Q2 2019 Earnings Call
Good day, everyone and welcome to fit that second quarter Financial results Conference. Today's program is being recorded at this time I'd like to turn things over to Tom Hudson SVP of Finance. Please go ahead Sir.
Good afternoon and welcome.
They've been distributed a press release detailing its quarterly results earlier this afternoon.
It's posted on our website at Www Dot com and available from normal financial News sources. This conference call is being webcast live on the Investor Relations page of our website, where a replay will be archived on this call. All financial measures are presented on a non-GAAP basis, except for revenue, which is a GAAP measure a reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release or an other earnings presentation materials posted on the IR web page.
Gross references will be to year over year comparison, unless specified otherwise. This conference call will contain forward looking information, which is subject to risks and uncertainties described fitbits filings with the SEC and in today's press release.
Actual results or events may differ materially we will begin with commentary from James Enron and we'll then open up all the question.
We introduced Triptans, Chairman and CEO James Park James.
Thanks, Tom and thank you to everyone for joining todays call.
In Q2, we made progress transforming our business and generated revenue of $314 million of 5%.
However, our sales mix was different than we anticipated versalite sales did not meet our expectations leading to a contraction in quarterly smartwatch revenue growth.
We subsequently reduced to versalite sales expectations for the remainder of the year.
And are lowering our full year 2019 revenue gross margin guide.
We attribute the versa weakness to our pricing and go to market strategy.
We added Versalite to our product line up in Q1, the intention of lowering the barrier to entry for consumers to purchase a quality smartwatch with certain core features.
And shifted to an everyday low pricing strategy from a promotional.
This resulted in lower promotional dollars spent less sell through.
While Versalite received good press and consumer reviews, we saw that consumers are willing to pay more for smartwatch with additional features or look for discounting versus everyday value.
All of this said, we believe the Fitbit brand remains strong.
Versus sales exceeded our expectations and a fitting from the trade up scenario that I mentioned earlier, where consumers are willing to pay more for more feature.
Tracker sales accelerated in the quarter growing 51% the $186 million.
And using the last four weeks of sales through July twentyth in the us as a proxy if that had four out of the five top spots in the Wearables category.
Our versus smartwatch outsold, each Samsung and garden.
We feel confident.
We are taking the steps needed to ensure what happened with Versalite does not happen again and that we reduced the sales impact of a single product.
First we are reevaluating, our pricing and promotional strategy for future hardware launches.
In addition, we are accelerating our hardware product development cadence for an annual cycle.
This will not only enable us to adapt faster to changing market conditions.
It should make our business more predictable on a year over year basis, and new product introductions comprise the majority of our sale.
In order to execute the strategy as efficiently as possible and with lower capital expenditures and operating expense than we do today.
We are accelerating our migration to a joint development model, where manufacturers will bear more of this cost burden.
Looking ahead, we continue to transform our business from an episodic one centered around the device sale.
The lifetime value driven model centered around behavior change.
We will continue to invest in a premium service has been held solutions channel both of which had the benefit of diversifying our revenue and more predictable higher gross margin ready.
This can create a more valuable longer lasting relationship with our users while changing the perception of our products and services from a nice to have their needs.
As part of this transformation customer acquisition begins with the sale of a device.
Trackers have always been key to our portfolio and we continue to see a clear segment of users prefer this form factor.
This is further validated by the interest we've seen from payers life insurance companies governments and businesses embracing wearables, specifically trackers as a key strategy for behavior change for their members and employees.
With tracker devices sold up 36% in the first half of 2019.
We believe the strength and tracker growth has evidence that this category the wearable market and expand with innovation.
We believe Smartwatches will continue to drive wearable growth and we are excited by the innovation, we can bring to the category and expect to continue our product mix in this segment of the Wearables market.
We think there is a large segment of the world's population that cannot afford a $100 a smartwatch, but once the opportunity become more informed and take control of their overall health and wellbeing.
With more accessible solutions from a trusted brands such as.
