Q3 2025 Peloton Interactive Inc Earnings Call
and a call over to Simeon Marsh, this call ahead.
James Marsh: Thank you, operator. Good morning and welcome to Peloton's third quarter fiscal year 2025 conference call. Joining today's call are Peloton Chief Executive Officer and President Peter Stern and Chief Financial Officer Liz Coddington.
James Marsh: Our comments and responses to your questions reflect management views as of today only and will include forward looking statements related to our business under federal security law.
James Marsh: Actual results made different materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business.
James Marsh: Please refer to our SEC filings in today's shareholder letter, both of which can be found in our best relations website for discussion of material risks and other important factors that could impact our results.
James Marsh: During this call, we will discuss both gap and non-GAAP financial measures.
James Marsh: A reconciliation of gap-to- non-GAAP financial measures is provided in today's shareholder letter.
Speaker Change: Following prepared remarks from Peter and Liz, we will begin the question and answer session with two questions submitted by shareholders before the call. I'll turn the call over to Peloton's Chief Executive Officer and President Peter Stern.
James Marsh: Thank you, James. Good morning, everyone, and thanks for joining today's call.
James Marsh: Having achieved the Peloton Employee's Century Club of 100 Days, I'm even more optimistic about our future and grateful for the opportunity to leave this company than I was when I was appointed.
James Marsh: The first few months have been dedicated to redefining our purpose and values [inaudible]
James Marsh: Learning about this fascinating business and getting to know its mission-driven people.
Speaker Change: Q3 was my first quarter as Peloton CEO , and I'm pleased to share that we performed at the end of, or above-guided, on Archeumetrics.
Speaker Change: We slightly grew paved connected fitness subscriptions in the seasonally strong quarter, further improved our unit economics.
Speaker Change: and once again delivered significantly positive adjusted EBITDA and free cash flow.
Speaker Change: At the same time, we are making substantial progress in formulating our strategic plans for fiscal year 2026 and beyond
Speaker Change: You can expect more details on that next quarter. But for now, I'd like to discuss our approach to empowering millions of telecon members to live 5th, strong, long, and happy, and in so doing to deliver long-term shareholder value.
Our approach begins with four objectives [inaudible]
Speaker Change: Improving Member Outcomes by delivering even better equipment, software and instruction for our members, which increases how much they value Peloton [inaudible]
Meeting members everywhere
Speaker Change: Where they shop, work out, and online because that is how we grow our base of members [inaudible]
Speaker Change: Creating members for life by deepening connections with and among our members which will extend the time they stay with us and their lifetime value
Speaker Change: And finally, operating with business excellence because optimizing pricing and promotions and reducing costs will enhance our competitiveness, enable us to invest in our future and deliver superior shareholder returns.
Speaker Change: During the remainder of my prepared remarks, I will elaborate on each of these objectives to provide you a deeper understanding of our strategy in advance of a more comprehensive, forward-looking reveal as we progress through my first calendar year at Peloton
Speaker Change: There are three components to our objective of improving number outcomes [inaudible]
The first is to deliver even better cardio experiences.
Speaker Change: Since cardio is the foundation of our business and of a balanced fitness regimen [inaudible]
Speaker Change: Second, we will develop a more holistic science-backed wellness ecosystem that goes beyond cardio.
Speaker Change: Third, we will focus on becoming ever more personal coaches to our more than 6 million members.
Speaker Change: Peloton is already the category leader in connected cardio, as evidenced by our strong NPS scores, and by the millions of members who engage in our cardio disciplines.
Speaker Change: In Q3, all our cardio hardware products achieved a net promoter score above 70 and Tread exceeded 80 on the scale of minus 100 to 100.
Speaker Change: We observed 5% year-over-year growth in running workouts and 11% growth in walking workouts.
Speaker Change: Engaged with newer features, such as paste target on our treadmill, continue to improve. Incuse three over 80% of tread users, taking your running workout, use paste targets, up from just under 60% last quarter.
Speaker Change: We see further opportunities to keep winning cardio by delivering innovative software, hardware, and even more engaging content.
Speaker Change: We'll share more about our innovation roadmap later this calendar year.
Speaker Change: Trains of Elistic Wellness. In Q3, we saw a higher mix of workout times in strength disciplines quarter of a quarter and year over year.
Speaker Change: We also delivered new kettlebell content in late February and nearly 70,000 members completed kettlebell workouts by the end of the quarter.
Speaker Change: Beyond Strength, Meditation Class has taken increased 7% year-over-year in the third quarter.
Peloton has a vast library of classes.
Speaker Change: With so many to choose from, we want to help our members reach their goals by becoming a more personal coach.
Speaker Change: We are lucky at Peloton to have expert instructors, motivated members and subject to our strong privacy safeguards, a wealth of data on what works at both the individual and population
Speaker Change: The starting point for personalized coaching is a plan tailored to a member's goals
Speaker Change: In January , we launched personalized plans to all members, and nearly 500,000 members had started a plan by the end of Q3.
Speaker Change: We're pleased with the repeat engagement from members using plans and our testing shows that members who set up personalized plans work out more often and with more disciplines.
Speaker Change: Over time, we'll iterate on personalized plans to make them more comprehensive, dynamic, and data-driven, helping our members take advantage of everything Peloton offers and become the best versions of themselves.
Our second strategic objective is to meet members everywhere.
Speaker Change: We need to meet new and existing members at retail stores, gyms, hotels, online and in real-life events, both in the US and the other countries in which we operate.
Speaker Change: Our pre-core brand provides a great opportunity to expand the presence of Peloton in commercial gyms.
