Q2 2023 Peloton Interactive Inc Earnings Call

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[music].

Okay.

Yeah.

Yeah.

Good day and thank you for standing by welcome to the peloton Interactive second quarter of 2023 earnings conference call at.

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After the speaker's presentation, there will be a question and answer session.

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Please be advised that today's conference is being recorded.

Now I'd like to hand, the conference over to your Speaker today, Peter Stabler head of Investor Relations. Please go ahead.

Good morning, and welcome to Apollo Times fiscal second quarter Conference call, joining today's call our CEO , Barry Mccarthy <unk> CFO Leo Carrington.

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 results. Please refer to our SEC filings and today's shareholder letter both.

Each of which can be found on our Investor Relations website.

During this call we will discuss both GAAP and non.

Until measures.

A reconciliation of GAAP to non-GAAP financial measures.

Today's shareholder letter.

Now turn the call over to Barry.

One of them.

Do something a little bit out of the ordinary just to kick off today's call. If you all indulge me.

A good friend of mine and ill tempered once that's summarized what's special about spot.

About peloton I think when she described the brand as Goldman and the member community is platinum.

And what what what makes that possible with the incredible work done by our content and instructors, who who give it life.

And because of that and in particular I wanted to.

Welcome back to the platform today.

One of our instructors and London by the name of Lyanne Haynes, who after disclosing our recent battle with cancer.

And her announcement that she's cancer free.

Yes.

Yes.

Today.

Once again back on the platform and the startup of class just coincidentally happens to coincide with the start of this earnings call.

Welcome and thank you for all you do for us.

Yes.

And with that I will turn the call back to the operator and take your first question.

Thank you.

Reminder, to ask a question. Please press star one one on your telephone and wait for your name to be announced to a draw. Your question. Please press star one again.

Please stand by while we compile the Q&A roster.

Okay.

Okay.

Our first question comes from the line of Doug Anmuth with J P. Morgan. Your line is now open.

Thanks for taking the questions.

Barry you wrote about how the new initiatives across rentals and retail partnerships and just changes in the overall go to market.

Drove 19% of the CFU volume in the quarter I was hoping you could talk more about how you think that will progress over the next 12 months and which of these initiatives do you expect to be most impactful to drive growth going forward.

Well based on last quarter's performance and quarter to date.

I think Boston and in the pre owned business will be the most significant on a quarter over quarter.

Basis.

Last quarter to the quarter before.

Taxes doubled by way of example.

And it's continuing to grow rapidly this quarter.

And a large very large percentage of 63%.

With a 95% confidence.

It is incremental to the business.

Tend to be slightly higher than household income.

But for the fact that don't have to make contractual commitment.

Not have come onto the platform.

Now.

One two.

What about the third party retail.

It has less instrumentality, but we don't have enough data to be confident that we know how.

How much of the.

The revenue is incremental.

Whether we would have still been our own platform, but for the fact that.

Partnering with third parties it did outperform.

Our expectations in the quarter, but of course, we had no history going into the quarter. So it's difficult for us to know.

And CPO, how exactly to protest it so the.

We continue to be optimistic we're quite pleased with the performance during the quarter.

Uncertainty about the instrumentality although.

We are invested in continuing to grow it.

No more progressive.

If I could just follow up.

He is joining.

As the new CMO do you do you feel like Theres strong awareness of the new initiatives in the go to market strategy among potential consumers or is that going to be a big focus in your advertising and marketing efforts.

Okay.

Well, it's it's it's.

Yeah.

Awareness is low.

But it's new.

Or are we going to make it a focus.

No not particularly.

I think the focus is going to be anyone anytime anywhere.

It would be less about bike it would be about all of the occasions.

For use and inclusiveness.

Yeah.

Great. Thank you Beth.

Thank you.

Our next question comes from the line of Justin Post with Bank of America. Your line is now open.

Great. Thank you can you talk about.

Hardware gross margins in the quarter what were some of the puts and takes there what its going to take to get those to breakeven and when you think about the model like how much are you willing to lose or or take upfront cost to get a subscriber and do you think the model is working now as you.

About your hardware sales producing subscribers. Thank you.

Uh huh.

