Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and the section entitled “Risk Factors.” Unless otherwise indicated, the terms “Beachbody,” “we,” “us,” or “our” refer to The Beachbody Company, Inc., a Delaware corporation, together with its consolidated subsidiaries.
Forward-Looking Statements
This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), including statements about and the financial condition, results of operations, earnings outlook and prospects of the Company. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements are based on our current expectations as applicable and are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of such statement. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to the following:
•our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses including changes in selling and marketing, general and administrative, and enterprise technology and development expenses (including any components of the foregoing), Adjusted EBITDA (as defined below) and our ability to achieve and maintain future profitability;
•our anticipated growth rate and market opportunity;
•our liquidity and ability to raise financing;
•our success in retaining or recruiting, or changes required in, officers, key employees or directors;
•our warrants are accounted for as liabilities and changes in the value of such warrants could have a material effect on our financial results;
•our ability to effectively compete in the fitness and nutrition industries;
•our ability to successfully acquire and integrate new operations;
•our reliance on a few key products;
•market conditions and global and economic factors beyond our control;
•intense competition and competitive pressures from other companies worldwide in the industries in which we will operate;
•litigation and the ability to adequately protect our intellectual property rights;
•other risk and uncertainties set forth in this Report under the heading “Risk Factors.”
Should one or more of these risks or uncertainties materialize or should any of the assumptions made by management prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.
22
Overview
Beachbody is a leading subscription health and wellness company. We focus primarily on digital content, supplements, connected fitness, and consumer health and wellness. Our goal is to continue to provide holistic health and wellness content and subscription-based solutions. We are the creator of some of the world’s most popular fitness programs, including P90X, Insanity, and 21 Day Fix, which transformed the at-home fitness market and disrupted the global fitness industry by making it accessible for people to get results—anytime, anywhere. Our comprehensive nutrition-first programs, Portion Fix and 2B Mindset, teach healthy eating habits and promote healthy, sustainable weight loss. These fitness and nutrition programs are available through our Beachbody On Demand and Beachbody On Demand Interactive streaming services, and in January 2022, we began the process of consolidating our Openfit streaming fitness offerings onto a single Beachbody platform.
We offer nutritional products such as Shakeology nutrition shakes, BEACHBAR snack bars, and Ladder premium supplements as well a professional-grade stationary cycle with a 360-degree touch screen tablet and connected fitness software. Leveraging our history of fitness content creation, nutrition innovation, and our network of micro-influencers, whom we call Coaches, we plan to continue market penetration into connected fitness to reach a wider health, wellness and fitness audience.
Historically, our revenue has been generated primarily through our network of micro-influencers, social media marketing channels, and direct response advertising. Components of revenue include recurring digital subscription revenue, connected fitness revenue, and revenue from the sale of nutritional and other products. In addition to selling individual products on a one-time basis, we bundle digital and nutritional products together at discounted prices.
For the three months ended June 30, 2022, as compared to the three months ended June 30, 2021:
•Total revenue was $179.1 million, a 20% decrease;
•Digital revenue was $78.0 million, a 17% decrease;
•Connected fitness revenue was $10.6 million;
•Nutrition and other revenue was $90.5 million, a 30% decrease;
•Net loss was $41.9 million, compared to net loss of $12.4 million; and
•Adjusted EBITDA was ($1.5) million, compared to ($4.4) million.
For the six months ended June 30, 2022, as compared to the six months ended June 30, 2021:
•Total revenue was $378.1 million a 16% decrease;
•Digital revenue was $159.8 million, a 16% decrease;
•Connected fitness revenue was $30.1 million;
•Nutrition and other revenue was $188.2 million, a 28% decrease;
•Net loss was $115.4 million, compared to net loss of $42.5 million; and
•Adjusted EBITDA was ($20.6) million, compared to ($16.1) million.
See “Non-GAAP Information” below for information regarding our use of Adjusted EBITDA and a reconciliation of net loss to Adjusted EBITDA.
Recent Developments
We believe post-pandemic consumer behavior, the general slowdown of the global economy, and rising prices for consumer products and services have adversely impacted demand for at-home fitness solutions. These adverse conditions combined with unprecedented supply chain surcharges and disruptions have contributed to declines in our gross margins. Given the uncertainty for how long these macroeconomic factors will continue, we currently anticipate the negative impact to our gross margins to continue through the remainder of fiscal year 2022. We plan to mitigate the challenging macroeconomic factor with strategies that we expect will drive our future success and growth.
23
Digital Gross Margin
We believe our “One Brand” strategy, which will consolidate our streaming content into a single Beachbody platform and which we expect to be fully implemented by the middle of the third quarter of 2022, will simplify our product offerings for customers and lead to an increase in customer acquisition. We believe that strengthening our Coach network will generate additional digital revenue from our Coach business management online platform as well as drive growth in digital and nutritional subscriptions. During the second quarter and for the remainder of 2022, we began testing new incentives and training programs for our Coach network to improve Coach recruitment and retention and their ability to reach more customers.
Nutrition and Other Gross Margin
Our nutritional products are often bundled with digital content offerings, and we are in the process of developing enhancements to our upsell and cross-sell capabilities. We are also currently reviewing our nutritional product portfolio and may reduce our offerings to only those nutritional products that meet our profitability requirements and/or reflect market demand. This rationalization strategy could result in future one-time charges to write down the carrying value of certain nutritional inventory. We also intend to test price increases to counteract rising supply chain costs.
