Peloton at Citi’s 2025 Conference: Strategic Roadmap Unveiled

On Wednesday, 03 September 2025, Peloton Interactive Inc (NASDAQ:PTON) participated in Citi’s 2025 Global Technology, Media and Telecommunications Conference, outlining its strategic roadmap aimed at sustainable and profitable growth. The company presented a three-phase turnaround strategy, acknowledging both its achievements and the challenges ahead. Leadership changes and expansion into new wellness areas were highlighted as key elements of this plan.

Key Takeaways

• Peloton is executing a three-phase turnaround strategy focusing on cost alignment, sustainable operations, and growth.
• New leadership roles have been filled to improve efficiency and member focus.
• The company is expanding beyond cardio into strength, mental well-being, sleep, and nutrition.
• Peloton achieved $324 million in free cash flow in fiscal year 2025.
• Future plans include refining distribution strategies and improving marketing efficiency.

Financial Results

• Peloton reported $324 million in free cash flow for fiscal year 2025, marking a $400 million improvement year-over-year.
• The company targets at least $200 million in free cash flow for fiscal year 2026.
• Debt reduction efforts have lowered net leverage by $343 million to a ratio of 1.1x.
• Plans are in place to address $200 million in convertible notes maturing in February 2026.

Operational Updates

• A three-phase turnaround plan is underway, with phase one focusing on cost alignment and restructuring, including a $1.35 billion debt refinancing.
• Phase two emphasizes sustainable operations with investments in growth, while phase three aims for a return to growth with a derisked balance sheet.
• New leadership roles in marketing, communications, operations, and information technology are expected to enhance efficiency and member engagement.
• AI personalization and hardware updates are being explored to improve member outcomes.

Future Outlook

• Peloton is expanding its focus beyond cardio fitness to include strength, mental well-being, sleep, recovery, and nutrition.
• Distribution strategies include partnerships with Amazon, Dick’s Sporting Goods, and micro-stores, alongside the Peloton Repowered marketplace for used equipment.
• Plans to close remaining retail showrooms by fiscal year 2026 are underway, with five closures expected by Q1.
• The company is targeting an additional $100 million in run rate cost savings by fiscal year 2026 through indirect spend optimizations and workforce relocations.

Q&A Highlights

• CFO Liz Coddington emphasized the strategic roadmap aimed at delivering sustainable and profitable growth.
• The company’s focus is on categories that are sizable, growing quickly, and have proven benefits.
• Peloton’s commitment to enhancing the member experience was highlighted, with efforts to create lifelong members and operate with business excellence.

In conclusion, Peloton’s comprehensive strategy, leadership changes, and focus on new wellness areas underscore its commitment to long-term growth. For further details, readers are encouraged to refer to the full transcript.

Full transcript - Citi’s 2025 Global Technology, Media and Telecommunications Conference:

Ron, Analyst, Citi: At Citi, and I’m always happy to have with us Peloton CFO Liz Coddington. Liz, you’ve been with Peloton since January ’22? No.

Liz Coddington, CFO, Peloton: June ’22.

Ron, Analyst, Citi: June ’22. I knew I had my January wrong. And yeah. So it’s been it’s been quite a whirlwind. It’s been great though watching watching everything go through.

And so, what I wanted to do is is go through the business and and get started. But before I do, maybe an icebreaker. So favorite instructor?

Liz Coddington, CFO, Peloton: So it’s really hard for me to pick just one favorite. But I gotta say, I really love Emma Lovewell’s kind of music related workouts. She’s one of my favorites, and I am a big fan of Jess Sims and her, her her Sims 60. She has, like, these tread boot camps and these bike boot camps, and they are a killer workout. But I always feel great after I do them.

So those are probably my two favorites right now,

Ron, Analyst, Citi: at least. Don’t disagree. May maybe another question. Given newer forms of of exercise and and workouts, any besides bike, what any other, any other tips for us? Obviously, strength is a big one.