Speaker Change: We recently launched a pilot program with pre-core to bring a collection of Peloton Instructor-led and tread classes to select pre-core treadmills.
Speaker Change: and we've engaged pre-chord to provide installation and maintenance support on Peloton equipment in gyms, given the exacting demands of gym operators and the duty cycles imposed on gym equipment.
Speaker Change: We're also continuing to test new models to bring Peloton to Jim's [inaudible]
Speaker Change: In February , we opened a Peloton branded facility at the University of Texas at Austin.
Speaker Change: In this one studio, we've already met nearly 1000 new Peloton members [inaudible]
Speaker Change: Turning to retail, our micro-store test in Nashville has been encouraging. A store revenue has outpaced the average of our other North America retail showrooms despite having one tenth the square footage. We plan to bring on additional locations soon.
Thanks for watching. Bye.
In addition to our own first-party retail channel,
Speaker Change: Third-party retailers allow us to meet members where they already shop
Speaker Change: Amazon's seasonal sales events are a great example of moments that capture incremental hardware sales.
Speaker Change: In March, we observed you over your growth in the U.S. from Amazon's Big Spring Sale.
Meeting members everywhere also includes growing our international markets.
Speaker Change: where we grew paid connected fitness subscriptions year over year in Q3.
Speaker Change: A prerequisite to further scaling internationally is cost-effectively translating our programming.
Speaker Change: especially given our enormous output with 3,300 classes released in the quarter alone.
In March, we launched AI-powered subtitles.
Speaker Change: Starting with our existing language is an English, Spanish, and German, and we are now translating roughly 100 classes per day [inaudible]
Our third objective is to keep our members for life.
Speaker Change: This starts with delivering elevated experiences at each stage in the member life cycle.
Speaker Change: Member satisfaction scores are our preferred way to measure the member experience.
Speaker Change: This quarter, we worked with our repair partners to pilot dedicated vans, stocked with Peloton spare parts, to increase first visit repair resolution.
and we are now extending this pilot to additional locations.
Speaker Change: Our service and repair and set was 4.5 in 2.3 in improvement of 5% quarter over quarter and 7% year over year
Speaker Change: We also introduced AI into our call centers, providing our agents with a powerful intelligent agent while still delivering the human interactions our members expect.
Q3, our member support M. That score was 4.3.
Improving 1% quarter-over-quarter and 20% year-over-year Andrew Boone, Simeon Siegel,
Speaker Change: We see significant opportunities to continue improving our member satisfaction by optimizing the journey from the point of purchase to delivery, installation and onboarding.
Speaker Change: Improving our hardware design to allow for easier installation and repairs, and reducing the number of times that members need to contact our member support teams.
Speaker Change: Beyond strengthening members' connections with Peloton, we believe that when members feel connected to each other, they're more likely to stay committed to their fitness regimen. [inaudible]
Speaker Change: We launched Team Feed in January , enabling members who have joined the team to encourage and support each other by sharing workout activity and reacting to activity from teammates.
Speaker Change: We also launched community teams in the quarter, which are public, discoverable and recommended teams of up to 50,000 members.
As of Q3, our members have created nearly 100,000 teams [inaudible]
Speaker Change: We see higher engagement within the first month after members join a team.
Speaker Change: Last, but not least, we need to operate with greater efficiency and effectiveness in Revenue Realization and Cost Production.
Speaker Change: To accelerate our progress, I recently made changes to our leadership team.
Speaker Change: The first change was recruiting Charles Kyroll to be our COO.
Charlie knows how to manufacture complex consumer-facing equipment.
Speaker Change: He also currently holds the rank of Rear Admiral in the U.S. Navy Reserves, where he is one of the senior most procurement logistics and supply corps officers.
Speaker Change: This is the type of expertise and leadership we need for our next chapter.
Speaker Change: The second change was designating beyond campstanders as our chief commercial officer.
Speaker Change: By reference earlier, the importance of scaling Peloton's presence in more places, including Jim's, Retail, Hospitality, and Internationally.
Speaker Change: Dion oversees all these areas, and so bears principal responsibility for our strategy of meeting members everywhere.
Speaker Change: Additionally, we have announced a search for a CIO, TMO, and Chief Communications Officer.
Speaker Change: Even in advance of these changes, I want to highlight the team's significant progress in reducing costs [inaudible]
Speaker Change: We continue to track ahead of our $200 million cost restructuring plan.
Speaker Change: which is driving meaningful improvement in profitability and helping us to deliver your balance sheet at a swift pace.
We see further opportunities to reduce our costs.
Speaker Change: We are formalizing a company-wide program to drive continuous cost improvement while ensuring our bases for competitive differentiation remain best in class.
Speaker Change: Having walked you through our strategy at a high level, I'll now turn over to Liz to discuss Q3 results.
Liz Coddington: Thanks Peter. We are pleased with our third quarter results as we delivered at the high end of or exceeded guidance on key metrics and continued to make meaningful progress on improving unit economics and profitability.
Liz Coddington: We also advanced our marketing objectives by improving our LTV to Kack ratio with a disciplined approach to sales and marketing.
Liz Coddington: We ended the quarter with 2.88 million paid connected fitness subscriptions, reflecting in that increase of 5,000 in the quarter to the seasonally higher editions and lower turn
Liz Coddington: This represented a decline of 6% year-over-year and exceeded the high end of our guidance range by 10,000 subscriptions.
Liz Coddington: Outperformance relative to guidance was driven by both favorable netchurn and higher growth addition.
Liz Coddington: Average net monthly paid connected fitness subscription turn was 1.2% in the third quarter, in line with two-three of last year, and an improvement of 20 basis points quarter over quarter.
