Peloton(PTON) - 2024 Q2 - Quarterly Report

Revenue and Financial Performance - Total revenue for the six months ended December 31, 2023, was $1,339.2 million, compared to $1,409.2 million in the same period in 2022[18] - Connected Fitness Products revenue for the six months ended December 31, 2023, was $499.7 million, compared to $585.6 million in the same period in 2022[18] - Subscription revenue for the six months ended December 31, 2023, was $839.5 million, compared to $823.6 million in the same period in 2022[18] - Revenue from the Connected Fitness Products segment was $319.1 million for the three months ended December 31, 2023, down from $381.4 million in the same period in 2022[139] - Revenue from the Subscription segment was $424.5 million for the three months ended December 31, 2023, up from $411.3 million in the same period in 2022[139] - Consolidated revenue was $743.6 million for the three months ended December 31, 2023, compared to $792.7 million in the same period in 2022[139] - Connected Fitness Products revenue for the three months ended December 31, 2023, was $686.3 million in North America and $57.4 million internationally, totaling $743.6 million[53] - The company's revenue attributable to the United States for the three months ended December 31, 2023, was $658.0 million, representing 88% of total revenue[53] - The company's total revenue for the six months ended December 31, 2023, was $1,339.2 million, with $1,235.0 million from North America and $104.1 million from international markets[53] - Subscription revenue accounted for 57.1% of total revenue in Q4 2023, up from 51.9% in Q4 2022, indicating a shift towards higher subscription reliance[189] - Connected Fitness Products revenue declined by 16.3% YoY to $319.1 million in Q4 2023, reflecting challenges in hardware sales[189] - Total revenue decreased by 6.2% YoY to $743.6 million in Q4 2023, driven by lower hardware sales[189] - Subscription revenue increased by $13.3 million (3 months) and $15.9 million (6 months) year-over-year, with a low churn rate of 1.2% (3 months) and 1.3% (6 months)[192] Net Loss and Profitability - Net loss for the six months ended December 31, 2023, was $354.1 million, compared to a net loss of $743.9 million in the same period in 2022[18] - Net loss for the three months ended December 31, 2023, was $(194.9) million, compared to $(335.4) million for the same period in 2022[24] - Net loss attributable to common stockholders was $(194.9) million and $(354.1) million for the three and six months ended December 31, 2023, respectively[133] - Net loss was $194.9 million for the three months ended December 31, 2023, compared to $335.4 million in the same period in 2022[161] - Gross profit improved to $299.4 million in Q4 2023, up from $235.0 million in Q4 2022, reflecting better cost management[184] - Operating loss narrowed to $187.1 million in Q4 2023 from $331.3 million in Q4 2022, showing progress in reducing losses[184] - Total gross profit increased by 27.4% (3 months) and 29.3% (6 months) year-over-year, reaching $299.4 million (3 months) and $584.8 million (6 months)[193] Cash Flow and Liquidity - Cash and cash equivalents decreased to $737.7 million as of December 31, 2023, from $813.9 million as of June 30, 2023[15] - Net cash used in operating activities for the six months ended December 31, 2023, was $110.4 million, compared to $291.3 million in the same period in 2022[21] - Capital expenditures and capitalized internal-use software development costs for the six months ended December 31, 2023, were $10.0 million, compared to $49.5 million in the same period in 2022[21] - Cash, cash equivalents, and restricted cash decreased to $798.1 million as of December 31, 2023, from $951.9 million as of December 31, 2022[21] Assets and Liabilities - Total current assets decreased to $1,526.5 million as of December 31, 2023, from $1,639.1 million as of June 30, 2023[15] - Total liabilities increased slightly to $3,068.6 million as of December 31, 2023, from $3,064.2 million as of June 30, 2023[15] - Total Stockholders' Equity (Deficit) decreased from $258.5 million as of September 30, 2022, to $30.5 million as of December 31, 2022, and further declined to $(499.3) million as of December 31, 2023[24] - Additional Paid-In Capital increased from $4,320.0 million as of September 30, 2022, to $4,767.1 million as of December 31, 2023[24] - Accumulated Deficit grew from $(4,078.6) million as of September 30, 2022, to $(5,285.9) million as of December 31, 2023[24] - Deferred revenue as of December 31, 2023, was $94.9 million, and customer deposits were $94.3 million[54] - The company recognized $92.5 million in revenue from deferred revenue in the six months ended December 31, 2023[54] - Total inventories as of December 31, 2023, were $634.1 million, with net inventories at $427.2 million after reserves[69] - Inventory reserves as of December 31, 2023, include $97.3 million for excess accessories and apparel inventory and $82.4 million for returned Connected Fitness Products[70] Debt and Financing - The