Q1 2024 Beachbody Company Inc Earnings Call

Participants

Bruce Williams; MD of Investor Relations; ICR

Mark Goldston; Executive Chairman of the Board; Beachbody Company Inc

Carl Daikeler; Chief Executive Officer, Director; Beachbody Company Inc

Marc Suidan; Chief Financial Officer; Beachbody Company Inc

George Kelly; Analyst; Roth MKM

Jonathan Komp; Analyst; Baird

Susan Anderson; Analyst; Canaccord Genuity

BJ Cook; Analyst; Singular Research

Presentation

Operator

Good afternoon, ladies and gentlemen. Welcome to the beach body Company First Quarter 2024 earnings call. (Operator Instructions) I would like to remind everyone that this conference call is being recorded, and I will now turn the conference over to our host, Bruce Williams, Managing Director of ICR, Investor Relations.

Bruce Williams

Welcome, everyone, and thank you for joining us for our first quarter earnings call. With me on the call today are Mark Goldston, the Executive Chairman of the Beachbody Company; Carl Daikeler, Co-Founder and Chief Executive Officer; and Marc Suidan, Chief Financial Officer. Following the prepared remarks, we'll open the call up for questions.
Before we get started, I would like to remind you of the Company's Safe Harbor language to statements contained in this conference call, which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties, all of which are described in the Company's filings with the SEC, which includes today's press release.
Today's call will include references to non-GAAP financial measures such as adjusted EBITDA, net cash and free cash flows. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website.
Now I would like to turn the call over Tamar.

Mark Goldston

Thank you, Bruce, and good afternoon, everyone. 2024 is off to a strong start as we continue to deliver against our strategic initiatives and remain steadfast in our turnaround plan with our efforts thus far in 2024, we have some great news to announce. First, I'm thrilled to share that we beat the midpoint of our revenue guidance and achieved quarter-over-quarter revenue growth for the first time since Q4 of 2021.
Second, we exceeded the midpoint of our adjusted EBITDA guidance, and we've now delivered positive adjusted EBITDA for two consecutive quarters. And today, we reported our highest adjusted EBITDA since going public back in 2021. And third, we reached a critical milestone of becoming free cash flow positive this quarter, once again, a first for our company since 2020.
As a reminder, the goal of our turnaround strategy centers on one, continuing to enhance our cash position and balance sheet, two, transforming our cost base and rearchitecting the enterprise to dramatically reduce our breakeven point without compromising the core business model that generates revenue and three, launching a series of initiatives to refine the business model and drive top line growth in terms of where we stand in the turnaround process, we feel that we are considerably ahead of schedule.
Let me walk through the details of our three key turnaround strategies. First is enhancing our cash, liquidity and balance sheet position. We reported our first positive free cash flow quarter since 2020. During the quarter, we took additional strategic action to fortify our liquidity position by engaging in a sale leaseback transaction and divesting a noncore investment, which resulted in a $7 million debt reduction as a direct outcome of that, our loan balance has been cut in half since I joined in June of 2023 from a level of $50 million to now $25 million.
In April, we proactively amended our revenue covenants for our term loan with Blue torch capital we finished Q4 2023 with a net cash position of $4 million. But at the end of Q1 2024, we showed continued improvement with positive net cash position of $14 million. This transformation in just one quarter is impressive and resulted in a $10 million liquidity improvement sequentially.
Additionally, our amended debt covenant lowered the quarterly revenue threshold from $120 million down to $100 million per quarter, and this will last until December 31st of 2024. And then subsequently, it will go to $110 million per quarter beginning in Q1 of 2025. We believe this demonstrates that our lenders have confidence in our progress to run a positive free cash flow business at a much lower revenue threshold requirements.
Second, we're transforming our cost base and rearchitecting the body enterprise to dramatically reduce our breakeven point in what we believe can be a very short period of time. We have successfully reduced our revenue threshold from over $900 million in 2022 to less than $500 million in 2024 to be in a cash generating position that's more than a $400 million reduction in the breakeven threshold for the Company.
What's important about that is that we built operating leverage into the P&L at the current run rate of revenues and believe that as our turnaround gains traction, we will drive significant operating profit over time. We stated that we would generate over $250 million in cost savings in 2024 versus where the company was back in 2021.
So a long process of improving the cost structure and we're currently at a run rate to deliver these savings in 2024. And this has been demonstrated by our Q1 2014 results. And third, we've developed revenue initiatives designed to drive top line growth, and we're thrilled to announce that we grew sequential quarterly revenues for the first time since 2021.
Looking forward, we're excited about our existing and upcoming innovation pipeline, which focuses on expanding consumer access to our rich catalog programs. And we'll also be exploring strategic partnerships and developing innovative marketing programs, which will expand the distribution of our nutrition business among other initiatives.
Our performance reflects many proof points that the strategy and disciplined focus of the turnaround plan we constructed after my arrival in June of 2023 are working, and we're tracking ahead of schedule on critical milestone achievements.
I'd like to create strategic imperative lists that focus on five key areas, and I've been doing that for decades in the companies that I've run, and I'm pleased to announce that the Company has already achieved the five key strategic imperatives of the turnaround plan that we established after my arrival in June of 2023.
Let me quickly review these five key strategic comparative accomplishments. One, we strengthened our liquidity position. Two, we dramatically lowered the breakeven point of the Company three, we delivered positive adjusted EBITDA now for two consecutive quarters.
Four, we built substantial operating leverage into our P&L and five thus far in 2024, we achieved our first positive free cash flow quarter since 2020. As a reminder, we are still in balance sheet optimization mode, which means we will remain hyper focused on maximizing cash and liquidity therefore, we will continue to focus on executing our turnaround plan to optimize cash generation from our valuable asset base.
We're on track to build a company that naturally delivers positive adjusted EBITDA and positive free cash flows. It also achieves the third element of the critical financial measurements of a turnaround, and that will be delivering GAAP net income, which will be our next key milestone and the impressive and might, I say, rapid turnaround of body.
Now I'll turn it over to Carl to discuss our top-line revenue growth initiatives. Carl?

