Company Quick10K Filing
Price6.52 EPS-1
Shares265 P/E-5
MCap1,730 P/FCF-11
Net Debt-334 EBIT-319
TTM 2019-12-31, in MM, except price, ratios
10-Q 2020-10-03 Filed 2020-11-04
10-Q 2020-07-04 Filed 2020-08-06
10-Q 2020-04-04 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-28 Filed 2019-11-07
10-Q 2019-06-29 Filed 2019-08-02
10-Q 2019-03-30 Filed 2019-05-03
10-K 2018-12-31 Filed 2019-03-01
10-Q 2018-09-29 Filed 2018-11-05
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-07
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-11-06
10-Q 2017-07-01 Filed 2017-08-10
10-Q 2017-04-01 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-10-01 Filed 2016-11-04
10-Q 2016-07-02 Filed 2016-08-04
10-Q 2016-04-02 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-29
10-Q 2015-09-30 Filed 2015-11-02
10-Q 2015-06-30 Filed 2015-08-07
8-K 2021-01-14 M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Exhibits
8-K 2020-11-04
8-K 2020-10-26
8-K 2020-08-05
8-K 2020-05-21
8-K 2020-05-06
8-K 2020-02-19
8-K 2020-01-03
8-K 2019-11-06
8-K 2019-11-06
8-K 2019-11-01
8-K 2019-07-31
8-K 2019-05-23
8-K 2019-05-01
8-K 2019-03-09
8-K 2019-02-27
8-K 2018-11-16
8-K 2018-10-31
8-K 2018-08-01
8-K 2018-06-15
8-K 2018-05-31
8-K 2018-05-24
8-K 2018-05-02
8-K 2018-03-26
8-K 2018-03-15
8-K 2018-03-06
8-K 2018-02-26

FIT 10Q Quarterly Report

Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibit Index
EX-31.1 exhibit311q32020.htm
EX-31.2 exhibit312q32020.htm
EX-32.1 exhibit321q32020.htm
EX-32.2 exhibit322q32020.htm

Fitbit Earnings 2020-10-03

Balance SheetIncome StatementCash Flow
Assets, Equity
Rev, G Profit, Net Income
Ops, Inv, Fin

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For the quarterly period ended October 3, 2020 

For the transition period from ________________ to ________________
Commission file number: 001-37444
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
199 Fremont Street,
14th Floor
San Francisco,
(Address of principal executive offices)(Zip Code)
(415) 513-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Class A Common Stock, $0.0001 par valueFITThe New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer

Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of October 28, 2020, there were 244,867,751 shares of the registrant’s Class A common stock outstanding and 27,600,601 shares of the registrant’s Class B common stock outstanding.

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Condensed Consolidated Balance Sheets—October 3, 2020 and December 31, 2019
Condensed Consolidated Statements of Operations—for the three and nine months ended October 3, 2020 and September 28, 2019
Condensed Consolidated Statements of Stockholders’ Equity—for the three and nine months ended October 3, 2020 and September 28, 2019
Condensed Consolidated Statements of Cash Flows—for the nine months ended October 3, 2020 and September 28, 2019

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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “forecast,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the expected timing and anticipated closing of our pending acquisition by Google LLC;
the impact of the COVID-19 pandemic on our business and our response to it;
our future revenue, cost of revenue, gross margin, operating expenses, including personnel costs, research and development expense, sales and marketing expense, and general and administrative expense;
continued investments in research and development, sales and marketing, and international expansion, and the impact of those investments;
competitors and competition in our markets;
our ability to anticipate and satisfy consumer preferences;
our smartwatches and their market acceptance and future potential;
our ability to develop and introduce new products and services, including recurring consumer services revenue offerings, and improve our existing products and services;
our ability to grow and engage our user base;
our expectations to derive the substantial majority of our revenue from sales of devices;
trends in our quarterly operating results and other operating metrics;
the impact of tariffs or other restrictions placed on our products imported into the United States from other countries, including China;
the impact of changes in tax laws on our operating results;
the impact of tax relief or other government benefits enacted in response to the COVID-19 pandemic;
the impact of our adoption of accounting pronouncements;
our ability to forecast demand and manage inventory;
our ability to maintain and promote our brand and expand brand awareness;
our ability to detect, prevent, or fix defects;
our ability to obtain products and services from third-party suppliers, contract manufacturers, and logistics providers;
our ability to adequately assess and mitigate credit and other risks in our sales channels;
legal proceedings and the impact of such proceedings;
the effect of seasonality on our results of operations;
our ability to attract and retain highly skilled employees;
the impact of our acquisitions in enhancing the features and functionality of our devices;
the impact of foreign currency exchange rates;
the sufficiency of our existing cash and cash equivalent balances and cash flow from operations to meet our working capital and capital expenditure needs through the anticipated closing of the Merger transaction with Google; and
general market, political, economic and business conditions, including as may be impacted by the COVID-19 pandemic, and our ability to anticipate and respond to these conditions.

