10q10k10q10k.net

What changed in PELOTON INTERACTIVE, INC.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of PELOTON INTERACTIVE, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+589 added−609 removedSource: 10-K (2023-08-23) vs 10-K (2022-09-07)

Top changes in PELOTON INTERACTIVE, INC.'s 2023 10-K

589 paragraphs added · 609 removed · 415 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

42 edited+37 added−96 removed11 unchanged
Biggest changeThese include, but are not limited to: • Connected Leadership for people managers, which focuses on Peloton’s approach to leadership, coaching and team member connectivity; • Internal hiring and mobility program, which supports professional growth; • Functional and role specific training; • Required compliance trainings for all team members; • A Learning Management System, Peloton Academy, which houses training resources for all roles across the Company; and • A Monthly Virtual Learning Series with additional learning opportunities, on a variety of topics, available for all team members.
Biggest changeTraining, Development, and Engagement At Peloton, we have a dedicated global Talent Development Team that develops and delivers company-wide learning experiences across all functions. These include, but are not limited to, programs focusing on Peloton’s approach to leadership, coaching and team member connectivity, functional and role specific training, and internal hiring and mobility to support professional growth.
The principal competitive factors that companies in our industry need to consider include, but are not limited to: total cost, supply chain efficiency across sourcing and procurement, manufacturing and logistics, enhanced products and services, original content, product quality and safety, competitive pricing policies, vision for the market and product innovation, strength of sales and marketing strategies, technological advances, and brand awareness and reputation.
The principal competitive factors that companies in our industry need to consider include, but are not limited to: total cost, supply chain efficiency across sourcing and procurement, manufacturing and logistics, enhanced products and services, original content, product 7 quality and safety, competitive pricing policies, vision for the market and product innovation, strength of sales and marketing strategies, technological advances, and brand awareness and reputation.
Solely for convenience, our trademarks and tradenames referred to in this Annual Report on Form 10-K appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor, to these trademarks and tradenames.
Solely for convenience, our trademarks and tradenames referred to in this Annual Report on Form 10-K appear without the 9 ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor, to these trademarks and tradenames.
This Annual Report on Form 10-K contains additional trade names, trademarks, and service marks of other companies that are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks 12 to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
This Annual Report on Form 10-K contains additional trade names, trademarks, and service marks of other companies that are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
Available Information Our reports filed with or furnished to the SEC pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available, free of charge, on our Investor Relations website at https://investor.onepeloton.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Available Information Our reports filed with or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available, free of charge, on our Investor Relations website at https://investor.onepeloton.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Our Integrated Fitness Platform Technology Our content delivery and interactive software platform are critical to our Member experience. We invest substantial resources in research and development to enhance our platform, develop new products and features, and improve the speed, scalability, and security of our platform infrastructure. Our research and development organization consists of world-class engineering, product, and design teams.
Our Integrated Fitness Platform Technology Our content delivery and interactive software platform are critical to our Member experience. We invest substantial resources in research and development to enhance our platform, develop new products and features, and improve the speed, scalability, and security of our platform infrastructure. Our research and development organization consists of engineering, product, and design teams.
Competitive Compensation and Work/Life Harmony Our compensation program is structured around our overarching philosophy of rewarding demonstrable performance and aligning employees with our goals and strategy. Consistent with this approach, we provide market competitive compensation and benefits that will attract, motivate, reward, and retain a highly talented team.
Competitive Compensation and Work/Life Harmony Our compensation program is structured around our overarching philosophy of rewarding demonstrable performance and aligning team members with our goals and strategy. Consistent with this approach, we provide market competitive compensation and benefits that will attract, motivate, reward, and retain a highly talented team.
Government Regulation We are subject to many varying laws and regulations in the United States, the United Kingdom, the European Union and throughout the world, including those related to privacy, data protection, content regulation, intellectual property, consumer protection, e-commerce, marketing, advertising, messaging, rights of publicity, health and safety, employment and labor, product quality and safety, accessibility, competition, customs and international trade, and taxation.
Government Regulation We are subject to many varying laws and regulations in the United States, the United Kingdom, the European Union and throughout the world, including those related to privacy, data protection, content regulation, intellectual property, consumer protection, e-commerce, marketing, advertising, messaging, rights of publicity, health and safety, environmental, social, and governance factors, employment and labor, product quality and safety, accessibility, competition, customs and international trade, and taxation.
Accordingly, investors should monitor our Investor Relations website, Twitter feed and Press Newsroom in addition to following our press releases, SEC filings, and public conference calls and webcasts. 13
Accordingly, investors should monitor our Investor Relations website, Twitter feed and Press Newsroom in addition to following our press releases, SEC filings, and public conference calls and webcasts. 10
The SEC maintains a website at http://www.sec.gov that contains reports, and other information regarding us and other companies that file materials with the SEC electronically.
The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding us and other companies that file materials with the SEC electronically.
We compete with producers of fitness products and services and work to ensure that our platform maintains the most innovative technology and user-friendly features. 9 • Talent. We compete for talent in every vertical across our company including technology, media, fitness, design, supply chain, logistics, music, marketing, finance, strategy, legal, and retail.
We compete with producers of fitness products, services and apps and work to ensure that our platform maintains the most innovative technology and user-friendly features. • Talent. We compete for talent in every vertical across our company including technology, media, fitness, design, supply chain, logistics, content, marketing, finance, strategy, legal, and retail.
We compete for consumers to join our platform through Connected Fitness Subscriptions or Peloton Digital subscriptions, and we seek to engage and retain them through an integrated experience that combines content, software, service, and community. • Product Offering.
We compete for consumers to join our platform through Connected Fitness Subscriptions or Peloton App subscriptions, and we seek to engage and retain them through an integrated experience that combines content, hardware, software, service, and community. • Product and App Offering.
Seasonality Historically, we have experienced higher revenue in the second and third quarters of the fiscal year compared to other quarters, due in large part to seasonal holiday demand, New Year’s resolutions, and cold weather. We also have historically incurred higher sales and marketing expenses during these periods.
Seasonality Historically, we have experienced higher Connected Fitness Products sales in the second and third quarters of the fiscal year compared to other quarters, due in large part to seasonal holiday demand, New Year’s resolutions, and cold weather. We also have historically incurred higher sales and marketing expenses during these periods.
Our inside sales team engages with customers by phone, email, and online chat on our websites, and offers one-on-one sales consultations seven days a week. • Showrooms: Our showrooms allow customers to experience and try our products.
Our Inside Sales team engages with customers by phone, email, and online chat on our websites, and offers one-on-one sales consultations seven days a week. • Retail Stores: Our stores allow customers to experience and try our products.
Peloton, the Peloton logo, Peloton Bike, Peloton Bike+, Peloton Tread, Peloton Tread+, Peloton Digital, and other registered or common law trade names, trademarks, or service marks of Peloton appearing in this Annual Report on Form 10-K are the property of Peloton.
Peloton, the Peloton logo, Peloton Bike, Peloton Bike+, Peloton Tread, Peloton Tread+, Peloton Guide, Peloton Row, Peloton Gym, Peloton App, and other registered or common law trade names, trademarks, or service marks of Peloton appearing in this Annual Report on Form 10-K are the property of Peloton.
In order to account for technology evolution and market fluctuations, we regularly review our relationships with our existing contract manufacturers and the components suppliers that they contract with, while evaluating prospective new partnerships. We purchase from our primary contract manufacturers on a purchase order basis.
In order to account for technology evolution and market fluctuations, we regularly review our relationships with our existing contract manufacturers and the components suppliers that they contract with, while evaluating prospective new partnerships.
Our sales associates use robust customer relationship management tools to deliver an elevated, personalized, and educational purchase experience, regardless of channel of capture and conversion. 7 • E-Commerce and Inside Sales: Our desktop and mobile websites, www.onepeloton.com, www.onepeloton.co.uk, www.onepeloton.de, www.onepeloton.ca, and www.onepeloton.com.au provide an elevated brand experience where visitors can learn about our products and services and access product reviews.
Our sales associates use customer relationship management tools to deliver an elevated, personalized, and educational purchase experience, regardless of channel of capture and conversion. • E-Commerce and Inside Sales: Our desktop and mobile websites provide an elevated brand experience where visitors can learn about our products and services and access product reviews.
Concerns about the health and safety of our employees, or the health and safety of individuals working on behalf of Peloton suppliers or business partners, are reportable through our Ethics Hotline or online Ethics Portal, which is monitored by our Compliance and Risk Team.
Concerns about the health and safety of our team members, or the health and safety of individuals working on behalf of Peloton suppliers or business partners, are reportable through our Ethics Hotline or online Ethics Portal, which is maintained through an independent third-party platform and monitored by our Safety, Ethics, and Compliance Team.
As of June 30, 2022, we held 41 registered trademarks in the United States, including the Peloton mark and our “P” logo and also held 566 registered trademarks in foreign jurisdictions. We continually review our development efforts to assess the existence and patentability of new intellectual property.
Our U.S. issued patents expire between September 15, 2023 and October 14, 2040 As of June 30, 2023, we held 52 registered trademarks in the United States, including the Peloton mark and our “P” logo and also held 844 registered trademarks in foreign jurisdictions. We continually review our development efforts to assess the existence and patentability of new intellectual property.
The components used in our products are procured on our behalf using our designs by our contract manufacturers, according to our required design specifications and high 8 standards, from a variety of suppliers.
Manufacturing and Logistics In July 2022, we announced a shift from in-house manufacturing to utilizing third-party manufacturing partners for 100% of our products. The components used in our products are procured on our behalf using our designs by our contract manufacturers, according to our required design specifications and high standards, from a variety of suppliers.
Our pay equity study is in addition to any market-specific obligations we have to undertake pay gap analyses, such as our Gender Pay Gap Study in the United Kingdom.
Our pay equity study is in addition to any market-specific obligations we have to undertake pay gap analyses, such as our Gender Pay Gap Study in the United Kingdom. Team Member Safety We prioritize the health and welfare of our team members, our Members, and the impact our operations have on the environment.
We take a comprehensive view of the tools and programs we use to attract, reward, and retain top talent. Our workforce is diverse – so our benefits must be, too.
We take a comprehensive view of the tools and programs we use to attract, reward, and retain top talent. Our workforce is diverse – so our benefits must be, too. At Peloton, we encourage our team members to foster kindness, support, empathy, respect, compassion, and a sense of community in all interactions every day.
We believe we have taken a leading position in the fitness and wellness category by defining new standards for musical content partnership campaigns that feature some of the most recognizable global talent in the industry.
Peloton has become noteworthy as a brand providing the opportunity for our Members to engage in a new way with the fitness modalities they love. We believe we have also taken a leading position in the fitness and wellness category by developing musical content partnership campaigns that feature some of the most recognizable global talent in the industry.
Corporate Information Our website address is www.onepeloton.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this Annual Report on Form 10-K. Investors should not rely on any such information in deciding whether to purchase our Class A common stock.
To help us reach our goal of maintaining healthy work/life harmony, we have instituted a number of supportive practices. Corporate Information Our website address is www.onepeloton.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this Annual Report on Form 10-K.
For example, in fiscal 2018 and 2019, our second and third quarters combined each represented 63% of our Total revenue for the applicable fiscal year.
For example, in fiscal year 2023, our second and third quarters combined represented 62% of Connected Fitness Products revenue and 55% of our Total revenue.
As we further expand internationally, we intend to develop localized content, as we have done in the United Kingdom and Germany. As we expand into other non-English-speaking countries, we intend to produce classes in local languages from our existing studios and use subtitling for English-speaking users.
As we expand into other non-English-speaking countries, we intend to produce classes in local languages from our existing studios and use subtitling for English-speaking users, continually expanding our content library while also being culturally relevant in the markets where we are serving Members.
For our team members, the Peloton Pledge has meant an increased emphasis on delivery of value-added, business-wide DEI programming. In our ongoing push for business-wide shared learning, we continue to create psychologically safe spaces for our employees to learn and grow together.
The Peloton Pledge has sharpened our focus on delivering value-add, business-wide DEI programming. In our ongoing push for shared learning, we continue to create psychologically safe spaces for our team members to learn and grow together. For example, we have introduced specific learning programs for managers, such as Activating Allyship, to support our ambition to be an anti-racist organization.
Our curated music is as diverse and dynamic as the Members we serve, delivering an exceptional musical experience created by instructors and music supervisors on our production team. We control the intersection of fitness and music in a deeply engaging way, motivating Members to achieve their fitness goals while discovering great music in the process.
We work with music providers to ensure that our curated music is as diverse and dynamic as the Members we serve, delivering an exceptional workout experience created by instructors and music supervisors on our production team.
This also includes the development of our signature Artist Series which celebrate the legacy and catalog of some of the most prominent names in the business.
This includes working with music providers on the development of our signature Artist Series which celebrate the legacy and catalog of some of the most prominent names in the music business. We also collaborate closely with artist teams to premiere new music exclusives available only on Peloton, and to arrange for guest appearances in our classes.
Employees As of June 30, 2022, we employed 3,723 individuals in the United States across our New York City headquarters, Plano campus, Atlanta office, showrooms, and field operations warehouses, with 3,576 being full-time employees.
Employees As of June 30, 2023, we employed 2,765 individuals in the United States across our New York City headquarters, retail stores, and field operations warehouses, with 2,678 being full-time employees. Internationally, we employed 819 individuals primarily across corporate, retail stores, and warehouse functions. We also hire additional seasonal employees, primarily in our showrooms, during the holiday season.
We are committed to making Peloton the best place to work by engaging with, and listening to, our employees. We maintain ongoing connection with our team members through our company intranet, “Pelonet”; regular all-hands meetings, team town halls, and company-wide engagement surveys during the year.
We maintain ongoing connection with our team members through our company intranet, “Pelonet,” regular all-hands meetings and business performance reviews, team town halls, and company-wide engagement surveys during the year. Our Patent Incentive Program provides rewards and recognition to qualifying team members whose inventions are included in a patent application submitted by Peloton.
Logistics and Fulfillment Historically, we have used a combination of contracted third-party logistics providers (“3PLs”) and owned assets in our logistics network which includes middle mile and last mile operations centers in the United States, Canada, Germany and the United Kingdom. In the Australian market, we have utilized contracted services for the entire logistics network.
We use a combination of leased and operated as well as contracted third-party logistics providers (“3PLs”) in our logistics and service network which includes middle mile and last mile operations centers in the United States, Canada, Germany, the United Kingdom, and Australia. Intellectual Property The protection of our technology and intellectual property is an important aspect of our business.
Intellectual Property The protection of our technology and intellectual property is an important aspect of our business. We rely upon a combination of patents, trademarks, trade secrets, copyrights, confidentiality procedures, contractual commitments, and other legal rights to establish and protect our intellectual property.
We rely upon a combination of patents, trademarks, trade secrets, copyrights, confidentiality procedures, contractual commitments, and other legal rights to establish and protect our intellectual property. We generally enter into confidentiality agreements and invention or work product assignment agreements with our employees and consultants to control access to, and clarify ownership of, our proprietary information.
The core elements of our employee health and safety strategy include site risk analysis, incident management, documented processes, environmental programs, training, and occupational health programs. Our Global Safety & Security Operations team promotes safe operations and provides team members with access to our global 24/7 Risk Operations Center.
The core elements of our team member health and safety program include site risk analysis, incident management, documented processes and standards, environmental programs, training, and occupational health programs, and we are continually striving to improve these processes.
We have additionally updated our Scenic Content to include instructor-guided content shot in beautiful locations with multi-channel Scenic Radio options, as well as Lanebreak, a gamified workout feature that allows members to experience an animated workout as an alternative to original programming.
We have Scenic Content that includes instructor-guided classes, as well as non-guided time and distance-based options, all shot in beautiful destinations. We also have a game-inspired workout experience with our Lanebreak feature, allowing Members to experience an animated workout as an alternative to instructor-led programming. Our Peloton Studios in New York City and London provide an in-person Peloton content experience.
We also held 259 issued patents in foreign jurisdictions and 206 patent applications pending in foreign jurisdictions. Our U.S. issued patents expire between May 9, 2023 and November 24, 2040.
As of June 30, 2023, we held 170 U.S. issued patents and had 83 U.S. patent applications pending. We also held 393 issued patents in foreign jurisdictions and 146 patent applications pending in foreign jurisdictions.
As of June 30, 2022, we produce original programs from our production studios in New York City and London, with 54 instructors, and across 14 fitness and wellness disciplines including indoor Cycling, Tread, Outdoor Running and Walking, Bike and Tread bootcamps, Yoga, Strength Training, Pilates, Barre, Stretching, Meditation, Floor Cardio, and Dance Cardio.
