UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-39058 Peloton Interactive, Inc. (Exact name of registrant as specified in its charter) Delaware 47-3533761 (State or other ...

Financial Data and Key Metrics Changes - The company reported Q1 results with total revenue of $586 million, exceeding guidance, driven by $426 million in subscription revenue, which was up 3% year-over-year, and $160 million in Connected Fitness products revenue, down 12% year-over-year [43][44] - GAAP operating income was $13 million, with adjusted EBITDA at $116 million, significantly above guidance [11][52] - Free cash flow for the quarter was $11 million, marking the third consecutive quarter of positive free cash flow [52][62] Business Line Data and Key Metrics Changes - The Connected Fitness subscription business had over 6 million members, with 2.9 million paid connected fitness subscribers, reflecting a net decrease of 81,000 in the quarter [12][39] - Paid app subscriptions decreased by 33,000 to 582,000, but exceeded guidance due to better-than-expected churn [41] - Connected Fitness product gross margin improved to 9.2%, up 600 basis points year-over-year, driven by a favorable product mix [46] Market Data and Key Metrics Changes - International paid connected fitness subscribers grew by 8% in Q1, with Germany outperforming internal expectations after transitioning to a third-party retail model [17][39] - The company raised prices for bike products in international markets to enhance gross margins [16] - The North American business is optimizing sales channels, including closing underperforming retail stores and testing a smaller store concept [18] Company Strategy and Development Direction - The company aims to deliver over $200 million in run rate cost savings by the end of fiscal 2025 through a cost restructuring plan [9] - Strategic investments in innovation are planned to return to top-line growth, focusing on product development, marketing strategy, and content offerings [10] - The company is prioritizing sustainable, profitable growth and improving unit economics across all products and sales channels [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the health and wellness market, emphasizing a balanced approach to growth and profitability under the new CEO [72][74] - The company is focused on managing costs and optimizing unit economics while preparing for the holiday season with increased marketing spend [22][56] - Future growth is expected to be driven by improved engagement through software innovations and a focus on member retention [59] Other Important Information - Peter Stern will assume the role of CEO on January 1, 2025, bringing extensive experience in hardware, software, and services [7][8] - The company is exploring additional international markets for growth, with a focus on optimizing pricing and distribution strategies [100] Q&A Session Summary Question: How will the new CEO approach the balance of growth and profitability? - Management indicated that the new CEO will focus on balancing profitability and growth, with a disciplined approach to spending and a strong emphasis on innovation [71][72] Question: What is the composition of the sequential inventory growth? - The inventory growth is modest and related to seasonal buildup ahead of the holiday season, with expectations for inventory balances to decrease over the year [76][77] Question: What are the expectations for churn for the rest of the year? - Churn is expected to remain below 2% for fiscal 2025, with slight improvements anticipated in Q2 [83] Question: What steps are being taken to address the balance sheet and debt? - The company is focused on generating positive free cash flow to deleverage over time, with a disciplined investment approach [88][90] Question: How is the company targeting new customer demand? - The company is focusing on attracting more male customers and expanding its reach through targeted marketing campaigns [92][93] Question: How does physical retail fit into the go-to-market strategy? - The company is optimizing its retail presence by closing underperforming stores while exploring partnerships with third-party retailers like Costco [97][98] Question: What are the plans for further international expansion? - International expansion remains a priority, with a focus on testing different market models and ensuring localized content [99][100]

Financial Performance - Peloton achieved a GAAP net loss of $1 million in Q1 FY25, an improvement of $158 million year-over-year (Y/Y) and $30 million quarter-over-quarter (Q/Q) [3] - Total revenue for Q1 FY25 was $586 million, a decrease of 2% Y/Y and 9% Q/Q, with subscription revenue at $426.3 million, reflecting a 3% increase Y/Y [18] - Total Gross Profit was $303.8 million, resulting in a Gross Margin of 51.8%, which was 180 bps above guidance of 50% [25] - The company reported a net loss of $0.9 million for the quarter, a substantial improvement compared to a net loss of $159.3 million in the same quarter of 2023 [53] - Adjusted EBITDA for Q1 FY25 was $115.8 million, significantly above the high end of guidance, representing a $106.7 million improvement Y/Y [31] - Adjusted EBITDA for the three months ended September 30, 2024, was $115.8 million, compared to $9.1 million in 2023, indicating significant improvement [64] - Free Cash Flow for the three months ended September 30, 2024, was $10.7 million, a recovery from a negative $83.2 million in 2023 [73] Cost Management - Operating expenses decreased by $126 million or 30% Y/Y in Q1, contributing to a non-GAAP Adjusted EBITDA of $116 million and Free Cash Flow of $11 million [4] - Total operating expenses decreased significantly to $291.2 million, down 30.3% from $417.6 million in the prior year [53] - The company plans to deliver over $200 million in run-rate cost