Q4 and FY 2018 EARNINGS DECK · Q4 2018 revenue was flat y/y • Average selling price decreased 2%...

Q4 and FY 2018 EARNINGS DECKFebruary 2019

Safe Harbor StatementThis presentation contains forward-looking statements that involve risks and uncertainties, including statements regarding our outlook for the first quarter of 2019 and full year 2019; growth of the global wearables market; expected growth in active users; expected device mix; future opportunities in health coaching and wellness solutions, including the expected growth of our Fitbit Health Solutions business and growth in non-device consumer revenue; and trends in device sales, revenue, average selling price, operating expenses, capital expenditures, free cash flow, gross margins, non-GAAP gross margins, non-GAAP net (loss) income per share, stock-based compensation expense, adjusted EBITDA, effective non-GAAP tax rate and basic/diluted share count. 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 trackers and wearable devices is relatively new and unproven; the ability of our channel partners to sell our products; litigation and related costs; privacy; the impact of changes in tax law; the impact of tariffs; 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, 2017, 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 Annual Report on Form 10-K for the full year ended December 31, 2018. 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 www.fitbit.com/legal/trademark-list. Third-party trademarks are the property of their respective owners.

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investor.fitbit.com

http://www.sec.gov/

http://www.fitbit.com/legal/trademark-list

©2019 Fitbit, Inc. All rights reserved. Proprietary & Confidential.

Fitbit’s Vision:To Make Everyone in the

World Healthier.

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©2017 Fitbit, Inc. All rights reserved. Proprietary & Confidential. ©2017 Fitbit Inc. All rights reserved. 4

Diabetes

Heart Health

Sleep Apnea

Manage Weight

Get More Active & Fit

Sleep Better

Reduce Stress

Focus on Outcomes and Conditions

Wellness Health

Across All Ages

Mental Health

4

• Generated $1.51 billion of revenue, non-GAAP net loss per share of $(0.20).

• Average selling price up 4% y/y to $105 per device. Accessory and other revenue added an additional $3.37 per device.

• Non-GAAP gross margin decreased 250 basis points y/y to 40.9% driven by the change in mix towards smartwatches and end of life promotions of legacy tracker offerings, partially offset by improved warranty costs and lower customer support costs.

• Non-GAAP operating expenses decreased 12% y/y to $702 million.

• $723 million in cash, cash equivalents, and marketable securities on the balance sheet as of the year end.

2018 Financial Highlights

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2018 Business Highlights

• Smartwatch revenue grew to 44% of total revenue, up from 8% on a y/y basis.

• Diversified wearable device revenue from predominately trackers to smartwatches and trackers. #2 smartwatch company in the U.S.

• Refreshed product line up and launched Charge 3 tracker device, our most advanced health & fitness tracker. Exited Q4 with growth in devices sold.

• Grew active users* 9% to 27.6 million.

• Deepening reach into healthcare: launched Fitbit Care and expanded strategic partnership with Humana.

• Fitbit Health Solutions revenue grew 8% y/y.

*As of December 31, 2018

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Q4 2018 Highlights

• Generated $571 million of revenue, non-GAAP net income per share of $0.14.

• Average selling price down 2% y/y to $100 per device. Accessory and other revenue added an additional $2.55 per device.

• Non-GAAP gross margin decreased 550 basis points y/y to 38.7% driven by the change in mix towards smartwatches, end of life promotions of legacy tracker offerings, and higher hosting costs, partially offset by improved warranty costs and lower customer support costs.

• Non-GAAP operating expenses decreased 24% y/y to $185 million.

Active Users and Devices Sold

10.9

21.422.3

15.313.9

6.7

16.9

23.2 25.4

27.6

0

5

10

15

20

25

30

2014 2015 2016 2017 2018

(M)

Devices Sold Active Users

• Active users* up 9% in 2018, despite devices sold decreasing 9%.

• Growth driven by investments and innovation in hardware and software, bringing new users and engaging existing users.

• 38% of activations came from repeat buyers in 2018. Of the repeat buyers, 52% came from customers who were inactive during a prior

period.

8*As of December 31, 2018

84%

70%45%

51%

56%

16%

30% 55%

49%

44%

-17%

-27%

-20%

-2%

3%

-40%$0

$100

$200

$300

$400

$500

$600

Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Revenue (

M)

Tracker Smartwatch YoY

• In Q4’18, total units grew y/y by 3% and Smartwatch units grew over 300%.

