Good afternoon, everyone, and thanks for joining us for Canaccord Genuity's virtual E-Commerce Sustainable Advantage Forum. Next we have The Beachbody Company, which operates its digital platform as BODi and now has the same ticker symbol BODI. We have with us today Carl Daikeler, Co-Founder, Chairman, and CEO; Mark Goldston, Executive Chairman of The Beachbody Company; and Marc Suidan, CFO. A quick background on The Beachbody Company: BODi is a digital health platform that sells digital health fitness content and solutions, as well as nutrition products such as VMS. I guess maybe, Carl, to start out, if you can talk a little bit about the history of the company, kind of where you've been, where you're at now, and a little bit on the goals and how you see the company going forward in the next 2-3 years.
Yeah, thanks, Susan. Thanks for having us all on. It's a very big week for us. Anybody who paid attention to our earnings call, the company reported results that are the best that we've seen since we've gone public, and we're quite excited by the turnaround executed by the management team. As far as background, it's been a great ride. Then, over 25 years, when we started Beachbody, started launching or creating and launching programs, one at a time, offering solutions to common problems for people who didn't have time to go to the gym. Things like Power 90, Slim in 6, Turbo Jam, and then eventually the big one, P90X. That was an incredible run from VHS tapes to DVDs, and then eventually went digital. In about 2016, we launched our Netflix of Fitness, if you will.
It's been really an interesting process combining our penchant for creating great content that really gets incredible results for people. And I think most people know about P90X and Insanity, 21 Day Fix, and so on. But they're not aware of the formidable nutrition business, which basically helps people improve their results by adding supplements that might improve their overall nutrition, help them get more results from their workout. Now, since we've gone digital in 2016, we've built a sizable subscription business, also added a bike to the platform, at the same time that we went public in 2021. But since we've realized and since the pandemic really changed the game, and now you've got weight loss pharmaceuticals enter the picture, you've got to take a look at the business model. And we're very excited by what's happening in the future.
First off, the work the team's done to reduce the breakeven point of the business has been nothing short of heroic. But second off, we've got this catalog that over 25 years has created 120 different brands that we have never sold through, anything but a subscription, and, except for the prior DVD business. In the coming 2 months, we will start to release those programs similar to, if you remember, iTunes, where you could buy an album, or Amazon, where you can buy or rent a movie. We are the one company that will be able to solve people's problems now instead of DVD, instead of subscription, but by selling them actual digital program access that can be downloaded to their device.
So we have this massive, famous catalog of content, that we now get to distribute direct to the consumer as an entitlement without having to pay to produce all that new content. So it's been an incredible ride. Obviously, any company that you start 25 years ago is going to have bumps along the way. But the one discipline the company's been great at is very quickly getting its operating structure in line with the current economic environment and the revenue environment to always and to work hard to maintain both our efficiency from a CAC to LTV ratio, but overall the operational foundation so that we make sure we've got enough capital to operate the business and seek new growth in the new era.
That new era includes now millions of people using pharmaceutical weight loss alternatives, where we've got the fitness alternative that can help them get the best results from those interventions. We're quite excited by what's ahead of us, demonstrated by the results of our Q4 earnings release and what we have ahead.
Great. That's exciting. Thanks for the overview. I think the à la carte platform for the digital content's a great idea. Maybe if you could just dig into how you're thinking about, pricing there, how you're thinking about, you know, I think you're going to probably get a lot of new subscribers onto the platform just because they're able to buy one video and maybe potentially want to buy more after that. So, you know, how big do you think this could be for BODi? And I feel like it's a big differentiator versus some of your, other digital health fitness, competitors.
It really is. And you know, you're talking to the CEO, so I'm always going to beat my chest and talk about how it's going to change the world. That's my job. But if you look at the TAM, 140 million people in the U.S. alone, overweight or obese, many of them already have a Netflix, Disney+, Paramount, Max subscription, and there's some subscription fatigue. With that large a TAM, we believe we can coexist with a formidable, very active subscription business that we've been maintaining and operating since 2016. But now we're going to be able to reach people that they just want the solution that they can use, whether it's 21 Day Fix or Fire and Flow or any of these programs, for $59.
So instead of $179 a year, which is also extremely affordable from a subscription perspective, they can save $120 and just buy the program that they want for $59. When you look at the value equation, we sold millions of copies of P90X and Insanity, for instance, on DVD for $119. And now we get to make that same promise, get those same results for people for $59, and offer them nutrition along with that purchase. So it really is wide open. And as you said, we're the only company that has this portfolio of different brands. Many companies have, you know, HIIT training, weight training, yoga, but they don't package it as a solution that in 21 days, in 60 days, in 90 days, you will get a predictable outcome from that effort.
