A Note From Barry

The following is a note Barry McCarthy sent to the Peloton Team on May 2, 2024:

By now you’ve heard or read the news that I’m stepping down as CEO of Peloton and that we’re reducing headcount again. You’ve often heard me talk about the importance of dealing with the world as it is and not as we want it to be. This is one of those moments.

Hard as the decision has been to make additional headcount cuts, Peloton simply had no other way to bring its spending in line with its revenue. The company had to do that in order to generate sustainable positive FCF. Achieving positive FCF makes Peloton a more attractive borrower, which is important as the company turns its attention to the necessary task of successfully refinancing its debt.

In my very first shareholder letter as Peloton’s CEO in May 2022 I outlined three priorities for the business: 1. stabilizing the cash flow 2. getting the right people in the right roles and 3. growing again. Together we’ve achieved the first two of these goals. I’m counting on you to achieve the third goal, growing again, next year.

This morning Peloton announced that it finally achieved the first goal, a remarkable accomplishment and a significant milestone. Last quarter the business produced positive free cash flow for the first time in 3 yrs. That’s a lifetime removed from where the business was two years ago.

 It may seem counterintuitive to you but for me, the pursuit of FCF has been, first and foremost, about the company’s mission, and not about its financial performance.

The mission is powering Members to be the best version of themselves through connected fitness, but Peloton can’t pursue its mission if it can’t sustain its business, which is why I said two years ago that stabilizing cash flow was Job One. The headcount cuts announced today were made to ensure that Peloton is able to continue to produce FCF while continuing to invest in software, hardware and content innovations, even if revenues continue to shrink Y/Y.

 Investing in hardware, software and content innovation is the lifeblood of the business, and the key to reversing the decline in revenues and restoring the company’s growth. I’ve never been more optimistic that Peloton is on the right path to achieve this objective. There have never been more green shoots or more talent in the building than we have today to complete the turnaround successfully.

 You’ve often heard me speak about the importance of talent density. I believe it’s foundational to success, and I’ve done my very best to recruit a truly talented exec team to lead the turnaround. If I have one lasting legacy at Peloton, it will be this. You have a GREAT lead team, and although the stock market hasn’t recognized this yet, they will. It’s simply a matter of time.

To shareholders, I once described turnarounds as a full contact sport; intellectually challenging, emotionally draining, physically exhausting, and all consuming, the decisions never more consequential, the urgency ever present, the teamwork never more central to the mission. From where I sit today, that pretty much summarizes my experience these last two years.

A lot of blood sweat and tears have been shed to make Peloton’s turnaround possible. In town halls these last two years you’ve heard me encourage all of us to be worthy of the moment and the sacrifices made by Peloton alums to position the business for success. Dare to be great. It’s your race to win. You’ve got the talent, the resources, and the tools you need to win, and I’m counting on you to win it.

-Barry