Hi. Good afternoon, everyone. Thank you so much for joining us. My name is Nathan Feather. I'm Morgan Stanley's Small and Mid-Cap Internet Analyst. I'm excited to be joined today by Peter Stern, CEO of Peloton. Thanks so much for joining us. Thanks for having me, Nathan. Yeah. Now, before we begin, quick housekeeping item for important disclosures. Please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative, and with that, you know, it's been about a year since you joined Peloton, I think just under. Give us a recap of what you've changed in year one and your key learnings up until this point. Yeah. Well, let me walk you through both what changed and what didn't change. A lot. A lot has changed. We put in place our new growth strategy. I've communicated that over the course of the last few letters to our shareholders attached to our earnings. But we really have, I think now, a robust multi-year plan to get this business back to growth. We launched an entirely new lineup of products, the Peloton Cross Training Series. Not only did we launch all new residential products, but we also launched the first-ever commercial line of product from the company, the Peloton Pro Series, and so in one day, we launched nine new products in a company that previously had five products. We launched a new software platform headlined by Peloton IQ, which is an AI-powered personal coach and vaulted us overnight into the leading position in the world in terms of providing AI-powered personal fitness coaching. We launched a slew of new partnerships that push us in the direction of becoming a total wellness provider. We greatly expanded our distribution footprint, including our micro stores, launching at 100 Johnson Fitness & Wellness stores around the U.S., and also expanded our distribution internationally. We shored up our leadership team, making some key changes in areas like supply chain and marketing. Last but not least, we reduced our net debt by half over the course of the last year. So that's a lot of stuff that changed. There are some things that didn't change, right? Our focus on our members and our commitment to their outcomes is, if anything, certainly strengthened over the last year. And our commitment to our shareholders and the financial discipline that my predecessors began to implement is something that my team and I remain steadfastly committed to. So those things have not changed. In terms of what I've learned, I've learned that Peloton, for its members, is so much more than just a cardio company. We're a brand that they love and that they trust and that they count on for inspiration and also that they look to for so many other modalities besides just whether it's the bike or the tread or the rower that they have. Okay. Great. Well, a lot that's changed over the past year. If we zoom forward a few years from today, I'm interested to hear what's your vision for what Peloton can become? So the vision starts with what we are now, right? And what we are now is this magic formula of best-in-class equipment plus intuitive software powered by AI, human coaching without parallel anywhere in the world, and a supportive community of millions of members. And so if you fast forward to what that can become, one, I'll note that although that is sort of a beautiful portrait, I think, I've just described, we're painting with very few colors. I want us to become a total wellness provider. What does that mean? It means expanding not only from cardio into strength, which we have made amazing progress on in a short period of time, but also into areas like mental well-being. You can see that progress, for example, in our little tuck-in acquisition of the Breathwrk app recently into areas like sleep. Over time, even into areas like recovery. You saw our partnership perhaps announced at the beginning of October with the Hospital for Special Surgery and into areas like supplements and nutrition. All of that adds up to us impacting the major levers for consumer behavior that can impact their fitness, their strength, their longevity, and ultimately their happiness. All of that needs to get wrapped in an ecosystem, right? And what's that ecosystem? It's the personal coaching that you get from Peloton IQ. It's the outcomes that you see when you adhere to that. It's the incremental commitment that you make as a member. And it's the data that you supply us as a consequence, both first-party and third-party, that fuels Peloton IQ, creating a virtuous cycle where we can actually become an ever more impactful partner to you in your well-being journey. So that's my vision for where we go over the next few years. Okay. Great. If we bring it back to the present, I think the first step along that vision was the launch of your new Cross Training Series and Peloton IQ. I guess, what do you feel has been most impactful from the wide variety of updates that you announced? And how has the early consumer receptivity been? So let's start with the fact that it's called the Cross Training Series for a very good reason. And that is that the science is clear that adults should engage in a mix of cardio, strength, and other types of activities, for example, like stretching, which you can get through yoga or Pilates or lots of other modalities. And so the Cross Training Series was very deliberately designed to expand the range for our members of their activities so that we could drive the outcomes of making them more fit, more strong, and live longer