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:

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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), and our ability to achieve and maintain future profitability;

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our anticipated growth rate and market opportunity;

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our liquidity and ability to raise financing in the future;

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

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

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

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our ability to successfully acquire and integrate new operations;

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our reliance on a few key products;

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market conditions and global and economic factors beyond our control;

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

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

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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 BOD and BODi streaming services. 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 and plan to rename as “Partners,” 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, 2022, as compared to the year ended December 31, 2021:

•

Total revenue was $692.2 million, a 21% decrease;

•

Digital revenue was $300.7 million, an 18% decrease;

•

Nutrition and other revenue was $353.3 million, a 24% decrease;

•

Connected fitness revenue was $38.2 million, an 11% decrease;

•

Net loss was $194.2 million, compared to net loss of $228.4 million; and

•

Adjusted EBITDA loss was $23.3 million, compared to Adjusted EBITDA loss of $86.1 million.

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

Recent Developments

We believe post-pandemic consumer behavior, where consumers wanted to spend more time outside of their homes, has adversely impacted demand for at-home fitness solutions. This post-pandemic consumer behavior, combined with unprecedented increases in supply chain costs, have contributed to declines in our gross margins. We believe that these factors are starting to stabilize. We plan to mitigate these challenging macroeconomic factors with strategies that we expect will drive our future success and growth.

2023 Restructuring

In January 2023, the Company executed cost-reduction initiatives intended to streamline the business, while focusing on key growth priorities. These actions are expected to result in approximately $6.5 million in costs consisting primarily of termination benefits during the first quarter of 2023. Our key growth priorities for 2023 include a focus on revamping BODi, our premium digital platform, and growing Shakeology in the Healthy Dessert market. Beginning March 2023, our BODi digital platform has a new form of fitness content called BODi Blocks, and new mindset content to drive positive self-motivation.

Digital Gross Margin

We believe our “One Brand” strategy, which consolidated our streaming content into a single Beachbody platform and was implemented during the third quarter of 2022, simplified our product offerings for customers and will lead to an increase in customer acquisition. We continue to focus on improving Coach recruitment and retention and their ability to reach more customers and believe that strengthening our Coach network will generate additional digital revenue from our Coach business management online platform as well as drive growth in digital and nutritional subscriptions.

Nutrition and Other Gross Margin

Our nutritional products are often bundled with digital content offerings, and we continue to develop enhancements to our upsell and cross-sell capabilities. We are also currently reviewing our nutritional product portfolio and will simplify our offerings with nutritional products that meet our profitability requirements and/or reflect market demand. We also intend to test price increases to partially offset rising supply chain costs.

Connected Fitness Gross Margin

We anticipate that our connected fitness gross margin will remain negative until we sell through inventory on hand. We have adjusted our inventory to net realizable value based on the increased supply chain costs to manufacture, transport, fulfill, and ship a Beachbody Bike. We have been limited in our ability to sufficiently increase pricing to mitigate costs due to the highly competitive nature of the connected fitness market. In September 2022, we introduced the BODi Bike Studio. This bundled offering includes the Beachbody Bike, three years of BODi digital subscription, weights, a kettle bell, and mats. This bundle can be financed through a “buy now pay later” company where the customer pays $50 per month for 36 months for this complete package. We receive the full cash payment upfront, net of fees. During the fourth quarter of 2022, the BODi Bike Studio received positive customer feedback for this very competitive offer. We may continue to explore different pricing and bundling strategies to accelerate demand for our current inventory. Consumer response to these strategies is uncertain, and we may be required to continue to reduce the carrying value of connected fitness inventory. See “Risk Factors - Risks Related to Our Business and Industry - Our operating results could be adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory” in this Annual Report on Form 10-K.

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,

(in millions)

Year Ended December 31,

(in millions, except for percentages)

Average digital retention 95.9 % 95.7 % 95.5 %

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

Digital Subscriptions

Our ability to expand the number of digital subscriptions is an indicator of our market penetration and growth. Digital subscriptions include BOD, BODi, and prior to July 2022, Openfit subscriptions. Digital subscriptions include paid and free-to-pay subscriptions with free-to-pay subscriptions representing approximately 1% of total digital subscriptions on average. Digital subscriptions are inclusive of all billing plans, currently for annual, semi-annual, quarterly and monthly billing intervals.

Nutritional Subscriptions

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

Average Digital Retention

We use month-over-month digital subscription retention, which 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, inventory net realizable value adjustments, 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 loss, the closest GAAP measure, for the periods indicated:

Year Ended December 31,

Adjusted for:

Impairment of goodwill and intangible assets 19,907 94,894 —

Amortization of capitalized cloud computing implementation costs 492 672 186

Employee incentives, expected to be settled in equity 5,466 — —

Inventory net realizable value adjustments (1) 24,864 10,082 —

Restructuring and platform consolidation costs (2) 11,718 (320 ) (1,677 )

Change in fair value of warrant liabilities (8,322 ) (50,729 ) —

Other adjustment items (3) — 11,701 —

(1) Represents a non-cash expense to adjust the carrying value of our connected fitness inventory and related future commitments. This adjustment is included because of its unusual magnitude due to disruptions in the connected fitness market.