We're confident there is a real opportunity to deliver device innovation, the more affordable and accessible price points and we continue to focus on bringing devices to market in the 50 to $300 price range that are easy to use and feature rich.
Beyond customer acquisition. The next step is providing additional value to our community with premium service.
I am proud to say that we are on track to launch our premium service. This fall.
In two countries with more than 1 million combined existing active users. We have launched initial version of the Sir.
While it's early the initial attach rates and consumer receptivity has been encouraging.
Our premium service delivers a dynamic and personalized experience that will provide everyday consumers the data tools program guidance and support they need to reach their health goals, whether its activity nutrition fleet for mindfulness, our premium service helps users understand the correlation between their behavior in their health.
And provides them with tools to improve it all in one centralized place.
We also plan to further accelerate our premium strategy and revenue by bundling our devices with a premium service is starting in the fall.
We believe this will enable us to both sell more devices and to grow our revenue per user.
Our community of more than 27 million active users serves as a key foundation from which to launch a successful premium revenue.
Our Fitbit health solutions channel has been another bright spot in the quarter and key to our long term strategy.
Revenue grew 16% to 24 million.
With $54 million in revenue in the first half of 2019 up 42%. It is on track deliver its 100 million revenue goal in 2019.
In addition, our work with the leading health plans in the U.S their health coaching pipeline continues to grow.
We are committed to returning the business to profitability and are focused on taking steps to ensure the long term success.
It is not business as usual, we have lowered our 2019 operating expense expectation to approximately $640 million down 9% year over year.
However, we do not believe cost cutting alone will allow us to succeed.
Instead, we believe success will come from lowering our capital investment.
Bringing more devices to market faster with more predictability and growing our gross margin accretive that bid health solutions channel and premium services revenue stream.
We saw a 31% increases in devices sold along with encouraging early results from our premium service confirming our belief that our strategy to introduce more accessible devices.
Lower community of active users and provide them with additional services that generate recurring revenue stream.
Continues to be the right one.
With that let me turn the call over to Ron discussed the quarter in more detail.
Thanks James.
Before we go to the details I would like to remind investors that all financial references are non-GAAP measures, except for revenue and growth references represent year over year changes unless I specify otherwise.
As James indicated Versalite sales were lower than we had expected, resulting in smartwatch practice as a percentage of revenue in the second quarter relative to the first quarter.
Channel inventory levels increased with annual basis, primarily resulting from more normalized first inventory levels after being supply constrained in 2018 and to support expected summer promotional activity was a portion of the increase driven by weaker sell through of Versalite.
Q2 gross margin was also adversely impacted by higher excess inventory charge.
Resulting from lower Versalite sale.
Following the historically seasonal patterns of our business and with Versalite as having launched at the end of the first quarter, we expect versalite sales to be skewed to the second half of the year, resulting in a greater reduction to our sales guidance for the second half of 2019 relative to the first half.
With lower product sell through we also expect higher discounting and promotional activity.
This creates downward pressure on second half gross margins as compared to prior expectation.
Recapping Q2, we generated $314 million of revenue up 5% as a 31% growth in devices sold was partially offset by a decline in the average selling price to $86.
New products introduced in the past 12 months represented 68% of Q2 revenue with strength in charge three and the inspire family.
We also saw less cannibalization on versa than anticipated.
As James mentioned, our Fitbit Health solutions channel grew 16% to 24 million and represented 7% of our revenue.
Fitbit Health solutions revenue remains skewed toward hardware, but we have begun the rollout of bundled offerings for our devices are coupled with digital intervention and the coach.
Fitbit Dot com, our direct to consumer business generated $33 million in revenues and represented 10% of our sale.
Now, let me turn it address our guidance.
For full year 2019, we are lowering our revenue guidance by $95 million at the midpoint versus our prior guidance.
Driven by the weaker than expected Versalite sale.
This reflects a reduction in our versalite sales expectations by more than $150 million, partially offset by increased demand for our tracker products and increased sales of versa.
