Good afternoon. Thank you all for joining us. My name is Brian Nagel. I'm a Senior Equity Research Analyst here at Oppenheimer, covering consumer growth and e-commerce. This is our 26th annual Oppenheimer Consumer Growth and E-commerce Conference. It's held virtually. Again, thank you all for joining us. I'm very pleased to have with us our next presenting company, Peloton, and the company's still new CEO, Peter Stern. Peter, thank you for joining us. It's my pleasure to be here, Brian. We're going to structure this as an informal fireside chat with me asking questions and Peter responding to those questions. To the extent there are questions from the audience, just please send them through the chat function and I'll be happy to work them into our conversation. Again, Peter, thank you. Of course. The first question I want to ask Peter, as I mentioned in my quick opening there, you're still relatively new to Peloton. Maybe before we start talking about some of the specifics of the company, we can discuss your impressions. You joined the company not that long ago. There's been a lot going on since you've joined, but I guess the question is, any surprises, positive or negative, and how you view the company and importantly its brand evolving right now? Yeah, the company is so unique. It has this magic formula of equipment, software, content, and community that makes it not a pure hardware business, it's not a pure software business, it's not a pure services company. It's an integrated experiences business. That's what's, in many ways, so appealing to me about it. When you bring those things together in the very particular way that Peloton does, it solves the biggest problem in the fitness industry, which is how do you sustain commitment on the part of a member? I like to study these sorts of things. I'm a little bit of a nerd about it. When we look at what drives habit formation, it's that something needs to be obvious, easy, attractive, and rewarding. In many ways, when you look at Peloton, you see that we've got this obvious equipment staring you in the face every day. Our software makes it really easy to get into the right workout for you. The content is attractive. The experience of being in a community is part of what makes it so rewarding. You pull all that together and you actually get an experience that's worth $50 a month, or $600 a year to a member. We, as a company, get some really meaningful lifetime value in return from that. That's my impression of this company. You asked, Brian, about surprises, positive, negative surprises here. I think are really actually opposite sides of the same coin. When I joined Peloton, we didn't have a hardware roadmap. There were almost no changes to our frames or new pieces of equipment that were in our pipeline. That's a negative. We were able to overhaul our entire product line within the first year with the launch of the Cross Training Series. That's more of an incremental change. We more recently announced the launch of our Commercial Series that's coming later this year, and there's a lot more behind that. The positive side of my surprise is that we have this absolutely world-class product organization that was just waiting for a bit of permission. They've pulled it off already, and I have great confidence in our future. That's very helpful. One of my key questions here is to discuss further commercial and then the products. Before we do that, I do want to just pick your brain, so to say, given your seat here as the CEO of Peloton, on the consumer backdrop. We've done a lot of work on what we view as a softer consumer backdrop and some of the risks that lie out there. Gas price is probably the most notable. The question I want to ask you is, as you're thinking about Peloton and particularly this stage where it's almost like we're restarting growth here, how do you view the consumer backdrop? Is there any type of headwind there for Peloton and the initiatives of the company? We can look at this on multiple dimensions. In terms of the impact, let's say, of a softer economy, we've studied the historical data. Obviously, the COVID financial crisis is not instructive because it lit the home exercise market on fire. We've gone back and looked at things like the 2008 financial crisis. What we found in general is that fitness spend on going to gyms was one of the least impacted categories during a pretty tough time for a lot of people. Our takeaway is that fitness is not one of the top places that people are going to scale back when times are tough. That all being said, there is very high price elasticity around fitness equipment. We certainly experience that. The business is very responsive to discounts, as an example. We have a lot of tools in our tool chest to be able to help out with that. Not the least of which is that more than 50% of our subscriber growth additions come from the secondary market. In that case, many of the transactions are happening in the hundreds of dollars, not the thousands of dollars, for our equipment, as individuals buy and sell equipment from each other. When you couple that with things like 0% financing or what we've been able to do with refurbished units, we're able to somewhat address short-term dislocation from consumers that, of course, we can always, with reasonable confidence, depend on our large subscription business, which generates more than 60% of our revenue and over 90% of our profit. Taking a longer view, looking at the consumer, of course, we don't know how AI is going to play out and what that will do for the job market or job security. What we do see in our case is that magic formula I described that combines equipment plus human coaching as such fundamental elements of what we do means that this is not a product that's really likely to be replaced by AI. We feel pretty good about that longer-term impact on the consumer. I think, in general, this is a pretty calm port in the storm. That's very helpful. Let's talk about the commercial business. You mentioned a few moments ago, I know we've studied it quite a bit. Definitely, I would view it as a kind of a reinvigorated effort on the part of Peloton. I guess, you mentioned the new products, but I guess the way I want to frame the question is, what's Peloton doing now to really position the company, the brand, better for that commercial opportunity? As investors, how should we think about the timing of when this is going to start to take shape? Yeah. Let me provide a little bit of context on this one. If you go back a few