Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report on Form 10-K (this “Report”) and the section entitled “Risk Factors.” Unless otherwise indicated, the terms “Beachbody,” “we,” “us,” “our,” or the “Company” refer to The Beachbody Company, Inc., a Delaware corporation, together with its consolidated subsidiaries.

Forward-Looking Statements

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), including statements about and the financial condition, results of operations, earnings outlook and prospects of the Company. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements are based on our current expectations as applicable and are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of such statement. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance

to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to the following:

•

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses including changes in selling and marketing, general and administrative and enterprise technology and development expenses (including any components of the foregoing), Adjusted EBITDA (as defined below) and our ability to achieve and maintain future profitability;

•

our anticipated growth rate and market opportunity;

•

our liquidity and ability to raise financing in the future;

•

our success in retaining or recruiting, or changes required in, officers, key employees or directors;

•

our warrants are accounted for as liabilities and changes in the value of such warrants could have a material effect on our financial results;

•

our ability to effectively compete in the fitness and nutrition industries;

•

our ability to successfully acquire and integrate new operations;

•

our reliance on a few key products;

•

market conditions and global and economic factors beyond our control;

•

intense competition and competitive pressures from other companies worldwide in the industries in which we will operate;

•

litigation and the ability to adequately protect our intellectual property rights; and

•

other risks and uncertainties set forth in this Report under the heading “Risk Factors.”

Should one or more of these risks or uncertainties materialize or should any of the assumptions made by management prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.

Overview

Beachbody is a leading subscription health and wellness company. We are the creator of some of the world’s most popular fitness programs, including P90X®, Insanity® and 21 Day Fix®, which transformed the at-home fitness market and disrupted the global fitness industry by making it accessible for people to get results—anytime, anywhere. Our comprehensive nutrition-first programs, Portion Fix® and 2B Mindset®, teach healthy eating habits and promote healthy, sustainable weight loss. These fitness and nutrition programs are available through our Beachbody On Demand® streaming service. In addition, we offer nutritional products such as Shakeology® nutrition shakes and BEACHBAR® snack bars as well a professional-grade stationary cycle with 360-degree touch screen tablet and connected fitness software.

In the health, wellness and fitness industry, we focus primarily on digital content, supplements, connected fitness, and consumer health and wellness. Our goal is to continue to provide holistic health and wellness content and subscription-based solutions. Leveraging our history of fitness content creation, nutrition innovation, and our network of micro-influencers, whom we call Coaches, we plan to continue market penetration into connected fitness to reach a wider health, wellness and fitness audience.

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

For the year ended December 31, 2021, as compared to the year ended December 31, 2020:

•

Total revenue was $873.6 million, a 1% increase;

•

Digital revenue was $365.4 million, a 9% increase;

•

Connected fitness revenue was $42.7 million subsequent to the Myx acquisition in June 2021;

•

Nutrition and other revenue was $465.5 million, a 12% decrease;

•

Net loss was $228.4 million, compared to net loss of $21.4 million; and

•

Adjusted EBITDA loss was $86.1 million, compared to Adjusted EBITDA of $51.5 million.

See “Non-GAAP Information” below for information regarding our use of Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA.

Impact of COVID-19

The COVID-19 pandemic continues to have a significant impact on most businesses, including Beachbody. During the year ended December 31, 2020, we experienced strong demand for our digital subscriptions as the government ordered closures and restrictions on gyms and as consumers were reluctant to return to gyms as the COVID-19 pandemic continued. We also experienced modestly slower product fulfillment to customers and supply chain delays. During 2021, the pandemic has resulted in higher shipping, freight, and fulfillment costs and the cancellation of certain Coach events. In the second half of 2021, as government restrictions eased and pandemic fatigue set in, the demand for at-home fitness solutions slowed.

The ultimate impact of COVID-19 on our financial and operating results is unknown, but could be material. Although the pandemic initially increased consumer demand for our products, we believe the structural shift towards wellness and at-home fitness solutions like ours will continue after COVID-19. We continue to monitor customer demand along with our logistics capabilities to deliver products to our customers on a timely and consistent basis, and we intend to adapt our plans as needed to continue to drive our business.

Beachbody has business continuity programs in place to ensure that employees are safe and that the business continues to function while employees are working remotely. We have only seen minor adverse impacts on the ability of the business to function (production), and we have not seen any network connectivity issues that would have an adverse impact on our customers’ ability to access our product offerings.

Key Operational and Business Metrics

We use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions:

As of December 31,

Digital Subscriptions (millions) 2.54 2.63 1.69

Nutritional Subscriptions (millions) 0.30 0.39 0.31

Year Ended December 31,

Average Digital Retention 95.7 % 95.5 % 95.3 %

Net income (loss) (millions) $ (228.4 ) $ (21.4 ) $ 32.3

Adjusted EBITDA (millions) (1) $ (86.1 ) $ 51.5 $ 78.4

(1) See “Non-GAAP Information” below for a reconciliation of net income (loss) to Adjusted EBITDA and an explanation for why we consider Adjusted EBITDA to be a helpful metric for investors.

Digital Subscriptions

Our ability to expand the number of digital subscriptions is an indicator of our market penetration and growth. Digital subscriptions include BOD, BODi, and Openfit subscriptions. Digital subscriptions include paid and free-to-pay subscriptions with free-to-pay subscriptions, representing less than 2% of total digital subscriptions on average. Digital subscriptions are inclusive of all billing plans, currently for annual, semi-annual, quarterly and monthly billing intervals.

Nutritional Subscriptions

We package and bundle the content experience of digital subscriptions with nutritional subscriptions to optimize customer results. Nutritional Subscriptions include monthly subscriptions of nutritional products such as, Shakeology, Beachbody Performance, BEACHBAR, Bevvy, and Ladder supplements.

Average Digital Retention

We use month-over-month digital subscription retention, which we define as the average rate at which a subscription renews for a new billing cycle, to measure customer retention.

Total Streams

We use total streams to quantify the number of fitness or nutrition programs viewed per subscription, which is a leading indicator of customer engagement and retention. While the measure of a digital stream may vary across companies, to qualify as a stream on any of our digital platforms, a program must be viewed for a minimum of 25% of the total running time.

Daily Active Users to Monthly Active Users (DAU/MAU)

We use the ratio of daily active users to monthly active users to measure how frequently digital subscribers are utilizing our service in a given month. We define a daily active user as a unique user streaming content on our platform in a given day. We define a monthly active user as a unique user streaming content on our platform in that same month.

Non-GAAP Information

We use Adjusted EBITDA, which is a non-GAAP performance measure, to supplement our results presented in accordance with GAAP. We believe Adjusted EBITDA is useful in evaluating our operating performance, as it is similar to measures reported by our public competitors and is regularly used by security analysts, institutional investors, and other interested parties in analyzing operating performance and prospects. Adjusted EBITDA is not intended to be a substitute for any GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.

We define and calculate Adjusted EBITDA as net income (loss) adjusted for impairment of goodwill and intangible assets, depreciation and amortization, amortization of capitalized cloud computing implementation costs, amortization of content assets, interest expense, income tax provision (benefit), equity-based compensation, and other items that are not normal, recurring, operating expenses necessary to operate the Company’s business as described in the reconciliation below.

We include this non-GAAP financial measure because it is used by management to evaluate Beachbody’s core operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments. Adjusted EBITDA excludes certain expenses that are required in accordance with GAAP because they are non-cash (for example, in the case of depreciation and amortization, equity-based compensation, and net realizable value adjustment) or are not related to our underlying business performance (for example, in the case of interest income and expense).

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

Year Ended December 31,

Adjusted for:

Impairment of goodwill and intangible assets 94,894 — —

Amortization of capitalized cloud computing implementation costs 672 186 —

Net realizable value adjustment 10,082 — —

Change in fair value of warrant liabilities (50,729 ) — —

One-time customer returns adjustment — — 705

Other adjustment items (1) 11,701 — —

(1) Other adjustment items includes incremental costs associated with COVID-19.

(2) Non-operating primarily includes interest income and gain on investment on the Myx convertible instrument.