Connected Fitness Gross Margin
We anticipate that our connected fitness gross margin will remain negative until we sell through our current inventory on hand. As a result of supply chain constraints, the costs to manufacture, transport, fulfill, and ship a Beachbody Bike have led to an unprofitable margin. As the connected fitness market is highly competitive, we have been limited in our ability to sufficiently increase pricing to mitigate costs. For the remainder of 2022, we will explore different strategies such as pricing and bundling to accelerate demand for our current inventory. Consumer response to these strategies is uncertain, and we may be required to continue to reduce the carrying value of connected fitness inventory through the remainder of the year. See “Risk Factors - Risks Related to Our Business and Industry - Our operating results could be adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory” in our Annual Report on Form 10-K.
Key Operational and Business Metrics
We use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions.
|
|
|
|
|
|
|
|
|
|
|
As of June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
Digital subscriptions (millions) |
|
|
2.28 |
|
|
|
2.72 |
|
Nutritional subscriptions (millions) |
|
|
0.28 |
|
|
|
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average digital retention |
|
|
95.6 |
% |
|
|
94.9 |
% |
|
|
95.6 |
% |
|
|
95.4 |
% |
Total streams (millions) |
|
|
31.0 |
|
|
|
44.5 |
|
|
|
69.2 |
|
|
|
100.4 |
|
DAU/MAU |
|
|
30.0 |
% |
|
|
31.9 |
% |
|
|
31.6 |
% |
|
|
33.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (millions) |
|
$ |
179.1 |
|
|
$ |
223.1 |
|
|
$ |
378.1 |
|
|
$ |
449.3 |
|
Gross profit (millions) |
|
$ |
87.3 |
|
|
$ |
154.3 |
|
|
$ |
180.3 |
|
|
$ |
312.4 |
|
Gross margin |
|
|
49 |
% |
|
|
69 |
% |
|
|
48 |
% |
|
|
70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (millions) |
|
$ |
(41.9 |
) |
|
$ |
(12.4 |
) |
|
$ |
(115.4 |
) |
|
$ |
(42.5 |
) |
Adjusted EBITDA (millions) |
|
$ |
(1.5 |
) |
|
$ |
(4.4 |
) |
|
$ |
(20.6 |
) |
|
$ |
(16.1 |
) |
Please see “Non-GAAP Information” below for a reconciliation of net loss to Adjusted EBITDA and an explanation for why we consider Adjusted EBITDA to be a helpful metric for investors.
24
Digital Subscriptions
Our ability to expand the number of digital subscriptions is an indicator of our market penetration and growth. Digital subscriptions include BOD, BODi, and Openfit subscriptions. Digital subscriptions include paid and free-to-pay subscriptions, with free-to-pay subscriptions representing approximately 1% of total digital subscriptions on average. Digital subscriptions are inclusive of all billing plans, currently for annual, semi-annual, quarterly and monthly billing intervals.
Nutritional Subscriptions
Nutritional subscriptions include monthly subscriptions for nutritional products such as Shakeology, Beachbody Performance, BEACHBAR, Bevvy and Ladder Supplements. We also package and bundle the content experience of digital subscriptions with nutritional subscriptions to optimize customer results.
Average Digital Retention
We use month-over-month digital subscription retention, which we define as the average rate at which a subscription renews for a new billing cycle, to measure customer retention.
Total Streams
We use total streams to quantify the number of fitness or nutrition programs viewed per subscription, which is a leading indicator of customer engagement and retention. While the measure of a digital stream may vary across companies, to qualify as a stream on any of our digital platforms, a program must be viewed for a minimum of 25% of the total running time.
Daily Active Users to Monthly Active Users (DAU/MAU)
We use the ratio of daily active users to monthly active users to measure how frequently digital subscribers are utilizing our service in a given month. We define a daily active user as a unique user streaming content on our platform in a given day. We define a monthly active user as a unique user streaming content on our platform in that same month.
Non-GAAP Information
We use Adjusted EBITDA, which is a non-GAAP performance measure, to supplement our results presented in accordance with GAAP. We believe Adjusted EBITDA is useful in evaluating our operating performance, as it is similar to measures reported by our public competitors and is regularly used by security analysts, institutional investors, and other interested parties in analyzing operating performance and prospects. Adjusted EBITDA is not intended to be a substitute for any GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.
We define and calculate Adjusted EBITDA as net income (loss) adjusted for depreciation and amortization, amortization of capitalized cloud computing implementation costs, amortization of content assets, interest expense, income tax provision (benefit), equity-based compensation, inventory net realizable value adjustment, and other items that are not normal, recurring, operating expenses necessary to operate the Company’s business as described in the reconciliation below.
We include this non-GAAP financial measure because it is used by management to evaluate Beachbody’s core operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments. Adjusted EBITDA excludes certain expenses that are required in accordance with GAAP because they are non-cash (for example, in the case of depreciation and amortization, equity-based compensation, and net realizable value adjustment) or are not related to our underlying business performance (for example, in the case of interest income and expense).
