Peloton Interactive, Inc.

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Peloton's second quarter fiscal 2022 conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press the star, then the one key on your touch-tone telephone. If you recall operating systems at any time, please press star, then zero. I would now like to send the conference over to your speaker host, Peter Saber, Head of Investor Relations. Please go ahead.

Good morning, and welcome to Peloton's second quarter fiscal 22 conference call. Joining today's call are John Foley, our co-founder and CEO, 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 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. With that, I'll turn the call over to John.

Thank you, Peter. Good morning, everyone, and thanks for joining us today on short notice. As you've probably seen by now, we made a number of important announcements this morning, all of which are intended to ensure Peloton is well positioned for sustainable, profitable growth. I'd like to start by stating I love Peloton. I love the role we play in connecting the world through fitness. Our goal has always been to bring immersive and challenging workouts into people's lives in a more accessible, affordable, and efficient way. We've done a great job of delivering on that vision, and our large and loyal member community is proof of that. But we also acknowledge that we have made missteps along the way. To meet market demand, we scaled our operations too rapidly. and we overinvested in certain areas of our business. We own this. I own this. And we are holding ourselves accountable. That starts today. Early today, we announced several important leadership changes. I will be taking a new role as executive chair of the board, and Barry McCarthy will be assuming the role of CEO. I couldn't think of a better person for that job as we transition to Peloton's next phase of leadership. Barry is a tremendously talented executive with deep experience in growing content-dependent digital subscription businesses and doing so profitably. And he has partnered successfully with two extraordinarily talented founders during this journey. Barry most recently led Spotify's global advertising business and also served as CFO, overseeing their direct listing and helping to establish Spotify as a global brand it is today. Many of you may also know that Barry served as Netflix CFO for over 10 years. Plus, Barry is a longtime passionate Peloton member who shares our team's enthusiasm for our company's vision of improving lives through home fitness. I'll be partnering closely with him as we address the challenges facing our business and work to deliver on the value inherent in Peloton. I'll now turn to our other announcements today starting with an overview of the initiatives we're implementing to strengthen our business for the long term, beginning with today's restructuring program. Once fully implemented, we expect these initiatives to yield at least $800 million of annual run rate cost savings through operating expense efficiencies and material improvements in our connected fitness gross margin. Jill will speak to the financial implications of this program shortly. In addition, we currently expect to exit fiscal year 2022 with approximately $1.2 billion of cash and $500 million of additional revolver capacity. Over the last several months, our executive management team has worked diligently to identify the areas in need of adjustment. The restructuring program we announced today includes a meaningful reduction in the size of our teams across nearly all of our business operations. from corporate functions to manufacturing to logistics and R&D and at nearly all levels. This was a very difficult decision for our management team, who has had the privilege of working alongside many of these team members from the beginning, but it's a necessary one to get Peloton back on track. We greatly value the contributions of our impacted employees and will work hard to assist them in their transitions. Beyond this, we are taking significant structural actions to align our business and build margin back into our hardware economics. This includes optimizing our logistics footprint by reducing our owned and operated warehousing and delivery network, as well as generating efficiencies across procurement and manufacturing. We've also made the decision to wind down the development of Peloton output park. While we still see strategic merit in diversifying our manufacturing footprint, and developing North American capabilities over the long term, we believe Tonic and our third-party manufacturing partners can support our growth for the next few years. Our objective is to best position Peloton for sustainable growth while establishing a clear path to consistent profitability and free cash flow as we pursue the significant connected fitness opportunity. Our restructuring will allow us to streamline our teams and reporting structures and create clearer lines of accountability for all aspects of our P&L. The net result will be better and faster decision-making and a more focused team to drive growth and profitability. As we adjust our operations, two key priorities will not change. First, our member experience. Our roster of instructors is foundational to the Peloton user experience, and we will continue to invest in our content creators for the benefit of our growing member base. We will also continue to invest in our platforms through innovative hardware, software, and content experiences, improving our offering for both current and prospective members. Second, we remain committed to increasing accessibility, both in terms of overall cost and in terms of the value we bring to our members. This is critical in order for us to deliver on the long-term connected fitness growth There's one more announcement we made this morning that, while not directly related to our restructuring, I'd like to address on this morning's call. In addition to Barry McCarthy joining our board of directors, we've appointed two new directors, Angel Mendez and Jonathan Mildenhall. Angel is a proven supply chain leader, and Jonathan is a globally recognized marketing and advertising executive. We are thrilled to welcome them to our board, and we look forward to benefiting from their unique perspectives. In addition, William Lynch has transitioned from president of Peloton to a full-time member of the board. We also want to thank Eric Blatchford for his many contributions to Peloton. Eric is stepping down from his role on the board, and we wish him all the best as he turns his attention to other personal and professional endeavors. Finally, I want to acknowledge that this has been a very humbling time for all of us at Peloton. Since we founded Peloton in 2012, we've transformed our company from a five-person fitness group into a loyal community of nearly 6.7 million members worldwide. Throughout this period, our loyal member community and incredibly committed team have been a great source of strength to me personally. I want to sincerely thank all of you for your support. With that, I'll hand it over to Jill.