# Beachbody Company, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Beachbody Company, Inc.](/companies/bodi.md) (CIK 1826889)
- Form: 10-Q
- Filed: 2023-11-07
- Accepted by EDGAR: Nov 7, 2023, 16:35 ET
- Period: 2023-09-30
- Accession: 0000950170-23-060330
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1826889/000095017023060330/body-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1826889/000095017023060330/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $128.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $408.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $53.2m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $159.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $75.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $249.1m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$29.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$80.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $2.1m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $6.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $63.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $99.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$32.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$87.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.11 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.28 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.11 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.28 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 308,931,120 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 310,793,724 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$14.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $5.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $38.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $130.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $347.3m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $172.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $206.3m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $27.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $1.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $141.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 55,711 characters.

*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”) as well as our financial statements and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2022 (our "Form 10-K"). Unless otherwise indicated, the terms “BODi,” “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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about 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; and
- other risk and uncertainties under the heading “*Risk Factors”* set forth in this Report as well as our most recent Form 10-K.

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.

You should not place undue reliance upon our 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.

### Overview

BODi 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.

We offer nutritional products such as Shakeology nutrition shakes, BEACHBAR snack bars, and Ladder premium supplements as well as 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 “Partners” (previously known as “Coaches”), we plan to continue market penetration into connected fitness to reach a wider health, wellness and fitness audience.

Our revenue is generated primarily through our network of Partners, social media marketing channels, and direct response advertising. Components of revenue include recurring digital subscription revenue, revenue from the sale of nutritional and other products, and connected fitness revenue. In addition to selling individual products on a one-time basis, we bundle digital and nutritional products together at discounted prices.

Our key growth priorities for 2023 include: revamping our Beachbody on Demand (“BODi”) digital platform, growing Shakeology in the Healthy Dessert market, and improving the affordability of our connected fitness bike. In March 2023, we relaunched the BODi digital platform with a new form of fitness programming called BODi Blocks, the addition of positive mindset content, and digital recipes to extend Shakeology into a Healthy Dessert. We also began migrating all BOD-only members to BODi on their renewal dates. During the first and third quarters of 2023, to align our operations with our key growth priorities, we executed certain restructuring activities, including a reduction in headcount. These actions resulted in aggregate charges of $6.6 million, consisting primarily of termination benefits during the nine months ended September 30, 2023.

For the three months ended September 30, 2023, as compared to the three months ended September 30, 2022:

- Total revenue was $128.3 million, a 23% decrease;
- Digital revenue was $64.3 million, a 11% decrease;
- Nutrition and other revenue was $59.0 million, a 35% decrease;
- Connected fitness revenue was $4.9 million, a 48% increase;
- Operating expenses was $104.0 million, compared to $140.9 million;
- Net loss was $32.7 million, compared to net loss of $33.9 million; and
- Adjusted EBITDA was ($5.8) million, compared to ($6.2) million.

For the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022:

- Total revenue was $408.1 million, a 25% decrease;
- Digital revenue was $194.3 million, a 16% decrease;
- Nutrition and other revenue was $197.7 million, a 29% decrease;
- Connected fitness revenue was $16.0 million, a 52% decrease;
- Operating expenses was $329.7 million, compared to $440.0 million;
- Net loss was $87.6 million, compared to net loss of $149.3 million; and
- Adjusted EBITDA was $(11.5) million, compared to $(26.8) 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

Effective as of June 15, 2023, the Company appointed Mark Goldston as Executive Chairman, replacing the service of Mr. Daikeler in his capacity as Chairman of the Board. Mr. Daikeler will continue to serve as the Company’s CEO and director. In connection with the employment offer letter to Mr. Goldston, he was granted a stock option under the Company’s 2023 Employment Inducement Incentive Award Plan (the “Inducement Plan”) covering an aggregate of 23,883,265 shares of the Company’s Class A common stock (the “Option”). Of this amount, 7,961,088 shares subject to the Option will vest based on continued service (the “Time-Vesting Options”) and 15,922,177 shares will vest based on the attainment of applicable performance goals and continued service (the “Performance-Vesting Options”). See Note 11, *Equity-Based Compensation,* for additional information on the Inducement Plan and the Options granted to Mr. Goldston.

On June 15, 2023, the Company and Carl Daikeler the Company’s co-founder and chief executive officer (“CEO”) entered into a forfeiture agreement (“the Forfeiture Agreement”), pursuant to which Mr. Daikeler as of June 15, 2023 forfeited 8 million shares of the Company’s common stock that he owned, comprised of 3,199,946 shares of Class A common stock and 4,800,054 shares of Class X Common stock. No consideration was provided to Mr. Daikeler for the forfeiture of these shares. See Note 10, *Stockholders’ Equity*, for additional information on the forfeiture of these shares.

