Beachbody Company Inc (The) - Ordinary Shares - Class A Aktie

Thank you. Hello everyone. Thank you for joining us and welcome to The Beachbody Company, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Bruce Williams, Managing Director of ICR. Bruce, please go ahead.

Welcome everyone and thank you for joining us for our second quarter earnings call. With me on the call today are Mark Goldston, Executive Chairman of The Beachbody Company; Carl Daikeler, Co-Founder and Chief Executive Officer; and Brad Ramberg, Interim Chief Financial Officer. Following the prepared remarks, we'll open the call for questions. Before we get started, I would like to remind you of the company's safe harbor language. Statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested by such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, which includes today's press release. Today's call will include references to non-GAAP financial measures such as adjusted EBITDA, net cash, and free cash flow.

And a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website. Now, I would like to turn the call over to Mark.

Thanks very much, Bruce. And good afternoon, everyone. Welcome to the BODi second quarter 2026 earnings call. I'm pleased to report BODi delivered another quarter of consistent execution against the turnaround we've been building for 3 years now. Total revenue for the second quarter was $49.6 million, above the midpoint of our guidance range of $46 million to $51 million. More importantly, this was our fourth consecutive quarter of both operating income and net income. And it was our 11th consecutive quarter of positive adjusted EBITDA, which came in at $6.7 million, which was above the high end of our guidance range of $3 million to $6 million. That also marks our fourth consecutive quarter of double-digit adjusted EBITDA margins, which tells you that the operational discipline that we've built into this business over the past 3 years is durable.

Net income for the quarter was $1.4 million, also above the high end of our guidance range, of a loss of $3 million to breakeven. So across the board, revenue, net income, and adjusted EBITDA, we either met or exceeded our own guidance again this quarter. Let's turn to the balance sheet. We ended the quarter with $32.4 million of cash. That's against a total debt of approximately $23.6 million. So we had a net cash position of $8.8 million. We're pleased that we modified our lending agreement with Tiger Finance and we now have a much less restrictive covenant package.

Our new agreement demonstrates the conviction and confidence that our partners have in our long-term strategic initiatives. Let me give you an update on the retail expansion, which continues to build momentum. Shakeology is off to a great start at Sprouts Farmers Market stores. They've now expanded our footprint into 131 Sprouts stores nationwide. And importantly, we're already seeing stores coming back for reorders on Shakeology. This quarter, in fact, right now, we brought Shakeology into 481 The Vitamin Shoppe locations around the country. We've also continued to build our relationship with KeHE, one of the two largest distributors of natural and organic products in the country. This gives us a path into their network of grocery accounts.

And just recently, we added an account which will open up the UNFI distribution network. Well, that'll happen in November of this year. And UNFI is the other major distributor of consumer goods to the grocery channel. As we've previously discussed, waiting for the retailer shelf set planogram to be updated is a 6- to 12-month process. While we continue to actively participate in that process with strong distribution partners, we expect to modestly build distribution this year with the expectation for accelerated growth in 2027, as we become more integrated into retailers' planograms. On the nutrition innovation side, our P90X supplement line, which is pre-workout, hydration, creatine, recovery protein, and fast-acting energy, that just became available on Amazon, which opens up an important channel for us to build brand awareness and drive trial. We're also in the process of preparing for the Southern California test market for our new energy drink lineup.

We've hired one of the top beverage distribution companies in the country to represent us in the market, and both our INSANITY Liquid Shock and our P90X energy drink are in production and will soon be ready to ship. We expect the test market rollout to begin in late Q3 or into Q4, and we will continue that rollout throughout the end of the year. I'm very pleased with our packaging and the flavors, and they really distinguish us from the competition. You know, the digital fitness category is a $13 billion market. And the nutritional supplement category is a $164 billion market. That's like a lake versus an ocean. So by leading with nutrition, which is exactly what we've done with P90X and Shakeology this year, acquiring customers more efficiently and a meaningful share of those nutrition customers are actually converting into our digital fitness subscriptions as well.

So that combination, what we call the total solution, is what has always driven this company's best results. And it's exactly what's fueling our direct-to-consumer expansion today. With that, let me turn the call over to Carl.

Thanks, Mark. Coming out of Q1, we outlined a handful of initiatives. We planned to build on the momentum of the P90X Generation Next launch by bringing the P90X supplement line direct-to-consumer and setting it up for retail. We were planning to transition onto the Shopify e-commerce platform, keep expanding our 10-Minute BODi microdose fitness catalog, including promotion to the GLP-1 audience. And we talked about our plans to launch our new 30-Day Booty Boost program with the new Super Trainer. Our focus in Q2 was also to continue shifting the business toward a nutrition-first, multi-channel model, now that we're free of the margin and distribution constraints of the old operating expense structure. Here's where each of those initiatives stand. I'll start with P90X. The Generation Next launch in February was very well received, exactly what we designed it to do. It set us up for the direct-to-consumer launch of the P90X supplement line in April. Promoting the P90X brand as a whole puts us in a strong position to build demand for both the P90X supplement and the brand new P90X ready-to-drink energy beverage.

On the retail front, we're navigating the retailer's planogram reset timing, which governs when new products get on the shelf. So we don't control the growth as much as we'd like, but the interest is definitely real. As Mark outlined, Shakeology is seeing reorders in our test with Sprouts, and we just launched into 481 The Vitamin Shoppe stores. And the P90X and INSANITY energy beverage line will launch at retail in the second half of 2026. Our transition to the Shopify platform, which we completed right at the end of Q1, was achieved efficiently and with no business interruption. And honestly, the most exciting thing to come out of Q2, in my opinion, was the visibility Shopify has given us to areas where we can make dramatic improvements in the sales funnel, such as improving order conversion from existing traffic, improving engagement in the funnel, and reducing visitor bounce rates. Shopify ran a thorough audit for us, and we're aggressively adjusting our landing pages and promotions to conform to best practices. We'll continue to see benefits with faster checkout using Shop Pay, better conversion, and the flexibility to run bundle and subscribe-and-save offers that we simply couldn't do on our old e-commerce platform. We see real opportunity to improve conversion further as we optimize our landing pages and site navigation, and we have new creative and marketing campaigns in development to build on that momentum.

This is our top priority heading into the third quarter, especially as we set up for the prime health and fitness season in Q1 of 2027. Likewise, the shift to Shopify unlocks our ability to improve our HSA/FSA partnership with industry leader TrueMed, which will make it much easier for qualified customers to use their HSA and FSA benefits to save on their purchase of eligible BODi products like Shakeology by using pre-tax dollars. Our 10-Minute BODi initiative has proven to be a genuinely valuable addition to the catalog because it fills a need that a fitness app is uniquely qualified to meet versus gyms. We now have a massive catalog of over 400 microdose workouts between 5 and 10 minutes long for people who are only getting started on their fitness journey or who simply have no more time than that. That very much includes GLP-1 users who the data shows are statistically under-exercising, even though their use of these weight loss medications makes resistance training all the more critical, even if it's just 10 minutes a day. And speaking of GLP-1s, here's something we didn't fully anticipate. Our superfood protein shake, Shakeology, is seeing real demand from that same GLP-1 audience.

So we're leaning into that application in our advertising and on our landing pages. In early June, we launched 30-Day Booty Boost with a terrific new Super Trainer, [ Chase Collette ], and the feedback on both the program and the trainer has been exceptional. It continues to add to what is the most substantial library of health and fitness content in the world. The most important observation from Q2 is this. Our cost to acquire a customer through nutrition products like Shakeology, P90X, and others is substantially lower than the cost of acquiring a customer through fitness program advertising. So to act on that insight, we've inverted our media allocation toward nutrition advertising. That's driving more traffic to the site, and that shift has an added benefit. It increases the visibility of these nutrition products and helps drive our retail presence, at the same time as we expand our direct-to-consumer footprint.

Q3 has been about integration and testing. We're putting the Shopify improvements to work across our e-commerce platform, taking advantage of the flexibility to test promotions and bundling configurations that used to be tedious, if not impossible, on our old technology. The move toward nutrition advertising has been productive, and we expect the benefits of these changes to begin materializing at the end of this quarter and into Q4. We've launched a significant affiliate promotion in August, running in parallel with the launch of an exciting new lifting program from Shaun T called Max Built, a simplified strength program launching in early September. It pairs extremely well with the P90X supplement stack, and it's well-timed to serve the households shifting back into their normal routine as the kids head back to school. And looking forward to the end of the year, we're particularly excited about our November promotions around Black Friday and Cyber Monday, which will be built around a brand new program and pre-workout supplement under the INSANITY brand. We're just wrapping up principal photography on what we're calling INSANITY Unhinged, led by one of the most recognizable faces in hybrid fitness, three-time HYROX World Champion Hunter McIntyre. Shaun T, who originated the INSANITY program, has signed on as executive producer and is really supporting how we're making INSANITY attractive to a broader audience with this iteration. I can tell you this program is going to be outstanding, and it's the perfect launch heading into the end of the year and into Q1 of 2027.

Taken together, what our Q2 results demonstrate is agility. Because we significantly reduced our operating expenses and moved onto Shopify, we can now iterate and operate with far more flexibility to test, to learn, and to reposition the business to return to growth as a multi-channel, nutrition-led company. That's exactly the platform we set out to build, and the team is doing outstanding work to continue making progress with our turnaround. Okay, with that, I'll turn it over to Brad Ramberg, our CFO, to walk you through the Q2 financial details and our guidance. Brad?

Thank you, Carl. And thank you everyone for joining the call today. I will review our second quarter results and provide our outlook for the third quarter of 2026. We continue to make significant progress on our transformation and in driving operating efficiencies. For the quarter, revenue exceeded the midpoint of our guidance, and both net income and adjusted EBITDA exceeded the high end of our guidance. We generated our fourth consecutive quarter of both positive net income and operating income and our 11th consecutive quarter of positive adjusted EBITDA. For the quarter, total revenue was $49.6 million, a decrease of 8.6% sequentially and a decrease of 22.4% year-over-year. Keep in mind, revenues continue to be impacted in the near term by our shifts from a multi-level marketing platform to our current omnichannel model.

Returning to revenue by category, please note the direct year-over-year comparisons I'm about to disclose for digital and nutrition revenue are still skewed by the fact that 2026 numbers reflect the new business model versus the 2025 numbers, which still had a major component of revenue that was driven in part by the legacy MLM. As we move to Q3 of 2026, we will be able to show a direct year-over-year comparison because the remaining legacy revenue associated with the former MLM will have burned off, and those customers who remain from that cohort will become part of the new BODi business model's revenue base. I'll go into more detail regarding Q3 guidance later on the call. With that said, digital revenue decreased 7.2% sequentially to $31.2 million and decreased 21.5% year-over-year. Digital revenues reflect continued pressure on our digital subscriptions, which decreased 6.2% sequentially to 760,000 and decreased 19.1% compared to the same period a year ago. The number of digital subscribers continues to be impacted by churn from our legacy file. However, the number of new subscribers has increased over the prior year period.

Nutrition and other revenue decreased 10.9% sequentially to $18.5 million and decreased 23.7% year-over-year. Nutritional subscriptions increased approximately 16.7% sequentially to approximately 70,000 and were essentially flat to the same period a year ago. As our business evolves into a multi-channel model, generating higher one-time sales and retail sales, the nutrition subscription metric will become a less relevant KPI. Digital gross margin was 87.1%, decreasing approximately 30 basis points sequentially and approximately 60 basis points from the prior year. The digital gross margin was in line with our target. Nutrition and other gross margin was 46.7%, flat sequentially and down approximately 470 basis points versus last year. Nutrition and other gross margin was in line with our target, considering volume expectations and promotional efforts during the quarter. Consolidated Q2 gross margin was 72%, increasing 20 basis points sequentially and declining 30 basis points compared to the prior year.

We're pleased to report the consolidated gross margin is at the high end of our estimated gross margin range of 69% to 72%. Operating expenses for the quarter decreased 5% sequentially and decreased 32.1% year-over-year to $34.1 million. Selling and marketing expense as a percent of revenue decreased approximately 310 basis points sequentially. The decrease compared to the prior quarter was due to seasonally higher media spend in Q1. Selling and marketing expense decreased approximately 840 basis points year-over-year to 31.5%. The significant improvement over prior year stems from eliminating the MLM seller compensation following our December 31, 2024 exit from the multi-level marketing channel. Enterprise technology and development expense was approximately 19.9% of revenue, increasing approximately 260 basis points sequentially, and approximately 330 basis points year-over-year. The increase was primarily due to product development and revenue deleverage.

G&A was 17.3% of revenue, increasing approximately 310 basis points sequentially due to lower capitalized labor and revenue deleverage, and decreasing approximately 80 basis points year-over-year. Operating income for the quarter was $1.7 million compared to $3.1 million in the prior quarter and an operating loss of $4 million in the prior year period, marking our fourth consecutive quarter of positive operating income. Net income for the quarter was $1.4 million compared to $2.3 million in the prior quarter and a net loss of $5.9 million in the prior year period, marking our fourth consecutive quarter of positive net income. Adjusted net income was $0.9 million for the quarter compared to $2.5 million in the prior quarter and an adjusted net loss of $2.8 million in the prior year period. Adjusted EBITDA was $6.7 million compared to $8.0 million sequentially and $4.6 million in the prior year period, marking our 11th consecutive quarter of positive adjusted EBITDA. Our adjusted EBITDA margin was approximately 13.4% in the quarter, our fourth consecutive quarter of double-digit adjusted EBITDA margin. Now turning to the balance sheet.

Our cash balance was $32.4 million compared to $36.6 million in the prior quarter and $39 million at the end of last year. Our net cash position was $8.8 million. As Mark mentioned, we're also pleased to announce that on August 3, we amended our credit agreement to a more flexible covenant structure, which reflects our lenders' continued confidence in the long-term trajectory of our business. For the 6 months ended June 30, 2026, cash used in operating activities was $4.3 million, compared to cash provided by operating activities of $6.6 million in the prior year period. And cash used in investing activities was $1.4 million compared to $2.5 million in the prior year period. Free cash flow was negative $5.7 million compared to $4.1 million generated in the prior year period. The decline in free cash flow in the current year is primarily due to cash use for inventory purchases as we have shifted our focus to nutrition and our retail rollout, and a continued decline in deferred revenue. Now turning to our third quarter guidance.

As we mentioned previously, Q3 will be the first quarter since winding down our legacy MLM model that we're able to compare our new business model year-over-year. We expect third quarter revenues to be in the range of $44 million to $48 million, net income to be in the range of negative $3 million to breakeven, and adjusted EBITDA to be in the range of $3 million to $6 million. For the quarter, we continue to anticipate revenues to approximate 60% digital and 40% nutrition and other. However, we currently expect a shift by the end of 2026 to a larger percentage of our business being in nutrition and the attendant margins that come along with it. For the quarter, our digital gross margin target is expected to be in the range of 86% to 88%. Our nutrition and other gross margin target is forecast to be in the range of 42% to 45%, which is in line with our volume expectations and certain promotional efforts planned. Our total gross margin target is expected to be in the 68% to 71% range. In closing, we continue to make considerable progress against our business transformation.

We strengthened our financial position and lowered our breakeven point, putting us on a solid foundation to execute against our growth initiatives that will drive long-term shareholder value. I look forward to updating you on our progress on our next earnings call. I'll now turn the call back over to Mark for closing remarks.

Thank you, Brad. Thank you, everyone. We will now turn it over to Sarah, who will get people into the Q&A queue so we can go through because I see there's some people waiting there. So Sarah, can you please process those with questions?

Yes, we will now begin the question and answer session. [Operator Instructions] Your first question comes from the line of Susan Anderson with Canaccord Genuity. Your line is open. Please go ahead.

I was wondering about, so it looks like the nutritional segment is starting to see some traction there. I guess I'm curious, is that being driven by, you know, the rollout to say The Vitamin Shoppe, Sprouts, Amazon, etc., seeing that really kind of drive the sales there, or I guess is it related to the increased marketing spend that you spent in the quarter? And then also, what should we expect for marketing going forward?

Hey, Susan. Thanks for the question. No, it's organic. It's not from the retail yet because Sprouts is doing great, but we got the initial order from Sprouts yesterday, put it into KeHE who feeds Sprouts. So while they have reordered and it's doing well, that's really not what's reflected there. The Vitamin Shoppe just started literally this week. So that's a Q3 number, not Q2. So what you're seeing is Q2 organic traction in nutrition, and as a result of the pivot that we announced a couple of months ago, where we're putting more of our money into the nutritional marketing in terms of going forward.