Listen I will tag team, let me do the high level stuff.

Backfill and the specifics so let me say we.

We managed to LTV to CAC.

And in making those calculations.

We take a holistic view of the revenue stream and the expenses associated with the hardware and.

Subscription associated with it so for my part I don't particularly care.

About the hardware margin or particularly about.

The the subscription margin I care about it.

Get basis, and I and I care about the relationship between the the lifetime value of the customer relative to the cost of the acquisition and that's the framework, we're using deciding whether or not the model is working and in the recent model I think we were operating at one four to one LTV.

<unk>, which means that each time, we add a new subscriber to the to the business.

We increased the enterprise value because that customer will be will be net profitable over their life.

Yeah.

Yes to just to just add a little bit more detail to what Barry mentioned it.

We did enrich our holiday promotion that of course has an impact on our on our hardware gross margin and we did manage to our LTV to CAC ratio. So we may have spent more on promotion, but it balances out and resulted in the end.

1.4 ratio of LTV to CAC I also want to comment that our overall gross margin when we outperform on connected fitness.

That means it's a lower margin of our hardware.

A it sort of has a higher penetration relative to subscription and so that will that will depress the overall margin a bit, but we're happy with that because we get the subscribers.

Subscription revenue over time that comes with them.

The other thing I think that it's worth pointing out here on our gross margin is that this quarter. We did take a number of reserves, we had higher costs with the cost of revenue were impacted by some excess and obsolescence reserves. So after we got through the holiday period for example.

We looked at our guide inventory I realized that we had more than we need it and took a reserve against that we also had some very specific returned inventory that we have on hand that we no longer plan to refurbish and felt that we took a reserve for that and then we continue to have some reserves associated with inventory from our tonic man.

The factoring facility.

So all of those had roughly about a $32 million impact on our connected fitness gross margin in the quarter.

I think there was a question about one is our hardware connected fitness margin going to turn to gross margin positive and we're not giving any guidance on that timing, but as Barry said you know we are continued to focus on optimizing our LTV to CAC and if you think about the fact that some of the levers that go into that as we mentioned promotions are.

Part of that financing as part of that third party channel strategy as part of that equation all of those things have actually create a drag on our gross margin and does get offset by lower sales and marketing expenses in the form of lower media spending.

As Barry said at the whole thing and not just micro focus on gross margin.

One additional comment and that is to remind everyone that theyre clear tradeoffs between the two.

Our rate of growth of the business fueled by the pace of marketing sales and marketing spending on the one hand.

And the impact that spending has on free cash flow.

So we spent more on marketing we could have grown faster.

But it would have come at the expense of free cash flow and.

Our overarching objective which is to.

To move.

<unk> moved the business to free cash flow on a sustained basis. So we can control our own destiny. So our first priority is to manage the business for free cash flow and then within that framework to manage for growth.

Great. Thank you.

Thank you.

Our next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is now open.

Thanks, So much maybe if I can ask a two parter.

There was a lot of demand pull forward through the pandemic and you went through this sort of normalization.

Dynamic post the pandemic are we back on firm ground, where you think you understand with the sort of normalized and demand trends are in the category and therefore, you're now in a mode of sort of executing on leaning in leaning out with respect to promotion and marketing and we can be back just some sort of normal.

Seasonal cadence in the business that's number one and number two maybe following up on Doug's question from earlier, just can you help us better understand how the mobile app strategy fits broadly into the connected fitness goals are you still viewing it as a potential feeder product for conversion in the subscriber funnel.

Or is there an increasing view that maybe this can operate as sort of a standalone strategy folks who might never come around to the hardware. Thanks. So much.

I'll jump in person then hand, it over to list.

We outperformed in the quarter the good news and the Bad news is.

The good news is we outperformed them.

Or are the accuracy of our forecasting our ability to forecast the business and particularly given the many changes we made in the business model.

It's not as highly evolved yet.

It will be.

Is that because of the changes we've made in the model or because it's theirs.

Consumer behavior is.

Different than we understood it to be historically.

I think maybe at some of both and the reason I think that is because we've continued to outperform even our updated forecast.

In the quarter and so we don't quite have our handle our arms around.

Consumer behavior. So I think the answer to your question is no.