and happier. And we're seeing that happen, right? So since we launched these new products, we're seeing move, for example, toward more strength workouts. Peloton IQ, we launched at the same time, and it was even more important than the launch of the Cross Training Series. The reason that I say Peloton IQ is more important than the hardware launch is that on the day we announced Peloton IQ, we also launched it to every one of the millions of members that we have, regardless of what generation of equipment they own, so that they were now getting a level of AI-powered personal coaching that has never been available to people in the world. The consequence of that, right? That was available to millions of people, whereas right now we have got to sell in the new equipment, and that takes time to impact the whole base. I mentioned earlier we're seeing more strength workouts. We're also seeing a shift toward more workouts being launched from our home screen from the recommendations that we provide. Most important of all is that we're seeing more workouts per member. We saw a 4% increase in the month of October, and that may not sound like a lot, but remember, we're trying to impact something that is very hard to impact, which is getting people to work out more, and so for us to see that move year-over-year so soon after we made this change gives us the confidence to know that we're heading in the right direction and we're making a big difference for people, so we feel great about the hardware. The reviews have been uniformly positive. We feel great about the software. The quantitative impact is evident, and we get to build on both of those now. Okay. Great. Well, despite all that positivity, new products have only been on the market for about two months, so it's still very early. So I guess, how long is the traditional consideration cycle for your products? And we just got past the critical Black Friday and Cyber Monday selling season. I guess, any early reads and performance there? So consideration cycle, first of all, in this category can be very, very long. These are big investments, and people are making a commitment that they plan to keep for years. And so we see consideration cycles measured in months for many of our customers, multiple months. And in some cases, for example, for our Tread+ product, a meaningful fraction of our customers have a consideration cycle that approaches a year. So we announced a lot of new stuff on October 1. It's going to take time for that all to percolate. That being said, I would say right now we're probably in the fourth inning of nine of our holiday season because our holiday season runs into mid-January. From where we sit right now, we continue to remain confident in the guidance that we issued at the end of last quarter. That's pretty much all I can say right now on how we're doing on the absolute level of sales. What I can say is that we're seeing some interesting mix shifts that seem to be sticking. What are those? One, we're seeing more customers buy our Plus products as a percentage than buy the base level products. And I chalk that up to a couple of things. One is people are really excited about the camera and other AI features that are available on the Plus Series that allow us to do things like movement tracking and form feedback, rep counting, provide weight suggestions. I think that's captured people's imaginations. We also widened the gap in the features and functionality of the Plus Series versus standard models with everything from on the bike comfort features like the fan and the phone holder to the sound by Sonos, which allows you to have a more immersive workout experience on those products. So that's one change that has been relatively pronounced. We've also seen a shift toward our tread products. This was something that we were seeing previously, but we've seen even more of it since October 1. I think there may have been some people who are kind of on the fence waiting, "Should I buy a treadmill from Peloton?" And we came out with new ones, and they're pretty awesome. That caused people to say, "Okay, it's time." We're also seeing, relative to our expectations, relatively more sales to new members than to existing members, which is a little bit more of a, which from a subscription standpoint, I'm happy about, right? It generates more new customers. But I think a lot of people are still, if they're existing members, they still have products that work great, and they got all the benefits of Peloton IQ. So those are a few. The other thing, actually, that we're just seeing over the last week is that for Black Friday, Cyber Monday, for that period, we wanted to experiment with a really aggressive reefer bike price to see if we could grow our subscription market even more. And because there's good margins on that product for us because we already built it in the past, and we're selling it the second time, and it's great for the environment. So there's a lot of positive things associated with that reefer bike program. And we are seeing a shift from the new bike to the reefer bike over the last week or so. So that's a little bit of color. Again, it's too early to call the overall, but that's what I'm seeing right now. Okay, well, that's great color, and along with all of the product changes you've made, you also increased subscription pricing, but encouragingly guided to churn flat for the full year. I guess, what have been the key drivers that have kept churn in