Exclusively produced at our production studios in New York City and London, featuring our 57 instructors, across 16 fitness and wellness modalities including Strength, Yoga, Meditation, Cardio, Stretching, Cycling, Outdoor, Running, Walking, Tread Bootcamp, Bike Bootcamp, Boxing, Pilates, Barre, Rowing, and Row Bootcamp, our content breadth and depth is vast.
Content and Music We create engaging, original fitness and wellness content in an authentic live environment that is immersive and motivating while encouraging a sense of community. We combine high production value content with a broad catalog of music to create a truly unique fitness experience our Members love.
Additionally, Peloton continues to invest in AI/ML and Computer Vision technology to power proprietary personalization and discovery models across all of our software platforms and unique fitness features like Guide Rep Counting. Content We create engaging, original fitness and wellness content in an authentic, live environment that is immersive and motivating while also creating a sense of community.
We use a unique combination of brand and product-specific performance marketing to build brand awareness and generate predictable sales of our Connected Fitness Products. Video has been the strongest medium to communicate the features of the Peloton platform.
The full-service offering includes a range of equipment and content-based solutions, delivering on Peloton's commitment to empower anyone, anywhere, anytime. To market our products, we use a combination of brand and product specific performance marketing to build brand awareness, generate sales of our Connected Fitness Products and drive App subscriptions.
See Part I, Item 1A " Risk Factors — Risks Related to Our Connected Fitness Products and Members. ” 5 Guide Guide is our first connected fitness strength product designed to further enhance the full-body workout experience through a number of unique product features.
Consumer Product Safety Commission ("CPSC"); currently, we are seeking to resume sales of the Tread+ in the United States in 2024. See Part I, Item 1A " Risk Factors — Risks Related to Our Connected Fitness Products and Members. ” • Peloton Guide - Peloton’s first connected strength product, Peloton Guide, is an AI-powered personal trainer that connects to televisions.
We’re proud that one of our core tenets is to strive to operate as an antiracist organization, and in 2020, we committed ourselves to the Peloton Pledge, our ongoing multi-year, business wide commitment to combat systemic inequity and promote global health and well-being for all.
We’re proud that one of our core aspirations is to become an anti-racist organization, and in 2020, we created and committed to the Peloton Pledge, our multi-pronged, multi-faceted action plan to combat systemic racial inequities and amplify change both in our company and our community.
We make fitness entertaining, approachable, effective, and convenient, while fostering social connections that encourage our Members to be the best versions of themselves. We define a Member as any individual who has a Peloton account through a paid Connected Fitness Subscription (“All-Access Membership”), or a paid Peloton App subscription.
We define a “Member” as any individual who has a Peloton account through a paid Connected Fitness Subscription or a paid Peloton App Membership, and completes one or more workouts in the trailing 12 month period.
Removed
Item 1. Business Overview Peloton is the larges t interactive fitness platform in the world with a loyal community of over 6.9 million Members as of June 30, 2022. We pioneered connected, technology-enabled fitness, and the streaming of immersive, instructor-led boutique classes to our Members anytime, anywhere.
Added
Item 1. Business Overview Peloton is a leading global fitness company with a highly engaged community of over 6.5 million Members across the United States, United Kingdom, Canada, Germany and Australia. As a category innovator at the nexus of fitness, technology, and media, Peloton's first-of-its-kind subscription platform seamlessly combines innovative hardware, distinctive software, and exclusive content.
Removed
We are an innovation company at the nexus of fitness, technology, and media. We have disrupted the fitness industry by developing a first-of-its-kind subscription platform that seamlessly combines the best equipment, proprietary networked software, and world-class streaming digital fitness and wellness content, creating a product that our Members love.
Added
Its world-renowned instructors coach and motivate Members to be the best version of themselves anytime, anywhere. Founded in 2012 and headquartered in New York City, Peloton continues to scale across the five markets in which it operates.
Removed
Our world-class instructors teach classes across a variety of fitness and wellness disciplines, including indoor cycling, indoor/outdoor running and walking, Bike and Tread bootcamps, yoga, Pilates, Barre, strength training, stretching, meditation, and floor cardio. We produce hundreds of original programs per month and maintain a vast and constantly updated library of thousands of original fitness and wellness programs.
Added
We define a completed workout as either completing at least 50% of an instructor-led class, scenic ride or run, or ten or more minutes of “Just Ride”, “Just Run”, or “Just Row” mode.
Removed
We make it easy for Members to find a class that fits their interests based on class type, instructor, music genre, length, available equipment, area of physical focus, and level of difficulty. Our Connected Fitness Product portfolio includes the Peloton Bike, Bike+, Tread, Tread+, and our recently launched first connected strength product, Peloton Guide.
Added
We define a “Connected Fitness Subscription” as a person, household, or commercial property, such as a hotel or residential building, who has either paid for a subscription to a Connected Fitness Product (a Connected Fitness Subscription with a successful credit card billing or with prepaid subscription credits or waivers) or requested a “pause” to their subscription for up to three months.
Removed
Our revenue is generated primarily from the sale of our Connected Fitness Products and associated recurring Subscription revenue. We have historically experienced significant growth in sales of our Connected Fitness Products, which, when combined with our low Average Net Monthly Connected Fitness Churn has led to significant growth in Connected Fitness Subscriptions.
Added
Our Products Peloton provides Members with expert instruction and world class content to create impactful and entertaining workout experiences for anyone, anywhere, and at any stage in their fitness journey. At home, outdoors, traveling, or at the gym, Peloton offers an immersive and personalized experience.
Removed
From the start of fiscal 2021 through fiscal 2022 year-end, Total revenue decreased 11%, and our Connected Fitness Subscription base grew 27%. Our financial profile has been characterized by strong retention, recurring revenue, and efficient customer acquisition.
Added
With tens-of-thousands of classes available across 16 fitness modalities, Members can access Peloton content via our hardware or via the Peloton App, on their phone, tablet, or TV, allowing them to workout when, where, and how they want.
Removed
O ur low Average Net Monthly Connected Fitness Churn, together with our high Subscription Contribution Margin, yields an attractive lifetime value (LTV) for our Connected Fitness subscriptions well in excess of our customer acquisition cost (CAC). Maintaining an attractive LTV/CAC ratio is a primary goal of our acquisition strategy.
Added
Our Connected Fitness Products include: • Peloton Bike - The original Peloton Bike combines fitness, technology, and media to connect riders to live and on-demand workouts led by Peloton instructors. • Peloton Bike+ - The Peloton Bike+ unlocks an even more dynamic workout experience with indoor cycling riders having the option of on-and-off-bike content as well as automatic resistance control with the Bike+ electronic braking system.
Removed
Our Products Connected Fitness Products Bike Our current Bike features a carbon steel frame, a nearly silent belt drive, durable magnetic resistance, and a 22” high-definition touchscreen with built-in stereo speakers to stream live and on-demand classes, all in a compact, 4’ by 2’ footprint. Our Bike is available in the United States, Canada, the United Kingdom, Germany, and Australia.
Added
Designed to keep riders motivated and effortlessly moving from cardio to strength, yoga, and more, the Peloton Bike+ unlocks an even more seamless and integrated total workout experience. • Peloton Tread - The Peloton Tread combines a cutting-edge treadmill design with Peloton’s compelling running and strength training content.
Removed
Bike+ Our Bike+ provides an immersive cardio experience and seamless transition to floor-based exercises with its 24”, 360 degree rotating display. Members can easily pivot and tilt the screen to add strength, yoga, and stretching to their routine or take our Bike bootcamp class series.
Added
The Tread includes fundamental elements unique to Peloton, like dial control knobs and jump buttons. • Peloton Tread+ - The Peloton Tread+ features slat belt technology that offers the optimal comfort experience when running.
Removed
Resistance on Bike+ is controlled digitally allowing Members to “Auto Follow” their instructors’ class programs and control resistance from the touchscreen. A powerful built-in soundbar and subwoofer system offers an improved audio experience while the integrated Apple GymKit simplifies Apple Watch pairing. Bike+ is currently available for purchase in the United States, Canada, the United Kingdom, Germany, and Australia.
Added
The Tread+ offers a combination of cardio and strength content, all streamed via a 32” touchscreen and a powerful sound bar, for a total body workout at home. On May 5, 2021, we issued a voluntary product recall on Tread+, which we conducted in collaboration with the U.S.
Removed
Tread The newest addition to our Tread line has all the essential elements of the Tread+ experience but in a more affordable and compact form factor – maintaining ample running surface area and runner comfort. The Tread features a sleek belt drive, 24” touchscreen with integrated soundbar and subwoofer, and ergonomic pace and incline control knobs and jump buttons.
Added
Peloton Guide features personalized strength training routines, rep tracking, time tracking, and progress tracking. It features exclusive strength programs and workouts only available on Peloton Guide. • Peloton Row - Peloton Row combines the innovative software, premium hardware design, and exclusive Peloton content to deliver a unique low-impact, full-body cardio, and strength workout.
Removed
With an immersive audio and video experience and heart rate monitor integration, Peloton Tread is designed for both on-Tread as well as floor-based bootcamp content. Tread is currently available for purchase in the United States, Canada, the United Kingdom, and Germany. Tread+ Tread+ features a shock-absorbing rubber-slat belt and ball bearing system, ideal for low-impact training.
Added
Peloton Row employs proprietary form assistance and form guidance technology for rowers and also features personalized pace target technology. Financing options are available for most Peloton products. In the United States and Canada, we also provide the opportunity via the Peloton Rental program to rent Peloton Bikes and access fitness content for one monthly fee.
Removed
Pace and incline ergonomic control knobs allow for seamless adjustments, and the 32” high-definition touchscreen features a 20-watt sound bar. Tread+ had only been available for sale in the United States, however, on May 5, 2021, we decided to issue a voluntary product recall on Tread+, which we are conducting in collaboration with the Consumer Product Safety Commission ("CPSC").
Added
Peloton content is accessed via a Membership, and we have created a number of ways – including a free option – for consumers to engage with Peloton’s fitness experience.
Removed
At this time, we are not able to forecast a date for sales to resume in the United States.
Added
Monthly membership options include: • All-Access Membership: Includes App+ Membership and content exclusively for Peloton equipment. • Peloton App Membership: Access to the Peloton App is available with an All Access or Guide Membership for Members who have Connected Fitness Products or through a standalone App Membership with multiple Membership tiers: ◦ Peloton App+: Designed for the user who wants unlimited access to Peloton’s entire library other than Lanebreak and Scenic classes.
Removed
Guide is supported with dedicated content, including exclusive programs for all levels, live body-training classes with instructors, and an extensive move library to help Members learn and perfect proper form. Guide is currently available for purchase in the United States, Canada, the United Kingdom, and Australia.
Added
This tier includes all of App One’s offerings and unlocks access to thousands of equipment-based 5 cardio classes to take on any indoor bike, treadmill, or rower.
Removed
Subscriptions Connected Fitness Subscriptions Our Connected Fitness Subscriptions are on a month-to-month basis, allow for multiple household users, and provide unlimited access to all live and on-demand classes. Our Connected Fitness Subscription allows Members to access classes through our Connected Fitness Products, compete on our motivating leaderboard, track performance metrics, and connect and interact with the broader Peloton community.
Added
This tier also offers exclusive access to classes, featuring specialty content. ◦ Peloton App One: Designed for the Member who wants unlimited access to thousands of classes across 9 of Peloton’s 16 modalities, including Strength, Meditation, Outdoor Walking, Yoga, and more, as well as all the classes included in the free tier.
Removed
Our Connected Fitness Subscription also includes access to our content through Peloton Digital, our digital app, which is available through iOS and Android mobile devices and most tablets and computers. On average, we had 2.1 Members per Connected Fitness Subscription as of June 30, 2022.
Added
App One Members can also take up to three, equipment-based cardio classes per month (Cycling/Tread/Row).
Removed
Peloton Digital Peloton Digital began as a companion app for Connected Fitness Subscriptions to provide access to our classes while our Members were away from their Connected Fitness Products. A Peloton Digital Subscriber is an individual who has a paid Peloton Digital subscription with a successful credit card billing. Peloton Digital is included with all Connected Fitness Subscriptions.
Added
New, on-demand, and live classes are offered almost daily, as well as access to Peloton’s Challenges, Programs, and Collections. ◦ Peloton App Free: Designed to supplement a user’s current workout routine and to serve as a gateway to all Peloton has to offer a new user.
Removed
As of June 30, 2022, 71% of our Members on Connected Fitness Subscriptions used Peloton Digital to supplement their workout regimen. Peloton Digital also helps us attract new Connected Fitness Subscriptions by serving as an acquisition tool for new Members.
Added
The free tier provides more than 50 classes curated across 12 of Peloton’s modalities, enabling the user to pair workouts to meet their individual interests, even as their goals change over time. This tier includes a rotating set of featured classes that are refreshed on an ongoing basis. • Guide Membership: Includes App+ Membership and content exclusively for Guide.

… 95 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

240 edited+45 added−55 removed389 unchanged
Biggest changeCOVID-19 and related reactions from governments and members of the public have had and may, including as a result of a resurgence or prolonged duration, continue to have a negative impact on our business, liquidity, results of operations, and stock price due to the occurrence of some or all of the following events or circumstances, among others: • our inability to manage our business effectively due to employees, including key employees, becoming ill, working from home inefficiently, and being unable to travel to our facilities; • our and our third-party suppliers’, contract manufacturers’, logistics providers’, and other business partners’ inability to operate worksites, including manufacturing facilities, shipping and fulfillment centers, and our retail showrooms and production studios, due to employee illness or reluctance to appear at work, or “stay-at-home” regulations or recommendations; • our inability to provide our Members with high-quality Member support due to changes to the delivery experience and our or our logistics providers’ inability to provide in-home servicing of Connected Fitness Products due to safety risks and local government regulations related to COVID-19; • temporary inventory shortages caused by a combination of increased demand for our Connected Fitness Products that were difficult to predict with accuracy, and longer lead-times and component shortages in the manufacturing of our Connected Fitness Products, due to work restrictions related to COVID-19, import/export conditions such as port congestion, and local government orders; • interruptions in our ability to offer live studio classes; • interruptions in manufacturing (including the sourcing of key components), shipment and delivery of our products; • disruptions of the operations of our third-party suppliers, which could impact our or our manufacturers’ ability to purchase components at efficient prices and in sufficient amounts; • reduced demand for our Connected Fitness Products and services, including due to any prolonged economic downturn that may occur; • our inability to raise additional capital or the dilution of our common stock if we raise capital by issuing equity securities; • volatility in the market price of our Class A common stock; and • incurrence of significant increases to employee health care and benefits costs.
Biggest changeA resurgence of the COVID-19 pandemic could have an adverse effect on our business, results of operations, and financial condition due to the occurrence of some or all of the following events or circumstances, among others: • our and our third-party suppliers’, contract manufacturers’, logistics providers’, and other business partners’ inability to manage our or their business effectively or operate worksites due to employees, including key employees, becoming ill and working from home inefficiently as a result of a remote or hybrid working arrangement; • temporary inventory shortages caused by difficulties in predicting demand for our products and services and longer lead-times and component shortages in the manufacturing of our Connected Fitness Products, due to import/export conditions such as port congestion, and local government orders; and • incurrence of significant increases to employee healthcare and benefits costs.
Such negative publicity also could have an adverse effect on the size, engagement and loyalty of our Member base and result in decreased revenue, which could have an adverse effect on our business, financial condition, and operating results.
Such negative publicity could also have an adverse effect on the size, engagement and loyalty of our Member base and result in decreased revenue, which could have an adverse effect on our business, financial condition, and operating results.
We may not have sufficient protection or recovery plans in some circumstances, such as natural disasters affecting locations that store significant inventory of our products, that house our servers, or from which we generate content.
We may not have sufficient protection or recovery plans in some circumstances, such as natural disasters affecting locations that store significant inventory of our products, which house our servers, or from which we generate content.
See Note 13 - Commitments and Contingencies in the Notes to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K and the section titled “Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-K.
See Note 13 - Commitments and Contingencies in the Notes to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K and the section titled “Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-K.
This disclosure or refusal to disclose personal data may result in a breach of privacy and data protection policies, notices, laws, rules, court orders, and regulations and could result in proceedings or actions against us in the same or other jurisdictions, damage to our reputation and brand, and inability to provide our products and services to consumers in certain jurisdictions.
This disclosure of or refusal to disclose personal data may result in a breach of privacy and data protection policies, notices, laws, rules, court orders, and regulations and could result in proceedings or actions against us in the same or other jurisdictions, damage to our reputation and brand, and inability to provide our products and services to consumers in certain jurisdictions.
Additionally, new laws or regulations, or changes to or re-interpretations of the laws and regulations that govern our collection, use, and disclosure of Member data could impose additional requirements with respect to the retention and security of Member data, could limit our marketing activities, and have an adverse effect on our business, financial condition, and operating results.