Liz Coddington: Netchern was positively impacted by strong performance in subscription cancellations and reactivations, which benefited from marketing outreach to turned members.
Liz Coddington: Gross Edition's outperformance was driven by slightly higher first-party hardware unit sales while third-party retail sales and secondary market additions were in line with expectations.
Liz Coddington: We ended the third quarter with 573,000 paid app subscriptions, inclusive of strengths plus subscriptions,
Liz Coddington: Total revenue was $624 million in the third quarter, comprising $205 million of connected fitness products revenue and $419 million of subscription revenue.
Liz Coddington: Total revenue was $9 million above the midpoint of our $605 million to $625 million, Guidance Range.
Liz Coddington: Connected fitness products revenue decreased $74 million, or 27% year-over-year, driven by lower sales and deliveries across all connected fitness products categories.
Liz Coddington: Seasonally lower hardware sales in the third quarter compared to last quarter is reflected in the revenue mix of 33% connected fitness products revenue and 67% subscription revenue.
Liz Coddington: Subscription revenues decreased $19 million or 4% year-over-year, driven by lower paid connected fitness subscriptions and lower paid app subscriptions.
Liz Coddington: Partly offset by used equipment activation B revenue, which was introduced in the first quarter of fiscal 2025.
Liz Coddington: Our advertising and marketing spend decreased 46% year-over-year, while our connected fitness product revenue decreased by a comparatively lower rate of 27% year-over-year.
Liz Coddington: Our Find Your Power Marketing campaign that began in the holiday season continued in the third quarter, showcasing the breadth of Peloton's offerings to men and highlighting our tread and strength products.
Liz Coddington: Similar to Q2, in Q3, we saw both a 300 basis point increase year-over-year in the mix of course editions to men, as well as prior new subscription attach rates from Treadsdale's year-over-year.
Liz Coddington: These efforts drove an improvement in LTV2K of more than 30% year over year, achieving a ratio slightly above 2x for the quarter.
Liz Coddington: Total Gross Profit was $318 million, an increase of $8 million or 3% year-over-year [inaudible]
Liz Coddington: Total gross margin was 51%, an increase of 780 basis points year-over-year and 100 basis points above our guidance due to revenue and a slightly mixed shift toward the subscription segment and favorable connected fitness products gross margin.
Liz Coddington: Connected fitness products growth margin was 14.3 percent, up 1,000 basis points year over year, primarily driven by lower inventory write downs, a mixed shift toward higher margin products, and lower warehousing and transportation costs, partly offset by changes in our warranty reserves.
Liz Coddington: Subscription gross margin was 69 percent, up 90 basis points a year over year
Liz Coddington: Total operating expenses, including restructuring and impairment expenses, or $351 million in the third quarter. A $105 million or 23% decrease year-over-year, reflecting the progress we've made thus far toward right sizing of a cross-structure.
Liz Coddington: We continue to track ahead of our target to achieve 200 million of annualized run rate cross-saving by the end of fiscal 2025 .
Liz Coddington: Sales and marketing expense was $106 million, a decrease of $64 million or 37% year-over-year, primarily from a decrease of $52 million in advertising and marketing spend, and a $4 million and a decrease in personnel-related expenses, inclusive of stock-based compensation expense.
Liz Coddington: General and administrative expense was $151 million, a decrease of 2 million or 1% year-over-year driven by a 5 million decrease in settlement costs.
Liz Coddington: and Professional Services, a 2 million decrease in software and IT costs, and a 2 million decrease in depreciation and amortization costs.
Liz Coddington: These decreases were partly offset by a net increase of 7 million in personnel-related expenses, inclusive of stock-based compensation, driven primarily by 21 million of expectative departure costs.
Liz Coddington: Exploding the impact of these executive departures, general and administrative expense decreased 23 million or 15% year over year.
Liz Coddington: Research and development expenses were $60 million, a decrease of $17 million, or 22% year over year, primarily driven by a lower employee related and contractor expenses [inaudible]
Liz Coddington: In Q3, we recognized $33 million of impairment and restructuring expenses of which $31 million was non-cash. The non-cash charges were primarily asset write downs related to plans to right size portions of our corporate office footprint.
Liz Coddington: The cash charges consisted of 2 million of severance and other exit and disposal costs as we continue executing on our restructuring efforts.
Liz Coddington: Adjusted EBITDA was $89 million in the third quarter, which was $4 million above the high end of our guidance range, and an $84 million improvement year-over-year.
Liz Coddington: We generated $95 million of free cash flow in the third quarter, a decrease of $11 million quarter over quarter, an increase of $86 million year over year.
Liz Coddington: As a P3, we generated $211 million of free cash flow of fiscal year to date. This was also our fifth consecutive quarter of positive adjusted EBITDA and positive free cash flow.
Liz Coddington: We ended the quarter with $914 million in unrestricted cash and cash equivalent, an increase of $85 million quarter-over-quarter.
Liz Coddington: We continue to make progress toward the leveraging our balance sheet as net debt reduced 312 million or 35% year over year to 585 million.
Liz Coddington: As of Q3, trailing 12-month ejected evita of $334 million reflects an improvement of $435 million year-over-year.
Liz Coddington: Overall, our third quarter performance reflects a continuation of meaningful profitability improvement driven by higher growth margins and cost difference.
Liz Coddington: By generating meaningful free cash flow, we are also derisking our balance sheet quickly. We are well-positioned for future growth as the leader in the connected fitness category with a high retention, high growth margin subscription business.
Liz Coddington: Next, I'd like to take time to provide some context for the financial outlook for the remainder of the fiscal year.
