Good morning, everyone. Thanks for joining us. I'm Lauren Schenk, Morgan Stanley's small midcap internet analyst. I'm excited to be joined this morning by Liz Coddington, Peloton's CFO. Before we get started, one disclosure on my end. Please note that all important disclosures, including personal holding disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures or at the registration desk. With that out of the way, Liz, you've been at Peloton for about nine months. Maybe let's take a step back and as you think about the last nine months, what have been some of the biggest learnings and unanticipated challenges that you've come across in your time there? I think this question is really about some of the things that surprised me when I joined Peloton, and I'd actually like to talk first about some of the positive surprises that I had when I joined the company, and then I'll also talk about some of the challenges. It was really interesting to me when I announced that I was joining Peloton, how many people came up to me and personally to tell me how important the Peloton brand was to them and what an impact it has had on their lives, both whether they, you know, got a bike during COVID or it's just become just so integrated into their lifestyle. They said to me that when I was coming to join the company, that they were so thankful that I was gonna go there to help improve the financial health of the business. They of course, they wanted to tell me how long they'd had their bike or their tread, who their favorite instructor was, what type of workouts they like to do. It was really surprising to me. You know, I was, I was already a Peloton member before I joined the company, but I didn't realize some of the intensity with and passion that people really have for the Peloton brand. That was a really positive surprise for me. We have great product market fit, and I knew that, but to just really see it come to life was a really pleasant surprise. Now, in terms of challenges, you mentioned I joined the company about nine months ago. That was in June of 2022, and it was the last month of Peloton's fiscal year, which is kind of a crazy time to join as CFO. As we closed the books, many of you may know that we ended up filing our Form 10-K late. I was a little bit surprised at some of the financial reporting challenges that we had as a company. No CFO likes a situation where you have to file your Form 10-K late. It wasn't a really great outcome for the business. There were some really important learnings that I learned very quickly in my time at Peloton, which, you know, were areas that we needed to focus on to improve our financial reporting capabilities. Those are things that we've continued to work on over time. The cost-cutting, that I knew we were gonna have to do. I knew that when I joined the company. We were able to make progress there pretty quickly over my first few months at the company. Some of the financial reporting challenges were a bit of a surprise. Okay. Great. Maybe let's move to macro. The at-home fitness category broadly has seen obviously very volatile demand trends over the past three years. Based on what you can see in your data, do you feel like we're hitting some sort of stabilization or normalization in demand from a category perspective, or do you think macro is still weighing on the business? Yeah. What I'd like to do first in answering this question is kinda step back and talk a little bit about the connected fitness category, which is part of the overall fitness industry. As some of you probably know, you know, the fitness industry for decades has been a net GDP grower, and it's been a resilient one for sure. When we talk about connected fitness, what we mean by that is really harnessing the power of networked, you know, network content, the streaming and the community, and bringing that together to create a great fitness experience. For Peloton, we think about that as a fully immersive experience with industry-leading content that creates great outcomes for our millions of members. First of all, you know, just kinda highlighting what we mean when we talk about connected fitness. In terms of growth trends, prior to the pandemic, Peloton was growing about 100% year-over-year, but off of a pretty small base. The COVID shutdowns greatly accelerated our growth. Now with the reopening of in-person fitness experiences, it's not surprising that there's been some consumer spend shift back into in-person fitness, like going back to gyms and going to boutique studios. The reality of it is we don't really know where normalized demand, what it's going to look like, and we don't really have any specific or unique insights into the macroeconomic factors. I think what's important is to really focus on what we believe for the future. At Peloton, we strongly believe that technology-enabled fitness is gonna continue to grow. It's growing now, and it is gonna continue to grow for the foreseeable future. I think it's also important to highlight that connected fitness doesn't have to include owning hardware and you having it in your home. Nor does it compete necessarily with an in-person gym experience. It can also be a complement to that experience. You know, we are focusing on innovation. We're focusing on having the best content offering that we can have for our customers and, you know, creating opportunities for them to improve their physical and mental wellbeing. Our goal is really to have that category-leading experience for our members, whether they are inside their home or outside their home, whether they're using our equipment or not, and really a great fitness experience for anyone, anytime, anywhere that they wanna experience great fitness. Okay. Maybe let's move to the changes that have made on the product and distribution side over the past year. Late