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01/11 04:25
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals mixed signals: while Peloton shows some positive aspects like margin improvements and cost savings, the revenue decline and uncertainties from recalls and churn issues create concerns. The Q&A indicates cautious optimism, but not enough to predict a strong positive movement. The market cap suggests a moderate reaction, leading to a neutral outlook.
Paid Connected Fitness Subscriptions 2.732 million, reflecting a decrease of 6% year-over-year. The decrease was attributed to seasonally lower hardware sales and higher churn.
Average net monthly Paid Connected Fitness Subscription churn 1.6%, an improvement of 20 basis points year-over-year and 10 basis points quarter-over-quarter. This improvement was in line with expectations.
Total revenue $551 million, comprising $152 million of Connected Fitness products revenue and $398 million of subscription revenue. Connected Fitness products revenue decreased by 5% year-over-year due to lower equipment sales and deliveries, partially offset by a mix toward higher-priced products. Subscription revenue decreased by 7% year-over-year due to lower subscriptions and content licensing revenue.
Total gross profit $284 million, a decrease of 7% year-over-year. Gross margin was 51.5%, negatively impacted by a $13.5 million accrual for Bike+ seat post inventory costs.
Connected Fitness products gross margin 6.9%, a decrease of 230 basis points year-over-year. Excluding the inventory accrual, it would have been 15.8%, an improvement of 660 basis points year-over-year due to a mix shift toward higher-margin products and lower costs.
Subscription gross margin 68.6%, an increase of 80 basis points year-over-year.
Total operating expenses $230 million, a decrease of 12% year-over-year due to cost structure rightsizing and reduced advertising expenses.
Sales and marketing expenses $67 million, a decrease of 18% year-over-year due to reduced acquisition, brand, and creative marketing spend.
Research and development expenses $62 million, an increase of 6% year-over-year due to cost assignments from G&A, partially offset by lower product development costs.
General and administrative expenses $101 million, a decrease of 16% year-over-year due to cost assignments to other functional areas and lower professional fees.
Adjusted EBITDA $118 million, a 2% improvement year-over-year. This was $18 million above the high end of guidance.
Free cash flow $67 million, an increase of $57 million year-over-year, benefiting from tariff-related favorability, lower operating costs, and revenue favorability.
Unrestricted cash and cash equivalents $1.104 billion, an increase of $64 million quarter-over-quarter.
Net debt $395 million, a decrease of 49% year-over-year.
New Product Launch: Introduced the Peloton Cross Training Series and Peloton Pro series, featuring advanced swivel screens, AI-powered features, and improved audio. The Plus line includes a computer vision movement tracking camera and voice control.
AI Integration: Launched Peloton IQ, an AI-powered personalized coaching system that provides training guidance based on user data and preferences.
Mental Fitness Expansion: Acquired Breathwrk, an app specializing in breathing exercises, now included in All-Access or App+ subscriptions.
Retail Expansion: Increased U.S. micro stores from 1 to 10 and partnered with Johnson Fitness & Wellness, expanding physical retail presence to 46 states. Launched retail presence in 11 franchise locations in Australia.
Commercial Business Growth: Introduced Peloton Pro series for commercial environments and became the primary fitness partner for Utah City, integrating Peloton spaces in residential buildings.
Cost Efficiency: Achieved $100 million in targeted cost savings for fiscal 2026 and reduced operating expenses by 12% year-over-year in Q1.
Revenue Growth: Raised full-year fiscal 2026 adjusted EBITDA guidance to $425-$475 million and increased minimum free cash flow target to $250 million.
Wellness Partnerships: Collaborated with the Hospital for Special Surgery for injury prevention classes and partnered with Respin Health for menopause care.
Loyalty Program: Launched Club Peloton, a loyalty program with exclusive content and rewards, engaging over 500,000 members.
Product Recall: Peloton announced a voluntary recall of approximately 833,000 units in the U.S. and 44,800 units in Canada of the Original Series Bike+ model due to reports of seat post breakage. This recall could impact customer trust, brand reputation, and financial performance, with an estimated $16.5 million financial impact already reflected in results.
Subscription Churn: The company anticipates an increase in subscription cancellations and pauses following recent pricing changes, which could negatively affect recurring revenue and customer retention.
Economic and Tariff Uncertainty: Peloton continues to monitor evolving tariff policies and broader macroeconomic factors, including consumer spending trends, which could impact costs and demand for its products.
Seasonal Sales Variability: Q1 results highlighted seasonally lower hardware sales and higher churn, indicating potential challenges in maintaining consistent revenue and customer engagement throughout the year.
Supply Chain and Cost Management: While cost reduction plans are on track, the company faces risks related to supply chain efficiency and achieving targeted cost savings, which are critical for maintaining profitability.
Revenue Outlook: Full year fiscal 2026 revenue outlook remains unchanged at $2.4 billion to $2.5 billion, reflecting a 2% revenue decrease year-over-year at the midpoint. Q2 revenue outlook is $665 million to $685 million, reflecting a slight increase of 0.2% year-over-year at the midpoint and a 23% quarter-over-quarter increase due to seasonally higher equipment sales and recent pricing changes.
Gross Margin: Full year fiscal 2026 guidance for total gross margin is raised to 52%, an increase of 100 basis points from prior guidance and an improvement of 110 basis points year-over-year. Q2 total gross margin is expected to be roughly 49%, down 250 basis points quarter-over-quarter due to an expected seasonally higher mix of Connected Fitness products revenue.
Adjusted EBITDA: Full year fiscal 2026 guidance for adjusted EBITDA is raised to $425 million to $475 million, reflecting an increase of $25 million from prior guidance and an improvement of 12% year-over-year at the midpoint. Q2 adjusted EBITDA is expected to be $55 million to $75 million, reflecting an increase of 11% year-over-year at the midpoint but a decrease of 45% quarter-over-quarter due to seasonally higher marketing spend.
Paid Connected Fitness Subscriptions: Q2 guidance for ending Paid Connected Fitness Subscriptions is 2.64 million to 2.67 million, reflecting a decrease of 8% year-over-year at the midpoint. Average net monthly Paid Connected Fitness Subscription churn is expected to increase year-over-year and quarter-over-quarter due to subscription cancellations and pauses following pricing changes. Full year fiscal 2026 guidance reflects an expectation of flat net churn rate year-over-year.
Free Cash Flow: Full year fiscal 2026 minimum free cash flow target is raised by $50 million to at least $250 million, reflecting benefits from lower tariffs and faster realization of indirect cost savings. This target includes a roughly $45 million impact to free cash flow due to tariff exposure.
Operating Income: The company expects to achieve positive operating income on a full year basis in fiscal 2026.
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The earnings call reveals mixed signals: while Peloton shows some positive aspects like margin improvements and cost savings, the revenue decline and uncertainties from recalls and churn issues create concerns. The Q&A indicates cautious optimism, but not enough to predict a strong positive movement. The market cap suggests a moderate reaction, leading to a neutral outlook.
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