Liz Coddington: We are raising the midpoint of our full-year FY25 guidance for key metrics, including ending paid connected fitness subscriptions, total revenue, and adjusted eva-doth, while maintaining guidance for total growth margin. We are prioritizing these metrics along with delivering free cash flow.
Liz Coddington: Our full year FY25 guidance range for ending paid connected fitness subscriptions of 2.77 to 2.799 million reflects a narrower range and an increase of 10,000 at the midpoint
Liz Coddington: This increase incorporates the outperformance in Q3 and our expectations for seemingly higher net in Q4 as we enter the warmer months of spring and summer.
Liz Coddington: Our full-year FY25 guidance range for ending paid-ass subscription of 540 to 550,000 reflects a narrower range and is a climb of 30,000 at the midpoint
Liz Coddington: Arcade app subscription guidance reflects lower-growth additions, primarily due to limiting media spend and investment in attracting new corporate wellness clients
Liz Coddington: Our outlook for full-year FY25 total revenue of $2.455 billion to $2.47 billion reflects a narrower range at an increase of $8 million at the midpoint.
Liz Coddington: This increase incorporates an expectation for favorable subscription revenue, mainly driven by higher pay connected fitness subscription.
Liz Coddington: Our FY25 Outlook for Total Growth Margin of 50% remains unchanged and incorporates our expectations for minimal impact from Terrace in Q4.
Liz Coddington: We are raising our FYI-25 adjusted EVA drawgarden to $330 million to $350 million in increase of $15 million at the midpoint.
Liz Coddington: Our outlook reflects continued improvements in profitability, largely due to favorability in gross profits, and continued operating expense savings
Liz Coddington: Before we cover free cash flow, a quick note on tariff policy, which as you know is a dynamic situation.
Liz Coddington: Peloton and pre-core branded equipment are currently subject to a 25% tarot on their aluminum content. Pre-core and apparel product source from China are subject to additional tarot.
Liz Coddington: We expect our full year FY 25 free cash flow to be in the vicinity of $250 million, which incorporates our expectations for a roughly 5 million free cash flow headwind in Q4 from the impact of tariffs.
Liz Coddington: This meaningful free cash flow generation will continue reducing net debt and through leveraging our values.
Now we'd like to open the line for Q and A.
Speaker Change: I would like to turn back the call over to James Marsh for the first two questions, please go ahead
James Marsh: Great. Thank you. The first question is from Danielle and Boston. Danielle asks, how are you incorporating AI to chart the future of Peloton?
Thanks for the question Danielle.
Impressive knowledge about our products and makes it kaleidoscopic.
and the A.I. agent also. Hello.
James Marsh: takes away some of the drudgery in their work, for example, by taking notes on the calls so that they can focus on giving our members the human touch that they expect.
Another example of that I talked about earlier. [inaudible]
James Marsh: is our use of AI for translation. And let me just dimensionalize this. A typical season of a TV show has somewhere, let's say, between 8 to 12 episodes. Last quarter, Peloton produced 3,300 classes.
James Marsh: So, a traditional approach to translation just isn't going to cut it but AI can allow our instructors to communicate with our members in languages beyond the ones that they naturally speak and so that's another example of
allowing human beings to achieve new heights. [inaudible]
James Marsh: We've been in the last couple of weeks deploying Google Gemini to all of our most of our Peloton team members and that allows them to use their big creative brains to do big creative thinking.
James Marsh: and let the AI agent do a lot of the work for them.
James Marsh: beyond that. And then to me, the most exciting way that we're using AI…
is by empowering our personalized plans.
So, personalized plans basically take our amazing human instructors.
James Marsh: and allow them to basically create a program so that we feel more like a personal coach.
James Marsh: I do that as basically a way of empowering our members with AI. We launched that in Q3 and we're already up to nearly half a million plans set up already. So the future is bright for Peloton members with AI.
Speaker Change: The next question was asked by a number of folks including Colin from Ireland, Ben from Sweden and Jason Smith from Spain. The question is when will Peloton expand into new markets?
Speaker Change: I love this question because the world would be a better place with more Peloton in it We're currently in five countries besides the US so that's the UK, Canada, Germany, Austria and Australia
Speaker Change: And right now, our penetration rates in those countries are significantly lower than they are in the U.S. So our current focus is on growing from there
and then like in the U.S.
Speaker Change: We need to earn the right to grow before we expand further internationally. So right now our international team is focused on
Trying to dial in the right nick [inaudible]
of...
First Party vs. Partner Lead Growth
Speaker Change: and we're also trying to drive up the efficiency of our customer acquisition.
Speaker Change: When we do that, we're going to be able to achieve both meaningful scale and profitability.
Speaker Change: When you couple that with what I talked about a moment ago, which is AI translation of our content which unlocks due languages, that's what will collectively position us to expand into new countries. [inaudible]
Speaker Change: But in the meantime, we do see some opportunistic markets that are adjacent to some of the markets we're already in where they speak the same languages. And so we're going to look at doing some of that starting next year.
Great, Simeon, can you open up for Q&A now?
Celine: Thank you, we will now open the line for question and answer. As a reminder, please press by one to join the queue. If you are called to answer your question and are listening by a loud speaker on your device, please pick up your hands and ensure that your phone is not on mute when asking your question. And your first question comes in the line of yourself, Squally, with truth, please go ahead.
Andrew Boone, Simeon Siegel
Great. Thank you very much and good morning, all.
