Peloton, the once-thriving connected fitness company, announced a major leadership shakeup and another round of layoffs on Thursday as it grapples with declining sales and mounting debt. CEO Barry McCarthy, who took the helm just over two years ago, will step down and become a strategic advisor to the company through the end of the year. The company also revealed plans to cut 15% of its global workforce, or about 400 employees, as part of a broader restructuring effort aimed at aligning its cost structure with the current size of the business.
Board members Karen Boone, the company's chairperson, and Chris Bruzzo will serve as interim co-CEOs while Peloton searches for a permanent replacement. Jay Hoag, another Peloton director, has been named the new chairperson of the board. The leadership changes and layoffs come as the company struggles to regain profitability and refinance its debt.
In a letter to staff, McCarthy stated that the company had "no other way to bring its spending in line with its revenue" and that the layoffs were necessary to achieve sustainable free cash flow. "Achieving positive [free cash flow] makes Peloton a more attractive borrower, which is important as the company turns its attention to the necessary task of successfully refinancing its debt," he wrote.
Peloton's latest round of layoffs marks the fifth time the company has reduced its workforce since the beginning of 2022. The pandemic darling, which once boasted a peak of 8,600 employees in 2021, now has a global headcount of around 3,000. The company's restructuring plan, expected to reduce annual run-rate expenses by more than $200 million by the end of fiscal 2025, also includes the continued closure of retail showrooms and changes to its international sales strategy.
McCarthy, a former Spotify and Netflix executive, had implemented numerous cost-cutting measures and strategic shifts since taking over from founder John Foley in February 2022. Despite his efforts to redirect Peloton's focus to its app and grow membership, the company has struggled to return to sales growth, with revenue falling for the ninth consecutive quarter when compared to the year-ago period.
In its fiscal third-quarter results, released alongside the leadership and layoff announcements, Peloton fell short of Wall Street's expectations on both the top and bottom lines. The company reported a net loss of $167.3 million, or 45 cents per share, compared with a loss of $275.9 million, or 79 cents per share, a year earlier. Sales dropped to $718 million, down about 4% from $748.9 million a year earlier.
Peloton also lowered its outlook for the current fiscal year, reducing its connected fitness subscription outlook by 30,000 members and app subscriptions by 150,000. The company now projects full-year revenue to come in at $2.69 billion, below expectations of $2.71 billion, according to LSEG.
However, there were some bright spots in the company's report. Peloton raised its full-year outlook for gross margin and adjusted EBITDA, expecting total gross margin to grow by 50 basis points and adjusted EBITDA to improve by $37 million. The company also announced that it had achieved positive free cash flow of $8.6 million during its third quarter, a milestone it hadn't reached in 13 quarters.
Despite this achievement, questions remain about the sustainability of Peloton's free cash flow, especially in light of recent reports that the company hadn't been paying its vendors on time. The company did not provide specific guidance on future free cash flow but stated that it expects to "deliver modest positive free cash flow" in its current quarter.
