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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission File Number: 001-39058

Peloton Interactive, Inc.
(Exact name of registrant as specified in its charter)
Delaware
47-3533761
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
125 West 25th Street, 11th Floor10001
New York, New York
(Zip Code)
(Address of principal executive offices)
(917671-9198
(Registrant's telephone number, including area code)
Not Applicable
(former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.000025 par value per sharePTONThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.  Yes    No    

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes     No   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes       No  




As of April 30, 2021, the number of shares of the registrant's Class A common stock outstanding was 268,744,362 and the number of shares of the registrant's Class B common stock outstanding was 29,548,911.







TABLE OF CONTENTS
Page
Part I. Financial Information
Part II. Other Information




SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “potential,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan, “target,” and similar expressions are intended to identify forward-looking statements.

Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, Adjusted EBITDA, operating expenses including changes in sales and marketing, general and administrative expenses (including any components of the foregoing), and research and development, and our ability to achieve and maintain future profitability;

our business plan and our ability to effectively manage our growth;

anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;

our international expansion plans and ability to continue to expand internationally;

anticipated release dates for new Connected Fitness Products and services;

actual or perceived defects in, or safety of, our products, including any impact of product recalls or legal or regulatory claims or proceedings involving our products;

market acceptance of our Connected Fitness Products and services;

beliefs and objectives for future operations;

our ability to increase sales of our Connected Fitness Products and services;

our ability to further penetrate our existing Subscription base and maintain and expand our Subscription base;

the expected benefits of the acquisition of Precor Incorporated, a Delaware corporation ("Precor");

the effects of seasonal trends on our results of operations;

our expectations regarding content costs for past use;

our ability to maintain, protect, and enhance our intellectual property;

the effects of increased competition in our markets and our ability to compete effectively;

the direct and indirect impacts to our business and financial performance from the COVID-19 pandemic;

our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business both in the United States and internationally; and

economic and industry trends, projected growth, or trend analysis.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions and other factors that could cause actual results to differ materially from those stated, including those described in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 and “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, as such factors may be updated in our filings with the Securities and Exchange Commission, or the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. In particular, the impact of the current COVID-19 pandemic to economic conditions and the fitness industry in general and our financial position and operating results in particular have been material, are changing rapidly, and cannot be predicted.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are
3


reasonable, we cannot guarantee future results, performance, or achievements. Our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC, with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.

In this Quarterly Report on Form 10-Q, the words "we," "us," "our" and "Peloton" refer to Peloton Interactive, Inc. and its wholly owned subsidiaries, unless the context requires otherwise.
4


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PELOTON INTERACTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
March 31,June 30,
20212020
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$2,055.9 $1,035.5 
Marketable securities
629.4 719.5 
Accounts receivable, net
30.3 34.6 
Inventories, net
614.2 244.5 
Prepaid expenses and other current assets
184.0 124.5 
Total current assets
3,513.8 2,158.6 
Property and equipment, net
473.0 242.3 
Intangible assets, net
78.5 16.0 
Goodwill
65.3 39.1 
Restricted cash
1.5 1.5 
Operating lease right-of-use assets, net550.7 492.5 
Other assets
29.7 31.8 
Total assets
$4,712.4 $2,981.8 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses
$855.2 $361.7 
Customer deposits and deferred revenue
363.7 363.6 
Operating lease liabilities, current45.2 33.1 
Other current liabilities
18.6 13.9 
Total current liabilities
1,282.7 772.2 
Convertible senior notes, net821.5  
Operating lease liabilities, non-current589.3 508.2 
Other non-current liabilities
25.6 23.4 
Total liabilities
2,719.1 1,303.8 
Commitments and contingencies (Note 9)
Stockholders’ equity
Common stock, $0.000025 par value; 2,500,000,000 and 2,500,000,000 Class A shares authorized, 268,115,347 and 237,518,574 shares issued and outstanding as of March 31, 2021 and June 30, 2020, respectively; 2,500,000,000 and 2,500,000,000 Class B shares authorized, 29,746,911 and 50,538,538 shares issued and outstanding as of March 31, 2021 and June 30, 2020, respectively.
  
Additional paid-in capital
2,548.9 2,361.8 
Accumulated other comprehensive income14.1 10.1 
Accumulated deficit
(569.6)(693.9)
Total stockholders’ equity
1,993.4 1,678.0 
Total liabilities and stockholders’ equity
$4,712.4 $2,981.8 
See accompanying notes to these unaudited condensed consolidated financial statements.
5

PELOTON INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(unaudited)
(in millions, except share and per share amounts)