Liz Coddington, CFO, Peloton: You know? I gotta say strength training for me has been become a key part of my workout routine, and I know it is for a lot of our members as well. And I gotta say, I’ve I’m, like, the strongest that I’ve ever been after doing a lot of strength workouts. But, also, our treadmill workouts are pretty amazing too. It’s really nice to even just you know, even with what you you you can become a better runner on the Peloton platform, but it’s also great for just walking and hiking, and we have really great workouts for that as well.

Ron, Analyst, Citi: Yeah. No. I know we we enjoyed it. We’ve been Peloton users since 2016. We still have our original bike, new tablet.

We have a new bike as well. So it’s the

Liz Coddington, CFO, Peloton: Maybe it’s time for a new one.

Ron, Analyst, Citi: There you go. Well, let’s get into that. So so maybe bigger picture. Let’s start with some strategic questions. It’s You been about seven months since Peter joined as, officially joined as as CEO.

And, you know, clearly, this last quarter, we talked we heard a lot about the future direction of where Peloton might be headed. Right? And we heard about an additional focus on cardio, wellness and strength, and and there’s always talks about pricing changes or what have you, but free cash flow targets are good. So a lot going on. Liz, talk to us about, just, you know, these past seven months and just the broader evolution of Peloton since you’ve joined in in ’22.

Liz Coddington, CFO, Peloton: Yeah. So, Ron, you are absolutely right. There is a lot going on. But the important thing to understand is that it all fits together as part of a strategic road map intended to deliver sustainable and profitable growth over the long term. Now if I step back and really think about kind of Peloton’s turnaround in really three phases.

So in phase one, we were really focused on aligning our cost to the size of our business, and that was really a multiyear journey that started in mid fiscal twenty two even before I joined and really continued through fiscal twenty twenty four. So we had to right size our organization through multiple rounds of restructuring. We had to really shift our high fixed cost operating model to one that was much more variable in nature and really exercise a lot of cost discipline and improve our unit economics so that we could achieve positive free cash flow. And this all enabled us to be able to successfully refinance 1,350,000,000 worth of debt in May 2024. And then in fiscal twenty five, we moved on to what I would call phase two, where we’ve been proving our ability to operate sustainably while investing in future growth.

And now with our new management team in place, we are continuing to focus on profitability while also reallocating resources to invest in really building out that foundation for future growth. And what we’re working on next is getting to, phase three, which I would characterize as returning to growth with a derisked balance sheet that really, with a capital allocation strategy that really maximizes shareholder value. And you also talked about our strategy. So, you know, in terms of business strategy, and we talked a little bit about this at earnings, we really are seeing a profound shift in how people really define a life well lived. And it’s no longer just about increasing your lifespan, but also about making those incremental years healthier and happier and really increasing health span.

And consumers are really looking for a trusted partner to help them on that long term journey of fitness and wellness. And that really goes beyond cardio fitness and is increasingly including categories like strength, mental well-being, sleep and recovery, and nutrition and hydration. And as I think about our path for delivering shareholder value, it’s really about maximizing the human impact that we can deliver for our members. And human impact is really the thing that drives Peloton’s business and really informs our key aspirations as a company, which we’ve laid out previously as improving member outcomes, meeting members everywhere, really creating those members for life, and all with a foundation of operating with business excellence.

Ron, Analyst, Citi: Yeah. There there’s a lot that we’re gonna jump into with all of that. Maybe maybe to to set the foundation for phase two, phase three, but then these newer forms of of, of fitness and wellness. Maybe let let’s talk about what what Peter’s done in his first seven months here. And so we now have a new CMO.

I think, we have a new CTO or a promotion into a chief technology officer, a new COO join the company, a new chief commercial officer, or at least an expansion of chief commercial officer’s role. So Peter’s executive team now fully rolled out? Are we now all the pieces are in place, so to speak, for this next phase three, if you will, whenever that is ready?