years ago, before Peloton bought Precor, because the foundation of our commercial business unit is Precor, which we own. That business historically had somewhere, we estimate, around 5%-6% share of the commercial fitness equipment market. Fast-forward to today, we think we have only about a 3% share of what's about a $10 billion or so market, growing pretty healthily. Mid-single digits, at least. We actually know what the formula was to be at the old 5%-6% share for Precor, right? That was the right level of investment in the sales team and account management and ensuring that we were refreshing the product and delivering equipment that gym operators considered cutting-edge. We never lost the focus on producing really high-quality, trustworthy equipment. That's foundational, because it means that we never lost the trust of the gym operators. We've got to get back to having the right-sized sales team, giving them the right sales support, and ensuring that we're continuing to innovate on the product. That's a lot of the focus on the Precor side. We have the ability to also turbocharge our commercial business with the Peloton brand. That's where this announcement we made two, three months ago about the Peloton Commercial Series comes in. We've never had commercial-grade Peloton equipment before, designed for heavy-duty gym usage. We're talking about 10+ hours per day of usage, with people constantly adjusting the seat, for example, on the bike, and using the tread almost without stopping. That's Precor's sweet spot. What gym operators have said since I joined the company was, "Well, we love what Precor does for us, but there's only one brand of equipment that our members or prospective gym-goers ask for by name, and that's Peloton. If you could give us the Precor industrial-grade equipment with a Peloton experience, we'd love that." We announced the Commercial Series. We will launch that later this calendar year. At that point, I think you can look to the combination of the revitalized Precor plus Peloton to start to really accelerate the growth of that business. Now, we had a terrific Q3, 14% growth. I have indicated, including in our earnings at the end of Q3, that we have some really tough comparables, in particular in our Q4, the quarter that will end at the end of this month. That was a consequence a year ago of many gym operators trying to get orders in before the increased tariff rates kicked in. This was, if you recall, a couple of months after Liberation Day. There was a rush to purchase equipment at that time a year ago. As we fast-forward to later this calendar year, I think we can feel really good about the growth prospects for the commercial business unit. Help us understand. If you think about the customer, you build out this sort of, say, commercial network, gyms, you mentioned. Is it the same customer there that may have a Peloton device at their home, or is this a new customer? How would you think about the usage there? Yeah. It's a little bit of both. What we know most recently from our research is that just under about one in five Peloton residential members also belong to a paid gym. There's definitely overlap between those categories, and that's terrific, right? Those are people who are really taking care of themselves. They're probably doing cardio at home, sometimes outside, and they're probably doing strength training in a gym using equipment that's there. They may be swimming. We encourage all forms of activity. There are also a lot of people, right? We've only got just under 6 million members at Peloton. There are a lot more people who belong to gyms than that. It's a huge population of people that we would love to expose to a Peloton experience, not because we have any belief that they would leave their gym or any desire for them to do so, but rather because we think that having Peloton become part of their diet would lead to a healthier diet overall. Are gyms the big commercial opportunity? I've also noticed personally, the Peloton in our office was not the commercial grade Pelotons. We have Pelotons in a number of hotels. As you think about where the commercial opportunity, you mentioned gyms, but is it hotels and other type of, I would guess, commercial settings as well? Yep. Our commercial business unit serves everything from residential multiple dwelling units, think apartments, condos, where you have a shared facility, to hotels, to universities, to workplace gyms, all the way up to big box commercial gyms that have near constant usage of the equipment. Historically, we've really only had on the Peloton side the same residential equipment to put in that full array of locations. As we look forward, we have what we call the Peloton Pro series, which is terrific for a multiple dwelling unit, even the right kind of hotel environments. As we get to those heavier usage locations, those really call for an industrial grade solution, and that's where the expertise of Precor comes in so valuably, because we can combine essentially the Peloton body with the frame and the experience of Peloton, and you get a best of both worlds. Okay. Shifting a little bit, talking about the commercial opportunity, where are we just on the overall development of products? You're having a number of enhancements and new products launched recently. From your perspective, where are you on the development of products, and what should we be expecting to come out here in the not too distant future? Well, I probably won't do a major product announce here, I'll try to give you at least a sense of how we look at this. First of all, what we really offer is an integrated experience that cuts across, as I said earlier, hardware and software and content from our instructors and our community. What are some of the things that we have done, right? I talked about launching the Cross Training Series. That was basically a very deliberate pivot on our part to embrace the trend toward people doing more and more strength training in addition to cardio, which we think is really the optimal combination, right? People should be doing both. Making sure that we had the benefit of a pivoting or pirouetting screen on every piece of equipment that we ship. Making sure that on our Plus series of equipment, we're introducing computer vision that can count your reps, monitor your form, and actually give you form feedback as you're lifting weights, and even suggest when it's time to go up in weights, or if your form is breaking down, maybe even to drop down a weight. That was a pretty