Revenue growth in the second half will be impact by this vessel charged relaunch the second half 2018, resulting in a challenging year over year comparison.
As a result, we expect tracker growth to decelerate significantly from the first half the second half 2018.
In contrast, we expect smartwatch revenue growth to accelerate driven by innovation in the category and to exceed 50% of our total revenue in the second half 2019.
We expect average selling price to be down year over year, but to improve from the second quarter driven by new product introduction.
Our revenue for 2019 is now forecasted to be between $1.43 billion to $1.48 billion, representing a decline of 2% to 5%.
The trajectory of revenue decline has improved from each year from 2017 through today.
But with the anticipated deceleration of revenue growth in the second half of 2019.
Our revenue trajectory is not where we want it to be.
With the reduction in revenue guidance and higher than expected promotional activity excess inventory charges and product return we are lowering our 2019 gross margin guidance to approximately 35% from approximately 40%. In addition, we expect higher hosting cost in 2019, resulting from our transition to Google cloud and from increased amounts of data driven by the growth more complex devices sold.
We are also lowering our 2019 operating expense expectation to approximately $640 million down 9% year over year.
While we have reduced our opex by over $200 million on an annual basis 2016, we have not fully offset the decline in revenue gross margin dollars. During this period.
We believe cost cutting alone will not allow us to succeed.
As James said earlier, we believe success will come from lowering the capital investment and how we bring devices to market and growing our gross margin through accretive it bit health solutions channel and non device revenue stream.
We expect adjusted EBITDA to be in the range of negative 85 million to negative $60 million.
And despite the anticipated improvement in operating loss in the second half and lower capital expenditures in 2019, the change in working capital is a headwind rather than the tailwind to our free cash flow.
As we discussed on our Q1 call. We entered 2019 with accounts receivable of approximately $100 million lower than we entered 2018.
As a result, we expect free cash flow to be in the range of approximately negative 150 million to negative $120 million and to end the year with approximately $570 million to $600 million in cash.
But 2018, we expect our free cash flow to be backend loaded and anticipate consuming cash in the first three quarters of the year before generating cash in Q4, our seasonally strongest quarter.
We expect our capital expenditures to decline year over year to approximately 3% of revenue for the full year as we focused on leveraging product roadmaps synergies and continue to consolidate our real estate footprint.
Moving to taxes, we expect our full year effective tax rate to be approximately 25%. So this could fluctuate substantially depending on the geographic footprint of our earnings.
We expect stock based compensation expense, we approximately $80 million and a basic share count of approximately $260 million.
Our balance sheet remains robust.
We will remain disciplined on the M&A front, but we'll look to utilize our balance sheet to augment organic investment while looking to accelerate the transformation of our business toward digital health premium service.
Turning to Q3.
Our guidance reflects an anticipated deceleration in the revenue growth rate of crackers.
And the rebound in smartwatch revenue growth.
We expect ASP to be down year over year, but up sequentially from Q2.
With a more aggressive pricing and promotional strategy, we expect revenue to decline in Q3 and are forecasting a range of 335 million to $355 million.
The revenue range also reflects the timing of our shipments and of the holiday period.
We expect third quarter gross margin to be similar to the second quarter.
We expect adjusted EBITDA to be in the range of a loss of 27 million to $19 million and we expect a net loss of 11 to nine cents per share.
Our guidance reflects an effective tax rate of approximately 25%, which will vary depending on the geographic mix.
Our anticipated stock compensation expense and basic share count are approximately $19 million and 260 million respectively.
To close.
Despite the disappointing Versalite revenue trajectory, we've made steady progress in the transformation of our business.
Active users continue to grow on a year over year basis.
Our fit that health services business is on track to deliver approximately $100 million revenue and we successfully introduced our premium service too.
We expect the typical fall product launch and are confident in our product pipeline.
We have adjusted our Versalite expectations and promotion strategy and are encouraged by the strength of the remainder of our portfolio.