Yes, we expect to see more traction on Amazon. We just launched recently the 7-serve Shakeology. As you know, we used to sell the 30-serve bag on that for like $149. Now we've got a 7-serve that's selling at $34.99, which is a huge difference. And P90X just this week, went up actually just in the last week, went up on Amazon for the first time. So on a go-forward basis, we should see Amazon become a little bit more of a factor. We may look at some other marketplaces. We will have retail rollouts continuing, hopefully get sell-through and replenishment from The Vitamin Shoppe, from Sprouts. And then as we move towards the end of this year, Susan, and into the beginning of '27, we should have a broader distribution footprint for both Shakeology and P90X, and we will also have the SoCal test market results in full swing for the INSANITY Liquid Shock energy drink and the P90X energy drink.

Okay, great. That sounds exciting. And then maybe just one follow-up on the digital side. Maybe if you could just talk about the consumer response, what it's been to the 10-Minute BODi programs that you've rolled out. How are those trending? And then also, I guess, what are you doing around the marketing on the digital front to get new customers into the brand?

Thanks, Susan. We're continuing the playbook that we started with the 10-Minute BODi series as a complement to the overall program subscription, plus its own unique subscription for $10 a month. I would say the most interesting finding there is how it is proving to be applicable for GLP-1 users. So we're really riding in the tailwind of the growth of the GLP-1 segment, as these are people who are generally under-exercising, according to statistics, and our GLP-1 fitness formula, the 10-minute program that we designed for that, plus the overall catalog specifically for the 10-minute beginner program is definitely appealing to that segment. So our advertising that is putting GLP-1 messaging forward is benefiting both the 10-minute series plus our catalog overall from a digital perspective. And I'll add it's also benefiting Shakeology, which is a great nutritional complement to people who are taking a GLP-1. So overall, I would say that the 10-Minute BODi has been successful for us.

Otherwise, as I mentioned, we've got the 30-Day Booty Boost that came out this summer, which got very warm reception, and we have a new program called Max Built coming from Shaun T, which I'm personally excited about because it's a simpler approach to weightlifting resistance training, which aligns very well with the P90X supplement story for people who want to increase their metabolic health, improve bone density, and overall, just improve their metabolism with weightlifting. So we continue to build on that, build the catalog in a way that is both on trend, complements the overall catalog, and expands the catalog with these short-form workouts, microdose fitness workouts, so that we're appealing to the customer who might not be interested in going to the gym. They're not going to do 10-minute workouts at the gym. They're going to do it at home. And that's where we really appeal with this catalog.

Okay, great. That's exciting. I'll go ahead and toss it on. Good luck the rest of the year.

Your next question comes from the line of Michael Kupinski with Noble Capital Markets. Your line is open. Please go ahead.

Mark, I was wondering if you can just provide us some early indications from Shakeology's rollout in Sprouts. I know that you were talking about that you're already getting some reorders. But I was wondering if you had any early indications in terms of sell-through, repeat purchases, or probably more importantly I would think, you know, what the performance is relative to the retailer's expectations, and then maybe what you have learned from the rollout that could influence your much broader rollout.

Great question, Michael. Here's what I can tell you. We were originally, as you know, in 90 Sprouts stores. Then we got expanded, I think to 110. Now I think we're up to 131. So they've continued to expand within Sprouts. I think some of the Sprouts store GMs are seeing what's being posted about what's selling through. One, two, KeHE, our distributor, actually ran low on stock from what we had originally sold into them.

So there was a little bit of a gap and they had to reorder, which of course is a good thing because that means that it's selling through well at Sprouts. So they've expanded our store count. We're 40 stores more now than we were then, which is a 45% increase from the 90 where we were at. And so we're feeling really good about that. And we will start to get specific sell-through data as we move forward. But thus far, they're happy with it, evidenced by the 45% expansion of the stores that we're in. And KeHE obviously is happy because they were running low on goods and had to reorder from us. So all of that's a good thing.

Got you. And I know that the free cash flow was a little negative. I was just wondering if you can talk a little bit about cash usage. I assume it's associated with preparing for retail expansion. Just wondering when we should start to see working capital begin to normalize on that.

Hi, Michael, this is Brad. Yes, you're absolutely right. So the decline in free cash flow was due to two things. One, primarily an increase in inventory as we shifted the strategy to more nutrition and the retail rollouts. We needed to invest a little bit in inventory. And then likewise, as we shifted to inventory, we have a little less deferred revenue. So the decline in free cash flow was due to those two factors.

Got you. And then you've been highlighting a more flexible covenant structure on your new credit agreement. I was just wondering if you could just talk a little bit about the changes and maybe how this might give you the ability to invest in growth or deploy capital. I was just wondering if you could just give some color there.

Yes, I mean, thanks, Michael. The lender and we, we meet all the time. As you know, they're very happy with how we're operating this business. I mean, the fact that we've made almost $80 million over the past 11 quarters in EBITDA has been very impressive to them. So what we did was we renegotiated the covenant package so that the thresholds are even lower than they were, so there's not anything to be concerned about, one. And two, as you remember, we used to have to have $4.6 million above the outstanding debt level in order to not test covenants. That was going to be about $29.6 million. That has now been lowered by almost $7 million to $22.5 million.

So what does that do? It buys us $7-plus million of additional cushion. These are the hurdle rates that they use to measure the covenants. So as long as we keep our cash balance above that $22.5 million level, then the covenants never get tested. And so we have that, we have the $18 million of liquidity against the $25 million outstanding loan. So much better situation, lower metrics in terms of hurdles to hit on billable subscribers, billings. So it's just an overall response from the lender that they recognize the operational excellence that we've had in this turnaround. And they've given us essentially more room to operate with all of these growth initiatives in front of us.

Yes, that's terrific. One last question, just a little bit about your Q3 guide, your revenue of $44 million to $48 million. What are the major variables that would determine whether or not those results land at the high end or the low end of those ranges?

This is Carl. I would say that it's really looking at the market dynamics, meaning we have said for a couple of years that we want to be pursuing revenue that is profitable, right? Not just revenue or billings for billing's sake. So the variables are obviously efficiency, efficiency of media. And also we're looking at the variables of how the sell-through at retail continues to go. So we're balancing those factors, but not being overly optimistic that the marketplace is going to respond to any one particular promotion. We're cautiously optimistic about what we're pursuing right now in the launch of Max Built and the launch of the P90X supplements on Amazon and how those will relate, how the marketing will contribute to all channels performing is sort of the unknown. And ultimately we're going to do it in the most efficient way possible to get the most out of our media spend.

So, Michael, the best thing for you to think about as an analyst would be, if you look at the buckets, so you got a legacy bucket, people who've been here, renew, etc. Then you got the newly acquired DTC customers. Some of them are one-time nutritional purchasers, some of them subscribers. And then you've got these subscribers that you get on the digital side. Then you've got the marketplaces, the principal one being Amazon. Now that you've got these new products on Amazon, if you want to try to get to the high end of that range or better, whatever the case may be, that performance will also be critical. And then lastly, but much less, you have the retail component because as the retail rollouts start to occur, the orders will start to roll in, but you're going to have some free fill and slotting, etc., that occurs.

So the Q3 revenue will not be wholly dependent at all on any one element. And if I had to rank them, I would say it would be, you know, it would be legacy 1, DTC 2, marketplaces 3, retail 4. Now, we have this discussion in Q1, Q2 of 2027, we'll have a different mix. But for right now, that's what we're looking at.

Great. Thanks, Mark, for the color. I appreciate that. That's all I have. Thank you.

Your next question comes from the line of [ Alex Handman ] with Sidoti & Company. Your line is open. Please go ahead.

Maybe just to piggyback on the retail rollout, can we talk about The Vitamin Shoppe? I know it's live at a little under 500 stores. I think that was ahead of the fall timeline you discussed in June. So I was curious what pulled the launch forward and how you think about building towards the full chain.

Yes. Alex, great to hear from you. Listen, they were great. They're very excited about this. I mean, they've really gotten behind it such that we were able to get in those stores, probably 2 to 4 weeks ahead of when we thought. So the folks at The Vitamin Shoppe have been great partners. They're very bullish on the opportunity, as are we. And so, yes, so that's what's going on. We're in 481 of those stores and we just got in there a couple of days ago and we have a whole plan that we're laying out for the next several months on how to try to support The Vitamin Shoppe and our distribution there. But yes, we're looking for really good things.

Great. Thanks, Mark. And I know you touched on the sample sets in the prepared remarks. My understanding, you know, it's November, April, planogram resets. Is there any update on how many decisions might land for the next window?

It's a great question. Carl and I just had a status meeting on that with the team 4 days ago. And there are, I think there are 12 decisions pending between the middle of September and the end of November. Listen, right now, in addition to The Vitamin Shoppe and Sprouts, which combined are about 610 doors, I think altogether we have another 100, 150 doors on top of that. And that's going to continue to roll and gain momentum. Getting in The Vitamin Shoppe and getting P90X and Shakeology are factors on Amazon, and being now in 131 Sprouts will help the other retailers who are looking at and considering Shakeology and P90X. It will definitely help because those are pinnacle retailers that a lot of other retail buyers look to for proof of concept, etc. So that's what you'll start to see probably as we get into the middle of Q4.

Great context. Thank you, Mark.

Your next question comes from the line of Eric Des Lauriers with Craig-Hallum Capital Group. Your line is open. Please go ahead.

My first question here is just on the P90X Amazon launch. I think you said it's just launched recently. I believe you've had Shakeology on Amazon for about a year or two now. How have those learnings from Shakeology sort of informed your P90X strategy on Amazon? And then overall, as Amazon potentially becomes a larger mix of sales, how does that sort of impact your customer acquisition, retention efforts, overall, how should we think about the sort of roadmap for product launches on Amazon and the kind of impact that could have on your model?

Well, the one thing to think about, as you asked about Shakeology performance on Amazon over the last, call it year and a half, is we were basically selling a 30-serve that we normally sell for $129.95. That thing was on Amazon for $149 to $169, which is, to be humorous, it's like you're in charge of sales prevention. That's not what's going on in Amazon. People are buying Amazon products that are between $29 and $69. And so we were on Amazon, but we were being protective of that former business model, the MLM, that we couldn't undercut. We have just now started to seed the multiple SKUs of Shakeology in the 7-serve bag, which is a $34.95 product, which is a completely different pitch to the consumer.

Same thing on P90X. We just got up on Amazon. It was like 4 days ago, but that line is a $15 to $39.95 product line. So between Shakeology and P90X, everything that we're selling other than the big bag, which will still be there, everything is sub-$40. That opens up a whole, because as you know, in most nutrition companies, and I don't know how it will be for us, but most nutrition companies do 25% to 30% of their total revenue on Amazon. These are all of the nutrition companies that you know.

So how it will play out for us, don't know yet, but we were with one arm behind our back before because of our price points and because of the limitations that the MLM had placed on our pricing. Those shackles are now gone. So we got pricing, we got form factor, we've got distribution. So there's a much bigger opportunity there. And in terms of retaining those customers, look, they'll either retain by coming to us for a repurchase or they'll go back to Amazon. Either way, we're happy. What we want to do is get a wider aperture of distribution and therefore get more customers. Whether they buy it from us or they buy it directly on Amazon or they buy it at Sprouts or The Vitamin Shoppe or wherever else, we're happy regardless. And that assumption mix is what went into Brad's guidance that he gave you on nutritional gross margin.

[ Jason Gildea ], that's certainly exciting. We'll be excited to track that progress. You also called out a meaningful share of nutrition customers that are converting to digital subscriptions. I was wondering if you could share any more detail on that and just overall how that might compare to your internal expectations.

I don't think we break that out individually, but we're offering everybody who comes in on a nutrition subscription gets a 30-day trial into the digital subscription. So if they don't cancel, they renew into a monthly subscription and have the opportunity then to update. You can imagine in a world where supplements are growing so quickly, we're definitely seeing the improvement in demand and efficiency on the front end by selling nutritionals. But it's also an additional value add or increases the value proposition by offering a free month of digital subscriptions and access to 225 fitness programs that we've developed over 20 years, that people are getting that additional value with their purchase. So we're pleased with the number of starts that we're getting from the digital subscription being attached to nutritionals. We haven't implemented that out into retail yet, but we do think, as we've mentioned before, that that'll be a part of our strategy of the value equation that we can offer uniquely.

That's great, Carl. I appreciate that. And then just last one from me. You called out a few insights you learned from Shopify in terms of overall optimizing the user experience and minimizing friction. You mentioned aggressively adjusting the website. So I guess we have a little over 3 months until the holiday season. How confident do you feel in being able to get all those adjustments done in time? Just any other color that you want to share on some of those improvements you're making? It would be great. Thank you.

Yes, thank you. This is the thing I'm most excited about because we can easily watch the KPIs as these things improve. Harmonizing the front-end ads with the landing pages is something that is a best practice of Shopify, obviously. And this gives us the ability now to show the actual price that somebody's going to get from a special offer or special promotion, which both improves traffic from the front end, but then can add to cart and ultimate conversion on the backend. So we are rapidly iterating. And in fact, have one of the best companies that works with Shopify clients to make improvements to our landing pages so that we can increase our conversion. We've recently started to consolidate landing pages. So we have multiple URLs that are now coming right into the Shopify platform. So we're getting all this organic traffic coming into a better performing, a better converting website experience that people are familiar with rather than our old e-commerce platform, which was unique to us.

I think as we go into Black Friday, Cyber Monday, we're definitely going to see the benefits of the Shopify platform and that familiarity and the fact that people already have accounts with Shopify that'll inure to the benefit of the promotions that we have going into the holidays in Q1.

Well, you have a lot of exciting things upcoming. Congrats on all the progress, guys. Looking forward to a good selling season.

There are no further questions at this time. I will now turn the call back over to Mark Goldston.

Thank you, Sarah. And thanks everybody for attending. As always, if you have any questions, etc., please reach out to the company. We are going to be presenting tomorrow at the Canaccord Conference here, Canaccord Growth here in Boston. And so we will have a webcast of that. And again, we look forward to keeping you informed on our progress as we talk to you on the next quarter earnings call. So thanks very much. Have a great evening.

This concludes today's conference. Thank you for participating. You may now disconnect.

Good afternoon. Thank you for attending today's Beachbody Company, Inc. First Quarter 2026 Earnings Conference Call. My name is Elizabeth, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, Bruce Williams, Managing Director of ICR. You may proceed, Bruce.

Welcome, everyone, and thank you for joining us for our first quarter earnings call. With me on the call today are Mark Goldston, Executive Chairman of Beachbody Company; Todd Daikeler, Co-Founder and Chief Executive Officer; and Brad Ramberg, Interim Chief Financial Officer. Following the prepared remarks, we'll open the call up for questions.

Before we get started, I would like to remind you of the company's safe harbor language. Statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested by such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, which includes today's press release.

Today's call will include references to non-GAAP financial measures such as adjusted EBITDA, net cash and free cash flow and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website. Now I would like to turn the call over to Mark.

Thanks very much, Bruce, and good afternoon, everyone. Welcome to the Body Q1 2026 Earnings Call. Last quarter, we reported our Q4 and full year '25 results, a transformational year where we achieved positive operating income and adjusted net income for the first time since going public. Today, I'm pleased to report the momentum continued in Q1 of 2026.

Let me start with the numbers and the Q1 '26 financial highlights. Total revenue for Q1 was $54.3 million, which came in above the high end of our guidance. As a reminder, and as we've consistently noted, Q3 2026 will mark the first quarter where we can make direct year-over-year comparisons that fully reflect our new business model as the legacy MLM business will have completely cycled out of both periods. More importantly, we delivered our third consecutive quarter of net income at $2.3 million compared to a net loss of $5.7 million in Q1 of 2025. Operating income was $3.1 million, marking our third consecutive quarter of profitability on this metric. We posted our 10th consecutive quarter of positive adjusted EBITDA at $8 million, up from $3.7 million in the prior year, and gross margin remained strong at 71.8% and within our guidance.

As of March 31, our cash balance was $36.6 million against outstanding debt principal of approximately $25 million, providing financial flexibility to execute our growth strategy. The operational discipline that we've built in over the past 2-plus years is now embedded in how we run the business. We've lowered our EBITDA breakeven from over $900 million in 2022 to approximately $180 million currently, giving us tremendous operating leverage and the ability to invest strategically in growth initiatives without sacrificing profitability.

As we discussed in March, 2026 is the year we're unleashing our innovation pipeline. With our strong balance sheet and substantially improved financial position, we've got the flexibility to fund our retail expansion and the innovation pipeline without compromising the financial discipline that delivered this turnaround. The cornerstone of our growth strategy is a pivot towards a heavier emphasis on nutrition, and that will be executed through an omnichannel strategy spanning direct-to-consumer to retail distribution. This represents entry into a nutrition products category with a market opportunity that is more than 12x the size of the digital fitness category. We're bringing iconic brand names like P90X and Insanity and Shakeology to retail with very high aided brand awareness.