Liz Coddington, CFO, Peloton: Yeah. So we definitely have made some leadership changes recently, but we are excited about the value that these new leaders are already bringing to our business. Let talk about a few of them. So, you know, our new chief marketing officer, Megan Impress, she joined just roughly two months ago, and she’s also make already making some exciting changes to our branding that you’ll start to see in our advertising, pretty soon. And then we have our chief communications officer, Diana Krausz, who is really building out a holistic communication strategy to really elevate our member focused brand.

And she’s already making some really important impacts by defining our corporate narrative, which is really that kind of unifying foundation that really informs all the ways that we talk about our business externally. Then we have our chief operating officer, Charles Kyrill, who joined us in May, and he’s really, enforcing a much higher level of rigor around our supply chain and procurement processes. And, honestly, Charlie has been an incredible partner to me on helping to drive our cost optimization efforts internally. Now most recently, we, we just welcomed Corey Farrell, who is our new chief information officer, reporting to Charlie. And I am thrilled that Corey has joined us because we do have a lot of tech debt.

We have a lot of duplication in our software and across our tech teams, and we also need to continue to evolve our enterprise architecture so that we can efficient efficiently take advantage of AI and machine learning technology, that is becoming so important to so many other businesses. Now I could I could just keep going on and talk about more tenured members of our leadership team, but I do believe that we have the right team in place now to execute on our strategy.

Ron, Analyst, Citi: Yep. That that’s great. I mean, I look forward to seeing the new ads and the new commercials coming out. Let let’s talk about the product now that we have the foundation, we understand sort of the the journey that we’ve been on and now where we’re going. AI personalization, I thought, was a key focus from what we heard on the call last two weeks ago now, I think, maybe three weeks ago, maybe four.

Goodness. Time time flies by when you’re having fun. So I I wanted to hear more about just the personalization side of it all, particularly as newer content and product announcements might come I think we’re waiting for new product announcements as well. So any insights on or help us understand the personalization side of it all.

Liz Coddington, CFO, Peloton: Yeah. So we believe that a greater degree of personalization on our platform can really help improve member outcomes, by really creating an experience that is tailored to an individual’s goals and workout preferences. And we’ve already made some progress on that front. In January, we launched our personalized plans feature, which creates customized workout plans, that are informed and and and based on an individual’s goals that are shared with us and their workout preferences. As of the June, we had roughly 700,000 members set up a personalized plan, and we are seeing higher engagement as well as a broader engagement in the variety of our content from the members who have a plan set up.

But looking ahead, we do see an opportunity to provide personalized guidance on a on a deeper level, and I’m not ready to go into the specifics on that. We’ll share more about them when we’re ready. But at a high level, you can think about holistic goal oriented onboarding experiences, seamless integration with third party fitness tracking devices, and even, like, actionable insights that you can use to really help inform your workout routine.

Ron, Analyst, Citi: And so at one of these you know, what I think is fascinating, all these new verticals that are coming out. And the personalized plans are really a key part of that, but then we heard 2,000,000 engaged members are on strength. I think we heard sleep recovery is one point these are big numbers, big penetration numbers of the overall member base. And so would love your thoughts on just the lessons learned from these newer verticals and how we can maybe use those lessons into other verticals coming on. And I think, Liz, I’m gonna just wrap that question up with, I I think we said the goal is to be the number one sort of across number one category number one provider across each category that’s offered.

And so lessons learned from strength, from sleep recovery, from wellness into into, you know, these newer experiences.

Liz Coddington, CFO, Peloton: Yeah. So when we think about new categories that we wanna participate in, there are kind of three kite there there are lots of factors that we consider, but there are really, like, three main factors that we think about. The first is the size of the category as it exists today, which is kind of an obvious one. The second is really our expectations for how fast that category can grow. And the third, and probably the most important one, is whether we see ways that we can participate in that category that provide benefits that are really backed by science.

