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Peloton Interactive, Inc. (PTON) SEC Filing 10-Q Quarterly report for the period ending Tuesday, March 31, 2020

SEC Filings

PTON Quarterly Reports

Peloton Interactive, Inc.

CIK: 1639825 Ticker: PTON
Q3 2020 SHAREHOLDER LETTER


 
PELOTON INTERACTIVE, INC. THIRD QUARTER HIGHLIGHTS All financial comparisons are on a year-over-year basis unless otherwise noted. • Ending Connected Fitness Subscribers • Net Loss was $(55.6) million; Adjusted grew 94% to over 886,100 and paid Digital EBITDA was $23.5 million, representing an Subscribers grew 64% to over 176,600; total Adjusted EBITDA Margin of 4.5% Members grew to over 2.6 million • Raising FY2020 guidance: • Total revenue grew 66% to $524.6 million – 1.04 million to 1.05 million ending • 44.2 million Total Workouts by Connected Connected Fitness Subscribers, growth Fitness Subscribers, averaging 17.7 Monthly of 104% at midpoint Workouts per Connected Fitness Subscriber, – $1.72 billion to $1.74 billion total versus 13.9 in the same period last year revenue, 89% growth at midpoint • Average Net Monthly Connected Fitness – $30 million to $40 million Adjusted Churn was 0.46%, our lowest level in four EBITDA, 2.0% Adjusted EBITDA Margin years; 12-month retention rate was 93% at the midpoints • Gross Margin grew to 46.8%; Connected Fitness Gross Margin was 45.3%, Subscription Gross Margin was 57.8%, and Subscription Contribution Margin was 63.6% CONNECTED FITNESS SUBSCRIBERS QUARTERLY TOTAL REVENUE 1,000 886 600 524.6 466.3 800 712 500 563 400 600 511 316.7 457 262.9 362 300 223.3 228.0 400 246 277 200 106.6 112.1 200 100 0 0 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 FY 2018 FY 2019 FY 2020 FY 2018 FY 2019 FY 2020 (in thousands) (in $ millions) QUARTERLY WORKOUTS AVG. MONTHLY WORKOUTS PER SUB 50,000 17.7 44,155 18 40,000 16 30,000 13.9 12.6 24,345 14 17,988 17,759 19,171 12.0 20,000 11.7 12 9,336 9.7 10,000 6,223 7,069 10 8.7 8.9 0 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 8 FY 2018 FY 2019 FY 2020 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 FY 2018 FY 2019 FY 2020 (in thousands) PELOTON Q3: 2020 | 2


 
Peloton Shareholders, In these unprecedented times, we are grateful for the extremely hard work of our employees around the world, the incredible dedication of our Member community, and the unwavering support of our business partners. As a New York City-based company, we are especially thankful for the strength and sacrifice shown by all of those fighting COVID-19, particularly the first responders, frontline healthcare professionals, and all essential workers who have been tirelessly supporting our communities at home and abroad. From the bottom of our hearts, thank you. We want to also thank our teams — across field operations, member support, sales, content production, and more — who continue to support our Members’ physical and mental well-being. Over the past several weeks, our warehouse and delivery teams have delivered tens of thousands of Peloton Bikes to new Members across our markets, allowing us to help more people cope with the anxiety, uncertainty, and stress this pandemic has brought to our communities. Community has always been at the heart of everything we do here at Peloton, and we have never been more inspired by the power of our community than in these past weeks. We have been amazed by the acts of kindness, support, and strength taking place on our platform. One of the biggest ways we have seen this manifest itself is an explosion in the number of companies organizing group rides that raise money for those in need. Also, we are deeply inspired as we see our own Members in the healthcare industry supporting their local communities on the front lines. We often hear stories from our Members about how the Peloton community has helped power them through tough times, and we are grateful that our platform is able to provide a sense of community, escape, and motivation during this pandemic. Now, more than ever, together we go far. PELOTON Q3: 2020 | 3


 
Our priorities during this time have been PROVIDING RELIEF FOR OUR GLOBAL to ensure the safety and well-being of our CONNECTED FITNESS MEMBERS employees, to continue serving our Members, We know many of our Members and their and to support our communities. families are fighting COVID-19, helping others cope with the illness, or have been financially EMPLOYEE ASSISTANCE impacted by business closures and job loss. In We extended sick time for all of our employees, response, we pledged $1.0 million in Connected procured necessary technology and systems Fitness Subscription waivers for those access for employees to work remotely, financially impacted by COVID-19 to help our established a family care reimbursement Members stay healthy and connected during program, provided well-being reimbursements these challenging times. to cover the unique expenses associated with COVID-19, and instituted a “High Five” employee- THE COMEBACK FOR HEALTHCARE funded and company-matching program that PROFESSIONALS provides financial assistance to employees undergoing various hardships, raising over The Comeback is our donation program $100,000 so far. We also implemented hazard of 50 Bikes every month to individuals and pay for our warehouse and delivery employees. organizations on uphill journeys who can benefit from the support of the Bike and Peloton community. In April, we extended our existing PELOTON DIGITAL 90-DAY FREE TRIAL Comeback Program by donating 200 Bikes to hospitals and healthcare professionals. From March 16 through April 30, we extended our Digital subscription free trial period from 30 to 90 days in order to help people maintain NYC COMMUNITY SUPPORT their physical and mental well-being through We recently donated 95,000 KN95 masks and our fitness and wellness programming. Since 50,000 surgical masks to the City of New York, the extension was announced, over 1.1 million and supported our local community through people have signed up for our free trial and charity classes benefiting The Food Bank For completed over 8 million workouts from March New York City, raising approximately $500,000 16 to April 30. to provide meals to those in most in need. PELOTON Q3: 2020 | 4