Now we're freed from the MLM commission constraints, and we can price our new nutritional products at dramatically lower price points than we have done in the past. And in the case of Shakeology, we can utilize a much smaller form factor, the 7 serving size, which will give us a $34.95 retail price point versus our previous price point, which was $129 for a 30-serve pack. This represents a significant opportunity for us.

As many of you may know, in my career, I've got a long history in the consumer products or CPG industry from my days at Johnson & Johnson and Bristol-Myers, Clarel, Cheesebrough Ponds, Revlon and as President of Fabberget, which became Fabberget Elizabeth Arden. And I got background at Reebok, L.A. Gear and the huge flower company, FTD. I've been responsible for the creation and/or marketing of billions of dollars worth of some of the most successful consumer products of all time sold through retail distribution. And that's one of our major areas of expansion that I brought to body. The process of submitting samples through our broker sales organization, Advantage Solutions, securing buyer commitments and then waiting for the retailer shelf set planogram to be updated is about a 6- to 12-month process with inflexible adherence dates. We're right now in the midst of that process. And over the next 60 to 90 days, we expect to see which retailers will be adding Shakeology and the P90x line of nutritional supplements.

Look, I'm sure you've seen the recent state of acquisitions in the CPG industry, whether it be Fuel, Grooms, Bloom, Alani, Poppy and a host of other companies that have sold for between $1 billion to $2 billion in the past year with brand names that while we have great respect for, are not nearly as well known as the P90X and even Shakeology brand names. So the potential for creating massive brand equity value for shareholders of body within the nutritional supplement and energy drink industry for body is potentially the single largest mid- to long-term opportunity that we've got at the company.

Speaking of securing retail distribution, last week, we announced that Shakeology will be carried in more than 80 Sprouts Farmers Market stores around the country, starting in late May, early June. And we just secured a partnership with Kahi Distributors, which is one of the 2 largest distributors of natural organic and fresh products to the grocery industry. And this will give us the opportunity to reach the 30,000 grocery, supermarket and online channels that are covered by the KiHi distribution network.

And in late-breaking news, we just announced in a press release yesterday that Shakeology will now be carried by Vitamin Shoppe across its more than 640 stores all over the U.S.A. later this year, with Vitamin Shop taking all 5 of the Shakeology flavor variants in our new 7-serve $34.99 retail price packaging. This exciting news, along with the Sprouts Farmers market news and the Kihi distribution deal will mark the first time that Shakeology, which is a $4 billion cumulative sales brand with more than 1 billion cumulative servings, the first time it will be available in retail stores across the U.S.A.

On the next quarterly earnings call, we hope to have an update on more exciting retail partners for the Shakeology brand and new retailers signed up to carry the P90x line of supplements and the retail stores who will be carrying the Insanity and P90x energy drinks in the Southern California test market will be running later this summer. One of the truly unique and compelling aspects of the new body retail distribution initiative as a consumer product company is that we fundamentally created a virtual consumer products company. So what do I mean by that?

Well, we've outsourced virtually every aspect of our supply chain and distribution infrastructure. Manufacturing is outsourced to best-in-class contract manufacturers. Sales and retail distribution are managed through our outside partner, Advantage Solutions. Fulfillment and logistics of all of the retail orders are handled by a third-party logistics provider or a 3PL, and we're evaluating the use of purchase order financing and accounts receivable factoring to optimize our working capital as it relates to the retail project. What we keep in-house are the core competencies that drive our competitive advantage. Those are marketing, brand management, product innovation and R&D.

So this asset-light model gives us exceptional financial flexibility, minimal capital requirements and importantly, the ability to scale rapidly without proportional increases in fixed costs since this structure moves the majority of those costs to a variable base cost based on usage and demand. So in conclusion, our financial turnaround has created massive operating leverage, giving us the ability to invest strategically in high-return initiatives while maintaining profitability. We're excited about the opportunities ahead, particularly as we move into the second half of 2026 and then beyond.

This year marks the opening of our nutritional innovation pipeline. We are actively in the process of developing new products, securing retail placement and building market acceptance. While we expect to see initial traction in the second half of 2026, the substantial yield from these initiatives will materialize in 2027 and beyond as our retail presence expands and our multichannel strategy fully takes hold. We've built a resilient financial foundation that positions us to capitalize on significant growth opportunities in both nutrition and digital fitness, and we're taking a disciplined, methodical approach to ensure we execute this transition successfully. I'll now turn it over to Carl to discuss our operational progress and product innovation strategy. Carl?

Thanks, Mark. Our Q1 results demonstrate the operational momentum we've been building throughout 2025 and into early 2026. The financial discipline we've established has created an extremely efficient platform with leverage to execute against a compelling innovation pipeline across multiple sales channels. P90x Generation -- next launched in early February to a packed house of media and influencers in New York City, generating millions of impressions in both earned and paid media.

Early response from our subscriber base has been very enthusiastic, and we're now gathering the success stories from the first wave of participants. That's especially important as we launched our branded nutritional line extensions into P90x supplements, which will be sold direct-to-consumer on Amazon, TikTok shops, as Mark mentioned, at retail, including an entire ready-to-drink line of P90x energy drinks. This is a really big deal with very special formulations, which live up to the reputation of the best-selling extreme home fitness program of all time. We've launched a P90x preworkout, P90x hydration, P90x creatine, P90x Recovery protein and P90x fast-acting energy that can be used to fuel longer training sessions or in my case, for a midday boost of energy. Each SKU in the line has something called a P90X factor, a proprietary aspect of the formulation, which makes it fast-acting, potent and effective so you get the performance benefits as promised.

The P90x supplement line launched with our long overdue transition over to the Shopify e-commerce platform, which will make it easier for us to offer special bundle configurations, subscribe and save discounts and improve AOV using Shopify's ad-to-cart recommendation engine. Combine these entire new product lines with the new ease of shopping and thousands of success stories coming in from the first wave of P90x generation next users, -- we expect that to propel momentum of the fitness program and the P90x supplement line in every channel over the next 12 months. Meanwhile, the 10-minute body initiative continues to gain traction. The category of microdose fitness, which we launched under the 10-minute body brand just before Christmas, continues to be a very popular program on the platform.

Since our last call, we've expanded the catalog with three new targeted programs, 10-minute speed train by Joel Freeman, 10-minute active aging led by Debbie Sievers for those 60 and older, who'll recognize Debbie from her recent appearance on ABC's Golden Bachelor. She is also one of the first super trainers to help us launch the company. We also just launched the 10-minute GLP-1 fitness formula, specifically designed to help people on GLP-1 medications to build and preserve muscle mass. The platform now features over 400 science-backed 10-minute workouts. And this high-volume, low-price subscription at $10 a month is successfully opening up our addressable market to the over 185 million Americans who are overweight or obese and may be intimidated by longer workout programs.

Okay. Looking ahead to the summer, we have a new Super Trainer joining us, Chase Collect, with the brand-new 30-day booty Boost program launching in June. This has been one of the most requested additions to the catalog by subscribers and prospects and we'll integrate the P90x supplement line to help people get the maximum gains from the program where it counts using the pre-workout, P90x creatine and P90x protein. And that's exactly how nutrition has been fundamental to our success since we founded the company, helping people get the best results from their effort. And Shakeology, the world's first superfood protein shake, which we launched in 2009, is probably our most significant nutrition innovation in the company's history.

To put that in perspective, during our peak revenue years, fitness programs accounted for roughly 1/3 of total revenue, while nutrition drove about 2/3, largely driven by Shakeology. Now that we're freed from the margin and distribution constraints of the network marketing model, we can offer all our supplements, whether it's Shakeology, P90X or other brands, all at more accessible price points with healthy margins, dramatically expanding our opportunities to grow and scale in multiple sales channels like Amazon, TikTok shops and retail, as Mark outlined. But what makes this nutrition expansion especially compelling is how it transforms our customer engagement and results model.

Our data continues to show that we scale customer acquisition at a lower cost when offering nutrition first and bundling fitness with it as opposed to offering digital fitness first. I believe that's because of the significant size of the nutrition market and the ease of consumption relative to the decision to start a new fitness program. By leading with nutrition in this substantially larger category, we can attract customers through a wider top of the funnel than introduce them to our digital fitness platform through free trial offers. Every customer who enters the ecosystem with a nutrition purchase is offered a free trial to join the Fitness platform, a major value add and a competitive advantage in the massive supplement market.

This nutrition-first approach with fitness second enables us to deliver the total solution, the unique combination of comprehensive lifestyle change that has consistently driven our best customer results over nearly 3 decades. We think this construct could be especially potent for the digital app experience now that we've just launched the ability to add up to 4 additional profiles to membership, meaning anyone who's in a free trial of the digital app can invite up to 4 members of their household to set up their own profile under the same membership at no extra cost. This can help overall conversion as more household use should translate into retention.

And what follows, of course, is more people using the body app in the household means more people who would likely consume our P90x supplements, our preworkouts, shakeology and so on in order to maximize their results. All of these improvements work together to optimize our marketing model that will drive traffic across multiple channels and improve the customer experience at every touch point. And all of this should position us well to build on the momentum of our turnaround. Now I'll turn it over to Brad Ramberg, our CFO, to walk you through the Q1 financial details and our guidance for Q2. Brad?

Thank you, Carl, and thank you, everyone, for joining the call today. I will review our Q1 results and provide our outlook for the second quarter of 2026. We continue to make significant progress on our transformation and on driving operating efficiencies.

For the quarter, we exceeded the high end of our guidance for revenue, net income and adjusted EBITDA. We generated our third consecutive quarter of net income and operating income and our 10th consecutive quarter of positive adjusted EBITDA. For the quarter, total revenues of $54.3 million declined 2.3% sequentially and declined 25% year-over-year, better than expectations as we continue to execute on our strategic transformation. Revenues continue to be impacted in the near term by a shift from a multilevel marketing platform to our current omnichannel model.

Moving to Digital and Nutrition and Other revenues. It's important to reiterate that the year-over-year decline continues to be heavily influenced by remnant revenue from the formal MLM legacy business, which was shut down December 31, 2024. Therefore, there's a component of MLM legacy digital and nutrition revenue that will remain through the first half of this year. As we move to Q3 of 2026, we will be able to show a direct year-over-year comparison because the remaining legacy revenue associated with the former MLM will have burned off and those who remain from that cohort will become part of the body new business model revenue base. To be clear, this is not to suggest that we're projecting year-over-year revenue growth in Q3 of '26. We are not providing guidance for Q3 of 2026 as that will occur on our next earnings release.

Now note, the direct year-over-year comparisons I'm about to disclose for Digital and Nutrition revenue are still skewed by the fact that the 2026 numbers reflect the new business model versus the 2025 numbers, which still had a major component of revenue that was part of the legacy MLM. Digital revenue decreased 2.1% sequentially to $33.6 million and 21.8% year-over-year. Digital revenues reflect continued pressure on our digital subscriptions, which decreased 6.9% quarter-over-quarter to approximately $810,000 and declined 20.6% compared to the same period a year ago. Nutrition and other revenue decreased 2.5% from the prior quarter to $20.7 million and decreased 27.7% year-over-year. Nutrition subscriptions decreased 25% sequentially to approximately 60,000 and fell 18.5% year-over-year.

As our business evolves into an omnichannel model, generating higher onetime sales and retail sales, the subscription metric will be a less relevant KPI. Digital gross margin was 87.4%, increasing 10 basis points sequentially and up 190 basis points from prior year. Our digital gross margin was in line with our target. The continued strength in year-over-year gross margin was primarily due to a decrease in digital content amortization and depreciation due to more disciplined production and fixed asset spending. Nutrition and other gross margin was 46.7%, decreasing 700 basis points sequentially and down 640 basis points versus last year. Nutrition and Other gross margin was in line with our target.

As a reminder, Q4 2025 Nutrition gross margin of 53.7% included certain onetime benefits. Exclusive of those benefits, Nutrition and Other gross margins declined 390 basis points sequentially. The decrease in Nutrition and Other gross margin was primarily due to inventory adjustments in the current quarter. Consolidated Q1 gross margins were 71.8%, reflecting a decrease of 270 basis points sequentially, but an increase of 60 basis points compared with the prior year.

We're pleased to report that consolidated gross margin remained within our target gross margin range. Operating expenses for the quarter increased 8.2% sequentially and declined 35% year-over-year to $35.9 million. Selling and marketing expense as a percent of revenue increased 230 basis points over the prior quarter. The increase from the prior quarter was due to planned higher advertising spend and new product launch expense. Selling and marketing expense declined 820 basis points year-over-year to 34.6%. The significant improvement over prior year stems from eliminating MLM seller compensation following our December 31, 2024 exit from the multilevel marketing channel. Enterprise technology and development expense was 17.3% of revenue, up 160 basis points sequentially and declined 10 basis points year-over-year.

As a reminder, Q4 2025's enterprise technology and development expense of 15.7% included certain onetime benefits. Excluding these benefits, enterprise technology and development expense increased 40 basis points sequentially. G&A was 14.2% of revenue, increasing 240 basis points sequentially. As a reminder, Q4 2025 G&A expense of 11.8% included certain onetime benefits. Excluding these benefits, G&A expense increased 70 basis points sequentially. G&A declined 190 basis points from the prior year due to a decrease in personnel-related expenses and professional fees.

Operating income for the quarter was $3.1 million compared to a loss of $3.7 million in the prior year, marking our third consecutive quarter of operating income. Net income for the quarter was $2.3 million compared to a net loss of $5.7 million in the prior year, marking our third consecutive quarter of net income. Adjusted net income was $2.5 million for the quarter versus a $5.1 million adjusted net loss in the prior year. Adjusted EBITDA was $8.0 million compared to $12.9 million sequentially and $3.7 million in the prior year, marking our 10th consecutive quarter of positive adjusted EBITDA.

Now turning to the balance sheet. Our cash balance was $36.6 million compared to $39.0 million in the prior quarter and $18.1 million last year. Our net cash position was $13.0 million. Cash used in operations for the quarter was $1.0 million compared to cash generated from operations of $2.3 million in the prior year. Free cash flow was negative $1.7 million compared to positive $1.6 million in the prior year.

Now turning to our second quarter guidance. While we're pleased with the execution of our transformation, I want to reiterate that this guidance should not be compared to Q2 of 2025 because Q2 of 2025 still had revenue recognized from the legacy MLM model. We continue to drive operating leverage, and we're excited about the opportunities ahead. We have a stronger balance sheet, a sustainable and viable long-term business model that allows us to grow without the structural impediment of the previous MLM model. However, we're still in the early stages of the new distribution model, and it will take time to develop traction in these new lines of business.

As a reminder, the tail of our legacy business is winding down, and we expect that the first time we'll be able to do a year-over-year comparison of our new business model will be comparing Q3 of '26 to Q3 of '25. We expect second quarter revenues to be in the range of $46 million to $51 million, net income to be in the range of negative $3 million to breakeven and adjusted EBITDA to be in the range of $3 million to $6 million.

For the quarter, we anticipate revenues to approximate 60% digital and 40% Nutrition and Other. However, in line with the strategies we articulated on this call, we currently expect a shift by the end of 2026 to a larger percentage of our business being in Nutrition and the attendant margins that come along with it. For the quarter, our digital gross margin target is expected to be in the range of 86% to 88%. Our Nutrition and Other gross margin target is forecasted to be in the 43% to 47% range, which is in line with our volume expectations and certain promotional efforts planned. Our total gross margin target is expected to be in the 69% to 72% range.

In closing, we continue to make considerable progress against our business transformation. We significantly lowered our breakeven point and strengthened our financial position, putting us on a solid financial foundation to execute against our growth initiatives that will drive long-term shareholder value. I look forward to updating you on our progress on our next earnings call.

[Operator Instructions] Your first question comes from the line of Susan Anderson with Canaccord Genuity.

Nice job on the quarter. I was wondering maybe if you could give some more color on the new P90X launch and then the 10-minute body programs. It sounds like they're doing well, particularly the 10-minute body. I guess is there any way to quantify what percent utilizing the program are new subscribers versus existing subscribers? Thanks, Susan. You can hear me okay?

Yes. Okay. Great. So I just wanted to make sure. So we don't break them out like that, but I will say that as we've pivoted to the nutrition where we're advertising nutrition, I will say that the P90x supplements are attracting both new traffic, but also doing a really good job of activating new customers from the large database that we've got. So it's a reactivation play that's actually we're pleasantly surprised by how it's working within the database. 10-minute body is where we're seeing more of a new subscriber acquisition volume happen because of that high-volume, low-price opportunity where we're advertising 10-day free trial and a $10 per month subscription, but seeing a nice proportion of those people coming in for the 10-day free trial $10 level up to the $19 a month full subscription. So that's the way we're looking at those two particular aspects of the content.