Now if you think about the fitness and wellness space, there are many fads that, grow very quickly and even achieve some level of scale, but then they quickly sort of fizzle out because the consumer benefits are unproven, and and they turn out to be less valuable than was originally anticipated. And so for us, when we look at these categories that we want to participate in, they need to have reasonable size, they need to be growing relatively quickly, and they need to have proven benefits. And so, you know, we selected and prioritized these four categories around strength, mental well-being, sleep and recovery, and nutrition and hydration, as the four kind of priorities for us. So I’m gonna let me take a minute and talk. I’ll talk a little bit about each of those.

So let’s start with strength. The data is clear. Strength is already a scaled category on our platform with, as you mentioned, 2,000,000 members engaging in strength forecasts on our platform in q four. Now the benefits of strength are also backed by science. The CDC’s what do they call it?

The physical activity guidelines for Americans, they it recommends, that you engage in at least two strength training sessions per week and also about a hundred and fifty minutes of moderate aerobic activity. Research also shows that a combination of cardio and strength has a lot of benefits, including stronger muscles and bone health, improved weight management, reduced risk of chronic illness, and also just general overall, improved daily function. So, you know, with these tangible benefits, we are also seeing an increased interest in strength in the marketplace today. So when you look at all of those things collectively, it makes sense that strength is a category that we see as a big opportunity for us, and we believe actually that we are already the number one strength subscription service today. Now, let’s talk a little bit about sleep and recovery.

So sleep and recovery is also a relatively scaled, category on our platform with we also mentioned the 1,200,000 members who engaged in our sleep and recovery content in q four. We are investing in third party integrations so that members who choose to share their sleep and recovery data for with us, that will enable us to recommend better workouts for them. Then if we talk about mental well-being, we are seeing that people are putting are placing a greater emphasis, on mental well-being more than before. And we’re seeing that also with the engagement of our members, with 400,000 of our members engaging in mental well-being content on our platform in q four. And so we’re really trying to explore ways that we can improve our members’ moods and mindfulness through our software and also our human coaching.

For example, one area that we see as a potential opportunity is offering breathing exercise experiences to members, to help manage stress. And lastly, I’ll talk about nutrition and hydration. That category for us is we’re really kind of in the early days of formulating our strategy on that one. We do know that our members have an interest in understanding how our instructors really fuel their bodies. And in q four, we launched the Peloton Kitchen series on social media, where our instructors shared some of their favorite recipes, and that was in partnership with a, expert dietitian and nutritionist.

And we’ll continue to test and iterate on nutritional content over time, but, really, our primary goals there are to find ways to participate that are science backed and also supportive and non polarizing.

Ron, Analyst, Citi: So so we just talked a lot about these newer verticals. Yeah. And a lot of it, I think you mentioned software and improvements, strength, sleep. Talk about the hardware. So any and I know we’re not gonna break any news here today, but I think we talked about on the call that maybe new hardware might be coming out or or some improvements.

There’s an article. So and any thoughts on what to expect or just stay tuned and and we’ll we’ll see.

Liz Coddington, CFO, Peloton: Yeah. I think I’m gonna have to go with stay tuned Okay. On that one. We we do have some exciting product updates coming. But we will we’ll be ready to share those ahead of our next earnings call, but

Ron, Analyst, Citi: we’ll Okay.

Liz Coddington, CFO, Peloton: Have to stay tuned until

Ron, Analyst, Citi: Shared. Okay. Noted. Yeah. Alright.

Let’s talk to member base. I I think one of the biggest assets that Peloton has is that 2,800,000 or so connected fitness subscriptions. And and, know, I think guidance calls for maybe continued sort of challenges or declines here overall, but we’re always impressed with the retention rate or call it the churn rate. And so talk to us about the member base, about the the drivers of this relatively low churn that Peloton’s been able to have for years and years and years. Case in point, this analyst here.