With that let me turn the call back to the operator to answer your question.
Operator.
Thank you at this time, if you do have a question that will be star one once again star one for questions.
We'll hear first today from Alex Fuhrman with Craig Hallum Capital Group.
Great. Thanks, very much for taking my question.
I wanted to ask a little bit about the guidance and what you're seeing with the Versalite I mean, it looks like if I'm if I'm interpreting this correctly you're guiding.
At the midpoint revenues for for Q3 to be down around 12 or 13% in Q4.
Down somewhat less around eight or 9% just curious what you're seeing in terms of your.
Your your your plan.
No path of product launches in sales over the next couple of quarters that that gives you the confidence that things could get a little bit better in the fourth quarter.
And then if I could ask this last time, a few years ago sales turned negative. They were they were very negative for about four quarters down in the in the 30% range. If you can just give us some some explanation of perhaps why this looks similar or different to the last downturn, a few years ago and maybe some confidence as to why.
Sales won't be down quite quite so much over the next four quarters.
Yes.
So a couple of things I think as you see the trajectory in the second half again I think the you have the big change really is lower versalite sales and as we indicated versalite is a more significant portion of sales in the second half given the holiday period as well as.
The launch kind of in the middle of the first half.
So thats what is reflecting the drop what were seeing generally across the course of the year in our guidance Versalite.
Over $150 million below what our initial expectations were.
We're bringing down guidance at the midpoint by about $95 million and that reflects really an offset by increased demand for our trackers, which were particularly strong.
In the first half and in Q2.
Growing.
51% on a year over year basis, as well as lower cannibalization of the versa product.
And so that should offset some of the.
Decline we saw in Versalite.
And then the.
I think the second question.
Could you repeat that.
Yes, just thinking about how a few years ago when when sales turn from positive to negative. It was obviously a very steep decline in sales for for the next four quarters or so and it sounds like you're not expecting.
The next four quarters to be to be nearly as bad as they were a few years ago.
Just just wondering if you could tell us a little bit about some of the similarities and differences.
Between this slow down here with the Versalite versus what you saw a few years ago.
Yes, so some of the difference I think in 2016, the market was really transitioning very quickly to smart watches and so what we really saw was significant declines year over year in our sale of trackers.
As we get ready to launch our smartwatch offering.
I think in this year.
We.
See the change really around.
Versalite with continued strength in both trackers and smart watches on a year over year basis. So.
16 was really about the transition in the market from trackers to smart watches we didnt have a smartwatch then whereas in this year. It really has to do with your go to market strategy around the Versalite product.
When you will shrink both across trackers and our other smartwatch offerings.
Yes, and as Ron mentioned versa continues to do better than expected, which is a big confidence booster in the future of our smartwatch franchise.
And that leads into excitement about our overall lineup for the fall.
Great Thats really helpful. Thank you very much.
Thank you.
Thanks will next to Scott sterile with Roth capital.
Hi, good afternoon, Thanks for taking my question.
Maybe to just follow up in terms of the manufacturing strategy and bringing partners and what is the impact in terms of how quickly now you think you can turn products around and what we should be expecting from gross margins as we get beyond the September quarter does it start to come back with some seasonality in the fourth quarter and how do we think about going into $222000.
A follow on to that.
It has not been as effective as you'd hoped for.
Should we be expecting is part of the fall lineup more higher end solutions as part of that portfolio.
Yes, so on the.
The hardware development strategy, so as I mentioned in my remarks.
We are accelerating our hardware product development cadence.
And moving most of our products that comprised the bulk of our revenue to an annual cycle and we do feel that.
One that's going to give us more shots on goal and mitigate the impact of a single product mix.
It's going to allow us to adapt faster to changing market market conditions that competitive landscape.
And it's also going to allow us to participate more fully in a fast growing wearable market, especially because new product introductions are such a large part of our revenue and also have the benefit of making our revenue more predictable on a year over year basis, we've actually been undergoing this change already.
There is already several launch products and one underway.