On July 24, 2023 (the "Second Amendment Effective Date"), the Company and Blue Torch entered into Amendment No. 2 to the Financing Agreement (the "Second Amendment"), which amended the Company's existing Financing Agreement. The Second Amendment amended, among other things, certain terms of the Financing Agreement including without limitation, to (1) amend the minimum revenue financial covenant, (2) amend the minimum liquidity financial covenant, (3) modify the maturity date of the Term Loan, and (4) amend certain financial definitions, reporting covenants and other covenants thereunder.

In connection with the Second Amendment, on the Second Amendment Effective Date, the Company made a partial prepayment on the Term Loan of $15.0 million along with the related prepayment premium of 5% ($0.8 million) and accrued interest ($0.1 million). The partial prepayment of $15.0 million was accounted for as a partial debt extinguishment and the Company wrote off the proportionate amount of unamortized debt discount and debt issuance costs as of the Second Amendment Effective Date ($2.4 million) which in addition to the prepayment premium ($0.8 million) was recorded as a loss on partial debt extinguishment of $3.2 million in the three and nine months ended September 30, 2023.

In connection with the Second Amendment, the Company also amended and restated the Term Loan Warrants for the purchase of 4,716,756 shares of the Company’s Class A Common Stock.

See Note 9, *Debt,* for additional information on the Second Amendment and amendments to the Term Loan Warrants.

### 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 September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Digital subscriptions (millions) | 1.38 | 2.10 |
| Nutritional subscriptions (millions) | 0.18 | 0.24 |

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.

|  | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Average digital retention | 96.2% | 95.7% | 95.7% | 95.6% |
| Total streams (millions) | 22.9 | 27.5 | 77.9 | 96.7 |
| DAU/MAU | 30.8% | 29.5% | 31.6% | 30.4% |
| Bikes delivered (thousands) | 6,524 | 2,305 | 16,723 | 27,749 |
| Revenue (millions) | $128.3 | $166.0 | $408.1 | $544.0 |
| Gross profit (millions) | $75.0 | $104.7 | $249.1 | $285.0 |
| Gross margin | 58.5% | 63.1% | 61.0% | 52.4% |
| Net loss (millions) | $(32.7) | $(33.9) | $(87.6) | $(149.3) |
| Adjusted EBITDA (millions) | $(5.8) | $(6.2) | $(11.5) | $(26.8) |

### 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 prior to Q3 2022, 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 is defined as the average rate at which the total subscriber file is retained for the next period, to measure customer retention. For instance, a 95% average digital retention rate would correspond with retaining each month an average of 95% of digital subscribers existing at the beginning of that month. A 95% average digital retention rate would translate into a loss at the end of the quarter of approximately 15% of the subscribers existing at the beginning of the quarter. This calculation excludes new customer acquisitions or subscribers added in a specific month, so this calculation can never exceed 100%.

### Total Streams

We use total streams to quantify the number of fitness, nutrition and mindset programs viewed, which is an 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 accounting principles generally accepted in the United States of America ("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, 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 BODi’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 and equity-based compensation) or are not related to our underlying business performance (for example, in the case of interest income and expense).

The table below presents our Adjusted EBITDA reconciled to our net loss, the closest GAAP measure, for the periods indicated:

*(in thousands)*

|  | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(32,666) | $(33,859) | $(87,602) | $(149,259) |
| Adjusted for: |  |  |  |  |
| Impairment of intangible assets | — | 1,000 | — | 1,000 |
| Loss on partial debt extinguishment (1) | 3,168 | — | 3,168 | — |
| Depreciation and amortization | 9,763 | 17,306 | 31,395 | 58,858 |
| Amortization of capitalized cloud computing implementation costs | 41 | 126 | 122 | 462 |
| Amortization of content assets | 5,467 | 5,493 | 16,487 | 18,673 |
| Interest expense | 2,074 | 1,152 | 6,773 | 1,174 |
| Income tax provision (benefit) | 63 | (549) | 99 | (1,536) |
| Equity-based compensation | 6,436 | 5,601 | 19,152 | 13,166 |
| Employee incentives, expected to be settled in equity (2) | — | — | (5,466) | — |
| Inventory net realizable value adjustment (3) | — | (1,867) | — | 23,569 |
| Restructuring and platform consolidation costs (4) | 1,270 | 1,745 | 7,222 | 11,718 |
| Change in fair value of warrant liabilities | (1,072) | (2,362) | (1,504) | (4,696) |
| Non-operating (5) | (377) | (15) | (1,340) | 63 |
| Adjusted EBITDA | $(5,833) | $(6,229) | $(11,494) | $(26,808) |

(1) Represents the loss related to the $15.0 million partial debt prepayment that the Company made on July 24, 2023.