So so talk to us about just the member base and and churn.

Liz Coddington, CFO, Peloton: Yeah. So our subscription business really does benefit from a low churn profile due to the strong engagement and retention that we do see of our loyal base of roughly 6,000,000 members. When someone when members choose to invest in our Peloton equipment, they’re really making a commitment to themselves to work out with our community. And that commitment really helps them establish a routine, and we also have a vast library of content across more than 16 modalities from them to for them to choose from. Now that being said, our churn rate in q four was our average net monthly churn rate was 1.8%, which is a seasonally high churn quarter for us as many members choose to temporarily pause their subscriptions in the summer.

But if you look on a year over year basis, we actually improved our churn rate by 10 basis points. And this is the first time we improved our churn rate since year over year since March 2021. So what we’re really benefiting from is the maturing the kind of the the maturing of our subscriber base toward a population that is more engaged, and that’s less likely to churn. And we see that with in our engagement data with the average monthly workout time per subscription increasing 4% year over year in q four.

Ron, Analyst, Citi: And so when we think about, you know, that improvement in churn rate, talk to us about the balance between, you know, investing and the trade offs between going growing the member base versus managing to improve profitability. So to your point, churn improved in a population that’s knows how to use the product, but tell us how you think about you balance the growth with profitability there.

Liz Coddington, CFO, Peloton: Yeah. So when I talk about growth, you know, I think it’s important to really have a to have a distinction between sustainable and profitable growth and growth at all costs. When I talk about and think about sustainable and profitable subscription growth, that first requires us to optimize our marketing spend to ensure that the customers that we are acquiring the subscribers that we are acquiring are profitable. And we leverage, an LTV to CAC framework to measure our marketing efficiency in terms of customer acquisition. And we’ve made a lot of great progress on improving that metric over the years, and we’ll continue to optimize it.

Now operationally, what our goal is to spend on media such that the CAC or the last or marginal subscription that we acquire exceeds their LTV so that on an average basis, we are meaningfully profitable and achieve an LTV to CAC ratio of roughly two to three x on a full fully burdened CAC basis. Now with our improvements to our gross margins combined with our kind of cost discipline with our media spending, we improved our LTV to CAC ratio by roughly 30% year over year in fiscal twenty twenty five. It’s also worth noting that we reduced our marketing spend by over 35% year over year. And in q four, our LTV to cap ratio was just shy of that two to three x target. So the challenge that we face right now is that with all this discipline around our marketing spend, our subscriber base just isn’t growing right now, as you pointed out.

And so we need to continue to evolve our marketing strategy and tactics all across our marketing funnel so that we can increase gross additions while also being more efficient. And so, you know, when I think about that, you know, if you think about sort of the top of our marketing funnel, we need to continue to evolve our strategy and our messaging there to really create awareness beyond the bike, and really get prospective members to to consider us and even reconsider us. And I mentioned earlier that Megan is working on some really exciting updates to our branding that should really, you know, help support this goal. And then if you think about it, we we also need to optimize our kind of the middle layer and the lower part of our funnel, to just our mess our messaging there to be more efficient. And, you know, many consumers in in in the case of our products, the consideration period can be quite long before somebody decides to invest in our premium priced products.

And so we need to keep those prospective members engaged with the right messaging, and offers to drive action. But I do wanna point out that, you know, growing our subscriber base isn’t just about increasing customer acquisition. You know, even with our low 1.6 average percent average monthly churn rate on an annualized basis, we churned out over 500,000 subscriptions in fiscal twenty five. So we need to continue to deliver on our innovation road map in order to keep those members engaged so they don’t churn. And we do see an opportunity to both retain and reactivate subscriptions so that we can really keep those members for life, which improves their LTV, but is also, you know, a key element of our strategy.

So collectively, all of these efforts should actually enable us over time to be able to efficiently increase our marketing spend so that we can increase the number of gross additions.

