Hi everybody, thanks for joining. I'm George Kelly with Roth MKM, excited to have the team from Beachbody here with me today. So with us from the company, we have Carl Daikeler, he's the Co-founder and CEO, Mark Goldston is the Executive Chairman, and Marc Suidan in the end, CFO . So we don't have a ton of time, we've got like 25 minutes, so I'm going to open it up periodically. If you have questions, feel free to chime in when I pause. But I'll get it, get it going with questions, so thanks for being here.
Thank you.
I think maybe to start, I'll ask you, more of a kind of high-level 10,000-foot view kind of question. If you could just talk about, you know, you have two distinct business segments. I was hoping you could give us an overview on what each of those are, and then also talk a little bit just about your selling network?
Okay, well, it's funny because I don't really look at it through the same lens of two segments. I, I look at it as one mission to help people achieve their goals and lead healthy, fulfilling lives through lifestyle change, which is something that I think we need now more than ever. And we happen to do that through helping them, get more active and with improving their nutrition, whether it's with a nutrition plan or with supplements that can, truly feed the body in the way that it's missing in today's diet. And the way we've done that over the course of 25 years is to create programs that solve a particular problem. I'm the one that people know about as P90X, which my partner and I at the time created for guys like us who were turning 40, and we called it the last hurrah.
We, in 90 days, we wanted to, for once in our lives, get abs. We did it with a friend of ours, a trainer, Tony Horton, and that thing, you know, after the course of testing and development over the course of three years, absolutely took off and became part of the zeitgeist. That's basically the variations on the theme over the course of 25 years. Create a program that solves a specific problem, can help serve somebody who doesn't have time to go to the gym or the inclination, or the budget to buy equipment, gravity's free, and, and provide them the nutrition guidance so that they can make changes to their macros and their portions so that they can get the kind of results that they expect, when they start a new program. Now, over the course of time, that became digitized.
2016, we went from selling, well, it started with VHS tape, then DVDs. 2016, we launched Beachbody On Demand. And that's when the business model radically changed because we, instead of selling a specific solution, we started to sell an ecosystem. And at the same time, we still had some DVDs, but that progressively started to wind down. And at the same time, we were working in two primary sales channels, one being direct marketing, the other being network marketing. Network marketing started to really take off as direct marketing started to settle down with the end of the infomercial. Now, when you get to our segments, you might think of our digital revenue, digital content distribution, and nutritional or supplement sales. Those two segments have been primarily sold through the network in bundles.
That's the real breakthrough opportunity for us, right now because we've opened that lens back up. Rather than selling just through the network, that bundle, we're opening that up to multiple sales channels, including Amazon, including approaching roughly our database of 14 million people, who have churned through this system from time to time over our 25-year history, and of course, through direct marketing. Finally, the direct marketing is at an extremely exciting crossroads because, like I said, in 2016, we started to sell a subscription that's gone well, one of the probably one of the top three subscription services for digital fitness and nutrition. However, we do see that there's some subscription fatigue now that there's the Disney+ and Hulu and so on.
So we have the unique ability to take our catalog of 120 branded programs like P90X, Slim in six, Power 90, Turbo Jam, Insanity, 21 Day Fix, and so on, 120 of them, and sell them as individual programs or what we call an entitlement for digital purchase or download, which takes us back to the early days that took us made us a fitness unicorn where we can sell that specific solution to a person with a problem. And we're very excited about basically reinvigorating the direct marketing side of the business to balance out the two sales channels, direct marketing and network marketing. I don't know if I answered your question anywhere in there.
No, that was good. And that brought up a few questions. That was a good intro. So maybe if you could, you talked about some of the transition and newest initiatives you've been talking about recently, you know, entitlements and other things. Maybe if you could talk about the industry, you know, the digital fitness, fitness in general has changed a lot in the last two or three years, since you've come public. And so, like, what does the industry environment, you know, correct me if I'm wrong, but has led to you making some of these changes? The whole competitive dynamic is different too.