(2) Includes restructuring expense and non-recurring personnel costs associated primarily with the consolidation of our digital platforms.

(3) Incremental costs associated with COVID-19.

(4) Includes interest income and, during the year ended December 31, 2021, also includes the gain on investment on the Myx convertible instrument.

Results of Operations

Prior to the third quarter of 2022, we operated and managed our business in two operating segments, Beachbody and Other, and one reportable segment, Beachbody. During the third quarter of 2022, in connection with the consolidation of our Openfit streaming fitness offering onto the Beachbody digital platform and based on the information used by management to monitor performance and make operating decisions, we changed our segment reporting as it was determined that there is one operating segment. See Note 1, Description of Business and Summary of Significant Accounting Policies, to our consolidated financial statements included elsewhere in this Report for additional information regarding our segment reporting.

A discussion regarding our financial condition and results of operations for the year ended December 31, 2022, compared to the year ended December 31, 2021, is presented below. 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 can be found in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.

(in thousands) Year Ended December 31,

Revenue:

Cost of revenue:

Operating expenses:

Impairment of goodwill and intangible assets 19,907 94,894 —

Change in fair value of warrant liabilities 8,322 50,729 —

Revenue

Revenue includes digital subscriptions, nutritional supplement subscriptions, one-time nutritional sales, connected fitness products, access to our online Coach business management platform, preferred customer program memberships and other fitness-related products. We often sell bundled products that combine digital subscriptions, nutritional products, and/or other fitness products. We consider these sales to be revenue arrangements with multiple performance obligations and allocate the transaction price to each performance obligation based on its relative stand-alone selling

price. We defer revenue when we receive payments in advance of delivery of products or the performance of services. Digital subscriptions revenue is recognized ratably over the subscription period of up to 38 months.

Year Ended December 31,

(dollars in thousands)

Revenue

The decrease in digital revenue for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to a $40.9 million decrease in revenue generated from our online Coach business management platform as a result of fewer Coaches. The decrease in Coaches was primarily attributable to our preferred customer membership program, which launched at the end of Q3 2021, as certain Coaches elected to become preferred customers rather than remain in our Coach network. The reduction in digital revenue was also due to a $21.4 million decrease in revenue from our digital streaming services which was due, in part, to 23% fewer digital subscriptions.

The decrease in nutrition and other revenue for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to a $123.0 million decrease in revenue from nutritional products and a $8.0 million decrease in revenue from accessories, along with a $9.9 million decrease in associated shipping revenue. Nutritional subscriptions decreased 27% compared to prior year. These decreases were partially offset by $26.9 million in revenue from our preferred customer membership program, which launched at the end of Q3 2021.

The decrease in connected fitness revenue for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to lower demand as a result of reduced promotional activity compared to at the launch of the Beachbody Bike in Q3 2021.

Cost of Revenue

Digital Cost of Revenue

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

Nutrition and Other Cost of Revenue

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

Connected Fitness Cost of Revenue

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

Year Ended December 31,

(dollars in thousands)

Cost of revenue

Gross profit

Gross margin

Nutrition and other 53 % 54 %

Connected fitness (139 %) (57 %)

The increase in digital cost of revenue for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily driven by higher fixed costs. These include a $9.4 million increase in the amortization of content assets primarily related to BODi, which launched in Q4 2021, and content acquired from Myx in Q2 2021; a $6.2 million increase in depreciation expense primarily related to the BODi platform and a change in useful life of certain assets in connection with our digital platform consolidation; and a $6.3 million increase in personnel-related expenses as a result of a shift in headcount focused on our digital streaming services. The decrease in digital gross margin for the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily the result of these higher fixed expenses on lower digital revenue.

The decrease in nutrition and other cost of revenue for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to decreases in product cost, freight, fulfillment, shipping, customer service, and payment processing expenses as the result of the decrease in nutrition and other revenue. Nutrition and other gross margin was almost flat year over year.

The increase in connected fitness cost of revenue for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to an incremental $17.8 million in adjustments for excess and obsolete inventory and to reduce the carrying value of connected fitness inventory to its net realizable value and a $4.5 million increase in fulfillment costs. The decline in the connected fitness gross margin for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to higher inventory adjustments and higher fulfillment and warehousing costs due to supply chain surcharges and constraints.

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 personnel expenses for employees and consultants who support these areas. Selling and marketing expense as a percentage of total revenue may fluctuate from period to

period based on total revenue, timing of new content and nutritional product launches, and the timing of our media investments to build awareness around launch activity.