Three Months Ended March 31,Nine Months Ended March 31,
2021202020212020
Revenue:
Connected Fitness Products
$1,022.9 $426.4 $2,494.4 $976.3 
Subscription
239.4 98.2 590.6 242.5 
Total revenue
1,262.3 524.6 3,085.0 1,218.8 
Cost of revenue:
Connected Fitness Products
732.5 237.4 1,659.5 567.6 
Subscription
84.8 41.4 227.0 103.3 
Total cost of revenue
817.4 278.8 1,886.6 670.9 
Gross profit
444.9 245.8 1,198.4 548.0 
Operating expenses:
Sales and marketing
208.2 154.8 500.3 392.8 
General and administrative
180.6 126.9 430.3 265.4 
Research and development
69.8 22.5 153.9 60.6 
Total operating expenses
458.6 304.2 1,084.4 718.8 
(Loss) income from operations
(13.7)(58.4)113.9 (170.8)
Other (expense) income, net:
Interest expense
(4.9)(0.4)(5.7)(1.6)
Interest income
1.6 5.9 6.7 14.3 
Foreign exchange losses(0.7)(3.0)(1.5)(3.2)
Other income, net
 0.1  0.1 
Total other (expense) income, net(4.0)2.7 (0.5)9.6 
(Loss) income before provision for income taxes
(17.7)(55.7)113.4 (161.2)
Income tax benefit
(9.1)(0.1)(10.8)(0.5)
Net (loss) income
$(8.6)$(55.6)$124.2 $(160.7)
Net (loss) income attributable to Class A and Class B common stockholders$(8.6)$(55.6)$124.2 $(160.7)
Net (loss) income per share attributable to common stockholders, basic$(0.03)$(0.20)$0.43 $(0.80)
Net (loss) income per share attributable to common stockholders, diluted$(0.03)$(0.20)$0.36 $(0.80)
Weighted-average Class A and Class B common shares outstanding, basic295,646,824 280,879,011 292,276,299 199,769,233 
Weighted-average Class A and Class B common shares outstanding, diluted295,646,824 280,879,011 348,094,379 199,769,233 
Other comprehensive (loss) income:
Net unrealized losses on marketable securities$(0.6)$(3.1)$(3.2)$(3.3)
Change in foreign currency translation adjustment(2.0)0.1 7.2 3.4 
Total other comprehensive (loss) income(2.6)(3.0)4.0 0.1 
Comprehensive (loss) income$(11.2)$(58.6)$128.2 $(160.6)

See accompanying notes to these unaudited condensed consolidated financial statements.



6

PELOTON INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)


Nine Months Ended March 31,
20212020
Cash Flows from Operating Activities:
Net income (loss)$124.2 $(160.7)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense38.8 28.2 
Stock-based compensation expense108.8 56.3 
Non-cash operating lease expense44.4 33.5 
Amortization of premium from marketable securities7.4 3.8 
Amortization of debt discount and issuance costs4.6 0.2 
Impairment of long-lived assets3.3  
Changes in operating assets and liabilities:
Accounts receivable6.0 (5.4)
Inventories(363.7)(46.2)
Prepaid expenses and other current assets(34.7)(24.3)
Other assets(13.7)(18.2)
Accounts payable and accrued expenses444.2 64.0 
Customer deposits and deferred revenue(2.0)124.0 
Operating lease liabilities, net(9.8)(20.7)
Other liabilities1.5 14.5 
Net cash provided by operating activities359.3 49.1 
Cash Flows from Investing Activities:
Purchases of marketable securities(449.1)(1,199.6)
Maturities of marketable securities517.8 331.5 
Sales of marketable securities6.6 118.0 
Purchases of property and equipment(167.9)(106.6)
Business combination, net of cash acquired(57.7)(45.6)
Asset acquisitions, net of cash acquired(78.1) 
Capitalization of internal-use software costs and other(5.0)(3.5)
Net cash used in investing activities(233.4)(905.9)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock upon initial public offering, net of offering costs 1,195.7 
Proceeds from issuance of convertible notes, net of issuance costs977.2  
Purchase of capped calls(81.3) 
Proceeds from employee stock purchase plan withholdings12.2 4.6 
Proceeds from exercise of stock options37.0 9.0 
Taxes withheld and paid on employee stock awards(53.9) 
Principal repayments of finance leases(0.7) 
Net cash provided by financing activities890.5 1,209.3 
Effect of exchange rate changes4.1 (5.0)
Net change in cash, cash equivalents, and restricted cash1,020.4 347.5 
Cash, cash equivalents and restricted cash — Beginning of period1,037.0 163.0 
Cash, cash equivalents and restricted cash — End of period$2,057.4 $510.5 
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest$0.6 $ 
Cash paid for income taxes$2.9 $1.0 
Supplemental Disclosures of Non-Cash Investing and Financing Information:
7

PELOTON INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)

Conversion of convertible preferred stock to common stock$ $(941.1)
Property and equipment accrued but unpaid$42.4 $21.2 
Stock-based compensation capitalized for software development costs$3.1 $1.5 
See accompanying notes to these unaudited condensed consolidated financial statements.
8

PELOTON INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in millions)

Class A and Class B Common StockAdditional Paid-In CapitalOther Comprehensive IncomeAccumulated DeficitTotal Stockholders’ Equity
SharesAmount
Balance – December 31, 2019
280.6 $ $2,269.3 $3.3 $(727.4)$1,545.2 
Exercise of stock options1.5 — 5.9 — — 5.9 
Issuance of common stock under employee stock purchase plan0.2 #REF!— — 3.7 — — 3.7 
Stock-based compensation expense— — 21.1 — — 21.1 
Other comprehensive loss— — — (3.0)— (3.0)
Net loss— — — — (55.6)(55.6)
Balance – March 31, 2020
282.2 $ $2,300.0 $0.3 $(783.0)$1,517.3 
Balance – December 31, 2020
294.3 $ $2,472.7 $16.6 $(561.0)$1,928.3 
Issuance of common stock pursuant to stock-based awards, net of withholding taxes3.4 — (53.6)— — (53.6)
Issuance of common stock under employee stock purchase plan0.2 — 8.0 — — 8.0 
Stock-based compensation expense— — 43.1 — — — — 43.1 
Equity component of convertible senior notes, net of issuance costs— — 160.1 — — 160.1 
Purchases of capped calls related to convertible senior notes— — (81.3)— — (81.3)
Other comprehensive loss— — — (2.6)— (2.6)
Net loss— — — — (8.6)(8.6)
Balance — March 31, 2021
297.9 $ $2,548.9 $14.1 $(569.6)$1,993.4 