 
BUSINESS CONTINUITY We have made a significant number of changes We have been monitoring the COVID-19 situation to our business during the COVID-19 crisis. Our closely and continue to make necessary NYC, Plano, and London HQ, employees have adjustments to our delivery and warehouse shown incredible strength and flexibility as they protocols to ensure the safety of our team, our adapted nearly overnight to a 100% work-from- Members, and communities. Early in the crisis, home environment. Even though we closed our 97 we implemented “threshold” and curbside delivery global showrooms on March 16, our e-commerce and deep cleaning practices throughout our and inside sales channels have remained open warehouses and delivery vehicles. On March 19, allowing us to continue to sell our Connected we paused activities that require entering the Fitness Products to people during a time when home, including Tread delivery, return pick-up, and they may need it most. With the majority of in-home servicing. We will resume these activities our showrooms expected to remain closed for on a market-by-market basis when it is safe for several more weeks, our retail sales specialists our employees, Members, and communities. are helping other areas of our business in need of additional support during this time. We continue We decided to pause production of new classes to pay full salary and benefits for all of our in our studios in both NYC and London on April 7. employees and make all rent payments across our We resumed live programming from instructors’ retail and studio locations. homes on April 22, which we will continue to do until our studio is reopened. Live programming is Our entire global Member Support team is also important to our Members at this time, allowing working from home so that Members can continue our instructors and community to connect and to access the help they need to focus on health and inspire each other as the health crisis continues well-being and stay connected to our community. to evolve. PELOTON Q3: 2020 | 5


 
PELOTON DIGITAL & 90-DAY FREE TRIAL Peloton Digital provides Members with access to Our goal has been to make Peloton available on high-quality fitness content anywhere, anytime. every screen in our Members’ hands and in their We ended the third quarter with 176,600 paying homes. On April 2, we launched our Peloton Digital Digital Members, representing 64% year-over- app for Android TV, enabling us to bring Peloton year growth. We attribute our Digital subscriber into the homes of millions of people who already growth to continued improvements in our user have Android-enabled TVs from Sony, Sharp, experience, continuous new programming and Phillips, and many more. Following our Fire TV content formats, the price reduction of the app release last quarter, we saw engagement Digital subscription to $12.99 per month, and with TV increase significantly during Q3 with over marketing investments to drive awareness. 1.3 million workouts taken across Fire TV, Airplay, and Chromecast. The expansion to TVs has also In mid-March, we extended our Digital free trial fueled growth and engagement in floor-based class from 30 to 90 days, enabling over 1.1 million types such as strength, yoga, and meditation, an people on free trial as of April 30 to maintain additional way we can add new experiences for their physical and mental well-being during this our existing Connected Fitness Subscribers. As time. We are excited that those on free trial of March 31, over 60% of our Connected Fitness have been engaging with a variety of fitness Subscribers are working out with Peloton Digital disciplines available on Peloton Digital. Over to supplement their Connected Fitness workouts 80% of workouts completed by free trialers have on the Bike or Tread, with approximately 30% of been in categories not requiring a Bike or Tread, all Connected Fitness Subscriber workouts in our such as strength, yoga, and meditation. floor-based fitness disciplines. PELOTON Q3: 2020 | 6


 
On April 7, we decided to pause production at both our New York and London studios. In addition to our vast library of classes across 10 fitness and wellness disciplines available on-demand, we continue to add new, pre-recorded content for our Members, like our recently launched Dance Cardio on March 25 and Fit Family Programming on April 3, both of which have been incredibly popular with our Members with over 800,000 classes taken across both collections in the weeks since launch. We also added Encore classes to the schedule, encouraging our instructors and community to drive conversation and support around our most popular classes. Our world-class instructors have been energized by the opportunity to connect with and motivate our Members through these challenging times. To keep our classes relevant to our Members we began live production from our instructors’ homes on April 22 until our studios are reopened. As an example of the importance and value of live and fresh content, our first “Live From Home” ride, taught The All-New Peloton Studios New York by Robin Arzon, had over 23,000 live riders and has been taken nearly 175,000 times on-demand. CONTENT AND PROGRAMMING Our music and legal teams achieved a milestone The engagement of our Members and the in the third quarter, resolving the litigation with all strength of our community has never been parties involved in the Downtown Music Publishing greater. Over the past several weeks, our platform LLC, et. al. v. Peloton Interactive, Inc. matter. Since has seen unprecedented levels of participation the resolution of the litigation in February, we have in classes across all of our fitness and wellness welcomed thousands of new music publishers disciplines, and increased usage of our interactive to our platform, further fortifying our industry- software features, such as high fives, tags, leading library with great new songs we believe and live stream participation. On March 25, we our Members will love. We also entered into an celebrated our first day with over one million agreement with The National Music Publishers’ workouts taken by our Members. Association (NMPA), the trade association representing nearly all American music publishers, We began broadcasting from our new flagship, to work together on innovative licensing solutions Peloton Studios New York (“PSNY”), on March that will benefit our Members as we continue to 19 without a studio audience. Equipped with expand our subscriber base and service offerings. state-of-the-art cameras and 4K technology, our new 35,000 square foot facility has four studios under one roof, allowing us to film all fitness disciplines in one centralized location for the first time. When it opens to the public, PSNY will be a destination for our Member community to come together and participate in all things Peloton. In addition to the fitness studios where Members can celebrate a milestone or take one of our fitness classes led by world-class instructors, PSNY also features a smoothie and snack bar, a retail showroom with exclusive PSNY apparel, and lounge areas for our Members. PELOTON Q3: 2020 | 7