last year, you opened your first wholesale arrangements with Amazon and DICK'S Sporting Goods. Maybe how have those channels performed relative to your expectations, and what are some of the margin trade-offs we should think about in terms of the model? As we said, in our, on our Q2 call, our third party channels, both DICK'S and Amazon, outperformed our expectations for the quarter for both the holiday and overall for Q2. It's also important to note that those are still really new relationships for us. In particular with DICK'S, we only launched our relationship in November of 2022, so it's still really new. It was our first holiday season with both partners, so we're still very much in learning mode. In terms of gross margin, obviously there are gross margin concessions to our third party retail partners, but we also see some benefits that have some offsets to those impacts. For example, our marketing costs are much lower, so while that doesn't impact our gross margin, it does offset some of those gross margin trade-offs on our operating income. It's also worth pointing out that specifically for Amazon, where we have a wholesale relationship, Well, our logistics costs are lower because Amazon is responsible for delivering our connected fitness hardware to the end subscriber. Okay. Is there an ideal sort of mix of Peloton.com showroom and wholesale that you ideally would like to see over time? Good question. you know, I think this question is really about channel mix and kind of channel strategy over time. Our mix is really evolving. I know for certain that we do not have a target mix in mind at this point, and we're still trying to learn about all of these channels. I do think it's worth pointing out that we have an element of control over that mix. For example, you know, we can control how many Peloton owned and operated showrooms that we have. We can control which third parties we choose to do business with, and we can also control what SKU we push through the various different channels that we have. There is an element of control. Now, in terms of physical presence, we do see a need to have a physical retail presence, and that's important as we've expanded our product portfolio from just having the bike to now also having the Tread, the Guide, and the Rower. In terms of our owned and operated showrooms, we've decided to reduce our showroom footprint. In fact, we've announced or closed 52 showrooms globally so far, since we made that announcement that we were going to do that. That's because of the high fixed cost of having those showrooms. We do plan to continue to have Peloton owned and operated showrooms, and we'll evolve how many is the right number as we continue to learn. you know, we're also excited about about DICK'S Sporting Goods because our relationship with DICK'S has given us access to over 100 different retail showroom locations. It's a way for people to come and experience Peloton hardware before they decide to make a purchase. you know, we continue to be, you know, confident that we'll have a good retail presence going forward. Great. I think one of the more interesting new purchase models is FaaS or Fitness-as-a-Service or Resale, goes by a few different names. I think the business now is about 28,000 subscribers. Do you feel like you're at the point where maybe you can accelerate that and put a little bit more marketing behind it, or do you see it more as like a supplemental offering to the core business? In our last earnings call, we talked about the fact that our FaaS subscriber membership, our bike rental program membership, had doubled from Q1 to Q2 to 28,000 members. We do see really great momentum with our FaaS bike rental program. In fact, in Q3, we've seen that, at times, over a third of our bike orders are for FaaS customers. We are seeing great momentum there, and we continue to be optimistic and excited about that. In terms of marketing spending, we have increased the awareness of FaaS on our website. If you go to our e-commerce site, it's easier to see options for bike rental, and we also have some marketing in our stores that talk about being able to rent the bike. We're not, you know, we aren't pushing too much into marketing expense, and that's because of a little bit of the economics of the FaaS program. What was the last part of your question? I'm trying to remember. The, what portion of subs do you think over time it could deliver? That's right. We don't have any specific target for that. Again, that's another area where, you know, we do have an element of control. If our FaaS subscriber base starts to get larger than we want it to be, we can easily restrict the growth there. We have options to be able to do that. I think the most important thing, though, about FaaS is really talking about the incrementality. We've shared that FaaS, our qualitative research suggests that FaaS is over 60% incremental, which means that we are attracting net new subscribers to Peloton. These are people who are just reluctant to be able to want to purchase outright hardware. This is a way for them to join Peloton with no commitment, aside from having to pay a $150 upfront fee to get their bike delivered. They can cancel at any time. We're excited about that program and optimistic about it. Okay. Maybe on the churn rate, I think you've noted the churn is, you know, about four times higher than the core business. Obviously, it's still very early. What do you think brings that low over time, and how are you thinking about the payback period, just given the lower upfront revenue? In terms of the churn rate, we have shared that for Q2, our average FaaS churn rate is about 4.5%-ish, compared to our overall All-Access Membership member churn, which is about 1.5%. I do think it's important to kinda talk about those two metrics because it's really