Document and Entity Information - shares |
3 Months Ended | |
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Mar. 31, 2018 |
Apr. 26, 2018 |
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Entity Information [Line Items] | ||
Entity Registrant Name | FITBIT INC | |
Entity Central Index Key | 0001447599 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false | |
Common Class A [Member] | ||
Entity Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 210,007,130 | |
Common Class B [Member] | ||
Entity Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 31,284,263 |
Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
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Mar. 31, 2018 |
Apr. 01, 2017 |
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Income Statement [Abstract] | ||
Revenue | $ 247,865 | $ 298,942 |
Cost of revenue | 133,742 | 180,643 |
Gross profit | 114,123 | 118,299 |
Operating expenses: | ||
Research and development | 89,336 | 87,758 |
Sales and marketing | 72,052 | 91,174 |
General and administrative | 36,088 | 30,746 |
Total operating expenses | 197,476 | 209,678 |
Operating loss | (83,353) | (91,379) |
Interest income, net | 1,350 | 1,096 |
Other income, net | 517 | 533 |
Loss before income taxes | (81,486) | (89,750) |
Income tax benefit | (609) | (29,671) |
Net loss | $ (80,877) | $ (60,079) |
Net loss per share: | ||
Basic (in dollars per share) | $ (0.34) | $ (0.27) |
Diluted (in dollars per share) | $ (0.34) | $ (0.27) |
Shares used to compute net loss per share: | ||
Basic (in shares) | 239,431 | 226,511 |
Diluted (in shares) | 239,431 | 226,511 |
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2018 |
Apr. 01, 2017 |
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Statement of Comprehensive Income [Abstract] | ||
Net loss | $ (80,877) | $ (60,079) |
Cash flow hedges: | ||
Change in unrealized gain (loss) on cash flow hedges, net of tax benefit (expense) of $0 and $(202), respectively | 664 | (1,160) |
Less: reclassification for realized net gains included in net income, net of tax expense (benefit) of $0 and $(38), respectively | 0 | 217 |
Net change, net of tax | 664 | (943) |
Change in foreign currency translation adjustment | 0 | (271) |
Change in unrealized loss on available-for-sale investments, net of tax | (326) | 76 |
Less reclassification for realized net gains | 0 | (9) |
Net change, net of tax | (326) | 67 |
Comprehensive loss | $ (80,539) | $ (61,226) |
Condensed Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2018 |
Apr. 01, 2017 |
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Statement of Comprehensive Income [Abstract] | ||
Change in unrealized gain (loss) on cash flow hedges, tax | $ 0 | $ (202) |
Reclassification for realized net gains included in net income, tax | $ 0 | $ (38) |
Basis of Presentation and Summary of Significant Accounting Policies |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Summary of Significant Accounting Policies | Basis of Presentation and Summary of Significant Accounting Policies The accompanying condensed consolidated financial statements of Fitbit, Inc. (the “Company”) are unaudited. The condensed consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements of the Company. The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information, and in management’s opinion, includes all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position, its results of operations, and cash flows for the interim periods presented. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full fiscal year or any other period. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2018. The Company’s fiscal year ends on December 31 of each year. The Company is on a 4-4-5 week quarterly calendar. There were 90 and 91 days in each of the three months ended March 31, 2018 and April 1, 2017, respectively. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. Use of Estimates The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. The primary estimates and assumptions made by management are related to revenue recognition, reserves for sales returns and incentives, reserves for warranty, valuation of stock options, fair value of derivative assets and liabilities, allowance for doubtful accounts, inventory valuation, fair value of goodwill and acquired tangible and intangible assets and liabilities assumed during acquisitions, the number of reportable segments, the recoverability of intangible assets and their useful lives, contingencies, and income taxes. Actual results could differ from those estimates, and such differences may be material to the condensed consolidated financial statements. Significant Accounting Policies There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K, except for the policies described below in relation to the adoption of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), discussed below in the section titled “Accounting Pronouncements Recently Adopted.” Revenue Recognition The Company recognizes revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Products and Services The Company derives substantially all of its revenue from sales of its wearable devices, which includes both connected health and fitness devices and accessories and smartwatches. The Company also generates a small portion of revenue from its subscription-based services. The Company considers delivery of its products to have occurred once controlled is transferred and delivery of services to have occurred as control is transferred. The Company recognizes revenue, net of estimated sales returns, sales incentives, discounts, and sales tax. Arrangements with Multiple Performance Obligations The Company enters into contracts that have multiple performance obligations that include hardware, software, and services. The first performance obligation is the hardware and firmware essential to the functionality of the connected health and fitness device or smartwatch delivered at the time of sale. The second performance obligation is the software services included with the products, which are provided free of charge and enable users to sync, view, and access real-time data on the Company’s online dashboard and mobile apps. The third performance obligation is the embedded right included with the purchase of the device to receive, on a when-and-if-available basis, future unspecified firmware upgrades and features relating to the product’s essential firmware. In addition, the Company occasionally offers a fourth performance obligation in bundled arrangements that allows access to subscription-based services related to the Company’s Fitbit Coach offering. The Company allocates revenue to all performance obligations based on their relative standalone selling prices (“SSP”). The Company’s process for determining its SSP considers multiple factors including consumer behaviors, the Company’s internal pricing model, and cost-plus margin and may vary depending upon the facts and circumstances related to each deliverable. SSP for the health and fitness devices and smartwatches reflect the Company’s best estimate of the selling prices if they were sold regularly on a stand-alone basis and comprise the majority of the arrangement consideration. SSP for upgrade rights currently ranges from $1.00 to $3.00. SSP for the online dashboard and mobile apps is currently estimated at $0.99. SSP for access to Fitbit Coach subscription-based services is based on the price charged when sold separately. Amounts allocated to the delivered wearable devices are recognized at the time of delivery, provided the other conditions for revenue recognition have been met. Amounts allocated to the online dashboard and mobile apps and unspecified upgrade rights are deferred and recognized on a straight-line basis over the estimated usage period. The Company offers its users the ability to purchase subscription-based services, through which the users receive incremental features, including access to a digital personal trainer, in-depth analytics regarding the user’s personal metrics, or video-based customized workouts. Amounts paid for subscriptions are deferred and recognized ratably over the service period, which is typically one year. Revenue from subscription-based services was less than 1% of revenue for all periods presented. In addition, the Company offers subscription-based software and services to certain customers in the corporate wellness program, which includes a real-time dashboard, and the ability to create corporate challenges. SSP for the corporate wellness subscription is determined based on the Company’s internal pricing model for anticipated renewals for existing customers and pricing for new customers. Revenue allocated to the corporate wellness subscription is deferred and recognized on a straight-line basis over the estimated access period of one year, which is the typical service period. Revenue for corporate wellness software and services was less than 1% of revenue for all periods presented. The Company applies a practical expedient to expense costs to obtain a contract with a customer as incurred when the amortization period would be one year or less. The Company applies a practical expedient to not consider the effect of a significant financing component as it expects that the period between transfer of control and payment from customer to be one year or less. The Company accounts for shipping and handling fees billed to customers as revenue. Sales taxes and value added taxes (“VAT”) collected from customers which are remitted to governmental authorities are not included in revenue, and are reflected as a liability on the consolidated balance sheets. Rights of Return, Stock Rotation Rights, and Price Protection The Company offers limited rights of return, stock rotation rights, and price protection under various policies and programs with its retailer and distributor customers and end-users. Below is a summary of the general provisions of such policies and programs:
