Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

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," "BODi," "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:

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.

You should not place undue reliance upon our 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

BODi is a leading fitness and nutrition company. We focus primarily on digital content, supplements, connected fitness, and consumer health and wellness. Our goal is to continue to provide holistic health and fitness content, subscription-based solutions and digital program sales. We are the creator of some of the world's most popular fitness programs, including P90X®, Insanity® and 21 Day Fix®, which transformed the at-home fitness market and disrupted the global fitness industry by making it accessible for people to get results-anytime, anywhere. Our comprehensive nutrition-first programs, Portion Fix® and 2B Mindset®, teach healthy eating habits and promote healthy, sustainable weight loss. These fitness and nutrition programs are available through our Beachbody on Demand Interactive ("BODi") streaming services.

We offer nutritional products such as Shakeology® nutrition shakes, Beachbody Performance supplements and BEACHBAR® snack bars.

In the fitness and nutrition industry, we focus primarily on digital content, supplements, connected fitness, and consumer health and wellness. Our goal is to continue to provide holistic fitness and nutrition content and subscription-based solutions. Leveraging our history of fitness content creation, nutrition innovation, and our affiliates, we plan to continue market penetration into the fitness and nutrition markets to reach a wider fitness and nutrition audience. Management has determined that it will no longer sell connected fitness inventory in early 2025.

Our revenue is generated primarily through affiliates, social media marketing channels, direct response advertising and ecommerce marketplaces like Amazon. In addition, prior to the Pivot (as defined below), an additional primary source of revenue was our network of Partners. Components of revenue include recurring digital subscription revenue,

revenue from the sale of nutritional and other products and connected fitness revenue. In addition to selling individual products on a one-time basis, we bundle digital and nutritional products together at discounted prices.

On September 30, 2024, the Company announced a restructuring of its network business (the "Pivot") which transitioned the Company's multi-level marketing model ("MLM") to a single level affiliate model and reduced the Company's headcount by approximately 170 employees (33% of the Company's workforce on that date) in the fourth quarter of 2024.

For the year ended December 31, 2024, as compared to the year ended December 31, 2023:

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

Recent Developments

Pivot Restructuring

On September 30, 2024, the Company announced the Pivot which transitioned the Company's MLM model to a single level affiliate model and reduced the Company's headcount by approximately 170 employees (33% of the Company's workforce on that date) in the fourth quarter of 2024. The actions associated with the Pivot resulted in approximately $18.5 million in costs recorded in the Company's consolidated statement of operations in the year ending December 31, 2024.

The following table details the costs incurred and benefits realized associated with the Pivot in the year ended December 31, 2024:

Pivot Restructuring		Year Ended December 31,
(in thousands)		2024
Accelerated depreciation on long-lived assets (1)		$	11,125
Termination and retention benefits (2)			6,203
Incremental inventory adjustments (3)			1,444
Modification of stock awards (4)			(308	)
Total Restructuring Costs		$	18,464

(1) Due to the Pivot, certain long-lived assets with a net book value of approximately $12.8 million will not be used by the Company after December 31, 2024. The Company performed an impairment review for its long-lived assets, including the long-lived assets that will not be used after December 31, 2024. The Company performed a test of recoverability and concluded that the carrying value of its long-lived assets, which are all in one asset group, were recoverable. The Company decreased the average remaining useful lives for the long-lived assets that were impacted by the Pivot from 25 months prior to the Pivot to 3 months after the Pivot. This resulted in accelerated depreciation expense of $11.1 million that was recorded in the Company's consolidated statement of operations in the year ended December 31, 2024. See Note 6, Property and Equipment, Net, for additional information on the accelerated depreciation.

(2) Termination ($5.1 million) and retention benefits ($1.1 million) which are included in restructuring expense in the Company's consolidated statement of operations of approximately $6.2 million were recorded in the year ended December 31, 2024.

(3) Consists of (a) inventory adjustments recorded associated with the decision by management to no longer sell connected fitness inventory beginning in early 2025, which were recorded in cost of revenue-connected fitness ($1.2 million) and (b) inventory adjustments for nutrition and other inventory impacted by the Pivot which were recorded in cost of revenue-nutrition and other ($0.2 million) in the consolidated statement of operations in the year ended December 31, 2024. See Note 4, Inventory, for additional information on the incremental inventory adjustments.

(4) Modification of stock awards for employees who were impacted by the Pivot which includes accelerating the vesting of any options or restricted stock units ("RSU's") that would have vested within six months of the employees termination date, and all vested options will be available for exercise for a total of six months after the employees termination date (that is, three month in addition to the standard three months per original agreement), which resulted in a decrease to equity based compensation expense of $0.3 million in the Company's consolidated statement of operations for the year ended December 31, 2024. See Note 17, Equity-Based Compensation, for more information on the modification of stock awards.

Goodwill Impairment

Our annual goodwill impairment test, which was performed as of December 31, 2024, determined that our goodwill was impaired and we recorded goodwill impairment of $20.0 million for the year ended December 31, 2024. See Note 1, Description of Business and Summary of Significant Accounting Policiesand Note 8, Goodwill, to our consolidated financial statements included elsewhere in this Report for additional information regarding the goodwill impairment recorded for the year ended December 31, 2024.

Term Loan Amendment No. 6

On October 18, 2024, (the "Term Loan Sixth Amendment Effective Date"), the Company and Blue Torch entered into Amendment No. 6 to the Financing Agreement (the "Term Loan Sixth Amendment"), which amended the Company's existing Financing Agreement (as defined below). The Term Loan Sixth Amendment amends, among other things, certain terms of the Financing Agreement including without limitation, to (1) remove the minimum revenue financial covenant, (2) amend the minimum liquidity financial covenant, (3) include a minimum consolidated EBITDA (as defined in the Financing Agreement) financial covenant, (4) increase the quarterly principal payments on the Term Loan over the remaining quarterly periods, payable in monthly installments, until the maturity of the Term Loan, and (5) amend certain financial definitions, reporting covenants and other covenants thereunder.

