Earnings Call Transcript - PTON Q3 2023

Peter Stabler, Head of Investor Relations

Thank you, Sherry. Good morning and welcome to Peloton's fiscal third quarter 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 laws. Actual results may differ materially from those contained in or implied by these forward-looking statements, due to risks and uncertainties associated with our business. For a discussion of the material risks and other important factors that could impact our actual results, please refer to our SEC filings and today's shareholder letter, both of which can be found on our Investor Relations website. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's shareholder letter. I'll now turn the call over to the operator for our first question.

Doug Anmuth, Analyst

Thanks so much for taking the questions. I just wanted to ask Barry, if you could talk more about the upcoming changes in brand positioning and just a little bit more about what you think is misunderstood around the brand, the products and how people use them and how those changes in brand positioning can help drive growth going forward? And then also perhaps Liz, if you could just talk about the potential, I know that the DISH settlement will weigh on free cash flow in 4Q, can you just update us on your path deposit of free cash flow ex that settlement? Thank you.

Barry McCarthy, CEO

Good morning, Doug. Thanks everybody for making time to join us this morning. I'm not going to say too much about the brand repositioning. I want everybody to experience it along with the consumers at the same time. In the letter I spoke about the fact that we're primarily known as a bike company. But the behaviors of our members extend well beyond that into many different categories of exercise and a large percentage of folks use no hardware at all. I've done a very good job of communicating that to prospective members. And we're looking to improve upon that. I think the advertising can be more inclusive than it has been historically. And then lastly, of course, we have been promising to introduce the app, and that moment is soon to be upon us, and that will receive considerable focus in the marketing relaunch as well.

Liz Coddington, CFO

And Doug, to address your question about free cash flow. As Barry mentioned in the shareholder letter, the DISH settlement and related expenses associated with that settlement will put pressure on our free cash flow in Q4. So if you exclude those items, we actually are pretty close, but within striking distance of achieving free cash flow break-even. And the progress that we've made is very positive and continues to be positive.

Ron Josey, Analyst

Great. Thanks for taking the question. Barry, I wanted to ask about FAAS in Peloton and PCR given both I think accounted for about three quarters of new subs this quarter. And so talk just a little bit more about just how these products are going? How you're going to market with these products and how they're being differentiated relative to the full membership understood there's nuances in between? And then Liz, I think this quarter guidance calls for a little bit of a decline in subs, it’s a seasonally slower quarter. Would love to hear more insights in terms of what you're seeing there as well? Thank you very much.

Barry McCarthy, CEO

Let Liz take the guidance piece and I'll talk about FAAS and then the refurbished bikes. From a marketing perspective, we're doing nothing basically to support those products. So people are finding them on their own. In some instances, there is a banner across the top of our homepage that steers towards one or the other. For the most part, you have to discover FAAS by clicking down a couple of layers on the web. So think of it mostly as organic pull-through. Liz, do you want to talk about the guidance, please?

Liz Coddington, CFO

Sure. Yes. So Ron, you alluded to the fact that we are guiding down on connected fitness subs for Q4. A few comments on that, so the fourth quarter is seasonally our toughest or rather our least efficient quarter for us to grow subscribers. Even with our best-in-class retention, we need a base level of growth additions to offset our churn, which, while still quite low, also tends to be seasonally highest in Q4. It's also important to understand that we are committed to growing our subscribers efficiently. And while we expect to target a lower LTV to CAC ratio in Q4 than we did in Q3, our Q3 LTV to CAC was actually above 2. Our forecast assumes that we will maintain a strong financial discipline, and we will not overspend either via media spending or by cutting prices or flashing them to acquire unprofitable subscribers. I also want to point out that we do have some uncertainties in our Q4 guidance. As Barry mentioned in the letter, and as we've talked about already on the call, we are relaunching the brand to better communicate our value proposition, and we do expect that to widen our channels over time. And we're also reintroducing the app. And we don't know the impact that these launches are going to have on our Connected Fitness hub growth in Q4. We're cautiously optimistic about that, but we have not baked any of that optimism into our guidance forecast.

Justin Post, Analyst

Great. Maybe one for Liz and one for Barry. First, on Liz, when you think about the app pricing and the tiering, how do you protect the Connected Fitness price, but also offer a very robust app that people can use on other devices? How do we think about that? And then, Barry, maybe a big picture question added about 120,000 subs this year. I know there's a lot of macro and competitive headwinds and execution with the new team. How do you think about the right rate of growth for the company on subs as you look past this year? Was this an unusually challenging year and you're optimistic? Or is this kind of the new baseline? How do we think about sub growth from here? Thank you.

