Earnings Call Transcript - BODI Q1 2024

Operator, Operator

Good afternoon, ladies and gentlemen. Welcome to The Beachbody Company First Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a Q&A session. I would like to remind everyone that this conference call is being recorded. And I will now turn the conference over to our host, Bruce Williams, Managing Director of ICR Investor Relations.

Bruce Williams, Managing Director, ICR Investor Relations

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 The Beachbody Company; Carl Daikeler, Co-Founder and Chief Executive Officer; and Marc Suidan, 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. 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 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 flows. 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.

Mark Goldston, Executive Chairman

Thank you, Bruce. And good afternoon, everyone. 2024 is off to a strong start as we continue to deliver against our strategic initiative and remain steadfast in our turnaround plan. With our efforts thus far in 2024, we have some great news to announce. First, I'm thrilled to share that we beat the midpoint of our revenue guidance and achieved quarter-over-quarter revenue growth for the first time since Q4 of 2021. Second, we exceeded the midpoint of our adjusted EBITDA guidance and we've now delivered positive adjusted EBITDA for two consecutive quarters and today, we reported our highest adjusted EBITDA since going public back in 2021. And third, we reached a critical milestone of becoming free cash flow positive this quarter, once again a first for our company since 2020. As a reminder, the goal of our turnaround strategy centers on; one, continuing to enhance our cash position and balance sheet; two, transforming our cost base and re-architecting the enterprise to dramatically reduce our breakeven point without compromising the core business model that generates revenue; and three, launching a series of initiatives to refine the business model and drive top line growth. In terms of where we stand in the turnaround process, we feel that we are considerably ahead of schedule. Let me walk through the details of our three key turnaround strategies. First is enhancing our cash liquidity and balance sheet position. We reported our first positive free cash flow quarter since 2020. During the quarter, we took additional strategic actions to fortify our liquidity position by engaging in a sales leaseback transaction and divesting a non-core investment, which resulted in a $7 million debt reduction. As a direct outcome of that, our loan balance has been cut in half since I joined in June of 2023 from a level of $50 million to now $25 million. In April, we proactively amended our revenue covenants for our term loan with Blue Torch Capital. We finished Q4 2023 with a net cash position of $4 million. But at the end of Q1 2024, we showed continued improvement with a positive net cash position of $14 million. This transformation in just one quarter is impressive and resulted in a $10 million liquidity improvement sequentially. Additionally, our amended debt covenant lowered the quarterly revenue threshold from $120 million down to $100 million per quarter and this will last until December 31 of 2024 and then subsequently it will go to $110 million per quarter beginning in Q1 of 2025. We believe this demonstrates that our lenders have confidence in our progress to run a positive free cash flow business at a much lower revenue threshold requirement. Second, we're transforming our cost base and re-architecting the BODi enterprise to dramatically reduce our breakeven point. In what we believe to be a very short period of time, we have successfully reduced our revenue threshold from over $900 million in 2022 to less than $500 million in 2024 to be in a cash generating position, that's more than a $400 million reduction in the breakeven threshold for the company. What's important about that is that we built operating leverage into the P&L at the current run rate of revenues and believe that as our turnaround gains traction, we will drive significant operating profit over time. We stated that we would generate over $250 million in cost savings in 2024 versus where the company was back in 2021, so a long process of improving the cost structure. And we're currently at a run rate to deliver these savings in 2024, and this has been demonstrated by our Q1 2024 results. And third, we've developed revenue initiatives designed to drive top line growth, and we're thrilled to announce that we grew sequential quarterly revenues for the first time since 2021. Looking forward, we're excited about our existing and upcoming innovation pipeline, which focuses on expanding consumer access to our rich catalog of programs, and we'll also be exploring strategic partnerships and developing innovative marketing programs which will expand the distribution of our nutrition business among other initiatives. Our performance reflects many proof points that the strategy and disciplined focus of the turnaround plan we constructed after my arrival in June of 2023 are working, and we're tracking ahead of schedule on critical milestone achievements. I like to create strategic imperative lists that focus on five key areas, and I've been doing that for decades in the companies that I've run. I'm pleased to announce that the company has already achieved the five key strategic imperatives of the turnaround plan that we established after my arrival in June of 2023. Let me quickly review these five key strategic imperative accomplishments; one, we strengthened our liquidity position; two, we dramatically lowered the breakeven point of the company; three, we delivered positive adjusted EBITDA now for two consecutive quarters; four, we built substantial operating leverage into our P&L; and five, and thus far in 2024, we achieved our first positive free cash flow quarter since 2020. As a reminder, we are still in balance sheet optimization mode, which means we will remain hyper-focused on maximizing cash and liquidity. Therefore, we will continue to focus on executing our turnaround plan to optimize cash generation from our valuable asset base. We're on track to build a company that not only delivers positive adjusted EBITDA and positive free cash flows but also achieves the third element of the critical financial measurement of a turnaround, and that will be delivering GAAP net income, which will be our next key milestone in the impressive and might I say rapid turnaround of BODi. Now I'll turn it over to Carl to discuss our top-line revenue growth initiatives.

