That will manifest principally in our connected fitness sales and therefore in revenue, although the Peloton equipment does have a subscription attached to it, and so you will also see some subscription revenue, but note that the realization of The equipment sales tends to be front-loaded and then the impact of subscriber growth in a new category like that is cumulative. In terms of the launches on the consumer side this year, not being terribly specific about that, but that should behave much like our existing consumer business. So you'll see it spread across CF sales and to the extent the sales are to new members as opposed to existing members, you will see that also manifest in our subscription revenue. As we get to FY28 and the introduction of products in new categories that grow our total addressable market, you'll see again a front-loaded impact on the CF sales line because the hardware revenue is recognized immediately upon the sale and delivery of those units. And then you will hopefully see the beginnings or the accumulation of the subscriber impacts, both in terms of our gross ads, the bending of the curve we expect on net ads, and, of course, the improved trajectory on subscriber revenue. It's too soon for us to say what that will result in with any level of specificity. These are new products in new categories for us. But our expectation is that by growing our market in this way, this is how we move Peloton into the next phase of our transformation. And to very specifically answer your question, then, what I think you should expect is revenue growth should precede a change towards subscriber growth. both because of the combination of the CBU, which is heavily weighted toward equipment sales, and because the impact on subscriber revenues lags the impact, and on numbers of subscribers, lags the impact on CF sales.

Thanks, Peter. One moment for our next question. And that will come from the line of Arpine Coach Orion with UBS. Your line is open.

Hi, good morning. Thanks for taking my question. And Sid, welcome to the call. You talked about flat churn year over year for 2027 fiscal year, which I think would have been good news for everyone. But now that base for 2026 is slightly higher. But it seems like you were suggesting that you've seen some normalization in churn since that change was introduced. First, could you talk a little bit more about what exactly you've seen, what rate of normalization you've seen since the change was made? And then Does that mean that there is a chance that the current guide could actually be a little bit better year over year if we see that rate of normalization continue because it's given basically your guiding flat on the current base?

Yeah, sure. Thanks for the question. I think the way to think about this is if you look at Q4, you look at the roughly 37 basis points year over year change in turn. about half of that was related to this involuntary churn issue of the one-time factors and about half of it we still think is a result of the lingering impact of the price increase we took in October. So if you think about, you know, our guidance for flat churn Euro of the year, what we would expect to see is in Q1 we still expect higher churn Euro of the year because we're still comparing against a period that didn't have the impact of the price increase. and then as we start to anniversary the price increase, we should start to see more favorable churn trends and a moderation of churn trends. I think the only other thing to keep in mind as you think about the quarterly cadence of churn is we actually experienced a relatively favorable year-over-year churn rate in the third quarter because a bunch of people that paused as a result of the price increase came back in Q3. So that's the only thing to keep in mind. But other than that, we should start to see much improved churn trends relative to Q1 once we start the anniversary of the price increase. But we factored in the normalization of the involuntary churn in our expectation that churn will be flat year over year for the full year.

Okay, that's helpful. Thank you. And then a quick follow-up. Thinking about your capital allocation priorities as it relates to growth and how you think about buybacks versus investing back in the business to drive growth and where it makes sense maybe to deploy capital inorganically versus buyback stocks, If you could comment on that.

Yeah, so let me just start by saying, you know, before we do anything, the first thing we have to do is we need to get our refinancing done. That refinancing we expect will deliver on both our previously stated goals of lowering our cost of capital as well as providing greater flexibility. So we've begun the refinancing process with our bankers. We'll have more to report as we conclude that process. But you're right. I mean, what we've said publicly in the past is we think a growth debt to EBITDA ratio of somewhere in the 2 to 4x range is a sustainable level of growth debt. So what that will imply is We have a substantial amount of excess cash on the balance sheet today. When we're thinking about deploying that cash, I think we're going to do what's in the best long-term interest of shareholders. I will say that I've been an investor for many years. and I do understand very deeply the impact of deploying a capital wise we can have. So when we think about decisions like M&A or buybacks, what we're thinking about is number one, how do we improve this business? How do we maximize shareholder value? We examine the expected returns from any capital allocation decisions, not only against our cost of capital, but also against all other available options. And we're also thinking about not only just the expected returns, but also the risks inherent in any decision we make. and we want to make sure that we operate with a sufficient margin of safety. So we'll have more to report soon on the capital allocation front.

Thank you very much.