James Marsh: Peter, you've been on the job for five months now. I'd love to get your take on your progress on
James Marsh: Key and the <expletive> is to date relative to your initial expectations where you're running ahead where you may be trailing a bed and how that informs your view on a returning to revenue growth. [inaudible]
Speaker Change: And second, on changes to the management team and you've touched on this and your preferred remarks a bit, but can you elaborate a little more on the rationale of these moves now and the top of executive profiles you're looking forward to fill these vacancies? Thanks a lot.
Speaker Change: Thank you for the questions. Let me try to take them in order. So the first part is sort of talking a little bit about our key initiatives and how we're doing against initial expectations and so far so good.
Speaker Change: As I mentioned a moment ago, the first thing that we need to do is earn the right to grow
Speaker Change: And when you look at the progress there, I think it's quite remarkable. We've been able to reduce our operating costs by 23% year-over-year.
Speaker Change: Our unit economics are up over a thousand basis points. You're over here.
Speaker Change: quarter billion billion dollars this year and so all of that I think on the you know earning the right to grow front is really encouraging.
Speaker Change: We also set some other objectives for the remainder of this fiscal year around
Speaker Change: For example, Winning and Tread, which as you know is two times the market size of a bike and we've been mixing into Tread and also increasing the percentage of new members that we
Speaker Change: that we get when we sell a thread. We talked about reaching new audiences like men and again for the quarter we were up.
300 basis points year-over-year in our-
in our mix of men among our new subscribers.
Speaker Change: We've been talking about the importance of strength and becoming more of a holistic wellness provider and I will tell you that is an area where I've really been very positively surprised to realize that Peloton's actually the largest strength subscription service in the world. And that just gives me really great hope.
Speaker Change: Now, the second question you had, I think, was what are the biggest challenges or the opportunities that we're going to have in getting back to growth and there.
Speaker Change: We got to start innovating on our hardware. We've been doing a great job on software, but it's all got to come together in a mix of hardware and software and incredible content that we've got so that our members derive even more value from us and they've got reasons to buy more from Peloton. Thank you very much.
Speaker Change: We need to meet members in more places. We talked about this, but we've been to date reducing our presence, for example, in retail.
Speaker Change: and we need to find ways now cost effectively to get back.
Speaker Change: into retail. And then of course I talked about gyms and hotels, those are big opportunities, and also real life events. We set a goal for our content team of increasing the number of real life events we're in over the next year by 3X.
Speaker Change: And the last but not least, we need to increase the member.
Speaker Change: Lifetimes of our existing members, so we can manage churn. We're in a really good place in the quarter. We did 1.2%, but we can always do better on that and so that's going to involve everything from continuing to up level the quality of. [inaudible]
Speaker Change: members of support we provide and the experience we provide throughout the life cycle to over time creating even more reasons for our members to stay loyal to us. And we need to do all of what I just described in a balanced way so we're neither. Thank you very much.
Speaker Change: Chasing demand, nor are chasing supply and ensuring that we're growing profitably. So I think that was the second question. The third question was to talk a little bit more about the management changes. And I want to put all this in context.
Speaker Change: I was really lucky to join a company that already had an excellent lead team
Speaker Change: And I'm grateful for the contributions that every one of those lead team members has made to date, including the work that Andy and Lauren have done over the last couple of years to get us to the stage that we're at right now.
Regarding the hiring of Charles Cairo as their COO.
We're specifically focused on improving our pace of innovation.
Speaker Change: Agility that we have in our supply chain, especially given the economic uncertainty that's out there in the marketplace, the quality of our products in particular quality of our installs.
Speaker Change: and the cost of our connected fitness equipment so we can appeal to even more potential new members.
Speaker Change: and that commitment to improving every aspect of our equipment will help deliver a critical part of our magic formula.
Speaker Change: Our new CMO and I are going to be focused together on the plan to get Peloton back to top line growth.
Speaker Change: And then we can continue to do a better job in getting our new story out there and that's what I'm looking for with the Chief Communications Officer
Speaker Change: and then we still have a lot of tech debt that we have to address as a company and that's going to allow us to move faster and continue to reduce costs and that's why we've got a search for a CIO. I do think all of those searches are progressing.
Speaker Change: quite well, and so I hope to have some good news to report relatively soon.
Very helpful. Thanks, Peter.
Speaker Change: The next question comes to the line of Arpine Kocharyan, with two B.S. Please go ahead.
Arpine Kocharian: Bye. Thank you so much for taking my question. Good morning.
Arpine Kocharian: Peter, what is it possible to give us a sense of what overall impacts on your business you're seeing from kind of broader consumer slowdown?
Speaker Change: and macro fears. I guess, what kind of macro scenarios are factored into your Q4 guidance, which is...
Arpine Kocharian: Actually going up by about 3 million by my calculation in terms of EBITDA from what you were implying before. Have you actually seen any slowdown in any segment? What are you watching as far as kind of broader consumer health? And then I have a quick follow up.
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Liz Coddington: Thanks, Arpine. We've seen some ins, some outs lately, but let me pass it to Liz to talk about some more of the specifics on this.
Sure, so... Come...
Going into the end of March and very early April [inaudible]
Liz Coddington: We did see a little bit of softness in our sales, but we've actually since then seen things bounce back, and we do feel really good about our future. And overall, our business is resilient, continues to be resilient, and we are predominantly a subscription business with a high subscription retention and a loyal member base.
Now...
