PELOTON INTERACTIVE INC
For the period ended Sep 30, 2024. Filed Oct 31, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Oct 31, 2024
PTON$5.61-0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-02.
0001639825-24-000055
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-10-31.
0001639825-24-000163
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 221 previous paragraphs and 202 current paragraphs.
96 unchanged; 65 reworded; 38 added; 59 removed; 1 previous and 3 current paragraphs rearranged.
Tables are not compared: 18 previous and 18 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (38)
Current report
Connected Fitness Sales Channels
Current report
Innovative Content Offerings
Current report
In addition to our annual All for One programming event, we recently rolled out a number of new programs to serve our Member base’s diverse interests, including Strength for Soccer, and new offerings across Barre, Pilates, Yoga and Meditation. We also expanded our low-impact workout offering with the launch of Walking Bootcamps, the latest in a series of Walking and Hiking content. We also delivered content for the performance athlete segment, releasing more 75, 90 and 120-minute classes in response to Member interest. Lastly, in addition to Lanebreak, we have been conducting a beta test for a new immersive, game-inspired cycling experience designed for competitive and social engagement.
Current report
New and Expanded Partnerships
Current report
We’re leaning into existing partnerships and exploring opportunities to partner with other businesses strategically to reach incremental audiences with our world-class Connected Fitness experience.
Current report
•We launched a new partnership with TrueMed in October, making it easier for qualified US-based Peloton customers to use pre-tax Health Savings Account (HSA)/Flexible Spending Account (FSA) dollars to purchase applicable Peloton products through a payment integration on our website.
Current report
•We expanded our partnership with Hyatt during the three months ended September 30, 2024 by rolling out the Earn More, Move More program for World of Hyatt loyalty members. This first-of-its-kind global program enables Members to earn World of Hyatt loyalty points by completing Peloton workouts at participating Hyatt hotels.
Current report
•Our partnership with Google Fitbit launched in September with 100 Peloton classes on the Fitbit Premium Platform and 5 sample classes on the Fitbit Free App. Early customer feedback generally has been positive.
Current report
•We continue to be pleased with our content licensing arrangement with lululemon, which delivers a meaningful, consistent revenue stream from their subscriber base.
Current report
We’ve made progress in implementing the Restructuring Plans and achieving the goals outlined in Note 4 - Restructuring. In fiscal year 2024, we completed the sale of the Peloton Output Park building and a portion of the corresponding land and received net proceeds of approximately $31.9 million, successfully exited our owned-manufacturing operations, and reduced our global retail showroom footprint. In September 2024, we completed the sale of the remaining Peloton Output Park land parcel and received net proceeds of $4.2 million. We expect substantial further improvements in the above as well as a number of other measures by which we measure the success of our restructuring initiatives and will continue optimizing our showroom footprint over the remainder of fiscal year 2025.
Current report
Fitness product categories, except Tread+, which resumed sales during the third quarter of fiscal 2024, partially offset by higher demand from our Bike rental products and improvements in Precor revenue.
Current report
Subscription Revenue increased $11.4 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase was primarily attributable to incremental content licensing revenue for the three months ended September 30, 2024, partially offset by decreases in both Paid Connected Fitness Subscriptions and Paid App Subscriptions.
Current report
Our Connected Fitness Products Gross Margin increased to 9.2% for the three months ended September 30, 2024 compared to 3.1% for the three months ended September 30, 2023, primarily driven by product mix-shifts towards higher margin Precor and Bike rental products, reduced personnel-related expenses, and lower warehousing costs. These margin improvements were partially offset by higher expenses associated with our standard warranty reserves during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Our extended warranty business did not have a material impact on our year-over-year change in Connected Fitness Products Gross Margin.
Current report
Sales and marketing expense decreased $64.2 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily driven by a $51.7 million decrease in advertising and marketing spend and a $5.5 million decrease in personnel-related expenses, inclusive of stock-based compensation expense, primarily due to decreased average headcount.
Current report
General and administrative expense decreased $31.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily driven by an $18.0 million decrease in personnel-related expenses, inclusive of stock-based compensation expense, primarily due to decreased average headcount and an $8.5 million decrease in professional services fees.
Current report
Research and development expense decreased $20.1 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily driven by a $15.7 million decrease in personnel-related expenses, inclusive of stock-based compensation expense, primarily due to decreased average headcount and a $4.0 million decrease in product development and research costs.
Current report
Restructuring expense decreased $14.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to a $7.2 million decrease of restructuring related stock-based compensation expense, as there was no incremental stock-based compensation expense for restructuring related terminations that required modification to equity awards during the three months ended September 30, 2024, and a $6.6 million decrease in cash severance and other personnel costs.
Current report
Supplier settlements increased $23.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to accruals for the three months ended September 30, 2024 related to settlement of disputes with a third-party supplier about certain alleged past and future commitments.
Current report
*NM - not meaningful
Current report
•Foreign exchange gains of $14.8 million; and
Current report
•Other expense, net of $0.1 million.
Current report
•Adjusted EBITDA does not reflect gains (losses) associated with refinancing efforts that we have determined are outside of the ordinary course of business and are nonrecurring, infrequent or unusual based on factors such as the nature and strategy of the refinancing, as well as our frequency and past practice of performing refinancing activities.
Current report
(1) Primarily consists of Interest expense of $35.4 million and $27.2 million, foreign exchange (gains) losses of $(14.8) million and $7.8 million, and Interest income of $(8.1) million and $(8.4) million, for the three months ended September 30, 2024 and 2023, respectively.
Current report
(2) Represents charges incurred in connection with the Restructuring Plans, refer to Note 4 - Restructuring in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Current report
(3)Represents accrual for the three months ended September 30, 2024 related to settlement of disputes with a third-party supplier about certain alleged past and future commitments, which occurred due to part of an unusual, one-time effort to adjust the Company’s forecasted inventory during its fiscal years 2022 and 2023. With this settlement, we have substantially settled our purchase commitments related disputes with our suppliers that were linked to our one-time effort to evaluate and adjust the Company’s forecasted inventory needs with its suppliers during fiscal years 2022 and 2023. As such, we currently do not expect to add-back in the future any additional supplier settlements related to that effort.
