household to set up their own profile under the same membership at no extra cost. This can help overall conversion as more household use should translate into retention. And what follows, of course, is more people using the body app in the household means more people who would likely consume our P90x supplements, our preworkouts, shakeology and so on in order to maximize their results. All of these improvements work together to optimize our marketing model that will drive traffic across multiple channels and improve the customer experience at every touch point. And all of this should position us well to build on the momentum of our turnaround. Now I'll turn it over to Brad Ramberg, our CFO, to walk you through the Q1 financial details and our guidance for Q2. Brad?

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 of 2026. We continue to make significant progress on our transformation and on driving operating efficiencies. For the quarter, we exceeded the high end of our guidance for revenue, net income and adjusted EBITDA. We generated our third consecutive quarter of net income and operating income and our 10th consecutive quarter of positive adjusted EBITDA. For the quarter, total revenues of $54.3 million declined 2.3% sequentially and declined 25% year-over-year, better than expectations as we continue to execute on our strategic transformation. Revenues continue to be impacted in the near term by a shift from a multilevel marketing platform to our current omnichannel model. Moving to Digital and Nutrition and Other revenues. It's important to reiterate that the year-over-year decline continues to be heavily influenced by remnant revenue from the formal MLM legacy business, which was shut down December 31, 2024. Therefore, there's a component of MLM legacy digital and nutrition revenue that will remain through the first half of this year. As we move to Q3 of 2026, we will be able to show a direct year-over-year comparison because the remaining legacy revenue associated with the former MLM will have burned off and those who remain from that cohort will become part of the body new business model revenue base. To be clear, this is not to suggest that we're projecting year-over-year revenue growth in Q3 of '26. We are not providing guidance for Q3 of 2026 as that will occur on our next earnings release. Now note, the direct year-over-year comparisons I'm about to disclose for Digital and Nutrition revenue are still skewed by the fact that the 2026 numbers reflect the new business model versus the 2025 numbers, which still had a major component of revenue that was part of the legacy MLM. Digital revenue decreased 2.1% sequentially to $33.6 million and 21.8% year-over-year. Digital revenues reflect continued pressure on our digital subscriptions, which decreased 6.9% quarter-over-quarter to approximately $810,000 and declined 20.6% compared to the same period a year ago. Nutrition and other revenue decreased 2.5% from the prior quarter to $20.7 million and decreased 27.7% year-over-year. Nutrition subscriptions decreased 25% sequentially to approximately 60,000 and fell 18.5% year-over-year. As our business evolves into an omnichannel model, generating higher onetime sales and retail sales, the subscription metric will be a less relevant KPI. Digital gross margin was 87.4%, increasing 10 basis points sequentially and up 190 basis points from prior year. Our digital gross margin was in line with our target. The continued strength in year-over-year gross margin was primarily due to a decrease in digital content amortization and depreciation due to more disciplined production and fixed asset spending. Nutrition and other gross margin was 46.7%, decreasing 700 basis points sequentially and down 640 basis points versus last year. Nutrition and Other gross margin was in line with our target. As a reminder, Q4 2025 Nutrition gross margin of 53.7% included certain onetime benefits. Exclusive of those benefits, Nutrition and Other gross margins declined 390 basis points sequentially. The decrease in Nutrition and Other gross margin was primarily due to inventory adjustments in the current quarter. Consolidated Q1 gross margins were 71.8%, reflecting a decrease of 270 basis points sequentially, but an increase of 60 basis points compared with the prior year. We're pleased to report that consolidated gross margin remained within our target gross margin range. Operating expenses for the quarter increased 8.2% sequentially and declined 35% year-over-year to $35.9 million. Selling and marketing expense as a percent of revenue increased 230 basis points over the prior quarter. The increase from the prior quarter was due to planned higher advertising spend and new product launch expense. Selling and marketing expense declined 820 basis points year-over-year to 34.6%. The significant improvement over prior year stems from eliminating MLM seller compensation following our December 31, 2024 exit from the multilevel marketing channel. Enterprise technology and development expense was 17.3% of revenue, up 160 basis points sequentially and declined 10 basis points year-over-year. As a reminder, Q4 2025's enterprise technology and development expense of 15.7% included certain onetime benefits. Excluding these benefits, enterprise technology and development expense increased 40 basis points sequentially. G&A was 14.2% of revenue, increasing 240 basis points sequentially. As a reminder, Q4 2025 G&A expense of 11.8% included certain onetime benefits. Excluding these benefits, G&A expense increased 70 basis points sequentially. G&A declined 190 basis points from the prior year due to a decrease in personnel-related expenses and professional fees. Operating income for the quarter was $3.1 million compared to a loss of $3.7 million in the prior year, marking our third consecutive quarter of operating income. Net income for the quarter was $2.3 million compared to a net loss of $5.7 million in the prior year, marking our third consecutive quarter of net income. Adjusted net income was $2.5 million for the quarter versus a $5.1 million adjusted net loss in the prior year. Adjusted EBITDA was $8.0 million compared to $12.9 million sequentially and $3.7 million in the prior year, marking our 10th consecutive quarter of positive adjusted EBITDA. Now turning to the balance sheet. Our cash balance was $36.6 million compared to $39.0 million in the prior quarter and $18.1 million last year. Our net cash position was $13.0 million. Cash used in operations for the quarter was $1.0 million compared to cash generated from operations of $2.3 million in the prior year. Free cash flow was negative $1.7 million compared to positive $1.6 million in the prior year. Now turning to our second quarter guidance. While we're pleased with the execution of our transformation, I want to reiterate that this guidance should not be compared to Q2 of 2025 because Q2 of 2025 still had revenue recognized from the legacy MLM model. We continue to drive operating leverage, and we're excited about the opportunities ahead. We have a stronger balance sheet, a sustainable and viable long-term business model that allows us to grow without the structural impediment of the previous MLM model. However, we're still in the early stages of the new distribution model, and it will take time to develop traction in these new lines of business. As a reminder, the tail of our legacy business is winding down, and we expect that the first time we'll be able to do a year-over-year comparison of our new business model will be comparing Q3 of '26 to Q3 of '25. We expect second quarter revenues to be in the range of $46 million to $51 million, net income to be in the range of negative $3 million to breakeven and adjusted EBITDA to be in the range of $3 million to $6 million. For the quarter, we anticipate revenues to approximate 60% digital and 40% Nutrition and Other. However, in line with the strategies we articulated on this call, we currently expect a shift by the end of 2026 to a larger percentage of our business being in Nutrition and the attendant margins that come along with it. For the quarter, our digital gross margin target is expected to be in the range of 86% to 88%. Our Nutrition and Other gross margin target is forecasted to be in the 43% to 47% range, which is in line with our volume expectations and certain promotional efforts planned. Our total gross margin target is expected to be in the 69% to 72% range. In closing, we continue to make considerable progress against our business transformation. We significantly lowered our breakeven point and strengthened our financial position, putting us on a solid financial foundation to execute against our growth initiatives that will drive long-term shareholder value. I look forward to updating you on our progress on our next earnings call.

