Q3 17 EARNINGS DECK November 1, 2017

Transcription

1 Q3 17 EARNINGS DECK November 1, 2017

2 Safe Harbor Statement This presentation contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties, including statements regarding our financial outlook for the fourth quarter 2017 and the full year of 2017, the quality of our smartwatch user experience, expected trends in quality improvements, gross margin and free cash flow, our investments in research and development, sales and marketing, and general and administrative and the impact of those investments, the timing of marketing spend, our performance in the remainder of the year, and our long-term market opportunity. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors, including: the effects of the highly competitive market in which we operate, including competition from much larger technology companies; our ability to anticipate and satisfy consumer preferences in a timely manner; our ability to successfully develop and timely introduce new products and services or enhance existing products and services; retail and customer acceptance of existing and new products; any inability to accurately forecast consumer demand and adequately manage our inventory; our ability to ship products on the timelines we anticipate and unexpected delays; our ability to detect, prevent or fix quality issues in our products or services; uncertain ability to retain employees; our reliance on third-party suppliers, contract manufacturers, and logistics providers, and our limited control over such parties; delays in procuring components and product from these third parties or their suppliers; the ability of third parties to successfully manufacture and ship in a timely manner quality products; seasonality; product liability issues, security breaches or other defects, which may adversely affect product performance, our reputation and brand awareness and overall market acceptance of our products and services; ability to integrate acquired technologies and employees into our operations, particularly in new geographies; warranty claims; the fact that the market for connected health and fitness devices is relatively new and unproven; the ability of our channel partners to sell our products; litigation and related costs; privacy; and other general market, political, economic and business conditions. Additional risks and uncertainties that could affect our financial results are included under the caption Risk Factors in our Annual Report on Form 10-K for the full year ended December 31, 2016, and our most recently filed Quarterly Report on Form 10-Q, which are available on our Investor Relations website at investor.fitbit.com and on the SEC website at All forward-looking statements contained herein are based on information available to us as of the date hereof and we do not assume any obligation to update these statements as a result of new information or future events. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. This presentation also includes certain financial measures that are not calculated in accordance with U.S. generally accepted accounting principles, or GAAP. These non-gaap financial measures are in addition to, and not as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-gaap financial measures versus their nearest GAAP equivalents. For example, other companies may calculate non-gaap financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-gaap financial measures as tools for comparison. We have provided a reconciliation of those measures to the most directly comparable GAAP measures, which is available in the appendix. Trademarks: Fitbit and the Fitbit logo are trademarks or registered trademarks of Fitbit, Inc. in the United States and other countries. Additional Fitbit trademarks can be found at Third-party trademarks are the property of their respective owners. 2

3 Fitbit s Vision: To Make Everyone in the World Healthier Fitbit, Inc. All rights reserved. Proprietary & Confidential. 3

4 # 1 Globally Wearable Brand 70M Devices Sold to Date WIDE RANGE of devices and price points 46K Stores 78 Countries # 1 Health & Fitness app on ios and Android (U.S.) Ionic Best customer reviews of any Fitbit device in 1 st month of sales (Amazon) # 1/ # 2 Smartwatches sold on Amazon in the U.S Fitbit, Inc. All rights reserved. Proprietary & Confidential. 4

5 One of the Largest Activity, Exercise, and Sleep Databases 90B hours of heart rate data 85T steps 5.4B nights of sleep 167B minutes of exercise tracked 5

6 Research Focus on Outcomes and Conditions Wellness Eat Better / Manage Weight Get More Active & Fit Sleep Better Reduce Stress Health Diabetes Heart Disease Sleep Apnea Mental Health 6

7 How We Drive Positive Outcomes Track your health and wellness with easy to use hardware Use data along with compelling content to provide insights and guidance Reward and motivate people with gamified features and a supportive social network 7