Using this new methodology and again, we expect it to have positive improvements in our product cadence.
And another big change there as it shifts a lot of the development and cost onto our manufacturing partners, where they can leverage.
Their scale and their resources to bring product Mark.
James does it benefit your gross margins in the near term.
So in the near term.
What I would say as you know in Q2 as a starting point, we saw gross margins declined on a year over year basis, but they were up sequentially.
And that year over year decline was really driven by lower warranty benefit I think we spoke about.
On previous calls increased discounting and this was partially offset by improving.
Yield losses and efficiencies.
The sequential improvement was a little bit less than we expected due to some excess inventory reserves, resulting from the changes in the versalite forecast.
When you look to the second half Q3 gross margins will trend lower on a higher mix of smart watches.
An increased promotions, but overall the second half gross margin should be very similar to what we saw in the first half.
I think when you look to 2022, what I would point to is our two fastest growing businesses, which are active but health services and our premium services.
Each have higher than our average gross margins.
And are expected to have a meaningful contribution to our revenues in 2020 and as you can imagine on the services side or.
A service that has gross margins say north of 70% you don't have to be a significant percentage of revenue to have a meaningful contribution to gross margin accretion.
Hey, maybe just follow up on that point, Ron and James head.
Referenced it earlier in his in his initial commentary, but the lifetime value of a user or subscriber device.
Could you guys expand on that a little bit in terms of how you're thinking about it and maybe couple that with your comments around bundling. It sounds like maybe some of the new products are going to be bundled or you're thinking free then for premium services with certain products as a rollout launch in the fall. Thank you.
Yes, so right now our relationship with our customers very episodic, we sell them a device and others.
Continued usage of the software afterwards from a financial perspective, its pretty much over at that point with the launch of premium services currently in it in a couple of key test markets and a full launch in the fall.
We feel that that's a critical part of changing.
Our model from again, one that's episodic to one that's long term and one of the ways that we are going to accelerate that in the fall as you mentioned through bundling. So there will be a.
Different types of bundling strategies, but one that's definitely on the table is the ability to give away certain hardware devices for free.
And then.
Having a recurring revenue stream on the services side with that user for a longer period of time.
Thank you.
Well hear next from Charlie Anderson with Dougherty and company.
Yes, thanks for taking my questions I guess I'm just curious if I look at the Q3 guidance and sort of the implied opex here and I look at sort of implied Q4, opex. It seems like there's a little bit.
Lower ramp than there would be traditionally from Q3 to Q4 Opex I Wonder maybe just what's feeding into that and then just.
Longer term, how we should think about how you're planning opex relative to topline. Thanks.
Yes so.
Yes, I think as you pointed out we are we are reducing your opex for the full year.
To 640.
Down from our 666 90 range, we did see a decline in Q2 I think the biggest variable that you see is really the timing of really our marketing and product launches and so you will see in Q3, you'll pull forward of some media.
To support the fall product launches.
That affects the spending in Q3 I think as you look at more broadly we're continually committed to driving.
You know efficiency in the business.
A number of things, which James spoke about on the joint development that does enable us to bring products to the market in the less capital intensive manner.
Which will allow us to drive greater efficiency and operating expenses.
Combined with growing.
Two businesses are our services business, and our health services businesses, which have higher gross margins, which will contribute.
To accretion on margins.
Great and then on gross margin you mentioned a couple of factors that impacted both the revision downward I think returns were mentioned promotional activity was mentioned I wonder if maybe you could just elaborate on.
To what degree each of those.
Individual aspects mattered.
Mixes wise, yes. Thanks.
Yes, I mean, I think without breaking it out explicitly.
What we did see with.
We saw lower than expected demand for versalite, particularly through some promo period.
That had an adverse impact on our product returns and increase that over what our earlier expectations were and then similarly, there was some excess.
Inventory reserves taken due to changes in our expected volumes again associated with Versalite.
Both of those played out in.
Q2, and certainly in the returns piece.
