GoPro Inc (GPRO) 2014 Q2 法說會逐字稿

Good day everyone and welcome to the GoPro second-quarter 2014 financial results conference call. (Operator Instructions). Now at this time I would like to turn things over to Jeff Brown, Vice President of Communications at GoPro. Please go ahead.

Thank you. Good afternoon and welcome to GoPro's second-quarter 2014 financial results call. Before we start I want to remind everyone that this is an audio only call.

With me today are GoPro's CEO, Nicholas Woodman; President, Tony Bates; Chief Financial Officer, Jack Lazar; and Chief Operating Officer, Nina Richardson.

Before we begin I would like to remind you that statements made on this call including but not limited to those about our projected future and financial results including revenue and expenses, economic and marketing trends, product benefits, our future plans, prospects and growth opportunities, the continued adoption of our products, the anticipated benefits of our long-term strategy, our customers, competitive position, market share and leadership position in various markets constitutes forward-looking statements.

These forward-looking statements and all other statements that may be made on the call are not historical facts. They are subject to a number of risks and uncertainties that may cause actual results to differ materially. These forward-looking statements speak only as of today's call and we do not undertake any obligation to update these forward-looking statements.

We refer you to our financial prospectus filed with the SEC on June 26, 2014 in particular to the section entitled risk factors and to other reports that we may file from time to time with the SEC for additional information on the factors that can cause actual results to differ materially from our current expectations.

We report net income and basic and diluted net income per share in accordance with GAAP and additionally on a non-GAAP basis. We believe that non-GAAP information is useful because it can enhance the understanding of our ongoing economic performance. We use non-GAAP reporting internally to evaluate and manage our operations. We have chosen to provide this information to enable investors to perform comparisons of operating results in a manner similar to how we analyze our own operating results.

A reconciliation of GAAP to non-GAAP financial data can be found in our earnings press release issued today and we ask that you review this information in conjunction with this call. All numbers that are discussed in today's conference call are non-GAAP unless otherwise noted.

In addition to the earnings press release, we have posted slides containing detailed financial data and metrics for the second quarter. Both of these documents and a link to the webcast for today's earnings conference call are posted on the events and presentations page of the GoPro investor relations website for your reference.

Now I will turn the call over to GoPro's CEO, Nicholas Woodman. Nick?

Thanks, Jeff. Good afternoon, everybody. I want to start by welcoming all of our new investors and thanking you for making our IPO so successful. We are encouraged that many of you are GoPro users and your enthusiasm for GoPro extends to including us as personal life capture solution as well as an investment opportunity. We should all be so lucky enough to invest in the things we love.

Today I am going to recap our second-quarter performance and discuss some of our key accomplishments. Our CFO, Jack Lazar, will then provide a more detailed update on the financials as well as guidance for the third quarter. Thereafter Jack, Tony, Nina and I will take your questions.

We are excited about our second-quarter results which were driven by strong marketing and sales execution during a second quarter which included Mother's Day, and Dads and Grads selling opportunities. Our second-quarter revenue of $244.6 million represents a 38% increase year-over-year. This coupled with our gross margin of 42.2% resulted in non-GAAP net income of $0.08 per diluted share. Including second-quarter results, GoPro passed another important milestone. On a trailing four-quarter basis for the first time we generated over $1 billion in revenue. In a few minutes Jack will drill down on the details of our financial performance.

I will now highlight some of GoPro's key accomplishments from the most recent quarter. Those of you who saw our IPO roadshow are familiar with our four pillars of our mission which is to enable consumers to capture, manage and create, share and ultimately to enjoy GoPro content. This results in a virtuous cycle that has gone on to help make our capture devices among the best-selling in the world where viral viewership of GoPro enabled content drives awareness and adoption of GoPro products and services. It is in this context of our virtuous cycle that we will provide our remarks today.

I will start with our progress in the capture pillar of our business. During the quarter we saw strong revenue growth with some of our largest retail customers and distributors and received tremendous marketing support from these customers. In the week leading up to Father's Day, GoPro was featured in national advertising from Best Buy, Sports Authority, Target and Walmart. We were also on Amazon's landing page for cameras and a consumer email campaign from both Apple and Microsoft.

