Peloton Interactive, Inc. (NASDAQ:PTON) Q4 2023 Earnings Call Transcript

Peloton Interactive, Inc. (NASDAQ:PTON) Q4 2023 Earnings Call Transcript August 23, 2023

Peloton Interactive, Inc. beats earnings expectations. Reported EPS is $0.68, expectations were $-0.45.

Operator: Good day, and thank you for standing by. Welcome to the Peloton Interactive 4Q ’23 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today’s conference being recorded. I would now like to hand the conference over to your speaker today, Peter Stabler. Please go ahead.

Peter Stabler: Thank you, Ken. Good morning and welcome to Peloton’s fourth quarter and fiscal year-end 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.

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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. [Operator Instructions] Our first question comes from Ron Josey with Citi. Your line is open.

Ron Josey: Great. Thanks for taking the question. I want to — Barry talk about two things. I think in the letter, you talked about an uptick in sales in the last eight weeks. And I want to understand a little bit more what you think is driving this? Is this the result of just new brand spend or maybe seasonality coming back? And in the letter, you also talked about free cash flow being positive, expected to be in the back half of ’24. Just talk to us about the drivers that will lead to that positive free cash flow and the confidence in that metric? Thank you.

Barry McCarthy: I don’t know the answer to the first question, Ron, in which it did (ph). If I did, we could lean into it and try to leverage it. I imagine there’s some macro forces at play. There’s some seasonality at play. We just don’t have enough insight into the cause and effect to give you a thoughtful answer. But the trend seems to be holding — now for how long and what are the slope of the line be, I don’t know the answer to that either wish I did. As it relates to cash flow in the back half of the year, we — our forecast is really a tale of two cities. The second half of the year looks quite a bit different than the first half. We don’t have very aggressive growth assumptions in my view, but we need to achieve the growth we’re forecasting in order to be able to generate the financial performance that we’re forecasting.

If we do those things, the metrics in the last quarter of the year, in particular are pretty stellar. It’s double-digit revenue growth, it’s 40% plus gross margins. It’s positive adjusted EBITDA, it’s positive free cash flow, we’d all be ecstatic about that kind of performance if we can achieve it. We’ve been reasonably good at forecasting our financial performance relative to our ability, at least in recent quarters to forecast the growth in subs and Connected Fitness unit sales. And I think there’s more upward bias in the forecast than not, but it’s hard to say. And one of the reasons, I think that is because the — in the — towards the close of the letter, I make mention of a number of new initiatives that we’re working on. And there are a handful, and I’m confident that we will land them and we haven’t built any upside into the plan associated with those things now.

We haven’t landed them. So there’s still uncertainty and I can’t talk about them until we do. But if we do, it adds even more certainty on the back half of the year.

Liz Coddington: I was just going to add one additional thing about the free cash flow, which I think Barry did mention in the letter, which is, we are getting into a much more normalized inventory position than we have been than we were last year. And so we are buying more inventory, particularly for our Bike and Tread product. And we’re going to have to spend in advance of holiday to build up some of that inventory for the holiday season. We also have our seasonality in our marketing spend. And those two things put a bit more cash flow pressure on the front half of the year rather than the back half of the year. Just the timing of those. So I want in relation to our hardware sales. So I wanted to call that out as well.

Ron Josey: Thank you, Barry.

Barry McCarthy: One more comment, if I could. I’m sorry to be so long winded, Ron. We certainly have had our fair share of unanticipated surprises and not all of them helpful to the business. Seat post being the latest example, and the DISH settlement being another example. I don’t know how many more of those unwelcome surprises there are in our future, but it seems to me we have to be getting closer to the end of that story than we are at the beginning.

Ron Josey: Understood. Thanks, guys.

Operator: One moment before our next question. Our next question comes from Doug Anmuth of JPMorgan. Your line is open.

Doug Anmuth: Thanks so much for taking the questions. Barry, you’re about three months into the brand relaunch, though I know this has also come during a seasonally lighter period. I was hoping you could talk more just about the progress that you’ve seen here, and how marketing could evolve in the first half of your fiscal year as you head towards the holidays. Thanks.

Barry McCarthy: Hey, Doug. A couple of thoughts. One very high level. The team, investors have often heard me speak about the importance of talent density that’s never more true than it is in this instance, not to create more pressure for our CMO and the marketing team has been already exist for them. They have done just a spectacular job with the relaunch. The creative has been nothing short of amazing and the creative that’s going to follow is even more spectacular. And the early indications are that we’re achieving the objectives that they had set for the business, which is just to attract a younger audience. So we’ve seen a tremendous increase in engagement with Gen Z by way of example. We’re capturing people earlier in their fitness journey than we ever had before.

So anytime, anywhere, any place message is absolutely landing. And the last objective was to remind people that — and particularly with the launch of the app, that it’s more than just a stationary Bike company. And that message is also finding traction. So lots of reasons to be enthusiastic about where we’re going, and the one. And the last point I want to make is in reference to the two co-branding deals that we’ve already announced, one, with Liverpool yesterday, University of Michigan. It’s very clear from our conversations with those brands, both very highly regarded and other inbound traffic that we’ve had, which has been significant. The rest of the world regards the Peloton brand very highly and is sought after as a partner and that affords us the opportunity to capitalize on that and you’ll be hearing us talk about that ad nauseam (ph) as the year unfolds.

Doug Anmuth: Great. Thank you, Barry.