We're not back to normal yet if there is some new normal that's happening in <unk>.

We've quite grasp what it is.

One minor point with respect to seasonality Should've mentioned in answering Joe's question about past that.

Among the things, we're seeing that we didn't expect it that fast.

It does not has not been exhibiting the seasonal characteristics of the rest of the business.

Wasn't.

It didn't spike at all for instance, during the holidays.

Continued its march holidays didn't happen.

And then lastly, with respect to the App.

I think of it as its own end game.

And maybe it will feed.

So all access subscription hardware.

Maybe not I don't really care.

The end goal for that strategy is to expand the Tam by reaching.

Our user base.

Actually we've not been able to access it.

Our core strength, which is.

All of the content and the user experience.

Our instructors give life's too.

And to enable consumers to use that content on.

Competitive hardware.

And to use it in the home and to use it in the gym and to use it outside.

Whether its strengths are its yoga, where it's running.

Outside or on a treadmill, whether it's growing.

What have you.

Yeah.

And today.

It's a bike gets a tread it's a row.

But tomorrow, it's all those other things and and the path to the promise land is the App I think.

At least that's how I conceptualize that that's the opportunity we're trying to pursue.

Thanks.

I think you actually explained it quite well Barry the only thing that I will add is there was a comment in there on Eric's question about seasonal cadence and I just want to say that from a modeling perspective, we still expect that our revenue for the year, it's going to more closely resemble that of fiscal 'twenty two.

Let's just drive home the.

The point.

Too much hype into this call.

But today, we have as many subjects were forecasting were going to have at the end of the quarter.

And we have seen plenty of churn historically.

Typically at the end of the season rush.

And so we're forecasting that whatever incremental growth we have.

We will get back in the form of churn we're.

We're not forecasting a spike in the churn rate it's just.

The math to be clear.

But you know.

It could be right could be wrong.

We're going to find out.

Okay.

Thanks.

Okay.

Thank you.

Our next question comes from the line of Sweat the Cogs area with Evercore ISI. Your line is now open.

<unk>. Your line is open please check your mute button.

Hi, I'm sorry about that.

I guess I have a quick question on free cash flow.

You got to positive free cash flow this quarter, excluding some of the supply related costs, how should we think about the magnitude of each of the key drivers of getting to positive free cash flow in fiscal year, 'twenty four or so specifically I'm talking about the cost cuts you've made have an impact supplier contracts renegotiated have an impact there also.

Inventory drawdown has an offsetting impact so could you help us in terms of what will be driving that.

The trajectory of sustainable positive free cash flow. Thank you.

Sure so.

So my first question is really about like what is going to drive sustainable free cash flow into fiscal 2024.

So you mentioned inventory inventory will continue to be a tailwind for us in fiscal 'twenty four so that is a benefit.

And then.

Really all about being very conscious about our opex and making sure that we are you know we are as efficient as we possibly can be.

And then measuring doing that LTV to CAC analysis to make sure that we are acquiring subscribers efficiently and then it's about growth we have to continue to figure out how to grow that business. So that we have enough cash inflow to cover our operating expenses over time.

Fact that we've already bought a lot of the inventory and have a lot of it on hand already so it's really just about operating the business in an efficient way to maintain that free cap that positive free cash flow breakeven free cash flow ideally.

And.

Yes.

He is really figuring out how to continue to grow the business and by the way as we grow the app part of the business.

That is a higher gross margin business that that is good for us over time as well.

Let me jump in and add that.

Let's talk about.

Maybe some of the changes in the in the year ahead as compared with.

The past year.

In terms of.

We saw a significant reduction in head count in the past year.

And savings commensurate with that.

Will we see more of that on a go forward basis now we won't.

Made.

<unk> made it clear in our previous call that.

As far as is concerned.

Done.

Head count reductions.

So let me reaffirm that to all of our <unk>.

Employees, who are listening on the call.

But we have significant opportunities for additional expense reduction.

In the business and I expect that we will realize those.

And the next one or.

Two years.

There are middle mile and last mile there.

And all of the operating systems, we use.

ERP.

Warehouse management system.

This has resulted in lots of manual processes, we still have.

