Great. Good morning, everyone. Thank you so much for joining us today. I'm Bernie McTernan, the internet and consumer tech analyst here at Needham & Company, and my pleasure to introduce the team at the Beachbody Company. We have Mark Goldston, Executive Chairman, and Marc Suidan, CFO. I'm gonna turn it over to them for a company presentation for about 20 minutes, and then I will come back for Q&A. If you have any questions, please put them in the portal. I'll be sure to get to them. You can email me as well, too. But with that, I'll turn it over to the team here.
Thank you very much, Bernie, and welcome, everyone. Marc, if you wanna put up the first slide, please. So we just wanna make sure we put up the forward-looking statements on the presentation today. Give you a second to take a look at that. Okay, next slide. So Beachbody, as you knew it, refer to it as BODi today. We are the only fitness, nutrition, and wellness platform, that we know of. This is a company that's been around for almost 25 years, has a tremendous history within the fitness industry. The key metrics on the company, the Q3 2023 revenues were $128.3 million. We've had 1.6 million total paid subscriptions. Gross margin up at 59%, and we operate in the United States, Canada, the U.K., and France.
Interestingly, the company was profitable for 21 of its first 24 years of existence. In some cases, profitability was up close to $100 million of EBITDA. We have clearly impacted over 30 million consumers, and what's really fascinating is that there's been over 786 million video streams on our content. On the next slide, what you'll see is the management team. So I joined in June as Executive Chairman. I've got a long history, over 30 years of being a public company CEO. Going back into the '80s, I ran Fabergé, Elizabeth Arden, and then to Reebok, did the Reebok Pump at Reebok, was President of L.A. Gear, did all the lighted shoes.
Took Einstein Noah Bagel Corp. public and built it out, was the first Chairman and CEO of NetZero, which we then morphed into United Online, which became an internet conglomerate, very profitable. I wrote a book called The Turnaround Prescription many years ago on how to reposition troubled companies. It's part of what I've been spending my time doing, and I'm also an inventor with 112 U.S. patents. Carl Daikeler is our Co-Founder and CEO, a legend in this industry, and Carl's basically the guy that created the home fitness industry through DVDs, as you remember them, and videos before them with infomercials, and has made a tremendous transition into now being a streaming part of the business. And he's largely credited with creating some of the biggest products in the history of this industry.
Marc Suidan, who's with me today, is our Chief Financial Officer, been with the company close to a year and a half. Outstanding background at PwC, leading up TMT deals, and he also founded two startups. He was a former McKinsey consultant, and he's got a lot of experience with transformational businesses, turnarounds, et cetera. Next slide. In terms of the company itself, this is really the snapshot in a nutshell of where we are. We've got a nutrition business and a digital business and a very small connected fitness business, which we won't spend much time on. The nutrition business, about 46% of the revenue. It's got about 177,000 paid subscribers. Interestingly, a 55% gross margin.
We get about an $83 AOV, and it's a broad range of products from superfoods, collagen, pre- and post-workout energizers, et cetera. The other side of the business, roughly half the company, is the phygital business, and that's what you know as our fitness business. 1.4 million paid subscribers, phenomenal gross margins up in the 75% range. We've had about 23 million stream views of these programs. It's 120 individual programs within the BODi structure, and underneath each of those programs combined are 8,500 unique streaming videos, which is really remarkable when you think about it. There are other companies out there in the industry that are spending $300+ million a year on developing content.
We have this massive content library of over 120 programs that probably would cost $500 million or more to replicate if you were to go out and try to recreate it today. Very high average monthly retention, and, you know, the average user is using about 5.3 workouts per month. Next slide. This shows you just the three portions of the business I spoke about. Connected fitness, very small, 4% of revenue. We've got a phenomenal bike called the MYX bike, but we've sort of de-emphasized that, and so we don't spend much time on it. The nutrition business itself, if you're not part of the network, you wouldn't know it that much because we don't sell it right now, by and large, direct to consumer.
That's one of the big opportunities we've identified, is going outside of the network and offering this to consumers. But today, these brands are largely confined to the members who are within our network, and they've got products like Shakeology, which is a very large brand of ours, superfood, Beachbody Performance. We make Beach Bars, which are protein bars, et cetera. And most of our partners out there are very proficient at selling this and explaining to people why this needs to be part of their overall fitness regimen. On the digital side, we have a $179 annual membership, and with that... That's called B-O-D-I, BODi, Beachbody On Demand Interactive. It's digital fitness streaming and live interactive programs.