But like I said, P90x is in its very early days. We're just collecting all the success stories from the first wave, and that's what's going to propel the next 12 to 18 months of traffic and excitement about that particular program. And then we layer on top of it with some new programs like the 30-day booty Boost that will come out this summer. But again, all of it is secondary to the strength of customer acquisition that we're seeing from advertising nutrition first, digital second.

Great. That sounds really positive. And then maybe if you could give us an update on the Shopify transition. I think that happened late March. Any changes there? Any color on how that transition went?

Yes. Well, that is probably my favorite thing to talk about. I'll try not to monopolize this, but we are definitely seeing across the board that was a very good decision. What we're even more encouraged by is how we're improving conversion of the current rate of traffic based on the ease of use of both the Shopify platform and now adding the Shop Pay option so that people who already have their information with one click of the purple button have an easier time to check out. But I think maybe what's most encouraging to me, there's 2 things. One, -- we're seeing that from a competitive standpoint, our website is actually converting better than some competitors that we're appropriately compared to. And -- but there's also some low fruit on the tree for us to make improvements in our conversion and our landing pages and site navigation so we can even make more efficient use of the traffic that we're already generating.

So again, we've got two levers here to work with. One is nutrition is generating traffic at a much more efficient cost of acquisition and the ease of use of the Shopify platform is converting more of those customers, and we see low fruit on the tree to improve on that traffic already. So overall, it's been a very good transition for us despite being at the end of the quarter and a lot of stuff going on, very pleased with the effort that the team put into that.

Okay. Great. And then maybe if I could just add one more. I guess, just trying to get a sense of what the top line will look like once we cycle the MLM departure. So I guess when you look at the top line right now, it seems like kind of the quarters are about $50 million run rate. I guess do you have any insight into if you think there's still a lot of legacy MLM subscribers left to cancel or kind of what that run rate will look like once we're done with that?

Most of that's going to be clean by Q3. That's why we say Q3, Susan, this is Mark is going to be the first sort of year-on-year clean quarter read. So we're just getting to the remnants of it right now through the end of Q2. And then when we get to Q3, that should be a rather de minimis amount and it will be a pure read of Q3 '26 versus Q3 '25.

Your next question comes from the line of Eric Des Lauriers with Craig-Hallum Capital Group.

Congrats on the continued impressive progress here. So my first question is a bit of a follow-on to the last question. So sequential revenue declines here. They've improved now to less than 3%. And then average revenue per digital subscriber increased sequentially for the first time in nearly 2 years. Average revenue per nutrition subscriber also up sequentially. Can you talk about just kind of trying to parse that out, the impact of any recent price increases on that sort of average revenue per nutrition subscriber and I guess, digital as well? And then just whether we should take that -- the sequential increases as signs of the MLM headwinds easing or if there's other sort of pricing or customer dynamics to sort of be aware of here. Just wondering how you expect that average revenue per subscriber number to progress and if that's a sign of MLM headwinds easing?

Yes. Eric, those are great questions. So essentially, it's not really because of the headwinds easing. We really didn't have pricing increases to speak of. As we talked about in the last call, we started a pivot, and we're pushing nutrition more than we did before. We were using the digital fitness sort of as the lead before and then we would convert people to nutrition. But realize that digital fitness is a $13 billion category and nutrition is $164 billion. It was kind of like the tail was wagging the dog. So since we changed our pivot, one, our CACs are lower, even though we don't publicly disclose the actual CAC, our CACs are lower and the conversion rates are great. And there's a very high percentage of people who take nutritional supplements in general, as you know, who exercise.

And so we're seeing organic improvement in that nutrition business. And part of it is up until about 9 months ago, 10 months ago, we never even advertised it. I mean, by and large, it was only done by the MLM where they sold it direct or they sold it as an add-on. So we're making the public, which previously have not seen these products aware of them, and the results have been quite effective. And so that's a big reason why we made the pivot. -- and why we feel so emboldened by the results that we're seeing. So not saying it's going to be on a high glide path because we don't know that. We're not projecting that. But we do see as our future goes because this company in its past had 66% of its revenue in nutrition that the opportunity for us to significantly grow that part of our business is real, and we're going after it.

Yes, certainly a very attractive growth opportunity and outlook here. I guess just one more on that. So should I understand the increase in sort of average revenue per subscriber as lowered customer acquisition costs as you were kind of just touching on or lower contra revenue items? Or is there some other sort of just organic growth aspect that's helping drive that average revenue per subscriber number up?

I think --... Eric, this is Brad. In terms of nutrition in particular, we are having more onetime sales, especially now that we're advertising it. So as I mentioned in my sort of prepared remarks, I think the nutrition sub number isn't necessarily the best metric to use going forward. And over the time, we'll come up with a better sense of guidance, but there is certainly more onetime sales in addition to the nutrition orders that are sold via subscription.

Yes. And remember, a lot of people don't just buy a single product. So if they buy a bundle or buy a stack as the case may be, that obviously helps to build AOV.

Yes, absolutely. That's helpful. I was wondering if you could expand on the impact of KaHi distribution. I mean does this simply sort of gets you a seat at the table with grocers? Or is KaHi itself doing any marketing on behalf of Beachbody? If you could just expand on what you expect with that partnership, that would be great.

Great question. As you know, KaHi is a huge company, one of the 2 dominant distributors in the food industry. They've got, as I understand, over 30,000 individual grocers who are in their network. So the way it works is, for example, we're selling Sprouts. Sprouts is part of the Kahi network. And so when you get Sprouts, you get added to Kahi're in their system. And KaHis ownes organization. which goes out to these 30,000 retailers as well. So separate from our broker organization that we've hired at Advantage, they have their own internal organization. So they can now make their client companies, the 30,000 grocers aware of the fact that they now carry our product and it is available for purchase. So we intend to work closely with Kahi to help indocinate their sales organization so that they can do effective communications out to their grocer member network so that they can potentially buy our Shakeology product. And this is for Shakeology.

Your next question comes from the line of George Kelly with ROTH Capital Partners.

First one is on the Southern California test. Can you just update us on the status of that test and what you've learned? I'm not sure what the distribution looks like? Or just any kind of update on that test would be great.

We literally just got off a call an hour ago on this. So we have hired the best beverage distributors -- beverage company to help us distribute in country, which is L.A. Libations out of Los Angeles. They are just top drawer. In fact, they just ran their beverage forum 2 weeks ago was massively attended. So they are representing us in the Southern California market to go out to distribution. Remembering that we are, George, off the planogram cycle right now. So most of these retailers are -- already have their store shelves set. So they're going to be going out with what they would call an interruptive sale, which is you're going in off cycle to show two very compelling products. So Insanity, which is going to be called Insanity liquid shock, that's what we're calling it. And then we've got our P90X product. And so that product is in the process of going through final stages for production.

We will have production quantities available in July and then they're ready to ship. So we anticipate probably being on shelf in Southern California stores that the LAI B sales organization will be selling over the next, call it, 6 to 8 weeks, probably be on shelf at some point in August, which is exactly when we thought we would be. So we are tracking. It's on schedule, and the plan would be put it in the test market, read the results. And then a lot of retailers have their meetings in October and November for their spring '27 planogram resets. So the planogram resets for most retailers is in March of 2027. And the presentations to get into those planograms, this is for national will be in October and November. So the goal is get on shelf end of the summer, get some great reads, hopefully, of P90X and Insanity energy drinks in the Southern California market and then use that as a proxy to go into those October and November national meetings to secure distribution that will then occur in the spring of 2027.

Okay. Okay. That's great. And then a follow-up to that. As you build both the business, you were just talking about the P90X and Insanity stuff as well as the Shakeology at retail. How should we think about gross margin? Is it going to be a material kind of impact as those revenue lines grow? And just any kind of context there would be helpful.

I think the best way to think about it, and Brad, feel free to jump in here is those margins in Nutrition, as wholesale becomes a bigger and bigger part of the business, which knock wood it will, will probably be in and around the mid-40s. And so for Nutrition. So that's the best way to think about that. And so on a weighted average basis versus where we were, which is 48% to 50%, it won't be a huge difference. And the way we look at it, George, is while that will be the margin component, as we move into 2027, we're looking at the material gross profit dollars themselves. because this should become a volume business at some point where we're just looking at actual gross profit. So we know going in that a wholesale business in Nutrition will be in the 40-plus range of margin. And so the question will become what percentage of our overall company is that? And then where do your weighted average gross margins go. But at this point, we really can't project that yet because we're in such early days.

Yes. Understood. And then last question for you. I know it's less a focus, but the digital fitness side of your business, how sort of content spend and new programming and like how much are you scaling all of that back and marketing around your digital fitness business, like how quickly should we think about the shift in focus like starting to sort of play through the numbers?

Yes, I really wouldn't state how much it's Yes. I wouldn't look at it that way, George. What we're really seeing, like it's still a very critical and frankly, a competitive advantage that we have with the size of the library, the scope of the over 160 programs in the library. And frankly, we have kept the capital allocation to new content the same for about the last 2.5, 3 years. So that's consistent. What we've found though is we are acquiring customers into both the digital subscription and the nutritional products at a more efficient rate by leading with the nutritional.

So if you think about it just from a consumer standpoint, they're thinking about a healthy lifestyle change, they see Shakeology or they see the new P90x supplements being advertised D2C and they go, "Oh, you know what, I'd like to make a lifestyle change. They come in and then see the digital subscription offerings available to them, and we are still converting people into digital. So plus when they buy, for instance, a shakeology, let's say, they buy a bag of Shakeology and that's about $120, they might get a little discount on that if they're a first-time customer. We will offer them a free 30-day trial into the digital subscription that rolls over into whether either a monthly or an annual subscription.

So it is still what we call the total solution, which is what has driven the company to growth since we started it. So digital fitness is still fundamental. We're still investing in it. And it's still, I think, an important competitive advantage that we've got in all these sales channels where we're leading with nutrition. George what value that we get to add to the purchase.

Let me add something on to what Carl just said and think about it like this because this is really a very clever move that we're making here. with the digital fitness market being $13 billion, just imagine you're fishing in a lake. The nutritional category at $164 billion is literally an ocean. And what we're finding is that it's a much more efficient catchment mechanism to go into that larger nutritional market because 60-plus percent of the people take nutritional supplement exercise. So we're now taking a focusing, we're going to get you out there with the advertising on nutrition.

And when you come to the body website and you see that we are the premier player in the world in digital fitness, we're getting a lot of upselling occurring. So people not only buying the supplements, but buying the digital fitness. So what does that do? That brings your CAC down. So you're getting much more efficient CAC because you're promoting nutrition and you're getting the add-on of digital fitness or they're going right to digital fitness and they just were attracted by the advertising and nutrition. So what we're finding is that with the same level of dollar spend, we're actually getting a preferential customer acquisition cost, which gives us a better yield and lifetime value. Does that make sense?

It does. Yes, it does.

Your next question comes from the line of Alex Hantman with Sidoti & Co.

My first question, just following up on the retail launch. I know you spoke about Vitamin Shoppe coming into play later this year. Could you talk a little bit about how many stores might be used at launch? And if there's any metrics that you might be looking to hit for the rollout to be expanded?

So luckily, they were very impressed with the product line. So it's going to -- I think it's going chain-wide to over 600 Vitamin Shoppe stores out of the gate. So it's not a limited role, see how it does and then roll it out. We are going chain-wide nationwide with Vitamin Shoppe at present. So it should be in stores probably sometime maybe late August into early September. That's the plan. So yes, they're a great partner, and they're excited about it, and so are we.

That's great. Congrats Mark. Is Sprouts also starting at the full rollout?

No. Sprouts, I think we're going to be at 90 stores, and that was basically laid out by them and us as the best places for us to be out of the gate. And assuming we have great success there, I assume there will be more stores obviously added after that. But we have a great component of stores that we're going in and enough to really do a meaningful business. And they are, again, a fantastic partner to be in incredibly well respected, not only by the consumer, but by their brethen in the grocery business.

And then just yes, a couple more from us. I know you've spoken about nutrition being a much more efficient catchment and providing a lot of cross-selling opportunities. I know you mentioned that the retail products will come with complementary digital access. Do you have conversion rate assumptions? Basically, how are you thinking about the cross-selling success of that channel after launch, measuring that?

Well, we'll have -- we don't really know because we're still waiting on -- we have like 30, 40 sets of samples that are sitting in retail buyers' offices waiting to get responses from them as to who will be adding the product line. So hard to make any kind of an estimate while we're not really sure where that distribution is going. So I said in my prepared remarks, hopefully, on the next call, we'll have an update as to who's carrying these products, where and what kind of doors we'll have. But there's really no way to know that out of the gate. I mean, we can make an educated guess, but you don't really know that. And so we're going to have to see how it plays out, but it's a tremendously effective tool. And so it just depends on how many doors promote our product, whether we get end cap displays are just in line and whether there will be in-store signage that touts the fact that when you buy the product, you're getting a month of free access to body. So -- but that will all start to materialize as we get the distribution nailed down.

[Operator Instructions] Your next question comes from the line of Michael Kupinski with NOBLE Capital Markets. [Technical Difficulty] Well, that concludes our Q&A session for today. I'll now turn the call back to Mark Goldston for closing remarks.

Thanks very much, Elizabeth. Really appreciate everybody attending today. We're really proud of the quarter that we just put up, and we're really excited about what the future holds for the company as we've articulated. So as always, if you have any questions, please feel free to reach out to the company, either through ICR or directly to Brad Ramberg, our CFO. So thanks, everyone. Have a great evening.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day. You may now disconnect.

Good afternoon. Thank you for attending today's The Beachbody Company, Inc. Fourth Quarter 2025 Earnings Conference Call. My name is Tamia, and I will be your moderator for today's call. [Operator Instructions]

I would now like to pass the conference over to your host, Bruce Williams, Managing Director of ICR. You may proceed, Bruce.

Welcome, everyone, and thank you for joining us for our fourth quarter earnings call. With me on the call today are Mark Goldston, Executive Chairman of Beachbody Company. Carl Daikeler, Co-Founder and Chief Executive Officer; and Brad Ramberg, Interim Chief Financial Officer. Following the prepared remarks, we'll open the call up for questions.

Before we get started, I would like to remind you of the company's safe harbor language. Statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act 1995. Actual future results may differ materially from those suggested by such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, which includes today's press release.

Today's call will include references to non-GAAP financial measures, such as adjusted EBITDA, net cash and free cash flow, and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website.

Now I would like to turn the call over to Mark.

Thanks very much, Bruce, and good afternoon, everyone, and welcome to the BODi Q4, 2025 Earnings Call. 2025 was an important transitional year for BODi as we started on January 1, 2025, as a brand-new company, which has extinguished our former multilevel marketing business model in favor of a 5-pronged omni-channel model featuring direct-to-consumer, Amazon and marketplaces, retail distribution for the first time ever later this year, and a single-level affiliate program, and a totally revamped customer win-back program for our former customers, which count more than $8 million, and that covers former digital fitness and nutritional customers.

As a result of the dramatic shift in our business model, year-over-year comparisons are not really relevant from a revenue perspective because we're no longer utilizing the tens of thousands of former MLM sellers in the 2025 and beyond business model. In fact, we continually expressed over the last 12 months, as you know, that the first time investors can actually make a direct year-over-year quarterly revenue comparison with clean results, reflecting the new business model in both years will be the Q3, 2026 earnings release.

As a result of our outstanding financial performance in 2025, in early January 2026, we were able to secure some substantial improvements to certain financial covenants with our lenders, Tiger Finance and SG Capital. In the new agreement, as long as BODi maintains a cash balance of more than $4.6 million above the outstanding debt level, there will be no testing of the key covenants by our lenders. These covenants will only be tested if our cash balance dips below the $4.6 million cushion above the outstanding debt level. I'm very pleased to report that as of December 31, 2025, our cash balance was $39 million, against an outstanding debt level of only $25 million, giving us a $14 million cash cushion versus the $4.6 million cash cushion we are required to maintain in order to not have the covenants tested.

As we indicated on the Q3 2025 earnings call, we're extremely pleased with the dramatic turnaround of our financial performance in the 2.5 years since I joined as Executive Chairman to conduct a major turnaround of BODi. Our financial turnaround, which we previously defined as achieving quarterly, and then full year, positive operating income and net income is 1 year ahead of the original articulated goal of achieving the milestone by December 31, 2026. In fact, we achieved positive net income in Q3, 2025. And today, we're reporting that we reached positive net income in Q4 of 2025, and we've achieved positive adjusted net income for the full year 2025. We also achieved positive operating income in both Q4 and for the full year of 2025. This marks the first time since 2021 that we had both positive operating income and adjusted net income for the full year.

To put this impressive milestone achievement in perspective, we had the second consecutive quarter of operating income in Q4, 2025 at $8.2 million for the quarter, which was a $41.1 million improvement in operating income versus the same quarter, which was Q4 of 2024, when we recorded an operating loss of $32.9 million. From a net income perspective, we recorded positive net income for the second quarter in a row in Q4 of 2025 of $5.2 million, which was $39.8 million better than the $34.6 million net loss in Q4 of 2024.