 
PELOTON INTERACTIVE, INC. FINANCIAL DISCUSSION Our global Connected Fitness Subscriber base saw REVENUE significant growth in the third quarter. Our growth was $524.6 million aided by increased demand for our products driven 66% Y/Y by the extraordinary circumstances facing our global community with the COVID-19 crisis. ENDING CONNECTED FITNESS SUBSCRIBERS REVENUE 886,100 We generated total revenue of $524.6 million, representing 66% 94% Y/Y year-over-year growth. Connected Fitness Product revenue was $420.2 million, representing 61% year-over-year growth and 80% of total revenue. Connected Fitness Product revenue exceeded AVG. NET MONTHLY our expectations across all geographies driven by strong demand CONNECTED for our Bike and performance of Tread prior to pausing sales and FITNESS CHURN deliveries of our Tread on March 19. During the last few weeks of 0.46% Q3, we saw a significant increase in demand for our Bike which has continued into Q4 so far. Subscription revenue was $98.2 million in Q3, representing 92% year-over-year growth and 19% of total revenue. The increase in subscription revenue was a result of strong growth in our Connected Fitness Subscriber base, which reached over 886,100 by the end of Q3, representing year-over-year growth of 94%. We experienced low Average Net Monthly Connected Fitness Churn in the third quarter of 0.46% driven by increased subscription reactivations during the period, especially in January and during the last few weeks of March. As of March 31, 95% of our Connected Fitness Subscribers were on month-to-month payment plans. Member engagement grew in Q3 with 17.7 Average Monthly Workouts per Connected Fitness Subscriber versus 13.9 Workouts in the same period last year. Our Connected Fitness Subscribers worked out with us 44.2 million times, up from 18.0 million workouts in the same period last year, representing 145% year-over-year growth. In addition, we ended the quarter with 176,600 paying Digital Subscribers, up 64% year-over-year. Other revenue, which primarily consists of the sale of Peloton- branded apparel, was $6.1 million in Q3, representing 53% revenue growth, net of discounts, year-over-year. Growth in apparel revenue was significantly offset by the discounts offered in our referral program, which help drive word-of-mouth Connected Fitness Product purchase recommendations from our growing Member base. PELOTON Q3: 2020 | 8


 
PELOTON INTERACTIVE, INC. FINANCIAL DISCUSSION GROSS PROFIT GROSS PROFIT Gross profit was $245.8 million in Q3 representing 104% year- $245.8 million over-year growth. Gross margin for the quarter was up year-over- 46.8% gross margin year at 46.8%. CONNECTED Connected Fitness Products gross profit was $190.3 million in Q3, FITNESS GROSS representing 74% year-over-year growth. Our Connected Fitness PROFIT Products gross margin was 45.3%, a 350 basis point increase versus last year. This was primarily driven by a mix shift to Bike $190.3 million deliveries, continued improvements in our product costs, and 45.3% gross margin greater-than-expected fixed cost leverage in our logistics platform due to our sales performance and shift to threshold delivery. SUBSCRIPTION These efficiencies were partially offset by costs associated with GROSS PROFIT hazard pay for our warehouse and delivery teams. $56.8 million Subscription gross profit was $56.8 million in Q3, representing 57.8% gross margin 334% year-over-year growth. Subscription gross margin was 57.8%, a 3,224 basis point improvement versus last year. SUBSCRIPTION Subscription Contribution was $62.4 million in Q3, representing CONTRIBUTION 274% year-over-year growth. Subscription Contribution Margin was 63.6%, a 3,093 basis point improvement versus last year, $62.4 million primarily driven by an $11.3 million benefit from lower content 63.6% contribution costs for past use and fixed cost leverage. margin For a reconciliation of non-GAAP financial measures to their corresponding GAAP measures, please refer to the reconciliation tables in the section titled “Key Operating Metrics and Non-GAAP Financial Measures—Non-GAAP Financial Measures.” PELOTON Q3: 2020 | 9


 
PELOTON INTERACTIVE, INC. FINANCIAL DISCUSSION OPERATING EXPENSES TOTAL OPERATING Total operating expense was $304.2 million, and grew 88% year- EXPENSES over-year, representing 58% of total revenue versus the prior year period of 51%. Excluding non-recurring litigation and settlement $304.2 million expenses of $49.3 million, total operating expense grew 63% year- 58% of revenue over-year, and was flat year-over-year as a percentage of revenue. Operating expense growth was driven by higher marketing, SALES AND personnel-related, and rent and occupancy expenses to support MARKETING our growth, including expansion into new international markets and fitness verticals. $154.8 million 30% of revenue Sales and marketing expense was $154.8 million, and grew 53% year-over-year, representing 30% of total revenue versus the prior GENERAL AND year period of 32%. The increase was primarily driven by higher ADMINISTRATIVE acquisition and brand marketing spend across Bike, Tread, Peloton Digital, and international markets. However, in mid-March we $126.9 million paused all cancellable advertising spend in the majority of our 24% of revenue markets due to increased demand related to COVID-19. We are seeing the benefit from prior marketing investments in brand RESEARCH AND awareness and strong word-of-mouth referrals driven by our high DEVELOPMENT customer satisfaction levels. Our global showroom count stands at 97 retail locations at the end of Q3, up from 69 in the same $22.5 million period last year, resulting in an increase in personnel costs, rent and 4% of revenue occupancy costs, and depreciation expense in the current period. General and administrative expense was $126.9 million and grew 170% year-over-year, representing 24% of total revenue versus 15% in the prior year. Excluding non-recurring litigation and settlement expenses of $49.3 million, general and administrative expense grew 88% year-over-year, representing 15% of total revenue. Year-over-year growth was also driven by continued investment in our teams and systems, public company costs, and lease expense related to our new headquarters in New York City. Research and development expense was $22.5 million and grew 62% year-over-year, representing 4% of total revenue, flat versus prior year. The growth in overall expense is primarily due to the expansion of our software and hardware engineering teams to continue to develop a robust pipeline of new software features and Connected Fitness Products. PELOTON Q3: 2020 | 10