savings by the end of FY25 as part of its cost restructuring plan [2] - Total other expenses for the three months ended September 30, 2024, were $12.6 million, down from $26.2 million in 2023, indicating cost management efforts [64] - Stock-based compensation expense for the three months ended September 30, 2024, was $47.2 million, compared to $67.0 million in 2023, showing a reduction in this recurring expense [64] - Depreciation and amortization expense for the three months ended September 30, 2024, was $24.8 million, down from $30.8 million in 2023, reflecting improved asset utilization [64] Subscription Business - Ending Paid Connected Fitness Subscriptions were 2.90 million, a net decrease of 81 thousand in the quarter, exceeding guidance by 10 thousand subscribers [19] - Peloton's subscription business generated $1.7 billion in annualized revenue with a Subscription Gross Margin of 67.8% [7] - Average Net Monthly Paid Connected Fitness Subscription Churn was 1.9%, an increase of 40 basis points Y/Y, but stable compared to the previous quarter [20] - Subscription Revenue for the three months ended September 30, 2024, was $426.3 million, up from $415.0 million in 2023, reflecting a growth trend [71] - Subscription Gross Profit for the three months ended September 30, 2024, was $289.1 million, with a Subscription Gross Margin of 67.8%, compared to 67.4% in 2023 [71] - Subscription Contribution for the three months ended September 30, 2024, was $305.7 million, an increase from $298.7 million in 2023 [71] Future Guidance - Revenue guidance for Q2 FY25 is set at $640 million to $660 million, indicating a sequential increase of $64 million at the midpoint [36] - Full Year FY25 revenue guidance remains unchanged at $2,400 million to $2,500 million, with expectations of a decline in hardware sales Y/Y [39] - The FY25 Adjusted EBITDA guidance has been raised to a range of $240 million to $290 million, reflecting improvements in profitability and cost savings [44] - Free Cash Flow target for FY25 has been increased to over $125 million, up $50 million from previous guidance, driven by lower inventory production and operating expense efficiencies [45] Product and Market Expansion - Peloton is testing new product features, including the Strength+ App and game-inspired fitness experiences, to enhance member engagement [10] - The company is expanding its retail channels, including a partnership with Costco to offer the Peloton Bike+ at 300 locations [14] Cash and Liquidity - Cash and cash equivalents increased to $722.3 million, up from $697.6 million at the end of June 2024 [52] - Total current liabilities decreased to $640.2 million, down from $685.2 million in the previous quarter [52] - The company generated net cash provided by operating activities of $12.5 million, compared to a net cash used of $79.2 million in the same quarter last year [55] Market Trends - The Connected Fitness Gross Margin improved to 9.2%, up 90 basis points Q/Q and 600 basis points Y/Y, driven by price increases and reduced promotional activity [5] - Ending Paid Connected Fitness Subscriptions are projected to decrease to between 2.84 million and 2.86 million in Q2 FY25, reflecting a sequential decline of 50,000 subscribers [35] - Total revenue for the three months ended September 30, 2024, was $586.0 million, a decrease of 1.6% from $595.5 million in the same period of 2023 [53] - The company reported a foreign exchange loss of $14.8 million, compared to a gain of $7.8 million in the same quarter of 2023 [55] - Adjusted EBITDA does not include costs related to acquisitions, impairments, or product recalls, which may affect comparability with other companies [64]

Financial Performance - The company has incurred operating losses in the past and may not achieve or maintain profitability in the future[15] - The company had cash and cash equivalents of $697.6 million as of June 30, 2024, with no anticipated material risks from interest rate changes[454] - Inflationary pressures have affected supply chain, logistics, and labor costs, potentially impacting gross margins and operating expenses[457] Revenue Sources - The company has a substantial portion of its revenue derived from sales of Connected Fitness Products, and a decline in these sales would negatively affect future revenue[15] - The second and third quarters of fiscal year 2024 accounted for 60% of Connected Fitness Products revenue and 54% of total revenue, driven by seasonal demand[40] Market Competition - The company operates in a highly competitive market, which may affect its ability to attract and retain subscribers[15] - The company has a competitive advantage through its first-mover position, brand recognition, and integrated platform in the connected fitness market[36] Product Development and Features - The company has launched new features such as personalized pace targets on the Peloton Tread and Row, enhancing user experience[26] - The company has invested in research and development to enhance its platform and develop new products, including the Peloton Guide and Peloton Row[26] - The company has expanded its content library to include tens-of-thousands of classes across various fitness modalities, catering to a wide range of consumers[27] Supply Chain and Manufacturing - The company relies on a limited number of suppliers and contract manufacturers for its Connected Fitness Products, which poses significant risks[15] - The company utilizes third-party manufacturing partners and logistics providers to manage its production and distribution effectively[32] Intellectual Property - As of June 30, 2024, the company held 180 U.S. issued patents and 82 pending U.S. patent applications, along with 429 issued patents and 119 pending applications in foreign jurisdictions[34] - The company continually reviews its development efforts to assess new intellectual property and intends to file additional patent applications[34] Workforce and Employment - The company employed 2,322 individuals in the U.S. and 596 internationally as of June 30, 2024, with 2,257 full-time employees in the U.S.[42] - The company has a structured compensation program aimed at attracting and retaining talent, offering competitive benefits and promoting work-life harmony[51] Diversity and Inclusion - The company is committed to diversity, equity, and inclusion through initiatives like the Peloton Pledge, focusing on pay equity and community investments[45] Foreign Currency and Economic Risks - The company is exposed to foreign currency risks due to international sales and manufacturing costs, which could impact revenue and gross margins[456]