8 Q Highlights 3.6 million devices sold, #1 Health & Fitness app downloaded on ios and Android (U.S.) Launched Ionic, entering the smartwatch category, entered adjacent wireless headphone market with the launch of Flyer, announced refreshed scale. Average selling price up 4% and devices sold up 7% sequentially. Delivered on revenue guidance, beat earnings and adjusted ebitda guidance. Revenue of $393 million, non GAAP EPS of ($0.01) per share. Adjusted ebitda of $6 million. Cash flow from operations $5M, $659 million in cash, cash equivalents, and marketable securities on the balance sheet as of the quarter end. 8

9 Growing User Community & Brand Relevancy Total Devices Sold Devices sold grew 7% sequentially Leading global wearable brand with 70 million devices sold since inception. Since March 2017 launch: more than 15 million users have utilized Feed, generating ~1.1 billion views, and 3.7 million Group joins Supportive environment: 71% of posts receive positive affirmations Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Re-branded Fitstar, launched Fitbit Coach personal training app, featuring more than 90 video and audio workouts. While still immaterial, premium customer growth up 75% y/y. (Units in millions) 9

10 Revenue $ % $392.5 Revenue down 22% y/y. - Difficult year over year comparison with 2 new products introduced in 16 and excess inventory in the channel vs. 1 device launched in EMEA continued to be the fastest growing region, up 10% y/y. Average selling price increased 12% y/y and 4% sequentially to $ Accessory and other sales added an additional $3.60 in revenue per device. New products introduced over the past 12 months represented 32% of the revenue. -Charge 2 remains our best selling product. -Focused on manufacturing quality & measured roll-out of Ionic devices. To be on shelf for holiday. Q Q Repeat consumers represented 42% of activations in the quarter, with 39% of these repeat purchases coming from reactivations. ($ in millions) 10

11 Transitioning Business Sequential Growth Improving $250 United States $244.2 EMEA $200 $150 $100 $170.4 $ % $87.8 $ % $88.7 Revenue growth up 11% sequentially. Clean channel, U.S. market showing sequential acceleration in revenue growth and representing 62% of revenue to $244M. International revenue was $148 million, representing 38% of revenue. $50 $30 Q Q Q Americas, excl. USA $24.4 $25.3 $35.0 $30.0 Q Q Q APAC $34.4 APAC continued its turnaround with strong contribution from markets like Japan. New enterprise customer Fujitsu. EMEA sequential growth impacted by weakness in U.K. partially offset by strong growth in Germany. $20 $ % $25.0 $20.0 $20.8 $ % Driven by the strength in the Euro, we experienced a loss of $6 million dollars on our hedging portfolio in Q3, impacting our y/y international growth by 4 points. $15.0 $10 $10.0 Q Q Q Q Q Q ($ in millions) 11

12 Non-GAAP Gross Margin and Operating Expenses Non-GAAP Gross Margin Non-GAAP OpEx 48.1% 45.2% $180.0 (290bpts) $ % Q Q Decreased 290bpts y/y driven by 2 discrete items. - Extended warranty terms in some countries - Changed replacement policy for legacy device. Increased 220bpts sequentially; favorably impacted by mix, higher ASP. On-track to achieve targeted % FY2017 gross margin. Defective parts per million down 36% in past 9 mo. Expect to trend lower. Q Q Up 5% y/y, driven by bankruptcy filing of largest distributor. Tracking below full-year $850m operating expense target. Headcount increased by 67 heads to 1,652; have empowered teams to focus on overall costs. Expect to continue to grow global footprint. ($ in millions) 12

13 Non-GAAP Operating Expenses Detail $100 R&D 100 S&M 100 G&A $75 $50 $25 $70.7 $ $76.8 $ % -4% $ % $35.0 $0 Q Q Q Q Q Q Continued investment in innovation. Increased headcount spending offset by expansion in lower cost global regions to support international growth. Some spend shifted to Q4, aligned with the availability of Ionic supply. Continued shift towards digital and direct consumer solicitation. Increase primarily driven by Wynit bankruptcy filing. Resulted in a one time increase of bad debt expense by ~$8 million. ($ in millions) 13