25
The table below presents our Adjusted EBITDA reconciled to our net loss, the closest GAAP measure, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(41,867 |
) |
|
$ |
(12,440 |
) |
|
$ |
(115,400 |
) |
|
$ |
(42,498 |
) |
Adjusted for: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
19,965 |
|
|
|
12,215 |
|
|
|
41,552 |
|
|
|
25,941 |
|
Amortization of capitalized cloud computing implementation costs |
|
|
168 |
|
|
|
168 |
|
|
|
336 |
|
|
|
336 |
|
Amortization of content assets |
|
|
7,016 |
|
|
|
3,302 |
|
|
|
13,180 |
|
|
|
6,119 |
|
Interest expense |
|
|
3 |
|
|
|
305 |
|
|
|
22 |
|
|
|
428 |
|
Income tax benefit |
|
|
(281 |
) |
|
|
(10,857 |
) |
|
|
(987 |
) |
|
|
(11,252 |
) |
Equity-based compensation |
|
|
3,001 |
|
|
|
2,522 |
|
|
|
7,565 |
|
|
|
5,095 |
|
Inventory net realizable value adjustment (1) |
|
|
10,502 |
|
|
|
— |
|
|
|
25,436 |
|
|
|
— |
|
Transaction costs |
|
|
— |
|
|
|
1,509 |
|
|
|
2 |
|
|
|
2,142 |
|
Restructuring and platform consolidation costs (2) |
|
|
2,086 |
|
|
|
— |
|
|
|
9,973 |
|
|
|
— |
|
Change in fair value of warrant liabilities |
|
|
(2,070 |
) |
|
|
(5,390 |
) |
|
|
(2,334 |
) |
|
|
(5,390 |
) |
Other adjustment items (3) |
|
|
— |
|
|
|
6,038 |
|
|
|
— |
|
|
|
6,038 |
|
Non-operating (4) |
|
|
5 |
|
|
|
(1,757 |
) |
|
|
76 |
|
|
|
(3,088 |
) |
Adjusted EBITDA |
|
$ |
(1,472 |
) |
|
$ |
(4,385 |
) |
|
$ |
(20,579 |
) |
|
$ |
(16,129 |
) |
(1)Represents a non-cash expense to reduce the carrying value of our connected fitness inventory and related future commitments. This adjustment is included because of its unusual magnitude due to disruptions in the connected fitness market.
(2)Includes restructuring expense and non-recurring personnel costs associated with the consolidation of our digital platforms.
(3)Incremental costs associated with COVID-19.
(4)Includes interest income, and during the three and six months ended June 30, 2021, also includes the gain on investment on the Myx convertible instrument.
26
Results of Operations
We operate and manage our business in two operating segments, Beachbody and Other. For financial reporting purposes, we have one reportable segment, Beachbody. We identified the reportable segment based on the information used by management to monitor performance and make operating decisions. See Note 16, Segment Information, to our unaudited condensed consolidated financial statements included elsewhere in this Report for additional information regarding our reportable segment. The following discussion of our results and operations is on a consolidated basis as the Other non-reportable operating segment is not material to the understanding of our business taken as a whole.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Digital |
|
$ |
78,015 |
|
|
$ |
94,325 |
|
|
$ |
159,760 |
|
|
$ |
189,475 |
|
Connected fitness |
|
|
10,605 |
|
|
|
10 |
|
|
|
30,118 |
|
|
|
10 |
|
Nutrition and other |
|
|
90,516 |
|
|
|
128,773 |
|
|
|
188,180 |
|
|
|
259,842 |
|
Total revenue |
|
|
179,136 |
|
|
|
223,108 |
|
|
|
378,058 |
|
|
|
449,327 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Digital |
|
|
18,406 |
|
|
|
11,612 |
|
|
|
34,831 |
|
|
|
22,734 |
|
Connected fitness |
|
|
31,459 |
|
|
|
156 |
|
|
|
76,165 |
|
|
|
156 |
|
Nutrition and other |
|
|
42,002 |
|
|
|
57,002 |
|
|
|
86,776 |
|
|
|
113,997 |
|
Total cost of revenue |
|
|
91,867 |
|
|
|
68,770 |
|
|
|
197,772 |
|
|
|
136,887 |
|
Gross profit |
|
|
87,269 |
|
|
|
154,338 |
|
|
|
180,286 |
|
|
|
312,440 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
86,624 |
|
|
|
140,194 |
|
|
|
193,068 |
|
|
|
284,890 |
|
Enterprise technology and development |
|
|
24,133 |
|
|
|
26,949 |
|
|
|
57,830 |
|
|
|
54,038 |
|
General and administrative |
|
|
19,584 |
|
|
|
17,231 |
|
|
|
39,657 |
|
|
|
35,177 |
|
Restructuring |
|
|
1,332 |
|
|
|
— |
|
|
|
8,555 |
|
|
|
— |
|
Total operating expenses |
|
|
131,673 |
|
|
|
184,374 |
|
|
|
299,110 |
|
|
|
374,105 |
|
Operating loss |
|
|
(44,404 |
) |
|
|
(30,036 |
) |
|
|
(118,824 |
) |
|
|
(61,665 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liabilities |
|
|
2,070 |
|
|
|
5,390 |
|
|
|
2,334 |
|
|
|
5,390 |
|
Interest expense |
|
|
(3 |
) |
|
|
(305 |
) |
|
|
(22 |
) |
|
|
(428 |
) |
Other income, net |
|
|
189 |
|
|
|
1,654 |
|
|
|
125 |
|
|
|
2,953 |
|
Loss before income taxes |
|
|
(42,148 |
) |
|
|
(23,297 |
) |
|
|
(116,387 |
) |
|
|
(53,750 |
) |
Income tax benefit |
|
|
281 |
|
|
|
10,857 |
|
|
|
987 |
|
|
|
11,252 |
|
Net loss |
|
$ |
(41,867 |
) |
|
$ |
(12,440 |
) |
|
$ |
(115,400 |
) |
|
$ |
(42,498 |
) |
27
Revenue
Revenue includes digital subscriptions, nutritional supplement subscriptions, one-time nutritional sales, connected fitness products, access to our online Coach business management platform, preferred customer program memberships, and other fitness-related products. Digital subscription revenue is recognized ratably over the subscription period of up to 12 months. We often sell bundled products that combine digital subscriptions, nutritional products, and/or other fitness products. We consider these sales to be revenue arrangements with multiple performance obligations and allocate the transaction price to each performance obligation based on its relative stand-alone selling price. We defer revenue when we receive payments in advance of delivery of products or the performance of services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Digital |
|
$ |
78,015 |
|
|
$ |
94,325 |
|
|
$ |
(16,310 |
) |
|
|
(17 |
%) |
Connected fitness |
|
|
10,605 |
|
|
|
10 |
|
|
|
10,595 |
|
|
NM |
|
Nutrition and other |
|
|
90,516 |
|
|
|
128,773 |
|
|
|
(38,257 |
) |
|
|
(30 |
%) |
Total revenue |
|
$ |
179,136 |
|
|
$ |
223,108 |
|
|
$ |
(43,972 |
) |
|
|
(20 |
%) |
NM = not meaningful
The decrease in digital revenue for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was primarily due to a $12.6 million decrease in revenue generated from our online Coach business management platform as a result of fewer Coaches. The decrease in Coaches was primarily attributable to our preferred customer membership program, which launched at the end of Q3 2021, as certain Coaches elected to become preferred customers rather than remain in our Coach network. The change in digital revenue was also due to a $3.9 million decrease in revenue from our digital streaming services due to 16% fewer subscriptions.