The Company estimates reserves for these policies and programs based on historical experience, and records the reserves as a reduction of revenue and an accrued liability. Through March 31, 2018, actual returns have primarily been open-box returns. In addition, through March 31, 2018, the Company has had limited price protection claims. On a quarterly basis, the amount of revenue that is reserved for future returns is calculated based on historical trends and data specific to each reporting period. The historical trends consider product life cycles, new product introductions, market acceptance of products, product sell-through, the type of customer, seasonality, and other factors. Return rates can fluctuate over time, but have been sufficiently predictable to allow the Company to estimate expected future product returns. The Company reviews the actual returns evidenced in prior quarters as a percent of related revenue to determine the historical rate of returns. The Company then applies the historical rate of returns to the current period revenue as a basis for estimating future returns. When necessary, the Company also provides a specific reserve for products in the distribution channel in excess of estimated requirements. This estimate can be affected by the amount of a particular product in the channel, the rate of sell-through, product plans, and other factors. The Company also considers whether there are circumstances which may result in anticipated returns higher than the historical return rate from direct customers and records an additional specific reserve as necessary. The estimates and assumptions used to reserve for rights of return, stock rotation rights, and price protection have been accurate in all material respects and have not materially changed in the past. Sales Incentives The Company offers sales incentives through various programs, consisting primarily of cooperative advertising and marketing development fund programs. The Company records advertising and marketing development fund programs with customers as a reduction to revenue unless it receives a distinct benefit in exchange for credits claimed by the customer and can reasonably estimate the fair value of the distinct benefit received, in which case the Company records it as a marketing expense. The Company recognizes a liability and reduces revenue for rebates or other incentives based on the estimated amount of rebates or credits that will be claimed by customers. Refer to Note 10 for disaggregated revenue by geographic region, based on ship-to destinations. Customer Bankruptcy In September 2017, Wynit Distribution (“Wynit”) filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Wynit was the Company’s largest customer, historically representing 11% of total revenue during the six months ended July 1, 2017 and 19% of total accounts receivables as of July 1, 2017. In connection with Wynit’s bankruptcy filing, the Company believed that the collectability of the product shipments to Wynit during the third quarter of 2017 was not reasonably assured. However, as of July 1, 2017, collectability of accounts receivables from Wynit was reasonably assured. The Company ceased to recognize revenue from Wynit, which totaled $8.1 million during the third quarter of 2017. Additionally, the Company recorded a charge of $35.8 million during the third quarter ended September 30, 2017 comprised of cost of revenue of $5.5 million associated with shipments to Wynit in the third quarter of 2017 and bad debt expense of $30.3 million associated with all of Wynit’s outstanding accounts receivables. The Company maintains credit insurance that covers a portion of the exposure related to its customer receivables. The Company recorded an insurance receivable based on an analysis of its insurance policies, including their exclusions, an assessment of the nature of the claim, and information from its insurance carrier. As of September 30, 2017, the Company had recorded an insurance receivable of $26.8 million, included in prepaid expenses and other current assets, associated with the amount it had concluded was probable related to the claim. The $26.8 million insurance receivable allowed the Company to recover $22.7 million of bad debt expense and $4.1 million of cost of revenue, resulting in a net charge of $9.0 million in the consolidated statement of operations comprised of net bad debt expense of $7.6 million and net cost of revenue of $1.4 million. The Company received $21.4 million of the insurance receivable during the fourth quarter of 2017 and the remaining $5.4 million in January 2018. During the three months ended March 31, 2018, the Company released $12.4 million in outstanding product return and rebate reserves related to Wynit, as it believes the possibility of future claims associated with these reserves is remote. This reserve release resulted in a $12.4 million increase in revenue during the three months ended March 31, 2018. Non-Monetary Transaction The Company entered into an agreement with a third party during 2016 to exchange inventory for advertising credits and cash. The Company recorded the transaction based on the estimated fair value of the products exchanged. For the year ended December 31, 2016, the Company recorded $15.0 million of revenue and $7.0 million of associated cost of goods sold upon exchange of the products for advertising credits of $13.0 million and cash of $2.0 million. The $13.0 million of unused advertising credits remaining as of December 31, 2016 were recorded in prepaid expenses and other current assets, and other assets. Such credits are expected to be used over the contractual period of four years, and will be expensed as advertising services are received. During the three months ended March 31, 2018 and April 1, 2017, $0.1 million of credits were utilized in each of these periods. The Company’s prepaid and other assets related to unused advertising credits as of March 31, 2018 and December 31, 2017 were $12.1 million and $12.2 million, respectively. Recent Accounting Pronouncements Accounting Pronouncements Not Yet Adopted In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize right-of-use assets and lease liabilities for operating leases, initially measured at the present value of the lease payments, on the balance sheet. ASU 2016-02 will become effective for the Company on January 1, 2019, and requires adoption using a modified retrospective approach. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. The Company anticipates that the adoption will have a material impact on its consolidated balance sheets, as it will now include a right of use asset and a lease liability for the obligation to make lease payments related to substantially all operating lease arrangements; however, the Company does not expect the adoption to have a material impact on its consolidated statements of operations. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to accounts receivable and available for sale debt securities. ASU 2016-13 will become effective for the Company on January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. The second step measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under ASU 2017-04, a company will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. Accounting Pronouncements Recently Adopted In May 2014, the FASB, issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company adopted ASU 2014-09 effective January 1, 2018, utilizing the modified retrospective transition method. Prior periods were not retrospectively adjusted. Upon adoption, the Company recognized an immaterial cumulative effect of adopting this guidance as an adjustment to its opening accumulated deficit balance. The new standard may, in certain circumstances, impact the timing of when revenue is recognized for products shipped, and the timing and classification of certain sales incentives, which are expected to generally be recognized earlier than historical guidance. The Company believes the new guidance is materially consistent with its historical revenue recognition policy. In addition, ASU 2014-09 requires the presentation of sales returns reserve as a current liability. The Company’s sales return reserve was $82.6 million as of March 31, 2018, presented within “Accrued liabilities” and was $109.9 million as of December 31, 2017, presented within “Accounts receivable, net.” The impact to revenue, accounts receivable, deferred revenue, and accrued liabilities as a result of applying ASU 2014-09 for the three months ended or as of March 31, 2018 was as follows (in thousands):
The impact to other financial statement line items was immaterial. Adoption of the standard had no impact to net cash from or used in operating, investing, or financing activities in our condensed consolidated statement of cash flows. In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The Company has elected to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 provides guidance intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 provides guidance in a number of situation including, among others, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions received from equity method investees, and classifying cash receipts and payments that have aspects of more than one class of cash flows. ASU 2016-15 became effective for the Company on January 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The purpose of ASU 2017-01 is to change the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017-01 became effective for the Company on January 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 was issued to clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718 to a change to the terms and conditions of a share-based payment award. ASU 2017-09 became effective for the Company on January 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 amends the hedge accounting rules to simplify the application of hedge accounting standard and better portray the economic results of risk management activities in the financial statements. The standard expands the ability to hedge non-financial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, as well as eases certain hedge effectiveness assessment requirements. ASU 2017-12 becomes effective for the Company on January 1, 2019 with early adoption permitted. The Company early adopted this new standard in the first quarter of 2018. The adoption of this new standard did not have a material impact on the Company’s consolidated financial statements. |
Fair Value Measurements |
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Fair Value Measurements | Fair Value Measurements The carrying values of the Company’s accounts receivable, accounts payable, and accrued liabilities approximated their fair values due to the short period of time to maturity or repayment. The following tables set forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
The fair value of the Company’s Level 1 financial instruments is based on quoted market prices in active markets for identical instruments. The fair value of the Company’s Level 2 financial instruments is based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data. In addition, Level 2 assets and liabilities include derivative financial instruments associated with hedging activity, which are further discussed in Note 3. Derivative financial instruments are initially measured at fair value on the contract date and are subsequently remeasured to fair value at each reporting date using inputs such as spot rates, forward rates, and discount rates. There is not an active market for each hedge contract, but the inputs used to calculate the value of the instruments are tied to active markets. There were no Level 3 assets as of March 31, 2018 and December 31, 2017. There were Level 3 liabilities as of March 31, 2018 and December 31, 2017. There have been no transfers between fair value measurement levels during the three months ended March 31, 2018 and April 1, 2017. In 2017, the Company acquired an equity ownership interest in a privately-held company in exchange for $6.0 million in cash. This investment is accounted for using the cost method of accounting since the Company is unable to exercise any significant influence. Upon adoption of ASU 2016-01 on January 1, 2018, the Company elected to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This investment has been recorded at historical cost, classified within “Other assets” on the Company’s consolidated balance sheet as of March 31, 2018 and December 31, 2017. |
