Peloton Interactive, Inc.

Thank you for standing by and welcome to Peloton's Fiscal First Quarter 2022 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 may be recorded. Should you require any further assistance, please press star 0. I would now like to hand the conference over to your host, Head of Investor Relations, Peter Stabler, please go ahead.

Good afternoon, and welcome to Peloton's Fiscal First 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 laws. 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 discussion of the material risks and other important factors that could impact our actual results, please refer to our SEC filings and 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. And with that, I'll turn the call over to John.

Thank you, Peter. Good afternoon, everyone. Thanks for joining us today. Before we recap the quarter and discuss our forecast, I want to spend a moment providing some context for our updated outlook. As you all well know, stay-at-home and work-from-home orders, coupled with commercial gym closures and drove massive awareness gains for connected fitness, accelerating an adoption curve that was already well underway. Given the unprecedented circumstances presented by the global pandemic, we said last quarter that modeling the exit from COVID and the massive growth we saw in fiscal 2021 would be a challenging task, and that has certainly proven to be true. With reduced backlogs, our visibility into our future performance has become more limited. From forecasting consumer demand to accurately predicting logistics costs, our teams have never seen a more complex operating environment in which to guide our expected results this year. As noted in our shareholder letter, we are reducing our guidance for fiscal year 22. We have returned to presenting ranges given the uncertainty. The swift timing of these changes since giving our initial guidance in August is not lost on us. As we prepared our previous guidance, we had to make assumptions about consumer behavior coming out of COVID, the impact of our original bike price reduction, and the cost structure within our connected fitness segment, all against the backdrop of a global supply chain crisis. While we have had to manage carefully around many issues, such as component shortages, elevated freight costs, and increased transportation costs, I'm proud of our team who has moved mountains to ensure that we have ample inventory across our portfolio ahead of the holiday season. While we continue to see a nearly 100% two-year growth kegger in both traffic and unit sales in Q1 and into Q2, we've seen a greater than anticipated taper of our website traffic levels over the past two months and a slower than expected pickup in retail showroom traffic. both of which are important inputs into our forward-looking demand model. This reduction in traffic has added increased near-term uncertainty into our forecast. As expected, our original bike price reduction created a step shift in demand, helping to broaden our demographic mix and expand our market opportunity. The price move did significantly improve our e-commerce conversion rate, in fact, greater than we expected, but not enough to offset the year-over-year declines we have seen in overall traffic. We saw a positive and sustained reception to the price moves in our international markets. This was anticipated as our international consumers have proven to be more price sensitive. To maintain a premium end-to-end member experience, we made significant investments over the past year to scale manufacturing, logistics, and operations. Overall, we believe we met the challenge, but there's no doubt that in some cases we overcorrected. That, combined with the reduction to our demand picture and higher-than-expected costs across product, transportation, and delivery are causing a near-term compression of our hardware margins. However, we are taking significant corrective actions to improve our profitability outlook, which will impact the back half of fiscal year 22 and into fiscal year 23. While it's important for us to optimize fixed cost across the company, we won't compromise our net promoter score position in the process. We remain committed to our goal of winning connected fitness, and our long-term thesis of fitness moving into the home is unchanged. We track our estimated market share closely, and while sales are currently not meeting our previous forecast, third-party data suggests that we continue to build on our leading share of of the connected fitness market. We firmly believe at-home fitness customers will want one subscription for a comprehensive home fitness platform, and we are determined to be that one subscription. Moving on to thoughts on the quarter. On August 30th, we officially launched our new lower-priced tread in the US and resumed sales in the UK and Canada. On September 28th, we launched sales in Germany and we look forward to bringing TREAD to Australia in the not too distant future. We have high expectations for our TREAD. Our TREAD platform provides members with both running and full body workouts taught by a great roster of instructors. We have reimagined the TREAD experience in the same way we fundamentally improved the stationary bike experience with the launch of our original Peloton bike. Since it's an introduction, we have brought millions of people into home fitness through our dynamic, ever-changing fitness platform. And our all-new tread provides that same immersive experience. But it will take some time to educate consumers. That's okay. We're committed to the platform and gain confidence from the high marks the product is receiving from both consumers and the press. Since the launch of our media support in late September, we've seen steady progress in building tread sales. Our tread net promoter scores are very encouraging, with an initial NPS in the U.S. of 89 points. And with our planned investments in content and software, our already great tread experience will continue to improve. Ask any bike member who joined the platform three years ago to compare the experience today versus when they purchased their bike. There's no comparison. And from an investment perspective, as we've said previously, we expect the tread market to be foundational to our long-term growth. Turning to our bike portfolio, the original bike price reduction accelerated sales, allowing us to convert more price-sensitive households. While we believe the wider price gap between bike and bike plus has resulted in some trade-down impact, we're comfortable with that outcome. As we've said, growing household penetration remains our primary objective. On the engagement front, we recently passed a significant milestone, over one billion classes taken by our members. We're honored to be playing such a positive role in our members' lives and look forward to many billions more. We finished the quarter with 2.49 million Connected Fitness subscriptions, up 87% versus the year-ago period. End-of-quarter digital subscriptions were 887,000, up 74% versus a year ago. And our global Peloton member community now stands at over 6.2 million. Engagement per connected fitness subscription totaled 16.6 workouts per month, declining modestly from Q4, and more significantly when compared to last year's COVID-impacted quarter. On a two-year basis, engagement was up 42% over the first quarter of 2020. As we have said, summer months have traditionally seen lower engagement levels, and we expect our first quarter to represent the trough quarter for engagement for the fiscal year, as it has in every non-COVID year in our history. In the quarter, we continued to aggressively invest behind content and new software features for our members. We produced over 2,500 new classes and launched features requested by our members. Examples include subtitles for live classes, redesigned class filters, a reimagined progress tracking feature, and structured workout plans to help keep our members on track. We also welcomed eight terrific new instructors bolstering both our New York and London-based teams. Our new instructors will be teaching in English, German, and Spanish with a focus on running, tread boot camp, strength, walking, outdoor, and stretching. Finally, this quarter featured the addition of 60 new running and cycling scenic classes which were taken over one million times in the period. Looking ahead, we're about to enter our busiest time of the year. Our inventories are healthy and our logistics teams are well equipped for the seasonally strong sales period. We have low expected OTDs across our portfolio as we know timely delivery is greatly appreciated during the holiday and New Year's resolution periods. Now, I'll hand it over to Jill to review our Q1 financial results and updated outlook.