The Beachbody Company, Inc.BODINYSE
Loading
Operator: Good afternoon. Thank you for attending today's The Beachbody Company, Inc. Third Quarter 2025 earnings conference call. My name is Jayla, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I'll now like to pass the conference over to our host, Bruce Williams, the Managing Director of ICR. You may proceed, Bruce. Welcome, everyone, and thank you for joining us for the third quarter earnings call.
Bruce Williams: With me on the call today are Mark Goldston, Executive Chairman of The Beachbody Company, Carl Daikeler, Co-Founder and Chief Executive Officer, and Brad Ramberg, Interim Chief Financial Officer. Following the prepared remarks, we'll open the call up for questions. Before we get started, I would like to remind you of the company's Safe Harbor Statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of '24. Actual future results may differ materially from those suggested by such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, which includes today's press release. Today's call will include references to non-GAAP financial measures such as adjusted EBITDA, net cash, and free cash flow. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website. Now I would like to turn the call over to Mark.
Mark Goldston: Thank you, and good afternoon, everyone. I'd like to welcome you to The Beachbody Company, Inc.'s Third Quarter 2025 Earnings Call. We're pleased with our outstanding third quarter results and the progress and speed of our turnaround that's far exceeded our expectations. Let me put this achievement in perspective. We've now delivered eight consecutive quarters of positive adjusted EBITDA. Our free cash flow performance has been equally strong. We've generated $13.1 million in free cash flow through nine months, with Q3 alone contributing $9 million of free cash flow. Perhaps most significantly, we generated net income this quarter, a seminal milestone that we identified years ago as the ultimate marker of our turnaround effort. Our cash position of $33.9 million substantially exceeds our outstanding debt principal of $25 million, providing us with financial flexibility. Our operational metrics continue to demonstrate the structural improvements we've made. We've maintained strong gross margins while significantly reducing our revenue breakeven point from approximately $900 million in 2022 down to $180 million today. A $720 million lowering of the breakeven that positions us to generate operating leverage at a much lower revenue level. Looking ahead, we're focused on our growth strategy in 2026. This upcoming year will mark our transition from a financial restructuring to capitalizing on new revenue opportunities from our innovation pipeline and from market expansion. We're launching a comprehensive retail initiative that will leverage our portfolio of billion-dollar brands entirely new channels. In 2026, we'll introduce Shakeology to retail for the first time in our company's history. That will be followed by our brand new P90X nutritional supplements line and Insanity branded supplements later in 2026. These products will be distributed in different form factors and different price points made possible by our new business model. Complementing our retail expansion, we will be launching a brand new P90X fitness program, the first in over a decade, which will create powerful cross-marketing opportunities between our digital content and our retail nutrition products. So going forward, we see a substantial opportunity to expand our TAM by developing innovative approaches, including a focus on health span, and a shorter, easier-to-perform workout program to reach underserved segments, including the 185 million overweight Americans who don't currently engage in regular fitness routines. In our current business model, our revenues are generated via multiple channels, what we like to call the omnichannel opportunity. One of the smaller elements within the omnichannel opportunity is our affiliate program. Why do I say that? Because on a go-forward basis, the affiliate program will be a smaller portion of our total revenue mix given our heavy focus on the maximization of both our direct-to-consumer channels and our upcoming brick-and-mortar retail initiative. This strategic shift reflects our evolution from what was previously an MLM-dependent model in 2024 to a now diversified omnichannel approach from 2025 and beyond. The transformation we've achieved positions The Beachbody Company, Inc. as a fundamentally different company than it was just two years ago. We've proven our ability to generate consistent positive adjusted EBITDA over the last eight quarters. We've generated positive cash flow through 2025 year-to-date, and we finally achieved a positive net income quarter in 2025. During the two-year turnaround effort, which began when I joined back in June 2023, we've eliminated the huge structural inefficiencies that previously required a massive $900 million revenue level just to breakeven on a cash basis. We've reduced that cash breakeven by 80% and brought it down to an incredibly low $180 million breakeven