Year Ended December 31,

(dollars in thousands)

As a percentage of total revenue 52.0 % 62.7 %

The decrease in selling and marketing expense for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to a $123.0 million decrease in television media and online advertising expense and a $62.0 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 decreased by 11 percentage points primarily due to the decrease in media compared to 2021. We have reduced our media spend as part of our strategy to invest in media that meets a certain return on investment.

Enterprise Technology and Development

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

Year Ended December 31,

(dollars in thousands)

As a percentage of total revenue 15.1 % 13.7 %

The decrease in enterprise technology and development expense for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to a $18.7 million decrease in personnel-related expenses as the result of lower headcount and a $0.4 million decrease in product development expenses, partially offset by a $3.5 million increase in depreciation expense related to technology initiatives that were completed in Q4 2021.

Enterprise technology and development expense as a percentage of total revenue increased by 140 basis points due to lower total revenue.

General and Administrative

General and administrative expenses include 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 11.3 % 9.1 %

The decrease in general and administrative expense for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to a $3.9 million decrease in depreciation expense due to lower depreciable assets resulting from the assignment of our Santa Monica office lease, a $3.2 million decrease in recruiting expenses due to fewer headcount additions, and a $3.0 million decrease in transaction costs as we had no acquisition activity in 2022 compared to the acquisition of Myx in 2021. These decreases were partially offset by a $4.0 million increase in insurance expense and a $4.0 million increase in professional fees as a result of operating as a public company.

General and administrative expense as a percentage of total revenue increased by 220 basis points due to higher fixed costs on lower total revenue.

Restructuring

Restructuring charges relate to our 2022 strategic initiative to consolidate our streaming fitness and nutrition offerings into a single Beachbody platform. The charges incurred primarily relate to employee termination costs.

Year Ended December 31,

(dollars in thousands)

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

Impairment of goodwill and intangible assets

Year Ended December 31,

(dollars in thousands)

During the year ended December 31, 2022, due to reduced revenue and operating income forecasts, we tested our definite-lived intangible asset for recoverability, and as a result recognized a $18.9 million impairment charge to

reduce to reduce the carrying amounts of our trade names, customer relationships and developed technology intangible assets to their fair values.

During the year ended December 31, 2022, we also tested our indefinite-lived intangible asset for impairment by comparing its carrying value to its estimated fair value. Based on this analysis, we recognized a $1.0 million impairment charge as the fair value of the indefinite-lived trade name was determined to be less than its carrying value primarily due to lower revenue in the current year and long-term forecast.

During the year ended December 31, 2021, we recorded a goodwill impairment charge of $52.6 million as a result of the carrying value of the Other reporting unit exceeding its fair value and a $42.3 million impairment charge 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, private placement, and Term Loan warrants. Interest expense primarily consists of interest expense associated with our borrowings and amortization of debt discount and issuance costs for our Term Loan in 2022 and Credit Facility in 2021. Other income, net, consists of interest income earned on investments and gains (losses) on foreign currency.

Year Ended December 31,

(dollars in thousands)

The decrease in the change in fair value of warrant liabilities of $42.4 million during the year ended December 31, 2022 primarily resulted from a relatively lower decline in our stock price during 2022. The increase in interest expense was due to higher interest rates on higher borrowings outstanding during 2022 compared to 2021. The decrease 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 2022.

Income Tax Benefit

Income tax benefit 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, 2022, as compared to the income tax benefit during the year ended December 31, 2021 was primarily driven by a decrease in the net benefit from discrete events. During 2021, we recognized an income tax benefit as a result of the significant deferred tax liabilities recorded in connection with the acquisition of Myx, which in turn, partially reduced our need for a valuation allowance; there was no similar benefit recorded during 2022.

Liquidity and Capital Resources

Historically, our primary sources of liquidity have been sales of our equity, debt financing, and cash generated from our operations. As of December 31, 2022, we had $80.1 million in cash and cash equivalents.

On August 8, 2022 (the “Effective Date”), we entered into a financing agreement with a third-party lender which provides for senior secured term loans in an aggregate principal amount of $50.0 million (the “Term Loan”) and permits borrowing up to an additional $25.0 million, subject to certain terms and conditions. The Term Loan was funded on the Effective Date and bears interest at our option of either (i) the reference rate as defined in the agreement or (ii) the Secured Overnight Financing Rate (“SOFR”) as defined in the agreement. In addition, the Term Loan borrowings bear interest at 3.00% per annum, paid in kind by capitalizing such interest and adding such capitalized interest to the outstanding principal amount of the loans on each anniversary of the Effective Date. The Term Loan provides customary restrictions and requires compliance with certain financial and other covenants, with which we were in compliance as of December 31, 2022. The Term Loan matures on August 8, 2026.

In connection with the Term Loan, we issued warrants to certain holders affiliated with the lender for the purchase of 4,716,756 shares of the Company’s Class A Common Stock at an exercise price of $1.85 per share. The warrants vest on a monthly basis over four years, with 30%, 30%, 20% and 20% vesting in the first, second, third and fourth years, respectively. The warrants have a seven-year term from the Effective Date.