9

PELOTON INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY
(unaudited)
(in millions)
Redeemable Convertible
Preferred Stock
Class A and Class B Common StockAdditional Paid-In CapitalOther Comprehensive IncomeAccumulated DeficitTotal Stockholders’ (Deficit) Equity
SharesAmountSharesAmount
Balance - June 30, 2019
210.6 $941.1 25.3 $ $90.7 $0.2 $(629.5)$(538.6)
Initial public offering, net of issuance costs of $6.3 million
— 43.4 — 1,195.7 — — 1,195.7 
Conversion of redeemable convertible preferred stock to common stock(210.6)(941.1)210.6 — 941.1 — — 941.1 
Exercise of stock options— — 2.4 — 11.0 — — 11.0 
Exercise of stock warrants— — 0.2 —  — —  
Issuance of common stock under employee stock purchase plan— — 0.2 — 3.7 — — 3.7 
Stock-based compensation expense— — — — 57.8 — — 57.8 
Other comprehensive income— — — — — 0.1 — 0.1 
Net loss— — — — — — (160.7)(160.7)
Cumulative effect adjustment in connection with adoption of ASU 2016-02— — — — — — 7.2 7.2 
Balance - March 31, 2020
 $ 282.2 $ $2,300.0 $0.3 $(783.0)$1,517.3 
Balance - June 30, 2020
 $ 288.1 $ $2,361.8 $10.1 $(693.9)$1,678.0 
Issuance of common stock pursuant to stock-based awards, net of withholding taxes— — 9.3 — (16.7)— — (16.7)
Issuance of common stock under employee stock purchase plan— — 0.4 — 13.1 — — 13.1 
Stock-based compensation expense— — — — 111.9 — — 111.9 
Equity component of convertible senior notes, net of issuance costs— — — — 160.1 — — 160.1 
Purchases of capped calls related to convertible senior notes— — — — (81.3)— — (81.3)
Other comprehensive income— — — — — 4.0 — 4.0 
Net income— — — — — — 124.2 124.2 
Balance - March 31, 2021
 $ 297.9 $ $2,548.9 $14.1 $(569.6)$1,993.4 

See accompanying notes to these unaudited condensed consolidated financial statements.
10

PELOTON INTERACTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in millions, except share and per share amounts)





1. Description of Business and Basis of Presentation
Description and Organization
Peloton Interactive, Inc. ("Peloton" or the “Company”) is the largest interactive fitness platform in the world with a loyal community of Members, which we define as any individual who has a Peloton account through a paid Connected Fitness Subscription or a paid Peloton Digital Subscription. The Company pioneered connected, technology-enabled fitness with the creation of its interactive fitness equipment ("Connected Fitness Products") and the streaming of immersive, instructor-led boutique classes to its Members anytime, anywhere. The Company makes fitness entertaining, approachable, effective, and convenient while fostering social connections that encourage its Members to be the best versions of themselves.
Basis of Presentation and Consolidation
The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. The condensed consolidated balance sheet as of June 30, 2020, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2020, filed with the SEC on September 10, 2020 (the "Form 10-K"). However, the Company believes that the disclosures provided herein are adequate to prevent the information presented from being misleading.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying interim condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, cash flows, and the changes in equity for the interim periods. The results for the three and nine months ended March 31, 2021 are not necessarily indicative of the results to be expected for any subsequent quarter, the fiscal year ending June 30, 2021, or any other period.
Certain monetary amounts, percentages, and other figures included elsewhere in these financial statements have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
Except as described elsewhere in Note 2 of the notes to the condensed consolidated financial statements in the section titled "—Recently Issued Accounting Pronouncements" in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K.
11


2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. On an ongoing basis, the Company evaluates its estimates, including, among others, those related to revenue related reserves, the realizability of inventory, content costs for past use reserve, fair value measurements, the incremental borrowing rate associated with lease liabilities, useful lives of property and equipment, product warranty, goodwill and finite-lived intangible assets, accounting for income taxes, stock-based compensation expense, transaction price estimates, the fair values of assets acquired and liabilities assumed in business combinations and asset acquisitions, valuation of the debt component of convertible senior notes, contingent consideration, and commitments and contingencies. Actual results may differ from these estimates.
Convertible Senior Notes
In February 2021, the Company issued in a private offering $1.0 billion aggregate principal amount of 0% Convertible Senior Notes due 2026 (the "Notes"), including the initial purchasers’ exercise in full of their option to purchase additional notes. See Note 8 for additional details.

The Notes are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the Notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument.

The carrying amount of the liability component of the instrument is computed by estimating the fair value of a similar liability without the conversion option using a market-based approach. The amount of the equity component is then calculated by deducting the fair value of the liability component from the initial proceeds of the instrument. The difference between the principal amount and the liability component represents a debt discount that is amortized to interest expense over the respective term of the Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Notes, the allocation of issuance costs incurred between the liability and equity components was based on their relative values.

Derivative Instruments and Hedging
The Company measures derivative financial instruments at fair value and recognizes them as either assets or liabilities on our condensed consolidated balance sheets. The Company evaluates its convertible instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives requiring separate recognition in the Company's financial statements in accordance with the criteria under ASC 815-15. As of March 31, 2021, the Company did not have any material derivative contracts or contracts with material embedded derivative features requiring bifurcation.
Recently Issued Accounting Pronouncements
Accounting Pronouncements Recently Adopted
ASU 2016-13
In June 2016, the Financial Accounting Standards Board (“FASB") issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. This standard changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which may result in earlier recognition of allowances for losses, and require expected credit losses to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. The Company adopted this standard and related amendments on July 1, 2020. The adoption of this standard did not materially impact the Company's consolidated financial statements.

