Good day, and welcome to Peloton's First Quarter Fiscal 2025 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. James Marsh, Senior Vice President of Investor Relation. Please go ahead.

Thank you, operator. Good morning, and welcome to Peloton's first quarter fiscal 2025 conference call. Joining today's call are Peloton board members and interim co-CEOs, Karen Boone and Chris Bruzzo, as well as Chief Financial Officer, Liz Coddington. Our comments and responses to your questions reflect management's views as of today only and will include statements related to our business that are forward-looking statements under federal securities law. Actual results may differ materially from those contained in, or implied by these forward-looking statements, due to risks and uncertainties associated with our business. For a discussion of the material risks and other important factors that could impact our actual results, please refer to our SEC filings and today's shareholder letter, both of which can be found on our Investor Relations website. During this call, we will discuss 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 interim Co-CEO, Karen Boone.

Good morning, and thank you for joining us today. Before we dive into today's financial results, I want to share the exciting news regarding our CEO search. As you probably saw in our separate release this morning, on behalf of the entire Board, I'm thrilled to announce that after a comprehensive search, we have identified the next leader for Peloton. Peter Stern will assume the role of CEO and President on January 1, 2025. Peter is a seasoned leader and strategist with over 20 years of experience operating at the intersection of hardware, software, services and content at Ford, Apple and Time Warner Cable. He has a strong track record of innovation, operational excellence and creating significant shareholder value. As the Co-Founder and driving force behind Apple Fitness+, Peter led its growth to millions of members and is responsible for successfully scaling over a dozen other subscription services, ranging from Ford BlueCruise to Apple iCloud to Time Warner Cable Home Security. Importantly, Peter has also been a passionate member of the Peloton community since 2016 and have a deep appreciation and reset for this business, this brand and the impact that we have on millions of people around the world every day. I truly cannot wait to officially welcome him to Peloton at the start of the calendar year. Turning to our financial results. I'm extremely pleased to share that we are reiterating our fiscal 2025 financial goals today, which include: first, aligning our cost structure to the current size of our business by delivering over $200 million of run rate cost savings by the end of fiscal year '25 from our cost restructuring plan announced in May 2024. Second, improving our unit economics across all products and sales channels in pursuit of delivering sustainable, profitable growth and meaningful free…

Thanks, Karen. As Karen mentioned, we're focused on improving the efficiency of our customer acquisition costs. And this requires us to be strategic with our marketing campaign that generate demand from target growth audiences and to be disciplined with our marketing spend. In that way, we reduced total sales and marketing expense by $64 million or 44% year-over-year in Q1, primarily driven by historically low media spend in the quarter. In fact, our Q1 was the lowest quarter of media spend since fiscal 2020 over four years ago. We intentionally pulled back our media spend during Q1 because it is a seasonally low hardware sales period for us. As we look ahead to the holiday season, we are already ramping up media spend to support demand generation ahead of this important time for hardware sales and subscriber additions. Our go-to-market strategy continues to evolve with a balanced approach that creates demand among new growth audiences, coupled with improved efficiency in our short-term conversion tactics. Today, two-thirds of our members are women. So, we see an opportunity to attract more men to Peloton through targeting and messaging that highlights the robust value of a Peloton membership. Further, we see an opportunity to grow our Tread business, given our estimates that show the at-home treadmill market is more than twice the size of the at-home stationary bike market. Our goal is to build demand among core audiences and capture that demand during less frequent promotional moments. While we are still in early days, we're encouraged by the signal that suggests these marketing strategies are working. In Q1, we saw a 9% year-over-year mix shift in hardware sales towards men with the highest shift in our Tread portfolio. All of these efforts will enable us to expand LTV to CAC year-over-year, while refining…

