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June 20, 2019
John Foley
Chief Executive Officer
Peloton Interactive, Inc.
125 West 25th Street
11th Floor
New York, NY 10001
Re: Peloton Interactive, Inc.
Draft Registration Statement on Form S-1
Submitted May 24, 2019
CIK No. 0001639825
Dear Mr. Foley:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form S-1 submitted May 24, 2019
Prospectus Summary
Our Industry and Opportunity, page 3
1. Please revise the heading "Peloton's Current Markets" on the graph on
pages 4 and 94 to
remove the reference to "current" as it appears that your graph relates
to potential market
opportunities.
John Foley
FirstName LastNameJohn Foley
Peloton Interactive, Inc.
Comapany NamePeloton Interactive, Inc.
June 20, 2019
June 20, 2019 Page 2
Page 2
FirstName LastName
Selected Consolidated Financial and Other Data
Non-GAAP Financial Measures, page 58
2. We note your calculation of Adjusted EBITDA for each period presented
excludes
"extraordinary" litigation expenses which are defined as litigation
expenses that are
outside of the ordinary course of business. Please tell us how you
define litigation
expenses that are outside the ordinary course of business and your
basis in identifying the
litigation expenses as extraordinary. Refer to Question 102.03 of the
Compliance
& Disclosure Interpretations on Non-GAAP Financial Measures.
3. Your non-GAAP measures exclude content costs for past use (costs
related to music used
in the Company's service prior to the commencement of a formal
agreement with certain
licensors). Please tell us in more detail about the nature of these
payments and why they
were not contemplated in your reported results in prior periods.
Further, we note these
costs are reflected as an adjustment in each of the periods presented
and it appears that
you are in negotiations with additional music rights holders to pay
for your uses of
musical compositions and sound recordings to-date. Please tell us why
you exclude these
payments from your non-GAAP measures, your expectation for similar
payments in the
future and your consideration of Question 100.01 and 100.04 of the
Compliance and
Disclosure Interpretations on Non-GAAP Financial Measures.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page
61
4. In light of your growth strategies, including your expected expansion
to other
geographies, please revise your disclosure to discuss the nature of
your material
commitments for capital expenditures affecting your growth
initiatives. In this regard, we
note your disclosure that "[you] intend to procure additional space as
[you] add employees
and expand geographically." Refer to Item 303(a)(2) of Regulation S-K.
Overview of Our Business and History, page 61
5. Please explain the difference between your 1.25 million Members and
564,000 Connected
Fitness and Digital Subscribers disclosed in your graph of key
milestones. For example,
clarify if the difference relates to Members with inactive Peloton
accounts or multiple
members under the same Connected Fitness Subscription. Additionally,
please disclose
why you track the number of Members in order to contextualize for
investors the
significance of 1.25 million amount. As a related matter, please also
define and quantify
the term Total Global Subscribers included on the top left corner of
your graph.
Our Business Model, page 62
6. We note your presentation of Subscription Contribution Margin in the
second paragraph
of page 62 and related discussion precedes the most directly
comparable GAAP measure.
Also your tabular presentation "Key Operational and Business Metrics"
on page
John Foley
FirstName LastNameJohn Foley
Peloton Interactive, Inc.
Comapany NamePeloton Interactive, Inc.
June 20, 2019
June 20, 2019 Page 3
Page 3
FirstName LastName
66 includes non-GAAP measures without the presentation of the most
directly comparable
GAAP measures. Please revise to identify these measures as non-GAAP
and revise to
comply with Item 10(e)(1)(i)(A) of Regulation S-K and Question 102.10
of the Non-
GAAP Compliance and Disclosure Interpretations.
7. We note that "engagement over time, across [y]our cohorts of Connected
Fitness
Subscribers" is measured by the Average Monthly Workouts per Connected
Fitness
Subscriber and the Total Workouts per Connected Fitness Subscriber,
and that
"[e]ngagement is the leading indicator of retention for [y]our
Connected Fitness
Subscribers." In light of these disclosures, please discuss how the
95% retention rate
measured by the weighted-average Connected Fitness Subscribers that is
disclosed on
pages 5 and 95 relates to the "engagement" retention rate discussed on
page 63.
8. We note your last graph on page 63 and your disclosure that
"engagement for each cohort
has been consistent or improved over time." In this regard, please
discuss the reasons that
Average Monthly Workouts for Connected Fitness Subscribers who joined
in FY 2017
decreased during FY 2018 when compared to FY 2017. Please also discuss
the extent to
which the available cohort data evidences any material known trends or
uncertainties; for
example, it appears that with respect to the FY 2016 and FY 2017
cohorts, Average
Monthly Workouts per Connected Fitness Subscriber grew at a lower
percentage or
decreased between periods.
