8-K: Peloton Achieves Positive Free Cash Flow and Adjusted EBITDA in Q4, Exceeding Guidance

• Peloton ended fiscal year 2024 with a strong fourth quarter, meeting or exceeding guidance on all key metrics.
• The company achieved modest year-over-year revenue growth in Q4 for the first time since Q2 FY22, with total revenue at $644 million, up 0.2% year-over-year.
• Subscription revenue reached $431 million, a 2.3% increase year-over-year, with a strong gross margin of 68.2%, up 100 basis points year-over-year.
• Peloton's GAAP Net Loss for Q4 was $30 million, an improvement of $211 million year-over-year and $137 million quarter-over-quarter.
• Net Cash Provided By Operating Activities was $33 million, an increase of $88 million year-over-year and $21 million quarter-over-quarter.
• The company achieved $70 million of Adjusted EBITDA in Q4, up $105 million year-over-year and $64 million quarter-over-quarter.
• Free Cash Flow was $26 million, up $100 million year-over-year and tripling compared to the previous quarter.
• Peloton is making progress on its restructuring plan, delivering approximately $15 million in cost savings in the quarter and is on track to achieve over $200 million run-rate cost savings by the end of FY25.
• Sales and Marketing expenses decreased by $26 million, or 19% year-over-year, and further reductions are expected in FY25.
• The company successfully refinanced its balance sheet, decreasing debt by roughly $200 million and extending the average maturity to 2029.
• The Bike+ rental program in the UK has outperformed expectations, and the company is seeing improved retention with average net monthly paid subscription churn for rental down 110 basis points year-over-year in Q4.
• Peloton has ceased offering the original Bike rental program due to insufficient refurbished inventory, and is seeing higher take rates for alternative programs with stronger unit economics.
• The secondary market continues to deliver a steady stream of paid connected fitness subscriber additions, up 16% year-over-year in Q4.
• Connected Fitness revenue from the treadmill portfolio grew 42% year-over-year in Q4.
• Precor grew revenue more than 20% year-over-year, with gross margin improving more than 22 percentage points year-over-year, and operating expenses reduced more than 40% year-over-year in Q4.
• The search for Peloton's next CEO is underway.

Score: 8

Explanation: The document shows a strong positive shift in Peloton's financial performance, with significant improvements in profitability and cash flow. While there are still challenges, the overall tone is optimistic and indicates a successful turnaround strategy.

• Peloton achieved positive Adjusted EBITDA and Free Cash Flow for the second consecutive quarter, a significant turnaround.
• The company saw modest year-over-year revenue growth for the first time since Q2 FY22.
• Subscription revenue continues to grow with a strong gross margin.
• There was a substantial improvement in GAAP Net Loss and Net Cash Provided By Operating Activities.
• The restructuring plan is on track to deliver significant cost savings.
• The company has successfully refinanced its balance sheet, reducing debt and extending maturities.
• The Bike+ rental program in the UK is performing well.
• The secondary market is contributing to subscriber growth.
• The Tread business is showing strong growth.
• Precor's turnaround is progressing well with significant revenue and margin improvements.

• Ending Paid Connected Fitness Subscriptions decreased by 75 thousand in the quarter.
• Ending Paid App Subscriptions decreased by 59 thousand in the quarter.
• The original Bike rental program was ceased due to insufficient refurbished inventory.
• The company expects a year-over-year decline in hardware sales in Q1 FY25.
• The company expects a year-over-year decline in Paid App Subscriptions for FY25.
• The company is reducing media spend supporting the App while they invest in product innovation.

• The company faces an uncertain macroeconomic environment which may impact sales.
• There is a risk that investments in new initiatives may not deliver subscriber growth within the fiscal year.
• The company's ability to efficiently grow Paid Connected Fitness and Paid App subscribers is uncertain.
• The company expects a modest increase in Average Net Monthly Paid Connected Fitness Churn year-over-year.
• The company is reliant on a limited number of suppliers, contract manufacturers, and logistics partners.
• The company is still in the process of searching for a new CEO.

Peloton expects a year-over-year decline in hardware sales in Q1 FY25 and a modest increase in Average Net Monthly Paid Connected Fitness Churn. The company anticipates a significant year-over-year improvement in Q1 Adjusted EBITDA and expects to deliver meaningful Free Cash Flow on a full year basis of at least $75 million in FY25. The company expects a year-over-year decline in Paid App Subscriptions for FY25.

• With a stable financial foundation now in place, we can focus on innovation in a more strategic way, enhancing our Member experience and driving sustainable, profitable growth over the long term.
• We are especially proud of our outperformance across all of our Non-GAAP profitability metrics, which we believe are useful to investors for understanding and evaluating our operating results.
• We're making significant progress toward right sizing our cost structure and well continue to optimize expenses.
• With our expectation of sustainable positive Free Cash Flow, we are exploring how to best deploy excess cash on our balance sheet as part of an overall capital allocation strategy.
• The search for Peloton's next CEO is top of mind for all stakeholders. The process is well underway and we look forward to sharing more when we have an announcement.

Peloton's focus on profitability and cost reduction aligns with broader trends in the fitness industry, where companies are increasingly prioritizing sustainable growth and financial stability. The company's move to diversify its offerings, including content licensing and partnerships, reflects a strategic shift to adapt to changing consumer preferences and competitive pressures.

• Peloton's achievement of positive Adjusted EBITDA and Free Cash Flow is a significant improvement compared to previous quarters and is a positive sign compared to other connected fitness companies that have struggled with profitability.
• The company's subscription gross margin of 68.2% is strong and is comparable to other subscription-based businesses in the tech and media sectors.
• The 42% year-over-year growth in the Tread business is a positive sign, as many competitors have struggled to maintain growth in the hardware segment.
• The 20% year-over-year revenue growth in Precor is a strong result, indicating a successful turnaround of the business unit, which is a positive sign compared to other acquisitions in the fitness equipment space.
• The reduction in sales and marketing expenses by 19% year-over-year is a significant move towards efficiency, which is a key focus for many companies in the current economic climate.

• Shareholders will likely view the positive financial results and improved outlook favorably.
• Employees may experience more stability and potential for growth as the company's financial health improves.
• Customers will benefit from continued investment in content and product development.
• Suppliers and creditors may have increased confidence in the company's ability to meet its obligations.

• Peloton will continue to focus on innovation, enhancing the member experience, and driving sustainable, profitable growth.
• The company will continue to optimize expenses and align costs with the size of the business.
• Peloton will explore how to best deploy excess cash on the balance sheet as part of an overall capital allocation strategy.
• The company will continue to invest in new content and features for the App.
• Peloton will continue to refine its strategy over the course of the year, which may include potential changes in pricing, promotional strategies, and other levers to achieve financial targets.
• The company will continue the search for a new CEO.

• August 1, 2024: Peloton ceased offering the original Bike rental program.
• August 22, 2024: Peloton will hold a conference call regarding its financial results for the fiscal year ended June 30, 2024 and issued a letter to its stockholders announcing its financial results.