Peloton Interactive, Inc. Q4 FY2025 earnings call

• Strategy evolution: Moving from cardio focus to becoming a wellness partner, integrating strength, mental well-being, sleep, and nutrition. - Expansion efforts: Micro store pilot with 2 opened, plans for 8 more; Peloton Repowered platform for used equipment; special pricing for military, healthcare, etc. - Precor integration: Formed commercial business unit to expand commercial presence using Precor's global reach. - Engagement: Instructors participated in over 40 events in Q4, 3x more than prior year; personalized plans for members using AI. - Cost savings: Target to capture $100 million run rate cost savings by FY '26 through indirect spend optimization and team reshaping.

In Q4, total revenue was $607 million, with Connected Fitness products revenue at $199 million (6% of total revenue) and Subscription revenue at $408 million (67% of total revenue). Connected Fitness product gross margin was 17.3%, and Subscription gross margin was 71.9%. Total gross profit was $328 million, with total gross margin at 54.1%, an increase of 560 basis points year-over-year.

• Full year fiscal 2026 total revenue guidance: $2.4 billion to $2.5 billion (2% decrease at midpoint). - Q1 2026 total revenue: $525 million to $545 million (9% decrease at midpoint). - Full year fiscal 2026 total gross margin: Roughly 51%, with a 140 basis point improvement year-over-year. - Fiscal '26 adjusted EBITDA guidance: $400 million to $450 million. - Q1 2026 adjusted EBITDA: $90 million to $100 million. - Q1 2026 Ending Paid Connected Fitness Subscriptions: 2.72 million to 2.73 million (6% decrease at midpoint).

• Tariff exposure: Imported equipment subject to country-specific tariffs, including potential tariffs on tablets from Thailand. - Net working capital: Expected to be a headwind in fiscal 2026 due to changes in inventory and restructuring charges. - Onetime charges: Greater onetime cash restructuring charges within fiscal 2026 as part of the $100 million cost savings plan.

Q: How does Peloton see growth opportunity with younger demographics?

A: Younger people are shifting to holistic wellness including strength, mental health, and nutrition. Peloton will focus on personalized training, Strength+ app, and discounted subscriptions for students.

Q: Thoughts on stock-based compensation expenses?

A: Stock-based compensation aligns employee and shareholder interests, but FY '25 reduced SBC by $77 million, and expects further decline in FY '26 with increased performance stock units.

Q: What's baked into revenue assumptions?

A: Growth levers include product updates, price adjustments, sales and subscriptions, with expectations to inflect toward growth in later quarters.

Q: Outlook for gross margin in 2026?

A: Full year gross margin expected to improve 140 basis points, with Connected Fitness benefiting from lower service costs and Subscription from content optimization.

Q: Capital allocation and term loan?

A: Focus on deleverage, $200 million convertible notes due in 2026, term loan penalty considered, but prioritizing balance sheet strength.