Peloton Interactive, Inc.

Good day and welcome to the Peloton Interactive Q2 2025 earnings 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, please 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, Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning and welcome to Peloton's second quarter fiscal 2025 conference call. Joining today's call are Peloton Chief Executive Officer and President Peter Stern and 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 those 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. I'll now turn it over to Peloton's Chief Executive Officer and President, Peter Stern.

Thank you, James, and good morning, everyone. Thank you for joining today's call. It is an honor to be here with you. I'd like to start by thanking Karen Boone and Chris Bruzzo for their leadership during the past few months. inclusive of the quarter we're reporting on today. Both have now returned to their focus on board duties, having left Peloton stronger than they found it. And for that, we share our deepest gratitude. For me, the opportunity to lead Peloton is a dream come true. Fitness has been an important part of my life dating back to my childhood, when my mother was a fitness instructor. I've personally been a Peloton member since 2016, And like millions of others, I love this category-defining brand. Few companies deliver a product where the more people consume it, the better they feel. That's Peloton. And the wonderful thing is that the healthier our members become, the more likely they are to stick around and recommend us to others, which makes our business stronger too. That's Peloton's virtuous cycle. The Peloton team has made impressive progress over the last few quarters in putting the company on sound financial footing. Nonetheless, we have a tall hill to climb before we can demonstrate the impact of that virtuous cycle on member and revenue growth. So right now, our primary focus is on executing against and delivering our fiscal 25 financial and operating goals while we prepare to climb that tall hill in fiscal 26 and beyond. We'll share more about longer-term strategy as the calendar year progresses. But today, I can share my perspective after one month of official duties at Peloton. Achieving the new purpose we've defined for ourselves, empowering people to live fit, strong, long, and happy, means we need to focus on innovation on new products and experiences that lead to even better outcomes for members, presence in more places so we can meet members wherever they are, more ways to connect members with Peloton and our uniquely supportive community, and last, but certainly not least, improved unit economics and the cost structure that's right-sized for our business. Like every Peloton workout, this will be part inspiration, part perspiration. There's a lot of research that shows that engaging in multiple fitness disciplines improves member outcomes. While Peloton is best known for our cycling workouts, we're a leader in strength, too. In Q2, over 2 million unique members completed a strength training, boot camp, Pilates, or yoga workout. Strength drove 735 million minutes of workout time in Q2, And in terms of workouts, it equals 75% of our total number of cycling workouts. Variety is good not only for our members, but also for our business, as it drives higher subscription retention. Churn is 60% lower for subscriptions where members engage with two or more disciplines per month versus just one. On the cardio side, we continue to elevate tread thanks to our marketing efforts. which enabled us to exceed our TREAD portfolio sales goals and achieve higher new subscription attach rates on TREAD and TREAD Plus sales year over year in Q2. And with the release of our 10K training program in Q2, Peloton now offers training for all major race distances. And already over 300,000 members have trained for a running race with Peloton. We're also seeing the positive impact of innovative new software features like Pace Targets, which offer running instruction with personalized intensity levels rather than treadmill speed. Nearly 60% of our members who take instructor-led running workouts on our tread products are using Pace Targets, and our members' running paces are improving as a result. Another way to improve our business is to meet members in more places. For example, at the gym. In December, we launched Strength Plus, a new app offering non-class strength training programs with audio guidance from expert coaches and a custom workout generator. In Q2, it reached over 220,000 monthly active users, the vast majority of whom were existing All Access members. Third-party retail enables us to meet new members in places where they already shop. Our new seasonal partnership with Costco in the US drove more bike plus unit sales than any other third party retail partner, enabling us to meet many new members at a retailer they trust. And we remain focused on meeting more new members across the globe. We're encouraged by the performance of international hardware sales in Q2 alongside our continued growth in paid connected fitness subscriptions from international markets. Turning to the connections between Peloton's members with the company and with each other, as you may know, Peloton is named after the pack of cyclists who ride closely together to reduce their collective resistance. So we're focused on deepening the connections our 6 million members have with each other and with Peloton. In September, we launched Teams, which enables members to share workouts and compete in challenges. 70,000 teams have been created since launch. Then, in November, we hosted the 11th annual Thanksgiving Day Turkey Burn, where over 50,000 members worked out together live. This year's Turkey Burn also brought The Feast, our first Thanksgiving live strength class, which became the largest live strength class in Peloton's history. One of the best ways to measure the strength of our members' connection to Peloton is through member satisfaction and retention. In Q2, we made meaningful improvements in member happiness, with net promoter scores improving across all our bike and tread products to over 70. As someone who has spent many years in consumer tech and services businesses, I can tell you that this level of member love puts us in truly rarefied air. Part of the reason for this was improvements in the responsiveness and quality of our member support. Our member support satisfaction score was 4.3 on a scale of 1 to 5, up from 4.2 last quarter and meaningfully higher than the 3.1 in Q2 of fiscal 24. From a retention standpoint, we continue to benefit from exceptionally low churn rates. with average net monthly paid connected fitness subscription churn of 1.4% in Q2. Liz will discuss our second quarter financials in more detail, but I want to take a beat on unit economics and right-sizing our costs because both of these are foundational for us to address before we can return to growth. During this important holiday quarter, we achieved a 12.9% connected fitness products gross margin, reaching double digits for the first time in over three years by selling a favorable mix of premium price products and demonstrating real discipline by aligning our discounts with the margins of our products. On the cost side, the team has made great progress. We are on track to exceed $200 million of run rate cost savings by the end of fiscal 25, which was the target announced in our May 24 restructuring plan, as well as additional operating expense efficiencies, including reduced media spend. The progress made so far shows in our profitability, where we achieved meaningful improvements in Q2. Both adjusted EBITDA and free cash flow increased roughly $140 million year over year. This enabled us to make meaningful progress deleveraging our balance sheet, with net debt decreasing over $280 million, or 30% year over year. All this is to say that while we are working on our long-term growth strategy for fiscal 26 and beyond, our financial goals for fiscal 25 and continued discipline toward improving gross margins, reducing operating costs, and deleveraging our balance sheet are and will remain top priorities for me. Now I'll turn it over to Liz to discuss our Q2 results.