Q1 2021 Peloton Interactive Inc Earnings Call

Ladies and have a good day.

<unk>.

He came out of the town again, thank you for standing by a cough.

Okay. Thank you.

[music].

President William Lynch, and CFO, Joe would work.

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 those gap and non-GAAP financial measures.

<unk>, a new lockdowns in our global markets.

Hi, organic sales growth has been steady since March and the lowering of our original bike price and the launch a bike plus has steepened that demand curve.

We did our best to estimate the demand for bike plus but while we are incredibly excited about the positive reaction to bite plus sales outpaced our internal estimates quickly, causing wait times for bike plus to balloon.

The challenge and are 100 per cent committed to again delivering the level of excellent customer service or members deserve and expect but it will take us a bit more time to get there.

Now onto some highlights from the quarter.

Since launch our bike boot camp classes have amassed over 350000 workouts.

And as you've heard us say before our number one goal is to add more and more value to the peloton membership overtime.

And commitment to our member community again, Thank you for what you do.

Now over to you Jeff.

Thanks, John I will start with a review of our first quarter results.

In Q1, we generated total revenue of $758 million, representing 232% year over year growth.

1% of total revenue versus the prior year period of 34% for the launch of bite plus we incurred modest advertising spend we also proudly launched our first brand campaign featuring peloton members entitled We all have our reasons, which has been running on multiple advertising platforms.

General and administrative expense was 14.3% of total revenue versus 26.7% in the prior year. Despite significant continued investment in our team and systems to scale our business.

We have elected to continue to share an estimate of our performance, which we view as the chief bubble given our current view of the business.

To stay under 0.9%.

For fiscal year 2021, gross margin is unchanged from our previous full year guidance of roughly 41%.

Despite some current Q2 investments for air shipments of bike plus we.

We still expect full year connected fitness product gross margin of roughly 36% driven primarily by our recent bike price reduction and continued mix shift to tread.

We leave our expectations for subscription contribution margin for full year fiscal 21, and <unk> at approximately 64% as we continue to expect leverage and fixed cost of content production to be offset by elevated engagement levels higher digital subscriber growth.

That happened in terms of breaking it out what I would say is one we'd mentioned in the previous call that we felt like we were digging out from from bike and and it is Jill noted that still our number one selling skills and we have seen progress there so interest in fact yesterday.

We dropped OTT and all our sales channels on that product four to six weeks, which if you look back since the pandemic started that's that is the shortest lead time since April.

And then is both Joe and John mentioned bike plus is elevated and that's really and we'll stay elevated.

As we get through Q2 in the queue three and the reason for that is two things one is.

As John mentioned that products exceeding our expectations, it's a new product with a new supply chain and so ramping that supply chain up and reacting to that demand is a little trickier than a more stable more mature product like like bike, which we've been able to react to and so.

Bike the port closure, La Porte delays really hurt bike plus we had a lot of bike plus coming in against that demand and that delay is her specifically that product. We we think that is largely due to the environment and just a lot of product coming in E commerce product coming in.

And then and then as we get through that.

As as John noted in his opening remarks, we've switched product lines to focus on bike plus in this team can react very quickly and so we it breaking it out specifically, we think the port delays will persist for a period of time and that's baked into everything Jill talked about.

But as we get through those we feel good about continuing to draw down our core bike our core bike O T d's back to where we want them to be which is inside of two weeks as we get.

Three Q2, and then bike plus we're quickly reacting with all the actions we mentioned to get that product line into that same two week window, but that's going to take awhile into Q3.

Great Okay.

On the marketing fun, and obviously Williams feel free to chime in you know, we we do expect throughout the year as we sat on the last earnings calm that we will be ramping marketing spend through the next few quarters. So expect to see some sequential deleveraging.

Sales and marketing as a percentage of sales to the end of Q3.

Obviously queue for we're obviously lapping quarter, where we were completely dark. So we plan on again continuing to ramp marketing spend pretty reasonably on a year over year basis in queue for so I think if you take a step back what's going to be really important is obviously getting.