Well, I don't think it's been the effect of the competitive environment. I do think that there's turbulence within the entire environment that's affecting everybody, and that's the issue. So on one hand, you've got a post-pandemic environment of lethargy and people like, "Do I really feel like it? I'd rather just go out and play," and getting people back to this sense of, "I want to take care of myself. I want to do something about this." But you've also got weight loss pharmaceuticals, which is a very interesting dynamic. On one hand, you see the marketplace reacting to the advent of weight loss pharmaceuticals, with fear. And actually, it is an incredible tailwind for us because now people are going, "Oh, wait. Anybody can lose weight.
I can just get this pill, get this shot." However, even if everybody in the world gets skinny with Ozempic, that doesn't mean everybody in the world gets healthy. And we're the one company that has a cost-effective and diverse continuum of a library to help people get healthy and fit, regardless of their objectives to lose weight. I don't know, Mark, what your thoughts are on that.
Well, I agree with that. I think the fitness market, you know, there's 145 million people in America overweight. There's 75 million who are obese. There's 116 million people diagnosed with hypertension, and only 30 million of them have sought treatment. So while everybody, I was just on a longevity panel talking about, you know, 82% of Americans say they're interested in longevity. Really? I mean, 70% of the American population is overweight and doesn't really choose to exercise, and yet they're hyper-focused on longevity. So I think what's going to happen is with the weight loss drugs and some of these other biohacks that are going to come around, people who really couldn't exercise before, they were just too heavy or too self-conscious, will now be able to. And losing lean muscle mass over the age of 45 is a serious problem.
While you lose the weight, you got to fortify the rest of your body. We consider it, no pun intended, this is a shot in the arm for people like us because they're going to open up our TAM.
Yep, yep. Okay. Maybe I'll shift topics a little bit. There's been a lot of, sort of, internal structural change at the company here,
especially in the last 12-18 months.
Mark, you've been there for how long?
Nine months.
4 years, 4 months. Maybe if you could just talk about that, expand on, you know, the structural change and what you're shooting for now because
it seems like just on a financial basis, you're looking at things through maybe a different lens.
We are. Well, part of it is, listen, I spent my whole career doing turnarounds. That's what, that's what I do. This company is amazing. The assets, this company was worth $3.9 billion two years ago. Same exact asset base is worth $70 million. It's like, it's got to be a typo. So you'd think to yourself, well, it must have massive debt. No, actually, it only has $29 million of debt. So what could it possibly be? Well, part of it was it's a structural issue. The company had a $900 million break-even in 2022. That means if you didn't do $900 million, you could not make a dime. We have re-architected the company. Our break-even is now below $500 million. So we've lowered the break-even of the company by $400 million essentially in a year.
So we've built operating leverage into this P&L so that when all these programs and the innovation pipelines start to happen, they're going to run through that P&L because of the operating leverage. We'll become a way more profitable company. Any idiot can cut costs. You do not have to be smart to do it. You have to be smart to re-architect the business so that it can still operate, all the functions get performed. Mark and his team have done an amazing job on the cost structure, fixed costs, taking out sales and marketing costs. We're at a point now where we saved 1,000 basis points on our P&L and sales and marketing. That's at a run rate of $500 million in sales. That's $50 million on top of $165 million of costs that we took out of the business.
So you're up over $215 million, and now we've got all this cool stuff in the innovation pipeline that when it hits and it works, will flow through the P&L. So, I mean, we're doing a textbook turnaround. We just announced we were EBITDA positive in Q4. We announced we're going to be cash flow positive, free cash flow in Q1. I mean, that's months ahead of when anybody thought that was going to happen.
Yeah, that's giant. I mean, it's huge.
It is.
Maybe Marc Suidan, if you could expand on, so how were you able to take so much cost out of the business? Where did that come from?