big advance and a combination of hardware and software to enable that. We also launched something called Peloton IQ a few months ago, and that's us using AI to augment what our instructors do. One way to sort of look at what we have at Peloton, right, is you've got 6 million members, and you've got just under 60 instructors. We've got a ratio of about 100,000/ 1. Every one of our members deserves to have a personalized plan from us. Peloton IQ allows us to add this element of deep personalization on top of what our human instructors do, so that every member is getting a plan and getting feedback about how they're doing, and that system is just continuing to evolve. I think what you can expect on the software side there is to see ever more flexibility in how we interact with the member. Right now, the input method is a fixed list of goals, for example, from a member, but that should be an unstructured, open dialogue with a member and one that can more dynamically change over time. In terms of content, we've been investing in what I would call more strength instructors, focusing on sort of soft strength. Over the last few months, we added three instructors in areas like Pilates and Barre. Also, we've been experimenting a lot with things like kettlebells, making sure that we double down on strength at this time when that's so important for many of our members. In terms of what to expect, I won't give you too much, except I will point you to a little announcement we made last week, and I'll try to contextualize this. We acquired a startup. They've actually been around for a few years, but we're still had small numbers of equipment out there, in the Pilates space. Again, I'm not here to make a big announcement of it in this category, but what we've realized is that there is a potential, we think, to deliver experiences in the Pilates space that are similarly revolutionary to those that we've delivered in the cardio spaces of cycling and running and rowing. We're still in the R&D stage there, but we've got some great now technology to augment what our internal teams are working on. I'm really excited about our future. Exciting. What about pricing? You took a price adjustment not that long ago. I guess I'll phrase the question of, how do you think about pricing now? If I remember correctly, it was the first price adjustment you had taken. Now I'm talking about the membership. First price adjustment you had taken in a while. How do you think about pricing now and going forward? I mean, the price that we charge needs to reflect the value that we deliver. As you noted, Brian, we hadn't taken a price increase in more than three years. That was despite the fact that there had been really substantial improvements in our product during that time. Great investments in content, including the addition of dozens of new programs, as I mentioned earlier, hiring new instructors to focus on areas that were demanded by our members. The introduction of Peloton IQ, which I talked about earlier, and which we made available to 100% of our members, regardless of when they bought their equipment. We felt like at that point, given everything that had transpired over the prior few years, including quite a lot of inflation, on top of those improvements in the value we delivered, that it was appropriate. We're only going to do price increases when we feel like we've delivered a real step change in value for our members. That was the case. It's not something that we're going to signal in advance, you need to expect big improvements before we were to do something like that again. Now on the topic of conversations, you mentioned just a few moments ago, the overlap you have to some extent with your members and then those who have memberships at physical gyms as well. One of the questions I get a lot from clients as they're looking at Peloton and the revitalization of the brand and the company, it's because where does Peloton fit in this either health club or more broadly, wellness landscape, and who does Peloton really compete with? I'd love your perspectives on that. I think I indicated with our magic formula, we're pretty unique. There are lots of hardware companies out there, lots of companies making gym equipment, but that's just one of the things that we do. There are lots of companies that make software for fitness, let's say apps, but that's a really small part of what we do. There are plenty of trainers out there in the world. Again, we've got the best of them, but it's just part of what we do. There are companies that make apps that bring people together in terms of as fitness communities. We do that too, but no one brings it all together. We're this integrated experiences company that doesn't actually have anyone else in our class. It also, because of the uniqueness of what we do and the relationship we've built with our members, we think it opens up the opportunity for us to become what we're referring to as a total wellness provider. What I mean by that is, not forsaking being the world's best connected fitness company. Of course, that's the foundation for anything that we'll do, but it means evolving into a connected wellness company as well and helping our members in all of the domains that can make a difference in the quality of their years on this earth, in addition to the quantity of those years. It's addressing all of the areas that we can behaviorally influence: cardio, strength, nutrition and supplementation, sleep, recovery, mental wellbeing. These are all areas where we can make a difference for our members, and they can also act as new ways for us to meet new members and bring them into the Peloton community. Not everyone is going to find us through running or cycling or rowing. Some people, for example, in the future, will find us through strength, and that's terrific. Any positive behavioral change, any positive activity is something that we want to play a role in encouraging and making a difference in people's lives at scale. Discuss a bit your marketing. I've noticed, I personally have noticed what I think are some fresh TV commercials. Maybe you can talk about that. Also just how you, the messaging and the kind of means of which you're talking to potential or even existing members at this point. Yeah, let's divide that into potential versus existing members as you framed it, Brian. For potential members, I think we're really getting now sharp on what we stand for. Right? We stand for the joy of movement. You could see that in the recent campaign that we just