Thank you, Chris. First, I'd like to provide an update for how we are tracking against the cost restructuring plan we announced in May. As of the end of Q1, we have actioned all payroll-related changes that were assumed in the restructuring plan, which will deliver over $100 million of annualized run rate savings. We continue to make progress and benefit from all other non-payroll related savings. Together with the payroll savings, we are still on track to deliver over $200 million of run rate cost savings by the end of fiscal 2025. And we are realizing some of these savings faster than we anticipated. Also, we're delivering additional cost efficiency through reductions to media spend that were not included in our $200 million restructuring goals. Now I'll spend a few minutes on our Q1 results. We ended the quarter with 2.9 million paid connected fitness subscribers, reflecting a net decrease of 81,000 in the quarter. This exceeded the high end of our guidance range by 10,000 subscribers. The main driver of our subscriber outperformance was slightly favorable churn versus our expectations, as a result of fewer subscription pauses. This favorability was partly offset by slightly softer gross additions than we expected. Average net monthly paid connected fitness subscription churn was 1.9%, slightly favorable versus expectations and in line with the prior quarter and an increase of roughly 40 basis points year-over-year. As a reminder, our net churn performance from the year ago period included a one-time benefit as a result of elevated subscription unpauses in the first quarter of fiscal 2024, following elevated pauses in the fourth quarter of fiscal year 2023 in response to our original bike seatpost recall. We ended the first quarter with 582,000 paid app subscriptions, reflecting a net decrease of 33,000 in the quarter.…

Thanks, Liz. I want to take a moment to recognize the remarkable progress the entire Peloton team has made since I took on the role of interim co-CEO with Karen in May. In a relatively short time, I've seen us get smarter in many ways. We've made meaningful progress toward our goals of rightsizing our cost structure, improving unit economics and innovating to drive long-term profitable growth, and we are just getting started. So with today's announcement that Peter Stern will start as Peloton's next CEO and President in January, I will be stepping down as Co-CEO effective tomorrow, November 1. Karen has graciously agreed to continue as interim CEO of Peloton until Peter arrives. It has been a great experience working with Karen, Liz, the lead team and the many talented team members here at Peloton. I am very proud to be part of Peloton for the difference we make in millions of lives every day and I look forward to staying very involved as a much smarter Board Director going forward. Thank you for the time this morning. We can now open the line for Q&A.

Thank you. [Operator Instructions] And our first question will come from the line of Simeon Siegel with BMO Capital Markets. Your line is open.

Thanks. Good morning, everyone. Congrats on the ongoing progress and on the new CEO announcement. It's really great to see. So some really nice momentum here on the profitability trajectory. So Karen, recognizing I about to ask you something to speak on someone else's behalf. I guess, I was hoping you could speak to how you think or expect Peter would approach the balance of growth and profitability. I'm wondering, do you expect any actions that you take will flow quickly once you start? Do you think he's going to have a taking stock period? It just it seems like you've all done a really collective nice job on diagnosing the problem and you're already successfully affecting that plan to improve the free cash flow. So I'm just curious, if we can assume that, that continues or whether wait and see and then we'll watch how Peter wants to approach the business a new. Thank you.

Thanks, Simeon. It's absolutely on our mind. It's absolutely the right question, it's how we're going to balance profitability and growth, and it was, frankly, top of mind for the Board, as we were looking for the next CEO. Peter is the right CEO for this chapter. He's a seasoned strategist. He's known for execution and he does have that strong track record of driving innovation and growth. I will pause and just say, do you think we've set the table for his rival. Job one was refinancing the debt in May, we did that, we stabilized the balance sheet and it's put us in a much better position to manage our maturities. And Liz has talked a lot about the progress on executing the restructuring, reducing inventory levels, focused on profitability to generate the cash flow to allow us to begin deleveraging. So we do feel like we now have that stable base upon which to grow. In the very near term, and I don't know how long this is going to last, but we have been managing an uncertain macro environment, an uncertain consumer backdrop. There's been weather and hurricanes. We have a very intense focus on election. So we've been focusing on what we can control. I don't expect that to change under Peter's leadership. We've been very clear that we're not going to chase unprofitable sub growth. And we've been much more disciplined with spend up and down the P&L. Our media and marketing investments have been much more thoughtful, and we're optimizing our unit economics by product and by channel. So those are the things that I do not expect to change or we're going to continue to monitor those and kind of see when it makes sense to turn back on some of the…

As you can tell from Karen's remarks there, she and I have been very involved in this process. And with Peter in particular and so we're very excited. He's really aligned. All those conversations have been so positive. So we know we've got the right leader that's going to bring the right balance and focus on growth.