Lot of inventory and we pay a lot of money and storage costs.

And as we work down our inventory positions, we add substantial additional savings to be realized by eliminating those storage costs.

Just as we have.

In the past year, so the only offsets important to bear in mind is the trade off between growth and cash flow.

Savings so we lean back into international growth by way of example.

We're going to lose more money will grow faster and.

And we will only grow the LTV to CAC.

<unk> net.

Net profit.

Over time, but as you add new subscribers, who lose money is true at Netflix to Spotify, it's for peloton and so we just need to figure out what that artfully, what the what the appropriate balances.

Uh huh.

Okay. Thank you Barry Thank you Liz.

Thank you.

Our next question comes from the line of Ron Josey with Citi. Your line is now open.

Thanks for taking the question, maybe Barry I wanted to follow up on your comments on churn just now.

There's no there's no real change and you have maybe a little bit higher churn on seasonality just given holiday, but do you think this one 1% churn is call. It the new normal for maybe full members now that we're.

Three quarters into the price hike and maybe any insights on the turnaround SaaS subscribers I think we added shoes and some some benefits to the program. This quarter that might have brought churn down for these fastest skiba. So any insights there would be helpful. On churn and then Liz I think from a guidance perspective, because we're assuming greater fab.

And <unk> distribution sales and I think it's more fast in CPO talk to us about how that will flow through the P&L. Thank you.

Well, let's talk about the overall.

Turn number.

<unk>.

Let me talk about fast so.

<unk>.

That has a higher churn rate than then.

<unk>.

Then the typical all access customer.

It's running about $4 five seven.

7%.

<unk>.

That should not alarm you.

And here's why.

The sub basis still quite young and overtime.

You were to look at individual cohorts.

<unk> that we'd need to.

Answer for ourselves and for you is what's the shape of the retention curve the churn curve look like.

So and as the sub base ages, the average churn rate, which is what the 4547 represents we will of course will come down the question is.

Where does it turn asymptotic and at what rates as it turn asymptotic there's going to be.

1% or is it going to be 3%.

Based on our understanding of consumer behavior to date, we think the payback.

We're fast customers who receive.

New bike is about 18 months.

Yeah.

And for customers, who receive a used bike is 12 to 14 months.

Which is.

Good as we hoped I thought worst case at the two years.

If you go back and reengineer the numbers to get to a better outcome.

In the past, we could possibly hope for it would be a 12 month payback.

So it looks to us at least initially like the program. It's working by the way, we're still not doing any kind of credit check verification on the on the front end.

To identify customers we shouldnt.

Shouldn't be doing business with all of this would contribute to.

A better lifetime experience.

So we're still learning how to operate the program, but at least initially based on that churn behavior, we're seeing so far.

And we're only talking about 20 roughly 24000.

SaaS customers.

Total.

Yes.

I think there is reason to be optimistic about it now.

Is <unk>.

Have some negative adverse consequences for cash flow because it's.

From a cash flow perspective, youre not selling hardware upfront.

Recouping that investment in working capital.

As quickly, but we are seeing faster growth this consequent so.

I just want to remind everybody that the program is really successful.

Growing really fast with attractive paybacks and reactor.

Also figure out what the financing strategy as before it because it will have different working capital attributes.

Core business currently have but we should be so lucky to have that challenge and if we have it and I'm pretty confident of our ability to figure it out.

Let's try and talk about churn yeah sure I just wanted to add one thing that for the quarter for Q2, we were actually closer to 28000 subscribers at the end of Q2. It was about double the number that we had in Q1, so really really great growth rate for both CEO just another number that sorry about that folks.

But let's talk a little bit about churn, so our churn flat quarter over quarter, and we're very pleased with our connected fitness potential level of overall SaaS has a very minimal impact on overall churn at that point.

Right now we don't expect any significant changes to our current churn levels. Aside from the fact that we do have small seasonal variation from.

From quarter to quarter.

That's a little bit about churn Ron I think there was a part of your question that was asking about how like three P fast and refurbish our peloton refurbished program flow through our P&L and I can give a little bit of perspective on that Barry already gave some so the fact that fast is becoming.

A big bigger growth driver for us means that we do get less revenue from a new fast number than we do from somebody who buys a connected fitness.

