Peloton Interactive Inc at Citi Global TMT Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ronald Josey - Citi - Analyst : That's great. There's a lot to jump off there. There's a lot going on. Maybe one of the key things is the questions we often get is that -- you talked about sustainable unit economics and hardware? And so gross margins and hardware, I think, have been improving quite a bit over the last couple of quarters. And so talk to us just more about that unit economics, how you did achieve that call it, improving gross margins. And I think we talked about getting to double digits, and there's a big range for double digits, but seeing consistent improvement on hardware gross margins.

Question: Ronald Josey - Citi - Analyst : And sticking with the cost side for now, and then we'll get into the other side of the business a little bit. The $200 million in cost reductions that we talked about and the $200 million to $250 million guidance on EBITDA. I think we said about half of the cost reductions might have been head count or about that. So talk to us more about the $200 million, where those dollars are coming from.

Question: Ronald Josey - Citi - Analyst : Perfect. And with these savings with the sustainable unit economics, the shift to profitability, and I hate to call it shift because it's always been the focus. But the refinancing got done. And that was a huge milestone, I feel, in the story of the Peloton is back, so to speak. So talk to us about some of the key elements of the refinance. And with that behind us, how does that sort of add to the broader overall story?

Question: Ronald Josey - Citi - Analyst : And with that, we also need -- we heard on the call, capital allocation. And so we haven't really talked about this behind. But with the refi behind us, free cash flow is now ramping. We talked about EBITDA. How do you think about capital allocation going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 2:00PM, PTON.OQ - Peloton Interactive Inc at Citi Global TMT Conference

Question: Ronald Josey - Citi - Analyst : That's meaningful. And that's something we'll be looking forward to that. Yes. That's great. So we've gotten in this last 15 minutes or so, we've talked about stabilizing the business from a profitability perspective, improving EBITDA, cash flow, the balance sheet is stronger, Capital allocation is a potential. Let's talk about the other side to sort of get to that next level, maybe Peloton 3.0 or 4.0, which is the growth side. And so there's a lot going on, I think, on growth levers overall. And so maybe internally bigger picture, with the organization now on a profitable cadence, what is the viewpoint on growth? You just mentioned we're not spending on marketing until we see sustainable results. Talk just about growth, and we have very specific questions after that, just high level. not very, but other specific questions.

Question: Ronald Josey - Citi - Analyst : How would you say -- so understood Tread is two times the size of the stationary bike market. How could we think about awareness of the Tread business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 2:00PM, PTON.OQ - Peloton Interactive Inc at Citi Global TMT Conference

Question: Ronald Josey - Citi - Analyst : Perfect. Okay. So that's Tread and Tread+ is relaunched. So we'll come back to that if there's time. Maybe I wanted to talk about the subscriber base. And then we'll get into like newer products that are coming out here. But that subscriber base has been awfully stable, churn ticked up here and maybe that some of the newer products that are driving it. But just talk to us just how do we think about what could reignite growth within subscribers is the question?

Question: Ronald Josey - Citi - Analyst : And when you said reducing promotional call it, spend and pricing. I want to dig into that a little bit more. I think this Labor Day, we saw some promotions. So we're not getting rate promotions. We're just maybe not offering as high of promotions. And talk to us about that sort of threshold and how you balance those two?

Question: Ronald Josey - Citi - Analyst : And as we think about the cadence of the year, typically, the holiday season, 4Q, 1Q, the colder months, you see greater demand and then people are outside and running, and so you maybe don't see as much demand. From a timing perspective -- can LTV-CAC really move that quickly to two. And I guess bigger picture, is this one year event, a three-year event or two? Or could you see things really happening in a quarter or two, so that come holiday spend or holiday time when wallets are maybe opened up?

Question: Ronald Josey - Citi - Analyst : And that improvement because less promotions this past quarter.

Question: Ronald Josey - Citi - Analyst : That's great. And so let's dive into maybe some of the newer sales channels that I think are interesting. Secondary market, there's a rental, there's certified refurbished, there's 3P retail. Let's dig into maybe and we have 15 minutes. So I can't get into all of them. But secondary market specifically. We love your thoughts. Have you been surprised at how strong that market is? And any sort of difference in LTV of the subscribers that buy on the secondary market? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 2:00PM, PTON.OQ - Peloton Interactive Inc at Citi Global TMT Conference

Question: Ronald Josey - Citi - Analyst : And what do you get for the new activation fee, USD 95, right? And to improve the user experience. So tell us more about what you get for this.

Question: Ronald Josey - Citi - Analyst : Will we be able to test this at a time? Or this which had (inaudible) hard to test. (inaudible) really do that, right.

Question: Ronald Josey - Citi - Analyst : Okay. Let's shift to some of the other ones. Rental, we've talked about for several years now. It's been a great way to sort of get newer demographics onto the platform. I think we heard churn actually improved this quarter. So tell us about rental demographic or just how the rental channel is going overall? How you view it as one of the newer call it growth initiatives. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 2:00PM, PTON.OQ - Peloton Interactive Inc at Citi Global TMT Conference

Question: Ronald Josey - Citi - Analyst : And I'm sorry, so understood, we -- it's for Bike+. Do you think original bike comes back or we have to figure out inventory first.

Question: Ronald Josey - Citi - Analyst : So refurbish has very similar to first-time buyers exactly. And that makes a lot of sense. And that's via channel directly on one Peloton.

Question: Ronald Josey - Citi - Analyst : Speaking about channels, 3P. That was a big deal with Amazon and (inaudible) and several others. Tell us more about that as -- I think we heard on the call some change in -- it could change in terms maybe with some of these partners.

Question: Ronald Josey - Citi - Analyst : Trying new ways, that's great. So in Austria, 3P completely, lessons learned going well and allowed you to get -- Germany has been one of, I think, one of the earlier international markets in terms of content for Peloton.

Question: Ronald Josey - Citi - Analyst : Perfect. So we've covered a lot of topics here from, of course, the cost side, the refi, but now into growth. other modes of growth, and Liz you sort of -- you've highlighted it, folks can do more on the actual hardware itself, the entertainment, you can read, you can watch. How has engagement trended overall on Peloton. Now that you can -- gamification is another thing. There's many more things you can do on the bike in the tread than you could in the past.

Question: Ronald Josey - Citi - Analyst : Right. And this is irrespective of hardware. So Strength+ app is now live in beta, anyone can download it?

Question: Ronald Josey - Citi - Analyst : Yes. Got it. That's exciting. That's great. Looking forward to using that more. Private (inaudible), there's nothing better than a high five from a celebrity, so this can even be better. And personalized plans, that's -- what I'm trying to get at is all of this is on the software side. You currently have an R&D tech staff that's already there. So as we think about Peloton going forward, more software improvements like this, you can do more on the bike, you can do more the entertainment, the reading.

Question: Ronald Josey - Citi - Analyst : So we have about a minute left. I did want -- one of the questions we get off and I wanted just to highlight or ask you about this is the churn factor. So churn has ticked up. Do you see it's leveling off at any point? Or how do we think about leveling off when we think about rental in 3P and certified refurbished and secondary market being drivers of growth. So help us understand about churn.

Question: Ronald Josey - Citi - Analyst : In the meantime, profitability is there, free cash flow is knocking on wood there. And so we hope to stabilize that top line. So it's a good way to end it. I think we're in over time. Liz, thank you very much for the time, learned a lot, and I appreciate it. Thank you.