Carl Daikeler

Thanks, Mark, and thank you, everyone, for joining our first quarter earnings call. Achieving our first free cash flow positive quarter since 2020 is a major milestone in our turnaround, and we look forward to sharing more proof points.
Now as every quarter unfolds, I'll walk through our key revenue initiatives, which align with our overall mission to help people achieve their goals and live healthy fulfilling lives. First, we just launched our digital program purchase initiative that we're extremely excited about think of it as the eye tunes model of buying music, but for fitness programs where customers can now buy and stream programs from our fitness and nutrition library without a subscription.
We believe there's latent demand for our library of content from programs that were bestsellers and famous on DVD like P. 90 times and insanity to other popular programs, which have never been on DVD. like 80 day obsession lift for and Sean T's latest program called dig deeper. We're now giving consumers the ability to purchase the individual programs, which is actually the business model that propelled the business for 20 years.
Each month, we'll be offering additional titles from our library of over 120 programs for sale in bodies, new shop PROGRAMS store at body.com. And we're confident that this new initiative will cater to people who prefer to buy a specific program rather than subscribe to the entire library. We believe that we're the only major player in home fitness who has a catalog that makes this kind of commerce viable.
Again, we believe that expanding access to our content provides an extremely compelling marketing opportunity and then we can introduce those new customers to the benefits of our fitness and supplements subscriptions once they experience the efficiency of our tested approach to step-by-step training.
We're in the early stages of marketing and refining the digital purchase program to maximize LTV by bringing new people to the platform and then upselling them additional programs are digital subscriptions and supplements.
Next, within our nutrition business, we've expanded our sales channels and in March, we launched more aggressive marketing campaigns across our entire ecosystem, highlighting the superiority and quality of our formulations. These marketing campaigns will highlight a key product every month to our existing member base.
And we're further broadening our distribution by working with social media influencers to test and review and promote our nutrition products and to transact through a simplified checkout process on social media platforms.
Looking ahead, we're reviewing an extensive range of pricing and packaging and portioning configurations to determine the best way to generate trials and conversions and repeat purchases of our nutrition products. We're doing this across all our sales channels, including our network of partners, our direct-to-consumer marketing, and now an Amazon more news on this will be shared as we expand these activities in the coming quarters.
Okay. Now moving to Amazon, we're encouraged by the growth that we've seen this quarter. Sales on Amazon increased by over 50%, both sequentially and year over year from Q1 2023. Now while this is starting off a smaller base, the growth gives us confidence that we have the right products, strong brand recognition and the right price points.
We recognize that we have a real opportunity to expand access to our incredibly effective nutritional products, and we're seeing positive compounding results from our distribution partner on Amazon. And last, I wanted to highlight the progress we've made with reactivating our extensive database of former and prospective customers.
We continue to execute against our strategy of sending targeted messages and special offers to drive conversion. But the process of methodically combing through this large database is taking longer than we anticipated as we test and formulate our messaging and formats for e-mail and text messaging.
We have a new team leading this project, and we remain very optimistic that this will be a very effective customer acquisition and engagement tool that will drive LTV with minimal cash. I think it's also important today to discuss weight loss pharmaceuticals and their potential related impact on body and the overall weight loss industry.
If I may several analysts have published reports that fitness is not impacted by the weight loss pharmaceutical business, but meal replacement and snacking consumption is actually being negatively impacted. The science is very clear that consumers who are using GLP-1 drugs need to augment that investment with fitness and nutrition to maintain muscle mass and prevent other side effects.
Scientific studies have consistently shown that the best preventive medicine for overall health and longevity is exercise and healthy eating. And there's our opportunity body is the one comprehensive fitness and nutrition company that can truly complement this wave of pharmaceutical innovation, and we have not seen a negative impact from the adoption of GLP-1. In fact, whether you're a GLP-1 consumer or not, we remain the most effective and affordable fitness and nutrition solution for people.
Okay. Now let me turn the call over to Marc Suidan to walk through the specifics of our first quarter financials. Marc?

