EFTA01070254.pdf

JAWBONE PROPRIETARY + CONFIDENTIAL EFTA01070254 Q2 RESULTS EFTA01070255  HIGHLIGHTS NEW PRODUCTS DRIVE REVENUE • Gross sales was $57.6M, compared to Plan of $54.8M - BIG generated $23.4M or nearly half of Q2's gross revenue • With the launch of BIG Jambox in May, Q2 net revenue nearly doubled Q1's level $49.1M in Q2, compared with $28.6M in O1 (and Q2 Plan of $48.5M) • Q2 gross margin came in at 16.0%, compared with Plan of 22.2% - Variance to the Plan was due primarily to the higher initial COGS on BIG and Jambox, and higher level of airfreighting to meet customer demand - We secured 18% reduction on Jambox COGS starting w Q3 and are driving reductions on BIG to bring GM back to 22-23% range EFTA01070256  HIGHLIGHTS NEW PRODUCTS DRIVE REVENUE • Operating expense was 5% lower (favorable) than Plan • Due to the gross margin variance, operating loss was 1O% larger (unfavorable) than Plan • Cash outflow was $27.7M, which was $9.9M more (unfavorable) than Plan of $17.9M for Q2 - Timing difference as working capital (inventory) built up earlier than the Plan assumed. EFTA01070257  INCOME STATEMENT Forecasted Pos (Neg) Qtr Ended Qtr Ended Forecast Percent Amounts in 000's $ 6/30/2012 6/30/2012 Variance Variance Gross revenue $ 57,598 $ 54,760 $ 2,838 5% Sales adjustments (8,493) (6,292) (2,201) -35% Net revenue 49,105 48,468 637 1% Total cost of goods sold 41,225 37,703 3,522 -9% Gross profit 7,880 10,765 (2,885) -27% Gross margin (%) 16.0% 22.2% -6.2% Operating expenses Selling and marketing 7,852 10,680 (2,828) 26% General and administrative 3,796 5,022 (1,226) 24% Research and development 12,116 10,138 1,978 -20% Depreciation and amortization 771 771 NA Total operating expenses 24,535 25,840 (1,305) 5% Operating income (loss) (16,655) (15,075) (1,580) -10% *PRELIMINARY AND UNAUDITED FINANCIALS. FORECASTED IS THE ORIGINAL PLAN SHOWN TO THE BOARD IN JANUARY 2O12. THE FINANCIALS INCLUDE GAAP TREATMENT FOR ITEMS SUCH AS REVENUE RECOGNITION UNDER EITF O8-O1 AND CAPITALIZATION OF OVERHEAD AND FREIGHT INTO INVENTORY. EXCLUDED FROM THESE FIGURES IS SFAS 123R STOCK-BASED COMPENSATION EXPENSE. Tuesday, September 18, 12 EFTA01070258  BALANCE SHEET ($s in 000s) Preliminary and Unaudited 6/30/12 3/31/12 12/31/11 ASSETS Current assets: Cash & equivalents $ 35,178 $ 52,899 $ 77,066 Accounts receivable and other receivables, net 29,797 3,623 18,688 Inventory 22,039 17,386 14,175 Prepaids and other current assets 4,217 4,351 2,341 Total current assets 91,231 78,259 112,270 Property and equipment, net 6,024 5,977 5,538 Other assets 3,811 4,514 7,399 TOTAL ASSETS $ 101,066 $ 88,750 $ 125,207 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 25,640 17,448 29,862 Accrued expenses 30,123 19,721 25,329 Deferred revenue 3,239 3,060 3,109 Other current liabilities 13,007 12,910 15,127 Total current liabilities 72,009 53,139 73,427 TOTAL LIABILITIES 72,009 53,139 73,427 Stockholders' equity: Common stock, preferred stock, & add'l paid in capital 176,050 165,715 165,321 Retained earnings (retained loss) (146,998) (130,110) (113,550) Accumulated other comprehensive income (loss) 5 6 9 TOTAL EQUITY 29,057 35,611 51,780 TOTAL LIABILITIES AND EQUITY $ 101,066 $ 88,750 $ 125,207 *PRELIMINARY AND UNAUDITED FINANCIALS. FORECASTED IS THE ORIGINAL PLAN SHOWN TO THE BOARD IN JANUARY 2012. THE FINANCIALS INCLUDE GAAP TREATMENT FOR ITEMS SUCH AS REVENUE RECOGNITION UNDER EITF 08-01 AND CAPITALIZATION OF OVERHEAD AND FREIGHT INTO INVENTORY. EXCLUDED FROM THESE FIGURES IS SFAS 123R STOCK-BASED COMPENSATION EXPENSE. Tuesday, September 18, 12 EFTA01070259  STATEMENT OF CASH FLOW Quarter Ended Amounts in 000's $ 6/30/2012 Cash flow from operating