In connection with the Term Loan Sixth Amendment, on the Term Loan Sixth Amendment Effective Date, the Company made partial prepayments on the Term Loan of $3.2 million along with the related prepayment premium of 2% on $2.0 million of the partial prepayments and accrued interest. The partial prepayment of $3.2 million was accounted for as a partial debt extinguishment and the Company wrote off the proportionate amount of unamortized debt discount and debt issuance costs as of the Term Loan Sixth Amendment Effective Date ($0.4 million) which in addition to the prepayment premium was recorded as a loss on partial debt extinguishment of $0.5 million in the year ended December 31, 2024. The Company also incurred a 1% fee as paid in kind on the outstanding Term Loan balance prior to the prepayment (fee of $0.3 million).

In connection with the Term Loan Sixth Amendment, the Company also amended and restated the Term Loan Warrants (as defined below) for the purchase of 97,482 shares of the Company's Class A common stock. The amendment of the Term Loan Warrants amended the exercise price from $9.16 per share to $6.26 per share.

See Note 11, Debt,for additional information on the Term Loan Sixth Amendment and amendments to the Term Loan Warrants.

2024 Repricing of Stock options

The Company determined that a significant portion of its outstanding stock options under the 2020 Plan (as defined below) and the 2021 Plan (as defined below) had an exercise price per share that was significantly higher than the

current fair market value of the Company's common stock (the "2024 Underwater Options"). The Compensation Committee of the Board resolved that it was in the best interests of the Company and its stockholders to amend certain of the 2024 Underwater Options (the "2024 Amended Underwater Options") for current employees and consultants of the Company to reduce the exercise price of the 2024 Amended Underwater Options to the closing per share price of the Company's common stock on November 13, 2024 (the "2024 Repricing"). The Company had 451,115 2024 Amended Underwater Options which had their exercise price amended to $6.43 per option.‌

The Company recognized incremental stock-based compensation of $0.4 million which was recorded as of the 2024 Repricing, related to 292,031 vested 2024 Amended Underwater Options.

The Company also determined that outstanding stock options under the Inducement Plan (as defined below) had an exercise price per share that was significantly higher than the current fair market value of the Company's common stock (the "2024 Underwater Inducement Plan Options"). The Compensation Committee of the Board resolved that it was in the best interests of the Company and its stockholders to amend the 2024 Underwater Inducement Plan Options (the "2024 Amended Underwater Inducement Plan Options") for the Executive Chairman of the Company to reduce the exercise price of each 2024 Amended Underwater Inducement Plan Option to the closing per share price of the Company's common stock on November 13, 2024 (the "2024 Inducement Plan Repricing"). The Company had 477,661 2024 Amended Underwater Inducement Plan Options which had their exercise price amended to $6.43 per option.‌

As part of the 2024 Inducement Plan Repricing, the Company also determined that the Company's Executive Chairman's 318,440 Performance-Vesting Options would be converted from Performance-Vesting Options to Time-Vesting Options and thus those options will vest and become exercisable with respect to 25% of the Time-Vesting Options on each of the first four anniversaries of June 15, 2023.

The Company recognized incremental stock-based compensation of $0.1 million which was recorded as of the 2024 Inducement Plan Repricing, related to 119,416 vested 2024 Amended Underwater Inducement Plan Options. In addition, incremental stock-based compensation of $0.5 million was recorded upon the conversion of 79,610 Performance-Vesting Options to Time-Vesting Options which resulted in the full vesting of the unamortized expense for those options upon the conversion.

See Note 17, Equity-Based Compensation, for additional information on the 2024 Repricing of Stock Options.

El Segundo Lease

On November 11, 2024, the Company entered into an amendment to its lease of its headquarters in El Segundo, CA. The amendment extended the lease for 26 months from the original termination date of November 30, 2024 to January 31, 2027 and reduced the leased space from approximately 42,000 square feet to approximately 9,400 square feet. The annual base rent is approximately $0.4 million, with annual increases of approximately 3%.

See Note 12, Leases,for additional information on the amendment of the El Segundo lease.

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,
		2024				2023
(in millions)
Digital subscriptions			1.07				1.31
Nutritional subscriptions			0.09				0.16

		Year Ended December 31,
		2024				2023
(in millions, except for percentages)
Average digital retention			96.8	%			96.0	%
Total streams			87.4				98.2
DAU/MAU			31.7	%			31.3	%
Revenue		$	418.8			$	527.1
Gross profit		$	287.3			$	323.1
Gross margin			68.6	%			61.3	%
Net loss		$	(71.6	)		$	(152.6	)
Adjusted EBITDA (1)		$	28.3			$	(8.7	)

(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 (through March 2023) and BODi. Digital subscriptions include paid and free-to-pay subscriptions with free-to-pay subscriptions representing less than 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. In addition, we also have promotional offers which at times include membership options for greater than one year or the ability to buy a subscription for one year and get the second year free ("BOGO").

Nutritional Subscriptions

Nutritional subscriptions include monthly subscriptions for nutritional products such as Shakeology, Beachbody Performance and BEACHBAR. We also may 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 is defined as the average rate at which the total subscriber file is retained for the next period, to measure customer retention. For example, a 95% average digital retention rate would correspond with retaining each month an average of 95% of digital subscribers existing at the beginning of that month. A 95% average digital retention rate would translate into a loss at the end of the quarter of approximately 15% of the subscribers existing at the beginning of the quarter. This calculation excludes new customer acquisitions or subscribers added in a specific month, so this calculation can never exceed 100%.