Additionally, new laws or regulations, or changes to or re-interpretations of the laws and regulations that govern our collection, use, and disclosure of Member data could impose additional requirements with respect to the retention and security of Member data, could limit our marketing activities, and could have an adverse effect on our business, financial condition, and operating results.
Additionally, some of our license agreements require consent to undertake new business initiatives utilizing the licensed content (e.g., alternative distribution models), and without such consent, our ability to undertake new business initiatives may be limited and our competitive position could be impacted.
Additionally, some of our license agreements could require consent to undertake new business initiatives utilizing the licensed content (e.g., alternative distribution models), and without such consent, our ability to undertake new business initiatives may be limited and our competitive position could be impacted.
These sales also could cause the trading price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock.
These sales could also cause the trading price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock.
We intend to continue to make investments to support our business growth and may require additional capital to fund our business and to respond to competitive challenges, including the need to promote our products and services, develop new products and services, enhance our existing products, services, and operating infrastructure, and potentially to acquire complementary businesses and technologies.
We intend to continue to make investments to support our business growth and may require additional capital to fund our business and to respond to competitive challenges, including the need to promote our products and services, develop new products and services, enhance our existing products, services, and operating infrastructure, and potentially acquire complementary businesses and technologies.
See “— Our operating results have been, and could in the future be, adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory .” 20 Moreover, volatile economic conditions have made it and may continue to make it more likely that our suppliers and logistics providers may be unable to timely deliver supplies, or at all, and there is no guarantee that we will be able to timely locate alternative suppliers of comparable quality at an acceptable price.
See “— Our operating results have been, and could in the future be, adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory .” Moreover, volatile economic conditions have made it and may continue to make it more likely that our suppliers and logistics providers may be unable to timely deliver supplies, or at all, and there is no guarantee that we will be able to timely locate alternative suppliers of comparable quality at an acceptable price.
There are a number of factors that could lead to a decline in Subscriber levels or that could prevent us from increasing our Subscriber levels, including: • our failure to introduce new features, products, or services that Members find engaging or our introduction of new products or services, or changes to existing products and services that are not favorably received; • harm to our brand and reputation; • pricing and perceived value of our offerings; • our inability to deliver quality products and functionality, content, and services; • actual or perceived safety concerns regarding our products; • unsatisfactory experiences with the delivery, installation, or servicing of our Connected Fitness Products, including due to delivery costs or prolonged delivery timelines and limitations on, cost of, or the suspension of, the in-home installation, return, and warranty servicing processes; • our Members engaging with competitive products and services; • technical or other problems preventing Members from accessing our content and services in a rapid and reliable manner or otherwise affecting the Member experience; • a decline in the public’s interest in indoor cycling or running, or other fitness disciplines that we invest most heavily in; • deteriorating general economic conditions or a change in consumer spending preferences or buying trends; • changes in consumer preferences regarding home fitness, whether as a result of the COVID-19 pandemic or otherwise; and • interruptions in our ability to sell or deliver our Connected Fitness Products or to create content and services for our Members as a result of the COVID-19 pandemic or otherwise.
There are a number of factors that could lead to a decline in Subscriber levels or that could prevent us from increasing our Subscriber levels, including: • our failure to introduce new features, products, or services that Members find engaging or our introduction of new products or services, or changes to existing products and services that are not favorably received; • harm to our brand and reputation; • pricing and perceived value of our offerings; • our inability to deliver quality products and functionality, content, and services; • actual or perceived safety concerns regarding our products; • unsatisfactory experiences with the delivery, installation, or servicing of our Connected Fitness Products, including due to delivery costs or prolonged delivery timelines and limitations on in-home installation, return, and warranty servicing processes; • our Members engaging with competitive products and services; • technical or other problems preventing Members from accessing our content and services in a rapid and reliable manner or otherwise affecting the Member experience; • a decline in the public’s interest in indoor cycling or running, or other fitness disciplines that we invest most heavily in; • deteriorating general economic conditions or a change in consumer spending preferences or buying trends; • changes in consumer preferences regarding home fitness, whether as a result of the COVID-19 pandemic or otherwise; and • interruptions in our ability to sell or deliver our Connected Fitness Products or to create content and services for our Members.
Although we expend significant resources to seek to comply with applicable contractual, statutory, regulatory, and judicial frameworks, we cannot guarantee that we currently hold, or will always hold, every necessary right to use all of the music that is used on our service now or that may be used in our products and services in the future, and we cannot assure you that we are not infringing or violating any third-party intellectual property rights, or that we will not do so in the future.
Although we expend significant resources to seek to comply with applicable contractual, statutory, regulatory, and judicial frameworks, we cannot guarantee that we currently hold, or will always hold, every necessary right to use all of the music that is used on our service now or that 16 may be used in our products and services in the future, and we cannot assure you that we are not infringing or violating any third-party intellectual property rights, or that we will not do so in the future.
Furthermore, a large number of our contract manufacturers’ primary facilities are located in Taiwan and China. Thus, our business could be adversely affected if one or more of our suppliers is impacted by escalating tensions, hostilities, or trade disputes in the region, a natural disaster, an epidemic such as the COVID-19 pandemic, or other interruption at a particular location.
Furthermore, a large number of our contract manufacturers’ primary facilities are located in Taiwan and China. Thus, our business could be adversely affected if one or more of our 14 suppliers is impacted by escalating tensions, hostilities, or trade disputes in the region, a natural disaster, an epidemic such as the COVID-19 pandemic, or other interruption at a particular location.
If our products and services fail to provide accurate metrics and data to our Members, or if there are reports or claims of inaccurate metrics and data or claims of inaccuracy regarding the overall health benefits of our products and services in the future, our Members’ experience may be negatively impacted, we may become the subject of negative publicity, litigation, regulatory proceedings, and warranty claims, and our brand, operating results, and business could be harmed.
If our products and services fail to provide accurate metrics and data to our Members, or if there are reports or claims of inaccurate metrics and data or claims of inaccuracy regarding the overall health benefits of our products and services in the future, our 27 Members’ experience may be negatively impacted, we may become the subject of negative publicity, litigation, regulatory proceedings, and warranty claims, and our brand, operating results, and business could be harmed.
Failure to comply with anti-corruption and anti-money laundering laws, including the FCPA and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences. We operate a global business and may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities.
Failure to comply with anti-corruption and anti-money laundering laws, including the FCPA and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences. We operate a global business and may have direct or indirect interactions with public officials and employees of government agencies or state-owned or affiliated entities.
In addition, the trading prices of securities of technology companies in general have been highly volatile. Moreover, while the trading price of our Class A common initially increased during the outbreak of the COVID-19 pandemic, it has fluctuated widely and has now decreased as the public returned to pre-pandemic routines and due to other factors beyond our control.
In addition, the trading prices of securities of technology companies in general have been highly volatile. Moreover, while the trading price of our Class A common stock initially increased during the outbreak of the COVID-19 pandemic, it has fluctuated widely and has now decreased as the public returned to pre-pandemic routines and due to other factors beyond our control.
We are dependent on the interoperability of the Peloton App with popular mobile and television streaming operating 25 systems that we do not control, such as Android and iOS, and any changes in such systems that degrade the functionality of our app offering or give preferential treatment to competitors could adversely affect our platform’s usage on mobile devices and televisions.
We are dependent on the interoperability of the Peloton App with popular mobile and television streaming operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade the functionality of our App offering or give preferential treatment to competitors could adversely affect our platform’s usage on mobile devices and televisions.
Additionally, prior renewal rates may not accurately predict future Subscriber renewal rates for a variety of reasons, such as Subscribers’ dissatisfaction with our offerings and the cost of our subscriptions, macroeconomic conditions, or new offering introductions by us or our competitors. If our Subscribers do not renew their subscriptions, our revenue may decline and our business will suffer.
Additionally, prior renewal rates may not accurately predict future Subscriber renewal rates for a variety of reasons, such as Subscribers’ 22 dissatisfaction with our offerings and the cost of our subscriptions, macroeconomic conditions, or new offering introductions by us or our competitors. If our Subscribers do not renew their subscriptions, our revenue may decline, and our business will suffer.
Comprehensive and accurate ownership information for the musical compositions embodied in sound recordings is sometimes unavailable because songwriters' catalogs are frequently bought and sold between rights holders, meaning ownership and share information can change at any time without notification and it may take a while for the appropriate parties to be notified.
Comprehensive and accurate ownership information for the musical compositions embodied in sound recordings is sometimes unavailable because songwriters' catalogs are frequently bought and sold between rights holders, meaning ownership and share information can change at 32 any time without notification and it may take a while for the appropriate parties to be notified.
In addition, when accounting standards change in the future and we are not permitted to use the treasury stock method, then our diluted earnings per share may decline. ASU 2020-06 amends these accounting standards, effective as of the dates referred to above, to eliminate the treasury stock method for convertible instruments and instead require application of the “if-converted” method.
In addition, when accounting standards change in the future and we are not permitted to use the treasury stock method, our diluted earnings per share may decline. ASU 2020-06 amends these accounting standards, effective as of the dates referred to above, to eliminate the treasury stock method for convertible instruments and instead require application of the “if-converted” method.
Furthermore, if any of the conditions to the convertibility of the Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the Notes as a current, rather than a long-term, liability. This reclassification could be required even if no noteholders convert their Notes and could materially reduce our reported working capital.
Furthermore, if any of the conditions to the convertibility of the Notes is satisfied, we may be required under applicable accounting standards to reclassify the liability carrying value of the Notes as a current, rather than a long-term, liability. This reclassification could be required even if no noteholders convert their Notes and could materially reduce our reported working capital.
In the United States, public performance rights are typically obtained separately through intermediaries known as performing rights organizations, or PROs, which (a) issue blanket licenses with copyright users for the public 19 performance of musical compositions in their repertory, (b) collect royalties under those licenses, and (c) distribute such royalties to copyright owners.
In the United States, public performance rights are typically obtained separately through intermediaries known as performing rights organizations, or PROs, which (a) issue blanket licenses with copyright users for the public performance of musical compositions in their repertory, (b) collect royalties under those licenses, and (c) distribute such royalties to copyright owners.
One or more states, the federal government, or other countries may seek to impose additional reporting, record-keeping, or indirect tax collection obligations on businesses like ours that offer subscription services and other fitness offerings, and consumers have, and may in the future, contest the appropriateness of our tax collection practices through litigation or other means.
One or more states, the federal government, or other countries may seek to impose additional reporting, record-keeping, or indirect tax collection obligations on businesses like ours that offer subscription services and other fitness offerings, and consumers have contested, and may in the future contest, the appropriateness of our tax collection practices through litigation or other means.
Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions, including the bankruptcy filing by Lehman Brothers Holdings Inc. and its various affiliates.
Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions, including the bankruptcy filing by 39 Lehman Brothers Holdings Inc. and its various affiliates.
If, in the future, we have a material weakness or deficiencies in our internal control over financial reporting, we may not detect errors on a timely basis and our consolidated financial statements may be materially misstated. Effective internal control is necessary for us to produce reliable financial reports and is important to prevent fraud.
If, in the future, we have a material weakness or deficiencies in our internal control over financial reporting, we may 24 not detect errors on a timely basis and our consolidated financial statements may be materially misstated. Effective internal control is necessary for us to produce reliable financial reports and is important to prevent fraud.
Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our platform or services or using certain technologies, force us to implement expensive work-arounds, or impose other unfavorable terms.
Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or royalty payments, prevent us from offering our platform or services or using certain technologies, force us to implement expensive work-arounds, or impose other unfavorable terms.
If we incur more debt it would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to manage our operations. Additionally, we may receive indications of interest from other parties interested in acquiring some or all of our business.
If we incur more debt, it will result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to manage our operations. Additionally, we may receive indications of interest from other parties interested in acquiring some or all of our business.
Upon the occurrence of an event of default, our lenders could elect to declare all amounts outstanding under its debt agreements to be immediately due and payable. In addition, our lenders would have the right to proceed against the assets we provided as collateral pursuant to the credit agreement and the security agreement.
Upon the occurrence of an event of default, our lenders could elect to declare all amounts outstanding under its debt agreements to be immediately due and payable. In addition, our 23 lenders would have the right to proceed against the assets we provided as collateral pursuant to the credit agreement and the security agreement.
There is also a risk that due to regulatory changes, such as further limitations or suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. Our NOLs may also be limited under state laws.
There is also a risk that, due to regulatory changes, such as further limitations or suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. Our NOLs 31 may also be limited under state laws.
The loss of any key personnel, including key instructors, could make it more difficult to manage our brand, operations and research and development activities, could reduce our employee retention and revenue, and impair our ability to compete. Although we have entered into employment agreements with our instructors, the U.S. agreements constitute at-will employment.
The loss of key personnel, including key instructors, could make it more difficult to manage our brand, operations and research and development activities, could reduce our employee retention and revenue, and impair our ability to compete. Although we have entered into employment agreements with our instructors, the U.S. agreements constitute at-will employment.
Our employees’ inability to sell their shares in the public market at times and/or at prices desired may lead to a larger than normal turnover rate. If the actual or perceived value of our Class A common stock declines, it may adversely affect our ability to hire or retain employees.
Our employees’ inability to sell their shares in the public market at times and/or at prices desired may lead to a larger than normal turnover rate. If the actual or perceived value of our Class A common stock declines, it may adversely affect our ability to hire or 34 retain employees.
We may also open additional production studios as we expand internationally, which will require significant additional investment. The successful implementation of our growth strategy will require significant expenditures before any substantial associated revenue is generated and we cannot guarantee that these increased investments will result in corresponding and offsetting revenue growth.
We may also open additional production studios as we expand, which will require significant additional investment. The successful implementation of our growth strategy will require significant expenditures before any substantial associated revenue is generated and we cannot guarantee that these increased investments will result in corresponding and offsetting revenue growth.
It is difficult to predict the future growth rates, if any, and size of our market. We cannot assure you that our market will develop or be 16 sustained at current levels, that the public’s interest in connected fitness and wellness will continue, or that our products and services will be widely adopted.
It is difficult to predict the future growth rates, if any, and size of our market. We cannot assure you that our market will develop or be sustained at current levels, that the public’s interest in connected fitness and wellness will continue, or that our products and services will be widely adopted.
Our failure to repurchase Notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full.
Our failure to repurchase Notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture. 38 A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full.
Under this method, if the conversion value of the Notes exceeds their principal amount for a reporting period, then we will calculate our diluted earnings per share assuming that all the Notes were converted and that we issued shares of our Class A common stock to settle the excess.
Under this method, if the conversion value of the Notes exceeds their principal amount for a reporting period, we will calculate our diluted earnings per share assuming that all the Notes were converted and that we issued shares of our Class A common stock to settle the excess.
It is unknown how our Subscribers will react to new models and whether the costs or logistics of implementing these models will adversely impact our business. If the adoption of new revenue models adversely impacts our Subscriber relationships, then Subscriber growth, Subscriber engagement, and our business, financial condition, and operating results could be harmed.
It is unknown how our Subscribers will react to new models and whether the costs or logistics of implementing these models will adversely impact our business. If the adoption of new revenue models adversely impacts our Subscriber relationships, Subscriber growth, Subscriber engagement, and our business, financial condition, and operating results could be harmed.
In addition, a party who circumvents our security measures or exploits inadequacies in our security measures, could, among other effects, misappropriate Member data or other proprietary information, cause interruptions in our operations, or expose Members to computer viruses or other disruptions. Actual or perceived vulnerabilities may lead to claims against us.
In addition, a party who circumvents our security measures or exploits inadequacies in our security measures, could, among other effects, misappropriate Member data or other proprietary information, cause interruptions in our operations, or expose Members to computer viruses or 29 other disruptions. Actual or perceived vulnerabilities may lead to claims against us.
In periods when we experience a decrease in demand for our products and an increase in inventory, we may be unable to renegotiate our agreements with existing suppliers or partners on mutually acceptable terms and may be prevented from fully utilizing firm purchase commitments.
In periods when we experience a decrease in demand for our products and an increase in inventory, we may 11 be unable to renegotiate our agreements with existing suppliers or partners on mutually acceptable terms and may be prevented from fully utilizing firm purchase commitments.
Accordingly, those assets will not be available to satisfy any 41 outstanding amounts under our unsecured indebtedness, including the Notes, unless the secured indebtedness is first paid in full. The remaining assets, if any, would then be allocated pro rata among the holders of our senior, unsecured indebtedness, including the Notes.
Accordingly, those assets will not be available to satisfy any outstanding amounts under our unsecured indebtedness, including the Notes, unless the secured indebtedness is first paid in full. The remaining assets, if any, would then be allocated pro rata among the holders of our senior, unsecured indebtedness, including the Notes.
Additionally, we may not be able to realize the cost savings and benefits initially anticipated as a result of the restructuring initiatives that we announced in February 2022 or the additional ongoing initiatives to optimize our business and the anticipated costs of these initiatives may be greater than expected.
