Peloton posted a worse-than-expected holiday quarter on Thursday after shoppers failed to shell out for its new AI-driven product line and turned away from higher subscription prices.

The connected fitness company missed Wall Street’s estimates on the top and bottom lines and fell short of its own internal sales targets in the three months ended Dec. 31 – typically the strongest for Peloton’s hardware revenue. 

The company said it expects sluggish sales to continue in the current quarter. Peloton forecasts revenue between $605 million and $625 million, below expectations of $638 million, according to LSEG. 

The weak results, coupled with soft guidance, are the first clues investors have that Peloton’s product overhaul may not be the sales driver the company hoped it would be. Peloton’s stock dropped as much as 13% in premarket trading following the results.

The revamped assortment, which came with artificial intelligence-powered tracking cameras, speakers, 360-degree swivel screens and hands-free control, was designed to grow sales and bring in new customers. But Peloton’s results show demand has been sluggish. 

While Peloton’s top line might be disappointing to investors, the company is still making gains in improving its profitability. Over the holiday quarter, the company generated $81 million in adjusted earnings before interest, taxes, depreciation and amortization, better than the $73 million analysts had expected, according to StreetAccount. 

After it announced plans to lay off 11% of its staff last week, the company expects to generate between $120 million and $135 million in adjusted EBITDA in the current quarter, better than the $119 million analysts had expected, according to StreetAccount.

It raised its full-year adjusted EBITDA guidance to between $450 million and $500 million, up from a prior range of between $425 million and $475 million. 

That’s welcome news to investors because it shows Peloton was able to innovate its product line without draining profitability. 

Also on Thursday, the company announced CFO Liz Coddington is leaving Peloton to “pursue an opportunity outside the industry.” She’s staying on through March as the company searches for its next finance chief.

Here’s how Peloton did in its fiscal second quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

• Loss per share: 9 cents vs. 6 cents expected
• Revenue: $657 million vs. $674 million expected

The company’s net loss for the quarter was $38.8 million, or 9 cents per share, a significant improvement from the $92 million, or 24 cents per share, it lost in the year ago period. 

Sales fell to $656.5 million, down about 3% from $673.9 million a year earlier.

Since Peter Stern took over as Peloton’s CEO, he’s worked to generate new revenue streams and build on the company’s progress of improving its profitability. 

The revamped product assortment was one of his first big moments as CEO and included new prices for both subscriptions and hardware. Despite higher prices, revenue for both hardware and subscription came in lower than expected, indicating unit sales have been weak.

Hardware sales drove $244 million in revenue during the quarter while subscriptions saw $413 million in sales, both below expectations of $253 million and $424 million, respectively, according to StreetAccount. 

In a statement, Stern focused on the company’s profitability improvements and said he’s seeing “positive momentum” across the business. 

“Our second quarter represented the most substantial period of innovation at Peloton since our founding. At the same time, our financial performance demonstrated our continued operational discipline, resulting in 39% year-over-year growth in Adjusted EBITDA and reducing Net Debt by 52% year-over-year, proving we can simultaneously innovate and increase our profitability,” said Stern. “Our subscription base is highly committed, our integrated Commercial Business Unit is growing and well-positioned to continue doing so, and Member engagement with Peloton IQ is encouraging.”