The answer would be: fat
Physical activity will need energy and the energy can be obtained from sugar in the blood. If you keep the physical activity, the sugar in blood will eventually run out. In these case, the body will use "stored energy" which was composed of glycogen or fat. Fat would be the long-term stored energy that will cause loss of body weight.
Exercise could induce sweating which was the loss of water, so it was not wrong either. It just the weights loss by water is just temporary and will be gained if you drink.