9. Where you discuss your compelling unit economics, please enhance your
discussion to
contextualize and quantify your Connected Fitness Subscriber Lifetime
Value prior
periods prior to the nine months ended March 31, 2019, in order to
explain why you
believe such value is high.
10. Where you discuss and define your Customer Acquisition Costs and in
order to explain
your efficient customer acquisition model, enhance this discussion to
provide quantified
historical information about costs over prior fiscal years, on a per
customer or per cohort
basis, to acquire or retain your customers given that your advertising
and marketing costs
have remained constant as a percentage of revenue and, according to
your disclosure, are
expected to increase.
Factors Affecting Our Performance, page 65
11. Please describe known trends or uncertainties that have had, or that
you reasonably expect
will have, a material favorable or unfavorable impact on revenue or
results of operations.
For example, discuss the potential effect of payments for content cost
for past use, as
it appears to be a recurring expense related to payments to licensors
with whom you have
not yet entered into agreements. In this regard, we note your risk
factor on page 22 that
"[i]n the past, [you] have entered into agreements that required [you]
to make substantial
payments to licensors to resolve instances of past use."
John Foley
FirstName LastNameJohn Foley
Peloton Interactive, Inc.
Comapany NamePeloton Interactive, Inc.
June 20, 2019
June 20, 2019 Page 4
Page 4
FirstName LastName
Results of Operations, page 70
12. Where you identify two or more factors that contributed to material
changes in financial
statement line items, please expand your disclosures to quantify the
individual impact of
each factor; for example, we note you have identified several factors
contributing to the
increase in cost of revenue for Connected Fitness Products. Please
refer to Item 303(a)(3)
of Regulation S-K and SEC Release No. 33-8350.
13. Please tell us your consideration of disclosing the number and average
selling price of
Connected Fitness Products sold in your discussion and analysis of
revenues on pages 72
and 75.
14. We note your disclosure on page 74 regarding the decrease in your
other gross margin due
to the impact in part of sales discounts related to your customer
referral program. Please
expand your disclosure to describe the referral program including
sales discounts or other
features offered.
Liquidity and Capital Resources, page 82
15. Your discussion of net cash used in operating activities for the nine
months ended March
31, 2019 references " . . . an $86.5 million increase in inventories
due to increased
inventory levels. . . driven by general growth. . ." It appears there
were additional factors
contributing to the significant increase in inventory during the
period. Please expand your
disclosure to provide more insight into the underlying drivers of the
change in inventory
between the periods presented.
Critical Accounting Policies and Estimates
Stock-Based Compensation, page 86
16. Once you have an estimated offering price range, please explain to us
how you determined
the fair value of the common stock underlying your equity issuances
and the reasons for
any difference between recent valuations of your common stock leading
up to the planned
offering and the midpoint of your estimated offering price range. This
information will
help facilitate our review of your accounting for equity issuances,
including stock
compensation.
Business
Our Industry and Opportunity, page 93
17. You state that you view your market opportunity in terms of a Total
Addressable Market,
or TAM, which you believe is the market you can reach over the
long-term in your current
and announced markets, and a Serviceable Addressable Market, or SAM,
which
you address with your current product verticals and price points.
Please discuss the
material assumptions and estimates underlying your calculation of TAM
and SAM for
each of the markets presented. In addition, we note your discussion of
the favorable
John Foley
FirstName LastNameJohn Foley
Peloton Interactive, Inc.
Comapany NamePeloton Interactive, Inc.
June 20, 2019
June 20, 2019 Page 5
Page 5
FirstName LastName
consumer trends and potential growth strategies that you anticipate
will contribute to the
growth of TAM and SAM; please also discuss the challenges and time
frames associated
with expanding your current geographies, building brand and product
awareness, and
developing new Connected Fitness Products and content in new fitness
verticals.
Growth Strategies, page 96
18. Please tell us how you measured the 67% aided brand awareness
disclosed here and
throughout your registration statement.
Management
Nominating and Corporate Governance Committee, page 115
19. Please address the extent to which diversity is a factor in the
committee's process for
identifying and evaluating director nominees. See Item 407(c)(vi) of
Regulation S-K.
Description of Capital Stock
Restated Certificate of Incorporation and Restated Bylaw Provisions, page 137
20. We note the disclosure about your prospective forum selection
provision. Please confirm
that this provision does not apply to actions arising under the
Securities Act, as you
suggest on page 45. In addition, please revise your disclosure here
and on pages 44-45 so
that it is consistent, and ensure that such disclosure is consistent
with the provision that
will appear in your amended and restated certificate of incorporation
that will be
effective upon completion of the offering. If the provision does not
apply to actions
arising under the Securities Act or Exchange Act, please ensure that
the exclusive forum
provision in the restated certificate of incorporation states this
clearly, or tell us how you
will inform investors in future filings that the provision does not
apply to any actions
arising under the Securities Act or Exchange Act.