 
PELOTON INTERACTIVE, INC. FINANCIAL DISCUSSION PROFITABILITY NET LOSS Net loss in Q3 was $(55.6) million compared to $(38.6) million $(55.6) million in the same period last year, primarily driven by non-recurring (10.6)% profit margin litigation and settlement expenses in the quarter. Q3 Adjusted EBITDA was $23.5 million representing an Adjusted EBITDA ADJUSTED Margin of 4.5% compared to (6.2)% in the same period last EBITDA LOSS year. Factoring in Q3 weighted average shares outstanding of 280,879,011, basic and diluted net loss per share was $(0.20). $23.5 million 4.5% margin BALANCE SHEET CASH AND CASH We are pleased with our liquidity position which provides us EQUIVALENTS flexibility to react to the current environment and allows us to $1.4 billion continue to make significant investments in our platform. We ended Q3 with $1.4 billion in cash and cash equivalents, and investments in marketable securities, compared to $439.3 million as of the same period last year. We have additional liquidity in the form of a $250.0 million revolving credit facility, which remains undrawn to-date. Through Q3, cash provided by operations for fiscal year 2020 was $49.1 million. Capital expenditures were $110.1 million, the majority of which is related to the continued build out of our new Peloton Studios in New York City and London, our New York City headquarters, and new showrooms. PELOTON Q3: 2020 | 11


 
PELOTON INTERACTIVE, INC. Q4 AND FULL FISCAL YEAR 2020 BUSINESS OUTLOOK Q4 FISCAL YEAR 2020 HIGHLIGHTS FULL FISCAL YEAR 2020 HIGHLIGHTS • $500 million to $520 million total revenue, • 1.04 million to 1.05 million ending Connected 128% growth at midpoint Fitness Subscribers, growth of 104% at midpoint • $55 million to $65 million Adjusted EBITDA, • $1.72 billion to $1.74 billion total revenue, 11.8% Adjusted EBITDA Margin at midpoint 89% growth at midpoint of ranges • $30 million to $40 million Adjusted EBITDA at midpoint of ranges, 2.0% Adjusted EBITDA Margin at midpoint of ranges We entered Q4 with a backlog of Bike deliveries For Q4, we expect a Subscription Contribution Margin in all geographies and sales continue to surpass of 63.0% to 64.0%. Year-over-year improvements expectations in the first several weeks of Q4 due in Subscription Gross Margin and Subscription to COVID-19. Unfortunately, the unexpected sharp Contribution Margin are driven primarily by the increase in sales has created an imbalance of supply leveraging of fixed costs of content production. and demand in many geographies, causing elongated order-to-delivery windows for our customers. Over the We expect significant reductions to sales and past several weeks, we have worked closely with our marketing expense in Q4 due to lower advertising manufacturing partners to accelerate the supply of spend given elevated sales levels, partially offset goods and, as a result, we are incurring higher costs by costs of extending Peloton Digital free trial to 90 in order to expedite shipments. We do not expect to days. With strong sales flow-through, leveraging of materially improve order-to-delivery windows before the fixed costs, and reductions to media spend we expect end of Q4. Our guidance assumes we do not resume Q4 Adjusted EBITDA of $55 million to $65 million, Tread sales prior to the end of fiscal year 2020. representing an Adjusted EBITDA Margin of 11.8% at the midpoint of the ranges. For fiscal year 2020, we For Q4, we expect Average Net Monthly Connected expect Adjusted EBITDA of $30 million to $40 million, Fitness Churn to stay under 0.75% as we continue representing an Adjusted EBITDA Margin of 2.0% at the to see better Connected Fitness reactivations and midpoint of the ranges. elevated levels of Member engagement. A reconciliation of non-GAAP guidance measures to For Q4, we expect a gross margin of 42.5% to 43.5%. corresponding GAAP measures is not available on a We expect Connected Fitness Product Gross Margin forward-looking basis without unreasonable effort to decline year-over-year to 40.0% to 41.0%, which due to the uncertainty regarding, and the potential reflects additional shipping costs to expedite product variability of, many of the costs and expenses that shipments and costs associated with COVID-19, may be incurred in the future. We have provided a including hazard pay for warehouse and delivery teams. reconciliation of GAAP to non-GAAP financial measures The decline in Connected Fitness margin is partially for the third quarter in the reconciliation tables at the offset by a mix shift to Bike deliveries. end of this letter. PELOTON Q3: 2020 | 12


 
PELOTON INTERACTIVE, INC. Q4 AND FULL FISCAL YEAR 2020 BUSINESS OUTLOOK WEBCAST We will host a Q&A session at 5:00 PM ET on Wednesday, highly competitive market in which we operate; market May 6, 2020 to discuss our financial results. To acceptance of our Connected Fitness Products; our participate in the live call, please dial 1 (877) 667-0469 ability to successfully develop and timely introduce (US / Canada) or 1 (346) 406-0807 (international) and new products and services; our ability to accurately provide conference ID 4498058. A live webcast of the forecast consumer demand and adequately manage call will be available at https://investor.onepeloton. our inventory; our ability to maintain the value and com/investor-relations/ and will be archived on our site reputation of the Peloton brand; a decrease in sales of following the call. our Bike; the continued growth of the connected fitness market; the loss of any one of our third-party suppliers, We want to thank the entire Peloton family during this manufacturers, or logistics partners; our ability to time. Our commitment to our employees and connection achieve the objectives of strategic and operational with our Member community have never been stronger. initiatives; litigation and related costs; the impact We are grateful to be a source of inspiration, support, and of privacy and data security laws; and other general community as we continue to navigate these challenging market, political, economic, and business conditions. times together. Additional risks and uncertainties that could affect our Stay safe and well, financial results are included under the caption “Risk Team Peloton Factors” in the final prospectus pursuant to Rule 424(b) (4) filed with the Securities and Exchange Commission (SEC) on September 26, 2019, our most recent Quarterly SAFE HARBOR STATEMENT Report on Form 10-Q, and our other SEC filings, which This shareholder letter includes forward-looking are available on the Investor Relations page of our statements, which are statements other than website at https://investor.onepeloton.com/investor- statements of historical facts and statements in the relations and on the SEC website at www.sec.gov. future tense. These statements include, but are not limited to, statements regarding our future performance All forward-looking statements contained herein are and our market opportunity, including expected based on information available to us as of the date financial results for the fourth quarter of fiscal year hereof and you should not rely upon forward-looking 2020 and full fiscal year 2020, the potential impact statements as predictions of future events. The events of COVID-19 on the fitness and wellness industry in and circumstances reflected in the forward-looking general as well as our business, our business strategy statements may not be achieved or occur. Although and plans, and our objectives and future operations. we believe that the expectations reflected in the Forward-looking statements are based upon various forward-looking statements are reasonable, we cannot estimates and assumptions, as well as information guarantee future results, performance, or achievements. known to us as of the date hereof, and are subject to We undertake no obligation to update any of these risks and uncertainties. Accordingly, actual results forward-looking statements for any reason after the could differ materially due to a variety of factors, date of this shareholder letter or to conform these including: our ability to attract and retain Subscribers; statements to actual results or revised expectations, our limited operating history; our ability to anticipate except as required by law. Undue reliance should not be and satisfy consumer preferences; the effects of the placed on forward-looking statements. PELOTON Q3: 2020 | 13


