Fitbit Reports Strong Q2 Revenue Surge Amid New Product Launches and Digital Health Expansion
In recent years, a large number of digital health companies have gone public, and many already-listed companies have entered this sector by establishing subsidiaries or acquiring other firms. Below is a summary of insights from the second-quarter investor conference calls and quarterly financial reports of thirteen listed companies. VCBeat (WeChat: vcbeat) has compiled these companies’ latest trends and detailed developments in the digital health field.
Fitbit, the San Francisco-based manufacturer of wearable activity trackers, recently announced its revenue and profit for the second fiscal quarter. The better-than-expected results drove up its stock price, while company executives expressed optimism about “the outlook for the second half of this year and next year.” This confidence stems largely from the company’s plan to launch new products before the end of this year, as well as its hiring of former Walgreens employee Adam Pellegrini to deepen Fitbit’s development in the digital health sector. In the second quarter, Fitbit sold a total of 5.7 million devices, with U.S. sales accounting for 76% of the quarter’s total revenue. Sales of new products, including the Blaze smart fitness watch, the Alta, and related accessories, exceeded 54% of the second-quarter revenue. Fitbit attributed its strong growth to initiatives such as expanding into international markets and the anticipation generated by its network community of users and consumers for new products. The company will release several new items during the holiday season at the end of this year.
To reverse the declining trend of consecutive drops in revenue and sales, watchmaker Fossil Group acquired the wearable device company Misfit last year, shifting its business focus to smartwatches and tracking devices. The company aims to become an industry leader by launching what executives describe as “unprecedented products.” During a joint earnings conference call with investors and analysts, Fossil Group CEO Kosta Kartsotis stated that the company would roll out three product categories—hybrid watches, smartwatches, and activity trackers—under eight brands over the next three months, covering 100 stock-keeping units (SKUs), 40 countries, and 20 languages. Although these divisions represent only a small portion of Fossil Group’s historical operations, they have become the primary means for the company to turn things around and achieve growth.
WebMD began testing its new application, WebMDRx, in the previous quarter to help consumers and physicians better understand medication costs. As traffic from external sources such as Google referrals continues to decline, the company has placed greater emphasis on internal traffic. Although the user base declined slightly, page views actually increased. This was achieved by adding new content and social media features to its website to encourage users to spend more time browsing. Ultimately, the company’s annual net profit rose by 33% year over year, while annual revenue increased by 13% year over year.
Garmin’s fitness wearable device business is experiencing continuous growth. Driven by the launch of several new products and the steadily increasing download volume from the Connect IQ app store, the wearable device segment has accounted for 26% of the company’s overall growth. The company’s fitness division reported revenue of $213 million in the second quarter of 2016, a 34% year-over-year increase, compared to $159 million in the same quarter of 2015. The company’s gross profit margin has remained stable at approximately 56%, while its operating profit margin rose by 4 percentage points year-over-year to reach 25%. Although the report indicated growth across all segments, the company believes that wearable products contributed the most to this growth.
Teladoc CEO Jason Gorevic had ambitiously stated that the company would implement its plan to enter the chronic disease management sector by the ATA conference at the end of 2016, but during the second-quarter earnings call, he announced a postponement of this initiative. Overall, Teladoc’s revenue for the quarter fell short of expectations due to additional advertising expenditures from direct-to-consumer behavioral health campaigns; however, the company narrowed its losses compared to the first quarter, demonstrating strong performance in the second quarter. Gorevic remarked, “In light of the consistently positive customer feedback on our behavioral health offerings, we have decided to further invest resources in the second half of this year into integrating our behavioral health products with HealthiestYou, while abandoning expansion into other areas such as diabetes. We believe this strategic allocation of resources will deliver the greatest value to our customers and generate the highest returns for our investors.”
Two years ago, sportswear company Under Armour acquired several fitness apps and subsequently established its internet fitness division. However, this division appeared to be completely overlooked during the company’s recent earnings call. CEO Kevin Plank failed to acknowledge the departure of Robin Thurston, former CEO of MapMyFitness and an executive in UA’s internet fitness division, and even ignored the fact that the division had incurred a $7.5 million loss. This amount represented half of the division’s first-quarter loss, but CFO Chip Molloy stated that the figure was likely affected by accounting practices, as $5 million in costs from the internet fitness division were reallocated to the North America segment. Apart from this, the division’s revenue grew by 73%, reaching $23 million.
Dexcom’s biggest victory and its biggest setback in the second quarter both involved the FDA. On the positive side, a ruling by an FDA advisory panel may soon allow Dexcom to change the intended use of its continuous glucose monitoring (CGM) products from adjunctive use to replacing fingerstick blood glucose meters. On the negative side, voluntary product recalls inflicted losses on all of Dexcom’s stakeholders, resulting in second-quarter losses that were higher than expected. Although revenue increased by 47% year over year (rising from $93.2 million in the second quarter of 2015 to $137.3 million in the current quarter), the company ultimately reported a net loss of $20 million.