check, and then how has churn compared to the prior price increase? So let's talk about why churn is flat for the year despite doing a price change first. That's a great question. There are a lot of factors at play here. One is this is something that you see in virtually all subscription businesses, which is that there's a tenure effect. The longer people have been with you, the more likely they are to keep being with you. And so we are the beneficiaries of that. In other words, your loyal customers are definitionally your most loyal customers. And so we are seeing that benefit. The second thing is that, as I mentioned earlier, we're seeing an increase in workouts per member. We started seeing that in October when we launched our new software. And the most important driver of longevity in a business like ours is frequency and consistency. And so that gives us encouragement. Yes, we had a blip in cancellations and pauses at the moment of the price increase, which was to be expected, right? We interrupted inertia for people, but some of that is a pull-forward effect. There were people who were going to cancel at some point anyway. They were likely our least engaged members, and the consequence of that is that while we had this blip, then we had a really rapid moderation in the churn rate, so all of those things, when you combine it with the fact that over the course of our Q1, our churn rate was down year-over-year, we think we get back there by Q3, Q4, and in fact, we'll have a little bit of a rebound when people who paused their subscriptions rather than canceled them in Q2 unpaused those subscriptions during that time, so that's a little bit about that. In terms of recall, the last price increase was in 2022, so it was more than three years before. It's been a pretty inflationary period during that time, but this price increase was in a very different environment. Actually, 2022, when that happened, there were still a lot of lockdowns. They were happening, then people would get out in the world, then there'd be a new version of COVID blowing through. Hopefully, that's in our distant memory now, but that was our reality, so the churn rate was a little lower for that price increase than this one, but in terms of our expectations, we're pleased with how this one is going, and it's going according to plan. Okay. Great. Well, shifting over to distribution, you've been expanding in physical with a growing micro-store footprint and various retail partnerships. How are you thinking about the optimal mix between digital channels and physical presence over the next, let's call it, two, three years? And what's the path to get there? Yeah. I am really encouraged by what's happening, first of all, with our micro-stores. For those who haven't been following along with that story, at our peak, Peloton had over 100 full-size stores. These were stores that were 3,000-6,000 sq ft to carry five products. And we realized that there's a more efficient way to do this. And so we have been gradually reducing that number of those stores, and we're in the single digits at this point of those stores remaining. We had, at the time that I joined the company, one micro-store in Nashville, Tennessee, which was very exciting. These are 300 sq ft, so they're one-tenth the size of the others. And our initial read was that that Nashville store was doing the same volume as the stores that were 10 times the size. But it was a data point of one. So when the team came to me and said, "We'd like to try another one," I came back to them and said, "You know what? Data point of two is probably not a statistically significant sample. Let's go for 10, and let's go see if we can replicate those results that we saw from that one store 10 times." Because if we can do this 10 times, I think we can feel pretty confident that we're on the right track. And it's, again, because of this particular time of the year for us in a very seasonal business, it's too soon to draw a full conclusion. But so far, I would say eight out of 10 of those stores are performing at or above the level that we would have hoped for. And we're learning a lot, actually, from the other two, which is great. And so I don't know what the right number of micro-stores is, but I feel pretty confident it's more than 10 based on what we're seeing right now. At the same time, so why don't we expand to Johnson's and make that big step? Because we had never been an independent fitness store before. We've been in DSG, which has been a great partner. They've got DICK's Sporting Goods. But we'd never been mixed up with our competitors' products before. But what we realized in particular is that if I say at-home cycling, everybody thinks Peloton. We've got the data to prove it. But if I say at-home treadmill, not everybody thinks that yet. They should, but they don't. And so we needed to be in the place where people go shopping for treadmills in particular. And Johnson's is great because their average salesperson has seven years of tenure. This is a retail store employee who is such an expert, so committed to their craft that they are there on average seven years. That's the kind of person that we trust to sell our product. And so we're very excited to be in every store that they operate in the United States. And I hope they launch more, and I hope we can help them accomplish that. At the same time, digital retailing is incredibly efficient for us. If we could sell everything on first-party