Yeah, listen, we went after every possible lever on the P&L, right? We looked at our gross margin, so we're improving our gross margin. We consolidated technology platforms. We had multiple digital platforms we brought into one, so tech spend goes down. We have the most efficient content production costs compared to everybody else. We cut that back and because we have programs and people love the longevity of our programs. We looked at our SKUs. We rationalized SKUs. We addressed, we brought pricing up. So any potential lever on the P&L, and we put things out to bid aggressively. Our headcount is down, I want to say, by about 45%.
Yep.
Whatever you can imagine on that P&L, we went after aggressively to re-architect it so it could be very efficient.
You know, one of the things, I was telling Carl and Marc when I joined, whenever I go do a turnaround on a company, I always say to the company, "Imagine you had just bought your company. What would you do? Look at all your systems, your architecture, no sacred cows, don't care for Aunt Shirley's and CRM. You just bought the company. You're not making money. The street doesn't get your story. What would you do?" We did that exercise, and the net result was we saved $215 million and lowered our break-even by $400 million. And we got an innovation pipeline that's probably more fertile, what, Carl, than it's been in five, six, seven years?
Without a doubt.
We had been pursuing the holy grail of fitness subscription platform, you know, the Netflix of fitness, which was a very attractive outcome. But we pay attention to, you know, communities on Reddit and Facebook who love our content, but they've got subscription fatigue. We know that the demand is out there to own and access our content. So there's all this latent demand in the population that for the first time in really seven years, we're going to be able to satisfy it.
Yeah, George, this company has only been public for two years. Carl and Beachbody was profitable for 21 consecutive years. In 2016, the company made $140 million of EBITDA, and it barely had a subscription business. It was largely selling owned entitlements. He invented that industry. For some reason, the current construct of the company doesn't include any of that. So if you don't want to subscribe, we've got nothing for you from the company that invented own the title, pay for now, and own. So we're going to go back to a hybrid model where the company did billions of dollars in sales, billions of accumulated EBITDA, and it has nothing to do with the subscription business.
If you want, not to mention the fact that when you're on your way out the door, if you churn, if you had a favorite program and you decided you no longer want to be a subscriber, we can sell you the entitlement on the way out the door.
Well, definitely.
With no CAC.
We'll definitely see a shot in LTV, and the super consumer will still want to subscribe. That's still going to be a very viable and proactive part of what we do because that's where the community really works together, supports each other. But to have this additional revenue stream and access to our content on our app. So we're now, for the first time, instead of just selling them a box of DVDs and thank you very much, now they're going to come access that on the app. So we'll be able to see what that behavior is and be able to upsell.
Nutrition as well.
And productive. And when? When is that going to, when are you going to roll that out? And how many programs are you going to launch into?
We'll drop four or five a month starting early April. So, you know, we'll put P90X, 21 Day Fix, LIIFT4, 80 Day Obsession will be the first fou r that we bring out. And then every month we'll bring out a host of new ones, which will be, you know, great for us to email for free to our database of 14 million people and also turn on our direct marketing machine that's been very disciplined about the relationship of CAC to LTV since we started the business. That's why we were so profitable without having to raise money.
What are the costs associated with the entitlement program? Are there any incremental costs with selling? I mean, it's basically 100.
Is there fully amortized programs? You're selling air.
Once we do the engineering, which is what we're doing now, now it's, we're basically getting a second pass at all this content that we develop.
The other thing is.
Our digital fitness gross margin was 87.5% just like two years ago. It's right now in the mid-70s. I mean, this kind of stuff is very high gross margin.
Yeah. George, there's one or two other things I want to make really important points. The TAM of this market is enormous. 50% of it is men. Today, we're only 10%-15% men. If you go back to the halcyon days of P90X, it was 60% men. But our direct selling force is literally 100% women. So they're only selling women. So we now only have 10%-15% of our members who are men. When we come back with the entitlement, we have the ability to stir that up. Same thing with nutrition. This company did almost $800 million in nutrition just a few years ago. For whatever reason, that network was less prolific at continuing to sell it. We've got a CRM base, a database of 12+ million people.