We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.


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The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

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Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets
(in thousands)
 October 3, 2020
December 31, 2019
Current assets:
Cash and cash equivalents$373,384 $334,479 
Marketable securities43,051 184,023 
Accounts receivable, net358,451 435,269 
Inventories98,996 136,752 
Income tax receivable40,252 573 
Prepaid expenses and other current assets35,013 28,656 
Total current assets949,147 1,119,752 
Property and equipment, net74,684 82,756 
Operating lease right-of-use assets62,144 70,225 
Goodwill64,812 64,812 
Intangible assets, net8,395 16,746 
Deferred tax assets15,330 4,111 
Other assets12,334 9,684 
Total assets$1,186,846 $1,368,086 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$174,603 $194,626 
Accrued liabilities431,215 513,530 
Operating lease liabilities22,390 23,511 
Deferred revenue49,317 32,307 
Income taxes payable2,439 636 
Total current liabilities679,964 764,610 
Long-term deferred revenue 5,327 8,535 
Long-term operating lease liabilities56,703 67,902 
Other liabilities55,960 39,776 
Total liabilities797,954 880,823 
Commitments and contingencies (Note 6)
Stockholders’ equity:
Class A and Class B common stock27 26 
Additional paid-in capital1,166,720 1,126,827 
Accumulated other comprehensive income178 188 
Accumulated deficit(778,033)(639,778)
Total stockholders’ equity 388,892 487,263 
Total liabilities and stockholders’ equity$1,186,846 $1,368,086 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
 Three Months Ended
Nine Months Ended
October 3, 2020
September 28, 2019
October 3, 2020
September 28, 2019
Revenue$363,932 $347,200 $813,362 $932,646 
Cost of revenue228,120 239,248 529,586 627,027 
Gross profit135,812 107,952 283,776 305,619 
Operating expenses:
   Research and development90,771 65,693 256,093 213,651 
   Sales and marketing60,726 71,296 183,157 222,972 
   General and administrative35,493 23,083 112,583 74,640 
Total operating expenses186,990 160,072 551,833 511,263 
Operating loss(51,178)(52,120)(268,057)(205,644)
Interest income (expense), net
(268)2,388 1,038 8,476 
Other income (expense), net965 (492)3,198 1,242 
Loss before income taxes(50,481)(50,224)(263,821)(195,926)
Income tax expense (benefit)3,971 1,669 (125,566)3,950 
Net loss$(54,452)$(51,893)$(138,255)$(199,876)
Net loss per share:
Shares used to compute net loss per share:
Basic270,443 258,753 267,958 256,046 
Diluted270,443 258,753 267,958 256,046 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Condensed Consolidated Statements of Comprehensive Loss
(in thousands)

 Three Months Ended
Nine Months Ended
October 3, 2020
September 28, 2019
October 3, 2020
September 28, 2019
Net loss(54,452)(51,893)$(138,255)$(199,876)
Other comprehensive loss
   Cash flow hedges:
Change in unrealized loss on cash flow hedges, net of $0 tax benefit
 (66) (66)
Net change, net of tax  (66) (66)
Available-for-sale investments:
Change in unrealized gain (loss) on investments(172)35 (10)364 
Net change, net of tax(172)35 (10)364 
Comprehensive loss$(54,624)$(51,924)$(138,265)$(199,578)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
Three Months Ended October 3, 2020
 Class A and Class B Common StockAdditional
Balance at July 4, 2020
269,584,380 $27 $1,153,520 $350 $(723,581)$430,316 
Issuance of common stock2,646,154  1,988 — — 1,988 
Stock-based compensation expense— — 17,799 — — 17,799 
Taxes related to net share settlement of restricted stock units— — (6,587)— — (6,587)
Net loss— — — — (54,452)(54,452)
Other comprehensive income— — — (172)— (172)
Balance at October 3, 2020
272,230,534 $27 $1,166,720 $178 $(778,033)$388,892 

