The company also announced a major restructuring plan that will reduce its workforce by 15%, or approximately 400 people, worldwide. The company plans to keep its retail showrooms closed and change its international sales plans.
The move is aimed at realigning Peloton's cost structure to match its current business size, it said in a news release. He is expected to save more than $200 million in annual running costs by the end of 2025.
“This realignment will enable Peloton to secure sustainable, positive free cash flow while allowing us to invest in software, hardware and content innovation, improving our member support experience, and optimizing our marketing efforts to grow our business. ”, the company said. Said.
Shares rose more than 12% in premarket trading.
McCarthy took over the reins of Peloton from founder John Foley in February 2022 and has spent the past two years restructuring the business and putting it back on track for growth.
As soon as he took over, he began implementing mass layoffs to right Peloton's cost structure, shuttering the company's flashy showrooms and enacting new strategies aimed at growing membership. In contrast to Peloton's founder, McCarthy is using Peloton as a way to attract members who can't afford the company's expensive bikes or treadmills, but might be interested in taking digital classes. focused on the company's app.
In a letter to employees, McCarthy said the job cuts needed to be made because the company's current cost structure does not allow it to generate sustainable free cash flow. Peloton hasn't made a profit since December 2020 and can only continue using cash if it has more than $1 billion in debt on its balance sheet.
“Positive achievement [free cash flow] “Making Peloton a more attractive borrower is important as the company focuses on the necessary task of successfully refinancing its debt,” McCarthy said in the note.
In a letter to shareholders, the company said it is “mindful” of the timing of debt maturities, including convertible notes and term loans. The company said it is working closely with lenders such as JPMorgan and Goldman Sachs on its “refinance strategy.”
“Overall, our refinancing objective is to deleverage and extend maturities at a reasonable overall cost of capital,” the company said. “We are encouraged by the support and interest from our existing lenders and investors and look forward to sharing more on this topic.”
In a news release, Boone thanked McCarthy for his contributions.
“Barry joins Peloton at an incredibly difficult time for the business. During his tenure, he has steadily restructured the cost structure of the business to create stability and has achieved significant success in achieving positive free cash flow. By reaching significant milestones, we have laid the foundation for scalable growth,'' Boone said.
“With a strong management team in place and the company on solid footing, the Board of Directors has determined that now is the appropriate time to search for Peloton's next CEO.”
In a joint statement, Mr. Boone and Mr. Bruzzo said they look forward to “working in concert” with the company's management team “to monitor opportunities as the CEO search progresses.”
Also on Thursday, Peloton reported third-quarter results, with both sales and bottom line revenue falling short of Wall Street expectations. Here's how the connected fitness company's performance compares to Wall Street expectations, based on a survey of analysts by LSEG.
- Loss per share: 45 cents, expected loss of 37 cents.
- Revenue: $718 million vs. $723 million expected
The company reported a net loss of $167.3 million, or 45 cents per share, for the three months ended March 31, compared with a loss of $275.9 million, or 79 cents per share, in the year-ago period. .
Sales were $718 million, down approximately 4% from $748.9 million in the same period last year.
Peloton has been trying a little bit of everything to get the company back to revenue growth. The company removed free membership options from its fitness app, expanded its corporate wellness services, and partnered with big brands like Lululemon to increase membership, but none of the efforts were enough to drive sales.
Peloton's third-quarter fiscal revenue was down for the ninth straight quarter compared to the same period last year. Although sales have not increased year over year since December 2021, demand for the company's exercise bikes remained high at the time, and many people have not yet returned to the gym amid the COVID-19 pandemic. Ta.
The business continues to experience capital outflows and has not made a net profit since December 2020.
Peloton has lowered its outlook for paid connected fitness subscriptions, app subscriptions and revenue for the current fiscal year. The company forecast a decline of 30,000, or 1%, in connected fitness members to 2.97 million for the current quarter. Spring and summer are usually the toughest times, as fewer people tend to exercise indoors.
“Our paid connected fitness subscription guidance reflects our latest outlook for hardware sales based on current demand trends and our expectation of seasonal declines in demand,” the company said.
The company now expects app subscriptions to decline by 150,000, or 19%, to 605,000.
“We maintain a disciplined approach to app media spend as we evaluate app tiers and pricing and refine subscription acquisition funnels for paid apps,” the company said.
With the expected decline in subscription sales, Peloton now expects full-year revenue to be $2.69 billion, a decline of about $25 million, or 1%. According to LSEG, this was lower than the $2.71 billion expected.
However, the company raised its full-year forecasts for gross profit margin and adjusted EBITDA. We now expect total gross margin to increase by 50 basis points to 44.5% and adjusted EBITDA to increase by $37 million to -$13 million.
“The increase was primarily driven by outperformance in the third quarter and lower media spending and cost savings as a result of the restructuring plan announced today,” the company said.
Last February, Mr. McCarthy set a goal to return the company to profitable growth within a year. When that milestone was missed, Mr. McCarthy pushed back on his goals, and he said he expects the company to return to growth by the end of the current fiscal year in June.
McCarthy also said he expected Peloton to reach positive free cash flow by June, a goal the company announced early in the third quarter. This is the first time in 13 quarters that the peloton has hit this mark. Peloton said in his letter to shareholders that it generated $8.6 million in free cash flow, but it's unclear how sustainable that number is.
CNBC reported last month that Peloton hasn't been paying its vendors on time, which could temporarily inflate its balance sheet. After improving in January, Peloton's late payments to vendors spiked again in December and February, according to data from business intelligence firm Creditsafe.
The company did not provide specific guidance on how much free cash flow investors can expect in the coming quarters, but said it expects to “achieve moderately positive free cash flow” this quarter. He said there was.
Part of Peloton's failure to achieve positive free cash flow is due to high manufacturing costs and hardware that has become less popular since the COVID-19 pandemic ended and people returned to gyms. It's simply not selling well enough.
Shortly after Mr. McCarthy replaced Mr. Foley, the company implemented a wave of layoffs affecting thousands of employees. The last round of layoffs, affecting 500 employees, was announced in October 2022. He later said the company's restructuring was “complete” and that it was instead focused on “growth.”
McCarthy said in November 2022 that the layoffs were “done.” “No more people should be excluded from business.”