We also have nutritional programs and eating programs to help people with their diet while they're working out, and we also have personal development programs and events that we run. It's really important to understand that the dynamic of this business is that we get you both on the fitness side and the nutrition side and the personal development wellness side, and that's where we have this sort of holistic approach to this industry. Next slide. This is sort of the hit parade that you would know, which you know for years as Beachbody, now as BODi. These are some of the most famous programs in the history of the fitness market. We have perhaps the best-known brand name ever created in the fitness market, which is P90X. We've made, you know, so many people healthier and more fit through our programs.
We have programs like Insanity, 21 Day Fix. You have seen the commercials for PiYo, which is a Pilates yoga program. I mean, you name it, we've got it. There is really nothing that you could do as relates to fitness, muscle building, core strength, flexibility, et cetera. There's nothing that you could want to do that we would not have in our library, something we're really part of, and you get complete access to all of this with your $179 annual membership. Next slide. We as a company, and I joined in June and helped to architect the turnaround plan because the company needed to do a turnaround plan. So myself and Carl and Marc and the management team have crafted a very robust turnaround plan, and it's very focused on cash generation.
When we look at the company today, the underlying asset base is, in our view, so valuable that it actually makes no sense when you look at the current market cap of the company, and you look at the replicability cost of the underlying asset base of this company. So our focus is clearly on cash flow from this point going forward. You can see from this slide, you know, pre-COVID, which is 2019, you know, when people are out and about, going to health clubs, doing their regular, normal daily existence, this company did $755 million of revenue and generated, you know, EBITDA up at $78 million.
So if you think about it, you know, in a pre-COVID environment, where people were out of the house, moving around, going to health clubs, doing their thing, this company was making almost $80 million of EBITDA, made another $51.5 million in 2020, and then you can see where the losses began. So the fundamental construct of this company is basically one that for 21 of its 24 years, it was very profitable, and our plan is to get it on track to return to that level. Now I'll turn it over to Marc.
Thank you, Mark. Hello, everybody. So as Mark emphasized, we're so focused on cash flow generation that on this slide, we're depicting the journey we're on to move from cash use to cash generation. You could see in 2021, the company, we reported here the total cash used in operations, investing activities from our statement of cash flow. You could see how it went from $340 million down to $73 million. This year through September thirtieth, we're at $24 million. So a dramatic reduction in that as we move to becoming cash flow generation. Within this year, you could also see within Q1 to Q2 to Q3, same thing. The trend continues on the same journey, with our aim of turning cash flow positive.
When you look at our P&L, Mark ran through some of the metrics that we just reported for Q3. Let me walk through where we want to take this. So, nutrition, it's currently 55% gross margin. It's a healthy gross margin. It actually used to be 65%, so our aim is to get it to 60%. Oops, sorry. The digital gross margin currently at 75%, largely because of scale. It used to run at 87%. We feel confident we could get it to 80%. That creates a blended gross margin of 65%-70%, so close to 70%. Sales and marketing, we separately announced that we're gonna be moving our single biggest expense from 54% of revenue to 45% in 2024.
So we got initiatives in place that start in January that'll deliver a 1,000 basis points improvement. So that's in addition to what you saw on the previous page of all of the cash savings we've done. And then our tech and G&A expense combined is 26%. Our aim is to keep it 20%-25%, and that's our plan to move to become cash flow positive. In terms of how we plan to get there, there's three major pillars of our turnaround and transformation: cost reduction, launching a new digital platform, and then focusing on sales and marketing that generate very, very profitable customers.
On the first one, cost reduction, we're on track to take out $165 million of our fixed cost and CapEx by the end of this year, as compared to 2021. That's an annualized, recurring benefit. The new platform, we launched it in March, it was very well-received by the customer set, and the best way to measure how it was received is, you know, the price, the standard price went from $99 to $180. And the people were renewing at the same rate as if when they were up for renewal from $99 to $99. So that's, that tells you people really like the new digital experience and platform. So we're done there. So now everything we're focused on is on the sales and marketing that Marc referenced. We just launched last week a premium tier.
