• Total Revenue: $674 million in Q2, comprising $253 million from Connected Fitness products and $421 million from subscriptions.
• Connected Fitness Subscription: 2.88 million paid subscriptions, a net decrease of 21,000 in the quarter.
• Average Net Monthly Paid Subscription Churn: 1.4% in Q2.
• Connected Fitness Products Gross Margin: 12.9%, reaching double digits for the first time in over three years.
• Total Gross Margin: 47.2% in Q2.
• Adjusted EBITDA: $58 million in Q2, a $140 million improvement year-over-year.
• Free Cash Flow: $106 million in Q2, an improvement of $143 million year-over-year.
• Net Debt Reduction: Decreased by $281 million or 30% year-over-year.
• Operating Expenses: $364 million in Q2, a $122 million or 25% reduction year-over-year.
• Sales and Marketing Expense: $153 million, a decrease of $78 million or 34% year-over-year.
• General and Administrative Expense: $131 million, a decrease of $29 million or 18% year-over-year.
• Research and Development Expenses: $60 million, a decrease of $20 million or 25% year-over-year.
• Impairment and Restructuring Expenses: $20 million in Q2, primarily related to retail showroom exits.

• Warning! GuruFocus has detected 7 Warning Signs with PTON.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Peloton Interactive Inc (NASDAQ:PTON) achieved a double-digit Connected Fitness products gross margin for the first time in over three years, reaching 12.9%.
• The company reported a significant improvement in adjusted EBITDA and cash flow, increasing roughly $140 million year-over-year.
• Peloton Interactive Inc (NASDAQ:PTON) exceeded its guidance on key metrics, including paid Connected Fitness subscriptions and total revenue.
• The company made meaningful progress in deleveraging its balance sheet, reducing net debt by over $280 million or 30% year-over-year.
• Peloton Interactive Inc (NASDAQ:PTON) reported exceptionally low churn rates, with an average net monthly paid Connected Fitness subscription churn of 1.4% in Q2.

Negative Points

• Peloton Interactive Inc (NASDAQ:PTON) experienced a net decrease of 21,000 paid Connected Fitness subscriptions in the quarter.
• The company faced inventory constraints due to higher-than-expected Tread+ sales, leading to longer delivery times and delayed revenue recognition.
• Third-party retail sales were lower than expected in Q2, partly due to reduced promotional discounts on the original Bike.
• Peloton Interactive Inc (NASDAQ:PTON) continues to see a mix shift towards the secondary market, which has a higher churn profile than direct sales.
• The company recognized $20 million of impairment and restructuring expenses in Q2, including noncash charges related to asset write-downs.

Q & A Highlights

Q: How are you balancing the path to growth with ongoing profitability improvements, and what are your thoughts on investing for growth? A: Peter Stern, CEO, stated that while it's early days, Peloton is setting the stage for growth by rightsizing expenses, improving equipment gross margins, and increasing the LTV to CAC ratio. The focus is on innovation, meeting members in more places, and deepening connections with existing members to drive growth. Elizabeth Coddington, CFO, added that they raised their full-year adjusted EBITDA target, reflecting continued profitability improvements through gross margin expansion and operating cost savings.

Q: Can you highlight milestones in your deleveraging plan and the impact of tariffs on your P&L? A: Elizabeth Coddington, CFO, explained that Peloton's improved free cash flow has enabled significant deleveraging, reducing net debt by 30% year-over-year. This has resulted in interest expense savings and positions the company for future growth. Regarding tariffs, Peter Stern, CEO, noted that no Peloton-branded hardware is currently subject to tariffs, and any impact would be minimal.

Q: What drove the free cash flow outperformance in Q2, and what are the expectations for the full year? A: Elizabeth Coddington, CFO, attributed the Q2 free cash flow outperformance to timing benefits from invoice payments and permanent benefits from adjusted EBITDA outperformance. The full-year target of at least $200 million reflects inventory production improvements and faster-than-expected operating expense savings.

Q: With improving churn rates, how are you considering potential price increases in the subscription business? A: Peter Stern, CEO, acknowledged that pricing is a powerful lever and that Peloton is evaluating it carefully. While they have made some hardware pricing adjustments, any changes to subscription pricing will be considered thoughtfully, given its importance to members and business performance.

Q: What are the most obvious levers to stabilize gross addition declines and improve Connected Fitness gross margins? A: Peter Stern, CEO, emphasized the importance of super-serving existing members and launching new capabilities to add value. Elizabeth Coddington, CFO, noted that improvements in gross margins are due to a mix of premium products, optimized discounts, and pricing changes, with expectations for continued expansion.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.