The increase in connected fitness revenue was primarily due to the acquisition of Myx on June 25, 2021; there was minimal connected fitness revenue for the three months ended June 30, 2021.
The decrease in nutrition and other revenue for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was primarily due to a $42.4 million decrease in revenue from nutritional products and a $3.1 million decrease in associated shipping revenue as we ended Q2 2022 with 33% fewer nutritional subscriptions compared to Q2 2021. These decreases were partially offset by $8.5 million of revenue associated with our preferred customer membership program, which launched at the end of Q3 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Digital |
|
$ |
159,760 |
|
|
$ |
189,475 |
|
|
$ |
(29,715 |
) |
|
|
(16 |
%) |
Connected fitness |
|
|
30,118 |
|
|
|
10 |
|
|
|
30,108 |
|
|
NM |
|
Nutrition and other |
|
|
188,180 |
|
|
|
259,842 |
|
|
|
(71,662 |
) |
|
|
(28 |
%) |
Total revenue |
|
$ |
378,058 |
|
|
$ |
449,327 |
|
|
$ |
(71,269 |
) |
|
|
(16 |
%) |
The decrease in digital revenue for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily due to a $24.4 million decrease in revenue generated from our online Coach business management platform as a result of fewer Coaches. The decrease in Coaches was primarily attributable to our preferred customer membership program, which launched at the end of Q3 2021, as certain Coaches elected to become preferred customers rather than remain in our Coach network. The change in digital revenue was also due to a $5.1 million decrease in revenue from our digital streaming services due to 16% fewer subscriptions.
The increase in connected fitness revenue was primarily due to the acquisition of Myx on June 25, 2021; there was minimal connected fitness revenue for the six months ended June 30, 2021.
The decrease in nutrition and other revenue for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily due to a $76.3 million decrease in revenue from nutritional products and a $7.6 million decrease in associated shipping revenue as we ended Q2 2022 with 33% fewer nutritional subscriptions compared to Q2 2021. These decreases were partially offset by $17.3 million of revenue associated with our preferred customer membership program, which launched at the end of Q3 2021, and $2.3 million of revenue from Coach events, which were not held in 2021 due to the COVID-19 pandemic.
28
Cost of Revenue
Digital Cost of Revenue
Digital cost of revenue includes costs associated with digital content creation including amortization and revision of content assets, depreciation of streaming platforms, digital streaming costs, and amortization of acquired digital platform intangible assets. It also includes customer service costs, payment processing fees, depreciation of production equipment, live trainer costs, facilities, and related personnel expenses.
Connected Fitness Cost of Revenue
Connected fitness cost of revenue consists of product costs, including bike and tablet hardware costs, duties and other applicable importing costs, shipping and handling costs, warehousing and logistics costs, costs associated with service calls and repairs of products under warranty, payment processing and financing fees, customer service expenses, and personnel-related expenses associated with supply chain and logistics.