We're in the process of running an aggressive win-back campaign, so going through our historical churn database of 14 million people to win them back over. We've launched new tactics of our performance marketing, such as Refer a Friend, we launched it last month. Gifting, we're launching in two weeks, and we're launching on new partner platforms as well. Amazon, we've always been on Amazon, but we weren't very deliberate and aggressive about it, so now we're signing up with a very well-renowned agency that specializes in that business, and there's a lot to be learned there. So working through them, we plan to drive this a lot more aggressively.
So when you look at our recent development in our last Q3, we spoke about, and I just referenced two pages ago, the whole sales and marketing expense. That is a combination of a lot of the affiliate commissions and bonuses we pay to to our network. We have a network of tens of thousands of people that resell our product. So we made some changes to that, but we're also reactivating past customers, which has very little customer acquisition cost, in launching all these new channels. So the combination of all these three things will help us deliver on the sales and marketing 1,000 basis points improvement. Also, we just added Brendon Burchard as our Chief Growth and Performance Advisor. He's a New York Times bestseller. He's pretty much one of the world's top motivational speakers. His role is twofold.
He provides the content around that whole mindset and personal self-development, that Mark was referring to, and helps motivate our tens of thousands of people on to how they, you know, they, they drive higher performance, 'cause his expertise is high-performance habits. It's a great partnership, with him and his company, GrowthDay, and there's two-way revenue share partnerships that we have in place. All this puts us on track for Q1, which is the best season of the fitness industry, to drive to be cash flow positive. When you step back and you look at a TAM, we effectively operate in three TAMs. Nutritional supplements, it's $164 billion TAM. It's huge, growing at 9% a year. So that's where, frankly, we have a lot of efforts around how to diversify our channel base, because our...
We have, we have very well-renowned products, but we've limited their availability in a multi-channel environment. So that's gonna drive a better business there, 'cause you've seen the revenue decline, and we're gonna stabilize this and getting it back into growth mode. The digital fitness side is a $13 billion TAM, expected to grow at 31% through 2032. Sorry, 2032. That TAM went really high during COVID. Obviously everybody wanted to get outdoors afterwards, so you saw the reverse effect with gyms, where gyms started reopening, and companies like ours did contract. But now we're largely kind of starting to see that stabilize, but it's meant to be a very healthy TAM, and we're one of the leaders in that space. And then connected fitness, as Mark said, is the smallest part of our business.
We continue to sell off the bikes we have in inventory. With that, Mark, I'm gonna turn it back to you.
Thank you, Marc. This is something that really attracted me to this company. I mean, I spent, like, 60 days analyzing this business before I decided to join as exec chairman back in June, and just doing a deep dive on the company, and this was just a fascinating revelation to me. This company has essentially $3 billion aggregate revenue brands it's created with P90X, which was launched in 2000. Took 5 years to get to $100 million of cumulative business, and in 17 years, this thing is $1 billion of cumulative business. Shakeology, which is our primary superfood within our nutrition business, is at $1 billion of cumulative sales. And Beachbody On Demand, which was our $99 annual access to our library business, took 6 years to get to $1 billion.
And now we have BODi, which is the same thing you had before with Beachbody On Demand, with the addition of interactive as well, and that's the $179-a-year product that we offer to everyone right now, that Mark referred to, that has the same annual renewal rate that we had before when we were $99. So impressively, you can see that with the BODi offering, much more an elaborate offering than the Beachbody On Demand was, the price went up 80%, from $99 to $179, but the renewal rate remained at 60%, which is kind of impressive to think about that. So, and you know, our hope is that we will have many more of these coming in the future. Next slide. This is interesting. We have a wide network of micro-influencers, many of whom are our coaches and partners.
Some of them are our featured performers in our individual programs. And we've got some people with some really impressive following numbers on the internet through Instagram, Facebook, et cetera. So we have an entire sort of village of people that are made up with primary micro-influencers and our super trainers. You know, there are people like Shaun T and Autumn Calabrese, who are household names that people have known about. And so this is a big part of the network following that we've got outside of the people who are in our current subscription base, who get exposed to this company every day. This is, you know, probably the most important slide in the presentation, which is the value of our underlying assets. This is essentially the reason that I joined.