Liz Coddington, CFO

Do you want me to take the first part of the question first?

Barry McCarthy, CEO

Yes.

Liz Coddington, CFO

So Justin, we're not sharing today any details about our new app tiers and the pricing associated with them. But the way to think about it is that they aren't all going to offer the same offering to consumers. So for example, what we offer for Connected Fitness is all of our content on our hardware along with access to the app, you kind of get everything is all accessed. The different app tiers will have different amounts of content experiences available to you at different price points. So that's how we're protecting the all access membership in that regard.

Barry McCarthy, CEO

Let me discuss the current environment and share my thoughts on the new baseline and potential growth opportunities in what is a very challenging year. Since I joined the company, we've experienced restructurings, revaluations, and write-downs totaling approximately $1.7 billion. A significant effort has gone into restructuring the business and rebuilding the leadership team. As a leadership team, we are still establishing our rhythm and fostering relationships and trust, which are essential for building great teams. This process takes time, and if handled well, it will enable us to execute more swiftly and improve business performance as time goes on. There are a couple of areas where we are seeing the early benefits of our restructuring efforts, particularly in the commercial and corporate wellness business, where we are starting to witness good momentum. We are also seeing progress in our third-party partnerships, recognizing that we still have much to learn in establishing strong B2B relationships, but it is encouraging to see signs of life. International expansion appears to be another avenue for growth, along with our introduction of new hardware platforms this past year. For instance, our rowing machine currently has a 4% unaided brand awareness, with a promotional guide at 1% and the app at 5%. There is significant potential for improvement in all these areas. The app, even before enhancements, has a Net Promoter Score that is 20% higher than our next best product, which is Bike Plus. However, only 5% of people are aware of the app's existence, making it ten times lower in visibility compared to the bike. We have many opportunities to delve into this area, and I anticipate a complete year of rowing machine sales in the future as we plan to reintroduce a second treadmill product that we had previously withdrawn from the market. While we don't control the timing of that, we have significantly improved our relationship with the government thanks to the efforts of Tammy and her team alongside our engineering team. This relationship is poised to be a growth vector for us. Additionally, with new platforms, new business ventures, and international opportunities, we are backed by a new marketing leadership team we intend to support as they drive growth. Lastly, Sam Cotter and her team are making impressive strides in revitalizing our accessories and apparel business, especially in apparel, which holds the potential for substantial growth. I am excited about several initiatives she is working on that have yet to be announced publicly, which aim to unlock further growth opportunities. Apologies for the lengthy response, but that encapsulates my perspective on our new baseline and growth vectors.

Edward Yruma, Analyst

Hey, good morning. Thanks for taking the question. I guess first one, broader question. I know you guys called out Amazon as being a success story. I wanted to understand if you had any more context behind the remainder of 3P, particularly physical retail like a Dick's? And then just a clarifying point on the relaunched app, will connected fitness devices have the option for a more a la carte subscription option? Or is that to remain the All Access membership?

Barry McCarthy, CEO

It will remain all access membership. I'm going to ask Liz to comment on Dick's and 3P.

Liz Coddington, CFO

Yes, sure. I think the way to think about Dick’s is it still very much a new partnership, a new relationship for us. Recall that we only launched that partnership back in November. So we've only got a couple of quarters under our belt with Dick's. And as Barry commented, it's also about us learning how to be a good wholesale partner to a retail business that is more traditional brick-and-mortar. That's not where our business has come from. We've been mostly web-centric in how we sell and how we deliver to our consumers. So we're still working through with Dick's how to be a good partner to them and how to leverage their channel so that we can both be even more successful.

Eric Sheridan, Analyst

Thanks so much for taking the questions. First, you talked a lot about the commercial opportunity via the hospitality industry in the letter, and you've obviously got the Hilton partnership. Can we talk a little bit about what you think that means in terms of a driver for either the Connected Fitness subscriber funnel and/or bringing additional people into the digital app that maybe would utilize your hardware in a more nomadic, sort of, business travel-type sense through partnerships like that? Just want to understand how you think about that as a stimulant to multiple different parts of the business? And then in terms of the guidance you gave one quarter forward, I wanted to understand a little bit of some of the puts and takes in the gross margin guidance that we could better understand how some of the headwinds and tailwinds might evolve, not just in Q4, but as we roll forward into the next fiscal year? Thanks so much.

