Peloton Interactive, Inc. Class A Common Stock 2026 Q4 Earnings Call

Good morning, welcome to Peloton's fourth quarter and fiscal year 2026 conference call. Joining today's call are Peloton Chief Executive Officer and President, Peter Stern, and our new Chief Financial Officer, Sid Thacker. Our comments and responses to your questions reflect management's views as of today only and will include forward-looking statements related to our business under federal securities law. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business. Please refer to our SEC filings, today's press releases, and our earnings presentation, all of which can be found on our investor relations website for a discussion of material risks and other important factors that could impact our results.

All results discussed today are on an as reported basis, which include our previously mentioned cost reassignments that began in the beginning of FY 2026. Please refer to our investor presentation for reconciliations of the impacts of these cost assignments. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures and definitions for our user metrics are also provided in today's press release. I'll now turn it over to Peter.

Thanks, James, and good morning, everyone. As my first full fiscal year comes to a close, we enter the new year with a strong financial and operational foundation. FY 2026 was filled with product innovations, exciting additions to our leadership and instructor teams, a new company strategy, and more ways than ever to help our members live fit, strong, long, and happy. We've also made meaningful progress on our journey to evolve from a connected fitness company to a connected wellness ecosystem. This ambition defines the future of Peloton and positions us to participate in a $7 trillion global market centered on longevity and health span. Our magic formula of premium hardware, intuitive software, world-class coaching, and supportive community powers our beloved brand and gives us permission to gradually and systematically capture share in the broader wellness market in the years ahead. Our strategy is built on four pillars.

One, improving member outcomes. Two, meeting members everywhere. Three, making members for life, and four, business excellence. I'm proud to report that we continue to make substantial strides across each of these pillars. Starting with improving member outcomes, which is where we focus on human impact. Improving our members' fitness, strength, longevity, and happiness. The more we help our members achieve these outcomes, the more we fuel retention. A key driver of this is our product innovation. In FY 2026, we introduced the Peloton Cross Training Series, a refresh of our products across bike, tread, and row. We launched Peloton IQ, a huge step forward in our use of AI to deliver a more personalized experience to our members. In Q4, more than 50% of monthly active users engaged with personalized guidance powered by Peloton IQ.

Our product innovation engine is now firing on all cylinders. During this calendar year, we will launch additional new equipment in an existing category while delivering much more customized, personalized guidance to help our members achieve their individual goals. We also continue to innovate on our programming. For example, by expanding our specialized content with offerings like the Pace Your Race marathon training program and HiLit+, a very popular high-intensity, low-impact cross-training program. These class and programming additions directly reflect the engagement trends we're seeing from our members. Speaking of engagement, in Q4, Pilates workouts and workout time were up year-over-year by 44% and 53% respectively. Given this rapidly growing member demand, in Q4, we executed the acquisition of Skōp, an early innovator in connected Pilates with foundational technologies and deep expertise.

This move will enhance our R&D efforts and enable us to deliver even more distinctive experiences in this category. The second pillar of our strategy is to meet members everywhere. We know Peloton members are deeply connected to their community, instructors, and class programs. We're committed to bringing our experiences to them wherever they are. Formed just a year ago, our commercial business unit has become central to this strategy by increasing our reach outside the home and in more hotels and gyms across our key markets. Our CBU delivered double-digit year-over-year revenue growth in fiscal 2026, with growth across all regions and across all major product categories. We estimate that we're approaching 4% of the commercial fitness equipment market segment, leaving enormous headroom for growth. We are encouraged by the increasing demand for our products.

In the next few months, we will launch the Peloton Commercial Series, the first Peloton bike and treadmill built to accommodate the duty cycle of high-traffic commercial gyms. We anticipate that with the benefit of this new equipment, alongside additional investment in our CBU sales team and product development, we will see accelerating growth from the CBU in fiscal 2027 and beyond. Another way we meet members everywhere is through our retail stores. We ended the year with a highly capital-efficient footprint of 10 micro stores, which consistently outperform our historical fleet of legacy showrooms. Based on this success, over the past few weeks, we have launched three additional micro stores. We plan to add an additional seven micro stores in time for the holidays, which would result in a doubling of our micro store footprint this year.

