Q1 2024 Peloton Interactive Inc Earnings Call

Speaker 1: Good day and thank you for standing by. Welcome to the Peloton Interactive 1Q24 earnings conference call. At this time all participants are in a listen-only mode. After the speaker's remarks there will be a question and answer session.

Good day, and thank you for standing by welcome to the peloton Interactive one Q twenty-four earnings conference call. At this time all participants are in a listen only mode. After the speaker's remarks, there'll be a question and answer session to ask a question during the session. Please press star one one on your telephone.

Speaker 1: To ask a question during the session, please press star 1 1 on your telephone and wait for your name to be announced.

Speaker 1: To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would not like to hand the conference over to your speaker today. Peter Stabler, head of investor relations.

For your name to be announced to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would not like to hear the conference over to your speaker today Peter Stabler.

Investor Relations.

Speaker 2: Good morning and welcome to Peloton's first quarter, this will 2024 conference call. Joining today's call are CEO , Barry McArthur, CFO Liz Pilington, and Chief Marketing Officer Leslie Berlin. Our comments and responses to your questions reflect management views as of today only. And we'll include statements related to our business that are forward-looking statements on your federal security law.

Good morning, and welcome to Telecom first quarter of fiscal 2024 conference call.

They call R. C R.

R. A b C F.

And Chief Marketing Officer Lastly, Berlin.

Comments and responses to your questions reflect management you that for today only.

And will include statements related carpet.

Are we looking statements under federal Securities Law.

Speaker 2: Actual results may differ materially from those contained in or implied by these forward-looking statements due to risk and uncertainties associated with our business.

Actual results may differ materially from those contained in or implied by the forward looking statements.

Risks and uncertainties associated with our business.

Speaker 2: Her discussion of the material risks and other important factors that could impact our actual results.

A discussion of the material risks and other important factors that can impact our actual results.

Speaker 2: please refer to our SEC filings and today's shareholder letter, both of which can be found on our investor relations website.

Please refer to our ethics filings in today's shareholder letter.

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

Speaker 3: During this fall, we will discuss both GAP and non- GAAP financial measures. A reconciliation of GAP to non- GAAP financial measures is provided in today's Shareholder Letter. And I'll now turn the call over Barry McCarthy. Morning everyone. Thanks for joining us.

During the call, we will discuss both gap and non-GAAP financial matters, a reconciliation of GAAP to non-GAAP financial measures provided today shareholder letter.

Now turn the call over alright.

Morning, everyone. Thanks for joining us.

In a break with tradition.

Speaker 3: I invited Leslie Berlin to join us knowing that growth is on everyone's mind.

I invited Leslie.

Join us knowing that growth is on everyone's mind.

Speaker 3: And this begins a process whereby in future calls from time to time, you can expect me to invite into the room other operating executives so that you have an opportunity to gain exposure to them and they have an opportunity to gain exposure to you. And you can hear firsthand from them about different aspects of how the business is being operated. And with that, we'll open the phone to questions Josh.

Uhm it's begins.

Process, whereby in future calls from time to time.

You can expect me too and by the end of the room. Other operating executives. So that you have an opportunity to gain exposure to them and they have an opportunity and yanks Burger you and you can hear firsthand from them about different aspects of how the business is being upgraded when that will open up to questions Josh.

Speaker 1: Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again one moment for questions.

Speaker 1: Our first question comes from Doug Enmuth with JP Morgan. You may proceed.

Our first question comes from Doug animals with J P. Morgan you May proceed.

Speaker 4: Thanks for taking questions. I have two. First, you have a number of different growth initiatives going. Just as you think about your forecast for revenue growth and positive EBITDA and substantial free cash flow in the back half of the fiscal year, can you just help us rank the two to three biggest drivers across these various initiatives? And then, secondly, how do you think about timing for the Lululemon partnership to benefit the business just given access to their large membership base? Thanks.

Thanks for taking questions Uhm I have to just first you have a number of different growth initiatives going just as you think about your forecast for revenue growth and positive EBITDA and substantial free cash flow in the back half of the fiscal year can you just help us ranked two to three biggest drivers across these various initiatives and then.

Secondly, how do you think about timing for the Lulu Lemon partnership to benefit the business just given access to their large membership base. Thanks.

Speaker 3: Come then on the drivers. You want to take it? Yeah. Well, let's see. From my perspective, with respect to the drivers.

Yeah I've been on a trip on the drivers would you mind checking.

From my perspective with respect to the drivers.

Speaker 3: Couple things, one is we're going to reintroduce the TreadPlus.

A couple of things.

Is we're kind of reintroduce the tread plus.

Speaker 3: this quarter and again taking pre-orders.

This quarter.

And began taking pre orders.

Speaker 3: And that would be if if we're successful, that would be a big driver of incremental cash flow and revenue for us. Remember, we have all of that inventory in warehouse already and fully paid for and have set before I walked in the door.

And that will be if if we're successful that will be a big driver of incremental cash flow and revenue for us.

Remember, we have all of that inventory and warehouse already I'm fully paid for it and have said before I walked in the door.

Speaker 3: So that would be thing one. Thing two is continue success growing app related subscribers.

So that would be one thing too is continue success growing uhm app related subscribers.

Speaker 3: And I'm sure we'll have more questions about how we're thinking about that opportunity on a go-forward basis. And then we need to continue to have success.

And I'm sure we'll have more questions about how we're thinking about that opportunity on it.

Go forward basis, and then we need to continue to have success.

Speaker 3: with the core fall access membership. I think our

With a.

Core all access membership I think are are <unk>.

Speaker 3: Growth projections are reasonably conservative in that regard.

Growth projections are reasonably conservative and in that regard.

Speaker 3: So that's what I'm thinking about. The growth initiatives in terms of the women that's live.

Uhm.

<unk> thinking about the growth initiatives.

Uhm.

In terms of.

Lemon Uhm that's life.

Speaker 5: And we are continuing, we are benefiting from it as we speak. So.

We are continue we are benefiting.

<unk> as we speak so.

Actually nothing more to say about.

Speaker 6: about the economics of that, I want to go forward. Yeah, but the one thing I can add on Louis Vulemann is that we just started having our content available for the Louis Vulemann Studio members who have a mirror that actually went live yesterday on November 1st.

About the economics of data on a go forward basis, yeah. The the one thing I can add lemon.

<unk> is that uhm, we just started having a content available for that <unk> members to have a mirror that actually went live yesterday on November 1st and so as far as receiving the revenue sharing benefit from that agreement that we haven't lately that started S X as in November and we expect roughly.

Speaker 6: And so as far as receiving the revenue sharing benefit from that agreement that we have with Lulu, that started as effective in November . And we expect roughly, I can give you a sense of the size for the quarter, roughly about $10 million of revenue for Q2 coming from that subscription revenue for us.

Roughly I can give you a sense of the size for the quarter roughly about 10 $9 of revenue for two two coming from that subscription Avenue.

Speaker 3: There is an apparel component to it. It started.

<unk>.

There is an apparel component to it it started.

Okay.

Okay phenomenal strongly.

Speaker 3: It was kind of an articulate, yeah. Then an initial launch in Chicago.

Kind of inarticulate.

And then.

Launching in Chicago.

Speaker 3: We draw a tremendous amount of store traffic to them, a huge increase in apparel sales for us.

We drove a tremendous amount of of store traffic for them a huge increase in apparel sales for us.

Speaker 5: And we'll be working on a more complete integration of that opportunity. And that will be a little slower to develop over time.

And and we'll be working on on on.

Complete uhm.

<unk> got that opportunity.

That will be a little slower to develop over time.

Thank you.

Thank you.

One moment for questions.

Speaker 1: Our next question comes from Swetha, Kajuryo with a RECORE ISI. You may proceed. Okay.

Our next question comes from Sweat the <unk> Evercore I sorry, you May proceed.

Okay. Thank you for taking my question could you. Please talk about the promotion environment this year versus last year and any change in your strategy in terms of running promotions. This year at length of time the depth of promotions any comments on that please and then the second is how how should we think about.

Speaker 7: Could you please talk about the promotion environment this year versus last year and any change in your strategy in terms of running promotions this year? It length of time the depth of promotions any comments on that please and then the second is

Speaker 7: How should we think about your guidance for the quarter and for the full year? Put sent takes that are baked into or the assumptions that are baked into your guidance and any potential, what impact from these new partnerships are you accounting for in your guidance for the full year? Thank you.

