Beachbody Company Inc

NYSE:BODY

Earnings Call Transcript 2021-Q3

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the Beachbody Company Third Quarter Fiscal 2020 Earnings Call. At this time, all participants are in listen-only mode. [Operator Instructions] I would like -- this call is being recorded.

And I will now turn the conference over to Eddie Plank Richards Group Vice President of Investor Relations. Please go ahead.

[Edward Plank, Vice President of Investor Relations]

Welcome, everyone, and thank you for joining us on our third quarter 2021 earnings call. With me on the call today is Carl Daikeler, Co-Founder, Chairman and Chief Executive Officer of The Beachbody Company; and Sue Collyns, President and Chief Financial Officer. Following Karl's and Sue's 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. The 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 in such statements due to a number of risks and uncertainties, all of which are described in the company's SEC filings, which includes today's press release. Today's call will include references to non-GAAP financial measures, such as adjusted EBITDA. 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.

And now, I would like to turn the call over to Carl.

[Carl Daikeler, Co-Founder, Chairman & Chief Executive Officer]

Thank you, Eddie, and good afternoon, everyone. On today's call, I'd like to provide some context on the current environment, including the shifts we've seen in consumer dynamics, what we've learned from them and the actions we're taking to optimize Beach Body's performance against a challenging backdrop.

Before turning to the details of the quarter, I'd like to underscore 2 important points about our business. First, we have a differentiated offering, a leading position in the mass market and an extremely resilient business model with 3 million highly loyal and engaged customers that provides us with a significant opportunity to drive LTV through our diverse catalog and comprehensive product offering. Second, the solid subscription growth we delivered versus the 2019 baseline reflects the strong long-term secular trend of demand for digital fitness and quality nutrition. Taken together, I'm confident in our future prospects despite the confluence of factors that impacted us during the quarter.

Now, let me get into specifics. After results in July and August that were generally in line with our expectations, September was more challenging than we anticipated. -- softer consumer demand, a challenging media environment and delays in key product launches and rollouts resulted in new subscriber acquisitions that were below our expectations. This was despite strong retention among existing subscribers. The team and I are taking decisive steps to respond to results, improve customer acquisition and lifetime value metrics and get us back on course to deliver on our long-term outlook. Make no mistake, as the single largest shareholder as well as CEO of Beachbody, but more so because I believe in the importance of our mission to serve as many people as possible; this is deeply personal to me.

Our results are unacceptable. But at the same time, I can see very clearly the reasons behind those results and how best to respond. I am laser-focused on growing the business and ensuring that we are positioned to create value for our shareholders and deliver on our mission. Over the past 2 decades, we've grown this business across a variety of economic cycles, technology disruptions and changing consumer preferences and sentiment. We've successfully navigated market dislocations before. We know firsthand that environments like this may be challenging, but they also present vivid insights and opportunities.

Frankly, confronting challenging circumstances led us to see the opportunity to create innovations like P90X and to introduce Shakeology. As long as the focus remains on the customer and getting them results in the most cost-effective way possible, the strategy of providing the total solution of fitness, nutrition and community at an affordable price always regains traction and mass market customer demand returns, always. Put plainly, at home fitness is not a passing trend that grew out of the pandemic. It's here to stay. Our performance versus 2019, including solid growth in subscriptions and solid retention and engagement is evidence of that long-term trend. There's no denying the consumer is experiencing a moment of distraction.

During the quarter, we saw people return to traveling, socializing and spending time outside the home after more than 1.5 years for quarantines and social distancing. Softer demand also coincided with a more challenging media environment, rising media costs and the new privacy settings associated with Apple's iOS 14.5, made performance marketing more costly and less efficient, resulting in ROI below historic levels. Added to that, our results were impacted with the launch of BOD Interactive, what we call BODi, our new premium tier live group fitness subscription was delayed from the first half of September to late October. We needed additional time to ensure the technology would deliver the immersive, personalized and interactive experience that we envisioned before we started selling the subscription.

BOD Interactive is an important step forward our customers have been asking for as we use technology to deliver engaging affordable and compelling content with a live interactive experience unlike anything else in the marketplace. However, this delay limited the ability of our coach network to drive new subscriber acquisition and sales of corresponding nutritional bundles. Given that the BOD Interactive subscription also includes our interactive cycling content, the October launch had a domino effect on bike sales within our customer base. As a result, we did not begin to aggressively promote the bike in our coach network and on social media until late October as we needed the BOD Interactive launch to be able to truly unlock the full value proposition. We're now executing on our business plan as we go into the holidays and then on to the seasonally important first quarter when people refocus on health and wellness.