Results of Operations

We operate and manage our business in two operating segments, Beachbody and Other. For financial reporting purposes, we have one reportable segment, Beachbody. We identified the reportable segment based on the information used by management to monitor performance and make operating decisions. See Note 1 and Note 23 of the notes to our consolidated financial statements included elsewhere in this Report for additional information regarding our reportable segment. The following discussion of our results of operations is on a consolidated basis as the Other non-reportable operating segment is not material to the understanding of our business taken as a whole.

A discussion regarding our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020 is presented below. A discussion regarding our financial condition

and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 can be found in Amendment No. 4 to the Form S-4, Registration Statement, filed with the SEC on May 19, 2021.

(in thousands) Year Ended December 31,

Revenue:

Connected fitness 42,738 — —

Cost of revenue:

Connected fitness 67,043 — —

Operating expenses:

Impairment of goodwill and intangible assets 94,894 — —

Change in fair value of warrant liabilities 50,729 — —

Revenue

Revenue includes digital subscriptions, nutritional supplement subscriptions, one-time nutritional sales, connected fitness products and other fitness-related products. Subscription revenue is recognized ratably over the subscription period (up to 12 months). We often sell bundled products that combine digital subscriptions, nutritional products, and/or other fitness products. We consider these sales to be revenue arrangements with multiple performance obligations and allocate the transaction price to each performance obligation based on its relative stand-alone selling price. We defer revenue when we receive payments in advance of delivery of products or the performance of services.

Year Ended December 31,

(dollars in thousands)

Revenue

The increase in digital revenue for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to year-over-year growth in digital subscriptions during the first half of 2021 and the launch of BODi in the fourth quarter of 2021. During the second half of the year, the demand for at-home fitness decelerated, and we ended 2021 with 3% fewer digital subscriptions compared to prior year.

The increase in connected fitness revenue for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was due to the acquisition of Myx in June 2021.

The decrease in nutrition and other revenue for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to a $45.8 million decrease in revenue from nutritional subscriptions and a $8.0 million decrease in associated shipping revenue due to our sales composition shift from nutrition and other products, which contain a shipping component, to digital products, which are non-shippable. We ended 2021 with 23% fewer nutritional subscriptions compared to prior year.

Cost of Revenue

Digital Cost of Revenue

Digital cost of revenue includes costs associated with digital content creation including amortization and revisions of content assets, depreciation of streaming platforms, digital streaming costs, and amortization of acquired digital platform intangible assets. It also includes customer service costs, payment processing fees, depreciation of production equipment, live trainer costs, facilities, and related personnel expenses.

Connected Fitness Cost of Revenue

Connected fitness cost of revenue consists of product costs, including bike hardware costs, duties and other applicable importing costs, shipping and handling costs, warehousing and logistics costs, costs associated with service calls and repairs of products underwarranty, payment processing and financing fees, customer service expenses, and personnel-related expenses associated with supply chain and logistics.

Nutrition and Other Cost of Revenue

Nutrition and other cost of revenue includes product costs, shipping and handling, fulfillment and warehousing, customer service, and payment processing fees. It also includes depreciation of nutrition-related e-commerce websites and social commerce platforms, amortization of acquired formulae intangible assets, facilities, and related personnel expenses.

Year Ended December 31,

(dollars in thousands)

Cost of revenue

Gross profit

Gross margin

Connected fitness (57 %) —

Nutrition and other 54 % 60 %

The increase in digital cost of revenue for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily driven by a $7.4 million increase in the amortization of content assets. We released more content during the year ended December 31, 2021 related to the creation of a full library for BODi, which launched in the fourth quarter of 2021, and the acquisition of Myx’s connected fitness library in connection with the acquisition of Myx. Other variable costs of digital revenue increased as a result of the increase in digital revenue. The decrease in

digital gross margin for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily the result of the deleveraging of higher fixed content assets amortization on digital revenue.

The increase in connected fitness cost of revenue for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was driven by the acquisition of Myx in June 2021. The negative connected fitness gross margin for the year ended December 31, 2021 was primarily due to a $10.1 million net realizable value adjustment on inventory and higher product, freight, and shipping costs due to COVID-19.

The increase in nutrition and other cost of revenue for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to a $7.2 million increase in shipping, fulfillment and freight expenses, $3.3 million increase in depreciation expense, and a $1.6 million increase in personnel-related expense. These increases were partially offset by a $8.7 million decrease in product costs and $1.9 million decrease in payment processing fees. Nutrition and other gross margin decreased as a result of a higher reserve for excess and obsolete inventory, higher shipping, fulfillment and freight rates due to COVID-19, and the deleveraging of fixed costs such as depreciation and personnel-related expenses on lower revenue.

Operating Expenses

Selling and Marketing

Selling and marketing expenses primarily include the cost of Coach compensation, advertising, royalties, promotions and events, and third-party sales commissions as well as the related personnel expenses for employees and consultants. Selling and marketing expense as a percentage of total revenue may fluctuate from period to period based on total revenue, timing of new content and nutritional product launches, and the timing of our media investments to build awareness around launch activity.

Year Ended December 31,

(dollars in thousands)

As a percentage of total revenue 62.7 % 53.7 %

The increase in selling and marketing expense for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to a $59.9 million increase in online advertising and television media expenses in line with our strategic focus on customer acquisition and brand awareness building. Other increases were $23.6 million in expenses for personnel who support customer acquisition activities, $5.4 million in amortization of intangible assets, and $4.9 million in the production of marketing materials. These increases were partially offset by a $16.8 million decrease in Coach compensation, which was in line with the decrease in commissionable revenue.

Selling and marketing expense as a percentage of total revenue increased by 900 basis points primarily due to an increase in brand awareness media investments with the expectation of driving future revenue and higher media rates compared to the year ended December 31, 2020 as well as the deleveraging of more personnel and amortization expense of customer-related and contract-based intangible assets.

Enterprise Technology and Development

Enterprise technology and development expenses relate primarily to enterprise systems applications, hardware, and software that serve as the technology infrastructure for the Company and are not directly related to services provided or tangible goods sold. This includes maintenance and enhancements of the Company’s enterprise resource planning system, which is the core of our accounting, procurement, supply chain, and other business support systems. Enterprise technology and development also includes reporting and business analytics tools, security systems such as identity management and payment card industry compliance, office productivity software, research and development tracking tools, and other non-customer facing applications. Enterprise technology and development expenses include personnel-related expenses for employees and consultants who create improvements to and maintain technology

systems and are involved in the research and development of new and existing nutritional products, depreciation of enterprise technology-related assets, software licenses, hosting expenses, and technology equipment leases.

Year Ended December 31,

(dollars in thousands)

As a percentage of total revenue 13.7 % 10.8 %

The increase in enterprise technology and development expense for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to an increase in personnel-related expenses from a headcount increase and depreciation of enterprise systems-related expenses due to the completion of certain technology initiatives.

Enterprise technology and development expense as a percentage of total revenue increased by 290 basis points due to the deleveraging of higher fixed costs, such as personnel-related expense and depreciation.

General and Administrative

General and administrative expense includes personnel-related expenses and facilities-related costs primarily for our executive, finance, accounting, legal, and human resources functions. General and administrative expense also includes fees for professional services principally comprised of legal, audit, tax, and insurance.

Year Ended December 31,

(dollars in thousands)

As a percentage of total revenue 9.1 % 7.5 %

The increase in general and administrative expense for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to operating as a public company with a $6.5 million increase in personnel-related expenses, $3.9 million increase in insurance expense, $1.4 million increase in accounting fees, and $1.0 million increase in legal fees, and a $1.6 million increase in transaction costs related to the Business Combination.

General and administrative expense as a percentage of total revenue increased by 160 basis points due to the deleveraging of higher fixed costs on revenue.

Restructuring

Restructuring charges relate to our 2017 and 2018 restructuring plans, which were initiated to realign business priorities and optimize operations to maximize digital subscription scale and growth. The charges incurred primarily relate to lease termination adjustments and employee-related costs, with the restructuring benefit related to lower final lease termination expenses compared to initial estimates.

Year Ended December 31,

(dollars in thousands)

Restructuring benefit for 2020 and 2021 reflects adjustments to the estimated liability associated with the 2017 restructuring lease terminations.