Two uncle, which is getting our original bike delivery days down by the end of this year and you can imagine so far this year, we focused on our brand campaign that featured our members we focused on.

On on telling the market about like plus but we haven't really gone out broadly yet an original bike and the price reduction, which is now $49 a month on financing and so as we get to that crucial period of getting those order to delivery dates down.

We're really excited to tell the world about the value proposition of the bike. So you can expect to the year that we will continue to spend and make sure that we're top of mind with the consumer.

Yeah.

<unk> point, we also see continued opportunity in international markets from.

From a marketing standpoint.

As we've gotten a lot of traction in UK, Germany, Canada and continue to grow awareness and establish are connected fitness leadership there so between.

Really really telling the world about this amazing price point on bike and then.

Continued development of those international markets, that's what you're seeing with the the more aggressive marketing plan and the backup.

Thank you.

Thank you.

Yeah.

Alrighty.

Okay.

Thanks for taking the question I wanted to ask a little bit about remember engagement and understood seasonality, maybe coming back in here, John and Joe We mentioned that in the past, but can you talk about engagement from the newer subs that you've seen the joined from April to present, just just trying to get a better sense of how newer subs are interacting with the <unk>.

For them and then John you talked about like boot camps in Barre classes bar glasses launching can you just talk about content availability and then also how are you balancing that with the instructor base I'm, assuming was more subscribers you need any more content and more instructors and just wondering about that an investment. Thank you.

I I can start it out and then John and William feel free to chime in and I think we have shown in the past some really exciting data that does show that are newer cohorts tend to work out even more than than our older cohorts, which I know is.

Been counterintuitive over the years as people think that the people that jumped on board with peloton years ago were really the super users, but it's really the younger cohort.

I think for a variety of reasons one as you know we've made such great strides in broadening our demographic and I think that value proposition for someone who's now using the peloton bike in the peloton up to replace what they used to do whether it be boutique fitness or the gym, I think they're deriving a ton of value.

From it and then specifically to answer your question since April.

Have you can imagine a lot of the new buyers around covid, especially right at the Speicher Covid in March was where people that had regular gym routines and boutique routines and all of a sudden found themselves in a spot where they didn't they didn't have a routine anymore and so.

I would say the engagement of the members that have joined since April has likely outstripped that I don't have the specific data, but we've looked at it a few times over the last several months I would say that their engagement levels are even higher.

Then the cohort data that I believe we showed during our investors session back in September so really encouraging trends.

Enron.

I'll take the first part of your constant question on whether William will want to jump in but.

If I understood. Your question correctly, you were saying that whereas we've scalar member base, we need to grow our instructor base, which.

To the to the letter is kind of a false assumption right. The beautiful thing about our model is the scale, where we go from 2000 people.

Assuming a class to 20000 people consuming that same class in that same instructor, that's kind of a beautiful thing that we.

Could we see in a model, but but to your point we are investing in content is something we do plan to innovate on and stay out in front of it would be a competition.

You said by boot camp, Yes, it's doing very well bar.

Bars exceeding our expectations, we have new content.

Coming in the coming months and certainly quarters.

One thing I'm excited about is is new languages as you know we're in German and we're in English and as we pushed to be a global technology platform.

Foreign languages, obviously at one place you would you would expect us to invest.

And I'm really excited about that but I don't know whether I'm specifically answer your question, but I don't know whether William you out other thoughts no I would say all that's right I mean, if you look strategically what we've said is important to us.

As John mentioned earlier to continue to make that $39 a month membership more.

But it's also the quality of the content that we're producing that we're investing in.

I encourage everyone to take a recent class just king experience from a couple of weeks ago, Our first one back that.

Send a note to the team I thought the the innovation on some of the cameras angles and lighting and just the production value of our content is going to be <unk>, increasing and improving under gen Quatre and Kevin Shorelines leadership, so stay tuned on that front.

That's great I'll check it out thank you guys.

Thank you.

Oh.

Bank of America.

Great I guess I'll ask about Ah supply just cause it's such an important factor.