Financial Data and Key Metrics Changes - The company ended Q4 with 2.98 million paid connected fitness subscribers, reflecting a net decrease of 75,000 in the quarter, which exceeded the high end of guidance due to higher-than-expected gross additions [28] - Total revenue for the quarter was $644 million, slightly above the guidance range and up 0.2% year-over-year [30] - Total gross profit was $312 million, yielding a gross margin of 48.5%, which was above the high end of guidance [31] - Adjusted EBITDA was $70 million, a $105 million improvement from the previous year, and free cash flow was $26 million, marking the second consecutive quarter of positive free cash flow [33][34] Business Line Data and Key Metrics Changes - Connected fitness segment revenue was $212 million, while subscription segment revenue was $431 million [30] - The connected fitness segment gross margin was 8.3%, with adjusted gross margin expanding over 15 percentage points compared to the same period last year [31] - The bike rental program for the original bike was ceased due to insufficient refurbished inventory, while the Bike+ rental program showed higher take rates [12][13] Market Data and Key Metrics Changes - The overall Connected Fitness market is still declining year-over-year post-COVID, but the decline has lessened dramatically since fiscal 2022, indicating a potential inflection point for growth [46] - The company expects softness in Connected Fitness hardware demand due to macroeconomic uncertainty [47] Company Strategy and Development Direction - The company is focused on aligning its cost structure to improve profitability and deliver meaningful free cash flow without requiring growth [9] - Strategic priorities include investing in innovation for sustainable growth, optimizing the business model, and exploring partnerships to expand reach [14] - The company is also focused on improving hardware gross margins and reducing promotional activities to enhance profitability [80][81] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the long-term growth potential of the Connected Fitness category despite short-term challenges [47] - The company is prioritizing financial results, including revenue, gross margin, and adjusted EBITDA, while also focusing on free cash flow [39] - Future guidance reflects expectations of declining hardware sales and a modest increase in churn rates, with a focus on improving engagement through product and content innovation [38][39] Other Important Information - The company completed a successful refinancing of its balance sheet, decreasing debt by approximately $200 million and extending maturities to 2029 [10] - The company is exploring new content and features for its app, focusing on enhancing member experience and engagement [30][41] Q&A Session Summary Question: Update on the Connected Fitness market and key growth initiatives for fiscal year '25 - Management indicated that the Connected Fitness market is still declining but closer to recovery, with key growth initiatives including software innovation and capitalizing on the Tread opportunity [46][48] Question: Key factors to improve LTV-to-CAC - Management highlighted the focus on efficiency in marketing spend and improving hardware margins as key factors to enhance the LTV-to-CAC ratio [52][54] Question: Subscriber decline components and bike rental program - Management explained that the subscriber decline is influenced by reduced marketing spend and the cessation of the original bike rental program, with no plans to toggle rental options currently [59][60] Question: Insights on subscription pricing and churn rates - Management stated there are no immediate plans to increase subscription prices, while churn rates are expected to remain around 1.9% due to various macroeconomic factors [64][66] Question: Connected Fitness market white space and gross margin improvements - Management expressed optimism about untapped opportunities in strength and Tread markets, with expectations for substantial improvements in connected fitness gross margins through better inventory management and reduced promotions [76][80]

Revenue Performance - Q4 total revenue was $644 million, up 0.2% Y/Y, with subscription revenue at $431 million, up 2.3% Y/Y[2] - Total revenue for Q2 2024 was $643.6 million, a slight increase from $642.1 million in Q2 2023, while annual revenue for FY 2024 was $2,700.5 million, down from $2,800.2 million in FY 2023[43] - Subscription revenue grew to $431.4 million in Q2 2024, up from $421.7 million in Q2 2023, and annual subscription revenue increased to $1,708.7 million in FY 2024 from $1,670.1 million in FY 2023[43] - Connected Fitness Products revenue declined to $212.1 million in Q2 2024 from $220.4 million in Q2 2023, and annual revenue for this segment dropped to $991.7 million in FY 2024 from $1,130.2 million in FY 2023[43] - Total Revenue for Q1 FY25 is projected to be between $560.0 million and $580.0 million, a 4% Y/Y decline[26] - FY25 Total Revenue is expected to be between $2,400.0 