Thank you, operator. Good morning, and welcome to Peloton's Fourth Quarter Fiscal Year 2025 Conference Call. Joining today's call are Peloton Chief Executive Officer and President, Peter Stern, and Chief Financial Officer, Liz Coddington. Our comments and responses to your questions reflect management's views as of today only and will include forward-looking statements related to our business 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. Please refer to our SEC filings and today's shareholder letter, both of which can be found on our Investor Relations website for discussion of the material risks and other important factors that could impact our results. 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 over the call to Peloton's Chief Executive Officer and President, Peter Stern.

Thank you, James. Good morning, everyone, and thank you for joining today's call. As we wrap up our fiscal year, everyone at Team Peloton should take pride in our results and all that we accomplished. While Liz will review the results in more detail, our team exceeded all our key financial performance goals for Q4 and fiscal 2025. We delivered what we promised operationally and then some. And we reignited our innovation engine on every aspect of our magic formula of equipment, software and human coaching. As we look to the future, our team is rounding out nicely. We recently welcomed two new hires to the leadership team, Chief Marketing Officer, Megan Imbres, who joined us from Apple, and Chief Communications Officer, Dianna Kraus, who joined us from Fleishman Hillard. We have also completed the search for our CIO. Corey Farrell joined last week from Pearson and reports to our COO, Charles Kirol. As I promised when I started at Peloton in January, in today's shareholder letter, I outlined Peloton's strategy. I won’t reiterate that strategy in these remarks, but I will provide some highlights. Our strategy is grounded in our purpose, which is nothing short of delivering human impact at massive scale by empowering our members to live fit, strong, long and happy. We already deliver on this purpose in part as the trusted fitness partner for approximately 6 million members in 6 countries, but we are just getting started. Let me explain by providing historical context. Over the past century or so, advances in medical science contributed to the prolonging of life, here in the U.S. by a remarkable 30 years from 1900 to 2020. However, as lifespan has increased, health span, the quality as opposed to the quantity of those years, has failed to keep up. People are living longer, but they are also living sicker. In the U.S. alone, we now have the largest gap between lifespan and healthspan in history at over 12 years. Addressing health span requires a different approach from lifespan, because healthspan depends less on medical interventions and more on our choices and behaviors regarding exercise, sleep, stress and diet. This is where Peloton comes in. Cardio fitness is the foundation of wellness and is critical to maximizing health span. If it were a drug, it would be a miracle drug available to everyone without negative side effects. But while cardio fitness is essential for health span, it is not enough by itself. With each passing year, we are coming to understand better the importance of strength, stress management, sleep, and nutrition to living our best lives. This creates the opportunity. No more than that, the mandate for Peloton to evolve from being a cardio fitness partner to becoming the world's most trusted wellness partner across the full array of behaviors that maximize health span. There is no company better positioned than Peloton to achieve this kind of human impact. Behavior change is hard, but we've spent over a decade helping millions of people start and maintain healthy habits by making it fun and by creating a real sense of community and human connection. So with that backdrop, here's where we're taking the business with the goals of returning to sustained growth in revenues and members and of sustaining our progress in achieving profitability. We plan to support our members' wellness journeys by expanding our offerings in strength, where we are already a category leader, mental well-being, sleep and recovery, and, over time, nutrition and hydration. While we're exploring new wellness areas, we will continue to build on our strength in cardio, cycling, running, walking and rowing, recognizing the centrality of cardio for human well-being. We recognize that our members come to us at various stages of their fitness journey, and so a one-size-fits-all approach fits no one. Determining what to do to meet your goals can be overwhelming. So we will employ advanced technologies like AI to enhance our ability to serve as personalized coaches, delivering individual insights, recommendations and custom-tailored plans that make it easier and more efficient to achieve your goals. To grow our member community, we will increase our global presence through hotel partnerships, retail expansion, and the launch of new markets. An example of this is our successful micro store pilot in Nashville. Last month, we opened our second micro store, this one in Utah. And we plan to launch an additional 8 stores in time for the busy holiday season. Here's another example. We launched Peloton Repowered, a platform for buying and selling used equipment to sellers nationwide last week, following a successful pilot in 3 U.S. metro areas. And yet another. In May, we launched a special pricing program that offers a discount on equipment to military personnel, healthcare workers, first responders, and educators. These purchases have already made a meaningful impact on first-party retail sales in Q4, while making Peloton more accessible to thousands of people we all count on for the quality of our lives. We also launched special pricing for students, offering them discounted access to our Peloton App subscriptions. Precor is a strong asset to Peloton as it has a presence in more than 60 countries and 80,000 locations. We see a tremendous opportunity to expand our commercial presence and serve a broader range of gym operators by bringing the best of Precor and Peloton together. We have integrated Precor with Peloton for business and formed a new commercial business unit under Chief Commercial Officer, Dion Camp Sanders, hiring Ian Reeves as its General Manager. Dustin Grosz, President of Precor, will be retiring, and we sincerely thank him for his leadership in returning the Precor business to growth. Our commercial business unit plans to expand on the success we've achieved with our Hilton and Hyatt partnerships. Peloton for business currently operates in over 9,000 hotels and Peloton is now a must-have amenity in quality hotels. Growing our member base also means expanding our online and in-person presence through social channels and events. In Q4, our instructors participated in over 40 events, more than three times the amount in Q4 of last year. When you purchase a piece of Peloton equipment, you aren't just getting a fitness tool; you're also joining a supportive community. We've experimented with ways to strengthen this community and foster more engagement through our social network teams. We have more features on the horizon to deepen connections and engagement among our members. We are also continuing to elevate the member life cycle with new onboarding programs and to recognize our most loyal and committed members. A core pillar of our strategy is ensuring our prices reflect the human impact we deliver to our members. We continue to improve our unit economics and will adjust prices to reflect the value we provide to our members and the cost of operating our business, including shipping, returns, tariffs, and other fees we pay. Peloton is at a critical juncture in our transformation, a moment to invest intentionally in our future. To earn the right to grow, we must align our spending with areas of competitive advantage, specifically our equipment, software, and content while reducing costs in areas that do not differentiate us. To that end, we plan to capture an additional $100 million of run-rate cost savings by the end of FY '26 by optimizing indirect spend, reshaping our teams, and, in some cases, the locations where we work and parting ways with a number of our talented colleagues. Decisions that impact our people are the most agonizing ones we make. We are deeply grateful for the contributions of our departing team members, and we are committed to supporting them through this transition. Making fundamental changes to the way our business operates takes sacrifice and hard work, but I'm even more confident in our team now than when I started. I will now turn it over to Liz to discuss our Q4 and full year 2025 results.