We may not be able to realize the cost savings and benefits initially anticipated as a result of the restructuring initiatives that we announced in February 2022 or the additional ongoing initiatives to optimize our business and the anticipated costs of these initiatives may be greater than expected.
Our business is subject to the risk of earthquakes, fire, power outages, floods, public health crises, ransomware and other cybersecurity attacks, labor disputes, and other catastrophic events, and to interruption by man-made problems such as terrorism and international geopolitical conflicts.
Our business is subject to the risk of earthquakes, fire, power outages, floods, hurricanes, public health crises, ransomware and other cybersecurity attacks, labor disputes, and other catastrophic events, and to interruption by man-made problems such as terrorism and international geopolitical conflicts.
The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. 36 The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
Our revenue growth may slow or our revenue may decline for a number of other reasons, including reduced demand for our products and services, increased competition, a decrease in the growth or reduction in size of our overall market, or if we cannot capitalize on strategic opportunities.
Our revenue growth may slow down, or our revenue may decline for a number of other reasons, including reduced demand for our products and services, increased competition, a decrease in the growth or reduction in size of our overall market, or if we cannot capitalize on strategic opportunities.
These restrictions may restrict our current 27 and future operations, particularly our ability to respond to certain changes in our business or industry, or take future actions. Pursuant to the security agreement, we granted the parties thereto a security interest in substantially all of our assets.
These restrictions may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry or take future actions. Pursuant to the security agreement, we granted the parties thereto a security interest in substantially all of our assets.
If we become subject to such claims, although we expect our provider to indemnify us with respect to at least a 37 portion of such claims, the litigation may be time consuming, divert management’s attention, and, if our provider failed to indemnify us, adversely impact our operating results.
If we become subject to such claims, although we expect our provider to indemnify us with respect to at least a portion of such claims, the litigation may be time consuming, divert management’s attention, and, if our provider failed to indemnify us, adversely impact our operating results.
However, if reflecting the Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Notes does not exceed their principal amount for a reporting period, then the shares underlying the Notes will not be reflected in our diluted earnings per share.
However, if reflecting the Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Notes does not exceed their principal amount for a reporting period, the shares underlying the Notes will not be reflected in our diluted earnings per share.
These laws and regulations also require us to safeguard our Members’ personal data. Although we have established security measures, policies and procedures designed to protect Member information, our or our third-party service providers’ security and testing measures may not prevent security breaches.
These laws and regulations also require us to safeguard our Members’ personal data. Although we have established security measures, policies and procedures designed to protect Member information, our third-party service providers’ security and testing measures may not prevent security breaches.
Many of the risks associated with the use of open source software, such as the lack of warranties or assurances of title or performance, cannot be eliminated, and could, if not properly addressed, negatively affect our business.
Many of the risks associated with the use of open source software, such as the lack of 33 warranties or assurances of title or performance, cannot be eliminated, and could, if not properly addressed, negatively affect our business.
As a result, we began to increase our operations and efforts abroad, which can also result in various integration challenges and amplify the various risks and costs of doing business in international markets described above.
As a result, we began to increase our operations and efforts abroad, which can also result in various challenges and amplify the various risks and costs of doing business in international markets described above.
Even if injuries are not the result of any defects, if they are perceived to be, we may incur expenses to 30 defend or settle any claims or government inquiries and our brand and reputation may be harmed.
Even if injuries are not the result of any defects, if they are perceived to be, we may incur expenses to defend or settle any claims or government inquiries and our brand and reputation may be harmed.
While we maintain cyber insurance that may help provide coverage for security breaches or other incidents, such insurance may not be adequate to cover the costs and liabilities related to them.
While we maintain cyber insurance that may help provide coverage for security breaches or other covered incidents, such insurance may not be adequate to cover the costs and liabilities related to them.
Certain of our license agreements also contain minimum guarantees and/or advance payments, which are not always tied to our number of Subscribers or stream counts for music used in our service.
Certain of our license agreements could also contain minimum guarantees and/or advance payments, which are not always tied to our number of Subscribers or stream counts for music used in our service.
Because of the twenty-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively control a substantial majority of the combined voting power of our common stock and therefore are able to control all matters submitted to our stockholders for approval until the earlier of (i) the date specified by a vote of the holders of 66 2/3% of the then outstanding shares of Class B common stock, (ii) ten years from the closing of the IPO, and (iii) the date the shares of Class B common stock cease to represent at least 1% of all outstanding shares of our common stock.
Because of the twenty-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively control a majority of the combined voting power of our common stock and therefore are able to control a number of matters submitted to our stockholders for approval until the earlier of (i) the date specified by a vote of the holders of 66 2/3% of the then outstanding shares of Class B common stock, (ii) ten years from the closing of the IPO, and (iii) the date the shares of Class B common stock cease to represent at least 1% of all outstanding shares of our common stock.
See “— We have engaged and in the future may engage in acquisition and disposition activities, which could require significant management attention, disrupt our business, fail to achieve the intended benefit, dilute stockholder value, and adversely affect our operating results .” We may experience delays in the sale of the Ohio industrial facility that was intended to be Peloton Output Park, which could adversely impact our business and financial condition.
See “— We have engaged and in the future may engage in acquisition and disposition activities, which could require significant management attention, disrupt our business, fail to achieve the intended benefit, dilute stockholder value, and adversely affect our operating results .” We have experienced, and may continue to experience, delays in the sale of the Ohio industrial facility that was intended to be Peloton Output Park, which could adversely impact our business and financial condition.
Our failure to comply 33 with these laws and regulations could have negative consequences, including government investigations, penalties, reputational harm and could harm our international and domestic sales and adversely affect our revenue.
Our failure to comply with these laws and regulations could have negative consequences, including government investigations, penalties, reputational harm and could harm our international and domestic sales and adversely affect our revenue.
Even if these 32 proceedings are resolved in our favor, the time and resources necessary to resolve them could divert the resources of our management and require significant expenditures.
Even if these proceedings are resolved in our favor, the time and resources necessary to resolve them could divert the resources of our management and require significant expenditures.
Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. 43 Item 1B. Unresolved Staff Comments Not applicable.
Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. 40 Item 1B. Unresolved Staff Comments Not applicable.
The process of re-developing, constructing, and marketing for sale the Ohio facility has been inherently complex and has required significant capital expenditure, and its sale may cause significant disruption to our operations and divert management’s attention and resources, all of which could have a material adverse effect on our business, financial condition and operating results.
The process of re-developing, constructing, and marketing for sale the Ohio facility has been inherently complex and has required significant capital expenditure, and its sale has caused, and may continue to cause, significant disruption to our operations and divert management’s attention and resources, all of which could have a material adverse effect on our business, financial condition and operating results.
This may make it difficult to comply with the obligations of any agreements with those rights holders or to secure the appropriate licenses with all necessary parties.
This may make it difficult to comply with the obligations of agreements with those rights holders or to secure the appropriate licenses with all necessary parties.
In the course of preparing our financial statements for fiscal 2021 and fiscal 2022, we identified material weaknesses in our internal control over financial reporting.
In the course of preparing our financial statements for fiscal 2021, fiscal 2022 and fiscal 2023, we identified material weaknesses in our internal control over financial reporting.
As a public entity, we may be the subject of concerted efforts by short sellers to spread negative information in order to gain a market advantage. In addition, the publication of misinformation may also result in lawsuits, the uncertainty and expense of which could adversely impact our business, financial condition, and reputation.
As a public entity, we may be the subject of concerted efforts by short sellers to spread negative information in order to gain a market advantage. In addition, the publication of misinformation may also result in lawsuits, the uncertainty and expense of which could adversely impact our reputation, business, financial condition, and operating results.
Our primary last mile partner currently relies on a network of independent contractors to perform last mile services for us in many markets. If any of these independent contractors, or the last mile partner as a whole, do not perform their obligations or meet the expectations of us or our Members, our brand, reputation and business could suffer.
One of our primary last mile partners currently relies on a network of independent contractors to perform last mile services for us in many markets. If any of these independent contractors, or the last mile partner as a whole, do not perform their obligations or meet the expectations of us or our Members, our brand, reputation and business could suffer.
Moreover, while we experienced a significant increase in our Subscriber base at the onset of the COVID-19 pandemic, the rate of the increase has since slowed down and, over the longer term, it remains uncertain how the COVID-19 pandemic will impact consumer demand for our products and services and consumer preferences generally.
Moreover, while we experienced a significant increase in our Subscriber base at the onset of the COVID-19 pandemic, the rate of the increase has since slowed down and, over the longer term, it remains uncertain how the post-COVID-19 pandemic environment will impact consumer demand for our products and services and consumer preferences generally.
Any defects could impact our customer experience, tarnish our brand reputation or make our products and services unsafe and create a risk of environmental or property damage and/or personal injury. We may also become subject to the hazards and uncertainties of product liability claims and related litigation.
Any defects could impact our customer experience, tarnish our brand reputation or make our products and services unsafe and create a risk of environmental or property damage and/or personal injury. We may also become subject to the hazards and uncertainties of product liability claims and related litigation, including consumer claims.
We are exposed to changes to the global macroeconomic environment beyond our control, including inflation fluctuations and foreign currency exchange rate fluctuations. We are exposed to fluctuations in inflation, which could negatively affect our business, financial condition and results of operation. The United States has recently experienced historically high levels of inflation.
We are exposed to changes to the global macroeconomic environment beyond our control, including inflation fluctuations and foreign currency exchange rate fluctuations. We are exposed to fluctuations in inflation, which could negatively affect our business, financial condition and operating results. The United States has recently experienced historically high levels of inflation.
Bribery Act”), by us, our employees, and our business partners; • complexity and other risks associated with current and future legal requirements in other countries, including legal requirements related to consumer protection, consumer product safety, and data privacy frameworks, such as the General Data Protection Regulation 2016/679; 23 • varying levels of internet technology adoption and infrastructure, and increased or varying network and hosting service provider costs; • tariffs and other non-tariff barriers, such as quotas and local content rules, as well as tax consequences; • fluctuations in currency exchange rates and the requirements of currency control regulations, which might restrict or prohibit conversion of other currencies into U.S. dollars; and • political or social unrest or economic instability in a specific country or region in which we operate, including, for example, escalating tensions, hostilities, or trade disputes between China and Taiwan or the effects of “Brexit,” each of which could have an adverse impact on our operations in such locations.
Bribery Act”), by us, our employees, and our business partners; • complexity and other risks associated with current and future legal requirements in other countries, including legal requirements related to sustainability disclosure, consumer protection, consumer product safety, and data privacy frameworks, such as the General Data Protection Regulation 2016/679; • varying levels of internet technology adoption and infrastructure, and increased or varying network and hosting service provider costs; • tariffs and other non-tariff barriers, such as quotas and local content rules, customs detentions, as well as tax consequences; • fluctuations in currency exchange rates and the requirements of currency control regulations, which might restrict or prohibit conversion of other currencies into U.S. dollars; and 19 • political or social unrest or economic instability in a specific country or region in which we operate, including, for example, escalating tensions, hostilities, or trade disputes between China and Taiwan or the effects of “Brexit,” each of which could have an adverse impact on our operations in such locations.
Many of our retail showrooms are leased pursuant to multi-year leases, and our ability to sublease to a suitable subtenant, or negotiate favorable terms to exit a lease early or for a lease renewal option, may depend on factors that are not within our control.
Many of our retail stores are leased pursuant to multi-year leases, and our ability to sublease to a suitable subtenant, or negotiate favorable terms to exit a lease early or for a lease renewal option, may depend on factors that are not within our control.
Artists and/or songwriters may object and may exert public or private pressure on rights holders to discontinue or to modify license terms, or we may elect to discontinue use of an artist or songwriter’s catalog based on a number of factors, including actual or perceived reputational damage.
Artists and/or songwriters or their agents may object and may exert public or private pressure on rights holders to discontinue or to modify license terms, or we may elect to discontinue use of an artist or songwriter’s catalog based on a number of factors, including actual or perceived reputational damage.
We have limited control over our suppliers, contract manufacturers, and logistics partners, which subjects us to the following risks: • inability to satisfy demand for our Connected Fitness Products; • reduced control over delivery timing and related customer experience and product reliability; • reduced ability to monitor the manufacturing process and components used in our Connected Fitness Products; • limited ability to develop comprehensive manufacturing specifications that take into account any materials shortages or substitutions; • variance in the manufacturing capability of our third-party manufacturers; • price increases; • failure of a significant supplier, manufacturer, or logistics partner to perform its obligations to us for technical, market, or other reasons; • variance in the quality of services provided by our third-party last mile partners; • difficulties in establishing additional supplier, manufacturer, or logistics partner relationships if we experience difficulties with our existing suppliers, manufacturers, or logistics partners; • shortages of materials or components; • misappropriation of our intellectual property; • exposure to natural catastrophes, epidemics such as the COVID-19 pandemic, political unrest, including escalating tensions, hostilities, or trade disputes between Taiwan and China, terrorism, labor disputes, and economic instability resulting in the disruption of trade from foreign countries in which our Connected Fitness Products are manufactured or the components thereof are sourced; • changes in local economic conditions in the jurisdictions where our suppliers, manufacturers, and logistics partners are located; • the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, duties, tariffs, taxes, and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds; and 17 • insufficient warranties and indemnities on components supplied to our manufacturers or performance by our partners.
We have limited control over our suppliers, contract manufacturers, and logistics partners, which subjects us to the following risks: • inability to satisfy demand for our Connected Fitness Products; • reduced control over delivery timing and related customer experience and product reliability; • reduced ability to monitor the manufacturing process and components used in our Connected Fitness Products; • limited ability to develop comprehensive manufacturing specifications that take into account any materials shortages or substitutions; • variance in the manufacturing capability of our third-party manufacturers; • price increases; • failure of a significant supplier, manufacturer, or logistics partner to perform its obligations to us for technical, market, or other reasons; • variance in the quality of services provided by our third-party last mile partners; • reliance on our partners to adhere to our supplier code of conduct; • difficulties in establishing additional supplier, manufacturer, or logistics partner relationships if we experience difficulties with our existing suppliers, manufacturers, or logistics partners; • shortages of materials or components; • misappropriation of our intellectual property; • exposure to natural catastrophes, including climate-related risks and extreme weather events, epidemics such as the COVID-19 pandemic, political unrest, including escalating tensions, hostilities, or trade disputes between Taiwan and China, terrorism, labor disputes, and economic instability resulting in the disruption of trade from foreign countries, in which our Connected Fitness Products are manufactured or the components thereof are sourced; • changes in local economic conditions in the jurisdictions where our suppliers, manufacturers, and logistics partners are located; • the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, duties, tariffs, taxes, and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds; and • insufficient warranties and indemnities on components supplied to our manufacturers or performance by our partners.
Some open source software licenses require those who distribute open source software as part of their own software product to publicly disclose all or part of the source code to such software product or to make available any derivative works of the open source code on unfavorable terms or at no cost.
Some open source software licenses require those who distribute open source software as part of their own software product to publicly disclose all or part of the source code to such software product or to make available any open source code included in such software product or any derivative works of the open source code on unfavorable terms or at no cost.
Our Class B common stock has 20 votes per share and our Class A common stock has one vote per share. As of June 30, 2022, our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, held a majority of the voting power of our capital stock.
Our Class B common stock has 20 votes per share and our Class A common stock has one vote per share. As of June 30, 2023, our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, held a majority of the voting power of our capital stock.
We may not successfully execute or achieve the expected benefits of our restructuring initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or additional asset impairment charges and adversely affect our business.
See “— We may not successfully execute or achieve the expected benefits of our restructuring initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or additional asset impairment charges and adversely affect our business.” We may not successfully execute or achieve the expected benefits of our restructuring initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or additional asset impairment charges and adversely affect our business.
Examples of data tracked on our platform include heart rate, calories burned, distance traveled and Strive Score as well as cadence, resistance, and output in the case of Bike; pace, speed, and elevation in the case of Tread; and Movement Tracker in the case of Guide.
Examples of data tracked on our platform include heart rate, calories burned, distance traveled and Strive Score as well as cadence, resistance, and output in the case of Bike; pace, speed, and elevation in the case of Tread; Movement Tracker in the case of Guide; and stroke rate, pace, and output in the case of Row.
If the information provided to us or obtained by such third parties does not comprehensively or accurately identify the ownership of musical compositions, if we are unable to determine which musical compositions correspond to specific sound recordings, or if the same party does not own administer, control or own all rights on a worldwide basis, it becomes difficult or impossible to identify the appropriate rights holders to whom to pay royalties.
If the information provided to us or obtained by such third parties does not comprehensively or accurately identify the ownership of musical compositions, if we are unable to determine which musical compositions correspond to specific sound recordings, or if the same party does not own administer, control or own all rights on a worldwide basis, it may become difficult or impossible to identify the appropriate rights holders to whom to pay royalties.