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Growing Smartwatch Revenue

$570.8

$247.9

$299.3

$393.6

$571.2

($ in millions)10

$570.8 $571.2

Q4 2017 Q4 2018

Quarterly Revenue

flat

$1,615.5

$1,512.0

1000

1050

1100

1150

1200

1250

1300

1350

1400

1450

1500

1550

1600

1650

2017 2018

Annual Revenue

- 6%

Revenue• Q4 2018 revenue was flat y/y

• Average selling price decreased 2% to $100 driven by

the introduction of Charge 3 and subsequent growth in

tracker revenue.

• Accessory and other sales added an additional $2.55 in

revenue per device in Q4.

• 2018 revenue contracted 6% y/y

• Grew smartwatch revenue to 44% of total revenue, up

from 8% in 2017.

• Average selling price increased 4% y/y to $105.

• International revenue declined 6% to $631 million or

42% of the total, primarily due to weakness in U.K.,

partially offset by growth in APAC.

• Fitbit.com revenue of $155 million in 2018, or 10% of

revenue.

• Accessory and other revenue was $47 million for the full

year.

$796.6

$701.7

2017 2018

Non-GAAP Opex

• Gross margin decreased by 250 bpts y/y- Change in mix towards smartwatches. - Choice to make platform accessible and affordable to grow

community of users.- End of life promotions of legacy tracker offerings, partially

offset by improved retail returns and warranty costs.

• Achieved 12% expense reduction in ’18, decrease driven by:- Lower media and marketing spend, shift of promotional costs to

contra revenue, and lower POP spend.- Benefitted from improved device quality and lower customer

support spend.- Reduced facilities footprint.

• Decrease reflects effort to drive efficiency in devices and redeployment of capital to grow international sales footprint, FHS and software. 11

-12%

Non-GAAP Gross Margin and Opex

43.4%40.9%

2017 2018

Non-GAAP Gross Margin

-2.5%

($ in millions)

$398.5

$328.9

0255075

100125150175200225250275300325350375400425

2017 2018

S&M

$286.5 $275.0

$0$25$50$75

$100$125$150$175$200$225$250$275$300

2017 2018

R&D

$111.7$97.8

0

25

50

75

100

125

150

2017 2018

G&A

• Continued investment in innovation.

• Lower consulting & prototype costs.

• Lower media and marketing spend and lower POP spend.

• Re-class of some marketing spend to contra-revenue.

• Benefitted from improved device quality and lower customer support spend.

• Excluding one-time costs of $8M related to the bankruptcy of Wynit in Q3 ’17, costs down 6%.

• Lowered litigation and outside consulting costs.

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-4% -17%

-12%

Non-GAAP Opex Detail

($ in millions)

Balance Sheet & Cash Flow Summary

• Cash and short-term investments is at $723M, up $100M sequentially due to strong collections.

• Change in working capital, excluding tax, benefited free cash flow by $51M in 2018.

• Free Cash Flow of ~$96M in Q4’18 above guidance of $90M due to timing of capital purchases.

• Adoption of ASC 606 in ’18 resulted in re-classification of sales reserves as a liability rather than contra A/R. We entered 2019 with ~$100 million lower receivables than when we entered 2018. (Prior periods are not recast.)

($ in Millions) Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 FY'18

Cash, Cash Equivalents & Marketable Securities $679.3 $658.4 $580.5 $623.3 $723.4 $723.4

Accounts Receivables $406.0 $214.4 $242.0 $326.0 $414.2 $414.2

Days Sales Outstanding 76 61 70 72 70 70

Inventory $123.9 $145.4 $140.4 $195.1 $124.9 $124.9

Inventory Turns 9.8 4.0 5.0 5.6 8.9 7.2

Accounts payable $212.7 $132.9 $156.0 $233.0 $251.7 $251.7

Capital Expenditures (capex) $31.0 $12.6 $15.9 $11.7 $12.7 $52.9

Capex as % of Revenue 5.4% 5.1% 5.3% 3.0% 2.2% 3.5%

Free Cash Flow with Tax Refund $24.6 $0.9 ($83.3) $47.1 $95.6 $60.3

Free Cash Flow excl. Tax Refund $24.6 $0.9 ($83.3) ($25.1) $95.6 ($11.9)

Q1’19 Guidance

Guidance Context:

• Expect to grow unit shipments driven by smartwatch growth, partially offset by lower ASP.

• Expect gross margins to continue to trend lower as smartwatch mix increases, along with higher hosting costs.