Thanks, Peter. I want to begin by highlighting our sustained progress toward improving the financial health of our business over the course of fiscal year 2025. Our successful efforts to expand gross margins, reduce operating expenses and optimize inventory levels enabled us to generate $324 million of free cash flow, an increase of $409 million year-over-year. We also materially deleveraged our balance sheet, reducing net debt by $343 million or 43% year-over-year. We are pleased with the progress we’ve made in improving profitability in fiscal 2025 and continue to prioritize delivering meaningful free cash flow. Now I'd like to touch on our fourth quarter results, which reflect another solid quarter of financial performance as we exceeded the high end of our guidance on all key metrics. We ended the fourth quarter with 2.8 million Paid Connected Fitness subscriptions, reflecting a net decrease of $80,000 quarter-over-quarter due to seasonally lower hardware sales and seasonally higher churn. Ending Paid Connected Fitness subscriptions decreased 6% year-over-year. We exceeded the high end of our guidance range by 10,000 driven by both higher gross additions and favorable net churn. Gross additions outperformed our expectations due to higher unit sales of our Connected Fitness products in both first-party and third-party retail channels. Average net monthly Paid Connected Fitness Subscription churn was 1.8%, an improvement of 10 basis points year-over-year and an increase of 60 basis points quarter-over-quarter in line with our expectations for a sequential increase in Q4 due to seasonality. We ended the quarter with 552,000 Ending Paid App Subscription. Total revenue was $607 million in Q4, comprising $199 million of Connected Fitness products revenue and $408 million of subscription revenue, outperforming the high end of our guidance range by $21 million. Our performance relative to guidance was primarily driven by Connected Fitness products revenue from higher-than-expected hardware sales of both Peloton and Precor products. Connected Fitness products revenue decreased $13 million or 6% year-over-year, driven by lower sales and deliveries, partially offset by a mix shift toward higher-priced products. Subscription revenue decreased $23 million or 5% year-over-year, driven by lower Paid Connected Fitness subscriptions and lower Paid App Subscriptions, partly offset by used equipment activation fee revenue, which was introduced in Q1 of fiscal 2025. Total gross profit was $328 million in Q4, an increase of $16 million or 5% year-over-year. Total gross margin was 54.1%, an increase of 560 basis points year-over-year and 380 basis points above our implied guidance of 50.3%, driven by outperformance in both segments. Connected Fitness product gross margin was 17.3%, an increase of 900 basis points year-over-year, driven by inventory write-downs recorded in Q4 of last year, a mix shift towards higher-margin products and decreases in service and repair, warehousing, and transportation costs. Subscription gross margin was 71.9%, an increase of 370 basis points year-over-year, driven by decreases in music licensing royalties, personnel-related expenses, inclusive of stock-based compensation and depreciation and amortization. Subscription gross margin benefited from a one-time balance sheet adjustment to accrued music royalties associated with renewing a music licensing agreement. Excluding this one-time benefit, subscription gross margin would have been 69.2%. Total operating expenses, including restructuring and impairment expenses, were $299 million in Q4, a decrease of $77 million or 20% year-over-year, reflecting the continued progress we've made in rightsizing our cost structure, partially offset by expenses associated with today's announced restructuring plan. We exceeded our target to achieve at least $200 million of run-rate cost savings by the end of fiscal 2025. Sales and marketing expenses were $81 million in Q4, a decrease of $32 million or 28% year-over-year, driven by decreases in advertising and marketing spend, personnel-related expenses, inclusive of stock-based compensation and retail showroom expenses. We exited 24 retail showroom locations in fiscal 2025, reducing our retail footprint from 37 to 13 showrooms at the end of Q4, excluding the addition of one micro store location. Research and development expenses were $56 million in Q4, a decrease of $14 million or 20% year-over-year, driven by decreases in personnel-related expenses, inclusive of stock-based compensation and product development costs. General and administrative expenses were $125 million in Q4, a decrease of $61 million or 33% year-over-year, driven by decreases in stock-based compensation associated with executive departures in Q4 of last year and other personnel-related expenses, partially offset by slightly higher professional fees. This quarter, we recognized $37 million of impairment and restructuring expenses, primarily consisting of severance and personnel-related charges as a result of today's announced restructuring plan as well as other non-cash impairment charges. Adjusted EBITDA was $140 million in Q4, which was a $70 million or 99% improvement year-over-year and $54 million above the high end of our implied guidance range. We generated $112 million of free cash flow in Q4, an increase of $86 million year-over-year. Q4 free cash flow benefited from outperformance in revenue and gross margin as well as lower operating expenses. We ended Q4 with $1.40 billion in unrestricted cash and cash equivalents, an increase of $125 million quarter-over-quarter. Overall, our fourth quarter performance reflects a continuation of meaningful profitability improvement for our already high retention, high gross margin Connected Fitness subscription business. Our continued focus on rightsizing our cost structure and derisking our balance sheet has enabled us to achieve a strong financial footing from which we can execute our strategy that is focused on achieving sustainable, profitable growth. Next, I'd like to share