did featuring Hutson Williams that garnered more than 60 million organic social views. It put us back in the center of the zeitgeist, which is where we belong. I do want to note that at the same time that we're really reconnecting with that sense of fun and joy, that is what not only gets people to start an exercise regimen, but to more importantly, stick with it. We remain really disciplined about our approach to marketing. The formula we use is pretty simple here, which is that we'll spend up to, or at least close to, the point where the last marginal customer that we acquire has a higher lifetime value than the amount we paid to acquire the customer. Right? Spending up to that amount we think is the way to drive our business most efficiently. Spending anything beyond that number is just irrational, so we're not going to do it. When you look at how that played out mathematically, actually in Q3, the last reported quarter, we were able to deliver an average. This is not the last marginal customer we require because we have to do that at the campaign level. On average, it resulted in an LTV to CAC ratio that was 2x. In a pretty healthy range, certainly what we're targeting. The other part of the equation is what do we do with existing members? For the existing members, we don't have to spend a lot of money marketing to them because we know who they are and we know how to reach them. The really important thing there is for us to make sure that we're delivering relevant messages and constantly re-earning their trust. We've put in place a strategy to move from what most companies do, which usually is called CRM, right? That's customer relationship management. To something that we're calling PWM. I'm coining acronyms here. It's what we're calling personal wellness management. The idea is that once you become a member of ours, every communication we do to you should be helpful to you and personalized. It shouldn't be about us. It should be about you and how we help you achieve your goals and become a better version of yourself. We're still relatively early in this journey, but AI makes this possible because it enables us to deliver dynamic personalization at scale, so long as it sits on top of the mountain of human judgment and ultimately the respect for every individual in our community. Ultimately, is built on the idea that we're humans on both sides of that communication. That's very helpful. I know our time's going to wind down here, but I do want to there's two financial topics I'd love to discuss. Maybe one easier than the other. First thing on cost controls. Peloton's done a fantastic job over the last couple, maybe three years now, of really controlling costs well to allow the company to get back to this point of growth. The question I want to ask there is as you look at the cost model now, is it where it needs to be or are there still opportunities to control cost, particularly in the event or the possibility that maybe sales remain sluggish a bit longer? First of all, I'm so proud of what this team has done. FY 2025 savings of $200 million + on an annualized basis. By the end of this year, we are on track to deliver another $100 million of annualized run rate cost savings. All of that has basically meant that our operating expenses have, excluding restructuring, have decreased by $50 million or 16% year-over-year just in Q3. If you look at G&A, which is a particular area of focus for us, that's come down from the low to mid 20s% of revenue to the mid-teens. We are in a much better place now than we were. The consequence of that is what we've shared, that we're targeting to deliver somewhere in the vicinity of $350 million of free cash flow for FY 2026. As we look forward to your question, Brian, I think the future efficiencies are likely to be more surgical, not these types of programs that we've run the last couple of years. But there are still a lot of opportunities, for example, in using AI to optimize software as a service spend. The other couple of things I'd note are, given the work that we've done over the past few years, focusing on efficiency is now ingrained in how we run our business. That's what enables us to feel confident in our future, and know that we'll continue to find efficiencies. Also, you may not see our efficiencies manifest in the same way in the future. A lot of what we're doing on our team right now is designing equipment that can be more cost-effective. That won't result in If we end up selling equipment for lower prices, it may not manifest in lower spend as a% of revenue. But it'll allow us to charge less money, which means that we're going to get more sales units, and we're going to get more customer acquisition for the same investment in people as we were making for equipment. I think you'll see the efficiencies manifest in a different way. That's very helpful. The final question, balance sheet. Another big positive for Peloton has been the balance sheet, and particularly the outsized cash balance. I know you and your team have talked recently about making the balance sheet more efficient. I guess the question I want to ask is kind of maybe any update on that prior commentary with respect to the debt, cash, et cetera. I think the big update here is that our new CFO, Saquib Baig, is starting two weeks from today. We do intend to go through a credit ratings process. I think it will have a much better credit ratings process. It'll be the first one, by the way, in the history of the company. We'll have a much better process because we'll have a great CFO in the seat. I think that's something that I look forward to supporting Sid on. I'm confident from all my conversations with Sid that we're going to be able to stick to the same framework that we've already laid out. We're going to be focused on reducing our cost of capital, increasing our flexibility, reducing dilution, ensuring that we still have the capital that we need to support our operations and investment in the future. Obviously, with where we are right now, which is rapidly approaching zero net debt, and having this pretty predictable subscription part of our equation, we don't need as much cash as we have on our books. You can count on us to make some moves here. We just want to do it the right way. We're being disciplined about the framework and making sure that we have a process with the right people at the table. Well, Peter, it was nice chatting with you. I appreciate your time. Congratulations on the ongoing success here at Peloton. Thank you so much, Brian