Marc Suidan

Thanks, Carl, and thank you everyone for joining the call today. I am very pleased with our Q1 results that we just released. As Mark and Karl mentioned, we have hit several key milestones in our turnaround journey. We remain on track to achieve approximately $250 million in cash cost savings in 2024, in line with our business rearchitected plan that we began back in 2021.
I will now provide a review of our first quarter financials starting with revenues.
Revenues were $120 million for the quarter, which was above the midpoint of the guidance range and an increase from Q4 of 2023. This would mark the first sequential revenue growth in the past eight quarters compared to the prior year. First quarter revenues declined 17% year-over-year.
Digital revenue decreased 4% from the prior quarter to $62 million and decreased 5% year over year. We believe that digital revenue continued to be relatively stable. We ran a successful bogo promotion, which stands for by one year, the 2nd year for free that resulted in strong cash generation.
However, less digital revenues were recognized this quarter due to the bogo promotion as we deferred digital subscription revenue over the three year period of the promotion, our overall digital subscriber counts was $1.2 million, of which 100% are now in the body premium platform. Nutrition revenue increased 7% from the prior quarter to $56 million and decreased 25% year over year.
This marks our first sequential nutrition revenue increase since Q1 of 2022. We are pleased that our nutrition revenue grew this quarter sequentially showing early signs of improvements within our turnaround plan. It is important to note that we are still in the early stages of reinvigorating our nutrition business, and it will take more time to grow the Nutrition business sustainably.
At the end of Q1 2024, our nutrition subscriptions were 150,000 compared to 160,000 in the prior quarter. Connected Fitness revenue was $3 million in line with the prior quarter and 50% below the prior year first quarter. We will continue to strategically use promotions to sell our existing inventory.
We are very pleased to announce that gross margin improved dramatically in Q1 of 2020 for the Company achieved a gross margin of 67.7% for the first quarter, which increased 550 basis points from 62.2% in Q4 of 2023 and increased 470 basis points from 63% in Q1 of 2023.
This was the highest gross margin reported by the company since we went public in Q2 of 2021. When we had a gross margin of 69.2%. Digital gross margin was an impressive 79.1% for the quarter, which represented a 600 basis points improvement over the 73.1% in Q4 of 2023 and a 220 basis point higher than the 76.9% in Q1 of 2023.
As we discussed in the last earning call, our 2024 digital gross margin will benefit from lower content amortization as our production and content spend has become more efficient. Our goal is to drive digital gross margin to over 80%. The company also recorded major improvement in nutrition gross margin during the quarter.
Nutrition gross margin was 59.9%, representing a 670 basis points increase from the 53.2% in Q4 of 2023 and a 180 basis point improvement from 58.1% in Q1 of 2023. Year over year improvement was driven by carefully managing inventory and pricing. Connected Fitness gross margin was minus 19.5% for the quarter versus minus 13% in the prior quarter and minus 25.7% in the prior first quarter.
Our Connected Fitness business is less than 5% of our total revenues. And as shared on previous earnings call, we are focused on selling on-hand inventory to generate incremental cash. While we're not actively looking to expand the Connected Fitness hardware business. We are still very focused on ensuring that we will continue to deliver the finest connected fitness content.