Audited Financial Statements
Consolidated Statements of Operations and Comprehensive Loss, page F-4
21. Please revise the face of the statement to disclose the net loss
applicable to common
stockholders. Refer to Staff Accounting Bulletin Topic 6:B. This
comment also applies
to your Condensed Consolidated Statement of Operations and
Comprehensive Loss on
page F-34.
Note 2. Summary of Significant Accounting Policies
Stock-Based Compensation, page F-10
22. Please expand your disclosure regarding stock options exercised early
to address your
accounting for compensation over the remaining vesting period, whether
or not the stock
is subject to repurchase and how shares exercised early are reflected
in outstanding
common stock for accounting and disclosure purposes. In addition,
please tell us and
John Foley
FirstName LastNameJohn Foley
Peloton Interactive, Inc.
Comapany NamePeloton Interactive, Inc.
June 20, 2019
June 20, 2019 Page 6
Page 6
FirstName LastName
expand your disclosure as appropriate, to explain your consideration
of early exercises of
stock options in assessing the fair value of common stock underlying
your stock options,
including how early exercise factored into the assumptions used in
Black Scholes and the
reason for such treatment.
Commitments and Contingencies, page F-11
23. Your disclosure indicates if a loss is reasonably possible and the
loss or range of loss can
be reasonably estimated you disclose the possible loss. Please tell us
what consideration
you give to disclosing reasonable possible losses where an estimate
cannot be made.
Refer to ASC 450-20-50-3 and 4.
Note 9. Commitments and Contingencies
Legal Proceedings, page F-22
24. Please tell us your consideration of disclosing the lawsuit filed
against you by VR Optics
discussed on page 108. Please refer to ASC 450-20-50.
Content Costs for Past Use Reserve, page F-22
25. We note you are subject to minimum guarantee royalty payments under
certain music
license agreements of $1.4 million in fiscal year 2019 and $1.4
million through fiscal year
ending June 30, 2021 and royalty payments are recorded based on going
forward music
license agreements. Please disclose your accounting policy for music
royalty fees. In this
regard we note you disclose these fees are your largest subscription
variable cost. Please
clarify if your accounting for royalty payments includes prepaid
royalties, estimates and
accruals on a license by license basis based on your music selections
or otherwise.
Further please disclose how you estimated the costs recorded for
potential payments to
licensors with whom you had not yet entered into agreements as of the
end of the period.
Note 10. Redeemable Convertible Preferred Stock and Stockholders' Equity
Conversion, page F-24
26. Your disclosure regarding the automatic conversion of preferred stock
upon the
consummation of a qualified initial public offering at a price of not
less than $30 million
is inconsistent with the disclosure in note 12 to the unaudited
financial statements. Please
revise or advise.
Unaudited Interim Condensed Financial Statements
Note 2. Summary of Significant Accounting Policies
Marketable Securities, page F-38
27. Please advise us of the accounting literature supporting your policy
of classifying
investments with maturities beyond one year as current based on their
highly liquid
nature.
John Foley
Peloton Interactive, Inc.
June 20, 2019
Page 7
Note 11. Commitments and Contingencies
Legal Proceedings, page F-48
28. Please disclose an estimate of the possible loss or range of loss or a
statement that such an
estimate cannot be made. Please refer to ASC 450-20-50-4.
General
29. Please disclose the basis for your statement on pages 5 and 95 that
"[n]o other company is
at the intersection of all these disciplines" when referring to your
vertically integrated
business, or revise to clarify this is your belief based upon your
experience in the
industry, if true.
30. Please substantiate your statement that you are "the largest
interactive fitness platform in
the world," and disclose the metric by which you made this
determination.
You may contact Donna Di Silvio, Staff Accountant, at (202) 551-3202 or
Bill
Thompson, Senior Assistant Chief Accountant, at (202) 551-3344 if you have
questions
regarding comments on the financial statements and related matters. Please
contact Jennifer
L pez, Staff Attorney, at (202) 551-3792 or Lilyanna Peyser, Special Counsel,
at (202) 551-3222
with any other questions.
FirstName LastNameJohn Foley Sincerely,
Comapany NamePeloton Interactive, Inc.
Division of
Corporation Finance
June 20, 2019 Page 7 Office of
Consumer Products
FirstName LastName