PTON - Earnings call transcript Q2 2020 | Peloton Interactive, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Peloton Interactive Q2 2020 Earnings call. [Operator Instructions].

I would now like to hand the conference over to your speaker, Ms. Alison Brightly, Vice President of Finance. Please go ahead, ma'am.

Alison Brightly

to year quarter ending welcome for conference and fiscal our June afternoon, Peloton's earnings second call Good XX, XXXX.

today's Co-Founder Lynch, on John Woodworth, us call your answer Joining questions our Foley, CFO. our President; and our William CEO; and Jill to are

our today's to of the Form at copy SEC Relations of on Investor has letter on shareholder A www.onepeloton.com available and is the section website furnished been X-K.

reflect are laws. due materially implied differ responses that with management's like risks under statements to as in remind these by forward-looking that to associated federal begin, to Actual results your and or business. contained we and those questions only securities and may statements related forward-looking I uncertainties would from today our Before statements to views business our of you include comments will our

can a actual filings For impact today's both could and of our risks website. SEC to which material found discussion factors letter, and other that important the be results, shareholder on refer our please our of

During is this of financial GAAP non-GAAP and GAAP shareholder to we A measures both financial measures. non-GAAP in reconciliation today's letter. will provided call, discuss

remarks. With will begin opening turn John, to who that, a few the I'll with call over

John Foley

today. Thank Thank for you, you Alison. joining Hi, us everyone.

are would We second expectations. results financial share by for saying our quarter. results like the to excited our I that start our to significantly exceeded

a allows Home bike and across will which holiday our in moment. Our of XX regions, days, a members all to results Trial, in drivers strong some lift from were performance impacted Jill for introduction positively conversion the the discuss risk-free by additional try prospective ability

member Peloton. our appreciation want Net an every member and the to during are specialists, part dedicated and Promoter field team frontline busy including to great give a Most of We member that teams. execution know starts sales operations inside overall experience of due special important our sales delivery a results and season each support experience, great holiday to importantly, teams delivery the and employees with our showroom recognition a global and great I at Score. our

few Let's platform. XX% now year-on-year into ended QX million with our on fitness a We jump QX. have right highlights over over members subscribers, connected XXX,XXX X representing growth. from

out from million QX, Our monthly subscriber, XX% over more up subscribers connected Peloton year subscription. ago. times that per us X.X did in a period value our working are more with year in their connected fitness XX.X workouts averaging ago, the a they worked connected from getting XX.X monthly means workouts That fitness subscribers same fitness than out even

noncycling verticals of XX% app. classes. taking noncycling connected addition, subscribers are our excited making in by the classes, are were connected our taken classes In and fitness and incredibly new subscribers more our about In QX, fitness digital fitness investments more making the us we over

Importantly, low our a engagement connected monthly net QX. of fitness average strong led member churn in subscriber to X.XX%

want and I share fitness a on membership. few thoughts to home Lastly, our digital the category

of offer offerings content. with streaming instructors, the continue We from as fitness have Peloton fitness and digital and a experience and/or time, locations, smartly maintain Over see selection But and entering broader lead. to every accessible leader plan category invest pioneer time-shifted make with products, companies different will consumers the that major to across people more first-mover new much continue consumption across the #X to vertical goal We with in innovative and clear is order all content angles connected better connected strong to fitness more that in to undeniable advantage, software demographics. we to to an our hardware experiences limited interactive better better several migrate do our other interactivity. conviction space

strong With reach our consumer, addressable have before, high-volume broaden to unit subscriber best our we portfolio. us a economics, on increase have allowing market. pass opportunity savings efficiencies product the is and to to we better and an to our see marketing goal long-term discussed scale As production,

aspect companion in digital-only made and changes subscribers. driver our to and value included of around In for important important we maintain some will fitness Peloton increased connected and been One connected of engagement and trial. in has a an fitness. fitness our our app win fitness Digital to the fitness started also strategy Access to connected app important Peloton QX, the for connected subscribers. to leadership continue as is subscription accessibility, to in price Digital is be

days. We subscription to We $XX.XX digital believe per opportunity and lead for over a broaden more the products. will as the However, connected saw of strong free in tool has the to to digital digital Digital members by classes, to period sale We from as to digital funnel community. organic fitness powerful well. see members generation the instructors lead fitness owners fall connected more and lowering love us subscribers XX time, the Peloton the big conversion incredibly our with trial extending become an product month

reminder, connected As subscription while single available a a fitness our is to to subscription access user, the the limits digital entire household.

breakeven. already drive expand against we to we us continue allowing will connected we to see the our for churn, the content ratio, which create software, content continuing more to our on fitness over app subscribers, in spend our our lower around digital will is to our price, member base. run lower CAC it philosophy our LTV to time, that given marketing digital At investment as believe at better current improve especially and we dollars Also,

your hand every screen is available your and goal Our to make Digital Peloton in home. on in