Impairment of goodwill and intangible assets

Impairment charges relate to our 2021 impairment of goodwill and intangible assets.

Year Ended December 31,

(dollars in thousands)

Impairment of goodwill and intangible assets $ 94,894 $ — $ 94,894 —

In testing for goodwill impairment, we compared the carrying value of each reporting unit to its estimated fair value. Fair value was estimated using a combination of a market approach and an income approach, with significant assumptions related to guideline company financial multiples used in the market approach and significant assumptions about revenue growth, long-term growth rates, and discount rates used in a discounted cash flow model in the income approach. While the fair value of the Beachbody reporting unit substantially exceeded its carrying value, the fair value of the Other reporting unit was determined to be less than its carrying value primarily due to lower revenue in the current year and long-term forecast. As a result, the Company recorded a goodwill impairment charge of $52.6 million.

In testing for impairment of our indefinite-lived intangible assets, we compared the carrying value of each asset to its estimated fair value. Fair value was estimated using an income approach, specifically the relief-from-royalty approach, and included significant assumptions related to the royalty rate and revenue growth. Additionally, we reviewed our definite-lived intangible assets for impairment as there were indicators that their carrying value might not be recoverable. We compared their carrying value to their forecasted undiscounted cash flows, and because this evaluation indicated that the carrying value of our definite-lived intangible assets was not recoverable, we performed an impairment test of these assets. Based on these analyses, we recognized an impairment charge of $42.3 million to reduce the carrying amounts of our trade names and talent and representation contracts to their fair values.

Other Income (Expenses)

The change in fair value of warrant liabilities consists of the fair value changes of the Public Warrants and Private Placement Warrants and the transaction costs and advisory fees for the Business Combination allocated to the warrants. Interest expense primarily consists of interest expense associated with our borrowings and amortization of debt issuance costs for our Credit Facility. Other income, net, consists of interest income earned on investments and gains (losses) on foreign currency.

Year Ended December 31,

(dollars in thousands)

Change in fair value of warrant liabilities $ 50,729 $ — $ 50,729 —

The change in fair value of warrant liabilities of $50.7 million during the year ended December 31, 2021 primarily resulted from the decrease in our stock price during the second half of 2021. The increase in other income, net was primarily due to the gain on the investment in the convertible instrument from Myx prior to June 25, 2021; there was no similar investment in 2020.

Income Tax Benefit (Provision)

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

Year Ended December 31,

(dollars in thousands)

The income tax benefit during the year ended December 31, 2021, as compared to the income tax provision during the year ended December 31, 2020 was primarily due to a higher net loss in 2021 compared to 2020, an increase in net benefits from discrete events, primarily related to the acquisition of Myx, and the initial establishment of a valuation allowance against deferred taxes in 2020.

Liquidity and Capital Resources

Year Ended December 31,

(dollars in thousands)

Net cash provided by (used in) financing activities 390,651 165 (32,051 )

Historically, cash flow from operating activities and borrowings under our Credit Facility have been our primary sources of liquidity. During the year ended December 31, 2021, we received cash proceeds, net of issuance costs and cash paid for the acquisition of Myx, net of cash acquired of approximately $351.8 million in connection with the Business Combination. As of December 31, 2021, we had cash, cash equivalents, and restricted cash totaling $107.1 million, comprising $104.1 million of unrestricted cash and cash equivalents and $3.0 million of restricted cash.

Net cash used in operating activities was $215.2 million for the year ended December 31, 2021 compared to net cash of $61.4 million provided by operating activities for the year ended December 31, 2020. The decrease in cash flow from operating activities in 2021, compared to the prior year, was primarily due to the following:

•

increase in net loss;

•

increase in inventory to support anticipated demand for our connected fitness hardware following the acquisition of Myx in June 2021;

•

increase in payments we made for employee compensation;

•

decrease in payments we received from customers in advance of service or product delivery;

•

increase in content assets expenditures as we produced additional content for our newest platform BODi combined with new program development for our 2022 release schedule; and

•

increase in prepaid expenses such as insurance and technology related to operating as a public company.

We do not expect cash used in operating activities during 2022 to approximate 2021 as 2021 included investments related to bike inventory and one-time technology integration costs associated with the Myx acquisition. For example, to address expected connected fitness demand and COVID-19 related supply chain volatility, we invested over $80.0 million in connected fitness inventory in 2021. Similarly, the integration of the connected fitness platform required certain one-time technology costs. Additionally, during the year ended December 31, 2021, we invested approximately

$149.0 million in media which included certain brand media investments which we are pausing in 2022. Given changes in iOS advertising, tracking change permissions on social media platforms, less efficient media rates, and longer-term returns on brand media investments, we plan to return to performance marketing spend that is accretive to in-year cash flow in 2022. Finally, in assigning the lease for one of our offices, we expect cash savings of $9.2 million over the next year.

Net cash used in investing activities was $125.2 million and $46.7 million for the year ended December 31, 2021 and 2020, respectively. The increase in 2021, compared to the prior year, was primarily due to cash consideration of $37.7 million paid for the acquisition of Myx, a $30.9 million increase in our capital expenditures, including software and web development, and our decision to purchase our principal production studio for $5.1 million. We expect a material reduction in capital expenditures during the next 12 months due to the completion of the build-out of material projects such as BODi and the BODgroups proprietary social platform.

Net cash provided by financing activities was $390.7 million and $0.2 million for the year ended December 31, 2021 and 2020, respectively. The increase in 2021, compared to the prior year, was due to the Business Combination.

In November 2021, we terminated our Credit Facility. We believe we can effectively manage our business from cash flow from operations. We have $59.6 million of contractual obligations and other commitments associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. See Note 13 Leases and Note 14 Commitments and Contingencies in the accompanying notes to our consolidated financial statements for additional discussion of our lease obligations and purchase commitments.

Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of growth initiatives, the expansion of selling and marketing activities, the timing of new product introductions, market acceptance of our products, and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. The sale of additional equity would result in additional dilution to our shareholders. There can be no assurances that we would be able to raise additional capital in amounts or on terms acceptable to us.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. In preparing the consolidated financial statements, we make estimates and judgments that impact the reported amounts of assets and liabilities, revenue and expenses, and related disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions. The critical accounting policies that reflect our more difficult and subjective judgments and estimates used in the preparation of our consolidated financial statements include those noted below.

Inventory

Inventory consists of raw materials, work in process, and finished goods, is accounted for using the first-in, first-out method, and is valued at the lower of cost or net realizable value. We record a reserve against the carrying value of inventory based on assumptions regarding future demand for our products, anticipated margin, planned product discontinuances, and the physical condition (e.g. age and quality) of the inventory. During the year ended December 31, 2021, we recorded a $17.5 million charge to reduce the carrying value of inventory on hand to net realizable value and reserve for excess inventory. This adjustment is included as a component of connected fitness cost of revenue and nutrition and other cost of revenue. During each of the years ended December 31, 2020 and 2019, we reserved $2.8

million for excess inventory. These adjustments are included as a component of nutrition and other cost of revenue. Actual future write-offs of inventory may differ from estimates and calculations used to determine inventory reserves due to changes in customer demand or other market conditions.

Goodwill and Intangible Assets Impairment

Goodwill and intangible assets deemed to have an indefinite life are not amortized, but instead are assessed for impairment annually at October 1 and between annual tests if an event or change in circumstances occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value or indicate that it is more likely than not that an indefinite-lived intangible asset is impaired. We carry our definite-lived intangible assets at cost less accumulated amortization. If an event or change in circumstances occurs that indicates the carrying value may not be recoverable, we would evaluate our definite-lived intangible assets for impairment at that time. Due to the sustained decline in our market capitalization, and reduced revenue and operating income forecast observed in the fourth quarter of 2021, we performed an interim test for impairment of our goodwill and indefinite-lived intangible assets and tested our definite-lived intangible assets for recoverability as of December 31, 2021. In performing both the annual and interim impairment tests for goodwill and indefinite-lived intangible assets, we elected to bypass the qualitative assessment and proceed to performing the quantitative test for each.