Even if intellectual property claims do not result in litigation or are resolved in our favor, these claims, and 35 the time and resources necessary to resolve them, could divert the resources of our management and require significant expenditures.
Even if intellectual property claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to avoid or to resolve them, could divert the resources of our management and require significant expenditures.
These issues appear to have been and could be further exacerbated by the continuation of the COVID-19 pandemic as well as other global supply chain issues. We have seen, and may continue to see, increased congestion and/or new import/export restrictions implemented at ports that we rely on for our business.
These issues appear to have been and could be further exacerbated by any resurgence of the COVID-19 pandemic as well as other global supply chain issues. We have seen, and may continue to see, increased congestion and/or new import/export restrictions implemented at ports that we rely on for our business.
See “ — Our products and services may be 31 affected from time to time by design and manufacturing defects, real or perceived, that could adversely affect our business and result in harm to our reputation.” In addition to warranties supplied by us, we also offer the option for customers to purchase third-party extended warranty and services contracts in some markets, which creates an ongoing performance obligation over the warranty period.
See “ — Our products and services may be affected from time to time by design and manufacturing defects or product safety issues, real or perceived, that could adversely affect our business and result in harm to our reputation.” In addition to warranties supplied by us, we also offer the option for customers to purchase third-party extended warranty and services contracts in some markets, which creates an ongoing performance obligation over the warranty period.
We are subject to requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requiring us to conduct due diligence on and disclose whether or not certain conflict minerals originating from certain geographic regions are necessary for the manufacture or functionality of our products.
We are subject to requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requiring us to conduct due diligence on and disclose whether or not certain conflict minerals originating from certain countries as well as geographic regions are necessary for the manufacture or functionality of our products.
In April 2020, we amended and restated our restated bylaws to provide that the federal district courts of the United States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (a Federal Forum Provision).
In April 2020, we amended and restated our restated bylaws to provide that the federal district courts of the United States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (a “Federal Forum Provision”).
Our response to the changing work environment has included a number of employee-focused benefits initiatives and office policies, which are aimed at increasing productivity and employee morale and which have increased our costs.
Our response to the changing work environment has included a number of employee-focused office policies, which are aimed at increasing productivity and employee morale and which have increased our costs.

… 260 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

5 edited+2 added−3 removed1 unchanged
Biggest changeOur retail locations and office space are used to support both of our reporting segments, and are suitable and adequate for the conduct of our business. Refer to Note 19 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for further details regarding our segments.
Biggest changeRefer to Note 19 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for further details regarding our segments. We lease our production studio facilities, which are located in New York City and London, and are used to support our Subscription segment.
Item 2. Properties As of June 30, 2022, our principal properties included our corporate headquarter offices, retail locations, production studio facilities, member support locations, and field operations, distribution and manufacturing facilities. We are headquartered in New York City, where we occupy facilities totaling approximately 336,000 square feet under a lease that expires in 2035.
Item 2. Properties As of June 30, 2023, our principal properties included our corporate headquarter offices, field operations and distribution facilities, retail locations and production studio facilities. We are headquartered in New York City, where we occupy facilities totaling approximately 336,000 square feet under a lease that expires in 2035.
We also lease our international corporate headquarters, which is located in London, United Kingdom. We primarily use these facilities for technology, product design, research and development, sales and marketing, supply chain and logistics, finance, legal, human resources, and information technology.
We also lease our international corporate headquarters, which is located in London, United Kingdom. We primarily use these facilities for technology, product design, research and development, sales and marketing, supply chain and logistics, finance, legal, human resources, and information technology. We also have our Member Support team located in Plano, Texas.
We lease our production studio facilities, which are located in New York City and London, and are used to support our Subscription segment. In addition, we lease and sublease field operations, distribution, and manufacturing facilities in North America, Europe, and Asia, which are used to support our Connected Fitness segment.
In addition, we lease and sublease field operations and distribution facilities primarily in North America and Europe, which are used to support our Connected Fitness segment.
In February 2022, as part of the Restructuring Plan, we announced the closing of several assembly and manufacturing plants, including the completion and subsequent sale of the shell facility of Peloton Output Park . 44
In February 2022, as part of the Restructuring Plan, we announced the closing of several assembly and manufacturing plants, including our plans to sell the facility that was intended to be Peloton Output Park .
Removed
We also have Member support and sales teams located in Plano, Texas; however, in August 2022, we announced our plans for a reduction in workforce including approximately 230 Member support positions in North America, and therefore will either sublease or terminate our office lease in Plano.
Added
We lease retail properties in the United States, Canada, the United Kingdom, Germany, and Australia. Our retail locations and office space are used to support both of our reporting segments (Connected Fitness Products and Subscription) and are suitable and adequate for the conduct of our business.
Removed
We lease retail properties in the United States, Canada, the United Kingdom, Germany, and Australia, which consist of showrooms, microstores, and concessions. This included 87 North America and 48 international retail locations as of June 30, 2022. In August 2022, we announced our intention to reduce our retail presence across North America.
Added
Refer to Part I, Item 1A, “ Risk Factors — Risks Related to Our Business — We have experienced, and may continue to experience, delays in the sale of the Ohio industrial facility that was intended to be Peloton Output Park, which could adversely impact our business and financial condition ” for more information. 41
Removed
In July 2022, we announced we are exiting all owned-manufacturing operations, which will include the sale of two owned manufacturing facilities in Taiwan. Additionally, in August 2022, we announced that we are eliminating our North American field operations warehouses, and therefore will either sublease or terminate our remaining leases.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−5 removed1 unchanged
Biggest changeFor a discussion of legal and other proceedings in which we are involved, see Note 13 - Commitments and Contingencies in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Biggest changeFor a discussion of legal and other proceedings in which we are involved, see Note 13 - Commitments and Contingencies in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures Not applicable. 42
Removed
In addition, as previously disclosed, we have received reports of a number of injuries associated with our Tread+ product, one of which led to the death of a child.
Removed
In April 2021, the CPSC issued a warning to consumers about the safety hazards associated with the Tread+ and, following our voluntary recall of our Tread+ product in collaboration with the CPSC in May 2021, the CPSC has continued to investigate the matter.
Removed
As noted, more recently, in August 2022, we were notified by the CPSC that the agency staff believes we failed to meet our statutory obligations under the Consumer Product Safety Act and intends to recommend that the CPSC impose civil monetary penalties. While we disagree with the agency staff, we are engaged in ongoing confidential discussions with the CPSC.
Removed
We are also subject to investigations by the DOJ and DHS related to our statutory obligations unde r the Consumer Product Safety Act, and the SEC is investigating our public disclosures concerning the Tread+ recall as well as other matters.
Removed
We are cooperating fully with each of these investigations, and at this time, we are unable to predict the eventual scope, duration or final outcome of the investigations. See also Part I, Item 1A. “Risk Factors — Risks Related to Laws, Regulation, and Legal Proceedings” of this Annual Report on Form 10-K for more information on these matters. Item 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+2 added−0 removed5 unchanged
Biggest changeThe graph below compares the cumulative total stockholder return on our Class A common stock with the cumulative total return on the Standard & Poor’s 500 Index and the Nasdaq Composite Index. The graph assumes an initial investment of $100 in our common stock at the market close on September 26, 2019, which was our initial trading day.
Biggest changeThe graph below compares the cumulative total stockholder return on our Class A common stock with the cumulative total return on the Standard & Poor’s 500 Index, the Nasdaq Composite Index and the Nasdaq Computer Index.
In addition, our ability to pay dividends on our common stock is limited by the restrictions under the terms of our loan and security agreement.
In addition, our ability to pay dividends on our common stock is limited by the restrictions under the terms of our credit agreement and security agreement.
Our Class B common stock is not listed or traded on any stock exchange. Holders of Record As of July 29, 2022, there were 37 registered holders of our Class A common stock and 89 registered holders of our Class B common stock.
Our Class B common stock is not listed or traded on any stock exchange. Holders of Record As of July 31, 2023, there were 35 registered holders of our Class A common stock and 74 registered holders of our Class B common stock.
Data for the Standard & Poor’s 500 Index and the Nasdaq Composite Index assume reinvestment of dividends. The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock. Item 6. [Reserved] 46
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock. 43 Item 6. [Reserved] 44
Added
We have elected to replace the Nasdaq Composite Index with the Nasdaq Computer Index because we believe the new index is more aligned with our peer group and will provide a meaningful comparison of our stock performance going forward.
Added
The graph assumes an initial investment of $100 in our common stock at the market close on September 26, 2019, which was our initial trading day. Data for each index assumes reinvestment of dividends.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

117 edited+87 added−35 removed80 unchanged
Biggest changeFiscal Year Ended June 30, 2022 2021 2020 (in millions) Consolidated Statement of Operations Data: Revenue Connected Fitness Products $ 2,187.5 $ 3,149.6 $ 1,462.2 Subscription 1,394.7 872.2 363.7 Total revenue 3,582.1 4,021.8 1,825.9 Cost of revenue (1)(2) Connected Fitness Products 2,433.8 2,236.9 832.5 Subscription 450.0 330.5 155.7 Total cost of revenue 2,883.8 2,567.4 988.2 Gross profit 698.4 1,454.4 837.7 Operating expenses Sales and marketing (1)(2) 1,018.9 728.3 476.7 General and administrative (1)(2) 963.4 661.8 351.4 Research and development (1)(2) 359.5 247.6 89.1 Goodwill impairment 181.9 — — Impairment expense 390.5 4.5 1.2 Restructuring expense (1) 180.7 — — Supplier settlements 337.6 — — Total operating expenses 3,432.4 1,642.2 918.4 Loss from operations (2,734.0) (187.8) (80.7) Other (expense) income, net: Interest expense (43.0) (14.8) (2.0) Interest income 2.3 7.9 18.2 Foreign exchange losses (31.8) (3.5) (4.0) Other (expense) income, net (1.5) 0.1 0.1 Total other (expense) income, net (74.1) (10.4) 12.3 Loss before provision for income taxes (2,808.1) (198.2) (68.4) Income tax expense (benefit) 19.6 (9.2) 3.3 Net loss $ (2,827.7) $ (189.0) $ (71.6) ____________________ 51 (1) Includes stock-based compensation expense as follows: Fiscal Year Ended June 30, 2022 2021 2020 (in millions) Cost of revenue Connected Fitness Products $ 20.2 $ 12.6 $ 3.2 Subscription 22.7 25.9 7.5 Total cost of revenue 42.9 38.5 10.7 Sales and marketing 30.5 26.2 15.3 General and administrative 152.4 102.1 52.4 Research and development 46.0 27.2 10.4 Restructuring 56.5 — — Total stock-based compensation expense $ 328.4 $ 194.0 $ 88.8 ____________________ (2) Includes depreciation and amortization expense as follows: Fiscal Year Ended June 30, 2022 2021 2020 (in millions) Cost of revenue Connected Fitness Products $ 20.0 $ 7.7 $ 3.2 Subscription 26.8 19.0 16.6 Total cost of revenue 46.8 26.7 19.9 Sales and marketing 29.6 14.3 9.3 General and administrative 45.7 13.0 10.6 Research and development 20.7 9.9 0.3 Total depreciation and amortization expense $ 142.8 $ 63.8 $ 40.2 Comparison of the fiscal years ended June 30, 2022 and 2021 Revenue Fiscal Year Ended June 30, 2022 2021 % Change (dollars in millions) Revenue: Connected Fitness Products $ 2,187.5 $ 3,149.6 (30.5)% Subscription 1,394.7 872.2 59.9 Total revenue $ 3,582.1 $ 4,021.8 (10.9)% Percentage of revenue Connected Fitness Products 61.1 % 78.3 % Subscription 38.9 21.7 Total 100.0 % 100.0 % Connected Fitness Products revenue decreased $962.2 million for the fiscal year ended June 30, 2022 compared to the fiscal year ended June 30, 2021.
Biggest changeFiscal Year Ended June 30, 2023 2022 2021 (in millions) Consolidated Statement of Operations Data: Revenue Connected Fitness Products $ 1,130.2 $ 2,187.5 $ 3,149.6 Subscription 1,670.1 1,394.7 872.2 Total revenue 2,800.2 3,582.1 4,021.8 Cost of revenue (1)(2) Connected Fitness Products 1,328.8 2,433.8 2,236.9 Subscription 547.9 450.0 330.5 Total cost of revenue 1,876.7 2,883.8 2,567.4 Gross profit 923.5 698.4 1,454.4 Operating expenses Sales and marketing (1)(2) 648.2 1,018.9 728.3 General and administrative (1)(2) 798.1 963.4 661.8 Research and development (1)(2) 318.4 359.5 247.6 Goodwill impairment — 181.9 — Impairment expense 144.5 390.5 4.5 Restructuring expense (1) 189.4 180.7 — Supplier settlements 22.0 337.6 — Total operating expenses 2,120.6 3,432.4 1,642.2 Loss from operations (1,197.1) (2,734.0) (187.8) Other expense, net: Interest expense (97.1) (43.0) (14.8) Interest income 26.4 2.3 7.9 Foreign exchange gain (loss) 7.0 (31.8) (3.5) Other income (expense), net 2.9 (1.5) 0.1 Total other expense, net (60.9) (74.1) (10.4) Loss before provision (benefit) for income taxes (1,258.0) (2,808.1) (198.2) Income tax expense (benefit) 3.7 19.6 (9.2) Net loss $ (1,261.7) $ (2,827.7) $ (189.0) ____________________ 51 (1) Includes stock-based compensation expense as follows: Fiscal Year Ended June 30, 2023 2022 2021 (in millions) Cost of revenue Connected Fitness Products $ 14.3 $ 20.2 $ 12.6 Subscription 42.8 22.7 25.9 Total cost of revenue 57.1 42.9 38.5 Sales and marketing 28.9 30.5 26.2 General and administrative 167.2 152.4 102.1 Research and development 66.7 46.0 27.2 Restructuring expense 85.0 56.5 — Total stock-based compensation expense $ 405.0 $ 328.4 $ 194.0 On July 1, 2022, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) approved accelerating the vesting requirement for unvested restricted stock units held by certain employees by one year.
Some of these limitations are as follows: • Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Subscription Contribution and Subscription Contribution Margin do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; and • Subscription Contribution and Subscription Contribution Margin exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy.
Some of these limitations are as follows: 57 • Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Subscription Contribution and Subscription Contribution Margin do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; and • Subscription Contribution and Subscription Contribution Margin exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy.
Events that trigger a test for recoverability include material adverse changes in projected revenues and expenses, present cash flow losses combined with a history 63 of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative industry or economic trends, a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, a significant adverse change in the manner in which an asset group is used or in its physical condition, or when there is a change in the asset grouping.
Events that trigger a test for recoverability include material adverse changes in projected revenues and expenses, present cash flow losses combined with a history of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative industry or economic trends, a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, a significant adverse change in the manner in which an asset group is used or in its physical condition, or when there is a change in the asset grouping.
Cost of revenue Connected Fitness Products Connected Fitness Product cost of revenue consists of our portfolio of Connected Fitness Products and branded apparel product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement and service costs, fulfillment costs, warehousing costs, depreciation of property and equipment, and certain costs related to management, facilities, and personnel-related expenses associated with supply chain logistics.
Cost of revenue Connected Fitness Products Connected Fitness Products cost of revenue consists of our portfolio of Connected Fitness Products and branded apparel product costs, including duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement and service costs, fulfillment costs, warehousing costs, depreciation of property and equipment, and certain costs related to management, facilities, and personnel-related expenses associated with supply chain logistics.
We maintain a valuation allowance on the majority of our deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be utilized. Results of Operations The following tables set forth our consolidated results of operations in dollars and as a percentage of total revenue for the periods presented.
We maintain a valuation allowance on the majority of our deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be utilized. 50 Results of Operations The following tables set forth our consolidated results of operations in dollars and as a percentage of total revenue for the periods presented.
The fair values of intangible assets are determined utilizing information available near the acquisition date based on expectations and assumptions that are deemed reasonable by management. Given the considerable judgment involved in determining fair values, we typically obtain assistance from third-party valuation specialists for significant items.
The fair values of intangible assets are determined utilizing information available near the acquisition date based on expectations and assumptions that are deemed reasonable by management. Given the considerable judgment involved in determining fair 64 values, we typically obtain assistance from third-party valuation specialists for significant items.
These costs consist of both fixed costs, including studio rent and occupancy, other studio overhead, instructor and production personnel-related expenses, depreciation of property and equipment as well as variable costs, including music royalty fees, content costs for past use, third-party platform streaming costs, and payment processing fees for our monthly subscription billings.