Your guidance, where the quarter and for the full year puts and takes that are big into our the assumptions that are baked into your guidance and any potential what what what what impact from these new partnerships are you accounting for and your guidance for the full year. Thank you.

Speaker 3: Let me say just a brief intro, I'll turn it over to Lesley, talk about the thoughts about the promo environment for the current quarter. And Liz will take the last part of the question. So I think I'm right on a Q-over-Q basis for the quarter completed. We had a higher ASP and we're less on promotion than we were a year ago.

Uhm.

Let me say just.

A brief intro I'll turn it over to let them talk about her thoughts about the promo environment for the <unk> for the current quarter.

Mm mm and this will take the last part of the question. So.

I think I'm right on two over two basis for the quarter completed uhm.

We had a higher E. S. P N were less on promotion and we were a year ago.

Speaker 3: we were hired by 3% something like that. So, and so that reflected in the improvement in growth margin.

We are higher by three per cent something like that so and you saw that reflected in the in the improvement in gross margin.

Speaker 3: on a year-to-year basis, and the 31% increase in gross profit that helped deliver in the quarter.

On a year over year basis and 30.

31% increase in gross profit.

Does that help deliver in the quarter you want to talk about the.

Speaker 8: You want to talk about the holiday? Yeah, yeah, absolutely. Happy to be on the call. I think we're very excited as we embark on holiday and we always bring.

Yeah, Yeah, absolutely I'm happy to be on the call I think we're very excited as we embark on holiday and we always bring exciting value to both of our members and new customers as well I think what's interesting to also mentioned is how we bring these promotions to life. So we really learned a lot over the past couple of months.

Speaker 8: exciting value to both our members and new customers as well. I think what's interesting to also mention is how we bring these promotions to life. So we've really learned a lot over the past couple of months.

Speaker 8: around digital and social media marketing and specifically creator and influencer marketing, which really reframes and contextualizes both this value as well as the promotion. So we're seeing really strong traction in all of our work in this space, and you will absolutely see this come to life during holiday. The other part I'll mention is you read in the shareholder letter around our partnerships.

<unk> digital and social media marketing and specifically creator an equal Mr marketing, which really restrained and contextualize is both of this value as well as the promotion. So we're seeing really strong traction in all of our work in this space and you will absolutely see this come to life during holiday. The other part I'll mention is you you're ready to shareholders.

<unk> around our partnerships much of our partnership work is starting to take form at the exact same time N D. A being an example, michigan as well. So there is a great are coming together of all these initiatives in the next few months.

Speaker 8: much of our partnership work is starting to take form at the exact same time, NBA being an example, Michigan as well. So there's a great sort of coming together of all these initiatives in the next few months.

Speaker 6: Okay, so I'm going to go ahead and take the question about guidance for Q2 and the full year.

Okay. So I'm Gonna go ahead and take the question about guidance and for Q2 and the four year.

Speaker 6: So our Q2 guidance reflects what I believe to be a balanced view based on the macroeconomic outlook and the fact that there is some uncertainty around the performance in the holiday season, but it does reflect a few things. So I want to call out that it does reflect seasonality of our hardware sales, the fact that Q2 is a heavier

So our queue to guidance reflects what I believed to be a balanced view based on the macroeconomic outlook. In fact that there is some uncertainty around the performance in our heart and the holiday season, but it does reflect a few things. So I wanted to call out that it does reflect seasonality about hardware sales. The fact that keeps you with a heavier hardware sales fodder for us. Please.

Speaker 6: hardware sales quarter for us, use the link given all the holiday promotional activity. It's also a quarter.

Given all the holiday promotional activity Uhm, it's also a quarter.

Speaker 6: where we expect to see, surprisingly, an improvement in, maybe not surprisingly, improvement in our connected fitness growth margin. And some of the reasons for that, and our overall growth margin is coming down seasonally, as you would expect, but connected fitness is actually gonna be up in part because of fixed cost leverage that we expect to have from the higher connected fitness unit.

Uhm, we expect to see.

Surprisingly, an improvement and maybe not surprisingly improvement and are connected fitness correct Martin and some of the reasons for that and our overall gross margin coming down seasonally as you would expect but connected tennis is actually gonna be up in part because it costs leverage that we expect to have some higher connected to any itself and we also expect that.

Speaker 6: And we also expect a slight mix shift away from our bike rental relative to Q1 because we expect our rental take rates to be a little lower, driven by the fact that we will have the high promotional activity in the quarter.

Next shipped away from our Bank branch, all uhm relative to Q1, because uhm et cetera rental take for it to be a little lower uhm.

By the fact that we will have the highest professional activity in the corner and then Uhm. In addition to that and you know that that is all set by some holiday promotional activity, but uhm that that we expect it to be slightly higher our adjusted EBITDA guidance reflects the fact that we will have seized on marketing plan to support the holiday season, it's important to understand that that medium.

Speaker 6: And then, in addition to that, and you know, that is offset by some holiday promotional activity, but net-net we expect it to be slightly higher. Our adjusted EBITDA guidance reflects the fact that we will have seasonal marketing spend to support the holiday season. It's important to understand that that media spend actually supports growth in both Q2 as well as Q3, so the timing of that is reflected in the adjusted EBITDA guidance. Now, you had asked about partnerships.

<unk> actually support growth in both two two as well as two three so the timing of that is reflected in the <unk>. Adjusted EBITDA guidance. Now you had asked about partnerships. The way that we are thinking about these partnerships as they are just getting started so there's not really in in place it benefit <unk> into our guidance for <unk> for.

Speaker 6: The way that we are thinking about these partnerships is they are just getting started. So, there's not really an implicit benefit baked into our guidance for subscribers directly as a result of a lot of these partnerships in Q2. The one thing that I called out earlier about Lululemon would be the exception to that. And so, you know, we will, as we build out these partnerships and the structures start to take shape and we gain more traction, we'll be incorporating more of that into perhaps future quarters of guidance.

For subscribers directly as a result of a lot of these partnerships. Thank you to the one thing that I called out earlier about 11 would be the exception to that and so you know well we will as we filled out the partnerships and instructions to take the take start to take shape and we came more attraction will be incorporating more of that interests, perhaps future quarters of guidance now for the full year.

Speaker 6: Now for the full year, I want to call out a couple of things. Our back half of the year forecast reflects the fact that we expect to see revenue growth acceleration in Q2 and Q3. If you also look at our growth margin that we're targeting for the full year, that also reflects the fact that our Q3 and Q4 growth margins are expected to be higher. And a lot of that is driven by the fact that in addition to the mixed shift between subscription and hardware sales, we do expect to see some benefit, as Barry called out earlier from the reintroduction of Tread Plus.

You want to call. It a couple of things are back half of the year forecast reflects the fact that we expect to see revenue growth acceleration in Q2 and Q3. If you also look at our gross margin that we're targeting for the full year that also reflects the fact that are too. Thank you for gross margins are expected to be higher and a lot of that is driven by the fact that.

You know in addition onto the next shift between subscription and hardware sales. We do expect to see some benefit is very called out earlier from the reintroduction I've tried spot, but I do want a call out that we you know that is a new launch Fry there is some uncertainty baked into our guidance around it and the performance.

Speaker 7: But I do want to call out that we, you know, that is a new launch for us. There is some uncertainty based into our guidance around it and the performance of that after the year. OK, thank you. Thank you, everyone.

Half of the year.

Okay. Thank you. Thank you everyone.

Thank you.

One moment for questions.

Our next question comes from Ron Josie with City you May proceed.

Speaker 4: Great, thanks for taking the question. You know, I want to ask a little bit more about engagement trends is bearing the letter you talked about an increase in monthly subscription engagement in the quarter and members engaging with longer classes.

Great. Thanks for taking the question you know I wanted to ask a little bit more about engagement <unk> very the letter you talked about an increase in monthly subscription engagement in the quarter of numbers engaging with longer classes. Do you think that has to do with more of a seasonal usage pattern or or just telephone strategy of being everywhere any anywhere and everywhere.

Speaker 4: Do you think that has to do with more of a seasonal usage pattern or just telecom strategy of being everywhere, anywhere and everywhere, and with longer and more types of classes that are coming out? And I'm curious how you use this trend of greater engagement to just improve overall brand. And with Leslie here, maybe you can help us a little bit more just about brand perception and what we're doing to increase that over time. Thank you.

