Peloton Interactive Inc Q1 2025 Earnings Call Transcript

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

Question: Simeon Siegel - BMO Capital Markets Corp. - Analyst : Congrats on the ongoing progress and on the new CEO announcement. It's really great to see. So, some really nice momentum here in the profitability trajectory. So Karen, recognizing I'm about to ask you something to speak on someone else's behalf, I guess I was hoping you could speak to how you think or expect Peter would approach the balance of growth and profitability. I'm wondering, do you expect any actions that he takes will flow quickly once he start? Do you think you're going to have a taking stock period? It just it seems like you've all done a really collective nice job on diagnosing the problem and you're already successfully affecting that plan to improve the free cash flow. So I'm just curious if we can assume that that continues or whether it's a wait and see. And then we'll watch how Peter wants to approach the business anew. Thank you. Karen Boone - Peloton Interactive Inc - Interim Co-CEO, Interim Co-President, Director Thanks, Simeon. It's absolutely on our mind, it's absolutely the right question. It's how we're going to balance profitability and growth. And it was frankly, top of mind for the Board as we were looking for the next CEO. Peter is the right CEO for this chapter. He's a seasoned strategist. He's known for execution. And he does have that strong track record of driving innovation and growth. I will pause and just said, do you think we've set the table for his rival? Job one was refinancing the debt in May, we did that, we stabilized the balance sheet and it's put us at a much better position to manage our maturities. And Liz has talked a lot about the progress on executing the restructuring, reducing inventory levels, focus on profitability to generate the cash flow to allow us to begin deleveraging. So we do feel like we now have that stable base upon which to grow in the very near term. And I don't know how long this is going to last but we have been managing an uncertain macro environment and uncertain consumer backdrop, there's been weather and hurricanes. We have a very intense focus on election. So we've been focusing on what we can control. I don't expect that to change under Peter's leadership. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 12:30PM, PTON.OQ - Q1 2025 Peloton Interactive Inc Earnings Call We've been very clear that we're not going to chase unprofitable sub growth, and we've been much more disciplined with spend up and down the P&L. Our media and marketing investments have been much more thoughtful. And we're optimizing our unit economics by product and by channel. So those are the things that I do not expect a change where we're going to continue to monitor those and kind of see what it makes sense to transact on some of the growth spending in more meaningful ways. But I guess, make no mistake, that that's not kind of where the story ends. Innovation and growth are still very important to us. It's an and, it's a both. We are making investments in content and product development, both software and hardware. And marketing growth is important for this very important holiday period where we are unlocking marketing dollars. And again, this is going to be a big part -- Peter is going to be a big part of this equation. He has the relevant experience. He has a track record and a large portion of his compensation is going to be designed to balance those and drive both profitability and growth. So his incentives are well aligned with those goals. I think, of course, he's going to have -- one of the things I love about him is he absolutely has a growth mindset. So, of course, I think he's going to have a taking stock period. I think we wanted to come in and learn what has worked, what has not worked before he just kind of, you know, fires before he aims and [learn]. So I do think there'll be a taking stock period, but I'm really excited about his arrival. He is, I believe the guy who is going to come in and stress -- set the strategy that is going to return to growth. He is very bullish. We all are very bullish on the health and wellness space, the share of wallet that is going to go to this category. So again, he's going to spend time learning. We will spend time aligning on where to go, how quickly to invest. And again, I do believe he's the right leader to return us to growth. And I do believe strongly that under his leadership, our brand is well positioned to be a long-term player and the absolute leader in this category, Christopher Bruzzo - Peloton Interactive Inc - Interim Co-CEO, Interim Co-President, Director As you can tell from Karen's remarks there, she and I have been very involved in this process and with Peter in particular. And so we're very excited. He's really aligned. All those conversations have been so positive. So we know we've got the right leader that's going to bring the right balance and focus on growth.

Question: Simeon Siegel - BMO Capital Markets Corp. - Analyst : Sounds great. Thanks a lot, guys. Best of luck for holiday and nice job.