As a component through the second half so the biggest driver overall when you look at.
Sort of gross margins and Asps.
Is increased promotions.
Associated with the products, particularly versalite.
Got you. Thanks, so much.
And from Morgan Stanley , we're here from Katy Huberty.
Yes. Thank you good afternoon, the 150 million revenue reduction and then in the full year guidance for Versalite, how does that compare what percentage is that of the original revenue contribution from some for sunlight that you would have had in the model three months ago.
Yes so.
We havent set a practice of disclosing specific revenue by product basis.
What I would say is clarify there was more than 150 million. However, we still.
Well.
A significant amount of versalite in the course of the year.
And you have to offset some of that with higher sales than we expected and versa versus smart watch.
As well as continuing strong demand of our trackers.
Specifically charged three.
Okay, and then can you comment on where you exited the quarter as it relates to channel inventory, maybe bucketing It index trackers versus Smartwatches.
Yes, so we don't really provide a breakdown of channel inventory between our product segments, but what I would say is channel inventory levels did grow year over year.
Primarily resulting from more normalized bursa inventory of because last year, we were supply constrained on an early launch of versa. So those are at what we would characterize as youre appropriate in normalized levels.
As well as some growth in channel inventories to support expected summer promotional activities.
Part of the reduction in our guidance is to ensure that we make we continue to exit the year.
It was relatively clean channel inventories in line with what we believe is a normalized inventory levels, particularly around addressing versalite, which.
Based on our expectations did not necessarily sell through in the quarter at the levels. We initially expected.
And is it fair to say that you would expect to work those channel inventories down.
In the in the September quarter, and you wouldn't expect to have more of that work down and.
In the December quarter.
What I would say is that we we would work that inventory down over the remainder of the year choke assure that we in the year with clean inventory levels I mean, particularly.
Q4 is our biggest sales period. It is also the largest promotional period.
Which represents an opportunity to drive incremental volume of product.
Great. Thank you so much.
[laughter].
Well move next to Jeff Garro, with William Blair and company.
Yeah. Good afternoon, guys. Thanks for taking the questions maybe a couple for me on Fitbit Health solution. So first wanted to ask if there's any update on adding or increasing value around specific medical medical conditions or just disease states and maybe even more specific any update on any dialogue with the FDA around.
Approve around sleep apnea or atrial fibrillation algorithms.
Yes so.
One of the factors in their growth and you know that increase performance. So thats a chess is our fitbit care business in the pipeline and Fitbit Chair again is our health coaching offering that allows health plans and employers.
And their employees and members to manage chronic disease conditions like diabetes, so that pipeline continuing to grow.
And we've already started the rollout of bundled offerings, where our devices are actually coupled with superior care and its associated digital interventions along with the coach and we've seen promising initial stats.
With that offering and so that's been a bright spot in the health care business, along with a strong growth internationally.
As well.
In terms of if the FDA were continuing to work with the FDA on a variety of initiatives, including around sleep apnea I just can't give you a timeframe right now.
Okay Fair enough and then a follow up on the.
The revenue growth for Fitbit Health solutions, I think got back into roughly flat year over year growth in the second half and and recognize that you all had called out a front loaded contribution from Fitbit health solutions, but but wanted to check if there's anything in particular about the the second half of 2018 that represents a particularly tough comparable or or if you guys are just just viewing that target of $100 million Fitbit health solutions revenue as conservative at this point.
Well, we started and we're on track.
For the 100 million what I would say is your revenues are consistently tend to be front end loaded based just on the seasonality of that business and so we would expect to see a higher growth rate in the first half in the second half.
I would reiterate that we are comfortable in on track.
She is 100 million dollar numbers indicate.
Fair enough thanks for taking the questions.
And from Citi, We'll move next to Jim Suva.
Thank you very much and you've been very clear and that principally about the full year guidance of all the metrics. So thanks for that clarity.