We and We give a in that Fire Peloton the list coming in of to both quarters. differentiate an TV growing Amazon our offering several were immersive app the more add app best the add and Watch capabilities hope value an to platforms Apple members excited to fitness.

the year. hand our Jill? of Jill balance provide QX to to I financial information for now will guidance And and it the additional results over on

Jill Woodworth

John. Thanks,

of Revenue million, was Turning to QX $XXX our financials. year-over-year for representing growth XX%.

conversion the our reflect results by a global date strong our from Trial, and in driven Home omnichannel growth holiday noted, uplift continued showrooms. largest program to marketing John As

to bike our Tread U.S. exceed addition sales continue healthy results business, expectations. for In our to

a also we in better-than-expected saw of markets. From performance international perspective, each our geographical

are with entry U.K. fence impact We sales of pacing into in our pulling Home the Germany, single-digit meaningful our Trial the The many rates. low fall are our successful of improved introduction a conversion XXXX. especially launch quarter, on customers return where with off in pleased without having drove bike

gains Trial conversion the expect an it less we as part experience. ahead, newsworthy expected Home to moderate sales becomes of of our and Looking

X and also promotion largest we ending our period, the both tread year Monday. weeks Cyber holiday for the of for ran the During bike

time Thanksgiving longer our the to period to in sales the year, Given treads later allowed fell the and deliveries that us arrived in and promotional bikes holidays. better for ensure distribute

Our to and guidance. This in our and the previous holiday logistics scale an than our investments period point allowed supply delivery hiring us to expectations. will seasonal times self-scheduler, order-to-delivery achieve versus shorter in QX important chain be of much discussion

improvement has our fixed was mix to the XX.X%, at our same platform. the by respectively. leveraging Gross gross decline cost lower margin continued driven content fitness and due logistics due by year-over-year XX% base. XX.X%, use than both we as period better-than-expected gross continued shift past versus offset cost our Subscription year-over-year margin and Bike. was improvement acquisition margin scale of in margin, last strong The was showed improvements in for and Connected QX margin margin our the currently subscription expectations. surpassing a leverage and These helped significant the our year helped contribution Tread, faster XX.X%, lower product which expected gross to subscriber Tonic to improvement, a cost

improvement saw streaming also We versus costs in expectations.

and of leverage, in adjusted negative sales margin flow-through EBITDA $XX.X gross adjusted EBITDA of X.X%. we our drive were sales able million Given and strong fixed and margin an negative performance, cost resulting to an

of ranges, aim Before in QX our of I year, In guidance our addressing expectations performance. philosophy reasonable the is balance for want guidance to discuss results. convey our to providing future the light

This to our of year-over-year Trial; outperformance: and holiday order-to-delivery number conversion Home led revenue from by traffic; of growth, increased narrowing churn aided stronger-than-anticipated significant window. lower-than-anticipated strong quarter, a a the factors

we better the variability we sources forecast financial model. ahead, key understanding a Looking in our have believe of of

a performance have sales Specifically, the better of on rates. return Trial into we Home and view impact

our months benefits We lastly, forward us, in also map more will with on closely behind volume the guidance. results have logistics. supply now And the and our heaviest to investments chain from more we moving clarity believe our

For QX, midpoint to end XXX,XXX subscribers, XXX,XXX at range. expect growth fitness connected we the to year-over-year representing quarter the of with the XX%

ending guidance to of XXXX, range raising XXX,XXX year-over-year to XX% fitness XXX,XXX the For midpoint growth fiscal subscribers, connected at the representing our range. we year are

observed return off XXXX, higher net be the in the for expect fitness recent Trial for of Home trends QX lower prepaid churn, those subscriptions. We below X.XX% and connected rolling full monthly retention X.XX% average to in fitness of year churn which reflects below fiscal and rates connected

to XX% revenue net QX. worth $XXX for We impacting This midpoint. pointing couple at subscriber expect year-over-year revenue million $XXX of for that represents factors out. are year-over-year growth are fiscal and There of a XXXX QX growth million

at that of recall quarterly delivery connected time the time at please fitness windows First, of phasing we impact performance. recognize the not the revenue of our can product Therefore, delivery, order.