And say the excitement is resonating. So that's great. So thanks, guys. And then, if I could just follow up quickly on that, maybe for Liz, a quick one. It's not a lot, but I think this is the first quarter of sequential inventory growth in a long time. So any help on the composition of that inventory? Any way to frame what type of equipment is making up that increase? And I guess I'm asking not as much for the number. I'm just wondering if we should be reading into that as a signal that maybe you do see some uptick in demand ahead or maybe it's the build for the new distribution partners or might we lay off and it's a non-event and it's just a function of maybe the lighter gross adds as you mentioned. So, any help on that inventory vis-a-vis the growth comment would be helpful?

Sure. So, the question, I believe is around our sequential growth in inventory in for the first quarter. As we said during -- it's pretty modest, it's pretty modest, and it's really related to our seasonal buildup of inventory ahead of the holiday season, and we do expect a significant inventory tailwind on the full year. We've done some great work our supply chain team has done some excellent work in working with our manufacturing partners to reduce our production levels over the course of the year to enable us to be a lot more efficient with our inventory over time and reduce our days of on-hand inventory, which is great. And that will create a cash tailwind for us over the course of the year. In Q1, it's up very slightly, but that's in relation to just the seasonality of buying ahead of the holiday season, and we expect our inventory balances to come down over the course of the year. But we are just to be clear, producing inventory for all of our products, so -- because we do need that inventory over the course of the year. But we do see it as an overall tailwind for us on a full year basis.

Sounds great. Thanks a lot, guys. Best of luck for holiday and nice job.

Great. Thank you.

Thank you. One moment for our next question. And that will come from the line of Curt Nagle with Bank of America. Your line is open.

Congrats on the solid quarter. This is Camuto (ph) for Curt Nagle. This quarter churn came in line at a seasonally high period. What are the fact -- what are we factoring for the rest of the year? Would that be a stable rate compared to the last year for the remaining quarters?

Sure. So first, let's take a step back. Our business continues to benefit from very strong subscriber retention and low churn overall. In Q1, our average net monthly churn was 1.9%, which was relatively in line with last quarter. It was up 40 basis points year-over-year. As we discussed during the last quarter earnings call, we expected Q1 net churn to be up year-over-year due to a few reasons, including the following: slightly worse overall retention from our 1P and 3P subscriber base, which we've talked about, mix shift towards secondary market subscribers, which do have a slightly lower retention than our first-party subscribers. And then we also had the impact of a one-time benefit in Q1 of fiscal '24 related to higher subscription on pauses following elevated pauses in Q4 of fiscal '23 related to our original [indiscernible] and we did not repeat that benefit this year. As we move forward and look at Q2, we do expect our churn to improve seasonally compared to Q1. We do expect that improvement would likely be a bit muted though compared to the quarter-over-quarter improvement that we saw in fiscal '24, again, because of those two headwinds that I mentioned about the slightly worse retention in our overall subscriber base and that mix shift into secondary subscriptions, which do have that higher churn profile. So overall, for the remainder of the fiscal year, we expect our churn to continue to be higher year-over-year because of the mix of subscribers from the secondary market continuing to grow, but we do expect churn to remain below 2% for the whole of fiscal 2025. I do want to point out though, and we've mentioned this before, that our guidance doesn't assume any potential upside to subscriber retention, as a result of the software innovation initiatives that Chris talked about earlier, which we believe could positively impact member engagement and ultimately, retention over time. And the reason we haven't incorporated those is because the magnitude and timing of those benefits is uncertain at this point.

Great. Thank you.

Thank you.

Thank you. One moment for our next question. And that will come from the line of Brian Nagel with Oppenheimer. Your line is open.

Hi, good morning. I too would like to add my congratulations on the business and your CEO announcement. My question -- so first question, I've got two. I'll ask them in the order. For just on the balance sheet, you talked in the prepared comments about '25 being a deleverage year. So I guess the question I have there is maybe if you can go into a little more detail. Clearly, the business now from the P&L standpoint is much more stable. You're generating cash flow. But are there any specific steps you can identify here to address the balance sheet, in particular, the debt that remains on the balance sheet?