• Non-GAAP effective tax rate driven by geography of revenue, tax credits. Expect quarterly volatility.

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Guidance

Revenue $250 $268

y/y growth 1% 8%

Non-GAAP net loss per share ($0.24) ($0.22)

Capex as a % of revenue ~3%

Adjusted EBITDA ($72) ($64)

Non-GAAP effective tax rate ~25%

Stock-based compensation expense ~$24M

Non-GAAP share count (basic) ~254M

Low High

($ in millions, except percentages and per share amounts)

FY ’17 GuidanceFY’19 Guidance

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Revenue $1,520 $1,580

y/y growth 1% 4%

Non-GAAP net loss per share ($0.22) ($0.13)

Capex as a % of revenue ~3%

Adjusted EBITDA ($30) Breakeven

Non-GAAP effective tax rate ~30%

Stock-based compensation ~$90M

Non-GAAP share count (basic) ~260M

Low High

($ in millions, except percentages and per share amounts)

Guidance Context:

• Returns to revenue growth in 2019.

• Expect to grow units in 2019, but ASP to decline driven by the introduction of more affordable devices. Q1 will be seasonally lowest non-GAAP gross margin quarter, to rise ~200 basis points in Q2 and continue to increase towards ~40% for the full year.

• Expect to grow community of users.

• Expect Fitbit Health Solutions revenue to be approximately ~$100 million.

• Expect to reduce non-GAAP Opex by 5% to a range of $660 million to $690 million.

• Expect full-year non-GAAP effective tax rate to vary due to geographic mix of revenue and shift to profitability / tax credits.


GAAP to Non-GAAP ReconciliationTo supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures in this

press release: non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP income (loss) before income

taxes, effective non-GAAP tax rate, non-GAAP net income (loss), non-GAAP diluted net income (loss) per share, free cash flow, non-GAAP research and development

expenses, non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses, adjusted EBITDA, and effective non-GAAP tax rate. 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 certain items, specifically stock-based compensation expense, depreciation, amortization of intangible assets, impairment of equity investment, interest

income, net, and the related income tax effects of the aforementioned exclusions, that may be recurring and will be reflected in our financial results for the foreseeable future. Our

adjustments to our non-GAAP financial measures previously included the exclusion of litigation expense related to matters with Aliphcom, Inc. d/b/a Jawbone. 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 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.

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GAAP to Non-GAAP Reconciliation(In thousands)

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

2017. Restructuring costs primarily included severance-related costs. We believe that excluding this expense provides greater 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 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 increased in 2016.

• Amortization of intangible assets relates to our acquisition of FitStar, Pebble, Vector and Twine Health. We exclude these amortization expenses because we do not believe these

expenses have a direct correlation to the operation of our business.

• A non-recurring impairment charge of $6 million to reflect the write-down of an equity investment.

• 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).

• We define free cash flow as net cash provided by (used in) operating activities less purchase of property and equipment. We consider free cash flow to be a liquidity measure that

provides useful information to management and investors about the amount of cash generated by the business that can possibly be used for investing in our business and

strengthening the balance sheet, but it is not intended to represent the residual cash flow available for discretionary expenditures. Free cash flow is not prepared in accordance with

U.S. GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with U.S. GAAP.

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GAAP to Non-GAAP Reconciliation(In thousands, except percentages)

GAAP gross profit

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Three Months Ended Twelve Months Ended

December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017

Non-GAAP gross profit:

GAAP gross profit $ 216,927 $ 248,597 $ 603,579 $ 690,901

Stock-based compensation expense 2,183 2,423 7,312 5,312

Impact of restructuring — — — 37

Intangible assets amortization 1,853 1,516 7,189 5,473

Non-GAAP gross profit $ 220,963 $ 252,536 $ 618,080 $ 701,723

Non-GAAP gross margin (as a percentage of revenue):

GAAP gross profit 38.0% 43.6% 39.9% 42.8%

Stock-based compensation expense 0.4 0.3 0.5 0.3

Impact of restructuring 0.0 0.0 0.0 0.0

Intangible assets amortization 0.3 0.3 0.5 0.3

Non-GAAP gross profit 38.7% 44.2% 40.9% 43.4%



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Non-GAAP research and development:

GAAP research and development $ 75,946 $ 90,541 $ 332,169 $ 343,012

Stock-based compensation expense (13,330) (13,842) (57,188) (53,781)

Impact of restructuring — — — (2,744)