That's what we have that I think is a strategic benefit and frankly a competitive moat.
Great. And then I think you guys have mentioned in the past potentially even partnering with someone like Netflix or Amazon for the digital content. Is it possible? I mean, would you, you know, one day even sell individual content on their website, or would this be more subscription-based?
It depends on the deal. Like, you know, the beautiful thing with all this content that we've got and, some of it being so famous like P90X is we get to leverage those brands out there in the ecosystem. So until now, we have sold our products as basically a walled garden, in some respects direct to consumer, otherwise through our network of what we call partners who represent it to their friends and family and using their social media. But now accessing other audiences like working possibly with Amazon, which, we're in conversations with, or other companies that are just, for instance, in the nutrition business, they don't have fitness solutions, certainly not branded ones like we offer. So we have the ability to expand our platform with the, fitness programs.
But as you heard in the earnings call, we're also diversifying our sales channels of our nutrition business, which we have never done in our 25 years. And I'm like, you know, I'm a believer. I, you know, this is the stuff that makes me feel good every day, and I'm excited to share it with more people outside of our walled garden and take advantage of the, incredible quality of the products that we've created.
Great. Yeah. So I was just going to say, on the nutrition side, moving on to that segment, I know you've talked about opening up kind of how you can purchase those products. Maybe if you can just give that audience an idea of, you know, what that's going to look like in the future.
I think I'll jump in there. So the nutrition business, I mean, you have to remember several years ago, this company did almost $800 million in nutrition. And so largely 99% of it is sold through the direct selling network inside what we do call that walled garden. And what's happened is, you know, as that particular audience has gone down in terms of the number of our sellers, so too has the nutrition business because we've not gone outside. So this is a massive market. This is a huge TAM, lots of growth, but we have not shown this product by and large to anybody outside of our network. And in fact, even in our network, only about 12%-13% of our total fitness subscribers are using the nutrition, yet probably three-quarters of all of those users are using someone else's nutrition.
So we're making a major push right now to focus on our nutrition products, not just as part of a bundle, but individually. We disclosed we're going to be doing a Nutrition Spotlight. So a new product each month that we'll be focusing on coming up over the next several months. And we did this partnership with a firm that's going to help us sell our products on Amazon as well. But you're going to see a much bigger push because we've got formulaically superior products. They're a high price point, but they are remarkable performing products. And we just have not done enough to tell people outside of our own network what they're all about. And even within our network, to be quite candid, most of our people come in as part of a bundle.
So if you think about it in an analogy, think about it as if you were a Spectrum. You're selling me broadband, you're selling me phone, and you're selling me cable, but you're selling me as part of a bundle. You're not talking about the individual broadband, the individual. So we are now going to transition to doing a better job of actually talking about these great features that we've got in our products and why we have competitive advantages in these subsegments. And you'll be seeing more of that over the next 12-24 months.
Great. That sounds exciting. It definitely seems like there is, you know, a lot of opportunity for BODi and a lot of white space. I guess maybe just talk about kind of how you're prioritizing, growing the different segments of the business, what's the focus on? I know you've talked about in the past, you know, kind of getting back that male market again, or is there going to be a large focus on the VMS and nutrition space, or how should we think about that?
The answer is yes. Basically, if you go back to the glory days of the company, I mean, even at the height of P90X, you know, probably 50%-60% of that franchise was men. And today it's 10%-15% in total of our franchise. So the market, the TAM, the male market is enormous, and we were a dominant player in it. So we intend to do that again. But we're taking more of a holistic approach. I mean, one of the things that Carl did that really made this company unique is that we've got both the digital fitness and the nutrition as part of a holistic package. We also have wellness as well and mindfulness. And so we're going to the market basically saying we are the total solution. It's one of the reasons why we call our bundle the Total Solution Pack.
So you're going to see us going into the marketplace and doing a clearer job of communicating the fact that we are the Netflix of fitness. And that when you subscribe to us, whether you're interested in core, cardio, Pilates, yoga, lifting, it doesn't matter, weight loss, we've got all of that covered. And then we have programs to help you with your meals to maintain that benefit. And then we've got nutritional supplements to help you augment all of your work. So we're really unique. We just need to start doing a better job of telling people that and making it so that we are the relevant solution in this world that we live in today where people are much more mindful of how they look and taking care of their health.
Great. That sounds exciting. Maybe just digging into the financials a little bit. Maybe if you could just, I guess, start off by kind of talking about the margin differences between the fitness segment and the nutrition segment, both, I guess, gross and EBIT if you can.