In testing for impairment of our definite-lived intangible assets, we first compared the carrying value of each asset group to its undiscounted cash flows to determine whether it was recoverable. Because the carrying value of one of our asset groups did not exceed its future undiscounted cash flows, we then calculated the fair value of the asset group as the present value of the estimated future cash flows and determined that the carrying value exceeded the fair value. Based on this analysis, we recognized an impairment charge of $7.1 million on our acquired talent and representation contracts.

We test goodwill for impairment at a level within the Company referred to as the reporting unit. We have determined that our reporting units are our operating segments, Beachbody and Other, because none of the components of either operating segment constitutes a business for which discrete financial information is available or has operating results which are regularly reviewed by segment management. Goodwill was assigned to each reporting unit based on the excess of the purchase price over the fair value of assets acquired and liabilities assumed assigned to each reporting unit, considering their usage in each reporting unit’s operations.

IncomeTaxes

We are subject to income taxes in the United States, Canada, and the United Kingdom. We record a provision or benefit for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of results that have been included in the financial statements.

Specifically, deferred income taxes are determined on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We must also assess the likelihood that we will be able to recover our deferred tax assets. In this evaluation, we consider all available positive and negative evidence, including historical and current operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. If, based on all available evidence, it is more likely than not that a portion of our deferred tax assets will not be realized, we reduce the carrying amount of our deferred tax assets by recording a valuation allowance. Based on the level of our losses, we established a valuation allowance of $16.2 million during the year ended December 31, 2020 and recorded an additional $47.1 million valuation allowance during the year ended December 31, 2021. The valuation allowance was adjusted by $4.8 million during the year ended December 31, 2021 for acquisitions and deferred taxes related to tax deductible transaction costs included in additional paid-in capital in our consolidated financial statements. Our judgment regarding future recoverability of our deferred tax assets may change due to various factors, including changes in tax laws and changes in market conditions and their impact on our assessment of taxable income in future periods. These changes, if any, may require adjustments to the valuation allowances and an accompanying increase or decrease in net income (loss) in the period when such determination is made.

We record uncertain tax positions on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. As of December 31, 2021 and 2020, our estimated unrecognized tax benefits were immaterial.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Foreign Currency Risk

We are exposed to foreign currency exchange risk related to transactions in currencies other than the U.S. Dollar, which is our functional currency. Our foreign subsidiaries, sales, certain inventory purchases and operating expenses expose us to foreign currency exchange risk. For the year ended December 31, 2021, 2020 and 2019, approximately 10%, 9%, and 8% of our revenue was in foreign currencies, respectively. These sales were primarily denominated in Canadian dollars and British pounds.

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

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

A hypothetical 10% change in exchange rates, with the U.S. dollar as the functional and reporting currency, would not result in a material increase or decrease in cost of revenue and operating expenses due to the derivative instruments we use to hedge any foreign currency exposure.

The aggregate notional amount of foreign exchange derivative instruments at December 31, 2021 and 2020 was $30.4 million and $34.0 million, respectively.

Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of The Beachbody Company, Inc

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Beachbody Company, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, the related notes and the financial statement schedules listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisition of Myx

Goodwill and Intangible Assets Impairment

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2011.

Los Angeles, California

March 1, 2022

The Beachbody Company, Inc.

Consolidated Balance Sheets

(in thousands, except par value and share data)

As of December 31,

Assets

Current assets:

Restricted cash 3,000 —

Liabilities and Stockholders’ Equity

Current liabilities:

Current portion of lease liabilities 2,307 10,371

Commitments and contingencies (Note 14)

Stockholders’ equity:

Class C: no shares issued and outstanding at December 31, 2021 and 2020 — —

Accumulated other comprehensive loss (21 ) (202 )

Retained earnings (accumulated deficit) (225,043 ) 3,339

Total liabilities and stockholders’ equity $ 637,612 $ 356,253

The accompanying notes are an integral part of these consolidated financial statements.

The Beachbody Company, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

Year Ended December 31,

Revenue:

Connected fitness 42,738 — —

Cost of revenue:

Connected fitness 67,043 — —

Operating expenses:

Impairment of goodwill and intangible assets 94,894 — —

Other income (expense)

Change in fair value of warrant liabilities 50,729 — —

Net income (loss) per common share, basic $ (0.83 ) $ (0.09 ) $ 0.14

Net income (loss) per common share, diluted $ (0.83 ) $ (0.09 ) $ 0.12

The accompanying notes are an integral part of these consolidated financial statements.

The Beachbody Company, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

Year Ended December 31,

Elimination of accumulated balances with election of C-corp tax status — — 2,061

Other comprehensive income (loss):

Foreign currency translation adjustment (33 ) (67 ) 110

Total other comprehensive income (loss) 181 (214 ) (357 )

The accompanying notes are an integral part of these consolidated financial statements.

The Beachbody Company, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

Redeemable

Convertible Accumulated Retained

Series A Additional Other Earnings Total

Preferred Common Common Stock Paid-In Comprehensive (Accumulated) Stockholders’

Units Units Shares Amount Capital Income (Loss) (Deficit) Equity

Other comprehensive loss — — — — — (369 ) — (369 )

Members' distributions — — — — — — (7,051 ) (7,051 )

Equity-based compensation — — — — 720 — — 720

Other comprehensive income — — — — — 12 — 12

Equity-based compensation — — — — 2,860 — — 2,860

Tax asset contribution — — — — 1,211 — — 1,211

Common shares issued in connection with acquisition — — 3,410 1 8,394 — — 8,395

Other comprehensive loss — — — — — (214 ) — (214 )

Equity-based compensation — — — — 5,398 — — 5,398

Tax asset contribution — — — — (135 ) — — (135 )

Holdings downstream merger — — — — 350 — — 350

Other comprehensive income — — — — — 181 — 181

Equity-based compensation — — — — 16,413 — — 16,413

Options exercised, net of tax withholdings — — 1,408 — 1,526 — — 1,526

The accompanying notes are an integral part of these consolidated financial statements.

The Beachbody Company, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

Cash flows from operating activities:

Impairment of goodwill and intangible assets 94,894 — —

Realized losses on hedging derivative financial instruments 550 92 219

Gain on investment in convertible instrument (3,114 ) (288 ) —

Change in fair value of warrant liabilities (50,729 ) — —

Gain on lease assignment (6,500 ) — —

Other non-cash items — 93 726

Changes in operating assets and liabilities:

Cash flows from investing activities:

Investment in convertible instrument (5,000 ) (10,000 ) —

Other investment (5,000 ) — —

Cash paid for acquisition, net of cash acquired (37,280 ) 1,247 (6,473 )

Cash flows from financing activities:

Proceeds from exercise of stock options 4,680 — —

Remittance of taxes withheld from employee stock awards (3,154 ) — —

Business combination, net of issuance costs paid 389,125 — —

Members’ distributions — — (7,051 )

Deferred financing costs — (240 ) —

Holdings downstream merger — 405 —

Net cash provided by (used in) financing activities 390,651 165 (32,051 )

Effect of exchange rates on cash 16 354 408

Net increase (decrease) in cash and cash equivalents 50,227 15,263 (19,909 )

The accompanying notes are an integral part of these consolidated financial statements.

The Beachbody Company, Inc.

Consolidated Statements of Cash Flows (continued)

(in thousands)

Year Ended December 31,

Supplemental disclosure of cash flow information:

Cash paid during the year for interest $ 466 $ 206 $ 626

Cash paid during the year for income taxes, net $ 385 $ 333 $ 1,054

Supplemental disclosure of noncash investing activities:

Property and equipment acquired but not yet paid for $ 9,657 $ 5,614 $ 3,626

Common shares issued in connection with acquisition $ 162,558 $ 27,889 $ 8,395

Supplemental disclosure of noncash financing activities:

Tax asset contribution $ — $ (135 ) $ 1,211

Deferred financing costs, accrued but not paid $ — $ 1,593 $ —

The accompanying notes are an integral part of these consolidated financial statements.

The Beachbody Company, Inc.