And with longer and more types of classes that are coming out and I'm curious how you use this trend of greater engagement to just improve overall Brandon with Leslie here, maybe you can help us a little bit more just about brand perception and and what we're doing to increase that over time. Thank you.

Speaker 5: Well, the 6% increase in engagement amongst the all-access subscribers is year-over-year, so it's not a seasonal trend. And Liz, correct me if I'm wrong, I think it's 12% year-over-year for app engagement as well. So I think it reflects.

Well the the six per cent increase in an engagement amongst the all access subscribers is year over year. So it's not a seasonal trend and.

Those correct me if I'm wrong I think it's 12 per cent your year for App for at engagement as well so.

So I think it reflects.

Some progress on personalization.

Speaker 3: continued great execution, like Jen Cotter and her content team, and

Uhm, a continued great execution like <unk> <unk> and her content team.

And.

Speaker 3: and the preferences of the members. So if we're programming our.

And and the preferences of the members so.

If we're programming our class as well.

Speaker 3: And if more people are taking longer classes, it's because.

And if more people are taking longer classes. It's.

It's because.

Speaker 3: they're choosing to and we're producing enough of them.

They're choosing to and we are producing enough of them.

Speaker 3: and enabling them to discover them on the platform in a way that better serves their interest.

And enabling them to discover them on the platform in a way that that better serve their interests.

Speaker 6: I do want to correct one thing really quick. The 6% includes both the Connected Fitness and the app subscribers total for engagement.

You want to correct one thing really quick the six per cent includes spell to connected and the App subscribers total for at four in kitchen.

Thank you.

One moment for questions.

Speaker 1: Our next question comes from Anisha Sherman with Bernstein, you may proceed.

Alright. So question comes from my niece or Sherman with Bernstein you May proceed.

Speaker 9: Thank you. Two questions from me, please. The first one is on inventory. So as you're continuing to clear inventory, what is the normalized level of hardware gross margins you think the business can get to? I know you've talked about double-digit underlying margins. Does that view change now with the growth of FAS in the mix? And then I have a quick question on POP. You took an impairment of $31 million. Can you give us an update on the work being done on that and what you're expecting as the outcome? Are you still expecting a sale? Thank you.

Thank you a few questions for me. Please the first one is an inventory so as you're continuing to clear inventory what is the normalized level of hardware gross margins. You think the business can get too I know you've talked about double digit underlying margins does that view change now with the growth of fast and the next and then I have a quick question.

On poppy ticket impairment of 31 million can you give us an update on the work being done on that and what you were expecting us the outcome and you still expecting a sale. Thank you.

Speaker 6: So I can take the question on POP first. In the quarter, we actually took an impairment of only $15 million in this particular quarter. So we are still looking to sell POP. We are talking to a variety of interested parties. And we hope to be able to sell it soon. But we are still working on that.

So so I can take the question on pop first uhm in the quarter, we actually took an impairment on only I've only 15 million <unk> and that's in this particular corner. So we are still looking to sell pop we are talking to a variety of interested parties and you know we hope to have it.

Hope to be able to sell it.

But we are still working on that.

Speaker 6: on the other question, which was related to inventory and normalized hardware growth margins.

On the other question, which was related to inventory and normalized Hardebeck right Martin.

Speaker 6: You know, we do expect to see, you know, so we are in a moving into a more normalized inventory position. We've been purchasing inventory as we prepare for the holiday season.

You know, we do expect to see you know so we are in a in a moving into a more normal lives inventory position, we've been purchasing inventory as we prepare for the holiday season, and I did want to comment about the fact that you want it with the with the use of cash and and to try to keep our wait I've got a bit of a tailwind.

Speaker 6: And I did want to comment about the fact that in Q1 it was a use of cash, and in Q2 to Q4 we expect to have a bit of a tailwind on inventory. But by the end of the year, we expect to be pretty normalized with regards to inventory and the seasonal cash flows that the business is accustomed to or has been historically accustomed to. Now, in terms of growth margins, we are seeing some benefit on the fact that

<unk> inventory, but by the end of the year, we expect to be pretty normal lives with regards to inventory and the seasonal cashback.

Is accustomed to or has been historically accustomed to now in terms of gross margin. We are seeing some benefit on the fact that.

Speaker 6: You know, we are moving into that more normalized inventory position. We don't expect to have any more write-offs of inventory. You know, we're being able to better manage our reserves.

You know we are moving into a into that more normal I should've been charged physician, we don't expect to have any more right off of inventory, we'll be able to better manage our reserves and then you know we do have on a on a on a unit economics basics basic excluding promotion our all of our kids are a double digit.

Speaker 6: And then, you know, we do have on a, on a, on a unit economics basics, basic excluding promotions are in all of our.

Speaker 6: queues are a double-digit growth margin positive aside from the guide.

Thus margin positive aside from the guide.

Speaker 9: Okay, and can you talk about how the impact of FAS might change the normalized gross margins going forward?

Okay and can you talk about how the impact of fast might might change the normalized gross margins going forward.

Speaker 6: Yeah, so let me show a little bit about that.

Yeah. So let me so a little bit about fast so from that in terms of the impact on gross margin and Q1 <unk> less than 10 base request impact on her over opera Martin So relative to the size of fast compared to the overall size of our business, it's a bit of a drag but not a huge drag on on.

Speaker 6: From the, in terms of the impact on gross margin in Q1, FAF was less than 10 basis points impact on our overall gross margin. So relative to the size of FAF compared to the overall size of our business, it's a bit of a drag, but not a huge drag on on gross margin.

Speaker 10: The reason that FAS impacts our gross margins is because of maybe because of the fact when people join FAS, they pay a fee for the delivery and our cost to deliver that hardware is more expensive than the actual delivery charge that we charge the customer, and so as we grow that part of the business, you see that impact to gross margin in the first month of the FAS subscription. Really helpful, thank you. Thank you.

Martin the reason that fast impacts are gross margin is because of <unk> because of that back when people join fat they pay a fee for the delivery and where we are cost to deliver that hardware is more expensive than the actual delivery charge that we charge the customer uhm. So as we grow that part of the business you see that impact of gross margin in the first month of the.

Subscription.

Really helpful. Thank you.

Thank you.

One moment for questions.

Our next question comes from Eric Sheridan with Goldman Sachs. You May proceed.

Speaker 11: Thanks so much for taking the questions, maybe two of I could. In terms of fast, has there anything you've learned so far on the subscription side that we might see you extend out subscription options into other connected fitness hardware products over time? I'm thinking around elements of relaunching tread and trying to come back to market with that with maybe a new.

Thanks, so much for taking the questions maybe too if I could in terms of fash how's it releasing you've learned so far the subscription side that we might see you extend out subscription options into other connected fitness hardware products over time I'm thinking around you know elements of re launching tread and trying to come back to market with.

Speaker 11: messaging. That would be number one. And then I just want to make sure we understand the messages on the app strategy and what you're seeing. In terms of applying marketing dollars and ROI, how would you characterize the success you've had in terms of the free tier of the application layer versus the paid tier and elements of how the conversion funnel continues to evolve for the application strategy? Thanks so much.

That with maybe a new message <unk> that'll be number one and then I just want to make sure we understand the messages on the App strategy and what you're seeing in terms of applying marketing dollars in our ally how would you characterize the success you've had in terms of the the the free tier of the application layer versus the the paid too.

<unk> and an element style. The conversion funnel continues just sort of evolved for the application strategy. Thanks, so much.

Speaker 3: Let me jump in on fast and and I'll say a few words about app strategy and then as Leslie does.

Let me jump on fast and and I'll say, a few words, a bad strategy and then it's Leslie to.

Uhm Joy.

Speaker 3: I think it's unlikely that we will extend SPAT.

I I think it's unlikely that we will extend spat.

Speaker 3: at least the treads and treadmills because that that installation is more complex.

At least the treads and treadmills because that that installation is uhm more complex.

Speaker 3: Is it possible that we might extend it to row?

Then then bike.

Is it possible that we might extend it to row.

Speaker 3: but it's still quite early in the lifecycle of that product. And I think we have more to learn before we would consider doing that. So I think the, and then.

Possibly but.