Question: Brian Nagel - Oppenheimer & Co. Inc. - Analyst : Hi, good morning. I too, would like to add my congratulations on the business and your CEO announcement. (multiple speakers) So first question, I've got two. I'll ask them in order. For -- just on the balance sheet. You talked in the prepared comments about '25 being a deleverage year. So I guess the question I have there is maybe you could go into it a little more detail. Clearly the business now from the P&L standpoint is much more stable. You're generating cash flow, but are there any specific steps you can identify here to address the balance sheet, in particular, the debt that remains on the balance sheet?

Question: Brian Nagel - Oppenheimer & Co. Inc. - Analyst : That's very helpful. Go ahead. Sorry.

Question: Brian Nagel - Oppenheimer & Co. Inc. - Analyst : I did. Thank you for that. And my follow-up question's unrelated. But there's some bigger picture too. Maybe a little -- it's probably a better question as your new management team takes place. But if you look at the -- I guess I'm looking at the business, one of the positives has been the ability of Peloton to really maintain that core base. You talked just a few minutes ago -- about moments ago about your still very low churn. But as you're watching the business and if you stabilize the business are you finding -- or is there anything you could help us with this like you're finding those incremental pockets of new demand, those new customers that could come into the Peloton system? Christopher Bruzzo - Peloton Interactive Inc - Interim Co-CEO, Interim Co-President, Director Yes, hi, this is Chris. That's a great question. And I think it goes straight to the kind of discipline that we've been talking about in marketing. A key part of that is who are you reaching? You know, and what the opportunity and what's the message and how are you doing that efficiently. And I think we've had some really great success just recently in focusing on men -- in the prepared remarks, you heard me talk about two-thirds of our current members are women. And so now we're targeting the male demographic in our advertising. We've done some more buys during NFL games, we featured the Watt brothers. But more importantly, the campaign and the work that we're doing is expanding our reach, and we're seeing in the data that there's a shift toward men in new hardware purchases, and with the greatest shift within that in the Tread and Tread+ products. So we feel really good about that. And it's just an indicator of the way we're thinking about the marketplace now, which is targeting, as you said, targeting those discrete pockets and then being efficient and effective in the way that we're reaching them. I should point out that here in November, we're going to be holding a lot of member gratitude events and messages, and that's another a core part of this, you know, activating that incredibly loyal base to refer and engage their friends and family to bring them into the Peloton experience, you're going to see us do a lot more of that.

Question: Nathan Feather - Morgan Stanley & Co. LLC - Analyst : Hi, everyone. Thanks for taking the question and really encouraging to see the progress on profitability. As you think about how to drive sustainable, profitable growth, interested to hear how you're thinking about where physical retail fits in as a component of your go-to market? Especially given the Costco launch. Do you see some portion of the customer base who are more willing to convert in-person than online and reflecting on the own stores (inaudible) where you see the potential to improve performance versus the prior format. Thank you. Karen Boone - Peloton Interactive Inc - Interim Co-CEO, Interim Co-President, Director Sure, this is Karen. So on retail in general, I'd say we are still on the path to close some of the underperforming retail stores that then we'll have them this holiday season. So the team has put together some really thoughtful activations in a subset of those stores to bring instructors and magic and excitement to them, to make sure they're not --they're still representing the brand well, and we can engage with our members and new customers and have some excitement around this basis. We are testing to the point on how we might re-imagine that we're testing of smaller micro store concept in Nashville. So it's a way to do it in a lower capital, lower payroll, lower square footage, but still have a physical presence. It's also the reason why we are exploring additional 3P locations like Costco. We're hoping that reaches an incremental audience. We have -- we're so excited about, you know, a lot of people shop on Amazon, we're happy to be there and trust Amazon with, you know, they're just -- that's part of their daily routine. And then we still have the Dick's Sporting Goods. Internationally, 3P's important too and it's a much more capital efficient way for us to rollout. So retail, I would say, is in the reimagine process, it's not going anywhere soon. We're going to kind of optimize the mix between 3P and 1P and make sure that it makes economic sense and reaches as many new incremental buyers as possible.

Question: Nathan Feather - Morgan Stanley & Co. LLC - Analyst : Great, very helpful. Thank you.

Question: Shweta Khajuria - Wolfe Research, LLC - Analyst : Hello. Can you hear me? Christopher Bruzzo - Peloton Interactive Inc - Interim Co-CEO, Interim Co-President, Director Yes, we can hear you.