fair value of the 0% Convertible Senior Notes as of December 31, 2023, is $778.8 million, compared to $759.5 million as of June 30, 2023[66] - The company issued $1.0 billion in 0% Convertible Senior Notes in February 2021, with net proceeds of approximately $977.2 million[71] - The Notes are convertible into Class A common stock at an initial conversion price of $239.23 per share, with a maturity date of February 15, 2026[72] - The company may redeem the Notes for cash starting February 20, 2024, if certain stock price conditions are met[74] - The net carrying amount of the Notes' liability component was $990.3 million as of December 31, 2023[77] - The company entered into Capped Call Transactions with a net cost of $81.3 million to reduce potential dilution from the Notes[80] - The Second Amended and Restated Credit Agreement includes a $750.0 million Term Loan and a $400.0 million Revolving Facility[81][82] - The Term Loan bears interest at a rate of either Alternate Base Rate plus 5.50% or Adjusted Term SOFR Rate plus 6.50% per annum[84] - The company incurred debt issuance costs of $1.1 million, which are capitalized and amortized over the term of the Second Amended and Restated Credit Agreement[86] - As of December 31, 2023, the company had $738.8 million of total outstanding borrowings under the Second Amended and Restated Credit Agreement[86] - The company had outstanding letters of credit totaling $60.4 million as of December 31, 2023, classified as Restricted cash[87] - The effective interest rate on the Term Loan was 14.5% as of December 31, 2023, up from 10.2% initially[88] - The net carrying amount of the Term Loan was $699.1 million as of December 31, 2023[89] - Total interest expense related to the Term Loan was $2.3 million for the three months ended December 31, 2023[91] Restructuring and Impairment - The company incurred $15.2 million in total restructuring charges for the three months ended December 31, 2023, including $9.6 million in cash charges and $5.6 million in non-cash charges[59] - The company expects to incur additional cash charges of approximately $20.0 million and non-cash charges of approximately $10.0 million related to the Restructuring Plan by the end of fiscal year 2024[64] - Total charges related to the Restructuring Plan were $15.2 million and $56.4 million for the three and six months ended December 31, 2023, respectively[152] - The company expects to incur additional cash charges of approximately $20.0 million and non-cash charges of approximately $10.0 million in connection with the Restructuring Plan by the end of fiscal year 2024[153] - Impairment expense decreased significantly to $3.6 million in Q4 2023 from $9.7 million in Q4 2022, indicating better asset management[184] - Impairment and restructuring expenses decreased significantly by 62.5% (3 months) and 61.9% (6 months) for impairment, and 72.7% (3 months) and 80.0% (6 months) for restructuring, due to reduced asset write-downs and severance costs[205][206][207][208] Stock-Based Compensation and Equity - Activity related to stock-based compensation contributed $103.4 million to Additional Paid-In Capital in 2022 and $65.7 million in 2023[24] - The number of shares of Class A common stock available for issuance under the 2019 Plan increased by 17,838,381 shares on July 1, 2023[114] - The 2019 Plan was amended to increase the number of shares available by 36,000,000 shares, with 80,916,418 shares available for future awards as of December 31, 2023[115] - Outstanding stock options decreased from 42,999,273 to 32,728,364, with a weighted-average exercise price of $18.62 and an aggregate intrinsic value of $18.8 million as of December 31, 2023[117] - Vested and exercisable stock options totaled 24,086,928 with a weighted-average exercise price of $16.14 and an aggregate intrinsic value of $18.8 million as of December 31, 2023[117] - Unvested stock options decreased from 12,407,094 to 8,641,436, with a weighted-average grant date fair value of $18.78 as of December 31, 2023[118] - The Company recorded $21.9 million in incremental stock-based compensation expense due to the repricing of stock options in July 2022[119] - Restricted stock units outstanding increased from 27,236,428 to 45,270,490, with a weighted-average grant date fair value of $9.29 as of December 31, 2023[123] - The number of shares available for issuance under the Employee Stock Purchase Plan (ESPP) increased by 3,567,676 shares on July 1, 2023, with 15,821,314 shares available as of December 31, 2023[124] - Employees purchased 373,114 shares of Class A common stock at a weighted-average price of $5.42 under the ESPP during the offering period ending August 31, 2023[128] - Total unrecognized compensation cost related to the ESPP was $10.2 million as of December 31, 2023, to be amortized over a weighted-average remaining period of 1.7 years[128] - Stock-based compensation expense decreased to $66.6 million in Q4 2023 from $81.6 million in Q4 2022, indicating cost control efforts[186] Product and Subscription Metrics - The company's