Yeah. This is Liz. I'll take -- I'll start that one off and folks can add on top. So first of all, Ken mentioned earlier that we derisked our balance sheet with the refinancing in May, and that allows us to now be very focused on deleveraging over time. And we're also very excited to be talking about the positive free cash flow and also raising our minimum free cash flow target. We are being disciplined with the level of investments that we're making, and that's goal -- the goal there is to set us up for future growth that is sustainable and profitable. And so as a result of generating that meaningful free cash flow, we do see the opportunity to meaningfully deleverage going forward that we're going to continue to improve our adjusted EBITDA and then continue to generate that positive free cash flow. And when we do that, we will naturally deleverage. We also see, over the course of time, real interest cost savings with rate step-downs when our leverage ratio falls between --- below 5. And then eventually, there is also the potential conversion of our 2029, 5.5% convertible notes. So our balance sheet is in a much better position than it's been in the past. We've lowered risks. We've positioned ourselves well for sustainable and profitable growth. Now and we also see the ability to strategically reduce our growth debt over time, and we will be strategic about that. But we don't have anything to share regarding a definitive capital allocation framework for how we're going to execute that at this time.

Great. That's very helpful. Go ahead, sorry.

I was just going to say, did you have a follow-up question?

I did. Thank you for that. And my follow-up question is unrelated, but I guess somewhat bigger picture to. It maybe a little -- it's probably a better question as your new management team takes place. But if you look at the -- I mean, I guess, I'm looking at the business, one of the positives has been the ability of Peloton to really maintain that core base, and you talked just a few minutes ago about -- a moment ago about your -- still very low churn. But as you're watching the business, and if you stabilize the business, are you finding -- is there anything you can help us with this, like, where you're finding those incremental pockets of new demand, those new customers that could come into the Peloton system.

Yeah. Hi. This is Chris. That's a great question. And I think it goes straight to the kind of discipline that we've been talking about in marketing. A key part of that is, who are you reaching? And what's the opportunity and what's the message and how are you doing that efficiently? And I think we've had some really great success just recently in focusing on men. In the prepared remarks, you heard me talk about two-thirds of our current members are women. And so now we're targeting the male demographic in our advertising. We've done some more buys during in NFL games. We featured the Watt brothers. But more importantly, the campaign and the work that we're doing is expanding our reach, and we're seeing in the data that there's a shift toward men and new hardware purchases and with the greatest shift within that in the Tread and Tread+ products. So we feel really good about that. And it's just an indicator of the way we're thinking about the marketplace now, which is targeting, as you said, targeting those discrete pockets and then being efficient and effective in the way that we're reaching them. I should point out that here in November, we're going to be holding a lot of member gratitude events and messages, and that's another core part of this, activating that incredibly loyal base to refer and engage their friends and family to bring them into the Peloton experience, you can see us do a lot more of that.

Very helpful. I appreciate. Thank you.

Thank you. Operator, next question, please.

One moment for our next question. And that will come from the line of Nathan Feather with Morgan Stanley. Your line is open.

Hi, everyone. Thanks for taking the question and really encouraging to see the progress on profitability. As you think about how to drive sustainable profitable growth. Interested to hear how you're thinking about where physical retail fits in as a component of your go-to-market and especially, given the Costco launch. Do you see some portion of the customer base who are more willing to convert in person than online and then reflecting on the own stores, [indiscernible] where you see the potential to improve performance versus the prior format. Thank you.