Moving on to operating expenses, excluding the asset impairment and restructuring charges. Operating expenses for the quarter were $90 million versus $91 million in the previous quarter and $113 million in the same quarter last year. This represents a $23 million reduction in operating expenses versus the same quarter last year. Selling and marketing expense was reduced to 49% of revenue compared to 50% in the prior quarter and 53% in the prior year's first quarter.
We remain on track to achieve our 1,000 basis points improvement in EBITDA from selling and marketing expense reduction and our lower preferred customer discounts. This benefit would equate to $50 million based on revenues of $500 million. Technology and development was 15% of revenue in the current quarter and prior quarter compared to 13% in the prior year first quarter.
G&A was 11% of revenue in line with the prior quarter and it was 12% in the prior year's first quarter. The Company recorded a significant reduction in our net loss for the first quarter. Net loss was $14 million in Q1 of 2024 compared to a net loss of $65 million in the prior quarter and a net loss of $29 million in the prior year's first quarter. This represents a major improvement of 52% from the prior-year first quarter.
Adjusted EBITDA, which has now been positive for two consecutive quarters, was $5 million in Q1 of 2024 versus $3 million in Q4 of 2023 and a meaningful improvement compared to minus $1 million in Q1 of 2023. We believe that this is a clear indicator of the effectiveness of the company's turnaround plan and the overall reduction in the breakeven threshold that we have engineered.
Next, moving onto the balance sheet and cash flow. Our cash balance was $39 million compared to $33 million in the prior quarter. This improvement was driven by cash generated from organic operations. Our net cash position, which is our cashless debt as described in our earnings release increased from $4 million at December 31st to $14 million at March 31st. This $10 million liquidity improvement in a 90 day period was driven by our focus on cash generation.
Our operating cash flow in the first quarter was $9 million versus cash used in operations of $9 million in the prior quarter and $8 million cash use in Q1 of 2023 year over year. This is a $17 million improvement driven by turnaround plan, which created the ability to run the business in a cash generating position at this level of revenue.
Inventory was $21 million at the end of the quarter, down from $25 million at the end of the prior quarter. This represents 10 quarters of inventory balance improvement and is the lowest inventory level since going public in 2021 as we continue to sell the connected bike inventory, we will settle in this range of inventory value, which is primarily comprised of nutritional supplements.
Our content and tech CapEx was in line with the prior quarter at $4 million and 28% below the prior year first quarter. The lower CapEx profile is already showing in both our improved gross margins and our improved cash flows. We measure free cash flows as our cash generated from operations, less PP&E CapEx, which equates to $7 million in the first quarter.
This is a tremendous improvement versus minus $10 million in the prior quarter. And minus $11 million in Q1 of 2023. This is the first positive free cash flow quarter since going public in 2021, our debt balance was $25 million at March 31st, we have paid down half the debt from the original borrowing in 2022.
Lastly, turning to our outlook for the second quarter, we expect the second quarter revenues to be in the range of $103 million to $113 million. We expect a net loss in the range of $20 million to $14 million and an adjusted EBITDA in the range of minus $3 million to positive $3 million.
Our guidance assumes seasonality, which typically result in lower level of revenues in Q2 versus Q1 ongoing turnaround initiatives being implemented and higher expenses associated with our annual summit event.
That said, we announced several major milestones today and look forward to providing further updates over the coming quarters. I will now ask the operator to open it up for questions.