Barry McCarthy, CEO

I don't have much to add about hospitality, other than it has been a productive source of consumer demand for us historically, and I expect this to continue in the future. We value the hospitality business for two key reasons: it is profitable on its own and it serves as a strong source of future growth for us, as it plays a significant role in driving our sales funnel.

Liz Coddington, CFO

I'll take the question about puts and takes for our Q4 margin. So first, just a reminder that our overall gross margin is actually expected to go up quarter-over-quarter to 41% versus the 36% that we had in Q3. And the main driver of that is the shift towards subscription revenue from hardware revenue, because we do expect our hardware sales to be lower in Q4 versus Q3. Our guidance does assume some expected pressure on Connected Fitness gross margins versus is a seasonally weaker quarter for Connected Fitness hardware sales. We're also expecting some weaker sales and margin outlook for Precor as we continue to revamp that business. And then we do have about 200 basis points of impact to overall gross margin included in our guidance from anticipated onetime items that mainly impacts the Connected Fitness segment.

Aneesha Sherman, Analyst

Thank you and nice quarter. My question is about OpEx. So about a year ago, you were talking about or maybe your predecessors were talking about $2 billion in OpEx being the kind of watermark. You're tracking towards that at this point, and you brought down the cost base quite significantly on an underlying basis. Are you at the tail end of the OpEx improvement and cost cutting stage? Are you looking at this as kind of being the steady state level? Or are you looking for more improvement in the next year or so?

Barry McCarthy, CEO

Yes.

Liz Coddington, CFO

Yes. So going back to the restructuring plan that we outlined about a year ago, we don't have a perfect apples-to-apples comparison to that, because we had a number of additional actions that have been taken since we set those targets. But if you actually exclude restructuring, impairments, reserves and settlements, our OpEx is down over $550 million on a trailing 12-month basis as of Q3. And if you can note, that does include the fourth quarter, which still had fairly elevated OpEx mainly in G&A and sales and marketing. On the COGS side, we've had significant volume-based dependency when it comes to determining the cost savings there. And while our volume has come down, we've continued to make significant progress in optimizing our cost of goods sold over the past year. Our cost structure now reflects the impact of the restructuring actions that we took to outsource our last mile delivery, exit our own manufacturing and really effectively shift our high fixed cost business model to a much more variable cost model. From a cost structure perspective, we are in much better shape. We do see some further opportunity to optimize cost of goods sold, particularly in the middle mile, and we're going to be working on that over the coming quarters. With regard to OpEx overall, we have made great progress. We're not finished, and we're going to continue to optimize. But the big step function improvement are likely not to happen. It's going to be more about identifying improvements as we go, things like reducing our professional services spend addressing our tech, which should drive some efficiencies. There may be some efficiencies and member support. We're going to continue to look at lowering our real estate costs over time. So those are some of the areas where you'll continue to see further optimization over the coming quarters.

Barry McCarthy, CEO

I believe there is an opportunity for us to realize significant savings in several categories moving forward, particularly related to IT infrastructure and the middle mile. This past year, we dealt with many supplier payments to settle inventory commitments, and following this quarter, those issues will be entirely behind us.

Aneesha Sherman, Analyst

Thank you so much. And if I can ask a quick follow-up for Liz. On your comment about Q4, can you reconcile your comments about seasonality and lower subs versus your guidance of only a modest increase in churn? Is it just about expecting lower gross adds?

Liz Coddington, CFO

So seasonally, it's both, right? There are expected lower gross additions in the quarter due to reduced efficiency in acquiring them, as well as a seasonal increase in churn that we have observed every year.

Barry McCarthy, CEO

No, if we were to relax the constraint we've imposed on marketing spending, if we were to relax the free cash flow goal that we've set for ourselves, we could absolutely grow faster. Well, we're not prepared to make that trade-off at the moment until it is kind of what it is.

Liz Coddington, CFO

The focus is as I was going to say, the focus is on LTV to CAC and making sure that while we’re willing to go lower than we were at in Q3, it has to be relatively efficient.

Barry McCarthy, CEO

First priority is free cash flow. Second priority is growth.