Carl Daikeler, Co-Founder and Chief Executive Officer

Thanks, Mark. And thank you, everyone, for joining our first quarter earnings call. Achieving our first free cash flow positive quarter since 2020 is a major milestone in our turnaround, and we look forward to sharing more proof points now as every quarter unfolds. I'll walk through our key revenue initiatives, which align with our overall mission to help people achieve their goals and live healthy fulfilling lives. First, we just launched our digital program purchase initiative that we're extremely excited about. Think of it as the iTunes model of buying music but for fitness programs, where customers can now buy and stream programs from our fitness and nutrition library without a subscription. We believe there's latent demand for our library of content from programs that were bestsellers and famous on DVD like P90X and Insanity to other popular programs which have never been on DVD like 80 Day Obsession, Lift 4 and Shaun Ts latest program called Dig Deeper. We're now giving consumers the ability to purchase the individual programs, which is actually the business model that propelled the business for 20 years. Each month, we'll be offering additional titles from our library of over 120 programs for sale in BODi's new shop programs store at bodi.com. And we're confident that this new initiative will cater to people who prefer to buy a specific program rather than subscribe to the entire library. We believe that we're the only major player in home fitness who has a catalog that makes this kind of commerce viable. And again, we believe that expanding access to our content provides an extremely compelling marketing opportunity. Then we can introduce those new customers to the benefits of our fitness and supplement subscriptions once they experience the efficiency of our tested approach to step-by-step training. We're in the early stages of marketing and refining the digital purchase program to maximize LTV by bringing new people to the platform and then upselling them additional programs or digital subscriptions and supplements. Next, within our nutrition business, we've expanded our sales channels and in March, we launched more aggressive marketing campaigns across our entire ecosystem, highlighting the superiority and quality of our formulations. These marketing campaigns will highlight a key product every month to our existing member base. And we're further broadening our distribution by working with social media influencers to test, review, and promote our nutrition products, and to transact through a simplified checkout process on social media platforms. Looking ahead, we're reviewing an extensive range of pricing, packaging, and portion configurations to determine the best way to generate trials and conversions and repeat purchases of our nutrition products. We're doing this across all our sales channels, including our network of partners, our direct-to-consumer marketing and now on Amazon. More news on this will be shared as we expand these activities in the coming quarters. Okay. Now moving to Amazon. We're encouraged by the growth that we've seen this quarter. Sales on Amazon increased by over 50% both sequentially and year-over-year from Q1 2023. Now while this is starting off a smaller base, the growth gives us confidence that we have the right products, strong brand recognition, and the right price points. We recognize that we have a real opportunity to expand access to our incredibly effective nutritional products and we're seeing positive compounding results from our distribution partner on Amazon. And last, I want to highlight the progress we've made with reactivating our extensive database of former and prospective customers. We continue to execute against our strategy of sending targeted messages and special offers to drive conversion. But the process of methodically combing through this large database is taking longer than we anticipated as we test and formulate our messaging and formats for email and text messaging. We have a new team leading this project and we remain very optimistic that this will be a very effective customer acquisition and engagement tool that will drive LTV with minimal CAC. I think it's also important today to discuss weight loss pharmaceuticals and their potential related impact on body and the overall weight loss industry, if I may. Several analysts have published reports that fitness is not impacted by the weight loss pharmaceutical business but meal replacement and snacking consumption is actually being negatively impacted. The science is very clear that consumers who are using GLP-1 drugs need to augment that investment with fitness and nutrition to maintain muscle mass and prevent other side effects. Scientific studies have consistently shown that the best preventive medicine for overall health and longevity is exercise and healthy eating, and there's our opportunity. BODi is the one comprehensive fitness and nutrition company that can truly complement this wave of pharmaceutical innovation, and we have not seen a negative impact from the adoption of GLP-1. In fact, whether you're a GLP-1 consumer or not, we remain the most effective and affordable fitness and nutrition solution for people. Okay. Now let me turn the call over to Marc Suidan to walk through the specifics of our first quarter financials.