I looked at this objectively before I became executive chairman and said, "I always look at businesses and, and what the cost of replicability is." I mean, if I was gonna buy something versus build something, what would it cost us to do that?... and our library, with 120 programs, even if you could come up with 120 programs with 8,500 unique stream videos underneath it, it would probably cost you in excess of $500 million or more to go try to recreate that, not to mention the time that it would take. So it's a tremendous moat that we've got competitively, virtually impossible for somebody to recreate that. Our company's spending hundreds of millions of dollars a year to create the content we've already got.
In our nutrition business, I mean, if you just think about it in the absolute, you have a nutritional business with about $270 million of revenue and 55 points of gross margin. So you've got a business that's throwing off in excess of $140 million of gross profit on a, a nutritional supplement business. I mean, that's got a great amount of value to me in the general market. Our database, you know, since 2016, our combined number of former members and qualified leads is 14 million. If you think about this industry, where the customer acquisition cost in this industry runs around $100+ per person, I mean, it'd cost you over $1 billion to acquire 14 million people in the market today, and we've got them.
Have never really spent much time trying to win them back, and we've now started an aggressive win-back program to do that. Our social media following, which is the slide I showed you just previously, combined, is about 20 million followers. Something that a lot of people don't realize is that, you know, we're in an industry that I don't really understand why, but has not seen much consolidation. I've spent virtually my entire 30-year career as a CEO being a consolidator. I look at this industry and say it is ripe for consolidation.
As we improve the company, as we move towards profitability and building our cash base, you know, we could become the people who help consolidate, but we've got a $294 million federal NOL and a $285 million state NOL, which is a really valuable asset for the company to have as we go down the turnaround path. With that, Bernie, I think I'd like to open it up to Q&A, please.
Yeah. No, that's great. Great presentation, guys. And so as a reminder, if anyone has any questions, please type them in the portal. We'll be sure to get to them. Maybe just to start, I mean, Mark, comment, you just said, like, you know, potential consolidator of the industry. Like, what kind of assets, like, would make sense, you know, would be, like, synergistic versus, you know, what, what other, you know, content offerings or, or even, you know, that you have in place?
Well, Bernie, it's a great question. I mean, if you think about it, the way this industry is divided, you've got the digital fitness part of the business, obviously. You've got a large brick-and-mortar group of companies that are conventional health clubs, studios, and the like. And then you've got this large group of people who are doing nutritional supplements, superfoods, et cetera. So the way I look at it is, if you had an end-to-end solution, you know, there's no reason why offline and online should not have been combined in a more aggressive manner. As you know, not everybody can go to a health club every day. Things come up, you work out at home, you're traveling on the road, you want to be able to... You have nobody really out there that's thought about this end-to-end solution.
I don't really understand why, but that's really not a discussion for today. So our goal is to be the leader in the categories in which we're in, and then to look at things down the road where we potentially can either partner with people or even potentially look at acquisitions. But we wanna be the focal point where we can bring this formidable library that we've created, which is virtually impossible to replicate, and a very large, high gross margin nutritional supplement business, high in the high mid-fifties, and we think that's a tremendous thing to bring to the table. Not to mention, we've got 14 million people, Bernie, in our CRM bucket that we're gonna go out and try to win back.
Who are people that with other parts of the industry, who are spending $100-$135 to acquire a customer, what's a bucket of 14 million people worth? So I look at it that way and say, "We've got great, strong underlying assets. We gotta fix this thing through the turnaround program. We're gonna do that, and then we'll be in a totally different light in terms of what we can look at to expand the aperture.
Okay. No, that's great. And maybe on that 14 million bucket, what is the process or strategy to reactivate them? Is it, you know, email campaigns or what, like, what else can you do to try to win these people back?
A great question. The one thing we did is we spent the last five months cleansing that base to make sure that all those emails were good, that we knew exactly what we had, et cetera. We are now developing this multivariate program, Bernie, where we're gonna go out to people through the email network and with various and sundry offers on things based on where they were, what they did, and how to try to win them back. Make them aware of the fact that while they might have been a member of Beachbody before and it was just the library, we now also have the interactive component. Also introduce them to the fact that we've got nutritional supplements, which they may or may not be aware of. And so it's a tremendous opportunity. If you think about it...