Notes to Consolidated Financial Statements

Note 1. Description of Business and Summary of Significant Accounting Policies

Organization

On June 25, 2021 (the “Closing Date”), Forest Road Acquisition Corp. (“Forest Road”), a special purpose acquisition company, consummated the Business Combination Agreement (the “Business Combination Agreement”) dated as of February 9, 2021, by and among Forest Road, The Beachbody Company Group, LLC (“Old Beachbody”), BB Merger Sub, LLC (“BB Merger Sub”), MFH Merger Sub, LLC (“Myx Merger Sub”), and Myx Fitness Holdings, LLC (“Myx”).

Pursuant to the terms of the Business Combination Agreement, BB Merger Sub merged with and into Old Beachbody, with Old Beachbody surviving as a wholly-owned subsidiary of Forest Road (the “Surviving Beachbody Entity”); (2) Myx Merger Sub merged with and into Myx, with Myx surviving as a wholly-owned subsidiary of Forest Road; and (3) the Surviving Beachbody Entity merged with and into Forest Road, with Forest Road surviving such merger (the “Surviving Company”, and such mergers the “Business Combination”). On the Closing Date, the Surviving Company changed its name to The Beachbody Company, Inc. (the “Company”, “Beachbody”, “we” or “us”).

Basis of Presentation and Principles of Consolidation

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”).

The merger between BB Merger Sub and Old Beachbody was accounted for as a reverse recapitalization in accordance with GAAP (the “Reverse Recapitalization”). Under this method of accounting, Forest Road was treated as the acquired company and Old Beachbody was treated as the acquirer for financial reporting purposes.

Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Old Beachbody issuing stock for the net assets of Forest Road, accompanied by a recapitalization. The net assets of Forest Road are stated at historical cost, with no goodwill or other intangible assets recorded, see Note 2, Business Combination.

Old Beachbody was determined to be the accounting acquirer based on the following predominant factors:

•

Old Beachbody’s shareholders have the largest portion of the voting rights in the Company;

•

the Board and Management are primarily composed of individuals associated with Old Beachbody; and

•

Old Beachbody was the larger entity based on historical operating activity and Old Beachbody had the larger employee base at the time of the Business Combination.

The consolidated assets, liabilities, and results of operations prior to the Reverse Recapitalization are those of Old Beachbody. The shares and corresponding capital amounts and income (losses) per share, prior to the Business Combination, have been retroactively restated based on shares reflecting the exchange ratio established in the Business Combination.

Old Beachbody was determined to be the accounting acquirer in the acquisition of Myx. As such, the acquisition is considered a business combination under ASC 805, Business Combinations, and was accounted for using the acquisition method of accounting. Beachbody recorded the fair value of assets acquired and liabilities assumed from Myx, see Note 9, Acquisitions. The presented financial information for the year ended December 31, 2021 includes the financial information and activities for Myx for the period from June 26, 2021 to December 31, 2021.

The consolidated financial statements include the accounts of the Company and its controlled subsidiaries. All intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that impact the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates include, but are not limited to, the valuation of intangible assets, revenue

arrangements with multiple performance obligations, equity-based compensation, amortization of content assets, impairment of goodwill, and the useful lives and recoverability of long-lived assets. The Company bases these estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgements about the carrying amounts of assets and liabilities. Actual results could differ from those estimates.

Summary of Significant Accounting Policies

Fair Value Measurements

For assets and liabilities that are measured using quoted prices in active markets for identical assets or liabilities, the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs (Level 1). Assets and liabilities that are measured using significant other observable inputs are valued by reference to similar assets or liabilities, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data (Level 2). For all remaining assets and liabilities for which there are no significant observable inputs, fair value is derived using an assessment of various discount rates, default risk, credit quality, and the overall capital market liquidity (Level 3). These valuations require significant judgment.

Cash and Cash Equivalents

Cash and cash equivalents include:

•

cash held in checking and money market funds;

•

amounts in transit from payment processors for customer credit and debit card transactions; and

•

highly liquid investments with original maturities of three months or less at the time of acquisition.

The Company maintains its cash at financial institutions, and the balances, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company mitigates its risk by placing funds in high-credit quality financial institutions and utilizing nighty sweeps into U.S. Treasury funds for certain cash accounts. Consequently, the Company believes it is not exposed to any significant risk on its cash and cash equivalents balances.

Restricted Cash

Restricted cash includes cash reserved as a compensating cash balance for a standby letter of credit related to an operating lease.

Inventory, Net

Inventory consists of raw materials, work in process, and finished goods. Inventory is accounted for using the first-in, first-out method and is valued at the lower of cost or net realizable value. The Company records a reserve or adjusts the carrying value of inventory based on assumptions regarding future demand for the Company’s products, anticipated margin, planned product discontinuances, and the physical condition (e.g. age and quality) of the inventory.

Content Assets, Net

The Company capitalizes costs associated with the development and production of programs on its streaming platforms. The Company capitalizes production costs as customer usage and retention data supports that future revenue will be earned. These costs are classified as non-current assets in the consolidated balance sheets.

Content assets are predominantly monetized as a film group and are amortized over the estimated useful life based on projected usage, which has been derived from historical viewing patterns, resulting in an accelerated amortization pattern. Amortization begins when the program is first available for streaming by customers and is recorded in the consolidated statements of operations as a component of digital cost of revenue. When an event or change in circumstances indicates a change in projected usage, content assets are reviewed for potential impairment in aggregate at a group level. To date, the Company has not identified any such event or changes in circumstances.

Property and Equipment, Net

Property and equipment, which includes computer software and web development costs, are stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets, which range from two to seven years. Leasehold improvements are depreciated over the shorter of the life of the assets or the remaining life of the related lease. Costs of maintenance, repairs, and minor replacements are expensed when incurred, while expenditures for major renewals and betterments that extend the useful life of an asset or provide additional utility are capitalized.

Software and web development projects in-process consist primarily of costs associated with internally developed software that has not yet been placed into service. The Company capitalizes eligible costs to acquire, develop, or modify internal-use software that are incurred subsequent to the preliminary project stage. Depreciation of these assets begins upon the initial usage of the software.

When property is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in net income (loss).

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. The cost of an acquired company is assigned to the tangible and identifiable assets purchased and the liabilities assumed on the basis of their fair values at the date of acquisition. Any excess of the purchase price over the fair value of tangible and intangible assets acquired is assigned to goodwill. The transaction costs associated with business combinations are expensed as they are incurred.

Goodwill and Intangible Assets

Goodwill represents the excess of the fair value of the consideration transferred in a business combination over the fair value of the underlying identifiable assets and liabilities acquired. Goodwill and intangible assets deemed to have an indefinite life are not amortized, but instead are assessed for impairment annually as of October 1 and between annual tests if an event or change in circumstances occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value or indicate that it is more likely than not that the indefinite-lived asset is impaired.

Due to the sustained decline in the Company’s market capitalization and reduced revenue and operating income forecast observed in the fourth quarter of 2021, the Company performed an interim test for impairment of its goodwill and indefinite-lived intangible assets as of December 31, 2021. In performing both the annual and interim impairment tests for goodwill and indefinite-lived intangible assets, the Company elected to bypass the optional qualitative test and proceeded to perform quantitative tests by comparing the carrying value of each reporting unit and indefinite-lived intangible asset to its estimated fair value. While the fair value of the Beachbody reporting unit substantially exceeded its carrying value, the fair value of the Other reporting unit was determined to be less than its carrying value. As a result, the Company recorded an aggregate goodwill impairment charge of $52.6 million for the year ended December 31, 2021. Further, it was determined that the carrying value of the Company’s indefinite-lived intangible assets exceeded their fair value, and an aggregate impairment charge of $35.2 million was recorded for the year ended December 31, 2021, see Note 10 Goodwill and Intangible Assets, Net.

Intangible assets deemed to have finite lives are generally amortized on a straight-line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to the Company’s future cash flows. During the year ended December 31, 2021, given changes in their projected usage, the Company changed the useful life of its acquired formulae from ten years to five years and their amortization to an accelerated basis. The effect of the change in estimated useful life and accelerated amortization of acquired formulae resulted in a $0.6 million increase to net loss for the year ended December 31, 2021.

Impairment of Long-Lived Assets

Management reviews long-lived assets (including property and equipment, content assets, and definite-lived intangible assets) for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Recoverability of assets is determined by comparing their carrying value to the forecasted undiscounted cash flows associated with the assets. If the evaluation of the forecasted cash flows indicates that the carrying value of the assets is not recoverable, the assets are written down to their fair value.