Marc Suidan, Chief Financial Officer

Thanks, Carl, and thank you, everyone, for joining the call today. I'm very pleased with our Q1 results that we just released. As Mark and Carl mentioned, we have hit several key milestones in our turnaround journey. We remain on track to achieve approximately $250 million in cash cost savings in 2024, in line with our business re-architecture plan that we began back in 2021. I will now provide a review of our first quarter financials starting with revenues. Revenues were $120 million for the quarter, which was above the midpoint of the guidance range and an increase from Q4 of 2023. This would mark the first sequential revenue growth in the past eight quarters. Compared to the prior year Q1, revenues declined 17% year-over-year. Digital revenue decreased 4% from the prior quarter to $62 million and decreased 5% year-over-year. We believe that digital revenue continues to be relatively stable. We ran a successful BOGO promotion, which stands for buy one year, get the second year for free, that resulted in strong cash generation. However, less digital revenues were recognized this quarter due to their BOGO promotion as we deferred digital subscription revenue over the two-year period of the promotion. Our overall digital subscriber count was 1.2 million, of which 100% are now on the BODi premium platform. Nutrition revenue increased 7% from the prior quarter to $56 million and decreased 25% year-over-year. This marks our first sequential nutrition revenue increase since Q1 of 2022. We are pleased that our nutrition revenue grew this quarter sequentially, showing early signs of improvements within our turnaround plan. It is important to note that we are still in the early stages of reinvigorating our nutrition business and it will take more time to grow the nutrition business sustainably. At the end of Q1 2024, our nutrition subscriptions were 150,000 compared to 160,000 in the prior quarter. Connected Fitness revenue was $3 million in line with the prior quarter and 50% below the prior year first quarter. We will continue to strategically use promotions to sell our existing inventory. We are very pleased to announce that gross margin improved dramatically in Q1 of 2024. The company achieved a gross margin of 67.7% for the first quarter, which increased 550 basis points from 62.2% in Q4 of 2023 and increased 470 basis points from 63% in Q1 of 2023. This was the highest gross margin reported by the company since we went public in Q2 of 2021 when we had a gross margin of 69.2%. Digital gross margin was an impressive 79.1% for the quarter, which represented a 600 basis points improvement over the 73.1% in Q4 of 2023 and 220 basis points higher than the 76.9% in Q1 of 2023. As we discussed in the last earnings call, our 2024 digital gross margin will benefit from lower content amortization as our production and content spend has become more efficient. Our goal is to drive digital gross margin to over 80%. The company also recorded major improvements in nutrition gross margin during the quarter. Nutrition gross margin was 59.9%, representing a 670 basis points increase from 53.2% in Q4 of 2023 and a 180 basis points improvement from 58.1% in Q1 of 2023. The year-over-year improvement was driven by carefully managing inventory and pricing. Connected Fitness gross margin was minus 19.5% for the quarter versus minus 13% in the prior quarter and minus 25.7% in the prior year first quarter. Our Connected Fitness business is less than 5% of our total revenues. And as shared on previous earnings calls, we are focused on selling on hand inventory to generate incremental cash. While we're not actively looking to expand the Connected Fitness hardware business we are still very focused on ensuring that we will continue to deliver the finest Connected Fitness content. Moving on to operating expenses. Excluding the asset impairment and restructuring charges, operating expenses for the quarter were $90 million versus $91 million in the previous quarter and $113 million in the same quarter last year. This represents a $23 million reduction in operating expenses versus the same quarter last year. Selling and marketing