activities Net loss $ (16,888) Depreciation & amortization 1,079 Stock-based compensation expense 266 Effects of exchange rate changes on monetary assets and liabilities (1) Changes in operating assets and liabilities: Accounts receivable (26,174) Inventory (4,653) Other current assets and non-current assets 438 Accounts payable 8,192 Deferred revenue 179 Other current and non-current liabilities 11,268 Net cash used in operating activities (26,294) Cash flow from investing activities Capital expenditures (1,500) Net cash used in investing activities (1,500) Cash flow from financing activities Proceeds from option and warrant exercises 73 Proceeds from issuance of common stock 5,000 Proceeds from issuance of preferred stock 5,000 Net cash provided by financing activities 10,073 Net increase (decrease) in cash and cash equivalents (17,721) Cash and cash equivalents at beginning of period 52,899 Cash and cash equivalents at end of period $ 35,178 *PRELIMINARY AND UNAUDITED FINANCIALS. FORECASTED IS THE ORIGINAL PLAN SHOWN TO THE BOARD IN JANUARY 2O12. THE FINANCIALS INCLUDE GAAP TREATMENT FOR ITEMS SUCH AS REVENUE RECOGNITION UNDER EITF O8-O1 AND CAPITALIZATION OF OVERHEAD AND FREIGHT INTO INVENTORY. EXCLUDED FROM THESE FIGURES IS SFAS 123R STOCK-BASED COMPENSATION EXPENSE. Tuesday, September 18, 12 EFTA01070260  NEW PRODUCTS FUEL OUR REVENUE GROWTH Revenue by Region Revenue by Product 70,000,000 70,000,000 60,000,000 60,000,000 50,000,000 50,000,000 ■ BIG r2 40,000,000 ■ North America 40,000,000 ■ Jambox (1) 73 EMEA ■ ERA ■ AsiaPac 30,000,000 ■ Icon 30,000,000 39% • LATAM ■ Other Headset 37% ■ Other 20,000,000 20,000,000 10,000,000 10,000,000 Q2 2011 Q2 2012 Q2 2011 Q2 2012 Tuesday, September 18, 12 EFTA01070261  Q212 REVENUE* • Our existing products exceeded the Q2 forecast Speakers are the primary contributor with BIG driving 41% of the gross revenue while Jambox is at 37% International (outside North America) sales remained flat as a % of total gross sales year over year due to Q2 BIG rollout was focused on the US region See next chart on revenue by region by product EFTA01070262  Q212 REVENUE* • While the original Plan included gross sales of $9.2M of UP, we still beat the Plan of $48.5M with net revenue of $49.1M - Strong initial customer demand for BIG was a key factor - Jambox continues to show strong demand —BIG is complimenting Jambox, not cannibalizing it • Solid management of pricing - Contra-revenue came in 2 points higher than forecast as a % of gross revenue, But, that was due mainly to one-time event around launch of BIG. Expect Contra- revenue to return to long term trend of 12-13% of gross revenue EFTA01070263  CORE PRODUCTS CONTINUED STRONG SHIPMENT ACTIVITY INTO O2'12* Q2 2012 Gross Revenue by Product Family (Globally) Q2 2012 Gross Revenue by Region by Productline Units Gross ASP Units Gross ASP Product Class Gross Sales Shipped per Unit Region Gross Sales Shipped per Unit BIG $ 23,443,022 117,637 $ 199.28 North America 47,146,050 408,702 115 Jambox $ 21,394,426 165,972 $ 128.90 BIG 18,317,985 90,682 202 ERA $ 7,429,686 107,763 $ 68.94 Jambox 18,062,344 138,966 130 ICON-HD $ 2,809,735 56,018 $ 50.16 Headset 10,655,707 172,256 62 ICON-COSTCO $ 1,026,360 18,003 $ 57.01 Other 110,014 6,798 16 ICON HD+NERD $ 694,727 9,366 $ 74.18 EMEA 7,285,481 52,252 139 Icon $ 688,597 13,213 $ 52.12 BIG 4,426,273 23,272 190 Nerd $ 10,630 242 $ 43.93 Jambox 2,195,236 17,669 124 JB2X $ 10,348 736 $ 14.06 Headset 662,219 10,662 62 Other $ 111,768 8,522 $ 13.12 Other 1,753 649 3 Grand Total $ 57,619,299 497,472 $ 115.82 AsiaPac 3,084,578 35,510 87 BIG 698,764 3,683 190 Jambox 1,052,355 8,617 122 Headset 1,333,459 22,135 60 Other 