(2) The non-cash charge for employee incentives which were expected to be settled in equity was recorded and included in the Adjusted EBITDA calculation during the year ended December 31, 2022. During the three months ended March 31, 2023, we reclassified the non-cash charge from employee incentives expected to be settled in equity to equity-based compensation because we settled certain employee incentives with restricted stock unit ("RSU") awards during the period.

(3) Represents a non-cash expense to reduce the carrying value of our connected fitness inventory and related future commitments. This adjustment was included during the three and nine months ended September 30, 2022 because of its unusual magnitude due to disruptions in the connected fitness market.

(4) Includes restructuring expense and personnel costs associated with executing our key growth priorities during the three and nine months ended September 30, 2023 and with the consolidation of our digital platforms during the three and nine months ended September 30, 2022.

(5) Primarily includes interest income.

### Results of Operations

The Company has one operating segment. The following discussion of our results and operations is on a consolidated basis.

*(in thousands)*

| Revenue: | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Digital | $64,339 | $72,228 | $194,326 | $231,988 |
| Nutrition and other | 58,981 | 90,416 | 197,729 | 278,596 |
| Connected fitness | 4,930 | 3,331 | 16,044 | 33,449 |
| Total revenue | 128,250 | 165,975 | 408,099 | 544,033 |
| Cost of revenue: |  |  |  |  |
| Digital | 16,429 | 16,078 | 47,732 | 50,909 |
| Nutrition and other | 26,699 | 40,486 | 84,940 | 127,262 |
| Connected fitness | 10,091 | 4,745 | 26,312 | 80,910 |
| Total cost of revenue | 53,219 | 61,309 | 158,984 | 259,081 |
| Gross profit | 75,031 | 104,666 | 249,115 | 284,952 |
| Operating expenses: |  |  |  |  |
| Selling and marketing | 69,127 | 93,145 | 222,195 | 286,213 |
| Enterprise technology and development | 18,879 | 25,686 | 56,625 | 83,516 |
| General and administrative | 14,759 | 19,532 | 44,362 | 59,189 |
| Restructuring | 1,270 | 1,492 | 6,550 | 10,047 |
| Impairment of intangible assets | — | 1,000 | — | 1,000 |
| Total operating expenses | 104,035 | 140,855 | 329,732 | 439,965 |
| Operating loss | (29,004) | (36,189) | (80,617) | (155,013) |
| Other income (expense) |  |  |  |  |
| Loss on partial debt extinguishment | (3,168) | — | (3,168) | — |
| Change in fair value of warrant liabilities | 1,072 | 2,362 | 1,504 | 4,696 |
| Interest expense | (2,074) | (1,152) | (6,773) | (1,174) |
| Other income, net | 571 | 571 | 1,551 | 696 |
| Loss before income taxes | (32,603) | (34,408) | (87,503) | (150,795) |
| Income tax (provision) benefit | (63) | 549 | (99) | 1,536 |
| Net loss | $(32,666) | $(33,859) | $(87,602) | $(149,259) |

29

### Revenue

Revenue includes digital subscriptions, nutritional supplement subscriptions, one-time nutritional sales, connected fitness products, access to our online Partner business management platform, preferred customer program memberships, and other fitness-related products. 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. Digital subscription revenue is recognized ratably over the subscription period of up to 38 months.

*(dollars in thousands)*

| Revenue | Three months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Digital | $64,339 | $72,228 | $(7,889) | (11%) |
| Nutrition and other | 58,981 | 90,416 | (31,435) | (35%) |
| Connected fitness | 4,930 | 3,331 | 1,599 | 48% |
| Total revenue | $128,250 | $165,975 | $(37,725) | (23%) |

The decrease in digital revenue for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was primarily attributable to a $7.0 million decrease in revenue from our digital streaming services due to 34% fewer subscriptions on lower demand and a decrease of $0.9 million in fees from partners as there was a 18% decrease in the number of partners, partially offset by an increase in revenue per subscription.

The decrease in nutrition and other revenue for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was primarily attributable to a $25.8 million decrease in revenue from nutritional products due to 27% fewer nutritional subscriptions on lower demand, a $2.7 million decrease in revenue generated from our preferred customer fees as there was a 34% decrease in preferred customers and a $1.9 million decrease in ticket sales due primarily to Summit 2023 which occurred in June 2023 (in the prior year the Summit occurred in July).