James It's really never been a year and the dips history owned subsidiary negative cash flow generation only use. So can you help us understand and are there any concerns for Golden concern I know you don't have a debt other than a little bit of loose blacks in that up a very large chunk out of your cash reserve, which has been very much a buffer for investors and analysts entities that have Nick out of it and so I know you don't want to guide the following year free cash flow at this point that there will be some going concern questions after that cash flow adjustments.
Yes. So this is Ron I'll take the question I think first and foremost is not business viability issue. What I will say is the reduction in revenue coupled with declining gross margin, obviously negatively impacted our free cash flow for the year. The impact is partially offset but not fully offset by our lower operating expense expectations.
As we discussed on the Q1 call on a year over year basis, our free cash flow in 2018 is further impacted by negative change in working capital.
We entered 2019 with a $100 million less accounts receivable than the prior year.
And so if you.
Take a look at the change in revenue and gross margin as well as the significant change in working capital.
We expect to consume approximately 130 million in cash and that's an increase over our earlier estimate of between 40 and 70.
A couple of things I want to remind you as in prior years, we have a very seasonal business. We expect excuse me, where our cash flow is backend loaded.
We would expect cash to cross.
At the end of Q3 before growing in Q4, which is our typical seasonal patterns. We do back to the viability question and expect to end the year somewhere between 570 and $600 million of cash.
So we will exit the year with a very robust balance sheet.
I think as you look forward to 2020.
Well not providing necessarily your forecast what I would say is we would not expect to enter the year with the working capital headwinds that we entered the year. This year and so that should provide you an opportunity to see improvement in that free cash flow as you look forward to 2020.
Okay, you know that we're watching very very useful detailed and much more than I was expecting so thank you and then maybe a strategy question, who joined GLP Tox changes are painful and we're not going to see as a CEO of a company and when you really helping great initiatives with health care and can you talk about some of the taken lot of time to sort of see the maurcio for it.
Going so when you think about the complex changes you're doing can you help us understand about from a global defocusing in going Super focus is because it seems like you really can't do all.
Given the changing dynamic in the market changes in the past.
So overall, we are very cognizant of the need to be very disciplined on opex, while still in acting to the business transformation. So we realize that it's not business as usual and they're very specific things doing to change the way that we work to ensure that we can continue to execute on our strategy.
Within a very disciplined opex profile. So one of the key things that I mentioned before is our GTM strategy, which allows us to leverage our manufacturing partners and have them share more of the cost, while allowing us to access their scale and their resources to dissolve products are much more efficient. So that's a big ones and there are also several initiatives underway within the company to focus on the things that matter and to offload the things that don't so what I will say is yes, opex discipline is definitely top of mind.
Thank you so much for the qualifications and is too great responses he'll be count. Thank you guys.
Well take our last question today from Thomas Forte with D.A. Davidson.
Great. Thanks, So given your guys' cash cash position, how should we think about kind of the potential for an accelerated repurchase program.
And secondly.
You touched on this earlier, but you're on track for the 100 million of revenue for your health care specific efforts, how should we think about your health care related emissions initiatives that are not directly tied to hardware sales. Thanks.
Thanks, Thomas I'll go with the first one I think with respect to a stock buyback we continue to evaluate it and obviously that evaluation takes into account where current valuation looks our cash balances.
I think to reiterate the message in the past obviously, our priority is to preserve.
The opportunity to invest in growth, we're looking to do that more cost effectively it was James spoke about.
And we'll continue to take a good hard look at whether and or when you know a repurchase program would make sense.
And on the healthcare.
Software stories. So today revenue does remained skewed towards hardware, but we are looking for ways to accelerate the mix of that revenue towards software and services and you mentioned previously that we're already beginning to rollout of bundled offerings where devices are.
Coupled with Fitbit care and a health coach and the other area of opportunity. There is as we launch our consumer premium offering there is an opportunity to sell that.
Into our enterprise customers as well as a lower price tier for digital interventions.
Great. Thank you.
And thank you everyone for joining us today that will conclude today's conference.
Good bye.