But it's still quite early in the life cycle of that product and I I think we have more to learn.

Before we would consider doing that so I think that.

And then lastly, I would say there.

Speaker 5: We have our hands full with the growth opportunity that FASC currently presents at 90 plus percent year over year. And having just opened up Germany where it right out of the box, very small numbers, but right out of the box going really fast, much faster.

We have our hands full with the with the growth opportunity that fast currently presents.

At what.

990, plus percent year over year, and having chest opened up Germany, where.

It right out of the box.

Very small numbers provided on the box going really fast.

Much faster the mood for guessing.

So.

Speaker 3: There's plenty for us to chew on on past with just the current business model, I think is the macro point as it relates to the to the app strategy.

There's there's plenty for us to chew on on paths with just the the current business model I think is the macro point.

As it relates to the to the App strategy.

Speaker 3: The marketing team was enormously successful in driving huge volumes into Cree.

The marketing team was enormously successful in driving huge volumes uhm into Creek.

Speaker 3: We were not successful at seeing conversion of those free into the paid funnel, which is why we pivoted in the quarter back to...

We were not successful at seeing conversion of those free ended up into the paid final.

Which is why we we pivoted in the quarter back to.

Focusing on the on the paid App.

Speaker 3: and the on-ramp there is free trial, and there we have had terrific success, and we're seeing higher price points.

And the on ramp there, it's free trial and there we have had terrific success.

And we're seeing higher price point.

Speaker 3: than we were forecasting significantly higher take rates of the app plus.

Then send we were poor cat significantly higher take race of the App plus.

Speaker 3: sub at $24 and we were expecting a heavier mix of the $12.99.

<unk> at 24 Bucks then.

Uhm and then we were in we were expecting a heavier mix of the 12 99.

Speaker 8: Yeah, and I'll just jump in a little bit to provide context on the strategy and and some of the interesting data points that we saw.

Yeah, and I'll just jump in a little bit to provide context on the strategy and some of the interesting data points that we sir.

Speaker 8: So again, the goal, including the app, is to energize our core member base and to attract new and under penetrated demographics that have historically not been, as I said, as penetrated for Peloton and...

So again the goal, including the App is to energize, our core member base and to attract new and Underpenetrated demographic that has historically not been as I said as penetrative <unk> and <unk> gave us an amazing opportunity in the pre amp message gave us an amazing opportunity when we <unk> re brand at the company in <unk>.

Speaker 8: App gave us an amazing opportunity in the pre-app message gave us an amazing opportunity when we rebranded the company and relaunched the brand. What we saw at the very point was obviously a massive volume of downloads.

The branch, what we thought to Barry's point was obviously, a massive volume of downloads and what's interesting about that tied to be objective is we brought in new demographics. So we brought in lots of people who represented what you would consider a core member base, but you saw movement significant uptick both both in free.

Speaker 8: And what's interesting about that type to be objective is we brought in new demographics. So we brought in lots of people who represented what we would consider our core member base, but you saw movement and significant uptake both both and free and paid for demos, including men, Gen Z class and others.

And paid for demos, including men January cloth and others. So these are the areas and again going back to a partnership for you where you will see is continuing to invest and to drive relevant to an engagement. Both on a current member that represent those demographics, but also new for us.

Speaker 8: So these are the areas and again going back to our partnerships where you will see us continuing to invest.

Speaker 8: and to drive relevance and engagement, both on our current members that represents those demographics, but also new for growth. Thank you.

Thank you.

Thank you.

One moment for questions.

Speaker 1: Our next question comes from Lauren Shink with Morgan Stanley you may proceed.

Our next question comes from large drink with Morgan Stanley You May proceed.

Speaker 10: Hey everyone, this is Nathan Sutherland for Lauren. I guess you can give this update on how rental churn has regressed and are you seeing that decline, you know, as we anticipated a few months ago. And then how should we think about the range of outcomes you're now considering for the kind of steady state of churn there? Thank you.

Everyone. This is Nathan feather on for Laura and I guess that'll give us an update on how rental churn has progressed and uhm are you seeing that decline you know asked me at anticipate a few months ago and then how should we think about the range of outcomes for now considering for the kind of steady state of term there. Thank you.

Speaker 6: I can answer the first part of your question, Nathan, but we missed kind of, the last part of your question, that a little bit garbled if you wouldn't mind repeating that.

The question I.

<unk> I can answer the first part of your question Nathan but we missed the last part of your question got a little bit garbled, if you wouldn't mind repeating that yeah.

Speaker 10: Yeah, just to hope that we think about the new range of outcomes to the steady state of turn rate, kind of over the long term. Thank you.

Yeah, just to have should we think about the new range of the outcome to this steady state of churn rate uhm kind of over the longterm. Thank you.

I can take.

Speaker 6: So in terms of churn for a rental description model for fa.

So uhm insurance charged for a rental subscription model for fast.

Speaker 6: We actually, in Q4, we talked about the fact that we had an uptick in churn with regard to the seed post recall, and we saw that for FAFSA as well, but we have seen it come down substantially from the high in Q4, roughly by 100 basis points, but it is still higher than our all-access regular number of churn.

We actually in queue for we talked about the fact that we had enough to concern with with regard to the seat persuade call me spell that for fast as well, but we have seen it come down uhm substantially from the high in queue for roughly by 100 days alright, but it is still higher than our our all access I can remember a time now your other.

Speaker 6: Now, your other question, I think, was about just turn in general.

Question I think for the <unk>, just turn in general and what we did see if you remember you know we we did see an uptick insurance, regardless regard to that the bike seat posts with the increase in pop numbers. We are seeing art, you know with our turn come down and.

Speaker 6: And what we did see, if you remember, we did see an uptick in turn regardless of regard to the bike seat posts with the increase in pause numbers. We are seeing, we saw our turn come down as people are unpausing and then also with regard to seasonality. And we expect to see our turn rates come down in Q2 and Q3 as well.

People are unpopular and then also with regard to seasonality and we expect to see our churn rate come down a two two and two three uhm as well mmm to spend a minute and talk about changing mix of the sub base rejoins and then.

Speaker 3: She spent a minute and caught about the changing mix of the sub base rejoins and then the choral access members.

Korol access members and and growth and.

Speaker 3: and growth in in rental.

Rental.

Speaker 3: so that as the mix changes over time, people can... Yeah.

So that is.

The mix changes over time people can yeah.

Speaker 6: So, overall, we do see slightly different, we see different turn rates for these different types of Peloton subscribers. So we've got our regular all-access number to purchase new hardware from us. And we've got the bike rental model for our rental subscribers. And then we have a third group, which is secondary market, which is people who decide to buy their hardware from someone else on a marketplace that we are not facilitating that sale. And it's generally, it's used, new hardware.

So uhm. So overall you know we do see slightly different we see different churn rate for these different types of peloton subscribers. So we've got a regular all access number of to purchase new hardware from us and we've got the bike rental model for a rental subscribers and then we have a third group pushes secondary market, which is people who decide to buy their.

Hardware from someone else on a market place that we are not facilitating that fail and it's it's generally <unk>.

Speaker 6: So, for our regular all-access member base, we see the lowest churn rate in the low, it obviously varies a bit seasonally, but it's the lowest.

Hardware so for our our regular all access number base, we see the lowest churn right mm.

<unk> <unk> <unk>, it's it's obviously very seasonally but it's the lowest.

Speaker 6: closer to one point, you know, I don't have the exact number in front of me for that group. One for one. Well, this last quarter, yeah, probably one for one five-ish, little, little less. Then we have the secondary market group, which actually has a higher turn rate. They are more than the two to and a half-ish range. And then we have the bike rental group, which is more enough five to six-ish range over the seasonal seasonality of that group.

Closer to one point you know I I don't have the exact number in front of me for that group <unk> well. This last quarter, Yeah, probably 1415 ish little little Laugh, then we have the secondary market grid, which actually has a higher return rate. They are worried that two two and a half ish range and then we have.

The bike rental group, which is more than the five to six S range over email seasonality of that group just a minute I'm talking about secondary market that that is brown pretty dramatically.

Speaker 3: I'm just going to be talking about secondary market. That has brought pretty dramatically.

And.

Speaker 3: What's the source? It's a Peloton All Access member who cancelled so they showed up in our turn numbers. On average within six months a bike is sold. Let's use a bike a bike is sold in the secondary market. Someone purchases that bike and they come to us and become an All Access member.