Financial Instruments |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Instruments | Financial Instruments Cash, Cash Equivalents and Marketable Securities The Company’s marketable securities are classified as available-for-sale as of the balance sheet date and are reported at fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. Because the Company views marketable securities as available to support current operations as needed, it has classified all available-for-sale securities as current assets. Realized gains or losses and other-than-temporary impairments, if any, on available-for-sale securities are reported in other income (expense), net, as incurred. Investments are reviewed periodically to identify potential other-than-temporary impairments. No impairment loss has been recorded on the securities included in the tables below because the Company believes that the decrease in fair value of these securities is temporary and expects to recover up to, or beyond, the initial cost of investment for these securities. The following table sets forth cash, cash equivalents and marketable securities as of March 31, 2018 (in thousands):
The following table sets forth cash, cash equivalents and marketable securities as of December 31, 2017 (in thousands):
The gross unrealized gains or losses on marketable securities as of March 31, 2018 and December 31, 2017 were not material. There were no available-for-sale investments as of March 31, 2018 and December 31, 2017 that have been in a continuous unrealized loss position for greater than 12 months on a material basis. The following table classifies marketable securities by contractual maturities (in thousands):
Derivative Financial Instruments The Company operates in foreign countries, which exposes it to market risk associated with foreign currency exchange rate fluctuations between the U.S. dollar and various foreign currencies. In order to manage this risk, the Company may hedge a portion of its foreign currency exposures related to outstanding monetary assets and liabilities as well as forecasted revenues and expenses, using foreign currency exchange forward or option contracts. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. The Company does not enter into derivative contracts for trading or speculative purposes. Cash Flow Hedges The Company has entered into foreign currency derivative contracts designated as cash flow hedges to hedge certain forecasted revenue and expense transactions denominated in currencies other than the U.S. dollar. The Company’s cash flow hedges consist of forward contracts with maturities of 12 months or less. The Company periodically assesses the effectiveness of its cash flow hedges. Effectiveness represents a derivative instrument’s ability to generate offsetting changes in cash flows related to the hedged risk. The Company records the gains or losses, net of tax, related to its cash flow hedges as a component of accumulated other comprehensive income (loss) in stockholders’ equity and subsequently reclassifies the gains or losses into revenue and operating expenses when the underlying hedged transactions are recognized. If the hedged transaction becomes probable of not occurring, the corresponding amounts in accumulated other comprehensive income (loss) would immediately be reclassified to other income (expense), net. Cash flows related to the Company’s cash flow hedging program are recognized as cash flows from operating activities in its statements of cash flows. Prior to the adoption of ASU 2017-12, the Company recorded the gains or losses related to the ineffective portion of its cash flow hedges, if any, immediately in other income (expense), net. For the period ended April 1, 2017, the ineffective portion of its cash flow hedges were $0.02 million. The Company had outstanding contracts with a total notional amount of $138.7 million in cash flow hedges for forecasted revenue as of March 31, 2018, and no outstanding contracts that were designated in cash flow hedges for forecasted revenue as of December 31, 2017. Balance Sheet Hedges The Company enters into foreign exchange contracts to hedge certain monetary assets and liabilities that are denominated in currencies other than the functional currency of its subsidiaries. These foreign exchange contracts are carried at fair value, do not qualify for hedge accounting treatment, and are not designated as hedging instruments. Changes in the value of the foreign exchange contracts are recognized in other income (expense), net, and offset the foreign currency gain or loss on the underlying net monetary assets or liabilities. The Company had outstanding balance sheet hedges with a total notional amount of $92.0 million and $141.2 million as of March 31, 2018 and December 31, 2017, respectively. Fair Value of Foreign Currency Derivatives The foreign currency derivative contracts that were not settled at the end of the period are recorded at fair value, on a gross basis, in the condensed consolidated balance sheets. The following table presents the fair value of the Company’s foreign currency derivative contracts as of the periods presented (in thousands):
Financial Statement Effect of Foreign Currency Derivative Contracts The following table presents the pre-tax impact of the Company’s foreign currency derivative contracts on other comprehensive income (“OCI”) and the condensed consolidated statements of operations for the periods presented (in thousands):
As of March 31, 2018, all net derivative gains related to the Company’s cash flow hedges will be reclassified from OCI into revenue within the next 12 months. Effect of Derivative Contracts on Condensed Consolidated Statements of Operations The following table provides the location in the condensed consolidated statements of operations and amount of the recognized gains or losses to our derivative instruments designated as hedging instruments (in thousands):
Offsetting of Foreign Currency Derivative Contracts The Company presents its derivative assets and derivative liabilities at gross fair values in the condensed consolidated balance sheets. The Company generally enters into master netting arrangements, which mitigate credit risk by permitting net settlement of transactions with the same counterparty. The Company is not required to pledge, and is not entitled to receive, cash collateral related to these derivative instruments. The following tables set forth the available offsetting of net derivative assets under the master netting arrangements as of March 31, 2018 and December 31, 2017 (in thousands):
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Balance Sheet Components |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Components | Balance Sheet Components Deferred Revenue Deferred revenue consists of deferred shipments in transit for which control has not yet transferred, deferred software, or amounts allocated to mobile dashboard and on-line apps and unspecified upgrade rights, and deferred subscription-based services for which payments have been received by the customer prior to revenue recognition of these performance obligations. The deferred shipments performance obligation is anticipated to be recognized within the next quarter. The deferred software and deferred subscription-based services performance obligations are anticipated to be recognized over the useful life or service periods of twelve to seventeen months. Changes in the total short-term and long-term deferred revenue balance were as follows (in thousands):
Revenue Returns Reserve Revenue returns reserve activities were as follows (in thousands):
Increases in the revenue returns reserve include provisions for open box returns and stock rotations. Inventories Inventories consisted of the following (in thousands):
Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following (in thousands):
Property and Equipment, Net Property and equipment, net, consisted of the following (in thousands):
Total depreciation and amortization expense related to property and equipment, net was $10.5 million and $9.1 million for March 31, 2018 and April 1, 2017, respectively. Goodwill and Intangible Assets The changes in the carrying amount of goodwill were as follows (in thousands). The increase in the carrying amount of goodwill during the three months ended March 31, 2018 was attributable to an acquisition in February 2018. See Note 11 for additional information.
The carrying amounts of the intangible assets as of March 31, 2018 and December 31, 2017 were as follows (in thousands, except useful life). The increase in the carrying amount of goodwill during the three months ended March 31, 2018 was attributable to an acquisition in February 2018. See Note 11 for additional information.
Total amortization expense related to intangible assets was $1.7 million and $1.4 million for the three months ended March 31, 2018 and April 1, 2017, respectively. The estimated future amortization expense of acquired finite-lived intangible assets to be charged to cost of revenue and operating expenses after March 31, 2018 was as follows (in thousands):
Accrued Liabilities Accrued liabilities consisted of the following (in thousands):
Product warranty reserve activities were as follows (in thousands)(1):
Restructuring In January 2017, the Company announced cost-efficiency measures to be implemented in 2017 that include realigning sales and marketing spend and improved optimization of research and development investments. In addition, the Company announced a reorganization, including a reduction in workforce. This reorganization impacted approximately 110 employees, or approximately 6% of the Company’s global workforce. The Company recorded $6.4 million in total restructuring expenses, substantially all of which were severance and related costs, in the first quarter of 2017. The Company completed the reorganization in the fourth quarter of 2017. Accumulated Other Comprehensive Income (Loss) The components and activity of accumulated other comprehensive income (“AOCI”), net of tax, were as follows (in thousands):
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Long-Term Debt |
3 Months Ended |
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Mar. 31, 2018 | |
Debt Disclosure [Abstract] | |