Castlight Health, also headquartered in San Francisco, launched a personalized health shopping platform with high transparency in both price and quality. After introducing a series of well-known subscription services, the company achieved simultaneous growth in revenue and cash flow in the second quarter of 2016. Furthermore, the company is integrating its health benefits platform into its sales model, leveraging the dataset provided by the Castlight Elevate platform to identify employees who may have behavioral health issues and connect them with appropriate medical services. In its third-quarter earnings announcement, Dr. Giovanni Colella, Co-founder and CEO of Castlight Health, announced that the company’s contracted recurring revenue increased by $7 million, maintaining its dominant position among large enterprises such as Caterpillar, Genentech, and Amgen.
DarioHealth recently launched its smartphone-connected blood glucose meter in the United States. Three months later, the company achieved a growth rate exceeding 100%, with revenue reaching $669,000 in the second quarter of 2016. As of the end of June, the company had 4,900 registered users and 2,300 monthly active users, with a cash balance of $6.4 million. Following its soft launch in March, device sales saw stronger growth, with over 3,000 units sold in June, representing a 200% year-over-year increase. Raphael believes that the company has adopted the right digital marketing strategy, and the strong initial results will drive existing users to convert into subscribers for its subscription services.
Senseonics, headquartered in Maryland, is a company dedicated to the research and development of long-term implantable continuous glucose monitors (CGMs). On the same day as its second-quarter earnings conference call, the company announced preliminary results from its pivotal U.S. clinical trial, marking a significant step toward obtaining FDA premarket approval. During the second-quarter conference call, CEO Tim Goodnow noted that an FDA advisory panel had recently approved a request by potential competitor Dexcom to allow CGMs to replace fingerstick blood glucose meters for diabetes management decisions. He stated that Senseonics would follow in Dexcom’s footsteps and seek similar approval for its own product. As expected, Senseonics reported a loss for the quarter due to the absence of new product launches. The company’s net loss for the second quarter of 2016 was $11.9 million, or $0.13 per share, compared with a net loss of $7.2 million, or $3.68 per share, in the second quarter of 2015.
Apple CEO Tim Cook mentioned digital health during the company’s conference call, though it was not the primary focus. He highlighted updates to the Health app in the upcoming iOS release, particularly new medical and fitness features on the Apple Watch. Cook stated, “With the update to watchOS 3 launching this fall, Apple Watch users will benefit from an enhanced user interface, significantly improved performance, and new fitness and health features, including Activity Sharing. The Apple Watch is just getting started, and we look forward to delivering more exciting features to our customers.” Additionally, Apple may launch new data-processing healthcare devices designed for doctors and nurses alongside the release of its next-generation iPhone in 2017.
CVS and Walgreens did not dwell on their mobile health businesses during their quarterly conference calls. Instead, the discussions focused on recent acquisition plans: CVS’s acquisition of Target’s retail pharmacy business and Walgreens’ proposed acquisition of Rite Aid, which is currently under review by the Federal Trade Commission. However, during CVS’s conference call, management emphasized a strategy aimed at enhancing the value of in-store individual customers through the use of mobile applications and personalized features. CEO Larry Merlo noted a general decline in foot traffic during the quarter but stated, “On the other hand, our most valuable customers have increased their in-store spending and contributed to higher profit margins. We will continue to offer value-based, derivative products informed by longitudinal shopping habits through personalized services, leveraging channels such as our mobile app and email to strengthen promotional effectiveness.”
“There is still a vast amount of data waiting for us to mine!” he added. “Moreover, collecting data is one thing; using it to create value or change customer behavior is another. Whether for ExtraCare or pharmacies, we have already made significant investments in this area. We will adopt unconventional approaches, and we believe this will help the company gain a competitive advantage in the market.”
IBM CEO Martin Shroeter repeatedly pointed out during the conference call that although the application scope of the Watson supercomputer has long extended beyond healthcare, the platform is still frequently used in the healthcare sector. He mentioned that the UK’s National Health Service (NHS), the U.S. Department of Veterans Affairs, and the American Diabetes Association all announced last quarter that they are leveraging Watson for patient care. IBM is also collaborating with Teva Pharmaceuticals to “improve medication efficacy for millions of patients with complex chronic diseases using IBM Watson Health cloud solutions.”
“We have launched Watson Care Management, which provides structured programs and tools to help care coordinators deliver care to patients,” said Shroeter. “The product also helps patients avoid readmissions. In the second quarter of this year, we established partnerships with the American Cancer Society and the American Diabetes Association, which has strongly driven the rapid growth of Watson Health within advanced clinical and research communities. At the White House Cancer Summit, we committed to leveraging our cognitive solutions to help physicians provide personalized care to 10,000 veterans battling cancer.”