The increase in connected fitness revenue for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was primarily due to a 183% increase in number of bikes delivered partially offset by a 42% decrease in the average sales price for a bike.

*(dollars in thousands)*

| Revenue | Nine months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Digital | $194,326 | $231,988 | $(37,662) | (16%) |
| Nutrition and other | 197,729 | 278,596 | (80,867) | (29%) |
| Connected fitness | 16,044 | 33,449 | (17,405) | (52%) |
| Total revenue | $408,099 | $544,033 | $(135,934) | (25%) |

The decrease in digital revenue for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily attributable to a $33.5 million decrease in revenue from our digital streaming services due to 34% fewer subscriptions on lower demand and a decrease of $3.8 million in fees from partners due to a 24% decrease in the number of partners, partially offset by an increase in revenue per subscription.

The decrease in nutrition and other revenue for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily attributable to a $66.9 million decrease in revenue from nutritional products due to 27% fewer nutritional subscriptions on lower demand and a $6.8 million decrease in revenue generated from our preferred customer fees as there was a 30% decrease in preferred customers and a $3.4 million decrease in fitness accessories revenue.

The decrease in connected fitness revenue for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily due to a 40% decrease in the number of bikes delivered and a 20% decrease in the average sales price for a bike.

### 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.

#### 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.

#### 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.

*(dollars in thousands)*

| Cost of revenue | Three months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Digital | $16,429 | $16,078 | $351 | 2% |
| Nutrition and other | 26,699 | 40,486 | (13,787) | (34%) |
| Connected fitness | 10,091 | 4,745 | 5,346 | NM |
| Total cost of revenue | $53,219 | $61,309 | $(8,090) | (13%) |
| Gross profit |  |  |  |  |
| Digital | $47,910 | $56,150 | $(8,240) | (15%) |
| Nutrition and other | 32,282 | 49,930 | (17,648) | (35%) |
| Connected fitness | (5,161) | (1,414) | (3,747) | NM |
| Total gross profit | $75,031 | $104,666 | $(29,635) | (28%) |
| Gross margin |  |  |  |  |
| Digital | 74.5% | 77.7% |  |  |
| Nutrition and other | 54.7% | 55.2% |  |  |
| Connected fitness | (104.7%) | (42.4%) |  |  |
| Total gross margin | 58.5% | 63.1% |  |  |

The increase in digital cost of revenue for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was primarily due to a $0.6 million increase in program revisions partially offset by a $0.4 million decrease in streaming costs due to lower platform usage. The decrease in digital gross margin for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 was primarily as a result of fixed expenses on lower digital revenue.

The decrease in nutrition and other cost of revenue for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was primarily due to $4.3 million decrease in fulfillment and shipping expense and a $4.1 million decrease in product costs related to the decrease in nutrition and other revenue, lower inventory reserve adjustments of $1.8 million, a $0.9 million decrease in depreciation expense as a result of the end of the useful life of certain fixed assets and a $0.7 million decrease in customer service expense due to a decrease in the volume of contacts related to nutrition and other revenue. Nutrition and other gross margin were down slightly for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

The increase in connected fitness cost of revenue for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was driven by higher inventory reserve adjustments of $5.7 million and a $2.3 million increase in freight and shipping expenses as the result of a 183% increase in the number of bikes sold, partially offset by a $1.2 million decrease in product costs as a result of inventory reserves recorded. The connected fitness decrease in gross margin for the three months ended September 30,

2023 compared to the three months ended September 30, 2022 was primarily as a result of higher inventory reserves recorded and lower average sales price for a bike.

*(dollars in thousands)*

| Cost of revenue | Nine months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Digital | $47,732 | $50,909 | $(3,177) | (6%) |
| Nutrition and other | 84,940 | 127,262 | (42,322) | (33%) |
| Connected fitness | 26,312 | 80,910 | (54,598) | (68%) |
| Total cost of revenue | $158,984 | $259,081 | $(100,097) | (39%) |
| Gross profit |  |  |  |  |
| Digital | $146,594 | $181,079 | $(34,485) | (19%) |
| Nutrition and other | 112,789 | 151,334 | (38,545) | (26%) |
| Connected fitness | (10,268) | (47,461) | 37,193 | 78% |
| Total gross profit | $249,115 | $284,952 | $(35,837) | (13%) |
| Gross margin |  |  |  |  |
| Digital | 75.4% | 78.1% |  |  |
| Nutrition and other | 57.0% | 54.3% |  |  |
| Connected fitness | (64.0%) | (141.9%) |  |  |
| Total gross margin | 61.0% | 52.4% |  |  |

The decrease in digital cost of revenue for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was due to a $2.7 million decrease in depreciation expense as a result of the end of the useful life of certain fixed asset and a $2.2 million decrease in the amortization of content assets as a result of lower production spend. The decrease in digital gross margin for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily as a result of fixed expenses on lower digital revenue.