Sure. This is Karen. So on retail in general, I'd say, we are still on the path to close some of the underperforming retail stores. That said, we will have them this holiday season. So the team has put together some really thoughtful activations in a subset of those stores to bring instructors and magic and excitement to them to make sure they're not -- they're still representing the brand well and engage with our members and new customers and have some excitement around these spaces. We are testing to the point on how we might reimagine it, we're testing a smaller micro store concept in Nashville. So it's a way to do it in a lower capital, lower payroll, lower square footage, but still have a physical presence. It's also the reason why we are exploring additional 3P locations like Costco. We're hoping that reaches an incremental audience. We have -- we're still excited about a lot of people shop on Amazon. We're happy to be there and trust Amazon with – they’re just that's part of their daily routine. And then we still have the Dick's Sporting Goods internationally, 3Ps important too, and it's a much more capital efficient way for us to roll out. So retail, I would say, is in the reimagined process. It's not going anywhere. It's just we're going to kind of optimize the mix between 3P and 1P and make sure that it makes economic sense and reaches as many new incremental buyers as possible.

Great. That's helpful. And then given the more flexible international model you talked about in Germany and Austria. Interested to hear, how you're thinking about potential further international expansion? And is distribution the primary constraint to growth or is it more on the localized content side?

Sure. So international is still another important part of the long-term growth strategy for us, it's just a matter of prioritization and sequencing. I do think we've made some very important steps. Germany is the example where we are entirely 3P now. So in order to do that and do that profitably and effectively, we had to make some pricing changes. We need to make sure there's sufficient margin for that third-party to have some margin, and it still makes economic sense for us to do so. So now we have in -- a couple of different models, and we can test and see which ones. We're still learning what makes sense and how much to invest as we roll it out. But it's not -- there's not one limiting factor. It's just how do we want to sequence and prioritize the various investments. But I would say, we're really excited about the way the international model has taken shape, again, both with the way we've taken some of the investments on the people side and centralize those. And then, also with the pricing, it's just a better go-to-market strategy. So, we will expand over time. We have no new plans to talk about markets right now. So that's something that Peter has onboarded will evaluate additional investments in current markets and/or new markets we want to go into overtime. But it's still a very important part of the long-term strategy.

And it's not really very much about -- it's not so much about barriers as it is about, as we're thoughtful about our priorities, we have to be thoughtful about making an experience that meets the bar. And so, the content does have to be relevant and localized. And so you're going to see us be thoughtful about that. And if we're expanding international markets, we're going to do it in a way that we're proud of.

Very helpful. Thank you.

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

Hello. Could you hear me?

Yes. We can hear you.

Okay. Thank you for taking my questions. I guess, could you please talk about how you came to the decision with Peter as the CEO, it seems like he has phenomenal experience, especially as it relates to Apple Plus or fitness experience with Apple, which is translatable. But as you were going through different candidates, what specifically about Peter, do you think will jump out as he comes on board? Thanks a ton.

Sure. Well, I couldn't be more excited. This is a fun one to talk about. Peter just really hits and checks a lot of the boxes that we were looking for. As you mentioned, his experience, not just the Apple Fitness+, but really, he has a ton of breadth of experience across hardware, software and in content businesses across services, but he's also had a lot of experience driving growth through innovation, and that's where we are in our journey. As we've kind of talked about. We have the stable base. We now need to return to growth. And I also just really believe he's highly aligned with Peloton for values. He has been a member for eight years. He loves what we're doing. He loves health and wellness. It's part of his own routine and is owned regimen. So I think he believes in the product. He believes in the space. He has a perfect skill set and experience that, and I just think he's going to be a great fit. So we're just really, really excited to get him started.

It's hard to add anything to that. I would just say on a personal level, he's thoughtful, he’s considerate. He's going to definitely bring an approach to learning, which I think is excellent. And he deeply appreciates what Peloton has done, and he's excited about helping to lead the next chapter.

Thanks, Shweta. Next question please, operator.

One moment for our next question. And that will come from the line of Andrew Boone with JMP Securities. Your line is open.

Thanks so much for taking my question. I wanted to double click on the reduction in marketing this quarter. Can you guys talk about the learnings as you guys did pull back there and what may be incremental? And then as we think about that 2x to 3x kind of LTV to CAC target, can you guys talk about the path back into that framework? And then for my second question is, I'd love to double-click in terms of Connected Fitness gross profit margins. You guys have seen steady improvement there. Is that kind of the ceiling or do you guys feel like there's more progress to go? How does that move into a step function and maybe in the double digits? Thanks so much.