Liz Coddington: If you think about it on the sales fitness equipment side, we do realize that macroeconomic uncertainty could impact demand for connected fitness hardware sales because these are larger ticket purchases.
but that being said, we do have. [inaudible]
Lower Price Entry Option
Liz Coddington: for price sensitive customers that we can lean into. For example, we can offer 0% financing so that customers can pay for their equipment over time. We offer Peloton certified refurbished bike and bike plus at lower price points. We also offer our bike plus rental option. And then we have the secondary market where Stern customers sell their hardware to others via the IP or peer model. [inaudible]
Liz Coddington: Now, regarding our subscription business which comprises the vast majority, as I mentioned earlier, of our revenue and growth profit, that part of our business remains highly resilient with quite strong retention.
Liz Coddington: I also think it's worth pointing out that if you look at the price of our all-access membership, which provides access to a huge library of classes
Liz Coddington: and more than 50 expert instructors at a price of $44 a month in the U.S. That lower than many monthly gym memberships and also lower than the prices of individual classes at some boutique fitness studios.
Liz Coddington: And then one more point that I think is helpful just as you think about the broader fitness industry as it relates to macro. It took a look at historical GDP data related to the broader fitness industry.
Liz Coddington: And if you look at it overall, it shows that our fitness industry has been quite resilient during periods of economic uncertainty.
Liz Coddington: During the period of GDP decline between 2008 and 2009, external data shows that US spend on fitness continued to grow, and that implies the fitness industry has some resilience to external economic factors or to put it more plainly.
Liz Coddington: The data suggests that fitness isn't among the areas or the first places that consumers are likely to scale back when times are tough, presumably due to the value that they place on personal fitness and wellness.
Liz Coddington: Hopefully that addresses your question. That is actually super helpful. Thank you. And then a quick follow-up, you know, Peter, you highlighted pricing and continuation of kind of cost discipline in your... [inaudible]
Speaker Change: Strategic Pillars on how you see returning to growth. Could you maybe expand on that in a little bit? It seemed like the initial strategy was...
Speaker Change: Well first of all I don't I don't think Super serving the member and also.
Speaker Change: Make sure that we get value for our products are mutually incompatible.
Speaker Change: As we said.
Speaker Change: Actually I think during last quarter's <unk>.
Speaker Change: Our remarks.
Speaker Change: We're taking a really hard look at pricing and that builds on work that we did earlier this fiscal year, where we improved our unit economics.
Speaker Change: We took up the price of the rower in North America and on both of our bike products internationally.
Speaker Change: And so we're continuing to look at our equipment pricing and of course, taking into consideration the impact of tariffs.
Speaker Change: As we do so.
Speaker Change: Regarding the subscription price increase I don't have anything to say today.
Speaker Change: Except to note that it's been almost three years since we did a subscription price increase and we've never done one internationally, we feel really good about the value. We provide so it's something that we continue to take a look at.
Speaker Change: If we do decide to make changes on that in the future we'll comment on that when the time is right.
Speaker Change: Thank you very much.
Speaker Change: And your next question comes from the line of Doug Anmuth with Jpmorgan. Please go ahead.
Speaker Change: Thanks, so much for taking my questions.
Speaker Change: First of all from a branch.
Speaker Change: The brand has been through one change over the past several years and have also been a number of CMO changes as well just curious how you think about improving the marketing strategy overall and if you have thoughts there I know obviously the role you're still trying to fill.
Speaker Change: And then secondly, perhaps.
Speaker Change: Hello.
Speaker Change: We believe that some of them.
Speaker Change: Fiscal 2000.
Speaker Change: Free cash flow just following the big move in 'twenty five.
Speaker Change: I'm, sorry, Doug you cut out a little bit on the end of your question would you mind repeating the part that you were directing it me sorry about that yes, absolutely sorry.
Speaker Change: It's early.
Speaker Change: Looking for some of the puts and takes around fiscal 'twenty six free cash flow just following the big move up in 'twenty five.
Speaker Change: Thank you.
Speaker Change: So.
Speaker Change: Regarding brand, Doug Thanks, I'll start and talk a little bit about what we're doing on marketing.
Speaker Change: What we've been doing basically is taking a real holistic look.
Speaker Change: At.
Speaker Change: Every aspect of marketing so elevating the customer lifecycle, all the way from awareness through to some of the things that we haven't really we haven't really done.
Speaker Change: As much as a company like like saves.
Speaker Change: And.
Speaker Change: All of that.
Speaker Change: Discipline, we think will give us a boost in terms of the.
Speaker Change: Subscriber acquisition and retention, we get the team is really sophisticated in measurement and.
Speaker Change: And make sure that we spend our marketing and pretty optimal ways and so what we're doing there as we start to look at 2026 as plan Holistically.
Speaker Change: Across everything from our brand to performance marketing to pricing, which we talked about a moment ago to the partnerships that we invest into the promotions that we take.
Speaker Change: And ensure that we're allocating our dollars in the most efficient way, we can across all of those levers.
Speaker Change: So that we can acquire new members.
Speaker Change: In ways that are cost effective and start to.
Speaker Change: Get us back to growth, we've also been doing things like.
Speaker Change: Using.
Speaker Change: Media mix models and hold out tests.
Speaker Change: So that we can continue to build.
Speaker Change: Our knowledge base about what works in this space Thats really it.
Speaker Change: It's challenging to get people to take that step to start an exercise regimen.
Speaker Change: And so the way that we do.
Speaker Change: These marketing makes a really big difference there in terms of brand versus performance marketing.
Speaker Change: That's something that is.
Speaker Change: Sort of implicit in all of this.
Speaker Change: We need we need to keep doing both of those.
Speaker Change: And the two of them complement each other so that's a little bit about what we're doing on the marketing strategy.
Speaker Change: I'll pass it to lose to talk about <unk>.
Speaker Change: 26, yeah, so first I.