 
PELOTON INTERACTIVE, INC. KEY OPERATING METRICS AND NON-GAAP FINANCIAL MEASURES In addition to the measures presented in our interim condensed consolidated financial statements, we use the following key operating metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions. Three Months Ended March 31 2020 2019 Ending Connected Fitness Subscribers 886,100 457,100 Average Net Monthly Connected Fitness Churn 0.46% 0.68% Total Workouts (in millions) 44.2 18.0 Average Monthly Workouts per Connected Fitness Subscriber 17.7 13.9 Subscription Gross Profit (in millions) $ 56.8  $ 13.1 Subscription Contribution (in millions)(1) $ 62.4  $ 16.7 Subscription Gross Margin 57.8% 25.6% Subscription Contribution Margin(1) 63.6% 32.7% Net Loss (in millions) $ (55.6) $ (38.6) Adjusted EBITDA (in millions)(2) $ 23.5 $ (19.7) Adjusted EBITDA Margin(2) 4.5% (6.2)% (1) Please see the section titled “Non-GAAP Financial Measures” for a reconciliation of Subscription Gross Profit to Subscription Contribution and an explanation for why we consider Subscription Contribution to be a helpful metric for investors. (2) Please see the section titled “Non-GAAP Financial Measures” for a reconciliation of net loss to Adjusted EBITDA and an explanation for why we consider Adjusted EBITDA to be a helpful metric for investors. CONNECTED FITNESS SUBSCRIBERS AVERAGE NET MONTHLY CONNECTED Our ability to expand the number of Connected Fitness FITNESS CHURN Subscribers is an indicator of our market penetration We use Average Net Monthly Connected Fitness Churn and growth. A Connected Fitness Subscriber can to measure the retention of our Connected Fitness represent a person, household, or commercial property, Subscribers. We define Average Net Monthly Connected such as a hotel or residential building. Fitness Churn as Connected Fitness Subscriber cancellations, net of reactivations, in the quarter, divided A Connected Fitness Subscription is either a paid by the average number of beginning Connected Fitness Connected Fitness Subscriber (a Connected Fitness Subscribers in each month, divided by three months. Subscription with a successful credit card billing or This metric does not include data related to our Digital with prepaid subscription credits or waivers) or paused Subscribers who pay a monthly fee for access to our Connected Fitness Subscriber (a Connected Fitness content library on their own devices. Subscription where the Subscriber has requested to “Pause” for up to 3 months). We do not include canceled or unpaid Connected Fitness Subscriptions in the Connected Fitness Subscriber count. PELOTON Q3: 2020 | 14


 
PELOTON INTERACTIVE, INC. KEY OPERATING METRICS AND NON-GAAP FINANCIAL MEASURES TOTAL WORKOUTS AND AVERAGE NON-GAAP FINANCIAL MEASURES MONTHLY WORKOUTS PER CONNECTED In addition to our results determined in accordance FITNESS SUBSCRIBER with accounting principles generally accepted in the We review Total Workouts and Average Monthly United States, or GAAP, we believe the following Workouts per Connected Fitness Subscriber to non-GAAP financial measures are useful in evaluating measure engagement, which is the leading indicator our operating performance. of retention for our Connected Fitness Subscribers. We define Total Workouts as all workouts completed These non-GAAP financial measures have limitations during a given period. We define a Workout as a as analytical tools in that they do not reflect all of the Connected Fitness Subscriber either completing at amounts associated with our results of operations least 50% of an instructor-led or scenic ride or run, or as determined in accordance with GAAP. Because of ten or more minutes of “Just Ride” or “Just Run” mode. these limitations, Adjusted EBITDA, Adjusted EBITDA We define Average Monthly Workouts per Connected Margin, Subscription Contribution, and Subscription Fitness Subscriber as the Total Workouts completed Contribution Margin should be considered along with in the quarter divided by the average number of other operating and financial performance measures Connected Fitness Subscribers in each month, divided presented in accordance with GAAP. by three months. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures. A reconciliation of the non-GAAP financial measures to such GAAP measures can be found below. PELOTON Q3: 2020 | 15


