SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. All statements contained in this Annual Report on Form 10-K 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 Annual Report on Form 10-K 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;
•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 Subscriber base and maintain and expand our Subscriber base;
•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 Annual Report on Form 10-K.
We have based these forward-looking statements largely 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, including those described in the section titled “Risk Factors” in Part II, Item 1A of this Annual Report on Form 10-K. 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 Annual Report on Form 10-K 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 reasonable, we cannot guarantee future results, performance, or achievements. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Annual Report on Form 10-K or to conform these statements to actual results or revised expectations, except as required by law.
You should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K and have filed with the Securities and Exchange Commission, or 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 Annual Report on Form 10-K, the words "we," "us," "our" and "Peloton" refer to Peloton Interactive, Inc. and its wholly owned subsidiaries, unless the context requires otherwise.
PART I
Item 1. Business
Overview
Peloton is the largest interactive fitness platform in the world with a loyal community of over 3.1 million Members as of June 30, 2020. We pioneered connected, technology-enabled fitness, and the streaming of immersive, instructor-led boutique classes to our Members anytime, anywhere. We make fitness entertaining, approachable, effective, and convenient, while fostering social connections that encourage our Members to be the best versions of themselves.
We are an innovation company at the nexus of fitness, technology, and media. We have disrupted the fitness industry by developing a first-of-its-kind subscription platform that seamlessly combines the best equipment, proprietary networked software, and world-class streaming digital fitness and wellness content, creating a product that our Members love.
Driven by our Members-first mindset, we built a vertically integrated platform that ensures a best-in-class, end-to-end experience. We have a direct-to-consumer multi-channel sales platform, including 95 showrooms as of June 30, 2020, with knowledgeable sales specialists, a high-touch delivery service, and helpful Member support teams.
Our world-class instructors teach classes across a variety of fitness and wellness disciplines, including indoor cycling, indoor/outdoor running and walking, bootcamp, yoga, strength training, stretching, and meditation. We produce hundreds of original programs per month and maintain a vast and constantly updated library of thousands of original fitness and wellness programs. We make it easy for Members to find a class that fits their interests based on class type, instructor, music genre, length, available equipment, area of physical focus, and level of difficulty.
Our revenue is primarily generated from the sale of our Connected Fitness Products, the Peloton Bike, launched in 2014, and the Peloton Tread, launched in 2018, and associated recurring subscription revenue. We have experienced significant growth in sales of Connected Fitness Products, which, when combined with our strong Connected Fitness Subscription retention rates, has driven high growth in Connected Fitness Subscriptions. Our Connected Fitness Subscription base grew by 113% in fiscal 2020.
Our compelling financial profile is characterized by high growth, strong retention, recurring revenue, margin expansion, and efficient subscription acquisition. When we acquire new Connected Fitness Subscriptions, we are able to offset our subscription acquisition costs with the gross profit earned on our Connected Fitness Products. This allows for rapid payback of our sales and marketing investments and results in a robust unit economic model.
We are a fast-growing and scaled fitness platform. For fiscal 2020, 2019, and 2018:
•we generated total revenue of $1,825.9 million, $915.0 million, and $435.0 million, respectively, representing 100% and 110% year-over-year growth;
•we incurred net losses of $(71.6) million, $(195.6) million, and $(47.9) million, respectively; and
•our Adjusted EBITDA was $117.7 million, $(71.3) million, and $(30.4) million, respectively.
See the section titled “Selected Consolidated Financial and Other Data—Non-GAAP Financial Measures” for information regarding our use of Adjusted EBITDA and a reconciliation of net loss to Adjusted EBITDA.
For fiscal 2020, 2019, and 2018, key metrics of our business included:
•Connected Fitness Subscriptions of 1,091,100; 511,200; and 245,600 respectively; and
•Average Net Monthly Connected Fitness Churn of 0.62%; 0.65%; and 0.64%, respectively.
We define a Member as any individual who has a Peloton account through a paid Connected Fitness Subscription or a paid Peloton Digital subscription, and a Subscriber as a person, household or commercial property, such as a hotel or residential building, with a Connected Fitness Subscription or an individual or household that has a paid Peloton Digital subscription. For a definition of Connected Fitness Subscription, Average Net Monthly Connected Fitness Churn, and Subscription Contribution Margin, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operational and Business Metrics.”
In December 2019, an outbreak of the novel coronavirus (COVID-19) disease was first identified and began to spread across the globe. In March 2020, the World Health Organization declared COVID-19 a pandemic, impacting many countries around the world and causing governments to institute lockdown or other similar measures to slow infection rates. As a leader in home connected fitness, we were uniquely positioned to be top-of-mind as many were faced with the possibility of working from home for an indefinite amount of time. To help support our community during this unprecedented time, we extended our Peloton Digital subscription free trial period from 30 to 90 days in order to help people maintain their physical and mental well-being through our fitness and wellness programming, pledged $1.0 million in Connected Fitness Subscription waivers for Members who have been financially impacted by COVID-19, and have continued to donate resources and funds to those in need in our communities, amongst other things.
These factors have driven increased demand for our products and services, and despite being forced to temporarily close our showrooms and studios due to the COVID-19 pandemic, our sales continue to surpass our expectations.
There is no assurance that we will continue to experience an increase in demand for our products and services or that our current Subscribers will continue to use our platform after the COVID-19 pandemic has tapered. We may see a decline in Subscribers when shelter-in-place measures are relaxed, and gyms and fitness studios reopen. While we are unable to accurately predict the full impact that COVID-19 will have on our business in light of the uncertainty as to the severity and duration of the pandemic, actions that may be taken by government authorities, the
impact to our Members and business partners, and other factors identified in the section titled "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K, we continue to evaluate its impact on our business, results of operations, and financial condition.
In this unprecedented time, we are grateful for the extreme hard work of all of our employees, incredibly supportive Member community, and unwavering business partners. Our priorities during this time are to ensure the safety and well-being of our employees, to continue to serve our Members, and to support our communities.
Our Products
Peloton Bike and Bike+
Our current Bike features a carbon steel frame, a nearly silent belt drive, durable magnetic resistance, and a 22” high-definition touchscreen with built-in stereo speakers to stream live and on-demand classes, all in a compact, 4’ by 2’ footprint. Our Bike is available in the United States, Canada, the United Kingdom, and Germany.
Bike+
Our new Bike+ provides an immersive cardio experience and seamless transition to floor-based exercises with its 24”, 360 degree rotating display. Members can easily pivot and tilt the screen to add strength, yoga, and stretching to their routine or take our all new Bike Bootcamp class series. Resistance on Bike+ is controlled digitally allowing Members to “Auto Follow” their instructors’ class programs and control resistance from the touchscreen. A powerful built-in soundbar and subwoofer system offers an improved audio experience while the integrated Apple GymKit simplifies Apple Watch pairing. Bike+ is currently available for purchase in the United States, Canada, Germany, and the United Kingdom.