Shweta Khajuria, Analyst

Thank you for taking my questions. Liz, could you remind us of the promotions you ran during the quarter and your expectations for the upcoming quarter and beyond? Additionally, could you comment on the overall demand environment? I also have a follow-up question about free cash flow. Excluding the settlement costs, it seems you're close to breakeven. Can you clarify what the key levers are, aside from the growth expected in the coming year? How should we think about working capital for the next fiscal year? Thank you.

Liz Coddington, CFO

I believe there were several questions asked. Let's begin with the query about promotions. In the third quarter, we started with a promotion in January aimed at encouraging fitness as part of New Year's resolutions. This promotion lasted for part of January. Additionally, we implemented a referral rewards program where if someone refers a new customer to Peloton, the new customer receives a discount, and the referrer gets credit for an apparel purchase. We also had a spring promotion in March which offered discounts on hardware purchases and bundles, along with deals on refurbished products. Moreover, we introduced a financing promotion with 0% interest available for various term lengths for a limited period. Looking ahead to the fourth quarter, we have additional promotional activities planned for Mother's Day, with the promotion launching today. Regarding free cash flow and the question on working capital, we will address that next. For Q3, we experienced a cash benefit from inventory, amounting to around $100 million after accounting for supplier settlements during the quarter. We are close to concluding those settlements, with only about $3 million remaining that will impact Q4. In Q4, we anticipate inventory will still provide some cash benefit, but it will be significantly less than in Q3, partly due to decreased hardware sales in Q4 compared to Q3. While we aren't providing detailed guidance for FY '24 yet, we expect the inventory cash benefit to continue to decrease over time as we need to produce Connected Fitness hardware for specific SKUs.

Barry McCarthy, CEO

I would say about the demand environment, uncertain. We've seen consumers respond very favorably to promotional activity in the current environment, maybe even more so than historically. There's certainly no exuberance in the marketplace, but it's not frozen either. So it's kind of a mixed bag, and we're definitely uncertain about what's next in terms of the economic environment. Maybe the recession is a soft landing. What happens with jobs. How uncertain your people. It seems like household incomes who had money still have money, they're able to spend. And then there's everybody else. For them, there's a lot of uncertainty.

Liz Coddington, CFO

Yes. And while there's certainly uncertainty. When we do our demand forecasting, we incorporate the latest trends that we see into our bottoms-up forecast. And so we believe our guidance contemplates some of that macroeconomic headwinds that we may be observing, even though it's hard to explicitly identify what they are.

Barry McCarthy, CEO

But we have no clear expectation regarding the developments in Washington and the potential consequences of Congress failing to reach an agreement with the President. For our planning purposes, we are assuming that the current state of affairs remains unchanged, and we will see how it unfolds.

Andrew Boone, Analyst

Hi, good morning and thanks so much for taking my question. Barry, I wanted to ask now that we're a year into the price increase. Just philosophically how you are thinking about subscription price increases going forward. Given your time in Netflix, it felt like there was a steady cadence. Does that relate to Peloton?

Barry McCarthy, CEO

I don't think so. For a long time, Netflix's strategy was to lower prices and grow market share. It was only after they became a global leader that they started to charge a premium for their market share. If it were up to me, I would be lowering prices instead of raising them. I believe it's an effective way to create a positive cycle of increased engagement, more word of mouth, and reduced marketing costs. You can enhance value by making trade-offs with gross margins. I would like us to pursue that, but I don't see it being feasible given the financial constraints we're facing. As Liz mentioned, there will be increasing gross margins due to structural changes in the business. This relates to the growth rate in the subscription business compared to the hardware segment. For instance, last quarter, subscription revenue surpassed hardware revenue by $30 million. This quarter, that figure increased to $100 million. Subscription revenue is growing significantly faster, and I believe that's a long-term trend, as I noted in last quarter's investor letter. However, I don't anticipate major structural changes in the gross margins of the subscription or hardware businesses.

Andrew Boone, Analyst

And then I just wanted to touch on the underlying new subs that are coming on the platform. Are you guys seeing any change there in terms of income or age? Or anything else that would be worth highlighting? Thank you so much.

Barry McCarthy, CEO

No, not so much. With respect to the new marketing campaign, we will be reaching slightly younger. But that's a TAM play and an inclusivity play. But no changes particularly. I have noted previously that as we're bringing in a slightly different demographic. It was slightly more female. It was high household income, interestingly enough. Is it professional women who value the optionality, that continues to be true. But it's not skewing the macro numbers, particularly.