Maybe give us an update on the factory is it is it on track to to be ready to start shipping and is that mostly tragedy or are they going to be doing everything out of there and then maybe you could give us an update on I'm kind of used inventory that you've been collecting in and how you're thinking about the the CPO rollout at some point. Thank you.

Hey, Justin maybe I'll take the first one this is William Lynch and then John maybe come in on C. P O.

The launch of tread coming up how you think about the role that stores will play and the the the tread business with you know it seems like treadmill will be.

It'll be an important part of of your your tread launch, particularly here in the in the U S. So anything that you could sort of share with us on planned tread lunch as as we get closer to that and then sort of where where your store footprint stands at the moment. Thank you.

Sure I'll take that down feel free to to China in for currently we're at 105 retail stores, we're going to continue to expand and intelligently, but we see opportunity for expansion.

For awhile profitability on the stores and as you know and it's Ah spewed observation, especially as we launched new products. It. It's it's an incredible platform for us and we think a strategic advantage for us to have that kind of reach as we look at retail we look at how do we access population centers in the U S and increasingly were cut.

Bring the large large majority of the population and so.

In terms of how we're operating now it's been by appointment only for the most part and that's obviously against our strategy of keeping our employees and members and prospects as safe as possible. We have seen that those stores over index on new product and that's just vis-a-vis. The the average if you look at our channel.

And so we love retail, we're actually being Super innovative if you look internationally.

Kevin Cornell's in that team are great international team to a a a partnership with John Lewis and so we're testing store in a store concepts over there and so far it looks a successful were in four of those and then we're gonna measure it through the holiday and so where.

Companies about innovation, and we're going to find ways to reach the customers, we continue to to expand our salmon tammen. So.

You're 100% right on as we think about the tread launch and we'll have more to announce there. Shortly retail is gonna play I've very very big role so stay tuned.

Great. Thanks Ma'am.

Thank you.

Okay.

<unk>.

Hey, good evening, thanks for taking the questions I guess first you spoke a lot about manufacturing as long as you could just readdress, maybe last mile. You know the kind of investments you need given the strong ramp you're seeing.

And then as a follow up you know congrats on the Chase deal does that change the economics for you or is that simply just changed subsidizing cardholders.

The the membership and and your point in time that was a great just king right. Thanks.

John maybe I'll take the last mile and then.

And so if it's a great question on logistics, it's not just about manufacturing and so we've been investing in new warehouses and distribution capabilities were up to 47 last smile Hudson warehouses, which like with retail give a strategic coverage in close proximity we measure it within 60 miles.

And most metro's can we get to most of the population in and increasingly and we have a large majority of coverage and that's just with our own warehouses. We also as you know employ three P. L. For have you spilling volume. So we have that flexibility if you look at.

And so that's big growth from 19, just on the last mile hubs on the total delivery team.

Last year at this time, we were about at 900 2200 this year.

Vans, we've more than doubled we have well over 700 bands across the U S and so it's not just about infrastructure either we're investing in people. We were really excited about two new leaders. We've got in the ops team, Jennifer Mccann, who was senior executive over at home Depot, we brought in and then.

O'brien V P. A manufacturing so it's it's infrastructure it's people, it's it's investments across the board and.

And so that has us excited.

And I'll just try and then quickly on the Chase partnership obviously, we are very excited to partner with changed the nation's largest card issuer and bring the Spanish that to our mutual remember basis to both are connected fitness sense or all access subscribers as well as our digital subscriber.

So we can't really get into the details on the agreement between Us and chase, but we do expect that this partnership well help us with developing further our brand awareness with the change customer where it.

Cited about incremental digital sense that may sign up as well given the credit that they will get through these various credit card offers and eventually as you know we look at our digital as an incredible top final four connected fitness sounds. So we do believe since digital has been to just try.

Lead Jen for us that over time, this will convert into connected fitness sales, but I can't really get into the details. Unfortunately, but we're really excited about it.

Okay.

Thank you.

Sure I can help you Don Black Labs, Italian line as well.

Great. Thank you a couple of questions.

You talked about marketing ramping through this year for the original bike given the value pop how should we think about what Palestine, explaining T. G. U a drive awareness of the lower price tried will there be a big marketing push ahead of the launch of the lower price tried like after the holidays.