Thank you. One moment for our next question. And that will come from the line of Doug Anmuth with JP Morgan. Your line is open.

Thanks so much for taking the questions. I have two. Just first, Peter, on Peloton IQ, can you just talk more about how members are interacting here with your AI-driven tools and what impact you're seeing in terms of engagement and retention there? And then secondly, just as you launch the Peloton commercial series and CBU becomes a little bigger part of the mix, can you talk about any impact on Revenue per hardware unit and then also on margins. Thanks.

Of course, Doug. So let's start with Peloton IQ. Love that question because it's just such a positive way for us to take advantage of the revolution that's happening around AI on behalf of our members. And we do that by delivering personalized insights and recommendations. It turns out that based on our research, Peloton IQ has now become the number one feature of interest from our potential customers. And so that shows what a big competitive differentiator this can be. The things that people are using across the board, our members are starting to engage with what we call Peloton IQ Insights. So we're providing... Somewhere between three to five insights for our members every week about ways that they can enhance their workout program. And we've got more than 50% of our monthly active users now engaging with that. For the relatively smaller percentage of customers that have already switched over to the plus side of the cross-training series, that's where we see people getting the most benefit from what Peloton IQ can do. because those are the people who are using it for things like form feedback and rep tracking and even more adaptive coaching. Let me give a sneak peek of what to expect looking forward. So our next frontier for PelotonIQ is moving to much deeper personalization, and that's things like enabling a much wider array or even an infinite number of open-ended goals and being able to adjust programs much more dynamically based on what we're observing over time and even in the moment from our members. We're also working on integrating even more wearables data because there's obviously a revolution taking place around the adoption use of wearables and we want to support as many of them as we possibly can. So we're already excited about PelotonIQ. It's making a difference in differentiating our product. People are using it extensively, and we have much more to come on that. Now, second question was about the impact of the CBU for hardware units and our margins. Our FY27 guidance does incorporate the impact of accelerating growth from the CBU. and as I mentioned earlier in response to Arpina's question, that's principally manifested on the revenue side in terms of CF sales, although there is a component of subscriptions that will start to lay in. The way to think about this category is it's evolved differently from the home fitness space in that it has historically been one in which there is not a tail of and many more. comes bundled with a longer standard warranty than you would find on the consumer or the residential side of the business. So what you see in from the CBU is higher revenue per sale. You also see higher margins. And the CF margins that we publish represent a blend of the higher gross margins from the CBU and the lower relative gross margins on the consumer side. Next question, operator.

Thank you. One moment for our next question. That will come from the line of Yousef Squali with Truist. Your line is open.

Great. Thanks for taking the question. Hi, this is Robert. I'm for Yousef. On the plan of new upcoming launches, do you expect that revenue acceleration to come more from cross-sell opportunities to new to existing users, or do you view it as a way to broaden your reach at lower ASPs? And then I'm curious on the planned CAC and margin impact over the first year or two from those planned new launches. Thanks.

So let me focus on this year, which is what we have built into our guidance and which we're prepared to provide a little bit more specificity on. So we historically do see in our existing categories a blend of sales to both existing and new users. And we anticipate that we will see the same thing on the consumer or the residential side this year. So again, just the roughest estimate I can give you is, you know, think about something in the vicinity of kind of 50-50 between existing members and new members for the sales of the consumer equipment this year. As we look forward to what we're doing in FY28 on the consumer side, that's certainly too soon to speculate on the blend between existing members and new members. But what I will say is that to the extent we offer those types of products to existing members, They will receive a substantial discount to reflect their loyalty and the value that they provide us from their already existing primary subscription. So all of that is being built into our financial models, and we'll have more to share about that as we get closer. Okay, thanks.

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

Hey, everyone. Thanks for taking the question. Just a little bit more on the wearable space here. Certainly seen a lot of growth at this market with some of the new capabilities that have been released. I guess you need to think about how you're approaching this space from a partnership versus ownership perspective. And is this an area you do potentially consider getting into, especially given the already kind of deep connection that you have with your vendors? Thank you.