expense was reduced to 49% of revenue compared to 50% in the prior quarter and 53% in the prior year's first quarter. We remain on track to achieve our 1,000 basis points improvement in EBITDA from selling and marketing expense reduction and our lower preferred customer discounts. This benefit would equate to $50 million based on revenues of $500 million. Technology and development was 15% of revenue in the current quarter and prior quarter compared to 13% in the prior year first quarter. G&A was 11% of revenue in line with the prior quarter and was 12% in the prior year's first quarter. The company recorded a significant reduction in our net loss for the first quarter. Net loss was $14 million in Q1 of 2024 compared to a net loss of $65 million in the prior quarter and a net loss of $29 in the prior year's first quarter. This represents a major improvement of 52% from the prior year first quarter. Adjusted EBITDA, which has now been positive for two consecutive quarters, was $5 million in Q1 of 2024 versus $3 million in Q4 of 2023 and a meaningful improvement compared to the minus $1 million in Q1 of 2023. We believe that this is a clear indicator of the effectiveness of the company's turnaround plan and the overall reduction in the breakeven threshold that we have engineered. Next, moving on to the balance sheet and cash flows. Our cash balance was $39 million compared to $33 million in the prior quarter. This improvement was driven by cash generated from organic operations. Our net cash position, which is our cash less debt as described in our earnings release, increased from $4 million at December 31 to $14 million at March 31. This $10 million liquidity improvement in a 90-day period was driven by our focus on cash generation. Our operating cash flow in the first quarter was $9 million versus cash used in operations of $9 million in the prior quarter and $8 million cash used in Q1 of 2023. Year-over-year, this is a $17 million improvement driven by a turnaround plan, which created the ability to run the business in a cash generating position at this level of revenue. Inventory was $21 million at the end of the quarter, down from $25 million at the end of the prior quarter. This represents 10 quarters of inventory balance improvement and is the lowest inventory level since going public in 2021. As we continue to sell the connected bike inventory, we will settle in this range of inventory value, which is primarily comprised of nutrition supplements. Our content and tech CapEx was in line with the prior quarter at $4 million and 28% below the prior year first quarter. The lower CapEx profile is already showing in both our improved gross margins and our improved cash flows. We measure free cash flows as our cash generated from operations less PP&E CapEx, which equates to $7 million in the first quarter. This is a tremendous improvement versus minus $10 million in the prior quarter and minus $11 million in Q1 of 2023. This is the first positive free cash flow quarter since going public in 2021. Our debt balance was $25 million at March 31st. We have paid down half the debt since the original borrowing in 2022. Lastly, turning to our outlook for the second quarter. We expect the second quarter revenues to be in the range of $103 million to $113 million, we expect a net loss in the range of $20 million to $14 million and an adjusted EBITDA in the range of minus $3 million to positive $3 million. Our guidance assumes seasonality, which typically results in lower level of revenues in Q2 versus Q1, ongoing turnaround initiatives being implemented, and higher expenses associated with our annual Summit event. With that said, we announced several major milestones today and look forward to providing further updates over the coming quarters. I will now ask the operator to open it up for questions.

Operator, Operator

Our first question today comes from George Kelly with Roth MKM.

George Kelly, Analyst

So maybe I'll start on the nutrition business. I'm curious, you showed nice sequential growth there. And I'm just curious, what drove that? Was that Amazon or is there something else that was meaningful in that sequential improvement?