context for our financial outlook. For full year fiscal 2026 and on a quarterly basis, we are providing guidance for total revenue, total gross margin, and adjusted EBITDA. We will also continue to provide an annual target for minimum free cash flow and a quarterly guidance range for Ending Paid Connected Fitness Subscriptions. Our full year fiscal 2026 total revenue outlook of $2.4 billion to $2.5 billion reflects a 2% revenue decrease year-over-year at the midpoint. As we execute on our strategy over the course of the year, we may evaluate changes in pricing, promotional strategy and other actions to achieve our financial targets. Q1 total revenue is expected to be $525 million to $545 million and reflects a decrease of 9% year-over-year at the midpoint. As a result of anticipated year-over-year declines in hardware sales and Paid Connected Fitness subscriptions. Similar to fiscal 2025, we expect Q1 to be a seasonally low quarter for hardware sales. Taken together with our guidance for revenue for the full fiscal year, which reflects a lesser decline at the midpoint compared to what we expect in Q1, you can see that we expect to inflect toward year-over-year revenue growth over the remaining 3 quarters of the fiscal year. Starting in fiscal 2026, we will assign executive and other corporate overhead associated with our New York headquarters and other corporate facilities as we focus on driving more accountability for cost at a functional level. Historically, these costs were all reported in G&A, but going forward will be assigned across COGS, sales and marketing, G&A and R&D. Our guidance for total gross margin reflects these assignments, which drives a roughly 70 basis point headwind to total gross margin. Full year fiscal 2026 total gross margin is expected to be roughly 51%. Adjusting for the impact of assigning executive and corporate overhead expenses, our outlook reflects a total gross margin improvement of roughly 140 basis points year-over-year as a result of our continued focus on optimizing costs. Our Q1 fiscal '26 total gross margin outlook is roughly 52%. Our fiscal '26 adjusted EBITDA guidance range of $400 million to $450 million reflects an increase of $21 million or 5% year-over-year at the midpoint, primarily driven by operating expense savings connected to the new restructuring plan we introduced today. We've actioned roughly half of the run-rate cost savings as of today and expect the remainder to be realized over the course of the year. Roughly 15% of the $100 million run-rate savings goal is expected to come from lower stock-based compensation. Q1 adjusted EBITDA is expected to be within the range of $90 million to $100 million, reflecting a decrease of $21 million or 18% year-over-year at the midpoint, primarily driven by our expected revenue decline. We have decided not to provide annual guidance for Ending Paid Connected Fitness Subscriptions because over time, we plan to make trade-offs between pricing for both subscriptions and hardware and subscription growth. We also believe that we have many vectors for growth that do not result in an increase in subscriptions. We will continue to provide quarterly guidance for Ending Paid Connected Fitness Subscriptions. Going forward, total revenue will be our primary top line metric because it is a better measure of Peloton's long-term health. Q1 Ending Paid Connected Fitness Subscription guidance of $2.72 million to $2.73 million reflects a year-over-year decrease of 6% at the midpoint. We expect gross additions to decrease year-over-year as a result of an expected year-over-year decrease in Peloton hardware unit sales. Average net monthly Paid Connected Fitness Subscription churn is expected to follow our historical seasonal pattern with higher churn in Q1, but still slightly lower than Q1 of last year. Before we cover free cash flow, I wanted to share a quick note on tariff policy, which as you know, is a dynamic situation. While we manufacture some Precor products in the U.S., we are subject to country-specific reciprocal tariffs for Peloton and Precor equipment, including but not limited to, Peloton and Precor equipment imported from Taiwan and other Precor products imported from China. While Peloton tablets are currently subject to a tariff exemption for computers, we anticipate that our imported tablets from Thailand may become subject to a country-specific reciprocal tariff rate within the coming months. Peloton and Precor imported equipment are also currently subject to a 50% tariff on their aluminum content. We remain committed to generating meaningful free cash flow with a target to achieve at least $200 million in fiscal 2026, inclusive of anticipated tariff exposure of roughly $65 million. As tariff rates continue to evolve, this exposure could change. In fiscal 2025, we reduced our inventory position, creating a significant net working capital benefit to free cash flow. While we do expect a small cash benefit from inventory in fiscal 2026, overall, we expect changes in net working capital to be a free cash flow headwind this fiscal year. We also expect greater one-time cash restructuring charges within the fiscal year as a result of our $100 million run-rate cost savings plan. These headwinds are partially offset by improvements in gross margin and operating expenses as a result of our focus on improving monetization and optimizing costs. For Q1 specifically, our typical seasonal sales pattern for Connected Fitness equipment requires us to build up inventory ahead of the holiday season and puts pressure on free cash flow within the quarter. When compounded by cash outlay for restructuring costs, we expect Q1 free cash flow to be slightly negative. By continuing to generate meaningful free cash flow in fiscal 2026, we expect to continue to make progress on reducing net debt and deleveraging our balance sheet over time, while also investing meaningfully in innovation so that we can make progress on our long-term objective to return Peloton to sustainable, profitable growth. Now we'd like to open the line for Q&A.