had fiscal we caused pushing very thousands a year XXXX, unfortunately, deliveries holiday, into fiscal order-to-delivery of XXXX. QX that long QX strong outperformance, In of periods, particularly and

delivery our on so was past This self-scheduler. experience we in holiday, days shortened have windows holiday Our our been last logistics and order-to-delivery the year why by expectation. out infrastructure our reason versus focused several rolling this we investing

product subscription fiscal X,XXX QX majority representing third majority subscriber. in bike preorders revenue growth to means didn't XXXX. a subscription, result, connected that owners. nominal for Tread fitness bike about Tread roughly fitness creating the This XX tread go QX for had during QX. a of expected preorders these into household, quarter, revenue estimate deliveries into X% revenue we preorders by delivered Tread charge points. and new for only We these a these result over same impact existing activations year-over-year comp in a because challenging and a growth in the of deliveries one vast QX, which most the for Also fiscal When from of XXXX, a impact As of subscriber the we connected percentage QX in growth on shifted went

on to billion, $X.XX at representing For raising $X.XX guidance are billion to year-over-year XX% our the midpoint. fiscal revenue XXXX, growth we

and margin. efficiencies Our fitness outlook in connected gross both reflects subscription margin

improvements, guidance are impact margin costs cost product streaming includes leveraging reflects guidance the to sales which margin of Subscription fitness costs. contribution offsetting savings connected production of and of international. negative the mix and Tread content faster improved shift in fixed Our margin

this Additionally, we use at time. incremental any assuming past content cost are for not

margin connected XX%. to XX% of gross we XX%, XX.X% expect QX, margin in fitness to margin of XX% to XX.X% gross of contribution margin and overall For gross subscription

contribution subscription margin gross year fitness XX.X% connected fiscal expect margin margin XXXX, to XX.X%, we XX.X%. of of to and For XX.X% to XX.X% overall of XX.X%

XXXX, QX midpoint and of in $XX EBITDA adjusted range For at ranges. revenue $XX adjusted and we million margin of negative negative negative EBITDA to million the the expect EBITDA an X.X% of

adjusted fiscal margin year midpoint. to in million XXXX, range X.X% negative $XXX expect For EBITDA of and we the of at the million negative an adjusted EBITDA $XX negative

turn operator over now your to will it the I take to questions.

Operator

Instructions]. [Operator

question Our from first Anmuth with JPMorgan. Doug comes

Douglas Anmuth

wanted price digital I about strategy two the understand accessible, your but price just and on you the you're seeing to cut. then ask. want with quarter. the And about more the also talk to Just more platform John, easier the leverage digital since make in there? to for competition the you're you you first, trade-offs Can early ecosystem talked and products And late and grow I cut making what content. also the it your

you've should features some within features how social months. teased we updates Can significant about just next the And over importance those few to the secondly, software just also, the talk extend digital? then to platform? expect of And you

John Foley

Yes.

about digital, we of the expanding we're So to excited the as funnel, top $XX.XX. said,

other any digital that seen bike create get traction, celebrate because trying it inferior our advantage the they an we that you it's screen Obviously, subscribers, To and some the an in into players don't our of Peloton - and of a all any these from interconnectivity would the leaderboard get are big content. haven't marketing really of the some the We is extent stuff to haven't and these. introduction inferior we on and ecosystem, becoming all experiences. it's dramatically special take which seen these hardware of they experience we've community the because and and that and pure seen, special

universe buy not to lower-priced extent product So that's taste that our members you're basement see allows buying exposure to all the members into will the having we're have that content continue entrée an digital say believe to a let's you strong as conversion our connected content to and bike a bike about interconnected, the we that it spin our you as into without in in fitness connected seen. your excited from spin to And and and interested stuff. easily instructors we've we advance, in or fitness

about that. us. excited we're That So scare doesn't

make of to the want to totally to Doug, content. if with do that, sure things, it's going One that is we somebody be is Peloton honest,

content, company, with So studios we are we in other wants our that servicing who with fitness believe investment to scaling instructors devices the that platform-agnostic the Peloton and we are as - do customer say so investment that and the investment a technology in our the connected we content.

it's strategy. think a really smart I So

excited. We're

point metrics the from are XX-day of and Trial. free early All the lower-priced $XX.XX the to price Home our switched

bullish right we're that. in going and All indicators of on direction, very the and what leading are we're for business confident seeing that across the

features. social on thing second The

We in digital, queue for fitness offering have really connected have do a we social that matter. the - for and couple of some the features sexy for

We of have software. a in lot innovation

to of are some When our going have and but protect iOS because going for for members effect are great not hundreds from it, lines. you to best it's that, City strengthen York the about and us business. and moat Python They we it's going to on want We're our all perspective. and moats a of our announce know product We software high a Android social and priority the us gamification, call, with network think help the in some protect and social. working writing they code engineers New

Operator

Our will Sachs. from next Terry question Heath Goldman with come

Heath Terry

quarter, you I can Great. actually us that actually flowed you a cost this give Jill. how impact how much a financial the for guess sense owning from Jill, one contract structure? statement of through or saw your income the manufacturer

of about well as And as you the to rollout few your some markets rollout starting the the then, you and months your as with results at U.S., look internationally U.K., markets a in of the in and sort feel in more are the John, international initial how Germany U.K., of pace Germany additional Canada? beyond

