NYSE: FIT $ 5.40 +0.01 +0.19% Volume: 3,910,691 March 24, 2017
08/02/2016

Fitbit Reports $587M Q216 Revenue, $0.03 GAAP EPS/$0.12 Non-GAAP EPS, and Confirms Revenue and Profit Guidance for FY16

SAN FRANCISCO--(BUSINESS WIRE)-- Fitbit, Inc. (NYSE:FIT), the leader in the connected health and fitness market, today reported revenue of $586.5 million, GAAP diluted net income per share of $0.03, non-GAAP diluted net income per share of $0.12, GAAP net income of $6.3 million, and adjusted EBITDA of $48.3 million, for its second quarter of 2016.

“Second quarter results reflect accelerated unit and revenue growth in the U.S. and EMEA, our two largest markets, despite an unusually strong Q215 with the full availability of Fitbit Charge HR fulfilling built-up demand in that quarter,” said James Park, Fitbit co-founder and CEO. “Our strong profitability reflects careful management of operating expenses, while we continue to invest in future growth. Based on the progress of our business, against a backdrop of a growing worldwide opportunity for our products, we remain confident in our guidance for the year.”

                   
 

Second Quarter 2016 Financial Summary

 
For the Three Months Ended For the Six Months Ended
In millions, except percentages and per share amounts June 30,

2015

        July 2,

2016

June 30,

2015

        July 2,

2016

GAAP Results
Revenue $ 400.4 $ 586.5 $ 737.2 $ 1,091.9
Gross Margin 46.8 % 41.8 % 48.4 % 43.8 %
Net Income $ 17.7 $ 6.3 $ 65.7 $ 17.4
Diluted Net Income Per Share $ 0.07 $ 0.03 $ 0.29 $ 0.07
Non-GAAP Results
Gross Margin 47.2 % 42.0 % 48.4 % 44.1 %
Net Income $ 51.3 $ 29.5 $ 107.5 $ 54.0
Diluted Net Income Per Share $ 0.21 $ 0.12 $ 0.47 $ 0.22
Adjusted EBITDA $ 86.2 $ 48.3 $ 179.6 $ 93.4
Devices Sold 4.5 5.7 8.3 10.5

For additional information regarding the non-GAAP financial measures, see “Non-GAAP Financial Measures” and “Reconciliation of GAAP to Non-GAAP Financial Measures” below.

For additional information regarding the change to our quarterly reporting calendar, see “Change to Quarterly Reporting Calendar” below.

Second Quarter 2016 Financial Highlights

  • Sold 5.7 million devices
  • Q216 revenue increased 46% year-over-year
  • U.S. comprised 76% of Q216 revenue; EMEA 17%, APAC 2%, and Other Americas 5%
  • U.S. revenue grew 42% year-over-year; EMEA 150%, APAC (54)%, and Other Americas 63%
  • APAC was impacted by factors including the progressive shut down of retailer Dick Smith in Australia and a reduction of channel inventory. Excluding the Australia impact, APAC revenue increased 98% year-over-year.
  • New products, Fitbit BlazeTM and AltaTM, including related accessories, comprised 54% of Q216 revenue, compared to 50% in Q116
  • Gross margin was affected by an increase in warranty reserves for legacy products, with an expectation the additional reserves taken will adequately cover future warranty liability, allowing a return to more normalized gross margins beginning in Q316
  • The 120% GAAP and 90% non-GAAP year-over-year increase in operating expense reflects increased investments in R&D and marketing to drive innovation and growth

Second Quarter 2016 and Recent Fitbit Operational Highlights

  • Of all the activations of Alta and Blaze in the second quarter, approximately two-thirds were by new customers, and the other third were by people who own, or previously owned, another Fitbit device. Similar to last quarter, approximately a fifth of those repeat purchasers were reactivations, having been inactive for 90 days or more
  • Together, Blaze and Alta accessories grew 40% sequentially from Q116, and all accessories together grew 21% sequentially
  • Completed the installation of new, larger display materials in many Fitbit retail locations
  • Launched Chinese, Japanese and Korean language versions of products into their respective markets, and launched a relationship with Alibaba’s TMall platform, generating 100 million consumer impressions and approximately 1.3 million unique visitors to TMall
  • R&D headcount grew to 863 in Q216, comprising 59% of the company’s headcount