We are using the financing agreement proceeds for general corporate purposes and to pay transaction fees and expenses related to the Term Loan. During the year ended December 31, 2022, we paid $4.5 million of third-party debt issuance costs. Excluding amortization of the debt issuance costs, debt discount for the Term Loan warrants, and PIK interest, the Term Loan, which was a SOFR loan during the year ended December 31, 2022, had an effective interest rate of 10.44% during the year ended December 31, 2022.

In addition to an annual fee of $0.25 million, the Term Loan requires annual amortization of 2.50% in the first two years and 5.00% in the final two years, paid quarterly, and certain mandatory repayments as defined in the agreement. As of December 31, 2022, borrowings outstanding under the Term Loan were $49.4 million, of which $1.3 million is payable within the next 12 months.

Our other material cash requirements include our leases and purchase commitments primarily related to nutritional inventory, fitness and nutrition trainers, future events, and information systems support. As of December 31, 2022, we have $29.7 million of lease obligations and purchase commitments associated with contracts that are enforceable, 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. $2.3 million of our lease obligations and $20.8 million of our purchase commitments are due within 12 months. 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 contractual commitments.

For the years ended December 31, 2022, 2021 and 2020, our net cash flows were as follows:

Year Ended December 31,

(dollars in thousands)

Net cash used in operating activities was $47.2 million for the year ended December 31, 2022, compared to $215.2 million for the year ended December 31, 2021. The decrease in cash used in operating activities was primarily due to reduced purchases of media and connected fitness inventory, in line with expectations. In 2022, we returned to a performance marketing model which drives in-quarter or next-quarter payback and which reduced media spend by $116.7 million compared to the prior year. We believe that our connected fitness inventory as of December 31, 2022

is sufficient to meet expected demand over the next 12 months and anticipate no material purchases of inventory in the short term.

Net cash used in investing activities was $26.5 million and $125.2 million for the year ended December 31, 2022 and 2021, respectively. The decrease in cash used in investing activities compared to the prior year was primarily due to a $51.4 million decrease in capital expenditures as the result of the completion of significant projects at the end of 2021. We expect to continue to reduce capital expenditures over the next 12 months as most of these projects are discretionary. The year-over-year decrease in net cash used in investing activities was also due to $47.3 million related to the Myx acquisition and other investments during the year ended December 31, 2021, compared to no similar acquisition or investment during the year ended December 31, 2022.

Net cash provided by financing activities was $47.6 million and $390.7 million for the year ended December 31, 2022 and 2021, respectively. The decrease in cash provided by financing activities was primarily due to completion of the Business Combination during the year ended December 31, 2021 compared to the Term Loan borrowing, net of debt issuance costs during the year ended December 31, 2022. See Note 12, Debt, for additional discussion of the debt financing entered into during 2022.

Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth and overall economic conditions. We continue to assess and efficiently manage our working capital, and expect to generate additional liquidity through continued cost control initiatives. We believe that existing cash and cash equivalents and cost control initiatives will provide the Company with sufficient liquidity to meet our anticipated cash needs, including debt service requirements, for the next 12 months.

We may explore additional equity or debt financing to supplement our anticipated working capital balances and further strengthen our financial position, but do not at this time know which form it will take or what the terms will be. The incurrence of additional 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 will 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 by 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, 2022 and 2021, we recorded a $39.8 million and a $17.5 million charge, respectively, to reduce the carrying value of inventory on hand and inventory purchase commitments to net realizable value and reserve for excess inventory. These adjustments are included as a component of connected fitness cost of revenue and nutrition and other cost of revenue. During the year ended December 31, 2020, we reserved $2.8 million for excess inventory. The 2020 adjustment is 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 macro-economic conditions observed in the second quarter of 2022, we performed an interim test for goodwill impairment as of June 30, 2022. We were required to assess our long-lived assets for impairment, which resulted in no impairment, prior to our goodwill impairment test. In performing this interim impairment test for goodwill, we elected to bypass the optional qualitative test and proceeded to perform a quantitative test by comparing the carrying value of the Beachbody reporting unit to its estimated fair value. There was no goodwill held by the Other reporting unit. 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. The results of our interim test for impairment at June 30, 2022 concluded that the fair value of our Beachbody reporting unit exceeded its carrying value, resulting in no impairment.

In connection with the consolidation of the Openfit streaming fitness offering onto the Beachbody digital platform, we changed our segment reporting as we determined that there is one operating segment. As a result of this change in segment reporting during the third quarter of 2022, we completed a qualitative test for goodwill impairment by reporting unit both prior to and subsequent to the change. The qualitative assessment is an evaluation of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing our qualitative assessment, we considered the significant margin by which the fair value of the Beachbody reporting unit exceeded carrying value in the most recent quantitative test in addition to events and changes in circumstances since the most recent quantitative test that could have significantly impacted the assumptions used in the valuation. Based on this qualitative assessment, we concluded that no impairment indicators existed for goodwill both prior to and subsequent to the change in segment reporting.