[Operator Instructions] Your first question comes from the line of Susan Anderson with Canaccord Genuity.

Nice job on the quarter. I was wondering maybe if you could give some more color on the new P90X launch and then the 10-minute body programs. It sounds like they're doing well, particularly the 10-minute body. I guess is there any way to quantify what percent utilizing the program are new subscribers versus existing subscribers? Thanks, Susan. You can hear me okay?

Yes. Okay. Great. So I just wanted to make sure. So we don't break them out like that, but I will say that as we've pivoted to the nutrition where we're advertising nutrition, I will say that the P90x supplements are attracting both new traffic, but also doing a really good job of activating new customers from the large database that we've got. So it's a reactivation play that's actually we're pleasantly surprised by how it's working within the database. 10-minute body is where we're seeing more of a new subscriber acquisition volume happen because of that high-volume, low-price opportunity where we're advertising 10-day free trial and a $10 per month subscription, but seeing a nice proportion of those people coming in for the 10-day free trial $10 level up to the $19 a month full subscription. So that's the way we're looking at those two particular aspects of the content. But like I said, P90x is in its very early days. We're just collecting all the success stories from the first wave, and that's what's going to propel the next 12 to 18 months of traffic and excitement about that particular program. And then we layer on top of it with some new programs like the 30-day booty Boost that will come out this summer. But again, all of it is secondary to the strength of customer acquisition that we're seeing from advertising nutrition first, digital second.

Great. That sounds really positive. And then maybe if you could give us an update on the Shopify transition. I think that happened late March. Any changes there? Any color on how that transition went?