While external factors will always play a role in our results as they do for everyone in the sector, we are committed to controlling what we can control, our strategy and our actions. With that in mind, I'd like to take some time to walk you through the action plan that's in progress to improve near-term results and prioritize ROI while continuing to advance our long-term growth strategy across 6 key focus areas: marketing, growth initiatives, the coach network, nutrition, expenses and leadership.

So let's start with marketing, where we're sharpening the focus. Given the current environment, we're taking a very disciplined approach to prioritize performance marketing in the near term to maximize response and ROI through direct channels. We're also addressing the gap created by the iOS 14.5 changes. We're working closely with various media platforms to develop new solutions as well as harnessing our own data and advanced attribution models to optimize media. In an environment like the one we're in today, agility is paramount. This is why we've streamlined our marketing organization and are now operating with a significantly faster feedback loop between our creative team, media strategy and data and analytics. This allows us to move quickly to find winners and invest behind them while tightly managing acquisition costs of the most valuable customer cohorts.

While we continue to believe top-of-the-funnel brand marketing can serve as a powerful accelerant we paused brand spend in the near term. Our intention is to resume these activities after the holiday season when consumers typically refocus on their personal goals and overall wellness. Second, let's talk about growth. We're allocating resources to the highest return demand creation activities. We want to make sure that the organization has got the right levels of resources and that everyone is aggressively focused on solid execution.

With the launch of BOD Interactive in late October, we now have a powerful lever to drive acquisition, upsell and increase lifetime value with an offering that replicates the immersive and personalized experience of boutique fitness classes in a digital context. Also, we're continuing to scale our Connected Fitness business. While this remains a competitive market, we have a clear and differentiated value proposition, an existing base of 3 million subscriptions, a superior quality bike and touchscreen best-in-class fitness content that's personalized and heart rate driven and then ability to pair our fitness offerings with high-quality, effective nutrition plans and supplements. We expect sales of the Connected Bike will significantly enhance the lifetime value of our customer base by increasing penetration of highly retentive digital subscriptions at a very attractive gross margin.

Heading into the holidays in the first quarter, we are now fully operational on both the Beachbody on-demand and open-fit platforms. Our focus is on continuing to refine our marketing to optimize the combination of creative and media through this test and learn approach that will power customer acquisition and boost lifetime value while tightly managing acquisition cost efficiency. That's the power of our model.

Third, the coach network. With the return of in-person live events and a robust pipeline of product, we're once again in a position to maximize the impact of our network of coaches. Our coach network is not immune to the environment that I referenced at the beginning of this call. But with our first live event in over 18 months in October, the launch of BOD Interactive and the addition of the bike to our lineup, we have brought the field back to focus and put them in a powerful position to drive subscriber growth and lifetime value. Last month, I attended events with thousands of coaches in 4 different cities and the passion for the Beachbody mission and the excitement for the new BOD Interactive subscription tier and the Connected Bike was on full display. They are excited about the innovations we've recently launched and are already anticipating the next program called Job 1, our first program by Super Trainer Jennifer Jacobs, which will roll out in December. This program brings it all together, great content, our nutrition programs and obviously, the prospect of combining it with rides created by one of the most sought-after trainers in cycling. That is synergy.

Fourth; with respect to nutrition, we will invigorate our nutrition business. And one of the advantages of our business model is that as momentum returns to digital fitness subscription starts, this will power nutritional starts as part of our bundled product offerings. Also, we have some exciting new products planned for 2022 user testing.

Fifth; with respect to our expense profile, we remain laser-focused on growing the business and reaccelerating the top line. But at the same time, we are always focused on controlling expenses and smart capital allocation.