web, I'd be delighted to because it comes with no incremental infrastructure cost. So this is just a matter of making sure we got enough places where people can try it out. And given that long consideration cycle, that's important for people because it's a very considered purchase that sometimes requires hands-on while also trying to keep things as efficient as possible. Okay. Great. Well, one more on Peloton IQ, certainly a big part of the release two months ago. You already talked about some of the really encouraging early adoption metrics and engagement patterns. I guess, how does this impact your thinking on forward software development priorities? Yeah. So the beauty of what we've been able to do with Peloton IQ is we have amazing engineers who are essentially standing on the shoulders of giants. So all the foundation models that are out there that are consuming enormous amounts of resources in terms of training models and advancing the state of the art on AI, we don't have to do that work, right? What we need to do is basically leverage the amazing investments that are being made by those companies and build on top of that a set of domain-specific capabilities around everything from developing the right workout plan for you to identifying the specific workout you should do today to analyzing your form and giving you feedback on your form to even identifying things like, "You know what? It's time for you to increase your weights," and so a lot of our focus now as a team is saying, "Well, we barely scratched the surface on this," right? Right now, we're counting and providing form feedback on dozens of moves, but there are hundreds of those that we could do, and we could expand that into more categories than just lifting weights and doing some basic body weight exercises, and so you could imagine additional modalities where those types of features would be equally, if not even more so, appreciated, so that's a big part of what we're doing from a software development standpoint, and it will keep us busy, I think, for a really long time on that front. At the same time, we've got amazing teams working on things like AI dubbing so that we can deliver our workouts from our amazing instructors in many more languages, and that will unlock more opportunities for international expansion for us in the future, which have historically been prohibitive because we're not like a typical media company. I grew up in the media business, and a really great TV show, they make 10 episodes a season. Last year, we produced 10,000 workouts. That's a lot of dubbing if you have to have human beings do the dubbing, so we need to use technology for it, and we've got great people working on it. Okay. Well, a lot of encouraging stuff on the revenue side. Let's switch over to profitability. The company's really made remarkable progress right-sizing the cost base over the past two years. Do you see additional opportunities to remove costs from the business? And if so, where? Yeah. So I'm so grateful for the work that my predecessors did and that we were able to continue. When I joined in FY 2025, we set a target of run rate savings of $200 million a year, and we exceeded that. This year, we set a target of saving another $100 million in FY 2026 on a run rate basis. And what I would say is we're halfway there right now and feel very confident in our ability to achieve the goal that we set forth. So yes, there's more to be done because we're halfway there. As I look ahead beyond this year, I would say it becomes more surgical in nature. And again, as we continue to inflect toward growth, it'll be blended in with a mix of some incremental costs. But there'll be incremental costs spent wisely given how much we know you count on us for that. Okay, well, on gross margin, you mentioned in the last call that you expect 2Q connected fitness gross margins to improve, at least as compared to 1Q. What's driving that? Is it related to the new product line, and long-term, where do you think connected fitness gross margin could land? Yeah. So Q2 versus Q1 is really a pretty tough compare for Q1 because we have so much more volume in Q2 than Q1 that you get essentially a deleveraging effect on the fixed costs that we incur quarter over quarter. So that's one benefit. As I mentioned earlier, we're seeing a little bit of a trend toward the plus line. That obviously has a nice positive impact. Last quarter, we had to accrue for the bike plus seat post recall. So that was a hit in Q1 that is in our rearview mirror, thankfully. On the other hand, Q2 is our most promotional quarter. And so that has an offsetting effect on margins. But again, you kind of add it all up, and we should be ahead Q2 versus Q1. In terms of where we head over time, all I'll say is I'm really pleased with the fact that we have made material progress taking these products up from low to mid single digits gross margins into the mid teens, one-time issues notwithstanding, and I think there's still a little bit more progress that we can make on that front. Over the past two years, marketing has been another key area we've been able to find efficiencies with LTV-to-CAC rebounding off lows. That being said, you're still seeing net subscriber attrition. What needs to happen for you to stabilize the subbase while maintaining LTV-to-CAC in the targeted 2 to 3x range? So in terms of marketing efficiency, first of all, essentially the way that we're running the company is we will keep acquiring