Yes. Well, that is probably my favorite thing to talk about. I'll try not to monopolize this, but we are definitely seeing across the board that was a very good decision. What we're even more encouraged by is how we're improving conversion of the current rate of traffic based on the ease of use of both the Shopify platform and now adding the Shop Pay option so that people who already have their information with one click of the purple button have an easier time to check out. But I think maybe what's most encouraging to me, there's 2 things. One, -- we're seeing that from a competitive standpoint, our website is actually converting better than some competitors that we're appropriately compared to. And -- but there's also some low fruit on the tree for us to make improvements in our conversion and our landing pages and site navigation so we can even make more efficient use of the traffic that we're already generating. So again, we've got two levers here to work with. One is nutrition is generating traffic at a much more efficient cost of acquisition and the ease of use of the Shopify platform is converting more of those customers, and we see low fruit on the tree to improve on that traffic already. So overall, it's been a very good transition for us despite being at the end of the quarter and a lot of stuff going on, very pleased with the effort that the team put into that.

Okay. Great. And then maybe if I could just add one more. I guess, just trying to get a sense of what the top line will look like once we cycle the MLM departure. So I guess when you look at the top line right now, it seems like kind of the quarters are about $50 million run rate. I guess do you have any insight into if you think there's still a lot of legacy MLM subscribers left to cancel or kind of what that run rate will look like once we're done with that?

Most of that's going to be clean by Q3. That's why we say Q3, Susan, this is Mark is going to be the first sort of year-on-year clean quarter read. So we're just getting to the remnants of it right now through the end of Q2. And then when we get to Q3, that should be a rather de minimis amount and it will be a pure read of Q3 '26 versus Q3 '25.

Your next question comes from the line of Eric Des Lauriers with Craig-Hallum Capital Group.

Congrats on the continued impressive progress here. So my first question is a bit of a follow-on to the last question. So sequential revenue declines here. They've improved now to less than 3%. And then average revenue per digital subscriber increased sequentially for the first time in nearly 2 years. Average revenue per nutrition subscriber also up sequentially. Can you talk about just kind of trying to parse that out, the impact of any recent price increases on that sort of average revenue per nutrition subscriber and I guess, digital as well? And then just whether we should take that -- the sequential increases as signs of the MLM headwinds easing or if there's other sort of pricing or customer dynamics to sort of be aware of here. Just wondering how you expect that average revenue per subscriber number to progress and if that's a sign of MLM headwinds easing?

Yes. Eric, those are great questions. So essentially, it's not really because of the headwinds easing. We really didn't have pricing increases to speak of. As we talked about in the last call, we started a pivot, and we're pushing nutrition more than we did before. We were using the digital fitness sort of as the lead before and then we would convert people to nutrition. But realize that digital fitness is a $13 billion category and nutrition is $164 billion. It was kind of like the tail was wagging the dog. So since we changed our pivot, one, our CACs are lower, even though we don't publicly disclose the actual CAC, our CACs are lower and the conversion rates are great. And there's a very high percentage of people who take nutritional supplements in general, as you know, who exercise. And so we're seeing organic improvement in that nutrition business. And part of it is up until about 9 months ago, 10 months ago, we never even advertised it. I mean, by and large, it was only done by the MLM where they sold it direct or they sold it as an add-on. So we're making the public, which previously have not seen these products aware of them, and the results have been quite effective. And so that's a big reason why we made the pivot. -- and why we feel so emboldened by the results that we're seeing. So not saying it's going to be on a high glide path because we don't know that. We're not projecting that. But we do see as our future goes because this company in its past had 66% of its revenue in nutrition that the opportunity for us to significantly grow that part of our business is real, and we're going after it.

Yes, certainly a very attractive growth opportunity and outlook here. I guess just one more on that. So should I understand the increase in sort of average revenue per subscriber as lowered customer acquisition costs as you were kind of just touching on or lower contra revenue items? Or is there some other sort of just organic growth aspect that's helping drive that average revenue per subscriber number up?

I think --... Eric, this is Brad. In terms of nutrition in particular, we are having more onetime sales, especially now that we're advertising it. So as I mentioned in my sort of prepared remarks, I think the nutrition sub number isn't necessarily the best metric to use going forward. And over the time, we'll come up with a better sense of guidance, but there is certainly more onetime sales in addition to the nutrition orders that are sold via subscription.

Yes. And remember, a lot of people don't just buy a single product. So if they buy a bundle or buy a stack as the case may be, that obviously helps to build AOV.