ASU 2019-12
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which amends ASC Topic 740, Income Taxes. This ASU simplifies the accounting for income taxes by modifying the treatment of intraperiod tax allocation in certain circumstances, eliminating an exception to recognizing deferred tax liabilities for outside basis differences for foreign equity method investments and foreign subsidiaries when ownership or control changes, and modifying interim period tax calculations when a loss is forecasted. In addition, this ASU also requires that enacted changes in tax laws or rates be included in the annual effective rate determination in the period that includes the enactment date and clarifies the tax accounting of a step up in tax basis of goodwill. The Company adopted this standard on July 1, 2020. The adoption of this standard did not materially impact the Company's condensed consolidated financial statements.

Accounting Pronouncements Not Yet Adopted
ASU 2020-01
In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This guidance clarifies the interaction of the accounting for equity investments under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. This standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating the potential impact of adopting this new accounting guidance, but does not expect the adoption of the standard to have a material impact on its condensed consolidated financial statements.

ASU 2020-04 and ASU 2021-01
12


In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities' financial reporting burdens as the market transitions from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which refines the scope of Topic ASC 848 and clarifies some of its guidance. The amendments in ASU 2021-01 are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The guidance in both updates was effective upon issuance and generally can be applied through December 31, 2022. The Company plans to adopt this standard when LIBOR is discontinued. The Company is currently evaluating the potential impact of adopting this new accounting guidance, but does not expect the adoption of the standard to have a material impact on its condensed consolidated financial statements.
ASU 2020-06
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging- Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The guidance will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock, thereby limiting the accounting results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 will be effective for public companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2020-06 will have on the Company’s condensed consolidated financial statements.
3. Revenue
The Company’s primary source of revenue is from sales of its Connected Fitness Products and associated recurring Subscription revenue.

The Company determines revenue recognition through the following steps:

Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when, or as, the Company satisfies a performance obligation.

Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company's revenue is reported net of sales returns, discounts, and incentives as a reduction of the transaction price. Certain contracts include consideration payable that is accounted for as a payment for distinct goods or services. The Company estimates its liability for product returns and concessions based on historical trends by product category, impact of seasonality, and an evaluation of current economic and market conditions and records the expected customer refund liability as a reduction to revenue, and the expected inventory right of recovery as a reduction of cost of revenue. 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.

Some of the Company’s contracts with customers contain multiple performance obligations. For customer contracts that include multiple performance obligations, the Company accounts for individual performance obligations if they are distinct. The transaction price is then allocated to each performance obligation based on its standalone selling price. The Company generally determines standalone selling price based on prices charged to customers.

The Company applies the practical expedient as per ASC 606-10-50-14 and does not disclose information related to remaining performance obligations due to their original expected terms being one year or less.

The Company expenses sales commissions on its Connected Fitness Products when incurred because the amortization period would have been less than one year. These costs are recorded in Sales and marketing in the Company's condensed consolidated statements of operations and comprehensive (loss) income.
Connected Fitness Products
Connected Fitness Products include the Company’s portfolio of Connected Fitness Products and related accessories, branded apparel, and extended warranty agreements. The Company recognizes Connected Fitness Product revenue net of sales returns and discounts when the product has been delivered to the customer, except for extended warranty revenue which is recognized over the warranty period. The Company allows customers to return products within thirty days of purchase, as stated in its return policy.

The Company records fees paid to third-party financing partners in connection with its consumer financing program as a reduction of revenue, as it considers such costs to be a customer sales incentive. The Company records payment processing fees for its credit card sales for
13


Connected Fitness Products within Sales and marketing in the Company's condensed consolidated statements of operations and comprehensive (loss) income.

Subscription
The Company’s subscriptions provide unlimited access to content in its library of live and on-demand fitness classes. The Company’s subscriptions are offered on a month-to-month basis.

Amounts paid for subscription fees are included within customer deposits and deferred revenue on the Company's condensed consolidated balance sheets and recognized ratably on a month-to-month basis. The Company records payment processing fees for its monthly subscription charges within cost of subscription revenue in the Company's condensed consolidated statements of operations and comprehensive (loss) income.

Sales tax collected from customers and remitted to governmental authorities is not included in revenue and is reflected as a liability on the Company's condensed consolidated balance sheets.

Standard Product Warranty
The Company offers a standard product warranty that its Connected Fitness Products will operate under normal, non-commercial use for a period of one year covering the touchscreen and most original Bike, Bike+, Tread, and Tread+ components from the date of original delivery. The Company has the obligation, at its option, to either repair or replace the defective product. At the time revenue is recognized, an estimate of future warranty costs are recorded as a component of cost of revenue. Factors that affect the warranty obligation include historical as well as current product failure rates, service delivery costs incurred in correcting product failures, and warranty policies and business practices. The Company’s products are manufactured both in-house and by contract manufacturers, and in certain cases, the Company may have recourse to such contract manufacturers.
Activity related to the Company's accrual for our estimated future product warranty obligation was as follows:
Nine Months Ended March 31,
20212020
(in millions)
Balance at beginning of period$34.2 $10.5 
Provision for warranty accrual54.3 21.1 
Warranty claims(37.4)(11.8)
Balance at end of period$51.1 $19.9 

The Company also offers the option for customers in some markets to purchase an 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 27 months.