through a complete rearchitecture of the company and the way we operate. The efficiencies we've built into the company have allowed us to construct a powerful and nimble operating model that will allow future revenue growth to drive significant operating leverage and increase EBITDA. The headline for Q3 2025 is that The Beachbody Company, Inc. has completely reinvented itself over the last two-plus years, and with the benefits of the financial restructuring, the elimination of the MLM model, massive improvement in profitability, and increase in direct-to-consumer focus, a significant improvement in gross margin, and a more efficient sales and marketing spend. As a result of accomplishing all of the financial turnaround goals, The Beachbody Company, Inc. is now poised to open the hatch of the innovation pipeline for 2026 and roll out a slew of new innovations in both digital fitness and nutrition that will not only fortify our DTC business but will also open up a whole new arm of our omnichannel strategy with brick-and-mortar retail and an expanded Amazon presence, featuring popularly priced P90X and Insanity nutritional supplements and a new lower-priced smaller serving size Shakeology lineup. We've revolutionized and significantly improved our financial foundation. We filled the innovation pipeline, and those initiatives are set to be in motion in 2026. The market opportunities and huge increase in TAM are substantial. We could not be happier with the progress that we've made, the speed with which the turnaround has been performed, and the exciting and modernized future we see for The Beachbody Company, Inc. With that, I'll turn the call over to our CEO, Carl Daikeler, to discuss the operational details.
Carl Daikeler: Thanks, Mark, and thanks to everyone for joining us today. I'm excited to share our Q3 results, which I believe demonstrate the meaningful progress we're making in executing our long-term strategy. The results that Mark described and that Brad will outline in detail in a moment really tell the story of a company hitting its stride. The vision we've had for over two decades is finally getting a chance to come to fruition. We're executing with more efficiency, thanks to our expanded sales channels, and an aggressive approach to tailoring our marketing for an environment that is definitely showing signs of improved demand. As longevity and health span have entered the mainstream, we've got the library of proven content that's getting deeper every quarter and new content coming online by the end of the year, that's gonna open up the TAM to the real holy grail of helping the more than 185 million non-exercisers in the US who are just looking for an easy way to get the benefits of lifestyle change without devoting thousands of dollars to equipment or hours in the gym. In the near term, there's some very exciting launches going into Black Friday and Cyber Monday, the holidays, and the first quarter. We launched a compelling $19 per month offer in Q3, which we're starting to build momentum around, especially in conjunction with the launch of two brand new alternative subscriptions. What we call a super trainer subscription, where people can subscribe to just the content from one super trainer for just $9.99 a month. These are essentially curated capsules from our world-class trainers. We launched this test with both the Autumn Calabrese collection and the Shaun T collection and are encouraged by the initial response. As you might recall, we said we'd be launching new content in Q3 that included a line extension to Body Lava called Slow Burn Yoga. We also launched Autumn Calabrese's Track Pilates, an innovative at-home Pilates program that drove strong demand in the third quarter, thanks to the overall strength in the Pilates category right now. So far in the fourth quarter, we've added the appropriately named Power of Four, a program from the original P90X Super Trainer Tony Horton. And we've just started to promote the Black Friday launch of a new program from Shaun T, a hybrid of his popular weightlifting program, Dig Deeper, with low-impact Insanity Cardio, which our subscribers are lining up to start on December 1 in what's going to be the largest test group in our company's history. As Mark mentioned, we started teasing the launch of P90X Generation Next, a new addition to the P90X portfolio for the first time in over ten years, leveraging the most recognizable brand in extreme home fitness. Last week, we announced that renowned British trainer Waz Asher is leading that program, and the response to the first peek at the teasers for the program was more enthusiastic and productive at attracting subscribers than we could have imagined. This new trainer is going to be a superstar. He's the new James Bond of the P90X franchise, if you will. And the user results we've seen in our initial testing of the program confirm that his new P90X format is going to introduce the greatest extreme home fitness program of all time to a new generation of users with stunning transformations. The retail opportunity will be particularly meaningful both for leveraging the existing awareness of P90X plus Insanity and Shakeology on store shelves, but using that visibility to achieve massive exposure of The Beachbody Company, Inc. brand by giving retail buyers a first-of-its-kind value add of rewarding them with access to our digital content, which will support our digital subscriber growth objectives. I'm really excited for the new supplements coming under the P90X, and in 2026, we're gonna be adding more new supplements to the catalog at more affordable prices than we ever have in our twenty-six years. A significant opportunity for us to increase LTV and to acquire new nutrition customers. 