And sixth, we've made 4 key appointments to strengthen our leadership team. I'm pleased to announce that Jon Congdon, my Co-Founder, will become Vice Chairman, where we'll work more closely together on critical, long term strategy, business development and M&A opportunities. Over the past 2 decades, Jon and I have partnered together to create and then reinvent this business several times over. And we work best when operating alongside each other rather than on separate efforts. As a result of this move, I will in product development, including Openfit. To further expand our reach, we've also added Jean-Michel Fournier in the newly created role of President, Global Partnerships and Corporate Development. Jean-Michel joined the Beachbody Company from Les Mills Media. As CEO at Less Mills, Jean-Michel oversaw significant growth in the company's digital fitness business. He'll play a critical role in accelerating digital subscribers to Openfit through collaborations across corporate, brand and other wellness partners while also organizing Beachbody's international expansion.

We also recently appointed Christina Cartwright to the role of Senior Vice President, Nutrition, reporting directly to me. This newly created role brings together all our nutrition businesses under one leader. In this role, Christy will deploy her deep knowledge and extensive experience in driving subscriber growth, drawing on our experience at Dollar Shave Club and Abbott Laboratories, where she oversaw significant growth of the PediaSure and Pedialyte brands.

Lastly, we recently added Blake Bilstad as Chief Legal Officer and Corporate Secretary. Blake has significant public company and M&A experience as well as a deep understanding of high-growth, technology-driven content companies that include the WWE.

The plan I just outlined for you is already underway. And as I said at the outset, my confidence in our future is stronger than ever. We've built our business on appealing to a broad base of customers with an emphasis on helping the mass market get healthy and fit. As we continue to add to our offering, we intend to grow our market share by delivering proven and accessible fitness and nutrition solutions that I would put head-to-head with anything else in the marketplace at any price point. Our content offerings and subscription-driven business model remain a source of strength and resilience. Our $3 million digital fitness and nutrition subscriptions, power a more than 75% recurring revenue base with monthly digital retention levels that remain above 95%. This is all driven by our engaging content, paired with high-quality nutrition that gets people results. It's that content that not only drives our flywheel, but also allows us to remain relevant in a way no one else can. We reinvent ourselves through our content.

We respond to customer needs and emerging trends in fitness with new, innovative and relevant programming. That content powers new customer acquisition and drives engagement and loyalty within our subscriber base. Although external factors will continue to be outside our control, we will focus on solid execution, keeping our eye on the ball. While we anticipate continued pressure in the fourth quarter, I expect to see these actions begin to move the needle on the top and bottom line in a meaningful way as we move into 2022.

With that, I'll turn the call over to Sue Collyns, our CFO, to walk through the details of the quarter.

[Sue Collyns, President & Chief Financial Officer]

Thanks, Carl, and good afternoon, everyone. I'll start with a review of our third quarter results and then provide additional context around our updated guidance. Like others in the industry, the volatility in consumer demand we experienced in the third quarter as the economy began to reopen, was greater than anticipated. But looking past the near-term turbulence, we remain confident in our unique value proposition and the long-term secular tailwinds at our back.

In the meantime, we're controlling what we can control, maintaining our strong cost discipline and using the flexibility of our business model to our advantage. Importantly, our performance versus 2019 is evidence of strong digital fitness adoption and retention and reinforces our conviction in the market opportunity ahead. During my remarks today, I'll include comparisons to 2019 and 2020 as each provides [indiscernible] context.

Turning to our Q3 results. Total GAAP revenue of $208.1 million decreased 17% year-over-year, however, increased 6% over the third quarter of 2019. As Carl mentioned, July and August performed largely in line with our forecast. Approximately 75% of our Q3 revenue shortfall versus forecast occurred in the month of September, driven by the delays in product launches, a more pronounced slowdown in consumer demand and a media investment that fell short of subscriber acquisition goals.

Moving on to the components of revenue. Digital revenue was $94.1 million, a 5% decrease compared to Q3 of 2020 due to the reasons I just described above, but increased 38% compared to Q3 of 2019. Compared to last year, digital subscriptions increased 1% to approximately $2.6 million in the third quarter and increased 55% over 2019. In terms of engagement, daily active users to monthly active users or down now was 29.6%, down 250 basis points versus prior year, but up 20 basis points versus 2019. Finally, digital streams were down 26% versus last year, but up 35% compared with the third quarter of 2019. We're encouraged to see that engagement remained high on a 2-year basis, and that's a positive indicator for the long term.