These costs consist of both fixed costs, including studio rent and occupancy, other studio overhead, instructor and production personnel-related expenses, 49 depreciation of property and equipment as well as variable costs, including music royalty fees, content costs for past use, third-party platform streaming costs, and payment processing fees for our monthly subscription billings.
Product Warranty We offer a standard product warranty that our Connected Fitness Products and Precor branded fitness products will operate under normal, non-commercial use for a period of one year covering the touchscreen and most original Bike, Bike+, Tread, Tread+, and Guide components from the date of original delivery.
Product Warranty We offer a standard product warranty that our Connected Fitness Products and Precor branded fitness products will operate under normal, non-commercial use for a period of one year covering the touchscreen and most original Bike, Bike+, Tread, Tread+, Row, and Guide components from the date of original delivery.
Restructuring expense Restructuring expense consists of severance and other personnel costs, including stock-based compensation expense, professional services, facility closures and other costs associated with exit and disposal activities. 50 Supplier settlements Supplier settlements are payments made to third-party suppliers to terminate certain future inventory purchase commitments.
Restructuring expense Restructuring expense consists of severance and other personnel costs, including stock-based compensation expense, professional services, facility closures and other costs associated with exit and disposal activities. Supplier settlements Supplier settlements are payments made to third-party suppliers to terminate certain future inventory purchase commitments.
Components of our Results of Operations Revenue Connected Fitness Products Connected Fitness Product revenue consists of sales of our portfolio of Connected Fitness Products and related accessories, delivery and installation services, branded apparel, extended warranty agreements, and the sale, service, installation, and delivery contracts of our commercial business.
Components of our Results of Operations Revenue Connected Fitness Products Connected Fitness Products revenue consists of sales of our portfolio of Connected Fitness Products and related accessories, delivery and installation services, branded apparel, extended warranty agreements, and the sale, service, installation, and delivery contracts of our commercial business.
We believe our existing cash and cash equivalent balances and cash flow from operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
We believe our existing cash and cash equivalent balances and cash flow from operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and beyond.
We also offer the option for customers in some markets to purchase a third-party extended warranty and service contract that extends or enhances the technical support, parts, and labor coverage offered as part of the base warranty included with the Connected Fitness Product for an additional period of 12 to 36 months.
We also offer the option for customers in some markets to purchase a third-party extended warranty and service contract that extends or enhances the technical support, parts, and labor coverage offered as part of the base warranty included with the Connected Fitness Products for an additional period of 12 to 36 months.
Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, timing to adjust our supply chain and cost structures in response to material fluctuations in product demand, timing and amount of spending related to acquisitions, the timing and amount of spending on research and development and manufacturing initiatives, the timing and financial impact of product recalls, sales and marketing activities, the timing of new 58 product introductions, market acceptance of our Connected Fitness Products, timing and investments needed for international expansion, and overall economic conditions.
Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, timing to adjust our supply chain and cost structures in response to material fluctuations in product demand, timing and amount of spending related to acquisitions, the timing and amount of spending on research and development, the timing and financial impact of product recalls, sales and marketing activities, the timing of new product introductions, market acceptance of our Connected Fitness Products, timing and investments needed for international expansion, and overall economic conditions.
Therefore, if one or more of these matters were resolved against us for amounts in excess of management’s expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected. 64
Therefore, if one or more of these matters were resolved against us for amounts in excess of management’s expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected. 65
Research and development Research and development expense primarily consists of personnel and facilities-related expenses, consulting and contractor expenses, tooling and prototype materials, software platform expenses, and depreciation of property and equipment. We capitalize certain qualified costs incurred in connection with the development of internal-use software which may also cause research and development expenses to vary from period to period.
Research and development Research and development expense primarily consists of personnel and facilities-related expenses, consulting and contractor expenses, tooling and prototype materials, software platform expenses, and depreciation of property and equipment. We capitalize certain qualified costs incurred in connection with the development of internal-use software that may also cause research and development expenses to vary from period to period.
The Second Amended and Restated Credit Agreement provides for a $750.0 million term loan facility (the “Term Loan”), which will be due and payable on May 25, 2027 or, if greater than $200.0 million of our 0% convertible senior notes are outstanding on November 16, 2025 (the “Springing Maturity Condition”), November 16, 2025 (the “Springing Maturity Date”).
The Second Amended and Restated Credit Agreement provides for a $750.0 million term loan facility (the “Term Loan”), which will be due and payable on May 25, 2027 or, if greater than $200.0 million of the Notes are outstanding on November 16, 2025 (the “Springing Maturity Condition”), November 16, 2025 (the “Springing Maturity Date”).
On May 25, 2022, the Company entered into an Amendment and Restatement Agreement to which the Second Amended and Restated Credit Agreement is attached (as amended, restated or otherwise modified from time to time, the “Second Amended and Restated Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and certain banks and financial institutions party thereto as lenders and issuing banks.
On May 25, 2022, the Company entered into an Amendment and Restatement Agreement to the Second Amended and Restated Credit Agreement (as amended, restated or otherwise modified from time to time, the “Second Amended and Restated Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and certain banks and financial institutions party thereto as lenders and issuing banks.
The Restructuring Plan includes: (i) reducing our headcount; (ii) closing several assembly and manufacturing plants, including the completion and subsequent sale of the shell facility for our previously planned Peloton Output Park; (iii) closing and consolidating several distribution facilities, and (iv) shifting to third-party logistics providers in certain locations.
The Restructuring Plan originally included: (i) reducing our headcount; (ii) closing several assembly and manufacturing plants, including the completion and subsequent sale of the shell facility for our previously planned Peloton Output Park; (iii) closing and consolidating several distribution facilities; and (iv) shifting to third-party logistics providers in certain locations.
The Restructuring Plan includes: (i) reducing our headcount; (ii) closing several assembly and manufacturing plants, including the completion and subsequent sale of the shell facility for our previously planned Peloton Output Park; (iii) closing and consolidating several distribution facilities, and (iv) shifting to third-party logistics providers in certain locations.
The Restructuring Plan originally included: (i) reducing our headcount; (ii) closing several assembly and manufacturing plants, including the completion and subsequent sale of the shell facility for our previously planned Peloton Output Park; (iii) closing and consolidating several distribution facilities; and (iv) shifting to third-party logistics providers in certain locations.
If we determine that substantially all of the fair value of gross assets included in a transaction is concentrated in a single asset (or a group of similar assets), the assets would not represent a business.
If we determine that substantially all of the fair value of gross assets included in a transaction is concentrated in a single asset (or a group of similar assets), the assets will not represent a business.
The Second Amended and Restated Credit Agreement also provides for a $500.0 million revolving credit facility (the “Revolving Facility”), $35.0 million of which will mature on June 20, 2024 (the “Non-Consenting Commitments”), with the rest ($465.0 million) maturing on December 10, 2026 (the “Consenting Commitments”) or if the Springing Maturity Condition is met and the Term Loan is outstanding on such date, the Springing Maturity Date.
The Second Amended and Restated Credit Agreement also provided for a $500.0 million revolving credit facility (the “Revolving Facility”), $35.0 million of which would mature on June 20, 2024 (the “Non-Consenting Commitments”), with the rest ($465.0 million) maturing on December 10, 2026 (the “Consenting Commitments”) or if the Springing Maturity Condition is met and the Term Loan is outstanding on such date, the Springing Maturity Date.
These estimates have been based on our assessment of the facts and circumstances at each balance sheet date and are subject to change based on new information and future events. The outcome of legal proceedings, claims, and regulatory, tax, and government inquiries and investigations is inherently uncertain.
These estimates have been based on our assessment of the facts and circumstances at each balance sheet date and are subject to change based on new information and future events. The outcomes of legal proceedings, claims, and regulatory, tax, and government inquiries and investigations are inherently uncertain.
We believe that these non-GAAP financial measures are useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons: • Adjusted EBITDA and Adjusted EBITDA Margin are widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as stock-based compensation expense, depreciation and amortization expense, other expense (income), net, and provision for income taxes that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired; • Our management uses Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with financial measures prepared in accordance with GAAP for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance; and • Adjusted EBITDA and Adjusted EBITDA Margin provide consistency and comparability with our past financial performance, facilitate period-to-period comparisons of our core operating results, and may also facilitate comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.
We believe that this non-GAAP financial measure is useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons: • Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as stock-based compensation expense, depreciation and amortization expense, other expense (income), net, and provision for income taxes that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired; • Our management uses Adjusted EBITDA in conjunction with financial measures prepared in accordance with GAAP for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance; and • Adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our core operating results, and may also facilitate comparisons with other peer companies, many of which use a similar non-GAAP financial measure to supplement their GAAP results.
Non-operating income and expenses Other (expense) income, net Other (expense) income, net consists of interest (expense) income, unrealized and realized gains (losses) on investments, and impacts from foreign exchange transactions. Income tax provision The provision for income taxes consists primarily of income taxes related to state and international taxes for jurisdictions in which we conduct business.
Non-operating income and expenses Other (expense) income, net Other (expense) income, net consists of interest (expense) income, unrealized and realized gains (losses) on investments, and foreign exchange gains (losses). Income tax provision The provision for income taxes consists primarily of income taxes related to state and international taxes for jurisdictions in which we conduct business.
(3) Please see the section titled “Non-GAAP Financial Measures—Free Cash Flow” for a reconciliation of net cash provided by (used in) operating activities to Free Cash Flow and an explanation of why we consider Free Cash Flow to be a helpful metric for investors.
(3) Please see the section titled “Non-GAAP Financial Measures—Free Cash Flow” for a reconciliation of net cash used in operating activities to Free Cash Flow and an explanation of why we consider Free Cash Flow to be a helpful measures for investors.
We utilize contract manufacturers to build our products and accessories. These contract manufacturers acquire components and build products based on demand forecast information we supply, which typically covers a rolling 12-month period. Consistent with industry practice, we acquire inventories from such manufacturers through blanket purchase orders against which orders are applied based on projected demand information and availability of goods.
These contract manufacturers acquire components and build products based on demand forecast information we supply, which typically covers a rolling 12-month period. Consistent with industry practice, we acquire inventories from such manufacturers through blanket purchase orders against which orders are applied based on projected demand information and availability of goods.
During fiscal 2022, we identified various qualitative factors that collectively indicated that the Company had triggering events, including (i) realignment of cost structure in connection with the Restructuring Plan, (ii) softening demand and (iii) a sustained decrease in stock price.
During fiscal 2022 and fiscal 2023, management identified various qualitative factors that collectively indicated that the Company had impairment triggering events, including (i) realignment of cost structure in connection with the Restructuring Plan, (ii) softening demand and (iii) a sustained decrease in stock price.
Adjusted EBITDA and Adjusted EBITDA Margin We calculate Adjusted EBITDA as net (loss) income adjusted to exclude: other expense (income), net; income tax expense (benefit); depreciation and amortization expense; stock-based compensation expense; impairment expense; product recall costs; litigation and settlement expenses; transaction and integration costs; reorganization, severance, exit, disposal and other costs associated with restructuring plans; supplier 55 settlements; and other adjustment items that arise outside the ordinary course of our business.
Adjusted EBITDA We calculate Adjusted EBITDA as net (loss) income adjusted to exclude: other expense (income), net; income tax expense (benefit); depreciation and amortization expense; stock-based compensation expense; goodwill impairment; impairment expense; product recall related matters; certain litigation and settlement expenses; transaction and integration costs; reorganization, severance, exit, disposal and other costs associated with restructuring plans; supplier settlements; and other adjustment items that arise outside the ordinary course of our business.
Some of these limitations are, or may in the future be, as follows: • Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA Margin do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; • Adjusted EBITDA and Adjusted EBITDA Margin exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect: (1) changes in, or cash requirements for, our working capital needs; (2) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; or (3) tax payments that may represent a reduction in cash available to us; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect certain litigation expenses, consisting of legal settlements and related fees for specific proceedings that we have determined arise outside of the ordinary course of business based on the following considerations which we assess regularly: (1) the frequency of similar cases that have been brought to date, or are expected to be brought within two years; (2) the complexity of the case; (3) the nature of the remedy(ies) sought, including the size of any monetary damages sought; (4) offensive versus defensive posture of us; (5) the counterparty involved; and (6) our overall litigation strategy; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect transaction and integration costs related to acquisitions; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect incremental costs associated with the COVID-19 pandemic, which consist of hazard pay for field operations employees; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect impairment charges for goodwill and fixed assets, and gains (losses) on disposals for fixed assets; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the impact of purchase accounting adjustments to inventory related to the Precor acquisition; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect costs associated with Tread and Tread+ product recalls including increases to the return reserves, Tread+ inventory write-downs, logistics costs associated with Member requests on Tread and Tread+, the cost to move the Tread+ for those that elect the option, subscription waiver costs of service, and recall-related hardware development and repair costs; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect reorganization, severance, exit, disposal and other costs associated with restructuring plans; • Adjusted EBITDA and Adjusted EBITDA Margin do not reflect non-recurring supplier settlements; and • The expenses and other items that we exclude in our calculation of Adjusted EBITDA and Adjusted EBITDA Margin may differ from the expenses and other items, if any, that other companies may exclude from Adjusted EBITDA when they report their operating results and we may, in the future, exclude other significant, unusual expenses or other items from these financial measures.
Some of these limitations are, or may in the future be, as follows: • Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; • Adjusted EBITDA excludes stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy; • Adjusted EBITDA does not reflect: (1) changes in, or cash requirements for, our working capital needs; (2) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; or (3) tax payments that may represent a reduction in cash available to us; • Adjusted EBITDA does not reflect certain litigation expenses, consisting of legal settlements and related fees for specific proceedings that we have determined arise outside of the ordinary course of business based on the following considerations which we assess regularly: (1) the frequency of similar cases that have been brought to date, or are expected to be brought within two years; (2) the complexity of the case; (3) the nature of the remedy(ies) sought, including the size of any monetary damages sought; (4) offensive versus defensive posture of us; (5) the counterparty involved; and (6) our overall litigation strategy; • Adjusted EBITDA does not reflect transaction and integration costs related to acquisitions; • Adjusted EBITDA does not reflect impairment charges for goodwill and fixed assets, and gains (losses) on disposals for fixed assets; • Adjusted EBITDA does not reflect the impact of purchase accounting adjustments to inventory related to the Precor acquisition; 56 • Adjusted EBITDA does not reflect costs associated with product recall related matters including adjustments to the return reserves, inventory write-downs, logistics costs associated with Member requests, the cost to move the recalled product for those that elect the option, subscription waiver costs of service, and recall-related hardware development and repair costs; • Adjusted EBITDA does not reflect reorganization, severance, exit, disposal and other costs associated with restructuring plans; • Adjusted EBITDA does not reflect non-recurring supplier settlements; and • The expenses and other items that we exclude in our calculation of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from Adjusted EBITDA when they report their operating results and we may, in the future, exclude other significant, unusual expenses or other items from this financial measure.
Income tax expense for the fiscal year ended June 30, 2022 of $19.6 million was primarily due to state and international taxes. Non-GAAP Financial Measures In addition to our results determined in accordance with accounting principles generally accepted in the United States, or GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance.
Income tax expense for the fiscal year ended June 30, 2023 of $3.7 million was primarily due to state and international taxes. Non-GAAP Financial Measures In addition to our results determined in accordance with accounting principles generally accepted in the United States, or GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance.
If a Connected Fitness Subscription owns a combination of a Bike, Tread or Guide product in the same household, the price of the Subscription remains $44.00 monthly (price increased from $39 to $44 USD effective as of June 1, 2022). As of June 30, 2022, approximately 6% of our Connected Fitness Subscriptions owned both a Bike and Tread product.
If a Connected Fitness Subscription owns a combination of a Bike, Tread, Guide or Row product in the same household, the price of the Subscription remains $44 monthly (price increased from $39 to $44 USD effective as of June 1, 2022). As of June 30, 2023, approximately 8% of our Connected Fitness Subscriptions owned both a Bike and Tread product.
However, with current uncertainty in the global economy, negative press and general sentiment surrounding Peloton’s post-pandemic business and financial performance, absence of a remediation plan with the Consumer Product Safety Commission, predicting expected product returns based on historical returns becomes less relevant, requiring reliance on highly subjective estimates based on our interpretation of how current conditions and factors will drive consumer behavior.
However, with current uncertainty in the global economy, negative press and general sentiment surrounding Peloton’s post-pandemic business and financial performance, predicting expected product returns based on historical returns becomes less relevant, requiring reliance on highly subjective estimates based on our interpretation of how current conditions and factors will drive consumer behavior.
See “Risk Factors—Risks Related to Our Business—Our operating results could be adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory .” Off-Balance Sheet Arrangements We did not have any undisclosed off-balance sheet arrangements as of June 30, 2022.