a customer until the last marginal customer's lifetime value equals the customer acquisition cost. It's rational to acquire customers to that point, and it's irrational to acquire any more customers past that point. And a lot of what we've been doing is basically building the science, which I think we've got a phenomenal team working on this, building the science so that we actually know where that point is. And we can differentiate it by campaign, by channel, by country, etc. And that's as far as we will take the marketing, right? Now, we're working to save money overall in the areas of marketing. So for example, partnerships that aren't working for us, over time, those will time out. Getting more value for our dollars spent on media, all of those things effectively increase our marketing efficiency and allow us to spend more and get more out of the marketing that we do spend. And we will continue to pull those levers as long as we can. Ultimately, I think turning the subscriptions back to positive will require more work on the product portfolio. We've got an amazing engineering hardware team. I look where we are right now. We have the best bikes on the market. We have the best treadmills on the market. Our Tread+, for example, that slatted treadmill, that is a screaming deal compared with any other slatted treadmill that's out there. And it comes with the benefit of the Peloton ecosystem. But the fact is the majority of treadmills in the market are sold for less than our baseline treadmill sells for. And we're not in the game. So just looking at the cardio category alone, there's untapped opportunity in the marketplace that will help over time turn this company back to subscriptions growth. And that's just focused on the cardio category. Okay. Now, one of the company's other priorities of the past two years has been deleveraging on the balance sheet. With the prepayment premium on your $1 billion term loan expiring in May, it sounds like you're going to be evaluating your potential options. I guess, what's the potential timeline if you do decide to restructure the current term loan? Yeah. I'll sort of share at least the notional timeline in my mind here. And of course, our amazing finance team and our CFO, Liz Coddington, they're the experts on this. But you have to look at our debt in sort of three tranches. There's a $200 million overall. By the way, we've got about $1.5 billion in debt. And we've got $1 billion of cash, which is too much. Let's just start with that. But we've got a $200 million zero coupon slug of our debt that is coming due in February. And because it's zero coupon, we'll hold on to it until the last day we possibly can. And then we'll give back the money in February. So that's kind of already set aside. We've got $300 million-ish in converts that are not within our control. They're exercisable by the debt holders for now. And so we can't do anything about that. And it's fine. It's a decent cost of capital. And then we've got a $1 billion term loan that has this prepayment penalty, Nathan, that you talked about. At this point, it's just 1%. But when you're looking at where we sit right now, which is six months out, that basically is 2% on an annual basis. That I don't want to have to pay if we don't have to. So I think what we'll be doing over the next few months is developing the plan to build the right level of confidence in the debt holder community around the company and preparing for around that May timeframe to refinance some of that debt. We may or may not refinance all of it. But when we do that, we get a couple of benefits. One of those is a reduction in our cost of capital, right, so our cost of capital right now is reflective of a company that was in a very different financial position two years ago or a year and a half ago than it is now. We're a consistent cash flow generator, and I think we've demonstrated now a track record of delivering on what we promise, and so it's my hope that we'll be able to refinance that debt at significantly more attractive terms, not to mention the fact that we've seen some improvement in the interest rate environment, and so that should take down our cost of capital, which will further, by the way, improve our potential for cash flow generation. The second thing that happens when we do that is we get more flexibility, and what do I mean by that? Currently, we are restricted under the terms of that billion-dollar loan from basically doing buybacks. I think there's a limited amount we can do, some $15 million a year or something like that. We are limited in terms of what we could do from an M&A standpoint, and I'm not saying this means that we're going to go on a buying spree, but if we saw something that could help us achieve our vision and it was at the right price around becoming more of a wellness provider, for example, or enhancing our product portfolio, we'd be in a position to make a move along those lines too. Again, keeping in mind that the team and I are extremely focused on generating shareholder value and coming up with the right capital allocation strategy that maximizes value for you. So we get lower cost of capital and more flexibility, hopefully in about six months. That's the way I'm looking at it. Okay. Great. And if you do refinance and have less restrictions on the use of cash in the balance sheet, how might you outline a potential capital allocation framework? Could we see potentially some return to shareholders? Yeah. I