Peloton Q1 Profitability Rises as Gross Margin Expands

Peloton Interactive reported a sharp expansion in profitability for its fiscal first quarter, as higher gross margins and cost discipline more than offset subdued revenue growth. The connected-fitness company generated $168 million of adjusted EBITDA and $143 million of free cash flow, both above its guidance ranges, while maintaining a full-year outlook that calls for higher adjusted EBITDA despite lower revenue.

Revenue for the quarter ended in fiscal 2027 rose 1.5% year over year to $559 million, within Peloton’s guidance range of $545 million to $565 million. Subscription revenue increased 3% to $411 million, while Connected Fitness Products revenue declined 3% to $148 million.

Total gross margin reached 61.3%, up 975 basis points from a year earlier and above the company’s approximately 57% forecast. Gross profit increased 21% to $343 million. Connected Fitness Products gross margin rose 2,650 basis points to 33.4%, while subscription gross margin expanded 280 basis points to 71.3%.

Peloton recorded GAAP net income of $96.2 million, compared with $13.9 million in the prior-year quarter. Adjusted EBITDA increased 42% to $167.8 million, exceeding guidance of $135 million to $145 million. The company attributed the adjusted EBITDA gain to nonrecurring items and disciplined margin expansion.

Free cash flow more than doubled to $143.4 million from $67.4 million, supported by $145.7 million of net cash provided by operating activities and limited capital spending. Adjusted operating expenses declined 2% to $225.9 million, although sales and marketing spending increased year over year to support the October 1 treadmill launch. Stock-based compensation fell 16% to $39.9 million.

Subscription base and product expansion

Peloton ended the quarter with 2.475 million paid Connected Fitness subscriptions, at the top of its guidance range. Average net monthly paid Connected Fitness subscription churn was 1.7%, up 11 basis points year over year. The presentation indicated that one-time items, including price adjustments, affected churn by about 17 basis points.

The company introduced three consumer treadmill models: Tread Vision, Tread Flex and Tread+ Vision. Tread Flex is Peloton’s first folding treadmill. New software and training features include personalized pace ranges, heart-rate-zone guidance, the ability to replay outdoor routes, camera-based running analysis and a resistance-focused Sled Mode.

Peloton’s Commercial Business Unit delivered double-digit revenue growth during the quarter. The company also launched its Commercial Series of bikes and treadmills, designed for high-traffic gym environments. The commercial operation serves more than 80,000 facilities across over 60 countries and markets.

Within the subscription business, cardio accounted for 55% of first-quarter workouts and strength represented 30%. Recovery and sleep made up 12%, while meditation accounted for 3%. Pilates workouts increased 53% year over year. Peloton said its content library contains more than 65,000 live and on-demand classes across more than 15 disciplines.

Outlook points to lower revenue but higher adjusted EBITDA

For the fiscal second quarter, Peloton expects revenue of $625 million to $650 million, representing a 3% year-over-year decline at the midpoint. Total gross margin is projected at approximately 50%, down 50 basis points year over year, while adjusted EBITDA is expected to range from $85 million to $100 million, up 14% at the midpoint. Ending paid Connected Fitness subscriptions are forecast at 2.425 million to 2.445 million, a 9% decline at the midpoint.

For the full fiscal year, management expects revenue of $2.3 billion to $2.4 billion, down 4% at the midpoint from fiscal 2026. Gross margin is projected at approximately 54%, an increase of 140 basis points, while adjusted EBITDA is expected to be between $475 million and $525 million, up 7% at the midpoint. Peloton expects at least $350 million of free cash flow.

The company ended the quarter with $1.342 billion in cash and cash equivalents and $1.299 billion in total debt, producing negative net debt of $43.2 million. Its net leverage ratio fell to 0.0 times from 1.1 times a year earlier, while gross leverage declined to 2.6 times from 3.8 times.

Peloton’s outlook remains subject to risks including its ability to retain subscribers, forecast demand, manage inventory and execute cost-saving measures. The company also identified product recalls and safety matters, tariffs and other trade restrictions, supply-chain dependence, competition, cybersecurity, artificial intelligence-related risks and broader changes in consumer spending as potential sources of uncertainty.