The decrease in nutrition and other cost of revenue for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily due to a $14.1 million decrease in product costs and a $12.3 million decrease in fulfillment and shipping expense related to the decrease in nutrition and other revenue, lower inventory reserve adjustments of $4.6 million, a $4.4 million decrease in depreciation expense as a result of the end of the useful life of certain fixed assets and a $3.5 million decrease in customer service expense due to a decrease in the volume of contacts related to nutrition and other revenue. Nutrition and other gross margin increased for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily as a result of lower product costs and shipping.

The decrease in connected fitness cost of revenue for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was driven by a $22.7 million decrease in product costs, lower inventory reserve adjustments of $21.3 million and a $5.5 million decrease in freight, fulfillment, and shipping expenses as the result of a 40% decrease in the number of bikes sold. The connected fitness negative gross margin improvement for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily as a result of lower inventory reserve adjustments and lower average sales price for a bike, partially offset by the impact of fixed warehousing expenses on lower connected fitness revenue.

### Operating Expenses

### Selling and Marketing

Selling and marketing expenses primarily include the cost of Partner 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.

*(dollars in thousands)*

|  | Three months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Selling and marketing | $69,127 | $93,145 | $(24,018) | (26%) |
| As a percentage of total revenue | 53.9% | 56.1% |  |  |

The decrease in selling and marketing expense for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was primarily due to a $11.5 million decrease in Partner compensation as a result of lower commissionable revenue, a $7.8 million decrease in event expenses due primarily to Summit 2023 which occurred in June 2023 (in the prior year this event was held in July), a $2.7 million decrease in personnel-related expenses due to lower headcount primarily related to the restructuring activities that occurred in the first quarter of 2023 and in the prior year and a $2.5 million decrease in the amortization of intangible assets due to the impairment of certain assets in the fourth quarter of 2022 partially offset by a $2.9 million increase in online and television media expense.

Selling and marketing expense as a percentage of total revenue decreased by 220 basis points ("bps") primarily due to the timing of Summit 2023, partially offset by the decrease in revenue.

*(dollars in thousands)*

|  | Nine months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Selling and marketing | $222,195 | $286,213 | $(64,018) | (22%) |
| As a percentage of total revenue | 54.4% | 52.6% |  |  |

The decrease in selling and marketing expense for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily due to a $37.7 million decrease in Partner compensation as a result of lower commissionable revenue, a $12.6 million decrease in personnel-related expenses due to lower headcount primarily related to the restructuring activities that occurred in the first quarter of 2023 and in the prior year and a $7.5 million decrease in the amortization of intangible assets due to the impairment of certain assets in the fourth quarter of 2022.

Selling and marketing expense as a percentage of total revenue increased by 180 bps primarily due to the decrease in revenue.

### Enterprise Technology and Development

Enterprise technology and development expenses primarily relate 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 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.

*(dollars in thousands)*

|  | Three months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Enterprise technology and development | $18,879 | $25,686 | $(6,807) | (27%) |
| As a percentage of total revenue | 14.7% | 15.5% |  |  |

The decrease in enterprise technology and development expense for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was primarily due to a $3.8 million decrease in depreciation expense as a result of the end of the useful life of certain fixed assets and a $2.9 million decrease in personnel-related expenses due to lower headcount primarily related to the restructuring activities that occurred in the first quarter of 2023 and in the prior year.

Enterprise technology and development expense as a percentage of total revenue decreased by 80 bps due to lower fixed expenses.

*(dollars in thousands)*

|  | Nine months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Enterprise technology and development | $56,625 | $83,516 | $(26,891) | (32%) |
| As a percentage of total revenue | 13.9% | 15.4% |  |  |

The decrease in enterprise technology and development expense for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily due to a $17.0 million decrease in personnel-related expenses due to lower headcount primarily related to the restructuring activities that occurred in the first quarter of 2023 and in the prior year and a $9.8 million decrease in depreciation expense as a result of the end of the useful life of certain fixed assets.