2026 marks our commitment to expand into nutrition in a very significant way, both at retail and direct-to-consumer. All of this is the innovation pipeline Mark and I have been talking about for two years. The opportunity to reach this massive TAM of over 185 million adults in the U.S. alone who are overweight or obese. And now with the progress and speed of our financial turnaround exceeding projections, this vision can start to materialize in 2026 and really hit full stride in 2027. As I mentioned last quarter, all of this will be supported by our transition to Shopify Plus, and its robust set of AI features in March 2026, which we believe will benefit order conversion and average order value at checkout. Speaking of AI, I'm also excited to add that following ChatGPT's announcement of their app development toolkit and the upcoming ChatGPT App Store, our team is quickly developing the tech to be among the first fitness apps on ChatGPT in Q1 2026, making our programs discoverable and actionable within ChatGPT. We're initially focused on personalized fitness recommendations with the goal of driving acquisition, leveraging our most recognizable brand. But we view this most as an evolving opportunity to learn how conversational AI can enhance discovery with a more personalized recommendation engine to ultimately create a more intelligent, connected experience for our members at mass scale. We've been the one company focused on the mass market of health and fitness for over twenty-six years. And now with eight quarters of positive adjusted EBITDA, and our first quarter of positive net income since we went public in 2021, we can see that the never-quit attitude of this team is really paying off. And it's incredibly impressive how our staff, trainers, affiliates, and even our subscribers believe so passionately in what we do. I'm excited for the fourth quarter, especially as we head into Black Friday and Cyber Monday, and our aggressive marketing initiatives heading into Q1. Now let me turn the call over to our Interim CFO, Brad Ramberg, to walk through the specifics of our Q3 results.
Brad Ramberg: Thank you, Carl. Thank you, everyone, for joining the call today. I will review our Q3 results and provide our outlook for the fourth quarter. We produced major milestones this quarter. We exceeded our guidance for revenue, adjusted EBITDA, and net income. We generated our eighth consecutive quarter of positive adjusted EBITDA and had net income for the first time since going public in 2021. We are on track for positive free cash flow for the full year. I'd like to provide more details about the quarter. Total revenues of $59.9 million declined 6.3% sequentially and declined 41.4% year over year, in line with our expectations as we continue our strategic transition. Revenues continue to be impacted in the near term by the shift away from a multi-level marketing platform to an omnichannel model. Consolidated Q3 gross margins were 74.6%, representing an increase of 230 basis points over the prior quarter and an increase of 730 basis points compared to the prior year. We're pleased to report the consolidated gross margin was at the high end of our long-term target of 70% to 75%, underscoring the strength of our operational execution. Moving to digital and nutrition and other revenues. Digital revenue decreased 8.3% from the prior quarter to $36.4 million and decreased 32.2% year over year. Revenues were impacted by continued pressure on our digital subscription count, which decreased 4.3% sequentially to approximately 900,000 and declined 18.9% compared to the same period a year ago. We continue to experience the impact from our transition away from the MLM, which has had an outsized impact on nutrition subscriptions, as our nutrition products were almost sold exclusively through our MLM network. Nutrition and other revenue decreased 2.8% from the prior quarter to $23.5 million and decreased 50.4% year over year. Nutrition subscriptions stayed essentially flat sequentially at approximately 70,000 and fell 46.2% year over year. Digital gross margin was 88.1% for the quarter, increasing 40 basis points from the prior quarter and representing an 810 basis point improvement from the prior year. Our digital gross margin was in line with our previous long-term target of 86% to 89%. The continued strength in year-over-year gross margin was primarily due to a decrease in digital content amortization and depreciation, as a result of a more disciplined production and fixed asset spend. Nutrition