I mean, just to give you a, you know, an analogy, if you're out in the Atlantic Ocean fishing for new customers, and you've got your boat, you've got your rod, and you've got your bait, you know, we essentially have a stocked trout pond of 14 million that we just have to figure out the right way to catch them again, to make part of our franchise. And, we really think there's a lot of opportunity there, and as we go down the pike, we're gonna learn which of these tools that we're employing will work the best.
... Understood. Okay, maybe just, maybe on that point, so, so one, you know, we cover Peloton, and so a big focus for them is having, you know, always having new, fresh content available. You know, obviously spending a lot of money to create that content as well too. So in terms of, like, your thought process, in terms of, like, the reactivation pipeline, but then I think not spending as much on new content, like, how do you think about kind of bridging that gap? And, you know, maybe someone used P90X before and then now you're trying to win them back and maybe talk about that.
Right. So that, that's a great, actually a great question because differentiated from Peloton, obviously Peloton's got a high installed equipment base, and they're constantly creating new content and looking for alternative content as well that's not so centric to the bike. In our case, the library that we've got is a timeless library. If you look at a list of the top 25-50 programs that are used by our subscriber base, a large portion of those programs are pre-2020. So in other words, it's a timeless library. These are not period pieces. And so if you went back and looked at a program we developed in 2017, 2018, not completely relevant today. If you're in a gym, if it's lifting weights, if it's core, if it's Pilates, if it's yoga, these are timeless.
Part of what we're trying to do is to make sure that our existing members and the people that we're trying to win back, and the brand-new people realize that we've got a library that makes it so you never have to go anywhere else for anything to do with hardcore fitness, muscle building, nutrition, healthy eating. Nobody's really got that. The amount of money that somebody would have to spend to replicate that, Bernie, not only would the money be enormous, but the time it would take would be excessive. Our need, even though we are developing, as you know, new content all the time, it's more for the novelty purpose of giving you something new and fresh to talk about.
But if you, Bernie McTernan, were one of our customers, and you had only used Insanity, P90X, and 21 Day Fix, well, we have 117 other programs that you haven't seen yet that you could be doing for the rest of your life, and so that's a huge advantage to have as a, as a marketing company in this industry.
Right. Okay. Maybe just you... I know you gave the explanation, but just to touch at home because it, it's pretty incredible. So the subs basically the BODi versus the Beachbody subscription, what's the difference in the content for basically double the price and, you know-
Yeah
-the potential-
So essentially-
It's pretty amazing elasticity.
Yeah. So essentially, right, it's, it's a fascinating economic dispute. It should be a Harvard Business School case study on price elasticity and demand, 'cause essentially, you were paying $99 a year.
Yeah.
For that, you got access to our library of products. So it's a static library of products. You go in there, you look at any program you want to do, you do it on a regular basis. It's great. Then we added an interactive component where you could actually be in these live sessions. That was obviously more expensive. So what we basically said to people is, instead of bifurcating this, we're gonna create a holistic experience called Beachbody On Demand Interactive that takes the library that you used to spend $99 for and now gives you that, plus all of the interactive content, and for that, it's $179.
The fact that the renewal rate is 60% from people going from $99 to $179, which is the same renewal rate we had at the $99 people renewing at $99, tells you how committed these people are to what we have. So, that happened prior to my arrival, and I was frankly, amazingly, pleasantly surprised at now we've gotten, you know, a lot of people to do this, and it just shows you the saliency level of the product that we're offering.
Yeah. Okay. And maybe focusing on the getting back to profitability, you know, I think, you know, it's kind of like, I don't want to say tweaks to gross margins, but really the big change is happening at the sales and marketing line.
Right
... to drive operating leverage. Just, you know, thoughts on pulling back so much on marketing spend, but like, you know, how do you, you know, confident in still being able to grow the business, and then would love just like any specific areas of that sales and marketing line that you're de-emphasizing now.
Mark, you want to take that?
Yeah. So I mean, Bernie, we've already fixed a lot of parts of the gross margin and other lines of OpEx, so the sales and marketing is more going forward, actually, that comes into effect starting January. The majority of our sales and marketing spend goes to what I was referencing, these commissions and affiliate fees for people who bring in customers, so it's purely variable. So we're not cutting back the volume. What we're cutting back is, call it the per unit cost. And, and to date, we've announced all of these, and there hasn't been any, any meaningful impact, to the volume, which is great news. And that's where also the Brendon Burchard partnership comes in.