Thanks, Liz. We'll begin the Q&A process this morning by taking a couple of questions from investors that set their topics in advance. We received more than two dozen questions this quarter, so while we can't add all of them, we did pick a couple of representative ones that we'll tackle before the operator opens the line for additional questions. Our first question was asked by a number of U.S. investors, so I'll paraphrase. How does Peloton see the opportunity for growth as Americans focus more on health and fitness? And in particular, can you speak to how this impacts the younger demographic? Peter, maybe you can jump on that one.

Thanks, James. The attitudes of younger people are a big reason for the strategy that we announced today. When we look at young people, they are expanding their definition of what it means to live well. From a narrow focus on cardio as a tool for weight loss towards a more holistic approach that brings together cardio and strength, and sleep, stress management and nutrition to improve the quality of their lives as I talked about their healthspan. We also see that people are more likely to do training for their mental health. They pursue a more diverse range of training approaches with a more equal approach to strength and cardio. They are also adopting functional nutrition, thinking about food as a tool to enhance their wellness. At the same time that we're seeing all of those positive trends, we're also seeing upsettingly high levels of stress and depression and anxiety among young people. So while we're reorienting Peloton with the announcement of today's strategy to maximize human impact for everyone, we know young people need us more than ever. And that means we're going to be focusing even more on personalized training programs that cut across the many disciplines that we offer. That means even more investment in strength, including things like our Strength+ app because young people are more likely to pursue hybrid workout regimens, both at home and in the gym. It means more investment in areas like meditation and sleep for mental well-being; we have something really cool on the way. I can't wait to talk more about it soon, using a mix of software and human coaching. And then last but not least, our special pricing program that I talked about earlier offers discounted subscriptions on the Peloton app for students because not everyone has access to our equipment at college.

