Fitbit Inc., which reached an agreement to be acquired by Google, reduced its loss in the third quarter as sales grew 4.8 percent.
Revenue reached $363.9 million against $347.2 million a year ago.
The net loss shrunk to $54.5 million, or 20 cents a share, from $51.9 million, or 52 cents, a year ago.
On an adjusted basis, the net loss was reduced to $8.3 million, or 3 cents, from a loss of $105.0 million, or 10 cents. Adjusted EBITDA was break-even against a loss of $26.7 million in the year-ago quarter.
Fitbit reported cash flow from operations of negative $13 million and non-GAAP free cash flow of negative $27 million for its third quarter of 2020.
“Fitbit continued to play an important role for our community during this uncertain COVID-19 environment by supporting the mental health and overall wellness of our users with innovative products, features and services. We introduced Fitbit Sense, our most advanced health smartwatch that helps users understand and manage their stress and is also our first device with an ECG app. Fitbit is committed to making health data more accessible and actionable with the new Health Metrics Dashboard, which tracks metrics like breathing rate, heart rate variability and SpO2 – all-important metrics when it comes to illness detection,” said James Park, co-founder and CEO. “The response to our new offerings has been strong across both devices and software. We achieved a key financial milestone this quarter with an annual run-rate for consumer services revenue of more than $100 million, highlighting the continued opportunity we have to deepen our relationship with our users.”
Third Quarter 2020 Financial Highlights
- Consumer demand was strong with point-of-sale, including Fitbit.com, up 4 percent year-over-year;
- Sold 3.3 million devices at an average selling price of $104 per device, up 8 percent year-over-year. The year-over-year increase was driven primarily by the introduction of higher-priced smartwatches and consumer demand for its highest-priced new smartwatch, Fitbit Sense;
- U.S. revenue represented 54 percent of total revenue or $195 million, down 6 percent year-over-year;
- International revenue represented 46 percent of total revenue and grew 20 percent to $169 million — EMEA revenue grew 23 percent to $102 million, APAC revenue declined 1 percent to $41 million and Americas, excluding U.S., revenue grew 55 percent to $26 million (all on a year-over-year basis);
- New devices introduced in the past 12 months, Fitbit Charge 4, Fitbit Sense, Fitbit Versa 3, and Fitbit Inspire 2, represented 52 percent of revenue;
- GAAP gross margin was 37.3 percent and non-GAAP gross margin was 38.1 percent. GAAP gross margin increased 620 basis points and non-GAAP gross margin increased 610 basis points year-over-year driven by lower promotions, lower warranty expense, increased share of its direct channel Fitbit.com, and growth of Premium revenue; and
- GAAP operating expenses represented 51.4 percent of revenue increasing 17 percent year-over-year to $187 million, driven by costs related to the pending acquisition by Google LLC; non-GAAP operating expenses represented 41.8 percent of revenue, increasing 6 percent year-over-year to $152 million, driven by higher employee costs partially offset by lower marketing costs and lower customer service costs.
Third Quarter 2020 Operational Highlights
- Fitbit said it debuted its most advanced health smartwatch, Fitbit Sense, with the first EDA sensor on a smartwatch to help manage stress, plus its ECG App, nightly SpO2, and an on-wrist skin temperature sensor. Fitbit also launched Versa 3, with built-in GPS, Google Assistant and speaker to its Versa 2 product offering.
- Introduced Inspire 2 fitness tracker with advanced fitness features including Active Zone Minutes.
- Smartwatches represented 60 percent of revenue, trackers represented 36 percent of revenue, and non-device software 4 percent of revenue. Smartwatch sales benefited from the introduction of two new smartwatches, Sense and Versa 3.
- Consumer services revenue grew 607 percent year-over-year to $15 million and represented 4 percent of sales. Consumer services revenue includes revenue from its Premium subscription and extended warranty offerings. Fitbit Premium now has more than 500,000 paid subscribers.
- Annual run-rate for consumer services revenue exceeded $100 million for the quarter. Fitbit calculates its annual run rate for consumer services revenue by adding its consumer services revenue and its deferred consumer services revenue from its Premium bundled with devices for a quarter multiplied by four. Each of the new products launched offers a bundled Premium software add-on service.
- Introduced the Health Metrics Dashboard to track health metrics like breathing rate, resting heart rate, heart rate variability, SpO2, and skin temperature in one place.
- Fitbit.com’s revenue grew 54 percent year-over-year to $42 million and represented 12 percent of sales.
- The Fitbit Health Solutions business grew 14 percent year-over-year to $22 million.
COVID-19-Related Impact On Financials
- The business during the third quarter of 2020 was negatively impacted by COVID-19 which caused disruptions in the development, manufacturing and sourcing of key components, shipments and sales of its products.
- Fitbit incurred no increase in collection risk due to COVID-19 and reversed the COVID-19 credit allowance of $6 million during the third quarter of 2020.
- The current circumstances are “dynamic and unprecedented,” and the impacts of COVID-19 on its business operations, including the duration and severity of the effect on overall consumer demand, cannot be predicted. However, Fitbit expects COVID-19 and associated mitigation efforts to continue to have a significant negative impact on its results in 2020, although the nature and extent will depend on future developments that are evolving and highly uncertain.
Additional Highlights and Information
- Fitbit announced its entry into a Merger Agreement with Google on November 1, 2019. Upon the close of the all-cash transaction, subject to customary closing conditions, Fitbit stockholders will receive $7.35 per share in cash, valuing the company at a fully diluted equity value of approximately $2.1 billion.
- Fitbit stockholders approved the transaction on January 3, 2020.
- A regulatory review of the transaction is ongoing. On August 4, 2020, the European Commission announced it had initiated a Phase II review of the transaction. The duration of a Phase II review cannot be foreseen with certainty. While Fitbit still expects Google to secure the necessary approvals and to close the transaction in 2020, the time frame may extend beyond that. The extent to which COVID-19 may impact the timing of receipt of these approvals is uncertain and cannot be predicted. Prior to closing, Fitbit said it does not expect to provide additional updates on the regulatory process other than during the release of future earnings reports.
- Due to the pending acquisition by Google, Fitbit does not plan to host an earnings conference call nor provide next-quarter or full-year guidance.
Photo courtesy Fitbit