Long-Term Debt | Long-Term Debt 2015 Credit Agreement In December 2015, the Company entered into a second amended and restated credit agreement (the “Senior Facility”) with Silicon Valley Bank (“SVB”), as administrative agent, collateral agent, and lender, SunTrust Bank as syndication agent, SunTrust Robinson Humphrey, Inc. and several other lenders to replace the existing asset-based credit facility and cash flow facility. The Senior Facility allowed the Company to borrow up to $250.0 million, including up to $50.0 million for the issuance of letters of credit and up to $25.0 million for swing line loans, subject to certain financial covenants and ratios. The Company has the option to repay its borrowings under the Senior Facility without penalty prior to maturity. The Senior Facility requires the Company to comply with certain financial and non-financial covenants. The Senior Facility contains customary covenants that restrict the Company’s ability to, among other things, incur additional indebtedness, sell certain assets, guarantee certain obligations of third parties, declare dividends or make certain distributions, and undergo a merger or consolidation or certain other transactions. Obligations under the Senior Facility are collateralized by substantially all of the Company’s assets, excluding its intellectual property. In May 2017, the Company entered into a first amendment to the Senior Facility (the “First Amendment”), pursuant to which the aggregate amount the Company can borrow under the Senior Facility was reduced from $250.0 million to $100.0 million, with up to $50.0 million available for the issuance of letters of credit and up to $25.0 million available for swing line loans. In addition, pursuant to the First Amendment, the applicable margin in respect of the interest rates under the Senior Facility was amended to be based on the Company’s level of liquidity (defined as the sum of the Company’s aggregate cash holdings and the amount available under its revolving commitments) and range from, with respect to Alternate Base Rate loans, 0.5% to 1.0%, and, with respect to LIBOR loans, 1.5% to 2.0%. Among other changes, the First Amendment also removed the fixed charge coverage ratio covenant and the consolidated leverage ratio covenant, and added a general liquidity covenant requiring the Company to maintain liquidity of at least $200.0 million in unrestricted cash, of which $100.0 million in cash or cash equivalents must be held in accounts subject to control agreements with, and maintained by, SVB or its affiliates. The Company was in compliance with the financial covenants under the Senior Facility as of March 31, 2018. As of March 31, 2018, the Company had no outstanding borrowings under the Senior Facility and had outstanding letters of credit totaling $36.9 million, issued to cover various security deposits on its facility leases. Letters of Credit As of March 31, 2018 and December 31, 2017, the Company had outstanding letters of credit of $36.9 million in each period issued to cover the security deposit on the lease of its office headquarters in San Francisco, California, and other facility leases. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies Leases The Company’s principal facility is located in San Francisco, California. The Company also leases office space in various locations with expiration dates between 2018 and 2024. The lease agreements often include leasehold improvement incentives, escalating lease payments, renewal provisions and other provisions which require the Company to pay taxes, insurance, maintenance costs or defined rent increases. All of Company’s leases are accounted for as operating leases. Future minimum payments under the Company’s noncancelable lease agreements as of March 31, 2018 were as follow (in thousands):
Rent expense is recorded over the lease terms on a straight-line basis. Rent expense was $9.6 million and $9.2 million for the three months ended March 31, 2018 and April 1, 2017, respectively. Purchase Commitments The aggregate amount of open purchase orders as of March 31, 2018 and as of this filing was approximately $234.0 million and $419 million, respectively. The Company cannot determine the aggregate amount of such purchase orders that represent contractual obligations because purchase orders may represent authorizations to purchase rather than binding agreements. The Company’s purchase orders are based on its current needs and are fulfilled by its suppliers, contract manufacturers, and logistics providers within short periods of time. During the normal course of business, the Company and its contract manufacturers procure components based upon a forecasted production plan. If the Company cancels all or part of the orders, or materially reduces forecasted orders, it may be liable to its suppliers and contract manufacturers for the cost of the excess components purchased by its contract manufacturers. As of March 31, 2018, $21.4 million was accrued for such liabilities to contract manufacturers. Legal Proceedings Jawbone. On May 27, 2015, Aliphcom, Inc. d/b/a Jawbone (“Jawbone”), filed a lawsuit in the Superior Court of California in the County of San Francisco against the Company and certain of its employees who were formerly employed by Jawbone, alleging trade secret misappropriation and unfair and unlawful business practices against all defendants, and alleging breach of contract and breach of implied covenant of good faith and fair dealing against the employee defendants. The complaint sought unspecified damages, including punitive damages and injunctive relief. On June 23, 2016, Jawbone filed a Second Amended Complaint, adding an additional employee defendant and related allegations. On June 10, 2015, Jawbone and BodyMedia, Inc., a wholly-owned subsidiary of Jawbone (“BodyMedia”), filed a lawsuit against the Company in the U.S. District Court for the Northern District of California, alleging that the Company infringes certain U.S. patents. The complaint sought unspecified compensatory damages and attorneys’ fees from the Company and to permanently enjoin the Company from making, manufacturing, using, selling, importing, or offering the Company’s products for sale. The lawsuit was stayed pending resolution the investigation in the U.S. International Trade Commission (the “ITC”). On July 7, 2015, Jawbone and BodyMedia filed a complaint with the ITC requesting an investigation into purported violations of the Tariff Act of 1930 by the Company and Flextronics International Ltd. and Flextronics Sales and Marketing (A-P) Ltd. The complaint makes the same patent infringement and trade secret misappropriation claims as the two earlier cases. The complaint seeks a limited exclusion order and a cease and desist order halting the importation and sale of the infringing products. The ITC instituted the investigation on August 17, 2015. As a result of motions, all of the patent infringement claims were dismissed from the case. A trial on the trade secrets allegations took place from May 9 to 17, 2016. On August 23, 2016, the administrative law judge concluded that the Company did not misappropriate any Jawbone trade secrets. On October 20, 2016, the ITC terminated the investigation in the ITC. Jawbone appealed the dismissal of the patent infringement claims to the Federal Circuit. Oral argument was scheduled for November 9, 2017. On September 3, 2015, the Company filed a lawsuit against Jawbone in the U.S. District Court for the District of Delaware, alleging that Jawbone’s activity trackers infringe certain U.S. patents. This case was transferred to the U.S. District Court for the Northern District of California. The trial was scheduled for July 13, 2020. On September 8, 2015, the Company filed a complaint for patent infringement against Jawbone in the U.S. District Court for the Northern District of California, asserting that Jawbone’s activity trackers infringe certain U.S. patents. No trial date was set. On October 29, 2015, the Company filed a complaint for patent infringement against Jawbone in the U.S. District Court for the District of Delaware, asserting that Jawbone’s activity trackers infringe certain U.S. patents. That case was also transferred to the U.S. District Court for the Northern District of California. No trial date was set. On November 2, 2015, the Company filed a complaint with the ITC requesting an investigation into violations of the Tariff Act of 1930 by Jawbone and Body Media. The complaint asserted that Jawbone’s products infringe certain U.S. patents. The complaint sought a limited exclusion order and a cease and desist order halting the importation and sale of infringing products. The ITC instituted the investigation on December 1, 2015. On December 23, 2016, the Company filed a motion to terminate the investigation, and the ITC terminated the investigation on February 1, 2017. On December 8, 2017, the parties announced the global settlement of all of the outstanding civil litigation on confidential terms. Each of the pending cases has been dismissed with prejudice. On August 12, 2016, the Company was notified by Jawbone that Jawbone had received a confidential subpoena from the U.S. Attorney’s Office for the Northern District of California requesting certain of the Company’s confidential business information that appeared to be related to Jawbone’s allegations of trade secret misappropriation. On February 17, 2017, the Company received a subpoena for documents from the same office. On February 1, 2018, the Company received a second subpoena for documents. The Company is cooperating with the U.S. Attorney’s Office. Sleep Tracking. On May 8, 2015, a purported class action lawsuit was filed against the Company in the U.S. District Court for the Northern District of California, alleging that the sleep tracking function available in certain trackers does not perform as advertised. Plaintiffs seek class certification, restitution, an award of unspecified compensatory and punitive damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may deem just and proper. On January 31, 2017, plaintiffs filed a motion for class certification. Plaintiffs’ motion for class certification was granted on November 20, 2017. On April 20, 2017, the Company filed a motion for summary judgment. The Company’s motion for summary judgment was denied on December 8, 2017. During the three months ended May 31, 2018, the parties have agreed to a settlement in principle, and are working on finalizing the terms and scope. Heart Rate Tracking. On January 6, 2016 and February 16, 2016, two purported class action lawsuits were filed against the Company in the U.S. District Court for the Northern District of California, alleging that the PurePulse® heart rate tracking technology does not consistently and accurately record users’ heart rates. Plaintiffs allege common law claims, as well as violations of various states’ false advertising, unfair competition, and consumer protection statutes, and seek class certification, injunctive and declaratory relief, restitution, an award of unspecified compensatory damages, exemplary damages, punitive damages, and statutory penalties and damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may deem just and proper. On April 15, 2016, the plaintiffs filed a Consolidated Master Class Action Complaint and, on May 19, 2016, filed an Amended Consolidated Master Class