Current report
2029 and 2026 Convertible Notes
Current report
In May 2024, we issued $350.0 million aggregate principal amount of 5.50% Convertible Senior Notes due 2029 (the “2029 Notes”) in a private offering, including the exercise in full of the option granted to the initial purchasers to purchase $50.0 million of the 2029 Notes. The 2029 Notes were issued pursuant to an Indenture (the “2029 Notes Indenture”) between us and U.S. Bank Trust Company, National Association, as trustee. The 2029 Notes bear interest at a rate of 5.50% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2024. The net proceeds from this offering of 2029 Notes were approximately $342.3 million, after deducting the initial purchasers' discounts and commissions. The net proceeds of the offering were used, together with proceeds from the Term Loan (as defined below) and cash on hand, to repurchase approximately $801.0 million aggregate principal amount of our outstanding 0.00% Convertible Senior Notes due 2026 (the “2026 Notes”) described below.
Current report
The effective interest rate upon issuance of the 2029 Notes was 5.97%, which is the effective interest rate as of September 30, 2024.
Current report
The effective interest rate upon issuance of the 2026 Notes was 0.45%, which is the effective interest rate as of September 30, 2024.
Current report
Repurchase of a Portion of the 2026 Convertible Notes
Current report
In May 2024, we entered into separate, privately negotiated transactions with certain holders of the 2026 Notes to repurchase $801.0 million of aggregate principal amount of the 2026 Notes for an aggregate of $724.9 million of cash. We accounted for this repurchase of the 2026 Notes as a debt extinguishment under ASC 470-50, Debt – Modifications and Extinguishments (“ASC 470-50”). We recorded a $69.8 million gain on early extinguishment of debt during the fiscal year ending June 30, 2024, which includes the write-off of previously deferred debt issuance costs of $6.3 million, which was included within Net gain on debt refinancing on the Consolidated Statements of Operations and Comprehensive Loss within our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
Current report
Termination of Capped Call Transactions
Current report
Third Amended and Restated Credit Agreement
Current report
During the three months ended September 30, 2024 and 2023, we incurred total commitment fees of $0.1 million and $0.3 million, respectively, which are included in Interest expense in the Consolidated Statements of Operations and Comprehensive Loss.
Current report
In connection with the execution of the Third Amended and Restated Credit Agreement, the Term Loan was accounted for as a modification, extinguishment, or new loan for certain lenders in accordance with ASC 470-50. Accordingly, a discount and debt issuance costs of $10.0 million and $2.3 million, respectively, will be amortized to Interest expense using the effective interest method over the term of the Third Amended and Restated Credit Agreement. Furthermore, we expensed $8.7 million of debt issuance costs incurred and wrote-off $7.5 million of previously deferred debt discount and debt issuance costs, which was included within Net gain on debt refinancing on the Consolidated Statements of Operations and Comprehensive Loss within our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
Current report
The change in cash provided by (used in) operating activities during the three months ended September 30, 2024 compared to the three months ended September 30, 2023, was driven by operating expense reductions following the 2024 Restructuring Plan and gross profit improvements.
Current report
The change in cash provided by (used in) investing activities during the three months ended September 30, 2024 compared to the three months ended September 30, 2023, was driven by the sale of the remaining Peloton Output Park land parcel.
Current report
The change in cash provided by financing activities during the three months ended September 30, 2024 compared to the three months ended September 30, 2023, was driven by a decrease in proceeds from employee stock plans.
Removed paragraphs (59)
Previous report
Connected Fitness Products and Channels
Previous report
The three months ended March 31, 2024 marked the restart of delivering Tread+ to our Members after almost 3 years off the market. Our logistics and delivery teams exceeded internal expectations for delivery times, delivering 67% of pre-orders in the quarter.
Previous report
Bike Rental continued to outperform our internal expectations during the three months ended March 31, 2024. New rentals were up 10% as compared to the three months ended March 31, 2023 and rental buyouts exceeded expectations. While the churn rate for Rental remains higher than that of outright purchase, churn from rental subscriptions improved 60 bps as compared to the three months ended December 31, 2023. Peloton Certified Refurbished and third party retail sales had strong growth as compared to the three months ended March 31, 2023 and outperformed our expectations. Last week we began selling the Peloton Tread and Peloton Row on Amazon to distribute these products to a larger audience.
Previous report
We continue to see growth in subscriber additions who purchased their Peloton equipment in the secondary market. We recently launched the Peloton History Summary to enhance the secondary market buying experience and to provide greater visibility to our bikes' ages, usages and service histories. Anyone can access a Peloton History Summary for a Bike or Bike+ by searching the serial number at onepeloton.com/history-summary. The information on our website is not part of this Quarterly Report on Form 10-Q.
Previous report
Peloton for Business
Previous report
On May 1, 2024 we announced a partnership with Hyatt Hotels that includes outfitting more than 800 Hyatt properties with Peloton equipment and providing access to Peloton classes on guestroom TVs at nearly 400 properties. Peloton Bikes will be deployed at each Hyatt hotel in markets where Peloton already operates. Select Hyatt luxury and lifestyle hotels in the U.S. will also offer the Peloton Row.
Previous report
Content Innovation
Previous report
We are continuing to invest in providing a wide variety of fitness experiences for our Members on our Connected Fitness platform. We recently added the New York Road Runner Collection on Tread and Tread+, a series of Scenic classes filmed on the TCS New York City Marathon course. In a first-of-its-kind experience, these classes provide Members the ability to train the marathon course with auto-incline functionality that matches the course's gradient fluctuations. We are also continuing to see growth in subscriber engagement with our Entertainment offerings, with more than one third of active Tread and Tread+ subscribers completing an Entertainment workout during the three months ended March 31, 2024.
Previous report
Member Experience
Previous report
In response to feedback from our Members, we launched Self Moderation features during the three months ended March 31, 2024. This feature allows Members to hide tags and other profiles, providing greater control over community interaction. For treadmill workouts on App, we launched Distance Tracking that enables Members to input metrics when running outdoors or on a third party treadmill.
Previous report
We are seeing positive results in service levels and member satisfaction in response to recent initiatives focused on turning around our member experience. These initiatives include investments in our global member support team, improvements to systems and tools, and onboarding new onshore outsourcing partners. We also observed improvements in Net Promoter Scores (“NPS”) across multiple Connected Fitness products.