Mark Goldston, Executive Chairman

I would say it's a mix of things. One, it is definitely early green shoots of our turnaround happening in nutrition. Some things to note there is in addition to better volume of orders, there was also the discount that went from 25% to 20%, which effectively increases revenue. And then also there's some earned events because that line is called nutrition and other. But overall, George, I would say it's the early green shoots of that business starting to turn around, which is good news.

George Kelly, Analyst

The second topic I wanted to discuss is some of the new growth initiatives that you talked about. Specifically, I hope you can share more about what you've observed since launching the entitlement campaign. Additionally, I understand that the reactivation campaign is taking longer than expected. I'm interested to know why it hasn't been more successful.

Carl Daikeler, Co-Founder and Chief Executive Officer

So the entitlement campaign is happening in stages. So it launched literally last week of March. So it's just ramping up. So it's a balance between marketing subscriptions and marketing specific programs that solve a specific problem. So as we've always done in our 25 years, we're building up the marketing at a ratio of customer acquisition to lifetime value. As that marketing matures and we increase lifetime value, that marketing will scale. So we're really in the early days of that scale as we continue to add new programs available for single program purchase. Each of those will now scale and that'll start to compound. But I will say, this is literally what the company has been doing for 25 years when we really came out of the gate selling specific programs on VHS tape and then DVDs. Now we're just doing it digitally. So very excited about what that means in the coming months, but it's early days on it. In terms of the pace of reactivation, you need to be very careful with CAN-SPAM laws and regulations to make sure that we're not spamming people. So we've got to be just careful with how many emails we send to what cohorts in the prospect list. So what is a very large bucket of emails, we just want to be appropriate so that we're both respecting the recipients of those emails and also being as efficient as possible with those emails so that we're not scorching the database. So we're building a relationship with them and gradually over time we expect it to be more and more productive, obviously, without the cost of acquisition because we already own the name. Does that help?

George Kelly, Analyst

It does, yes. Understood. And then last question from me is on the selling and marketing line. I'm curious, the sequential decline in selling and the absolute amount of selling and marketing dollars spent was pretty modest, less than $1 million compared to Q4. And so I'm curious if the commission changes, A, are they kind of fully in that Q1 number, and B, are you choosing to reinvest some of that savings in other advertising campaigns? And should we expect that going forward that you'll kind of divert some of those savings into other marketing-related initiatives?

Marc Suidan, Chief Financial Officer

There are two types of expenses to consider: cash spend and accounting spend. At the end of Q4 last year, we accrued expenses based on the old structure, but we benefitted from a cash spend profile in Q1 while the deferred costs were working their way through the balance sheet. This is the first reason why you didn't see the anticipated benefits. Second, Q4 is typically a quarter where we spend significantly on media due to seasonality, while Q1 usually sees higher spending overall. This explains why we see an increase in Q1 compared to Q2. Lastly, as previously mentioned, part of the 1,000 basis points will come from increased revenue, roughly 200 to 250 basis points, due to lower discounts. Our changes have been widespread, contributing to these benefits. From a cash perspective, we're seeing positive results reflected in EBITDA and expect to see continued improvement quarter-over-quarter. Regarding reinvestment, whatever we choose to reinvest will align with our desired profit and loss structure and maintain our discipline on lifetime value to capital.

Mark Goldston, Executive Chairman

George, just to add on to that, given that we are still in turnaround mode and we are absolutely driving, obviously, had two consecutive quarters of adjusted EBITDA and positive free cash flow, we're really not in reinvestment mode. We will be, but that's not really where we are right now. Right now, it's we're trying to run a very profitable company with a radically revised cost structure and we're vigilant about our ROIC numbers that we use in our marketing. So we have allowables or thresholds that we will stand up to beyond which we don't get the ROI yield that we're looking for, so we curtail spending beyond that. So when we've fully turned the company around, we will be in a position where we can do more investment spending and elongate the horizon for the return on the invested capital. But right now in the middle of a turnaround, that's not what you'd want to do.

Operator, Operator

Our next question today comes from Jonathan Komp with Baird.

Jonathan Komp, Analyst

Just one question about the progression quarterly that you see. Are you expecting to stay above $100 million of revenue in the third quarter and fourth quarter? And if so, could you share by how much?