Additionally, average digital retention increased 50 basis points over last year and 40 basis points over Q3 of 2019, demonstrating the retentive power of our model. Connected business revenue was $5.9 million in the third quarter with 14,700 bikes sold compared to 8,600 bakes old in Q3 of 2020 on a pro forma basis. This was below our initial expectations as the delayed launch of BOD Interactive limited our ability to effectively market the bike in September.

Revenue was also impacted by a timing shift as GAAP only allows revenue recognition upon physical goods delivery. Given the significant number of late September bike sales, only 44% of Q3 bikes sold were actually delivered in the quarter and the remaining 56% were delivered in early Q4 and will be recorded as part of our Q4 revenue.

Looking ahead, like sales have accelerated thus far into Q4 as compared to Q3. However, given the current environment, we're now taking a more conservative view of bikes forecast to be sold as well as bikes delivered in the fourth quarter. Nutrition & Other revenue of $108.1 million was down 29% compared to Q3 2020 and down 16% compared to Q3 2019, primarily due to 23% lower nutritional subscriptions and onetime purchases of nutritional products.

I'd like to reinforce Carl's point that nutritional starts are linked to digital subscriptions, and so the demand headwinds, launch delays and marketing inefficiencies that impacted digital also had a domino effect on our Nutrition business. Gross profit dollars were $135 million, digital gross margin was 87.1% and declined by 300 basis points versus 2020, primarily due to an increased amount of content and associated production costs compared to last year.

Connected Fitness gross margin was negative 73.1%, which was in line with our expectations and reflected the higher near-term freight and distribution expenses caused by widespread supply chain pressures. This margin pressure was less impactful to our total gross margin rate of 64.9% as Connected Fitness accounted for less than 3% of our total sales mix in the quarter. Nutrition & Other gross margin was 53.1% compared with 59.9% in the prior year period, with the decrease primarily due to higher shipping and freight costs associated with COVID-related disruptions and deleverage of fixed costs, given the revenue decline.

Moving down the P&L. Despite the factors that negatively impacted our revenue, our disciplined cost control during the quarter did allow us to deliver Q3 EBITDA results that were in line with our internal forecast. Selling and marketing expenses increased to $153.8 million or 73.9% of revenue from $124 million or 49.3% of revenue last year. The percent deleverage was driven by both an increase in absolute media dollars as well as launching the brand awareness campaign. Given highly inefficient media rates, we've reassessed that ROI and a materially reducing brand marketing until the new year.

Enterprise technology and development expenses totaled $29.7 million or 14.3% of revenue compared to 9.5% of revenue in the prior year period. The increase was primarily due to strategic investments to drive future growth, including higher personnel and enterprise system-related expenses. G&A expenses were $23.3 million or 11.2% of revenue versus 6.6% of revenue in Q3 of 2020. The increase was primarily due to higher D&O insurance, personnel costs and other public company expenses.

Moving on to other income. The most material component of other income for us was the change in fair value of the liability for our 15.3 million warrants, which resulted in a noncash accounting benefit of $30.3 million in Q3. Our adjusted EBITDA loss was $43.4 million, and our net loss for Q3 was $39.9 million or a loss of $0.13 per basic and diluted share.

Turning to our balance sheet. As of September 30, we had approximately $200 million of cash and no debt. The change in cash from Q2 was primarily driven by 4 items: one, a $50 million media spend; two, capital investment as we built the Board Interactive platform; three, the acquisition of a content production studio; and four, approximately $70 million of inventory for connected fitness bikes to mitigate supply chain disruptions. Our cash position and access to the capital markets provides us with ample financial resources to ensure adequate liquidity to execute on our growth strategy.

Now, I'd like to move to our updated full year 2021 guidance. As I mentioned, the majority of the Q3 revenue decline versus forecast occurred in September. And thus far into Q4, media rates remain elevated and consumer demand continues to be difficult to predict, making for an overall challenging operating environment. Additionally, because Q3 sales were below our expectations, we began the fourth quarter with a lower subscription base from which to build revenue. So in light of these factors, we're taking a more conservative view for 2021 sales, and we now expect total GAAP revenue of between $820 million to $830 million versus prior guidance of $930 million to $960 million.

As noted in our press release, despite reducing our overall revenue guidance, our adjusted EBITDA loss remains in line with our prior guidance of negative $110 million to negative $100 million. And part of the reason we're able to maintain EBITDA guidance is due to our strong cost management, which is in our DNA. And the 2 drivers of this specific cost management in Q4 are one, refocusing our marketing on the most efficient media to drive customer acquisition, which is forecasted to reduce spend by more than $20 million.