Yes, absolutely. That's helpful. I was wondering if you could expand on the impact of KaHi distribution. I mean does this simply sort of gets you a seat at the table with grocers? Or is KaHi itself doing any marketing on behalf of Beachbody? If you could just expand on what you expect with that partnership, that would be great.

Great question. As you know, KaHi is a huge company, one of the 2 dominant distributors in the food industry. They've got, as I understand, over 30,000 individual grocers who are in their network. So the way it works is, for example, we're selling Sprouts. Sprouts is part of the Kahi network. And so when you get Sprouts, you get added to Kahi're in their system. And KaHis ownes organization. which goes out to these 30,000 retailers as well. So separate from our broker organization that we've hired at Advantage, they have their own internal organization. So they can now make their client companies, the 30,000 grocers aware of the fact that they now carry our product and it is available for purchase. So we intend to work closely with Kahi to help indocinate their sales organization so that they can do effective communications out to their grocer member network so that they can potentially buy our Shakeology product. And this is for Shakeology.

Your next question comes from the line of George Kelly with ROTH Capital Partners.

First one is on the Southern California test. Can you just update us on the status of that test and what you've learned? I'm not sure what the distribution looks like? Or just any kind of update on that test would be great.

We literally just got off a call an hour ago on this. So we have hired the best beverage distributors -- beverage company to help us distribute in country, which is L.A. Libations out of Los Angeles. They are just top drawer. In fact, they just ran their beverage forum 2 weeks ago was massively attended. So they are representing us in the Southern California market to go out to distribution. Remembering that we are, George, off the planogram cycle right now. So most of these retailers are -- already have their store shelves set. So they're going to be going out with what they would call an interruptive sale, which is you're going in off cycle to show two very compelling products. So Insanity, which is going to be called Insanity liquid shock, that's what we're calling it. And then we've got our P90X product. And so that product is in the process of going through final stages for production. We will have production quantities available in July and then they're ready to ship. So we anticipate probably being on shelf in Southern California stores that the LAI B sales organization will be selling over the next, call it, 6 to 8 weeks, probably be on shelf at some point in August, which is exactly when we thought we would be. So we are tracking. It's on schedule, and the plan would be put it in the test market, read the results. And then a lot of retailers have their meetings in October and November for their spring '27 planogram resets. So the planogram resets for most retailers is in March of 2027. And the presentations to get into those planograms, this is for national will be in October and November. So the goal is get on shelf end of the summer, get some great reads, hopefully, of P90X and Insanity energy drinks in the Southern California market and then use that as a proxy to go into those October and November national meetings to secure distribution that will then occur in the spring of 2027.

Okay. Okay. That's great. And then a follow-up to that. As you build both the business, you were just talking about the P90X and Insanity stuff as well as the Shakeology at retail. How should we think about gross margin? Is it going to be a material kind of impact as those revenue lines grow? And just any kind of context there would be helpful.

I think the best way to think about it, and Brad, feel free to jump in here is those margins in Nutrition, as wholesale becomes a bigger and bigger part of the business, which knock wood it will, will probably be in and around the mid-40s. And so for Nutrition. So that's the best way to think about that. And so on a weighted average basis versus where we were, which is 48% to 50%, it won't be a huge difference. And the way we look at it, George, is while that will be the margin component, as we move into 2027, we're looking at the material gross profit dollars themselves. because this should become a volume business at some point where we're just looking at actual gross profit. So we know going in that a wholesale business in Nutrition will be in the 40-plus range of margin. And so the question will become what percentage of our overall company is that? And then where do your weighted average gross margins go. But at this point, we really can't project that yet because we're in such early days.

Yes. Understood. And then last question for you. I know it's less a focus, but the digital fitness side of your business, how sort of content spend and new programming and like how much are you scaling all of that back and marketing around your digital fitness business, like how quickly should we think about the shift in focus like starting to sort of play through the numbers?