and other gross margin was 53.7%, representing a 230 basis point increase from the prior quarter and a 490 basis point decline year over year. Nutrition gross margins exceeded our long-term target of 46% to 52%. The increase from the prior quarter was primarily due to one-time lower shipping and fulfillment costs, while the decline from the prior year quarter was primarily due to the discontinuation of preferred customer fees on November 1, 2024, which were part of our old business model where customers paid a monthly fee to purchase products at a discount, as well as some higher level of promotional activities in the current period. Operating expenses for the quarter declined 21% sequentially and declined 51.5% year over year to $39.7 million. Selling and marketing expense as a percent of revenue decreased 800 basis points in the prior quarter and declined 1270 basis points over the prior year to 31.9%. This significant improvement over the prior periods was primarily driven by the pivot away from the multilevel marketing channel. We no longer have partner compensation on our new sales after November 1, 2024. Enterprise technology and development expense as a percent of revenue increased 80 basis points from the prior quarter and decreased 160 basis points year over year to 17% of revenue. The improvement as compared to the prior year was primarily due to a decrease in depreciation expense due to lower technology spend. The increase as a percent of revenue compared to the prior quarter was due to revenue deleverage. G&A was 16.9% of revenue, a decrease of 120 basis points sequentially and an increase of 540 basis points from the prior year. The improvement as compared to the prior quarter was primarily due to a decrease in equity-based compensation from the headcount reduction over the past year due to the restructurings and a decrease in outside professional fees. The increase as a percent of revenue as compared to the prior year was due to revenue deleverage. The Q3 2025 net income of $3.6 million, our first net income since we went public in 2021, compared to a net loss of $12 million from the prior year. Adjusted EBITDA was $9.5 million compared to $4.6 million in the prior quarter and $10.1 million in the prior year. Notably, this quarter marks our eighth consecutive quarter of positive adjusted EBITDA. Now I'd like to move on to the balance sheet and cash flows. As we discussed on our last call, in May, we entered into a new lending agreement with Tiger Finance and SP Capital Partners for a $25 million three-year loan facility that allowed us to retire the $17.3 million of outstanding debt ahead of its February 2026 maturity date. This refinancing provided us with approximately $5 million of additional capital on the balance sheet. The effective interest rate on this new facility is approximately 15.2% compared to the approximately 28% in the prior facility. Our cash balance is $33.9 million compared to $25.6 million in the prior quarter. Our cash generated from operations for the quarter was $10.2 million. Our year-to-date free cash flow is $13.1 million, of which $9 million was generated this quarter. Q3 had a $2 million benefit from the timing of payroll, which was acute in Q3 but paid in Q4. Turning to our fourth quarter guidance. While we are pleased with the execution of our transformation, I want to reiterate that we're still in the first year of the company's new business model. As discussed, we significantly lowered expenses in our revenue breakeven point when we strategically pivoted away from the MLM model to our omnichannel marketing and distribution model. This shift has opened new growth channels that we could not previously access. We're very excited about the opportunities ahead. We now have a stronger balance sheet and a more viable long-term business model. But as with companies that are undergoing the transformation, it will take time to develop traction in these new lines of business. We expect fourth-quarter revenues to be in the range of $50 million to $57 million, net income in the range of negative $1 million to positive $3 million, and adjusted EBITDA to be in the range of $5 million to $9 million. As we continue the transition to our new business model, we want to provide additional updates to help you contextualize changes in our new financial model. As of today, we anticipate revenues to approximate 61% digital and 39% nutrition. Our long-term digital gross margin target is 87% to 89%. Our long-term nutrition and other gross margin is in the range of 46% to 52%, which is in line with our volume expectations and certain promotional activities planned. Our long-term total gross margin target is from 70% to 75%. Over the last two years, we've made considerable progress against our business transformation. We've significantly lowered our breakeven point, strengthened our financial position, putting us on a solid foundation to execute against our growth initiatives that will drive long-term shareholder value. I look forward to updating you on our progress on our next earnings call. I'll now turn it back over to Mark for closing remarks.