Jill Woodworth

Great. on impact fitness effectively Heath, very majority Tonic. see gross where quickly of from margin, so the you connected the that's

associated Tonic, our our were with saw, connected the So reflect it of as outlook very, also the we our that's fixed other quarter, of so as accounting the we given we outperformance. of leveraged product but a and in where being from said, staff hits now to our G&A such they're certainly, There's that the well margin improvements quarter, for pleased - our platform, logistics really really our and immaterial most. for very quarter sales finance cost other And need contributing our G&A Taiwan do as a fitness performance small some also XX.X%. margin amount cost That we with some expenses, amount in small.

to connected our and So guidance we margin. improvements, you Tonic, go-forward due our in cost on - those will acquisition have fitness incorporated product of

William Lynch

On very we with U.K. very It's launch. pleased news. successful Lynch. our notably Germany really the which ahead it's Heath, are, good international, is - William of then far, launch, And so

now, In largest we us markets Germany, so fitness terms of as the U.S., three those U.K. X X moat. well. fitness are building markets are half world, Those in markets has and that in over strategic excited of a the spend, subscription and the

we We those markets. early the go you there's focus the U.K. to markets growth U.S., Canada, and we're on going setting plus we're to in, If of studying we're three to we're we're I the think lot on mentioned we're if forward, But other the on we're going you very going markets early four what think into. look in as do at four - a as in in

so strategy expansion over the to that's international next your couple look we question, in answer And quarters. as the of

Operator

Our Merrill next question Lynch. with comes from Justin Post

Justin Post

and out? either for And of create that impact over for one maybe a competition X lower-priced November, the Have does your John get seen months, and lot Any January, pricing? bigger Maybe in a any December you there? months. tread one a urgency of on to Jill. John, or entered busy sense new units last impact

can products? the on just or quarter, And year-over-year commentary contemplated in any quarter on your in in average ASPs, Jill, what's outlook the you fitness provide ASPs connected

John Foley

question on Good competition. Yes.

super later and we opening. behind about We our can not competitors, are and fitness call we products, part software. be will talk expect new opportunity, that honest. That obviously continue more the to are content We about surprised on to talked connected confident position, our our invest to little aggressively investments a community. on the coming realize connected are we leadership others and of We fitness our studio the bit said, in

are to hardware. be We going innovating on

- our across we're strategy product the categories best about know better about You in. you know that

we any prices or need good. the have we question, To pressures to seen that feel like. So answer not our direct impacted change have your

again, feeling a innovation company, I note for doing we've what competition. past hardware, plan and an macro It But all affordability will been say towards X of strong to innovation core means people. democratization that on which like an mentioned is Jill fitness, continue years, has the earlier, eye we innovating my the across and content, for to and software with been affordability as

at our what that believe, front. mean I kind I that know going quarters to we have it's this the And to we that and words going show in believe if you that anyone actions our going so be to of we're Peloton. And just Peloton, disrupt it's is point, to are through on ethos so cheap coming

Jill Woodworth

Monday. X-week mentioned it promotion. Cyber just year, the this up we versus was QX, holiday to leading that to And we a obviously, a promotion due QX primarily in on context, lower put the average earlier, was run fact price, And QX to selling as Great. into it

well year-over-year. is is driving So really as decline that some what sequential

have a selling Tread year in expect reserve to QX average do the have lower. product it's Also, And financing return things, delivered we treads For of it our what we of associated year. penetration higher preordered per did penetration do price of than Remember, year, we be. expected It's with large a Trial, ago. a a number also, by than we higher had of again. we last the of actually slightly couple to driven albeit lower the we Home be lower back balance

that you the in are And the ones then, attach that mentioned. I rates mix, vary in, warranty geographical addition can many there know, inputs average selling price. Obviously, to accessory as so and go

think see the you'll revenue balance through of So guidance what a again, our in I is lowering slight the year.

Operator

[Operator Instructions].

next Our JMP Securities. Josey with question from comes Ron

Ronald Josey

I quarter. wanted the lowered you to ask several talked Jill, about, and being Self-serve helped supply here. by about order-to-delivery scheduling tool chain in days windows

Just other can about the you the drive in help better talk that deliveries things quarter?

And on just conversion return better talked Trial, increased overall benefits the a about Home then and sales rates and on and you secondly, view rates.