Ron, Analyst, Citi: So that that’s a very good point on even though churn is low, it’s still a substantial number. And and, again, talking overall on the number of subscribers that that the firm the company has. So I’m gonna go back to a comment you said earlier. Yeah. In June, I think we had 700,000 or so set up personalized plans for greater engagement as it related to, I believe, AI personalization.

And so just talk to us how how can I as a member, or how are you targeting someone like myself or anyone for that matter, to set up those personalized plans so that we stay on the platform longer?

Liz Coddington, CFO, Peloton: Yeah. That’s a good question. You know, we are you know, we do try to kind of direct you to see those personalized plans. There’s two ways to do it. You can do it from you you can do it from within the app.

We also try to, be able to to message to you on the screen on your on your fitness equipment that we offer these personalized plans. But I think that is an area that we can do better to really help convince you to sign up and set one up. What is nice about it is that when you do have one set up, when you log in on your console, you do see your personalized plan for the week laid out. You don’t have to select that class, by the way. You’re free to do whatever you want.

It’s your it’s your world. You get to pick. But, you do get to see, like, what you did earlier in the week, what it recommends that you do today, even recommends recovery days, which I think is really important. And if you wanna do some sort of workout on your recovery day, it may suggest something that is just lighter like a yoga class or other types of content that we offer to really what kind of round out your workout experience.

Ron, Analyst, Citi: Sure. Yeah. I look forward to more of that. And and you can do more on

Liz Coddington, CFO, Peloton: the one

Ron, Analyst, Citi: no. I have not.

Liz Coddington, CFO, Peloton: Well, that’s your homework. You need to go set one up Exactly. At the end of the day today. All of you, everyone in the room and listening in, please set one up. Try it.

Ron, Analyst, Citi: So so we talked a little bit about, you know, the marketing strategy and and I wanted to hear more about the distribution strategy. I think the comment was meet members everywhere is the strategy. And so, you know, the this past quarter, we heard more about third third party distribution partners, reinvestment in showrooms via these micro stores. Peloton Repowered is now live nationwide. So if we break some of these distribution channels down, let’s talk about the micro store approach.

I think we’ll have around 10 of those by calendar year 4Q, which is perfect for holiday season. I think there’s about 13 showrooms left maybe around there. I don’t anyway, would love to hear your thoughts on the MicroStore versus showroom and sort of the distribution side on the physical footprint owned and operated side.

Liz Coddington, CFO, Peloton: Yeah. So, you know, with one of our key business aspirations being really meeting members everywhere, we need to have both a physical and online retail presence. And that includes, you know, third party retail partners like Amazon, Dick’s Sporting Goods, Fit Shop. Those are all really important sales channels for us so that we can meet members where they already shop. I also wanna mention that, you know, we are considering we’re always looking at new third party partnerships that really give us those physical touch points that reach incremental audiences while also, optimizing our owned retail experience to be more flexible and efficient.

And this is kind of really where the microstores come in. So, know, we we do expect, by the end of the year to have 10 MicroStores live. In fiscal twenty five, we launched one pilot MicroStore, and we saw, higher revenue and engagement that compared to one of our average legacy showrooms at one tenth the square footage with a much more flexible operating model and and much more flexible cap much much better capital efficiency. So, you know, we’ve decided to cautiously expand and add nine more. Our one MicroStore gives us optimism that we should be able to successfully execute that more flexible and cap capital efficient micro store operating model and then shift away from those legacy showrooms to these to these micro stores.

You are correct that as of the ’4, we did have 13 retail showrooms remaining. Our intent our we plan to close those over the course of fiscal twenty six, and we actually, expect to close five of them by the ’1. You also mentioned Repowered. So let me let me take a minute and talk about Repowered. For those who may not be aware, Peloton Repowered is an online marketplace that connects connects buyers and sellers of used Peloton equipment that we launched in response to the sustained volume of gross additions that we see coming from this channel that we think of or we we refer to often as the secondary market.