Total Streams

We use total streams to quantify the number of fitness, nutrition and mindset programs viewed, which is an 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 accounting principles generally accepted in the United States of America ("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, equity-based compensation, restructuring costs 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 BODi'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, impairment of goodwill and intangible assets and equity-based compensation) or are not related to our underlying business performance (for example, in the case of restructuring costs, interest income and interest 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,
(in thousands)		2024				2023
Net loss		$	(71,642	)		$	(152,641	)
Adjusted for:
Impairment of goodwill			20,000				40,000
Impairment of intangible assets			-				3,092
Impairment of other investment			-				4,000
Loss on partial debt extinguishment (1)			2,379				3,168
Depreciation and amortization (2)			31,439				39,573
Amortization of capitalized cloud computing implementation costs			150				179
Amortization of content assets			15,667				23,755
Interest expense			6,882				8,874
Income tax provision			239				37
Equity-based compensation (3)			17,069				23,891
Employee incentives, expected to be settled in equity (4)			-				(5,466	)
Pivot Restructuring (5)			7,647				-
Restructuring and platform consolidation costs (6)			1,644				7,169
Change in fair value of warrant liabilities			(1,144	)			(2,679	)
Gain on sale of property and equipment			(784	)			-
Non-operating (7)			(1,229	)			(1,649	)
Adjusted EBITDA		$	28,317			$	(8,697	)

(1) Represents the loss related to the $1.0 million, $5.5 million, $4.0 million and $3.2 million partial debt prepayments that the Company made on January 9, 2024, February 29, 2024, April 5, 2024 and October 18, 2024, respectively, and the $15.0 million partial debt prepayment that the Company made on July 24, 2023.

(2) Includes accelerated depreciation expense of $11.1 million for the year ended December 31, 2024 related to certain long-lived assets that due to the Pivot will not be used by the Company after December 31, 2024.

(3) Includes benefits due to the modification of stock awards of $0.8 million and $1.0 million for the years ended December 31, 2024 and 2023, respectively.

(4) The non-cash charge for employee incentives which were expected to be settled in equity was recorded and included in the Adjusted EBITDA calculation during the year ended December 31, 2022. During the year ended December 31, 2023, we reclassified the non-cash charge from employee incentives expected to be settled in equity to equity-based compensation because we settled certain employee incentives with RSU awards during the period.

(5) Includes (a) restructuring expense and personnel costs associated with the Pivot of $6.2 million during the year ended December 31, 2024 and (b) adjustments recorded to connected fitness inventory of $1.2 million due to the decision to cease the sale of connected fitness inventory beginning in early 2025 and adjustments recorded to nutrition and other inventory of $0.2 million due to the Pivot, in the year ended December 31, 2024.

(6) Includes restructuring expense and personnel costs associated with key initiatives of $1.6 million during the year ended December 31, 2024 and restructuring expense and personnel costs of $7.2 million associated with executing our key growth priorities during the year ended December 31, 2023. The cost primarily relates to termination benefits related to headcount reductions.

(7) Primarily includes interest income.

Results of Operations

The Company has one operating segment. The following discussion of our results of operations is on a consolidated basis.

(in thousands)		Year Ended December 31,
		2024				2023
Revenue:
Digital		$	224,335			$	258,370
Nutrition and other			187,835				249,510
Connected fitness			6,626				19,229
Total revenue			418,796				527,109
Cost of revenue:
Digital			41,884				64,942
Nutrition and other			78,172				109,170
Connected fitness			11,396				29,910
Total cost of revenue			131,452				204,022
Gross profit			287,344				323,087
Operating expenses:
Selling and marketing			200,145				282,147
Enterprise technology and development			76,370				74,407
General and administrative			49,190				57,932
Restructuring			7,847				6,497
Impairment of goodwill			20,000				40,000
Impairment of intangible assets			-				3,092
Total operating expenses			353,552				464,075
Operating loss			(66,208	)			(140,988	)
Other income (expense)
Loss on partial debt extinguishment			(2,379	)			(3,168	)
Impairment of other investment			-				(4,000	)
Change in fair value of warrant liabilities			1,144				2,679
Interest expense			(6,882	)			(8,874	)
Other income, net			2,922				1,747
Loss before income taxes			(71,403	)			(152,604	)
Income tax provision			(239	)			(37	)
Net loss		$	(71,642	)		$	(152,641	)

Revenue

Revenue includes digital subscriptions, digital program sales, nutritional supplement subscriptions, one-time nutritional sales, connected fitness products, access to our online Partner business management platform (prior to November 1, 2024), preferred customer program memberships (prior to November 1, 2024) 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,
		2024				2023				$ Change				% Change
		(dollars in thousands)
Revenue
Digital		$	224,335			$	258,370			$	(34,035	)			(13	%)
Nutrition and other			187,835				249,510				(61,675	)			(25	%)
Connected fitness			6,626				19,229				(12,603	)			(66	%)
Total revenue		$	418,796			$	527,109			$	(108,313	)			(21	%)

The decrease in digital revenue for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily attributable to a $30.9 million decrease in revenue from our digital streaming services due to a 25% decrease in the average digital subscriptions in the current year as compared to the prior year on lower demand which was partially offset by the transition of all digital subscriptions to the higher priced BODi subscription over the past year. In addition, in the current year there was a decrease of $4.0 million in fees from Partners due to a 36% decrease in the average number of Partners for the current year as compared to the prior year which was also impacted by the discontinuation of this fee as of November 1, 2024 due to the Pivot. With the Pivot and the transition from an MLM model to an affiliate model, the Company no longer received fees from Partners beginning as of November 1, 2024 and will not receive fees from Partners in 2025. The Company recorded $9.9 million and $13.9 million of fees from Partners for the years ended December 31, 2024 and 2023, respectively. We may experience a decrease in both digital and nutrition revenue in 2025 as we transition from the MLM model and ramp up the single level affiliate model.