Home on would sort any be helpful. Trial lessons here of Just learned

would product. you or think a I forward. mentioned that's moderate wondering the just change benefits And just in newness if I'm the of going approach marketing

Jill Woodworth

Great. No.

one and going second one. the I'm So chain, have I'll then the chime take on to William supply first in,

William Lynch

we're for the pleased, that also not were closer only on but warehouses team. year, and vans does kind year spread as that we and a ops to members, XX this, to the Jill. coordinating And also footprint, with which our drive of great U.S., in noted, has team Ron, really that certainly, warehouse trucks way we job and have such what members Jill able our could Thanks, forecast treads bikes And it is win performance. so rate brings last we from our across huge this the we our customers. and logistics a to and now half done do but is cut order-to-delivery the

is we've traditionally been pulling making has in set And in last up shift have and years in and the that think us a into we X-plus QX of what the investments over of which deliveries what really lot to about, we the Jill would future well so been QX. led talked sort

John Foley

is from it's And really this QX jump did it Ron, a place. And Last year, recognize which sales that us twofer. it's took long a bad at which we year, a were revenue that let delivery. to think the it when - great and QX delivery deliveries a impact into of getting because we question, there, me in takes guidance lot time QX, I pushed in were the order the in

them artificially pushed QX. we Jill into inflated. and was this, decel, a a So year-on-year to explained then delivered guided that things did QX, But year, comp, make been we everyone pulled into them in from was not, sure it. which members. which we for got we And a last I our looks sold it essence. QX QX, as but might thought want was win QX, we it in in optically We that the this opposite, like just have QX,

Ron, And question. digging that a so our than better I'm order-to-delivery shortening. - glad, It's great you're into

Jill Woodworth

Trial, now big Great. of driver logistics And we the in and go Home another just of then addition to efficiencies back that obviously, on QX some have to in performance our delivery. our

return the - on than conversion and the its We single-digit pleased were low with rate. we quarter excited the very the fact forecasted you were uplift by already also performance. on our were our impact and Home moving rates return Trial very lower needle that really extremely not in the from If

to So are new their it's use "Will this?" able And it. customers purchase been keeping the down overwhelmingly, break I because and exciting we've product barrier using our of

we're about excited So very that.

in terms it but it in lift looking with QX, think program a a I think So had change. forward yes, great I of is Home Trial,

has do And becomes newsworthy that the we a less and that consumer in of But experience, moderate pulled of the time. over terms to buyers fence. off the certainly, whole months, as so expected expect in initial it lot we do think more it weeks sales and

very So pleased the with performance. again,

Operator

Martin question next Laura from comes Our with Needham.

Laura Martin

for one you. John, numbers. Great

digital, controversy lowering over digital-only the My do of ads of into it's tier ecosystem. as the risk people lower TV I higher And digital fourth find this low-priced do ads? a television little price it b, versus the clever given a love digital has on-ramp conversion the I the some in this a? quarter. you think then on-ramp because So now, the question trial had is idea the you rates the the of through Does we

John Foley

I'm totally It's I I people more question. the really saying as sure you glad impacted with I opening the the advertising digital into know not or do aperture But I'm how don't increases - Laura, ecosystem. getting strategy. our what like the it the well. understand and you're risk. it

Laura Martin

the Lowers risk.

yes mean, digital what's I I television So so versus just rate, subscriptions? - the ads conversion it - mean,

John Foley

they see. a I acquisition I and direct digital out-of-home Over see. will one multichannel and ebbs dollar. and flow. and the I is But these as time time, we market efficient got you. I marketer, tell most mail are with marketing, cocktail that multi-channel all things ebb to Well, digital we work as flows you, and stores, our digital. efficient vehicle. in and television concert and will a do an January of in marketing the each

biting Year's are fish fish New resolutions. around the You've kind while of

- marketing January one digital definitely it to And be be heaviest won't aggressive. the then went for summertime, we app. our So the months will of as in

- the quarters me. we coming that which CAC, exists, have business to see coming a a effectively about model years, economic run could to around. and business considering So free, it's as world in coming connected business could purchasers in very exciting then to that breakeven, digital X more and future weird but thing effectively the it we But we can the flows, and get brain is your this fitness content at ebbs opportunity breakeven, that again, learn that a is unit you if

So we have hopes. high

and Karina woman, Kogan, this her digital incredible run again, and who And executors. team leaders are

as that. we high as we the that business. grow the vast, But still, for big the I are business acorn but excited of mean, get our around into about know, digital majority you could So again, connected and fitness vast financials a oak, hopes have an vast,

Laura Martin

Now unbelievably businesses seen with these low numbers low. subscription such churn are never churn numbers. I've

to kudos guys a great for So making product. you

John Foley

Laura. you, Thank

Operator

Squali Our SunTrust. next from comes question with Youssef

Youssef Squali

from Two me, please. questions

Street seems kind barreling guys potentially improving than or like coming you profitability the in. had earlier of margin it are margin, the you of The On we kind leverage, you towards has

speak relative bit. with you've in you So you margin the had at the context the just profile it look I talked is how changing you us But that about maybe, within that of know historically, past, John, profitability a can growth? shared to to seems margins like growth.