During the year ended December 31, 2021, the Company determined that the carrying value of its acquired talent and representation contracts exceeded their fair value. As such, the Company recorded an impairment charge of $7.1 million.

Leases

The Company accounts for its leases of administrative offices and a production studio under ASC 842, Leases; the Company does not have any leases where it acts as a lessor. Under this guidance, arrangements meeting the definition of a lease are classified as operating or finance leases and are recorded on the consolidated balance sheets as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset results in straight-lined rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.

In calculating the right-of-use asset and lease liability, the Company elected to combine lease and non-lease components. Rental income on subleases is recognized on a straight-line basis over the estimated lease term. The Company excludes short-term leases having initial terms of 12 months or less as an accounting policy election and instead recognizes rent expense on a straight-line basis over the lease term for such leases.

Common Stock Warrant Liability

The Company assumed 10,000,000 warrants originally issued in Forest Road’s initial public offering (the “Public Warrants”) and 5,333,333 warrants issued in a private placement that closed concurrently with Forest Road’s initial public offering (the “Private Placement Warrants”), upon the Business Combination. The Public and Private Placement Warrants entitle the holder to purchase one share of Class A Common Stock at an exercise price of $11.50 per share. All of the Public and Private Placement Warrants remained outstanding as of December 31, 2021. The Public Warrants are publicly traded and became exercisable on November 30, 2021. If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a cashless basis, as described in the warrant agreement. In no event will the Company be required to net cash settle any warrant. The Private Placement Warrants are transferable, assignable or salable in certain limited exceptions. The Private Placement Warrants were not transferable, assignable or salable until July 25, 2021, subject to certain limited exceptions. The Private Placement Warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will cease to be Private Placement Warrants, will become Public Warrants, and will be redeemable by the Company and exercisable by such holders on the same basis as the other Public Warrants.

The Company evaluated the Public and Private Placement Warrants under ASC 815, Derivatives and Hedging—Contracts in Entity’s Own Equity, and concluded they do not meet the criteria to be classified in stockholders’ equity. Specifically, the exercise of the Public and Private Placement Warrants may be settled in cash upon the occurrence of a tender offer or exchange that involves 50% or more of our Class A stockholders. Because not all of the voting stockholders need to participate in such tender offer or exchange to trigger the potential cash settlement and the Company does not control the occurrence of such an event, the Company concluded that the Public and Private Placement Warrants do not meet the conditions to be classified in equity. Since the Public and Private Placement Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as other liabilities in the consolidated balance sheets at fair value, with subsequent changes in their respective fair values recognized in the change in fair value of warrant liabilities within the consolidated statements of operations at each reporting date. The Public Warrants are publicly traded and thus have an observable market price to estimate fair value. The Private Placement Warrants are valued using a Black-Scholes option-pricing model as described in Note 4, Fair Value Measurements to the consolidated financial statements.

Investment in Convertible Instrument

In December 2020 and March 2021, the Company purchased a convertible instrument from Myx. The convertible instrument was scheduled to mature 18 months from issuance and bore interest of 11% per annum. The principal and

accrued interest on the convertible instrument was subject to automatic conversion upon a qualified financing or a change in control, as defined in the agreement.

Prior to the Business Combination, the Company elected to measure the investment in convertible instrument from Myx using the fair value option at each reporting date. Under the fair value option, bifurcation of an embedded derivative was not necessary, and all related gains and losses on the host contract and derivative due to change in the fair value was reflected in other income, net in the consolidated statements of operations.

In connection with the Business Combination, the principal of $15.0 million and interest were effectively settled at a fair value of $18.4 million. As of December 31, 2020, the convertible instrument was included within other assets in the consolidated balance sheets.

Other Investment

As of December 31, 2021, the Company has an investment in equity securities of a privately-held company of $5.0 million, with no readily determinable fair value. This equity investment is reported within other assets in the consolidated balance sheets. The Company uses the measurement alternative for this investment, and its carrying value is reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar instruments. As of December 31, 2021, noadjustments to the carrying value of this investment were made.

Revenue Recognition

The Company’s primary sources of revenue are from sales of digital subscriptions, nutritional products, and connected fitness equipment. The Company records revenue when it fulfills its performance obligation to transfer control of the goods or services to its customer and defers revenue when it receives payments in advance of fulfilling its performance obligations. Control of shipped items is generally transferred when the product is delivered to the customer. Control of services, which are primarily digital subscriptions, transfers over time, and as such, revenue is recognized ratably over the subscription period (up to 12 months), using a mid-month convention. The Company markets and sells its products primarily in the United States, Canada, United Kingdom, and France.

The amount of revenue recognized is the consideration that the Company expects it will be entitled to receive in exchange for transferring goods or services to its customers. Revenue is recorded net of expected returns, discounts, and credit card chargebacks, which are estimated using the Company’s historical experience. The Company sells a variety of bundled products that combine digital subscriptions, nutritional products, and/or other fitness products. The Company considers these sales to be revenue arrangements with multiple performance obligations and allocates the transaction price to each performance obligation based on its relative stand-alone selling price. Revenue is presented net of sales taxes and value added taxes (VAT and GST/HST) which are collected from customers and remitted to applicable government agencies.

The Company is the principal in all its relationships where third parties sell or distribute the Company’s goods or services. Payments made to the third parties are recorded in selling and marketing expenses within the consolidated statements of operations.

Cost of Revenue

Digital Cost of Revenue

Digital cost of revenue includes costs associated with digital content creation including amortization and revisions of content assets, depreciation of streaming platforms, digital streaming costs, and amortization of digital platform intangible assets. It also includes customer service costs, payment processing fees, depreciation of production equipment, live trainer costs, facilities, and related personnel expenses.

Connected Fitness Cost of Revenue

Connected fitness cost of revenue consists of product costs, including hardware costs, duties and other applicable importing costs, shipping and handling costs, warehousing and logistics costs, costs associated with service calls and repairs of the product underwarranty, payment processing and financing fees, customer service expenses, and personnel-related expenses associated with supply chain and logistics.

Nutrition and Other Cost of Revenue

Nutrition and other cost of revenue includes product costs, shipping and handling, fulfillment and warehousing, customer service, and payment processing fees. It also includes depreciation of nutrition-related e-commerce websites and social commerce platforms, amortization of formulae intangible assets, facilities, and related personnel expenses.

The costs associated with shipping connected fitness and nutrition and other products to customers amounted to $45.8 million, $36.3 million and $29.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Selling and Marketing

Selling and marketing expenses primarily include the costs of Coach and social influencer compensation, advertising, royalties, promotions and events, and third-party sales commissions as well as the personnel-related expenses for employees and consultants associated with these areas. Selling and marketing expenses also include depreciation of certain software and amortization of contract-based intangible assets.

The Company pays Coach and third-party sales commissions when commissionable sales are made. In cases where the underlying revenue is deferred, the Company also defers the commissions and expenses these costs in the same period in which the underlying revenue is recognized. Deferred commissions are included in other current assets in the consolidated balance sheets and were $31.7 million and $30.7 million as of December 31, 2021 and 2020, respectively.

Coaches are also eligible for various bonuses, recognition, and complimentary participation in events, including those based on sales volume. The Company expenses these costs in the period in which they are earned. These expenses as well as Coach commissions earned but not paid are included in accrued expenses in the consolidated balance sheets.

Advertising costs are primarily comprised of social media, television media, and internet advertising expenses and also include print, radio, and infomercial production costs. Generally, the costs to produce television and web advertising are expensed as incurred, while television media costs are expensed at the time the media airs. Total advertising expense, including the costs to produce infomercials, amounted to $166.9 million, $98.2 million and $59.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Enterprise Technology and Development

Enterprise technology and development expenses primarily include personnel-related expenses for employees and professional fees paid to consultants who create improvements to and maintain our enterprise systems applications, hardware, and software. Expenses also include payroll and related costs for employees involved in the research and development of new and existing products and services, enterprise technology hosting expenses, depreciation of enterprise technology-related assets, and equipment leases.

Research and development costs, which are expensed as incurred, were $4.6 million during each of the years ended December 31, 2021, 2020 and 2019.