Revenue and related fees paid to the third-party provider are recognized on a gross basis as the Company has 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 Product revenue in the condensed consolidated statements of operations and comprehensive (loss) income.
Disaggregation of Revenue
The Company's revenue from contracts with customers disaggregated by major product lines, excluding sales-based taxes, are included in Note 13 under the heading "Segment Information".

The Company's revenue disaggregated by geographic region, were as follows:
Three Months Ended March 31,Nine Months Ended March 31,
2021202020212020
(in millions)
North America(1)
$1,167.7 $503.9 $2,897.4 $1,176.7 
EMEA(2)
94.5 20.6 187.6 42.2 
Total revenue$1,262.3 $524.6 $3,085.0 $1,218.8 
_________________________        
(1) Consists of United States and Canada.
(2) Consists of United Kingdom and Germany (formerly Rest of world).
14



During the three and nine months ended March 31, 2021, the Company's revenue attributable to the United States represented 87% and 90% of total revenue, respectively, and 94% of total revenue for the three and nine months ended March 31, 2020.

Customer Deposits and Deferred Revenue
Deferred revenue is recorded for nonrefundable cash payments received for the Company’s performance obligation to transfer, or stand ready to transfer, goods or services in the future. Deferred revenue consists of subscription fees billed that have not been recognized. Customer deposits represent payments received in advance before the Company transfers a good or service to the customer and are refundable.
As of March 31, 2021 and June 30, 2020, customer deposits of $321.5 million and $341.5 million, respectively, and deferred revenue of $42.2 million and $22.1 million, respectively, were included in customer deposits and deferred revenue on the Company's condensed consolidated balance sheets.
In the nine months ended March 31, 2021 and 2020, the Company recognized revenue of $22.1 million and $9.5 million, respectively, that was included in the deferred revenue balance as of June 30, 2020 and 2019, respectively.
4. Investments in Marketable Securities
The following table summarizes the Company's investments in marketable securities:
March 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
(in millions)
Corporate bonds$472.3 $0.4 $ $472.6 
U.S. treasury securities97.4 0.3  97.7 
Commercial paper63.0   63.0 
Supranational securities31.1   31.1 
Certificate of deposits7.8   7.8 
$671.5 $0.8 $ $672.2 
Less: Restricted marketable securities (1)
$42.8 
Total marketable securities$629.4 
_________________________
(1) The Company is required to pledge or otherwise restrict a portion of cash, cash equivalents, and marketable securities as collateral for standby letters of credit. The Company classifies marketable securities with use restrictions of less than twelve months as "Prepaid expenses and other current assets" and of twelve months or longer as non-current "Other assets" on its condensed consolidated balance sheets.
15


5. Fair Value Measurements
The following table summarizes the Company's assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy:
As of March 31, 2021
Level 1Level 2Level 3Total
(in millions)
Assets
Marketable securities$672.2 $ $ $672.2 
Total$672.2 $ $ $672.2 
Liabilities
Other current liabilities:
Contingent consideration$ $ $2.4 $2.4 
Other non-current liabilities:
Contingent consideration  2.2 2.2 
Total$ $ $4.6 $4.6 

Cash equivalents are highly liquid investments with maturities of three months or less when purchased. These investments are carried at fair value. All investments classified as available-for-sale are recorded at fair value within marketable securities in the condensed consolidated balance sheets. The Company’s investments classified as Level 1 are based on quoted prices that are available in active markets.
The contingent consideration represents the estimated fair value of cash consideration payable in connection with an acquisition that is contingent upon the achievement of certain performance milestones. The Company estimated the fair value using expected future cash flows over the period in which the obligation is expected to be settled, and applied a discount rate that appropriately captures a market participant's view of risk associated with the obligation, which are considered to be Level 3 inputs. The fair value of the contingent consideration arrangement is sensitive to change in the expected achievement of the applicable milestones and changes in discount rate. The Company remeasures the fair value of the contingent consideration arrangement each reporting period, including the accretion of the discount, if applicable, and changes are recognized in general and administrative expense in the condensed consolidated statements of operations and comprehensive (loss) income.
Fair Value Measurements of Other Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Company's financial instruments that are not recorded at fair value on the condensed consolidated balance sheets:
As of March 31, 2021
Level 1Level 2Level 3Total
(in millions)
Convertible Senior Notes$ $801.1 $ $801.1 
The fair value of the Notes is determined based on the closing price on the last trading day of the reporting period.
6. Inventory
Inventories were as follows:
March 31, 2021June 30, 2020
(in millions)
Raw materials$54.7 $17.8 
Work-in-process9.2 4.6 
Finished products557.1 232.5 
Total inventories621.0 254.9 
Less: Reserves(6.9)(10.5)
Total inventories, net$614.2 $244.5 