Outlook and Guidance

Fitbit’s outlook for the third quarter of 2016 is as follows:

  • Revenue in the range of $490 to $510 million
  • Non-GAAP gross margin of approximately 48% to 49%
  • Adjusted EBITDA in the range of $70 to $80 million
  • Non-GAAP diluted net income per share in the range of $0.17 to $0.19
  • Non-GAAP diluted share count between 244 and 247 million
  • Stock-based compensation expense in the range of $26 to $28 million
  • Non-GAAP tax rate of approximately 30%

Fitbit’s outlook for the full year of 2016 is as follows:

  • Revenue in the range of $2.5 to $2.6 billion
  • Non-GAAP gross margin of approximately 47%
  • Adjusted EBITDA in the range of $430 to $490 million
  • Non-GAAP diluted net income per share in the range of $1.12 to $1.24
  • Non-GAAP diluted share count between 244 and 250 million
  • Stock-based compensation expense in the range of $92 to $97 million
  • Non-GAAP tax rate of approximately 30%

Webcast and Conference Call Information

Fitbit will host a conference call today at 5:00 p.m. Eastern Time, 2:00 p.m. Pacific Time, to discuss its results. Investors may access a free, live webcast of the call through the Investor section of Fitbit’s website at investor.fitbit.com. The call can also be accessed by dialing (719) 325-2146, access code 8214317. A replay of the call will be archived on Fitbit’s website for the following six months.

Forward Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding our financial outlook for the third quarter 2016 and the full year of 2016, our investments in research and development, sales and marketing, and consumer engagement features and the impact of those investments, our management of warranty reserves, our anticipated return to normal gross margin expected in the third quarter of 2016, and the potential for growth of our user community through network effects. 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; 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; quarterly and seasonal fluctuations; our reliance on third-party suppliers, contract manufacturers, and logistics providers, and our limited control over such parties; 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; 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; 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, 2015 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 www.sec.gov. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended July 2, 2016. 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.

Change to Quarterly Reporting Calendar

Our fiscal year ends on December 31 of each year. In the first quarter of 2016, we adopted a 4-4-5 week quarterly calendar, which, for the 2016 fiscal year, is comprised of four fiscal quarters ending on April 2, 2016, July 2, 2016, October 1, 2016, and December 31, 2016. We did not adjust operating results for quarters prior to 2016. There were 91 days in both the three months ended July 2, 2016 and June 30, 2015, and 184 and 181 days in the six months ended July 2, 2016 and June 30, 2015, respectively.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP gross margin; non-GAAP operating expenses; non-GAAP operating income; non-GAAP net income; non-GAAP diluted shares; non-GAAP diluted net income per share; and adjusted EBITDA. 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 press release, and investors are encouraged to review the reconciliation.

Guidance for non-GAAP financial measures excludes stock-based compensation, amortization of acquired intangible assets, and tax effects associated with these items. We have not reconciled guidance for non-GAAP gross margin, non-GAAP diluted shares, non-GAAP diluted net income per share, adjusted EBITDA and non-GAAP tax rate to their most directly comparable GAAP measures because items that impact these measures are 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.