Nutrition and Other Cost of Revenue
Nutrition and other cost of revenue includes product costs, shipping and handling, fulfillment and warehousing, customer service, and payment processing fees. It also includes depreciation of nutrition-related e-commerce websites and social commerce platforms, amortization of acquired formulae intangible assets, facilities, and related personnel expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Digital |
|
$ |
18,406 |
|
|
$ |
11,612 |
|
|
$ |
6,794 |
|
|
|
59 |
% |
Connected fitness |
|
|
31,459 |
|
|
|
156 |
|
|
|
31,303 |
|
|
NM |
|
Nutrition and other |
|
|
42,002 |
|
|
|
57,002 |
|
|
|
(15,000 |
) |
|
|
(26 |
%) |
Total cost of revenue |
|
$ |
91,867 |
|
|
$ |
68,770 |
|
|
$ |
23,097 |
|
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
Digital |
|
$ |
59,609 |
|
|
$ |
82,713 |
|
|
$ |
(23,104 |
) |
|
|
(28 |
%) |
Connected fitness |
|
|
(20,854 |
) |
|
|
(146 |
) |
|
|
(20,708 |
) |
|
NM |
|
Nutrition and other |
|
|
48,514 |
|
|
|
71,771 |
|
|
|
(23,257 |
) |
|
|
(32 |
%) |
Total gross profit |
|
$ |
87,269 |
|
|
$ |
154,338 |
|
|
$ |
(67,069 |
) |
|
|
(43 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
Digital |
|
|
76 |
% |
|
|
88 |
% |
|
|
|
|
|
|
Connected fitness |
|
|
(197 |
%) |
|
NM |
|
|
|
|
|
|
|
Nutrition and other |
|
|
54 |
% |
|
|
56 |
% |
|
|
|
|
|
|
The increase in digital cost of revenue for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was driven, in part, by a $3.7 million increase in the amortization of content assets related to BODi which launched in the fourth quarter of 2021 and content acquired from Myx in June 2021. The change in digital cost of revenue was also due to $2.4 million increase in depreciation expense primarily related to a change in useful life of certain assets in connection with our digital platform consolidation, and a $1.5 million increase in personnel-related expenses as a result of additional headcount focused on our digital streaming services. These increases were partially offset by a $0.8 million decrease in intangible assets amortization as certain assets reached the end of their useful life prior to Q2 2022. The decrease in digital gross margin for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily the result of the higher fixed expenses - content assets amortization, depreciation, and personnel-related expenses - on lower digital revenue.
The increase in connected fitness cost of revenue was primarily due to the acquisition of Myx on June 25, 2021; there was no connected fitness cost of revenue for periods prior to the acquisition. The negative connected fitness gross margin for the three months ended June 30, 2022 was primarily due to $15.0 million in adjustments for excess and obsolete inventory and to reduce the carrying value of connected fitness inventory to its net realizable value as well as high product, freight, fulfillment, and shipping costs due to supply chain surcharges and constraints and lower pricing in line with a highly-competitive connected fitness market.
29
The decrease in nutrition and other cost of revenue for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was primarily due to a $13.0 million decrease in product costs, freight, and shipping expense as the result of the decrease in nutrition and other revenue and a $2.5 million decrease in customer service as nutrition and other comprises less of our total revenue. These were partially offset by a $1.2 million increase in depreciation expense. Despite a favorable impact from the preferred customer membership program, nutrition and other gross margin decreased primarily as a result of higher fixed expenses such as depreciation and personnel-related expenses on lower nutrition and other revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Digital |
|
$ |
34,831 |
|
|
$ |
22,734 |
|
|
$ |
12,097 |
|
|
|
53 |
% |
Connected fitness |
|
|
76,165 |
|
|
|
156 |
|
|
|
76,009 |
|
|
NM |
|
Nutrition and other |
|
|
86,776 |
|
|
|
113,997 |
|
|
|
(27,221 |
) |
|
|
(24 |
%) |
Total cost of revenue |
|
$ |
197,772 |
|
|
$ |
136,887 |
|
|
$ |
60,885 |
|
|
|
44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
Digital |
|
$ |
124,929 |
|
|
$ |
166,741 |
|
|
$ |
(41,812 |
) |
|
|
(25 |
%) |
Connected fitness |
|
|
(46,047 |
) |
|
|
(146 |
) |
|
|
(45,901 |
) |
|
NM |
|
Nutrition and other |
|
|
101,404 |
|
|
|
145,845 |
|
|
|
(44,441 |
) |
|
|
(30 |
%) |
Total gross profit |
|
$ |
180,286 |
|
|
$ |
312,440 |
|
|
$ |
(132,154 |
) |
|
|
(42 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
Digital |
|
|
78 |
% |
|
|
88 |
% |
|
|
|
|
|
|
Connected fitness |
|
|
(153 |
%) |
|
NM |
|
|
|
|
|
|
|
Nutrition and other |
|
|
54 |
% |
|
|
56 |
% |
|
|
|
|
|
|
The increase in digital cost of revenue for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily driven by a $7.1 million increase in the amortization of content assets related to BODi which launched in the fourth quarter of 2021 and content acquired from Myx in June 2021. The change in digital cost of revenue was also due to a $5.6 million increase in depreciation expense primarily related to a change in useful life of certain assets in connection with our digital platform consolidation. These increases were partially offset by a decrease in variable costs of digital revenue as a result of the decrease in digital revenue. The decrease in digital gross margin for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily the result of higher fixed content assets amortization and depreciation on lower digital revenue.
The increase in connected fitness cost of revenue was primarily due to the acquisition of Myx on June 25, 2021; there was no connected fitness cost of revenue for periods prior to the acquisition. The negative connected fitness gross margin for the six months ended June 30, 2022 was primarily due to $30.5 million in adjustments for excess and obsolete inventory and to reduce the carrying value of connected fitness inventory to its net realizable value in addition to higher product, freight, and shipping costs due to supply chain surcharges and constraints and lower pricing in line with a highly-competitive connected fitness market.
The decrease in nutrition and other cost of revenue for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily due to a $25.1 million decrease in product, freight, fulfillment, and shipping expense as the result of the decrease in nutrition and other revenue and a $5.0 million decrease in customer service as nutrition and other comprises less of our total revenue. These were partially offset by a $3.4 million increase in depreciation expense. Nutrition and other gross margin decreased primarily as a result of higher fixed depreciation and personnel-related expenses on lower nutrition and other revenue.