million and $2,500.0 million, a 9% Y/Y decline[31] Profitability and Margins - GAAP Net Loss improved to $30 million, a $211 million Y/Y improvement, and Net Cash Provided By Operating Activities was $33 million, up $88 million Y/Y[2] - Adjusted EBITDA reached $70 million, up $105 million Y/Y, and Free Cash Flow was $26 million, tripling Q/Q[3] - Total Gross Profit was $312.0 million, yielding a gross margin of 48.5%, slightly ahead of guidance[20] - Gross profit improved significantly to $312.0 million in Q2 2024 from $201.1 million in Q2 2023, and annual gross profit rose to $1,206.5 million in FY 2024 from $923.5 million in FY 2023[43] - Net loss narrowed to $30.5 million in Q2 2024 from $241.8 million in Q2 2023, and annual net loss decreased to $551.9 million in FY 2024 from $1,261.7 million in FY 2023[43] - Adjusted EBITDA for Q2 2024 was $70.3 million, compared to a net loss of $30.5 million, with significant adjustments including $105.4 million in stock-based compensation and $25.8 million in depreciation and amortization[56] - Subscription Gross Profit for Q2 2024 was $294.4 million, with a Subscription Gross Margin of 68.2%, reflecting strong performance in the Connected Fitness Subscription segment[61] - FY25 Adjusted EBITDA is projected to improve significantly, ranging between $200.0 million and $250.0 million, a 6,266% Y/Y increase[31] Cash Flow and Liquidity - Net cash provided by operating activities was $32.7 million and Free Cash Flow was $26.0 million, with $697.6 million in unrestricted cash and cash equivalents at the end of the quarter[23] - Net cash used in operating activities improved to $66.1 million in FY 2024 from $387.6 million in FY 2023[45] - Capital expenditures and capitalized internal-use software development costs decreased to $19.7 million in FY 2024 from $82.4 million in FY 2023[45] - Cash, cash equivalents, and restricted cash decreased to $750.9 million at the end of FY 2024 from $885.5 million at the beginning of the period[47] - Free Cash Flow for Q2 2024 was $26.0 million, derived from $32.7 million in net cash provided by operating activities and $6.7 million in capital expenditures[64] - The company expects to deliver meaningful Free Cash Flow of at least $75 million for FY25[29] Subscription Metrics - Ending Paid Connected Fitness Subscriptions were 2.98 million, with Average Net Monthly Paid Connected Fitness Subscription churn at 1.9%[17] - Q1 Paid Connected Fitness Subscription guidance expects a Y/Y decline in hardware sales due to seasonality and macroeconomic uncertainty, with a similar Average Net Monthly Paid Connected Fitness Churn rate to Q4 FY24[24] - Q1 Paid App Subscription guidance anticipates a sequential decline in gross additions due to seasonality, with a sequential improvement in Average Monthly Paid App Subscription Churn[25] - Ending Paid Connected Fitness Subscriptions for Q1 FY25 are expected to range between 2.88 million and 2.89 million, reflecting a 3% Y/Y decline[26] - Full-year FY25 guidance expects a Y/Y decline in hardware sales and a modest increase in Average Net Monthly Paid Connected Fitness Churn[27] - FY25 Ending Paid Connected Fitness Subscriptions are projected to range between 2.68 million and 2.75 million, a 9% Y/Y decline[31] - Subscription Revenue for Q2 2024 was $431.4 million, with a Subscription Contribution of $312.3 million and a Subscription Contribution Margin of 72.4%[61] Operational Efficiency and Cost Management - Sales & Marketing expense decreased by $26 million, or 19% Y/Y, with further reductions expected in FY25[4] - Operating expenses decreased to $375.3 million in Q2 2024 from $426.8 million in Q2 2023, and annual operating expenses dropped to $1,735.5 million in FY 2024 from $2,120.6 million in FY 2023[43] - The company's restructuring expenses for Q2 2024 were $2.8 million, primarily related to severance and exit costs[56] - The company's capital expenditures and capitalized internal-use software development costs for Q2 2024 were $6.7 million, contributing to a Free Cash Flow of $26.0 million[64] Debt and Financial Structure - Debt decreased by $200 million, with average maturity extended to 2029[5] - The company reported a net gain on debt refinancing of $53.6 million in Q2 2024 and FY 2024[43] Product Performance and Market Trends - Bike+ rental program in the UK outperformed expectations, with net monthly paid subscription churn for rental down 110 bps Y/Y[6] - Connected Fitness revenue from treadmills grew 42% Y/Y, with Tread+ achieving a 76 NPS, the highest across all Connected Fitness products[9] - Precor revenue grew over 20% Y/Y, with gross margin improving more than 22 percentage points Y/Y[11] Impairments and Adjustments - The company incurred $10.6 million in impairment expenses during Q2 2024, primarily related to fixed assets and goodwill[56] - Product recall related matters resulted in a $5.8 million adjustment to Adjusted EBITDA for Q2 2024, reflecting costs associated with returns and logistics[56] - Litigation and settlement expenses for Q2 2024 were $0.6 million, reflecting ongoing legal proceedings outside the ordinary course of business[56]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-39058 Peloton Interactive, Inc. (Exact name of registrant as specified in its charter) Delaware 47-3533761 (State or other juri ...

Peloton Interactive, Inc. (NASDAQ:PTON) Q3 2024 Earnings Conference Call May 2, 2024 8:30 AM ET Company Participants James Marsh - Head of IR Karen Boone - Interim Co-CEO Chris Bruzzo - Interim Co-CEO Liz Coddington - CFO Conference Call Participants Douglas Anmuth - JPMorgan Ronald Josey - Citi Aneesha Sherman - Bernstein Michael Graham - Canaccord Genuity Andrew Boone - JMP Securities Jonathan Komp - Baird Operator Good day and welcome to Peloton's Third Quarter Fiscal Year 2024 Conference Call. At this t ...