John can you And and Kind William, of then still genesis the is maybe the second, both the speak between what's difference showrooms concept this for to maybe or store? the of concept What do you that to of in terms idea? to can't it store - are do versus ROI. there maybe you to And costs the trying speak maybe in showrooms? speak the

Jill Woodworth

going actually the chime I'm Jill. take It's and Great. to question first certainly, John, in.

in So for said is we managed I of a our well adjusted expect we update by not outcome. also the us are that to juncture, previously this profitability profitable view as to become on EBITDA said that we At past going have XXXX. timing profitability. But think we've

think economic front a U.S. that We low we rate. of is many reasons course, also and the And still we high business opportunity compelling rapid an and to One business. I marketing, believe are profitable But growing in achieve both produced though have that's we subscriber growth value, that that. business and QX continue subscription that and high model massive growth margin profitability. our that of is and have we're bike We I a the there see think prioritizing in you're our what us, profitability. we seeing of ability for to is of our and, have churn high by at a a and the underscored unit in lifetime payback sales with great over

of marketing. steady our G&A to hold and business trying over lot time leverage and we operating R&D expect in OpEx do on certainly And line, lastly, a in all but sales

on EBITDA the is think from a adjusted our an trough think that will margin you I way year about XXXX standpoint, that's profitability basis. So but be can it

revised with last know guidance, So quarters. over the I the and it's improving obviously, been - of couple

just So not the stake again, give didn't both a time. prepared to I can But and for do this at achieve us, at Peloton, time know profitability we that. in we're ground, you I believe specific growth but over we

William Lynch

William are are at as which of we've for is want your our than to And penetration sales us. products see On this demonstrable. of by which tread globally. fitness retail real connected Youssef, think now advantage building doors a a We further has that. we is People question, been XX we we evidence higher view our out showroom them, Lynch. bike, evidenced retail think new presence,

that We have beyond launched we is you bike. one the in underpinning called for show products Diego. the what other stores: in San strategically really, And X concept Cleveland, to off

off new to use footprint class show off types show that and we offerings. tread, extra So some

In of off up fitness we discussed products. is yoga fact, year-on-year. yoga content and things We strength, part connected around the catalog, like We catalog, fastest-growing our Xx meditation. which show off merchandise show

additional what us those mode that's footprint So do. to allows in we're test would say on two. I that

We formats in have now retail. three

store. store, micro We also It's X/X our highest our about which smaller a have a called productivity is store. of fleet

we And interesting now. our XXX lot, this different the so category we're I ways, it's a strategic consumer think at in very sort almost of and of evidence in can really showrooms where learning further touch just advantage We're in valuable formats.

Operator

Telsey Dana comes with from Our next Advisory question Group. Telsey

Dana Telsey

on Congratulations terrific results. the

on a leverage seems in lastly, content content on new who's certainly are bit. expanding Watch Is of type Because little to do community. Fire the like customer customer total also is reach, down there expand Because you've what your the it see capturing of more come that Apple then in the your program, costs there? the about going forward? it it's body seems app, those And more and the - what like you costs, obviously fitness spending with seeing community? As and added like options opportunity you're TV think strength Amazon and who time ability terms you a have engagement, you along

William Lynch

the our this is, massive take of close I'll William. certainly, I XX% a engagement it's a our question, mentioned engagement workout Dana, the - up retention, type question increase. we XX% in content engagement have. then so noncycling forgot churn, type who that to - over is, and on of That great but what's part content, that turn And to remarks. first opening up, noncycling as we congratulated know about. leading which is your indicator feel driving but is it north. year-on-year, that and actually low fastest-growing John - function cycling, without On is true us his for It's We overall is Jill.

up Xx mentioned that year-on-year. strength I is So

meditation We December up have to year-on-year look of terms XX% December - you if in is engagement.

So cycling drive and heavily interfaces, beyond Apple think more Fire these continue TV, going investing to TV, and also mentioned we're up And new then Amazon more. content. between to this opening that we that's engagement John

content of we the both interfaces just offered and when in terms experiences, so mean And say and scratching we we're that. surface

John Foley

And quick up Meditation clarification. a is real XXx.

William Lynch

X, yes.