Action Complaint. On January 9, 2017, the Company filed a motion to compel arbitration. On October 11, 2017, the Court granted the motion to compel arbitration. Plaintiffs filed a motion for reconsideration, and that motion was denied on January 24, 2018. On or around February 20, 2018, plaintiffs filed a Second Amended Consolidated Master Class Action Complaint (“SAC”) on behalf of plaintiff Rob Dunn, the only plaintiff not ordered to arbitration, as a purported class action. The SAC alleges the same common law claims, as well as violations of false advertising, unfair competition, and consumer protection statutes of California and Arizona, and also seeks class certification, injunctive and declaratory relief, restitution, an award of unspecified compensatory damages, exemplary damages, punitive damages, and statutory penalties and damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may deem just and proper. On March 13, 2018, the Company filed a motion to dismiss for failure to state a claim and separately moved to strike plaintiffs’ class allegations as violating the class waiver in Fitbit’s Terms of Service. The hearing is scheduled for May 31, 2018. The Company believes that the plaintiffs’ allegations are without merit, and intends to vigorously defend against the claims. Because the Company is in the early stages of this litigation matter, the Company is unable to estimate a reasonably possible loss or range of loss, if any, that may result from this matter. Securities Litigation. On January 11, 2016, a putative securities class action was filed in the U.S. District Court for the Northern District of California naming as defendants the Company, certain of its officers and directors, and the underwriters of the Company’s initial public offering (the “IPO”). On May 10, 2016, the Court appointed the Fitbit Investor Group (consisting of five individual investors) as lead plaintiff, and an Amended Complaint was filed on July 1, 2016. Plaintiffs allege violations of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended, based on alleged materially false and misleading statements about the Company’s products between October 27, 2014 and November 23, 2015. Plaintiffs seek to represent a class of persons who purchased or otherwise acquired the Company’s securities (i) on the open market between June 18, 2015 and May 19, 2016; and/or (ii) pursuant to or traceable to the IPO. Plaintiffs seek class certification, an award of unspecified compensatory damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may deem just and proper. On July 29, 2016, the Company filed a motion to dismiss. The court denied the motion on October 26, 2016. On April 26, 2017, the Company filed a motion for summary judgment, which is still pending. On April 28, 2016, a putative class action lawsuit alleging violations of the Securities Act was filed in the Superior Court of California, County of San Mateo, naming as defendants the Company, certain of its officers and directors, the underwriters of the IPO, and a number of its investors. Plaintiffs allege that the IPO registration statement contained material misstatements about the Company’s products. Plaintiffs seek to represent a class of persons who purchased the Company’s common stock in and/or traceable to the IPO and/or the November 2015 follow-on public offering (the “Secondary Offering”). Plaintiffs seek class certification, an award of unspecified compensatory damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may deem just and proper. On May 17, 2016, a similar class action lawsuit was filed in the Superior Court of California, County of San Francisco. The cases have now been consolidated in the County of San Francisco. On April 7, 2017, the Court granted a motion to dismiss the Section 11 claim based on the Secondary Offering and stayed the cases. On January 8, 2018, the plaintiffs in the federal and class action cases filed their motion for preliminary approval of settlement of the putative federal and state class actions for $33.3 million, which the Company accrued for as of December 31, 2017. On January 19, 2018, the court entered an order preliminarily approving the proposed settlement, and on April 20, 2018, the court approved the final settlement. On November 11, 2016, a derivative lawsuit was filed in the U.S. District Court for the Northern District of California derivatively on behalf of the Company naming as defendants certain of its officers and directors and as a nominal plaintiff the Company. The plaintiffs allege breach of fiduciary duty, unjust enrichment, section 14(a), and misappropriation based on the same set of alleged facts in the federal and state securities class action litigation. On February 2, 2017, a second derivative lawsuit was filed in the U.S. District Court for the District of Delaware on the same allegations and also including claims for abuse of control, gross mismanagement, and waste. On June 27, 2017, another derivative law suit was filed in the U.S. District Court for the Northern District of California on the same allegations. The Courts have ordered a stay in all three cases. On June 1, 2017 and June 9, 2017, two additional derivative lawsuits were filed in the Delaware Court of Chancery. Plaintiffs allege breach of fiduciary duty and insider trading against certain defendants who sold shares in the IPO and/or the Secondary Offering. On August 3, 2017, another derivative lawsuit was filed in the Delaware Court of Chancery on the same allegations. There is temporary stay in all three cases. On March 15, 2018, the three derivative lawsuits were consolidated and a Second Amended Complaint was filed on the same allegations of the individual complaints, alleging the same claims, and seeking the same remedy. On April 26, 2017, the Company filed a motion to dismiss for failure to state a claim. On October 31, 2017, a seventh derivative lawsuit was filed in the Superior Court of California, Country of San Francisco, on the same allegations. The Company has not yet been served in that case. On June 27, 2017, an individual investor lawsuit alleging violations of the Securities Act and state law claims for statutory fraud and unfair business practice was filed in the Superior Court of California, County of Alameda, naming as defendants the Company and certain of its officers. The allegations are based on the same set of alleged facts in the federal and state securities class action litigation. The Company believes that the plaintiffs’ allegations in the derivative actions and individual action are without merit, and intends to vigorously defend against the claims. Because the Company is in the early stages of these litigation matters, the Company is unable to estimate a reasonably possible loss or range of loss, if any, that may result from these matters. Immersion. On July 10, 2017, Immersion Corporation filed a lawsuit against the Company in the U.S. District Court for the Northern District of California, alleging that certain Fitbit devices infringe on U.S. Patent Nos. 8,059,105, 8,351,299, and 8,638,301. On October 5, 2017, the Company filed a motion to dismiss on grounds the patents are not eligible subject matter for patents. On March 5, 2018, the Court granted in part and denied in part, granting as to the ‘301 patent, but denying as to the other two patents. On July 10, 2017, Immersion Corporation also filed a lawsuit against the Company in the Shanghai Intellectual Property Court, alleging infringement of three Immersion Chinese patents. In addition to Fitbit, Inc., Immersion named Runtong, one of the Company’s former distributors in China. On August 23, 2017, two additional defendants were added, Fitbit Shanghai and Rkylin, a current distributor in China. In December 2017, the Company filed petitions to invalidate the patents. The invalidation proceedings as to all three patents were instituted. Hearings on two of the patents were held on April 16, 2018 and April 26, 2018; the third is scheduled for May 30, 2018. The Company believes that the plaintiffs’ allegations are without merit, and intends to vigorously defend against the claims. Because the Company is in the early stages of this litigation matter, the Company is unable to estimate a reasonably possible loss or range of loss, if any, that may result from this matter. Other. The Company is and, from time to time, may in the future become, involved in other legal proceedings in the ordinary course of business. The Company currently believes that the outcome of any of these existing legal proceedings, including the aforementioned cases, either individually or in the aggregate, will not have a material impact on the operating results, financial condition or cash flows of the Company. With respect to existing legal proceedings, the Company has either determined that the existence of a material loss is not reasonably possible or that it is unable to estimate a reasonably possible loss or range of loss. The Company may incur substantial legal fees, which are expensed as incurred, in defending against these legal proceedings. Indemnifications In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. To date, the Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company also currently has directors’ and officers’ insurance. |
Stockholders' Equity |
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Stockholders' Equity | Stockholders’ Equity Stock Option Exchange On April 13, 2017, the Company filed its definitive proxy statement, submitting to stockholders a proposal for a stock option exchange program (the “Program”). The Program would allow the Company employees, including its executive officers other than its President, Chief Executive Officer, and Chairman, Chief Technology Officer, and Chief Financial Officer (“Eligible Employees”), to exchange out-of-the-money or “underwater” options to purchase shares of the Company’s Class A common stock or Class B common stock currently held by such Eligible Employees for a lesser number of restricted stock units (“RSUs”) that may be settled for shares of its Class A common stock, (“New RSUs”), under the Company’s 2015 Equity Incentive Plan (the “2015 Plan”). Each New RSU represents an unfunded right to receive one share of the Company’s Class A common stock on a date in the future, which generally is the date on which the New RSU will vest. Eligible Employees participating in the Program would receive one New RSU for every two “out-of-the-money” options that they exchange. The New RSUs would generally vest over the remaining vesting period of the exchanged option (subject to a one-year minimum vesting period). None of the members of the Company’s board of directors were eligible to participate in the Program. On May 25, 2017, the Company’s stockholders approved the Program at the 2017 Annual Meeting of Stockholders. The Company subsequently commenced the Program by filing a tender offer statement on Schedule TO with the SEC on June 21, 2017. The Program expired on July 19, 2017. A total of 3.7 million “underwater” stock options were tendered by the Eligible Employees, representing approximately 85% of the stock options eligible for exchange. On July 20, 2017, the Company granted an aggregate of 1.8 million New RSUs under the 2015 Plan in exchange for the “underwater” stock options tendered. The completion of the Program resulted in total incremental unrecognized stock-based compensation expense of $8.5 million, to be recognized over the greater of one year or the remaining vesting service period of the tendered stock options. Equity Incentive Plans In May 2015, the Company’s board of directors and stockholders adopted and approved the 2015 Plan. The 2015 Plan became effective on June 16, 2015 and serves as the successor to the Amended and Restated 2007 Stock Plan (the “2007 Plan”). The Company ceased granting awards under the 2007 Plan, and any outstanding stock options and RSUs granted under the 2007 Plan would remain subject to the terms of the 2007 Plan. As of March 31, 2018, 16.5 million shares of Class A common stock were reserved and available for future issuance under the 2015 Plan. Stock Options Stock option activity under the equity incentive plans was as follows:
(1) The aggregate intrinsic values of stock options outstanding, exercisable, vested and expected to vest as of March 31, 2018 were calculated as the difference between the exercise price of the stock options and the fair value of the Class A common stock of $5.10 as of March 31, 2018. Restricted Stock Units RSU activity under the equity incentive plans was as follows:
Employee Stock Purchase Plan In May 2015, the Company’s board of directors adopted the 2015 Employee Stock Purchase Plan (the “2015 ESPP”), which became effective on June 17, 2015. A total of 3.8 million shares of Class A common stock were initially reserved for issuance under the 2015 ESPP. The 2015 ESPP allows eligible employees to purchase shares of the Company’s Class A common stock through payroll deductions at a price per share equal to 85% of the lesser of the fair market value of the Company’s Class A common stock (i) on the first trading day of the applicable offering period and (2) the last trading day of each purchase period in the applicable offering period. Except for the initial offering period, the 2015 ESPP provides for 6-month offering periods beginning in May and November of each year. The initial offering period began June 17, 2015 and ended in May 2016. Warrant On July 10, 2017, the Company issued a warrant to purchase 0.5 million shares of Class A common stock. The warrant is exercisable based on service and performance-based conditions and has an exercise price of $5.23 per share and a contractual term of ten years. As of March 31, 2018, 0.5 million warrants were outstanding. Stock-Based Compensation Expense Total stock-based compensation expense recognized was as follows (in thousands):
As of March 31, 2018, the total unrecognized stock-based compensation expense related to unvested stock options and RSUs was $167.6 million, which the Company expects to recognize over an estimated weighted average period of 2.3 years. |
Income Taxes |
3 Months Ended |
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Mar. 31, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. For the three months ended March 31, 2018, the Company recorded a benefit for income taxes of $0.6 million, for an effective tax rate of 0.8%. The effective tax rate for the three months ended March 31, 2018, was different than the statutory federal tax rate primarily due to the impact of a full valuation allowance on the Company’s U.S. deferred tax assets. On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) was signed into law and includes several key tax provisions that affected the Company, including a reduction of the statutory corporate tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, elimination of the carryback of net operating losses generated after December 31, 2017, and changes to how the United States imposes income tax on multinational corporations, among others. In December 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address U.S. GAAP application when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects by the 2017 Tax Act. For the three months ended March 31, 2018, no changes have been made to the provisional amounts previously recorded. The Company will complete its analysis within the measurement period in accordance with SAB 118. For the three months ended April 1, 2017, the Company recorded a benefit for income taxes of $29.7 million for an effective tax rate of 33.1%. The effective tax rate for the three months ended April 1, 2017 was different than the statutory federal tax rate, primarily due to research and development credits, non-deductible stock-based compensation expense, unrecognized tax benefits, the foregone benefit of a permanent domestic production activities deduction in prior periods, and the mix of income between United States and foreign jurisdictions. The Company accounts for deferred taxes under ASC Topic 740, “Income Taxes” (“ASC 740”) which involves weighing positive and negative evidence concerning the realizability of the Company’s deferred tax assets in each jurisdiction. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. As of March 31, 2018, the Company maintains a full valuation allowance against all its U.S. deferred tax assets. No valuation allowance has been recorded against the Company’s foreign deferred tax assets. The Company will continue to assess the realizability of its deferred tax assets in each of the applicable jurisdictions going forward. As of March 31, 2018, the total amount of gross unrecognized tax benefits was $33.9 million, of which $25.3 million would affect the effective tax rate if recognized. The Company does not have any tax positions as of March 31, 2018 for which it is reasonably possible that the total amount of gross unrecognized tax benefits will increase or decrease within the following 12 months. |
Net Loss per Share |
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Net Loss per Share | Net Loss per Share The following table sets forth the computation of the Company’s basic and diluted net loss per share (in thousands, except per share amounts):
The following potentially dilutive common shares were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive (in thousands):
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Significant Customer Information and Other Information |
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Significant Customer Information and Other Information | Significant Customer Information and Other Information Retailer and Distributor Concentration Retailers and distributors with revenue equal to or greater than 10% of total revenue for the three months ended March 31, 2018 and April 1, 2017 were as follows:
* Represents less than 10%. Retailers and distributors that accounted for equal to or greater than 10% of accounts receivable at March 31, 2018 and December 31, 2017 were as follows:
* Represents less than 10%. Geographic and Other Information Revenue by geographic region, based on ship-to destinations, was as follows (in thousands):
As of March 31, 2018 and December 31, 2017, long-lived assets, which represent property and equipment, located outside the United States were $32.4 million and $30.0 million, respectively. |
Acquisitions |
3 Months Ended |
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Mar. 31, 2018 | |
Business Combinations [Abstract] | |
Acquisitions | Acquisitions 2018 Acquisition In February 2018, the Company completed a purchase of Twine Health, Inc., a privately-held company, which was accounted for as a business combination, for total purchase price consideration of $16.7 million, of which $5.4 million was allocated to developed technology intangible assets, $3.8 million to customer relationships intangible asset, $9.9 million to goodwill, $1.6 million to deferred tax liabilities, $0.2 million to deferred revenue and $0.6 million to net assumed liabilities. The allocation of the purchase price consideration is provisional and the Company will complete its analysis within the measurement period pursuant to Accounting Standards Codification Topic 805, with any adjustments being recorded to goodwill. Approximately $2.6 million of the consideration payable to Twine Health, Inc. was held as partial security for certain indemnification obligations, and will be held back for payment until August 2019. The acquisition is expected to extend the Company’s reach into healthcare and lay the foundation to expand its offerings to health plans, health systems and self-insured employers, while creating opportunities to increase subscription-based revenue. The amortization period of the acquired developed technology and customer relationships are approximately four and seven years, respectively. Goodwill is not deductible for tax purposes. 2016 Acquisitions In December 2016, the Company completed a purchase of certain assets from Pebble Industries, Inc., a privately-held company (“Pebble”), which was accounted for as a business combination, for total cash consideration of $23.4 million, of which $9.6 million was allocated to developed technology intangible assets, $14.4 million to goodwill, and $0.6 million to assumed liabilities. Approximately $3.5 million of the consideration payable to Pebble was held as partial security for certain indemnification obligations, and will be held back for payment until March 2018. The acquisition is expected to enhance the features and functionality of the Company’s devices. The amortization period of the acquired developed technology is approximately 5 years. Goodwill is deductible for tax purposes. In December 2016, the Company completed a purchase of certain assets from Vector Watch S.R.L., a privately-held company (“Vector Watch”), which was accounted for as a business combination, for total cash consideration of $15.0 million, of which $3.9 million was allocated to developed technology intangible assets, $11.4 million to goodwill, and $0.3 million to assumed liabilities. Approximately $2.3 million of the consideration payable to Vector Watch was held as partial security for certain indemnification obligations, and will be held back for payment until December 2018. The acquisition is expected to enhance the features and functionality of the Company’s devices. The amortization period of the acquired developed technology is approximately 2.5 years. Goodwill is deductible for tax purposes. In May 2016, the Company completed a purchase of certain assets from Coin, Inc., a privately-held company, which was accounted for as a business combination, for total cash consideration of $7.0 million, of which $3.9 million was allocated to in-process research and development intangible assets, and $3.1 million to goodwill. The acquisition is expected to enhance the features and functionality of the Company’s devices. In-process research and development is not amortized until the completion or abandonment of the related development. Goodwill is deductible for tax purposes. |
