Fitbit Reports Second Quarter 2015 Results

Revenue of $400 Million, Up 253% Year-Over-Year
Non-GAAP EPS of $0.21 Up from $0.09 a Year Earlier

SAN FRANCISCO--()--Fitbit, Inc. (NYSE:FIT), the leader in the connected health and fitness market, today announced financial results for its second quarter ended June 30, 2015.

“Reconciliation of GAAP to Non-GAAP Financial Measures”

“Our second quarter results included our highest quarterly revenue in the eight-year history of Fitbit,” said James Park, Fitbit co-founder and CEO. “In the quarter, we introduced new features and services, expanded brand awareness, increased global distribution and further penetrated the corporate wellness market. We remain focused on continuing to deliver innovative products and services that empower people around the world to reach their health and fitness goals.”

   

Second Quarter 2015 Financial Summary

 
Three Months Ended

June 30,

Six Months Ended

June 30,

In thousands, except percentages and per share amounts

2014   2015 2014   2015
Revenue $ 113,572 $ 400,412 $ 222,387 $ 737,166
Gross margin
GAAP 51 % 47 % 46 % 48 %
Non-GAAP* 52 % 47 % 56 % 48 %
Net income
GAAP $ 14,753 $ 17,681 $ 23,625 $ 65,678
Non-GAAP* $ 18,345 $ 51,313 $ 43,240 $ 107,487
Diluted net income per share
GAAP $ 0.07 $ 0.07 $ 0.11 $ 0.29
Non-GAAP* $ 0.09 $ 0.21 $ 0.21 $ 0.47
 
Adjusted EBITDA* $ 29,088 $ 86,245 $ 71,116 $ 179,628

Devices sold

1,720 4,458 3,295 8,324
 

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

Second Quarter 2015 and Recent Fitbit Highlights

  • Sold 4.5 million connected health and fitness devices in the second quarter of 2015
  • International revenue increased 250% year-over-year for the second quarter of 2015, driven by EMEA and APAC year-over-year revenue growth of 301% and 292%, respectively, for the second quarter of 2015
  • Released an update to the Fitbit Surge, enabling GPS bike tracking
  • Redesigned Fitbit mobile experience, including the visual redesign of the daily activity graphs for iPhone, Android and Windows Phones
  • Expanded partnership with Tory Burch
  • Teamed up with Kellogg’s, showcasing Fitbit Flex on 20 million packages nationwide
  • Entered into Corporate Wellness agreements with Geico, Sutter Health, Transunion, Quicken Loans, and several financial institutions. To date, we have signed over 50 of the Fortune 500 companies to our Corporate Wellness offerings

Outlook

Fitbit’s outlook for the third quarter of 2015 is as follows:

  • Revenue in the range of $335 million to $365 million
  • Non-GAAP gross margin in the range of 47% to 48%
  • Non-GAAP tax rate of approximately 37%
  • Stock-based compensation expense in the range of $15 million to $17 million
  • Non-GAAP diluted net income per share in the range of $0.07 to $0.10
  • Adjusted EBITDA in the range of $35 million to $45 million
  • Non-GAAP diluted share count between 247 million and 249 million

Fitbit’s outlook for the full year of 2015 is as follows:

  • Revenue in the range of $1.6 billion to $1.7 billion
  • Non-GAAP gross margin in the range of 47% to 48%
  • Non-GAAP tax rate of approximately 37%
  • Stock-based compensation expense in the range of $50 million to $54 million
  • Non-GAAP diluted net income per share in the range of $0.69 to $0.77
  • Adjusted EBITDA in the range of $275 million to $310 million
  • Non-GAAP diluted share count between 235 million and 240 million

Webcast and Conference Call Information

Fitbit management will host a conference call and live webcast for analysts and investors today at 2 p.m. Pacific Time (5 p.m. Eastern Time) to discuss Fitbit’s financial results.

To listen to the live conference call, please dial toll free 1-888-206-4912 or 1-913-312-0699, access code 1660528, approximately 15 minutes prior to the start of the call. A live webcast of the conference call will be accessible on the “IR Events & Presentations” section of Fitbit’s website at https://investor.fitbit.com. To access the live webcast, please log in 15 minutes prior to the start of the call to download and install any necessary audio software. The webcast will be recorded and the recording will be available on Fitbit’s website, https://investor.fitibit.com, approximately two hours after the call and for six months thereafter.

About Fitbit, Inc. (NYSE:FIT)

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 Charge HR, Fitbit Charge, Fitbit Flex, Fitbit Zip and Fitbit One activity trackers, as well as the Aria Wi-Fi Smart Scale. Fitbit products are carried in over 45,000 retail stores and in more than 50 countries.