John Foley

this add boot will to proliferate yoga even we're in that to next more New and more Peloton I the cycling. more And better which allow camp us York, couple content and going is more months, and commissioning of Studios strength with

- burdening OpEx, And have been so a And that we in in pointed are a the P&L Jill way those CapEx pretty as a out, over investing lot burdened the year. content the we're about. and costs, for has of excited

things leverage to come as going to the you're to start Jill start online, think so I see. is And talk those going about to

Jill Woodworth

Yes.

people London. fixed and our instructors, margin. to Dana, Studios inside address, you're Peloton subscription go look the the into the that cost are to the John to of in second drivers contribution our obviously part want York of goods of them just that just of the pointing half our includes mentioned What subscription, across out if New is the studios nature. So That I for of going come question, online that's studio production. on all all you our work all some of just about and in

only base. the several All leveraged our we grow to X facilities next because years those to production will of over continue need be fixed member those time over costs

juncture So we're base include today. baking any cost to is costs going fixed mostly in variable those not really about see And XX% a which other merchant improvement of the lot in for costs half our cost music, so are of over at this fees, time. we and streaming that or leverage

say through the of carried renegotiation, see the we sub in cost guidance year, contribution a for Although through which this for in efficiencies I we streaming will balance some our QX year contract did margin. of

at in I nice XX.X%. I think did margin what is a thing saw contribution our QX, see you say do subscription would in we last jump that The

fiscal were did as studio for some margin push in year full our around new into contribution QX. needs see in XXXX, that the of benefit to For QX a well, we hiring XX.X%. able our expectation is We York XX.X% to New our in

over So our of of target XX-plus but about type long-term we still percent we good do see expect margin, very that QX in number of that XX.X%. subscription time. We feel jump won't

Operator

Sheridan comes question next from UBS. with Our Eric

Eric Sheridan

where the from But Germany market gets there's going on between that until like might that digital margins Maybe letter to launch the commentary point Germany to to in Obviously, act breakeven point costs? language sort investments some in pressuring to of costs like ago? the infrastructure some a incremental way might it headwind a compare in call to of the baseline place any a U.K. launching physical to were as differential market versus Germany a or might the the year there And a the initial U.K. and put over out is back how the a to the investments launch market be launch. just a of like what

William Lynch

of I'll Lynch. William of biggest sort take sales buckets are It's the investment Well, that. around X and marketing. really Eric,

to CAC. looked look the you our operating that a Germany differently, build our significant make it awareness service there. of think We If investments like or about is for and don't sure trying you've CAC, we in - U.K., kind get apply we same we we the market. I'm but which launch at When at expenses, demand market

equation leadership, we will to time, is big we've at do, this funnel CAC, in awareness. we which look U.S. and Over demand, see see these tread. we're a growth been allowed investments said we U.S., bike the and we expansion, from of a U.K. to Germany that get geographic efficiencies. model repeatedly, it's business to where those we in core great still want driver business expect build in efficiency think continue to while and about marketing into want like the tracking We profitable, we standpoint us And but so and our And like differently sales that to plans CAC equation.

again, X studio The back London, but we've of new studios. other launch to side, piece John the investments York. we're mentioned made. we'll it goes the the year, content New kind We've Peloton a in Within of on broadcast the able content. and is leveraging got it Studios to a have

that German classes Our are language out London of studio.

able investments it global what X including in instructors, and definitely CapEx sure, a P&L so lot out and logistics marketing, And instructors instructors is and of U.K. in early so of and cost facilities, content, to leverages content. fixed And provide German that you're time. U.S. seeing we're the but on, - over through

Operator

comes from John Cowen. Blackledge next question Our with

John Blackledge

have on the for we expecting. connected margins, about question Great. we Bike think lower-priced drive profiles. and margin On seemed fitness the margin How Treads current frequency workout And gross should than rising upcoming the products? different churn profile to engagement, second lower were gross

further cohorts? any engaging by newer older at i.e., subs than the Just engagement color tenure, rates are on cohort, different

Jill Woodworth

Great.

products, before. We're said, Certainly, take margin. focused talked not as a the costs first be we down. to dollars, naturally can very faced quantities with introduce we've we higher us new the question. margin we our That I lot about So this take think achieve structure allow I'll that until a gross on cost will

the dollars to we're economic use connected can and sort So from margin that we and past that day we've it paid about marketing talked offset X. Bike unit back expenses, so Tread. We of with that sales in from care perspective, our the about a fitness

over we believe we those So can intact able long a portfolio imbalance yes, marketing margin profitable do cover expenses, to launch as unit in the day time, and products but will new we time, temporary economics these expect all be X. where over we be may to of not run keep as the some products of

on our both look we've acquisition And just 'XX. of guidance provided in terms margin range spend is customer midpoint, less net to and was sales if it's dollars, that going for QX, that total the fiscal based guidance at Essentially which QX that back periods, for $X. figure you again, the that gross the outlook year marketing - of for at $X cost, midpoint

continuing sales fitness connected we're our and again, reinvest gross to dollars back profit So of of marketing that off smartly margin. the

William Lynch

And engagement noted, we Obviously, were It is improvements. it's were, retention surprised improved across incredibly but our that surprised. on question, high, we the true by cohort. is even as your pleasantly Jill every

members onboarding seeing has is excited us and and dial retention you And newest look those steady, gains actually then newest So at it's the engagement, what notably, if as all in you're X, members our members. older across the that in onboarded than we fact, better process out getting X, month in at more are X cross-marketing we're and X X, the month in working content, we marketing ago. X members in years more as X, and content X,

look And across so and board, we and goodness on. all the it's it's focus just really something at

Operator

from comes with Edward KeyBanc question Yruma next Our Capital Markets.