30
Operating Expenses
Selling and Marketing
Selling and marketing expenses primarily include the cost of Coach compensation, advertising, royalties, promotions and events, and third-party sales commissions as well as the personnel expenses for employees and consultants who support these areas. Selling and marketing expense as a percentage of total revenue may fluctuate from period to period based on total revenue, timing of new content and nutritional product launches, and the timing of our media investments to build awareness around launch activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
$ |
86,624 |
|
|
$ |
140,194 |
|
|
$ |
(53,570 |
) |
|
|
(38 |
%) |
As a percentage of total revenue |
|
|
48.4 |
% |
|
|
62.8 |
% |
|
|
|
|
|
|
The decrease in selling and marketing expense for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was primarily due to a $35.8 million decrease in online and television media expense and a $19.0 million decrease in Coach compensation, which was in line with the decrease in commissionable revenue. These decreases were partially offset by a $2.8 million increase in amortization of intangible assets due to the acquisition of Myx in June 2021.
Selling and marketing expense as a percentage of total revenue decreased by 1,440 basis points primarily due to the decrease in media investments compared to the three months ended June 30, 2021. We have reduced our media spend as part of our strategic realignment and in an effort to use our cash in the manner that has the highest probability of return on investment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
$ |
193,068 |
|
|
$ |
284,890 |
|
|
$ |
(91,822 |
) |
|
|
(32 |
%) |
As a percentage of total revenue |
|
|
51.1 |
% |
|
|
63.4 |
% |
|
|
|
|
|
|
The decrease in selling and marketing expense for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily due to a $65.5 million decrease in television media and online advertising expense and a $36.2 million decrease in Coach compensation, which was in line with the decrease in commissionable revenue. These decreases were partially offset by a $4.8 million increase in personnel-related expenses, a $5.7 million increase in amortization of intangible assets due to the acquisition of Myx in June 2021, and a $3.4 million increase in expenses from Coach events.
Selling and marketing expense as a percentage of total revenue decreased by 1,230 basis points primarily due to the decrease in media investments compared to the six months ended June 30, 2021. We have reduced our media spend as part of our strategic realignment and in an effort to use our cash in the manner that has the highest probability of return on investment.
Enterprise Technology and Development
Enterprise technology and development expenses relate primarily to enterprise systems applications, hardware, and software that serve as the technology infrastructure for the Company and are not directly related to services provided or tangible goods sold. This includes maintenance and enhancements of the Company’s enterprise resource planning system, which is the core of our accounting, procurement, supply chain and other business support systems. Enterprise technology and development also includes reporting and business analytics tools, security systems such as identity management and payment card industry compliance, office productivity software, research and development tracking tools, and other non-customer facing applications. Enterprise technology and development expenses include personnel-related expenses for employees and consultants who create improvements to and maintain technology
31
systems and are involved in the research and development of new and existing nutritional products, depreciation of enterprise technology-related assets, software licenses, hosting expenses, and technology equipment leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise technology and development |
|
$ |
24,133 |
|
|
$ |
26,949 |
|
|
$ |
(2,816 |
) |
|
|
(10 |
%) |
As a percentage of total revenue |
|
|
13.5 |
% |
|
|
12.1 |
% |
|
|
|
|
|
|
The decrease in enterprise technology and development expense for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was primarily due to a $4.9 million decrease in personnel-related expenses related to lower headcount and the completion of certain technology initiatives by Q2 2022. This decrease was partially offset by a $2.1 million increase in depreciation expense.
Enterprise technology and development expense as a percentage of total revenue increased by 140 basis points due to higher fixed depreciation expense on lower total revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise technology and development |
|
$ |
57,830 |
|
|
$ |
54,038 |
|
|
$ |
3,792 |
|
|
|
7 |
% |
As a percentage of total revenue |
|
|
15.3 |
% |
|
|
12.0 |
% |
|
|
|
|
|
|
The increase in enterprise technology and development expense for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily due to a $2.3 million increase in depreciation expense and a $1.9 million increase in personnel-related expenses related to certain technology initiatives.
Enterprise technology and development expense as a percentage of total revenue increased by 330 basis points due to higher fixed depreciation and personnel-related costs on lower total revenue.
General and Administrative
General and administrative expense includes personnel-related expenses and facilities-related costs primarily for our executive, finance, accounting, legal and human resources functions. General and administrative expense also includes fees for professional services principally comprised of legal, audit, tax, and insurance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
$ |
19,584 |
|
|
$ |
17,231 |
|
|
$ |
2,353 |
|
|
|
14 |
% |
As a percentage of total revenue |
|
|
10.9 |
% |
|
|
7.7 |
% |
|
|
|
|
|
|
The increase in general and administrative expense for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was primarily due to a $3.2 million increase in personnel-related expenses ($2.0 million in incentive compensation and $1.2 million in equity-based compensation) and a $2.6 million increase in insurance expense and accounting fees as a result of operating as a public company. These increases were partially offset by a $1.8 million decrease in rent expense due to our Santa Monica lease
32
assignment, $1.5 million decrease in transaction costs as there was no acquisition activity in Q2 2022, and a $0.5 million decrease in recruiting expense due to fewer headcount additions in Q2 2022.
General and administrative expense as a percentage of total revenue increased by 320 basis points due to higher fixed costs on lower total revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
$ |
39,657 |
|
|
$ |
35,177 |
|
|
$ |
4,480 |
|
|
|
13 |
% |
As a percentage of total revenue |
|
|
10.5 |
% |
|
|
7.8 |
% |
|
|
|
|
|
|
The increase in general and administrative expense for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily due to a $5.1 million increase in personnel-related expenses ($2.7 million in incentive compensation and $2.4 million in equity-based compensation) and a $6.2 million increase in insurance expense and accounting, legal, and other professional service fees as a result of operating as a public company. These increases were partially offset by a $3.3 million decrease in rent expense due to our Santa Monica lease assignment, $2.1 million decrease in transaction costs as there was no acquisition activity in 2022, and a $1.0 million decrease in recruiting expenses due to fewer headcount additions in 2022.