What's the source.

A peloton all access member who cancelled so they showed up in our turn numbers on average within six months Uhm a bike is sold let's use a bike a bike is sold in the secondary market.

Someone purchases that bike and they come to us and become an all access member.

Speaker 3: And so as our core business continues to grow, the secondary market is growing even faster. It means that the...

And so.

Core business continues to grow the secondary market is from even faster.

Speaker 3: Let's call it 1.4% turn rate on all access members actually really on a net basis is lower. And it means that 1, 2 would also mean that our average turn rate, the reported average turn rate is going to go up if

That.

So let's call a 101.4 per cent turn right on all access members actually really on it no spaces.

Lower and it means that.

One two it also means that our average return rate.

Reported at return rate is going to go up.

If the.

Speaker 5: The secondary market continues to grow faster than the new sales market, even if the individual cohorts are behaving.

The secondary market continues to grow faster than the new sales market, even if the individual cohorts are are behaving uhm.

The way they have historically.

Speaker 3: meaning even if the long term turn for all access members remain steady and even if all access.

Meaning even if the longterm churn for all access members remained steady and even if the all access.

Speaker 10: Excuse me, even if the turn right for seconder and members remain steady.

Excuse me, even if the turn rate for secondary members remained steady.

Speaker 10: And so you want not to be alarmed if you see it increase gradually because of the mix.

And so you are not to be alarmed if you see it increased gradually because of them experience.

Speaker 5: Thank you, the cohort. If the cohort's secure, right, we'll let you know that.

<unk> will let you know.

One moment for our next question.

Speaker 1: Our next question comes from Andrew Boone with JMP Securities. He may proceed.

Part of this question comes from Andrew Goon with Jimmy Securities. He May proceed.

Speaker 12: Good morning and thanks much for taking my questions. I wanted to ask if there were any call outs on hotbacks this quarter. And then as we think about, they ebid a guidance for the

Good morning, and thanks, so much for taking my questions I wanted to ask if there were any call outs on <unk>. This quarter and then as we think about the EBIT guidance for the rest of your it implies a decline in opex in the back half just walk through any Opex put some text you may have.

Speaker 12: on an OpEx in the back half, you just walk through any OpEx puts and takes you may have. And then, can we touch on Peloton business? What needs to happen for Peloton?

And then can we touch on peloton business what needs to happen for peloton business to really move the needle in terms of overall numbers. Thanks, so much.

Speaker 6: The business piece you want to do the question? Yeah, I can think of this. So just some comments about OPEX. So we don't provide specific targets for OPEX, but we do affect our OPEX for the year to be low, below that of fiscal 23, despite the fact that we are investing more year over year in marketing. So we expect our FY24 GAP GNA spending to be roughly 150 million lower than fiscal 23, the largest sources of savings are around legal, member support outside services.

Does your business piece, you want it to the <unk> Yeah I can take your questions. So uhm just some comments about opex. So we don't provide specific targets for <unk>, but we do expect our opex for the year to below below that of fiscal twenty-three. Despite the fact that we are investing more year over year in marketing. So we expect our FY 24 gap G N a <unk>.

<unk> to be roughly 150 million lower than physical twenty-three the largest sources of savings or around legal member support outside services Uhm and then for R&D remember. The fact, we have changed our capitalization policy with regard to R&D severe extent thing and much larger portion versus Glen prior years, the capitalized more if you combine.

Speaker 6: And then for R&D, remember the fact we have changed our capitalization policy with regard to R&D. So we are expecting a much larger portion versus when prior years we capitalized more. If you combine both of those pieces, we expect to be about 10 to 12 percent lower year over year spend in fiscal 24. Now for sales and marketing, we do expect to be up year over year. That's driven by an increased spend on media, brand and creative. So actually the marketing that drives the prever acquisition, we will see that partially offset by lower retail cost as we continue to reduce our showroom footprint over the course of the year.

Both of those pieces, we expect to be about 10 to 12 per cent lower year over year send in just about 24 now for sales and marketing would you expect to be up year over year, that's driven by an increased spend on media brand and creative so actually the <unk> marketing that drive subscriber acquisition, we will see that partially offset by lower retail cost if we continue to.

<unk> over the course of the year now you had called out an adjusted EBITDA that our guidance reflects lower Opex, that's true with regard to marketing spend what it also reflects not to the nurse is the fact that we do expect improvement in our gross margin as well.

Speaker 6: Now, you had called out on the adjusted EBITDA that our guidance reflects lower op-ex. That's true with regard to marketing spend. What it also reflects to not to be missed is the fact that we do expect improvement in our growth margin as well.

Speaker 5: And with respect to Peloton business, I've just court belief that talent is foundational to the success of businesses and we have seen an influx of seniors, season talent who,

And with respect to telephone business and this core belief that talent is foundational to the success of businesses and.

And we have seen an influx of senior season talent.

Who have.

Speaker 3: and some skills and relationships that are important to the future success of that business. And we have begun to see.

Management skills and relationships that are important to the future success that business and we have begun to see.

Speaker 3: significant new traction in and Peloton for Business and

Significant new traction.

In Dr.

Dr business and and.

Speaker 5: And we will be seeing, I think, significant traction this year in corporate wellness as well. And you should expect to be hearing more about both from us as the year unfolds.

And we will be seeing <unk>.

I think significant traction this fiscal year and.

Corporate wellness as well and you should expect to be hearing more about both from us as your unfolds.

Thank you.

Thank you.

One moment for questions.

Speaker 1: Our next question comes from Edward Yerma with Piper Sandler, you may proceed.

Our next question comes from Edward humor, with Piper Sandler's you May proceed.

Speaker 13: Hey guys, thanks for getting a question, two quick ones from me. First, Barry, to go back to the sub-commentaries, just so that work is clear, is it your assessment today that the difficulty in conversion or the softens conversion is driven more by the marketing and some of the changes you've hopefully implemented? Or do you think that there are broader kind of price value issues with the paid tier? And then just, it's been a little while since you guys have updated us on Rho, so I'd like to hear, kind of, how that device is selling and maybe any learnings from that. Thank you.

Hey, guys. Thanks for your question too quick funds from me first Barry to go back to the sub commentary. So just so that were crystal clear is it your assessment today that the that the difficult can't conversion or this options conversions driven more by the the marketing and some of the changes you've hopefully implemented or do you think that there are broader kind of price value issues with the paint here and then.

It's been awhile since you guys are updated us on row. So I'd like to hear you know kind of how that devices selling and maybe any learnings from that thank you.

Let's just you want to do the.

Speaker 3: of commentary on on conversion for for apps i i don't think it's a it's a price value can i

Commentary on on conversion for or apps <unk> I don't think it's it's a price value.

Speaker 8: Yeah, I think that that's the caveat for the product team before the done amazing work continuing to evolve both of those experiences.

Can under my eye.

Yeah, I think that last thing on behalf of the product team that could've done amazing work continuing to evolve both of those experiences.

Speaker 8: The free app experience is obviously with the relaunch new for us as a company. We had it prior, but it was more of a steady state.

Free App experiences elaborately with the relaunch needed for us at the company, we had it prior but it was more of a steady state and we've learned to time, we've seen what they are drawn to what they're not what these new members are not trying to what they're using but they're not using and to to the point before we are now strategically shifting to pay it and pay trial. So people can be.

Speaker 8: And we've learned a ton. We've seen what they're drawn to what they're not what these new members are not drawn to what they're using what they're not using. And to the point before we are now strategically shifting to paid and paid trial so people can really get a taste of everything that Peloton has to offer.

Really get a taste of everything that health plan has to offer versus or a smaller segment of content. As an example, so you're gonna see us moving in parallel paths. We're gonna continue with the team that the product teams iterating on the free product as we continue to learn and drive traction on our pain as well.

Speaker 8: versus sort of a smaller segment of our content as an example. So you're going to see us moving in parallel paths. We're going to continue with the product teams iterating on the free product.

Speaker 8: as we continue to learn and drive traction on our pay as well.

Speaker 3: The perspective that I would contribute is...

The perspective that I would contribute is <unk>.

Couple of things one.

Speaker 3: I think we've had great success with driving growth in the paid app.

I think we've had great success with driving growth in the paid up.