1,075 LATAM 103,190 1,008 102 Jambox 84,492 720 117 'DIFFERENCES TO FINANCIALS ARE DUE Headset 18,698 288 65 TO DEFERRED REVENUE ADJUSTMENTS Grand Total $ 57,619,299 497,472 $ 115.82 Tuesday, September 18, 12 EFTA01070264  02'12 GROSS MARGIN* • Q2 Gross margin came in at 16.0% versus Plan of 22.2% Sales adjustments were higher than Plan, driving 2 points of the variance Remainder of the variance was due to the standard COGS of BIG and Jambox running higher than Plan. Additionally, we air freighted nearly 100% of BIG orders to meet customer launch dates We have already secured a 18% reduction in the cost of Jambox, starting with Q3. We are negotiating COGS reductions on BIG We are already ocean freighting a significant portion of July/August demand EFTA01070265  02'12 GROSS MARGIN* • Continuing focus on Ex-factory COGS reductions, which is the largest opportunity for improving gross margin over the next 12 months - Goal is to drive > 3O% gross margin within the next 12 months EFTA01070266  02'12 OPEX* • Q2 opex came in at $24.5M, favorable to Plan of $25.8M • Breakdown of Q2 actual opex: Compensation expense (salaries, bonus, benefits, employer taxes) = $8.4M Travel and entertainment = $1.3M Proto/soft tools/test and certs = $1.6M Channel marketing, PR, Corp Marketing = $7.1M (fixed PR/Marketing contracts include West Studios, etc.) Litigation fees, Patent/TM filings = $1.3M Outside services - Contractors and Consultants = $3.3M (majority is for ) Facilities, Insurance, Supplies, Telco, etc. = $1.5M • Current monthly opex run rate is at $8.5lvl EFTA01070267  O2'12 WORKING CAPITAL + CASH FLOW* • A/R DSO were excellent, below our usual 30-35 day range - June DSO came in at 29 days • Inventory Days were at 49 across Q2, reflecting the Build-To-Stock model that we adopted in the past year to be more responsive to customer demand • Cash conversion cycle came in at 17 days for Q2 - Sales were heavily back-end loaded in the quarter, which caused the gross AR balance to increase to $31M at 6/30/12. The cash benefit of the initial BIG launch wil l be realized in early Q3 EFTA01070268  AIR CONTINUES AS OUR BEST MANAGED ASSET* Customer iv Current 5/31/2012 - 6/29/2012 (30) 5/1/2012 - 5/30/2012 (60) 4/1/2012 - 4/30/2012 (90) Before 3/31/2012 (>90) Total Open Balance Open Balance Open Balance Open Balance Open Balance Open Balance Superior Communications $11,436,733 $0 $0 $0 $0 $11,436,733 Costco Wholesale $3,985,609 $615,816 $0 $11,033 $0 $4,612,458 Amazon $3,182,756 $0 $67,383 $3,846 $0 $3,253,985 TESSCO $2,413,800 $0 $0 $0 $0 $2,413,800 Micro Peripherals Ltd $1,933,124 $0 $0 $0 $0 $1,933,124 Powerdata S.A. $1,701,423 $0 $0 $0 $0 $1,701,423 Brightstar US $369,367 $585,694 $0 $0 $0 $955,060 631 Digital River $748,531 $0 $0 $0 $0 $748,531 Beijing Lava Technology Develop Co., Ltd $544,744 ($3,857) $0 $0 $0 $540,887 Luzern Solutions LTD $440,832 $0 $38,511 $0 $0 $479,343 Avoca $449,060 $0 $0 $0 $0 $449,060 Almo Distributing Pennsylvania, Inc $392,508 $0 $0 $0 $0 $392,508 EET Group $358,275 $0 $0 $0 $0 $358,275 Alpha Tech $263,477 $0 $0 $0 $0 $263,477 Force $224,651 $0 $0 $0 $0 $224,651 ABM Wireless Inc. $305,691 ($87,309) $0 $0 $0 $218,382 Dugo Tech Co. , Ltd $200,389 $0 $0 $0 $0 $200,389 Autra - Norway $144,706 $0 $0 ($124) $0 $144,581 Thinking Group Limited $148,910 ($4,384) $0 $0 $0 $144,526 Other 21 Customers $508,360 ($20,582) $113,021 ($2,650) ($38,489) $559,660 GRAND TOTAL $29,752,945 $1,085,378 $218,915 S12,105 ($38,489) $31,030,854 Aging Category as % of Total A/R 96% 3% 1% 0% 0% 100% NOTE: Credit balances are for customer returns that occur after the original shipping invoice has already been paid. Hence a credit balance appears