kind of like comparing apples and oranges a bit. The reason for that is that our All-Access Membership membership has been around for a long time, and our FaaS Rental membership is pretty new. We launched FaaS in Q3 of fiscal 2022, which is getting close to a year ago. When we launched it was very much in a pilot mode, very small numbers. We didn't really start to achieve scale with FaaS until probably into Q1 of FY 2023. If you think about that, the cohorts of people joining FaaS, it's just a much younger program than All-Access Membership. Now, when somebody decides to whether they decide to purchase a bike or rent a bike or a tread or whatnot, the highest churn that we see is in the first month of their membership. We see follow the retention follow a curve or the churn follow a curve until it becomes somewhat asymptotic. We know that our FaaS churn, given that our members are so young, that over time, the average churn rate will decline, and we expect that. The question really is that gonna resemble the connected fitness churn, and what that asymptote is really gonna be? Is it gonna be more like 1%? Is it gonna be closer to 3%? The answer is we don't really know, but we're optimistic about the data that we're seeing, and that, of course, is factored into how we think about the payback. I think you had a question about the payback period as well. We've said publicly that our payback period is roughly about 18 months for FaaS Rental members who get a new bike, and about 12-14 months for those who get a used bike. It's important to know that FaaS Rental members can get either one. It's at our discretion whether they get a new bike or a used bike. Factored into that payback period is the fully burdened cost of the hardware. We're assuming that we're gonna have to pay for the cost of the hardware in that model. Today, we actually have a benefit of the fact that we have a lot of inventory on hand. We aren't purchasing any hardware to support our FaaS business today. You know, we do think that there is a potential that as we optimize the program, we can get that new bike payback down to close to 18 months. Again, we're gonna have to see how it all bears out over time. Barry has said in the past that the path to promised land is the App. Can you speak to the opportunity of the App on a standalone product basis, aside from connected fitness, and what some of the strategies are to achieve that? Sure. Actually, I forgot one thing that I did wanna mention about FaaS before we jump to the app, which is that, you know, we are so encouraged by the performance of our FaaS Bike Rental membership. It's only available in the U.S. today, and we are considering rolling it out to some international markets over the coming months. There'll be more to talk about that at some point in the future. Now, talking about the app, I'm excited about the app. We do see a significant amount of growth opportunity in our Peloton App. Stepping back, if you look over the last couple of years, our App membership has hovered at around the 800,000-900,000 member range, and that's been with limited promotional activity and very low brand awareness. Actually, our subscribers who use the Peloton App are, you know, they give it great scores in terms of NPS and satisfaction. In fact, our Peloton App has the highest NPS of all the products in our Peloton portfolio, and that's in the mid-to-high seventies. What we're trying to do with our App experience is, you know, we want to expand the Peloton brand and make it more accessible to more and more potential members. For people who aren't Peloton members, many of them consider us to be really like this at-home bike company for fitness enthusiasts. The reality is that we are so much more than that. Our content is inclusive, it's accessible, and it's supportive. You know, our goal is to really expand our addressable market through the App. We have to do that by embracing the fact that people are gonna use the app on competitor hardware. It doesn't have to be our hardware. It can complement an in-person fitness experience. It doesn't have to be either/or. You know, we're gonna focus on creating the best app experience that we can. Now, in terms of our app strategy, we've talked about the fact that we are, we're looking at launching different app tiers of membership, as well as a premium offering. We're still working on that. I don't have a lot more to say about that, except for the fact that we will be launching a new app strategy sometime in the coming months. Okay. Maybe let's move over to the Rower. You launched the Rower in September. Could you talk about how you see that fitting within the product portfolio, what you're seeing from a demand perspective, and if there's anything you would share on purchasers that are new to the Peloton brand versus already having a bike or tread at home? Yeah. You know, we remain really excited about rowing and the category. It's a really great total body workout. You're right, we did announce the launch of the Rower in September, but we actually didn't begin shipping Rowers to customers until kind of mid to late Q2. We're really new in the evolution of our journey with the Rower, and we're continuing to learn there. Not surprisingly, the majority of the Rowers that are out in the world today, out in the market today, have been purchased by existing members rather versus new. But we do expect that to shift over time, and the reason for existing members is really when we launched the product, the people who knew about it were our members 'cause they were the ones who were easiest to learn about it. They were excited to get it. Now we have to build awareness for people that are rowers that may wanna experience our hardware and become net new members. I also wanna point out that the rowing category itself is relatively small