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7. Acquisitions

Business Combination
On February 9, 2021, the Company acquired Aiqudo, Inc. and its subsidiaries (collectively, "Aiqudo") for a purchase price of approximately $57.7 million, net of cash acquired, which was paid in cash. Upon completion of the transaction, Aiqudo became a wholly-owned subsidiary of the Company. The Company acquired Aiqudo to bolster product research and development capabilities.
The operating results of Aiqudo have been included in the Company's condensed consolidated statements of operations since the acquisition date. Actual and pro forma revenue and results of operations for the acquisition have not been presented because they do not have a material impact to the consolidated revenue and results of operations, either individually or in the aggregate.
The Company recognized $1.0 million of acquisition-related costs that were expensed as incurred during the three and nine months ended March 31, 2021. These costs are included in general and administrative expense in the condensed consolidated statement of operations and comprehensive (loss) income.
The acquisition was accounted for under the acquisition method in accordance with ASC 805. The following table summarizes the initial estimate of the fair values of assets acquired and liabilities assumed at the closing date:
As of February 9, 2021
(in millions)
Developed Technology$44.2 
Goodwill25.0 
Other assets3.3 
Total assets$72.5 
Current liabilities(3.3)
Deferred tax liability$(11.5)
Total liabilities$(14.8)
Net assets acquired$57.7 
The preliminary purchase price allocation resulted in the recognition of $25.0 million of goodwill. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including an experienced workforce and expected future synergies. The Company allocated the goodwill to its Connected Fitness segment. None of the goodwill is expected to be deductible for tax purposes.
The Company expects to finalize its purchase price allocation after management has further analyzed and assessed a number of the factors used in establishing the fair values of assets acquired and liabilities assumed as of the acquisition date including, but not limited to, the working capital acquired. The final fair value determination could result in adjustments to the values presented in the preliminary purchase price allocation.
Asset Acquisitions
During the nine months ended March 31, 2021, the Company completed three separate transactions to acquire certain software, developed technology, and an assembled workforce for use in the development of the Company's connected fitness products and services, for total net cash consideration paid of approximately $78.1 million, inclusive of $2.4 million of direct transaction costs. The Company accounted for each transaction as an asset acquisition in accordance with ASC 805.
Total aggregate consideration allocated for the three transactions was $84.0 million, inclusive of the deferred tax liability of $5.9 million. The Company allocated the consideration based on the relative fair values of the assets acquired in each transaction, resulting in $57.4 million being allocated to developed software, $22.7 million being allocated to developed technology, and $3.9 million being allocated to the assembled workforce.
The developed software acquired was assigned a useful life of 5 years, and is recorded in Property and equipment, net. The developed technology assets acquired were assigned a useful life of 3 years and the assembled workforce was assigned a useful life of 4 years. Both of these acquired assets are recorded in Intangible assets, net of the Company's condensed consolidated balance sheets.
8. Debt and Financing Arrangements
Convertible Notes and the Indenture
In February 2021, the Company issued $1.0 billion aggregate principal amount of 0% Convertible Senior Notes due February 15, 2026 (the "Notes") in a private offering, including the exercise in full of the over-allotment option granted to the initial purchasers of $125.0 million. The Notes were issued pursuant to an Indenture (the "Indenture") between the Company and U.S. Bank National Association, as trustee. The Notes are senior unsecured obligations of the Company and do not bear regular interest, and the principal amount of the Notes does not accrete. The
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net proceeds from this offering were approximately $977.2 million, after deducting the initial purchasers' discounts and commissions and the Company's offering expenses.

Each $1,000 principal amount of the Notes is initially convertible into 4.1800 shares of the Company's Class A Common Stock, which is equivalent to an initial conversion price of approximately $239.23 per share. The conversion rate is subject to customary adjustments under certain circumstances in accordance with the terms of the Indenture. In addition, if certain corporate events that constitute a make-whole fundamental change occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

The Notes will mature on February 15, 2026, unless earlier converted, redeemed, or repurchased. The Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding August 15, 2025, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021, if the last reported sale price of the Company’s Class A common stock, par value $0.000025 per share exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter on each applicable trading day; (2) during the five consecutive business day period after any ten consecutive trading day period (such ten consecutive trading day period, the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Class A Common Stock on such trading day and the conversion rate on such trading day; (3) if the Company calls such Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; (4) upon the occurrence of specified corporate events or distributions on the Class A Common Stock.

On or after August 15, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. Upon conversion, the Company may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash, shares of the Class A Common Stock or a combination of cash and shares of the Class A Common Stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture. It is the Company's current intent to settle the principal amount of the Notes with cash.

The Company may redeem for cash all or any portion of the Notes, at its option, on or after February 20, 2024 and on or before the 20th scheduled trading day immediately before the maturity date, if the last reported sale price per share of the Class A Common Stock exceeds 130% of the conversion price then in effect on (1) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption and (2) the trading day immediately before the date the Company sends such notice at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid special interest, if any, to, but excluding, the redemption date. No sinking fund is provided for the Notes, which means that the Company is not required to redeem or retire the Notes periodically.

Upon the occurrence of a fundamental change (as defined in the Indenture), subject to certain conditions, holders may require the Company to repurchase all or a portion of the Notes for cash at a price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date.

The Notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of the Company’s existing and future unsecured indebtedness that is not so subordinated; effectively subordinated in right of payment to any of the Company’s existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness; and structurally subordinated to all existing and future indebtedness and other liabilities of current or future subsidiaries of the Company (including trade payables and to the extent the Company is not a holder thereof, preferred equity, if any, of the Company's subsidiaries).

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components, using an effective interest rate of 3.69% to determine the fair value of the liability component. The carrying amount of the equity component representing the conversion option was $163.8 million and was determined by deducting the fair value of the liability component from the initial proceeds ascribed to the Notes as a whole. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount ("debt discount") is amortized to interest expense using the effective interest method over the contractual term of the Notes.

In accounting for the transaction costs related to the Notes, the Company allocated the total amount incurred to the liability and equity components of the Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component recorded as additional debt discount were $19.0 million and will be amortized to interest expense using the effective interest method over the contractual terms of the Notes. Issuance costs attributable to the equity component of $3.7 million were netted with the equity component in stockholders' equity.