Our product.

They just pay for the $150 delivery fee and then the cost of their membership that also impacts our gross margin in the month that they that they become a SaaS number and we've talked about that before so that is that as a near term drag on margin. It's also a near term drag on revenue just asked but over time, we recoup that.

For three P. We've talked about that as well that because our third parties to extract the margin from US there is a little bit about impact to revenue from them. We also have terms in our calls we also consider our marketing expense as a contra revenue adjustment for the those relationships. So those are a drag on revenue as well and a bit of a drag on gross margin.

And then for refurb, because it is a lower price point, obviously, we're getting less revenue from when we saw a refurbished bike, but on a cash margin perspective, it's great. Because we are you know we are getting cash for products that what if otherwise just how does the return and not been able to do something with it. So it is real it's great.

Overall economics, although from a P&L standpoint, you will see the negative impact from that.

Thank you Barry. Thank you it was very helpful.

Thank you.

Our next question comes from the line of Brian Nagel with Oppenheimer. Your line is now open.

Hi, good morning, Thanks for taking my questions.

So maybe a couple of questions.

Maybe unrelated I'll shove into one there just to make it simple so first off with regard to the now expanded distribution infrastructure with Amazon Index.

Any additional insights there as to how you may further develop that.

Develop that infrastructure and then my second question I know, we've talked about SaaS a bit here, but.

As you look at the additional growth. There are you basically just allowing that growth to be dictated by the market or their governors in place right now that you could adjust over time to drive that growth one way or the other.

If you mean.

To drive the growth up or down.

Correct.

Well the answer to that is yes.

Let's say that we are concerned about the cash flow.

The tax one on cash flow it would just slow it down.

We could hit let's say.

300 units a day and decided we're not selling any more on that particular day and we just.

To take it down.

From the.

From the web.

So that.

Yeah.

As it was can't order.

Any more SaaS bike and it in any particular day or week or month or quarter by way of example.

Secondly.

It's ripe for international expansion.

The pace at which we decide to go.

As another lever.

A third lever is one we just change the value proposition.

More expenses.

That is churn implications of course, which is lifetime value implications and tax implications.

It's absolutely one of the variables that we factor into the mix.

Deciding.

How to modulate growth, where we can lower prices.

And almost certainly grow faster as a consequence.

Yeah, the only thing to add the first part of the question I think was around any insights on developing our infrastructure with Amazon index at third parties.

Right now if you look at these partnerships are still very new to us.

We've only been roughly a quarter and in terms of our relationship with Dick's. We just went through our first holiday season with our third parties and so you know all our third party sales along with the rest of our sales outperformed our expectations during holiday, we're still learning about those partnerships and figuring out how we want to continue to partner to make it a win.

For both our businesses as well as Amazon Fedex.

Do you want to add anything to that.

Okay.

Thank you.

Yes.

Thank you.

Our next question comes from the line of Youssef Squali with Truest. Your line is now open.

Great. Thank you two questions for me first can you maybe speak to the level of promotional intensity in the quarter.

And your plans and expectations for the second half in other words kind of.

What does the guide imply in terms of promotional activity.

Maybe just a clarification Liz on something you said earlier about the seasonality you are seeing this year similar to what you saw in 2022 and 2022 Q4.

Your fiscal Q4 was the lowest revenue quarter at about 19% of revenue. So I'm, assuming that's kind of what you are telegraphing, but what else.

You'd like us.

To know about how maybe Q4 will turn out I know youre not guiding yet so maybe just directionally. Thank you.

So with regard to revenue that second part of your question, we are not providing guidance on Q4, So I think it can.

My comment earlier about revenue seasonality, how you want but we're not providing specific guidance on that.

The quarter.

On promotional intensity and Barry you can fill in for us.

Anything I Miss here, but.

I think the way that we think about promotional levers we have to come back to the whole concept of LTV to CAC and that promo is part of the one of the key levers in that equation right. So as we look in the quarter, we are going to make tradeoffs between our media spending our financing offers and also.

No promotion as an opportunity and especially as we have a lot of inventory right now it is a lever for us and so.

We don't we don't comment too much about promotional strategy is that for competitive reasons in part.