mean, again, we've got work to do here and a world-class finance team that has a number of months ahead of them before we need to make any of these choices because they're really not within our control until we were to refinance that debt in May. But I think it's reasonable to assume that what we would do is set some target leverage ratios, and given the resilience and predictability of our subscription business, which we feel great about, and you've now seen us do a price increase, which was long overdue, and we still feel great about the resilience of that subscription business that we've got, we should be in a position where certainly the possibility of buybacks are on the table. All of that is always weighed against something else that I hope you'll want us to do, which is to invest in our future. And so if we see opportunities that significantly exceed our cost of capital for us to invest the money in the growth of this business, and we do so with the level of rigor and responsibility that we have demonstrated, then I hope you'll reward us for that in addition to the possibility of buying back stock. But we will certainly look at our capital allocation strategy very closely and in consultation with our shareholders. Okay. Great. Two more from me. First, you recently changed your executive compensation structure to be more performance-weighted. Can you talk about the changes there? And then more broadly on the company's tighter control of stock-based compensation, how does this align with the potential capital allocation framework you mentioned earlier? Yeah. So we are exquisitely sensitive to dilution. We know that's important to our shareholders. And a significant contributor to dilution has been Stock-Based Compensation. So if you look, for example, at our fiscal year 2025 Stock-Based Compensation versus FY 2024, we were able to make substantial progress in reducing the total Stock-Based Compensation outlays. It takes time for that to actually manifest in the financial results that you see because Stock-Based Compensation is typically given in the form of multi-year grants and vests over time. And so there is a delayed effect to that. But you can see it in what we granted. At the same time, Nathan, as you mentioned, we're moving toward a performance orientation, which is appropriate given the greater predictability associated with our business and our greater confidence in our future. And so we have shifted a meaningful fraction of the equity grants that we make to our leadership into performance-based stock units as opposed to restricted stock units and aligned around key metrics that you would care about, both top and bottom-line growth. We also, for example, given our confidence in the company, agreed as a leadership team to implement stock ownership requirements for a number of our top executives. Now, I, for one, don't need to have a stock ownership requirement to make me want to hold Peloton stock because I happen to think it's a great investment. But it's nonetheless an indication of our confidence in our company and shareholder orientation that we made that change. Okay. Well, this has been a great conversation, Peter. Let's wrap it up with one final thing. What are the one or two pieces you think investors most underappreciate about the Peloton story? Yeah. One thing I think is really important is to recognize that Peloton is so much more than a cardio company. And again, that's not to belittle the importance of cardiovascular fitness because it is the foundation of everything that we do in fitness. And it is so closely tied to longevity. Improvements in VO2 Max, to get really technical on you all, have material impact on your lifespan. So please keep working on your cardiovascular fitness. But I was so surprised when I joined Peloton to discover that we're actually the largest strength subscription company in the world based on the number of our members that are doing our strength workouts. And we've become, I think, ever more attuned as a society over the last few years and then driven in part by the adoption of GLP-1s and the risk to people's musculature, ever more attuned to the importance of strength workouts. And so I feel like Peloton is just at the cusp of something really, really big in a space that no one has actually figured out. There are some players out in the strength space, but no one's conquered that. And we're in the pole position as a strength provider. I would say the other thing is just to reiterate the point that I made earlier, which is that the brand love as manifested in the enviable churn rates that we have and the member satisfaction rates that Peloton has really put us in a class of one. There is no one else in our category that does anything like what we do. And there are very few companies in the world that, for example, have product-level net promoter scores in the mid to high 70s, even touching 80 every now and then. Remember, that's on a scale of negative 100 to 100. We have a very special and precious relationship with our members. It makes us distinctive, who we are. And it's what should make it makes me as a manager of this company and should make those of you who are investors in this company feel really confident about the resilience of this business and our ability to provide ever more value to those members and hopefully to get paid for it. Okay. Great. Well, thank you so much for being here. Thank you, Nathan. It was a pleasure. Thank you.