Connected Fitness Products portfolio includes the Peloton Bike, Bike+, Tread, Tread+, Guide, and Row[28] - Revenue is primarily generated from recurring Subscription revenue and the sale of Connected Fitness Products[28] - The company's rental program allows members to lease a Bike or Bike+ with a Peloton Rental Membership for a single monthly cost and a one-time delivery fee, with lease revenue recognized on a straight-line basis over the lease term[44] - The company's subscription revenue includes amounts paid for subscription fees, net of refunds, which are recognized ratably over the subscription term[47] - Peloton had 6.4 million Members as of December 31, 2023[144] - Average Monthly Watch Time per Paid Subscriber increased by 6% for the three months ended December 31, 2023 compared to the same period in 2022[147] - Over 11% of the rental base chose to purchase their rental in the three months ended December 31, 2023[148] - Ending Paid Connected Fitness Subscriptions were 3,004,413 as of December 31, 2023, compared to 2,979,182 in the same period in 2022[161] - Subscription Gross Profit was $285.6 million for the three months ended December 31, 2023, compared to $277.9 million in the same period in 2022[161] - 99% of Connected Fitness Subscriptions and 88% of Peloton App subscriptions were on month-to-month payment plans as of December 31, 2023[170] - Approximately 9% of Connected Fitness Subscriptions owned multiple Connected Fitness Products as of December 31, 2023[170] Cost Management and Expenses - Total cost of revenue for the six months ended December 31, 2023, was $24.6 million, compared to $32.1 million in the same period in 2022[130] - Sales and marketing expenses decreased to $10.7 million for the six months ended December 31, 2023, from $18.2 million in the same period in 2022[130] - General and administrative expenses were $67.6 million for the six months ended December 31, 2023, down from $92.8 million in the same period in 2022[130] - Research and development expenses were $30.7 million for the six months ended December 31, 2023, compared to $37.8 million in the same period in 2022[130] - The Company recorded a benefit from income taxes of $(1.7) million and $(1.0) million for the three and six months ended December 31, 2023, respectively[132] - Connected Fitness Products cost of revenue decreased by 28.0% (3 months) and 29.8% (6 months) year-over-year, driven by fewer deliveries[193][196] - Connected Fitness Products gross margin improved to 4.3% (3 months) and 3.9% (6 months) from negative margins in the prior year, due to lower inventory write-downs and reduced shipping costs[194][196] - Subscription cost of revenue increased by 4.2% (3 months) and 0.5% (6 months) year-over-year, driven by higher platform streaming and personnel expenses[195][197] - Sales and marketing expenses increased by 6.1% (3 months) and 5.8% (6 months) year-over-year, driven by higher advertising and marketing spending[200] - General and administrative expenses decreased by 16.6% (3 months) and 19.2% (6 months) year-over-year, primarily due to reduced professional services and stock-based compensation costs[201][202] - Research and development expenses remained stable (3 months) but decreased by 5.6% (6 months) year-over-year, driven by lower stock-based compensation and product development costs[203][204] - Supplier settlements decreased by $19.4 million for the three months ended December 31, 2023, compared to the same period in 2022[209] - Supplier settlements decreased by $20.6 million for the six months ended December 31, 2023, compared to the same period in 2022[209] Interest and Taxes - Interest expense increased by 24.8% to $27.7 million for the three months ended December 31, 2023, compared to $22.2 million in 2022[212] - Interest income increased by 45.8% to $8.4 million for the three months ended December 31, 2023, compared to $5.8 million in 2022[212] - Interest expense increased by 27.2% to $54.9 million for the six months ended December 31, 2023, compared to $43.2 million in 2022[212] - Interest income increased by 72.1% to $16.9 million for the six months ended December 31, 2023, compared to $9.8 million in 2022[212] - Foreign exchange gains decreased by 18.6% to $9.6 million for the three months ended December 31, 2023, compared to $11.8 million in 2022[212] - Other income, net decreased by 93.9% to $0.1 million for the three months ended December 31, 2023, compared to $2.4 million in 2022[212] - Income tax benefit was $1.7 million for the three months ended December 31, 2023, compared to an expense of $1.9 million in 2022[212] - Income tax benefit was $1.0 million for the six months ended December 31, 2023, compared to an expense of $2.7 million in 2022[212] Legal and Regulatory - The company agreed to pay a $19.1 million civil penalty in a settlement with the CPSC regarding the Tread+ recall[102] - The company has minimum annual guarantee payments under music license agreements totaling $105.2 million for the next three years[93] - Return reserves related to the Tread+ recall were