Peloton Interactive President and CEO Barry McCarthy walks during the morning session of the Allen & Company Sun Valley Conference on July 6, 2022 in Sun Valley, Idaho.
Kevin Dickey | Getty Images
Peloton It was announced on Thursday that Chief Executive Barry McCarthy would resign and the company would cut 15% of its workforce because “there is simply no other way to align its expenses with revenue.”
McCarthy, ex Spotify and Netflix The CEO will become Peloton’s strategic advisor through the end of the year, while company Chairman Karen Boone and Director Chris Bruzzo will serve as interim co-CEOs.boone most recently served as financial officer Repair hardware Bruzzo is a longtime executive at the company electronic arts. Peloton is looking for a permanent CEO.
The company also announced a broad restructuring plan that will reduce its global headcount by 15% to about 400 employees. The company plans to continue closing retail showrooms and changing its international sales plans.
Peloton said in a press release that the moves are aimed at realigning its cost structure based on the current scale of its business. Annual operating expenses are expected to be reduced by more than $200 million by the end of fiscal 2025. and reduced IT and software expenses.
Coddington said the departments most affected by the restructuring will be Peloton’s research and development, marketing and international teams.
The company said: “This restructuring will provide Peloton with sustained, positive free cash flow, while allowing the company to continue investing in software, hardware and content innovation, improving the member support experience and optimizing marketing efforts to expand business scale.” .
Peloton shares soared more than 12% in premarket trading, but opened lower after the company’s conference call with Wall Street analysts. Shares closed down about 3%.
Peloton board ready to welcome next CEO
McCarthy take the helm Peloton took over from founder John Foley in February 2022 and has spent the past two years restructuring the business and trying to return it to growth.
As soon as he took over, he Implement large-scale layoffs Adjusting Peloton’s cost structure, closing some of the company’s high-profile showrooms and developing a new strategy aimed at growing membership. He overhauled Peloton’s executive team, overseeing its rebranding and creating new revenue drivers, such as the company’s rental program.
The last round of layoffs was announced in October 2022, affecting 500 employees.
“We’re done now,” McCarthy said of the layoffs in November 2022. “There’s no one left to eliminate from this industry.”
Contrary to Peloton founder McCarthy Turning Peloton’s attention to its app as a means to attract members who might not be able to afford the company’s pricey bikes or treadmills but might be interested in taking its digital classes.
McCarthy said in a letter to employees that the company now needs to implement additional layoffs because it cannot generate sustainable free cash flow with its current cost structure. Peloton hasn’t been profitable since December 2020, and it can only burn cash for so long when it has more than $1 billion in debt on its balance sheet.
“Achieving positive (free cash flow) makes Peloton a more attractive borrower, which is important as the company turns its attention to the necessary task of successfully refinancing its debt,” McCarthy said in the memo.
In a letter to shareholders, the company said it was “monitoring” debt maturities, which include convertible notes and term loans.The company said it was working closely with lenders JPMorgan and Goldman Sachs About “Refinancing Strategy”.
“Overall, our refinancing goals are to deleverage and extend maturities at a reasonable blended cost of capital,” the company said. “We are encouraged by the support and interest from our existing lenders and investors, and we look forward to sharing information about this More information on the topic.”
In a press release, Boone thanked McCarthy for his contributions.
“Barry joins Peloton during a period of tremendous challenge for the business. During his tenure, he has laid the foundation for scalable growth by steadily re-architecting the business’s cost structure to create stability and reaching the important milestone of achieving positive free cash flow. .
“With a strong leadership team and the company now on a solid foundation, the board has determined that now is the right time to search for Peloton’s next CEO.”
Boone said on a conference call with analysts that Peloton’s board is looking for a leader who can “plan and lead the next phase of the company’s growth.”
