Welcome. We'll get started here. I'm Jon Komp, Baird's Analyst covering the Active Lifestyle sector. Very pleased to have Peloton with us next. Peloton, as you may know, is the global leader in the connected fitness category, with annual revenue of about $2.4 billion. Company's well known for its premium fitness hardware, including the Bike, Tread, and Row. Along with the sector's most engaging instructor-led content. With roughly 2.6 million subscribers on the connected fitness side today, we're pleased to have Peloton and President and CEO Peter Stern. The company, as you'll hear today, is really approaching its next chapter here, having dramatically improved the efficiency and the operating capabilities of the business and looking for new avenues to growth, really behind connected wellness and moving more out of the home. Peter, welcome. Thank you for joining. Jon, thanks for being here, and thanks for your loyalty as a Peloton member. That's right. We were just comparing notes as loyal Peloton subscribers for many years. Peter actually joined in 2016. Yep. Peter, you're obviously no stranger to the fitness category and consumer subscription businesses, and now approaching 18 months as CEO of the company. Maybe just start by walking through some of the key changes you've made to the company, and really the shift in focus here as you pivot from improving operating efficiencies back towards growth. Sure. The first thing that we did was we put in place a formula for driving improved performance for the business that's really centered around our members. There's four elements to that. The first one is improving member outcomes, because if our members actually feel better, get fitter, have more fun, that's going to drive their loyalty and word of mouth. We've made tremendous changes in the last 18 months along those lines. We replaced our entire product lineup in Q2 of this year around the holidays. We also introduced Peloton IQ, which uses AI to deliver a completely personalized experience for our members, and we have a roadmap to follow on both of those that I think is really exciting. Second thing we did was introduce a strategy that we call Meet Members Everywhere. To start to grow our business, we're going to need to be able to connect with members in many more places. A couple of things that we've done along those lines are introducing our micro store concept. These are 300 sq ft stores that are vastly more efficient than the old inline stores that Peloton had and are now helping us meet people in the places where they shop. We launched 10 of those in Q2 of this year, and we have another 10 or so coming along. Another example of what we're doing to meet members everywhere is some of the work that we're doing in our commercial business. The third part of this strategy is making members for life, because we know that fitness is something that you need to commit to over a really long time, like Jon has with Peloton, and I have as well. That's also what drives value in our business, right? The lifetime value is driven by both the amount that the members pay us in any given year times the number of years. So we've made real changes. For example, the introduction of something called Club Peloton, which is the first loyalty program for our members, as well as a lot of blocking and tackling, making sure that members have options when they're considering what to do next and giving them, for example, the opportunity to pause a subscription rather than just to cancel it. Then last but not least along those lines is what we call business excellence. We have made such substantial changes in terms of the discipline with which we run the business, that we've delivered enormous improvements in profitability and EBITDA and our balance sheet. I'm sure we can get into all of that later. All of this is with a backdrop of a broader strategic objective of transitioning Peloton from not just being the world's leading connected fitness company, but to being the world's leading connected wellness company. The reason for that is that fitness markets are big, but wellness markets are huge. Global wellness spend is around $7 trillion. As we open our aperture, we increase the range of opportunities available to the company and the vectors for growth that we can pursue. I think that's a good place to maybe talk about the markets that you see how they're developing. Peloton plays in a bunch of different markets, cardio, strength, wellness, recovery, maybe more to come. What do you see as the biggest opportunities as you brought in the focus more towards the total wellness market? Yeah, Jon, the way I look at our end market is basically it's the entirety of areas that address human healthspan. By healthspan, I mean the number of quality years we enjoy on this earth as distinct from lifespan, which is just the sheer number of years that we spend on this earth. When we start to look at what drives healthspan, it's things like your cardiovascular capacity and endurance. We see that, for example, every four points improvement in VO2 max, hopefully people have heard of VO2 max, a measure of your cardio capacity. Every four points improvement in your VO2 max results in somewhere between a 15%-20% reduction in all- cause mortality. We're absolutely committed to doing everything we've been doing with cycling, treadmills, rowers, but also making those products more accessible. Strength, equally as important as cardio. I think we're all becoming more educated about the importance of strength for your metabolic function. Its muscles are the best glucose sink that we have available to us for bone density, for reducing the risk of a catastrophic fall, for avoiding what's