Mark Goldston: Thank you, Brad. Operator, Jayla, could you please open it up to questions?
Operator: Absolutely. At this time, if you would like to ask a question, the first question comes from Suzanne Anderson with the company Canaccord Genuity. Suzanne, your line is now open.
Suzanne Anderson: Hi, good evening. Thanks for taking my questions. Nice job on the quarter. I guess maybe if you could talk about I'm curious just the customer base, if you're seeing any big change with the new business model, and then maybe if you could share any details on what type of customers are signing for the unbundled super trainer subscription. Are these new customers that The Beachbody Company, Inc. that maybe, you know, will kind of tack on more subscriptions down the road or were they existing customers?
Carl Daikeler: Thanks. Well, thanks, Susan. Nice to hear from you. We're really dealing with the same type of customer that we've had for twenty-six years, quite honestly. The people who are too busy to go for a gym membership. They want the convenience of doing things at home, and they want it somewhere between twenty to forty-five minutes per workout. So in general, we're seeing the demographic be similar. In terms of the specific subscriptions, the Autumn Calabrese collection and the Shaun T collection, those are doing both a great job of winning back customers who are really just interested in the affinity with their particular trainer, but we are seeing a nice percentage of those people upgrade to the full subscription. So it's doing the job of what you might see from a high volume, low price gym, where people are attracted to the $9.99 per month but then seeing the value of the overall subscription and upgrading to the full, full monthly or annual price. So, in terms of new customer acquisition, we're seeing that come from really the more broad advertising of, you know, helping people get healthy, helping people improve their overall well-being, and that is sort of business as usual as we go into the fourth quarter. And we're very excited by the prospect of bringing in new customers with the launch of Shaun T's Dig In program, the promise of the largest test group that we've ever run as a company.
Suzanne Anderson: Okay. Great. And then maybe if you can give some more color just on your new product pipeline. It sounds like you have a number of things lined up through the holiday and then maybe into next year. Maybe if you could just talk about the timing of the rollouts and any color you could give maybe around the new P90X product. Then also other products that are gonna roll out whether they're in the digital or nutrition segment. Oh, and then also I was wondering sorry. Go ahead. And then I have my follow-up.
Carl Daikeler: Okay. So, just real quick, as we mentioned, we're very excited by the number of products that we're launching into the catalog nutrition products in 2026. We haven't launched this many new products, particularly at a price point that's much more affordable to our database, to our current subscribers, and to new prospective customers, since we launched the MLM. Obviously, we had to support the compensation plan for the MLM when that was such a big part of the business model. Now that we don't have the MLM, we can be far more competitive in the nutrition segment with our pricing and with our unit economics, both the form factor in the seven to fourteen servings versus everything being in a monthly unit. So we've got the P90X line of supplements, and we have the Insanity line of supplements, and we have the expansion of Shakeology as we take that out into retail. So nutrition is largely expanding in 2026. For the balance of 2025, we have the, as I mentioned on the call, we just launched Tony Horton's Power of Four program, which we licensed from him. We just launched a series of new bike programs called Chasing the West, which has gotten a great response from our subscribers. We're launching Shaun T's Dig In program, which is a hybrid between a low-impact Insanity program plus a very popular Dig Deeper weightlifting program. I'll also say we're launching something at the end of the year. I can't go into too much detail right now. But I happen to want to say to you particularly, it was inspired by a conversation that you and I had because you love running so much, but I know you want to keep doing your resistance training to help your bone density and your overall muscle tone, and I think you're gonna love what we're coming out with at the end of December. P90X Generation Next just started to get teased last week, and the response to that just blew us away, both in terms of attracting new subscribers and in terms of the current subscribers being excited for that program. And that launches on February 3. That's the extent of what we've announced so far, and I think it's frankly '25 was such a transition year for us. We didn't put that much new content into the pipeline. I think between now and 2026, our subscribers and subscribers are gonna be very impressed with what the platform offers.
