Peloton Arranges $750 Million Term Loan After Losses Soar

  • May 10, 2022
  • Scott Peters
  • Peloton focused on reducing operating costs after quarterly loss surged. The fitness equipment maker also arranged a five-year term debt of $750 million.

    Peloton Interactive, Inc reported March quarter revenues declined 24% to $964.3 million and net loss soared eight-fold to $757.1 million. 

    Diluted loss per share increased to $2.27 from 3 cents a year ago. 

    The company is struggling with a surge in inventories as more workers return to office ending the pandemic era boom in orders. 

    The equipment sales declined 42% to $594.4 million but subscription revenues increased 55% to $370 million.  

    Gross profit fell 59% to $184.2 million after the company wrote down inventories, faced higher supply chain costs and lowered retail sale price. 

    Subscription revenues in the quarter are 38.4% of total sales compared to 19% a year ago and the company is accelerating its business mix repositioning to higher margin business. 

    Membership subscribers jumped 29% to 7.0 million and subscription revenues increased 42% to $3 million. 

    New subscriber growth in the quarter declined 53% to 0.195 million from 0.42 million a year ago. 

    Average monthly churn rate increased in the quarter to 0.75% from 0.3% a year ago. 

    However, the company benefited from a growing acceptance of its digital app.

    Digital app subscriptions increased 10% or 114,000 to 976,000 at the end of the quarter from a year ago. 

    The company ended the quarter with $879.3 million in cash and cash equivalents and also has a $500 million revolving credit facility, which remains undrawn to date.

    Guidance and Outlook 

    The company estimated fourth quarter revenues between $675 million and $700 million. 

    Gross margin estimated to increase to 31% from 27% in the fourth quarter a year ago. 

    Adjusted operating loss to fall between $115 million and $120 million compared to a loss of $45 million a year ago. 

    The company estimated subscriber base in the fourth quarter to increase to 2.98 million compared to 2.3 million a year ago, an increase of 28% from a year ago and 1% increase from the third quarter. 

    Company and Stock 

    Peloton is headquartered in New York City, New York and employs about 6,700 people. 

    Peloton stock declined as much as 18% to $11.30 and has fallen 63% in the year so far. 

    The balance sheet challenge has been managing inventory. We have too much for the current run rate of the business, and that inventory has consumed an enormous amount of cash, more than we expected, which has caused us to rethink our capital structure. 

    Fortunately, the obsolescence risk is negligible, and we believe the inventory will sell eventually, so this is primarily a cash flow timing issue, not a structural issue.

    The recent price changes (implemented April 14) also look promising, and may deliver roughly $40 million of incremental revenue monthly. Here’s the math. The price cuts on hardware have increased our daily unit sales by 69% and increased our revenue by more than $25 million per month. 

    And the price increase on our All-Access monthly subscription, which isn’t effective until June 1, has so far driven only a modest increase in churn. That’s a roughly $14 million increase in revenue monthly if churn remains near current levels. 

    These are important incremental steps towards rightsizing our P&L and are additive to the $800 million in cost savings discussed above.

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