Yeah, absolutely. So look, when you, gross margin-wise, it's an incredibly healthy business, right? So, and we've done some really nice, improvements. So in 2023, we finished with a 61% gross margin, up from 53% in 2022. If you ask about the two different lines, because roughly half our revenue is that digital, streaming part, that used to run at a high of 87%. And it finished 2023 at 75%, largely a scale question, right? And, as we build up that scale, that gross margin should be, over over 80%. The nutrition, as you know, there's a physical good there that we're shipping to people exposed to expiry and so on, has a lot more complexity in demand and supply planning. We finished the year with 56%, gross margin, up from, 53% because we've been managing it very carefully. So despite the loss of scale, we've managed it very carefully.
It's had a high of 65% in the past. So they're really premium products that command great prices. So overall, our blended gross margin now is 61%, Susan. And our aim is to get that, you know, we want it to be in the high 60s%, as we continue our transformation and turnaround.
You know, Susan, and just augmenting what Mark just said, I mean, one of the things that people probably don't realize is we did say it on the call is that, you know, our break-even in 2022 was $900 million.
Yes.
We've now rearchitected the company so that the break-even is less than $500 million. So literally within 18 months, we've lowered the break-even of the company almost by half. And so if you take that plus the margin opportunity, not only with where we are today, but where we're going, and the operating leverage that we've now built into that P&L because of those rearchitecture efforts, I mean, you have a business that's really poised to take advantage of the efficiencies that we've got within the infrastructure and the market opportunity that we've defined. And this is probably the first time, probably since the company went public, when you could say that.
Yeah. I was just going to mention that. So, that was, I mean, you guys had amazing fourth quarter and, you know, guided to positive EBITDA on cash flow in first quarter and for the year. So, that was some really good work that you guys did there to go from $900 million to $500 million in break-even. I guess maybe if you could talk about kind of the things that you did to get there and then kind of do you still see more opportunity as we look out to this year and next?
Mark?
Yeah, Susan. We, to get there, we've taken out $200 million of fixed costs, including capital expenditures. So tremendous cost savings. And it includes everything from consolidating platforms so that we could simplify things to the consumer, not have multiple brands, multiple technology stacks. We were very aggressive in putting things out to bid. So while prices were going up for a lot of other companies, we managed to drive things down. So we were really, really aggressive on that front. So we expect that's $200 million that we'll achieve in 2024, right? Which is an increase from where we were in 2023, where we achieve $165 million over 2021. In addition to that, we rearchitected our whole go-to-market where we could bring customers in way more efficiently. So there'll be a 1,000 basis points improvement in our sales and marketing costs as a percentage of revenue.
So yes, that is 1,000 basis points. No typo there, no error. So that's incredible to the bottom line, right? So out of a $500 million revenue company, that's $50 million that flows down in addition to the $200 we'll achieve. So that's how we got to this below $500 million mark. And all this, I mean, just to be clear, a lot. We always get the question, did you do this in a way that damages demand? Absolutely not. Because while we did this, we simultaneously revamped our digital platform and were awarded the, you know, the best fitness app of 2023 by CNN. So we've actually accelerated our pace of innovation and change and launching how we bring in customers in and improve the customer experience while dramatically bringing our costs down.
That's amazing. Maybe if you could talk about, as moving on to just the capital structure and kind of cash needs over the next one to two years, how are you guys thinking about that? And, you know, once you do become cash flow positive, I guess, you know, how are you thinking about uses of that cash?
Well, you know, listen, we stated when I joined nine months ago, we set three objectives for the next 12 months, which we're in, which was cash, cash, and then the third one was cash. Because the perception was that the company had a liquidity issue, which was correct. And so now we're bolstering the cash position, as you can see. We just sold off a non-core asset, a building we had here in Van Nuys, California, non-core to us. We did a sale-leaseback. The lease that we've got is well below, even what the interest expense would have been, on that money. And we took in over $6 million of gross proceeds, $5.5 million net. We used that to help de-lever. So we're now at a point where, you know, we've de-levered, we've saved money on interest, we're generating cash flow through the business.
We've got, as you see, we talked about it on the call, we have numerous initiatives in the pipeline. I mean, the company is, we're doing a lot of innovative things, both in digital fitness and nutrition. We're looking at our assets and how we can leverage some of these great brand names to take them outside of the walled garden into the consumer marketplace where we've built these billion-dollar brand names like P90X, et cetera. So it's really unusual to see a company that has done what we've done from a rearchitecture standpoint this year, or 2023, and has an innovation pipeline that's as loaded as ours is, starting with the entitlements of being able to buy individual programs, the nutrition things we talked about, the new ways in which we're marketing digital fitness, going over the wall into the general marketplace, plumbing the Amazon pipeline.