The net carrying amount of the liability component of the Notes was as follows:
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March 31, 2021
(in millions)
Principal$1,000.0 
Unamortized debt discount(159.9)
Unamortized debt issuance costs(18.6)
Net carrying amount$821.5 

The net carrying amount of the equity component of the Notes was as follows:
March 31, 2021
(in millions)
Proceeds allocated to the conversion option (debt discount)$163.8 
Issuance costs(3.7)
Net carrying amount$160.1 

The following table sets forth the interest expense recognized related to the Notes:
Three Months Ended March 31,Nine Months Ended March 31,
20212021
(in millions)
Amortization of debt discount$3.9 $3.9 
Amortization of debt issuance costs0.40.4
Total interest expense related to the Notes$4.3 $4.3 

Capped Call Transactions
In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (the "Capped Call Transactions"). The Capped Call Transactions have an initial strike price of approximately $239.23 per share, subject to adjustments, which corresponds to the approximate initial conversion price of the Notes. The cap price of the Capped Call Transactions will initially be approximately $362.48 per share. The Capped Call Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, 6.9 million shares of Class A Common Stock. The Capped Call Transactions are expected generally to reduce potential dilution to the Class A Common Stock upon any conversion of Notes and/or offset any potential cash payments the Company would be required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. 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.

For accounting purposes, the Capped Call Transactions are separate transactions, and are not part of the terms of the Notes. The net cost of $81.3 million incurred to purchase the Capped Call Transactions was recorded as a reduction to Additional paid-in capital on the Company's condensed consolidated balance sheets.

Amended and Restated Credit Agreement
In 2019, the Company entered into an amended and restated loan and security agreement (“Amended Credit Agreement”). The Amended Credit Agreement provided for a $250.0 million secured revolving credit facility, including up to the lesser of $150.0 million and the aggregate unused amount of the facility for the issuance of letters of credit. Interest on the Amended Credit Agreement is paid based on LIBOR plus 2.75% or an Alternative Base Rate plus 1.75%. The Company is required to pay an annual commitment fee of 0.375% on a quarterly basis based on the unused portion of the revolving credit facility.

On February 8, 2021, the Company entered into a First Amendment (the “First Amendment”) to the Amended Credit Agreement to revise certain covenants that restricted the incurrence of indebtedness to permit the Capped Call Transactions and issuance of the Notes.

On March 18, 2021, the Company entered into a Joinder Agreement (the "Joinder") to the Amended Credit Agreement, as amended by the First Amendment, to provide for an increase of the commitments available under the revolving credit facility by $35.0 million from $250.0 million to $285.0 million.

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During the three and nine months ended March 31, 2021, the Company incurred total commitment fees of $0.2 million and $0.7 million, respectively, and $0.2 million and $0.6 million during the three and nine months ended March 31, 2020, respectively, which are included in interest expense in the condensed consolidated statements of operations and comprehensive (loss) income.

The outstanding balance, if any, is payable in full in June 2024. As of March 31, 2021, the Company has not drawn on the credit facility and did not have outstanding borrowings under the Amended Credit Agreement.
In connection with the execution of the Amended Credit Agreement, the Company incurred debt issuance costs of $0.9 million, which are capitalized and presented as other assets on the Company's condensed consolidated balance sheets. These costs are being amortized to interest expense using the effective interest method over the term of the Amended Credit Agreement.
The Company has the option to repay its borrowings under the Amended Credit Agreement without premium or penalty prior to maturity. The Amended Credit Agreement contains customary affirmative covenants, such as financial statement reporting requirements and delivery of borrowing base certificates, as well as customary covenants that include limitations on the Company's ability to, among other things, incur additional indebtedness, sell certain assets, guarantee obligations of third parties, declare cash dividends in the entirety or make certain other distributions, and undergo a merger or consolidation or certain other transactions. The Amended Credit Agreement also contains certain financial condition covenants, including maintaining a total level of liquidity of not less than $125.0 million and maintaining certain minimum total revenue ranging from $725.0 million to $1,985.0 million depending on the applicable date of determination. As of March 31, 2021, the Company was in compliance with the covenants under the Amended Credit Agreement. At March 31, 2021, the Company was contingently liable for approximately $4.8 million in standby letters of credit as security for an operating lease obligation.
9. Commitments and Contingencies
Content Costs for Past Use Reserve
To secure the rights to stream music on the Peloton platform, the Company must obtain licenses from, and pay royalties to, copyright owners of both sound recordings and musical compositions. The Company has entered into negotiations with various music rights holders, to pay for any and all uses of musical compositions and sound recordings to date and, at the same time, enter into go-forward license agreements for the use of music in the future.