14 Balance Sheet & Cash Flow Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Inventory $215.0 $230.4 $200.3 $141.5 $138.8 Inventory Turns Accounts Receivables $461.4 $477.8 $194.8 $216.3 $261.0 Days Sales Outstanding Capital Expenditures $30.1 $11.8 $28.2 $11.7 $18.4 Cap Expenditures as % of Revenue 6.0% 2.1% 9.4% 3.3% 4.9% Free Cash Flow ($88.8) $61.2 $21.0 ($57.6) ($12.9) Cash & Marketable Securities $672.1 $706.0 $726.1 $675.8 $659.2 Good working capital management led to a decrease in cash consumption in the quarter. Exited the quarter with $659M in cash and shortterm assets and no debt, giving us significant balance sheet flexibility. A/R increased due to increased sales. Other current assets increased to $96M to reflect anticipated cash refunds related to taxes paid in prior years. ($ in millions) 14

15 4Q 17 Guidance Low High Revenue $570 $600 y/y decline (1%) 5% Non-GAAP EPS ($0.03) $0.01 Adjusted ebitda ($1M) $18M Guidance Context: Shifted some Ionic Sales & Marketing spend from Q3 to align with availability of supply. Expect Q4 free cash flow to be breakeven. Non-GAAP tax rate ~44% Stock-based compensation $23 $25 Non-GAAP share count (basic/ diluted) ~238M ~252M ($ in millions, except percentages and per share amounts) 15

16 FY 17 Guidance FY 17 Guidance Low High Revenue $1.615B $1.645B y/y decline (26%) (24%) Non-GAAP gross margin 42.5% 44% Non-GAAP free cash flow ($50) ($30) Non-GAAP EPS ($0.27) ($0.23) Non-GAAP tax rate ~44% Stock-based compensation $90 $100 Non-GAAP share count (basic) ~238M Guidance Context: Changed approach to new product shipments, focused on reducing defective parts per million vs. maximizing supply. Improvement to DPPM will reduce warranty cost, lower customer contact expense, and strengthen brand preference though higher levels of customer satisfaction. ($ in millions, except percentages and per share amounts) 16

17 GAAP to Non-GAAP Reconciliation To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-gaap financial measures in this presentation: non-gaap gross profit, non-gaap gross margin; non-gaap operating expenses, non-gaap net income (loss), non-gaap diluted net income or loss per share, adjusted EBITDA, revenue on a constant currency basis, and non-gaap free cash flow. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. We use non-gaap measures to internally evaluate and analyze financial results. We believe these non-gaap financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and enable comparison of our financial results with other public companies, many of which present similar non-gaap financial measures. There are limitations associated with the use of non-gaap financial measures as an analytical tool. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items, specifically stock-based compensation expense, amortization of intangible assets, and the related income tax effects of the aforementioned exclusions, that are recurring and will be reflected in our financial results for the foreseeable future. In addition, these measures may be different from non-gaap financial measures used by other companies, limiting their usefulness for comparison purposes. A reconciliation of our non-gaap financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included in this presentation, and investors are encouraged to review the reconciliation. Guidance for non-gaap financial measures excludes Jawbone litigation costs, stock-based compensation, impact of restructuring, amortization of acquired intangible assets, and tax effects associated with these items. We have not reconciled guidance for non-gaap financial measures to their most directly comparable GAAP measures because certain items that impact these measures are uncertain, out of our control and/or cannot be reasonably predicted. Accordingly, a reconciliation of the non-gaap financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort. 17