Previous report
In February 2022, we announced and began implementing a restructuring plan to realign our operational focus to support our multi-year growth, scale the business, and improve costs (the “2022 Restructuring Plan”). The 2022 Restructuring Plan originally included: (i) reducing our headcount; (ii) closing several assembly and manufacturing plants, including the completion and subsequent sale of the shell facility for our previously planned Peloton Output Park; (iii) closing and consolidating several distribution facilities; and (iv) shifting to third-party logistics providers in certain locations.
Previous report
In fiscal year 2023, we continued to take actions to implement the 2022 Restructuring Plan. In July 2022, we announced we were exiting all owned-manufacturing operations and expanding our current relationship with a Taiwanese manufacturer, Rexon Industrial Corporation. Additionally, in August 2022, we announced our decision to (i) fully transition our North American Field Operations to third-party providers, including the significant reduction of our delivery workforce teams; (ii) eliminate a significant number of roles on the North America Member Support team and exit our real-estate footprints in our Plano and Tempe locations; and (iii) reduce our retail showroom presence. In January 2024, we completed the sale of the Peloton Output Park building and a portion of the corresponding land and received net proceeds of approximately $31.9 million. The Company continues to market the remaining land parcel.
Previous report
Total charges incurred related to the 2022 Restructuring Plan were $10.4 million and $66.8 million for the three and nine months ended March 31, 2024, respectively, and $48.0 million and $280.2 million for the three and nine months ended March 31, 2023, respectively. Total charges for the three and nine months ended March 31, 2024 consisted of cash charges of $2.3 million and $16.1 million for exit and disposal costs and professional fees and $1.1 million and $7.5 million for severance and other personnel costs, respectively, and non-cash charges of $7.0 million and $31.1 million related to non-inventory asset write-downs and write-offs, zero and $7.2 million for stock-based compensation expense, zero and $3.8 million for the loss on sale of a manufacturing subsidiary in Taiwan, and zero and $1.0 million for write-offs of inventory related to restructuring activities, respectively. Total charges for the three and nine months ended March 31, 2023 consisted of cash charges of $6.9 million and $68.0 million for severance and other personnel costs and $4.4 million and $16.4 million for exit and disposal costs and professional fees, respectively, and non-cash charges of $36.0 million and $108.6 million related to non-inventory asset write-downs and write-offs, $0.7 million and $83.5 million for stock-based compensation expense, and zero and $3.7 million for write-offs of inventory related to restructuring activities, respectively.
Previous report
Total charges related to the 2024 Restructuring Plan were $45.0 million for both the three and nine months ended March 31, 2024, consisting of cash charges totaling $32.5 million for severance and other personnel costs, and non-cash charges of $10.8 million related to asset write-downs and write-offs and $1.7 million for stock-based compensation. The majority of the cash charges are expected to be paid during the fourth quarter of fiscal year 2024.
Previous report
In connection with the 2024 Restructuring Plan, which includes any remaining restructuring activity under the original 2022 Restructuring Plan, we estimate that we will incur additional cash charges of approximately $45.0 million, primarily composed of lease termination and other exit costs, which are expected to be substantially incurred by the end of fiscal year 2025. Additionally, we expect to recognize additional non-cash charges of approximately $20.0 million, primarily composed of non-inventory asset impairment charges in connection with the 2024 Restructuring Plan, which are expected to be substantially incurred by the end of fiscal year 2025.
Previous report
Tread+ Product Recall Return Reserves and Cost Estimates
Previous report
On May 5, 2021, we announced a voluntary recall of our Tread+ product in collaboration with the U.S. Consumer Product Safety Commission (the “CPSC”) and halted sales of this product to work on product enhancements. Members were notified that they could return their Tread+ for a full refund, or wait until a solution was available. In collaboration with the CPSC, on May 18, 2023, we jointly announced approval of a rear guard repair for the recalled Tread+. We have made this rear guard available to our Members who continue to own a Tread+ and during thethree months ended March 31, 2023, we resumed deliveries of the Tread+ from our existing inventory with the rear guard installed.
Previous report
Return reserves related to the impacts of the Tread+ recall of $7.5 million and $24.4 million were included within Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets as of March 31, 2024 and June 30, 2023, respectively. Accruals for costs associated with the Tread+ repair of$8.9 million and$10.0 million were included within Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheet as of March 31, 2024 and June 30, 2023, respectively. We may continue to incur additional costs beyond what we have currently estimated to be probable and reasonably estimable which could include costs for which we have not accrued or established adequate reserves, including increases to the return reserves, inventory write-downs, logistics costs associated with Member requests to return or move their hardware, subscription waiver variable costs of service, anticipated recall-related hardware development and repair costs, and related legal and advisory fees. Recall charges are based upon estimates associated with our expected and historical consumer response rates.
Previous report
Actual costs related to this matter may vary from the estimate, and may result in further impacts to our future results of operations and business. See “Risk Factors—Risks Related to Our Connected Fitness Products and Members—We may be subject to warranty claims that could result in significant direct or indirect costs, or we could experience greater product returns than expected, either of which could have an adverse effect on our business, financial condition, and operating results” in our Form 10-K.
Previous report
Bike Seat Post Recall
Previous report
On May 11, 2023, in collaboration with the CPSC, the Company announced a voluntary recall of the original Peloton Bike (not Bike+) sold in the U.S. from January 2018 to May 2023 related to its seat post, and the Company is offering Members a free replacement seat post as the approved repair. As of March 31, 2024 and June 30, 2023, accruals of$2.4 million and $42.2 million, respectively, were included within Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheet related to the recall. The estimated cost to replace the bike seat posts is primarily based on the estimated number of requests for seat posts and the estimated costs of the production and shipment of the replacement parts.
Previous report
We may continue to incur additional costs beyond what we have currently estimated to be probable and estimable, including if the number of reported incidents materially increases. See“Risk Factors—Risks Related to Our Connected Fitness Products and Members—Our products and services may be affected from time to time by design and manufacturing defects or product safety issues, real or perceived, that could adversely affect our business and result in harm to our reputation”in our Form 10-K.