Three Months Ended September 28, 2019
 Class A and Class B Common StockAdditional
Income (Loss)
Balance at June 29, 2019258,139,452 $25 $1,092,306 $263 $(467,050)$625,544 
Issuance of common stock1,746,274 1 232 — — 233 
Stock-based compensation expense— — 17,971 — — 17,971 
Taxes related to net share settlement of restricted stock units— — (2,850)— — (2,850)
Net loss— — — — (51,893)(51,893)
Other comprehensive income— — — (31)— (31)
Balance at September 28, 2019
259,885,726 $26 $1,107,659 $232 $(518,943)$588,974 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Condensed Consolidated Statements of Stockholders’ Equity (Continued)
(in thousands, except share amounts)
Nine Months Ended October 3, 2020
 Class A and Class B Common StockAdditional
Balance at December 31, 2019
264,883,426 $26 $1,126,827 $188 $(639,778)$487,263 
Issuance of common stock7,347,108 1 2,990 — — 2,991 
Stock-based compensation expense— — 55,719 — — 55,719 
Taxes related to net share settlement of restricted stock units— — (18,816)— — (18,816)
Net loss— — — — (138,255)(138,255)
Other comprehensive income— — — (10)— (10)
Balance at October 3, 2020
272,230,534 $27 $1,166,720 $178 $(778,033)$388,892 

Nine Months Ended September 28, 2019
 Class A and Class B Common StockAdditional
Income (Loss)
Balance at December 31, 2018
252,362,841 $25 $1,055,046 $(66)$(319,067)$735,938 
Issuance of common stock7,522,885 7,044 — — 7,045 
Stock-based compensation expense— — 59,064 — — 59,064 
Taxes related to net share settlement of restricted stock units— — (13,495)— — (13,495)
Net loss— — — — (199,876)(199,876)
Other comprehensive income— — — 298 — 298 
Balance at September 28, 2019
259,885,726 $26 $1,107,659 $232 $(518,943)$588,974 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended
October 3, 2020
September 28, 2019
Cash Flows from Operating Activities
Net loss$(138,255)$(199,876)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts461 29 
Provision for excess and obsolete inventory14,189 5,163 
Depreciation 33,332 43,215 
Non-cash lease expense11,082 17,961 
Accelerated depreciation of property and equipment726 169 
Amortization of intangible assets8,351 6,100 
Stock-based compensation57,877 59,175 
Deferred income taxes(11,289)618 
Other585 (50)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable76,356 68,617 
Inventories21,410 (125,500)
Prepaid expenses and other assets(9,136)5,880 
Income taxes receivable(39,679)5,992 
Accounts payable(23,028)11,826 
Accrued liabilities and other liabilities(66,763)(60,763)
Lease liabilities(14,432)(20,975)
Deferred revenue13,802 (2,586)
Income taxes payable1,803 (107)
Net cash used in operating activities
Cash Flows from Investing Activities
Purchase of property and equipment (22,419)(26,277)
Purchases of marketable securities(59,735)(287,969)
Sales of marketable securities 2,016 
Maturities of marketable securities200,877 322,132 
Acquisition, net of cash acquired (2,625)
Net cash provided by investing activities
118,723 7,277 
Cash Flows from Financing Activities
Payment of financing lease liability(1,384)(2,239)
Proceeds from issuance of common stock2,990 7,044 
Taxes paid related to net share settlement of restricted stock units(18,816)(13,495)
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
38,905 (186,525)
Cash and cash equivalents at beginning of period334,479 473,956 
Cash and cash equivalents at end of period$373,384 $287,431 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements

1.    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, 2019 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 and nine months ended October 3, 2020 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, 2019, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2020.

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 91 days in each of the three months ended October 3, 2020 and September 28, 2019.

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-based awards, fair value of derivative assets and liabilities, allowance for credit losses, inventory valuation, fair value of goodwill and acquired tangible and intangible assets and liabilities assumed during acquisitions, 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.