called sarcopenia, muscle wasting that happens for some people when they get on GLP-1 drugs. We already have 2 million or so of our members who engage in strength activities on a regular basis. We have a substantial R&D agenda in the strength space to do a lot more there. Mental wellbeing's another category that's really important. It is, in fact, the largest driver of the distinction between healthspan and lifespan, which has now exceeded 10 years in the United States. Issues with mental health have risen to epidemic proportions, especially among young people, whether it's stress, anxiety, depression, ultimately even things like substance abuse. Many of those can be addressed, not fully, not all of them, but in a significant way with things like mindfulness practices. We at Peloton have over a million of our members who are engaging on a regular basis on things like sleep and programs and meditation. We've taken an asset that we built called Breathwrk, and we've been pouring our content into that in anticipation of a broader relaunch of something that we think will be the world's leading mental wellbeing app. Just to take another look at approach to this space. Peloton was really founded around in-home workouts, but gyms are a critical place where people can make a difference in their healthspan. I'm so happy that we own Precor as a business. It's a good business. It provides a foundation for us to not only scale that leading gym operator, but also bring Peloton into new places as well. All of these basically add up to, I think, a tremendous array of opportunities for growth for the company. It's interesting to hear all the opportunities. Those don't seem like themes that would be subject to macro sensitivity. How do you view fitness in total relative to more uncertain macro conditions? Yeah. First of all, fitness as a category, we looked at very large macro disruptions like the 2008 financial crisis. It turns out that fitness weathered that incredibly well. People will cut investments in themselves, pretty close to last on the list. We think the category overall is a relatively stable one during difficult times. Certainly for Peloton, 70% of our revenues come from subscriptions, which are quite sticky, and as long as people, again, continue investing in themselves, we should be all right on the subscription side. On the equipment side, which is roughly 30% of our revenues, there are so many ways to get into Peloton at this point. We're generating over 1/2 of our subscriber gross adds from the secondary market. That's people selling old Peloton equipment, which still works like new, and giving it to someone else who will love it again. When you look at whether it's that secondary market or the things that we can do with refurbished equipment or some of the programs that we've put in place, like 0% financing or special pricing for things like first responders and healthcare workers and teachers, our ability to promote our equipment when we need to, our launch of something called Repowered, which is a Peloton mediated secondary market that, unlike, let's say, Facebook Marketplace, means that a seller can put their equipment on the market and not require a buyer to have to show up at their house. You can have professional pickup and delivery. All of these are ways of ensuring that we keep Peloton's entry price affordable, in case we run into macro headwinds. There's a lot I want to come back to, but this is probably a good point to talk through the improvements you've made as a business, the operating structure, the balance sheet, the leadership team. Yeah Expand there a bit. Let me try to walk through each of those in turn, Jon. I'll start with the operations. We have made enormous progress there. We are on track over the course of this year to reduce our operating expenses on a run rate basis by $100 million a year. We have now reached the milestone where we're generating over $1 million of revenue per employee in the company. The turnaround in our financial fortunes on the operating side has been, I think, nothing short of miraculous and the consequence of that is that the balance sheet has dramatically improved as well. Over the course of the last year, we've reduced our net debt by 70%. We have, at the end of Q3, $1.13 billion in cash. We are rapidly, therefore, approaching basically a net zero debt situation, that creates all sorts of options for us, which I could scarcely have envisioned, given where the company was even a couple of years ago. We've made, I think, similarly stunning improvements on the leadership team that we have at Peloton. Just, I'll focus on the three most recent of our leadership hires. Megan Imbres, we brought over from Apple to be our Chief Marketing Officer. For those who've been tuning in, you might have seen our Hudson Williams ad that has gone absolutely viral. That's the kind of thing that, for a CMO, you hope happens once in a career, and in Megan's case, it happened in her first year at the company. We brought on Sarah Robb O'Hagan as our Chief Content and Member Development Officer about three months ago. Sarah has an absolutely stellar background, having been the President of Equinox, President of Gatorade, CEO of Exos Performance Coaching Company. Really, the absolute perfect person and really the only person in the world I would trust to manage our incredible cadre of instructors. She is already off to a very fast start there. I'm so pleased that we recently announced that Sid Thacker will be joining as our CFO in less than three weeks. Sid joins us from Rent the Runway, and he's both brilliant and a wonderful person. I hope many of you, as investors, get a chance to know him as I have. He's