Previous report
(1) New reporting metric, effective as of the beginning of fiscal year 2024, replaced Ending Connected Fitness Subscription. See Ending Paid Connected Fitness Subscription definitions below.
Previous report
(2) New reporting metric, effective as of the beginning of fiscal year 2024, replaced Average Net Monthly Connected Fitness Churn. See Average Net Monthly Paid Connected Fitness Subscription Churn definition below.
Previous report
(3) This metric, effective as of the beginning of fiscal year 2024, is reported on a go-forward basis as it includes App One and App+ subscriptions that were not available during the three months ended March 31, 2023.
Previous report
Prior to fiscal year 2024, we have reported Average Net Monthly Connected Fitness Churn, which is defined as Connected Fitness Subscription cancellations, net of reactivations, in the quarter, divided by the average number of beginning Connected Fitness Subscriptions in each month, divided by three months. This metric does not treat a pause of a Connected Fitness Subscription as a churn event. When a Connected Fitness Subscription payment method fails, we communicate with our Members to update their payment method and make multiple attempts over several days to charge the payment method on file and reactivate the subscription. We cancel a Member's Connected Fitness Subscription when it remains unpaid for two days after their billing cycle date.
Previous report
Furthermore, we have reported our Average Net Monthly Connected Fitness Churn metric net of reactivations. Under this metric, a Connected Fitness Subscriber that cancels their membership (a churn event) and resubscribes in a subsequent period is considered a reactivation and is counted as a reduction in our churn count in the period during which the Subscriber resubscribes. These metrics do not include data related to our App One Subscribers and App+ Subscribers.
Previous report
On July 1, 2022, the Compensation Committee approved a one-time repricing of certain stock option awards that had been granted under the 2019 Plan. The repricing impacted stock options held by all employees who remained employed through July 25, 2022. The repricing did not apply to our U.S.-based hourly employees (or employees with equivalent roles in non-U.S. locations) or our C-level executives. The modification resulted in incremental stock-based compensation expense of $21.9 million in the aggregate.
Previous report
Connected Fitness Products revenue decreased $44.2 million and $130.2 million for the three and nine months ended March 31, 2024, respectively, compared to the three and nine months ended March 31, 2023. These decreases were primarily attributable to fewer Bike, Accessories, and Row deliveries driven by less demand, partially offset by higher demand from our rental program and Tread+.
Previous report
Subscription revenue increased $13.1 million and $29.0 million for the three and nine months ended March 31, 2024, respectively, compared to the three and nine months ended March 31, 2023. These increases were primarily attributable to continued growth in our Connected Fitness Subscriptions, primarily driven by the number of Connected Fitness Products delivered during the fiscal year ended June 30, 2023 and the six months ended December 31, 2023 under new Subscriptions, as well as other subscription revenue, and our low Average Net Monthly Paid Connected Fitness Subscription Churn of 1.2% and 1.3% for the three and nine months ended March 31, 2024.
Previous report
Our Connected Fitness Products Gross Margin increased to 4.2% for the three months ended March 31, 2024 compared to (5.4)% for the three months ended March 31, 2023, primarily driven by lower inventory write downs and lower shipping and logistics costs compared to the three months ended March 31, 2023.
Previous report
Subscription cost of revenue for the three months ended March 31, 2024 increased $2.8 million, or 2.1%, compared to the three months ended March 31, 2023. This increase was primarily driven by increases in platform streaming and content productions costs of $4.1 million and personnel related expenses of $2.5 million, partially offset by decreases in music royalties of $2.8 million and depreciation and amortization expense of $1.3 million.
Previous report
Nine Months Ended March 31, 2024 and 2023
Previous report
Our Connected Fitness Products Gross Margin increased to 4.0% for the nine months ended March 31, 2024 compared to (12.8)% for the nine months ended March 31, 2023, primarily driven by lower inventory write downs, lower shipping and logistics costs, and lower net costs associated with product recall related matters.
Previous report
Subscription cost of revenue for the nine months ended March 31, 2024 increased $4.1 million, or 1.0%, compared to the nine months ended March 31, 2023, primarily driven by increases in personnel related expenses of $6.2 million and platform streaming costs of $6.2 million. These increases were partially offset by decreases in music royalties of $5.9 million and stock-based compensation expense of $2.8 million.
Previous report
Sales and marketing expense increased $15.7 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by an increase in spending on advertising and marketing programs of $27.4 million, partially offset by decreases of personnel-related expenses of $5.9 million, primarily due to decreased average headcount, decreases in rent and occupancy and other retail related costs of $3.4 million, primarily driven by a reduction in our retail showroom presence, and decreases in depreciation and amortization expense of $1.8 million. Sales and marketing expense increased $36.3 million for the nine months ended March 31, 2024, compared to the nine months ended March 31, 2023, primarily driven by an increase in spending on advertising and marketing programs of $90.8 million, partially offset by decreases in personnel-related expenses of $24.6 million, primarily due to decreased average headcount, decreases in rent and occupancy and other retail related costs of $13.8 million, primarily driven by a reduction in our retail showroom presence, decreases in stock-based compensation expense of $8.3 million, primarily driven by the acceleration of certain restricted stock unit vesting schedules and the repricing of certain stock option awards during the prior year, and decreases in depreciation and amortization expense of $6.1 million.
Previous report
General and administrative expense decreased $96.1 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by decreases in professional services fees (comprised of legal, accounting, and consulting fees) of $81.9 million, primarily due to the $75.0 million Dish settlement during the three months ended March 31, 2023. General and administrative expense decreased $170.4 million for the nine months ended March 31, 2024, compared to the nine months ended March 31, 2023, primarily driven by decreases in professional services fees (comprised of legal, accounting, and consulting fees) of $114.7 million, primarily due to the $75.0 million Dish settlement during the nine months ended March 31, 2023, decreases in stock-based compensation expense of $28.2 million, primarily driven by the acceleration of certain restricted stock unit vesting schedules and the repricing of certain stock option awards during the prior year, and decreases in personnel-related expenses of $16.3 million primarily due to decreased average headcount.