in the U.S. today. Our goal for rowing is really to do what we did for the bike category there and really grow the market. Maybe let's switch over to margins and profitability. You talked about in the last earnings call that you're running at sort of a 1.4 LTV to CAC, which I think surprised some investors. Is that a sustainable level to run at? What are the drivers to increase that over time? Is there a long-term target that you have in mind? Our long-term target, as we've said before, is for our LTV to CAC to be in the 2x-3x range. You're right, we're not there today. We're hovering in the 1.4x range. It's important to note that today we are in a situation where we have a significant amount of on-hand inventory, and that includes our connected fitness hardware as well as a lot of accessories on hand. There is significant cost to keeping that inventory around. It's expensive to store it. You know, today, when we're looking at our LTV to CAC, we are trying to balance some multiple priorities there. In terms of optimizing LTV to CAC, there are lots of ways that we can continue to do that. One way is improving the cost of our hardware. You know, again, those storage costs are impacting us today. We have opportunities to drive the cost down that way. In terms of CAC, we've got, you know, optimizing our marketing efficiency. We've just hired a new chief marketing officer. She just joined us very recently, so she's very focused on that. We also have various other tactics that we use to drive customer acquisition that we need to optimize across, and those include things like promotions that we choose to offer, as well as any subsidized financing programs that we offer. We're also really leaning in on some of those channels that drive organic growth, such as the FaaS bike rental that we talked about as well. Okay. Peloton's obviously had to make some difficult decisions on restructurings and headcount over the past 12 months. I think there are some who think there might be more opportunity there. What is the right level of expenses, less marketing for the business to run at? Do you think there is more opportunity to cut more expenses? We're not providing any targets on for our operating expenses. That being said, you know, our current OpEx rate and as a function of revenue is not sustainable in the long term. We have to improve that in order to get to operating income positive, right? You probably also heard us say that we can't cost cut our way to success here. We need to really focus on growing our member base and ways that we can do that. Of course, you know, we'll continue to look for ways to reduce our fixed operating expenses. We're always looking for ways to do that, and we will continue to do that. We'll also be looking at ways to improve our variable cost efficiency. you know, those are things that often hit growth margin, but looking at ways on a normalized basis to reduce our cost for delivery, to reduce our content cost as a function of revenue, to reduce our member support costs. All of those things are things that we will continue to work on with regard to OpEx. Some areas of opportunity that we see for operating expenses, one area that we've talked about is our outside services, our professional services, and IT spending costs. you know, we expect those costs to come down over time as we reduce our technical debt and improve our operational efficiency. That's not really, like, a short-term fix, but it's something that we are very focused on driving, and improving, over the next several quarters and beyond. Obviously, the business is still very much in the midst of a turnaround. As we think about the next several years, how should we think about the long-term EBITDA margin of the business and free cash flow generation? Similar to operating expenses, we aren't providing a long-term target on our EBITDA margin. You know, but obviously, we're gonna grow that to be positive. That is certainly a goal. Now, in terms of free cash flow generation, we have taken a fiscal 2023 goal to achieve roughly free cash flow break even by the end of the year, while continuing to invest in initiatives to grow the business. We have line of sight to being able to achieve that goal, likely not this quarter, but we should get there pretty soon. In terms of our long-term margin goals, obviously, we need to grow the business so that we can get to sufficient scale to cover our operating expenses. Just like I was talking before, you know, we have to figure out how to grow the business and how to focus on growing it to be able to get there. You know, the way that we do that is by focusing on innovation, creating the best content experience that we can for our members. You know, for Peloton, you know, we believe that we have the best and most comprehensive content offering in the market. We have over 25,000 classes across a broad range of modalities, everything from cycling to running to yoga to barre to HIIT cardio, Pilates. I mean, I could go on and on. There are 16 different modalities in all. We believe that content is industry-leading. In addition to that, we also believe that we have the best collection of instructors in the world. That's really part of our, you know, some of the keys to our competitive advantage for Peloton. As we lean in and focus on that and create that great member experience and make it so that it's more accessible to our members, like we were just talking about the Peloton App, not requiring people to necessarily have Peloton hardware to have a great Peloton experience, we should be able to grow our business and increase our members drastically, of course, be able to drive to that positive EBITDA and operating margin that we're shooting for. Okay. I think that's a good place to wrap up. Thank you so much for your time. Thanks everyone for joining us today.