In addition, we've continued to demonstrate our financial discipline since I joined 10 quarters ago in June of 2023, by posting our 9th consecutive quarter of positive adjusted EBITDA in Q4, 2025 at $12.9 million, which was a 48% increase over the $8.7 million in Q4 of 2024. As we've stated on previous earnings calls, because of the accelerated pace of the BODi financial turnaround, and the fact that we're a full year ahead of schedule, we've designated 2026 as the year when we unleash the first elements of our fertile innovation pipeline.

The innovations kicked off in December 2025, with the launch of a revolutionary concept designed to address the 185 million American adults who are overweight and/or had issues with blood pressure, cholesterol, blood sugar, sleep apnea, and, frankly, don't have the time, the knowledge, or even the inclination to participate in a full-fledged 45- to 90-minute exercise program. This innovative program called the [ 10-minute BODi ] is a 400 video program covering a whole range of exercises and body part movements, and it's fun easy, effective and can all be accomplished in just 10 minutes a day, and for just $10 a month.

Next, we launched the P90X Generation Next program last month, marking the first time in 15 years where we've [indiscernible] a new version of the Legendary P90x program, the #1 selling extreme fitness program of all-time with many millions of users. Carl is going to speak more about the digital fitness innovations for 2026 in a minute.

One of the major themes of our innovation pipeline and revised focus within our business, is the development of the nutritional side of the business. The nutritional supplement category globally is $164 billion. That's more than 12x the size of the global digital fitness category, and was always a critical element of The Beachbody Company revenue base, often exceeding the digital fitness revenue by 2:1 in the most successful years of the company. We're going to enter the retail market of grocery, drug stores, mass merchants and club stores for the first time ever in Q2 of this year with our new P90x line in nutritional supplements, a new 7 serve 3499 form factor of our Shakeology brand which, by the way, has sold $3.4 billion cumulatively, and had over 1 billion servings as a third serve $129 product, and this product, Shakeology, has never been sold at retail.

We will also have a Southern California test market in late Q2 early Q3, featuring uniquely formulated energy drinks [indiscernible] the P90X and Insanity label. We will then have Insanity nutritional sublet line coming out in late Q3, early Q4. We're developing a ready-to-drink Shakeology superfood protein drink in Q3 and Q4. It requires no mixing, and we'll have innovative new protein bars from P90X and Shakeology as well hopefully in Q4 of 2026.

We're also considering a complete revamp of the existing line of Beachbody supplement products, putting them under the new BODi brand name and in new packaging in late '26 or early '27. So the pipeline is fertile. It's full. There's a lot of new nutritional elements in there, and we're really excited about it. But importantly, now that we no longer have the constraints of the incredibly high 40% to 50% sales commission structure of the former MLM model, we can now price our nutritional products at very orderable price points that are dramatically lower than our previous nutritional products were priced at. With brand names like P90X, Insanity and Shakeology, we will walk in the door of retail with very high aided brand awareness levels, given that millions of people have been exposed to, or have been part of those brands previously.

We now have the ability to price our products at much lower price points, which represents a huge opportunity not only at retail, but in our [indiscernible] at [ body.com ]. Our intention is to introduce P90X supplements and new 7 serve 3499 Shakeology form factor in April 2026 on our new Shopify website, and the retail roll-up of these products in brick-and-mortar will follow beginning in May of 2026 with some exciting news when Shakeology will debut Sprouts supermarkets in the [indiscernible] bag. There will be many other retail accounts who will carry the Shakeology and the P90X settlement line as well. And our retail selling partner, Advantage Solutions is in the process of presenting those lines and securing confirmation and orders over the next 4 to 8 weeks.

With the impressive financial turnaround in BODi, highlights of which include recording positive operating income for the full year of 2025, positive adjusted net income for the full year of 2025, 9 consecutive quarters of positive adjusted EBITDA, and a cash balance of $39 million at December 31, 2025, which is 56% above our outstanding debt level of $25 million of Tiger Finance, a 44% reduction in interest charges versus our previous [indiscernible] debt, massive operating leverage being built into the P&L as a result of the lowering of the EBITDA breakeven level from over $900 million prior to my arrival, down to a $180 million breakeven level today. And lastly, achieving the financial aspect of the turnaround a year ahead of our original schedule.

Combined with the 2026 debut of the new products and programs within our impressive innovation pipeline, BODi is poised to complete the total turnaround of the company by the end of 2026, a full year ahead of schedule. We're looking forward to the second half of '26, when the first clean year-over-year top line comparisons can be made as the legacy business model elements from the MLM will have burned off by then, and we can clearly describe how the new products and programs that we're introducing throughout 2026 are doing, and whether or not they're contributing to our #1 goal of returning to year-over-year top line revenue growth to match the impressive year-over-year financial turnaround performance.

With that, I'd now like to turn the mic over to our Co-Founder and CEO, Carl Daikeler. Carl?

Thanks, Mark, and thank you all for joining us today. Our Q4 results, which Mark introduced and Brad will detail shortly, demonstrate the operational momentum we've been building throughout 2025. The progress we've made with the financial turnaround has created an extremely efficient business, which is now in such a good position to accelerate into this exciting pipeline of new offers that we can maximize in multiple sales channels.

As we said in our last earnings call, the end of year offers we launched going into Black Friday and Cyber Monday, and the holidays, and then into the first quarter of '26, were well stacked to maximize the new model. We saw productive demand for the new Shaun T lifting program called DIG IN bundled with the special holiday and New Year subscription offer. We also launched our high-volume, low-price tier of over 400 microdose fitness workouts that are 10 minutes or less, to serve the over 185 million people in the U.S., or overweight, or obese, or just don't have time or the inclination to do longer workout sessions, or who are intimidated by the gym. That tier, which we call 10-minute BODi is driven by a free 10-day trial in a very compelling $10 a month price point. The 10-minute body launch has shown instant popularity of microdose fitness programming with about 8% of our viewership already using these shorter formats in the last couple of months.

Looking ahead, our restructured performance marketing and creative teams are prepared to support our most exciting launch from our innovation pipeline, P90X Generation Next. After this last year of restructuring in 2025, we now have the people, the agencies, the strategies in place to maximize this launch, and the rest of our plans for the year. In fact, we launched the new P90X program in early February to a packed house of media and influencers in New York City, which will carry that launch momentum in the second quarter as we debut the P90X brand and supplement line, both direct-to-consumer and at retail.

Here's what's most meaningful about this supplement launch. Our supplement strategy represents a significant business model shift. What many people never realized about the company is that, historically, in our peak year of $1.2 billion in annual revenue, Fitness accounted for only 34% of that revenue or about $400 million, while other revenue driven primarily by supplement accounted for $783 million. And our MLM model at that time required a network compensation structure that limited margin and pricing flexibility to really scale.

Now without that obstacle, we'll soon offer our highly effective supplements under the P90X and Shakeology brands at $15 to $35 price points with healthy margins. That's unprecedented for us. And significantly changes our economics and potential to really scale into the mass market. And this shift in affordability fits well into our proven model of what we call the total solution that people need for healthy lifestyle change, which includes both fitness and nutrition. This approach to the toll solution is one of the reasons our customers have always gotten such amazing healthy resulted [indiscernible]. We've definitely seen that our best years were driven by this combination of effective supplements and fitness.

But our data and analytics team has recently seen a growing trend where cost of customer acquisition offering digital fitness first has steadily increased, while customer acquisition cost when offering nutrition first has actually decreased. It makes sense, too, because the nutrition supplement business has swelled to over 12x the market size of digital fitness. So we're taking all those observations, built on the foundation of the power of the total solution of bundled fitness and nutrition, and now starting to leverage 3 of our most famous and successful brand names into this proven premise, starting with this combination of the new P90X Generation Next program, and the new line of P90X supplements and beverages.

The P90X brand already has an incredible 62% aided awareness score in consumer surveys, which gives us a massive competitive advantage in launching this nutrition line in all our sales channels, especially retail. Likewise, we'll be advertising Shakeology direct to consumers, which as we've mentioned in prior calls and as Mark said, Shakeology has already sold over 1 billion servings without ever being offered at retail. So the enthusiasm from major retailers for our second quarter Shakeology launch is confirming that this product is ready to scale past its legacy in the MLM. And in late Q2, or early Q3, 2026, we'll be launching an [indiscernible] energy beverage line under the Insanity brand, targeting a younger, more male-oriented demographic. And we'll also be launching a science-backed performance energy beverage line to serve a broader male and female target customer under the P90X brand, both in the Southern California market test.

Our goal is to read the performance of those new products in the test market, make any necessary modifications and be ready for a national rollout of the Insanity and P90X energy drinks in 2027. In terms of marketing support, this is where it gets really interesting. Our D2C marketing model, which we refined over nearly 30 years, is designed to be self-liquidating, meaning the advertising basically pays for itself through sales generated. So now that marketing spend for our nutritional lines will not only drive profitable direct sales, it will also drive traffic across retail, Amazon, affiliate channels and through our customer database, which is already showing very promising signs of productivity with new supplement offerings.

And every one of those customers who enter the ecosystem with a nutrition purchase we'll get a free trial offer to join the Fitness platform, which is a major value add and a competitive advantage in the supplement space. So this rising tide of supplement promotion with the value-add of digital fitness will give us efficiencies that will float all ships in all channels. Again, the power of the total solution, which has driven customer results for almost 30 years is alive and well. We're just attenuating that relationship of nutrition and fitness to take advantage of current tailwinds.

And as I mentioned last quarter, all of this will be supported by our transition to the Shopify e-commerce platform and its ease of checkout and high conversion metrics to maximize all this traffic starting in late March. So we're in a very strong position with the agility of a start-up, thanks to our new operating efficiencies, combined with our portfolio of proven well-known brands and a customer database that took decades to build, all running on an incredibly efficient structure. With 9 quarters of positive EBITDA and our second consecutive quarter of positive net income since we went public in 2021, it's clear. This turnaround now has some stability. As we execute our first full year with this completely new business model, the team is invigorated and hustling to maximize our momentum, responsibly deploying capital in the first half of 2026 and gradually ramping up into 2027.

Okay. So let's get the details on Q4 results and the 2025 full year performance from our CFO, Brad Ramberg. Brad?

Thank you, Carl, and thank you, everyone, for joining the call today. I will review our Q4 results and provide our outlook for the first quarter of 2026.

We continue to make significant progress on our transformation, and have successfully rearchitected our cost structure to drive operating leverage. For the quarter, we exceeded our guidance for net income and adjusted EBITDA, while producing revenues that were above the midpoint of guidance. Before I get into the details of the quarter, I want to note that the quarter includes a $2.2 million benefit from the reversal of a bonus accrual made in Q3, of which $1.9 million benefited operating expenses and $300,000 benefited the cost of revenue. And the elimination of an additional planned $2.2 million bonus accrual in Q4 that was included in our guidance.

We generated our second consecutive quarter of net income, and our 9th consecutive quarter of positive adjusted EBITDA. For the full year, we are proud that we generated operating income and adjusted net income both for the first time since going public 2021, while also driving positive free cash flow.

Now I'd like to provide more details about the quarter. Total revenues of $55.5 million declined 7.3% sequentially and declined 35.7% year-over-year, in line with our expectations as we continue our strategic transformation. Revenues continue to be impacted in the near term by our shift from a multilevel marketing platform to the omnichannel model. Consolidated Q4 gross margins were 74.5%, reflecting a decrease of 10 basis points sequentially, but an increase of 400 basis points compared to the prior year. We are pleased to report the consolidated gross margin remained at the high end of our target, underscoring our strong operational execution.

Moving to Digital and Nutrition and Other revenues. It should be noted that the year-over-year decline is heavily influenced by [indiscernible] revenue from the former MLM legacy business, which was shut down December 31, 2024. Therefore, there is a component of the MLM legacy [ Digital & Nutrition ] revenue in the 2025 numbers, which prevents us from having a direct year-on-year comparison to what we are forecasting for Q1, 2026.

Digital revenue decreased 5.8% sequentially to $34.3 million and 31.9% year-over-year. Digital revenues reflect continued pressure on our digital subscriptions, which decreased 3.3% quarter-over-quarter to approximately 870,000, and declined 18.7% compared to the same period a year ago. Nutrition and other revenue decreased 9.6% from the prior quarter to $21.2 million, and decreased 39% year-over-year. Nutrition subscriptions increased 14.3% sequentially to approximately 80,000, and fell 11.1% year-over-year.

Digital gross margin was 87.3%, decreasing 80 basis points sequentially, but up 140 basis points from prior year. Our digital gross margin was in line with our targets. The continued strength in year-over-year gross margin was primarily due to a decrease in digital content amortization and depreciation due to more disciplined production and fixed asset spending. Nutrition and other gross margin was 53.7%, flat sequentially, and up 140 basis points versus last year. Nutrition gross margins exceeded our target. Excluding certain onetime benefits, the gross margin would have been 50.5%. Operating expenses for the quarter declined 16.4% sequentially, and 64.6% year-over-year to $33.2 million. Note, the prior year included a $20 million impairment of goodwill.

Selling and marketing expense as a percent of revenue increased 40 basis points over the prior quarter, but declined a significant 1,280 basis points year-over-year to 32.3%. This significant improvement over the prior year stems from eliminating partner compensation following our December 31, 2024 exit from the multilevel marketing channel. Enterprise technology and development expense was 15.7% of revenue, down 170 basis points sequentially, and 990 basis points year-over-year, driven primarily by lower depreciation due to lower tech spend necessary to support our new business model. G&A was 11.8% of revenue, decreasing 510 basis points sequentially and 160 basis points from the prior year. The sequential improvement reflects reduced personnel expenses from prior restructurings and lower professional fees.

This disciplined expense management delivered strong profitability. Operating income for the quarter was $8.2 million, compared to a loss of $32.9 million in the prior year, marking our second consecutive quarter of operating income. Q4, 2025 net income was $5.2 million, our second consecutive quarter of net income compared to a net loss of $34.6 million last year. For the full year, net loss was $2.9 million versus a $71.6 million net loss a year ago. Adjusted net income was $7.2 million for the quarter versus a $4.7 million adjusted net loss in the prior year.

For the full year, adjusted net income was $3.5 million, compared to a $31.2 million adjusted net loss last year. Adjusted EBITDA was $12.9 million, compared to $9.5 million sequentially, and $8.7 million in the prior year, marking our 9th consecutive quarter of positive adjusted EBITDA. For the full year, adjusted EBITDA was $30.8 million versus $28.3 million in the prior year.

As Mark discussed, in early January of '26, we executed an amendment for our ABL facility, which modified our covenants. Most importantly, as long as our cash balance exceeds our extending debt principal by $4.6 million, our key covenants are not subject to testing. Our cash balance was $39 million, compared to $33.9 million in the prior quarter, and $20.2 million last year. Our net cash position is $15.4 million. Cash generated from operations for the full year was $21.8 million, compared to $2.6 million in the prior year, while free cash flow was $17.4 million compared to negative $2 million in the prior year.

Now turning to our first quarter guidance. While we are pleased with the execution of our transformation, I want to reiterate that we just completed the first year of our pivot away from the MLM model to our multichannel marketing and distribution model. Please keep in mind that this guidance should not be compared to Q1, 2025 because Q1, '25 still had significant revenue recognized from the legacy MLM model.

As discussed, we significantly lowered expenses in our revenue breakeven point. This shift has opened new growth channels that we could not previously access, and we're very excited about the opportunities ahead. We now have a stronger balance sheet and a more viable long-term business model. But as with companies that are [indiscernible] a transformation, it will take time to develop traction in these new lines of business. As the tail of our legacy business winds down, we expect that the first time we will be able to do a year-over-year comparison of our new business model, we'll be comparing Q3, 2026 to Q3, 2025.

We expect first quarter revenues to be in the range of $49 million to $54 million, net income to be in the range of negative $2 million to positive $1 million, and adjusted EBITDA to be in the range of $4 million to $7 million. The outlook for net income does not include the change in fair value of warrant liabilities as it is significantly impacted by the change in the company's stock price, which cannot be estimated. As we continue to transition to our new business model, we want to provide additional updates to help you contextualize changes in our new financial model.

For the quarter, we anticipate revenues to approximate 63% Digital, and 37% [ Nutrition & Other ]. However, in line with the strategies we articulated on this call, we currently expect a notable shift by the end of '26 to a much larger percentage of our business being in Nutrition and Other, and the attendant margins that come along with it. For the quarter, our Digital gross margin target is expected to be in the range of 86% to 88%. Our Nutrition and Other gross margin target is forecasted to be in the 44% to 50% range, which is in line with our volume expectations and certain promotional efforts planned. Our total gross margin target is expected to be in the 69% to 73% range.