Previous report
Research and development expense decreased $1.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by decreases of $7.7 million in product development and research costs and decreases in depreciation and amortization expense of $0.4 million, partially offset by increases of $6.8 million in personnel-related expenses, as a result of a larger portion being capitalized during the three months ended March 31, 2023. Research and development expense decreased $10.9 million for the nine months ended March 31, 2024, compared to the nine months ended March 31, 2023, primarily driven by decreases of $14.2 million in product development and research costs, and $7.0 million in stock-based compensation expense, primarily driven by the acceleration of certain restricted stock unit vesting schedules and the repricing of certain stock option awards during the prior year, partially offset by increases of $12.0 million in personnel-related expenses, as a result of a larger portion being capitalized during the nine months ended March 31, 2023.
Previous report
Restructuring expense increased $25.6 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to an increase of $26.7 million in cash severance and other personnel costs. Restructuring expense decreased $99.0 million for the nine months ended March 31, 2024, compared to the nine months ended March 31, 2023, primarily driven by decreases of $74.6 million in stock-based compensation expense, primarily due to incremental stock-based compensation expense from exercise window modifications and the acceleration of certain restricted stock unit vesting schedules pursuant to severance arrangements during the prior year, and $27.9 million in cash severance and other personnel costs.
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Reworded paragraphs (65)
Previous wording
Peloton is a leading global fitness company with a highly engaged community of 6.6 million Members as of March 31, 2024. A category innovator at the nexus of fitness, technology, and media, Peloton's first-of-its-kind subscription platform seamlessly combines innovative hardware, distinctive software, and exclusive content. Its world-renowned instructors coach and motivate Members to be the best version of themselves anytime, anywhere. We define a “Member” as any individual who has a Peloton account through a paid Connected Fitness Subscription or a paid Peloton App Membership, and completes 1 or more workouts in the trailing 12 month period. We define a completed workout as either completing at least 50% of an instructor-led class, scenic ride or run, or ten or more minutes of “Just Ride”, “Just Run”, or “Just Row” mode.
Current wording
Peloton is a leading global fitness company with a highly engaged community of 6.2 million Members as of September 30, 2024. A category innovator at the nexus of fitness, technology, and media, Peloton's first-of-its-kind subscription platform seamlessly combines innovative hardware, distinctive software, and exclusive content. Its world-renowned instructors coach and motivate Members to be the best version of themselves anytime, anywhere. We define a “Member” as any individual who has a Peloton account through a paid Connected Fitness Subscription or a paid Peloton App Membership, and completes one or more workouts in the trailing 12 month period. We define a completed workout as either completing at least 50% of an instructor-led class, scenic ride or run, or ten or more minutes of “Just Ride”, “Just Run”, or “Just Row” mode.
Previous wording
Our Connected Fitness Products portfolio includes the Peloton Bike, Bike+, Tread, Tread+, Guide, and Row. Access to the Peloton App is available with an All Access or Guide Membership for Members who have Connected Fitness Products or through a standalone App Membership with multiple Membership tiers. Our revenue is generated primarily from recurring Subscription revenue and the sale of our Connected Fitness Products. We are additionally focused on growing our Paid App subscribers, including through efforts such as our branding and App relaunch in May 2023. We define a “Connected Fitness Subscription” as a person, household, or commercial property, such as a hotel or residential building, who has paid for a subscription to a Connected Fitness Product (a Connected Fitness Subscription with a successful credit card billing or with prepaid subscription credits or waivers).
Current wording
Our Connected Fitness Products portfolio includes the Peloton Bike, Bike+, Tread, Tread+, Guide, Row and various Precor products. Access to the Peloton App is available with an All Access or Guide Membership for Members who have Connected Fitness Products or through a standalone App Membership with multiple Membership tiers. Our revenue is generated primarily from recurring Subscription revenue and the sale of our Connected Fitness Products. We are additionally focused on growing our Paid App subscribers, including through efforts such as our branding and App relaunch in May 2023. We define a “Connected Fitness Subscription” as a person, household, or commercial property, such as a hotel or residential building, who has paid for a subscription to a Connected Fitness Product (a Connected Fitness Subscription with a successful credit card billing or with prepaid subscription credits or waivers).
Previous wording
Our financial profile has been characterized by strong retention, recurring revenue, and efficient customer acquisition. Our low Average Net Monthly Connected Fitness Churn, together with our high Subscription Gross Profit and Subscription Contribution Margin, yields an attractive lifetime value (“LTV”) for our Connected Fitness Subscriptions well in excess of our customer acquisition costs (“CAC”). Maintaining an attractive LTV/CAC ratio is a primary goal of our customer acquisition strategy.
Current wording
Our financial profile has been characterized by strong retention, recurring revenue, and efficient customer acquisition. We believe that our low Average Net Monthly Paid Connected Fitness Subscription Churn, together with our high Subscription Gross Profit and Subscription Contribution Margin, yields an attractive lifetime value (“LTV”) for our Connected Fitness Subscriptions well in excess of our customer acquisition costs (“CAC”). Maintainingan attractive LTV/CAC ratio is a primary goal of our customer acquisition strategy.
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Third Quarter Fiscal 2024 Update and Recent Developments
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First Quarter Fiscal 2025 Update and Recent Developments
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Three Months Ended March 31, 2024 and 2023
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We continue to optimize our sales and distribution channels. During the three months ended September 30, 2024, we continued our retail store closure efforts, and next month we plan to evaluate a more cost-efficient retail model by testing a reimagined smaller store concept. Ahead of the holiday season, we are expanding our third party retail channels as well. The Peloton Bike+ will be available at Costco with special pricing for Costco members across 300 US locations and Costco's website for a limited time. We also shifted our German retail and distribution model to Amazon and FitShop, allowing us to operate in a capital efficient way that we believe may serve as a model for future International expansion.
Previous wording
On April 22, 2024, the Company’s Board of Directors approved a new restructuring plan to expand upon its 2022 restructuring plan (as expanded, the “2024 Restructuring Plan”). The 2024 Restructuring Plan will position Peloton for sustained, positive free cash flow, while enabling the company to continue to invest in software, hardware and content innovation, improvements to its member support experience, and optimizations to marketing efforts to scale the business. The 2024 Restructuring Plan includes: (i) a reduction in global headcount; and (ii) continued closures of our retail locations. The Company expects the 2024 Restructuring Plan to be substantially implemented by the end of fiscal 2025.