I mean, we've got so many things going on, and it's highly unusual to see that, and just goes to show you that what we didn't do was pure cost cutting because anyone can do that. What we did was rearchitecture.
Yeah.
We've set ourselves up to be very successful in the future as a result of our financial rearchitecture, our operational rearchitecture, and our innovation pipeline.
Yeah. That's exciting. It'll be exciting to see how the company does this year. Maybe, I don't know if we talked about just the customer database that you have, 14 million customer database. I would think, you know, and obviously reactivating some of those customers, I would think the new offerings that you guys are rolling out on the digital fitness platform as well as the nutrition would be helpful, I would think, in reactivating maybe some of those customers don't want a subscription. Maybe if you could just talk about that and kind of your thought process around bringing those customers back.
Carl?
Yeah. It's a big opportunity because, you know, within that database, you know, most of them have done multiples of our programs. And perhaps, you know, again, they get subscription fatigue these days. For the first time ever, they'll have the opportunity to buy that favorite one, almost like an NFT of fitness, if you will. To own and download P90X is going to be a bit of a badge of honor, and over 120 others. So that's a big opportunity. But also, our penetration into the database of 14 million of our nutrition represents, if you just run the math, certainly $ hundreds of millions of opportunity, if not $ billions of opportunity, because, you know, we've sold over 1 billion servings of Shakeology since we launched it 15 years ago.
The one thing that we've seen and that we are now making sure that people are aware of is when they use Shakeology, for instance, and then they go off it, they feel the difference. They feel that it's not; they don't feel the same. Now we get to express that opportunity, not just among our network, which is very invigorated by the improvement in the results of the business, the tenor and enthusiasm around the business, but also as we bring those products to Amazon and to other diversified sales channels, we've got the opportunity to roll out something that is truly unique and special in a marketplace. I think that's just going to be revenue opportunities for us.
You know, Susan, just to add on what Carl said, I mean, we're still in the process of obviously cleaning and scrubbing that 12-14 million person base so that we can, you know, go out to them the right way with, you know, total validity on the emails. But think about this. That base is just since 2016. I mean, if we went all the way back, we would have 30 million former customers. But this is just in 2016. We probably have well in excess of $1 billion of former nutritional sales in that database from those people.
So if you think about it, our opportunity in a category where people have $100 CACs, we've got this massive stock pond with no CAC that allows us to try all kinds of techniques to win back those customers while we're out prospecting in the general marketplace for new customers, while we're using our direct selling organization to continue to plumb the people they've got and get new people. So we're really setting ourselves up to have multiple green shoots, if you will, that take advantage of all of this innovation that's in the company. And it's really going to be the first time that we've really done it. And I'm really excited about it.
Without additional capital allocation. That's what's so exciting. This is just a vein that we haven't tapped. It's going to be a good 24 months, I think.
That's exciting. Well, it looks like we have a couple minutes left here. So I'm going to ask my final question that we're asking everyone. What's your one prediction about the e-commerce space that might surprise people over the next two to three years?
I mean, I can tell you from my perspective, I think the advent of artificial intelligence and its, its ability to encroach into e-commerce is going to fundamentally change over the next 4-5 years how people sell, what kind of data that they can get in, process, and repurpose for targeting. And I think it's going to have a major impact on the general retail environment. Because I think you're going to be able to do things through e-commerce in a tailored manner that you just won't be able to do in the physical environment, which will raise the bar for physical retail to have to create an experiential environment. They can't just be distributors of product. They have to make it experiential because the level of sophistication and targeting that will ensue from AI in e-commerce will make that a necessity.
Yeah. I agree.
I'll just add, and more specifically to our business, I think that it's a significant tidal change as we see people now embracing the idea of losing weight, with the weight loss pharmaceutical business. But they're going to have to go to the next step. Because it's one thing, let's say everybody gets skinny. That's not going to be the end result that satisfies people. They're going to want to be healthy. And we know for healthy, they're going to want healthy lifestyle change. And we feel that we're uniquely positioned with both fitness and nutrition programs, proven to work at a very cost-effective way that we're going to be able to satisfy tens of millions of people worldwide. And that's a lot of blue ocean for us.
Yeah. That sounds great. Well, thank you so much for coming on today. This has been really exciting. Thanks for all the details. And thanks to everyone on the line for joining us.
Thank you.
Thanks, Susan.
Thanks for having us.