Mark Goldston, Executive Chairman

We're not giving guidance beyond Q2. As you know, we detailed a whole bunch of initiatives and we're in the middle of the turnaround. As these initiatives start bearing more fruit, you'll see that percolate into the revenue line and you'll see the revenue line go in a different direction.

Jonathan Komp, Analyst

And just a follow-up, given typical seasonality, I'm just trying to understand how much flexibility and time you may have for those initiatives to take hold. So could you maybe just share more detail on the nature of the covenants that you have? And if those initiatives did take longer to take hold, what options you would have with the balance sheet?

Mark Goldston, Executive Chairman

I think we've shared that we haven’t disclosed it publicly, but our revenue covenant is $100 million per quarter until the end of the year. Looking at our seasonality, you can see that in the previous year, Q1 typically indexed around 112 and Q2 and Q3 hovered near the 100 level. As you know, we have planned our initiatives to be somewhat backloaded in the second half of the year. The seasonal swings aren't very significant, so they don't impact us much. Our aim is for these initiatives to begin having an effect in the latter half of the year and into Q1, and the $100 million quarterly revenue covenant was mutually agreed upon with Blue Torch, and everyone felt comfortable with it.

Jonathan Komp, Analyst

Can you provide any insights on when you expect the membership to stabilize? Additionally, how do you plan to measure the success of your initiatives in the digital business? What milestones or key metrics will indicate that you are heading in the right direction?

Mark Goldston, Executive Chairman

I think part of this is that we want to focus on broadening our customer base. The company has been highly focused on subscriptions for the last five to six years. Going back to the earlier days of The Beachbody Company, it was primarily about purchasing individual programs, what we refer to as entitlements. Now, we're trying to create a mix where we still concentrate on the subscription business, but we feel we are missing out on significant revenue and potential satisfied customers by not offering individual programs. There may be some overlap between entitlements and subscriptions, but ultimately, if our total engagement base, which includes both subscriptions and entitlements, grows as a result, the company will generate more revenue and be more profitable, supporting our core strategy. We will gain more insights as we progress. We've just begun this initiative, and when we speak to you in Q3 and Q4 after four to six months, we'll have a clearer understanding of how things are developing. The aim has always been to enhance the overall appeal of the company and its fantastic library of well-known programs. Over the past four to six years, we haven't fully maximized this opportunity because we've centered on the subscription business as our only source. Does that make sense? Jon, are you there?

Jonathan Komp, Analyst

Yes. No, I think the nature of the question, we're just trying to understand. I mean, 1.2 million digital subscribers is down significantly from the peak and not necessarily showing signs of normal seasonality or stabilization. So it's hard to get a handle on the efforts that you just walked through paying off versus the pressure is still on the core subscription business?

Carl Daikeler, Co-Founder and Chief Executive Officer

I believe we are in a stronger position now than we have been in two decades because we never had the digital subscription business alongside our front-end program sales. With the introduction of the single digital purchase option and the opportunity to upsell both the digital subscription and our comprehensive nutritional supplement catalog, we are now equipped to significantly enhance our customer acquisition efforts, offering a higher lifetime value. This is due to having more products available for our customers than ever before in our history. When considering a test-and-learn approach, we have various strategies at our disposal to increase lifetime value, which ultimately affects our front-end spending. Over the past 18 months, since we consolidated our digital subscription offerings into a single, higher value subscription, we have streamlined our tiers and established a new price point. This allows us to expand our front-end acquisition efforts through digital program purchases while selling the subscription on the back end. We anticipate that these two elements will work well together and help maintain a stable subscription base.

Mark Goldston, Executive Chairman

And the other thing is you might note, Jon, because of the pricing that we've got on the digital program purchases, we'll be able to put together a nutritional bundle with our digital program and nutrition that will give us some absolute price flexibility to make it a more attractive lower-priced entry point potentially and then we will provide a migration path for those people who purchase the entitlement to either migrate to a full digital subscription or clearly to the nutritional subscription, because they will be getting a portion of the nutrition as part of their digital bundle when they join. So we're really going back to the things that worked the best for the company several years ago with those things that we know worked today. And of course, this is all dependent on the size and the nature of our digital selling organization, as well as what we'll be augmenting that with our direct-to-consumer direct response system.