Fitbit, the Fitbit logo, Fitbit Surge, Fitbit Charge HR, Fitbit Charge, Fitbit Flex, Fitbit One, Fitbit Zip, PurePulse, MobileRun, Aria and FitStar are trademarks, service marks and/or registered trademarks of Fitbit, Inc. 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. FIT-F.

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Forward Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding Fitbit’s financial outlook for the third quarter and the full year of 2015 and Fitbit’s plans to introduce new products and services. 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; difficulty in predicting consumer preferences; any inability to successfully develop and introduce new products and services or enhance existing products and services; any inability to accurately forecast consumer demand and adequately manage our inventory; 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; quarterly and seasonal fluctuations; our reliance on third-party suppliers, contract manufacturers, and logistics providers, and our limited control over such parties; the ability of our channel partners to sell our products; market acceptance of our other products and services beyond wearable devices; the fact that the market for connected health and fitness devices is relatively new and unproven; other litigation; privacy; and 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 Prospectus filed pursuant to Rule 424(b) filed with the SEC on June 18, 2015, which is 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 other filings that the company makes with the SEC from time to time. 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.

Non-GAAP Financial Measures

To supplement our condensed 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 gross profit as a percentage of revenue; 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.

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 and the first quarter of 2014.
  • 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.
  • 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.

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

June 30,

  Six Months Ended

June 30,

2014   2015 2014   2015
Revenue $ 113,572 $ 400,412 $ 222,387 $ 737,166
Cost of revenue 55,183   212,870   119,229   380,415  
Gross profit 58,389   187,542   103,158   356,751  
Operating expenses:
Research and development 11,809 30,492 20,897 52,918
Sales and marketing 13,311 69,690 24,584 113,557
General and administrative 7,443 14,648 16,060 27,629
Change in contingent consideration   (7,704 )   (7,704 )
Total operating expenses 32,563   107,126   61,541   186,400  
Operating income 25,826 80,416 41,617 170,351
Interest expense, net (452 ) (379 ) (861 ) (846 )
Other expense, net (3,687 ) (45,308 ) (4,906 ) (58,385 )
Income before income taxes 21,687   34,729   35,850   111,120  
Income tax expense 6,934   17,048   12,225   45,442  
Net income $ 14,753 $ 17,681 $ 23,625 $ 65,678
 
Less: noncumulative dividends to preferred stockholders (1,327 ) (1,212 ) (2,640 ) (2,526 )
Less: undistributed earnings attributable to participating securities (10,423 ) (11,244 ) (16,293 ) (45,907 )
Net income attributable to common stockholders—basic 3,003 5,225 4,692 17,245
Add: undistributed earnings to dilutive participating securities 1,058   1,862   1,618   7,003  
Net income attributable to common stockholders—diluted $ 4,061   $ 7,087   $ 6,310   $ 24,248  
 
Net income per share attributable to common stockholders:
Basic $ 0.07   $ 0.09   $ 0.12   $ 0.35  
Diluted $ 0.07   $ 0.07   $ 0.11   $ 0.29  
Weighted average shares used to compute net income per share attributable to common stockholders:
Basic 40,193   58,548   40,174   49,922  
Diluted 60,487   95,190   59,983   82,841  
 
 
FITBIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
  December 31,

2014

  June 30,

2015

Assets
Current assets:
Cash and cash equivalents $ 195,626 $ 461,276
Accounts receivable, net 238,859 252,023
Inventories 115,072 186,870
Deferred tax assets 33,555 49,625
Prepaid expenses and other current assets 13,614   18,163
Total current assets 596,726 967,957
Property and equipment, net 26,435 30,945
Goodwill 22,157
Intangible assets, net 13,263
Other assets 9,890   12,308
Total assets $ 633,051   $ 1,046,630

Liabilities, Redeemable Convertible Preferred Stock, and Stockholders’ Equity

Current liabilities:
Fitbit Force recall reserve $ 22,476 $ 12,894
Accounts payable 195,666 193,594
Accrued liabilities 70,940 79,618
Deferred revenue 9,009 21,346
Income taxes payable 30,631 795
Long-term debt, current portion 132,589  
Total current liabilities 461,311 308,247
Redeemable convertible preferred stock warrant liability 15,797
Other liabilities 12,867   15,031
Total liabilities 489,975 323,278
 
Redeemable convertible preferred stock 67,814
Stockholders’ equity
Common stock and additional paid-in capital 7,983 590,310
Accumulated other comprehensive income 37 122
Retained earnings 67,242   132,920
Total stockholders’ equity 75,262   723,352

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity

$ 633,051   $ 1,046,630
 
 
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except percentages and per share amounts)
(unaudited)
  Three Months Ended