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 2015.
  • 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.
  • 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 as these costs significantly increased during the second quarter of 2016, and may continue to be material for the remainder of 2016. Although not excluded in reporting for the first quarter of 2016, these litigation expenses were $9.1 million.
  • Revaluation of redeemable convertible preferred stock warrant liability is a non-cash charge that will not recur in the periods following our initial public offering.
  • Amortization of intangible assets relates to our acquisition of FitStar. We exclude these amortization expenses because we do not believe these expenses have a direct correlation to the operation of our business.
  • The change in contingent consideration relates to our acquisition of FitStar. This is a non-recurring benefit that has no 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 in order to provide a more meaningful measure of non-GAAP net income.
  • Adjustment to shares includes the conversion of the redeemable convertible preferred stock into shares of common stock as though the conversion had occurred at the beginning of all periods presented, and the shares issued in our initial public offering in June 2015, as if they had been outstanding since the beginning of the second quarter of 2015.

For more information on our non-GAAP financial measures and a reconciliation of such measures to the nearest GAAP measure, please see the “Reconciliation of GAAP to Non-GAAP Financial Measures” table in this press release.

About Fitbit, Inc.

Fitbit helps people lead healthier, more active lives by empowering them with data, inspiration and guidance to reach their goals. As the leader in the connected health and fitness category, Fitbit designs products and experiences that track everyday health and fitness. Fitbit’s diverse line of award-winning products includes Fitbit Surge™Fitbit Blaze™Fitbit Charge HR™Alta™Fitbit Charge™Fitbit Flex®Fitbit One® and Fitbit Zip® activity trackers, as well as the Aria® Wi-Fi Smart Scale. Fitbit products are carried in 54,000 retail stores, and are available in 64 countries, around the globe. Fitbit Group Health uses the power of the Fitbit activity trackers, software, and services to deliver innovative solutions for corporate wellness, weight management, insurance and clinical research.

Fitbit, the Fitbit logo, Fitbit Surge, Fitbit Blaze, Fitbit Charge HR, Alta, Fitbit Charge, Fitbit Flex, Fitbit One, Fitbit Zip, Aria, PurePulse, SmartTrack and FitStar are trademarks, service marks and/or registered trademarks of Fitbit in the United States and in other countries. All other trademarks, service marks, and product names used herein are the property of their respective owners.

Connect with us on FacebookInstagram or Twitter and share your Fitbit experience.

 
 
FITBIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
(unaudited)
 
            Three Months Ended           Six Months Ended
June 30,

2015

      July 2,

2016

June 30,

2015

      July 2,

2016

Revenue $ 400,412 $ 586,528 $ 737,166 $ 1,091,884
Cost of revenue 212,870   341,559   380,415   613,160
Gross profit 187,542   244,969   356,751   478,724
Operating expenses:
Research and development 30,492 79,909 52,918 152,157
Sales and marketing 69,690 118,138 113,557 225,189
General and administrative 14,648 37,262 27,629 72,964
Change in contingent consideration (7,704 )   (7,704 )
Total operating expenses 107,126   235,309   186,400   450,310
Operating income 80,416 9,660 170,351 28,414
Interest income (expense), net (379 ) 839 (846 ) 1,421
Other income (expense), net (45,308 ) (463 ) (58,385 ) 1,105
Income before income taxes 34,729   10,036   111,120   30,940
Income tax expense 17,048   3,695   45,442   13,564
Net income $ 17,681   $ 6,341   $ 65,678   $ 17,376
 
Less: noncumulative dividends to preferred stockholders (1,212 ) (2,526 )
Less: undistributed earnings attributable to participating securities (11,244 )   (45,907 )
Net income attributable to common stockholders—basic 5,225 6,341 17,245 17,376
Add: undistributed earnings to dilutive participating securities 1,862     7,003  
Net income attributable to common stockholders—diluted $ 7,087   $ 6,341   $ 24,248   $ 17,376
 
Net income per share attributable to common stockholders:
Basic $ 0.09   $ 0.03   $ 0.35   $ 0.08
Diluted $ 0.07   $ 0.03   $ 0.29   $ 0.07
Weighted average shares used to compute net income per share attributable to common stockholders:
Basic 58,548   218,850   49,922   217,431
Diluted 95,190   242,328   82,841   242,153
 