Edward Yruma

know Flywheel. guess, I resolution against first, some you I litigation on had favorable

change demographic understand a capture been really it when the points broadly consumers? an to are demographic. with maybe And were you has and credit, then how to Home wider platform. it defensibility Just even catch of secondly, Trial? allowing How obviously, your the of trying group able you to do of the they broader And tech I implications think you to

John Foley

a I it's very GC in not John. talk Flywheel have world. week, his There's is patent say this legal in still one. Peloton's of property. will the portfolio. the Ed, our to a our because as fight strength can loosely But This reinforces this you quotes, protect win take we ton to registered in the result "We're about intellectual excited massive our heard

that's as itself, about say we're can imagine, that personally you it Ed. I at for would all this I why happy add excited but speaks settlement." think the that can of I we're resolved, time, to have kind

Sorry.

William Lynch

demographics haven't updated new that the of our since our we On buyers, call. last

a true. we've So for - got it's reminder everyone, nothing just

to are that's new which, Trial, Home point, members been stores, retail to more our penetrate the big And Our we're your certainly, future. things have - helping has trends and less about all financing the TAM, areas, more for again, younger us excited the in us affluent. doing,

Operator

next Our comes James Hardiman with from Securities. question Wedbush

James Hardiman

to seen hoping was connected fitness but connected was time I color seen subscription. bit new down a, since Is subscription guess, since churn us the lowered, you price that? of price lower the acceleration switch? the there's have back subscribers rates before seen passed So gap a a digital cannibalization wider. lowered? fitness I that to subs price been an some and could sort Obviously, not that I now after you as there give result wanted I you between there digital it to here, that that decided has of of and some subscription circle come lastly versus mean, little have digital is obviously, and evidence the have the any B, reduction. And much the in

John Foley

jump James, interest this, you Thank a watched you these We've for a of can think, in. coverage. I'll and our bit in appreciate little but your business. CNBC, interview guys your of take on nice I

count surprised the months, from take was I on hand which that. is we've trade. the in We the subscription a downgraded - first, have connected our I'll to made subscription. a actually team seen last by checked has of anyone we've people that experience number digital of last member couple that you question fitness one tracked can with that

that on front. So no meaningful headwind

until have point out subscriber on after is XX-day with with I who closed. free that to trial December got the business this chance free trial, digital in the board with have a thing the didn't everyone to One become quarter the

sub closed. number that for far was history, - is in A of biggest out net our lot week by biggest coming instance, you of digital that trial. artificial business, the week, from quarter last the of the excitement adds see So the the the in

to we to long do, moving say LTV looks to last, how that's are in early I metrics to optimistic. people direction. just play So it we're out like. right the apologize. data the became it going coming on going how still will subscribers, all don't It's see because be this impact It's have Again, quarter see the of the what interesting - yet these in on they're we we so as quarters but any

Jill Woodworth

about the is thing add make sure fitness, household multiple sub. X connected is using point which to connected just one just terms that versus of subscription average are members have for member a each fitness currently The members other product. that only on per digital I can the service might our that We membership

$XX, lot So for a that of getting value. they're

John Foley

All right, everybody.

wrapping did. team quick and the got I results. one give I believe of very we Peloton people We we're who tech. building want as the the to we've entire a consumer We're strongest of are in like all closing. QX the do up. proud I'll Sounds to thank that teams culture contributed these

members the your So all of Thank you are for that work. hard for thank you listening. love any We you.

You know that.

some - Heath, our you buy are sell-side, and owners side, bike you know Ed, everything talking owners are north. excited. you, you as true I are for You We to analysts, of tread you. guess - also I'm do Peloton digital of well. - or bike all I

our for members. for you being business Thank community. thank your of part a you as So

call on want And thank believe to of all the that are investors, you, also in who us. I

will We work your in honor. continue hard to

continue Thanks, I disappoint of week. have QX, in dialing we you. will board a put in. that the for great to we think did your will I'm Anyway, not everybody, and like points rest confident on we

Operator

Ladies participation. today's call. Thank concludes for conference gentlemen, your and this you

disconnect. now may You

Peloton Interactive (PTON) 5 Feb 202020 Q2 Earnings call transcript