GoPro is a global brand with plenty of expansion opportunities worldwide. In Q2, 38% of our revenue came from outside of the Americas and we continue to explore growth opportunities in Europe, Japan, China and Korea. Fundamental to GoPro's global retail strategy are the unique point of purchase video displays we install in most locations where our products are sold. These distinctive video enabled POPs are programmed with seasonal content that appeals to a wide variety of demographics. In Q2, we shipped well over 10,000 linear feet of new POP displays to retail outlets around the world, a strong demonstration of investment in our retail channels.

The Hero3+ Black, our highest priced capture device, continued to represent the majority of our revenue in the most recent quarter and increased as a percentage of our overall camera sales. Additionally according to the June NPD data, the top three camera camcorder units sold in the US were all GoPro products.

Sales of GoPro accessories showed continued strength in the second quarter helped by new products that allow users to enjoy their GoPros in innovative ways and capture even better footage. According to June NPD, GoPro had six of the top 10 camera accessories sold in the United States.

In the quarter, we released Gooseneck, a flexible extension arm that facilitates mounting a GoPro in creative new ways and in June we released 3-Way, a hugely versatile accessory that functions as a folding extension pole mount, camera grip and a tripod all in one. The multipurpose design and appeal of this mount has made it one of our best selling products already.

In Q2 we also invested in expanding GoPro's business to new vertical markets. For example, the music addition of the Hero3+ Black camera was launched in late March and includes accessories for mounting the camera on musical instruments. A music content specific version of our POP was enthusiastically embraced by retail partners such as Guitar Center and Sam Ash.

We also entered the hunting and fishing vertical markets with retail partners including Academy Sports, Bass Pro Shops, Cabela's, Dick's Sporting Goods, Gander Mountain, Walmart and others. Hunting and fishing retailers reach a broad range of consumers who are not only passionate about their sport but also participate in adjacent verticals where GoPro has been successful.

In June, GoPro and BMW announced the first ever commercial integration of a GoPro camera with an automobiles on board information system enabling drivers to manage their car mounted GoPros using console-based controls. Our announcement generated close to 300 million media impressions worldwide, a reflection of global interest in two leading passion-based brands working together to bring innovative solutions to consumers. These projects provide important proof points that GoPro has many significant opportunities to expand our brand and products into new markets.

Next, I would like to focus on the part of our business dedicated to helping consumers manage and create engaging content from the footage they capture with their GoPros. Our two most important existing examples in this area are GoPro Studio and the GoPro App.

GoPro Studio is a free desktop application that allows consumers to create entertaining videos from the photo and video footage they capture with their GoPros. In Q2 alone, GoPro Studio was installed by users more than 850,000 times. The GoPro App allows users to connect their GoPros using their smartphone for camera control as well as for copying photos and video from their GoPro to a mobile device for storage and for sharing to social platforms such as Facebook, Instagram, Twitter, YouTube and others. The GoPro App was downloaded more than 1.6 million times during Q2 and cumulative downloads are now above 8 million.

Earlier this week we released an update to our Android and iOS GoPro App that enables users to stream play lists of GoPro content across multiple platforms. Also in Q2, the Society of Motion Picture and Television Engineers recognized GoPro's VC-5 compression format for setting a new standard for performance and quality in video editing. Our standard is now available for license and utilization throughout the professional film and television industries.

Congratulations to the GoPro engineering team for adding this honor to their technical Emmy award that they already won earlier this year.

Now I would like to discuss the share pillar of our business. Once users have captured interesting footage and used GoPros Studio or the GoPro App to create compelling pieces of content, they are ready to share their content on social networks. By sharing engaging personal experiences with friends, family and the public, our users realize the promise of why they purchased a GoPro in the first place, to express themselves in an engaging way.

Our YouTube metrics provide a reflection of the dramatic growth in sharing and viewing of GoPro content. In Q2 the number of published GoPro videos was up over 160% versus the prior year period. Our viewership was up 200% and our minutes watched increased almost 275%. GoPro now has more than two million followers on YouTube and more than one million Twitter followers. On Instagram, we now have over two million followers who cumulatively have tagged over six million photos with the GoPro brand. This week GoPro launched a channel on Pinterest, a social network with more than 60 million users and a strong female demographic.

In May, we hosted our GoPro Athletes Summit on the North Shore of Oahu in Hawaii, an event designed to expand the ability of our sponsored athletes to produce and share amazing GoPro content. More than 90 athletes attended including Olympic medal winning skier Julia Mancuso, Olympic snowboarder Shaun White, and professional skateboarder, Ryan Sheckler. The two-day event generated more than 1300 social media posts from athletes and over two million likes on Facebook.

