Peloton Interactive, Inc.

Good day, and welcome to Peloton's first quarter fiscal 2025 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 of Investor Relations. Please go ahead.

Thank you, operator. Good morning and welcome to Peloton's first quarter fiscal 2025 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 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 GAAP and non-GAAP financial measures. The reconciliation of GAAP to non-GAAP financial measures is provided in today's shareholder letter. I'll now turn the call over to Interim Co-CEO, Karen Boone.

Good morning, and thank you for joining us today. Before we dive into today's financial results, I want to share the exciting news regarding our CEO search. As you probably saw in our separate release this morning, On behalf of the entire board, I'm thrilled to announce that after a comprehensive search, we have identified the next leader for Peloton. Peter Stern will assume the role of CEO and President on January 1st, 2025. Peter is a seasoned leader and strategist with over 20 years of experience operating at the intersection of hardware, software, services, and content at Ford, Apple, and Time Warner Cable. He has a strong track record of innovation operational excellence, and creating significant shareholder value. As the co-founder and driving force behind Apple Fitness+, Peter led its growth to millions of members and is responsible for successfully scaling over a dozen other subscription services, ranging from Ford Blue Cruise to Apple iCloud to Time Warner Cable Home Security. Importantly, Peter has also been a passionate member of the telecom community since 2016, and has a deep appreciation and respect for this business, this brand, and the impact that we have on millions of people around the world every day. I truly cannot wait to officially welcome him to Peloton at the start of the calendar year. Turning to our financial results, I am extremely pleased to share that we are reiterating our fiscal 2025 financial goals today, which include, first, aligning our cost structure to the current size of our business, by delivering over 200 million of run rate cost savings by the end of fiscal year 25 from our cost restructuring plan announced in May 2024. Second, improving our unit economics across all products and sales channels in pursuit of delivering sustainable, profitable growth and meaningful free cash flow generation. And third, continuing to make strategic investments in innovation to enable Peloton to return to top line growth in the long term. This includes product development in both software and hardware features, refining our marketing strategy to attract new audiences, as well as evolving our content offering to deliver more diversified, engaging fitness experiences. We believe these efforts will delight our current members and attract new ones to our strong and loyal community. Our Q1 results were strong, exceeding our guidance on all key metrics, which Liz will discuss in greater detail. Progress on cost reduction efforts are reflected in our profitability metrics. We are proud to report Q1 results, which includes $13 million of GAAP operating income, $11 million of free cash flow, and $116 million of adjusted EBITDA. Our results also highlight the continued strength of our category-leading Connected Fitness subscription business, which has over 6 million loyal members, 2.9 million Connected Fitness subscribers, 582,000 app subscribers, and over $1.7 billion of annualized subscription revenue with 68% growth margin. I'm thrilled to see our cost reduction efforts materialize in our financial performance to date, and I must say the team has done an incredible job not only to deliver, but to exceed our goals thus far in reducing costs. A key part of managing our business toward profitable growth involves ensuring all the subscribers we acquire are profitable and ensuring we have sustainable unit economics. We manage our business through a lens of LTV to CAC and have taken actions to improve the areas that are in our immediate control on both the LTV and the CAC sides of the equation. To enhance customer LTV, we are focused on expanding Connected Fitness Products' gross margin across all of our products, sales channels, and markets, leading us to make certain pricing changes and reduce promotional activity in Q1. We are investing in marketing, product, and content initiatives to drive engagement, which will improve subscriber growth and retention over the long term. We also launched the used equipment activation fee, which increases the LTV for new customers who join Peloton via the secondary market. Chris will talk in more detail about what we're doing to reduce our customer acquisition costs as well. Some of the pricing changes I mentioned were specific to our international business. where we raised the price for all of our bike products in all international markets in the first quarter to expand connected fitness product growth margins. This was especially important in Germany, where we transitioned our operations to an entirely third-party retail and distribution model. This means that while our first-party website will remain live to serve as a brand awareness and product education platform, we are now directing traffic to third-party retailers, namely Amazon and FitShop, for sales and fulfillment. Germany's sales have outperformed our internal expectations following the third-party transition. We are optimistic that this channel strategy could provide a more capital-efficient model to explore expansion into additional international markets over time. Paid connected fitness subscribers in our international markets grew 8% in Q1. We remain bullish on international as a source for long-term growth based on the strong retention and engagement trends that mirror those in our North America business. We continue to optimize our sales channel strategy for stronger unit economics in our North American business as well. In Q1, we continued our efforts to close underperforming first-party retail stores. Next month, we will test a reimagined smaller store concept in Nashville, Tennessee to evaluate a more cost-efficient retail model. We also expanded third-party and online retail capabilities ahead of the all-important holiday season. On our website, we launched an exciting partnership with TruMed in early October, which makes it easier for qualified U.S.-based customers to use pre-tests, HSA, or FSA dollars to purchase Peloton products. We are also pleased to announce that for the first time, the Peloton Bike Plus will be available at Costco this holiday season with special pricing across 300 U.S. locations and at Costco.com. All of these changes position us well to capture the seasonally strong holiday demands with healthier unit economics, delivering stronger connected fitness gross margins and free cash flow. There is so much great work being done to optimize our channel and go-to-market strategies, improve our unit economics and gross margins, and re-architect our cost structure. All of this has made Peloton a more sustainable and profitable business, one that is better equipped to serve our members and grow our business over the long term. I will now pass the call over to Chris, who will provide an update on our innovation efforts across marketing, products, and content, where we are making thoughtful investments to drive sustainable, profitable growth.