The decrease in nutrition and other revenue for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily attributable to a $46.9 million decrease in revenue from nutritional products due to a 29% decrease in the average nutritional subscriptions in the current year as compared to the prior year on lower demand, a $9.4 million decrease in revenue generated from our preferred customer fees as there was a 41% decrease in the average number of preferred customers for the current year as compared to the prior year which was impacted by the discontinuation of this fee as of November 1, 2024 due to the Pivot, a $2.5 million decrease in fitness accessories revenue due to the decrease in Partners in the current period and a $2.2 million decrease in event ticket sales due primarily to the decrease in the number of, length of and attendance at events.‌ With the Pivot and the transition from an MLM model to an affiliate model, the Company no longer received preferred customer fees beginning as of November 1, 2024 and will not receive preferred customer fees in 2025. The Company recorded $14.3 million and $23.7 million of preferred customer fees for the years ended December 31, 2024 and 2023, respectively. With the Pivot, the Company will also significantly reduce the number of, and length of, events, which will significantly reduce event ticket sales in 2025. The Company recorded $2.6 million and $4.8 million of event ticket sales for the years ended December 31, 2024 and 2023, respectively.

The decrease in connected fitness revenue for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to an approximate 57% decrease in the number of bikes delivered (from approximately 20,900 in 2023 to approximately 9,000 in 2024) and an approximate 20% decrease in the average sales price for a bike.‌ Management has determined that it will no longer sell connected fitness inventory beginning in early 2025.

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 (in the 2023 period). 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, logistics, 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 (in the 2023 period), 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, fulfillment, 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,
		2024				2023				$ Change				% Change
		(dollars in thousands)
Cost of revenue
Digital		$	41,884			$	64,942			$	(23,058	)			(36	%)
Nutrition and other			78,172				109,170				(30,998	)			(28	%)
Connected fitness			11,396				29,910				(18,514	)			(62	%)
Total cost of revenue		$	131,452			$	204,022			$	(72,570	)			(36	%)
Gross profit
Digital		$	182,451			$	193,428			$	(10,977	)			(6	%)
Nutrition and other			109,663				140,340				(30,677	)			(22	%)
Connected fitness			(4,770	)			(10,681	)			5,911				55	%
Total gross profit		$	287,344			$	323,087			$	(35,743	)			(11	%)
Gross margin
Digital			81.3	%			74.9	%
Nutrition and other			58.4	%			56.2	%
Connected fitness			(72.0	%)			(55.5	%)
Total gross margin			68.6	%			61.3	%

The decrease in digital cost of revenue for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was due to a $8.1 million decrease in digital content amortization as a result of lower production spend, a $5.9 million decrease in depreciation expense as a result of the end of the useful life of certain fixed assets and a $3.9 million decrease in digital content revisions. The increase in digital gross margin for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily as a result of the decrease in expenses as noted above.

The decrease in nutrition and other cost of revenue for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to an $11.1 million decrease in product costs due to a decrease in volume of products sold and a $8.5 million decrease in fulfillment, freight and shipping expenses related to the decrease in nutrition and other revenue, a $3.9 million decrease in depreciation expense as a result of the end of the useful life of certain fixed assets, a $2.4 million decrease in customer service expense due to a decrease in the volume of contacts related to nutrition and other revenue and lower inventory adjustments of $1.6 million. Nutrition and other gross margin increased for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily as a result of the decrease in depreciation expense and the decrease in customer service expense.

The decrease in connected fitness cost of revenue for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was driven by a $6.0 million decrease in fulfillment, freight and shipping expenses related to the decrease in connected fitness revenue, a $5.7 million decrease in product costs as a result of an approximate 57% decrease in the number of bikes delivered and lower inventory adjustments of $4.7 million. The decrease in connected fitness gross margin for the year ended December 31, 2024 compared to the year ended December 31, 2023 was due primarily to fixed expenses on lower connected fitness revenue and an approximate 20% decrease in the average sales price for a bike. Management has determined that it will no longer sell connected fitness inventory beginning in early 2025. The discontinuation of the sale of connected fitness inventory is expected to increase the

Company's gross profit and gross margin as connected fitness has experienced negative gross profit and gross margins for the years ended December 31, 2024 and 2023, respectively.

Operating Expenses

Selling and Marketing

Selling and marketing expenses primarily include the cost of Partner compensation, affiliate expenses (which began on November 1, 2024), 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 expenses also include depreciation of certain software and amortization of contract-based intangible assets (in the 2023 period). 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,
		2024				2023				$ Change				% Change
		(dollars in thousands)
Selling and marketing		$	200,145			$	282,147			$	(82,002	)			(29	%)
As a percentage of total revenue			47.8	%			53.5	%