June 30,

  Six Months Ended

June 30,

2014   2015 2014   2015
Non-GAAP gross profit:
GAAP gross profit $ 58,389 $ 187,542 $ 103,158 $ 356,751
Stock-based compensation expense 129 825 188 1,271
Impact of Fitbit Force recall 22,163 (2,040)
Intangible assets amortization   467     467  
Non-GAAP gross profit $ 58,518   $ 188,834   $ 125,509   $ 356,449  
 
Non-GAAP gross profit as a percentage of revenue:
GAAP gross profit as a percentage of revenue 51 % 47% 46 % 48%
Stock-based compensation expense 1
Impact of Fitbit Force recall 10
Intangible assets amortization        
Non-GAAP gross profit as a percentage of revenue 52 % 47 % 56 % 48 %
 
Non-GAAP operating expenses:
GAAP operating expenses $ 32,563 $ 107,126 $ 61,541 $ 186,400
Stock-based compensation expense (532 ) (6,922 ) (787 ) (11,379 )
Impact of Fitbit Force recall (1,483 ) (69 ) (4,359 ) 73
Intangible assets amortization (82 ) (82 )
Change in contingent consideration   7,704     7,704  
Non-GAAP operating expenses $ 30,548   $ 107,757   $ 56,395   $ 182,716  
 
Non-GAAP operating income:
GAAP operating income $ 25,826 $ 80,416 $ 41,617 $ 170,351
Stock-based compensation expense 661 7,747 975 12,650
Impact of Fitbit Force recall 1,483 69 26,522 (2,113 )
Intangible assets amortization 549 549
Change in contingent consideration   (7,704 )   (7,704 )
Non-GAAP operating income $ 27,970   $ 81,077   $ 69,114   $ 173,733  
 
Non-GAAP net income and net income per share:
Net income $ 14,753 $ 17,681 $ 23,625 $ 65,678
Stock-based compensation expense 661 7,747 975 12,650
Impact of Fitbit Force recall 1,483 69 26,522 (2,113 )

Revaluation of redeemable convertible preferred stock warrant liability

3,842 46,320 5,195 56,655
Intangibles assets amortization 549 549
Change in contingent consideration (7,704 ) (7,704 )
Income tax effect of non-GAAP adjustments (2,394 ) (13,349 ) (13,077 ) (18,228 )
Non-GAAP net income $ 18,345   $ 51,313   $ 43,240   $ 107,487  
 
 
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except percentages and per share amounts)
(unaudited)
  Three Months Ended

June 30,

  Six Months Ended

June 30,

2014   2015 2014   2015
GAAP diluted shares 60,487 95,190 59,983 82,841

Diluted effect of redeemable convertible preferred stock conversion

139,504 126,020 139,504 132,898
Initial public offering shares 20,173 10,081
Other dilutive equity awards 1,886   1,766   1,793   1,801  
Non-GAAP diluted shares 201,877   243,149   201,280   227,621  
Non-GAAP diluted net income per share $ 0.09   $ 0.21   $ 0.21   $ 0.47  
 
Adjusted EBITDA:
Net income $ 14,753 $ 17,681 $ 23,625 $ 65,678
Impact of Fitbit Force recall 1,483 69 26,522 (2,113 )
Stock-based compensation expense 661 7,747 975 12,650
Revaluation of redeemable convertible preferred
stock warrant liability 3,842 46,320 5,195 56,655
Depreciation and intangible assets amortization 963 4,705 1,713 8,174
Change in contingent consideration (7,704 ) (7,704 )
Interest expense, net 452 379 861 846
Income tax expense 6,934   17,048   12,225   45,442  
Adjusted EBITDA $ 29,088   $ 86,245   $ 71,116   $ 179,628  
 
Stock-based compensation expense:
Cost of revenue $ 129 $ 825 $ 188 $ 1,271
Research and development 192 3,138 284 5,017
Sales and marketing 120 1,322 183 2,629
General and administrative 220   2,462   320   3,733  
Total stock-based compensation expense $ 661   $ 7,747   $ 975   $ 12,650  
 
 
FITBIT, INC.
Revenue by Geographical Region
(In thousands)
(unaudited)
          Three Months Ended
June 30,
  Six Months Ended
June 30,
2014   2015 2014   2015
 
United States $ 88,504 $ 312,666 $ 178,335 $ 577,975
Americas excluding United States 7,177 16,799 10,893 30,228
Europe, Middle East, and Africa 9,915 39,712 18,639 74,768
APAC 7,976   31,235   14,520   54,195
Total $ 113,572   $ 400,412   $ 222,387   $ 737,166
 

Contacts

Fitbit, Inc.
Investor Contact:
Peter Salkowski, 415-604-4106
investor@fitbit.com
or
Media Contact:
Jen Ralls, 415-722-6937
PR@fitbit.com

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