We are also meeting members everywhere through our strategic partnership with Spotify. We are now delivering our non-equipment-based classes, such as strength, Pilates, barre, yoga, meditation, and outdoor running and walking to hundreds of millions of premium Spotify subscribers around the world. Partnerships like the one with Spotify enable us to build our brand and test demand in new geographies. For example, recently Mexico became the most engaged country outside the U.S. with our content on Spotify. Lastly, meeting members everywhere also includes meeting members in real life events and activations. This year, our instructors represented Peloton in more than 160 events worldwide, a more than threefold increase year-over-year, including major marathons in New York, Berlin, and Sydney, as well as premier wellness festivals and run clubs. Our third pillar, Members for Life, focuses on maximizing lifetime value and keeping our members active and engaged.

316,000 of our members now own multiple connected fitness products, up more than 20,000 year-over-year. These members churn at significantly lower rates than those who own just one. As a result, not only are new products meant to attract new members, but they also keep our existing ones with us for longer. We're also driving member loyalty through Club Peloton, which our members have deeply embraced since its October launch. Club Peloton rewards were applied to 70% of apparel sales on our site in June. We continue to evolve this program, and in Q4, we launched new milestones and weekly streak badges to celebrate our most committed members. We remain proud of our strong member retention. While we saw an uptick in Q4 churn, driven in part by one-time events, we expect our year-over-year churn rate to moderate over the course of FY 2027.

On a full year basis, we expect churn to be roughly flat versus FY 2026. Last but not least is business excellence. When I started at Peloton, I explained we'd see consistent progress from the bottom of the P&L up. This past year, we made material improvements in our financial and operational foundation, and I'm pleased to share that we have delivered Peloton's first full year of both positive net income and positive operating income at $63 million and $161 million, respectively. In addition, we delivered $468 million of adjusted EBITDA, an increase of $65 million, or 16% year-over-year, and $378 million of free cash flow, an increase of $54 million, or 17% year-over-year. This profitability growth reflects the significant progress we've made in improving our cost structure. We committed to a $100 million run rate cost savings initiative in FY 2026, and I can report that we exceeded this goal.

Moving further up the P&L, we're pleased to have achieved our second consecutive quarter of year-over-year revenue growth in Q4. Turning to FY 2027, our core business trends continue to improve and our business is the healthiest it has ever been, as we're projecting the highest total gross margin, adjusted EBITDA, and net income in the company's history. Looking beyond FY 2027, I'm excited about our multi-year product roadmap of both consumer and commercial products. This roadmap includes groundbreaking offerings in entirely new categories that broaden our total addressable market. The first of these new consumer product categories will launch in the fall of 2027, followed by more thereafter. We expect investments in these categories will result in an acceleration of our year-over-year revenue trajectory. Delivering breakthrough product innovation takes time, especially hardware like ours. We are investing with discipline in areas where we have confidence in the returns.

I'm proud of our progress over the last 18 months in filling the product pipeline. This work makes me deeply optimistic about Peloton's future and our team's ability to execute on our next chapter. This is what a successful multi-year business transformation looks like, and I want to share my gratitude to Peloton team members, partners, shareholders, and members for taking this journey with us. With that, I'm pleased to introduce our wonderful new Chief Financial Officer, Sid Thakur, who will share more details with you.

Thanks, Peter. Before I begin, I wanted to share how thrilled I am to be on this journey here at Peloton. The company has many strategic advantages, its iconic brand, industry-leading instructors, and its deeply loyal community, and I'm looking forward to working with our team members to build an even stronger Peloton. Before joining, I knew we had real work to do to improve our growth trajectory, and that getting this business back to sustained growth wouldn't be immediate. Since I started, two things have become very clear to me. The first is that the underlying strength of this business and brand are real. We benefit from enviable churn, providing a high margin, recurring revenue stream, which provides the foundation for our free cash flow generation.