 
PELOTON INTERACTIVE, INC. ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN Adjusted EBITDA and Adjusted EBITDA Margin are key lease expense related to build-to-suit lease obligations performance measures that our management uses to under ASC 840, and incremental costs primarily consisting assess our operating performance and the operating of hazard pay as well as deep cleaning facilities as a result leverage in our business. Because Adjusted EBITDA and of COVID-19. Adjusted EBITDA Margin is calculated by Adjusted EBITDA Margin facilitate internal comparisons dividing Adjusted EBITDA by total revenue. For this quarter of our historical operating performance on a more we have updated our Adjusted EBITDA and Adjusted consistent basis, we use these measures for business EBITDA Margin financial measures to exclude incremental planning purposes. We also believe this information will costs associated with COVID-19, which primarily consist of be useful for investors to facilitate comparisons of our hazard pay for field operations employees as well as costs operating performance and better identify trends in our associated with deep cleaning of facilities, because these business. We expect Adjusted EBITDA Margin to increase costs arise outside of the ordinary course of our business over the long-term as we continue to scale our business and we believe that excluding the impact of these COVID-19 and achieve greater leverage in our operating expenses. costs reflects information valuable to investors given the outsized impact of the pandemic which is not expected to We calculate Adjusted EBITDA as net loss adjusted to have a similar ongoing impact to our future results given the exclude: other income, net; provision for income taxes; unprecedented nature of COVID-19. depreciation and amortization expense; stock-based compensation expense; transaction costs; certain The following table presents a reconciliation of Adjusted litigation expenses, consisting of legal settlements and EBITDA to net loss, the most directly comparable financial related fees for specific proceedings that arise outside measure prepared in accordance with GAAP, for each of the of the ordinary course of our business; and the ground periods indicated: Three Months Ended March 31 Nine Months Ended March 31 (dollars in millions) (dollars in millions) 2020 2019 2020 2019 Net loss (1) $ (55.6) $ (38.6) $ (160.7) $ (148.2) Adjusted to exclude the following: Other (income), net (2.7) (3.0) (9.6) (4.9) Income tax (benefit) expense (0.1) 0.2 (0.5) 0.2 Depreciation and amortization expense 11.0 5.8 28.2  15.0 Stock-based compensation expense 20.5 7.5 56.3  76.0 Litigation and settlement expenses 49.3 5.8  59.0  9.7 Other adjustment items (2) 1.1  2.6 1.4 4.4 Adjusted EBITDA $ 23.5  $ (19.7) $ (25.9) $ (47.7) Adjusted EBITDA margin 4.5% (6.2)% (2.1)% (6.9)% (1) Included in net loss are content costs for past use as follows: Three Months Ended March 31 Nine Months Ended March 31 (dollars in millions) (dollars in millions) 2020 2019 2020 2019 Content costs for past use (1) $ – $ 11.3 $ 1.0 $ 16.4 (1) From time-to-time, we execute music royalty agreements with various music rights holders. As part of these go-forward license agreements, we may also enter into agreements whereby we are released from all potential licensor claims regarding our alleged past use of copyrighted material in our content in exchange for a mutually-agreed payment. We refer to these payments as content costs for past use. Included in Adjusted EBITDA are content costs for past use. These costs had no basis point impact on Adjusted EBITDA Margin for the three months ended March 31, 2020 and a negative basis point impact on Adjusted EBITDA Margin of 8 for the nine months ended March 31, 2020 and 357 and 238 for the three and nine months ended March 31, 2019, respectively. (2) Includes incremental costs associated with COVID-19 of $0.9 million for the three and nine months ended March 31, 2020 and the ground lease expense related to build-to-suit lease obligations under ASC 840 of $2.6 million and $4.4 million for the three and nine months ended March 31, 2019. PELOTON Q3: 2020 | 16


 
PELOTON INTERACTIVE, INC. SUBSCRIPTION CONTRIBUTION AND SUBSCRIPTION CONTRIBUTION MARGIN We use Subscription Contribution and Subscription Subscription Contribution and Subscription Contribution Contribution Margin to measure our ability to scale Margin in conjunction with financial measures prepared in and leverage the costs of our Connected Fitness accordance with GAAP for planning purposes, including the Subscriptions. The continued growth of our Connected preparation of our annual operating budget, as a measure Fitness Subscriber base will allow us to improve our of our core operating results and the effectiveness of our Subscription Contribution Margin. While there are variable business strategy, and in evaluating our financial performance. costs, including music royalties, associated with our Connected Fitness Subscriptions, a significant portion We define Subscription Contribution as subscription revenue of our content creation costs are fixed given that we less cost of subscription revenue, adjusted to exclude from operate with a limited number of production studios and cost of subscription revenue, depreciation and amortization instructors. The fixed nature of those expenses should expense and stock-based compensation expense. Subscription scale over time as we grow our Connected Fitness Contribution Margin is calculated by dividing Subscription Subscriber base. Contribution by subscription revenue. We believe that these non-GAAP financial measures are The following table presents a reconciliation of Subscription useful to investors for period-to-period comparisons Contribution to subscription gross profit, the most directly of our business and in understanding and evaluating comparable financial measure prepared in accordance with our operating results because our management uses GAAP, for each of the periods indicated: Three Months Ended March 31 Nine Months Ended March 31 (dollars in millions) (dollars in millions) 2020 2019 2020 2019 Subscription Revenue $ 98.2  $ 51.1  $ 242.5 $ 120.1 Less: Cost of Subscription (1) 41.4 38.0 103.3 74.6 Subscription Gross Profit $ 56.8  $ 13.1 $ 139.2 $ 45.5 Subscription Gross Margin 57.8% 25.6% 57.4% 37.9% Add back: Depreciation and amortization expense 4.3 3.0 11.7 7.5 Stock-based compensation expense 1.4 0.6  3.6 2.4 Subscription Contribution $ 62.4 $ 16.7 $ 154.5 $ 55.3 Subscription Contribution Margin 63.6% 32.7% 63.7% 46.1% (1) Included in cost of subscription are content costs for past use as follows: Three Months Ended March 31 Nine Months Ended March 31 (dollars in millions) (dollars in millions) 2020 2019 2020 2019 Content costs for past use (2) $ – $ 11.3 $ 1.0  $ 16.4 (2) From time-to-time, we execute music royalty agreements with various music rights holders. As part of these go-forward license agreements, we may also enter into agreements whereby we are released from all potential licensor claims regarding our alleged past use of copyrighted material in our content in exchange for a mutually-agreed payment. We refer to these payments as content costs for past use. Included in Subscription Contribution and Subscription Contribution Margin are content costs for past use. These costs had no basis point impact on Subscription Contribution Margin for the three months ended March 31, 2020 and a negative basis point impact on Subscription Contribution Margin of 42 for the nine months ended March 31, 2020 and 2,216 and 1,368 for the three and nine months ended March 31, 2019, respectively. PELOTON Q3: 2020 | 17