There is almost $1-$2 billion of former Beachbody nutritional sales in that database just from 2016. If we go attempt to win them back, we have no CAC. So it almost doesn't matter what we offer them to bring them back in the fold. So you're going to start seeing a nutritional spotlight Carl put together every month for the next few months focused on an individual item because we typically sold it like a cable company would sell you internet. You get cable, you get your phone, you get your internet. We're selling you a bundle. We didn't sell naked broadband. We're now going to focus on the individual features of our products to sell them directly versus just selling a package. That's huge.
Is this spot, how will you kind of broadcast this spotlight? Is that just going out to the, it's going out to the whole base?
Combination of email marketing, but also our network will also leverage that and take advantage of spotlighting on our collagen, our three-Day Refresh, three-day fast, basically. Or right now we're celebrating the 15-year anniversary of Shakeology. This is really an interesting stat. In 15 years, when we created the world's first superfood nutrition shake, people told us you'll never be able to sell a shake that's $130 a month. We have sold over 1 billion servings of that shake, all within the closed walled garden of our network. And now for the first time, we've put that on Amazon and we're going to be opening it up to direct marketing so we can bring that shake, which makes people feel good, through other channels. So all of that is just a rising tide that'll lift up.
The other thing in the pipeline, this company has an amazing R&D formula bench. The archive's incredible. So we've got brand names like P90X, probably the best-known name in the fitness industry, that we can create direct-to-consumer nutritional products with already developed fully amortized R&D formulas that we could sell outside of the network, direct-to-consumer, at an attractive price point to take advantage of the TAM of things like Ka'Chava, SuperBeats, Athletic Greens. You look at that market, it's exploding. We've got superior formulas, but we've never really sold them outside the walled garden. So we've got tremendous opportunity here without spending a dime on new R&D.
Yep. Okay. Any questions from the group? Happy to take questions if there are any. Yes.
No, it's in fact, I was on the phone with Tony today, where he's doing great. He's healthy and he's actually skiing in Jackson Hole right now, but he's coming back and we're going to do a podcast. We call it The Body Experience, where we're going to talk about the wild ride that it was to make P90X. And he's very excited about this concept of selling P90X direct to people again. P90X, P90X2, P90X3, 22 Minute Hard Corps, the original Power 90. So he's excited to just see this sort of reinvigoration of helping people solve the specific problem that they've got.
You had a question?
You talk a lot about going kind of outside your walled garden. Maybe just explain kind of, you know, what it is, how do you think about it. Have this big selling network, now you're going outside of them. Are your sellers unhappy about that?
No.
How do you think about how?
It's a great question. So think about it like this. The selling network is what it is. They're great. It's a tremendous asset. There's tens of thousands of them and they do what they do. Hard stop. But we've never gone anywhere else. And so as long as you're not undercutting your network, which we would never do, we're going out to the general populace that has no idea that we make a product called Shakeology that has 1 billion servings. And if you go to our website right now, bod.com, we don't even show nutrition on the way. You can't buy it. So we're going to be changing all of that to take it to the consumer. So the network is going to love this because it's marketing air cover to their efforts. Right now, they're the lone voice in the crowd.
So we're going to give them marketing air cover to give us the exposure that we deserve with legendary products that up until this point, quite frankly, if you weren't part of the network, you couldn't buy them.
Yeah, I just came back from a conference with 3,000 of our leaders and they are very excited about the increased visibility of the whole catalog to help them leverage that for their purposes, for their little businesses that they run. And they, they want the rising tide to float all ships. So, there's a lot of enthusiasm right now.
Is there another question? I think there was another. Someone else?
Oh, great. We've had customer Carl and Mark. What's your workout? What'd you guys do today?