Google Acquisition

On November 1, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Google LLC, a Delaware limited liability company (“Google”), and Magnoliophyta Inc., a Delaware corporation and wholly owned subsidiary of Google (the “Merger Sub”). Pursuant to the terms of, and subject to the conditions specified in, the Merger Agreement, the Merger Sub will merge with and into the Company, and the Company will become a wholly owned subsidiary of Google (the “Merger”). If the Merger is completed, Google will acquire all the shares of the Company’s Class A common stock and Class B common stock (together, the “Shares”) for $7.35 per share in cash, without interest (the “Merger Consideration”). All Shares underlying vested stock options and vested stock-based awards will be converted into the right to receive the Merger Consideration (or, in the case of stock options, the difference between the Merger Consideration and the applicable per share exercise price), less any applicable tax withholdings. Unvested stock options and stock-based awards will generally be converted into cash-based awards with an equivalent value based on the Merger Consideration and vesting schedule. Completion of the Merger is subject to customary closing conditions, including approval by the expiration or termination of any waiting periods or receipt of any requisite consents under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, approval under the antitrust laws of the European Union and other jurisdictions agreed by the parties, and satisfaction of other closing conditions. On August 4, 2020, the European Commission announced it had initiated a Phase II review of the transaction. On October 16, 2020, the European Commission extended the deadline for its Phase II investigation to January 8, 2021. The duration of a Phase II review cannot be foreseen with certainty. While the Company still expects to secure the necessary regulatory approvals and to close the transaction in 2020, the time frame may extend beyond that. The Merger was approved by the Company’s stockholders on January 3, 2020.


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Notes to Condensed Consolidated Financial Statements (Continued)

Risks and Uncertainties for COVID-19

The outbreak of the novel coronavirus COVID-19, which was declared a global pandemic by the World Health Organization in March 2020, adversely impacted the Company’s business in the first three quarters of 2020. The pandemic and associated containment measures have caused disruptions in the development, manufacture, shipment, and sales of the Company’s products. The Company’s operating results were negatively impacted by decreased retail activity and retail store closures due to COVID-19, primarily during the first half of 2020. Operating results were also impacted by additional reserves for product returns, rebates and promotions, and price protection on certain products, primarily as a result of declining demand due to COVID-19.

The current circumstances are dynamic and unprecedented, and the impacts of the COVID-19 pandemic on the Company’s business operations, including the duration and severity of the effect on overall consumer demand, are highly uncertain and cannot be predicted. However, these impacts have had, and the Company expects will continue to have, a significant adverse effect on the Company’s operations, revenue, liquidity, financial conditions, and financial results. For further information regarding the impact of COVID-19 on the Company, see Part I, Item 2, Management’s Discussion and Analysis, and Part II, Item 1A, Risk Factors in this Quarterly Report on Form 10-Q.

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 filed with the SEC on February 27, 2020.

Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-12, Simplifying the Accounting for Income Taxes. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

Accounting Pronouncements Recently Adopted

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. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments–Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This ASU clarifies and corrects guidance related to Topic 326, Topic 815, and Topic 825. In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief. This ASU provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. The Company adopted Topic 326 utilizing the modified retrospective method. Prior periods were not retrospectively adjusted. The cumulative effect upon adoption on the opening accumulated deficit balance was zero.

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 became effective for the Company on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements and became effective for the Company on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.


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Notes to Condensed Consolidated Financial Statements (Continued)

In August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements and became effective for the Company on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

2.    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):
October 3, 2020
 Level 1Level 2Level 3Total
Money market funds$189,887 $ $ $189,887 
U.S. government agencies 36,337  36,337 
Corporate debt securities 61,980  61,980 
Total$189,887 $98,317 $ $288,204 
Contingent consideration$ $ $1,523 $1,523 
Total$ $ $1,523 $1,523 

December 31, 2019
 Level 1Level 2Level 3Total
Money market funds$107,708 $ $ $107,708 
U.S. government agencies 77,364  77,364 
Corporate debt securities 207,137  207,137 
Total$107,708 $284,501 $ $392,209 
Contingent consideration$ $ $1,889 $1,889 
Derivative liabilities 748  748 
Total$ $748 $1,889 $2,637 
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 October 3, 2020 and December 31, 2019. The Company's Level 3 liabilities measured and recorded on a recurring basis as of October 3, 2020 and December 31, 2019 consist of contingent consideration related to an acquisition. Subsequent changes in the fair value of this obligation will be recorded within the Company’s consolidated statements of operations. The Company estimated the fair value of the acquisition-related contingent consideration using a probability-weighted discounted cash flow model. As the fair value measure is based on significant inputs that are not


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Notes to Condensed Consolidated Financial Statements (Continued)

observable in the market, they are categorized as Level 3. There were no transfers between fair value measurement levels during the three and nine months ended October 3, 2020 and September 28, 2019.

3.    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 on available-for-sale securities are reported in other income (expense), net, as incurred.

For debt securities in an unrealized loss position, the Company determines whether a credit loss exists. The estimate of credit loss is determined by considering available information relevant to the collectability of the security and information about past events, current conditions, and reasonable and supportable forecasts. The allowance for credit loss is recorded as a charge to other income (expense), net, not to exceed the amount of the unrealized loss. Any excess unrealized loss greater than the credit loss at a security level is recognized in accumulated other comprehensive income (loss). During the three and nine months ended October 3, 2020, no allowance for credit losses on marketable securities was recorded.