Current wording
In February 2022, we announced and began implementing a restructuring plan to realign our operational focus to support our multi-year growth, scale the business, and improve costs (the “2022 Restructuring Plan”). In April 2024, our Board of Directors approved a new restructuring plan to expand upon the 2022 Restructuring Plan (as expanded, the “2024 Restructuring Plan”, collectively, the “Restructuring Plans”) in an effort to position us for sustained, positive free cash flow, while enabling us to continue to invest in software, hardware and content innovation, improvements to our Member support experience, and optimizations to marketing efforts to scale the business.
Previous wording
Upon full implementation, the company expects the plan to result in reduced annual run-rate expenses by more than $200 million by the end of its 2025 fiscal year. For additional information on the 2024 Restructuring Plan, please see Item 5 of Part II of this Quarterly Report on Form 10-Q.
Current wording
Refer to Note 4 - Restructuring in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for discussion around charges incurred to date and future expected charges under the Restructuring Plans. Upon full implementation, we expect the plan to result in reduced annual run-rate expenses by more than $200 million by the end of fiscal year 2025.
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We do not believe these cost-saving measures will impair our ability to conduct any of our key business functions. We may not be able to realize the cost savings and benefits initially anticipated as a result of the 2022 Restructuring Plan and the 2024 Restructuring Plan, and costs may be greater than expected. See“Risk Factors—Risks Related to Our Business—We may not successfully execute or achieve the expected benefits of our restructuring initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or additional asset impairment charges and adversely affect our business” in our Form 10-K.
Current wording
We do not believe these cost-saving measures will impair our ability to conduct any of our key business functions. However, we may not be able to realize the cost savings and benefits initially anticipated as a result of the Restructuring Plans, and costs may be greater than expected. See“Risk Factors—Risks Related to Our Business—We may not successfully execute or achieve the expected benefits of our restructuring initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or additional asset impairment charges and adversely affect our business” in our Form 10-K.
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Ending Paid Connected Fitness Subscriptions includes all Connected Fitness Subscriptions for which we are currently receiving payment (a successful credit card billing or prepaid subscription credit or waiver). Historically, we have included a Connected Fitness Subscription that is paused for up to three months as a Connected Fitness Subscription. Because there is no payment on a paused subscription, effective as of the beginning of fiscal year 2024, we no longer include paused Connected Fitness Subscriptions in our Ending Paid Connected Fitness Subscription count.
Current wording
Ending Paid Connected Fitness Subscriptions includes all Connected Fitness Subscriptions for which we are currently receiving payment (a successful credit card billing or prepaid subscription credit or waiver). We do not include paused Connected Fitness Subscriptions in our Ending Paid Connected Fitness Subscription count.
Previous wording
To align with the new definition of Ending Paid Connected Fitness Subscriptions above, our new quarterly Average Net Monthly Paid Connected Fitness Subscription Churn is calculated as follows: Paid Connected Fitness Subscriber “churn count” in the quarter, divided by the average number of beginning Paid Connected Fitness Subscribers each month, divided by three months. “Churn count” is defined as quarterly Connected Fitness Subscription churn events minus Connected Fitness Subscription unpause events minus Connected Fitness Subscription reactivations.
Current wording
To align with the definition of Ending Paid Connected Fitness Subscriptions above, our quarterly Average Net Monthly Paid Connected Fitness Subscription Churn is calculated as follows: Paid Connected Fitness Subscriber “churn count” in the quarter, divided by the average number of beginning Paid Connected Fitness Subscribers each month, divided by three months. “Churn count” is defined as quarterly Connected Fitness Subscription churn events minus Connected Fitness Subscription unpause events minus Connected Fitness Subscription reactivations.
Previous wording
We refer to any cancellation or pausing of a subscription for our All Access Membership as a churn event. Because we do not receive payment for paused Connected Fitness Subscriptions, a paused Connected Fitness Subscription is now treated as a churn event at the time the pause goes into effect, which is the start of the next billing cycle. An unpause event occurs when a pause period elapses without a cancellation and the Connected Fitness Subscription resumes, and is therefore counted as a reduction in our churn count in that period. Consistent with our previous practice, our churn count is shown net of reactivations and our new quarterly Average Net Monthly Paid Connected Fitness Subscription Churn metric averages the monthly Connected Fitness churn percentage across the three months of the reported quarter.
Current wording
We refer to any cancellation or pausing of a subscription for our All-Access Membership as a churn event. Because we do not receive payment for paused Connected Fitness Subscriptions, a paused Connected Fitness Subscription is treated as a churn event at the time the pause goes into effect, which is the start of the next billing cycle. An unpause event occurs when a pause period elapses without a cancellation and the Connected Fitness Subscription resumes, and is therefore counted as a reduction in our churn count in that period. Our churn count is shown net of reactivations and our new quarterly Average Net Monthly Paid Connected Fitness Subscription Churn metric averages the monthly Connected Fitness churn percentage across the three months of the reported quarter.
Previous wording
Connected Fitness Products revenue consists of sales of our portfolio of Connected Fitness Products and related accessories, rental lease arrangements, delivery and installation services, branded apparel, extended warranty agreements, and the sale, service, installation, and delivery contracts of our commercial business. Connected Fitness Products revenue is recognized at the time of delivery, except for extended warranty revenue that is recognized over the warranty period and service revenue that is recognized over the term, and is recorded net of returns and discounts and third-party financing program fees, when applicable.
Current wording
Connected Fitness Products Revenue consists of sales of our portfolio of Connected Fitness Products and related accessories, as well as Precor branded fitness products, delivery and installation services, Bike rental products, extended warranty agreements, branded apparel, and commercial service contracts. Connected Fitness Products Revenue is recognized at the time of delivery, except for extended warranty revenue that is recognized over the warranty period and service revenue that is recognized over the term, and is recorded net of sales returns and concessions, discounts and allowances, and third-party financing program fees, when applicable.
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Subscription revenue consists of revenue generated from our monthly Connected Fitness Subscription and Paid App Subscription.
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Subscription Revenue primarily consists of revenue generated from our Connected Fitness Subscription and Peloton App Subscription, which are offered on a month-to-month or prepaid basis.
Previous wording
If a Connected Fitness Subscription owns a combination of a Bike, Tread, Guide or Row product in the same household, the price of the subscription remains $44 monthly. As of March 31, 2024, approximately 10% of our Connected Fitness Subscriptions owned multiple Connected Fitness Products.
