Fitbit Inc. reported revenues catapulted 168 percent in the third quarter while adjusted EBITDA nearly doubled. The fitness wearables leader sharply raised its guidance for the year and also announced plans for secondary offering.
Revenues reached $409.3 million, coming in well-above the company’s prior guidance calling for revenues in the range of $335 million to $365 million.
Adjusted EBITDA came in at $85.0 million, up from $44.3 million a year ago, and easily above guidance in the range of $35 million to $45 million. Non-GAAP net income came in $59.2 million, or 24 cents a share, up from earnings of $27.1 million, or 13 cents a year ago. EPS guidance had called for earnings in the range of 7 to 10 cents.
“Connected devices are increasingly becoming an important pervasive part of people’s lives,” said James Park, Fitbit co-founder and CEO, on a conference call with analysts. “At the same time corporate wellness is a strategy to curb rising healthcare costs and improve home engagement and is accelerating rapidly in the U.S. and many other parts of the world.”
Park also said that given the results, “we don’t believe that smart watches or other competitive products have had a mature impact in the third quarter results.”
Investors had been concerned that the launch of the Apple Watch would slow sales.
Fitbit’s U.S. revenue grew 130 percent year-over-year. In the U.S., Park said sales continue “to grow quickly even with our largest partners,” while Macy’s was added as a new account with distribution reaching more than 600 of its doors. Fitbit’s U.S. market share during the quarter in connected activity tracker reached a commanding 88 percent on a dollar basis.
In other regions, APAC’s sales jumped 314 percent; EMEA, 282 percent; and Other Americas, 286 percent. U.S. comprised 66 percent of Q3 revenue; APAC, 16 percent; EMEA, 12 percent; and Other Americas, 6 percent.
Overall, Fitbit sold 4.8 million connected health and fitness devices, up from 4.5 million a year ago. The Charge, Charge HR and Surge comprised 79 percent of revenue.
The mix shift towards higher priced products resulted average selling prices (ASPS) increasing 33 percent year-over-year to $84 from $63 in the same quarter a year ago. On a currency-neutral basis, ASPs jumped 41 percent to $89.
Adjusted earnings in the quarter exclude several numerous non-recurring items tied to Fitbit’s June 2015 initial public offering, its acquisition of FitStar, a 2014 recall of the Fitbit Force, and effect of changes in foreign exchange rates.
Net income reached $45.8 million, up from $20.5 million. EPS slid to 19 cents a share from 34 cents due the shares distributed in the IPO.
Looking ahead, Park said Fitbit is investing more aggressively in marketing to further accelerate its brand and sales globally. In the second half, campaigns will be executed in 28 countries compared to eight last year. Paid digital search efforts are performing above expectations while Jens Voigt, recently retired from tour level professional cycling, as well as Ryan and Sara Hall, spouses and elite U.S. runners, were recently added as brand ambassadors.
Park also said that with the fourth quarter marking the first full holiday season for Surge and Charge HR, “we are looking forward to a strong finish to the year.” He noted that these products have recently been enhanced with software updates.
Other highlights to the quarter included several enhancements for other regions and cultures, such as integrating Baidu maps in China; the launch of a universal Fitbit App for Windows 10, which makes Fitbit available on more than 200 mobile and computing platforms; and the addition of over 20 new enterprise Corporate Wellness customers in the last four months.
In updating its guidance for the year, Fitbit said it now expects revenue in the range of $1.77 to $1.80 billion, up from its previous estimate $1.6 billion to $1.7 billion. Adjusted EBITDA is projected in the range of $345 to $365 million versus $275 million to $310 million previously. Non-GAAP EPS is now targeted to reach between 92 and 96 cents, up from 69 cents to 77 cents previously.
Shares still slid last Tuesday after the report arrived to $37.21 from $40.80 the day before because of the announced secondary offering. Fitbit plans to sell 7 million shares to support R&D and growth while certain shareholders are selling 14 million. Lockup restrictions were also released for employees and consultants, amounting to about 2.3 million shares, or 10 percent of Fitbit’s common stock. Shares still remain well above the IPO offering price of $20.