And two, the pandemic highlighted that our work from anywhere environment is an advantage. And as such, we've assigned the remaining 3 years of our Santa Monica office lease, saving approximately $5 million in 2021 and $9 million annually through 2025.

And with that, I'll turn the call back over to Carl.

[Carl Daikeler, Co-Founder, Chairman & Chief Executive Officer]

Thank you, Sue. Before opening the call for Q&A, I wanted to provide some perspective on the long-term opportunity for Beachbody. My confidence in our future is unwavering. There are millions of people out there who are looking to transform their lives to be healthier and happier. Our solution is unique in its ability to enable them to get to a healthy lifestyle through rich experiences created by bringing together the best fitness content and nutrition products alongside community support and accountability. Nobody does it quite like Beachbody because we don't cut corners, and we focus on the best possible customer experience and results.

The pandemic showed people that working out at home is effective, efficient and economical. And technology, combined with an emerging hybrid work model means now more than ever, the home can and should be the greatest health center in everyone's life. And it's not just technology for the sake of technology. It's about technology, enhancing the human experience, the connection and accountability that is so critical in helping people achieve their goals.

That's the premise of BOD Interactive, of Openfit, of the Connected Bike and of many of the exciting new products in our pipeline, and we'll continue to do what we've done for 23 years, invent, innovate and refine with a relentless commitment to our mission of helping millions of people achieve healthy and fulfilling lives. That is what we do. We'll stay agile, adjusting and adapting and [Technical Difficulty].

Question-and-Answer Session

Q - Linda Bolton-Weiser

A - Sue Collyns

Yes, it wouldn't surprise you, Linda. I think your instinct is right, that what happens in Q4, even though we have a lot of renewals on the digital side of the portfolio, customers typically make other nutritional choices in Q4 from Thanksgiving on. And so we'd expect that nutritional file to continue to decline, and that's in line with seasonal trends.

As we go into Q1 of next year, even though the heavy lifting has been done in terms of many of the product launches associated by interactive as well as the integration of mix on to both platforms. We are lapping a pretty big increase in digital subscribers and nutritional subscribers from last year, and would expect that to take time to build?

A - Carl Daikeler

The only thing I would add, Linda, if I could, is December marks one of the biggest launches of the year for us, which takes us our coach network into the first quarter. This year, it happens to be a program called -- I mentioned called Job 1, which is 20 minutes a day, 5 days a week.

And as you can imagine, quite marketable. So the seasonality of what Sue was mentioning, is offset to a certain degree by the fact that the coaches and the indications that we're getting are quite enthusiastic about this program, and we do see quite a bit of activity around that launch, which kicks off in the first week of December.

Linda Bolton-Weiser

Okay. And then can you just talk about -- when you talk about events with the coach network, are you talking about a convention like a live convention versus a virtual convention. And if so, usually those live convention expenses are quite a bit more than virtual. So are we facing a real negative expense comparison in that business kind of going into 2022?

A - Carl Daikeler

Not at all. First, just to describe that. I'll let Sue speak to the actual expense. But we've been doing events with this business model for over 10 years, and they're actually quite productive for us. But there's 2 kind of events that we finally got to experience in October.

One was a leadership event where we get to get -- we get to bring our most proactive coaches, the people who are helping the most people together to talk about the product launches that are coming in the third and fourth quarter and into the first quarter. This is where we got to celebrate the addition of the bike to the platform and the launch of our BOD Interactive platform.

The other type of event is something that we call a Super Weekend, which happens actually at the coach expense where what we call market councils pulled together and put on many conventions on their own. We do send our super trainers and I also travel to many of these events, and it gives us an opportunity to meet with the other coaches that didn't come to leadership to give them that same visibility to the product lineup ahead of us. So this particular event was the combination of leadership and then explaining what's coming to the entire network in the fourth and first quarter in our quarterly super-weak event.

A - Sue Collyns

Yes. And just back on that question, Linda. All events costs will be part of the guidance we share for FY '22. But I'll just tell you directionally, they'll be in line with sort of pre-pandemic expenses and nothing out of the ordinary.