According to a study we commissioned, the social media reach of GoPro sponsored athletes now exceeds 45 million people. These content creation relationships with world-class athletes coupled with our inspired user base leads to incredible personal and branded expression that is uniquely GoPro and is leading to a powerful and differentiated media network opportunity for our business.

In May, GoPro was honored with four Webby Awards including best photography and graphics, best use of video and best overall social presence, once again reinforcing how consumers have embraced GoPro for capturing, managing and creating and sharing compelling personal content.

Finally, I will discuss the enjoy pillar of our business which reflects our commitment to make aspiring GoPro content conveniently available on leading distribution platforms to consumers around the world. GoPro content includes best of aspirational content produced by consumers and professionals, sponsored athletes and our own internal GoPro productions team. The aggregation and redistribution of best of GoPro content not only entertains, educates and inspires consumers to adopt GoPro into their own lives but it also represents a meaningful media opportunity for GoPro.

Our production team oversees two types of content; user generated and originally produced GoPro content. When securing user generated content, we search for the very best GoPro footage to license and refinish it for redistribution on the GoPro network, a series of GoPro channel instances. Examples of this include the Pelican Learns to Fly video which generated more than 3.5 million views on YouTube and Hovercraft Deer Rescue, which generated more than 4 million views.

Another way we secure premium quality content is to produce it using our incredibly talented internal team we refer to as GoPro Original Productions. This team produces some of the most inspiring GoPro content including the Longest Jump video which captured almost 4 million views on YouTube in just one week. GoPro Original Productions is also responsible for our Product Launch videos which on average generate more than 20 million views per episode.

In 2014, we have expanded these two content development efforts to ramp up production of GoPro videos and we are continuing to invest heavily in developing a library that helps further capitalize on GoPro's growing media opportunity.

Once compelling GoPro content has been produced, our programming teams drive distribution through a growing network of partners including YouTube, Virgin American Airlines, Xbox 360 and Xbox One. In April, we launched the GoPro channel app for Xbox 360 which provides an interactive living room viewing experience of the great GoPro programming and gives consumers the ability to learn what GoPro products we use to create the videos and then purchase them directly through their Xbox.

Last week we strengthened our partnership with Microsoft through the introduction of the GoPro channel app on Xbox One. In addition to our official network partnerships, GoPro commands an extraordinary profile among web and mainstream media outlets which routinely redistribute our content further accelerating GoPro's virtuous cycle.

So that is a summary of our second-quarter and GoPro's business. Overall, we are fired up about our results and accomplishments for the second quarter and we are excited about upcoming opportunities. We are passionately focused on delivering exciting new products and services for our users and strong results for our shareholders and we appreciate your interest as we charge ahead.

With that I will turn it over to our CFO, Jack Lazar, for a deep dive into our financials.

Thank you, Nick, and thanks to all of you for joining us today. If you have not already done so, I would encourage you to download from the investor section of our website the financials slides we posted concurrent with our press release earlier today. My prepared remarks will be focused on a financial overview of Q2 and the related business trends and then I will provide our guidance for the third quarter of 2014.

As Nick mentioned in his opening remarks, Q2 was the first time GoPro has recorded revenue of over $1 billion for a rolling four-quarter period. Strong revenue growth coupled with gross margin expansion made the second quarter a very good one for GoPro. For the quarter, revenue of $244.6 million was up 38% year-over-year and up 4% sequentially. Gross margin of 42.2% increased 990 basis points year-over-year and 110 basis points sequentially and our cost down initiatives provided us further returns.

Gross margin of 42.2% was also in line with the lower end of our target model range of 42% to 44%.

Operating income for the second quarter was $17.8 million or 7.3% of revenue, an increase of $21 million from our operating loss of $3.2 million in Q2 of 2013 and down $3.1 million sequentially. Earnings per diluted share for the second quarter were $0.08 and we continue to be focused on the long-term operating model and making the investments required to achieve it.

Let's take a more detailed look at our performance for Q2. As I previously mentioned revenue was up $8.9 million to $244.6 million, up 38% year-over-year and 4% sequentially. Our year-over-year revenue growth was primarily driven by a 31% increase in capture devices shipped and sequential revenue growth due to strong sales of GoPro accessories including our recently launched Sportsman, 3-Way, Gooseneck and Bodyboard mounts.

ASPs for capture devices remained strong and increased year-over-year primarily related to the product mix and were relatively flat sequentially. The Hero3+ Black edition continued to be our best performing product and its percentage of our total revenue and units increased sequentially.