going to do great things for Peloton. That's great. Lots of heavy lift and improving across the board here. Investors ask often about subscriber growth. Maybe talk about the health of your subscriber base, some of the metrics you look at, and any outlook commentary, more generally, you're willing to share. Sure. There's a pretty simple formula for subscriber growth, right? It's the number of gross adds, so the number of subscribers you get, minus your churn, so minus the subscribers you lose. If you just look at the trajectory for Peloton, it's heading in the right direction. Right? The rate of declines in gross adds has been improving year-over-year over year for the last two, three years. At the same time that we have experienced either roughly stable or declining churn each year on a declining base. The last time I spoke about this was on our Q3 earnings. At that time, I stated that we anticipated that we would be roughly flat with last year for churn. That's despite the fact that we did a pretty significant price increase in Q2 of this year, aligned with the introduction of a whole bunch of new value for our members. If you just look at those two lines, they will at some point in the future cross if the trends that I just described continue. The question for my management team and for me is can we bend the trajectory of those lines? Our principal focus is on the gross adds side. The way to move that is, one, for us to be able to innovate in the existing categories in which we operate and make our products, for example, more accessible, more affordable. To be able to introduce more ways to get to know Peloton, things like the micro stores that I mentioned earlier, or our investments in third-party retail. Ultimately, the thing that will really cause the lines to bend is our pursuit of new businesses in that wellness space that I described. Unlocking new vectors for growth. Those are the things that will really kink the curve on gross adds, and then if we continue to deliver on the enviable churn rates that we have as a company, that's what gets it back to subscriber growth. In the meantime, I'm pleased with the progress we've made on revenue growth. After all, this is a business and revenue and profit are pretty much what define success. In Q3, we were able to deliver our first quarter of positive revenue growth in quite some time. We simply have more levers to play with in the short run on revenue. Things like the growth of our commercial business unit, our content licensing, pricing, equipment sales. Those are things that deliver revenue and value for the business, but they don't translate directly or certainly not immediately into substantial numbers of subscribers in most cases. That's where we are in the business. Looking at the hardware refresh from the second quarter, what did you learn? What are you willing to share about the product roadmap here and the R&D that you have in store? The product refresh in Q2 was the launch of what we called the Peloton Cross Training Series. What we saw, really as soon as I joined the company, was this newfound excitement among consumers around the world, in part driven by the launch of GLP-1 drugs, which really became available in large numbers in 2022, 2023, toward adding strength training into a cardio regimen. That's what led us to launch the Cross Training Series, which included not just the ability to have a swivel screen across every piece of our equipment, which made our floor exercises more accessible to people, but on all of our + line of equipment, we used Peloton IQ and our AI capabilities to do things using computer vision, like giving people form feedback on their exercises, advising them when it's time to go up or, if necessary, down in their weights, and even count their reps. We're really starting to play the role of a personal trainer for them. The Cross Training Series is doing great. If you look at the Net Promoter Scores, remember, Net Promoter Scores are on a scale from - 100 to + 100. All our products right now are delivering over 70 on Net Promoter Scores, which is an extraordinarily high NPS level. People are feeling great about it. In Q2, we had in that quarter built into our models an assumption around a very high upgrade rate among our members into that new equipment, that did not materialize. I view that less as a statement about the Cross Training Series and more about a statement about the level of satisfaction and inertia that our members have with the equipment that they already possess. Given that we make 90%+ of our profit on the subscription business, it has no long-term consequences. Q2 was basically a blip from a forecasting standpoint, you saw that it didn't impact Q3. In terms of the innovation roadmap, an investor conference is not the moment for big product reveals. What I can say is that we have a really robust R&D agenda. The near-term focus is on ensuring that in the largest of our current categories, we're able to ensure that our products are competitively priced and continue to be the absolutely best in class. With a slightly longer time horizon, our focus is on new modalities. Going back to what I talked about in terms of bending the curve on gross additions of subscribers, that requires us to break into new areas. Without being terribly specific about what we're doing, our focus is more on strength in that area. I've got a laundry list of things I hope to add to my home gym. We'll see. Maybe expanding a bit more on the revenue opportunities outside of just simply adding subscribers, talk about the commercial business unit. It had a nice growth quarter in Q3. If you could share more about Peloton and Precor, the positioning, and really the