Question and Answer Session

Operator

Absolutely. we will now begin the Q&A session. (Operator Instructions)
George Kelly, Roth MKM.

George Kelly

Everyone, thanks for taking my questions. So maybe I'll start on the Nutrition business. I'm curious you you showed nice sequential growth there, and I'm just curious what drove that? Was that Amazon or is there something else and that was meaningful in that sequential improvement?

Marc Suidan

Hey, George, this is Mark to add the on. Yes, it's a I would say it's a mix of things. One, it is definitely early green shoots of our turnaround happening in Nutrition on some things to note there is and in addition to better volume of orders, there was also the discount that went from 25% to 20%, which effectively increases revenue and then also there are some R&D events because that line is called nutrition and other. But but overall, George, I would say it's early green shoots in that business starting to and a turnaround, which is good news.

George Kelly

Okay, that's helpful. Thanks. And then a second topic I wanted to cover is on that on some of the new growth initiatives have you spent time discussing specifically, I was hoping you could share a little bit more about what you've seen in the months since you launched the entitlement campaign. And then secondly, if you could cover, of course, I know you mentioned that the reactivation campaign is taking a bit longer than than you hoped. I'm just curious what why that hasn't been more success.

Carl Daikeler

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

George Kelly

It does. Yes, understood. And then last question for me is on the selling and marketing line. I'm curious the sequential decline in selling in absolute amount of selling and marketing dollars spent was pretty modest less than $1 million, but compared to 4Q.
And so I'm curious if the the commission changes from a are they kind of fully in that 1Q number? And B, are you choosing to reinvest some of that savings in other advertising campaigns. And should we expect that going forward that you'll kind of divert some of those savings into other marketing related initiatives?

Marc Suidan

So George, this is a Mark, again, the CFO. So what I'll say is there's there's cash spend and then there's accounting spend, right? So what happens is at the end of Q4 of last year.
We accrued expenses at the old structure, but we benefited from a cash spend profile in Q1. While we were while the deferred cost from the balance sheet was working its way into the balance sheet. So so that's number one, why you didn't see as much of a benefit there as anticipated.
Number two, Q4 is always a quarter where we spend, at least on media just because for seasonality purposes, while Q1, we spend more. So that's another factor why it goes up in Q1 over Q2 and then number three, like I said earlier, part of those part of that 1,000 basis point is going to come in the form of enhanced revenue, about 280 or about 200 to 250 basis points because because the discounts are lower, right?
So are our changes. We're in many places. So that's where the benefits are coming from so from a cash standpoint, we're seeing the benefit and you see it in the EBITDA line and you're going to see it chemical threats itself more quarter over quarter. I would say on the on the reinvestment question, that's a good one, George. I would say whatever we reinvest is going to be within our desired P&L structure and our LTV to cap discipline?

Mark Goldston

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

George Kelly

Got you. That's all I had. Thank you.

Mark Goldston

Thank you, George.

Operator

Jonathan Komp, Baird.

Jonathan Komp

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

Marc Suidan

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

Jonathan Komp

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

Mark Goldston

I mean, essentially, I think we've disclosed that we have disclosed publicly are our revenue covenants, $100 million a quarter between now and the end of the year. So if you look at our seasonality and obviously you can see our previous years recording the Q1 typically indexes up in a falling about one 12 issue there or thereabouts.
And then Q2 and Q3 are more around a 100 index level. So Tom, where we planned our initiatives, as you know, they're somewhat back loaded in the second half of the year, the seasonality swings and that really that dramatic.
So they don't really affect us that much. And so our goal is to have them start to take effect in the second half of the year and into Q1. And the $100 million a quarter revenue covenant was established mutually between us and Blue church and everybody felt comfortable with that.

Jonathan Komp

Okay. Understood. Thank you. And then just one more follow-up. As we think about the digital business, can you give any insight some and any line of sight you may have to the membership stabilizing or where they may start to stabilize. And as you think about measuring the success of the initiatives you have in place for the digital business, specifically what are you looking for in terms of the milestones or the key metrics to get comfortable in the direction that you're headed? Thanks again.