Current wording
If a Connected Fitness Subscription owns multiple, different Peloton Connected Fitness Products (such as a Peloton Bike and Peloton Tread) in the same household, the price of the Subscription remains $44 monthly. As of September 30, 2024, approximately 11% of our Connected Fitness Subscriptions owned multiple, different Connected Fitness Products.
Previous wording
Connected Fitness Products cost of revenue consists of our portfolio of Connected Fitness Products and branded apparel product costs, including third party manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement and service costs, fulfillment costs, warehousing costs, depreciation of property and equipment, and certain costs related to management, facilities, and personnel-related expenses associated with supply chain logistics.
Current wording
Connected Fitness Products Cost of revenue consists of our portfolio of Connected Fitness Products, related accessories, and branded apparel product costs, including third party manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement and service costs, fulfillment costs, warehousing costs, costs related to our commercial business, depreciation of property and equipment, and certain costs related to management, facilities, and personnel-related expenses associated with supply chain logistics. Inventory write-downs and related obsolescence reserve expense are also included within Connected Fitness Products Cost of revenue.
Previous wording
Subscription cost of revenue includes costs associated with content creation and costs to stream content to our Members. These costs consist of both fixed costs, including studio rent and occupancy, other studio overhead, instructor and production personnel-related expenses, depreciation of property and equipment as well as variable costs, including music royalty fees, content costs for past use, third-party platform streaming costs, and payment processing fees for our monthly subscription billings.
Current wording
Subscription Cost of revenue includes costs associated with content creation and costs to stream content to our Members. These costs consist of both fixed costs, including studio rent and occupancy, other studio overhead, Instructor and production personnel-related expenses, depreciation of property and equipment as well as variable costs, including music royalty fees, third-party platform streaming costs, and payment processing fees for our monthly subscription billings.
Previous wording
Sales and marketing expense consists of performance marketing media spend, asset creation, and other brand creative, all showroom expenses and related lease payments, payment processing fees incurred in connection with the sale of our Connected Fitness Products, sales and marketing personnel-related expenses, expenses related to the Peloton App, and depreciation of property and equipment.
Current wording
Sales and marketing expense consists of performance marketing media spend, asset creation, and other brand creative, costs to operate our retail showrooms including rent and occupancy charges, payment processing fees incurred in connection with the sale of our Connected Fitness Products, sales and marketing personnel-related expenses, expenses related to the Peloton App, and depreciation of property and equipment.
Previous wording
General and administrative expense includes personnel-related expenses and facilities-related costs primarily for our executive, finance, accounting, legal, human resources, IT functions and member support. General and administrative expense also includes fees for professional services principally comprised of legal, audit, tax and accounting services, depreciation of property and equipment, and insurance, as well as litigation settlement costs.
Current wording
General and administrative expense includes personnel-related expenses and facilities-related costs primarily for our executive, finance, accounting, legal, human resources, IT functions and Member support team. General and administrative expense also includes fees for professional services principally comprised of legal, audit, tax and accounting services, depreciation of property and equipment, and insurance, as well as litigation settlement costs.
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Supplier settlements are payments made to third-party suppliers to terminate certain future inventory purchase commitments.
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Supplier settlements are payments made to third-party suppliers to terminate certain future inventory purchase commitments or settle disputes with suppliers about and to terminate certain alleged past and future commitments.
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Comparison of the Three and Nine Months Ended March 31, 2024 and 2023
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Comparison of the Three Months Ended September 30, 2024 and 2023
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Connected Fitness Products cost of revenue for the nine months ended March 31, 2024 decreased $277.3 million, or 27.0%, compared to the nine months ended March 31, 2023. This decrease was primarily driven by fewer deliveries stemming from lower demand during the nine months ended March 31, 2024 compared to the nine months ended March 31, 2023.
Current wording
Connected Fitness Products Revenue decreased $20.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This decrease was primarily attributable to fewer direct deliveries driven by lower demand across all Connected
Previous wording
Connected Fitness Products cost of revenue for the three months ended March 31, 2024 decreased $73.4 million, or 21.5%, compared to the three months ended March 31, 2023. This decrease was primarily driven by fewer deliveries stemming from lower demand during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
Current wording
Connected Fitness Products Cost of revenue for the three months ended September 30, 2024 decreased $29.9 million, or 17.1%, compared to the three months ended September 30, 2023. This decrease was primarily driven by fewer deliveries stemming from lower demand during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
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Subscription Gross Margin remained consistent for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
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Subscription Cost of revenue and Subscription Gross Margin remained consistent for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
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Impairment expense decreased $20.3 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by the impairment recognized in the three months ended March 31, 2023 related to the previously planned Peloton Output Park. Impairment expense decreased $65.2 million for the nine months ended March 31, 2024, compared to the nine months ended March 31, 2023, primarily driven by decreases in asset write-downs and write-offs related to restructuring initiatives, including less Connected Fitness and capitalized software asset impairments, and asset impairments at certain corporate office locations which the Company exited during the nine months ended March 31, 2023.
Current wording
Impairment expense decreased $19.2 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily driven by decreases in asset write-downs and write-offs related to restructuring initiatives.
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Total Other Expense, Net and Income Tax Expense (Benefit)
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Total Other Expense, Net and Income Tax Expense
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Total other expense, net, was composed of the following for the three and nine months ended March 31, 2024:
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Total other expense, net, was composed of the following for the three months ended September 30, 2024:
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•Interest expense primarily related to the Term Loan, the Notes, and deferred financing costs of $27.7 million and $82.6 million, respectively;
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•Interest expense primarily related to term loan, convertible notes, and deferred financing costs of $35.4 million;
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•Interest income from cash, cash equivalents, and short-term investments of $9.3 million and $26.2 million, respectively;
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•Interest income from cash, cash equivalents, and short-term investments of $8.1 million;
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Total other expense, net, was composed of the following for the three and nine months ended March 31, 2023:
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Total other expense, net, was composed of the following for the three months ended September 30, 2023:
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•Interest expense primarily related to the Term Loan, the Notes, and deferred financing costs of $26.6 million and $69.7 million, respectively;
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•Interest expense primarily related to term loan, convertible notes, and deferred financing costs of $27.2 million;
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•Interest income from cash, cash equivalents, and short-term investments of $7.9 million and $17.7 million, respectively;
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•Interest income from cash, cash equivalents, and short-term investments of $8.4 million;
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•Foreign exchange losses of $2.1 million and $0.2 million, respectively; and
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•Foreign exchange losses of $7.8 million; and
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•Other income, net of zero and $0.5 million, respectively.