Enterprise technology and development expense as a percentage of total revenue decreased by 150 bps due to lower fixed expenses.

### 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.

*(dollars in thousands)*

|  | Three months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| General and administrative | $14,759 | $19,532 | $(4,773) | (24%) |
| As a percentage of total revenue | 11.5% | 11.8% |  |  |

The decrease in general and administrative expense for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was primarily due to a $2.1 million decrease in personnel-related expenses as a result of lower headcount, primarily related to the restructuring activities that occurred in the first quarter of 2023 and in the prior year and a $1.4 million decrease in insurance expense as some of our insurance is based on the level of the Company's revenues or the number of employees, which both have declined in the current period compared to the prior period.

General and administrative expense as a percentage of total revenue decreased by 30 bps due to lower fixed expenses.

*(dollars in thousands)*

|  | Nine months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| General and administrative | $44,362 | $59,189 | $(14,827) | (25%) |
| As a percentage of total revenue | 10.9% | 10.9% |  |  |

The decrease in general and administrative expense for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily due to a $8.8 million decrease in personnel-related expenses as a result of lower headcount primarily related to the restructuring activities that occurred in the first quarter of 2023 and in the prior year, and a $3.1 million decrease in insurance expense as some of our insurance is based on the level of the Company's revenues or the number of employees, which both have declined in the current period compared to the prior period.

General and administrative expense as a percentage of total revenue was flat.

### Restructuring

In 2023, restructuring charges primarily relate to activities focused on aligning our operations with our key growth priorities, including a reduction in headcount. Restructuring charges in 2022 relate to the consolidation of our streaming fitness and nutrition offerings into a single Beachbody platform. The charges incurred primarily consist of employee termination costs.

*(dollars in thousands)*

|  | Three months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Restructuring | $1,270 | $1,492 | $(222) | (15%) |

*(dollars in thousands)*

|  | Nine months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Restructuring | $6,550 | $10,047 | $(3,497) | (35%) |

35

### Impairment of Intangible Assets

In testing for impairment of our indefinite-lived intangible asset, we compared the carrying value of the trade name to its estimated fair value. Fair value was estimated using an income approach, specifically the relief-from-royalty approach, and included significant assumptions related to the royalty rate and revenue growth. Based on this analysis, we recognized an impairment charge as the fair value of the indefinite-lived trade name was determined to be less than its carrying value primarily due to lower revenue in the current year and long-term forecast.

*(dollars in thousands)*

|  | Three months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Impairment of intangible assets | $— | $1,000 | $(1,000) | (100%) |

*(dollars in thousands)*

|  | Nine months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Impairment of intangible assets | $— | $1,000 | $(1,000) | (100%) |

### Other Income (Expense)

The change in fair value of warrant liabilities consists of the fair value changes of the public, private placement, and Term Loan warrants. Interest expense primarily consists of interest expense associated with our borrowings and amortization of debt discount and issuance costs for our Term Loan (defined below) in 2022 and Credit Facility in 2021. Other income, net, consists of interest income earned on investments and gains (losses) on foreign currency.

*(dollars in thousands)*

|  | Three months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Loss on partial debt extinguishment | $(3,168) | $— | $(3,168) | NM |
| Change in fair value of warrant liabilities | 1,072 | 2,362 | (1,290) | (55%) |
| Interest expense | (2,074) | (1,152) | (922) | 80% |
| Other income, net | 571 | 571 | — | —% |

The loss on partial debt extinguishment for the three months ended September 30, 2023 was due to the partial prepayment of $15.0 million on the Term Loan as of July 24, 2023. The decrease in change in fair value of warrant liabilities during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily resulted from a relatively lower decline in our stock price during the current quarter. The increase in interest expense was primarily due to borrowings under the Term Loan during the three months ended September 30, 2023 compared to borrowings outstanding for approximately half of the three months ended September 30, 2022.

*(dollars in thousands)*

|  | Nine months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | --- |
| Loss on partial debt extinguishment | $(3,168) | $— | $(3,168) | NM |
| Change in fair value of warrant liabilities | 1,504 | 4,696 | (3,192) | (68%) |
| Interest expense | (6,773) | (1,174) | (5,599) | NM |
| Other income, net | 1,551 | 696 | 855 | NM |

The loss on partial debt extinguishment for the nine months ended September 30, 2023 was due to the partial prepayment of $15.0 million on the Term Loan as of July 24, 2023. The decrease in change in fair value of warrant liabilities during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily resulted from a relatively lower decline in our stock price during the current period. The increase in interest expense was primarily due to borrowings under the Term Loan during the nine months ended September 30, 2023 compared to borrowings outstanding for only approximately 1.5 months during the nine months ended September 30, 2022. The increase in other income was primarily due to higher interest income as a result of higher interest rates on our cash balances.