Speaker 3: and at a higher price point than we were expecting. So I think...

Uhm.

And at a higher price point them, we were expecting uhm.

So I think.

Speaker 3: For me, I'm persuaded that that

For me.

Uhm I'm persuaded that that's.

Speaker 3: price value, proposition that is working for consumers.

The price value proposition is working for consumers.

Speaker 3: What we weren't successful in doing is finding the right front door.

Well, what we weren't successful in doing is finding the right front door.

Four.

Speaker 3: pre-users and introducing them into the Peloton value proposition. Remember there

For users uhm and introducing them into the peloton value proposition remembered there.

Speaker 3: Our app was born as an adjunct to an all-access membership for people who already understood what the value proposition was and how to engage with the service.

Our App was born as an as an as an adjunct to an all access membership for people who already understood what the value proposition was and how do we engage with the service.

Speaker 3: And we shifted the focus for the free app to people who had no idea who we were, who were arriving on our front door for the first time based on the marketing message, which brings us to Nick Caldwell.

And we shifted the focus for the free up the people who have no idea who were who arriving on our front door for the first time based on.

I'm, the marketing message and and.

Which brings us to Nicola.

So if you were to ask me.

Speaker 5: Hey, like, where do you think the real value out is in the procedural future? I would say it's everything he commers

Hey, like where do you think the real value add is in the foreseeable future I would say, it's everything e-commerce and everything App.

Because.

Speaker 10: That's a software challenge. That's a discovery challenge. That's a personalization challenge. And that's his power out.

That's that's the software challenge that's the discovery challenge that the personalization talent.

And.

And that's his power alley.

So.

Speaker 3: I think there is more opportunity than risk for us. But I believe strongly that the price value proposition is being successful with app.

I think there is more opportunity than than risk for us.

I believe strongly that the the the the price value proposition is being successful.

With the App.

And then a row really quickly.

Speaker 6: I can take the question on Roer. So Roer actually is still a relatively small portion of our hardware sales today.

I can take the question on row, or so rower actually it's still a relatively small portion of our hardware sales today, but we were pleased to introduce it to the Canadian market last week, when I mean I've been on 10 24 and Uhm. We also achieved commercial certification of our rower in the U S on October 5th.

Speaker 6: But we worked to introduce it to the Canadian market last week. I mean, I said on 1024. And we also achieved commercial certification of our rower in the US on October 5th. So we're excited to be able to bring that to the commercial market. And then in terms of our content for rowers, we recently started a beta test of some gaming content with Argata, which is exciting for us to be able to test for that platform.

So we're excited to be able to bring that to the commercial market and then in terms of our content Ferrara. We we recently I've started a beta tester some gaming contact with her garter, which which is exciting for us to be able to catch that apple.

Thank you.

Thank you.

One moment for questions.

Speaker 1: Our next question comes from John Blackledge with TD Cowan, you may proceed. Oh, great. Thanks.

Our next question comes from John Blackledge with T. D. Cowan you May proceed.

Oh, great. Thanks, two questions I've tried plus <unk>, what's the opportunity with the tried plus relaunch and as the cost of the charge plus a ton of eliminates after given the current macro conditions and then secondly on the University program. You provided that example for the University of Michigan and Mister <unk>.

Speaker 14: I'm Tread Plus. What's the opportunity with the Tread Plus relaunch and is the cost of the Tread Plus a kind of a limiting factor given?

Speaker 14: the current macro conditions. And then secondly, on the university program, you provided that example for the University of Michigan and the shareholder letter just wondering.

Older letter just wondering.

Speaker 14: kind of how long does it take for all the facets of the program to get going, selling the hardware in the campus community, getting the rental program going, etc. And are there kind of hiring needs at Peloton to address this opportunity? Thanks.

How long does it take for all the facets of the program to get going selling the hardware.

Campus community getting the rental program going et cetera, and are they're kind of hiring needs a <unk> to address this opportunity. Thanks.

Speaker 3: I mean, talk about a drug plus could be did in the current economic environment. It will fall flat.

Let me talk about 10, plus could leave it in the current economic environment.

It.

Will.

It will fall flat.

But I don't think that's gonna be the case.

Speaker 3: Of all of the products that I've ever been exposed to at Peloton, the one single product that you couldn't pry out of the dead hands of members is the tread plus. I mean, they are absolutely over the top, fanatically.

All of the products that I've ever been exposed to <unk>. The one single product that you couldn't pry out of the dead hands of members is the tread plus I mean, they are absolutely over the top it's been adequately.

Speaker 3: Obsessed about about the user experience on the thread plus I mean

Obsessed about about the user experience on the tread plus.

I mean dramatically.

Speaker 3: exponentially more emotionally engaged with that product than anything we've ever produced. And frankly, it's kind of...

Exponentially more emotionally case with that product than anything we've ever produced.

And frankly.

It's kind of.

Speaker 3: that reaction that

That reaction.

Then.

Speaker 3: Informed might believe that we're more likely than not to be successful in the reintroduction of that product.

Important to my belief.

We're more likely than not to be successful in the reintroduction of that product.

Speaker 8: Yes, and then I'll jump in on Michigan. So thank you for the questions and for mentioning for the full ecosystem of what we're trying to do, which is partnership, it ranges from the student app, which is very obviously relevant to that core base, but also rental on campus.

Yes, and then I'm, Michigan. So thank you for the questions and for mentioning sort of the the full ecosystem of what we're trying to do with this partnership it ranges from the student App, which is very obviously relevant to that that core base, but also rental on campus.

Speaker 8: the bike itself, and then we have marketing and brand integration leveraging, including leveraging student athletes. So there's a lot to not just this partnership at all of the partnerships that we're going to be bringing to life, you will start to see in the next couple of weeks, the beginning of the Michigan partnership come to life. And then we will have drum beats throughout next year at sort of more more relevant moments, both for students, but also alum and staff, both on campus and off campus as well.

The bike itself and then we have marketing and brand integrations, leveraging uhm, including lethargy student athletes. So there's a lot.

This partnership with all of the partnership Uhm that we're going to be bringing to light you will start to see in the next couple of weeks. The beginning of the Michigan partnership come to life and then we will have drumbeat throughout next year at <unk> more <unk> more relevant moment, both for students, but also along and the staff both on campus and off <unk> off campus.

Well.

Thank you I think the most interesting thing about.

Speaker 3: I'm going to ask and answer my own question here. Be fair with me.

I'm Gonna ask and answer my own question here [laughter].

Bear with me for a minute.

Speaker 3: As Leslie and I have talked about the world's reaction to the announcement of Liverpool and Michigan.

I was living and I have talked about the sort of the world's reaction to the announcement of.

Liverpool and and Michigan.

Speaker 3: At one point in the conversation, she turned to me and said, you know,

At one point in the conversation she she turned to me and said you know.

Speaker 3: And particularly after the announcement of the NBA, WNBA, that there wasn't a brand in the world that we wanted to partner with, who wouldn't kill to partner with Peloton now, and people have been beating down or door.

And.

And particularly after after the announcement of the M.

M P. A W N b a.

There wasn't a brand in the world that we wanted a partner with.

Wouldn't filter to partner with with <unk>, now and and people have been beating down our door.

Speaker 3: to talk about different ways to work with us. I was trying to convey in the letter some of that enthusiasm and energy. I'm not sure I succeeded.

To talk about different ways to to work with US I was trying to convey in the letter some of that enthusiasm and energy I'm not sure I see.

Succeeded.

Speaker 3: But there is a enormous opportunity for us here at the pod.

But there is enormous opportunity for us here the cost.

Speaker 3: At least so far have been, I would say modest, to quite reasonable. And it opens up a number of potential growth factors for us both to increase.

At least so far have been I would say modest quite reasonable.

And and it opens up a number of <unk>.

Potential growth factors for supposed to increase.

Speaker 3: and on-ended awareness to the opportunity to associate with these great brands. And at least in the case of the NBA, gives us access to stream content, which helps members discover other stream content on the platform to a degree that we haven't been able to do for ourselves today. I think about the entertainment section of our...

And unlimited awareness.

To the opportunity to associate with these great brands Uhm and uhm at least in the case of the of the N. B a gives us access to stream content, which helps members discover other stream content on platform.

Two degree that you know.

We haven't been able to to do for ourselves to that and thinking about the the entertainment section of the.