Due to reduced revenue and margin forecasts for certain products, we performed an interim test for impairment of our indefinite-lived intangible asset as of September 30, 2022. In testing for impairment of the indefinite-lived trade name, we compared the carrying value of the 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. The fair value of the indefinite-lived trade name was determined to be lower than its carrying value, primarily as a result of reduced revenue and margin forecasts for certain supplements. As a result, we recorded a $1.0 million non-cash impairment charge for this intangible asset.

We completed the required annual impairment test for goodwill as of October 1, 2022. We performed a quantitative assessment, in which we estimated the fair value of our reporting unit and determined that the fair value of our reporting unit was greater than its carrying value, resulting in no impairment. 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.

Due to reduced revenue and operating income forecasts and sustained decline in our market capitalization during the fourth quarter of 2022, we performed an interim test for goodwill impairment as of December 31, 2022. We assessed our long-lived assets for impairment prior to our goodwill impairment test. In assessing our long-lived assets, we tested the related asset group for recoverability by comparing the carrying value of the asset group to its forecasted undiscounted cash flows. Because the carrying value of the asset group did not exceed its future undiscounted cash flows, we determined that it may not be recoverable. The fair value of the assets within the asset group was then calculated to determine whether an impairment loss should be recognized. The fair values of the customer-related, technology-based, and trade name intangible assets were estimated primarily using a relief-from-royalty approach and calculated to be lower than the carrying value. As a result, we recorded an aggregate impairment charge of $18.9 million. In testing for goodwill impairment, we elected to bypass the optional qualitative test and proceeded to perform

a quantitative test by comparing the carrying value of our reporting unit to 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. The results of our interim test for impairment at December 31, 2022 concluded that the fair value of our reporting unit exceeded its carrying value, resulting in no impairment. Our reporting unit’s fair value exceeded carrying value by approximately 21%.

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 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. Based on this analysis, we recognized an aggregate impairment charge of $35.2 million to reduce the carrying amounts of our trade names to their fair values during the year ended December 31, 2021.

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 during the year ended December 31, 2021.

Management will continue to monitor its reporting unit for changes in the business environment that could impact its fair value. Examples of events or circumstances that could result in changes to the underlying key assumptions and judgments used in our goodwill impairment tests, and ultimately impact the estimated fair value of our reporting unit may include the demand for at-home fitness solutions, our subscriber growth rates, adverse macroeconomic conditions, and volatility in the equity and debt markets which could result in higher weighted-average cost of capital. Changes in any of the assumptions used in the valuation of the reporting unit, or changes in the business environment could materially impact the expected cash flows, and such impacts could potentially result in a material non-cash impairment charge.

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 and $47.6 million valuation allowance during the year ended December 31, 2021 and 2022, respectively. The valuation allowance was adjusted by $4.8 million and $0.8 million during the year ended December 31, 2021 and 2022, respectively, 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, 2022 and 2021, 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, 2022, 2021 and 2020, approximately 10%, 10%, and 9% 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, 2022 and 2021 was $17.6 million and $30.4 million, respectively.

Interest Rate Risk

Our exposure to interest rate risk is primarily associated with our Term Loan borrowings, which were SOFR loans during the year ended December 31, 2022 and subject to variability in the SOFR rate. If the interest rate on our Term Loan were to increase or decrease by 1% for the year and our indebtedness remained constant throughout the period, our annual interest expense would not change materially. Further, our exposure to interest rate volatility is partially mitigated by interest income on our highly liquid investments. At this point, we do not believe that our liquidity has been materially affected by the debt market uncertainties noted in the last few years, and we do not believe that our liquidity will be significantly impacted in the near future.

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, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 16, 2023 expressed an adverse opinion thereon.

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 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. 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. 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 Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Goodwill and Long-lived Assets Impairment

/s/ Ernst & Young LLP

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

Los Angeles, California

March 16, 2023

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of The Beachbody Company, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited The Beachbody Company, Inc’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, The Beachbody Company, Inc (the Company) has not maintained effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment.