Yes, I really wouldn't state how much it's Yes. I wouldn't look at it that way, George. What we're really seeing, like it's still a very critical and frankly, a competitive advantage that we have with the size of the library, the scope of the over 160 programs in the library. And frankly, we have kept the capital allocation to new content the same for about the last 2.5, 3 years. So that's consistent. What we've found though is we are acquiring customers into both the digital subscription and the nutritional products at a more efficient rate by leading with the nutritional. So if you think about it just from a consumer standpoint, they're thinking about a healthy lifestyle change, they see Shakeology or they see the new P90x supplements being advertised D2C and they go, "Oh, you know what, I'd like to make a lifestyle change. They come in and then see the digital subscription offerings available to them, and we are still converting people into digital. So plus when they buy, for instance, a shakeology, let's say, they buy a bag of Shakeology and that's about $120, they might get a little discount on that if they're a first-time customer. We will offer them a free 30-day trial into the digital subscription that rolls over into whether either a monthly or an annual subscription. So it is still what we call the total solution, which is what has driven the company to growth since we started it. So digital fitness is still fundamental. We're still investing in it. And it's still, I think, an important competitive advantage that we've got in all these sales channels where we're leading with nutrition. George what value that we get to add to the purchase.

Let me add something on to what Carl just said and think about it like this because this is really a very clever move that we're making here. with the digital fitness market being $13 billion, just imagine you're fishing in a lake. The nutritional category at $164 billion is literally an ocean. And what we're finding is that it's a much more efficient catchment mechanism to go into that larger nutritional market because 60-plus percent of the people take nutritional supplement exercise. So we're now taking a focusing, we're going to get you out there with the advertising on nutrition. And when you come to the body website and you see that we are the premier player in the world in digital fitness, we're getting a lot of upselling occurring. So people not only buying the supplements, but buying the digital fitness. So what does that do? That brings your CAC down. So you're getting much more efficient CAC because you're promoting nutrition and you're getting the add-on of digital fitness or they're going right to digital fitness and they just were attracted by the advertising and nutrition. So what we're finding is that with the same level of dollar spend, we're actually getting a preferential customer acquisition cost, which gives us a better yield and lifetime value. Does that make sense?

It does. Yes, it does.

Your next question comes from the line of Alex Hantman with Sidoti & Co.

My first question, just following up on the retail launch. I know you spoke about Vitamin Shoppe coming into play later this year. Could you talk a little bit about how many stores might be used at launch? And if there's any metrics that you might be looking to hit for the rollout to be expanded?

So luckily, they were very impressed with the product line. So it's going to -- I think it's going chain-wide to over 600 Vitamin Shoppe stores out of the gate. So it's not a limited role, see how it does and then roll it out. We are going chain-wide nationwide with Vitamin Shoppe at present. So it should be in stores probably sometime maybe late August into early September. That's the plan. So yes, they're a great partner, and they're excited about it, and so are we.

That's great. Congrats Mark. Is Sprouts also starting at the full rollout?

No. Sprouts, I think we're going to be at 90 stores, and that was basically laid out by them and us as the best places for us to be out of the gate. And assuming we have great success there, I assume there will be more stores obviously added after that. But we have a great component of stores that we're going in and enough to really do a meaningful business. And they are, again, a fantastic partner to be in incredibly well respected, not only by the consumer, but by their brethen in the grocery business.

And then just yes, a couple more from us. I know you've spoken about nutrition being a much more efficient catchment and providing a lot of cross-selling opportunities. I know you mentioned that the retail products will come with complementary digital access. Do you have conversion rate assumptions? Basically, how are you thinking about the cross-selling success of that channel after launch, measuring that?

Well, we'll have -- we don't really know because we're still waiting on -- we have like 30, 40 sets of samples that are sitting in retail buyers' offices waiting to get responses from them as to who will be adding the product line. So hard to make any kind of an estimate while we're not really sure where that distribution is going. So I said in my prepared remarks, hopefully, on the next call, we'll have an update as to who's carrying these products, where and what kind of doors we'll have. But there's really no way to know that out of the gate. I mean, we can make an educated guess, but you don't really know that. And so we're going to have to see how it plays out, but it's a tremendously effective tool. And so it just depends on how many doors promote our product, whether we get end cap displays are just in line and whether there will be in-store signage that touts the fact that when you buy the product, you're getting a month of free access to body. So -- but that will all start to materialize as we get the distribution nailed down.

[Operator Instructions] Your next question comes from the line of Michael Kupinski with NOBLE Capital Markets. [Technical Difficulty] Well, that concludes our Q&A session for today. I'll now turn the call back to Mark Goldston for closing remarks.

Thanks very much, Elizabeth. Really appreciate everybody attending today. We're really proud of the quarter that we just put up, and we're really excited about what the future holds for the company as we've articulated. So as always, if you have any questions, please feel free to reach out to the company, either through ICR or directly to Brad Ramberg, our CFO. So thanks, everyone. Have a great evening.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day. You may now disconnect.