Great. Our next question comes from Barak in San Jose, California, leaderboard named B Metin. He asks stock-based compensation expenses have been growing disproportionately to the growth in your business. What are management's thoughts on current levels of SBC? Peter?

Thanks, Barak. Great question. I'll start by just noting that some stock-based compensation is a good thing. It aligns the interests of the company's employees, especially senior leadership, with the interests of shareholders, where we all benefit when we see stock improvements in the value of our stock. It's also retentive, so typically, cash payments happen within the year, but parts of stock-based compensation require employees to stay for multiple years in order to receive the benefits. It also encourages a long-term mindset as a consequence. That being said, your question was what's our thought on the current level of stock-based compensation. And I'd say historically, it's been too high. But I'll note that in FY '25, we were able to reduce our stock-based compensation expense by $77 million, which is a 25% reduction year-over-year. And we do expect that to decline further in FY '26. So I think we are definitely focusing on dilution; it's important. But the other thing that we're doing is trying to align the interests of our leadership even more closely with the interests of our shareholders. And to that end, in FY '25, we introduced performance stock units (PSUs) as a component of our executive compensation, and we are planning on increasing the mix of PSUs as a fraction of total stock-based compensation as we enter FY '26. Thanks again for the question.

Thanks, Peter. Sherry, can you open up the question from the line for questions, please?

And that will come from the line of Arpine Kocharyan with UBS.

I would like to understand the factors included in your revenue projections for the year. You've shared some useful insights regarding your current strategy and how it may enhance engagement, potentially improving churn and overall results, which could lead to stabilization in subscribers. However, considering there is no pricing increase announced by Peloton, could you discuss the main elements that contribute to your revenue estimates for the year? I also have a brief follow-up for Liz.

Sure. So thank you, Arpine, for the question. So we talked about a little while ago that our Q1 revenue guidance reflects a 9% decline at the midpoint. And our full year guidance reflects a 2% decline at the midpoint, and that does imply that we expect to inflect toward year-over-year revenue growth in the following 3 quarters of the year. And we intend to achieve this through a combination of growth levers that are available to us, and that includes sales and subscriptions as a result of some exciting product updates that we hope to be able to share with you soon, adjusting prices to reflect the value that we provide to our members, and the cost of operating our business. And this includes things like charging delivery and return fees and adjusting pricing and promotions. And in today's shareholder letter, we did note that we'll have more details to share about our product innovation before our next earnings call, and we're very excited about these, and they make us optimistic for the holidays. And then we'll be able in our next earnings call to provide some more color on how these are impacting our full year expectations.

That's very helpful. And then maybe this one is for you as well. Would it be possible to go over the cadence of that $100 million of cost saves? And you alluded to where they're coming from? Outside of headcount, where else do you see opportunities? There's always that concern that incremental cost cutting is always more difficult when the low-hanging fruit has been harvested, but if you could help us sort of break down the cadence of those cost saves throughout the year, it would be helpful.

Sure. So today's announced restructuring plan is designed to achieve at least $100 million in annualized run-rate savings by the end of FY '26. And as of today, we will have actioned about roughly half of the run-rate savings through the reductions in our workforce, and we expect to achieve the remainder throughout the balance of the year. One of the areas that we are focused on is indirect spend optimization and then also potential workforce relocation. And the $100 million run-rate savings target consists of reductions across our operating expenses. The biggest area is G&A, and we also expect some savings across R&D, sales and marketing, and COGS. And then I mentioned it earlier, but I'll mention it again, that our stock-based comp represents about 15% of the run-rate savings target.

