Peloton Interactive, Inc. Q1 FY2026 earnings call

• Voluntary recall of approximately 833,000 Original Series Bike+ units in the U.S. and 44,800 in Canada due to seat post issues, with an updated self-installable seat post replacement offered. - In Q1, performance was above guidance on most key financial metrics. - On October 1, unveiled the Cross Training Series and Pro series with advanced features like swivel screens, computer vision movement tracking, and Peloton IQ. - Acquired Breathwrk, a breathing exercises app, and collaborated with the Hospital for Special Surgery and Respin Health for wellness initiatives. - Expanded retail footprint with 10 micro stores in the U.S. and partnership with Johnson Fitness & Wellness, and retail presence in Australia. - Commercial business unit showing strong performance with Precor integration, including new products like Precor's Breakaway treadmill. - Launched Club Peloton loyalty program and official teams, with over 500,000 members engaging with Club Peloton. - Implemented expert assembly fees and cost reduction plans are on track.

In the first quarter, total revenue was $551 million. Connected Fitness products revenue was $152 million, and subscription revenue was $398 million. Paid Connected Fitness Subscriptions ended the quarter at 2.732 million, a 6% year-over-year decrease. Connected Fitness gross additions outperformed expectations due to higher unit sales in both first-party and third-party retail channels. Connected Fitness products gross margin was 6.9%, but excluding the Bike+ seat post inventory accrual, it would have been 15.8%. Subscription gross margin was 68.6%. Total gross profit was $284 million, a 7% year-over-year decrease, with total gross margin at 51.5%.

• Full year fiscal 2026 revenue outlook remains $2.4 billion to $2.5 billion. - Raised full year gross margin guidance to 52% from prior, driven by favorable tariffs, product mix, and cost efficiency. - Raised adjusted EBITDA guidance to $425 million to $475 million, up $25 million from prior. - Q2 revenue outlook is $665 million to $685 million, with a slight year-over-year increase. - Q2 adjusted EBITDA outlook is $55 million to $75 million. - Raised full year minimum free cash flow target to at least $250 million.

• Voluntary recall of Original Series Bike+ units poses a risk, with a financial impact of $16.5 million from inventory accruals. - Potential impact on subscriptions due to elevated pauses following prior recalls, though expected to be immaterial overall.

Q: What is the market opportunity for the new commercial business unit? How will you be approaching the new geographical markets? And will you successfully integrate Precor and Peloton for a unified B2B offering?

A: Peter Stern stated the commercial market is large with low share, Precor's global reach and Peloton's software/content make integration strong, and they're executing with Precor handling installation/service for commercial locations.

Q: Are there any plans in the next 5 years to provide for dividends?

A: Liz Coddington said they're focused on deleveraging, with capital allocation alternatives including dividends when more options are available.

Q: Can you compare the current recall to the initial recall and its impacts?

A: Peter Stern said models are different, initial bike recall had 0 incidents for Bike+, Liz Coddington discussed cost impact and slight subscription churn headwind.

Q: Talk about churn normalizing and subscriber base difference.

A: Peter Stern said churn moderated after price increase, current base has more tenured members offsetting rental/secondary market higher churn.

Q: Free cash flow nuances and inventory with new products?

A: Liz Coddington mentioned Q1 free cash flow benefits from tariffs and cost savings, inventory balanced for new products.

Q: Demand environment and commercial opportunity?

A: Liz Coddington said Connected Fitness market decline decelerated, commercial market bigger with growth potential, Peter Stern discussed commercial growth and profitability focus.

Q: Durability of Connected Fitness gross margins and marketing spend?

A: Liz Coddington discussed gross margin drivers and Peter Stern talked about Q2 marketing spend for new product messages.

Q: Wellness offerings usage and certified refurbished program?

A: Peter Stern said wellness offerings usage up, Repowered program doesn't do certified but is in consideration.