Peloton Interactive, Inc.

Good day, and welcome to Peloton's fourth quarter fiscal year 2024 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. James Marsh, Senior Vice President, Head of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning and welcome to Peloton's fourth quarter fiscal 2024 conference call. Joining today's call are Peloton board members and interim co-CEOs Karen Boone and Chris Bruzzo, as well as Chief Financial Officer Liz Coddington. 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. I'll now turn it over to call to interim co-CEO, Karen Boone.

Good morning, and thank you for joining us today. Before we discuss our Q4 results, I'd like to comment briefly on the CEO transition process, as it is certainly top of mind for us, and we expect the same is true for our shareholders. The CEO search is well underway. We've had no shortage of interest and we have been working through an impressive group of qualified candidates with the help of a leading executive search firm. Our list of candidates is narrowing. However, at this stage, we cannot speculate on the timing for when Peloton's next CEO will start. We are focused on moving quickly, but our top priority is finding the right leader for Peloton's next chapter and look forward to making that announcement as we close down this important process. In the meantime, Chris and I, in partnership with Peloton's strong leadership team, are continuing to make progress on several key strategic priorities, which include aligning our cost structure to the current size of our business to improve profitability and deliver meaningful free cash flow without requiring growth to get there, and investing strategically in innovation that will deliver sustainable, profitable growth over the long term. This includes software and hardware development to deliver new fitness experiences, evolve our content offerings, and refine our marketing strategy, which we'll discuss in more detail today. One of our most important updates since last quarter relates to our recent refinancing. In May, we completed the successful refinancing of our balance sheet, accomplishing the goals of deleveraging and extending our maturities with more flexible terms at a reasonable cost of capital. Through this holistic transaction, we decreased our debt by roughly $200 million and extended our average maturities out to 2029. Our refinancing was competitively priced and significantly oversubscribed, reflecting strong demand from investors. Overall, we're delighted with the incredible show of support we received and the vote of confidence in Peloton's future from the investor community. With a solid foundation now in place and an expectation to deliver meaningful, sustainable cash flow on an annual basis, we are exploring how best to deploy excess cash as part of an overall capital allocation strategy to deleverage the balance sheet over time. Last quarter, we talked a lot about bringing the business to solid financial footing by generating free cash flow and operating the business towards sustainable, profitable growth. Our Q4 results, which Liz will discuss in greater detail, demonstrate continued progress in achieving these financial objectives, delivering a second consecutive quarter with both positive free cash flow and adjusted EBITDA, something we have not achieved in the last few years. We're intentionally focusing on delivering stronger bottom line results to support our investments in software, hardware, and content to improve our member experience. We're enthusiastic about our innovative roadmap, but we'll be judicious about deploying marketing dollars until we demonstrate product market fit and continue to be cautious about marketing spend given the uncertain consumer backdrop and ongoing macro environment. For now, we are optimizing our business model, planting the seeds for future growth, and we'll scale these investments over time to ensure we can deliver sustainable, profitable growth. One growth initiative where we continue to learn and optimize is our bike rental program. In Q4, we launched a rental program for BikePlus in the UK, and early results have outperformed our expectations. Globally, our bike rental offering continues to drive incremental subscribers, and we're pleased to see a continued improvement in retention. with average net monthly paid subscription churn for rental down 110 basis points year over year in Q4. We've shared previously that the ability to use refurbished inventory is key to achieving sustainable unit economics for our original bike rental offering in the U.S. and Canada. As our refurbished inventory levels have come down, we no longer have sufficient inventory to support the original bike rental program, so we ceased this offering as of August 1st. Since that date, We have seen higher take rates for our other offerings catered toward cost-conscious consumers, including our Bike Plus rental program, the outright sales of refurbished original bikes, and our 0% introductory rate financing offers to purchase new bikes. These alternative programs have stronger unit economics than our original bike rental program, with more cash paid up front and a stronger retention profile. We also continue to explore partnerships that will expand our reach and deliver profitable growth. We continue to be pleased with our Lululemon content licensing arrangement, whereby Lululemon studio members enjoy Peloton content on their mirror products. This partnership has delivered a great experience to these Lululemon studio members as evidenced by the continued low churn profile, while delivering incremental subscription revenue with accretive gross margins for Peloton. Building on the success we've seen with the content licensing thus far, Last week, we announced another multi-year content licensing arrangement with Google Fitbit to offer a wide portfolio of Peloton classes in the US, the UK, Canada, and Australia. Fitbit will distribute best-in-class Peloton content to the highly engaged user base on Fitbit's app. Peloton members will also receive special offers on the Google Pixel Watch and Fitbit Charge 6 devices as part of this partnership. Turning to our hardware business, We are focused on delivering gross margin improvements for our premium connected fitness products. We have been pleased with the introduction and expansion into third-party distribution channels, both in North America and on our international markets, but are doing work to optimize the economics of these channels. This effort includes evaluating certain product pricing models, discounting strategies, and the way we deploy media dollars. We expect to continue to see improvements in our connected fitness segment gross margins in fiscal 25 as a result of these efforts. We are also pleased with our continued progress in the turnaround of Precor, which delivered strong year-over-year revenue growth in the quarter, driven in part by key product launches, including the fiscal 24 launch of next-generation cardio consoles and new strength products. Precor is also improving their bottom-line performance, with strong year-over-year improvement in growth margin and reductions in operating expenses. I will now pass the call over to Chris who will provide an update on our marketing strategy and product development. Chris?