Linda Bolton-Weiser

Okay. And then there's a lot going on with Peloton. And one of the things going on is they seem to have lowered the price of kind of their entry-level bike. So the price gap between you and Peloton has probably narrowed. So is that the case? Are you taking action to kind of maintain the gap in pricing? Or can you just talk about kind of the pricing environment on the bike side?

A - Carl Daikeler

Yes. I can't speak to their strategy necessarily, but our strategy finally can be about bringing this incredibly high-quality commercial grade like to our 3 million subscription holders and doing that with the most immersive, exciting platform frankly, in digital fitness in what we call BOD Interactive.

Just today, we put up our Black Friday special, which will go up through the end of the month. So we expect to lean into this business model, which we believe has a lot of runway because as we've seen over a decade, this is a very marketable genre as Fitness goes. What started with spinning and has now evolved into the home is something that gets people results, and that's what Beachbody has been about since we launched the company. It's unnatural to be a part of what we offer. And we finally, like literally finally are getting to offer it to our database.

So we're quite excited by it. We think we're price competitive, but more so, our content and total solution, including nutrition, will give the customer the results that they're looking for. So we feel quite good about the direction that it's going and especially going into the first quarter.

Linda Bolton-Weiser

And I know that last quarter, you had actually raised your projection for unit by now, I believe, to 95,000. Do you wish to modify that or give any sort of a projection now for the year in terms of like sales?

A - Sue Collyns

Yes. I mean we're obviously taking a more conservative approach, as I said, in relation to the bike units from that guidance we shared on August 12. You're right, it was around 95,000 on a pro forma basis as if we own mix for the full year. And now, in reality, we've moved it down to about 60,000.

And that's due to really 3 factors: one, the reduction in consumer demand and the consumer distraction that Carl spoke about to that delayed launch of BODi, which impacted the Q3 results; and three, taking those learnings from Q3 and the delivery issues during the holidays. And basically, what we've done now, Linda, is eliminated a full month of revenue in Q4 for the bike. So even with that reduction in the 60,000 units now on a pro forma basis for this year, it's still more than double the number of bikes that mix sold last year, I think it came in around 27,500...

Linda Bolton-Weiser

Okay. And then my last question is just having to do with cash flow. I mean it looks like your operating cash flow in the quarter was, I don't know, somewhere around negative $100 million something like that. So I mean, what do you think their cash balance is going to be like at year-end? I mean, do you think it will be over $100 million? Or what's kind of your view on the cash flow side of things?

A - Sue Collyns

Yes. Well, as of the end of Q3, as you know, we've got about $200 million of cash, and we have no debt. And of course, an extremely resilient business model with more than 75% of the revenue stream being subscription related. So that's a really strong foundation.

In our Q that we actually just released , you may not have gotten to it yet, but we did terminate our credit facility in November. It is only the line that was only $35 million, and we've established premerger and the intent is always to secure a larger facility post-merger. So the termination of that line is in line with the plan.

But we plan to go out, and we are very confident of securing some ample capital to fuel the growth, primarily for working capital needs, things like inventory, CapEx, marketing opportunities and in due course, possible M&A. And yes, I mean, at the end of Q4, we'll definitely be above that $100 million mark.

Linda Bolton-Weiser

Okay, thank you very much.

Operator

We have your next question from John Heinbockel with Guggenheim. Your line is open.

John Heinbockel

Carl, maybe talk about opportunities related to Ladder and cross-selling the 3 million digital subscribers nutrition, right? That would seem to be a big opportunity with not a lot of costs attached to it.

A - Carl Daikeler

Yes. Thanks. We remain really excited about it. And it's one of the reasons that we hastened this reorganization, Christy Cartwright, who's running Ladder and now the whole nutrition component has sort of 2 approaches to nutritional marketing. One is the network model, which bundles nutrition with digital fitness, so that's where we get the bulk of our subscriptions.

But she's also got experience where the nutrition is the lead where we actually leverage the digital subscription as value-added for people who acquire our supplements. So that's what she'll do with Ladder taking advantage of the brand opportunities since we that brand was created by LeBron James and Arnold Shwartzenager, and they're still involved in helping us promote ladder.

We're looking forward to how Christy will now shape that to sell the product, and we're hoping to have some news actually I can announce towards the end of the year in terms of being a nutrition -- having a nutrition first acquisition strategy in addition to our bundling component that really built the company.