One moment for our next question, and that will come from the line of Youssef Squali with Truist Securities.

Congrats on that solid quarter. Maybe just a follow-up to the prior question about growth. And just to be clear, so it's great to see you guys going from having shrunk for the last several years to looking at a pivot in revenue growth starting hopefully in Q2 through the rest of the year. But as we look at the business maybe longer term and maybe beyond the price adjustments that may get you there near term. Can you maybe just talk about your expectations for kind of the secular growth in this business? Is this business still at a holistic level, still flat to maybe declining from an overall market standpoint? Or do you see that improving? And then I have a quick gross margin question for Liz after that.

Yes, Youssef, thank you for your question. We are very optimistic about the future of our business. We've conducted research focused on the U.S. market, particularly within the fitness sector. We've identified that there are 117 million people in the U.S. with a household income over $75,000 who spend on fitness. When we narrow that down to those willing to invest in fitness equipment and subscription services, we estimate that represents about 17 million households in our addressable market. Currently, we have only a small portion of those households as subscribers, indicating significant growth potential in the existing market. I previously mentioned trends showing a growing focus on quality of life among individuals, which is driving a need for behavioral change. This not only has the potential to increase the numbers I discussed but also allows us to explore additional avenues for growth. Historically, we've mainly served our customers through cardio, while other disciplines have supported that. However, by viewing these additional areas as opportunities for customer acquisition and ways to derive more value from our members, we can recognize substantial growth prospects. I believe our company is uniquely positioned, thanks to our credibility, resources, and talented workforce, to seize these opportunities. Therefore, I see this as an expanding market where we have just begun to tap into its potential.

That's awesome. That's really helpful. And then maybe, Liz, could you please double-click on your expectations for gross margin for 2026, particularly across both subscription and hardware? I think you guys have done a really good job improving margins on the hardware business. How does that progress throughout the year as maybe you keep seeing some headwinds to that top line?

Sure. Let me discuss Q1 first and then the full year. In Q1, we anticipate a sequential decrease in our total gross margin due to lower margins in both segments. The gross margin for Connected Fitness will be affected by a projected decline in hardware sales, which leads to some fixed cost pressures. Additionally, similar to previous years, we expect a lower seasonal revenue mix from Connected Fitness in Q1. We anticipate that the subscription margin will return to the typical range of 68% to 69%. While we exceeded expectations in Q4, we expect to revert to the 68% to 69% range. For the full fiscal '26 year, our guidance indicates a year-over-year improvement of 140 basis points after accounting for the reassignment of executive and corporate overhead costs to cost of goods sold (COGS). I mentioned previously that this reassignment begins this year. We expect margin improvements in both segments. In the Connected Fitness segment, we expect to see benefits from reduced service and repair costs, lower warranty expenses, and advantages related to our FY '26 cost savings plan. In the subscription segment, we expect to gain from optimizing our content production and lowering music royalty costs.

One moment for our next question. And that will come from the line of Curtis Nagle with Bank of America.

Yes, great. Maybe just switching gears a little bit. We touched on this a bit on the call, but just thinking about capital allocation and potential refinancing now that you guys have demonstrated very strong EBITDA and cash flow. How are you thinking about that, I guess, in relation to the term loan?

Sure. Let me recap our capital allocation strategy and where we have been and where we are headed. In May of '24, we approached a maturity wall and successfully completed a $1.35 billion refinancing of our balance sheet. Since then, we have increased our adjusted EBITDA from $4 million in fiscal '24 to over $400 million in fiscal 2025, and we generated over $320 million in free cash flow. We are pleased with this progress, which has allowed us to quickly reduce our debt, with our net debt down 43% year-over-year. We ended the quarter with just under $1.4 billion in unrestricted cash and equivalents. We are aware of the $200 million in convertible notes due in February next year, and we have sufficient cash to cover them without early payment, as they carry a 0% coupon. Moving forward, we believe we have more cash than necessary for operations, and our top priority is to continue reducing our debt, which we believe will provide us with more options in the future. Regarding our $1 billion term loan, it is a 5-year loan currently priced at SOFR plus 5.5%, down from 6%. We received a 50 basis point rate step down after achieving our first lien net leverage ratio of under 5x a couple of quarters ago. If we were to refinance the term loan today, there would be a penalty of 1%, around $10 million, which decreases to par in May 2026. While we are always looking to optimize our capital structure, we need to be mindful of the penalty, which makes early restructuring less beneficial as we approach May 2026. However, we believe our stronger balance sheet will allow us to secure better interest rates when we eventually restructure.