The decrease in selling and marketing expense for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to a $49.4 million decrease in Partner compensation as a result of the decrease in the number of Partners, lower commissionable revenue, a decrease in the commission rate paid to Partners that started at the beginning of January 2024 and the discontinuation of the Partner network in December 2024, an $11.8 million decrease in event expenses due primarily to a decrease in the number of, length of, and attendance at events, an $11.0 million decrease in personnel-related expenses due to lower headcount primarily related to the restructuring activities that occurred in the current and prior year and a $4.5 million decrease in the amortization of intangible assets due to the impairment of certain assets in the fourth quarter of 2023. With the Pivot and the transition from the MLM model to an affiliate model, the Company will no longer incur Partner compensation in 2025. The Company recorded Partner compensation of $119.3 million and $168.6 million for the years ended December 31, 2024 and 2023, respectively. The Company will incur affiliate compensation but it is expected to be significantly less than the previously recorded Partner compensation. The Pivot will also significantly reduce the number of, and length of, events for Partners and these event expenses are expected to be reduced significantly in 2025. The Company recorded approximately $5.4 million and $17.2 million of event expenses for the years ended December 31, 2024 and 2023, respectively. The Company also expects a decrease in personnel-related expenses in 2025 due to the headcount reductions associated with the Pivot.

Selling and marketing expense as a percentage of total revenue decreased by 570 bps primarily due to the decrease in Partner compensation and event expenses.‌

Enterprise Technology and Development

Enterprise technology and development expenses primarily include personnel-related expenses for employees and professional fees paid to consultants to maintain the Company's enterprise resource planning system, which is the core of our accounting, procurement, supply chain, and other business support systems and 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. 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 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, software licenses, and technology equipment leases.

		Year Ended December 31,
		2024				2023				$ Change				% Change
		(dollars in thousands)
Enterprise technology and development		$	76,370			$	74,407			$	1,963				3	%
As a percentage of total revenue			18.2	%			14.1	%

The increase in enterprise technology and development expense for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to a $6.9 million increase in depreciation expense as a result of accelerated depreciation of $11.1 million related to certain long-lived assets that due to the Pivot will no longer be used by the Company after December 31, 2024 partially offset by a $4.6 million decrease in personnel-related expenses due to lower headcount primarily related to the restructuring activities that occurred in the current and prior year. With the Pivot and the transition from the MLM model to an affiliate model, the Company expects a decrease in personnel-related expenses in 2025, due to the headcount reductions associated with the Pivot, and a decrease in depreciation expense in 2025 due to the long-lived assets impacted by Pivot which were fully depreciated as of December 31, 2024.

Enterprise technology and development expense as a percentage of total revenue increased by 410 bps due to the accelerated depreciation on the long-lived assets impacted by the Pivot, as well as a decrease in revenue at a faster pace than the reduction in enterprise technology and development expenses.

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,
		2024				2023				$ Change				% Change
		(dollars in thousands)
General and administrative		$	49,190			$	57,932			$	(8,742	)			(15	%)
As a percentage of total revenue			11.7	%			11.0	%

The decrease in general and administrative expense for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to a $4.4 million decrease in professional and accounting fees due to a management focus on decreasing spending, a $2.1 million decrease in insurance expense as some of our insurance is based on the level of the Company's revenues or the number of employees, which both have declined in the current period compared to the prior period, a $1.5 million decrease in personnel-related expenses as a result of lower headcount primarily related to the restructuring activities that occurred in the current and prior year and a $0.8 million gain on the sale of the Van Nuys facility which was recorded as a reduction of general and administrative expenses in the year ended December 31, 2024. The Company expects a decrease in personnel related expenses in 2025 due to the headcount reductions associated with the Pivot.

General and administrative expense as a percentage of total revenue increased by 70 bps due to the decrease in revenue at a faster pace than the reduction in general and administrative expenses.‌

Restructuring

In 2024, restructuring charges related primarily to the Pivot which was announced by the Company on September 30, 2024 (see Note 15, Restructuring, for more information on the Pivot) and key initiatives. Restructuring charges in 2023 primarily relate to activities focused on aligning our operations with our key growth priorities, including a reduction in headcount. The charges incurred primarily consist of employee termination costs.

		Year Ended December 31,
		2024				2023				$ Change				% Change
		(dollars in thousands)
Restructuring loss		$	7,847			$	6,497			$	1,350				21	%

Impairment of Goodwill

Impairment of goodwill includes goodwill impairment in 2024 and 2023.

		Year Ended December 31,
		2024				2023				$ Change				% Change
		(dollars in thousands)
Impairment of goodwill		$	20,000			$	40,000			$	(20,000	)			(50	%)

The Company performed its annual goodwill impairment test as of December 31, 2024 and 2023 and based on the quantitative analysis recognized goodwill impairment of $20.0 million and $40.0 million for the years ended December 31, 2024 and 2023, respectively.

Impairment of Intangible Assets

Impairment of intangible assets includes intangible asset impairment in 2023.

		Year Ended December 31,
		2024				2023				$ Change				% Change
		(dollars in thousands)
Impairment of intangible assets		$	-			$	3,092			$	(3,092	)			(100	%)

During the year ended December 31, 2023, due to reduced revenue and operating income forecasts, we tested our definite-lived intangible assets for recoverability and recognized a $3.1 million impairment charge which reduced the carrying amount of our intangible assets to zero.

Other Income (Expenses)

The change in fair value of warrant liabilities consists of the fair value changes of the public, private placement, Term Loan and Common Stock warrants. Interest expense primarily consists of interest expense associated with our borrowings and amortization of debt discount and issuance costs for our Term Loan (as defined below). Other income, net, consists of interest income earned on investments and gains (losses) on foreign currency.