Equity-Based Compensation

The Company measures and recognizes expense for all equity-based awards based on their estimated grant date fair values. The Company recognizes the expense on a straight-line basis over the requisite service period, and forfeitures are accounted for as they occur. Equity-based compensation expense is included in cost of revenue, selling and marketing, enterprise technology and development, and general and administrative expense within the consolidated statements of operations.

Derivative Financial Instruments

The Company uses derivative instruments to manage the effects of fluctuations in foreign currency exchange rates on the Company’s net cash flows. The Company primarily enters into option and forward contracts to hedge forecasted payments, typically for up to 12 months, for cost of revenue, selling and marketing expenses, general and administrative expenses, and intercompany transactions not denominated in the local currencies of the Company’s foreign operations. The Company designates certain of these instruments as cash flow hedges and records them at fair value as either assets or liabilities within the consolidated balance sheets. Certain of these instruments are freestanding derivatives for which hedge accounting does not apply.

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

The Company classifies cash flows related to derivative financial instruments as operating activities in the consolidated statements of cash flows.

Income Taxes

Effective April 2, 2019, the Company made an election with the United States taxing authorities to change its entity status to a regarded C-Corporation from a regarded pass-through entity for income tax purposes. The consequences of this election were the recognition of a tax provision on the Company’s net income earned after that date and the recording of a net deferred tax asset as of the election date of $16.6 million as a benefit for income taxes from operations.

The Company is subject to income taxes in the United States, Canada and the United Kingdom. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

In evaluating the Company's ability to recover deferred tax assets, all available positive and negative evidence is analyzed, including historical and current operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Based on the level of losses, the Company has established a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized.

The Company records uncertain tax positions on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits on the interest expense line and other income, net, respectively, in the accompanying consolidated statements of operations. Accrued interest and penalties are included in accrued expenses and other liabilities in the consolidated balance sheets.

Foreign Currency

The reporting currency for the consolidated financial statements of the Company is the U.S. dollar. The functional currency of the Company’s foreign subsidiaries is the local currency of the subsidiaries. The assets and liabilities of these subsidiaries are translated into U.S. dollars at exchange rates in effect at the end of each reporting period. Revenues and expenses for these subsidiaries are translated at average exchange rates in effect during the applicable period. Translation adjustments are included in accumulated other comprehensive income (loss) as a component of stockholders’ equity. Gains and losses related to the recurring measurement and settlement of foreign currency transactions are included as a component of other income, net in the consolidated statements of operations and were approximately zero, a gain of $0.2 million and a loss of $0.1 million during the years ended December 31, 2021, 2020 and 2019, respectively.

Segments

Operating segments are defined as the components of an entity for which separate financial information is available and that are regularly reviewed by the Chief Operating Decision Maker (“CODM”) in assessing performance and in deciding how to allocate resources to an individual segment. The Company’s CODM is its Chief Executive Officer, and the Company has determined that there are two operating segments, Beachbody and Other. For financial reporting purposes, there is one reportable segment, Beachbody. Other primarily comprises Openfit.

As of December 31, 2021 and 2020, the Company’s long-lived assets are located in the U.S.

Earnings per share

The Company follows the authoritative guidance which establishes standards regarding the computation of earnings per share (“EPS”) by companies that have issued securities other than common stock that contractually entitle the holder to participate in distribution and earnings or the contractual obligation to share in losses of a company. The guidance requires earnings to be hypothetically allocated between the common, preferred, and other participating shareholders based on their respective rights to receive non-forfeitable distributions, whether or not declared.

Basic net income (loss) per common share is calculated by dividing net income (loss) allocable to common shareholders by the weighed-average number of common shares outstanding during the period.

Diluted net income (loss) per common share adjusts net income (loss) and net income (loss) per common share for the effect of all potentially dilutive shares of the Company’s common stock.

Recently Adopted Accounting Pronouncement

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes specific exceptions to the general principles in Topic 740 in addition to simplifying other areas of Topic 740. The Company adopted ASU 2019-12 in the first quarter of 2021, using the prospective method of adoption, and the adoption had no material impact to the Company’s consolidated financial statements.

Accounting Pronouncement Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to apply ASC 606 to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination on the acquisition date rather than the general guidance in ASC 805. The guidance in this update will be effective for public companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years with early adoption permitted. The Company is evaluating the potential impact of adopting this guidance on its consolidated financial statements.

Note 2. Business Combination

As discussed in Note 1, Description of Business and Summary of Significant Accounting Policies, on June 25, 2021, the Company consummated the Business Combination Agreement, with Old Beachbody surviving the merger as a wholly-owned subsidiary of the Company.

At the effective time of the Merger (the “Effective Time”), and subject to the terms and conditions of the Business Combination Agreement, each equity unit of Old Beachbody, other than those held by Carl Daikeler and certain of his affiliated and related entities, was canceled and converted into the right to receive 3.359674941 shares (the “Exchange Ratio”) of the Company’s Class A Common Stock, $0.0001 par value per share (the “Class A Common Stock”), and each equity unit of Old Beachbody held by Carl Daikeler and certain of his affiliated and related entities was canceled and converted into the right to receive the number of shares of the Company’s Class X Common Stock, par value $0.0001 per share, (the “Class X Common Stock,” and, together with the Class A Common Stock, the “Common Stock”) equal to the Exchange Ratio.

Pursuant to the Business Combination Agreement, 3,750,000 shares held by Forest Road Acquisition Sponsor LLC (the “Sponsor”) will be unvested and are subject to forfeiture if certain earnout conditions are not satisfied (“Forest Road Earn-out Shares”). Subject to certain other terms and conditions, the Forest Road Earn-out Shares will vest, in equal tranches of 10% each, commencing on December 22, 2021, upon the occurrence of the Company’s last sale price on the New York Stock Exchange (“NYSE”) exceeding each of the following price-per-share thresholds for any 20 trading days within any consecutive 30-day trading period: $12.00, $13.00, $14.00, $15.00 and $16.00. Any Sponsor Shares that do not vest within 10 years after the Closing Date will be forfeited. The Forest Road Earn-out Shares are accounted for as equity-classified equity instruments, were included as merger consideration as part of the Reverse Recapitalization, and recorded in additional paid-in capital. As of December 31, 2021, all Forest Road Earn-out Shares are unvested.

Upon the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of all classes of capital stock to 2,000,000,000 shares, $0.0001 par value per share, of which, 1,600,000,000 shares are designated as Class A Common Stock, 200,000,000 shares are designated as Class X Common Stock, 100,000,000 shares are designated as Class C Common Stock and 100,000,000 shares are designated as Preferred Stock. The holder of each share of Class A Common Stock is entitled to one vote, the holder of each share of Class X Common Stock is entitled to ten votes, and except as otherwise required by law, the holder of each share of Class C Common Stock is not entitled to any voting powers.

In connection with the Business Combination, a number of subscribers purchased an aggregate of 22,500,000 shares of Class A Common Stock (the “PIPE”) from the Company, for a purchase price of $10.00 per share and an aggregate purchase price of $225.0 million (the “PIPE Shares”), pursuant to separate subscription agreements entered into and effective as of February 9, 2021.

At the Effective Time, and subject to the terms and conditions of the Business Combination Agreement, each Myx equity unit was canceled and converted into the right to receive approximately 13.5 million shares of Class A Common Stock; provided, however, that certain holders of Myx units received an amount in cash equal to the value of such shares not to exceed $37.7 million.

The following table reconciles the elements of the Business Combination to the consolidated statements of cash flows and the consolidated statements of stockholders’ equity for the year ended December 31, 2021 (in thousands):

Recapitalization

Cash- Forest Road trust and cash, net of redemptions $ 216,444

Less: Non-cash net assets assumed from Forest Road 269

Less: Fair value of Public and Private Placement Warrants (60,900 )

Less: Transaction costs and advisory fees for Forest Road (27,059 )

Net Business Combination 333,831

Less: Non-cash net assets assumed from Forest Road (269 )

Add: Non-cash fair value of Public and Private Placement Warrants 60,900

Net cash contributions from Business Combination $ 389,125

The Company recorded transaction costs and advisory fees allocated to warrants as a component of change in fair value of warrant liabilities in the consolidated statements of operations.