Yeah. I mean I'll start and then Liz, you can chime in. I think -- I would say, the word at the top here as it relates to marketing is discipline. And I talked about it in the prepared remarks and I talked about it earlier in the Q&A, but effective audience targeting, being effective in the way that we're optimizing our investments, the way that we're focused on the entire picture -- marketing picture, including the retention and engagement of our existing members. These are kind of the key hallmarks of what Lauren Weinberg, our CMO has brought in this last year to Peloton. We've gone from being promotion heavy to one that -- to a place where we're now balancing demand creation and desire with those moments where we can capture demand through conversion events, and promotions and seasonal opportunities like we have coming up in the holiday. And then you see the numbers, we've significantly reduced our customer acquisition costs. We've become much more disciplined in our media spending and a lot more focused on where are those qualified growth audiences. So all of these areas, I'm really impressed with what Lauren and her team have done and the way they, I think, set up Peloton as part of this broader effort at the company to create a solid foundation of sustainable and profitable growth. So you can expect that to continue.

So on the question around the LTV to CAC and the path back to getting to that 2x to 3x. So our goal is to get to that 2x to 3x range, ideally closer to 3x, and we do have some work to get there. We're not quite there yet. And we have these near-term levers that we are focused on that are under our control. And then as Chris was talking a lot about investing in future growth. So the pricing changes that we've made and the reduced promotional activity that you saw in Q1 are way for us to improve our gross margins. So we made progress on those in Q1 and as we go into Q2, we will still have promotions over the holidays, but we will continue to make progress on our LTV by improving our gross margins over time. And ultimately, our goal is to get to where we have significant positive gross margins across all products, all channels and all markets. The other piece is around our CAC, which Chris was talking about, that's really about the discipline, not overspending to acquire unprofitable customers. And then also evolving our messaging to target those audiences in order to drive that efficiency. And then we also have in addition to kind of the working media dollars that we invest in marketing. We're also focused on those non-media costs that do hit our sales and marketing and impact our CAC, and that includes things like exiting retail shows, which Karen talked a little bit about earlier, optimizing our brand and creative spend, and also optimizing our headcount. So, we've been focused on all of those things. Now I think the last part of your question was around Connected Fitness gross margin and do we have ability to make more progress? We certainly have the ability to make more progress over time. Again, we're really focused on the things that we can control, and you're seeing some of the progress there manifest. And then we will do the right thing in terms of LTV to CAC and if it does make sense to invest a bit more in the LTV side of the equation relative to the CAC side of the (ph) equation. We will continue to make those trade-offs as we go. But our goal is to continue to drive improvement in gross margin because that helps us fund our CAC and create a lot of that efficiency that we're looking for. Our holidays are an example, seasonally higher demand, we will be spending on media in that quarter, and that will drive growth into the future quarters, and we will also be spending on promotions in that quarter. One other thing I want to mention is that Precor does sit within our Connected Fitness segment, and it's accretive to our Connected Fitness gross margin overall. So as the Precor business grows, that will also drive higher connected fitness margins over time.

And the Connected Fitness margin. Okay. Next question, please.

One moment for our next question. And that will come from the line of Douglas Anmuth with JPMorgan. Your line is open.

Great. Thanks. It's Brian Smilek on for Doug. I guess, just as you enter the holiday season, can you just talk about which go-to-market channels and initiatives are key to just driving improving seasonality and higher hardware sales? And then I know we've talked about it in the past too, but can you just provide an update where the connected business industry is and the overall cadence of return to growth and rate of decline? Thanks.

I'll take the holiday question and Liz, you can take that one. Yeah. Thanks for the question. I mean, we're entering the holiday season with cautious optimism. I think we talked about macroeconomic factors that are out of our control, but we're focused on things that are within our control. And I'm just going to be a broken record, and you can expect us to spend this in a disciplined way. We'll spend less on media this year. It will be less promotional than we were in our holiday season last year. And we will continue to manage our LTV to CAC ratios in the right way. But we're excited about, as I mentioned, ways of getting existing members engaged and involved through referrals. The way we're targeting pockets of growth and about new third-party relationships like the one we just discussed today related to Costco. So, when we can do things like have our Bike+ available with special bundled pricing and extended warranty like we have, like, we're doing at Costco, that's another great opportunity. So we have a strong plan. We're prepared in -- I think we're going to focus well this holiday season.