John Heinbockel

Okay. And then maybe as a follow-up. If you think about so body, I know it's early, but your take on how many of the -- maybe order of magnitude of the 3 million subscribers might be good candidates right for that upgrade? Do you think it's 10%, 20%? What do you think?

A - Carl Daikeler

I don't think I'm allowed to wager any guesses on these kind of calls. But obviously, it's an important part of our strategy to maximize the crossover between these the subscriber bases. And one of the things that we're doing, for instance, as an example, with Job 1, which launches the first week of December, not only will that be a normal sort of a predictable program, a Beachbody type of program that goes for 4 weeks and people can do on the Beachbody on-demand platform.

There's also a program made in parallel called Job 1 hybrid, which includes rides with Jennifer Jacobs. That lives on the bad interactive subscription layer. So for people with bikes who've enjoyed Jennifer's rides on whatever platform she's ever been on, now they'll have access to her rides as part of the job 1 program. So it's an important part of our strategy and one that I'm excited to work with our performance team and our data and analytics team to maximize conversion, which we've seen very good indications in the early days and then maximize retention.

One of the tools that we have to our disposal right now for the first time is the day pass. We've never been able to give the customer the ability to buy just 1 day's access to Beachbody On Demand. And with the launch of BOD Interactive, we -- at the end of October, we now have the ability for our coaches to invite people into the BOD Interactive ecosystem or Beachbody On Demand for a day to try it and then apply that to $7 day pass, if you will, apply that to a full subscription.

So we have -- like Sue mentioned, now we finally -- we have all the levers at our disposal, which the timing is just perfect as we go into what we call Q5, which starts into the fifth quarter, if you will, that starts the day after Christmas and then going into the all-important first quarter.

John Heinbockel

And then one real quick last, where are you going to be on daily hours of programming on Body? Where are you now? Where will you be by year-end? What do you think you are by the spring...

A - Carl Daikeler

We -- right now, we're producing between 130 new work out a month on the body platform and correspondingly about 100 workouts a month on the Openfit platform. And I think we'll be right about there. We do have some new modalities or a different variety of content that we're adding to the platform in the first quarter, but we think we'll be at about that rate of production through the foreseeable future.

John Heinbockel

Okay, thank you.

Operator

[Operator Instructions] We have your next question from Jonathan Komp with Baird. Your line is open.

Jonathan Komp

Hi, thank you. First, sue, maybe just a follow-up. Did you share when you look at the third quarter results, how close they were to your internal projections or quantify the shortfall at all?

A - Sue Collyns

Yes. What we said, John, was that the Q3 numbers, 75% of the sales shortfall occurred in the month of September, right? But overall, the themes where the softer consumer demand, the delayed product launches that definitely had a more pronounced impact in September and then the media investment that fell below those acquisition target forecast. So 75% of the sales shortfall occurred in September.

What I can say though is that the digital numbers, we had met our expectations just due to the highly predictable nature of deferred revenue. It was really the bikes and nutritionals that fell short of the forecast. And bikes are about 70% of that shortfall. -- nutritional was the rest. And of course, with the bikes we were hit with knowing the delay of the launch which impacted our Coach's ability to sell. But then also the timing of that meant that those bats were not shipped within the quarter, they spilled into in Q4.

And I think what's helpful to know about Q4 as we go into this is, obviously, the sales composition is going to change from Q3, largely as a result of those known by deliveries, right, with only 6 weeks to go. And specifically, the bank revenue is estimated to be about 15% of Q4 sales versus digital, which will be about 50% with nutrition, the rest because, as I mentioned earlier, seasonally, this is the time of the year when consumers make other nutritional choices.

So we typically see a reduction in our sales side. But as I think about Q4 revenue, there are 3 sort of helpful data points that I think about. One is that our October revenue was in line with our expectations. The second is that by the end of November, we're forecasting our bike sales to be locked in for the quarter.

So we've derisked that component of revenue, frankly, that caught us out in Q3. And then with only 6 weeks to go, because from now to December 31, with no highly dependent product launches. There are no real internal derailers and that place has been very in a very solid position as we talk to you today.

