Fitbit reported a steep loss in the second quarter as sales tumbled 39.8 percent. Results still exceeded the company’s guidance.

Sales in the quarter reached $353.3 million versus $586.5 million in the same period a year ago.

The fitness tracker specialist showed a loss of $58.2 million, or 25 a share, in the period against earnings of $6.3 million, or 3 cents, a year ago. The operating loss came to $63.4 million against operating earnings of $9.7 million.

On a non-GAAP basis, the operating loss came to $38.5 million against earnings of $42.1 million. The non-GAAP net loss was $19.3 million, or 8 cents, against earnings of $29.5 million, or 12 cents. Adjusted EBITDA showed a loss of $28.2 million against earnings of $48.3 million.

When it reported first-quarter earnings on May 3, Fitbit said it expected second quarter sales in the range of $330 million to $350 million, a non-GAAP net loss per share in the range of 14 to 17 cents,  and an adjusted EBITDA loss in the range of $45 million to $55 million.

“Consumer demand in the second quarter was better than anticipated, enabling Fitbit to reduce channel inventory and generate better sales. We are executing according to our transition plan and have increased confidence in achieving our full year results,” said co-founder and CEO James Park. “Our smartwatch, which we believe will deliver the best health and fitness experience in the category, is on track for delivery ahead of the holiday season and will drive a strong second half of the year. In the long term, we are confident in our vision for the future and are uniquely positioned to succeed by leveraging our brand, community, and data to drive positive health outcomes.”

Second Quarter 2017 Financial Highlights

  • U.S. revenue contracted 55 percent to $199 million, EMEA revenue grew 9 percent to $109 million, APAC revenue grew 46 percent to $21 million, and Americas excluding U.S. revenue contracted 11 percent to $24 million, all year-over-year from the second quarter of 2016.
  • New products introduced in the last 12 months, Fitbit Charge 2™, Fitbit Alta HR™, and Fitbit Flex 2™ represented 81 percent of revenue.
  • Average selling price increased 4 percent sequentially from the first quarter of 2017 and 2 percent year-over-year from the second quarter of 2016 to $100.76 per device.
  • Accessory and other revenue added the equivalent of $3.98 per device.
  • Gross margin was 42.2 percent, and non-GAAP gross margin was 43.0 percent, each favorably impacted by product mix, the increase in average selling price and lower warranty expense.
  • GAAP operating expenses declined 10 percent to $213 million and non-GAAP operating expenses declined 7 percent to $191 million, both year-over-year from the second quarter of 2016.

Second Quarter 2017 Business Highlights

  • Sold 3.4 million devices, up 14 percent sequentially from the first quarter of 2017, down 40 percent year-over-year from the second quarter of 2016.
    38 percent of the activations in the quarter came from customers who made repeat purchases. Of the repeat purchasers, 39 percent came from customers who were inactive for 90 days or greater.
  • The Fitbit app was the #1 downloaded health and fitness application, based on U.S. downloads, on both the iOS and Android platforms.
  • The Community section in the Fitbit app, which includes a Feed feature designed to increase engagement and offer users a supportive environment continued to grow. Since launching the feature in March 2017, more than 2.5 million users have joined a Group and more than 11.2 million users have utilized the Feed, with more than 648 million views of shared posts.

Third Quarter 2017 Guidance

  • Revenue in the range of $380 million to $400 million.
  • Non-GAAP net loss per share in the range of ($0.05) to ($0.02).
  • Adjusted EBITDA loss in the range of ($12) million to breakeven.
  • Effective non-GAAP tax rate of approximately 46 percent.
  • Stock-based compensation expense estimated in the range of $23 million to $25 million and share count of approximately 230 million.

Full Year 2017 Guidance

  • Revenue in the range of $1.55 billion to $1.7 billion.
  • Non-GAAP gross margin of 42.5 percent to 44 percent.
  • Non-GAAP net loss per share in the range of ($0.40) to ($0.22).
  • Non-GAAP free cash flow loss in the range of ($80) million to ($50) million.
  • Effective non-GAAP tax rate of approximately 46 percent.
  • Stock-based compensation expense in the range of $90 million to $100 million and share count of approximately 230 million.

Previously, Fitbit had targeted revenue in the range of $1.5 billion to $1.7 billion and  non-GAAP net loss per share in the range of 44 cents to 22 cents.

Photo courtesy Fitbit