Peloton Interactive, Inc. Q2 FY2025 earnings call

• Strength workouts: Over 2 million unique members did strength, etc., with 735M minutes in Q2, 75% of cycling workouts. Variety drives higher subscription retention (churn 60% lower for multi-discipline vs single). - Tread: Marketing enabled exceeding Tread portfolio sales goals, higher new subscription attach rates on Tread/Tread+ sales. 10K training program launched, over 300k members trained for races. Software features like Pace Targets helped. - Expansion: Launched Strength+ app with 220k monthly active users. Third-party retail with Costco drove bike plus unit sales. International hardware sales and paid connected fitness subscriptions growing. - Cost and margins: On track for $200M run rate cost savings by end of fiscal '25. Connected Fitness Products gross margin 12.9%, first double-digit in 3+ years. Adjusted EBITDA and free cash flow increased Y/Y, net debt decreased 30% Y/Y.

In Q2, over 2 million unique members completed strength training, boot camp, pilates or yoga workouts. Strength drove 735 million minutes of workout time, equaling 75% of total cycling workouts. On cardio, Tread saw elevated sales due to marketing efforts, with over 300,000 members training for running races using Peloton. Connected Fitness Products gross margin was 12.9% in the holiday quarter, the first double-digit margin in over 3 years. Subscription revenue was higher than expected due to more paid Connected Fitness subscriptions. Product revenue was $253 million, subscription revenue $421 million, total revenue $674 million.

• Raised full year fiscal 2025 guidance midpoint for paid Connected Fitness subscriptions to 2.75M-2.79M (55k increase at midpoint). - Full year total revenue guidance $2.43B-$2.48B, midpoint up $5M. - Total gross margin outlook 50%, up 100 basis points from prior. - Adjusted EBITDA guidance $300M-$350M, up $60M. - Free cash flow target at least $200M, up $75M from previous.

• Tariffs: If levied, could impact P&L; no Peloton branded hardware products subject to China tariffs, but apparel and Precor could be affected (1% impact on connected fitness products if all tariffs in effect). - Subscription mix: Shift to secondary market with higher churn profile partially offsets reactivation efforts. - Tech debt: Inefficient technology gaps with manual work, opportunity to optimize.

Q: Brand vs direct marketing mix?

A: Disciplined with brand marketing (media mix modeling), more performance marketing; marketing spend reduction exceeded sales decline, LTV to CAC ratio improved toward 2:1.

Q: Growth levers for '26 and beyond?

A: Super serve existing members, improve MSAT scores, launch new capabilities to add value, get members to engage in multiple disciplines to reduce churn.

Q: Connected Fitness gross margin upper band and levers?

A: Improvements from premium products and discount optimization; expect gross margins to continue expanding, maintained in Q3 and full year '25 due to higher-margin products and disciplined promotions.