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July 17, 2019
John Foley
Chief Executive Officer
Peloton Interactive, Inc.
125 West 25th Street
11th Floor
New York, NY 10001
Re: Peloton Interactive, Inc.
Amended Draft Registration Statement on Form S-1
Submitted July 3, 2019
CIK No. 0001639825
Dear Mr. Foley:
We have reviewed your amended 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.
Amendment 1 to Draft Registration Statement on Form S-1 Submitted July 3, 2019
Selected Consolidated Financial and Other Data
Non-GAAP Financial Measures, page 58
1. We note your response to comment 2. Please revise to remove the
reference to litigation
expenses as "extraordinary" and disclose that litigation expenses
consist of legal
settlements and related fees for specific proceedings unrelated to your
day-to-day business
operations. Refer to Item 10(e)(1)(ii)(B) of Regulation S-K.
2. We note your response to comment 3 as well as your risk factor
disclosure on pages 20
and 28. Your response suggests that it would be misleading to potential
investors to
include expenses incurred and reported in accordance with GAAP in the
company's non-
John Foley
FirstName LastNameJohn Foley
Peloton Interactive, Inc.
Comapany NamePeloton Interactive, Inc.
July 17, 2019
July 17, 2019 Page 2
Page 2
FirstName LastName
GAAP performance measures. However, it is not yet clear to us why it
is not misleading
to exclude "content costs for past use" from your non-GAAP performance
measures.
Therefore, please help us better understand the nature and timing of
these costs and how
these amounts were determined in your go-forward agreements. In this
regard, provide us
with an understanding of the number of go-forward agreements you have
entered into in
the past and your expectation of similar agreements and payments in
the future.
Further, you have indicated that you account for music royalty fees,
including content
costs for past use, as a component of subscription cost of revenue in
each reporting period
and that the accounting for "past use costs" are not accounting errors
or out-of-period
accounting corrections. Rather, you suggest that they represent
amounts recorded for
changes in estimates. While these costs may relate to prior period
estimates, excluding
them from your non-GAAP measures presents your operating results as if
these costs of
revenue were never incurred in any period. As such, it is not clear
how excluding these
costs provides investors with a full understanding of your core
operating results. Please
explain.
Please also provide us with the following additional information:
The date Crescendo was introduced and utilized to create playlists
from songs licensed
to the Company;
The date instructors were required to select only songs currently
licensed by the
Company, if true;
The factors you consider in determining the liability is probable;
Approximately when in the future you estimate content costs for past
use will no
longer be incurred;
A roll-forward of your reserve for content costs for past use for
each period presented;
and,
The amount of music royalty fees recognized for each period
presented.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Our Business Model, page 62
3. Your revised disclosure did not fully address comment 6. Please revise
the following:
Refer to the second paragraph under Improve Profitability through
Scaling Content
Platform on page 64. Provide a discussion and analysis of the GAAP
measure
comparable to the non-GAAP measure Subscription Contribution Margin.
Your
discussion and analysis of the GAAP measure should be in a location
of equal or
greater prominence than that of your discussion and analysis of the
non-GAAP
measure Subscription Contribution Margin.
Refer to Key Operational and Business Metrics on page 66. Revise to
provide equally
prominent tabular disclosure of the GAAP measures comparable to
Subscription
Contribution, Subscription Contribution Margin, Adjusted EBITDA and
Adjusted
EBITDA margin.
John Foley
FirstName LastNameJohn Foley
Peloton Interactive, Inc.
Comapany NamePeloton Interactive, Inc.
July 17, 2019
July 17, 2019 Page 3
Page 3
FirstName LastName
See Item 10(e)(1) of Regulation S-K and Question 102.10 of the
Non-GAAP Compliance
and Disclosure Interpretations.
4. We note your response to comment 9 that the inclusion of the
calculation of the
Company's Net Customer Acquisition Costs and the Connected Fitness
Subscriber
Lifetime Value was not intended to identify trend information. Your
disclosure, however,
appears to suggest otherwise. In this regard, we note your disclosure
that "[a]s you
expand [y]our content offering...[you] believe [you] can maintain a
low Average Net
Monthly Connected Fitness Churn, resulting in a high Connected Fitness
Subscriber
Lifetime Value," and that "[you] believe [you] will continue to drive
rapid payback and
efficiencies in Net Customer Acquisition Costs (profit)..." Please
tell us how the
Connected Fitness Subscriber Lifetime Value and Net Customer
Acquisition Costs (profit)
calculation for prior periods supports such beliefs.
Business
Our Industry and Opportunity , page 93
5. Please revise this section to discuss the substance of your response
to comment 17 relating
to the material assumptions and estimates underlying your calculation
of TAM and SAM
for each of the markets presented.
Audited Financial Statements
2. Summary of Significant Accounting Policies
Stock-Based Compensation, page F-10
6. We note your response to comment 22. Please expand your disclosure in
the notes to the
audited financial statements to state you use the simplified method
consistent with your
response and explain the reason why the method was used. Refer to ASC
718-10-S99-1,
SAB Topic 14.D, Certain Assumptions Used in Valuation Methods, 2.
Expected Term,
Question 6.
Commitments and Contingencies, page F-12
7. We note your response to comment 23. Please expand your disclosure to
clarify that if a
loss is reasonably possible and the loss or range of loss cannot be
made you disclose that
an estimate of the loss or range of loss cannot be made. Please refer
to ASC 450-20-50
paragraphs 3 through 5.
9. Commitments and Contingencies
Legal Proceedings, page F-23
8. We note your response to comment 24 that you determined the VR Optics
matter does not
require disclosure because the likelihood of a material loss is
remote. We also note news
regarding the review of the validity of three of your patents by a
review board of the U.S.
Patent and Trademark Office. Please update your disclosure under Legal
Proceedings on
John Foley
Peloton Interactive, Inc.
July 17, 2019
Page 4
page 108 to disclose the Trial and Appeal Board's orders in June to
review the validity of
the patents or advise us why you do not believe revised disclosure is
necessary. Also
please tell us your consideration of disclosing the class action
lawsuit filed on March 29,
2019 here or within Legal Proceedings on page 108. Reference made to
U.S. District
Court for the Central District of California case number
2:19-CV-04968.
Unaudited Interim Condensed Financial Statements
2. Summary of Significant Accounting Policies
Marketable Securities, page F-39
9. We note your response to comment 27. Please disclose the maturities of
your marketable
securities as required by ASC 320-10-50-3.
10. Debt and Financing Arrangements, page F-47
10. We note that your disclosure on page 82 regarding the amended and
restated credit
agreement. Please tell us what consideration you gave to disclosing
the amended and
restated credit agreement as a subsequent event.
18. Subsequent Events, page F-58
11. Please tell us your consideration of providing disclosure updating
pending legal
proceedings and contingencies.
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
July 17, 2019 Page 4 Office of
Consumer Products
FirstName LastName