Okay. Got it. Then maybe just, Peter, a quick one for you, just in terms of sizing the commercial opportunity. You have a new working group dedicated to that. So in terms of how material that could be to revenue and results this year, just any thoughts there?

Yes, Curtis, thank you. The commercial business unit we've initiated has already returned to growth, thanks to the impressive efforts of the Precor team in rebuilding relationships with gyms globally. This combination is fantastic; Precor manufactures top-quality heavy-duty equipment for commercial settings, and their service model is perfect for high-use environments and the needs of commercial gym operators. Additionally, Peloton brings its unique blend: stunning, high-quality equipment, software, and personal coaching. Together, these elements create an unmatched foundation of equipment, software, content, and services for gyms. Moreover, Precor is already present in 80,000 facilities across 60 countries, while Peloton is in 20,000. Although we haven't fully reconciled these numbers, we are discussing relationships with nearly 100,000 facilities worldwide. As we work towards having one combined sales force with these two strong complementary brands, we are confident that commercial fitness and wellness is a significant opportunity for us and a key growth area moving forward.

One moment for our next question. And that will come from the line of Brian Nagel with Oppenheimer.

I want to revisit the revenue guidance for the year. In fiscal Q1, you indicated that revenue is expected to decline in the high single digits but should improve throughout the year. Can you share any insights from your current business that support this guidance? Additionally, how should we consider the balance between potential changes in subscription pricing and new member acquisition within that guidance?

Brian, why don't I take a little bit of a crack at this because Liz sort of did the first pass at this question. So again, as you noted, the first point is that from a revenue standpoint, if you look at Q1 versus the rest of the year, we go from down at the midpoint, minus 9% to the rest of the year, minus 2%, so we are inflecting toward growth in the back part of the year. What are the vehicles for accomplishing that? It's growing our new member acquisition. And you'll see that happening as a consequence of some of the innovations that we are not talking about today, but that we will reveal before our next earnings call. And we believe that will attract more new members to the company alongside the fact that Q2 is usually a seasonally strong business that we hope to achieve sort of an acceleration of that progress. It comes from higher revenue per member. We believe we'll be able to accomplish that by selling more equipment. And again, we're very excited about our innovations, but more to come on that. Some of that can be to existing members, and some of that can be to new members. You're pushing on questions around the price change. And I guess what I would say is the best time to announce a price change, if you're going to do that, is when you've actually got the value lined up, looking both backwards and forwards. And looking backwards, we are delivering tremendous value to our members, and we feel great about where we are. We've more than doubled our instructor-led programs since we last did a price change over 3 years ago. We've significantly increased our library of workouts. We've done so much on strength, whether it's the launch of the Strength+ app or whether it's launching new categories like kettlebells and weighted vests. We've expanded many of the features of our product like we launched entertainment options like YouTube, Disney+, and NBA League Pass to our product. I've talked a lot about personalized plans, and we're now up to 700,000 of our members taking advantage of personalized plans that are based on their goals and their preferences. So I think looking backwards, we feel really great about the value we provided, but a lot of members will feel like, well, I already got that. So what are you going to do for me going forward? And today is not the day for me to talk about those sorts of things. But when we do, I think our members are going to be even more excited about what Peloton has to offer. So again, I'm not going to comment anymore on that particular topic, except to just signal the value we already deliver and intend to deliver, has been really positive. But there are those things. The other point that I'd like to make, right, is that there are a lot more ways of driving growth now for us as a business, right, selling a second or even a third connected fitness product to our existing subscribers. I talked a moment ago about the revenue that we generate from our commercial business unit, and we're seeing so much momentum now from that unit. We're starting to see some real interest in the market on content licensing opportunities because there is simply nothing like Peloton out there in the world. And so all of those basically aggregate up to give us the confidence that we can turn the tide on the revenue side.

One moment for our next question. And that will come from the line of Shweta Khajuria with Wolfe Research.