And then second you know obviously experiencing continue experience incredible demand.

Uhm, but wasn't the pandemic surging again in the U S U K and Germany have you seen an uptick in demand over the past month or so.

Thank you.

William do you want to take the first question on tread marketing plan and then maybe I can talk a little bit about sales over the last several weeks and I I can I can weigh in real quick on the on the lower price Dread because.

I am so excited about it so sorry, William [laughter] jumped him cause I've got a <unk>.

I've got to talk about it.

I remember price tread is such an incredible product John.

That I believe that against our millions of members.

Adding millions more with each year that ticks by <unk>, we're not going to have a problem selling is lower price Dread I think has some of the other analysts have asked the problem is going to be on the supply side or the opportunity and I think William and John 80 in the N O team or have an incredible plan of kind of belt and suspenders approach to.

Making sure that we can make enough of these but I.

I hope we're in a situation, where we get to market the lower price Dread I mean, we have such an incredible marketing organization at this point.

And we talked about the footprint of a retail stores gets just such a beautiful flywheel that allows us to create demand.

Later on top of that the word of mouth that are high net promoter score and are Super engaged members have and so with the millions of people that will have a telephone bike. We believe that once they have a friend that tells them about how good. The tread is they're going to go to a store check it out realized that they need it and they want it.

Realize that it's scales there $39 membership so John you probably know that if you get a peloton bike then you pay $39. If you get a peloton tread you don't pay an incremental 30, an incremental monthly fee. So it's a real great opportunity. If you write peloton member to get the best treadmill in the world and engage in these boot camp classes. So.

Just kind of wanted to reframe your question a little bit as I hope to God, we're able to run T V for the lower price tread, because we want to get the word out but I think the word is gonna get out out in front of our marketing organization is the sad reality.

Okay.

Yeah. It isn't just to build on what John alluded to there's.

Going to be substantial marketing around the tread launch and it won't be necessarily as big in terms of big television awareness campaigns with enthusiasm is already there I think John mentioned in the leads.

We're capturing leads on on tread and.

We are we're really pleased and energized by by the lead in the interest around treads. So you will see us marketing into in the next year. It's the biggest it's been historically the biggest category in fitness, we think that's a foundational product for us.

We're gonna continue to ramp supply to allow us to to market into it so that we're not marketing into huge O T d's will balance that.

Right. Okay. Thank you.

And then just quickly on the demand question as you can imagine since the middle of March we have seen very steady organic demand for our product.

Clearly when we saw the second spike happened in the U S.

And of course with some of the announcement around the lockdown in the UK you do see some spikes of course around these types of things, but as you can imagine you know in the U S. Obviously, we're continuing to see record cases, and then to slightly add to that perfect storm.

We obviously also saw for bike plus you know and the price reduction of our bite. This was all sort of coinciding in time as well. So I would say demand has never been stronger and we're very excited but are clearly our our queue to outlook in our revised outlook for the phone.

The school year takes into consideration the trends that were seen.

Okay. Thank.

Thank you.

Thank thank you.

Our next question comes from.

What was on that one.

Great. Thank.

Thank you for taking the question I was wondering if you could just scream the higher with just the cost. So how much does it normally cost is 50 unit and how much will it now it how long do you anticipate the higher logistic costs will laugh.

Secondly, uhm, just not digital subscribers, there's a massive growth and it could be too early to know that has that historical conversion rate of 10% converting to protect connected fitness held up and generally how long does it take for that conversion to happen when it does.

Thank you.

Great I I can handle the first one I don't know William if you want to talk a little bit about the digital to connected fitness conversion and some of the things we're doing there but.

Obviously as you know Bernie.

In a connected as fitness gross profit margin, we don't break out obviously, what is shipping costs, what his last mile delivery and what is what is product costs.

Q too it is going to be an anomaly. It is pretty unusual for us to use air shipments.

For our our products and so this is this is an anomaly not something that we necessarily expect to move forward.

And so it obviously is is not <unk>.