 
PELOTON INTERACTIVE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions, except share and per share amounts) ASSETS 03/31/2020 06/30/2019 Current assets: Unaudited Cash and cash equivalents $ 509.0 $ 162.1 Marketable securities 923.7 216.0 Accounts receivable, net 51.2 18.5 Inventories, net 194.2 136.6 Prepaid expenses and other current assets 114.5 48.4 Total current assets 1,792.7 581.7 Property and equipment, net 207.3 249.7 Intangible assets, net 17.3 19.5 Goodwill 38.1 4.3 Restricted cash 1.5  0.8 Right-of-use asset 484.6 — Other assets 28.0 8.5 Total assets $ 2,569.4 $ 864.5 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable 141.5 92.2 Accrued expenses 151.7 104.5 Customer deposits and deferred revenue 215.2 90.8 Other current liabilities 31.4 3.3 Total current liabilities 539.9 290.8 Deferred rent — 23.7 Build-to-suit liability — 147.1 Long term lease liability 497.7 — Other non-current liabilities 14.5 0.4 Total liabilities 1,052.1 462.0 Commitments and contingencies Redeemable convertible preferred stock, $0.000025 par value, zero and 215,443,468 shares authorized; zero and 210,640,629 shares — 941.1 issued and outstanding as of March 31, 2020 and June 30, 2019, respectively. Stockholders’ equity (deficit)  Common stock, $0.000025 par value; 2,500,000,000 and zero Class A shares authorized, 175,029,321 and zero shares issued and outstanding as of March 31, 2020 and June 30, 2019, respectively; 2,500,000,000 and 400,000,000 Class B shares authorized, 107,144,281 and 25,301,604 shares — — issued and outstanding as of March 31, 2020 and June 30, 2019, respectively. Additional paid-in capital 2,300.0 90.7 Accumulated other comprehensive income 0.3  0.2 Accumulated deficit (783.0) (629.5) Total stockholders’ equity (deficit) 1,517.3 (538.6) Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit) $ 2,569.4 $ 864.5 PELOTON Q3: 2020 | 18


 
PELOTON INTERACTIVE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS UNAUDITED (in millions, except share and per share amounts) Three Months Ended March 31 Nine Months Ended March 31 2020 2019 2020 2019 Revenue: Connected Fitness Products $ 420.2  $ 261.6 $ 958.9 $ 560.8 Subscription 98.2 51.1 242.5  120.1 Other 6.1 4.0 17.4 10.7 Total Revenue 524.6 316.7 1,218.8 691.7 Cost of revenue: Connected Fitness Products 230.0  152.3  546.5  321.1  Subscription 41.4  38.0  103.3  74.6  Other 7.5  5.8  21.1  12.5  Total cost of revenue 278.8  196.1  670.9  408.2  Gross profit 245.8  120.6  548.0  283.5  Operating expenses: Sales and marketing 154.8  101.1  392.8  246.1 General and administrative 126.9  47.0 265.4  152.4 Research and development 22.5  13.8 60.6  37.8 Total operating expenses 304.2  162.0  718.8  436.4  Loss from operations (58.4) (41.4) (170.8) (152.9) Other income, net: Interest income, net 5.6 3.0 12.7 5.2 Other expense, net (2.9) — (3.1) (0.3) Total other income, net 2.7 3.0 9.6 4.9 Loss before provision for income taxes (55.7) (38.4) (161.2) (148.0) Income tax (benefit) expense (0.1) 0.2 (0.5) 0.2 Net loss $ (55.6) $ (38.6) $ (160.7) $ (148.2) Net loss attributable to Class A and Class B common $ (55.6) $ (38.6) $ (160.7) $ (198.3) stockholders Net loss per share attributable to Class A and Class B $ (0.20) $ (1.76) $ (0.80) $ (8.37) common stockholders, basic and diluted Weighted-average Class A and Class B common 280,879,011 21,959,822 199,769,233 23,673,350 shares outstanding, basic and diluted Other comprehensive income: Change in unrealized loss on marketable securities $ (3.1) $ — $ (3.3) $ — Change in foreign currency translation adjustment 0.1  0.3 3.4 1.0 Total other comprehensive (loss) income (3.0) 0.4 0.1 1.0 Comprehensive loss $ (58.6) $ (38.2) $ (160.6) $ (147.2) PELOTON Q3: 2020 | 19


 
PELOTON INTERACTIVE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (CONTINUED) UNAUDITED (in millions, except share and per share amounts) Includes stock-based compensation expense as follows: Three Months Ended March 31 Nine Months Ended March 31 2020 2019 2020 2019 Cost of revenue Connected Fitness Products $ 0.5  $ 0.1 $ 1.2 $ 0.1 Subscription 1.4 0.6 3.6 2.4 Other — — — — Total cost of revenue 1.9  0.6 4.8 2.5 Sales and marketing 2.4 0.4 6.0 7.2 General and administrative 13.5  5.9 38.1 61.0 Research and development 2.8 0.6 7.5 5.4 Total stock-based compensation expense $ 20.5 $ 7.5 $ 56.3 $ 76.0 Includes depreciation and amortization expense as follows: Three Months Ended March 31 Nine Months Ended March 31 2020 2019 2020 2019 Cost of revenue Connected Fitness Products $ 0.9 $ 0.4 $ 2.2 $ 0.8 Subscription 4.3 3.0 11.7 7.5 Other — — — — Total cost of revenue 5.1 3.5 13.9 8.3 Sales and marketing 2.7 1.2 6.5 2.6 General and administrative 3.1 1.1 7.6 4.1 Research and development 0.1 — 0.2 — Total depreciation and amortization expense $ 11.0  $ 5.8  $ 28.2 $ 15.0 PELOTON Q3: 2020 | 20