[Shareholder Letter Introduction](index=1&type=section&id=Shareholder%20Letter%20Introduction) [Q3 Performance and Strategic Priorities](index=1&type=section&id=Q3%20Performance%20and%20Strategic%20Priorities) Peloton's Q3 performance reflects continued leadership in connected fitness and the strength of its subscription business, achieving positive Free Cash Flow for the first time in over three years, alongside a new restructuring program to reduce annual expenses by over $200 million and a 15% team reduction, while actively pursuing debt refinancing - Q3 performance reflects continued leadership in the connected fitness category and the strength of the subscription business, serving over **6 million Members**[1](index=1&type=chunk) - Achieved **positive Free Cash Flow** for the first time in over 3 years in Q3 FY24[1](index=1&type=chunk) - Announced a new restructuring program to reduce annual expenses by more than **$200 million**, aiming to align cost structure with business size and generate sustained positive Free Cash Flow[2](index=2&type=chunk) - Expect to reduce team size by approximately **15%**, or roughly 400 global team members, with full run-rate savings by the end of fiscal 2025[2](index=2&type=chunk) - Reimagining international go-to-market approach, reducing retail showroom footprint, and investing in innovation across software, hardware, content, and member support[3](index=3&type=chunk) - Working with lead banks (JP Morgan, Goldman Sachs) and financial advisor (BDT & MSD Partners) on a debt refinancing strategy to deleverage and extend maturities[4](index=4&type=chunk) [Quarterly and Recent Highlights](index=1&type=section&id=Quarterly%20and%20Recent%20Highlights) [Connected Fitness Products and Channels](index=1&type=section&id=Connected%20Fitness%20Products%20and%20Channels) Q3 marked the successful re-launch of Tread+, with 67% of pre-orders delivered, while the Bike Rental program continued to outperform expectations with a 10% Y/Y increase in new rentals and a 60 bps Q/Q churn improvement, alongside strong growth in refurbished and third-party retail sales and expanded availability on Amazon - Q3 marked the restart of delivering Tread+ to Members, with **67% of pre-orders delivered** in the quarter[6](index=6&type=chunk) - Bike Rental new rentals were up **10% Y/Y**, and churn from rental subs improved **60 bps Q/Q**[6](index=6&type=chunk) - Peloton Certified Refurbished and third-party retail sales had strong growth Y/Y[6](index=6&type=chunk) - Began selling the Peloton Tread and Peloton Row on Amazon to distribute products to a larger audience[6](index=6&type=chunk) - Launched the Peloton History Summary to enhance the secondary market buying experience and provide visibility into bike age, usage, and service histories[7](index=7&type=chunk)[8](index=8&type=chunk) [Peloton for Business](index=2&type=section&id=Peloton%20for%20Business) Peloton announced a new partnership with Hyatt Hotels, involving outfitting over 800 Hyatt properties with Peloton equipment and providing access to Peloton classes on guestroom TVs at nearly 400 properties, expanding Peloton's reach in existing markets - Announced a partnership with Hyatt Hotels to outfit more than **800 Hyatt properties** with Peloton equipment and provide access to Peloton classes on guestroom TVs at nearly **400 properties**[9](index=9&type=chunk) [Content Innovation](index=2&type=section&id=Content%20Innovation) Peloton continues to invest in diverse fitness experiences, introducing the New York Road Runner Collection on Tread and Tread+ with auto-incline functionality, and seeing growing engagement with Entertainment offerings, with over one-third of active Tread and Tread+ subscribers completing an Entertainment workout in Q3 - Added the New York Road Runner Collection on Tread and Tread+, providing auto-incline functionality that matches the TCS New York City Marathon course's gradient fluctuations[10](index=10&type=chunk) - More than **one-third of active Tread and Tread+ subscribers** completed an Entertainment workout in Q3[10](index=10&type=chunk) [Member Experience](index=2&type=section&id=Member%20Experience) In response to member feedback, Peloton launched Self Moderation features and Distance Tracking for App treadmill workouts, leading to positive results in service levels and member satisfaction, as evidenced by improved Net Promoter Scores across multiple connected fitness products - Launched Self Moderation features, allowing Members to hide tags and other profiles, and Distance Tracking for treadmill workouts on App[11](index=11&type=chunk) - Seeing positive results in service levels and member satisfaction, with observed improvements in Net Promoter Scores (NPS) across multiple connected fitness products[11](index=11&type=chunk) [Q3 FY24 Performance Overview](index=3&type=section&id=Q3%20FY24%20Performance%20Overview) [User Metrics](index=3&type=section&id=User%20Metrics) Peloton ended Q3 FY24 with 3.06 million Paid Connected Fitness Subscriptions, a net increase of 52 thousand, with churn at 1.2%, while Paid App Subscriptions saw a net reduction of 44 thousand to 674 thousand due to lower additions and higher churn, despite a 2.4% Q/Q increase in App subscription revenue driven by premium App+ subscriptions | Metric | Q3 FY23 | Q2 FY24 | Q3 FY24 | % Change Y/Y | % Change