It gives that network of tens of thousands of people, you know, the world's top leader in high-performance habits, motivation to how to keep going and drive more volume and also sell his stuff. So that's, I'd say, one, number one big lever that drives into that. Number two, when we talk about reactivating the 14 million or launching the freemium model, which is actually replenishing the 14 million with new people, that gives us a very low customer acquisition cost, if any, to bring people into the fold.
And then- Then the third one is we're activating all sorts of new channels, to bring people in, and they're all higher performing in terms of LTV to CAC ratio.
... So Bernie, what's really important is it's not a conventional sales and marketing reduction as you would know it, where you're lowering your advertising spend, et cetera. What it basically is, is a lot of our sales and marketing expense on that P&L has to do with the compensation of our network, et cetera. We have a new comp program that's much more performance-based, that gives new people the opportunity to earn their money quicker and rewards people for performance. Now that we're also going after the 14 million people in the CRM base, and we're going outside the walled garden of the network into these other channels, we think we will be way more efficient, bring down our overall customer acquisition cost because of that.
That will allow us, as we're executing our turnaround plan, to get better margins on this P&L and generate the operating leverage that we're talking about.
Was there, like, a grandfathered rate or something that, like, the, you know, that you hit over history and, and that was incentivized, or that was helping the older people? Or, or just kinda like, what was it? 'Cause we cover Shutterstock, too, and that was, I don't know, it was like 5 or 6 years ago, they made that change, where basically, like, the rates reset every year, and then all of a sudden they got a 600 or 800 basis point increase in EBITDA margin from just resetting the supplier contribution lower.
Yeah. I mean, I think, I think the notion was, whatever was being done before was being done before, but now it's much more on a performance basis.
Got it.
So, we are absolutely focused on rewarding people who generate revenue for us and bring in new enrollers. That's a big part of what we are, and that's what this ought to be. Now we and the network are in total alignment.
Okay, fair enough. Makes sense.
Yeah.
Competition, I mean, I mean, maybe think about competition and the industry.
Yeah
... you know, this, are we still kinda like recovering from COVID? Is, you know, like you saw, you know, Lulu de-emphasizing the Mirror, getting rid of it. Like-
Yeah
... we went through the same thing with, like, delivery, where, like, there was all these kinda like VC-
Right
... funded delivery platforms that were losing money.
Right.
Then suddenly they left, and you just have the winners remain. So, like, we'd love to get your thoughts or the-
Yeah, I mean, look, the net of it is, and this isn't a criticism of anyone's business, 'cause the, I don't do that, but, the equipment business itself obviously boomed when people couldn't go to a health club. So that makes total sense. Then when people could go back out, you know, you know the old adage that people buy these things, they use them from January to April, and then, you know, it kinda falls off, and then you make your New Year's resolutions, you go back and do it again, just like the health club business. I think what's happening now is we're going back more to where we were pre-COVID, where you're gonna have this, sort of combination of offline and online usage.
You will have some people still using equipment, but I think that the notion of the equipment business, where it was before, when you couldn't go outside of your house because of COVID, is completely different than where it is today. So you get to the hardcore user, which is a completely different TAM than when everyone's locked in their home and has to exercise, and what do they do? We're in a different mode because of our programs. I mean, basically, there's a lot of people, Bernie, who, because of the busyness of their day, their family needs, they're going to a soccer game, picking up kids from school, with our program, you can do it any time of the day or night, and it's elaborate. And so you don't have to find the time to get in your car and go somewhere.
You don't even have to use the equipment. You can be anywhere, as long as you got access to the streaming to use our programs. We think that's gonna become a big part of the future, especially now with these GLP-1 drugs. We actually think that, no pun intended, could be a shot in the arm for a business like ours. Because as you lose weight, you know, you have a risk of losing lean muscle mass, and you must do cardio. I mean, losing weight is great, but you've gotta be fit, and you've gotta maintain lean muscle mass, and that's what we do.
We think that will actually bring a bunch of people who were too far away from being able to exercise before, for health reasons, and it'll bring them now into a zone where they have to exercise to maintain the benefit of the weight loss, and we're the perfect outlet for that.
Great. Well, guys, let's leave it there. Thank you so much for the time. Thanks to everyone who joined on the webcast. Really appreciate the time, guys. Have a great rest of the day. Thank you, Bernie-