The Company did not maintain effective information technology general controls (ITGCs) over information systems and applications that are relevant to the preparation of the consolidated financial statements. Specifically, the Company did not maintain (i) sufficient user access controls to ensure appropriate segregation of duties and to restrict access to financial applications, programs and data to only authorized users, and (ii) program change management controls to ensure that information technology (IT) program and data changes affecting financial information technology applications and underlying accounting records are appropriately authorized and implemented. Business process controls that are dependent on ITGCs, or that rely on data produced from systems impacted by the ineffective ITGCs, are also deemed ineffective. The Company also did not maintain effective controls over its impairment analyses for goodwill and long-lived assets as sufficient contemporaneous documentation was not retained to demonstrate the operation of review controls over the forecasts used in developing estimates of fair value.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of The Beachbody Company, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, 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”). This material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the financial statements, and this report does not affect our report dated March 16, 2023, which expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Los Angeles, California

March 16, 2023

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 2,150 2,307

Current portion of Term Loan 1,250 —

Long-term lease liabilities, net 3,318 4,823

Commitments and contingencies (Note 14)

Stockholders’ equity:

Class C: no shares issued and outstanding at December 31, 2022 and 2021 — —

Accumulated other comprehensive income (loss) 37 (21 )

Total liabilities and stockholders’ equity $ 443,395 $ 637,612

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:

Cost of revenue:

Operating expenses:

Impairment of goodwill and intangible assets 19,907 94,894 —

Other income (expense)

Change in fair value of warrant liabilities 8,322 50,729 —

Net loss per common share, basic and diluted $ (0.63 ) $ (0.83 ) $ (0.09 )

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

The Beachbody Company, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

Year Ended December 31,

Other comprehensive income (loss):

Foreign currency translation adjustment (105 ) (33 ) (67 )

Total other comprehensive income (loss) 58 181 (214 )

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

The Beachbody Company, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

Retained Accumulated

Additional Earnings Other Total

Common Stock Paid-In (Accumulated) Comprehensive Stockholders’

Shares Amount Capital (Deficit) Income (Loss) Equity

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

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

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

Holdings downstream merger — — 350 — — 350

Common shares issued in connection with acquisition 4,870 — 27,889 — — 27,889

Other comprehensive income — — — — 181 181

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

Other comprehensive income — — — — 58 58

Options exercised, net of tax withholdings 1,879 — 2,854 — — 2,854

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 19,907 94,894 —

Provision for inventory and inventory purchase commitments 39,757 17,488 2,759

Realized losses on hedging derivative financial instruments 108 550 92

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

Change in fair value of warrant liabilities (8,322 ) (50,729 ) —

Gain on lease assignment — (6,500 ) —

Amortization of debt issuance costs 733 — —

Paid-in-kind interest 598 — —

Other non-cash items 1,219 — 93

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

Cash flows from financing activities:

Proceeds from exercise of stock options 3,162 4,680 —

Remittance of taxes withheld from employee stock awards (308 ) (3,154 ) —

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

Shares withheld for tax withholdings on vesting of restricted stock (183 ) — —

Payment of debt issuance costs (4,485 ) — —

Deferred financing costs — — (240 )

Holdings downstream merger — — 405

Effect of exchange rates on cash (858 ) 16 354

Supplemental disclosure of cash flow information:

Cash paid during the year for interest $ 2,082 $ 466 $ 206

Cash paid during the year for income taxes, net 389 385 333

Supplemental disclosure of noncash investing activities:

Property and equipment acquired but not yet paid for 2,025 9,657 5,614

Common shares issued in connection with acquisition — 162,558 27,889

Supplemental disclosure of noncash financing activities:

Tax asset contribution — — (135 )

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

Warrants issued in relation to Term Loan 5,236 — —

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, (1) 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.

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, seeNote 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, seeNote 9, Acquisitions. The consolidated financial statements include the financial information and activities for Myx for the period beginning on June 26, 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 useful life and recoverability of long-lived assets, the valuation of warrant liabilities, the recognition and measurement of income tax assets and liabilities, the valuation of intangible assets, impairment of goodwill and intangible assets, and the net realizable value of inventory. 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.

Segments

Operating segments are the components of the Company 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 considers its chief executive officer to be the Company’s CODM. The CODM manages business operations, evaluates performance, and allocates resources based on the Company’s consolidated net revenues and contribution margin.

Prior to the third quarter of 2022, the Company concluded it had two operating segments, Beachbody and Other, and one reportable segment, Beachbody. During the third quarter of 2022, in connection with the consolidation of its Openfit streaming fitness offering onto a single Beachbody digital platform, the Company determined that it has one operating and reportable segment and changed its segment reporting accordingly.

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 nightly 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.

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 primarily range from two to seven years and up to 39 years for buildings. 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 Indefinite-Lived 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. Instead, goodwill and indefinite-lived intangible assets are assessed for impairment annually or more frequently if an event or change in circumstances occurs that, with respect to goodwill, would more likely than not reduce the fair value of a reporting unit below its carrying value or, for indefinite-lived intangible assets, indicate that it is more likely than not that the asset is impaired.

Goodwill

Due to the sustained decline in the Company’s market capitalization and macro-economic conditions observed in the second quarter of 2022, the Company performed an interim test for impairment of its goodwill as of June 30, 2022. In performing the interim impairment test for goodwill, the Company elected to bypass the optional qualitative test and proceeded to perform quantitative tests by comparing the carrying value of each reporting unit to its estimated fair value. The Company previously tested its reporting units for impairment as of December 31, 2021, which resulted in an impairment and write-off of all goodwill in the Company’s Other reporting unit. The results of the Company’s interim test for impairment at June 30, 2022 concluded that the fair value of its Beachbody reporting unit exceeded its carrying value, resulting in no impairment.

