0001639825-26-000008
SEC filingPeloton's Q2 FY26 revenue declined 2.6% YoY, but gross margin expanded 130bps to 50.5% and net loss narrowed to $38.8M.
For the three months ended December 31, 2025, total revenue decreased 2.6% year-over-year to $656.5 million, driven by declines in both Connected Fitness Products (down 3.7% to $243.9 million) and Subscription (down 1.9% to $412.6 million). Despite lower revenue, gross profit increased 4.1% to $331.3 million, with gross margin expanding 330 basis points to 50.5%. The improvement was led by Subscription gross margin rising to 72.1% (from 67.9%) on subscription price increases and lower music royalty costs, and Connected Fitness Products gross margin increasing to 13.9% (from 12.9%) due to lower warranty costs and a favorable product mix shift toward higher-margin Cross Training Series products.
Operating expenses fell 5.1% to $345.6 million, primarily driven by a 21.6% reduction in general and administrative expenses ($102.9 million vs. $131.3 million) from lower headcount and cost allocations. Research and development increased 7.8% to $65.0 million. Impairment expense rose to $23.0 million, mainly from asset write-downs related to corporate office footprint reduction. Net loss improved to $38.8 million from $92.0 million in the prior year, reflecting higher gross profit and lower operating expenses. Adjusted EBITDA grew to $81.4 million (from $58.4 million), and free cash flow was $71.0 million.
Connected Fitness Products: Revenue declined due to fewer product deliveries, but the segment's gross margin improved 100 basis points to 13.9%. The margin benefit came from lower warranty costs and a shift toward the Cross Training Series (launched October 2025), partially offset by higher import tariffs and inventory reserves.
Subscription: Revenue decreased as Paid Connected Fitness Subscriptions fell to 2.661 million (from 2.875 million) and Paid App Subscriptions declined to 0.522 million (from 0.585 million). However, subscription gross margin expanded 420 basis points, benefiting from price increases implemented during the quarter and reduced music royalty expenses. Subscription Contribution Margin reached 75.9%.
Management focuses on the 2025 Restructuring Plan, expected to deliver at least $100 million in run-rate savings by end of fiscal 2026, with additional charges of ~$25 million cash and ~$5 million non-cash. The company continues to monitor global trade policies and tariffs. No specific forward revenue or earnings guidance was provided in this MD&A. Strategic priorities include returning to growth through reinvestment in differentiating capabilities and maintaining an attractive LTV/CAC ratio for Connected Fitness Subscriptions.
As of December 31, 2025, Peloton held $1.1796 billion in cash and cash equivalents and $43.6 million in restricted cash, totaling $1.2232 billion. Total debt (gross of discounts and issuance costs) stood at $1.534 billion, comprising $199.0 million of 0.00% Convertible Senior Notes due 2026 (classified as current), $350.0 million of 5.50% Convertible Senior Notes due 2029, and $985.0 million outstanding under the Term Loan due 2029. Stockholders' deficit was $(326.7) million, reflecting accumulated deficit of $(5.6274) billion. Inventory net of reserves was $214.9 million, with reserves of $95.3 million primarily for excess accessories/apparel and Connected Fitness Products.
The Notes disclose $146.5 million in future minimum payments under music license agreements as of December 31, 2025. These are broken down by fiscal year: $32.8 million remaining in FY2026, $76.4 million in FY2027, $21.9 million in FY2028, $15.2 million in FY2029, and $0.2 million in FY2030. No other purchase commitments (e.g., supply or capacity) are disclosed. The Company also has a $100.0 million undrawn revolving credit facility, with no borrowings as of period end.
No share buybacks or dividends were reported. Capital expenditures totaled $5.4 million for the six months ended December 31, 2025 (0.4% of sales). Debt activity included a $5.0 million principal repayment on the Term Loan. The 2026 Notes ($199.0 million principal) mature on February 15, 2026, and are classified as current. The Company has not drawn on its $100.0 million revolving credit facility.
Peloton reports two segments: Connected Fitness Products and Subscription. For the three months ended December 31, 2025, Connected Fitness Products revenue was $243.9 million (down 3.7% YoY) with Segment Adjusted Gross profit of $34.0 million; Subscription revenue was $412.6 million (down 1.9% YoY) with Segment Adjusted Gross profit of $297.3 million. The CODM uses Segment Adjusted Gross profit as the primary profitability metric. Geographically, North America contributed $591.7 million (90.1%) of total revenue, with the U.S. alone accounting for $566.4 million (86%). International revenue was $64.8 million.
For the six months ended December 31, 2025, Peloton generated net cash from operations of $143.8 million, a significant improvement from $119.2 million in the prior-year period. This was achieved despite a net loss of $24.8 million (versus a net loss of $92.8 million in the prior period), reflecting strong non-cash add-backs including stock-based compensation ($102.9 million), depreciation and amortization ($32.1 million), and impairment expense ($31.3 million). Working capital changes were a net use of cash, primarily due to a $40.1 million outflow from operating lease liabilities and a $28.8 million decrease in accounts payable and accrued expenses, partially offset by a $27.9 million decrease in prepaid expenses and other current assets.
Capital expenditures totaled $5.4 million, up from $2.5 million in the prior year, indicating modest investment intensity. Free cash flow (operating cash flow minus capex) was $138.4 million, providing ample coverage for the minimal financing outflows (primarily $5.0 million in term loan repayments). No share repurchases or dividends were paid. The company ended the period with $1,223.2 million in cash, cash equivalents, and restricted cash, up from $1,085.8 million at the start of the period.
Anomalies: The $31.3 million impairment expense and $6.2 million net foreign currency adjustments are notable non-cash items. The large operating lease liability outflow ($40.1 million) is a recurring cash cost that may persist.