C. A multiplier of what we would typically cost to ship our bikes in from Taiwan into the U S. So.

And it is it is an anomaly, we don't expect it necessarily moving forward, but we thought it was 100% the right thing to do to do whatever we could to push these delivery dates and.

As soon as possible so given the fact that it's kind of one time.

And shipping costs are typically a fairly small percentage of the overall cost to us. So this obviously is is moving the needle for us here, but again it was a cost we thought that was very warranted for what we're dealing with right now.

And then on the on the second point about <unk>.

Conversion rates to connection fitness from digital that's exactly our playbook, which is.

Expand.

Expand peloton entry point with digital and that was the premise what the price dropped last year and the increased marketing and it's been working as you know digital memberships.

Grown and exceeded our expectation.

And so the playbook then is to convert those over time to connected fitness users and the team there chronic hogan in our team has been really focused on on tactics and strategies against that and they've been successful we measure connected fitness.

Upsells we.

We measure of daily we measure weekly monthly and those rates have improved steadily through tactics like an app.

Finding out what connected fitness product of members digital members interested in suggesting a test ride or tests run at retail just to the point on how we leverage our retail assets and.

So segmenting based on.

Interest of various connected fitness products adjusting our contact strategy around around activities that we're doing based on the product they're interested in so a lot of these things adjusting the app overall on cross selling certain workout types like bike boot camp.

So we're focused on it it's one of our top marketing objective and and and yes. They are improving and we we have goes to continue to improve them.

Oh, Great you got me recently so thank you.

[laughter].

Thank you.

Our next question constantly hall wisdom, Evercore ISI online is okay.

Great. Thanks for the question too if I could one on the supply chain constraints and you know you mentioned that bike plus could last for several quarters now how is it all could these constraints potentially impact.

The way you're thinking about a timeline towards scaling a certified pre owned program and then secondly, maybe a little down showrooms I believe in prior quarters. You had mentioned that tread would be in showrooms uhm ahead of the holiday quarter, but perhaps not shifter's yet I guess, one is that still the case and two can you come in at all in terms of what you're seeing in terms.

Showroom traffic uhm as we've seen Kobe cases, spike globally and could that potentially impacted in the way you're thinking about the timing around Trent. Thanks, so much.

John do you Wanna take C. P O and then I'll take the the <unk>.

Yeah, I mean that is.

C. P O is not a business that we can build without supply right. It's not we can't manufacture certified pre owned we need to get them back from our members and at this point.

The velocity that our members are interested in coughing up bikes is is is anemic our best so.

So to your point, we are going to we are a 100% focused on scaling the.

The the the.

The supply chain to create new products, new bikes, both too bye costs and the original bike and then boats.

Both treads tread and tread plus.

Is is 100% of our focus.

And again I am anxious and excited about the CPO business, but it just isn't there.

Our members are willing to part with their products.

And to that obviously, we have very low return rate for our products and so you can imagine we're very excited about the idea of further expanding.

Our market opportunity or demographic reached through a program like this we just don't have the current supply and but we hope to build it overtime.

And then on the on the tread launch and the roller retail presale we.

We have announced that we we plan to I mentioned I mentioned the role of retail and that it's going to play a big role with tread.

Marketing and trial and that it remains the case and we expect to have something to announce on that very soon and then in terms of.

In terms of on sale date, we mentioned the UK a 12 26, so we're excited about that.

And I don't know what I don't know what you call the.

<unk> will be in stores by Thanksgiving.

Okay, Great and then yeah, okay, great. Thanks for the question you appreciate it.

Thank you our next question company's name.

Okay.

He gave me a couple for me if I'm doing this mass right on the guidance.

You're raising the connected fitness subscriber number about 9% revenue guidance is going up about 18%.

What's the Delta. They obviously there are a lot of moving parts, but I'm curious about Nick just given.

What you've said so far are you makes assumptions changing within the bike oriented xrayed or maybe between the two.

And then my second question yet.

Oh, sorry go ahead.

Is that why don't I go ahead and answer that and then you can ask your second question to open work at so it's.