As a result of the change in segment reporting discussed above, the Company completed a qualitative test for impairment of its goodwill by reporting unit both prior to and subsequent to the change. The qualitative assessment is an evaluation of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

In performing its qualitative assessment, the Company considered the significant margin by which the fair value of its reporting unit exceeded carrying value in its most recent quantitative test in addition to events and changes in circumstances since its most recent quantitative test that could have significantly impacted the assumptions used in the valuation. Based on this qualitative assessment, the Company concluded that no impairment indicators existed for goodwill both prior to and subsequent to the change in segment reporting.

The Company completed the required annual impairment test for goodwill as of October 1, 2022. The Company performed a quantitative assessment, in which it estimated the fair value of its reporting unit and determined that the fair value of its reporting unit was greater than its carrying value, resulting in no impairment.

The Company also performed an interim test for impairment of its goodwill as of December 31, 2022 due to the sustained decline in the Company’s market capitalization observed in the fourth quarter of 2022. The Company elected to bypass the optional qualitative test and proceeded to perform a quantitative test by comparing the carrying value of its reporting unit to estimated fair value. The fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

Indefinite-lived Intangible Assets

During the three months ended March 31, 2022, the Company determined that one of its acquired trade names no longer had an indefinite life. The Company tested the trade name for impairment before changing the useful life and determined there was no impairment based on its assessment of fair value. The Company is prospectively amortizing the trade name over its remaining estimated useful life of two years beginning January 1, 2022. The Company recorded $7.5 million, or $0.02 per share, of amortization expense for this trade name as a component of selling and marketing expenses for the year ended December 31, 2022.

The Company performed an interim test for impairment of its indefinite-lived intangible asset as of September 30, 2022 due to reduced revenue and margin forecasts for certain products. The fair value of the indefinite-lived trade name was calculated using a relief-from-royalty approach and was determined to be lower than its carrying value, primarily as a result of reduced revenue and margin forecasts for certain supplements. As a result, the Company recorded a $1.0 million non-cash impairment charge for this intangible asset during the year ended December 31, 2022.

As of December 31, 2022, the Company had no indefinite-lived intangible assets.

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 first grouping the long-lived assets at the lowest level for which there are identifiable cash flows, and then comparing the carrying value of each asset group to its forecasted undiscounted cash flows. If the forecasted undiscounted cash flows indicates that the carrying value of the assets is not recoverable, an impairment test of the asset group is performed. Impairment is recognized if the carrying amount of the asset group exceeds its fair value.

Due to reduced revenue and operating income forecasts, the Company tested its asset group for recoverability as of December 31, 2022 and determined that the asset group was not recoverable. The fair value of the assets within the asset group was then calculated to determine whether an impairment loss should be recognized. The fair values of the customer-related, technology-based, and trade name intangible assets were estimated primarily using a relief-from-royalty approach and calculated to be lower than the carrying value. As a result, the Company recorded an aggregate impairment charge of $18.9 million.

As of December 31, 2022 and 2021, the Company’s long-lived assets were located in the U.S.

Leases

The Company accounts for its leases of administrative offices and production studios 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 Liabilities

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, 2022 and 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.

In connection with the Term Loan, the Company issued warrants for the purchase of 4,716,756 shares of the Company’s Class A Common Stock at an exercise price of $1.85 per share to certain holders affiliated with Blue Torch Finance, LLC (the “Term Loan Warrants”). The Term Loan warrants vest on a monthly basis over four years and have a seven-year term.

The Company evaluated the Public, Private Placement and Term Loan 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, Private Placement and Term Loan 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, Private Placement and Term Loan Warrants do not meet the conditions to be classified in equity. Since the Public, Private Placement and Term Loan 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 and Term Loan Warrants are valued using a Black-Scholes option-pricing model as described in Note 4, Fair Value Measurements, to the consolidated financial statements.

The fair values of the Public Warrants and Private Placement Warrants were remeasured as of December 31, 2021, resulting in a $56.0 million non-cash change in fair value gain in the consolidated statements of operations for the year ended December 31, 2021. Transaction costs and advisory fees allocated to the issuance of the Public and Private Placement Warrants of $5.3 million were also recorded as a component of change in fair value of warrant liabilities in the consolidated statements of operations, resulting in a net change in fair value of warrant liabilities of $50.7 million for the year ended December 31, 2021. The fair values of the Public, Private Placement, and Term Loan Warrants were remeasured as of December 31, 2022, resulting in a $8.3 million non-cash change in fair value gain in the consolidated statements of operations for the year ended December 31, 2022.

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 were 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.

Other Investment

As of December 31, 2022, 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, 2022, 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 38 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.

Nutrition and Other Cost of Revenue

Nutrition and other cost of revenue includes product costs, shipping, 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.