Basis of Presentation and Summary of Significant Accounting Policies (Policies) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Summary of Significant Accounting Policies | The accompanying condensed consolidated financial statements of Fitbit, Inc. (the “Company”) are unaudited. The condensed consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements of the Company. The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information, and in management’s opinion, includes all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position, its results of operations, and cash flows for the interim periods presented. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full fiscal year or any other period. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2018. The Company’s fiscal year ends on December 31 of each year. The Company is on a 4-4-5 week quarterly calendar. There were 90 and 91 days in each of the three months ended March 31, 2018 and April 1, 2017, respectively. |
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Principles of Consolidation | The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. |
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Use of Estimates | Use of Estimates The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. The primary estimates and assumptions made by management are related to revenue recognition, reserves for sales returns and incentives, reserves for warranty, valuation of stock options, fair value of derivative assets and liabilities, allowance for doubtful accounts, inventory valuation, fair value of goodwill and acquired tangible and intangible assets and liabilities assumed during acquisitions, the number of reportable segments, the recoverability of intangible assets and their useful lives, contingencies, and income taxes. Actual results could differ from those estimates, and such differences may be material to the condensed consolidated financial statements. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements Accounting Pronouncements Not Yet Adopted In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize right-of-use assets and lease liabilities for operating leases, initially measured at the present value of the lease payments, on the balance sheet. ASU 2016-02 will become effective for the Company on January 1, 2019, and requires adoption using a modified retrospective approach. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. The Company anticipates that the adoption will have a material impact on its consolidated balance sheets, as it will now include a right of use asset and a lease liability for the obligation to make lease payments related to substantially all operating lease arrangements; however, the Company does not expect the adoption to have a material impact on its consolidated statements of operations. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to accounts receivable and available for sale debt securities. ASU 2016-13 will become effective for the Company on January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. The second step measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under ASU 2017-04, a company will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. Accounting Pronouncements Recently Adopted In May 2014, the FASB, issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company adopted ASU 2014-09 effective January 1, 2018, utilizing the modified retrospective transition method. Prior periods were not retrospectively adjusted. Upon adoption, the Company recognized an immaterial cumulative effect of adopting this guidance as an adjustment to its opening accumulated deficit balance. The new standard may, in certain circumstances, impact the timing of when revenue is recognized for products shipped, and the timing and classification of certain sales incentives, which are expected to generally be recognized earlier than historical guidance. The Company believes the new guidance is materially consistent with its historical revenue recognition policy. In addition, ASU 2014-09 requires the presentation of sales returns reserve as a current liability. The Company’s sales return reserve was $82.6 million as of March 31, 2018, presented within “Accrued liabilities” and was $109.9 million as of December 31, 2017, presented within “Accounts receivable, net.” The impact to revenue, accounts receivable, deferred revenue, and accrued liabilities as a result of applying ASU 2014-09 for the three months ended or as of March 31, 2018 was as follows (in thousands):
The impact to other financial statement line items was immaterial. Adoption of the standard had no impact to net cash from or used in operating, investing, or financing activities in our condensed consolidated statement of cash flows. In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The Company has elected to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 provides guidance intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 provides guidance in a number of situation including, among others, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions received from equity method investees, and classifying cash receipts and payments that have aspects of more than one class of cash flows. ASU 2016-15 became effective for the Company on January 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The purpose of ASU 2017-01 is to change the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017-01 became effective for the Company on January 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 was issued to clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718 to a change to the terms and conditions of a share-based payment award. ASU 2017-09 became effective for the Company on January 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 amends the hedge accounting rules to simplify the application of hedge accounting standard and better portray the economic results of risk management activities in the financial statements. The standard expands the ability to hedge non-financial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, as well as eases certain hedge effectiveness assessment requirements. ASU 2017-12 becomes effective for the Company on January 1, 2019 with early adoption permitted. The Company early adopted this new standard in the first quarter of 2018. The adoption of this new standard did not have a material impact on the Company’s consolidated financial statements. |
Basis of Presentation and Summary of Significant Accounting Policies (Tables) |
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of New Accounting Pronouncements and Changes in Accounting Principles | The impact to revenue, accounts receivable, deferred revenue, and accrued liabilities as a result of applying ASU 2014-09 for the three months ended or as of March 31, 2018 was as follows (in thousands):
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Fair Value Measurements (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair value of assets and liabilities measured on recurring basis | The following tables set forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
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Financial Instruments (Tables) |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of available for sale securities including fair value and gross unrealized losses | The following table classifies marketable securities by contractual maturities (in thousands):
The following table sets forth cash, cash equivalents and marketable securities as of March 31, 2018 (in thousands):
The following table sets forth cash, cash equivalents and marketable securities as of December 31, 2017 (in thousands):
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Schedule of derivative instruments in statement of financial position, fair value | The following table presents the fair value of the Company’s foreign currency derivative contracts as of the periods presented (in thousands):
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Schedule of cash flow hedging instruments, statement of operations | The following table presents the pre-tax impact of the Company’s foreign currency derivative contracts on other comprehensive income (“OCI”) and the condensed consolidated statements of operations for the periods presented (in thousands):
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Schedule of derivative contracts on consolidated statement of operations | The following table provides the location in the condensed consolidated statements of operations and amount of the recognized gains or losses to our derivative instruments designated as hedging instruments (in thousands):
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Schedule of cash flow hedging instruments, comprehensive income | The following table presents the pre-tax impact of the Company’s foreign currency derivative contracts on other comprehensive income (“OCI”) and the condensed consolidated statements of operations for the periods presented (in thousands):
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Schedule of offsetting of foreign currency derivative contracts | The following tables set forth the available offsetting of net derivative assets under the master netting arrangements as of March 31, 2018 and December 31, 2017 (in thousands):
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Balance Sheet Components (Tables) - USD ($) $ in Thousands |
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Mar. 31, 2018 |
Apr. 01, 2017 |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of deferred revenue | Changes in the total short-term and long-term deferred revenue balance were as follows (in thousands):
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Schedule of accounts receivable reserves | Revenue returns reserve activities were as follows (in thousands):
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Schedule of inventories | Inventories consisted of the following (in thousands):
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Schedule of prepaid expenses and other current asset | Prepaid expenses and other current assets consisted of the following (in thousands):
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Schedule of property and equipment | Property and equipment, net, consisted of the following (in thousands):
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Schedule of goodwill | The increase in the carrying amount of goodwill during the three months ended March 31, 2018 was attributable to an acquisition in February 2018. See Note 11 for additional information.
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Net change, net of tax | $ (326) | $ 67 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of intangible assets (excluding goodwill) | The increase in the carrying amount of goodwill during the three months ended March 31, 2018 was attributable to an acquisition in February 2018. See Note 11 for additional information.