Let me try two, please. Peter, thank you for the context on how Peloton could evolve, and it sounds like there will be more details in the next few months. To the extent that you can comment, is the value proposition for Peloton going to focus more on being a wellness app rather than a fitness app? If we consider it that way, are you thinking about offering different tiers for users who may only want a portion of the offering instead of the full package? The total addressable market has been significant and is well understood, but one concern has been the ability to attract new subscribers at a premium price point. Could you please address that? Furthermore, in the past, you've promoted fitness as a service and certified refurbished options. Will those strategies continue to be a focus, or what is their current status?

That's great to hear. There's a lot to discuss. I want to emphasize that cardio is the core of Peloton and continues to play a crucial role in helping our members achieve their health and wellness goals. Our leadership in this area and the trust we've established with our members allow us to expand our offerings. Currently, strength training is an integral part of our strategy. According to the CDC, a combination of cardio and strength training is ideal for adult fitness, and we have 2 million members participating in our strength classes this quarter, which shows our commitment to this area. We have introduced kettlebell classes and the new Strength+ app that facilitates workouts even at the gym. We're also enhancing our software capabilities in strength training, with exciting updates on the way. For mental well-being, we're seeing strong engagement in our meditation classes, and I have some exciting developments in that arena that I believe will significantly benefit users, including improvements for sleep. Regarding nutrition, our content team is exploring new ideas, and in Q4, we launched the Peloton Kitchen series on social media in collaboration with nutrition expert Dr. Jaime Schehr, focusing on creating effective nutritional content. Concerning your inquiries about tiering, we already have a tiered structure with the F1 and F+ tiers, along with the a la carte Strength+ app. We believe these serve as excellent entry points for users to experience Peloton and eventually move up to the All-Access membership. In terms of our total addressable market, there are 117 million people willing to invest in our type of equipment, but there's a significant gap to bridge for those ready to subscribe. It's essential for us to share our story and reignite the sense of innovation that Peloton has always inspired and will continue to do so shortly. As for our refurbishment and fast programs, we are dedicated to both initiatives and the secondary market, which is producing a substantial number of new members for us. Our pricing strategy allows us to offer a lower price access point to our premium products without having to create a lower-end bike, utilizing refurbishment and the secondary market effectively. Our equipment is designed to last, making it nearly as good as new for those in the secondary market. We remain committed to these strategies, and I appreciate your questions.

Great. And now we're at the bottom of the hour here. Sherry, I'll ask the last question. It comes from Debbie in New York, leaderboard name Get Busy Living. And Debbie asked what are some of your strategies and ideas for keeping Peloton interesting and exciting, particularly for loyal and long-time users? Peter?

Thank you, Debbie, for that question. I relate to it as I'm approaching my ninth anniversary as a Peloton member this September. There are times when I find myself sticking to my favorite instructors and their latest classes. However, I have access to all the exciting things we’re doing here, so I wanted to share some advice that has worked for me. First, try to explore different workout options. We offer around 15 disciplines, which not only helps keep your interest in Peloton but is also beneficial for your body and mind. Consider incorporating strength training alongside cardio. If you have a gym membership, I recommend downloading and trying the Strength+ app; it's fantastic. Adding meditation can also be beneficial, whether for focus during the day or for better sleep at night, as it can decrease stress and enhance your interpersonal relationships. Experiment with our new offerings like weighted vest classes or kettlebell workouts, and don’t hesitate to diversify your instructors; we have over 50 exceptional instructors, each with their unique expertise. Setting up a personalized program is also a great idea. We’ve made significant improvements to them recently to allow more flexibility around your schedule. The personalized program will suggest a blend of both newer and older classes to help you reach your goals more efficiently. Joining a team is another way to enhance your experience, which provides a supportive atmosphere similar to a social network, offering tips and support from others. Recently, we added a feature in the team's feed that allows members to recommend workouts to each other, which is fantastic. If it's within your budget, consider adding another piece of equipment to your routine. It might seem self-serving, but having a bike and adding a tread or row can activate different muscle groups, both physically and mentally. Lastly, since you’re a long-time member like me, I believe you’ll appreciate our upcoming initiatives to recognize and reward healthy habits and loyalty to our community, which we will be announcing soon and expanding over time. So, keep at it, Debbie; stay tuned, and I welcome your feedback as we continue to share more.

Great. I want to thank everyone for joining us today. Have a good day. Thank you.

This concludes today's program. Thank you all for participating. You may now disconnect.