General and administrative expense as a percentage of total revenue increased by 270 basis points due to higher fixed costs on lower total revenue.
Restructuring
Restructuring charges relate to our 2022 strategic alignment initiative to consolidate our streaming fitness and nutrition offerings into a single Beachbody platform. The charges incurred primarily relate to employee termination costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
$ |
1,332 |
|
|
$ |
— |
|
|
$ |
1,332 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
$ |
8,555 |
|
|
$ |
— |
|
|
$ |
8,555 |
|
|
NM |
Other Income (Expense)
The change in fair value of warrant liabilities consists of the fair value changes of the public and private placement warrants. Interest expense primarily consists of interest expense associated with our borrowings and amortization of debt issuance costs for our Credit Facility in 2021. Other income, net, consists of interest income earned on investments and gains (losses) on foreign currency.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liabilities |
|
$ |
2,070 |
|
|
$ |
5,390 |
|
|
$ |
(3,320 |
) |
|
|
(62 |
%) |
Interest expense |
|
|
(3 |
) |
|
|
(305 |
) |
|
|
302 |
|
|
|
(99 |
%) |
Other income, net |
|
|
189 |
|
|
|
1,654 |
|
|
|
(1,465 |
) |
|
|
(89 |
%) |
The change in fair value of warrant liabilities during the three months ended June 30, 2022 primarily resulted from a decline in our stock price during the quarter. The decrease in interest expense was due to no borrowings outstanding during the three months ended June 30,
33
2022 compared to $22.0 million during the three months ended June 30, 2021. The decrease in other income was primarily due to the gain on the investment in the convertible instrument from Myx prior to June 25, 2021; there was no similar investment in 2022.
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|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liabilities |
|
$ |
2,334 |
|
|
$ |
5,390 |
|
|
$ |
(3,056 |
) |
|
|
(57 |
%) |
Interest expense |
|
|
(22 |
) |
|
|
(428 |
) |
|
|
406 |
|
|
|
(95 |
%) |
Other income, net |
|
|
125 |
|
|
|
2,953 |
|
|
|
(2,828 |
) |
|
|
(96 |
%) |
The change in fair value of warrant liabilities during the six months ended June 30, 2022 primarily resulted from a decline in our stock price during 2022. The decrease in interest expense was due to no borrowings outstanding during the six months ended June 30, 2022 compared to $42.0 million during the six months ended June 30, 2021. The decrease in other income was primarily due to the gain on the investment in the convertible instrument from Myx prior to June 25, 2021; there was no similar investment in 2022.
Income Tax Benefit
Income tax benefit consists of income taxes related to U.S. federal and state jurisdictions as well as those foreign jurisdictions where we have business operations.
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|
Three months ended June 30, |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
281 |
|
|
$ |
10,857 |
|
|
$ |
(10,576 |
) |
|
|
(97 |
%) |
The income tax benefit decrease for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was primarily driven by a reduction in our valuation allowance in Q2 2021. We recorded significant deferred tax liabilities in connection with the acquisition of Myx, which was a discrete Q2 2021 event, for which we will not incur future taxable income. This partially reduced our need for a valuation allowance, resulting in income tax benefit recorded during the three months ended June 30, 2021; there was no similar benefit recorded during the three months ended June 30, 2022.
|
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|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
987 |
|
|
$ |
11,252 |
|
|
$ |
(10,265 |
) |
|
|
(91 |
%) |
The income tax benefit decrease for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily driven by a reduction in our valuation allowance in Q2 2021. We recorded significant deferred tax liabilities in connection with the acquisition of Myx, which was a discrete Q2 2021 event, for which we will not incur future taxable income. This partially reduced our need for a valuation allowance, resulting in income tax benefit recorded during the six months ended June 30, 2021; there was no similar benefit recorded during the six months ended June 30, 2022.
34
Liquidity and Capital Resources
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|
|
|
|
|
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|
|
Six months ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
$ |
(33,256 |
) |
|
$ |
(25,487 |
) |
Net cash used in investing activities |
|
|
(19,222 |
) |
|
|
(74,480 |
) |
Net cash provided by financing activities |
|
|
2,660 |
|
|
|
389,775 |
|
As of June 30, 2022, we had cash and cash equivalents totaling $57.1 million.
Net cash used in operating activities was $33.3 million for the six months ended June 30, 2022 compared to net cash used in operating activities of $25.5 million for the six months ended June 30, 2021. The increase in cash used in operating activities during the six months ended June 30, 2022, compared to the prior year quarter, was primarily due to the following:
•an increase in net loss;
•payments for 2021 payables, including connected fitness inventory, freight and duties, and media;
•a decrease in subscription revenue receipts from customers in advance of service or product delivery; partially offset by
•an increase in cash received from inventory sold.
We expect to reduce our cash used in operating activities over the next year, primarily through reduced inventory purchases and investment in media. As of June 30, 2022, our purchases of bike inventory were substantially completed as our inventory level is sufficient to meet expected connected fitness demand over the next year. Also, during the six months ended June 30, 2022, we returned to a performance marketing model which drives in-quarter or next-quarter payback and which reduced media spend by approximately $50.2 million compared to the prior year period.