Yeah, Nathan, it's something that we've thought about in the past, and we've decided that given that there are so many compelling wearable options available to our members, in many cases offered by a range of extremely powerful and large companies to some also very innovative startups in that space, rather than us attempting to compete with the players in those markets. The best way for us to work with the wearables industry is essentially to sort of play Switzerland here and for us to integrate with as many of them as possible and build partnerships that range from both ingesting data that, again, based on our members' opt-in permission and subject to privacy requirements, providing our data back to those wearable companies so that they can provide the best possible insights to their members. And also working with select members of the players in those industries to do things like co-marketing. So we don't, by not competing with them in that space, we have the most potential to be able to serve our members across every type of wearable that's out there and also to be able to use that as a way to grow our subscribers. To date, we've integrated with Apple, with Google, with Garmin. We've got a couple more big ones on the way. We'll have more to talk about that in the not too distant future. So I think we're doing, approaching this in the way that is the absolutely most member friendly way we can. and recognizing our unique strengths and what we can contribute while not overextending ourselves into places where we may have difficulty differentiating our company.

Thank you. We do 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 taking the question. What do you think the hardware strategy and distributing hardware? You've been on a journey over the last couple of years in terms of go-to-market and retail and different partnerships approaches. What have been some of the key learnings as that go-to-market strategy has evolved? And when you think about where you want to take the product set forward over the next two to three years. How should we think about the key priorities to make sure the products match up with the go-to-market and are aligned with some of those key learnings over the last couple of years in terms of how the mix might evolve? Thanks so much.

Yeah, Eric, that's a deep question. So let me try to approach it from a couple of different angles. The first way I'll approach that is looking back up the supply chain. So when I joined, Peloton was practically single sourced in terms of our hardware business, which creates a great deal of dependency on a single provider, some risk, and relatively limited negotiating leverage. While we feel great about our close partnership that we've enjoyed in that space. I think it's really important, and our COO, Charlie Kirol, has done a great job at this in ensuring that we have more flexibility and a better ability to compete and over time offer products at more compelling price points. Now, I raise that because one of the key learnings that we've discovered in the hardware space is that there is a pretty high level of price elasticity around consumer fitness equipment. And so it's important that we be able to offer products at price points that are accessible to our members. Another sort of takeaway from that is that we've learned to become, I think, really creative in finding ways to make our products accessible and affordable to the largest number of potential members. And what I mean by that is if you look up and down the line at what we've done, for example, in the bike category where there's a robust secondary market with products available for a few hundred dollars to refurb that we've been able to take advantage of to rental models, All the way up to our plus line, which is a premium offering that delivers really remarkable capabilities for helping people get fit. We've been able to introduce, I hate the way these words sound, but I'm just going to be a pure economist with you for a moment. We've been able to price discriminate, I think, very effectively in the bike market. With regard to some of the other categories, we have less ability to do that. and so we'll be focusing on expanding our portfolio as well as the ways that our products can be accessed by our members in the coming years. Another thing that I think we've learned about hardware in this category is that people want to try it and especially if it's something that is new to them and that has driven not just the work that we've done on our first party micro stores where we have, as I mentioned earlier, launched 13 microstores in the last just over a year. And actually, I think we're slated to launch two more by the end of today. So we're really, really excited about where we're going there, but also to significantly expand our third-party retail presence. whether it's through companies like Dick's Sporting Goods or the work that we've done with Johnson Fitness and Wellness. We've also got some exciting initiatives taking place in Canada. Big new relaunch with John Lewis in the UK. All of these are ways that we can give our members a chance to touch and feel and try our equipment. The reason I raise that is because as we start to introduce products in new categories, That's when we're fundamentally new categories. That's where that retail distribution is going to become even more important. So you can see us building the foundation for new types of hardware based on the insights that we've had to date.

Thanks. That's really helpful. Thank you.

Thank you. I would now like to turn the call back over to Mr. Peter Stern for any closing remarks.

So recognizing that Many, if not most of our investors are also members. Before we close, I want to highlight a couple of programs that we have out there. One of them is Rebecca Kennedy's highly popular Highlit Plus program. I mentioned that earlier, but I just want to give you a sense of the magnitude of these things so that if you're motivated by FOMO, it gets you trying it. We've had more than 200,000 members taking over 1.2 million classes so far in Highlight Plus. So it's enormously successful. We also launched a new Sculpt 30 program that has classes available every Monday, and I highly recommend those. And then for those of you who haven't tried our Breathwork app, we introduced a new seven-day program. It's called Breathe Into Better Sleep. It counts towards your Peloton streaks. It counts toward Club Peloton. and after a day of earnings calls and investor meetings, I plan on using that tonight. So with that, I look forward to seeing all of you on the leaderboard and I want to thank everyone for the questions and for listening in.

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