### Income Tax (Provision) Benefit

Income tax (provision) benefit consists of income taxes related to U.S. federal and state jurisdictions as well as those foreign jurisdictions where we have business operations.

*(dollars in thousands)*

|  | Three months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | --- |
| Income tax (provision) benefit | $(63) | $549 | $(612) | NM |

The income tax provision increase for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was primarily driven by changes in our valuation allowance and a decrease in the net expense from discrete events.

*(dollars in thousands)*

|  | Nine months ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | --- |
| Income tax (provision) benefit | $(99) | $1,536 | $(1,635) | NM |

The income tax provision increase for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily driven by changes in our valuation allowance and a decrease in the net expense from discrete events.

### Liquidity and Capital Resources

*(in thousands)*

|  | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(14,583) | $(36,943) |
| Net cash used in investing activities | (9,749) | (23,236) |
| Net cash (used in) provided by financing activities | (17,727) | 48,283 |

As of September 30, 2023, we had cash and cash equivalents totaling $38.2 million.

Net cash used in operating activities was $14.6 million and $36.9 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease in cash used in operating activities during the nine months ended September 30, 2023, compared to the prior year period, was primarily due to a decrease in net loss of $61.7 million and an increase in cash received attributable to deferred revenue of $10.7 million partially offset by a decrease in depreciation and amortization expense of $27.5 million and a decrease in provision for inventory and inventory purchase commitments of $25.8 million.

Net cash used in investing activities was $9.7 million and $23.2 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease in net cash used in investing activities was due to a decrease in capital expenditures of $17.7 million due to increased focus by management on capital expenditures, in particular related to technology partially offset by $4.3 million of investment in restricted short-term investments. The current decrease of capital expenditures as compared to the prior period is expected to continue in future periods.

Net cash used in financing activities was $17.7 million for the nine months ended September 30, 2023 compared to net cash provided by financing activities of $48.3 million for the nine months ended September 30, 2022. The change in net cash from financing activities was primarily due to debt repayments on our Term Loan and taxes associated with the vesting of restricted stock during the nine months ended September 30, 2023 compared to proceeds from stock option exercises during the nine months ended September 30, 2022.

On August 8, 2022, the Company, Beachbody, LLC, a Delaware limited liability company and wholly-owned direct subsidiary of the Company (the “Borrower”), and certain subsidiaries of the Company (together with the Company, the “Guarantors”), entered into a financing agreement (as amended, the “Financing Agreement”) with the lenders party thereto and Blue Torch Finance, LLC, ("Blue Torch") as administrative agent and collateral agent for such lenders, providing for a senior secured term loan facility in an initial aggregate principal amount of $50.0 million (the “Term Loan”). Obligations under the Financing Agreement are guaranteed by the Guarantors, and secured by a lien on and security interest in substantially all of the assets of the Borrower and the Guarantors (together with the Borrower, the “Loan Parties”), subject to customary exceptions. On July 24, 2023 the Company and Blue Torch entered into the Second Amendment. In connection with the Second Amendment, on the Second Amendment Effective Date, the Company made a partial prepayment on the Term Loan of $15.0 million. As of September 30, 2023, the principal balance outstanding (including capitalized paid in kind interest) under the Term Loan was $35.6 million. During the three and nine months ended September 30, 2023, the Term Loan was a secured overnight financing rate ("SOFR") loan, with an effective interest rate of 19.21% and a cash interest rate of 12.21% for the nine months ended September 30, 2023.

The Financing Agreement contains financial covenants, customary representations, warranties, covenants and customary events of default. We were in compliance with the financial covenants as of September 30, 2023. See Note 9, *Debt*, for additional information on the Term Loan.

As of September 30, 2023, we have $21.7 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 within 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, including debt service requirements, for the next twelve months as well as for the longer-term (i.e., beyond the next twelve months).

We may explore additional equity 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 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

There have been no material changes to the Company's critical accounting policies and estimates discussed in the 2022 Annual Report on Form 10-K in Item 7 under the heading *Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates* other than noted below.

### Goodwill and Long-Lived 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 ("RU") 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.

We test goodwill for impairment at a level within the Company referred to as the RU. Due to the continued sustained decline in our market capitalization and macroeconomic factors observed during the three months ended June 30, 2023, we performed an interim test for impairment of our goodwill.