But we are trying to balance across our inventory reduction managing margin and cash flow all of those are important parts about how we think about promotional activity.

I would just remind everybody that it's just a form of marketing spending just happened to land in a different part of the P&L. One two it's proven to be enormous what your effective for us three more do it the more you erode.

<unk> value proposition and so do well he used sparingly.

In the year that I've been here.

Had some form of promotional activity in almost every quarter I think.

To varying degrees.

It is for Leslie did decide how aggressively or not.

She wants to use it as part of the marketing mix on a on a go forward basis.

TBD.

Thank you both.

Thank you.

Our next question comes from the line of Edward Guillermo <unk> with Piper Sandler Your line is now open.

Hey, good morning, Thanks for taking the question bearing one of your earlier answers you talked about the puts and takes on the P&L from international growth and just that faster growth with cost more money I know you cited that restore international growth as a goal in year two.

What do you see other than the promotional level that can help do that and do you expect to enter new countries. Thank you.

Still figuring it out.

Is the long and the short answer.

I would I would like to enter new countries, probably western Europe first.

<unk>.

But I don't know when and I don't know how much we would spend doing it.

And I hope to have the answer to those questions.

In the next three months, but.

Just don't have it today.

Long story short.

Thank you.

Yeah.

Thank you.

Our next question comes from the line of Alicia Sherman with Bernstein. Your line is now open.

Hi, good morning, So two questions. Please so the first one is with higher fast demand and faster deliveries at the end of the quarter does that suggest that there should have been some lag subs adds in January and is that already baked into your guide of $3.

<unk> 3.9 for Q3.

And then second marketing is down even as a percent of sales.

I'm curious if you could give us some color on how much of that is temporary as you're it sounds like you're holding back marketing on the digital app until you've relaunched it versus structural declines, including Lee and her team.

<unk> expenses, maybe even structurally lower as you broaden your distribution footprint and maybe you need less marketing so any color on that would be helpful. Thank you.

The sales and marketing line item on the P&L, It's a hodgepodge of a couple of different things just by way of reminder, so some of it relates purely to marketing spend for the core business some of it relates to the.

Sure.

Commercial.

And wellness business.

Hum.

And what's the retail thank you.

<unk> pieces as retail.

And we've.

Fairly dramatically we're in the process of dramatically shrinking.

So loss associated with.

With that component.

The business now.

All things being equal as the subscription revenue grows.

And marketing expense should shrink pretty dramatically as a percent of revenue.

This is all part of.

A tutorial I gave investors.

At the.

The Investor day that Spotify hosted before its direct listing by way of example.

Netflix as I recall.

Sales and marketing expense suffering something like 24% to 14%.

CAC remained relatively constant just because of the attributes of a <unk>.

Well run subscription business, they only pay to acquire the marginal new sub you don't pay for the recurring revenue and recurring revenue growth as a percentage of the total over time, which is why you see the reduction.

Now the offset for us will be let's say international expansion as well.

Our unaided brand awareness in new countries is quite low as you would expect.

That means that that CAC will be higher as you as you rollout.

Your presence in those new markets.

And so we're just going to have to balance it from an earnings and a cash flow perspective.

As we as we try to nail the growth.

But we should be beneficiaries of increased word of mouth.

As the unaided brand awareness grows, particularly in North America.

And because the growth in recurring subscription revenue.

Offset by growth in new markets, and new product categories that have relatively low growth.

The digital App, because last time I looked not sure what it is today it was 4% unaided brand awareness.

And the net promoter score with the highest of all of the products. We offer is something like in Memphis, but low <unk> or mid seventies anyway enormously high.

So.

Question.

How heavily from a marketing perspective, we kind of lean into.

To that opportunity.

The answer is yes.

Leslie just walked in the door give us some time to figure that out.

Yeah.

Got it really helpful and then on the lag subs from your later deliveries and soft demand any comments on that.

So over the holidays.

This is not a particular impact that is unique to this particular holiday or this particular calendar year over the holidays. When we sell a lot of connected fitness units over the Black Friday cyber Monday, It does take us time to be able to deliver those and so we generally do have situations, where somebody may have ordered.