 
FITBIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
 
          December 31,

2015

            July 2,

2016

Assets
Current assets:
Cash and cash equivalents $ 535,846 $ 416,142
Marketable securities 128,632 343,534
Accounts receivable, net 469,260 377,545
Inventories 178,146 190,644
Prepaid expenses and other current assets 43,530   59,782

Total current assets

1,355,414 1,387,647
Property and equipment, net 44,501 74,181
Goodwill 22,157 25,217
Intangible assets, net 12,216 15,090
Deferred tax assets 83,020 119,472
Other assets 1,758   1,504
Total assets $ 1,519,066   $ 1,623,111
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 260,842 $ 226,418
Accrued liabilities 194,977 231,921
Deferred revenue 44,448 46,420
Fitbit Force recall reserve 5,122 2,148
Income taxes payable 2,868   2,074
Total current liabilities 508,257 508,981
Other liabilities 29,358   47,473
Total liabilities 537,615 556,454
 
Stockholders’ equity
Common stock and additional paid-in capital 737,841 804,678
Accumulated other comprehensive income 691 1,684
Retained earnings 242,919   260,295
Total stockholders’ equity 981,451   1,066,657
Total liabilities and stockholders’ equity $ 1,519,066   $ 1,623,111
 
 
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except percentages and per share amounts)
(unaudited)
 
          Three Months Ended             Six Months Ended
June 30,

2015

      July 2,

2016

June 30,

2015

      July 2,

2016

Non-GAAP gross profit:
GAAP gross profit $ 187,542 $ 244,969 $ 356,751 $ 478,724
Stock-based compensation expense 825 1,084 1,271 2,393
Impact of Fitbit Force recall (2,040 )
Intangible assets amortization 467   451   467   903  
Non-GAAP gross profit $ 188,834   $ 246,504   $ 356,449   $ 482,020  
 
Non-GAAP gross profit as a percentage of revenue:
GAAP gross profit as a percentage of revenue 46.8% 41.8% 48.4 % 43.8%
Stock-based compensation expense 0.3 0.2 0.2 0.2
Impact of Fitbit Force recall (0.3 )
Intangible assets amortization 0.1     0.1   0.1  
Non-GAAP gross profit as a percentage of revenue 47.2 % 42.0 % 48.4 % 44.1 %
 
Non-GAAP research and development:
GAAP research and development $ 30,492 $ 79,909 $ 52,918 $ 152,157
Stock-based compensation expense (3,138 ) (11,725 ) (5,017 ) (22,118 )
Non-GAAP research and development $ 27,354   $ 68,184   $ 47,901   $ 130,039  
 
Non-GAAP sales and marketing:
GAAP sales and marketing $ 69,690 $ 118,138 $ 113,557 $ 225,189
Stock-based compensation expense (1,322 ) (2,927 ) (2,629 ) (5,462 )
Non-GAAP sales and marketing $ 68,368   $ 115,211   $ 110,928   $ 219,727  
 
Non-GAAP general and administrative:
GAAP general and administrative $ 14,648 $ 37,262 $ 27,629 $ 72,964
Stock-based compensation expense (2,462 ) (4,664 ) (3,733 ) (8,197 )
Litigation expense (11,558 ) (11,558 )
Impact of Fitbit Force recall (69 ) 11 73
Intangible assets amortization (82 ) (82 ) (82 ) (163 )
Non-GAAP general and administrative $ 12,035   $ 20,969   $ 23,887   $ 53,046  
 
Non-GAAP operating expenses:
GAAP operating expenses $ 107,126 $ 235,309 $ 186,400 $ 450,310
Stock-based compensation expense (6,922 ) (19,316 ) (11,379 ) (35,777 )
Litigation expense (11,558 ) (11,558 )
Impact of Fitbit Force recall (69 ) 11 73
Intangible assets amortization (82 ) (82 ) (82 ) (163 )
Change in contingent consideration 7,704     7,704    
Non-GAAP operating expenses $ 107,757   $ 204,364   $ 182,716   $ 402,812  
 