Alex Hughes, Analyst

Great. Thanks, guys. This is Alex Hughes on for Mario. Just had a couple of questions around the rower product. Do you have any updates on sales versus your internal expectations for that? And you guys launched the live rowing classes last quarter. Any update on user traction on that or how that's progressing? Thanks.

Barry McCarthy, CEO

You want to talk about sales versus expectations?

Liz Coddington, CFO

We aren't sharing explicitly what our sales are for the rower, but it is still a new product. And similar to what Barry said, our current sales are actually pretty heavily skewed to our existing Connected Fitness subscribers, which is similar to what we saw with our Tread when we launched it. And so we are expecting sales to be more accretive to sub growth over time as we continue to build over time as we grow our unaided awareness of the product.

Barry McCarthy, CEO

Let me add that it received very favorable critical reviews. I think it's made it much more difficult for some of the competitors in that space in particular. So it's grabbed a lot of share. Liz mentioned that the awareness is still low. I think we have opportunities to work on that. Frankly, we didn't really know what to expect when we launched it. But the combination of the favorable critical reviews and then the reception from our users has been quite good. Its Net Promoter Score is slightly below the Tread product. So think of it as on par with Bike and Tread, which I think for a new product is pretty good. I think we have opportunities to continue to improve the content, but it's a new category for us, and I'm confident that we will. But that's not based on any research, by the way, that's just my own assessment as a user.

Liz Coddington, CFO

And then I just want to add, it's only available in the U.S. today, and we are looking to launch it internationally into other markets over time.

Zach Morrissey, Analyst

Thank you. This is Zach Morrissey speaking on behalf of Deepak. First, regarding marketing, considering the brand and app relaunch later this month, how might this impact the usual seasonality of marketing expenditures this year and in the coming quarters compared to historical trends? Secondly, concerning our SaaS metrics, we've noticed a slight increase in churn quarter-over-quarter, now at 5%. How should we approach the main factors that could reduce this over the long term and what gives you confidence in the unit economics of the SaaS model moving forward? Thank you.

Barry McCarthy, CEO

Liz and I will share the response. Regarding seasonality, we anticipate a decline in marketing expenses this quarter compared to the previous quarter, although we expect a slight year-over-year increase in the single-digit percentage range. Last year's Q4 showed particularly low expenses. Other than that, I don't foresee significant changes in our seasonal patterns. The year-over-year increase is primarily due to our focus on the app launch. Based on my experience with Netflix, I believe user experience is crucial to churn. To clarify, we report average churn, which reflects the average lifespan of our user base. If we are acquiring a large number of new subscribers, they tend to have a higher churn rate initially, as opposed to those who have been with the service longer, like for around 12 months. I have observed this trend in every subscription-based business I’ve been involved with, and churn typically decreases over time. In my last two companies, it leveled off around 12 months. We see a similar pattern here. During periods of growth, churn may slightly increase, while it decreases when growth slows down. To truly understand churn dynamics, it's essential to analyze the cohorts and monitor shifts in the churn curve over time. This analysis helps increase customer lifetime value. To adjust the churn curve, we focus on enhancing engagement and ensuring we attract high-quality subscribers. Marketing is responsible for this. It's important to gauge a customer's potential value based on their early retention experience. Therefore, we need to self-regulate and acquire subscribers from sources that meet our churn expectations. In terms of engagement, we've seen a significant improvement in the past three quarters, with about a 5 percentage point increase in the number of customers engaged with our all-access product. The key is for Jen Cotter and her instructors to keep producing excellent content, but that alone isn't enough. If our content is excellent but hard to find when users hop on their bike, tread, or row, it’s virtually useless. Our product and engineering teams have been effective in enhancing personalization, which has been a focus since I joined. We're making good progress and are also rolling out new content categories, such as Lane Break, which has seen outstanding engagement, especially from a younger, more male audience. We need to continue engaging in these use cases and personalize the experience. I apologize for the lengthy response.

Liz Coddington, CFO

I wanted to add just a couple of quick things. First of all, first-half, I do want to comment that we are still within that 18 to 20-month payback period that we have been targeting, even with the slight uptick in churn that we've seen. And then Barry's comments about sales and marketing. So our sales and marketing overall expense is actually down, expected to be down year-over-year in Q4, but our media spend is expected to be up. So the overall sales and marketing function itself, which includes down year-over-year, but we're spending a bit more on media, to your point, around the brand relaunch and the app.