See “Risk Factors—Risks Related to Our Business—Our operating results have been, and could in the future be, adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory .” Off-Balance Sheet Arrangements We did not have any undisclosed off-balance sheet arrangements as of June 30, 2023.
(2) Please see the section titled “Non-GAAP Financial Measures—Adjusted EBITDA and Adjusted EBITDA Margin” for a reconciliation of Net (loss) income to Adjusted EBITDA and an explanation of why we consider Adjusted EBITDA to be a helpful metric for investors.
(2) Please see the section titled “Non-GAAP Financial Measures—Adjusted EBITDA” for a reconciliation of Net loss to Adjusted EBITDA and an explanation of why we consider Adjusted EBITDA to be a helpful measures for investors.
We may continue to incur additional costs which could include costs for which we have not accrued or established adequate reserves, including increases to the return reserves, inventory write-downs, logistics costs associated with Member requests to return or move their hardware, subscription waiver variable costs of service, anticipated recall-related hardware development and repair costs, and related legal and advisory fees.
We may continue to incur additional costs beyond what we have currently estimated to be probable and reasonably estimable which could include costs for which we have not accrued or established adequate reserves, including increases to the return reserves, inventory write-downs, logistics costs associated with Member requests to return or move their hardware, subscription waiver variable costs of service, anticipated recall-related hardware development and repair costs, and related legal and advisory fees.
The amount of a refund customers are eligible to receive may differ based on the status of an approved remediation of the issue driving the recall, and the age of the CFU being returned. We estimate a returns reserve 62 primarily based on historical and expected product returns, product warranty and service call trends.
The amount of a refund customers are eligible to receive may differ based on the status of an approved remediation of the issue driving the recall, and the age of the Connected Fitness product being returned. We estimate return reserves primarily based on historical and expected product returns, product warranty, and service call trends.
If the carrying value of the reporting unit continues to exceed its fair value, the fair value of the reporting unit’s goodwill is calculated and an impairment loss equal to the excess is recorded. We assess the impairment of intangible assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
If the carrying value of the reporting unit exceeds its fair value, an impairment loss equal to the excess is recorded. We assess the impairment of intangible assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
As of June 30, 2022, our commitments to contract with third-party manufacturers for their inventory on-hand and component purchase commitments related to the manufacture of our products were estimated to be approximately $334.7 million.
As of June 30, 2023, our commitments to contract with third-party manufacturers for their inventory on-hand and component purchase commitments related to the manufacture of our products were estimated to be approximately $174.6 million.
These include a reduction to Connected Fitness Products revenue for actual and estimated future returns of $48.9 million and $81.1 million, recorded costs in Connected Fitness Products cost of revenue associated with inventory write-downs and logistic costs of $8.1 million and $15.7 million, and operating expenses of $5.4 million and $3.2 million associated with recall-related hardware development costs, in each case for the fiscal years ended June 30, 2022 and 2021, respectively.
These include recorded costs in Connected Fitness Products cost of revenue associated with recall related matters of $61.6 million, zero, and zero, adjustments to Connected Fitness Products revenue for actual and estimated future returns of $14.6 million, $48.9 million and $81.1 million, recorded costs in Connected Fitness Products cost of revenue associated with inventory write-downs and logistics costs of $2.5 million, $8.1 million and $15.7 million, and operating expenses of $2.3 million, $5.4 million and $3.2 million associated with recall-related hardware development costs, in each case for the fiscal years ended June 30, 2023, 2022 and 2021, respectively.
The following table presents a reconciliation of Free Cash Flow to Net cash provided by (used in) operating activities, the most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated: Fiscal Year Ended June 30, 2022 2021 2020 (in millions) Net cash (used in) provided by operating activities $ (2,020.0) $ (239.7) $ 376.4 Capital expenditures, including software (337.3) (252.2) (156.4) Free Cash Flow $ (2,357.4) $ (491.9) $ 220.0 Liquidity and Capital Resources Our operations have been funded primarily through net proceeds from the sales of our equity and convertible debt securities, and term loan, as well as cash flows from operating activities.
The following table presents a reconciliation of Free Cash Flow to Net cash used in operating activities, the most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated: Fiscal Year Ended June 30, 2023 2022 2021 (in millions) Net cash used in operating activities $ (387.6) $ (2,020.0) $ (239.7) Capital expenditures and capitalized internal-use software development costs (82.4) (337.3) (252.2) Free Cash Flow $ (470.0) $ (2,357.4) $ (491.9) Liquidity and Capital Resources Our operations have been funded primarily through net proceeds from the sales of our equity and convertible debt securities, and term loan, as well as cash flows from operating activities.
We define “Average Net Monthly Connected Fitness Churn” as Connected Fitness Subscription cancellations, net of reactivations, in the quarter, divided by the average number of beginning Connected Fitness Subscriptions in each month, divided by three months.
Average Net Monthly Connected Fitness Churn We use Average Net Monthly Connected Fitness Churn to measure the retention of our Connected Fitness Subscriptions. We define “Average Net Monthly Connected Fitness Churn” as Connected Fitness Subscription cancellations, net of reactivations, in the quarter, divided by the average number of beginning Connected Fitness Subscriptions in each month, divided by three months.
Because of these limitations, Subscription Contribution and Subscription Contribution Margin should be considered along with other operating and financial performance measures presented in accordance with GAAP. 57 The following table presents a reconciliation of Subscription Contribution to Subscription Gross Profit, the most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated: Fiscal Year Ended June 30, 2022 2021 (dollars in millions) Subscription Revenue $ 1,394.7 $ 872.2 Less: Cost of Subscription 450.0 330.5 Subscription Gross Profit $ 944.7 $ 541.7 Subscription Gross Margin 67.7 % 62.1 % Add back: Depreciation and amortization expense $ 26.8 $ 19.0 Stock-based compensation expense 22.7 25.9 Subscription Contribution $ 994.2 $ 586.5 Subscription Contribution Margin 71.3 % 67.2 % The continued growth of our Connected Fitness Subscription base will allow us to improve our Subscription Contribution Margin.
The following table presents a reconciliation of Subscription Contribution to Subscription Gross Profit, the most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated: Fiscal Year Ended June 30, 2023 2022 2021 (dollars in millions) Subscription Revenue $ 1,670.1 $ 1,394.7 $ 872.2 Less: Cost of Subscription 547.9 450.0 330.5 Subscription Gross Profit $ 1,122.1 $ 944.7 $ 541.7 Subscription Gross Margin 67.2 % 67.7 % 62.1 % Add back: Depreciation and amortization expense $ 36.9 $ 26.8 $ 19.0 Stock-based compensation expense 42.8 22.7 25.9 Subscription Contribution $ 1,201.8 $ 994.2 $ 586.5 Subscription Contribution Margin 72.0 % 71.3 % 67.2 % The continued growth of our Connected Fitness Subscription base will allow us to improve our Subscription Contribution Margin.
Non-cash adjustments primarily consisted of goodwill and long lived asset impairment expense, stock-based compensation expense, excess and obsolete inventory reserves, depreciation and amortization, and non-cash operating lease expense.
Non-cash adjustments primarily consisted of stock-based compensation expense, depreciation and amortization, long-lived asset impairment expense, and non-cash operating lease expense.
If the carrying value of the reporting unit continues to exceed its fair value, the fair value of the reporting unit’s goodwill is calculated and an impairment loss equal to the excess is recorded. Impairment expense Impairment expense consists of non-cash impairment charges relating to long-lived assets.
If the carrying value of the reporting unit exceeds its fair value, an impairment loss equal to the excess is recorded. Impairment expense Impairment expense consists of non-cash impairment charges relating to long-lived assets.
If actual return costs differ from previous estimates, the amount of the liability and corresponding revenue are adjusted in the period in which such costs occur. There is not significant judgement required in the determination of performance obligations, allocation of our transaction price, or the recognition of revenue. See further discussion in Note 3 to the consolidated financial statements.
If actual return costs differ from previous estimates, the amount of the liability and corresponding revenue are adjusted in the period in which such costs occur. 62 There is not significant judgement required in the determination of performance obligations, allocation of our transaction price, or the recognition of revenue.
The obligations under the Second Amended and Restated Credit Agreement with respect to the Term Loan and the Revolving Facility are secured by substantially all of our assets, with certain exceptions set forth in the Second Amended and Restated Credit Agreement, and are required to be guaranteed by certain material subsidiaries of the Company if, at the end of future financial quarters, certain conditions are not met.
After the repayment in full of the Term Loan, such baskets and levels will revert to those previously disclosed in connection with the Amended and Restated Credit Agreement. 60 The obligations under the Second Amended and Restated Credit Agreement with respect to the Term Loan and the Revolving Facility are secured by substantially all of our assets, with certain exceptions set forth in the Second Amended and Restated Credit Agreement, and are required to be guaranteed by certain material subsidiaries of the Company if, at the end of future financial quarters, certain conditions are not met.
Additionally, on August 12, 2022, we announced our decision to perform the following additional restructuring activities: (i) eliminate our North American Field Ops warehouses, including the significant reduction of our delivery workforce teams; (ii) eliminate a significant number of roles on the North America Member Support team and exit our real-estate footprints in our Plano and Tempe locations; and (iii) reduce our North America retail showroom presence.
Additionally, on August 12, 2022, we announced our decision to perform the following additional restructuring activities: (i) fully transitioning our North American Field Operations to third-party providers, including the significant reduction of our delivery workforce teams; (ii) eliminating a significant number of roles on the North America Member Support team and exiting our real-estate footprints in our Plano and Tempe locations; and (iii) reducing our retail showroom presence.
Additionally, on August 12, 2022 we announced the decision to perform the following additional restructuring activities: (i) eliminate our North American Field Ops warehouses, including the significant reduction of our delivery workforce teams; (ii) eliminate a significant number of roles on the North America Member Support team and exit our real-estate footprints in our Plano and Tempe locations; and (iii) reduce our North America retail showroom presence.
Additionally, on August 12, 2022, we announced the decision to perform the following additional restructuring activities: (i) fully transitioning our North American Field Operations to third-party providers, including the significant reduction of our delivery workforce teams; (ii) eliminating a significant number of roles on the North America Member Support team and exiting our real-estate footprints in our Plano and Tempe locations; and (iii) reducing our retail showroom presence.
We have the obligation, at our option, to either repair or replace the defective product. At the time revenue is recognized, an estimate of future warranty costs, including costs associated with service of Connected Fitness Products outside of the warranty period, is recorded as a component of cost of revenue.
We have the obligation, at our option, to either repair or replace the defective product. At the time revenue is recognized, an estimate of future warranty costs is recorded as a component of cost of revenue.
Because of these limitations, Adjusted EBITDA and Adjusted EBITDA Margin should be considered along with other operating and financial performance measures presented in accordance with GAAP. 56 The following table presents a reconciliation of Adjusted EBITDA to Net (loss) income, the most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated: Adjusted EBITDA and Adjusted EBITDA Margin Fiscal Year Ended June 30, 2022 2021 (dollars in millions) Net loss $ (2,827.7) $ (189.0) Adjusted to exclude the following: Other expense (income), net 74.1 10.4 Income tax expense (benefit) 19.6 (9.2) Depreciation and amortization expense 142.8 63.8 Stock-based compensation expense 271.8 194.0 Goodwill impairment 181.9 — Impairment expense 390.5 4.5 Restructuring expense 237.5 — Supplier settlements 337.6 — Product recalls(1) 62.3 100.0 Litigation and settlement expenses(2) 118.6 35.8 Transaction and integration costs(3) 5.5 28.9 Other adjustment items (4) 2.9 14.5 Adjusted EBITDA $ (982.7) $ 253.7 Adjusted EBITDA margin (27.4) % 6.3 % ______________________ (1) Represents adjustments and charges associated with the Tread and Tread+ product recall, as well as accrual adjustments.
The following table presents a reconciliation of Adjusted EBITDA to Net loss, the most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated: Adjusted EBITDA Fiscal Year Ended June 30, 2023 2022 2021 (dollars in millions) Net loss $ (1,261.7) $ (2,827.7) $ (189.0) Adjusted to exclude the following: Total other expense, net 60.9 74.1 10.4 Income tax expense (benefit) 3.7 19.6 (9.2) Depreciation and amortization expense 124.3 142.8 63.8 Stock-based compensation expense 319.9 271.8 194.0 Goodwill impairment — 181.9 — Impairment expense 144.5 390.5 4.5 Restructuring expense 193.0 237.5 — Supplier settlements 22.0 337.6 — Product recall related matters (1) 80.9 62.3 100.0 Litigation and settlement expenses (2) 102.8 118.6 35.8 Other adjustment items 1.0 8.4 43.4 Adjusted EBITDA $ (208.5) $ (982.7) $ 253.7 ______________________ (1) Represents adjustments and charges associated with product recall related matters, as well as accrual adjustments.
In connection with the Restructuring Plan, we estimate that we will incur additional cash charges of approximately $95.0 million primarily composed of severance and other exit costs in fiscal year 2023 and beyond.
In connection with the Restructuring Plan, we estimate that we will incur additional cash charges of approximately $40.0 million, primarily composed of lease termination and other exit costs, by the end of fiscal year 2024.
Intangible assets other than goodwill are comprised of acquired developed technology, brand name, customer relationships, distributor relationships, and other finite-lived intangible assets. At initial recognition, intangible assets acquired in a business combination or asset acquisition are recognized at their fair value as of the date of acquisition.
The Company has no intangible assets with indefinite useful lives. Intangible assets other than goodwill are comprised of acquired developed technology and other finite-lived intangible assets. At initial recognition, intangible assets acquired in a business combination or asset acquisition are recognized at their fair value as of the date of acquisition.
Fiscal Year Ended June 30, 2022 2021 2020 Ending Connected Fitness Subscriptions 2,965,677 2,330,700 1,091,100 Average Net Monthly Connected Fitness Churn 0.96 % 0.61 % 0.62 % Total Workouts (in millions) 540.0 459.7 164.5 Average Monthly Workouts per Connected Fitness Subscription 16.4 22.0 17.9 Subscription Gross Profit (in millions) $ 944.7 $ 541.7 $ 208.0 Subscription Contribution (in millions) (1) $ 994.2 $ 586.5 $ 232.1 Subscription Gross Margin 67.7 % 62.1 % 57.2 % Subscription Contribution Margin (1) 71.3 % 67.2 % 63.8 % Net loss (in millions) $ (2,827.7) $ (189.0) $ (71.6) Adjusted EBITDA (in millions) (2) $ (982.7) $ 253.7 $ 117.7 Adjusted EBITDA Margin (2) (27.4) % 6.3 % 6.4 % Net Cash (Used in) Provided by Operating Activities (in millions) (3) $ (2,020.0) $ (239.7) $ 376.4 Free Cash Flow (in millions) (3) $ (2,357.4) $ (491.9) $ 220.0 ______________________________ (1) Please see the section titled “Non-GAAP Financial Measures—Subscription Contribution and Subscription Contribution Margin” for a reconciliation of Subscription Gross Profit to Subscription Contribution and an explanation of why we consider Subscription Contribution and Subscription Contribution Margin to be helpful metrics for investors.
Fiscal Year Ended June 30, 2023 2022 2021 Ending Connected Fitness Subscriptions 3,077,779 2,965,677 2,330,700 Average Net Monthly Connected Fitness Churn 1.2 % 1.0 % 0.6 % Subscription Gross Profit (in millions) $ 1,122.1 $ 944.7 $ 541.7 Subscription Contribution (in millions) (1) $ 1,201.8 $ 994.2 $ 586.5 Subscription Gross Margin 67.2 % 67.7 % 62.1 % Subscription Contribution Margin (1) 72.0 % 71.3 % 67.2 % Net loss (in millions) $ (1,261.7) $ (2,827.7) $ (189.0) Adjusted EBITDA (in millions) (2) $ (208.5) $ (982.7) $ 253.7 Net Cash Used in Operating Activities (in millions) $ (387.6) $ (2,020.0) $ (239.7) Free Cash Flow (in millions) (3) $ (470.0) $ (2,357.4) $ (491.9) ______________________________ (1) Please see the section titled “Non-GAAP Financial Measures—Subscription Contribution and Subscription Contribution Margin” for a reconciliation of Subscription Gross Profit to Subscription Contribution and an explanation of why we consider Subscription Contribution and Subscription Contribution Margin to be helpful measures for investors.
As of June 30, 2022, we had outstanding letters of credit totaling $77.6 million, of which $69.9 million was secured against the Revolver. (4) Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to cloud computing costs.
As of June 30, 2023, we had outstanding letters of credit totaling $71.6 million. (4) Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to cloud computing costs.
Other expense, net, was comprised of the following for the fiscal year ended June 30, 2021: • Interest expense primarily related to the amortization of the convertible notes discount and deferred financing costs of $(14.8) million; • Interest income from cash, cash equivalents, and short-term investments of $7.9 million; and • Foreign exchange losses of $(3.5) million.