Mark Goldston

I think part of this is what we might want to focus on is the fact that we're trying to broaden the aperture and the customer base in the Company. The Company has been, as you know, hyper focused over the last five, six years on subscriptions.
If you go back to the halcyon days of the Beachbody company, it was almost entirely purchasing individual programs. What we call entitlements. So what we're now trying to do is to have a mix, but we still obviously are focused on the subscription business, but we believe we're leaving a lot of money on the table, and we're leaving a lot of satisfied potential customers off the grid by not offering individual programs.
Might there be some level of cannibalization with regard to entitlement to subscriptions. It's possible within in the end of the day, if our total engagement base, which is subscriptions, plus entitlement is larger as a result and therefore, the Company would have more revenue and obviously be more profitable than that absolutely plays into our core strategy.
So we're going to learn more as we go down the process. We just started this when we talk to you in Q3 and Q4, when we've been asked this for four, six months, we'll have a better idea of where things settle out. But the goal here, all along was to widen the overall aperture of appeal of this company. And it's fabulous library of well known programs. And for the last four to six years, I would say we really haven't been maximizing that because we've been hell-bent on the subscription business as the sole source.
Does that makes sense? John, you there?

Jonathan Komp

Yes. No, I mean, I think the nature of the question are just trying to understand. I mean, $1 million to digital subscribers is down significantly from the peak and not necessarily showing signs of normal seasonality or stabilization. So it's hard to get a handle on the efforts that you just walked through paying off versus the pressure is still on the core subscription business?

Carl Daikeler

I would say, well, I think, Carl, Carl yes, I would say that the frankly, we're in a better position than I feel we've been for two decades because we never had the digital subscription business as a complement to the front end PROGRAM sales. So now that we are basically unleashing the single digital purchase component of this with the prospect of upselling the digital subscription and upselling the deep nutritional supplement catalog.
We're in a position now to dramatically increase our new customer acquisition at a higher lifetime value because I've got more skews to offer them than we've ever had in the history of the business. So and really, if you look at it from a learn test-and-learn perspective, we've got more levers in our arsenal to build lifetime value, which, of course, contributes to what you can spend on the front end.
So the frankly, since we've made the transition over the last 18 months by consolidating our digital subscription business into one higher value subscription. We went through these multiple stages of reducing the number of subscription tiers that we had and settled in at this higher price.
Now we can open up the as Mark said the aperture of the front end acquisitions using digital program purchases and then on the back end sell the subscription. So we think these two things are going to complement each other and frankly help keep the subscription base quite stable.

Mark Goldston

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

Jonathan Komp

Okay. Very well, thanks for all the color.

Mark Goldston

Thank you, John.

Operator

Susan Anderson, Cannacord.

Susan Anderson

Hi. Thanks for taking my question and nice job on the quarter. And I would think there may be, I guess on the Amazon details. It sounds like the other start, there has been pretty successful, so I'm pleased with that. I guess does that what gives you confidence in expanding into other retailers or other channels? And then also I'm curious if any of those and Amazon customers that may be a little early, but if they eventually migrate to yours site? Thanks.

Carl Daikeler

Thanks, Susan. Yes, we do expect the Amazon business to continue to grow, and we're also getting interest in terms of the possibility of expanding sales channels. What matters to us is that the sales of the channels that we go into are continue to contribute to that cash flow and profitability of the business. So that's that's how we measure any opportunities that we're looking at.
And there are plenty of them because of the quality of the supplement catalog that we've got in terms of those and customers from Amazon coming over to the the mothership, if you will. I think it will happen in some cases, but you just can't be the and convenience for people who want to shop from Amazon. They get to shop from Amazon.
And we probably would have never gotten them because they appreciate the convenience of being over there. So as long as we're managing our contribution margin of each transaction, we were sort of agnostic to where they come from. However, the good news is that the brand that goes along with every transaction is body and the beach body company.
So if they do any search for who's this technology from, for instance, they're going to find the parent company and have the opportunity to come in and for instance, start a free membership of body previews where they can get access to 130 programs to decide what what they'd like to some have complement their supplement choice. So we do think there's going to be some cross-collateralization, but that's not necessarily the strategy there.