Revenue from our direct sales channels increased 42% year-over-year to $129.8 million and was up 18% sequentially. Strength in our direct channel was driven by strong sell in and sell through with our big box retailers and our midmarket customers. Distribution revenue of $114.8 million was up 34% year-over-year and down 9% sequentially.

Second-quarter revenue by geography was as follows. The Americas was $152.7 million and that compares to $102 million in the prior-year comparable quarter. EMEA was $62.8 million which compares to $58.9 million in Q2 of 2013, and APAC was $29.1 million comparing to $16.2 million in the prior-year comparable quarter.

Revenue by geo was up in each of our reported three geos on a year-over-year basis. Our Americas revenue was particularly strong due to increased sales to our domestic big box and midmarket customers related to Mother's Day and Dads and Grads shopping seasons.

Second-quarter gross margin increased 990 basis points year-over-year and 110 basis points sequentially to 42.2% due primarily to strong sales of our Hero3+ Black product and continued supply chain cost reductions of our capture devices.

The sequential improvement in gross margin percentage provided us an incremental one penny in quarterly EPS. Operating expenses of $85.4 million were up 41.5% year-over-year due to a doubling of our R&D costs as we invest in the development of capture devices, accessories and our software platform to enable the future monetization of content and an improved user experience.

Since 2011, we have spent approximately $175 million on R&D at GoPro with 75% of that coming in just the last six quarters. G&A increased 56% year-over-year as we made the required investments to support our growth and our recent initial public offering and sequentially our expenses increased 12.4% with 60% of the increase related to R&D investments.

Net income for the second quarter was $11.8 million or $0.08 per diluted share compared to a net loss of $0.03 per diluted share in Q2 2013 and EPS of $0.10 in the first quarter of 2014. Shares in our EPS calculations of 139.7 million for Q2, 120.3 million for Q2 of 2013, and 140.2 million in Q1 of 2014 were calculated on an as if basis. This reflects the full quarter impact of our preferred stock conversion and 8.9 million shares issued in the initial public offering even though the IPO did not close until July 1.

Although this results in higher EPS share count, we believe this is the best approach for investors to have comparable results in the future quarters.

Adjusted EBITDA for the second quarter of 2014 was $25.7 million, up $23.4 million from Q2 of 2013 and down $2.9 million sequentially. GAAP net loss for the second quarter was $19.8 million or $0.24 per diluted share. This compares with a GAAP net loss of $5.1 million or $0.06 per diluted share for Q2 2013 and a GAAP net income of $11 million or $0.08 per diluted share in the first quarter of 2014.

The GAAP net loss during the most recent quarter was attributable to stock-based compensation charges associated with equity awards outlined in our Form S-1. We anticipate stock-based compensation will decline in Q3 to approximately $13 million plus or minus $500,000.

Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $104.9 million which does not reflect the $200.8 million in IPO net proceeds we received on July 1 nor the repayment of our term loan debt of $108 million. Accounts receivable of $49.2 million was up $1.9 million while DSOs remained flat at 18 days. Days of inventory decreased 7 days to 51 and during the second quarter of 2014, our capital expenditures and depreciation were $8.5 million and $3.9 million respectively.

I will now move on to our guidance for the third quarter. We currently expect a seasonally stronger second half of the year. Revenue is expected to be strongest in our direct channel with both our big box and midmarket customers. Geographically we expect the Americas to outperform our other two territories. As a result, we currently anticipate both year-over-year and sequential revenue growth and we expect it to come in at $255 million to $265 million for the third quarter representing a year-over-year increase of 35% at the midpoint of this guidance.

We anticipate our gross margin will remain strong at between 41% and 42% and at the midpoint that represents an 800 basis point increase from the 33.5% gross margin in the prior-year comparable quarter.

We will continue to invest prudently in the people, products and infrastructure necessary to support our growth and our vision. Accordingly, we anticipate our operating expenses will be in a range of $92.5 million to $95 million with a significant portion of this increase in research and development. Our tax rate for the quarter is estimated to be approximately 28% and accordingly based on fully diluted shares outstanding of 148 million. We expect to record EPS of between $0.06 and $0.08.

So with that let me hand it back over to Nick.

Thanks, Jack. Operator, we are now ready for questions.

(Operator Instructions). Paul Coster, JPMorgan.