So I think the last question was a bit about the connected fitness industry overall. So we do track with third-party data -- the market share data around connected fitness and market share trends. Our data suggests that the overall fitness market declined around 2% year-over-year in Q1. We're seeing that gyms are settling into a new normal growing around 3% to 4% year-over-year in the last couple of quarters compared to 8% to 9% year-over-year growth that they were experiencing in Q1 and Q2 of fiscal '24. For the connected fitness hardware sales piece, sales overall are continuing to decline year-over-year. So gyms are still taking a bit of share. However, we are such a large part of the connected fitness market, that's the decisions that we are making to prioritize profitability are certainly impacting this trend. Some of the other things that we're seeing are, there are macroeconomic factors like the impact of inflation, interest rates, and uncertainty around the upcoming presidential elections that could be playing into overall Connected Fitness hardware sales in general. And then so just for us, we're focused on the things that we can control, which is really focusing on sustainable and profitable growth and then ensuring that we create the best possible experience for new and existing numbers that are join our Peloton community.

Thank you. Operator, maybe we have time for one last question.

And that will come from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Thanks so much for squeezing me in. Maybe just one question on content. As you continue to sort of build learnings around the business and think about where the strategy is going to go over the medium to longer term, as Peter joins. Jow do you think about the right levels of investment in content, duration around content and the role that content can play in continuing to drive sort of end demand on the user side and engagement and sort of conversion metrics over the medium to long-term? Thanks so much.

Yeah. Thanks. Well, I mean, content is absolutely at the very center of our experience and our instructor-led content is -- it's a hallmark of what makes for a great Peloton experience. So there's -- that's -- we're going to continue to invest there and to innovate. We've done some really interesting things just in the last quarter around bringing new hiking and walking experiences to the treadmill, walking boot camps. We're doing some programs around taking walks after meals, which will be relevant as we approach the Thanksgiving holiday. So there's lots still happening in that space. We talked about All for One and the music partnerships that we did there. It has been and will continue to be an area that's incredibly important to us. And yeah, I think that will continue.

Just going to add one more thing. We are also investing in non-class-based content too. So in our entertainment offerings, in our gaming and fire fitness experiences, which we're leaning into. And so, we're seeing the opportunity to expand beyond our core, our incredible instructor-led workout, which we have all these modalities and Chris was talking about some of the new ones that we've added that we really think are going to be value-added but also those non-platform that we are seeing gain some interest and traction, and we think we'll be able to drive engagement over time, which, again, as our subscribers are engaged, then they stick with us, and we've seen that time and time again, and we want that to continue.

Thanks, Eric.

Thank you. I would now like to turn the call back to Ms. Karen Boone for any closing remarks.

Thank you, operator. Before we end the call, I just wanted to thank Chris for all the leadership he has brought to the business over the last six months, driving our teams towards innovation and reinforcing our member's first mindset during this period, there has been a lot of transition and a lot of change. I've been really lucky to have him as my partner over the last six months in our interim co-CEO role, and we're very lucky to have the return to the Board and benefit from his experience and insights going forward. I will continue the role of Interim-CEO through the end of the calendar year before handing the baton back to Peter in January. And Chris and I will both be actively involved in ensuring a smooth and successful transition. I really can't -- couldn't be more excited to get Peter on board. In addition to the depth of experience he brings. He really has such a great respect for the many passionate team members who work to bring amazing experiences to our members every single day. And I know he brings a growth mindset and curiosity to learn all about the business. He's going to bring a fresh perspective as we continue on our path to deliver sustainable and profitable growth. And lastly, I am so proud of the Peloton leadership team, the many passionate and purpose-driven team members who are devoted to Peloton's success. All the hard work and progress has really set us up to continue to deliver on our goals as we enter the next phase of Peloton's journey under Peter's leadership, and we truly can't wait to welcome him to the team. Thank you, and happy holiday.

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