Suzanne Anderson: Okay. Great. That sounds exciting. I'm excited to see the new product. Maybe if you could talk about oh, I was just curious. Too. Should we think about any increase, the increase in investment in the new products should that impact the P&L at all in the op expense or have you guys already kind of planned for that? Thanks. And that's all.
Carl Daikeler: It's all in line with the economics that we've been running for the business. I'll let Brad speak to any specifics, but we're really running the business in a responsible way that takes advantage and maintains the advantage of the operational leverage that we built into the business over the last two years. The company is just such an incredible job of being both disciplined but maintaining our product quality, and the innovation pipeline, which resulted in, you know, we're so excited by having an in-home Pilates program. You know, the whole fitness industry is aware of how big Pilates has gotten, and the fact that we have a Track Pilates program that people can do for $100 of equipment is just an exciting asset for us to take into 2026. So bottom line is we're gonna maintain our economics, and we feel very good about the base of assets that we have to work with.
Brad Ramberg: Hi, Susan. This is Brad. Nice to hear from you. No. We are very disciplined with our spend. We are excited about our spend, and the numbers are baked into our guidance for the fourth quarter.
Suzanne Anderson: Great. Thanks so much. Good luck for the rest of the year.
Brad Ramberg: Thank you. Thank you, Susan.
Operator: Our next question comes from JP Wollam with the company Roth Capital Partners. JP, your line is now open.
JP Wollam: Great. Good afternoon, guys. Appreciate you taking my questions. If we could just maybe start on the nutrition side. So it looks like, you know, that kind of sequential decline there was actually pretty minimal maybe given some expectations out there. But just wondering if there's any more detail you can share on kind of what drove that? I think there might have been some mention of promotional activity. So if there's anything specific to call out in terms of promotions that worked well, that'd be helpful.
Brad Ramberg: Hi, JP. This is Brad. Nice to talk to you. Thanks for asking the question. You know, our previous before the strategic transition, we were selling an MLM-based product. Our hero product was Shakeology at $130 a month.
Carl Daikeler: So as we've moved away from that, we are doing more price testing.
Brad Ramberg: We are coming up with lower price SKUs, as Carl and Mark said. We'll be introducing a new Shakeology at a smaller form factor, lower servings, lower price. We've been doing more bundle activities and more price testing, and we are seeing good demand at these new price points. We're able to maintain the number of subs, and we're able to do that at a lower price point, which makes sense given the transition away from the MLM to the new omnichannel model.
JP Wollam: Perfect. And then maybe just as we kind of oh, go ahead.
Mark Goldston: No. I think, JP, and this is Mark. And just on a go-forward basis, because remember we started basically a new company on January 1. So there's really no year-over-year comparisons because we dismantled the MLM, as you know, in the last year. But going forward, these new nutrition products we're bringing out under the P90X brand name, which will range in price from, you know, probably $15 to $39. And the new smaller form factor lower price Shakeology and then Insanity. These are price points that the company has, like, never offered before and certainly never offered in the retail market. So not only excited about the potential in a brick-and-mortar store, but from a direct-to-consumer standpoint, between our Amazon channel and our body website and our affiliates, you've now got something in the arsenal that we just haven't had before is these monster brand name products under P90X and Insanity and Shakeology. At much more affordable price points because we were hamstrung in the previous model by the costs and the compensation costs related to the MLM, which no longer exists. So going forward into '26, and into '27, I think you're gonna see, you know, nutritional business with much different character in terms of its composition because of our ability to sell a lower price, broader appealing product line.