The number of shares of Common Stock issued immediately following the consummation of the Business Combination:

Common stock of Forest Road, net of redemptions 21,616,515

Forest Road shares held by the Sponsor (1) 7,500,000

Business Combination and PIPE Shares - Class A Common Stock 51,616,515

Myx equity units - Class A Common Stock 13,546,503

Old Beachbody equity units - Class A Common Stock (2) 101,762,614

Old Beachbody equity units - Class X Common Stock (3) 141,250,310

Total shares of Common Stock immediately after Business Combination 308,175,942

(1) Includes 3,750,000 Forest Road Earn-out Shares.

(2) The number of Old Beachbody equity units - Class A Common Stock was determined from 20,220,589 common units and 10,068,841 preferred units of Old Beachbody outstanding immediately prior to the closing of the Business Combination converted at the Exchange Ratio.

(3) The number of Old Beachbody equity units - Class X Common Stock was determined from 42,042,850 common units of Old Beachbody outstanding immediately prior to the closing of the Business Combination converted at the Exchange Ratio.

Note 3. Revenue

The Company’s revenue disaggregated by revenue type and geographic region is as follows (in thousands):

Segment

Beachbody Other Total

Revenue Type:

Geographic region:

Segment

Beachbody Other Total

Revenue Type:

Geographic region:

Segment

Beachbody Other Total

Revenue Type:

Geographic region:

1Consists of Canada, United Kingdom and France in 2021 and 2020; consists of Canada and United Kingdom in 2019. No single country accounted for more than 10% of our total revenue in 2021, 2020 and 2019.

Approximately 30% of Beachbody’s revenues for year ended December 31, 2021 are attributable to Shakeology, Beachbody’s premium nutritional shake.

Deferred Revenue

Deferred revenue is recorded for nonrefundable cash payments received for the Company’s performance obligation to transfer, or stand ready to transfer, goods or services in the future. Deferred revenue consists of subscription fees

billed that have not been recognized and physical products sold that have not yet been delivered. During the year ended December 31, 2021, the Company recognized $93.3 million of revenue that was included in the deferred revenue balance as of December 31, 2020. During the year ended December 31, 2020, the Company recognized $67.7 million of revenue that was included in the deferred revenue balance as of December 31, 2019. During the year ended December 31, 2019, the Company recognized $64.0 million of revenue that was included in the deferred revenue balance as of December 31, 2018.

Note 4. Fair Value Measurements

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows (in thousands):

Level 1 Level 2 Level 3

Assets

Derivative assets $ — $ 314 $ —

Total assets $ — $ 314 $ —

Liabilities

Public Warrants $ 2,701 $ — $ —

Private Placement Warrants — — 2,133

Level 1 Level 2 Level 3

Assets

Derivative assets $ — $ 164 $ —

Investment in convertible instrument — — 10,288

Fair values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate the recorded value due to the short period of time to maturity. The fair value of the Public Warrants, which trade in active markets, is based on quoted market prices. The fair value of derivative instruments is based on Level 2 inputs such as observable forward rates, spot rates, and foreign currency exchange rates. The Company’s Private Placement Warrants and investment in the convertible instrument are classified within Level 3 of the fair value hierarchy because their fair values are based on significant inputs that are unobservable in the market.

The valuation of the Private Placement Warrants and, prior to the Business Combination, the investment in the convertible instrument use assumptions and estimates the Company believes would be made by a market participant in making the same valuations. The Company assesses these assumptions and estimates on an on-going basis as additional data impacting the assumptions and estimates are obtained.

Private Placement Warrants

The Company determined the fair value of the Private Placement Warrants using a Black-Scholes option-pricing model and the quoted price of the Company’s Class A Common Stock. Volatility was based on the implied volatility derived from the average of the actual market activity of the Company’s peer group. The expected life was based on the remaining contractual term of the Private Placement Warrants, and the risk-free interest rate was based on the implied yield available on U.S. treasury securities with a maturity equivalent to the warrants’ expected life. The significant unobservable input used in the fair value measurement of the Private Placement Warrants is the implied volatility. Significant changes in the implied volatility would result in a significantly higher or lower fair value measurement, respectively.

The following table presents significant assumptions utilized in the valuation of the Private Placement Warrants on the Closing Date of the Business Combination and at December 31, 2021:

As of December 31, As of June 25,

Risk-free rate 1.2 % 0.9 %

Dividend yield rate — —

Contractual term (in years) 4.49 5.00

The following table presents changes in the fair value of the Private Placement Warrants for the year ended December 31, 2021 (in thousands):

Year Ended December 31,

Balance, beginning of period $ —

Assumed in Business Combination 26,400

Change in fair value (24,267 )

Balance, end of period $ 2,133

For the year ended December 31, 2021, the change in the fair value of Private Placement Warrants resulted from the change in price of the Company’s Class A Common Stock. The changes in fair value are included in the consolidated statements of operations as a component of change in fair value of warrant liabilities and in the consolidated balance sheets as other liabilities.

Investment in Convertible Instrument

Prior to the Business Combination and as of December 31, 2020, the convertible instrument was valued using a scenario-based analysis. Two primary scenarios were considered to arrive at the valuation for the convertible instrument. The first scenario considered the probability-weighted value of conversion at the stated discount to the issue price in a change in control event. The second scenario considered the probability-weighted value of conversion at the stated discount to the issue price in a qualified financing event. As of the date of the investment in the convertible instrument, an implied yield was calculated such that the sum of the value of the straight debt and the value of the conversion feature was equal to the principal investment amount. The implied yield of the investment was carried forward with a market adjustment and used as the primary discount rate for subsequent valuation dates.

The significant unobservable inputs used in the fair value measurement of the Company’s investment in the convertible instrument were the probabilities of Myx closing a future qualified financing or change of control, which would trigger conversion of the convertible instrument, probabilities as to the periods in which the outcomes were expected to be achieved, and discount rate. Significant changes in the probabilities of the completion of the future qualified financing or change in control would have resulted in a significantly higher or lower fair value measurement, respectively. Significant changes in the probabilities of the period in which outcomes would be achieved would have resulted in a significantly lower or higher fair value measurement, respectively.

The following table presents changes in the investment in convertible instrument from Myx measured at fair value for the years ended December 31, 2021 and 2020 (in thousands):

Year Ended December 31,

Balance, beginning of period $ 10,288 $ —

Investment in convertible instrument 5,000 10,000

Conversion of investment (18,402 ) —

Balance, end of period $ — $ 10,288

For the year ended December 31, 2021, the change in the fair value of the investment in convertible instrument resulted from the effective settlement of the instrument. The changes in fair value are included in the consolidated statements of operations as a component of other income, net. There was no material change in the fair value of the investment in convertible instrument from Myx for the year ended December 31, 2020.

Note 5. Inventory, Net

Inventory, net consists of the following (in thousands):

December 31,

Raw materials and work in process $ 24,436 $ 26,480

Adjustments to the carrying value of excess inventory and inventory on hand to net realizable value were $17.5 million, $2.8 million and $2.8 million during the years ended December 31, 2021, 2020 and 2019, respectively. These adjustments are included in the consolidated statements of operations as a component of nutrition and other cost of revenue and connected fitness cost of revenue.

Note 6. Other Current Assets

Other current assets consist of the following (in thousands):

December 31,

Note 7. Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):

December 31,

Computer software and web development projects in-process 26,490 12,380

Furniture, fixtures and equipment 2,442 7,016

All of the Company’s property and equipment is located in the U.S.The Company recorded depreciation expense related to property and equipment in the following expense categories of its consolidated statements of operations as follows (in thousands):

Year Ended December 31,

Note 8. Content Assets, Net

Content assets, net consist of the following (in thousands):

December 31,

The Company expects $19.1 million of content assets to be amortized during the next 12 months and 100% of the balance within four years. The Company recorded amortization expense for content assets of $14.8 million, $7.5 million and $8.5 million during the years ended December 31, 2021, 2020 and 2019, respectively.

Note 9. Acquisitions

Myx

BODI US Equity

BODI · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

BODI US Equity☆

BODI · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

BODI US Equity