Commitments and Contingencies

9 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Content Costs for Past Use Reserve

To secure the rights to stream music on the Peloton platform, the Company must obtain licenses from, and pay royalties to, copyright owners of both sound recordings and musical compositions. The Company has entered into negotiations with various music rights holders, to pay for any and all uses of musical compositions and sound recordings to date and, at the same time, enter into go-forward license agreements for the use of music in the future.

Prior to the execution of go-forward music license agreements, the Company estimates and records expenses inclusive of estimated content costs for past use as well as normal and recurring music royalty expenses. The Company includes both of these components in its reserve. As of March 31, 2021 and 2020, the Company recorded reserves of $13.3 million and $11.6 million, respectively, included in Accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

Legal and Regulatory Proceedings

The Company is, or may become, a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary course of business.

For example, we have received reports of a number of injuries associated with our Tread+ product, one of which led to the death of a child. As a result of the aforementioned injuries associated with these reported Tread+ incidents, in April 2021, the U.S. Consumer Product Safety Commission (“CPSC”) unilaterally issued a warning to consumers about the safety hazards associated with the Tread+ and is continuing to investigate the matter. In addition to the CPSC investigation, we are presently subject to class action litigation and private personal injury claims related to these perceived defects in the Tread+ and incidents reported to result from its use. On April 20, 2021, purported Peloton Member Shannon Albright filed a putative class action lawsuit against the Company in the United States District Court for the Northern District of California captioned Albright v. Peloton Interactive, Inc., Case No. 3:21-02858 (N.D. Cal.) (the "Albright Action"). The Albright Action alleges violations of various California state laws related to the Tread+ and the matters contained in the CPSC warning, including violation of the Consumer Legal Remedies Act, breach of the Implied Warranty of Merchantability, and violations of California Business and Professions Code Sections 17200, et seq., and 17500, et seq.

In addition, on April 29, 2021, Ashley Wilson ("Plaintiff Wilson") filed a putative securities class action lawsuit against the Company, our Chief Executive Officer, and our Chief Financial Officer (collectively, the "Defendants") in the United States District Court for the Eastern District of New York, purportedly on behalf of a class consisting of those individuals who purchased or otherwise acquired our common stock between September 11, 2020 and April 16, 2021 (the "Wilson Action"). The complaint in the Wilson Action alleges that the Defendants made false and/or misleading statements in violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Plaintiff Wilson does not quantify any damages in her complaint but, in addition to attorneys' fees and costs, she seeks to recover damages on behalf of herself and other persons who purchased or otherwise acquired our stock during the putative class period at allegedly inflated prices and purportedly suffered financial harm as a result.

We dispute the allegations in the above-referenced matters, intend to defend the matters vigorously, and believe that the claims are without merit. Some of our legal and regulatory proceedings, such as the above-referenced matters and litigation that centers around intellectual property claims, may be based on complex claims involving substantial uncertainties and unascertainable damages. Accordingly, it is not possible to determine the probability of loss or estimate damages for any of the above matters, and therefore, the Company has not established reserves for any of these proceedings. When the Company determines that a loss is both probable and reasonably estimable, the Company records a liability, and, if the liability is material, discloses the amount of the liability reserved. Given that such proceedings are subject to uncertainty, there can be no assurance that such legal proceedings, either individually or in the aggregate, will not have a material adverse effect on our business, results of operations, financial condition or cash flows.