as there is no outstanding invoice to offset that amount. These credit memo's are covered by our various Contra Revenue accruals which are liability accounts The credit memo stays on the AIR ledger because the customer has not elected to use that credit to offset another AIR invoice or ask us for a cash refund The difference between the AR aging and the AR balance represented on the balance sheet is due to the AR reserve relating to the UP Guarantee Tuesday, September 18, 12 EFTA01070269  GLOBAL HEADCOUNT BY FUNCTION AND LOCATION FOCUS CONTINUES TO BE HEADCOUNT* year/year By Primary Function 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12 % increase 46 52 50 50 66 43% HW, Systems Engr & Prog Mgmt 19 20 21 30 37 95% G&A 19 22 25 28 29 53% Product Management 26 30 33 32 36 38% Sales, Mktg, Customer Care 32 35 38 33 39 22% Supply Chain 56 66 75 71 79 41% Grand Total 198 225 242 244 286 44% year/year By Location 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12 % increase CHINA 18 26 31 32 37 106% EUROPE - Remote 11 10 13 11 12 9% US - Remote (mainly sales) 15 16 16 15 23 53% SAN FRANCISCO, CA 75 86 91 94 114 52% SEATTLE, WA 3 3 4 4 3 0% SUNNYVALE, CA 49 56 58 64 73 49% TIJUANA BAJA MEXICO 27 28 29 24 24 -11% Grand Total 198 225 242 244 286 44% Tuesday, September 18, 12 EFTA01070270  GLOBAL HEADCOUNT BY FUNCTION* IS OUR LARGEST GROUP Headcount by Function Supply Chain Sales, Mktg, Customer Care Product Management HW, Systems Engr & Prog Mgmt Grand Total Jun 2011 Jul 2011 Aug 2011 Sep 2011 Oct 2011 Nov 2011 Dec 2011 Jan 2012 Feb 2012 Mar 2012 Apr 2012 May 2012 Jun 2012 Tuesday, September 18,12 EFTA01070271  GLOBAL HEADCOUNT BY LOCATION* SF/SUNNYVALE HOUSES 2/3RD OF OUR STAFF Headcount by Location 286 242 241 243 244 I. TIJUANA BAJA MEXICO lb—SUNNYVALE, CA Mot SEATTLE, WA ISAN FRANCISCO, CA 4 4 4 4 4 US - Remote (mainly sales) 4 3 3 3 EUROPE - Remote 3 9 105 CHINA 100 91 90 2 94 • i I im oGrand Total i & ITT 75 I 25 50 16 15 is is Ill 0 15 aria iiiii 15 al . • . . . . i tia al. a 11. ■ Jun 2011 Jul 2011 Aug 2011 Sep 2011 Oct 2011 Nov 2011 Dec 2011 Jan 2012 Feb 2012 Mar 2012 Apr 2012 May 2012 Jun 2012 Tuesday, September 18, 12 EFTA01070272  CHANGING OUR BUSINESS MODEL EFTA01070273  CHANGING OUR BUSINESS MODEL FOR THE BETTER • Our inventory model has been a "bootstrap" one, whereby we take limited cash risk by making purchase commitments as late as possible and within a short time frame - Basically a Build-To-Order (BTO) model with limited commitment to the supply chain and factory • This model worked well when we were a sub-$100N1 revenue headset company - Demand for headsets (a business-class product) was even throughout the year (no seasonal fluctuation) - So our factory and supply chain ran at a fairly even pace - The BTO model optimized the financial aspects EFTA01070274  CHANGING OUR BUSINESS MODEL FOR THE BETTER • We recognized several quarters back that our shift into high-tech consumer electronics requires a different business model - CE products such as our Wireless Speakers have highly seasonal demand - The addressable TAM's are multiple times larger than the headset market - These products are distributed in a wider variety of channels (branching beyond our Carrier stores and into Mass Merchant Retail, CE Superstores, Discount Merchants and other channels on an international dimension EFTA01070275  CHANGING OUR BUSINESS MODEL FOR THE BETTER • The BTO model doesn't optimize the financial metrics of Jawbone, mainly the key elements of the income statement: Limits our ability to capture any demand upside (we left > $15M revenue on-the- table in O4'2011—just factoring in Headsets and Speakers) Providing such