Question: Andrew Boone - Citizens JMP Securities, LLC - Analyst : Thanks so much for taking my questions. I wanted to double click on the reduction in marketing this quarter. Can you guys talk about the learnings as you guys did pull back there and what may be incremental? And then as we think about that 2x to 3x kind of LTV to CAC target, can you guys talk about the path back into that framework? And then for my second question is, I'd love to double click in terms of Connected Fitness gross profit margins. You guys have seen steady improvement there. Is that kind of the ceiling? Or do you guys feel like there's more progress to go? How does that move into a step function and maybe in the double digits? Thanks so much. Christopher Bruzzo - Peloton Interactive Inc - Interim Co-CEO, Interim Co-President, Director Yeah. I mean, I'll start and then Liz, you can chime in. I think -- I would say the word at the top here as it relates to marketing is the discipline. And I talked about it in the prepared remarks and I talked about earlier in the Q&A, but effective audience targeting, being effective in the way that we're optimizing our investments, the way that we're focused on the entire picture --marketing picture, including a retention engagement of our existing members. These are kind of the key hallmarks of what Lauren Weinberg, our CMO, has brought in this last year to Peloton. We've gone from being promotion heavy, to one that -- to a place where we're now balancing demand creation and desire with those moments where we can capture demand through conversion events and promotions and seasonal opportunities like we have coming up in the holiday. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 12:30PM, PTON.OQ - Q1 2025 Peloton Interactive Inc Earnings Call And then you see the numbers. We've significantly reduced our customer acquisition costs. We've become much more disciplined in our media spending. And a lot more focus on where are those qualified growth audiences. So all of these areas, and I'm really impressed with what Lauren and her team have done and the way they, I think, set up a Peloton as part of this broader effort at the company to create a solid foundation of sustainable and profitable growth. So you can expect that to continue.

Question: Brian Smilek - JPMorgan Chase & Co. - Analyst : Great. Thanks. It's Brian Smilek on for Doug. As you enter the holiday season, can you just talk about which go-to-market channels and initiatives are key to just driving improving seasonality and higher hardware sale. And then I know we've talked about it in the past too, but can you just provide an update where the Connected Fitness industry is in the overall cadence of return to growth and rate of decline? Thanks. Christopher Bruzzo - Peloton Interactive Inc - Interim Co-CEO, Interim Co-President, Director I'll take the holiday question. And Liz, you can take the other one. I mean, we're entering the holiday season with cautious optimism. I think we talked about macroeconomic factors that are out of our control, but we're focused on things that are within our control. And I'm just going to be a broken record and you can expect us to spend this in a disciplined way. We'll spend less on media this year, we'll be less promotional than we were in our holiday season last year, and we will continue to manage our LTV to CAC ratios in the right way. But we're excited about, as I mentioned, ways of getting existing members engaged and involved through referrals, the way we're targeting the pockets of growth, and about new third-party relationships like the one we just discussed today related to Costco. So when we can do things like have our Bike+ available with special bundled pricing and extended warranty like we have at Costco -- that we're doing at Costco, that's another great opportunity. So we have a strong plan. We're prepared and I think we're going to focus well this holiday season.

Question: Eric Sheridan - Goldman Sachs & Co. LLC - Analyst : Thanks so much for squeezing me in. Maybe just one question on content. As you continue to sort of build learnings around the business, and think about where the strategy is going to go over the medium to longer term as Peter joins, how do you think about the right levels of investment of contract, duration around content, and the role that content can play in continuing to drive sort of end demand of the user side and engagement and sort of conversion metrics over the medium to long term? Thanks so much. Christopher Bruzzo - Peloton Interactive Inc - Interim Co-CEO, Interim Co-President, Director Yeah, thanks. Well, I mean, content is absolutely at the very center of our experience, and our instructor-led content is the hallmark of what makes for a great Peloton experience. So there's that -- we're going to continue to invest there and to innovate. We've done some really interesting things just in the last quarter around bringing new hiking and walking experiences to the treadmill, walking boot camps. We're doing some programs around taking walks after meals, which will be irrelevant as we approach the Thanksgiving holiday. So there's lots of room still happening in that space. We talked about All For One and the music partnerships that we did there. It has been and will continue to be an area that's it incredibly important to us. And yeah, I think that will continue.