The following table sets forth cash, cash equivalents, and marketable securities as of October 3, 2020 (in thousands):
Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueCash and Cash EquivalentsMarketable Securities
Cash$128,230 $— $— $128,230 $128,230 $— 
Money market funds189,887 — — 189,887 189,887 — 
U.S. government agencies36,320 17  36,337 27,312 9,025 
Corporate debt securities61,885 96  61,981 27,955 34,026 
Total$416,322 $113 $ $416,435 $373,384 $43,051 

The following table sets forth cash, cash equivalents and marketable securities as of December 31, 2019 (in thousands):
Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueCash and Cash EquivalentsMarketable Securities
Cash$126,293 $— $— $126,293 $126,293 $— 
Money market funds107,708 — — 107,708 107,708 — 
U.S. government agencies77,316 48  77,364 30,375 46,989 
Corporate debt securities207,063 85 (11)207,137 70,103 137,034 
Total$518,380 $133 $(11)$518,502 $334,479 $184,023 

The gross unrealized gains or losses on marketable securities as of October 3, 2020 and December 31, 2019 were not material. There were no available-for-sale investments as of October 3, 2020 and December 31, 2019 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):
October 3, 2020
December 31, 2019
Due in one year$43,051 $173,827 
Due in one to two years 10,196 
Total$43,051 $184,023 

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Notes to Condensed Consolidated Financial Statements (Continued)

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.
Balance Sheet Hedges

The Company may enter 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 no outstanding balance sheet hedges as of October 3, 2020, and outstanding balance sheet hedges with a total notional amount of $83.4 million as of December 31, 2019.
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):
October 3, 2020
December 31, 2019
Balance Sheet LocationFair Value Derivative
Fair Value Derivative LiabilitiesFair Value Derivative
Fair Value Derivative Liabilities
Hedges not designatedAccrued liabilities   748 
Total fair value of derivative instruments$ $ $ $748 

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 the condensed consolidated statements of operations for the periods presented (in thousands):
Three Months Ended
Nine Months Ended
Income Statement Location
October 3, 2020
September 28, 2019
October 3, 2020
September 28, 2019
Foreign exchange balance sheet hedges:
Gain (loss) recognized in incomeOther income, net$ $2,041 $3,077 $1,567 

As of October 3, 2020, there were no net derivative gains related to the Company’s cash flow hedges to be reclassified from other comprehensive income (“OCI”) into revenue within the next 12 months.

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.


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Notes to Condensed Consolidated Financial Statements (Continued)

The following tables set forth the available offsetting of net derivative assets under the master netting arrangements as of December 31, 2019 (in thousands):
December 31, 2019
Gross Amounts Offset in the Condensed Consolidated Balance SheetsGross Amounts Not Offset in Condensed Consolidated Balance Sheets
Gross Amounts RecognizedGross Amounts OffsetNet Amounts PresentedFinancial InstrumentsCash Collateral ReceivedNet Amount
Foreign exchange contracts liabilities748  748   748 

There were no net derivative assets as of October 3, 2020.

4.    Balance Sheet Components

Deferred Revenue

Deferred revenue relates to performance obligations for which payments have been received by the customer prior to revenue recognition. Deferred revenue primarily consists of deferred software, or amounts allocated to mobile dashboard and on-line apps and unspecified upgrade rights. Deferred revenue also includes deferred subscription-based services. The deferred software and deferred subscription-based service performance obligations are anticipated to be recognized over the useful life or service periods of one to eighteen months.

Changes in the total short-term and long-term deferred revenue balances were as follows (in thousands):
Three Months Ended
Nine Months Ended
October 3, 2020
October 3, 2020
Beginning balances$37,215 $40,842 
Deferral of revenue37,708 61,972 
Recognition of deferred revenue(20,279)(48,170)
Ending balances$54,644 $54,644 

Revenue Returns Reserve
Revenue returns reserve activities were as follows (in thousands):
Three Months Ended
Nine Months Ended
October 3, 2020
September 28, 2019
October 3, 2020
September 28, 2019
Beginning balances$81,851 $75,044 $101,326 $104,001 
Increases (1)
37,422 41,945 103,127 119,070 
Returns taken (25,976)(42,845)(111,156)(148,927)
Ending balances$93,297 $74,144 $