short leadtimes on commitments to the factory and material suppliers results in lower priority and higher costs for our products Limiting the production scheduling time horizon for our factory results in unplanned overtime, inefficiencies and puts strain on product quality processes Creates a mindset where we chase demand, rather than shape it and optimize it EFTA01070276  CHANGING OUR BUSINESS MODEL FOR THE BETTER • We have been revamping the staffing, systems, processes to changeover the company to a Build-to-Stock (BTS) model We are forecasting demand at a detailed level for a 6-9 month horizon, versus our prior 3 month detailed (product SKU, customer, weekly) focus We are planning the factory and supply chain to this longer time horizon We are upgrading the quality, reliability, test, and manufacturing operations processes to drive high gross margin at high volume ramp • The benefit of this changeover in 2nd Half of 2012 for the Jambox product line is NPV of + $12.6M for the Company - Applying this across all product lines going forward will add significant value to Jawbone EFTA01070277  FACTORY VARIABILITY Shipments Per Week (Units) 160000 140000 120000 I 100000 80000 —*—Actual 60000 ---Planned 40000 20000 0 4,;1, t• c) ,b, ,,c) ,a 1, 4. .,,c) ,c‘ poi „,,N (0 y1 ,(0 ,,>. 150 ,,1 ,,(0 1:6'. Tuesday, September 18, 12 EFTA01070278  FACTORY VARIABILITY Historical Q2CY12 WoW Volatility Performance Performance Target - # of Weeks % of Total # of Weeks % of Total # of Weeks % of Total less than 30% 27 34% 7 58% 9 90% between 30% - 50% 9 11% 3 25% 1 10% between 50% to 100% 22 28% 1 8% 0 0% between 100% to 150% 13 16% 0 0% 0 0% over 150% 8 10% 1 8% 0 0% Historical Performance Q2CY12 Performance Target WoW Volatility # of Weeks % of Total # of Weeks % of Total % of Total less than 30% 27 34% 7 59% 90% between 30% - 50% between 50% to 100% 9 22 11% 28% L 3 1 25% 8% 10% 0% between 100% to 150% 13 16% 0% 0% over 150% 8 10% 1 8% 0% Tuesday, September 18, 12 EFTA01070279  2ND HALF 2012 FOCUS IS ON DRIVING PROFITABILITY • We piloted this BTS approach with our ODM factory (Foxlink) and key materials suppliers to see what Product COGS and Overhead reductions we can drive In exchange for providing 6 month visibility on our material/production needs and making commitments to purchase this inventory, we were able to secure significant savings on the JamBox speaker product The new Product COGS for July onwards is now $57.48 (blended), a $12.68 drop or 18% decrease from the Q1'12 cost In addition, with our longer range demand /supply plan and factory load- balancing, we plan to ocean freight most of these JamBoxes to the North American market. Compared to our standard mode of airfreighting, this will generate another $3.00 to 4.00 per unit savings in logistics costs EFTA01070280  2ND HALF 2012 FOCUS IS ON DRIVING PROFITABILITY This combined Product and Logistics cost savings totals 21% This improves Jambox gross margins by 16 points at our current MSRP of $199 Or we can drop MSRP to $159-169 range and still generate the same gross margin percent and drive significant revenue volume and market share increase • The trade-off of this build-ahead plan is the initial increase of the inventory in mid-Q3 through early Q4 - Cash Conversion Cycle goes from today's +8 days range to +50 to +70 days - Next slide that shows the cash flow impact of the BTO model that Jawbone operated on prior to 2012 and the BTS model that we wil l run on in 2nd Half of 2012 EFTA01070281  THE OLD BUILD-TO-ORDER INVENTORY MODEL (PRE-2012) $3 00 $2.50 vill 1 . 1 111"I lligli liallill6 We collect the Customer A/R BEFORE we payour Suppliers $2.00 for the Inventory Benefits: