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Peloton Interactive, Inc.

April 15, 2024

VIA EDGAR

U.S. Securities and Exchange Commission

Division of Corporation Finance

Office of Manufacturing

100 F Street, N.E.

Washington D.C. 20549

Attention: Charles Eastman and Andrew Blume

    Re:     Peloton Interactive, Inc.

Form 10-K for the Fiscal Year Ended June 30, 2023

File No. 001-39058

Dear Messrs. Eastman and Blume:

Peloton Interactive, Inc. (the “Company,” “we,” or “our”) hereby submits this letter in response to the comments of the staff of the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission, dated March 20, 2024, with respect to the above-referenced filing.

Set forth below is the heading and text of each Staff comment, followed by the Company’s response.

Form 10-K for the Fiscal Year Ended June 30, 2023

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Non-GAAP Financial Measures

Adjusted EBITDA, page 57

1.Please address the following comments related to your Adjusted EBITDA presentation:

With respect to the entirety of Question 1, we acknowledge the Staff’s comment and advise that we have considered Item 10(e) of Regulation S-K and the Staff’s guidance set forth in Question 100.01 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures. Set forth below is a discussion of the nature of our Supplier settlements, Litigation and settlement expense, and Product recall and related matters adjustments, the rationale for why our adjustments relate to items that are nonrecurring, infrequent, or unusual, and why such adjustments are not misleading and are not normal, recurring, cash operating expenses necessary for the Company to operate its business on an on-going basis.

●Provide us with additional information regarding the “Supplier settlements” adjustment, including the nature and key terms of the underlying agreements. Clarify if you enter into purchase agreements with all material suppliers and if settlement

terms and amounts are stipulated in your contracts or separately negotiated on an as needed basis.

Response:

We acknowledge the Staff’s comment and note that, during fiscal years 2022 and 2023, the Company entered into settlement arrangements with various third-party suppliers to terminate certain future inventory purchase commitments in an effort to align its inventory levels with then current levels of decreased demand. The Company’s purchase commitments at that time, which included agreements with all material suppliers, typically covered forecasted product and manufacturing requirements for periods that spanned a number of months. In certain instances, these agreements allowed the Company to cancel, reschedule, and/or adjust its requirements based on business needs for a period of time before the order was due to be fulfilled. Although the Company’s commitments under its agreements were cancellable in certain situations, some of these commitments were not cancellable in the event of a demand plan change or other circumstances, such as where the supplier had procured unique, Peloton-specific designs or other specific non-cancellable, non-returnable components based on forecasts provided by the Company to the supplier.

The supplier settlement terms and amounts were not stipulated in the underlying master supply agreements or purchase orders. The costs incurred as a result of these supplier settlement arrangements were for inventory and other commitments deemed to be non-cancellable or non-returnable. The supplier settlement terms and amounts were separately negotiated on an as needed, supplier-by-supplier basis. The Company advises the Staff that this change in business requirement was part of an unusual, one-time effort to evaluate and adjust the Company’s forecasted inventory needs with its suppliers. The Company further notes that, following this one-time effort its agreements with suppliers and contract manufacturers typically have been structured to allow more flexibility in adjusting requirements based on business needs and changes in demand forecasting, which is another reason that the Company considered these supplier settlement arrangements to be nonrecurring.

●We note your disclosure on page 56 regarding the nature of the “Litigation and settlement expense” items considered “outside of the ordinary course of business.” Provide us with additional information regarding the nature of the items included in this adjustment for all periods presented. Specifically address how you determined that all components, such as patent infringement and consumer arbitration matters, are outside the ordinary course of your business. Also clarify how you assess and segregate items for classification between the litigation adjustment and the product recall adjustment.

Response:

We acknowledge the Staff’s comment and note that the litigation and settlement expenses that are added back to net loss to calculate adjusted EBITDA consist of legal settlements and related fees for specific proceedings that are considered to be nonrecurring, infrequent or unusual and outside the ordinary course of business. The Company evaluates the following factors to determine whether the expenses for a proceeding or a settlement are nonrecurring, infrequent, or unusual and are therefore appropriate to exclude from adjusted EBITDA:

●Frequency of similar cases that have been brought to date or are expected to be brought within two years;

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●Complexity of the case;

●Nature of the remedy(ies) sought;

●Offensive versus defensive posture of the Company;

●Counterparty involved; and

●Overall litigation strategy.

These determinations are regularly provided to senior management, the Company’s management-level disclosure committee, and the audit committee of the Company’s board of directors.

As the Company has disclosed, the nature of these expenses in fiscal years 2021, 2022, and 2023 consisted of litigation and settlement expenses relating to patent infringement, consumer arbitration, and product-recall-related matters that are considered outside the ordinary course of business.

For example, the Company’s litigation with DISH Technologies L.L.C. and Sling TV L.L.C. (the “Dish Matter”) represented 78% of the Company’s litigation related add-backs for fiscal year 2023 and is an example of a patent infringement matter determined to be nonrecurring, infrequent, and unusual and outside of the Company’s ordinary course of business based on the above factors. The nature of this particular matter was significantly more complex than routine intellectual property claims and, in addition to seeking monetary damages or other more typical remedies from a district court, also sought an order from the International Trade Commission to broadly prohibit the Company from the sale, distribution, marketing, transferring, or advertising in the United States of products that had the infringing functionality installed on them, and the importation of products unless they were deemed non-infringing by the International Trade Commission and/or U.S. Customs and Border Protection. Only narrow exceptions to this ban were permitted, and parts not directly incorporating the infringing functionality also were barred. Based on its assessment of the various factors and the unusual nature of the case, the Company considered this matter to be nonrecurring, infrequent, and unusual, and therefore determined that expenses relating to this matter should be added back when calculating adjusted EBITDA.

The Company regularly assesses the charges (and credits) associated with litigation matters that are excluded from (or added back to) adjusted EBITDA and provides disclosures about the nature of any such expense or credit, if material. As the Company and its industry evolves, the Company also periodically assesses whether certain types of litigation matters have become normal recurring costs of operating its business, and therefore, would generally not be appropriate to exclude from adjusted EBITDA. For example, although the Company in the past considered patent infringement and consumer arbitration claims to be outside the ordinary course of its business as evaluated at the time, the Company has determined that these types of claims have become more routine in its business. Therefore, on a prospective basis, following a change in practice starting in fiscal year 2022, the Company no longer adds back costs from new patent infringement or consumer arbitration claims to adjusted EBITDA, unless the matter is considered to be nonrecurring, infrequent or unusual and outside the ordinary course of business,      such as the Dish Matter. For consistency, the Company continues to add back charges relating to historical patent infringement and consumer arbitration claims that were determined, prior to the Company’s change in practice, to be nonrecurring, infrequent or unusual and outside the ordinary course of business.

Beyond the Dish Matter, the Company’s remaining litigation related add-backs for fiscal year 2023 were primarily due to legal costs associated with product recalls, representing 17% of litigation related add-backs. With respect to how components of product recall related costs are segregated between the litigation adjustment and the product recall adjustment within the Company’s adjusted EBITDA calculation, the Company presents legal fees incurred in connection with product recalls as litigation

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adjustments and presents the costs necessary to both remedy the products, and if necessary account for any actual and estimated future returns, as product recall adjustments.

●In regards to your “Product recall related matters” adjustment, provide us with a history of any material product recalls and explain how you determine which product recall costs to include. If all costs related to product recalls have been removed in your non-GAAP presentation for all periods presented, tell us how you determined such treatment was appropriate. Specifically address why you believe it is appropriate to exclude revenue adjustments related to actual and estimated returns.

Response:

We acknowledge the Staff’s comment and note that in the Company’s 12-year history, it has conducted four voluntary product recalls. In 2020, the Company announced a voluntary recall of first-generation Peloton PR70P clip-in pedals on Peloton Bikes sold between July 2013 and May 2016 (which was immaterial), due to a risk that the pedal could break during use with a risk of injury. In May 2021, the Company announced a voluntary recall of its Tread+ model due to a risk of injury. In the same month, the Company announced a voluntary recall of its Tread model related to the touchscreen due to a risk of injury. In May 2023, the Company announced a voluntary recall of the original model Peloton Bike seat posts sold in the U.S. from January 2018 to May 2023, which resulted in the Company offering a free replacement seat post as the approved repair. Both the Tread+ and Bike seat post recalls involved a substantial number of units, approximately 125,000 and 2.2 million units, respectively.

In determining whether a product recall is outside of the ordinary course of business and considered to be a nonrecurring, infrequent or unusual event, the Company assesses factors, including the nature of the product recall, the Company’s experience with similar product recalls at the time of such assessment, the impacts on the Company of the recall remedy and associated logistics, supply chain, and other externalities, as well as the expected consumer demand for such a remedy, and operational complexities in the design, regulatory approval and deployment of a remedy.

For example, the Company determined that the Tread+ recall was a nonrecurring, infrequent, and unusual matter and was outside of the ordinary course of its business based on the factors above, including the nature of the product recall and the complexity of the necessary remedy. In making this assessment at that time, the Company did not believe that it was reasonably likely to have a product recall of a similar nature with a similar magnitude and within a reasonable period, nor had the Company had a history of a similar product recall. Developing and obtaining regulatory approval of a solution for the Tread+ recall took over two years, in part due to the novel technical repair required. The Company had announced a voluntary recall for Tread+ in cooperation with the U.S. Consumer Product Safety Commission (the “CPSC”) on May 5, 2021, and halted sales of the product while the development of a potential remedy was ongoing in coordination with the CPSC, which controls the approval of the remedy. Members were notified by the Company that they could return their Tread+ for a full refund, or keep their Tread+ while the Company was developing a repair. On October 18, 2022, the CPSC and the Company jointly announced that Members had one additional year, until November 6, 2023, to opt for a full refund for the recalled Peloton Tread+ (after which a prorated refund was available).  This period was a substantially longer period than required by law, which permits a discounted allowance for reasonable use for products in use for more than one year, and was also significantly beyond the 30-day return policy the Company offers in the ordinary course of business. On May 18, 2023, in collaboration with the CPSC, the Company announced the approval of a rear guard repair for the recalled Tread+.  Separately, in

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determining that the Tread recall was nonrecurring, infrequent and unusual, the Company considered that the Tread recall arose concurrently with the Tread+ recall. As a result, the Company was unable for a time to offer any treadmill models for sale, while the remedy was under development for both recalled models. The Company had never launched simultaneous recalls for different models and different risks, each requiring a different remedy, which resulted in additional financial, supply chain, and service and support impacts.

The Company also determined that the original model Bike seat post recall was a nonrecurring, infrequent, and unusual matter and was outside of the ordinary course of its business. As part of its evaluation of the above factors, the Company determined that the size of the 2023 original model Bike seat post recall as ultimately determined was likely to result in a disproportionate consumer demand response in relation to other consumer product recalls. The Company, in collaboration with the CPSC, had announced on May 11, 2023 a voluntary recall of approximately 2.2 million of the original Peloton model Bikes sold in the U.S. from January 2018 to May 2023, and offered Members a free replacement seat post as the approved repair. The Company received an initial response from its consumers that was higher than expected, and higher than expected recall response rates in the consumer product segment, creating extraordinary supply chain demand and logistics impacts. As such, the Company did not believe it was reasonably likely that a product recall of a similar nature was expected within a reasonable period of time nor did the Company have a history of a similar product recall.

If the Company concludes that a particular recall is outside of the ordinary course of business based on the factors discussed above, it excludes the related product recall costs and revenue adjustments from adjusted EBITDA. Such exclusions may include costs relating to remedy development, logistics, recalled product repair or disposal, inventory write-downs or cancellation of supplier commitments, and adjustments related to actual and estimated returns. The Company accrues the cost of product recalls when the Company determines that it is probable a liability has been incurred and the amount can be reasonably estimated. In the recall context, the C