18 GAAP to Non-GAAP Reconciliation The following are explanations of the adjustments that are reflected in one or more of our non-gaap financial measures: Stock-based compensation expense relates to equity awards granted primarily to our employees. We exclude stock-based compensation expense because we believe that the non-gaap financial measures excluding this item provide meaningful supplemental information regarding operational performance. In particular, companies calculate stock-based compensation expense using a variety of valuation methodologies and subjective assumptions. In January 2017, the Company conducted a reorganization of its business, including a reduction in workforce. The restructuring costs impacted our results for the first quarter of Restructuring costs primarily included severance-related costs. We believe that excluding the is expenses provides great visibility to the underlying performance of our business operations, facilitates comparison of our results with other periods, and may also facilitate comparison with the results of other companies in our industry. Litigation expense relates to legal costs incurred due to litigation with Aliphcom, Inc. d/b/a Jawbone. We exclude these expenses because we do not believe these expenses have a direct correlation to the operations of our business and because of the singular nature of the claims underlying the Jawbone litigation matters. We began excluding Jawbone litigation costs in the second quarter of 2016 as these costs significantly in 2016, and may continue to be material for the remainder of Although not excluded in reporting for the first quarter of 2016, these litigation expenses were $9.1 million in that quarter. 18

19 GAAP to Non-GAAP Reconciliation The following are explanations of the adjustments that are reflected in one or more of our non-gaap financial measures: In March 2014, we recalled the Fitbit Force after some of our users experienced allergic reactions to adhesives in the wristband. This recall primarily impacted our results for the fourth quarter of 2013, the first quarter of 2014 and the fourth quarter of Amortization of intangible assets relates to our acquisitions of FitStar, Pebble and Vector. We exclude these amortization expenses because we do not believe these expenses have a direct correlation to the operation of our business. Income tax effect of non-gaap adjustments relates to the tax effect of the adjustments that we incorporate into non-gaap financial measures such as stock-based compensation, amortization of intangibles, restructuring and valuation allowance in order to provide a more meaningful measure of non- GAAP net income (loss). Purchase of property and equipment is deducted from net cash provided by (used in) operating activities to arrive at non-gaap free cash flow, which reflects the amount of cash generated that is available to be used for investments in the business. We translated revenue from non-us dollar based transactions for the three and nine months ended September 30, 2017 using the exchange rates that were effective in the comparable prior year period to calculate revenue to exclude the effect of changes in foreign exchange rates. 19

20 GAAP to Non-GAAP Reconciliation (In thousands, except percentages and per share amounts) Three Months Ended Nine Months Ended September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Non-GAAP gross profit: GAAP gross profit $ 174,760 $ 240,658 $ 442,304 $ 719,382 Stock-based compensation expense 1,379 1,014 2,889 3,407 Impact of restructuring 37 Intangible assets amortization 1,319GAAP gross profit 451 3,957 1,354 Non-GAAP gross profit $ 177,458 $ 242,123 $ 449,187 $ 724,143 Non-GAAP gross margin: GAAP gross margin 44.5% 47.8% 42.3% 45.1% Stock-based compensation expense Impact of restructuring Intangible assets amortization Non-GAAP gross margin 45.2% 48.1% 43.0% 45.4% 2017 Fitbit, Inc. All rights reserved. Proprietary & Confidential. 20

21 GAAP to Non-GAAP Reconciliation (In thousands, except percentages and per share amounts) Three Months Ended Nine Months Ended September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Non-GAAP research and development: GAAP research and development $ 84,170 $ 82,972 $ 252,471 $ 235,129 Stock-based compensation expense (12,947) (12,314) (39,939) (34,432) Impact of restructuring (2,744) Non-GAAP research and development $ 71,223 $ 70,658 $ 209,788 $ 200,697 Non-GAAP sales and marketing: GAAP sales and marketing $ 77,536 $ 79,872 $ 269,442 $ 305,061 Stock-based compensation expense (3,679) (3,030) (10,914) (8,492) Impact of restructuring (2,000) Non-GAAP sales and marketing $ 73,857 $ 76,842 $ 256,528 $ 296,569 Non-GAAP general and administrative: GAAP general and administrative $ 40,690 $ 33,333 $ 102,815 $ 106,297 Stock-based compensation expense (4,792) (3,647) (12,786) (11,844) Impact of restructuring (1,594) Litigation expense - Jawbone (874) (6,062) (2,293) (17,620) Intangible assets amortization (62) (61) (177) (224) Non-GAAP general and administrative $ 34,962 $ 23,563 $ 85,965 $ 76, Fitbit, Inc. All rights reserved. Proprietary & Confidential. 21