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•Other income, net of $0.3 million.
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Income tax expense (benefit) for the three and nine months ended March 31, 2024 and 2023 was primarily due to state and international taxes.
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Income tax expense for the three months ended September 30, 2024 and 2023 of $0.8 million and $0.8 million, respectively, was primarily due to state and international taxes.
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We calculate Adjusted EBITDA as net (loss) income adjusted to exclude: total other expense (income), net; income tax expense (benefit); depreciation and amortization expense; stock-based compensation expense; impairment expense; product recall related matters; certain litigation and settlement expenses; transaction and integration costs; reorganization, severance, exit, disposal and other costs associated with restructuring plans; supplier settlements; and other adjustment items that arise outside the ordinary course of our business.
Current wording
We calculate Adjusted EBITDA as net (loss) income adjusted to exclude: other expense (income), net; income tax expense; depreciation and amortization expense; stock-based compensation expense; impairment expense; product recall related matters; certain litigation and settlement expenses; transaction and integration costs; reorganization, severance, exit, disposal and other costs associated with restructuring plans; supplier settlements; and other adjustment items that arise outside the ordinary course of our business.
Previous wording
•Adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our core operating results, and may also facilitate comparisons with other peer companies, many of which use a similar non-GAAP financial measures to supplement their GAAP results.
Current wording
•Adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our core operating results, and may also facilitate comparisons with other peer companies, many of which use a similar non-GAAP financial measure to supplement their GAAP results.
Previous wording
•Adjusted EBITDA does not reflect certain litigation expenses, consisting of legal settlements and related fees for specific proceedings that we have determined arise outside of the ordinary course of business and are nonrecurring, infrequent or unusual based on the following considerations which we assess regularly: (1) the frequency of similar cases that have been brought to date, or are expected to be brought within two years; (2) the complexity of the case; (3) the nature of the remedy(ies) sought, including the size of any monetary damages sought; (4) offensive versus defensive posture of us; (5) the counterparty involved; and (6) our overall litigation strategy;
Current wording
•Adjusted EBITDA does not reflect certain litigation expenses, consisting of legal settlements and related fees for specific proceedings that we have determined arise outside of the ordinary course of business and are nonrecurring, infrequent or unusual based on the following considerations which we assess regularly: (1) the frequency of similar cases that have been brought to date, or are expected to be brought within two years; (2) the complexity of the case; (3) the nature of the remedy(ies) sought, including the size of any monetary damages sought; (4) offensive versus defensive posture of us; (5) the counterparty involved; and (6) our overall litigation strategy. Following a change in practice beginning during the fiscal year ended June 30, 2022, we no longer adjust adjusted EBITDA for costs from new patent litigation or consumer arbitration claims, unless we consider the matter to be nonrecurring, infrequent or unusual. We continue to adjust adjusted EBITDA for historical patent infringement and consumer arbitration claims that were determined, prior to our change in practice, to be nonrecurring, infrequent, or unusual;
Previous wording
•Adjusted EBITDA does not reflect costs associated with certain product recall related matters including adjustments to the return reserves, inventory write-downs, logistics costs associated with Member requests, the cost to move the recalled product for those that elect the option, subscription waiver costs of service, and recall-related hardware development and repair costs;
Current wording
•Adjusted EBITDA does not reflect costs associated with certain product recall related matters including adjustments to the return reserves, inventory write-downs, logistics costs associated with Member requests, the cost to move the recalled product for those that elect the option, subscription waiver costs of service, and recall-related hardware development and repair costs. We make adjustments for product recall related matters that we have determined arise outside of the ordinary course of business and are nonrecurring, infrequent or unusual based on factors including the nature of the product recall, our experience with similar product recalls at the time of such assessment, the impacts on us 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;
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•Adjusted EBITDA does not reflect nonrecurring supplier settlements; and
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•Adjusted EBITDA does not reflect nonrecurring supplier settlements that are outside of the ordinary course of business and are nonrecurring, infrequent or unusual based on factors such as the nature of the settlements, as well as our frequency and past practice of performing refinancing activities; and
Previous wording
(1) Represents adjustments and charges associated with certain product recall related matters, as well as accrual adjustments. For the three and nine months ended March 31, 2024, these include an adjustment to Connected Fitness Products revenue for actual and estimated future returns of zero and $(3.9) million, respectively, and recorded costs in Connected Fitness Products cost of revenue associated with recall related matters of zero and $(4.3) million, respectively. For the three and nine months ended March 31, 2023, these include an adjustment to Connected Fitness Products revenue for actual and estimated future returns of $(11.9) million and $14.6 million, respectively, recorded costs in Connected Fitness
Current wording
(4) Represents adjustments and charges primarily associated with our Tread+ and Bike Seat Post product recall related matters, as well as accrual adjustments. These include adjustments to Connected Fitness Products Revenue for actual and estimated future returns of $(1.6) million and recorded benefits in Connected Fitness Products Cost of revenue associated with recall related matters of $(0.1) million for the three months ended September 30, 2023.
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Current report — wording carried from elsewhere
Refer to Note 4 - Restructuring in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for discussion around charges incurred to date and future expected charges under the Restructuring Plans. Upon full implementation, we expect the plan to result in reduced annual run-rate expenses by more than $200 million by the end of fiscal year 2025.
Current report — wording carried from elsewhere
Upon entering into the Term Loan, the effective interest rate was 12.4% and the current effective interest rate as of September 30, 2024 is 11.9%.
Current report — wording carried from elsewhere
(3) Pursuant to the Third Amended and Restated Credit Agreement, we are required to pay a commitment fee of 0.500% on a quarterly basis based on the unused portion of the Revolving Facility.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Subscription Gross Margin remained consistent for the nine months ended March 31, 2024 compared to the nine months ended March 31, 2023.