In performing the interim impairment test for goodwill, we elected to bypass the qualitative assessment and proceeded to performing the quantitative test. We compared the carrying value of the RU to its estimated fair value. Fair value is 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, 2023, the RUs fair value exceeded the carrying value by approximately 11%.

Due to reduced revenue and margin forecasts we tested the related asset group for recoverability as of June 30, 2023. In testing for recoverability, we compared the carrying value of the asset group to its forecasted undiscounted cash flows to determine whether it was recoverable. Because the carrying value of the asset group did not exceed its future undiscounted cash flows, we then calculated the fair value of the assets within the asset group. The fair value of the formulae intangible assets, which is the long-lived asset within the asset group, was calculated to be greater than its carrying value. As a result, no impairment was recognized.

Due to reduced revenue and margin forecasts for certain supplements, we performed an interim test for impairment of certain indefinite-lived intangible assets as of September 30, 2022. The fair value of the indefinite-lived trade name was calculated using a relief-from-royalty approach and was determined to be lower than its carrying value, primarily due to the reduced revenue and margin forecasts for certain supplements. We recorded a $1.0 million non-cash impairment charge for these intangible assets during the three and nine months ended September 30, 2022. As of September 30, 2023, the Company has no indefinite-lived intangible assets.

Management will continue to monitor its RU for changes in the business environment that could impact its 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 RU may include 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 RU, 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.

## Market risk

As filed, 2,243 characters.

### Foreign Currency Risk

We are exposed to foreign currency exchange risk related to transactions in currencies other than the U.S. Dollar, which is our functional currency. Our foreign subsidiaries, sales, certain inventory purchases and operating expenses expose us to foreign currency exchange risk. For the nine months ended September 30, 2023 and 2022, approximately 10% of our revenue was in foreign currencies. These sales were primarily denominated in Canadian dollars and British pounds.

We use derivative instruments to manage the effects of fluctuations in foreign currency exchange rates on our net cash flows. We primarily enter into option contracts to hedge forecasted payments, typically for up to 12 months, for cost of revenue, selling and marketing expenses, general and administrative expenses and intercompany transactions not denominated in the local currencies of our foreign operations. We designate some of these instruments as cash flow hedges and record them at fair value as either assets or liabilities within the consolidated balance sheets. Some of these instruments are freestanding derivatives for which hedge accounting does not apply.

Changes in the fair value of cash flow hedges are recorded in accumulated other comprehensive income (loss) until the hedged forecasted transaction affects earnings. Deferred gains and losses associated with cash flow hedges of third-party payments are recognized in cost of revenue, selling and marketing or general and administrative expenses, as applicable, during the period when the hedged underlying transaction affects earnings. Changes in the fair value of certain derivatives for which hedge accounting does not apply are immediately recognized directly in earnings to cost of revenue.

A hypothetical 10% change in exchange rates, with the U.S. dollar as the functional and reporting currency, would result in an approximate $1.5 million increase or decrease in cost of revenue and operating expenses due to the derivative instruments we use to hedge any foreign currency exposure.

The aggregate notional amount of foreign exchange derivative instruments at September 30, 2023 and year ended December 31, 2022 was $10.0 million and $17.6 million, respectively.

## Controls and procedures

As filed, 3,057 characters.

### Management’s Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2023. Based upon that evaluation, as a result of the material weaknesses identified in our 2022 Form 10-K, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report.

As previously disclosed in our 2022 Form 10-K for the year ended December 31, 2022 management concluded that our internal control over financial reporting were not effective as of December 31, 2022. Management is in the process of enhancing, and will continue to enhance, the risk assessment process and design and implementation of internal control over financial reporting. The remediation measures to correct the previously identified material weaknesses include enhancing the design and implementation of existing controls and creating new controls as needed to address identified risks and provide additional training to personnel including the appropriate level of documentation to be maintained to support internal control over financial reporting.

As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above. When fully implemented and operational, we believe the controls we have designed, or plan to design, will remediate the control deficiencies that have led to the material weaknesses that we have identified. The previously identified material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

### Changes in Internal Control Over Financial Reporting

Other than with respect to the remediation efforts described above in connection with the previously identified material weaknesses in our 2022 Form 10-K, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and

15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, as specified above. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met.

## Risk factors

As filed, 659 characters.

Other than with respect to the material weaknesses described elsewhere in this Quarterly Report on Form 10-Q, there have been no material developments with respect to the information previously reported under Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. These risk factors describe some of the assumptions, risks, uncertainties and other factors that could adversely affect our business or that could otherwise result in changes that differ materially from our expectations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

Filed Nov 7, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-060330. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.