Thanks. Nick and Jack, welcome to the public market. It is good to have you. I have a couple of quick questions. The first one relates to this direct versus indirect mix. It seems to be shifting towards direct. Can you tell us will that trend continue? What does it mean for gross margins moving forward? Then I've got a quick follow-up.

Paul, it is Jack here. Thanks for joining us on the call today.

The direct move this quarter was mentioned particularly related to big box in particular and some midmarket. It just shows the strength in a particular quarter. I don't know that this is a trend to really look to. We are guiding it to be up again next quarter and I wouldn't say that there is a specific gross margin implication of it. Generally our products are relatively gross margin agnostic across these channels. So I would say this is just the way it played out in the quarter and we are looking for some strength in that area as we head into the next quarter.

Okay. My second question is that I have gotten used to the international growth outpacing that of the domestic market but in this quarter it was really pronounced, the domestic growth. And I am just wondering is this kind of like a relay that you will see growth in Americas then handed off to Europe and Asia? Is it a function of the way in which you manage the product cycle? Can you just give us some color on that? And longer-term, am I correct in expecting the EMEA and APAC growth to outpace the domestic growth?

Yes, so it is Jack again and regarding the overall domestic versus international growth, I think clearly we see massive opportunities outside of the Americas, still large opportunities in the Americas but really we are really underpenetrated as we look out into Europe in particular, lots of places in Asia and China we are not even really doing business today.

One thing I would point out in some of these regions like EMEA while it may have been a little slower this quarter from a sell-in basis, year-over-year it is up 25%. So it is a pretty significant increase and we expect these trends are things that we should be able to take advantage of.

The one thing I would point out with the international growth and particularly in EMEA is we saw that there was more sell through in those channels over the last quarter. We probably went into the quarter with a little more inventory than we would have liked in the EMEA channel and we have now brought that back down to a healthy level and so because of that, you obviously had a little less sell-in in the most recent quarter.

(Operator Instructions). Sean Naughton, Piper Jaffray.

Good afternoon. Thanks for taking the questions. I guess question, singular. So Nick, I think you mentioned 10,000 linear feet delivered to retail. Can you talk about that in a little more detail? Is this new linear feet in the marketplace in existing stores or are these new doors that you are going into? And then maybe just talk about the incremental investment associated with those displays? Thanks.

Thanks, Sean. Good question. Our investment in increasing our POP presence in retail locations selling GoPro includes both new doors and expanding the amount of linear feet in existing doors. And so what you have got is initially when we rolled out our POP displays we started with 2 foot wide displays that went into almost all of our retailers starting a few years ago and then as we introduced more and more products and accessories and our sales grew within each store, retailers came back to us requesting larger POP and so we have been rolling out 4 foot and 5 foot wide POPs as well as -- or 3 and 4 foot wide POPs as well as much larger monolith POP we call them up to 12 feet linear in Best Buy locations for example. So you are seeing the investment across the board from new doors as well as expanding in existing doors and Jack can speak to the investment that we are making there.

Yes, so I think related to the investment I think we would just reaffirm is what we said when we were on the road is we are committed to spending more than $20 million in POP rollout this year and you are going to see that at various different times. We just decided it would be interesting to point out that there is a lot of footage of POP that is going out there and it is very important because in order for us to sell more product, we need to be really aspired to have as much POP out there as possible.

Joseph Wolf, Barclays.

Thanks. Just wanted to ask a gross margin question I guess combining -- hopefully this qualifies as one question -- combining the move into the big box and the mix with what you are selling for things like the Sportsman and the Music. Are all those channels with the same mix of Black, Silver, White? And when you think about gross margin with the guidance and the revenue increase, what are the puts and takes in terms of the scale of the business in terms of revenue growth and how that contributes to gross margin right now?

These specialty channel rollouts tend to be all Black. White is pretty restricted to certain bigger box type places that we have arranged to have White sell through. To the extent that we rollout into particular verticals, we tend to push the premium product which is obviously what we think is best for the application for the people in those places.

And just the scale?

Sorry, Joe. As far as when you are talking about scale, you are talking about overall scale and just the growth of the Company type scale?

Yes, I mean with the revenue increase, what is the give and take on the margins for next quarter and how should we think about that as we model it going forward?

Yes, I think the give and take on the margins for next quarter is really about product mix. We go into a quarter with an expectation of what we think product mix can be and as we start to look at it, we had a very high percentage of Black this last quarter and while we continue to believe it is going to be very strong, logic would tell you that there is a certain point where maybe you expect to see some of the other products step up.

