Peloton announced Thursday that CEO Barry McCarthy is stepping down and the corporate will lay off 15% of its employees since it “simply had no other way to balance its expenses with its revenue.”
McCarthy, a former Spotify And Netflix Executive, will change into a strategic advisor to Peloton through the top of the yr, while Karen Boone, the corporate’s chairwoman, and director Chris Bruzzo will function interim co-CEOs. Jay Hoag, one other Peloton director, was named the brand new CEO. Peloton is in search of a everlasting CEO.
The company also announced a comprehensive restructuring plan that features a global workforce reduction of 15%, or around 400 employees. It plans to proceed closing retail showrooms and making changes to its international sales plan.
The moves are aimed toward aligning Peloton’s cost structure with the present size of its business, a press release said. Annual ongoing costs are expected to be reduced by greater than $200 million by the top of fiscal yr 2025.
“This restructuring will position Peloton for sustainable, positive free cash flow while allowing the company to continue to invest in software, hardware and content innovations, improvements to member support and optimization of marketing efforts to scale the business,” said the corporate said.
The company’s shares rose greater than 12% in premarket trading.
McCarthy took over the helm of Peloton from founder John Foley in February 2022 and has spent the last two years restructuring the corporate and dealing to return it to growth.
Once he took over, he began implementing mass layoffs to right-size Peloton’s cost structure, closing the corporate’s flashy showrooms and implementing recent strategies to extend membership. Unlike Peloton’s founder, McCarthy drew Peloton’s attention to its app to draw members who may not find a way to afford the corporate’s expensive bikes or treadmills but could be concerned about the corporate’s digital courses.
In a letter to staff, McCarthy said the corporate needed to make layoffs since it was unable to generate sustainable free money flow with its current cost structure. Peloton hasn’t turned a profit since December 2020 and may only burn money for therefore long if its balance sheet has greater than $1 billion in debt.
“Achieve positive things [free cash flow] “Makes Peloton a more attractive borrower, which is important as the company focuses its attention on the necessary task of successfully refinancing its debt,” McCarthy said within the memo.
In a letter to shareholders, the corporate said it was “careful about timing its debts,” which also include convertible notes and a term loan. It said it was working closely with its lenders JPMorgan and Goldman Sachs on a “refinancing strategy.”
“Overall, our refinancing objectives are to reduce debt and extend maturities at a reasonable total cost of capital,” the corporate said. “We are pleased with the support and in-depth interest from our existing lenders and investors and look forward to sharing more on this topic.”
In a press release, Boone thanked McCarthy for his contributions.
“Barry joined Peloton at an incredibly challenging time for the company. “During his tenure, he laid the foundation for scalable growth by continually reshaping the company’s cost structure to create stability and achieve the important milestone of achieving positive free cash flow,” Boone said.
“With a strong leadership team in place and the company now on solid footing, the board has determined that now is the right time to search for Peloton’s next CEO.”
In a joint statement, Boone and Bruzzo said they give the impression of being forward to working “in lockstep” with the corporate’s leadership to make sure “nothing falls through the cracks during the CEO search.”
Also on Thursday, Peloton reported its fiscal third-quarter results, falling in need of Wall Street expectations when it comes to revenue and profit. Here’s how the connected fitness company performed in comparison with Wall Street’s expectations, based on an analyst survey from LSEG:
- Loss per share: 45 cents versus an expected lack of 37 cents
- Revenue: $718 million vs. expected $723 million
The company’s reported net loss for the three-month period ended March 31 was $167.3 million, or 45 cents per share, compared with a lack of $275.9 million, or 79 cents per share, a yr earlier.
Revenue fell to $718 million, down about 4% from $748.9 million a yr ago.
Peloton has tried somewhat little bit of all the pieces to get the corporate back to revenue growth. It removed the free membership option from its fitness app, expanded its corporate wellness offerings, and partnered with megabrands like Lululemon to extend membership, but not one of the initiatives were enough to extend sales.
For the ninth consecutive quarter, Peloton’s fiscal third-quarter revenue fell in comparison with the identical period last yr. Since December 2021, when the corporate’s stationary bikes were still in high demand and plenty of had not yet returned to the gym as a consequence of the Covid-19 pandemic, sales haven’t increased in comparison with the identical quarter last yr.
The company continues to bleed money and has not generated a net profit since December 2020.
For the present fiscal yr, Peloton lowered its forecast for paid connected fitness subscriptions, app subscriptions and revenue. Looking ahead to the present quarter, typically its hardest as people are inclined to exercise less indoors in the course of the spring and summer months, the corporate reduced its connected fitness subscription outlook by 30,000 members, or 1%, to 2.97 million .
“Our forecast for paid connected fitness subscriptions reflects an updated outlook for hardware sales based on current demand trends and expectations for seasonally lower demand,” the corporate said.
Peloton now expects app subscriptions to say no by 150,000, or 19%, to 605,000.
“We are maintaining our disciplined approach to app media spend as we evaluate our app tiers and pricing and refine the paid app subscription acquisition funnel,” the corporate said.
Due to expected declines in subscription sales, Peloton now forecasts full-year revenue of $2.69 billion, down about $25 million, or 1%. According to LSEG, that is below expectations of $2.71 billion.
However, the corporate raised its outlook for full-year gross margin and adjusted EBITDA. The company now expects total gross margin to extend 50 basis points to 44.5% and adjusted EBITDA to extend by $37 million to negative $13 million.
“This increase is largely due to outperformance over the third quarter, combined with lower media spending and cost reductions resulting from the restructuring plan announced today,” the corporate said.
Last February, McCarthy set a goal of returning Peloton to revenue growth inside a yr. When that milestone wasn’t met, McCarthy pushed back the choice and said he now expects the corporate to be back on course for growth in June, at the top of the present fiscal yr.
McCarthy also had expected Peloton to attain positive free money flow by June, a goal the corporate said it had achieved early within the third quarter. It’s the primary time in 13 quarters that Peloton has reached this mark. In a letter to shareholders, Peloton said it generated free money flow of $8.6 million, however it was unclear how sustainable that number was.
Last month, CNBC reported that Peloton had not paid its suppliers on time, which could temporarily pad its balance sheet. Data from business intelligence firm Creditsafe showed Peloton’s late payments to suppliers rose in December and again in February after improving in January.
The company didn’t provide specific guidance on what investors can expect with free money flow in the approaching quarters, but said it expects “modestly positive free cash flow” in the present quarter.
One of the explanations Peloton hasn’t been capable of generate positive free money flow is because the corporate simply is not selling enough of its hardware, which is dear to provide, and has been struggling for the reason that end of the Covid-19 pandemic and other people returning to gyms has lost popularity.
Shortly after McCarthy succeeded Foley, he conducted quite a few rounds of layoffs that affected 1000’s of employees. The latest round of cuts, affecting 500 employees, was announced in October 2022. He later said the corporate’s restructuring was “complete” and that it could shift to “growth” as an alternative.
“We’re done now,” McCarthy said of the layoffs in November 2022. “There are no more heads to be taken out of the business.”
