Peloton Interactive, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Peloton's Interactive Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker. Mr. Peter Stabler, Head of Investor Relations. Please go ahead, sir.

Good afternoon, and welcome to Peloton's Fiscal Second Quarter Conference Call. Joining today's call are John Foley, our co-founder and CEO, President William Lynch, and CFO Jill Woodworth. Our comments and responses to your questions reflect management's views as of today only and will include statements related to our business that are forward-looking statements under federal securities law. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business. For a discussion of the material risks and other important factors that could impact our actual results, please refer to our SEC filings in today's shareholder letter, both of which can be found on our investor relations website. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's shareholder letter. With that, I'll turn the call over to John.

Thanks, Peter. Good afternoon, everyone. Thank you for joining us today to discuss our second quarter results. Global demand for our products was strong throughout the quarter, and we added a record number of new Connected Fitness subscriptions. We also launched our new Peloton Tread in the UK, produced over 2,100 new classes for our on-demand content platform, and added more software features to continue building the best member experience in global Connected Fitness. And our members are clearly responding, as we again posted substantial year-on-year engagement growth in the quarter. Over the last several quarters, we have been very focused on significantly growing our manufacturing capabilities. Fifteen months ago, we bought Tonic, one of our Taiwanese-based third-party manufacturing partners, which has allowed us to significantly scale our Bike and Bike Plus production. And over a year ago, we broke ground on a new Tonic plant in Shinji, and we're pleased to report that this facility is now up and running. With the desire to have greater control over our own supply chain destiny, we were proud to announce our biggest acquisition to date, Precor, and we're excited to welcome the Precor team into the Peloton family. Precor is a leading global manufacturer of commercial fitness equipment. Our acquisition of Precor will allow us to produce Peloton products here in the U.S. and fast track our ability to build a large domestic manufacturing footprint over time. Importantly, Precor has deep manufacturing and R&D expertise, which will help us bring new hardware products to market more quickly and better position us to serve our North American member base over time. Precor's product portfolio and sales team will also accelerate our commercial business, where we see a significant opportunity to grow Precor's franchise while introducing the Peloton platform to an even greater number of fitness enthusiasts in channels such as hospitality, multi-unit residential buildings, corporate campuses, and colleges and universities. As we mentioned in our transaction announcement, we expect to be producing Peloton equipment in the U.S. by the end of this calendar year at Precor's North Carolina facility and expect to close the acquisition early this calendar year. Pending a successful close, we'll offer more thoughts on Precor next quarter. Though we're beginning to see the benefits of our extensive supply chain investments, our delivery wait times remain elevated. As with last quarter, continued strong demand for our products, West Coast port delays, and COVID-related delivery challenges have prevented us from returning to our normal order-to-delivery wait times and unfortunately forced us to reschedule many deliveries. To address this issue, we will continue to invest heavily in systems, teams, and manufacturing capabilities to ensure we don't disappoint our customers going forward. Importantly, we are going to do everything we can to get back on the right side with our new members. In order to do that, we are investing over $100 million in expedited shipping to reduce the wait times for our products. This expense will include air shipments, expedited ocean freight, and incremental costs to get containers to other ports that are less congested. Member support has also been and will continue to be a critical investment area for us. To help address the support needs of a rapidly growing member base, we've more than doubled the size of our member support team over the past year. We will continue making significant investments to get our products to the U.S. with more certainty and with greater speed. We have also significantly lowered marketing spend, even during our typical peak selling periods. We are determined to do what it takes to reduce our delivery times and get certainty for customers on the delivery dates we offer. In a moment, Jill will offer more color on how these investments impact our guidance for the balance of the year. We are very excited about the new tread, which went on sale in the UK on December 26th. We're pleased with the UK market reception, particularly as it represents the first time we've offered a tread product to our international members. UK tread sales have exceeded our expectations, and our early reviews have been overwhelmingly positive. The success of this launch and the fantastic reception of this new product has forced us to reconsider our schedule for our new tread rollout in North America. Our launch plan originally called for a limited market launch in the U.S. on February 9th in conjunction with a launch in Canada. In the U.S., we had plans to start delivering nationally in April. To adjust to current market dynamics and to better equip our U.K. and Canadian teams to fulfill expected demand with high levels of customer service, we've decided to allocate additional resources to those markets and adjust our U.S. rollout schedule. For many of those eagerly awaiting our U.S. launch, this is no doubt disappointing. But these additional weeks will enable us to build a deeper inventory footprint, helping us deliver a better member experience once deliveries commence. Our plans for a February 9th Canadian launch are unchanged. We will begin selling a limited number of new Peloton treads in the U.S. starting on February 9th to consumers who have expressed early interest in the tread. This limited sale will be restricted to a few select zip codes. We will then move to a full U.S. rollout excluding Alaska and Hawaii on May 27th. Now some operational highlights from the quarter. We added 333,000 net connected fitness subscriptions in the quarter, bringing our end of quarter connected fitness membership base to 1.67 million, up 134% year on year. As of December 31st, we had over 4.4 million global members, inclusive of our nearly 625,000 digital subscribers. Digital continues to be a high-growth sales channel for Connected Fitness products, and we have been pleased with both the exceptional growth in digital subs over the past several quarters, as well as our improved upsell conversion rate to our Connected Fitness products. Our member engagement continued to soar in Q2 with Connected Fitness subscription workouts growing over 300% to 98.1 million. That's an average of over 1 million workouts per day in the quarter. I'm also happy to report that in January we saw our first day of over 2 million workouts. In Q2, we averaged 21.1 monthly workouts per Connected Fitness subscription versus 12.6 in the year-ago period, an increase of 67%. We continue to see particularly strong growth across our collection of floor-based classes as members increasingly embrace our full-body fitness content. A great example is our bike boot camp series that combines bike-based cardio and off-bike strength training. In this quarter, bike boot camp classes were taken nearly 2 million times by our members. As we've mentioned previously, enhancing our strength offering is a key strategic focus for us. The addition of Pilates classes to our strength vertical was welcomed warmly by our member base, with over 1 million classes taken since launch. we will continue to build on the success of our strength content pillar over the coming quarters. Beyond adding new fitness modalities and class varieties, we're always on the lookout for groundbreaking partnership opportunities. As you may have seen, we've teamed up with the global megastar, Beyonce, to produce a series of themed classes, and we're proud to be joining her in supporting students of 10 historically black colleges and universities with free two-year Peloton digital memberships. Our most recent collaboration is with Shonda Rhimes, the hottest executive producer on the planet today. We worked with Shonda to produce the Year of Yes, an eight-week class collection spanning multiple fitness disciplines focused on overcoming fears, maximizing potential, and discovering the inner athlete in all of us. Our world-class content and music teams have a robust content pipeline over the next several quarters to further delight our member base. Lastly, to our entire Peloton team, thank you. Your unwavering commitment to our members is a source of inspiration for me every day. And we want to thank our members, especially our newest ones and those awaiting their deliveries, for their patience as we work hard to get their products to you as quickly as possible. Now, over to you, Jill.