In q four, we launched Repowered as a beta in a few select markets. And then more recently, we decided to roll it out nationwide based on the high level of interest that we saw and the positive feedback on the member experience. But it is still really early days for Repowered, and it will take time before we are able to tell if we’re actually seeing a lift in secondary market gross additions as a result of Repowered. And, look, while a lift would be a great outcome for us, the primary goal for us launching Peloton Repowered was really about improving the member experience for members who joined Peloton from the secondary market.

Ron, Analyst, Citi: Yep. Well, I look forward to to hearing more about it because it’s a it’s a big market out there. May maybe shifting topics a little bit. We talked about product distribution. There’s been a lot of discussions on just pricing changes overall across the membership base or the subsubscription base and and also hardware.

And I know there’s nothing to really announce here, but it’s been out there, and we’ve been talking about it. So maybe a different way of asking this is just the last time we saw an increase in subscription, which I I think was a few years ago, June ’22. We’d love to hear, you know, lessons learned when we did it then. Is there an optimal time to do it? How do you think about pricing?

Was there an impact to churn? Any thoughts on on the pricing side?

Liz Coddington, CFO, Peloton: Yeah. Well, there certainly has been a lot of interest in our plans around subscription pricing lately. But what I’ll start by saying is one of the things that Peter shared during earnings, which is the best time to announce a pricing change is when you are actually telling your members and and not before that. But, conceptually, we believe that the best time to announce a price change is when you have delivered a significant amount of value to or we have delivered a significant amount of value to our to increase the value of our membership since the last time we did a pricing change, and then also when we’re able to share more benefits that are on the way that are really gonna increase the value of that membership further. And so we’ve kinda checked the box on the first aspect of that.

It has been over three years since June ’22, which is the first and only time we increased prices for our all access membership in North America. When we did that, we did see a spike in churn from the affected population, and, that quickly normalized after the pricing changes went into effect. We’ve also delivered a lot of value since the last time we increased prices. I don’t have a comprehensive list, but I’ll call out a few things. So, you know, we have more than doubled the number of instructor led programs on our platform.

We added new categories like rowing and kettlebells. We launched our entertainment offering, which includes things like YouTube TV and Disney plus and NBA League class and Netflix, which offer, our members a variety of content experiences that they can use while they are working out on our on their Peloton equipment. We launched the Strength Plus app, which is included in the all access membership, and that offers structured strength workout programs as well as a custom workout generator that is a that is suitable for using in a gym setting. And then I, you know, I talked about it earlier, but we launched the personalized plans feature, which really allows you to create a customized workout plan tailored to your goals and preferences. Now with all that value added, you know, I I do wanna emphasize that we will not change our prices until we have additional benefits coming to share, and, you know, we’ll have more to say about that at the right time.

Ron, Analyst, Citi: Great. Well, looking forward to it. There’s no doubt there’s been more value to the product. Let’s transition to the cost side in the few minutes that we have left. We achieved the $200,000,000 in ARR annualized or cost savings in fiscal year twenty five.

Think I we’re targeting another $100,000,000 for this fiscal year. Just tell us how this reduction is different from prior reductions and any insights on where you might where you’re taking these reductions? I think a certain amount was taken during the last quarter as well.

Liz Coddington, CFO, Peloton: Yeah. So at at our last earnings call, you know, we announced a new goal beyond the 200,000,000 in cost savings that we achieved in a run rate cost savings that we achieved in fiscal twenty five to achieve an additional $100,000,000 in run rate cost savings by the end of fiscal twenty six. Similar to our last cost our May 24 cost savings plan, for the 200,000,000, we actioned roughly half of that run rate cost savings through a workforce reduction that we announced on August 7, And we intend to achieve the balance of it over the course of the fiscal year through indirect spend optimizations and workforce relocations. We do expect to achieve cost savings across our operating expenses, the bulk of which would are we expect to come from SG and A, although we do expect some cost savings to come from r and d and COGS as well. And we expect about 15% of the run rate cost savings to come from reduced stock based compensation.