22 GAAP to Non-GAAP Reconciliation (In thousands, except percentages and per share amounts) Three Months Ended Nine Months Ended September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Non-GAAP operating expenses: GAAP operating expenses $ 202,396 $ 196,177 $ 624,728 $ 646,487 Stock-based compensation expense (21,418) (18,991) (63,639) (54,768) Impact of restructuring (6,338) Litigation expense - Jawbone (874) (6,062) (2,293) (17,620) Intangible assets amortization (62) (61) (177) (224) Non-GAAP operating expenses $ 180,042 $ 171,063 $ 552,281 $ 573, Fitbit, Inc. All rights reserved. Proprietary & Confidential. 22

23 GAAP to Non-GAAP Reconciliation (In thousands, except percentages and per share amounts) Three Months Ended Nine Months Ended September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Non-GAAP net income (loss) and net income (loss) per share: Net income (loss) $ (113,403) $ 26,120 $ (231,722) $ 43,496 Stock-based compensation expense 22,797 20,005 66,528 58,175 Impact of restructuring 6,375 Litigation expense - Jawbone 874 6,062 2,293 17,620 Intangible assets amortization 1, ,134 1,578 Income tax effect of non-gaap adjustments 85,574 (6,955) 95,909 (21,081) Non-GAAP net income (loss) $ (2,777) $ 45,744 $ (56,483) $ 99,788 GAAP diluted shares 234, , , ,652 Other dilutive equity awards Non-GAAP diluted shares 234, , , ,652 Non-GAAP diluted net income (loss) per share $ (0.01) $ 0.19 $ (0.24) $ Fitbit, Inc. All rights reserved. Proprietary & Confidential. 23

24 GAAP to Non-GAAP Reconciliation (In thousands, except percentages and per share amounts) Three Months Ended Nine Months Ended September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Non-GAAP Free cash flow: (1) Net cash provided by (used in) operating activities $ 5,489 $ (58,709) $ 8,718 $ 65,718 Purchase of property and equipment (18,380) (30,053) (58,199) (66,798) Non-GAAP free cash flow $ (12,891) $ (98,029) $ (49,481) $ (1,080) Net cash used in investing activities $ (40,366) $ (74,863) $ (32,913) $ (330,870) Net cash provided by financing activities $ (3,084) $ 1,728 $ 3,089 $ 13,852 (1) - The Company's adoption of ASU on January 1, 2017 resulted in excess tax benefits for share-based payments recorded as a reduction of income tax expense and reflected within operating cash flows, rather than recorded within equity and reflected within financing cash flows. The Company elected to adopt this new standard retrospectively, which impacted the presentation for all periods prior to the adoption date Fitbit, Inc. All rights reserved. Proprietary & Confidential. 24

25 GAAP to Non-GAAP Reconciliation (In thousands, except percentages and per share amounts) 2017 Fitbit, Inc. All rights reserved. Proprietary & Confidential. 25

26 GAAP to Non-GAAP Reconciliation (In thousands, except percentages and per share amounts) Three Months Ended Nine Months Ended September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Adjusted EBITDA: Net income (loss) $ (113,403) $ 26,120 $ (231,722) $ 43,496 Stock-based compensation expense 22,797 20,005 66,528 58,175 Impact of restructuring 6,375 Litigation expense - Jawbone 874 6,062 2,293 17,620 Depreciation and intangible assets amortization 10,520 11,275 32,472 25,461 Interest income, net (1,162) (970) (2,451) (2,391) Income tax expense 86,227 18,294 51,883 31,858 Adjusted EBITDA $ 5,853 $ 80,786 $ (74,622) $ 174, Fitbit, Inc. All rights reserved. Proprietary & Confidential. 26

27 THANK YOU