Over the last 2 years, we've made considerable progress against the business transformation. We have significantly lowered our breakeven point and strengthened our financial position, putting us on a solid financial foundation to execute against our growth initiatives that will drive long-term shareholder value. I look forward to updating you on our progress in our next earnings call.

I'll now turn the call back over to Mark for closing remarks.

Thanks very much, Brad, and thanks to everybody for attending today. [indiscernible] we'll open it up now to questions. There should be some people in the queue. She will take the questions as they appear. And then if [indiscernible] of the questions, I'll come back on for some closing remarks.

[Operator Instructions] The first question comes from Susan Anderson with Canaccord Genuity.

[indiscernible] for Susan. You guys have done a great job lowering the breakeven point over the last few years. I guess what's next for management's priorities if you had to kind of rank them? Is it still a focus on driving profitability or maybe starting to shift some of that towards returning to growth through all of the new launches and innovations plan for this year and into 2027?

Alex, great question. This is Mark. Listen, we worked so hard to rearchitect the company to be focused on profitability that that's just not something we're probably ever going to take out of our primary focus. That being said, this innovation pipeline, which we articulated is pretty fertile. The beauty is a lot of what you're going to see, I believe at this point, is a reallocation of the marketing spend to the newer shiny [indiscernible] initiatives. So rather than making a large increase in the amount of the marketing spend, we're just going to basically redeploy that capital into what we believe is the highest and best use. And you'll see an increased focus, as Carl alluded to on Nutrition. And typically, with us, [indiscernible] has a much lower customer acquisition cost and gives us a great yield. And it also gives us a migratory path over to the digital fitness business.

So I think the takeaway is financial discipline will never go away. People are enjoying the fruits of our efforts in terms of watching what's happened to this company financially. Some people want to stay on that. It's kind of like getting yourself fit. You don't want to lose your newfound fitness. But we have a lot of exciting things that we can invest in. And look, if we see green shoots and the profitability allows for it, would we do additional investment spending? Sure. But for right now, we think we've been an ample media budget that if we allocate it against the right news, we'll bear fruit.

And then just a follow-up. I know it still it's about a month in. But I guess any early reads on the P90X launch? Has it brought in new customers to the platform, reactivated old ones? I know you talked about the reactivation campaign, or maybe a good mix of both?

Carl?

Yes. We're very pleased with the reaction from our customers and subscribers to the release. It's obviously a brand-new program that is paying homage to the legacy that was created 15 years ago when we launched the original P90X, to this big activation in New York and have had millions of impressions, both in earned media and paid media. We're seeing solid uptake within our subscriber base of the program, but we're also, quite honestly, just a month into the release of it.

So this first wave of customers who are doing it, they're going to be like the next wave of proof. So we'll be surfing this launch for probably the next 12 months as we continue to gather success stories and demonstrate to both our current subscribers and new prospective subscribers that this program works. That people, not just extreme athletes or extreme fitness people can do it, but beginners can do it with a modifier and people who are just trying to get back their athletic body from when they were in high school and college. So the initial indications are good, but it's also early days and this next wave of success stories are what sort of propel the momentum of a new program like this.

The next question comes from Eric Des Lauriers with Craig-Hallum.

Congrats on another very impressive quarter and impressive year here. First question is just a bit of a follow-up to the early read on P90X. Just -- I wonder if you have an early read on the 10-minute body consumer response thus far? And then on this note, if you could just kind of clarify, I heard you mention 8%, I think, of your customers are essentially doing this sort of, I think, on the micro dose kind of 10-minute fitness programs on your platform. Was that all a 10-minute body? Are there other sort of microdose fitness programs that you're [indiscernible] your platform as well?

Thanks for the question, Eric. Yes, very pleased with the response to 10-minute body. Again, these things they start to grow, right, start to learn what channels work best, what media platforms work best, what creative messaging works best. And yes, it's actually not 8% of our subscribers are using it, but 8% of the viewership for the entire platform is coming from 10 minute or less microdose fitness workout. So we've got 5-minute workout, 8-minute workouts. And that's all part of 10-minute body subscription, which, as you recall, the exciting thing about the subscription is it gives us the lever that we saw Planet Fitness do so well with, and that's high volume, low price.

So we're advertising 10 days free trial of our full microdose fitness catalog, which then rolls into a $10 a month subscription. However, people coming in to subscribe or take that 10-day free trial, also then get offered the $19 full subscription. And the thing I'm most pleased about, I won't get too specific, but I will say I'm quite pleased with what the conversion is of people who come in with the intent to buy the $10 a month subscription, who actually then level up to the full subscription, which is a similar model that we've seen offline that grew Planet Fitness so well, and we're starting to see that same dynamic in this virtual fitness environment.

So again, still early days, just launched it around the Christmas time. But we're seeing strong uptake, and it's frankly helping us do exactly what we said, and that has reached the 185 million people who are overweight or obese, not inclined to do a full program, definitely not going to join a gym to do a 10-minute workout program, but are just looking for a way to fit it in their schedule. And we think this really has some great running room, particularly in conjunction with the focus on nutrition. So that combination is going to be a total solution that helps us reach this huge TAM. So good signs, and we think [indiscernible] ahead of us.

Eric, this is Mark. What's interesting is, especially on the 10-minute body because we are going after the 185 million people who largely don't exercise. So really, the first thing you have to build awareness. Then you got to build reception. Then you have to build exploration into the program and then build conversion. Very different when you're marketing a fitness program to a fitness audience. But when you're marketing a fitness program to an audience that does not partake in fitness, your gestation period is longer, and normally would be.

They have to first be aware of it, then they got to look into it, decide if they want to do it and then convert. So we've known that all the way through. This is a long-term play by the company to make sure that we've got a product offering to this massive TAM of people we have previously exhibited behavior that would say they don't want to do 45 to 90-minute workouts. That's for the people who are already in the fitness business.

That's all very helpful. And it sounds like you guys have done a great job thus far on this sort of different, or new marketing approach. I mean, it sounds like a very great uptake already. So that's on the initial success and excited to see what's to come.

My next question is on the nutritional brick-and-mortar rollout. First, I mean, huge congrats on announcing Sprouts, I mean, on an excellent first customer to be able to announce. Just wondering if you could delve in a bit deeper to the extent that you're able to share how the conversations with between other retailers and [indiscernible] are going thus far? And if we should think of -- and any other help in terms of channel penetration, like should we continue to think of grocery as being the initial channel that we should look for, for these early wins? Or I guess, just how broad are these early conversations going with retailers?

Yes. So we have sent out, I mean, dozens of what are called sample sets, which is when the brokers go and present this to the buyers, if the buyers have interest they request what's called the sample set, which so they can actually see the product. And then the way that works is they then take that to a buying committee, which then makes a decision, puts it into a planogram, and gives you a target date to get in the store. So we, right now, through Advantage, have a lot of these sets out to people who are going through the "review" process.

And yes, a lot of the initial will be in the grocery channel. [indiscernible] going into Sprouts is a big deal. I just heard today, I can't share it because I don't have anything in writing yet. But we did hear today from our Nutrition division, that there is a multi-hundred store chain. I can't say the [indiscernible] who wants to put in the entire Shakeology line, all SKUs. So again, this is going to be a momentum, that's going to build throughout Q2, as we talked about. We will be in store in Sprouts, it looks like in May, which is great. And then as we get into Q3, these buying committees that receive these sample sets who hopefully will have made positive decisions to put the product in for both P90X and Shakeology will start to bear fruit.

Remember, though, we're launching the new Shopify platform in a couple of weeks for body.com. And that's when the new P90X and the new Shakeology form factor will be available direct to consumer, both to our product users in our database, our former users, and people show up the site. So the DTC business for P90X supplements, and Shakeology will lead the brick-and-mortar rollout from a timing standpoint, and then we'll start marketing it using our various [indiscernible] media tools at the end of April and into May.

The following comes from Michael Kupinski with NOBLE Capital Markets.

Congratulations on an excellent print. Yes, I just want to follow up, exciting news on the Shakeology and the [indiscernible] supermarkets. I was just wondering, how many stores will that include? Is it all 484 stores beginning in May?

No, it won't. It will be a meaningful component, but it will be a component of that.

Got you. And then in terms of the fact that your implication in terms of Q3 kind of showing revenue growth. Can you kind of just break out for us in terms of your thoughts of what you anticipate that you will achieve by then? I mean, are you anticipating that like, for instance, will you be in all of 484 stores with Shakeology? Just kind of lay out the time line, maybe of what you anticipate to kind of see in delivering the revenue growth?

Yes. So just to be clear, when Brad talked about this, you talked about the Q3 of 2026 will be the first quarter where you can do a clean year-on-year comparison. And then hopefully, we can then report on the progress of the traction of the items from our innovation pipeline. He did not say, and did not make a projection that we will grow in that quarter, because that would be giving guidance beyond the quarter in front of us, which, of course, we don't do. So not to say that it won't grow, but we're not making a projection about growth for Q3.

So logically, for Sprouts, it's unlikely that you will be in those stores and then 3 months later go to the whole chain. It probably doesn't work that way. You're going to read the component of stores that you're in, which is a meaningful number. And then at some point, yes, you will probably go chain-wide. It usually doesn't happen in a 2- or 3-month period. And then the other retailers, we believe, Michael, will have started to show that we're in the store on the shelf with both P90X and Shakeology by Q3. And we'll start to be able to read, one, how much incremental business are we doing DTC because of the advent of these new products? Two, are we getting a better penetration rate with our digital subscriber base? Because right now, as you know, Michael, it's less than 10% of our digital fitness subscribers also use our nutrition.

There's no way that only 10% of those people are using anyone's nutrition, but they're only thing -- that's largely because we were so formerly hamstrung by the pricing strata of the MLM that we were selling $50 to $130 products in Nutrition. Today, the P90X line is $15 to $35, and the [indiscernible] factor is $35, $34.99. So we're in a whole different ball game in terms of trying to get cross pollination, trying to get new people who land the site, and trying to get the 8 million former BODi members, probably $1 billion to $1.5 billion of former nutritional revenue is in there, to try to get them to now look at these new products.

So we think the confluence of all of these folks on the wheel will start to show in Q3 and into Q4. And if that were to be successful, then that would put us in a position where you're comparing us clean to clean year-on-year, and hopefully, that would show some green shoots, which would be great.

I'm asking the next question because I get this from shareholders. How relevant is the Beachbody brand to the younger consumers today? And especially as you plan to roll out new products targeting the younger demo, just kind of give us some clarification there.

I mean, listen, it's a great question. The reality of it is Beachbody, and now BODi, are authentication brand names. So they're not primary destination brand names, their authentication brand names. So the Shakeology carries the day. The P90X carries the day. The Insanity carries the day. What we have done historically is use the Beachbody name because of its history to provide an aura of efficacy that we now have with BODi, because we think BODi is more suited to the current world and the current environment that we're in, one.

And, two, as we want to branch out into Nutrition, and as we want to branch out into the people who don't heavily exercise, having a company called BODi with a fresh perspective is a far better tool than communicating that everybody who uses our products is after 6-pack abs and big [indiscernible] Not that we don't have those products but our TAM is far greater with the broader BODi name. And you're going to see we're working on a concept I mentioned in my prepared remarks, where we may take a lot of our existing nutritional products, not P90X, not Shakeology, and put them under a BODi brand name umbrella, with dynamic packaging, et cetera, that we could then launch and further entrench the BODi brand name and take advantage of the history of the company.

Carl, do you have anything to add to that?

I'll add one little side anecdotal proof point that the underlying brands are really what attract the customer. So at this activation event for the launch of P90X Generation Next, I was shocked at the number of 20-something influencers who came up to me and told me that they watch their parents succeed, and maybe had the best results and being the best shape of their lives, while these kids were growing up. They're in grade school. And now this was their chance to take -- to participate in a Pro and extreme fitness program that they can do at home. And the trainer [indiscernible], appeals to this 20-something, 30-something year old, who's looking for extreme results that are very convenient right at home.

On the other side of that, we just got finished shooting some workouts, 10-minute body workouts, that are designed for people who are 50, 60 plus. So we get to attract the demographic under the overarching brand, the brand that stands for holistic fitness and health, we get to attract the demographic based on the content and the nutritional solution that we pair with. And that's what gives the company incredible flexibility. That's the beauty of content is we can more the target based on what we create rather than perhaps an equipment, or brick-and-mortar type of strategy, and that gives us great flexibility in [indiscernible].

But you'll see us [indiscernible] going forward, you'll see us using the BODi brand name more in an authentication vein to help build its awareness of these high awareness products that we're marketing. So we're definitely going to make a transitional focus to make sure that the BODi brand name raises its awareness and can take advantage of the legacy of the prior Beachbody company in terms of being an expert coming to the marketplace.

The next question comes from George Kelly with ROTH Capital Partners.

First, just an accounting question on 4Q. Brad, I think I just wanted to make sure I had it right. There was a $2.2 million reversal that benefited the OpEx lines you gave, I guess there was a small component in COGS as well. And then there was an additional $2.2 million that was baked into guidance. So effectively, it was a $4.4 million benefit to guidance. Could [indiscernible] just repeat that correctly?

Yes, this is Brad. You did repeat that correctly. That is right.

Okay. Excellent. And then second question, there was a lot of discussion in the prepared remarks just about you having an opportunity to, sort of, adjust pricing, and you went through the new P90X pricing stuff in Shakeology the different form factor. Within -- on a per-serving basis, Shakeology like the pricing is still pretty elevated. So I'm wondering if there's a point over the next year or so where you would contemplate just lowering once maybe your retail business has developed? Or I'm not sure what it would take, but might you do more of a per-serving pricing shift at Shakeology?

That's a great question, George. I would say the following. Our first serving price today on the 7 Serve is about $4.99 [indiscernible]. We are positioned, as you know, because we've got these 100 different ingredients and all the super food ingredients in addition to protein, we're positioned as a premium product, because we give you all of these extra benefits [indiscernible]. So we want to be priced at the upper end within that marketplace, whereas the pure solo protein powders are priced left. That's not our direct competitor because we're a superfood with adaptogens and all of the other things that we've got in the Shakeology product.

So if we were just a protein powder, it might be a different ball game, one. Two, we're going to see how this performs in the retail market. You'd always like to take a superior product, which we have and go out with a more premium positioning because that margin flexibility gives you the ability to do more marketing, more sampling, more trial, more local participation events. You've got the margin to be able to do that. And so that's been our strategy.

Certainly, we have the opportunity both at retail and direct-to-consumer as opposed to lowering the absolute price to use promotional wells where there are points at which we can put this thing on promotional pricing. And will give us the ability to make a value statement because our regular readout price would be $34.99, now yours for -- I'm making this up, for $29.99. Whereas if you just lower the absolute price of the product, then you're just an EDLP, which is everyday low price versus the high-low strategy.

And as you know, grocery follows two pricing strata. Some people are EDLP, some people are high low. I think the high low gives you more flexibility. So my strong preference would be to keep our premium positioning and then if we need to, to promote off of that.

I'll just add that the reason this product has sold over 1 billion servings is people can tell the substance of this formulation. And we've always had pressure internally and externally to perhaps tweak the formula to lower the price, and have the optics of a lower price formula. But we've held quality and potency because it is so distinct. And that's our unique [ proposition ], is that you can feel the difference. And that's why we think it's going to be a good decision for retailers to put it on the shelf because this one stands out because of our -- the resilience of the [indiscernible], you really can tell the difference.

[indiscernible] we're selling a tub of whey protein on P90X for the same price that we're selling a 7-serve Shakeology because the additional ingredients in Shakeology is what makes it a premium [indiscernible]. I mean at $129.95, which is what the company sold it for the last 10 years, you were at about $4.33 per serving. Normally, as you know, George, when you come down in form factor, you go up in price per serving. So our price per serving on the 7 service $4.99, on the 30-serve, it's like [indiscernible].

Okay. Okay. And then last question I had for you. I guess its a 2 parter. Before the [indiscernible] launch, have you done any kind of testing in-store at Sprouts? And then second question is, do you have any additional retail distribution secured after [indiscernible]? And that's all I had.

We have not done any testing there. The testing, as Carl alluded to, has been 15 years, and $3.4 billion, and 1 billion servings, which a lot of the buyers have said, everybody knows Shakeology, [indiscernible] is finally available at retail. So that's the answer to that question.

In terms of the additional retailers, as I was saying in my earlier comments when Eric asked the question. We have dozens and dozens of sample sets out to the retail buying community that our brokers at Advantage Solutions have taken out there. And they're all under review by the buyers and then ultimately, the buying committee, and we're waiting for feedback, most of which will happen within the month of April and early May. And then we will have hard numbers about who is taking the initial launch, and when it will be on shelf.