opportunity. Absolutely. The commercial business, that market segment, we estimate globally is around $10 billion. Peloton through Precor and the small Peloton for Business line, do somewhere around 3% market share. If you just go back in time a few years, Precor itself had roughly 5%-6% market share in the commercial space. The company really sort of disinvested in Precor. We see a relatively clear path back to at least the 5%-6% that Precor had before. That's things like reinvesting in our sales force and account management. It's revitalizing the product roadmap for Precor. It's providing the kinds of sales support that the team needs to succeed at in the marketplace, for example, with things like financing. We've got a great team in place at the commercial business unit that's working on all of that kind of blocking and tackling and has the institutional memory to know what it feels like to win in that space. We've also given the commercial business unit the capabilities of Peloton. When we talk to gym operators, every one of them says that there's only one equipment brand that gym-goers ask for by name, and that's Peloton. There has never in history been a piece of Peloton equipment that was built for a heavy-duty gym environment. We just announced a couple of months ago the Peloton Commercial Series. It'll launch by the end of this calendar year, and we have a great deal of inbound interest in that equipment. They'll start with a treadmill and a bike that are designed to stand up to the demands of a gym where you can have 10+ hours a day of use on that equipment. It'll bring together the industrial prowess of Precor with the leading experience of a Peloton piece of equipment and designed for a gym environment. We have very high hopes for that business. I do want to reiterate something that I pointed out to folks, though, in last quarter, which is that our upcoming Q4 in that space has some tough comps. About a year ago, there was a lot of noise, if you recall, about tariffs. Independence Day had recently happened, and there was an influx of orders that took place in last year's Q4. Although our Q3 this year was +14%, I wouldn't expect, at least for this quarter to come, that you'll see that again. Again, that should just be a temporary moment, and then we should be in a great place on the CBU, commercial business unit. That's great. Maybe expand also the licensing and non-traditional opportunity, both fitness and other wellness categories. One way to look at Peloton is we are a massive TV network for fitness content. In any given year, we produce about 10,000 episodes of extremely high-quality fitness programming with amazing star instructors. Historically, we've always monetized that through our All-Access Membership, which comes with our equipment, or it's part of the equipment experience, and with our apps, both App+ and App One. Given that we've already produced that content, and so the costs have already been expended, there is opportunity for us to bring that to others and monetize it further. We've done that in the past, for example, by our multi-year deal with Lululemon to provide the programming for their Mirror customers. I'm so pleased with our recent deal that we announced and launched with Spotify. This puts us in front of 100s of millions of people in countries around the world, exposing the Peloton brand to people we would never have met before. Peloton today is only in six countries. Precor is in 60, but Peloton's only in six. Spotify gives us an order of magnitude increase in the number of countries in which we operate. We're getting paid for it. We've already seen a significant fraction of the usage of Peloton content by Spotify members taking place in countries outside the ones where we currently operate. It's a great source of growth and brand building for us. We've also been doing something even within our own house along these lines, which is putting our Peloton content, the sleep and the meditation content, into our Breathwrk app, which can then act as a new on-ramp for people to get to know Peloton and for us to build subscribers. Certainly easy to access in those channels, too. With the minute we have left or so, I'll just ask on the balance sheet and outlook for strategic capital allocation, should we expect to hear more soon on those topics? I mentioned that Sid Thacker is going to be joining as our CFO in three weeks. I want to give him a little bit of time to settle in before we make any big pronouncements or decisions even in that area. We have a pretty straightforward framework for how we're thinking about capital allocation. We're privileged to actually be able to implement a framework like that because of the amazing progress that we've made on our balance sheet. For us, we're focused on reducing our cost of capital. We're simply paying interest rates that are too high. We're looking at being able to reduce dilution. We know that matters a lot. We've been trying to manage, for example, stock-based compensation and try to find ways to engage in shareholder-friendly actions with regard to our capital allocation. We want increased flexibility to be able to do things like buybacks, if we decide to do that. Right now, we're limited by our covenants. Last but not least, we want to make sure that we've got the dollars set aside to invest in our future, whether that's organic investments or the right kind of shareholder-friendly and focused M&A. All of that is what drives our decision-making on the capital structure. Well, I know we covered a lot of ground. I want to thank you and James Marsh for joining today. Peter and James will be available over in the Rockefeller Foyer for a few minutes for a breakout.