Of our of our content.

Speaker 8: Anything you want to add to that? No, I was going to just say on the entertainment piece, there is a ton of pent-up interests.

Anything you want to add to that no I was gonna just say on the entertainment P. If there is a ton of pent up interest in this area. We've been in data for quite a while we have not marketed even to our members and so there's a lot of organic trends that we're seeing especially around Trent excuse me around tread, where people just want to consume different types of content as they work out so it.

Speaker 8: In this area, we've been in beta for quite a while. We have not marketed it even to our members. And so there's a lot of organic trends that we're seeing, especially around trends, excuse me, around tread, where people just want to consume different types of content as they work out. So it really expands our offering in a really powerful way. And again, goes back to different demographics that we're trying to reach. So certainly through NDA leak pass, we're really excited to bring entertainment and that partnership specifically to life in the next couple of weeks.

Really expands are offering in a really powerful well way and again it goes back to different demographics that we're trying to reset certainly through N. B, a Li <unk> really excited to to bring entertainment and uhm that partnership specifically to life in the next couple of weeks.

Thanks.

Thank you.

One moment for questions.

Speaker 1: Our next question comes from Simeon Siegel with BMO Capital Markets, you may proceed.

Our next question comes from swimming in the <unk> BMO capital markets. You May proceed.

Speaker 15: Thanks. Hi, everyone. Any color you can share on engagement across the various degree of users, assume you have some strong power users, maybe periodic users, probably some who don't use that often. So just any help thinking through how you look at your own, how you segment your own engagement for the sub-base. And then maybe just what percent of current subscribers currently have multiple pieces of connected equipment? And do you see that as a further opportunity? Thanks, guys.

Oh, Thanks, Hi, everyone. Just any color you can share on Gage went across the various degree of users I assume you have some strong power users maybe periodic users, probably some who who don't use it often uhm did you have any help thinking through how you look at your own how you segment your own engagement for the sub base and then maybe just what percent of current.

<unk> currently have multiple pieces connected equipment and did you see that as a as a further opportunity. Thanks Scott.

Oh, no I I.

Speaker 3: Let's see. As many different ways as you can imagine, we segment the user base in terms of engagement, both for subscriptions and both for members per subscription.

Let's see.

Many different ways as you can imagine resegmentation.

User base in terms of engagement.

Both for subscriptions and both for member.

Members purse subscription mmm.

Speaker 3: We don't provide any color for it mostly because

We don't provide any color for it.

Mostly because.

Speaker 3: that one's color is into the business and, you know, and each question we'd answer would result in a new question and it ended up being like the book give a mouth of cookie. So.

Adapting to comfort.

Into the business and you know and each question. We can answer would result in a new question.

With the end up being.

Like the book give a mouse a cookie.

So.

Speaker 3: Thing one. Thing two, I think we're in the very early innings of having a deep understanding of how it is that personalization and the use of AI and personalization can drive increased user satisfaction and engagement.

One one.

Thing one thing too I.

I think we're in the very early innings of.

I'm, having a deep understanding of how it is that uhm personalization.

And the use of a island personalization, Ken Uhm drive increased user satisfaction than an engagement.

Speaker 3: you know across the membership and across different geographies. And we really have almost just begun and I mean I just I have it deep understanding of the power of that from my experience, both it at Spotify and Netflix and

You know <unk> across the membership uhm and across different geographies.

And we we really haven't.

<unk> just been gone and.

I have a deep understanding of the power of that from my experience both it.

At Spotify and Netflix and.

Speaker 3: And there's a lot of open-to-one running, I think, that we have the opportunity to do here. To, I think, there has, as Leslie's team is successful in drawing in new demographics to the platform Latinx by way of example.

And there's a lot of open field running I think that that's.

We have the opportunity.

To do here.

Two I think they're S. S. Leslie is team is successful in drawing in new demographics to the platform.

Next by waiting for example.

Speaker 3: It's important that we be aligned internally, let's say by way of example, with respect to our content programming. Um.

There.

It's important that we be aligned internally.

I'd say by way of example, with respect to where content programming.

Speaker 3: so that the content we're making can be discovered by and is relevant to the demos that we're driving to the platform, maybe for the first time. Right, it wouldn't make any sense for less, it's suddenly be driving a large proportion of Latinx.

So that the content, we're making can be discovered by and is relevant to the.

The demos that were driving to the platform.

Maybe for the first time.

Right it wouldn't make any sense for Leslie suddenly be driving a large proportion of Latin X.

Speaker 3: against the platform if we're not successful in terms of saying our Latinx relevant programming on the platform and we have a lot of it. I think they're not.

Against the platform, if we're not successful servicing our Latin X relevant programming on the platform and we have a lot of it I think there.

Speaker 3: point one point two, I think there are opportunities for us to lean into some to some user segments that, you know, maybe recently we've underserved. We've seen a big growth in our in our email population. We have great programming services. And I think there's an opportunity for us to lean a little heavily male, a little heavily more heavily performance. Which we have done historically, but a little less lately. So it's mostly about.

<unk> 1.2, I think they're opportunities for us to lean into some.

To some user segments that you know maybe recently, we've we've underserved we've seen a big growth in our in our female population, we have great programming services to them.

As an opportunity for us to link little heavily heavily more heavily performance.

Which we have done historically, but a little less of lately. So it's mostly about.

Speaker 10: still really simplistic, sick policy in the Apple, but it's mostly about ensuring that we're aligned. And that as we flex the business model, we make resource allocations decisions, we need to capitalize on the opportunities we see.

Don't really simplicity sake polishing, the apple, but it's mostly about ensuring that where a line.

And that as we as we flex a business model.

We we make the resource allocation decisions, we need to make to capitalize on the opportunities were saying.

Speaker 6: I'm a question about multi multiple pieces of hardware. We.

All my question about multi multiple pieces of hardware.

We it's actually a relatively small percentage of our service that has more than one piece of telephone Harper less than 10%, although that is increasing and and as I said before you know the vast majority of our bikes go to new subscribers, let me see higher overlap with <unk> with Trent <unk>.

Speaker 6: It's actually a relatively small percentage of our subbase that has more than one piece of Peloton Harbor less than 10% although that is increasing.

Speaker 6: And as we said before, the vast majority of our bikes go to new subscribers.

Speaker 6: We see higher overlap with trends, a larger percentage of them going through the same relative to bike, and then also with the rower, we see a higher percentage of them going to existing members who have another piece of hardware as well.

<unk> I'm going to assume relative to bike and then also with a rower with a higher percentage of them going to existing members, who have another piece of hardware as well.

Speaker 8: One point I'll just add on the question earlier is around NPS, which continues to remain strong across all of our demos. There's something that we track obviously very carefully, especially given the power of word of mouth and referral for the business. Yeah.

One point I'll just add on the question earlier is around M. P. S, which continues to remain strong across all of our demos does that mean that we track, obviously very carefully, especially given the power of word and that word of mouth and refer offer for the business.

Okay, great. Thanks, a lot guys special that for the rest of the year.

Speaker 5: Thank you. The only comment I make about multiple platforms is the more platforms you have in your home that the lower your turn tends to be.

Thank you the only comment I Meg about multiple platforms does the more platforms.

To have in your home that the lower your churn tends to be.

Okay. Thank.

Thank you.

One moment for our last question.

Speaker 1: And our last question comes from Yusuf Squali with Truist. You may proceed.

And our last question comes from use of Squali with Truest you May proceed.

Speaker 16: All right, great. Thank you very much. Of course, Guizin Leanne. It's two-partner, please, Barry. So in the letter you talked about 75,000 subs for the staff service by the end of the year. We're having somewhat of a problem of conceptualizing that out of the universe of the best 3 million.

Alright, great. Thank you very much for squeezing man.

A two parter. Please very so in the letter you talked about 75000 shops for the fast service by the end of year, we're adding somewhat of a.

Probably conceptualizing that out of the University that 3 million.

Speaker 16: How is the rental business doing relative to your own expectations? It seems to me that given such a great value proposition, maybe $75,000 is a low number, but I'm not really sure. So I'd love to know how that service is performing to your own expectations. And maybe relative to that, are the unit economics of that service clear enough for you after maybe, I don't know, being out for maybe 18 months now that

How how is the rental business doing a relative to your own expectations. It seems to me that.