JP Wollam: Perfect. And then, you know, I think on the last call, we were talking about you guys being sort of in the early stages still of working with a broker in terms of getting some wins in terms of retail. And I'm just wondering if there's anything you can update us on in terms of visibility for that retail launch coming up next year.
Mark Goldston: Yeah. Great question. So as you know or maybe you don't, the retail marketplace, most of the major retailers work on something called a planogram, which is the shelf set that you see when you walk in the store. And they usually have planogram revision dates that are either one time or two times a year. So our broker partner is coordinating our sell-in meetings based on the calendars of these new planogram reset dates. And typically, when you go to an account, a major retailer, and they say, yes, I'd love to add this product, going to put it into my new planogram shelf set, it's usually about five to six months from that day when you're accepted until you actually physically appear on the retail shelf. So our teams are out there right now selling in the product, making presentations. We're expecting to get answers on how that's going in the next four to six weeks. And assuming it goes the way we all expect and hope it will, we should start appearing on the shelf in some of these places, Q1, most of them into Q2. So the majority of that revenue will start to materialize Q2 and then into Q3 and four. But as you know, it's a rollout. And so, essentially, first, you gotta get it sold in. Then they have to reset the section. Then you launch and then you grow after that. So all according to how our plan was expected to go. Now that does not apply to the DTC business. So when we launch these brand new products, starting in January, we'll be able to immediately start making them available on a DTC basis and on an Amazon basis. But for brick-and-mortar, we have to run the offense, which is the planogram date, acceptance, reset of the shelf, and you show up probably five to six months later.
JP Wollam: Understood. Appreciate that color. If I could just slide one more in quickly here. As we look at the selling and marketing line, obviously, great sequential step down there in terms of managing costs. But wondering if you could, one, just kind of provide a bridge from 2Q to 3Q. I think there's a little bit of an advertising reduction and maybe a reduction in some deferred commissions. But one, if you could provide that bridge at all, and two, just you know, now being sort of 32% of sales, like, how are you feeling about that line item and whether there's more cost to come out there?
Brad Ramberg: Sure, JP. This is Brad. I'll take that question. One, if you look back at the end of last year while we were still in the MLM model, we had upwards of $2,526,000,000 of deferred partner costs on the books. We've been expensing that over the course of the year, and we're now down to about $3.5 million of deferred partner costs. So that's all costs related to the legacy business. As that has declined over time, we're really looking at the advertising and marketing rates on the new business. And so we're at about 31.9% for Q3. I would expect going forward it to be in the mid-thirties-ish with some variation of seasonality. But the sequential decline really is driven by the transition away from the MLM business. And, JP, just to provide additional color on that. So there are seasonal fluctuations, you know, between the quarters because Q1 is always your highest marketing spend quarter. But what's important is that that sales and marketing line, which was reduced from the $25.5 million in Q2 down to $19.1 million in Q3, really was not a result of spending less money on actual advertising and marketing. A lot of that was the cost that Brad just alluded to, which were associated with the former MLM, which are now sort of burning off. So we've not reduced our spend to the consumer. We did not cut the media budget. We just shed all those legacy marketing costs that were affiliated with the MLM. You will not see that similar type of decline obviously in Q1, because Q1 will be your higher spending quarter. But I just want to put color around that because when you look at the sales and marketing line, your first inclination is to say, the company cut its marketing spend level to the consumer. The answer to that is an emphatic no, we did not.
JP Wollam: Perfect. Appreciate the detail, and best of luck going forward, guys.
Mark Goldston: Thank you, JP.
Operator: Our next question comes from Michael Lipinski with the company Noble Capital Markets. Michael, your line is now open.
Michael Lipinski: Thank you and thanks for taking my questions and congratulations on a stellar quarter and reaching your profit milestones.
Mark Goldston: Thank you.
Michael Lipinski: I believe that in Q3 you kind of indicated that you felt like most of your restructuring of your Salesforce was gonna be complete. I was just wondering, is that now all been completed?
