As the repayment date for Peloton Interactive’s roughly $1.7 billion in debt comes closer, the embattled at-home fitness company is trying a classic play, hiring a different CEO and cutting about 15% of its staff.
The number of people who own Peloton hardware and subscribe to its classes remained unchanged in the third quarter from a year ago.
The move is Peloton’s latest attempt to strike the right balance for its business, which has struggled since the pandemic-era surge in demand for at-home exercise equipment faded. Consumers went back to in-person workout classes and gyms, and had less need to shell out hundreds of dollars for Peloton’s bikes and treadmills.
Over the past three years, Peloton has cycled through its fair share of efforts to boost the bottom line. Moves have ranged from offering new hardware and brokering partnerships with top retailers and brands, to replacing its C-suite, selling refurbished bikes, and slashing prices.
Now, the company has turned to the most tried and tested strategy: cutting costs and laying off employees. On Thursday, in addition to saying that CEO Barry McCarthy was stepping down, the company unveiled a restructuring program intended to cut annual costs by over $200 million by fiscal 2025. The plan includes laying off about 400 of its employees, or 15% of its workforce.
The news accompanied a downbeat third-quarter earnings report. Sales were weaker than expected, while the per-share loss was bigger. Management lowered its full-year forecast of revenue, reflecting how challenging it has been for any of Peloton’s initiatives to bring the company back on track to sales growth and profitability.
The company’s current strategy for boosting sales, which hinges on convincing app users to buy its hardware, doesn’t seem to be doing much for improving financials, either. This quarter, app subscription revenue continued to outstrip hardware sales, and the number of so-called connected fitness subscribers—people who own hardware and subscribe to Peloton’s classes—was unchanged at 3.06 million. Meanwhile, the number of app users fell throughout the quarter, with paid app subscriptions down by 44,000 to 674,000.
Peloton stock has shed 83% in the past two years, and is down 53% this year. On Thursday, the stock was trading 4% lower at $3.10.
But perhaps more important, the company’s financial strife has sparked fears that it will struggle to meet its debt obligations. As of March 1, the company had $991.4 million in 0% convertible senior notes that mature in February 2026, and an additional $692.1 million under a term loan that is due in 2027.
“Although Peloton has made changes to drive revenue and realign its cost structure, there is still not enough evidence that the business is on a path to return to strong growth and profitability that would allow it to repay its debt when it comes due in 2026/2027,” wrote Dana Telsey, analyst at Telsey Advisory Group, ahead of the company’s earnings report.
On Thursday, Peloton acknowledged shareholder’s concerns about the coming maturities, and said it had been working on a refinancing strategy. The strategy centers around reducing debt and extending the maturities at a reasonable cost of capital, the company said.
“We believe that achieving positive free cash flow makes Peloton a more attractive investment for debtholders,” said Elizabeth Coddington, Peloton’s chief financial officer.
Bond investors were slightly more optimistic following Peloton’s update. The company’s 2026 senior notes traded roughly 3 percentage points higher at $84.50 in early afternoon trading on Thursday.
Part of the cautious optimism may stem from the fact that for the first time in 13 quarters, Peloton reported positive free cash flow of $8.6 million. The company ended the quarter with $795 million in unrestricted cash and equivalents, and access to a $400 million revolving credit facility.
That said, the coming maturities “put a hard timeline on cash flow generation,” noted UBS analyst Arpine Kocharyan. Failing to ramp up cash flow in time to repay the debt could spell trouble.
Peloton’s best bet to stay afloat would be to walk away from ambitious, expensive growth plans, and focus instead on the company’s core, “bear-hugging brand loyalists,” wrote Simeon Siegel, an analyst at BMO Capital Markets, in a note Thursday.
“If growth remains new management’s be-all-end-all, we worry about sustained free cash flow/looming debt questions,” Siegel said.
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