		Year Ended December 31,
		2024				2023				$ Change				% Change
		(dollars in thousands)
Loss on partial debt extinguishment		$	(2,379	)		$	(3,168	)		$	789				(25	%)
Impairment of other investment			-				(4,000	)			4,000				(100	%)
Change in fair value of warrant liabilities			1,144				2,679				(1,535	)			(57	%)
Interest expense			(6,882	)			(8,874	)			1,992				(22	%)
Other income, net			2,922				1,747				1,175				67	%

The decrease in loss on partial debt extinguishment for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was due to lower partial prepayments on the Term Loan ($13.7 million in the year ended

December 31, 2024 as compared to $15.0 million in the year ended December 31, 2023). The Company recorded an impairment of $4.0 million on its other investment during the year ended December 31, 2023. The $1.5 million decrease in the change in fair value of warrant liabilities during the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily resulted from a relatively lower decline in our stock price during the current year partially offset by the issuance of the Common Stock Warrants on December 13, 2023 and the change in their value to December 31, 2024. The $2.0 million decrease in interest expense was primarily due to lower average borrowings under the Term Loan during the year ended December 31, 2024 due primarily to principal prepayments of $28.7 million on the outstanding Term Loan balance from July 1, 2023 to December 31, 2024. The $1.2 million increase in other income as compared to the prior year was primarily due to a $1.2 million gain on the sale of the expected settlement amount from the pending resolution of a legal claim made by the Company in the year ended December 31, 2024.

Income Tax Provision

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

		Year Ended December 31,
		2024				2023				$ Change				% Change
		(dollars in thousands)
Income tax provision		$	(239	)		$	(37	)		$	(202	)		NM

The income tax provision increase for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily driven by changes in our valuation allowance and an increase in the net expense from discrete events.

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, 2024, we had $20.2 million in cash and cash equivalents.

Term Loan Maturity and Liquidity Considerations

As discussed in Note 11, Debt, the Company has a term loan facility (the "Term Loan") with Blue Torch Finance, LLC ("Blue Torch") that matures on February 8, 2026. The Company is currently in discussions with a third-party lender who has provided an executed term sheet and a non-binding commitment letter (the "Commitment Letter") for an asset-based lending facility (the "ABL Facility") for a term of at least three years that would provide the Company sufficient liquidity to pay-off the Term Loan and have additional sufficient liquidity available for the cash flow needs of the Company.

While the Company anticipates finalizing the ABL Facility with the third-party by June 30, 2025, there can be no assurances that it will be able to finalize the ABL Facility under the terms of the Commitment Letter. Further, if the ABL Facility is not finalized as anticipated, the Term Loan has certain financial covenants, discussed further in Note 11, for which the Company anticipates that it may violate in the second half of 2025, and if such violations were to occur, would accelerate the maturity date of the Term Loan into the second half of 2025, impacting the Company's liquidity and potentially impacting its ability to continue to operate in the normal course. Given the finalization of the ABL Facility is not within the control of the Company, the Company has concluded the near-term maturity of the Term Loan, including the anticipated potential violation of debt covenants, is a condition that raises substantial doubt about the Company's ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

While the Company believes it will be able to enter into the ABL Facility by June 30, 2025, in the event the Company is unable to obtain the ABL Facility as anticipated, the Company has a number of actions under its control that will enable the Company to satisfy the outstanding Term Loan at maturity or if called in the event of a covenant violation, including reducing the liquidity needs of the business over the next twelve months through a combination of deferrals

of voluntary cash expenditures and operating cost reductions. Management has determined that such actions are within their control and would mitigate the condition and alleviate the substantial doubt surrounding the ability to continue as a going concern by providing liquidity sufficient to both fully satisfy the Term Loan and continue to operate its business in the normal course.

As a result, the Company believes it will have adequate cash flows to support its ongoing operations for at least one year following the date that these consolidated financial statements are issued.

Term Loan

On August 8, 2022, the Company, Beachbody, LLC, a Delaware limited liability company and wholly-owned direct subsidiary of the Company (the "Borrower"), and certain subsidiaries of the Company (together with the Company, the "Guarantors"), entered into a financing agreement (as amended, the "Financing Agreement") with the lenders party thereto and Blue Torch as administrative agent and collateral agent for such lenders, providing for a senior secured term loan facility in an initial aggregate principal amount of $50.0 million (the "Term Loan"). Obligations under the Financing Agreement are guaranteed by the Guarantors, and secured by a lien on and security interest in substantially all of the assets of the Borrower and the Guarantors (together with the Borrower, the "Loan Parties"), subject to customary exceptions. On July 24, 2023 the Company and Blue Torch entered into the Term Loan Second Amendment on the Term Loan Second Amendment Effective Date, the Company made a partial prepayment on the Term Loan of $15.0 million. In the year ended December 31, 2024, the Company made partial prepayments of $13.7 million on the Term Loan in connection with the Term Loan Third, Term Loan Fourth, Term Loan Fifth and Term Loan Sixth Amendments. As of December 31, 2024, the principal balance outstanding (including capitalized paid in kind interest) under the Term Loan was $21.9 million. During the year ended December 31, 2024, the Term Loan was a secured overnight financing rate ("SOFR") loan, with an effective interest rate of 24.15% and a cash interest rate of 12.62% for the year ended December 31, 2024.‌

The Financing Agreement contains financial covenants, customary representations, warranties, covenants and customary events of default. In particular, the Financing Agreement contains (1) a minimum liquidity financial covenant of $9.5 million from the Sixth Amendment Effective Date (as defined below) through December 31, 2024 and $13.0 million from January 1, 2025 to the maturity of the Term Loan and (2) a minimum consolidated EBITDA financial covenant of (a) $2.0 million for the three months ended December 31, 2024, (b) $4.5 million for the six months ended March 31, 2025, (c) $6.6 million for the nine months ended June 30, 2025, (d) $11.3 million for the twelve months ended September 30, 2025 and (e) $14.6 million for the twelve months ended December 31, 2025.