Brad Ramberg: Yeah. Generally, the reorganization has taken place, and we're now multichannel with, as Mark mentioned, the performance marketing or direct-to-consumer business. We've got the Amazon business. We've got a small contribution from affiliates and obviously CRM, and we're excited to launch into retail next year. And, Mike, this is Brad. I'll say we're always looking for cost efficiencies, and we'll continue to do so. But the financial restructuring, it's, for the most part, complete. Now we're really looking at growth mode beginning now and in '26.
Michael Lipinski: Okay. Perfect. I was wondering in terms of margins, with all these distribution retail distribution rollouts and also with the new products that you're talking about. I was just wondering if you can just talk a little bit about margin. Are you anticipating giving up any margin? You know, if you obviously, with some of the lower price points that you're talking about with some of your products, if you could just add a little color on that.
Brad Ramberg: Sure. I'll take the case on that. So I'll tell you. So in Q3, we hit a nutrition margin of about 53%. And right now, with a lower price point and more promotional activities, we are guiding to a lower nutrition margin. We're guiding to a steady state between 46-52%. So retail in '26 is not a significant driver of revenue, at least in Q1, like in Q3, certainly not in Q4. We'll continue to adjust our margin as we gain more experience in retail. Right now, we are looking to a little bit of a decline in the nutrition margin. As we're looking to a pickup in the number of units and subscribers. At the end of the day, it really is about generating dollars. It's about generating the most number of subscribers.
Michael Lipinski: Gotcha. And we're also, you know, the margin is also reflective of our increased focus on selling one-time purchases versus just selling subscriptions. So because we're actually expanding the audience, those people will ultimately end up subscribing.
Michael Lipinski: And I was just wondering, do you guys frame for us like the anticipated marketing spend around the retail rollout of P90X release?
Brad Ramberg: I'm sorry. Say that again.
Michael Lipinski: Can you just kind of frame maybe the anticipated marketing spend around the retail rollout for your P90X release? Maybe just give us the timeline for the new P90X exercise program?
Brad Ramberg: Yeah. Well, the new P90X exercise program is a Q1 program. And that will certainly be part of our overall marketing spend because of its high profile and ability to attract people into the franchise. In terms of the actual retail products, the marketing spend will be in line with what we end up getting in terms of wholesale orders. And what that revenue line will look like. So we do not have that number right now. But it will be on a normalized advertising to sales ratio based on the wholesale volume that we generate, and that's all gonna be baked into our numbers.
Michael Lipinski: Gotcha. That's all I have. Congratulations again.
Brad Ramberg: Great. Thank you very much. Appreciate it.
Mark Goldston: Thanks, Michael.
Operator: At this time, there are no more questions registered. There are no more questions registered in queue at this time. I would like to pass the conference back over to our hosting team for closing remarks.
Mark Goldston: Thank you, Jayla, and thanks, everybody, for attending today. I just want to say in closing, again, this was not only an outstanding and seminal milestone quarter for us, achieving net income positivity, but the fact that in our opinion, the financial turnaround has largely been completed. Well ahead of schedule, almost I would say almost twelve months ahead of schedule. So the headline is, you know, great new operating structure, much reduced breakeven level down to the $180 million level. And now we're at the point where instead of waiting till 2026, we can actually open up this innovation pipeline starting in '26. You'll see a lot of new exciting programs, which will expand this franchise, take advantage of the operating leverage that's now been built into this P&L, and give us the opportunity to achieve all of the goals that Carl has been articulating for years. But not trying to reach just the serious exerciser, the serious nutrition consumer, but to go out to the broader audience and that huge TAM, the 185 million Americans who do not currently exercise on a regular basis and who are taking nutritional supplement products, and we want to drive them to our franchise. So thanks, everybody. We look forward to talking to you on the next quarter's earnings call.
Operator: That concludes today's call. Thank you for your participation, and enjoy the rest of your day.
Chris Sakai: Thank you.