Earnings disappoint, outlook downgraded
Also on Thursday, Peloton reported fiscal third-quarter results that missed Wall Street expectations for both revenue and profit. Here’s how the connected fitness company performed compared to Wall Street expectations, according to a survey of analysts by LSEG:
- Loss per share: 45 cents, expected loss of 37 cents
- income: $718 million vs. $723 million expected
The company reported a net loss of $167.3 million, or 45 cents a share, for the three months ended March 31, compared with a loss of $275.9 million, or 79 cents a share, a year earlier.
Sales fell to $718 million, down about 4% from $748.9 million in the same period last year.
Peloton has tried various methods to get the company back to sales growth.it Free membership option removed Expands its corporate wellness offerings through its fitness app and Cooperate with big brands like lululemon Increase membership, but these measures are not enough to increase sales.
Peloton’s fiscal third-quarter revenue fell for the ninth consecutive quarter compared with the same period last year. The company’s sales have not grown compared to the same period last year since December 2021, when demand for its stationary bikes remained high and many bikes had yet to return to gyms amid the Covid-19 pandemic.
The business continues to lose money Not yet profitable As of December 2020.
For the current fiscal year, Peloton lowered its forecasts for paid connected fitness subscriptions, app subscriptions and revenue. Looking ahead to the current quarter, the company lowered its forecast for connected fitness subscriptions by 30,000 members, or 1%, to 2.97 million.
“Our paid connected fitness subscription guidance reflects the latest hardware sales outlook based on current demand trends and expectations of lower seasonal demand,” the company said.
Peloton currently expects app subscriptions to decrease by 150,000, or 19%, to 605,000.
“We will maintain a disciplined approach to in-app media spend as we evaluate our app tiers, pricing and refine our paid app subscription acquisition pipeline,” the company said.
Peloton now expects full-year revenue of $2.69 billion, a decrease of about $25 million, or 1%, due to an expected decline in subscription sales. That was below expectations of $2.71 billion, according to LSEG.
However, the company raised its full-year gross margin and adjusted EBITDA forecasts. Total gross margin is currently expected to grow 50 basis points to 44.5%, and adjusted EBITDA will grow $37 million to negative $13 million.
“This increase was primarily due to superior performance in the third quarter, coupled with lower media spend and cost reductions resulting from the restructuring plan announced today,” the company said.
Seeking to achieve positive free cash flow
Last February, McCarthy set a goal for Peloton to return to revenue growth within a year.When it failed to reach that milestone, McCarthy push it back He said he now expects the company to return to growth in June, when the current fiscal year ends.
McCarthy also expects Peloton to achieve positive free cash flow by June – a goal the company said it achieved early in the third quarter. This is the first time in 13 quarters that Peloton has hit this mark. Peloton said in a letter to shareholders that it generated $8.6 million in free cash flow, but it’s unclear how sustainable that number is.
Last month, CNBC reported that Peloton was not Pay suppliers on time, which may temporarily pad its balance sheet. Peloton’s late payments to suppliers surged again in December and February after improving in January, according to business intelligence firm Creditsafe.
The company did not provide specific guidance for investors on what it expects to be free cash flow in the coming quarters, but said it does expect to “achieve modestly positive free cash flow” in the current quarter and fiscal 2025.
Coddington said: “While we are firmly intent on returning the business to growth, with the cost reductions announced today, we are reducing our cost base and we see a path to positive free cash flow without significantly improving growth. “I would also like to clarify that we have carefully reviewed these cost measures to ensure that we remain in a position to invest in innovation that will enable the business to grow profitably. “
Part of the reason Peloton has failed to achieve positive free cash flow is that it’s not selling enough hardware, which is expensive to make and has become less popular since the Covid-19 pandemic ended and people returned to the gym .
“Looking at the more detailed data, the biggest problem lies in the part of the business that Peloton originally made its name for: fitness equipment. Revenue from connected fitness products fell 13.6% from last year, indicating that consumers are still cooling off on fitness equipment.” CurData Managing Director Neil Saunders said in the report that the devices, while aesthetically and technically pleasing, are very expensive: “Many people who want a Peloton device already have it and are unlikely to upgrade anytime soon; the balance of the market is either disinterest.” , or it would take a lot of convincing to buy a Peloton. “