 
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except percentages and per share amounts)
(unaudited)
 
            Three Months Ended             Six Months Ended
June 30,

2015

      July 2,

2016

June 30,

2015

      July 2,

2016

Non-GAAP operating income:
GAAP operating income $ 80,416 $ 9,660 $ 170,351 $ 28,414
Stock-based compensation expense 7,747 20,400 12,650 38,170
Litigation expense 11,558 11,558
Impact of Fitbit Force recall 69 (11 ) (2,113 )
Intangible assets amortization 549 533 549 1,066
Change in contingent consideration (7,704 )   (7,704 )  
Non-GAAP operating income $ 81,077   $ 42,140   $ 173,733   $ 79,208  
 
Non-GAAP net income and net income per share:
Net income $ 17,681 $ 6,341 $ 65,678 $ 17,376
Stock-based compensation expense 7,747 20,400 12,650 38,170
Litigation expense 11,558 11,558
Impact of Fitbit Force recall 69 (11 ) (2,113 )
Revaluation of redeemable convertible preferred
stock warrant liability 46,320 56,655
Intangible assets amortization 549 533 549 1,066
Change in contingent consideration (7,704 ) (7,704 )
Income tax effect of non-GAAP adjustments (13,349 ) (9,297 ) (18,228 ) (14,126 )
Non-GAAP net income $ 51,313   $ 29,524   $ 107,487   $ 54,044  
 
GAAP diluted shares 95,190 242,328 82,841 242,153
Diluted effect of redeemable convertible preferred
stock conversion 126,020 132,898
Initial public offering shares 20,173 10,081
Other dilutive equity awards 1,766     1,801    
Non-GAAP diluted shares 243,149   242,328   227,621   242,153  
Non-GAAP diluted net income per share $ 0.21   $ 0.12   $ 0.47   $ 0.22  
 
Adjusted EBITDA:
Net income $ 17,681 $ 6,341 $ 65,678 $ 17,376
Impact of Fitbit Force recall 69 (11 ) (2,113 )
Stock-based compensation expense 7,747 20,400 12,650 38,170
Litigation expense 11,558 11,558
Revaluation of redeemable convertible preferred
stock warrant liability 46,320 56,655
Depreciation and intangible assets amortization 4,705 7,178 8,174 14,186
Change in contingent consideration (7,704 ) (7,704 )
Interest (income) expense, net 379 (839 ) 846 (1,421 )
Income tax expense 17,048   3,695   45,442   13,564  
Adjusted EBITDA $ 86,245   $ 48,322   $ 179,628   $ 93,433  
 
 
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except percentages and per share amounts)
(unaudited)
 
          Three Months Ended           Six Months Ended
June 30,

2015

      July 2,

2016

June 30,

2015

      July 2,

2016

 
Stock-based compensation expense:
Cost of revenue $ 825 $ 1,084 $ 1,271 $ 2,393
Research and development 3,138 11,725 5,017 22,118
Sales and marketing 1,322 2,927 2,629 5,462
General and administrative 2,462   4,664   3,733   8,197
Total stock-based compensation expense $ 7,747   $ 20,400   $ 12,650   $ 38,170
 
 
FITBIT, INC.
Revenue by Geographical Region
(In thousands)
(unaudited)
 
            Three Months Ended           Six Months Ended
June 30,

2015

      July 2,

2016

June 30,

2015

      July 2,

2016

 
United States $ 312,666 $ 445,192 $ 577,975 $ 796,877
Americas excluding United States 16,799 27,375 30,228 50,769
Europe, Middle East, and Africa 39,712 99,471 74,768 174,195
APAC 31,235   14,490   54,195   70,043
Total $ 400,412   $ 586,528   $ 737,166   $ 1,091,884

Source: Fitbit, Inc.

Fitbit, Inc.

Investor Contact:

Brad Samson, 415-604-4106

bsamson@fitbit.com

or

Media Contact:

Jen Ralls, 415-722-6937

PR@fitbit.com