 
PELOTON INTERACTIVE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (in millions) Nine Months Ended March 31 2020 2019 Cash Flows from Operating Activities: Net loss $ (160.7) $ (148.2) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization expense 28.2 15.0  Stock-based compensation expense 56.3  76.0  Non-cash operating lease expense 33.5 — Other non-cash items 4.1  0.3 Changes in operating assets and liabilities: Accounts receivable (5.4) (13.8) Inventories (46.2) (86.5) Prepaid expenses and other current assets (24.3) (14.9) Other assets (18.2) (6.6) Accounts payable and accrued expenses 64.0  80.7  Customer deposits and deferred revenue 124.0  13.1  Operating lease liabilities, net (20.7) — Other liabilities 14.5  9.3  Net cash provided by (used in) operating activities 49.1  (75.6) Cash Flows from Investing Activities: Purchases of marketable securities (1,199.6) (204.0) Maturities of marketable securities 331.5  — Sales of marketable securities 118.0  — Cash paid for cost method investment (0.1) (0.6) Acquisition of business, net of cash acquired (45.6) (0.1) Purchases of property and equipment (110.1) (47.9) Net cash used in investing activities (905.9) (252.6) Cash Flows from Financing Activities: Proceeds from issuance of common stock upon initial public offering, net of offering costs 1,195.7  — Repurchase of common and convertible preferred stock, including issuance costs — (130.3) Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs — 539.1  Proceeds from employee stock purchase plan withholdings 4.6 — Proceeds from exercise of stock options 9.0 3.0 Net cash provided by financing activities 1,209.3  411.8  Effect of exchange rate changes (5.0) 1.0 Net change in cash, cash equivalents, and restricted cash 347.5  84.6  Cash, cash equivalents and restricted cash — Beginning of period 163.0  151.6  Cash, cash equivalents and restricted cash — End of period $ 510.5  $ 236.2  Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ —  $ 0.7  Cash paid for income taxes $ 1.0 $ — Supplemental Disclosures of Non-Cash Investing and Financing Information: Conversion of convertible preferred stock to common stock $ (941.1) $ — Property and equipment accrued but unpaid $ 21.2  $ 7.9 Building — build-to-suit asset $ — $ 130.0  Stock-based compensation capitalized for software development costs $ 1.5 $ 0.3 PELOTON Q3: 2020 | 21


 

The following information was filed by Peloton Interactive, Inc. (PTON) on Wednesday, May 6, 2020 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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Inside Peloton Interactive, Inc.'s 10-Q Quarterly Report:

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Inside this 10-Q Quarterly Report

Cover Page
Condensed Consolidated Balance Sheets
Condensed Consolidated Balance Sheets (Parenthetical)
Condensed Consolidated Statements Of Cash Flows
Condensed Consolidated Statements Of Operations And Comprehensive Loss
Consolidated Statements Of Changes In Redeemable Convertible Preferred Stock And Stockholders??? Equity (Deficit)
Consolidated Statements Of Changes In Redeemable Convertible Preferred Stock And Stockholders??? Equity (Deficit) (Parenthetical)
Acquisition Of Tonic Fitness Technology
Acquisition Of Tonic Fitness Technology (Tables)
Acquisition Of Tonic Fitness Technology - Narrative (Details)
Acquisition Of Tonic Fitness Technology - Schedule Of Assets Acquired And Liabilities Assumed (Details)
Commitments And Contingencies
Commitments And Contingencies (Details)
Debt And Financing Arrangements
Debt And Financing Arrangements (Details)
Description Of Business And Basis Of Presentation
Description Of Business And Basis Of Presentation (Details)
Equity-Based Compensation
Equity-Based Compensation (Tables)
Equity-Based Compensation - Narrative (Details)
Equity-Based Compensation - Schedule Of Fair Value Assumptions (Details)
Equity-Based Compensation - Schedule Of Sock-Based Compensation Expense (Details)
Equity-Based Compensation - Summary Of Stock Option Activity (Details)
Fair Value Measurements
Fair Value Measurements (Details)
Fair Value Measurements (Tables)
Income Taxes
Income Taxes (Details)
Inventory
Inventory (Details)
Inventory (Tables)
Investments In Marketable Securities
Investments In Marketable Securities (Tables)
Investments In Marketable Securities - Schedule Of Investments In Marketable Securities (Details)
Leases
Leases (Tables)
Leases - Schedule Of Maturities Of Lease Liabilities For Operating Leases (Details)
Leases - Schedule Of Supplemental Balance Sheet Information (Details)
Leases - Schedule Of Supplemental Cash Flow And Other Information Related To Leases (Details)
Loss Per Share
Loss Per Share (Tables)
Loss Per Share - Schedule Of Computation Of Loss Per Share (Details)
Loss Per Share - Schedule Of Potentially Diluted Securities Not Included In Calculation Of Diluted Shares Outstanding (Details)
Revenue
Revenue (Tables)
Revenue - Disaggregation Of Revenue (Details)
Revenue - Narrative (Details)
Segment Information
Segment Information (Tables)
Segment Information - Reconciliation Of Segment Gross Profit To Consolidated (Details)
Segment Information - Schedule Of Key Performance Measures By Segment (Details)
Stockholders' Equity (Deficit)
Stockholders' Equity (Deficit) (Details)
Subsequent Events
Subsequent Events (Details)
Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies (Details)
Summary Of Significant Accounting Policies (Policies)

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Peloton Interactive, Inc. provided additional information to their SEC Filing as exhibits

Ticker: PTON
CIK: 1639825
Form Type: 10-Q Quarterly Report
Accession Number: 0001639825-20-000068
Submitted to the SEC: Wed May 06 2020 4:38:08 PM EST
Accepted by the SEC: Wed May 06 2020
Period: Tuesday, March 31, 2020
Industry: Electronic And Other Electrical Equipment No Computer Equip

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