Connected Fitness Cost of Revenue

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

The costs associated with shipping connected fitness and nutrition and other products to customers were $35.4 million, $45.8 million and $36.3 million for the years ended December 31, 2022, 2021 and 2020, 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 and other assets in the consolidated balance sheets and were $32.8 million and $31.7 million as of December 31, 2022 and 2021, 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, were $36.9 million, $166.9 million and $98.2 million for the years ended December 31, 2022, 2021 and 2020, 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 the Company’s 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 $4.4 million, $4.6 million, and $4.6 million during each of the years ended December 31, 2022, 2021 and 2020 respectively.

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 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

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 in interest expense and other income, net, respectively, in the 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 a gain of $0.6 million, approximately zero, and $0.2 million during the years ended December 31, 2022, 2021 and 2020, respectively.

Earnings (loss) per share

Basic net loss per common share is calculated by dividing net loss allocable to common shareholders by the weighed-average number of common shares outstanding during the period. Diluted net loss per common share adjusts net loss and net loss per common share for the effect of all potentially dilutive shares of the Company’s common stock. Basic and diluted loss per share are the same for each class of common stock because they are entitled to the same liquidation and dividend rights.

Recently Adopted Accounting Pronouncement

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), to simplify the accounting for certain financial instruments with characteristics of liabilities and equity. The FASB reduced the number of accounting models for convertible debt and convertible preferred stock instruments and made certain disclosure amendments to improve the information provided to users. In addition, the FASB amended the derivative guidance for the “own stock” scope exception and certain aspects of the EPS guidance. The Company adopted this new accounting guidance on a prospective basis on January 1, 2022, and the adoption did not have a material effect on its consolidated financial statements.

Accounting Pronouncements 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.

In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs (Topic 405-50) - Disclosure of Supplier Finance Program Obligations, which requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The guidance in this update will be effective for fiscal years beginning after December 15, 2022, except for the amendment on roll forward information which is effective for fiscal years beginning after December 15, 2023. The Company is evaluating the potential impact of this guidance on its consolidated financial statements and related disclosures.

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 geographic region is as follows (in thousands):

Year Ended December 31,

Geographic region:

1Consists of Canada, United Kingdom and France. No single country accounted for more than 10% of the Company’s total revenue.

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, 2022, the Company recognized $106.5 million of revenue that was included in the deferred revenue balance as of December 31, 2021. 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.

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 $ — $ 462 $ —

Total assets $ — $ 462 $ —

Liabilities

Public Warrants $ 415 $ — $ —

Private Placement Warrants — — 107

Term Loan Warrants — — 1,226

Level 1 Level 2 Level 3

Assets

Derivative assets $ — $ 314 $ —

Total assets $ — $ 314 $ —

Liabilities

Public Warrants $ 2,701 $ — $ —

Private Placement Warrants — — 2,133

Fair values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and the Term Loan approximate their recorded values. 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 Term Loan Warrants 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.

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 December 31, 2022 and 2021:

As of December 31,

Risk-free rate 4.2 % 1.2 %

Dividend yield rate — —

Contractual term (in years) 3.49 4.49

The following table presents changes in the fair value of the Private Placement Warrants for the years ended December 31, 2022 and 2021 (in thousands):

Year Ended December 31,

Balance, beginning of period $ 2,133 $ —

Assumed in Business Combination — 26,400

Balance, end of period $ 107 $ 2,133

For the year ended December 31, 2022, the change in the fair value of the Private Placement Warrants resulted from the change in price of the Company’s Class A Common Stock, remaining contractual term, and risk-free rate. 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.

Term Loan Warrants

The Company determined the fair value of the Term Loan 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 primarily 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 Term Loan 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 Term Loan Warrants is the implied volatility. Significant changes in the implied volatility would result in a significantly higher or lower fair value measurement, respectively. See Note 12, Debt, for additional information regarding the Term Loan Warrants.

The following table presents significant assumptions utilized in the valuation of the Term Loan Warrants on the Effective Date and at December 31, 2022:

Risk-free rate 4.0 % 2.9 %

Dividend yield rate — —

Contractual term (in years) 6.61 7.00

The following table presents changes in the fair value of the Term Loan Warrants for the year ended December 31, 2022:

Year ended December 31,

Balance, beginning of year $ —

Issued in connection with Term Loan 5,236

Change in fair value (4,010 )

Balance, end of year $ 1,226

Investment in Convertible Instrument

Prior to the Business Combination, 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 year ended December 31, 2021 (in thousands):

Year Ended December 31,

Balance, beginning of year $ 10,288

Investment in convertible instrument 5,000

Change in fair value 3,114

Conversion of investment (18,402 )

Balance, end of year $ —

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 change in fair value is included in the consolidated statements of operations as a component of other income, net.

Note 5. Inventory, Net

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

BODI US Equity

BODI · 10-K · period ended 2022-12-31

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 2022-12-31

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