Surprised by how deep some issues ran at the company

When Barry McCarthy showed up to run Peloton about three months ago, he was surprised to learn just how discombobulated the supply chain was and how quickly the company’s cash coffers were shrinking.

“The nature of turnarounds is they are full of surprises,” McCarthy told analysts on Tuesday, during his first post-earnings conference call with Peloton.

After digging into the business, the CEO said he learned that Peloton was “weaker on everything supply chain” than he had expected. He said the biggest surprise during the previous quarter was cash flow, and how bleak it was.

Yet the former Netflix and Spotify executive also said he was also surprised by Peloton’s ability to “quickly address” its cash flow situation without diluting existing shareholders and while continuing to adequately capitalize the business. Another bright spot noted by McCarthy was that he found more talent within Peloton’s headquarters than he thought he would discover.

McCarthy’s comments to Wall Street on Tuesday were incredibly high-stakes, given Peloton’s diminishing share price and waning confidence among investors that the business can be successful in a post-pandemic world.

The CEO’s letter to shareholders Tuesday came with disappointing results for the three-month period ended March 31 and a grim outlook for the current quarter, which ends on June 30 and marks the end to Peloton’s fiscal year. McCarthy was quick to call out areas where former Peloton management had not been so successful, while laying the ground work for his turnaround scheme.

At least for now, investors are more focused on the current sour state of things. Peloton shares sunk to an all-time low Tuesday morning, dragging the company’s market valuation down to about $4 billion. It had been as high as $50 billion near the start of last year.

Still, McCarthy ended the conference call by telling Wall Street that he’s “pretty optimistic” about the company’s path forward, “notwithstanding the stock price.”

“I don’t mean to sound pollyannaish, but I’m hopeful that someday soon we’re going to look back on this call as one of the important turning points in the business,” he said.