We were in compliance with the financial covenants as of December 31, 2024. As noted above, the Company believes that it may violate one or more of its financial covenants on its Term Loan in the second half of 2025. In addition, unexpected weakness in the demand for our products may interfere with our ability to remain in compliance with the financial covenants, in particular the minimum liquidity financial covenant and the minimum consolidated EBITDA financial covenant for which the cushion in passing is expected to narrow in upcoming quarters. Failure to comply with the financial and other covenants under the Financing Agreement, would constitute a condition of default and would allow Blue Torch to accelerate the maturity of all indebtedness under the Financing Agreement. If such acceleration were to occur, we would likely have to seek an amendment and/or waiver of the impacted financial covenant or repay the debt with proceeds from the issuance of new debt or equity, or asset sales, if necessary. We may be unable to amend the Financing Agreement or raise sufficient capital to repay such obligations in the event the maturity is accelerated. As noted above, the Company is currently in discussions with a third-party lender who has provided an executed term sheet and a non binding Commitment Letter for an ABL Facility for a term of at least three years that would provide the Company sufficient liquidity to pay-off the Term Loan and have additional sufficient liquidity available for the cash flow needs of the Company.

See Note 11, Debt, to our consolidated financial statements included elsewhere in this Report for additional information on the Term Loan.‌

Lease Obligations

As of December 31, 2024, we have $15.3 million of lease obligations and purchase commitments associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum

services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. See Note 12, Leases, to our consolidated financial statements included elsewhere in this Report for discussion of our leases and Note 14, Commitments and Contingencies, to our consolidated financial statements included elsewhere in this Report for discussion of our contractual commitments that are primarily due within the next year.‌

Cash Flows

For the years ended December 31, 2024 and 2023, our net cash flows were as follows:

		Year Ended December 31,
		2024				2023
		(dollars in thousands)
Net cash provided by (used in) operating activities		$	2,562			$	(22,537	)
Net cash provided by (used in) investing activities			1,058				(10,826	)
Net cash used in financing activities			(15,868	)			(13,717	)

As of December 31, 2024, we had cash and cash equivalents totaling $20.2 million.

Net cash provided by (used in) operating activities was $2.6 million and $(22.5) million for the years ended December 31, 2024 and 2023, respectively. The increase in cash provided by operating activities during the year ended December 31, 2024, compared to the prior year, was primarily due to a decrease in net loss of $81.0 million, an increase in cash provided by other assets of $21.7 million and a decrease of $6.2 million of cash used related to accounts payable partially offset by a decrease in asset impairment of $27.1 million, a decrease in cash provided by deferred revenue of $18.9 million, a $13.1 million decrease in cash provided by inventory, a decrease in depreciation and amortization expense of $8.1 million, a decrease in the amortization of content assets of $8.1 million and a decrease in provision for inventory of $6.4 million.

Net cash provided by (used in) investing activities was $1.1 million and $(10.8) million for the years ended December 31, 2024 and 2023, respectively. The increase in net cash provided by investing activities was due to proceeds received from the sale of the Van Nuys facility of $5.6 million and a decrease in capital expenditures of $2.0 million due to increased focus by management on capital expenditures, in particular related to technology, partially offset by $4.3 million of investment in restricted short-term investments in the year ended December 31, 2023.

Net cash used in financing activities was $15.9 million and $13.7 million for the years ended December 31, 2024 and 2023, respectively. The increase in net cash used in financing activities was primarily due to the prior year included proceeds received of $4.9 million, net of placement agent fees, related to the sale of 420,769 shares of Class A common stock and pre-funded warrants to purchase up to 122,821 shares of Class A common stock on December 13, 2023 partially offset by a decrease in debt repayments on our Term Loan in the current year.

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 management's plan related to cost control initiatives will provide the Company with sufficient liquidity to meet our anticipated cash needs, including debt service requirements, for the next twelve months as well as for the longer-term (i.e., beyond the next twelve months).

On December 13, 2023, the Company issued 420,769 shares of Class A common stock at a purchase price of $9.75 per share and pre-funded warrants to purchase up to 122,821 shares of Class A common stock at a pre-funded purchase price of $9.7499 per share to certain institutional investors. The Company received proceeds of $4.9 million, net of placement agent fees. The Company also issued 543,590 Common Stock Warrants to purchase 543,590 shares of Class A common stock at an exercise price of $11.24 per share. On January 12, 2024, the investor exercised all of the pre-funded warrants and converted them into 122,821 shares of Class A common stock. See Note 16, Stockholders' Equity, to our consolidated financial statements included elsewhere in this Report for additional information regarding the Equity Offering.

We may also explore additional debt or equity 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 financial 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 Estimates

Our consolidated financial statements included elsewhere in this Annual Report have been prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make judgments, estimates and assumptions that affect the amounts reported in our consolidated financial statements and related notes. We evaluate our estimates and judgments on an on-going basis. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results in these areas could differ from management's estimates. Note 1, Description of Business and Summary of Significant Accounting Policies, to the consolidated financial statements describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Following are the Company's accounting policies impacted by judgments, assumptions and estimates.

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. To estimate any necessary adjustments against the carrying value of inventory, various assumptions are made in regard to excess or slow-moving inventories including future demand for our products, anticipated margin, planned product discontinuances, and the physical condition (e.g. age and quality) of the inventory. If future demand and market conditions are less favorable than our assumptions, additional inventory adjustments may be required.