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Schedule of estimated future amortization expense | The estimated future amortization expense of acquired finite-lived intangible assets to be charged to cost of revenue and operating expenses after March 31, 2018 was as follows (in thousands):
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Schedule of accrued liabilities | Accrued liabilities consisted of the following (in thousands):
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Schedule of product warranty reserves | Product warranty reserve activities were as follows (in thousands)(1):
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Schedule of accumulated other comprehensive income | The components and activity of accumulated other comprehensive income (“AOCI”), net of tax, were as follows (in thousands):
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Commitments and Contingencies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Rental Payments for Operating Leases | Future minimum payments under the Company’s noncancelable lease agreements as of March 31, 2018 were as follow (in thousands):
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Stockholders' Equity (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of stock option activity | Stock option activity under the equity incentive plans was as follows:
(1) The aggregate intrinsic values of stock options outstanding, exercisable, vested and expected to vest as of March 31, 2018 were calculated as the difference between the exercise price of the stock options and the fair value of the Class A common stock of $5.10 as of March 31, 2018. |
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Schedule of restricted stock unit activity | RSU activity under the equity incentive plans was as follows:
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Schedule of stock-based compensation expense | Total stock-based compensation expense recognized was as follows (in thousands):
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Net Loss per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of basic and diluted net income (loss) per share | The following table sets forth the computation of the Company’s basic and diluted net loss per share (in thousands, except per share amounts):
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Schedule of antidilutive securities excluded from earnings per share | The following potentially dilutive common shares were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive (in thousands):
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Significant Customer Information and Other Information (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedules of concentration of risk | Revenue by geographic region, based on ship-to destinations, was as follows (in thousands):
Retailers and distributors with revenue equal to or greater than 10% of total revenue for the three months ended March 31, 2018 and April 1, 2017 were as follows:
* Represents less than 10%. Retailers and distributors with revenue equal to or greater than 10% of total revenue for the three months ended March 31, 2018 and April 1, 2017 were as follows:
* Represents less than 10%. Retailers and distributors that accounted for equal to or greater than 10% of accounts receivable at March 31, 2018 and December 31, 2017 were as follows:
* Represents less than 10%. |
Financial Instruments - Unrealized Loss Position (Details) - USD ($) |
Mar. 31, 2018 |
Dec. 31, 2017 |
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Investments, Debt and Equity Securities [Abstract] | ||
Available-for-sale securities in continuous loss position for one year or more, gross unrealized losses | $ 0 | $ 0 |
Financial Instruments - Contractual maturity dates (Details) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
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Investments, Debt and Equity Securities [Abstract] | ||
Due in one year | $ 251,177 | $ 319,112 |
Due in one to two years | 28,817 | 18,222 |
Total | $ 279,994 | $ 337,334 |
Financial Instruments - Additional Derivative Information (Details) - Foreign currency exchange contract [Member] - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2018 |
Apr. 01, 2017 |
Dec. 31, 2017 |
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Not designated as hedging instrument [Member] | |||
Derivative [Line Items] | |||
Derivative, notional amount | $ 92,000 | $ 141,200 | |
Cash flow hedges [Member] | Designated as hedging instrument [Member] | |||
Derivative [Line Items] | |||
Derivative, notional amount based on forecasted revenue | 138,700 | $ 0 | |
Other Income, Net [Member] | Cash flow hedges [Member] | Designated as hedging instrument [Member] | |||
Derivative [Line Items] | |||
Gain (loss) recognized in income – ineffective portion | $ 0 | $ 21 |
Financial Instruments - Schedule of Derivative Contracts on Consolidated Statement of Operations (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Apr. 01, 2017 |
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Derivative Instruments, Gain (Loss) [Line Items] | ||
Revenue | $ 247,865 | $ 298,942 |
Cost of revenue | 133,742 | 180,643 |
Cash flow hedges [Member] | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Cost of revenue | $ 197,476 | $ 209,678 |
Balance Sheet Components - Deferred Revenue (Details) $ in Thousands |
3 Months Ended |
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Mar. 31, 2018
USD ($)
| |
Deferred Revenue [Roll Forward] | |
Beginning balances | $ 42,432 |
Deferral of revenue | 7,380 |
Recognition of deferred revenue | (13,364) |
Ending balances | $ 36,448 |
Balance Sheet Components - Revenue Returns Reserves (Details) - Revenue Reserve [Member] - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Apr. 01, 2017 |
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Movement in Valuation Allowances and Reserves [Roll Forward] | ||
Beginning balance | $ 109,872 | $ 98,851 |
Increases | 26,073 | 41,626 |
Write-offs/Returns taken | $ (53,333) | (72,160) |
Ending balances | $ 68,317 |
Balance Sheet Components - Inventories (Details) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Components | $ 5,006 | $ 3,825 |
Finished goods | 140,367 | 120,070 |
Total inventories | $ 145,373 | $ 123,895 |
Balance Sheet Components - Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
POP displays, net | $ 12,767 | $ 14,750 |
Prepaid marketing | 9,103 | 6,074 |
Derivative assets | 833 | 0 |
Prepaid expenses | 14,070 | 24,204 |
Insurance receivable | 900 | 37,300 |
Other | 21,436 | 14,941 |
Total prepaid expenses and other current assets | $ 59,109 | $ 97,269 |
Balance Sheet Components - Property and Equipment, Net (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
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Mar. 31, 2018 |
Apr. 01, 2017 |
Dec. 31, 2017 |
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Property, Plant and Equipment [Line Items] | |||
Total property and equipment | $ 169,860 | $ 164,339 | |
Less: Accumulated depreciation and amortization | (65,330) | (59,431) | |
Property and equipment, net | 104,530 | 104,908 | |
Depreciation and amortization expense | 10,500 | $ 9,100 | |
Tooling and manufacturing equipment [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Total property and equipment | 65,202 | 66,854 | |
Furniture and office equipment [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Total property and equipment | 22,327 | 20,942 | |
Purchased and internally-developed software [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Total property and equipment | 18,957 | 18,112 | |
Leasehold improvements [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Total property and equipment | $ 63,374 | $ 58,431 |
Balance Sheet Components - Goodwill (Details) $ in Thousands |
3 Months Ended |
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Mar. 31, 2018
USD ($)
| |
Goodwill [Roll Forward] | |
Balance at the beginning of the period | $ 51,036 |
Goodwill acquired | 9,893 |
Balance at the end of the period | $ 60,929 |
Balance Sheet Components - Estimated Future Amortization Expense (Details) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||
Remaining 2018 | $ 6,181 | |
2019 | 7,461 | |
2020 | 6,498 | |
2021 | 6,451 | |
2022 | 1,777 | |
Thereafter | 1,429 | |
Net | 29,797 | $ 22,356 |
Cost of revenue [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Remaining 2018 | 5,602 | |
2019 | 6,690 | |
2020 | 5,910 | |
2021 | 5,910 | |
2022 | 1,236 | |
Thereafter | 246 | |
Net | 25,594 | |
Operating expenses [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Remaining 2018 | 579 | |
2019 | 771 | |
2020 | 588 | |
2021 | 541 | |
2022 | 541 | |
Thereafter | 1,183 | |
Net | $ 4,203 |
Balance Sheet Components - Accrued Liabilities (Details) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Product warranty | $ 71,975 | $ 87,882 |
Accrued revenue reserve from returns | 82,612 | 0 |
Accrued manufacturing expense and freight | 31,962 | 41,901 |
Accrued sales incentives | 71,175 | 111,592 |
Accrued sales and marketing | 21,741 | 44,401 |
Accrued research and development | 5,276 | 8,983 |
Accrued co-op advertising and marketing development funds | 21,688 | 30,408 |
Employee-related liabilities | 18,204 | 33,266 |
Sales taxes and VAT payable | 22,447 | 21,340 |
Inventory received but not billed | 8,935 | 10,526 |
Accrued legal settlements and fees | 8,365 | 36,693 |
Derivative liabilities | 430 | 2,138 |
Other | 17,574 | 23,007 |
Accrued liabilities | $ 382,384 | $ 452,137 |
Balance Sheet Components - Product Warranty (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Apr. 01, 2017 |
|
Movement in Standard and Extended Product Warranty, Increase (Decrease) [Roll Forward] | ||
Beginning balances | $ 87,882 | $ 99,923 |
Charged to cost of revenue | (2,481) | 18,937 |
Changes related to pre-existing warranties | (3,402) | (2,440) |
Settlement of claims | (10,024) | (25,961) |
Ending balances | $ 71,975 | $ 90,459 |
Balance Sheet Components - Restructuring (Details) - Employee Severance [Member] $ in Millions |
1 Months Ended |
---|---|
Jan. 31, 2017
USD ($)
employee
| |
Restructuring Cost and Reserve [Line Items] | |
Expected number of positions eliminated | employee | 110 |
Number of positions eliminated in the period, percent | 6.00% |
Severance costs | $ | $ 6.4 |
Commitments and Contingencies - Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity (Details) $ in Thousands |
Mar. 31, 2018
USD ($)
|
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Commitments and Contingencies Disclosure [Abstract] | |
Remaining 2018 | $ 31,572 |
2019 | 46,786 |
2020 | 42,998 |
2021 | 41,384 |
2022 | 41,529 |
Thereafter | 58,889 |
Total future minimum lease payments | $ 263,158 |
Stockholders' Equity - Stock Compensation Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Apr. 01, 2017 |
|
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total stock-based compensation | $ 23,641 | $ 22,493 |
Cost of revenue [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total stock-based compensation | 1,098 | 18 |
Research and development [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total stock-based compensation | 14,671 | 14,685 |
Sales and marketing [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total stock-based compensation | 3,447 | 3,635 |
General and administrative [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total stock-based compensation | $ 4,425 | $ 4,155 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Apr. 01, 2017 |
|
Income Tax Disclosure [Abstract] | ||
Income tax benefit | $ 609 | $ 29,671 |
Effective income tax rate | 0.80% | 33.10% |
Unrecognized tax benefits | $ 33,900 | |
Unrecognized tax benefits that would impact effective tax rate | $ 25,300 |
Net Loss per Share - Schedule of Basic and Diluted EPS (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Apr. 01, 2017 |
|
Numerator: | ||
Net loss | $ (80,877) | $ (60,079) |
Denominator: | ||
Weighted-average shares of common stock—basic (in shares) | 239,431 | 226,511 |
Effect of dilutive securities (in shares) | 0 | 0 |
Weighted-average shares of common stock—diluted (in shares) | 239,431 | 226,511 |
Net loss per share: | ||
Basic (in dollars per share) | $ (0.34) | $ (0.27) |
Diluted (in dollars per share) | $ (0.34) | $ (0.27) |