Q/Q | | :-------------------------------------------- | :------ | :------ | :------ | :----------- | :----------- | | Members (in millions) | 6.7 | 6.4 | 6.6 | (1)% | 3 % | | Ending Paid Connected Fitness Subscriptions (in millions) | 3.055 | 3.004 | 3.056 | 0 % | 2 % | | Average Net Monthly Paid Connected Fitness Subscription Churn | 1.1 % | 1.2 % | 1.2 % | 10 bps | 0 bps | | Ending Paid App Subscriptions (in millions) | 0.853 | 0.718 | 0.674 | (21)% | (6)% | | Average Monthly Paid App Subscription Churn | — | 7.2 % | 9.2 % | — | 200 bps | - Ending Paid Connected Fitness Subscriptions increased by **52 thousand** in the quarter to **3.06 million**, with Average Net Monthly Paid Connected Fitness Subscription churn at **1.2%**[14](index=14&type=chunk) - Ending Paid App Subscriptions decreased by **44 thousand** to **674 thousand**, primarily due to lower additions (underperformance in Peloton for Business, softer trial demand) and higher churn (**9.2%**) from expiring legacy pricing[15](index=15&type=chunk) - Paid App subscription revenue increased **2.4% Q/Q**, driven by continued growth in premium App+ subscriptions, despite a decline in Paid App Subscriptions[16](index=16&type=chunk) [Financial Results](index=3&type=section&id=Financial%20Results) In Q3 FY24, Total Revenue was $717.7 million, with Total Gross Profit reaching $309.7 million (43.1% margin), and Total Operating Expenses decreasing 15% Y/Y to $455.9 million, resulting in positive Net Cash Provided by Operating Activities ($11.6 million) and Free Cash Flow ($8.6 million) for the first time in 13 quarters | Metric | Q3 FY23 | Q2 FY24 | Q3 FY24 | % Change Y/Y | % Change Q/Q | | :------------------------------------ | :------ | :------ | :------ | :----------- | :----------- | | Connected Fitness Products Revenue | $324.1 | $319.1 | $279.9 | (14)% | (12)% | | Subscription Revenue | 424.7 | 424.5 | 437.8 | 3 % | 3 % | | Total Revenue | $748.9 | $743.6 | $717.7 | (4)% | (3)% | | Connected Fitness Products Gross Profit | $(17.6) | $13.8 | $11.6 | 166 % | (16)% | | Connected Fitness Products Gross Margin | (5.4)% | 4.3 % | 4.2 % | 960 bps | (20) bps | | Subscription Gross Profit | $287.8 | $285.6 | $298.1 | 4 % | 4 % | | Subscription Gross Margin | 67.8 % | 67.3 % | 68.1 % | 30 bps | 80 bps | | Total Gross Profit | $270.2 | $299.4 | $309.7 | 15 % | 3 % | | Total Gross Margin | 36.1 % | 40.3 % | 43.1 % | 710 bps | 290 bps | | Total Operating Expenses | $536.2 | $486.5 | $455.9 | (15)% | (6)% | | Net Loss | $(275.9) | $(194.9) | $(167.3) | 39 % | 14 % | | Adjusted EBITDA | $(18.7) | $(81.7) | $5.8 | 131 % | 107 % | | Net Cash (Used in) Provided by Operating Activities | $(40.9) | $(31.2) | $11.6 | 128 % | 137 % | | Free Cash Flow | $(55.3) | $(37.2) | $8.6 | 116 % | 123 % | - Total Revenue for Q3 FY24 was **$717.7 million**, within the guidance range of $700 million to $725 million[17](index=17&type=chunk) - Total Operating Expenses decreased by **$80.3 million Q/Q** and **$80.3 million Y/Y** to **$455.9 million**, primarily driven by a **$96.1 million decrease** in General and Administrative expense Y/Y[19](index=19&type=chunk) - Recognized **$56.6 million** of Impairment and Restructuring expense in Q3, with $20.7 million being non-cash related to asset write-downs for retail showroom exits[20](index=20&type=chunk) - Achieved **positive Net cash provided by operating activities ($11.6 million)** and **Free Cash Flow ($8.6 million)** for the first time in 13 quarters[21](index=21&type=chunk) [FY24 Outlook](index=4&type=section&id=FY24%20Outlook) [Full Year Outlook](index=4&type=section&id=Full%20Year%20Outlook) Peloton has lowered its full-year outlook for Ending Paid Connected Fitness Subscriptions by 1% to 2.97 million and for Ending Paid App Subscriptions by 19% to 605 thousand, consequently lowering full-year Revenue guidance by 1% to $2.687 billion, while raising Total Gross Margin outlook by 50 basis points to 44.5% and Adjusted EBITDA outlook by $37 million to negative $13 million, with expectations for modest positive Free Cash Flow in Q4 | Metric | FY23 | Low | High | Y/Y % Change | | :-------------------------------------------- | :----- | :---- | :---- | :----------- | | Ending Paid Connected Fitness Subscriptions (in millions) | 3.00 | 2.96 | 2.98 | (1)% | | Ending Paid App Subscriptions (in millions) | 0.83 | 0.60 | 0.61 | (27)% | | Total Revenue (dollars in millions) | $2,800.2 | $2,675.0 | $2,700.0 | (4)% | | Total Gross Margin | 33.0% | 44.5% | 44.5% | 1,152 bps | | Adjusted EBITDA (dollars in millions) | $(208.5) | $(20.0) | $(5.0) | 94% | - Lowering full-year outlook for Ending Paid Connected Fitness Subscriptions by **30 thousand (1%)** to **2.97 million** and for Ending Paid App Subscriptions by **150 thousand (19%)** to **605 thousand**[23](index=23&type=chunk)[24](index=24&type=chunk) - Full-year Revenue guidance lowered by **$25 million (1%)** to **$2.687 billion**[25](index=25&type=chunk) - Raising full-year outlook for Total Gross Margin by **50 basis points** to **44.5%**, primarily due to a revenue mix-shift toward the Subscription segment[25](index=25&type=chunk) - Raising full-year Adjusted EBITDA outlook by **$37 million** to **negative $13 million**, driven by Q3 outperformance, lower media spend, and cost reductions from the restructuring plan[25](index=25&type=chunk) - Expect to