Well, today we joined Autumn Calabrese and we'll do another workout tomorrow. Autumn Calabrese of 21 Day Fix, 80 Day Obsession. She's here. There's a room that she's working out in. I hope people sign up and go through the pain that we went through this morning.
I do a 2.5-hour daily workout that I've been doing literally for 2.5-hour daily.
He's a psychopath.
Every day.
Like, I've been doing it, I've been doing it for 50 years.
It's unbelievable. I'm 20 minutes if you force me to, which is actually, this is why the company's good. Because I hate it. Yeah, I don't like working out and I eat like a toddler.
He and I are like, we're like, we're like yin and yang.
Nobody's trying to solve my own problem.
My workout, I've owned every DVD this company ever made. I no longer have a DVD player and I got a library that looks like the Library of Congress, but I can't play them. So I've taken elements of all these programs over the years and put it together into my own workout that I do. Except that can't really be true because this morning I did the workout with Autumn and my thighs are killing me. But I'll be back tomorrow. But really a lot of what I got technique-wise was from watching Body Beast, P90X, Insanity, and LIIFT MORE. I got it all from that. And it's interesting.
There's a lot of guys I know who own our DVDs and don't have DVD players who, when we open up this entitlement business, the thing that's really cool about it is if you buy P90X from us, unlike the DVD where it's in your house, you have to come back to our app to watch it. So we're going to have a terminal benefit of our relationship. Every time you want to watch what you own, you got to come back to the house. And then we can show you all this great stuff to upsell you from, which you cannot do with a DVD.
Yes. With that app, because I'm one of those that I'm actually still doing P90X right now.
Good man.
Third time. Got my kids involved. So, with the app. Yeah, I'm not going to have this TV. I want.
Well, it's streamed through Apple TV and Roku. You can access the app through those two as long as you have the membership. You can just download the app.
To your point of the membership.
Same thing. The entitlements will be available through those. All, all of it through the same services. There'll be a rail that says digital purchases and then you can just create a collection. We hope you buy them all. Yeah.
So, done the programs, got the results, worked out with the. One of the things is the age, is working out. So are you guys considering nutrition or other models to help people that are working out consistently, but have had more nutrition in comparison to maybe some typical OTP to have them say, "Oh, that thing, your shoulder, blah, blah, blah"?
We always want to be careful with what we allow unattended fitness to become. So there are some lanes that we can operate in responsibly and there's some that we can't. Rehab, you have to be very careful. Somebody usually has to have eyes to make sure that you're not going to do more damage. In fact, it took us years to even do yoga because once we saw what everybody was interpreting from the screen, they were all doing a different yoga than we were showing them. So you just got to be careful. Same thing with Pilates. So, but we are developing some things that are for beginners only, for active aging. These are programs that we're developing. Then we test them, make sure that the message got home right and people are doing the right thing. And it'll expand.
We certainly are seeing the opportunity to expand demographically as the population ages. So that's something that we're definitely developing toward.
So I know one more. Just while we're doing that, flash the next page. So, you know, we wanted for all those in the room, you could scan the QR code. You get in there and use that promo code Roth4Body after you add the digital fitness membership for a year to your cart and open an account. As you check out, use that promo code and that first year is on us.
So it's $179 value. Just because you came and listened.
You are welcome.
To us do our deal.
Well, if there is, yeah, if you can, we can.
Just a really quick question. You know, a big problem now with videos that people are talking about and trying to make on their own. How much is blockchain playing a role in you guys' part of, part of tokenizing your videos so that people can pick your story too bad as opposed to me grabbing your videos and trying to run it off my platform?
It's not, it's not really a big enough problem for us to spend our R&D time on that. It would be on a list, but it'd be pretty far down. Yeah.
I think we'll end there. Carl, Marc, Mark, thank you guys.
Thank you, George.
Appreciate you having us.
Thanks, everybody.
Thank you.