But our anticipation is will be in late Q2 and into Q3, we'll start getting many more retailers. And like I said, we have one I can't talk about because it was an oral, not a firm purchase order yet, which is coming, but it's a multi-hundred store chain that's planning on putting Shakeology all flavors, all SKUs. We just learned that this morning. So hopefully, that will materialize in the written purchase order and then we can talk about it.

The final question comes from Alex Hantman with Sidoti & Co.

A little bit beyond retail, I'm curious what you've learned so far from the [ Reebok ] relationship and whether that channel can become a meaningful contributor to subscriber adds? And if there's an opportunity to partner with similar brands?

Yes, I think it's early days, certainly on that partnership, and that is a subscription model as well. So we will certainly read that closely. But regardless of where that nets out, whether it's great, or whether it doesn't end up being great, we just brought in somebody to head up partnerships. And our whole focus is going to be who can we align with where we become a value-add to their customer base. And reciprocal as they become a value-add to our customer base. Because we've now got a much broader range of product both in terms of our [indiscernible] body, the new P90X program, now these new nutritional products, the new form factors or more attractive overall [indiscernible] points.

We're selling $15 to $34 product. We didn't have that before. And so our ability to go out and craft partnerships because of that is way more compelling now than it would have been 6 months ago. So I'm hopeful that over the next 12 months, [indiscernible] start to see some of these partnerships materialize. Because everybody acknowledges the power of our brands. And now that we've got some pricing power to go along with that, I think it will bear fruit.

And then just to follow up on from the 10-K -- yes. Just to follow up on something from the 10-K. I think you mentioned GLP-1s as both a tailwind and a potential headwind. Just curious, are you hearing customers talk to you about that? Is it affecting any sort of meal planning that you're doing, or formulations that you guys are making?

Well, I would say that it's actually -- we see it far more as an opportunity for us because every person who makes the investment in a GLP-1 weight loss pharmaceutical is going to need to remediate the prospect of muscle loss by doing some exercise, and by fueling themselves well. Shakeology is an absolute, ideal, easy solution for people who are obviously looking for an easy solution. So that's been a quite productive line of communication and messaging in our marketing and advertising.

But likewise, we've also produced content on the platform, specifically for the GLP-1 user. Again, this is not a person who was seeking complete lifestyle change. They're looking for a bit of a biohack, a shortcut to try to get some results and get traction on a healthier lifestyle. So you can imagine how something like 10-minute body. And specifically, content designed for a GLP-1 user to help them with resistance training and cardio in a way that's manageable and fits into their lifestyle, that will be quite attractive. And the convenience of doing at home is just the perfect formula. So we actually feel quite well aligned with the growth of the GLP-1 sector and also, quite honestly, offering GLP-1 type formulations into our large database of people who've already raised their hand and said, we'd like to find a way to lose weight and perhaps they're not a current subscriber, but now they're in our database that we can make compelling offers to them so that they get access to the best solution available. So we see it as a tailwind.

If you read the research that's been published on GLP-1, what it basically says is that when you go on a normal diet without a drug, and you lose 20 pounds, approximately 20% to 25% of your loss is muscle, and the other 75% to 80% is fat. When you lose weight on a GLP-1 drug based on all the research that we've seen, you lose between 40% to 50% of that weight in lean muscle. So your lean muscle loss based on the research we've read is double when you go through a drug, versus when you do it to a regular caloric restricted diet.

So to Carl's point, we become the perfect adjunct to anybody on a GLP-1 drug because otherwise, you run the risk of getting what people would call skinny fat, which is [indiscernible] at that you have no muscular [indiscernible] over 40 that is definitely not what you want to be doing because you're musculature, you must [indiscernible] strength has everything to do with your balance and not having falls, and fractures and things of that nature.

So the more of that category expands and now that they're offering it in [ pill ] form looks like not just injection syringe injection, I think the more relevant we become as a partner to that, as opposed to viewing them as a competitor.

I'll pass it back over to [indiscernible] closing remarks.

Listen, this has been great. Really appreciate everybody attending today. We are obviously thrilled with our performance in 2025. It was [indiscernible] our expectations, and we're really excited about the innovation pipeline for 2026, and hopefully, watching that bear fruit, especially as we get towards the second half of the year. So as always, if anything comes up, please reach out to us directly at the company to Brad Ramberg, our CFO, or through ICR. So thanks, everyone. Have a great day.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.

Good afternoon. Thank you for attending today's Beachbody Company, Inc. Third Quarter 2025 Earnings Conference Call. My name is Jayla, and I will be your moderator for today's call. [Operator Instructions] I'd now like to pass the conference o to our host, Bruce Williams, the Managing Director of ICR. You may proceed, Bruce.

Welcome, everyone, and thank you for joining us for our third quarter earnings call. With me on the call today are Mark Goldston, Executive Chairman of The Beachbody Company; Carl Daikeler, Co-Founder and Chief Executive Officer; and Brad Ramberg, Interim Chief Financial Officer. Following the prepared remarks, we will open the call up for questions.

Before we get started, I would like to remind you of the company's safe harbor language. Statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested by such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, which includes today's press release.

Today's call will include references to non-GAAP financial measures such as adjusted EBITDA, net cash and free cash flow. And a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website.

Now I would like to turn the call over to Mark.

Thank you, and good afternoon, everyone. I'd like to welcome you to BODi's Third Quarter 2025 Earnings Call. We're pleased with our outstanding third quarter results and the progress and speed of our turnaround that's far exceeded our expectations. Let me put this achievement in perspective. We've now delivered 8 consecutive quarters of positive adjusted EBITDA. Our free cash flow performance has been equally strong. We've generated $13.1 million in free cash flow through 9 months, with Q3 alone contributing $9 million of free cash flow.

Perhaps most significantly, we generated net income this quarter, a seminal milestone that we identified years ago as the ultimate marker of our turnaround effort. Our cash position of $33.9 million substantially exceeds our outstanding debt principal of $25 million, providing us with financial flexibility. Our operational metrics continue to demonstrate the structural improvements we've made. We've maintained strong gross margins while significantly reducing our revenue breakeven point from approximately $900 million in 2022 down to $180 million today, a $720 million lowering of the breakeven that positions us to generate operating leverage at a much lower revenue level.

Looking ahead, we're focused on our growth strategy in 2026. This upcoming year will mark our transition from a financial restructuring to capitalizing on new revenue opportunities from our innovation pipeline and from market expansion. We're launching a comprehensive retail initiative that will leverage our portfolio of billion-dollar brands in entirely new channels. In 2026, we'll introduce Shakeology to retail for the first time in our company's history. That will be followed by our brand-new P90X nutritional supplements line and Insanity-branded supplements later in 2026. These products will be distributed in different form factors and different price points made possible by our new business model.

Complementing our retail expansion, we will be launching a brand-new P90X fitness program, the first in over a decade, which will create powerful cross-marketing opportunities between our digital content and our retail nutrition products. So going forward, we see a substantial opportunity to expand our TAM by developing innovative approaches, including a focus on health span and a shorter, easier-to-perform workout program to reach underserved segments, including the 185 million overweight Americans who don't currently engage in regular fitness routine.

In our current business model, our revenues are generated via multiple channels, what we like to call the omni-channel opportunity. One of the smaller elements within the omni-channel opportunity is our affiliate program. Why do I say that? Because on a go-forward basis, the affiliate program will be a smaller portion of our total revenue mix given our heavy focus on the maximization of both our direct-to-consumer channels and our upcoming brick-and-mortar retail initiative.

This strategic shift reflects our evolution from what was previously an MLM-dependent model in 2024 to a now diversified omni-channel approach in 2025 and beyond. The transformation we've achieved positions BODi as a fundamentally different company than it was just 2 years ago. We've proven our ability to generate consistent positive adjusted EBITDA over the last 8 quarters. We've generated positive cash flow through 2025 year-to-date, and we finally achieved a positive net income quarter in Q3 of 2025.

During the 2-year turnaround effort, which began when I joined back in June of 2023, we've eliminated the huge structural inefficiencies that previously required a massive $900 million revenue level just to break even on a cash basis, and we've reduced that cash breakeven by 80% and brought it down to an incredibly low $180 million breakeven through a complete rearchitecture of the company and the way we operate. The efficiencies we've built into the company have allowed us to construct a powerful and nimble operating model that will allow future revenue growth to drive significant operating leverage and increased EBITDA.

The headline for Q3 2025 is that BODi has completely reinvented itself over the last 2-plus years. And with the benefits of the financial restructuring, the elimination of the MLM model, massive improvement in profitability, an increase in direct-to-consumer focus, a significant improvement in gross margin and a more efficient sales and marketing spend. As a result of accomplishing all of the financial turnaround goals, BODi is now poised to open the hatch of the innovation pipeline for 2026 and roll out a slew of new innovations in both digital fitness and nutrition that will not only fortify our DTC business, but it will also open up a whole new arm of our omni-channel strategy with brick-and-mortar retail and an expanded Amazon presence featuring popularly priced P90X and Insanity nutritional supplement and a new lower-priced, smaller serving size Shakeology lineup.

We've revolutionized and significantly improved our financial foundation. We filled the innovation pipeline and those initiatives are set to be in motion in 2026, and the market opportunities and huge increase in TAM are substantial. We could not be happier with the progress that we've made, the speed with which the turnaround has been performed and the exciting and modernized future we see for BODi.

With that, I'll turn the call over to our CEO, Carl Daikeler, to discuss the operational details. Carl?

Thanks, Mark, and thanks to everyone for joining us today. I'm excited to share our Q3 results, which I believe demonstrate the meaningful progress we're making in executing our long-term strategy. The results that Mark described and that Brad will outline in detail in a moment really tell the story of a company hitting its stride.

The vision we've had for over 2 decades is finally getting a chance to come to fruition. We're executing with more efficiency, thanks to our expanded sales channels and an aggressive approach to tailoring our marketing for an environment that is definitely showing signs of improved demand as longevity and health span have entered the mainstream. We've got the library of proven content that's getting deeper every quarter and new content coming online by the end of the year that's going to open up the TAM to the real holy grail of helping the more than 185 million non-exercisers in the U.S. who are just looking for an easy way to get the benefits of lifestyle change without devoting thousands of dollars to equipment or hours in the gym.

In the near term, we have some very exciting launches going into Black Friday and Cyber Monday, the holidays and the first quarter. We launched a compelling $19 per month offer in Q3, which we're starting to build momentum around, especially in conjunction with the launch of 2 brand-new alternative subscriptions, what we call a Super Trainer subscription, where people can subscribe to just the content from one Super Trainer for just $9.99 a month. These are essentially curated capsule collections from our world-class trainers. We launched this test with both the Autumn Calabrese collection and the Shaun T collection and are encouraged by the initial response.

As you might recall, we said we'd be launching new content in Q3 that included a line extension to BODi LAVA called Slow Burn yoga. We also launched Autumn Calabrese's Track Pilates, an innovative at-home Pilates program that drove strong demand in the third quarter, thanks to the overall strength in the Pilates category right now.

So far in the fourth quarter, we've added the appropriately named Power of 4, a program from the original P90X Super Trainer, Tony Horton. And we've just started to promote the Black Friday launch of a new program from Shaun T that's a hybrid of his popular weightlifting program, DIG DEEPER, with low-impact Insanity cardio, which our subscribers are lining up to start on December 1 in what's going to be the largest test group in our company's history.

As Mark mentioned, we started teasing the launch of P90X Generation Next, a new addition to the P90X portfolio for the first time in over 10 years, leveraging the most recognizable brand in extreme home fitness. Last week, we announced that renowned British trainer, Waz Ashayer, is leading that program and the response to the first peek at the teasers for the program was more enthusiastic and productive at attracting subscribers than we could have imagined.

This new trainer is going to be a superstar. He's the new James Bond of the P90X franchise, if you will. And the user results we've seen in our initial testing of the program confirm that his new P90X format is going to introduce the greatest extreme home fitness program of all time to a new generation of users with stunning transformation.

The retail opportunity will be particularly meaningful both for leveraging the existing awareness of P90X plus Insanity and Shakeology on store shelves but using that visibility to achieve massive exposure of the BODi brand by giving retail buyers a first-of-its-kind value add of rewarding them with access to our digital content, which will support our digital subscriber growth objectives. I'm really excited for the new supplements coming under the P90X Insanity brands because we're actually underpenetrated in selling nutrition to our digital fitness subscribers, largely because our prices were set at a premium level largely due to the requirements of the MLM model.

That means, in 2026, we're going to be adding more new supplements to the catalog at more affordable prices than we ever have in our 26 years, a significant opportunity for us to increase LTV and to acquire new nutrition customers. 2026 marks our commitment to expand into nutrition in a very significant way, both at retail and direct to consumer.

All of this is the innovation pipeline Mark and I have been talking about for 2 years, the opportunity to reach this massive TAM of over 185 million adults in the U.S. alone who are overweight or obese. And now with the progress and speed of our financial turnaround exceeding projections, this vision can start to materialize in 2026 and really hit full stride in 2027.

As I mentioned last quarter, all of this will be supported by our transition to Shopify Plus and its robust set of AI features in March 2026, which we believe will benefit order conversion and average order value at checkout. Speaking of AI, I'm also excited to add that following ChatGPT's announcement of their app development toolkit and the upcoming ChatGPT App Store, our team is quickly developing the tech to be among the first fitness apps on ChatGPT in Q1 2026, making our programs discoverable and actionable within ChatGPT. We're initially focused on personalized fitness recommendations with the goal of driving acquisition, leveraging our most recognizable brand.

But we view this most as an evolving opportunity to learn how conversational AI can enhance discovery with a more personalized recommendation engine to ultimately create a more intelligent, connected experience for our members at mass scale. We've been the 1 company focused on the mass market of health and fitness for over 26 years. And now with 8 quarters of positive adjusted EBITDA and our first quarter of positive net income since we went public in 2021, we can see that the never quit attitude of this team is really paying off. And it's incredibly impressive how our staff, trainers, affiliates and even our subscribers believe so passionately in what we do. I'm excited for the fourth quarter, especially as we head into Black Friday and Cyber Monday and our aggressive marketing initiatives heading into Q1.

Now let me turn the call over to our Interim CFO, Brad Ramberg, to walk through the specifics of our Q3 results. Brad?

Thank you, Carl, and thank you, everyone, for joining the call today. I will review our Q3 results and provide our outlook for the fourth quarter. We produced major milestones this quarter. We exceeded our guidance for revenue, adjusted EBITDA and net income. We generated our eighth consecutive quarter of positive adjusted EBITDA and had net income for the first time since going public in 2021. We are on track for positive free cash flow for the full year.

Now I'd like to provide more details about the quarter. Total revenues of $59.9 million declined 6.3% sequentially and declined 41.4% year-over-year, in line with our expectations as we continue our strategic transition. Revenues continue to be impacted in the near term by the shift away from a multilevel marketing platform to an omni-channel model.

Consolidated Q3 gross margins were 74.6%, representing an increase of 230 basis points over the prior quarter and an increase of 730 basis points compared to the prior year. We're pleased to report the consolidated gross margin was at the high end of our long-term target of 70% to 75%, underscoring the strength of our operational execution.

Moving to digital, and nutrition and other revenues. Digital revenue decreased 8.3% from the prior quarter to $36.4 million and decreased 32.2% year-over-year. Revenues were impacted by continued pressure on our digital subscription count, which decreased 4.3% sequentially to approximately 900,000 and declined 18.9% compared to the same period a year ago. We continue to experience the impact from our transition away from the MLM, which has had an outsized impact to nutrition subscriptions as our nutrition products were almost sold exclusively through our MLM network.

Nutrition and other revenue decreased 2.8% from the prior quarter to $23.5 million and decreased 50.4% year-over-year. Nutrition subscriptions stayed essentially flat sequentially at approximately 70,000 and fell 46.2% year-over-year.

Digital gross margin was 88.1% for the quarter, increasing 40 basis points from the prior quarter and representing an 810 basis point improvement from the prior year. Our digital gross margin was in line with our previous long-term target of 86% to 89%. The continued strength in year-over-year gross margin was primarily due to a decrease in digital content amortization and depreciation as a result of a more disciplined production and fixed asset spend.

Nutrition and other gross margin was 53.7%, representing a 230 basis point increase from the prior quarter and a 490 basis point decline year-over-year. Nutrition gross margins exceeded our long-term target of 46% to 52%. The increase from the prior quarter was primarily due to onetime lower shipping and fulfillment costs, while the decline from the prior year quarter was primarily due to the discontinuation of preferred customer fees on November 1, 2024, which were part of our old business model where customers paid the monthly fee to purchase products at a discount as well as from higher level of promotional activities in the current period.

