Peloton Interactive, Inc. (NASDAQ:PTON) Q2 2024 Earnings Call Transcript

Peloton Interactive, Inc. (NASDAQ:PTON) Q2 2024 Earnings Call Transcript February 1, 2024

Peloton Interactive, Inc. beats earnings expectations. Reported EPS is $-0.54, expectations were $-0.55. PTON isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and welcome to the Peloton Interactive Q2 2024 Earnings Call. At this time, all participants are in a listen-only mode. After a few brief opening remarks, we will begin immediately going into our Q&A session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Peter Stabler, Head of Investor Relations. Mr. Stadler, the floor is yours.

Peter Stabler: Thanks, Sherry. Good morning, and welcome to Peloton’s Second Quarter Fiscal Year 2024 Conference Call. Joining today’s call are CEO, Barry McCarthy, and CFO, Liz Coddington. Our comments and responses to your questions reflect management’s views as of today only and will include statements related to our business that are forward-looking statements under federal securities law. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business. For a discussion of the material risks and other important factors that could impact our actual results, please refer to our SEC filings and today’s shareholder letter, both of which can be found on our Investor Relations website.

During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today’s shareholder letter. I’ll now turn the call over to the operator for our first question.

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Q&A Session

Operator: Thank you. One moment for our first question. And that will come from the line of Doug Anmuth with JPMorgan. Your line is open.

Douglas Anmuth: Great. Thanks so much. Hi, Barry and Liz. A couple of questions. You called out that the Treadmill market is 2x that of Bikes. Can you just help us understand how you’re going to lean into those products more going forward? And if Tread+ demand is strong, why isn’t that helping free cash flow more in the back half of this year, just given the considerable existing inventory that you have? And then secondly, can you just help us understand the current mix of sales or perhaps sub additions across Peloton direct and third-party and Bike rental and any thoughts on how this could trend going forward? Thanks.

Barry McCarthy: Let me take the first part of the question, maybe Liz can take the second part, Doug. Thanks for joining today. The demand for Tread has been stronger than we anticipated, both for Tread and for Tread+. I think that interest in Tread+ has makes the Tread look even more attractive in comparison because of the price point differences. So that would be category one. The other exciting thing about the Tread and the fact that we’re seeing real growth year-over-year in units is that for as long as I’ve been associated with the business, we’ve been largely dependent on the Bike business. And now it appears that we have at least an important second leg of the stool to help support growth. Now with respect to Tread+, we do have a substantial number of units in inventory.

The good news is we’ve paid for them. So each sale is quite helpful to cash flow and initial demand was quite strong. But we have limited sales experience, and we have limited even more limited sales experience at full price. And so a little bit uncertain about what the demand will be coming into Q4. We’re also a little bit uncertain about our ability to fulfill the demand. So our first obligation is to retrofit the existing units in the field with the Rear Guard. And to the extent that we are manufacturing more Rear Guards than we have capacity for installs and retrofits than they’re available for us to retrofit existing inventory and ship to new purchasers. So that’s the perspective on Tread+. There was a mixed part of the question, Liz, I was going to kick over to you.

Liz Coddington: Yes, sure. In terms of the mix, I think the question was about what are we thinking in terms of our mix going forward into the back half of the year. As far as kind of the hardware sales piece of the business, from a Bike rental perspective, we are leaning into that. So we do expect to continue to see our mix shift toward the Bike rental or the FaaS rental. In terms of third party, for the back half of the year, our third-party business is impacted by a lot of key moments in those third-party channels. And so we’ll lean into those and depending on how well those actually do that, that may result in some mix shift into third-party at certain moments, but we don’t expect it to be a significantly higher portion of our sales in the back half of the year versus the first half of the year.

Barry McCarthy: One additional comment about Tread. I am pretty excited about some of the content that we’re going to bring to the platform. It will be oriented towards more of the performance athletes particularly marathon training. We entered into a partnership with New York Road Runners, I’m super excited about that, and we filmed in 3D, the Marathon course, the New York Marathon course this year and that will be available on our platform for runners who are training for the marathon. And we also captured the metadata and so the elevation on the Treadmill will automatically change as you progress down the course. And we hope to expand that to other leading marathons in the world and continue to lean into that segment of the marketplace, which I think helps to reposition the brand in important ways.

Operator: Thank you. One moment for our next question. And that will come from the line of Ron Josey with Citi. Your line is open.

Ronald Josey: Great. Thanks for taking the questions. Hi, Barry. Hi, Liz. I wanted to ask on engagement, Barry. It was up 6% year-over-year. Just curious, can you tell us how engagements evolved on the platform over the last several years with Peloton offering more content across more devices. Of course, the app, or are we seeing members adopting more of a hybrid style, or is it one or the other is question one. And then Barry, you mentioned in the letter, you’ve disappointed the team can improve performance in the current quarter as you did in the second quarter. Just talk to us about some of the improvements you saw in 2Q that helped numbers come in better than expected. Thank you.

Barry McCarthy: I was having trouble hearing during the second quarter improvement in what?

Liz Coddington: What helped us beat Q2, I think.

Barry McCarthy: What helped us beat Q2. Is that the question?

Ronald Josey: Yes. And I think you said you’d be disappointed if the team can’t improve performance in the quarter similar to 2Q. So curious what happened in the last quarter to maybe do better here going forward?