Barry McCarthy, CEO

Well, Fast is a great example of how it is you can make trade-offs between marketing spend, churn, and growth in order to drive more overall profitability in the business. So Fast absolutely had the higher churn rate, but the incrementality is in the low 60s. And so even though the lifetime value, we estimate to be, in round numbers, half that of an all access member, we're growing so much faster because of Fast, we're driving more profit. And so we're willing to take the churn hit because of the increase in enterprise value that results from us deploying that strategy.

Dana Telsey, Analyst

Good morning, everyone. As you consider the changes in the business model and the upcoming launch of the app, how do you envision the financial profile of the company? What do you think about the quarterly cadence and revenue streams, and how do you see the model quantitatively?

Liz Coddington, CFO

Well, I'm not sure I fully understand the question. But as we've talked about, our business has shifted more towards subscription relative to Connected Fitness hardware. So as the app growth as a larger share of our business, that will continue to shift, and more of our revenue will be coming from subscription. And as we know, the gross margin of our subscription business is higher, so that will also continue to help improve our gross margins overall. And it will expand the business. We'll continue to grow. We'll be able to get scale, which will mean that our OpEx as a function of revenue will come down. So it's leading us all in the right direction towards getting to our North Star goal, which is to be a bigger business with more subscribers and higher operating income and getting us to operating income breakeven over time. But structurally, it's really more about that shift that we're continuing to see happen from the mix of Connected Fitness hardware to subscription. Now that doesn't mean that some of those app subscribers over time will also become Connected Fitness members, but we're going to have to see how that journey evolves, and we'll have products available for them however they want to join Peloton.

Barry McCarthy, CEO

Building on Liz's comments, if we succeed in expanding the app business, we will increasingly adopt an asset-light model, which will positively impact the working capital aspects of the business. Additionally, both gross and operating margins will benefit as a result.

Liz Coddington, CFO

Right. And remember, our North Star around growth is LTV to CAC ratio. So we're going to continue to evaluate how we grow our subscriber base in that framework.

Barry McCarthy, CEO

I believe that if we successfully implement an asset-light model, we are likely to experience faster growth internationally. Launching an app product internationally is considerably easier than launching a hardware business.

Dana Telsey, Analyst

And Barry, just following up on international, where international grew faster than the U.S. this quarter. What are you seeing internationally and leaning into the hospitality business, how do you see the pace of adds for new hospitality change joining the platform?

Barry McCarthy, CEO

I'm going to hold off on answering that. I appreciate the question. I think hospitality for us is mainly a U.S.-focused business for the upcoming fiscal year. However, I see potential for expansion beyond that. For international growth, my focus is primarily on existing markets, along with a few new ones. The strategy is mostly about reworking our approach in current markets by creating culturally relevant content to unlock growth opportunities, including some co-branding initiatives that we haven't pursued yet. I believe we have an exciting announcement coming in the next couple of quarters that will help accelerate our growth.

Youssef Squali, Analyst

Great. Thank you very much and good morning all. So Barry, the Peloton brand was built on just great quality physical product historically. As the business moves to an app-centric strategy, asset-light strategy, can you maybe just speak to the competitive advantages that you are bringing, the moat you're trying to build? And what gives you confidence that you'll be able to maintain the same type of advantage that you've been able to build in the physical world? Thank you.

Barry McCarthy, CEO

I think both Liz and I will comment here. From my part, I would say we faced many challenges in the past year, almost in every aspect of the business, except for content. Content is kind of the golden goose. Is the bike a great experience from a hardware perspective and better than things that had come before it? Absolutely it is. But the magic and the glue that binds the community with almost religious fervor amongst the members is the content and the instructors. And so if we're successful in extending that into the app world and if we architect the app in ways that drive personalization so that you can find and engage with all that content quickly and in a frictionless way, then I think we will do quite well. If we don't do those things, we won't.

Liz Coddington, CFO

I completely agree with your comments. I want to emphasize that it's crucial for us to keep innovating our content experience over time, and this is something we are committed to. You can expect to see new forms of content from us in the future, which will help maintain our competitive advantage. Content is essential; it is truly our unique strength at Peloton.

Operator, Operator

Thank you. That is all the time we have today for our question-and-answers. Thank you again for participating. This concludes today's program. You may now disconnect.