Operating expenses for the quarter declined 21% sequentially and declined 51.5% year-over-year to $39.7 million. Selling and marketing expense as a percent of revenue decreased 800 basis points in the prior quarter and declined 1,270 basis points over the prior year to 31.9%. This significant improvement over the prior periods was primarily driven by the pivot away from the multilevel marketing channel as we no longer have partner compensation on our new sales after November 1, 2024.

Enterprise technology and development expense as a percent of revenue increased 80 basis points from the prior quarter and decreased 160 basis points year-over-year to 17.4% of revenue. The improvement as compared to the prior year was primarily due to a decrease in depreciation expense due to lower technology spend. The increase as a percent of revenue compared to the prior quarter was due to revenue deleverage.

G&A was 16.9% of revenue, a decrease of 120 basis points sequentially and an increase of 540 basis points from prior year. The improvement as compared to the prior quarter was primarily due to a decrease in equity-based compensation from the head count reduction over the past year due to the restructurings and a decrease in outside professional fees. The increase as a percent of revenue as compared to the prior year was due to revenue deleverage.

The Q3 2025 net income of $3.6 million, our first net income since we went public in 2021, compared to a net loss of $12 million from the prior year. Adjusted EBITDA was $9.5 million compared to $4.6 million in the prior quarter and $10.1 million in the prior year. Notably, this quarter marks our eighth consecutive quarter of positive adjusted EBITDA.

Now I'd like to move on to the balance sheet and cash flows. As we discussed on our last call, in May, we entered into a new lending agreement with Tiger Finance and SG Capital Partners for a $25 million 3-year loan facility that allowed us to retire the $17.3 million of outstanding debt ahead of its February 2026 maturity date. This refinancing provided us with approximately $5 million of additional capital on the balance sheet. The effective interest rate on this new facility is approximately 15.2% compared to the approximately 28% in the prior facility.

Our cash balance is $33.9 million compared to $25.6 million in the prior quarter. Our cash generated from operations for the quarter was $10.2 million.

Our year-to-date free cash flow is $13.1 million, of which $9 million was generated this quarter. Q3 had a $2 million benefit from the timing of payroll, which was accrued in Q3 but paid in Q4.

Turning to our fourth quarter guidance. While we are pleased with the execution of our transformation, I want to reiterate that we're still in the first year of the company's new business model. As discussed, we significantly lowered expenses and our revenue breakeven point when we strategically pivoted away from the MLM model to our omni-channel marketing and distribution model.

This shift has opened new growth channels that we could not previously access, and we're very excited about the opportunities ahead. We now have a stronger balance sheet and a more viable long-term business model. But as with companies that are undergoing a transformation, it will take time to develop traction in these new lines of business. We expect fourth quarter revenues to be in the range of $50 million to $57 million, net income in the range of negative $1 million to positive $3 million and adjusted EBITDA to be in the range of $5 million to $9 million.

As we continue the transition to our new business model, we want to provide additional updates to help you contextualize changes in our new financial model. As of today, we anticipate revenues to approximate 61% digital and 39% nutrition. Our long-term digital gross margin target is 87% to 89%. Our long-term nutrition and other gross margin is in the range of 46% to 52%, which is in line with our volume expectations and certain promotional activities planned. Our long-term total gross margin target is from 70% to 75%.

Over the last 2 years, we've made considerable progress against our business transformation. We've significantly lowered our breakeven point and strengthened our financial position, putting us on a solid foundation to execute against our growth initiatives that will drive long-term shareholder value.

I look forward to updating you on our progress on our next earnings call. I'll now turn it back over to Mark for closing remarks.

Thank you, Brad. Operator, Jayla, could you please open it up to questions?

[Operator Instructions] Our first question comes from Susan Anderson with the company Canaccord.

Nice job on the quarter. I guess maybe if you could talk about -- I'm curious just the customer base, if you're seeing any big change with the new business model. And then maybe if you could share any details on what type of customers are signing up for the unbundled Super Trainer subscription. Are these new customers of BODi that maybe will kind of tack on more subscriptions down the road? Or were they existing customers?

Thanks, Susan. Nice to hear from you. We're really dealing with the same type of customer that we've dealt with for 26 years, quite honestly, the people who are too busy to go for a gym membership. They want the convenience of doing things at home, and they want it somewhere between 20 to 45 minutes per workout. So in general, we're seeing the demographic be similar.

In terms of the specific subscriptions, the Autumn Calabrese collection and the Shaun T collection, those are doing both a great job of winning back customers who are really just interested in the affinity with their particular trainer, but we are seeing a nice percentage of those people upgrade to the full subscription. So it's doing the job of what you might see from a high-volume, low-price gym, where people are attracted to the $9.99 per month, but then seeing the value of the overall subscription and upgrading to the full monthly or annual price.

So in terms of new customer acquisition, we're seeing that come from really the more broad advertising of helping people get healthy, helping people improve their overall well-being. And that is sort of business as usual as we go into the fourth quarter, and we're very excited by the prospect of bringing in new customers with the launch of Shaun T's DIG IN program and the promise of the largest test group that we've ever run as a company.

Okay. Great. And then maybe if you can give some more color just on your new product pipeline, it sounds like you have a number of things lined up through holiday and then maybe into next year. Maybe if you could just talk about timing of the rollouts and any color you could give maybe around the new P90X product and then also other products that are going to roll out, whether they're in digital or the nutrition segment. And then also, I -- sorry, go ahead, and then I have one follow-up.

Okay. So just real quick, as we mentioned, we're very excited by the number of products that we're launching into the catalog nutrition products in 2026. We haven't launched this many new products, particularly at a price point that's much more affordable to our database, to our current subscribers and to new prospective customers since we launched the MLM. Obviously, we had to support the compensation plan for the MLM when that was such a big part of the business model. Now that we don't have the MLM, we can be far more competitive in the nutrition segment with our pricing and with our unit economics, both the form factor in the 7 to 14 servings versus everything being in a monthly unit.

So we've got the P90X line of supplements, and we have Insanity line of supplements, and we have expansion of Shakeology as we take that out into retail. So nutrition is largely expanding in 2026. For the balance of 2025, we have the -- as I mentioned on the call, we just launched Tony Horton's Power of 4 program, which we licensed from him. We just launched a series of new bike programs called Chasing the West, which has gotten great response from our subscribers. We're launching Shaun T's DIG IN program, which is a hybrid between a low-impact Insanity program plus a very popular DIG DEEPER weightlifting program.

I'll also say we're launching something at the end of the year. I can't go into too much detail right now, but I happen to -- I want to say to you particularly, it was inspired by a conversation that you and I had because you love running so much, but I know you want to keep doing your resistance training to help your bone density and your overall muscle tone. And I think you're going to love what we're coming out with at the end of December.

P90X Generation Next just started to get teased last week. And the response to that just blew us away, both in terms of attracting new subscribers and in terms of the current subscribers being excited for that program, and that launches on February 3. That's the extent of what we've announced so far. And I think it's, frankly -- 2025 was such a transition year for us. We didn't put that much new content into the pipeline. I think between now and the end of 2026, our subscribers and prospective subscribers are going to be very impressed with what the platform offers.

Okay. Great. That sounds exciting. I'm excited to see the new product. Maybe if you could talk about -- I was just curious too. Should we think about any increase -- the increase in investment in the new product, should that impact the P&L at all in the op expense? Or have you guys already kind of planned for that?

It's all in line with the economics that we've been running for the business. I'll let Brad speak to any specifics. But we're really running the business in a responsible way that takes advantage and maintains the advantage of the operational leverage that we've built into the business over the last 2 years. The company has just done such an incredible job of being both disciplined but maintaining our product quality and the innovation pipeline, which resulted in -- we're so excited by having an in-home Pilates program. The whole fitness industry is aware of how big Pilates has gotten and the fact that we have a Track Pilates program that people can do for $100 of equipment is just an exciting asset for us to take into 2026. So bottom line is we're going to maintain our economics, and we feel very good about the base of assets that we have to work with.

Susan, this is Brad. Nice to hear from you. We are very disciplined with our spend. We are excited about our spend, and the numbers are baked into our guidance for the fourth quarter.

Our next question comes from JP Wollam with the company ROTH Capital Partners.

Appreciate you taking my questions here. If we could just maybe start on the nutrition side. So it looks like that kind of sequential decline there was actually pretty minimal maybe given some expectations out there. But just wondering if there's any more detail you can share on kind of what drove that. I think there might have been some mention of promotional activity. So if there's anything specific to call out in terms of promotions that worked well, that would be helpful.

JP, this is Brad. Nice to talk to you. Thanks for asking the question. Our -- before the strategic transition, we were selling an MLM-based product. Our hero product was Shakeology at $130 a month. So as we've moved away from that, we are doing more price testing. We are coming up with lower-priced SKUs, as Carl and Mark said. We'll be introducing a new Shakeology at a smaller form factor, lower serving, lower price. We've been doing more bundled activities and more price testing, and we are seeing good demand at these new price points. So we're able to maintain the number of subs, and we're able to do that at a lower price point, which makes sense given the transition away from the MLM to the new omni-channel model.

Perfect. And then maybe just if we can -- go ahead.

No. JP, this is Mark. And just on a go-forward basis, because remember, we started basically a new company January 1, so there's really no year-over-year comparisons because we dismantled the MLM, as you know, at the end of the last year. But going forward, these new nutrition products that we're bringing out under the P90X brand name, which will range in price from probably $15 to $39 and the new smaller form factor, lower priced Shakeology and then Insanity, these are price points that the company has like never offered before and certainly never offered in the retail market.

So we're not only excited about the potential in a brick-and-mortar store, but from a direct-to-consumer standpoint, between our Amazon channel and our BODi website and our affiliates, you've now got something in the arsenal that we just haven't had before, which is these monster brand name products under P90X, Insanity and now Shakeology at much more affordable price points because we were hamstrung in the previous model by the costs and the compensation costs related to the MLM, which no longer exists. So going forward into the back half of '26 and into '27, I think you're going to see a nutritional business with much different character in terms of its composition because of our ability to sell a lower-priced, broader appealing product line.

Perfect. And then I think on the last call, we were talking about you guys being sort of in the early stages still of working with a broker in terms of getting some wins in terms of retail. And I'm just wondering if there's anything you can update us in terms of visibility for that retail launch coming up next year.

Yes. Great question. So as you know or maybe you don't, in the retail marketplace, most of the major retailers work on something called a planogram, which is the shelf set that you see when you walk in a store. And they usually have planogram revision dates that are either onetime or 2 times a year. So our broker partner is coordinating our sell-in meetings based on the calendars of these new planogram reset dates. And typically, when you go to an account, a major retailer, and they say, "Yes, I'd love to add this product. I'm going to put it into my new planogram shelf set," it's usually about 5 to 6 months from that day when you're accepted until you actually physically appear on the retail shelf.

So our teams are out there right now selling in the product, making presentations. We're expecting to get answers on how that's going in the next 4 to 6 weeks. And assuming it goes the way we all expect and hope it will, we should start appearing on the shelf, in some of these places, late part of Q1, most of them into Q2. So the majority of that revenue will start to materialize Q2 and then into Q3 and Q4. But as you know, it's a rollout. And so essentially, first, you got to get it sold in. Then, they have to reset the section. Then, you launch, and then you grow after that, so all according to how our plan was expected to go.

Now that does not apply to the DTC business. So when we launch these brand-new products starting in January, we will be able to immediately start making them available on a DTC basis and on an Amazon basis. But for brick-and-mortar, we have to run the offense, which is the planogram date, acceptance, reset the shelf, and you show up probably 5 to 6 months later.

Understood. Appreciate that color. If I could just slide one more in quickly here. As we look at the selling and marketing line, obviously, some great sequential step down there in terms of managing costs. But -- wondering if you could, one, just kind of provide a bridge from 2Q to 3Q. I think there's a little bit of an advertising reduction and maybe a reduction in kind of some deferred commissions. But one, if you could provide that bridge at all and two, just now being sort of 32% of sales, like how are you feeling about that line item and whether there's more cost to come out there?

Sure, JP. This is Brad. I'll take that question. One, if you look back at the end of last year while we were still in the MLM model, we had upwards of $25 million, $26 million of deferred partner costs on the books. We've been expensing that over the course of the year, and we're now down to about $3.5 million of deferred partner costs. So that's all costs related to the legacy business.

As that has declined over time, we're really looking at the advertising and marketing rates on the new business. And so we were at about 31.9% for Q3. I would expect going forward it to be in the mid-30s-ish with some variation of seasonality. But the sequential decline really is driven by the transition away from the MLM business.

And JP, just to provide additional color on that, so there are seasonal fluctuations between the quarters because Q1 is always your highest marketing spend quarter. But what's important is that, that sales and marketing line, which was reduced from the $25.5 million in Q2 down to $19.1 million in Q3 really was not a result of spending less money on actual advertising and marketing. It was -- a lot of that was the cost that Brad just alluded to, which were associated with the former MLM, which are now sort of burning off.

So we've not reduced our spend to the consumer. We did not cut the media budget. We just shed all those legacy marketing costs that were affiliated with the MLM. You will not see that similar type of decline, obviously, in Q1 because Q1 will be your higher spending quarter.

But I just want to put color around that because when you look at the sales and marketing line, your first inclination is to say the company cut its marketing spend level to the consumer. And the answer to that is an emphatic, no, we did not.

Our next question comes from Michael Kupinski with the company NOBLE Capital Markets.

Congratulations on a stellar quarter and reaching your profit milestones.

Thank you.

I believe that in Q3, you kind of indicated that you felt like most of your restructuring of your sales force was going to be complete. I was just wondering, is that -- has that now all been completed?

Brad?

Yes, generally the reorganization has taken place, and we're now multichannel with, as Mark mentioned, the performance marketing or direct-to-consumer business. We've got the Amazon business. We've got a small contribution from affiliate and obviously, CRM, and we're excited to launch into retail next year.

And Mike, this is Brad. We're always looking for cost efficiencies, and we'll continue to do so. But the financial restructuring is, for the most part, complete. Now we're really looking at growth mode beginning now and into '26.

Okay. Perfect. I was wondering in terms of margin with all these retail distribution rollouts and also with the new products that you're talking about. I was just wondering if you can just talk a little bit about margin. Are you anticipating giving up any margin? Obviously, with some of the lower price points that you're talking about with some of your products, if you could just add a little color on that.

Sure. I'll [indiscernible] on that. So I'll tell you, so in Q3, we hit a nutrition margin of about 53%. And right now, with the lower price point and more promotional activities, we are guiding to a lower nutrition margin. We're guiding to a kind of a steady statement between 46% and 52%.

So retail in '26 is not a significant driver of revenue, at least in Q1, certainly not in Q4. So we'll continue to adjust our margin as we gain more experience in retail. But right now, we are looking to a little bit of a decline in the nutrition margin as we're looking to a pickup in the number of units and subscribers. At the end of the day, it really is about generating dollars, and it's about generating the most number of subscribers.

Got you. I assume that...

The margin is also reflective of our increased focus on selling onetime purchases versus just selling subscription. So because we're actually expanding the audience, those people will ultimately end up subscribing.

Yes. And I was just wondering, do you guys frame for us like the anticipated marketing spend around the retail rollout of P90X release?

I'm sorry, say that again.

Can you just kind of frame maybe the anticipated marketing spend around the retail rollout for your P90X release? And maybe just give us the time line for the new P90X exercise program.

Yes. The new P90x exercise program is a Q1 program. And that will certainly be part of our overall marketing spend because of its high profile and ability to attract people into the franchise. In terms of the actual retail products, the marketing spend will be in line with what we end up getting in terms of wholesale orders and what that revenue line will look like. So we do not have that number right now, but it will be on a normalized advertising-to-sales ratio based on the wholesale volume that we generate, and that's all going to be baked into our numbers.

At this time, there are no more questions registered in queue. [Operator Instructions] There are no more questions registered in queue at this time. I'd like to pass the conference back over to our hosting team for closing remarks.

Thank you, Jayla, and thanks, everybody, for attending today. I just want to say in closing, again, this was not only an outstanding and seminal milestone quarter for us, achieving net income positivity. But the fact that, in our opinion, the financial turnaround has largely been completed well ahead of schedule, almost -- I would say, almost 12 months ahead of schedule, so the headline is great new operating structure, much reduced breakeven level down to the $180 million level.

And now we're at the point where instead of waiting until the back half of '26, we can actually open up this innovation pipeline starting at the beginning of '26, and you'll see a lot of new exciting programs, which will expand this franchise, take advantage of the operating leverage that's now been built into this P&L and give us the opportunity to achieve all of the goals that Carl has been articulating for years about not trying to reach just the serious exerciser and the serious nutrition consumer but to go out to the broader audience and that huge TAM of the 185 million Americans who do not currently exercise on a regular basis and who are taking nutritional supplement products, and we want to drive them to our franchise.

So thanks, everybody. We look forward to talking to you on the next quarter's earnings call.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.