Total other expense, net, was comprised of the following for the fiscal year ended June 30, 2022: • Interest expense primarily related to the Notes, the Term Loan, and deferred financing costs of $43.0 million; • Interest income from cash, cash equivalents, and short-term investments of $2.3 million; • Foreign exchange losses of $31.8 million; and • Other expense, net of $1.5 million.
If, however, the market price per share of Class A Common Stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that the then-market price per share of the Class A Common Stock exceeds the cap price of the Capped Call Transactions.
If, however, the market price per share of Class A common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that the then-market price per share of the Class A common stock exceeds the cap price of the Capped Call Transactions. 59 Class A Common Stock Offering On November 16, 2021, we entered into an underwriting agreement (the “Underwriting Agreement”) with Goldman Sachs & Co.
A discussion of our results of operations for our fiscal year ended June 30, 2021 compared to the year ended June 30, 2020 is included our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, filed with the SEC on August 27, 2021 (File No. 001-39058) under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Overview Peloton is the largest interactive fitness platform in the world with a loyal community of 6.9 million Members as of June 30, 2022.
A discussion of our results of operations for our fiscal year ended June 30, 2022 compared to the year ended June 30, 2021 is included our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC on September 7, 2022 (File No. 001-39058) under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Overview Peloton is a leading global fitness company with a highly engaged community of over 6.5 million Members as of June 30, 2023.
Additionally, we expect to recognize approximately $75.0 million of asset impairment charges in fiscal year 2023 in connection with the Restructuring Plan. 47 We may not be able to fully realize the cost savings and benefits initially anticipated from the Restructuring Plan, and the expected costs may be greater than expected.
Additionally, the Company expects to recognize additional non-cash charges of approximately $20.0 million during fiscal year 2024, primarily composed of non-inventory asset impairment charges in connection with the Restructuring Plan. We may not be able to fully realize the cost savings and benefits initially anticipated from the Restructuring Plan, and the expected costs may be greater than expected.
Connected Fitness Product revenue is recognized at the time of delivery, except for extended warranty revenue which is recognized over the warranty period and service revenue which is recognized over the term, and is recorded net of returns and discounts and third-party financing program fees, when applicable. 49 Subscription Subscription revenue consists of revenue generated from our monthly Connected Fitness Subscription and Peloton Digital subscription.
Connected Fitness Products revenue is recognized at the time of delivery, except for extended warranty revenue that is recognized over the warranty period and service revenue that is recognized over the term, and is recorded net of returns and discounts and third-party financing program fees, when applicable.
Other Expense, Net and Income Tax Expense Fiscal Year Ended June 30, 2022 2021 % Change (dollars in millions) Other expense, net $ (74.1) $ (10.4) NM Income tax expense (benefit) $ 19.6 $ (9.2) NM ___________________________ *NM - not meaningful Other expense, net, was comprised of the following for the fiscal year ended June 30, 2022: • Interest expense primarily related to the amortization of the convertible notes discount and deferred financing costs of $(43.0) million; • Interest income from cash, cash equivalents, and short-term investments of $2.3 million; • Foreign exchange losses of $(31.8) million; and • Unrealized losses on short-term investments partially offset by gain on lease termination of $(1.5) million.
Total Other Expense, Net and Income Tax Expense Fiscal Year Ended June 30, 2023 2022 % Change (dollars in millions) Interest Expense $ (97.1) $ (43.0) 125.8% Interest Income 26.4 2.3 1,062.5% Foreign exchange gains (losses) 7.0 (31.8) NM* Other income (expense), net 2.9 (1.5) NM* Income tax expense (benefit) 3.7 19.6 (81.3)% ___________________________ *NM - not meaningful 55 Fiscal Years Ended June 30, 2023 and 2022 Total other expense, net, was comprised of the following for the fiscal year ended June 30, 2023: • Interest expense primarily related to the Term Loan, the Notes, and deferred financing costs of $97.1 million; • Interest income from cash, cash equivalents, and short-term investments of $26.4 million; • Foreign exchange gains of $7.0 million; and • Other income, net of $2.9 million.
For the recall-to-date period, the Company recognized a reduction to Connected Fitness Products revenue for actual and estimated future returns of $139.9 million, and a return reserve of $39.9 million and $40.8 million is included within Accounts payable and accrued expenses in the accompanying Consolidated Balance Sheets related to the impacts of the recall as of June 30, 2022 and June 30, 2021, respectively .
As a result of these recalls, we recognized a reduction to Connected Fitness Products revenue for actual and estimated future returns of $14.6 million, $48.9 million, and $81.1 million for the fiscal years ended June 30, 2023, 2022 and 2021, respectively, and a return reserve of $24.4 million and $39.9 million is included within Accounts payable and accrued expenses in the accompanying Consolidated Balance Sheets related to the impacts of the recall as of June 30, 2023 and June 30, 2022, respectively .
Supplier settlements Fiscal Year Ended June 30, 2022 2021 % Change (dollars in millions) Supplier settlements $ 337.6 $ — NM Supplier settlements were $337.6 million in the fiscal year ended June 30, 2022, which consist of settlement and related costs paid to third-party suppliers to terminate certain future inventory purchase commitments.
Supplier settlements Fiscal Year Ended June 30, 2023 2022 % Change (dollars in millions) Supplier settlements $ 22.0 $ 337.6 (93.5)% Fiscal Years Ended June 30, 2023 and 2022 Supplier settlements decreased $315.6 million in the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022, due to settlement and related costs paid to third-party suppliers to terminate certain future inventory purchase commitments, the majority of which were accrued for during the fiscal year ended June 30, 2022.
As of June 30, 2022, we had outstanding letters of credit totaling $77.6 million, of which $69.9 million was secured against the Revolver. 60 Cash Flows Fiscal Year Ended June 30, 2022 2021 2020 (in millions) Net cash (used in) provided by operating activities $ (2,020.0) $ (239.7) $ 376.4 Net cash provided by (used in) investing activities 153.3 (585.1) (741.3) Net cash provided by financing activities 2,015.1 916.8 1,240.2 Operating Activities Net cash used in operating activities of $2,020.0 million for the fiscal year ended June 30, 2022 was primarily due to a net loss of $2,827.7 million and a net increase in operating assets and liabilities of $623.6 million, partially offset by an increase in non-cash adjustments of $1,431.2 million.
Cash Flows Fiscal Year Ended June 30, 2023 2022 2021 (in millions) Net cash used in operating activities $ (387.6) $ (2,020.0) $ (239.7) Net cash (used in) provided by investing activities (69.9) 153.3 (585.1) Net cash provided by financing activities 76.8 2,015.1 916.8 Operating Activities Net cash used in operating activities of $387.6 million for the fiscal year ended June 30, 2023 was primarily due to a net loss of $1,261.7 million, partially offset by an increase in non-cash adjustments of $760.2 million and a net decrease in operating assets and liabilities of $113.8 million.
Goodwill impairment Fiscal Year Ended June 30, 2022 2021 % Change (dollars in millions) Goodwill impairment $ 181.9 $ — NM During the fiscal year ended June 30, 2022, we recognized a Goodwill impairment charge of $181.9 million representing the entire amount of goodwill related to the Connected Fitness Products reporting unit in the Connected Fitness Products Segment.
Given the results of our quantitative assessment, we determined that the Connected Fitness Products reporting unit’s goodwill was impaired. During the fiscal year ended June 30, 2022, we recognized a goodwill impairment 54 charge of $181.9 million representing the entire amount of goodwill related to the Connected Fitness Products reporting unit in the Connected Fitness Products Segment.
(5) Refer to Note 12 - Debt in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further details regarding our convertible senior notes obligations. (6) Supplier settlements relate to payments to third-party suppliers to exit purchase commitments.
(5) Refer to Note 12 - Debt in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further details regarding our Notes and Term Loan obligations.
Total charges related to the Restructuring Plan were $611.3 million for the fiscal year ended June 30, 2022, consisting of cash charges of $109.1 million for severance and other personnel and $15.4 million for professional fees and other related charges, and non-cash charges of $373.8 million related to non-inventory asset write-downs and write-offs, $56.5 million for stock-based compensation expense and $56.4 million for inventory markdowns.
Total charges related to the Restructuring Plan were $332.4 million for the fiscal year ended June 30, 2023, consisting of cash charges of $85.1 million for severance and other personnel costs and $19.3 million for exit and disposal costs and professional fees, and non-cash charges of $139.3 million related to non-inventory asset write-downs and write-offs, $85.0 million for stock-based compensation expense and $3.7 million for write-offs of inventory related to restructuring activities.
Total charges related to the Restructuring Plan were $611.3 million for fiscal year ended June 30, 2022 consisting of cash charges of $124.5 million for severance and other personnel costs and $15.4 million for professional fees and other related charges, and non-cash charges of $373.8 million related to non-inventory asset write-downs and write-offs, $56.5 million for stock-based compensation expense and $56.4 million for inventory markdowns.
Total charges related to the Restructuring Plan were $332.4 million for fiscal year ended June 30, 2023 consisting of cash charges of $85.1 million for severance and other personnel costs and $19.3 million for exit and disposal costs and professional fees, and non-cash charges of $139.3 million related to non-inventory asset write-downs and write-offs, $85.0 million for stock-based compensation expense and $3.7 million for write-offs of inventory related to restructuring activities.
Operating Expenses Sales and Marketing Fiscal Year Ended June 30, 2022 2021 % Change (dollars in millions) Sales and marketing $ 1,018.9 $ 728.3 39.9% As a percentage of total revenue 28.4 % 18.1 % Sales and marketing expense increased $290.6 million in the fiscal year ended June 30, 2022 compared to the fiscal year ended June 30, 2021.
Operating Expenses Sales and Marketing Fiscal Year Ended June 30, 2023 2022 % Change (dollars in millions) Sales and marketing $ 648.2 $ 1,018.9 (36.4)% As a percentage of total revenue 23.1 % 28.4 % Fiscal Years Ended June 30, 2023 and 2022 Sales and marketing expense decreased $370.7 million in the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022.
As described in Note 13 of the consolidated financial statements, the Company announced voluntary recalls of the Company's Tread+ and Tread products, permitting customers to return the products for a refund.
As described in Note 13 - Commitments and Contingencies in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, the Company announced voluntary recalls of the Company's Tread+ and Tread products, permitting customers to return the products for a refund.
Our use of Adjusted EBITDA and Adjusted EBITDA Margin have limitations as analytical tools, and you should not consider these measures in isolation or as substitutes for analysis of our financial results as reported under GAAP.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our financial results as reported under GAAP.
The Company has finance lease obligations of $3.1 million, also included above. (2) We are subject to minimum royalty payments associated with our license agreements for the use of licensed content.
The original lease terms are between one and 21 years, and the majority of the lease agreements are renewable at the end of the lease period. The Company has finance lease obligations of $0.7 million, also included above. (2) We are subject to minimum royalty payments associated with our license agreements for the use of licensed content.
Subscription cost of revenue for the fiscal year ended June 30, 2022 increased $119.5 million, or 36.1%, compared to the fiscal year ended June 30, 2021.
Subscription cost of revenue for the fiscal year ended June 30, 2023 increased $98.0 million, or 21.8%, compared to the fiscal year ended June 30, 2022.
Each such margin will increase one time by 0.50% per annum if the Company chooses not to obtain a public rating for the Term Loan from S&P Global Ratings or Moody’s Investors Services, Inc. on or prior to November 25, 2022.
As stipulated in the Second Amended and Restated Credit Agreement, the applicable rates applicable to the Term Loan increased one time by 0.50% per annum as the Company chose not to obtain a public rating for the Term Loan from S&P Global Ratings or Moody’s Investors Services, Inc. on or prior to November 25, 2022.
This metric does not include data related to our Peloton Digital subscriptions for Members who pay a monthly fee for access to our content library on their own devices.
This metric does not include data related to our Peloton App subscriptions for Members who pay a monthly fee for access to our content library on their own devices. Upcoming changes to our reporting metrics Starting in fiscal year 2024, we are making changes to our reported operating metrics.
Revenue and related fees paid to the third-party provider are recognized on a gross basis as we have a continuing obligation to perform over the service period. Extended warranty revenue is recognized ratably over the extended warranty coverage period and is included in Connected Fitness Products revenue in the Consolidated Statements of Operations and Comprehensive Loss.
Revenue and related fees paid to the third-party provider are recognized on a gross basis as we have a continuing obligation to perform over the service period.
In connection with the Restructuring Plan, we estimate that we will incur additional cash charges of approximately $95.0 million primarily composed of severance and other exit costs in fiscal year 2023 and beyond. Additionally, we expect to recognize approximately $75.0 million of asset impairment charges in fiscal year 2023 in connection with the Restructuring Plan.
In connection with the Restructuring Plan, we estimate that we will incur additional cash charges of approximately $40.0 million, primarily composed of lease termination and other exit costs, by the end of fiscal year 2024.
Financing activities Net cash provided by financing activities of $2,015.1 million for the fiscal year ended June 30, 2022 was primarily related to proceeds of $1,218.8 million from the Offering, proceeds from issuance of the Term Loan of $696.4 million, exercises of stock options of $84.3 million, and $17.3 million in net proceeds from withholdings under the 2019 Employee Stock Purchase Plan.
Financing activities Net cash provided by financing activities of $76.8 million for the fiscal year ended June 30, 2023 was primarily related to exercises of stock options of $79.8 million and $6.9 million in net proceeds from withholdings under the 2019 Employee Stock Purchase Plan, partially offset by $7.5 million in principal repayments of the Term Loan.
The net proceeds from the Offering were approximately $1.2 billion, after deducting the underwriters’ discounts and commissions and our offering expenses. 59 Second Amended and Restated Credit Agreement In 2019, the Company entered into an amended and restated revolving credit agreement (as amended, modified or supplemented prior to entrance into the Second Amended and Restated Credit Agreement (as defined below), the “Amended and Restated Credit Agreement”).
Second Amended and Restated Credit Agreement In 2019, the Company entered into an amended and restated revolving credit agreement (as amended, modified or supplemented prior to entrance into the Second Amended and Restated Credit Agreement (as defined below), the “Amended and Restated Credit Agreement”).
Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenue. We use Adjusted EBITDA and Adjusted EBITDA Margin as measures of operating performance and the operating leverage in our business.
We use Adjusted EBITDA as a measure of operating performance and the operating leverage in our business.
Subsequent to June 30, 2022 the Company entered into an additional $97.3 million to be paid through fiscal 2023. 61 The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts.
The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. We utilize contract manufacturers to build our products and accessories.

… 159 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−0 removed7 unchanged
Biggest changeAlthough we do not believe that inflation has had a material impact on our business, financial condition or results of operations, our business could be more affected by inflation in the future which could have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of net revenue if we are unable to fully offset such higher costs through price increases.
Biggest changeOur business could be more affected by inflation in the future which could have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of net revenue if we are unable to fully offset such higher costs through price increases.
Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. We use derivative instruments, such as foreign currency forwards, and have the ability to use option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates.
Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. We have the ability to use derivative instruments, such as foreign currency forwards, and have the ability to use option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates.
Our exposure to foreign currency exchange rates has historically been partially hedged as our foreign currency denominated inflows create a natural hedge against our foreign currency denominated expenses.
Our exposure to foreign currency exchange rates historically has been partially hedged as our foreign currency denominated inflows create a natural hedge against our foreign currency denominated expenses.
A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, which are also subject to fluctuations due to changes in foreign currency exchange rates. For example, some of our contract manufacturing takes place in Taiwan and the related agreements are denominated in foreign currencies and not in U.S. dollars.
A portion of our operating expenses is incurred outside the United States and are denominated in foreign currencies, which are also subject to fluctuations due to changes in foreign currency exchange rates. For example, some of our contract manufacturing takes place in Taiwan and the related agreements are denominated in foreign currencies and not in U.S. dollars.
Additionally, because we purchase component parts from our suppliers, we may be adversely impacted by their inability to adequately mitigate inflationary, industry, or economic pressures. 65
Additionally, because we purchase component parts from our suppliers, we may be adversely impacted by their inability to adequately mitigate inflationary, industry, or economic pressures. 66
Item 7A. Quantitative and Qualitative Disclosure About Market Risk Interest Rate Risk We had Cash and cash equivalents of $1,253.9 million as of June 30, 2022. The primary objective of our investment activities is the preservation of capital, and we do not enter into investments for trading or speculative purposes.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk We had Cash and cash equivalents of $813.9 million as of June 30, 2023. The primary objective of our investment activities is the preservation of capital, and we do not enter into investments for trading or speculative purposes.
Added
While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we have recently experienced the effects of inflation on our results of operations and financial condition.

Other PTON 10-K year-over-year comparisons