Speaker Change: I want to comment a little bit about about where we're at year to date for fiscal 'twenty five so year to date, we've delivered $210 million and free cash flow.
Speaker Change: And we had said in last quarter, when we set our guidance we talked about delivering.
Speaker Change: A minimum of $200 million in free cash flow on a full year. So we've continued to outperform a bet on our expectations and have greater visibility on our free cash flow as we progressed through the year.
Speaker Change: And we now expect that we will we will.
Speaker Change: <unk> and the year with roughly in the vicinity of $250 million and free cash flow for fiscal 'twenty, five, which given where we were a year ago.
Speaker Change: It's quite a tremendous improvement year over year and massively from two years ago.
Speaker Change: Now I'm not going to provide you with any sort of guidance around fiscal 'twenty six but it is worth noting a few things.
Speaker Change: In fiscal 2005, we are benefiting from our networking capital tailwind associated with optimizing our inventory level.
Speaker Change: And.
Speaker Change: We do expect to have a modest tailwind going into fiscal 'twenty, six but not nearly as much as we observed at fiscal 2025.
Speaker Change: But we do expect for the year to generate meaningful positive free cash flow in fiscal 'twenty five.
Speaker Change: As we are doing in FY 'twenty five.
Speaker Change: Got it meaningful positive free cash flow fiscal 26%.
Speaker Change: Yeah, Yeah, 26, advent, if I got it sorry for that.
Speaker Change: No problem. Thank you so much I appreciate it.
Speaker Change: And our next question comes from the line of Ryan Merkel with Oppenheimer. Please go ahead.
Ryan Merkel: Hi, good morning, Thanks for taking my questions.
Ryan Merkel: So the question. The first question want to ask Peter I think it's longer term in nature and looking at your results today and over the last several quarters, you've done a great job of kind of stabilizing the business controlling costs. How are you thinking about how should we think about the return to positive topline trends and sort of set of building blocks to getting there.
Peter Stern: Yes, Thanks Ryan.
Peter Stern: That's the work that we've been doing on developing the strategy and the plans for the next few years. So let me just try to translate.
Peter Stern: What we shared in our in our letter and in <unk> and in my remarks.
Peter Stern: Into the math.
Peter Stern: Of actually getting back to positive trends.
Peter Stern: So the first part of the strategy that you heard me talk about.
Peter Stern: Was improving member outcomes.
Peter Stern: And what that does is deliver more value.
Peter Stern: To our members.
Peter Stern: And that's going to translate into members.
Peter Stern: Being <unk>.
Peter Stern: Willing to pay more for peloton and buying more things from us and so you can look at that as the key to increasing average revenue per member.
Peter Stern: The second part of the strategy is.
Peter Stern: This meeting members in more places.
Peter Stern: And by being in retail and gyms and commercial and.
Peter Stern: Growing internationally and being more real life events, and having a greater presence online all of that.
Peter Stern: <unk>.
Peter Stern: Two.
Peter Stern: Sort of more.
Peter Stern: More at bats.
Peter Stern: More opportunities for us to grow members. So you can view that as <unk>.
Peter Stern: Driving the number of members up.
Peter Stern: The third part of the strategy that you heard was creating members for life.
Peter Stern: And thats about increasing longevity.
Peter Stern: Which translates into lower churn and higher customer lifetime value. So.
Peter Stern: Focusing on the top line growth essentially our whole equation is basically average revenue per member.
Peter Stern: <unk> number of members time years per member.
Peter Stern: That equals.
Peter Stern: Our long term revenue.
Peter Stern: And so thats basically the bridge from.
Peter Stern: From the strategy that I shared with you to how we drive growth.
Peter Stern: That's very helpful. I appreciate it.
Peter Stern: And then my follow up question.
Peter Stern: On the balance sheet, so again you've done.
Speaker Change: Steve you generate sustained free cash flow, we've seen that leverage ratio has come down. So as we think about the balance sheet going forward is do you think it would be more kind of a natural deleverage are you expecting to take more aggressive near term steps.
Speaker Change: So I can take that one.
Speaker Change: No.
Speaker Change: First of all I.
Speaker Change: The health of our balance sheet is something that we are where we are.
Speaker Change: Particularly proud of relative to where we bar.
Speaker Change: We were about a year ago do you think about it we were approaching maturity, while we had to complete a 135 billion refinancing of our balance sheet, which has since been done and then since then we've grown our trailing 12 month adjusted EBITDA at 340 $334 million, which is an improvement of massive improvement of over $435 million.
Speaker Change: And then we have also generated.
Speaker Change: $230 million of free cash flow over the past 12 months. So we're really pleased with that progress because as you pointed out it has allowed us to deleverage our balance sheet. Our net debt has decreased $312 million or 35% year over year out of Q3, and then we also ended the quarter with $914 million in unrestricted cash and cash equivalents now.
Speaker Change: Few things to note. We are mindful of the fact that we do have about 200 million in convertible notes that are due in February of next year and so we have ample cash on our balance sheet to be able to pay them. We're not planning to pay them early at this point in time, if they are <unk> percent coupon.
Speaker Change: As our as our balance sheet becomes healthier and healthier we have more optionality around capital allocation are we likely will over time, we believe we have more cash on our balance sheet right. Now then we need to run the business. Our top priority is to continue to deleverage because we believe that's the best way for us to create more op.
Speaker Change: <unk> now in regard to capital allocation and that will also help us.
Speaker Change: Our cost of capital over time, and so that would include things like paying down our debt.
Speaker Change: And then investing more in strategic initiatives to grow the switching and Peter talked about all these initiatives that we have there is also the potential over time to consider any inorganic growth opportunities that we might want to pursue and then eventually at some point, although we are restricted right now with our loan covenants to offer capital return alternatives through dividends.