deliver modest **positive Free Cash Flow in Q4**[25](index=25&type=chunk) [Leadership Transition](index=5&type=section&id=Leadership%20Transition) [CEO Departure and Interim Leadership](index=5&type=section&id=CEO%20Departure%20and%20Interim%20Leadership) Peloton announced that Barry McCarthy is stepping down from his roles as CEO, President, and Board Director, with current Board Members Karen Boone and Chris Bruzzo serving as Interim Co-CEOs - Barry McCarthy is stepping down as CEO, President, and Board Director from Peloton[27](index=27&type=chunk) - Peloton Board Members Karen Boone and Chris Bruzzo will serve as Interim Co-CEOs[27](index=27&type=chunk) [Legal & Disclosures](index=6&type=section&id=Legal%20%26%20Disclosures) [Safe Harbor Statement](index=6&type=section&id=Safe%20Harbor%20Statement) This section contains a standard safe harbor statement, indicating that the shareholder letter includes forward-looking statements regarding future financial results, restructuring benefits, product launches, and market growth, which are subject to various risks, uncertainties, and assumptions that could cause actual results to differ materially from expectations - The shareholder letter contains forward-looking statements regarding expected financial results, restructuring initiatives, product launches, and future operating performance, covered by safe harbor provisions[30](index=30&type=chunk) - These forward-looking statements are subject to risks, uncertainties, and assumptions, including the ability to achieve profitability, attract and maintain Subscribers, manage growth and costs, compete effectively, and refinance debt[31](index=31&type=chunk) [Financial Statements](index=7&type=section&id=Financial%20Statements) [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2024, total assets decreased to $2,408.5 million from $2,769.1 million at June 30, 2023, primarily driven by a reduction in inventories, while total liabilities slightly decreased, and the total stockholders' deficit widened | Asset/Liability | March 31, 2024 | June 30, 2023 | | :------------------------------------ | :------------- | :------------ | | Cash and cash equivalents | $794.5 | $813.9 | | Inventories, net | 354.4 | 522.6 | | Total current assets | 1,421.0 | 1,639.1 | | Total assets | $2,408.5 | $2,769.1 | | Total current liabilities | 745.5 | 761.4 | | 0% Convertible senior notes, net | 991.4 | 988.0 | | Term loan, net | 692.1 | 690.9 | | Total liabilities | 2,998.9 | 3,064.2 | | Total stockholders' deficit | (590.4) | (295.1) | - Total assets decreased from **$2,769.1 million** at June 30, 2023, to **$2,408.5 million** at March 31, 2024, with inventories decreasing from **$522.6 million** to **$354.4 million**[34](index=34&type=chunk) - Total liabilities decreased from **$3,064.2 million** to **$2,998.9 million**, while stockholders' deficit widened from **$(295.1) million** to **$(590.4) million**[35](index=35&type=chunk)[36](index=36&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For the three months ended March 31, 2024, total revenue was $717.7 million, with gross profit increasing to $309.7 million and total operating expenses decreasing significantly to $455.9 million, leading to a substantial narrowing of the net loss to $(167.3) million, compared to $(275.9) million in Q3 FY23 | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Connected Fitness Products Revenue | $279.9 | $324.1 | $779.6 | $909.8 | | Subscription Revenue | 437.8 | 424.7 | 1,277.3 | 1,248.3 | | Total revenue | 717.7 | 748.9 | 2,056.9 | 2,158.1 | | Total cost of revenue | 408.0 | 478.7 | 1,162.4 | 1,435.6 | | Gross profit | 309.7 | 270.2 | 894.5 | 722.4 | | Total operating expenses | 455.9 | 536.2 | 1,360.1 | 1,693.8 | | Loss from operations | (146.2) | (266.0) | (465.7) | (971.3) | | Net loss | $(167.3) | $(275.9) | $(521.4) | $(1,019.9) | | Net loss per share, basic and diluted | $(0.45) | $(0.79) | $(1.44) | $(2.97) | - Net loss for the three months ended March 31, 2024, significantly narrowed to **$(167.3) million** from **$(275.9) million** in the prior year period[38](index=38&type=chunk) - Total revenue for Q3 FY24 was **$717.7 million**, with Subscription Revenue increasing to **$437.8 million** (from $424.7 million YoY) and Connected Fitness Products Revenue decreasing to **$279.9 million** (from $324.1 million YoY)[38](index=38&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended March 31, 2024, net cash used in operating activities significantly improved to $(98.8) million, compared to $(332.2) million in the prior year, primarily due to a reduced net loss and favorable changes in inventories, while investing activities generated $33.5 million in cash | Cash Flow Activity | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | | Net loss | $(521.4) | $(1,019.9) | | Net cash used in operating activities | $(98.8) | $(332.2) | | Net cash provided by (used in) investing activities | 33.5 | (51.4) | | Net cash provided by financing activities | 29.0 | 70.0 | | Net change in cash, cash equivalents, and restricted cash | $(36.7) | $(304.7) | | Cash, cash equivalents, and restricted cash — End of period | $848.7 | $952.9 | - Net cash used in operating activities significantly improved to **$(98.8) million** for the nine months ended March 31, 2024, compared to **$(332.2) million** in the prior