Net cash used in investing activities was $19.2 million and $74.5 million for the six months ended June 30, 2022 and 2021, respectively. The decrease in net cash used in investing activities was primarily due to a $8.0 million decrease in capital expenditures and $47.3 million for certain investing activities which occurred during the six months ended June 30, 2021, but not during the six months ended June 30, 2022. These investing activities include cash paid for the Myx acquisition, investment in the convertible instrument in Myx, and another investment. We expect lower capital expenditures in 2022 compared to prior year due to the completion of significant projects at the end of 2021.
Net cash provided by financing activities was $2.7 million and $389.8 million for the six months ended June 30, 2022 and 2021, respectively. The decrease in net cash provided by financing activities was primarily due to the completion of the Business Combination during the six months ended June 30, 2021; we had no similar financing during the six months ended June 30, 2022.
We have $45.3 million of lease obligations and purchase commitments associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. See Note 8, Commitments and Contingencies, for discussion of our contractual commitments that are primarily due in the next year. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth and overall economic conditions. We continue to assess and efficiently manage our working capital, and expect to generate additional liquidity through continued cost control initiatives. We believe that existing cash and cash equivalents and cost control initiatives will provide the Company with sufficient liquidity to meet our anticipated cash needs for the next twelve months.
On August 8, 2022 (the “Closing”), we entered into an agreement with a third-party lender for a $50.0 million senior secured term loan (the “Term Loan”) with a four-year maturity. The Term Loan includes an incremental facility of up to an additional $25.0 million subject to certain terms and conditions. The Term Loan was funded at Closing and bears interest at our option of either (i) the Secured Overnight Financing Rate based upon an interest period of three months plus 7.15%, or (ii) a reference rate as defined in the agreement, plus 6.15%. In addition, borrowings will bear interest at 3.00%, which will be paid in kind by capitalizing such interest and adding it to the outstanding principal, annually. We paid an upfront fee of $1.5 million at Closing and are required to pay an annual fee of $0.25 million. The Term Loan requires annual amortization of 2.50% in the first two years and 5.00% in the final two years, paid quarterly, and certain mandatory repayments as defined in the agreement. The Term Loan provides customary restrictions, including prepayment premiums, and requires compliance with certain financial and other covenants.
35
In connection with the Term Loan, we issued warrants for the purchase of 4,716,756 million shares of the Company’s Class A Common Stock at an exercise price of $1.85 per share. The warrants vest on a monthly basis over four years, with 30%, 30%, 20% and 20% vesting in the first, second, third and fourth years, respectively. The warrants have a seven-year term from the date of Closing.
We expect to use the proceeds for general corporate purposes and to pay transaction fees and expenses related to the Term Loan. We may explore additional equity or debt financing to supplement our anticipated working capital balances and further strengthen our financial position, but do not at this time know which form it will take or what the terms will be. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. The sale of additional equity would result in additional dilution to our shareholders. There can be no assurances that we will be able to raise additional capital in amounts or on terms acceptable to us.
Critical Accounting Policies and Estimates
Goodwill and Intangible Assets Impairment
Goodwill and intangible assets deemed to have an indefinite life are not amortized, but instead are assessed for impairment annually at October 1 and between annual tests if an event or change in circumstances occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value or indicate that it is more likely than not that an indefinite-lived intangible asset is impaired. We carry our definite-lived intangible assets at cost less accumulated amortization. If an event or change in circumstances occurs that indicates the carrying value may not be recoverable, we would evaluate our definite-lived intangible assets for impairment at that time. Due to the sustained decline in our market capitalization and macroeconomic factors observed during the three months ended June 30, 2022, we performed an interim test for impairment of our Beachbody reporting unit goodwill and tested our definite-lived intangible assets for recoverability as of June 30, 2022. In performing the interim impairment test for goodwill we elected to bypass the qualitative assessment and proceed to performing the quantitative test.
In testing for impairment of our definite-lived intangible assets, we compared the carrying value of each asset group to its forecasted undiscounted cash flows to determine whether it was recoverable. The carrying values of each of our asset groups exceed their future undiscounted cash flows and are therefore recoverable.
We test goodwill for impairment at a level within the Company referred to as the reporting unit. We have determined that our reporting units are our operating segments, Beachbody and Other, because none of the components of either operating segment constitutes a business for which discrete financial information is available or has operating results which are regularly reviewed by segment management. There is no goodwill held by the Other reporting unit.
In testing for goodwill impairment, we compared the carrying value of the Beachbody reporting unit to its estimated fair value. Fair value was estimated using a combination of a market approach and an income approach, with significant assumptions related to guideline company financial multiples used in the market approach and significant assumptions about revenue growth, long-term growth rates, and discount rates used in a discounted cash flow model in the income approach. As of June 30, 2022, the Beachbody reporting unit’s fair value exceeded the carrying value by approximately 60%. We will continue to monitor changes that would impact the significant assumptions used in the valuation.
Management will continue to monitor its reporting units for changes in the business environment that could impact their fair value. Examples of events or circumstances that could result in changes to the underlying key assumptions and judgments used in our goodwill impairment tests, and ultimately impact the estimated fair value of our reporting unit may include the duration of the COVID-19 global pandemic, its impact on the global economy, supply chain disruptions and demand for at-home fitness solutions; adverse macroeconomic conditions; volatility in the equity and debt markets which could result in higher weighted-average cost of capital and our subscriber growth rates. Changes in any of the assumptions used in the valuation of the reporting unit, or changes in the business environment could materially affect the expected cash flows, and such impacts could potentially result in a material non-cash impairment charge.
Recent Accounting Pronouncements
See Note 1, Description of Business and Summary of Significant Accounting Policies, of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
36