In the three months ended September 30, 2024, management determined that it would no longer sell connected fitness inventory beginning in early 2025. Based on this decision, the Company recorded $1.2 million in adjustments in the year ended December 31, 2024 to reduce connected fitness inventory to net realizable value of zero at December 31, 2024. In addition, the Company recorded $0.2 million in adjustments in the year ended December 31, 2024 to reduce nutrition and other inventory impacted by the Pivot.

Including the adjustments for the connected fitness inventory ($1.2 million) and the adjustments for nutrition and other inventory ($0.2 million) due to the impact of the Pivot, during the years ended December 31, 2024 and 2023, we recorded adjustments to the carrying value of inventory of $4.2 million and $10.6 million, respectively, to reduce the carrying value of inventory on hand to net realizable value and to adjust for excess and obsolete inventory. The Company recorded $1.7 million and $3.4 million of these adjustments in nutrition and other cost of revenue for the years ended December 31, 2024 and 2023, respectively. The Company also recorded $2.5 million and $7.2 million of these adjustments in connected fitness cost of revenue for the years ended December 31, 2024 and 2023, respectively. Actual future write-offs of inventory may differ from estimates and calculations used to determine inventory adjustments 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 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 ("RU") below its carrying value or indicate that it is more likely than not that an indefinite-lived intangible asset is impaired. We test goodwill for impairment at a level within the Company referred to as the RU. 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.

2024 Interim Goodwill Impairment Test

Due to the continued sustained decline in our market capitalization in the three and nine months ended September 30, 2024 and the impact of the Pivot, which was approved by the Board of the Company in late September 2024, the Company performed an interim test for impairment of its goodwill as of September 30, 2024.

In performing the interim impairment test for goodwill, the Company elected to bypass the optional qualitative assessment test and proceeded to perform a quantitative test by comparing the carrying value of its RU to its estimated fair value. Fair value was estimated using a combination of a market approach and an income approach, with significant assumptions related to guideline company financial multiples used in the market approach and significant assumptions about revenue growth, long-term growth rates and discount rates used in a discounted cash flow model in the income approach. The estimates used to determine fair value for the RU may change based on the results of operations, macro-economic conditions, stock price fluctuations or other factors. Changes in these estimates could materially affect our assessment of the fair value and goodwill impairment for the RU. As of September 30, 2024, management concluded that the fair value of its RU exceeded its carrying value by approximately 10%, or $5.6 million, resulting in no impairment.

2024 Goodwill Impairment Test

We assessed our long-lived assets for impairment prior to our goodwill impairment test, see discussion below related to the long-lived asset impairment test.

In testing for goodwill impairment as of December 31, 2024, we elected to bypass the optional qualitative test and proceeded to perform a quantitative test by comparing the carrying value of our RU to estimated fair value. The determination of the fair value of the Company's RU was estimated using a combination of a market approach that considered benchmark company market multiples and an income approach that utilized discounted cash flows for the RU. The Company applied a 50% weighting to the income approach that utilized discounted cash flows and the benchmark company market multiples approach, in determining the fair value of the RU. The significant assumptions under each of these approaches include, among others; revenue growth, long-term growth rates, and discount rates used in a discounted cash flow model in the income approach, the control premium and the terminal growth rate. The cash flows used to determine fair value are dependent on a number of significant management assumptions such as the Company's expectations of future performance and the expected future economic environment, which are partly based upon the Company's historical experience.

The Company's estimates are subject to change given the inherent uncertainty in predicting future results. Additionally, the discount rate and the terminal growth rate are based on the Company's judgment of the rates that would be utilized by a hypothetical market participant. The Company also considered its market capitalization in assessing the reasonableness of the combined fair values estimated for its RU. The results of our annual test for impairment at December 31, 2024 concluded that the fair value of our RU was less than its carrying value. As a result, we recorded an impairment charge of $20.0 million related to our goodwill, which reduced our goodwill to $65.2 million at December 31, 2024. The impairment at December 31, 2024 was primarily due to the sustained decline in the Company's stock price, which decreased approximately 26% from December 31, 2023 to December 31, 2024, a decline in revenue of 21% for the year ended December 31, 2024 as compared to the prior year, and an expectation of continual decline in revenues in the near term due to the Pivot.

Management will continue to monitor its RU and long-lived asset group 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 RU may include supply chain disruptions; the demand for at-home fitness solutions; adverse macroeconomic condition; volatility in the equity and debt markets which could result in higher weighted-average cost of capital and our subscriber growth rates. Changes in management's expectations of future performance could have a significant impact on the Company's RU fair value. It should be noted that revenue and expectations of revenue have a significant impact on the RU's fair value. For the year ended December 31, 2024 the Company's revenue decreased by 21% from the prior year. Continual decreases in revenue could have an impact on the future fair value of the Company's RU. The fair value of our RU has been impacted by and will continue to be impacted by the volatility in the market price of our common stock. The Company's stock price declined by 26% in the year ended December 31, 2024. Continued decreases in the Company's stock price may result in a decrease in the fair value of the Company's RU and potential for incremental goodwill impairment. Changes in any of the assumptions used in the valuation of the RU, 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.

2024 Long-Lived Asset Impairment Test

Due to reduced revenue and margin forecasts, we tested the related asset group for recoverability as of December 31, 2024 and September 30, 2024. In testing for recoverability, we compared the carrying value of the asset group to its forecasted undiscounted cash flows to determine whether it was recoverable. The Company performed a test for recoverability at December 31, 2024 and September 30, 2024 and concluded that the carrying value of its long-lived assets were recoverable at September 30, 2024, but were not recoverable as of December 31, 2024. The fair value of the assets within the asset group were then calculated to determine whether an impairment loss should be recognized. The fair value of the long-lived assets were estimated and calculated to be higher than the carrying value and thus no impairment was recognized.