It's a very astute observation, but I think what you've heard us say is that bike class.

Has certainly exceeded our expectations and we are continuing to shift as we have done obviously since lunch when we started witnessing.

The incredible reception of the products, we started shifting our manufacturing capacity towards spike plus.

Our original bike is 18 95, right and our end bike plus is 24 95. So there is a fairly big Delta. There. So that is part of the driver and of the increase in revenue I would also say the delta is kind of something that maybe not as obvious.

<unk>, which is.

As we progressed to the year, we've said that our new tread right as well as Trent plus which is already available.

Is is I'm going to come in towards the back end of the year.

What we do expect.

Is that a lot of that cause man initially for that new tread may go to our existing vehicles on Earth, who are just chomping at the bit to get the product. We did see that when we launched tread plus.

We saw the overwhelming majority of those initial orders go into the peloton diehard bike owners and so.

That we could see obviously these the sale of the product, but we might not necessarily create a new sub for that we call that overlap.

And so that's a little bit of a phenomenon than that starts to create some of the delta between some growth.

And revenue and also keep in mind churn.

<unk>, obviously does also impact subscription growth. So uhm one other layer that sort of helps you bridge the gap between the different growth rate says what I would call are connected fitness revenue and our subscriber ground.

Those are all great points I really appreciate it with that and then.

As.

With a follow up here I'm curious whether or not you think your competitors. If you have competitors are having some of the same bottleneck bottleneck issues with you.

Some of that is I guess understanding their their supply chain differences, but.

I guess ultimately what I'm getting at here is whether or not you think your potential customers are willing to wait given some of the extended wait times, obviously talked to track non customers, but I don't know if you've had any metrics that look at inquiries with versus sales or or anything like that.

John do you want to take the competitor point and I'll take the you know the trade off with with competitive products on O T D.

Yeah sure.

So yes, James you're right. It doesn't feel like we have a direct competitor right now and as we invest aggressively and R&D and and stores and logistics in manufacturing and content in our whole vertically integrated product suite, we expect to continue to outpace.

And distance ourselves from it would be competitor.

Are are kind of true north as we've talked about with you personally James as the if we can improve our products and we have there are more integrated they're better software best of breed software continuing to a higher software engineers as fast as we can more content choices the best music in the world.

A lot of would be competitors are people you here in a.

A handful of people that come up in conversations don't have real music I would say they don't have the relationships on the music front that we do so you're not listening to fantastic pop music or hip hop or country or whatever you like.

And along with what we have is the biggest and most supportive community and fitness as you know.

And if we can have a lower prices over time, we believe that the idea of us having a a true competitor is going to be a waning idea.

And we're going to be pretty hard to compete with but I do <unk> I do know William we track some of the different folks and how they're quarter to deliveries or if you want to give any color.

Sure an interesting notice it when we ironically when we extend order to delivery often what we'll see is we'll see demand go up.

Especially if there's rumors that that's going to happen now we've been going Fortunately the other way as we mentioned with bike and shorting OTT, but.

Uhm, what we've seen is that people will just wait for a peloton we track.

We track our share connected fitness share vis-a-vis other competitors and what we've seen is we don't think we bleak demand for people who are impatient.

On getting a peloton too to some of those their competitors pick of them that way, we think people would just wait for the peloton and so.

And that's what all our data has shown is that and then the ott's with those other.

Fitness equipment manufacturers I don't know, who you are referencing in particular, but the ones. We look at if you've had one who temporarily stocked out and just stop selling their bike.

And then.

In other.

We think it's sort of too another one that we have not seen the kind of OTT delays that we have but.

So that's struggling as you might imagine track all of us.

That's great insight thanks, guys.

Thank you and our last question.

Amount of data.

Can I. Please online is open.

Alright, Thanks for taking the question guys and yeah I'm not sure. If you had just is only I was jumping between a couple of calls but can you provide some color on the device makes that you're seeing in fourth quarter. After the that trying to relaunch and.

<unk>, new bike plus that's out there I know prequel that covers about 10%, but now you have a new device sales new device upcoming so what what is a rough mix that you'll seeing so far and <unk> and then the second question was.