Now you asked about the differences, though, between our new cost savings plan and the one that we had, that we announced in May ’24. And there are some fundamental differences that I do wanna highlight. Internally, we are referring to this cost savings plan as our Fit for Growth initiative. And Fit for Growth is not intended to be a onetime event, but rather a way that we intend to operate our business going forward. And it really the Fit for Growth framework is really about optimizing spend by, segmenting our spend into really different categories.

There’s those lights on capabilities that are needed to run any business, then you have the table stakes capabilities that are specific capabilities that we need to just even compete effectively in our industry. And then there’s that third group of really differentiating capabilities that really enable us to create and sustain long term durable competitive advantage that really allows us to achieve our aspirations as a company. And so by being more efficient and and creating cost savings within areas like SG and A, we’re able to reallocate a portion of that savings to invest in strategic initiatives to drive long term growth.

Ron, Analyst, Citi: Very helpful. And so we have a few minutes left here. Taking that question or that answer, and I think the guidance for free cash this year was around $200,000,000 plus. And so I wanted to maybe combine the free cash confidence. So what gives you confidence in free cash?

But then also, with this improving free cash generation, I would love to hear your thoughts on capital allocation, right? How we prioritize around debt reduction, growth investments, capital return potentially, which is a whole different conversation that we haven’t had recently. So

Liz Coddington, CFO, Peloton: Yeah. So first, I really do wanna take a victory lap and talk about our fiscal twenty five. We delivered 324,000,000 in free cash flow in fiscal twenty five, which is a $400,000,000 year over year improvement compared to fiscal twenty twenty four. And that enabled us to reduce our leverage ratio our our net leverage by $343,000,000, 43% year over year, and achieving a leverage ratio of 1.1 x. So we are deleveraging our balance sheet really quickly, and it’s really great progress for the business.

Now for fiscal twenty six, we said that we expect to deliver at least $200,000,000 in free cash flow. Now that is intended to be a minimum, and our goal is to exceed that. Now in fiscal twenty five, we had a benefit from, being able to really improve the flexibility in our supply chain, and that allowed us to reduce our production so that we were able to reduce our inventory balance to the tune of a $125,000,000. So if you think about that $200,000,000 minimum, it’s about a $124,000,000 reduction from the from the 324 that we achieved. And so, you know, because that benefit that we achieved in inventory was a onetime benefit that now becomes a free cash flow headwind.

Now offsetting that headwind, we do expect to achieve additional cash savings from the run rate cost saving from the cost savings plan that we talked about, net of restructuring charges. Now in terms of capital allocation, you know, I I think we’re running out of time, so I’m not gonna have an opportunity to go through our debt stack. But the way I think about it is we now have more excess cash on our balance sheet more than we need to run our business today. We do have $200,000,000 in convertible notes that we need to pay down, as they mature in February 2026. There’s no rush to pay them off ahead of maturity because they are a 0% coupon.

And like I mentioned, we have the cash to do it. But it is worth noting that, you know, with our deleveraging on our balance sheet, you know, we believe that we are a much better credit than we were when we refinanced fifteen months ago. And so when it comes time to refinance, we believe that there will be a lot more options available to us. And our goals, when we do decide to refinance, are really going to be about reducing our interest rate, but also improving the flexibility of our loan terms so that we can, use some of that ex excess cash on our balance sheet to do things like potentially pay down debt, buy back stock, invest and allocate more capital to organic growth opportunities, and then even potentially pursue inorganic growth if the right opportunities present themselves.

Ron, Analyst, Citi: That’s great. Well, Liz, thank you very much. We are in overtime, but that was a very, a very helpful answer, and, appreciate your time here today. Thank you.

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