Prior to the execution of go-forward music license agreements, the Company estimates and records expenses inclusive of estimated content costs for past use as well as normal and recurring music royalty expenses. The Company includes both of these components in its reserve. As of March 31, 2021 and 2020, the Company recorded reserves of $13.3 million and $11.6 million, respectively, included in Accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

Legal and Regulatory Proceedings
The Company is, or may become, a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary course of business.
For example, we have received reports of a number of injuries associated with our Tread+ product, one of which led to the death of a child. As a result of the aforementioned injuries associated with these reported Tread+ incidents, in April 2021, the U.S. Consumer Product Safety Commission (“CPSC”) unilaterally issued a warning to consumers about the safety hazards associated with the Tread+ and is continuing to investigate the matter. In addition to the CPSC investigation, we are presently subject to class action litigation and private personal injury claims related to these perceived defects in the Tread+ and incidents reported to result from its use. On April 20, 2021, purported Peloton Member Shannon Albright filed a putative class action lawsuit against the Company in the United States District Court for the Northern District of California captioned Albright v. Peloton Interactive, Inc., Case No. 3:21-02858 (N.D. Cal.) (the "Albright Action"). The Albright Action alleges violations of various California state laws related to the Tread+ and the matters contained in the CPSC warning, including violation of the Consumer Legal Remedies Act, breach of the Implied Warranty of Merchantability, and violations of California Business and Professions Code Sections 17200, et seq., and 17500, et seq.
In addition, on April 29, 2021, Ashley Wilson ("Plaintiff Wilson") filed a putative securities class action lawsuit against the Company, our Chief Executive Officer, and our Chief Financial Officer (collectively, the "Defendants") in the United States District Court for the Eastern District of New York, purportedly on behalf of a class consisting of those individuals who purchased or otherwise acquired our common stock between September 11, 2020 and April 16, 2021 (the "Wilson Action"). The complaint in the Wilson Action alleges that the Defendants made false and/or misleading statements in violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Plaintiff Wilson does not quantify any damages in her complaint but, in addition to attorneys' fees and costs, she seeks to recover damages on behalf of herself and other persons who purchased or otherwise acquired our stock during the putative class period at allegedly inflated prices and purportedly suffered financial harm as a result.
We dispute the allegations in the above-referenced matters, intend to defend the matters vigorously, and believe that the claims are without merit. Some of our legal and regulatory proceedings, such as the above-referenced matters and litigation that centers around intellectual property claims, may be based on complex claims involving substantial uncertainties and unascertainable damages. Accordingly, it is not possible to determine the probability of loss or estimate damages for any of the above matters, and therefore, the Company has not established reserves for any of these proceedings. When the Company determines that a loss is both probable and reasonably estimable, the Company records a liability, and, if the liability is material, discloses the amount of the liability reserved. Given that such proceedings are subject to uncertainty, there can be no assurance that such legal proceedings, either individually or in the aggregate, will not have a material adverse effect on our business, results of operations, financial condition or cash flows.
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10. Equity-Based Compensation
2019 Equity Incentive Plan
In August 2019, the Board of Directors adopted the 2019 Equity Incentive Plan (the "2019 Plan"), which was subsequently approved by the Company’s stockholders in September 2019. The 2019 Plan serves as the successor to the 2015 Stock Plan (the "2015 Plan"). The 2015 Plan continues to govern the terms and conditions of the outstanding awards previously granted thereunder. Any reserved shares not issued or subject to outstanding grants under the 2015 Plan on the effective date of the 2019 Plan became available for grant under the 2019 Plan and will be issued as Class A common stock. The number of shares reserved for issuance under the 2019 Plan will increase automatically on July 1 of each of 2020 through 2029 by the number of shares of the Company’s Class A common stock equal to 5% of the total outstanding shares of all of the Company’s classes of common stock as of each June 30 immediately preceding the date of increase, or a lesser amount as determined by the Board of Directors. On July 1, 2020, the number of shares of Class A common stock available for issuance under the 2019 Plan was automatically increased according to its terms by 14,401,954 shares. As of March 31, 2021, the number of shares of Class A common stock available for future award under the 2019 Plan is 50,026,067.

Stock Options
The following summary sets forth the stock option activity under the 2019 Plan:
Options Outstanding
Number of Stock Options
Weighted-Average Exercise Price
Weighted-Average Remaining Contractual Term (years)
Aggregate
Intrinsic
Value (in millions)
Outstanding — June 30, 2020
66,818,860 $10.57 8.0$3,153.6 
Granted4,397,985 $102.21 
Exercised(9,814,464)$7.69 
Forfeited(1,337,472)$21.31 
Outstanding — March 31, 2021
60,064,909 $17.52 7.5$5,724.5 
Vested and Exercisable— March 31, 2021
28,534,393 $7.17 6.6$3,003.9 

Unvested option activity is as follows:
OptionsWeighted-Average Grant Date Fair Value
Unvested - June 30, 2020
39,674,590 $7.41 
Granted4,397,985 $43.45 
Early exercised unvested(54,446)$3.16 
Vested(11,157,887)$6.93 
Forfeited(1,329,726)$9.62 
Unvested - March 31, 2021
31,530,516 $12.53 
During the nine months ended March 31, 2021, 1,254,151 shares of common stock were issued upon cashless exercise of 1,887,030 options.

The aggregate intrinsic value of options outstanding, vested and exercisable, were calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of March 31, 2021. The fair value of the common stock is the closing stock price of the Company's Class A common stock as reported on the Nasdaq Global Select Market.

As part of the 2015 Plan and 2019 Plan (collectively, the "Plans"), the Company issued options to certain key management that vest upon the achievement of certain performance milestones. During the three and nine months ended March 31, 2021, the Company recorded stock-based compensation expense related to the performance-based options of $0.1 million and $0.5 million, respectively, and $0.1 million and $4.0 million for the three and nine months ended March 31, 2020, respectively.

For the nine months ended March 31, 2021 the weighted-average grant date fair value per option was $43.45. The fair value of each option was estimated at the grant date using the Black-Scholes method with the following assumptions:
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Nine Months Ended March 31, 2021
Weighted average risk-free interest rate (1)
0.6%
Weighted average expected term (in years)
6.2