Jonathan Komp

Okay. And if I could follow up on the sort of the core nutrition business, it looks like it's going to be well below the 2019 levels back when you had less than 2 million total digital subscriptions. So I just want to understand with more subscriptions today, why you're not attaching nutrition at a similar level? Or what's going on to impact some of those comparisons on Nutrition?

A - Carl Daikeler

Yes. The biggest driver of the nutrition business is the digital fitness start. The retention of nutrition is not quite as long term as the retention in digital, that's why those numbers can start to get misaligned, if you will. So what's important, this is where the launch -- the product launch and the content strategy matters so much. So when we were delayed on the BOD interactive launch that delayed the growth in the nutrition file.

But again, now that we've got those tools now that we have the whole machine working and as we look ahead to the launch of job 1, we expect to rebuild those nutrition files, but that's the relationship of how the digital starts and nutrition file sizes work together.

Jonathan Komp

Okay. Understood. Maybe one last one for me. Just a broader question. If I look back in history, I know in 2019, you did less than $800 million of revenue, but close to a 10% EBITDA margin. And I'm just wondering, as you look at the business today and really the current composition, what type of sales level do you think you might need to get back to flat or positive margin performance?

And maybe a related question, how long would you consider sort of pursuing the same strategic direction versus reevaluating some of the individual business pieces?

A - Sue Collyns

Well, I think we have a very clear view of the levers that will help drive a positive EBITDA back to acceptable levels. And I think it's worth knowing that this year as well as last year, frankly, were material investment years, right? Because we did a few things. One, we acquired Ladder to emerge with Mix and integrated the Bionote platforms, be bought an open pit. And three, we built body a third platform in record time, and we also grew our headcount by 30%.

So -- and now that headcount investment we made, that included people like content developers that further differentiate digital products and increased engagement that we're seeing to data scientists, they'll give us insights to drive acquisition and retention that we've never optimized in our 22-year history. So those investments are really what we expect to drive revenue. And as they do, it will create leverage on our cost profile.

A - Carl Daikeler

If I can just add to that, the one thing that we have never had, John, is the ability to pursue partnerships. And with the advent of open Fit and bringing in John Michelle Fournier to drive that initiative that literally just got started 3 weeks ago. So it opens up an entirely new TAM to our expertise of creating specific content to help people get results.

Likewise, strategically, because we've seen the effect of digital subscribers on growing the all-important nutrition subscriber files, we've accelerated our launch tempo into the first half of 2022. And in fact, the mix, the product mix going into 2022 is specifically designed to maximize helping people get the type of results that they need today, including nutritionals. And like I mentioned in my opening comments, I'm very excited by the in-home user feedback that we're getting from 2 new nutritionals coming out next year.

So we're not leaving anything to chance, nor are we sitting on our hands just waiting for an old normal to return. It's the same reason that we are approached to responding to the iOS change at Apple is that we're not relying on outside parties for our data and analytics. We brought that in-house and have a formidable team to make sure that we're maximizing our ROI on media.

So as I think you've seen over the course of our relationship with Baird and others is this company is quite ambitious and aggressive about reaching as many customers as possible and making sure that they get results. And I feel very good about our plan over the course of the next 12 to 24 months.

A - Sue Collyns

One other point I'll add to that, John, just to give you a bit of insight into Q3 as we do post more to monitor ourselves. Cost management is part of our DNA. And we made a significant investment, as I mentioned in 2021 on last year. And we'll drive leverage as revenue increases. But immediately, we know that there's a big opportunity in cost of goods, specifically in relation to the bike.

And I'm also happy to report that our LTV to PAC has improved significantly from around 1x in Q3 where we put up it on the gas trite didn't all work. So now we're tracking comfortably well over 3.4%, 3.5x in Q4. So we're able to pivot and see improvements in the business relatively quickly, and we're pleased with that. And we know as we acquire more customers, we'll get more leverage and that EBITDA percent of revenue increase.

Jonathan Komp

Okay, understood. Thank you.

Operator

I'm showing no further questions at this time. I would now like to turn the conference back to Mr. A - Carl Daikeler, CEO, for any closing remarks.

A - Carl Daikeler

Okay. Well, I really appreciate everyone joining us and appreciate the follow-up and the questions that were provided. So thanks for joining us today and for your interest in Beachbody. We look forward to speaking with you again when we report our fourth quarter results and wishing everybody a healthy and safe holiday. Thanks so much, everybody.

End of Q&A

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.