You've been such a great value proposition, maybe 75000 is low number but I'm not really sure. So I would love to know how.

Services performed here on expectations and maybe relative to that are the unit economics of that service cleared enough for you. After maybe I don't know it's been out for maybe 18 months now that you can maybe leave me a lot more aggressively or are you gonna economics still kind of <unk>.

Speaker 5: You can maybe leave me a lot more aggressively or are the in the economic still kind of coming into kind of getting clearer, but they're not, you know, giving you enough confidence to live in very aggressively. Thank you. Hi, you just thanks for the question.

To kind of getting clearer, but they're not you know, giving you enough confidence to <unk>.

Very aggressively thank you.

Hi, Thanks for the question.

So.

I have.

Speaker 3: and cautious in our management of the growth of fast and have...

It's been cautious and our.

Management of the growth of.

Fast and have.

On and off <unk>.

Speaker 3: Even in the last quarter, taking steps to dampen down some of the growth.

Even in the last quarter taken steps to dampen down some of the growth.

Speaker 3: because I certainly really on was less certain about the future economics of it. As we were still learning what the turn characteristics were going to be and having a deeper understanding of what the...

Because I certainly early on was less certain about the <unk>.

Future economics of it as we were still learning with a drink characteristics, we're going to be in and having.

A deeper understanding of what the the the payback periods would look like I mean of course, we had early data, but but I wasn't confidence if he really data would be representative of.

Speaker 17: the payback periods would look like. I mean, of course we had early data, but I wasn't confident that the early data would be representative of the market as we...

The market as <unk>.

Sold more units.

Speaker 3: What is abundantly clear to me is that we have the opportunity to grow it significantly faster than we have and it's been growing pretty fast. So if I were to step out of the way, so to speak, it would already be a bigger business than I have allowed it to become.

Uhm what is abundantly clear to me is that we have the opportunity to grow with significantly faster than we have and it's been growing pretty fast. So if if I were to step out of the way so to speak it would already be a bigger business than I have allowed it to become.

So.

Speaker 3: And we've taken some steps to accelerate the growth.

And.

And we've taken some steps to 222 X six accelerate the growth we.

Speaker 17: Not to give too much color, but we took up the forecast by 20 percentage points of growth just by agreeing to change some of the tactics internally and honestly we could grow faster. So. Yeah.

<unk> <unk>.

Not to give too much color, but we took up the the forecast by 20 percentage points of growth just by agreeing to change some of the tactics internally and honestly, we could grow faster.

So.

Oh and in terms of the unit economics.

Speaker 5: We have fair amount of control over how we dial the outcome. The couple of.

We have a fair amount of control over how we we dialed the outcome.

But.

Uhm.

Couple of doctors that can.

Speaker 3: that inform us about how to do that. It's one the mix of certified preowned and new.

Mmm.

That inform us about how to do that it's one the mix of certified pre owned and new.

Speaker 3: And then secondly, the mix of.

And then secondly, the mix of.

<unk> plus.

Speaker 3: And so as we, as we turn those dials, we have,

And so as we as we turn those styles.

We have.

Speaker 3: a significant opportunity to dial up and down the payback profile and the unit economics.

A significant opportunity to to dial up and down the the the payback profile and and and you had an economics.

Speaker 6: Anything you want to contribute to that? Sure. I'd like to contribute. I'll say a couple of things. So, you know, our payback period for FAST, which we've talked about before, being in the roughly 18 to 20-month ranges, we are there today. We're in the 18-month range. Still, we see opportunity to improve that by reducing term rates, and, you know, we're looking at ways that we can do that.

And if you want to contribute to that Sir I I I'd like to <unk> I have to say a couple of things. So you know <unk> payback period.

Uhm for fast between talk shop for being in the roughly 18 to 21 branches. We are we are there today. We're in 18 month range I'm still with the opportunity to improve that by reducing churn right and and you know and we're looking at ways that we can do that at one o'clock that one program that one <unk>.

Speaker 6: I want to call out that one program that one opposite option that we have for people who rent we find it first of all we find that it's 6 over 60% incremental that's important to it to comment so that means that 60% of the people at least or more Would not have joined telephonic they didn't have this option to rent the bike without a commitment And that's true both in the US. It's true. We've seen it in Canada. We're seeing it in Germany So that is true for it's it's highly incremental and all of the markets that fast is participating in today

Option that we have for people who ranch, we find that first of all we find that it's six over 60 per cent incremental that's important to come back. So that means that 60 per cent of the people at least or more uhm would not have joined <unk>. If they didn't have this option to rent a bike without a commitment and that's true both in the U S. It's true wisdom in Canada, we're seeing it in Germany. So that is.

True for it it is highly incremental and all of the market is participating in today and sorry, and that's exactly where I can say I put my foot on the cap the break from time to time, while we continue to test the validity of the Incrementality Yep.

Speaker 3: Sorry, and that's an example where I continue to put my foot on the tap to break from time to time while we continue to test the validity of the incrementality.

Speaker 6: And another thing that we we have not really leaned in on, but we are going to start to do, which would help the economics of the of the fast program is improving our buyout rate.

Yep.

And another thing that we we have not really been did not but we're going to start to do which would help the economics of the of the fast program is improving our buy outright. So today. If you want we offer you an opportunity.

Speaker 6: So today, if you want, we offer you an opportunity to purchase if you're ready to commit to buy out your Peloton bike rental, but the only way that you can do it is it's a very cumbersome manual process where you have to call our member support to figure out how to do it and.

<unk> purchase if you're ready to come in to buy out your peloton bike rental but the only way that you can do it if it's a very cumbersome manual process, where you have to call. Our members support to figure out how to do it and we're about to launch shortly uhm, a self service process to be able to do that and we're excited about learning how that performs over the holidays.

Speaker 6: We're about to launch shortly a self-service process to be able to do that. And we're excited about learning how that performs over the holidays, especially because we'll have opportunities for incentives on buyouts over the course of the holiday. And, of course, if you think about that, if people try the bike, they don't want a commitment at first, but then at some point they're ready to commit, that's great for us because we move them to being a regular all-access number down to that different turn curve that we talked about earlier with a much lower turn rate. So there is some opportunity there. Again, that's a learning for us where buyout rate is pretty small today, but we haven't optimized it, and we're going to be working on that as well.

Actually it says will have opportunity for I'm gonna try and send it by my house over the fourth holiday and of course, if you think about that if people try the bike and you don't want a commitment at first but then at some point, they're ready to commit that's great for us because we moved on to being a regular all access number down to that different churn card uhm that we talked about earlier with a much lower turn right. So.

So there is some opportunity there again natural learning <unk> buy outright, it's pretty small today, but we haven't optimize it and we're gonna be working on that.

Speaker 3: Now let's imagine a world where it's $500 million worth of

Now, let's imagine a world, where it's $500 million worth of.

Rental revenue.

Speaker 10: So, that requires, that is a different working capital profile than the core business requires a different capital structure, which is among the reasons that I keep tapping the break to make sure, you know, we know exactly what it is we're talking about if we're going to go.

So that that requires that's that is a different working capital profiled on the court business requires a different capital structure, which is among the reasons that I keep tapping the break to make sure. We know exactly what it is we're talking about.

If we're gonna go flat.

Speaker 5: flat out to grow this business because I'm fairly confident that if we took all the breaks off.

Flat out to <unk>.

To grow this business because I'm fairly confident that if we took all the breaks up.

It would really go.

Speaker 5: So, before you let it loose in the wild, we better know what we're doing.

So.

For for you, let it loose in the wild.

We better know what <unk>.

What we're doing.

If that makes sense.

Speaker 1: Yeah, that makes total sense. And you think within the next 12 months, we should get to that place where we have enough visibility to let the dogs out. Yep. Yeah.

Yeah that makes total sense and you think within the next 12 months, we should get to that to that place, where we have enough visibility too.

Let the dogs out.

Yep.

Awesome.

Thank you so much.

Okay. Thank you.

Speaker 1: I'd now like to turn the call back over to Peter Stabler for any closing remarks.

I'd now like to turn the call back over to Peter Stabler for any closing remarks.

Speaker 2: Thanks, everyone, for your time today. We'll talk to you next quarter. Have a good day.

Thanks, everyone for your time today I will talk to your next door have a good day.

Speaker 1: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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

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Mmm.

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