year[40](index=40&type=chunk) - Investing activities generated **$33.5 million** in cash, a notable improvement from using **$(51.4) million** in the prior year, partly due to proceeds from asset sales[40](index=40&type=chunk) [Non-GAAP Financial Measures](index=10&type=section&id=Non-GAAP%20Financial%20Measures) [Adjusted EBITDA](index=10&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA is a non-GAAP financial measure used to evaluate operating performance by excluding items such as total other expense, income tax, depreciation, stock-based compensation, impairment, restructuring, and certain litigation expenses, with Q3 FY24 Adjusted EBITDA reaching $5.8 million, a significant improvement from prior periods - Adjusted EBITDA is a non-GAAP measure calculated as net loss adjusted to exclude various non-operating and non-cash expenses, used to measure operating performance and leverage[44](index=44&type=chunk) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Three Months Ended December 31, 2023 | Fiscal Year Ended June 30, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------------------------------- | :------------------------------ | | Net loss | $(167.3) | $(275.9) | $(194.9) | $(1,261.7) | | Total other expense, net | 20.4 | 9.1 | 9.5 | 60.9 | | Income tax expense (benefit) | 0.6 | 0.8 | (1.7) | 3.7 | | Depreciation and amortization expense | 27.1 | 32.2 | 25.1 | 124.3 | | Stock-based compensation expense | 66.1 | 69.3 | 66.6 | 319.9 | | Impairment expense | 19.0 | 39.4 | 3.6 | 144.5 | | Restructuring expense | 37.6 | 12.0 | 13.9 | 193.0 | | Supplier settlements | (0.9) | 2.9 | (1.5) | 22.0 | | Product recall related matters | — | 9.7 | (6.5) | 80.9 | | Litigation and settlement expenses | 3.1 | 81.8 | 4.2 | 102.8 | | Other adjustment items | — | — | — | 1.0 | | Adjusted EBITDA | $5.8 | $(18.7) | $(81.7) | $(208.5) | - Adjusted EBITDA for Q3 FY24 was **$5.8 million**, a significant improvement from **$(18.7) million** in Q3 FY23 and **$(81.7) million** in Q2 FY24[48](index=48&type=chunk) [Subscription Contribution and Subscription Contribution Margin](index=11&type=section&id=Subscription%20Contribution%20and%20Subscription%20Contribution%20Margin) Subscription Contribution, a non-GAAP measure, is defined as Subscription revenue less cost of Subscription revenue, adjusted for depreciation, amortization, and stock-based compensation, and in Q3 FY24, it was $316.4 million with a 72.3% margin, indicating effective scaling of fixed content creation costs - Subscription Contribution measures the ability to scale and leverage the costs of Connected Fitness Subscriptions, excluding depreciation, amortization, and stock-based compensation from cost of revenue[49](index=49&type=chunk) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Three Months Ended December 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------------------------------- | | Subscription Revenue | $437.8 | $424.7 | $424.5 | | Less: Cost of Subscription | 139.8 | 136.9 | 139.0 | | Subscription Gross Profit | $298.1 | $287.8 | $285.6 | | Subscription Gross Margin | 68.1 % | 67.8 % | 67.3 % | | Add back: Depreciation and amortization expense | $8.5 | $9.8 | $8.7 | | Add back: Stock-based compensation expense | $9.9 | $9.7 | $10.0 | | Subscription Contribution | $316.4 | $307.2 | $304.3 | | Subscription Contribution Margin | 72.3 % | 72.3 % | 71.7 % | - Subscription Contribution Margin was **72.3%** in Q3 FY24, consistent with Q3 FY23 and an improvement from 71.7% in Q2 FY24, indicating effective scaling of fixed content creation costs[52](index=52&type=chunk) [Free Cash Flow](index=12&type=section&id=Free%20Cash%20Flow) Free Cash Flow, a non-GAAP liquidity measure, is calculated as Net cash provided by (used in) operating activities less capital expenditures and capitalized internal-use software development costs, and in Q3 FY24, Peloton achieved positive Free Cash Flow of $8.6 million, marking the first positive quarter in 13 quarters - Free Cash Flow is defined as Net cash provided by (used in) operating activities less capital expenditures and capitalized internal-use software development costs, providing insight into liquidity[53](index=53&type=chunk) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Three Months Ended December 31, 2023 | | :--------------------------------------------------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | | Net cash provided by (used in) operating activities | $11.6 | $(40.9) | $(31.2) | | Capital expenditures and capitalized internal-use software development costs | $(3.0) | $(14.3) | $(6.0) | | Free Cash Flow | $8.6 | $(55.3) | $(37.2) | - Free Cash Flow was **positive $8.6 million** in Q3 FY24, marking the first positive Free Cash Flow in 13 quarters, a significant improvement from **negative $(55.3) million** in Q3 FY23[55](index=55&type=chunk)

Peloton Interactive, Inc. (NASDAQ:PTON) Q2 2024 Earnings Conference Call February 1, 2024 8:30 AM ET Company Participants Peter Stabler - Head of Investor Relations Barry McCarthy - President and Chief Executive Officer Liz Coddington - Chief Financial Officer Conference Call Participants Douglas Anmuth - JPMorgan Ronald Josey - Citi Andrew Boone - JMP Securities Shweta Khajuria - Evercore ISI Aneesha Sherman - Bernstein Edward Yruma - Piper Sandler Youssef Squali - Truist Securities Simeon Siegel - BMO Cap ...