Non-GAAP research and development $ 62,616 $ 76,699 $ 274,981 $ 286,487

Non-GAAP sales and marketing:

GAAP sales and marketing $ 104,518 $ 145,600 $ 344,091 $ 415,042



Intangible assets amortization (135) — (451) —

Non-GAAP sales and marketing $ 100,653 $ 141,942 $ 328,914 $ 398,470

Non-GAAP general and administrative:

GAAP general and administrative $ 25,516 $ 31,119 $ 116,627 $ 133,934


Litigation expense — (919) (765) (3,212)


Intangible assets amortization (73) (71) (286) (248)

Non-GAAP general and administrative $ 21,290 $ 25,727 $ 97,793 $ 111,692



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Non-GAAP operating expenses:

GAAP operating expenses $ 205,980 $ 267,260 $ 792,887 $ 891,988


Litigation expense — (919) (765) (3,212)


Intangible assets amortization (208) (71) (737) (248)

Non-GAAP operating expenses $ 184,559 $ 244,368 $ 701,688 $ 796,649



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Non-GAAP operating income (loss) and operating income (loss) before income taxes:

GAAP operating income (loss) $ 10,947 $ (18,663) $ (189,308) $ (201,087)


Litigation expense — 919 765 3,212

Impact of restructuring — — — 6,375


Non-GAAP operating income (loss) 36,404 8,168 (83,608) (94,925)

Interest income, net 2,209 1,197 7,808 3,647

Other income (expense), net (276) 2,661 3,358 2,796

Non-GAAP income (loss) before income taxes $ 38,337 $ 12,026 $ (72,442) $ (88,482)


GAAP to Non-GAAP Reconciliation(In thousands, except per share amounts)

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Non-GAAP net income (loss) and net income (loss) per share:

Net income (loss) $ 15,372 $ (45,470) $ (185,829) $ (277,192)




Impairment of equity investment — — 6,000 —


Income tax effect of non-GAAP adjustments (4,481) 13,979 25,330 109,887

Non-GAAP net income (loss) $ 36,348 $ (4,660) $ (48,799) $ (61,143)

GAAP diluted shares 249,973 237,421 244,603 232,032

Other dilutive equity awards 10,426 — — —

Non-GAAP diluted shares 260,399 237,421 244,603 232,032

Non-GAAP diluted net income (loss) per share $ 0.14 $ (0.02) $ (0.20) $ (0.26)



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Free cash flow:

Net cash provided by operating activities $ 108,326 $ 55,522 $ 113,207 $ 64,241

Purchases of property and equipment (12,706) (30,959) (52,880) (89,160)

Free cash flow $ 95,620 $ 24,563 $ 60,327* $ (24,919)

Net cash provided by (used in) investing activities $ (42,684) $ 4,197 $ 17,496 $ (28,718)

Net cash provided by financing activities $ 6,077 $ 1,546 $ 1,287 $ 4,635

* Includes $72 million income tax refund payment received in the three months ended September 29, 2018. Free cash flow excluding this amount would have been $(12) million.


GAAP to Non-GAAP Reconciliation(In thousands, except percentages)

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Revenue on a Constant Currency Basis

International GAAP Revenue $ 242,784 $ 240,529 $ 631,448 $ 671,468

Foreign exchange effect (12,495) (36,691)

International revenue excluding foreign exchange effect $ 230,289 $ 594,757

International GAAP revenue year-over-year change 1% (6)%

International GAAP revenue excluding foreign exchange effect year-over-over change (4)% (11)%

US GAAP revenue $ 328,415 330,227 $ 880,535 $ 944,051

US GAAP revenue year-over-year change (1)% (7)%



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Adjusted EBITDA:

Net income (loss) $ 15,372 $ (45,470) $ (185,829) $ (277,192)




Impairment of equity investment — — 6,000 —

Depreciation and intangible assets amortization 15,561 13,221 56,815 45,693

Interest income, net (2,209) (1,197) (7,808) (3,647)

Income tax expense (benefit) (2,492) 30,665 1,687 82,548

Adjusted EBITDA $ 49,628 $ 22,463 $ (31,361) $ (52,158)

* A portion of stock-based compensation expense for the nine months ended December 31, 2017 was allocated to and included in "Impact of restructuring," thus explaining the difference between the total by function presented in this table compared to the amounts presented in the above tables.

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Q4 and FY 2018 EARNINGS DECK · Q4 2018 revenue was flat y/y • Average selling price decreased 2%...

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