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Fitbit (NYSE: FIT) reported Q3 EPS of $0.19, in-line with the analyst estimate of $0.19. Revenue for the quarter came in at $503.8 million versus the consensus estimate of $506.93 million.

GUIDANCE:

Fitbit sees Q4 2016 EPS of $0.14-$0.18, versus the consensus of $0.75. Fitbit sees Q4 2016 revenue of $725-750 million, versus the consensus of $985.1 million.

Fitbit sees FY2016 EPS of $0.55-$0.59, versus the consensus of $1.18. Fitbit sees FY2016 revenue of $2.32-2.35 billion, versus the consensus of $2.58 billion.

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Fitbit Reports Third Quarter Revenue Growth of 23% to $504M, GAAP Diluted EPS of $0.11, and Non-GAAP Diluted EPS of $0.19

SAN FRANCISCO--(BUSINESS WIRE)-- Fitbit, Inc. (NYSE: FIT), the leader in the connected health and fitness market, today reported revenue of $504 million, GAAP diluted net income per share of $0.11, non-GAAP diluted net income per share of $0.19, GAAP net income of $26 million, and Adjusted EBITDA of $81 million, for its third quarter of 2016.

“I am pleased to see positive reception for our new products launched in the third quarter. We are attracting new customers while our existing ones are upgrading their devices, underscoring the strength of the Fitbit brand and growing relevancy of wearables as part of consumers’ everyday lives,” said James Park, Fitbit co-founder and CEO. “We continue to grow and are profitable, however not at the pace previously expected. We are focused on improving the utility of our products and integrating more deeply into the healthcare ecosystem and believe we can leverage our brand and community to unlock new avenues and adjacencies of growth.”


Third Quarter 2016 Financial Summary

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Third Quarter 2016 Financial Highlights

Revenue increased 23% year-over-year to $504 million

U.S. comprised 72% of Q316 revenue; EMEA 16%, APAC 7%, and Other Americas 5%

U.S. revenue grew 33% year-over-year; EMEA 64%, APAC (45)%, and Other Americas 7%

GAAP net income of $26 million, non-GAAP net income of $46 million

GAAP diluted net earnings per share (EPS) of $0.11, non-GAAP EPS of $0.19

Adjusted EBITDA of $81 million

New products – Fitbit Blaze TM, Alta TM, Fitbit Charge 2 TM, Fitbit Flex 2 TM and related accessories – comprised 79% of Q316 revenue, compared to 54% in Q216.

GAAP and non-GAAP gross margin were flat year-over-year at 48% and up 600 basis points sequentially. Higher estimated warranty claims for legacy products were offset by lower costs on certain replacement units.

GAAP operating expenses increased by 52% and non-GAAP operating expenses increased by 46% primarily driven by a 93% increase in GAAP and 91% increase in non-GAAP R&D spend. Sales and Marketing costs remain the largest expense line item with GAAP and non-GAAP costs rising 23%. The expense in R&D and sales and marketing was to bolster innovation and growth. The bulk of the expense came from headcount. R&D headcount increased 105% year-over-year and represented approximately 60% of our workforce.

Third Quarter 2016 and Recent Fitbit Operational Highlights

11% growth in unit sales, 11% rise in average selling price
60% of the activations in the quarter came from new customers buying new products, 40% from customers who made repeat purchases of new products.

Of the repeat customers, approximately 20% were reactivations (customers who were inactive for 90 days or greater).
Corporate wellness: Expanded reach by signing partnership with Virgin Pulse, one of the leading corporate wellness technology companies; added new customers including Pitney Bowes and Dr. Pepper/Snapple Group.

Substantially completed the global installation of new display materials in many retail locations.

Introduced two new products, Charge 2 and Flex 2, and associated accessories; introduced a new accessories partnership with Simply Vera Vera Wang for Kohl's.

Introduced Blaze and Alta gold series and new accessories for each device.

Launched new software feature Adventures, providing a virtual, personal challenge experience for Fitbit users.
Business Outlook

Full year 2016:

The company expects revenue between $2.320 billion and $2.345 billion, representing growth of 25%-26%, with non-GAAP earnings per diluted share in the range of $0.55 to $0.59, and a non-GAAP tax rate of approximately 34%.

Fourth quarter 2016:

The company expects revenue between $725 million and $750 million, representing growth of 2%-5%, with non-GAAP earnings per diluted share in the range of $0.14 to $0.18, and a non-GAAP tax rate of approximately 33%.