Operator, Operator

Our next question today comes from Susan Anderson with Canaccord.

Susan Anderson, Analyst

I was wondering maybe just, I guess, on the Amazon details, it sounds like the start there has been pretty successful. You sound pleased with that. I guess, does that give you confidence in expanding into other retailers or other channels? And then also, I'm curious if any of those Amazon customers that may be a little early, but if they eventually migrate to your own site?

Carl Daikeler, Co-Founder and Chief Executive Officer

We expect the Amazon business to keep growing and are exploring opportunities to expand our sales channels. What is important to us is that these channels continue to enhance our cash flow and profitability. This is the standard we use to evaluate potential opportunities, and we have many, thanks to the quality of our supplement catalog. Regarding Amazon customers transitioning to our main site, it’s likely to happen in some instances, but the convenience of shopping on Amazon is hard to compete with. Many customers prefer that convenience, which might mean we wouldn't ordinarily have attracted them. As long as we manage the contribution margin for each transaction, we remain neutral about their origin. The positive aspect is that every transaction is associated with our brand, BODi, and The Beachbody Company. If customers search for Shakeology, for example, they will discover the parent company and have the chance to start a free BODi Preview membership, granting them access to 130 programs to find what complements their supplement choice. We do anticipate some cross-selling, but that's not the primary strategy.

Mark Goldston, Executive Chairman

And Susan, I'm sure you heard this in Carl's prepared remarks, but our Amazon business went up 50% both sequentially and year-over-year, granted it was a smaller base, but it's great. And the other thing is you asked about other retailers. I mean, look, if the traction holds up the way we think it will with the appeal of our products and moving them outside of just selling them internally, you will see us potentially look at other retail outlets in addition to Amazon because this is a huge category, it's a big TAM and we've got superior products. So we're looking at pricing, package serving sizes, you name it. We're looking at all those things so we can maximize the arsenal of our nutritional business, and Amazon is the first leg of that.

Susan Anderson, Analyst

Looking forward to the additional details there. Maybe also, I may have missed this. But did you parcel out the buckets of the expense savings this quarter, like, for example, how much was due to the change in commission structure?

Marc Suidan, Chief Financial Officer

Listen, we're on track this year to achieve $250 million of savings. $200 million of that is reducing our overall operating and capital expenditures and $50 million is from our improved sales and marketing. So that's a 1,000 basis points. Some of it may come in a bit of enhanced revenue, and some of it in lower sales and marketing as a percentage of revenue. But net, net that should deliver 1,000 basis points to EBITDA this year.

Susan Anderson, Analyst

And then I guess last question from me. Did you give an update on the subscriber reactivation campaign? Just curious how that’s going and then any uptick that you've seen there? And then also I'm just curious in the difference in marketing spend to try and get those customers back than you would, I guess, just normally spend to acquire a customer?

Carl Daikeler, Co-Founder and Chief Executive Officer

The reactivation campaign is progressing more slowly than anticipated because we need to ensure compliance with CAN-SPAM regulations. Nevertheless, we consider it to be a valuable ongoing channel, although it hasn't reached the scale we hoped for. The positive aspect is that there are no acquisition costs involved since we already have the customer names, except for the effort required to create email campaigns or any discounts we might offer to reactivate those customers. We have observed significant effectiveness from these efforts based on our first-quarter results. Therefore, we are continuing to expand the campaign. With the new leadership in place, the team has started executing a fast follow approach. When someone cancels or fails to renew their membership, the team reaches out to them quickly during the best time to retain that customer before they revert to the prospect list. They are actively engaged in this process, even though it's progressing slower than we had expected.