Speaker Change: And share buybacks.
Speaker Change: Okay very helpful. I appreciate it thank you.
Speaker Change: Thank you. Our next question comes from the line of Simon Siegel with BMO capital markets. Please go ahead.
Simon Siegel: So I was kind of hoping James has introduced me is immune from New York, but I'll take it morning, everyone nice progress on improving the health of the business Peter So if im looking at this your members I think are the total numbers are declining faster than the cash than CF paid subs.
Simon Siegel: Those two metrics you guys do you think you are seeing less intentional numbers peeling off and the engagement and the strength of the remaining users I guess are inherently stronger in <unk>.
Simon Siegel: So what would the implications be on churn maybe potential ability to take price anything else just curious if youre ending up with a smaller but stronger user base and if so what initiatives that might empower you to to implement and then Liz the used equipment activation fee can you quantify that at all just if I'm looking at this correctly I think that paid subs are up slightly quarter over quarter.
Simon Siegel: Order, but the sub revenue was down slightly so I'm just trying to think through what are the moving pieces might be in that sub revenue line CF declines just anything else, we should keep in mind. Thanks guys.
Simon Siegel: So thanks, Simeon I'll start us off I don't think were seeing the seeing it. The same way you are seeing in terms of total members declining at a different rate from.
Simon Siegel: The subscriptions, but nonetheless, we're seeing basically year over year as consistency around.
Simon Siegel: Around our churn percentage.
Simon Siegel: I think it was pretty strong in the last quarter at one 2%.
Simon Siegel: And we do continue to benefit from the 10 year effect.
Simon Siegel: We just have some long standing very loyal members in the business.
Simon Siegel: So.
Simon Siegel: In General we're just focused right now on making sure that we can serve those members. The best we possibly can and build the value that they perceive in the company and we are seeing if anything.
Simon Siegel: Really positive signs because our NPS scores have risen in some cases by double digits.
Simon Siegel: Over the last year, so that does give us confidence in the value that we're delivering again not going to talk anymore about what we do with that.
Simon Siegel: Except to keep focusing on improving it.
Liz Coddington: With that I'll pass to Liz.
Speaker Change: I just wanted to correct. One thing so that members are down 8% versus subscriber subscriptions down 6%, but you have to remember that.
Liz Coddington: Members, it's also impacted by.
Speaker Change: So are we only have one member per subscriber per subscriber within the app.
Speaker Change: And at numbers are down.
Speaker Change: Dunmore right there, it's not just our connected fitness members when youre looking at that you fill it with Gary, including our App numbers as well so.
Speaker Change: So I did want to just.
Speaker Change: Cracked that one point now the question about activation fees.
Speaker Change: So the used equipment activation fee just for everybody's reference that the fee that we charge.
Speaker Change: Subscribers joins us through the secondary market and purchase their hardware from someone else not through peloton and not throw out one of our third party retail partners.
Speaker Change: We actually have been pleased with the secondary market activation fee. It has added revenue for the business.
Speaker Change: <unk>.
Speaker Change: It's a it's a positive for us because we get that revenue upfront and we are actually seeing.
Speaker Change: As a result of that slightly improved slightly improved cohort of churn among secondary subscribers.
Speaker Change: Presumably because they are investing a little bit more when they pay that fee, but but it is it is a benefit to us both in terms of revenue and free cash flow I also want to remind you that in <unk> and our subscription revenue. We also include things like our content licensing revenue as well. So it's not just purely subscribers that youre looking in there sorry.
Speaker Change: That would be in there any Google Fitbit revenue would be in there or anything of that nature, where we are licensing some of our content.
Speaker Change: Two other topics.
Speaker Change: Sounds good thanks, a lot guys best of luck for the rest of the year.
Speaker Change: And that concludes our question and answer session I will now turn the conference back over to Peter for closing remarks.
Speaker Change: Yes.
Speaker Change: Thank you operator, before we close I want to take a moment to share one of the most important things I've tried to do since joining peloton and.
Speaker Change: And that's to understand what works. So we can do more of that.
Speaker Change: Today, we discussed a number of things that are working streamed content and features.
Speaker Change: And solutions around holistic wellness like meditation.
Speaker Change: Our micro stores driving more revenue than our average showroom at a fraction of the size cost and lease commitment.
Speaker Change: Our workout area at the University of Texas is helping us reach.
Speaker Change: More members.
Speaker Change: We are growing fast with nearly 100000 already.
Speaker Change: And our reactivation efforts have been successful.
Speaker Change: We're also shifting perceptions of our content and our product offerings extending beyond the bike with tread running walking and strength.
Speaker Change: As we unveil our strategic plans for fiscal year 2006, and beyond you should expect to hear more from us about doing more of whats working.
Speaker Change: And we know many of you are not just shareholders, but also among our most avid members.
Speaker Change: So here are your assignments.
Speaker Change: Our cable both strength workouts and our exclusive lineup of classes featuring Djs from Armin Van Buren, our motto music.
Speaker Change: Im looking forward try our new series, including progressive push for cycling and mobility and strength for longevity.
Speaker Change: As the weather improves try live outdoor every Saturday at 10 30, a M eastern Oliver.
Speaker Change: Olivia will host this week's run with a live leaderboards.
Speaker Change: And less stay tuned for pes targets for walking and hiking coming to trend this quarter.
Speaker Change: Thank you all for joining today's call I look forward to sharing more about our plans in the coming months in the meantime to you on the leader Board.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for attending you may now disconnect.
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