Bite goes now being out there for a few months are you seeing increased activity on any second says market places on the typical bike is that is that something that's happened uhm I know just trying to understand if the 700 dollar is the right trained in price point and any comments that would be helpful.

Sure I'll take the first one and then William I don't know if you want or John wanted to take the second one on the second hand market. So so we.

In terms of next here, here's what I'm Gonna say about mix because there's you know we don't disclose.

This is a mix of our products, whether it be between bike and tried or or now with the better best with within the different portfolios and what assumptions, we're making in fiscal 2021, our original bike will be our top selling scale.

We certainly seen over the last several weeks that bike plus.

Has been incredibly popular we are likely to have long OTV for several quarters here. So.

We obviously I would say the make shift and some of the change in the uplifting guidance is.

The bullishness that we have around that great product and obviously at the higher price.

It is driving higher revenue, but I think I've said this before the margin profile between both of those products is pretty similar so I wouldn't worry too much in terms of modeling than some of the changes to.

To connected fitness margin.

We've said that the tread, which I think we're all incredibly excited about the lower price tread.

Is I mean, <unk> well first off just stepping back of course, we've been selling trend plus again now since about the middle of the summer.

All of our markets and obviously been incredibly pleased with the performance of transplants.

We know that the lower price trend, though will be a game changer for at and but what we said is that we're going to need some time to build that manufacturing capacity, we said on the last earnings call.

We ended prioritize.

And we were trying to prioritize our manufacturing capacity in.

In favor of bike, we obviously had the bike plus.

<unk> coming as well and so.

While we think it'll be a game changing product forest. It really will be a physical 22 story. So we will start to see towards the back end of the year, obviously with the lunch at the launch of lower price treadmill will certainly see some volume in 21, but it's really a 22 story so I wouldn't.

Get too worried about thinking through mixed there.

And I will take the question on the on the certified pre owned or the is $700 the right price point.

An astute observation that $700 might not be the right price point for a trade in credit and a an intrepid or a hardworking.

Remember might be able to sell their bike on craig's list or ebay and get more than $700. There is absolutely an arbitrage opportunity for someone who wanted to do that I haven't personally followed.

And seeing if there's been an uptick I would guess there might be.

The reason why we don't track it or care too much to be honest epoch is.

It doesn't matter to us that person is whether they give us the bike and we refurbish it and put it back in the marketplace is a certified pre owned or if they sell it on Craig's list or ebay and get <unk>.

$1500 $2000 for the product.

We are going to get a new subscriber we're going to have a new relationship with the new owner and.

We're just trying to create a turnkey easy path with the 700 of our trading credit.

So that when we're delivering your new bike plus we can take care of other one out of your basement or your or your home gym.

So that it's easy and seamless, but certainly if you wanted to work harder you could you could do that yeah by the way Defog. That's so much.

So true that we actually offer on our website faqs on how to resolve your bike individually yourself.

We think it's great to members, where there was one and so is John said, we're in different and we actually want to help if direct the people to to resell it if they choose that route.

Oh that makes sense. Thank you so much.

Thank you.

I'm sure no. Okay. So at this time I'd like to turn the call back over to see.

John calling for any closing remarks.

Thank you much.

So quickly before we wrap I did want to again, thank our members for their patients as we work hard to scale. Our teams are technologies on our operations to keep up with this massive global demand for our products and experiences like we said we are investing aggressively in our supply chain capacity. So that we can add more members on more platforms and without the frustrating long.

Gratingly long order to delivery times.

So thank you for your patience.

Please know that we are we are all over it and lastly, another thank you to our peloton teams across Germany, The UK, Canada. The U S. In Taiwan. We're also proud of your hard work and dedication to our members in our in our shared mission.

We hope to see more of you in 2021, and hopefully we see more of you in person with COVID-19, Ah well in the rearview mirror by then so thanks, everybody. Good night, we look forward to talking to deal with your next quarter.

Everyone else has left the call ladies and gentlemen.

Okay. Okay. Okay.

Nowadays it looks like no one else has.

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