Mark Goldston, Executive Chairman

Susan, I’d like to add an interesting data point. As we ramp up our CRM recapture program, most of our efforts have focused on digital fitness. Notably, we have over $1 billion worth of former BODi nutritional supplement users in that CRM base. This group has contributed to more than $1 billion in nutritional supplement purchases from BODi in the past. Ironically, we have not yet tried to market nutritional products to them, despite this significant revenue potential. With the new management team we've implemented, we're carefully reviewing this list to ensure we avoid being labeled as spam. Having managed one of the largest internet service providers, I am confident we can navigate this. There is a substantial opportunity to re-engage these customers with attractive offers related to nutrition, including package sizing and pricing. I encourage you to stay tuned in the second half of the year for updates on this front, as I believe you will find it impressive.

Operator, Operator

Our next question comes from BJ Cook with Singular Research.

BJ Cook, Analyst

You talked real briefly about partnerships and announced one here about a week ago or so. Can you give us some, I guess, shed some light on that partnership and maybe what your strategy is there, would you expect to be promoting those partnerships on your side and on the partner side? And would you expect that to be meaningful to revenue near term or long term?

Mark Goldston, Executive Chairman

The partnership that you're referring to with Dr. B to allow our customers and subscribers to get reimbursement through their HSA and FSA accounts should be a meaningful contributor to help customers or people who might be on the fence about subscribing to a service like that now can realize that they can get reimbursed for it. And we actually have quite a solid pipeline of potential partnerships, particularly interesting with the advent of single digital program purchases versus a subscription offer. I'm not at liberty to make any announcements right now. We're hoping to in the next several weeks. But this is part of the reason that the overall platform of solutions, both from a fitness perspective and nutrition perspective fits so perfectly in the current environment where you've got GLP-1 and other pharmaceuticals for weight loss, but lifestyle is still the primary and important decision that people make to complement those decisions. That is a perfect scenario for partnership, because it helps people succeed with those products. There's certainly a lot of demand for them. But lifestyle is going to have to be a part of it and we offer the most cost-effective and proven solution for that. So we do think we're going to have some good announcements in the near future and we think it's going to be a decent contributor to the 2024 scenario.

BJ Cook, Analyst

You mentioned the Q2 guidance, and it seems the midpoint is down, which will also reflect sequentially. Can you explain how much of this is due to seasonality versus other factors?

Marc Suidan, Chief Financial Officer

There's three factors contributing to this. One is obviously seasonality. If you look at prior years, similar midpoint occurred quarter-over-quarter. Number two, we did say we're heavily focused on balance sheet fortification. So we're looking at improving our liquidity so that before we get back into investment mode to drive growth. And number three, listen, we've detailed out quite a few initiatives that are going to drive some healthy new revenues but these initiatives just take time to implement, right? And that's why we created a cost structure that gives us the runway to implement our initiatives.

Mark Goldston, Executive Chairman

It's crucial to remember that while we've achieved two consecutive quarters of positive adjusted EBITDA and positive free cash flow this quarter, we're still in a turnaround phase. We're ahead of our initial schedule, but our focus remains on maximizing our balance sheet and enhancing expense efficiency. We have programs planned that will begin to make an impact in the latter half of the year—specifically in the third and fourth quarters. Although we are pleased with our progress, we must keep in mind that we are still in the turnaround process, and we will continue to manage accordingly as we approach the second half of the year.

Operator, Operator

Thank you all for your questions. That will be all the questions we have in queue currently. So I will pass the conference back over to Carl for any closing remarks.

Carl Daikeler, Co-Founder and Chief Executive Officer

Great. Yes, thanks so much. I'll just close by saying I'm so excited about our progress and what we've been learning about our current customer needs and our ability now to respond with exactly what they're looking for, thanks to the launch of single digital program purchases plus special digital subscription offers and these refined supplement marketing bundles that Mark's talking about. I feel like we're frankly back to our wheelhouse that served the company so well for the last 25 years. And just extremely grateful to our stakeholders and to the team for all the support of our long-term objective of sustained profitability and helping more people achieve their goals and lead healthy fulfilling lives. Thanks for joining us, and we'll talk to you next quarter.

Operator, Operator

That will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.