A peloton bike or tread are lower and we think we do.

Don't actually deliver it to them and they don't activate their subscription until January that's not that's not a unique phenomenon to this year.

That happened.

Every holiday quarter into that from quarter two into quarter, three but there is kind of a peak backlog coming into this quarter relative to other silver orders.

Yep Yep.

But.

It's not.

Contemplated in our guidance.

And it is not unique to this year versus other years.

Shout out.

Sure.

To all of the folks at peloton devolved.

<unk> delivery of connected fitness units to consumers' homes, because they substantially outperformed.

Our expectations for the quarter.

Grateful to them for the efforts to date.

Or would it on behalf of the business.

Thank you.

Our next question comes from the line of <unk> Ghosh from Waller with Credit Suisse. Your line is now open.

Hey, everybody good morning.

Can you maybe just talk about you've laid out your various initiatives and some detail can you maybe just talk about the decisions on pre core and the Ohio facility and if there is any sort of shift in strategy or any impact keep.

Keeping those assets for a bit longer may have on some of the initiatives you've outlined.

Thanks.

We'll take pop and I'll take <unk>, let me begin with pre quarter.

When I think it was in my first earnings call with investors I said look strategies choice.

And our choices.

We commit ourselves to connected fitness. So it's not connected fitness, we're not doing it and that begs the question well, Okay, where does <unk> fit and why are you doing it.

And we had the word.

Kept secret on the planet is that we've been exploring the sale of <unk>.

And we got pretty far down the path and then.

Price that the buyer was willing to pay.

Dramatically dropped.

And we walked away from the table at some point across the stupid line to the point, where it's just not willing to dance anymore.

And that happened for us now.

For all of the time that we have owned it.

We've done nothing to it.

In the performance of the business.

Its own detriment.

Detriment.

And we've done a reasonable job of kind of running it for our benefit.

<unk> sucking some talent out of it into our own hardware business.

Good for us and for them. So we're going to reverse course I think.

We understand.

How to add some metal value.

Without great expense.

And have a disproportionate increase in the value of the business.

And the overarching strategy would be to run pre core for the benefit of pre quarter.

And to not dilute those efforts.

For the benefit of.

Yes.

Our own operating business.

Ryan as freestanding subsidiary and so that's the path we're on.

And when we see.

Success, we will see a dramatic increase in its market value.

Then unless we have a shift in strategy, where they have shifted their product strategy at some point.

We would look to divest.

So I'll take the question about popped so.

We had expected to sell or to sell the peloton Apple Park facility in Ohio by the end of calendar year 'twenty two.

Unfortunately about process got delayed, but we are hopeful that we will be able to sell it by the end of the fiscal year and we are confident that we will be able to solve it.

Literally just taking us longer now ended the fiscal year its not guaranteed but that is our goal.

Thank you.

Our last question comes from the line of Lauren Schenk with Morgan Stanley . Your line is now open.

Hey, this is Nathan feather on for Laurent Chang.

Can you just talk through how the initial demand for the ROE is spend and where you would rethink that production and distribution.

And then what portion of demand is coming from new versus existing subscribers and then just a follow up question, what exactly is causing the delay in selling pop and how are you getting ethics. Thank you.

Okay.

So as far as the demand for the ROA just like our other products over the holiday season, the rower outperformed our expectation it is a newer product for us and awareness outside our peloton member base, we're still building that quite a bit.

To your point.

A larger share of the lower sales did go to existing numbers. It was roughly as high as 65% over the holiday period now since the holidays. It has moved to be more in line with the percent of existing members that are purchasing our tread product announced in Q3. The trend is more in the 40 ish percent range in terms of overlap.

With existing stock.

Talk a little bit about of our new versus existing on top.

The pop facility at a large facility it's in Ohio, It's a great facility for the right use case for it but we just have to find the right buyer for.

That facility.

For taking the time to be able to do that.

Thank you and I'm currently showing no further questions at this time I am sorry, I would like to turn the call back over to Peter Stabler for closing remarks.

Thank you everyone for joining us today, we will talk to you next quarter.

Good day.

This concludes today's conference call. Thank you for your participation you may now disconnect.

Yeah.

Yes.

Yeah.

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

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