Mark Goldston

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

Susan Anderson

Okay, great. I'm looking forward to the additional details there. And maybe also I may have missed this, but did you parcel out the buckets of the expense savings this quarter? Like, for example, how much was due to the changing commission structure, et cetera?

Marc Suidan

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

Susan Anderson

Okay, great. And then I guess last question for me. Did you give an update on the subscriber reactivation campaign? Just curious how that's going and then any uptick that you've seen there?

Carl Daikeler

And then also I'm just curious in the difference in marketing spend, trying to get those customers back, then you would, I guess, just normally spend to acquire a customer and as we mentioned, the reactivation campaign is slower than expected because we got to be careful not to violate violate, can't spam regulations.
However, we do see it to be ongoing. It's an ongoing productive channel just hasn't hit the scale that we expect. And the good news is that it doesn't really have any cost of acquisition at all because we already own the names with the exception of just the effort to put e-mail campaigns together and or any discounts or promotions that we put in place to reactivate those customers.
And we have seen those be pretty pretty pretty prolific for us and effective based on results in the first quarter. So we continue to expand their reactivation campaign and in fact, with the new leadership that we put in place. We have they started to do a really good job of what we would call a fast follow. So somebody who cancels or doesn't renew their membership, the team is contacting them very quickly where you have the best window, the best opportunity to keep that customer from actually going back into that prospect list. So they're all over it. It's just slower than expected.

Mark Goldston

Susan. I'd like just to add to that, just if I just isolate and missing data point, as we're sort of getting up to speed with this CRM recapture program. Most of the things that we've been doing and we've been testing have been digital fitness, as you can imagine. An interesting anecdote to that is that we have over $1 billion of former body nutritional supplement users in that CRM base.
If you looked at the CRM base, there's been over $1 billion of nutritional supplement purchases from body previously represented by that group. We have not up to this point attempted to remarket to them nutritional products. Ironically, even though there is a reservoir of one billion-plus dollars of former revenue there.
So as part of the new management that we've run in that group and our focus as we scrubbed this list and keep ourselves off of the spam list, so to speak having run one of the largest ISPs in the world. I'm uniquely got confident that we'll avoid that.
There is a huge opportunity down the road here to recapture a lot of these people with what we're looking at nutrition in terms of package sizing, pricing, et cetera, that we could go back to those people with a very compelling offer. So just stay tuned on that for the second half of the year. I think you'll see some stuff that will impress you.

Susan Anderson

Okay, great. Thanks. That sounds good. Thanks so much for all. Good luck the rest of the year.

Mark Goldston

Thank you, Susan.

Operator

BJ Cook, Singular Research.

BJ Cook

Hey, guys, thanks for taking my call. You talk real briefly about partnerships and announced one here by a week or so. I'm continue to see and I guess I'd shed some light on that partnership and maybe see what your strategy is there? Would you expect to be promoting those partnerships on your side and on the partner side and you you would you expect that to be meaningful to revenue near term or long term?

Carl Daikeler

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

BJ Cook

Fantastic. Appreciate it. You touched on the Q2 guidance here. So just quickly. Yes, the mean midpoint is down and so is it and so the sequentially as well, can you just touch on how much of that is just seasonality and and also other factors?

Marc Suidan

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

Mark Goldston

It's Mark. And it's also really important. It's really important, BJ, to keep in mind because, yes, we've had two consecutive quarters of positive adjusted EBITDA. Yes, we had the free cash flow positive in this quarter, but we're still in the turnaround. I mean, we're ahead of the schedule where we thought we'd be, but we're still in the maximize the balance sheet that maximize expense efficiency mode.
We have these programs in the pipeline and they will start to come before in the second half of the year and Q3 and Q4. But just keep in mind. The fact that while we've been successful, we're thrilled with where we are, we're still in that turnaround. And so we're going to continue to manage it that way as we move towards the second half of the year.

BJ Cook

Fantastic. Thanks, guys. Appreciate it.

Mark Goldston

Thank you, BJ.

Operator

Thank you all for your questions. Now the other question we have in queue currently so I will pass the conference back over to Carl for any closing remarks.

Carl Daikeler

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

Operator

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