So it is just our expectation at this point. It is offset by continued supply chain reductions that we are constantly getting and so I think the mix of that is what put us in this 41% to 42% range which is pretty strong particularly year over year, it is up quite a bit.

Just to add a little bit of color, this is Nick here, to skew mix in various retail channels, the specialty markets, the [core] markets are our most enthusiastic customers who are primarily interested in our best-in-class products, our highest priced products, the Black edition, in some cases the Silver. And when we introduce GoPro into mass-market channels, Target, Walmart for example, Best Buy is excluded because Best Buy has always taken our full range of products. The mass market retailers initially started with only our entry-level products but as we have gained awareness and traction success in their stores with their customers, we have seen those retailers come back and request to move up to our higher level products.

So last year you saw us in Walmart and Target specifically moving from just White to include our mid-level product, Silver, as well with sales success in that channel. That is sort of how we bifurcate between channels but also how success in a certain channel can also gradually over time give us the opportunity to move to higher ASP products.

So just one quick follow-on. In Walmart with hunting which I think you mentioned, is that the Black product or is that a Silver product?

So this is Nina. In hunting and fish, the product that was introduced is an accessory product rather than a specific product that is the capture device product.

And in Walmart today, we are selling White and Silver.

Jeremy David, Citigroup.

Good afternoon. Congratulations for a strong quarter. I wanted to ask you about your media strategy in terms of the incremental investments you might be doing to drive media revenue. I understand you already have many investments to generate content. Are you looking at incremental investments from the ones already made to generate media revenue in a year or two? So what sort of investments are you potentially looking at?

Sure. Thanks for that question. In terms of priorities, we are primarily focused right now on making it easier for our customers to capture, manage, create and share more engaging personal content at scale, realizing the promise of why a consumer buys a GoPro in the first place. And when we succeed with that, our media opportunity is a natural organic outcome because if using a cross-platform content management and creation application to help consumers more regularly get to the great video content that they are looking to share using their GoPro, we are naturally increasing the pool of fabulous human experiences that we can aggregate and redistribute as GoPro programming. So in terms of where we place our priorities it is first on realizing the promise of GoPro to our consumer and then we recognize an expanded media offer from that. That said, we are making investments and have an ongoing effort in parallel to build out our media distribution because even before we talk about monetization of that media, we benefit massively in that the more we distribute GoPro content, the more that we enable mass viewership of that content on YouTube, Xbox platforms and more distribution platforms to come, the more we drive enthusiastic awareness and adoption of GoPro which then leads to even more user generated content that we can aggregate and redistribute. And then on the long tail of that is that if we are successful with meeting the needs of our customers then we naturally benefit with a down the road opportunity to monetize that media.

So we are obviously making a lot of those investments today that are very complementary for our existing business and we are going to continue making them going forward. We're trying to operate within an envelope of having a well run financially fiscally well-run company and I think we have been doing that so far. We have been profitable for many years now and we are going to continue to reinvest while still driving the overall long-term vision that we have.

I would just add one more a little bit of color on this, this is Tony. If you look at sort of where we have gone in terms of produced content, you have seen a dramatic increase. Nick outlined this in the shared pillar at the top of the summary here. Really there are two areas of focus just to be very clear. One is to continue to help create very compelling content and also to drive more distribution. We deal with both of those pieces. It creates this opportunity not to just drive the virtuous cycle but to really set us up to capture on the media opportunity at the appropriate time.

Tavis McCourt, Raymond James.

Congratulations on the successful IPO. Nick, I was wondering in relation to EMEA, the sell-in in the first six months was down year over year and I know Jack mentioned some channel inventory distorting that a bit. Do you guys get any decent data whether it is GFK or some other service on what the sell through growth trend is in Europe or EMEA more broadly?

This is Jack, and Tavis, thanks, first of all thanks for your congratulations. You are right, the six-month trends are relatively flat. They are actually slightly down just a couple percent down year-over-year. We actually do and this is one of the ways in which we focus in unlike maybe sometimes in the past we were able to focus in and see that there was too much inventory in the channel by both looking at sellthrough data and now we actually get weeks of inventory on hand from all of our distributors. So we review it on a weekly basis and so part of that effort we decided to manage down the weeks of inventory both in the distribution channel, in the distribution channel to a more reasonable level over the last quarter. And so that is a large chunk of the decline.

Again year-over-year, it is up 25% if we look just on a year-over-year basis and we are very much convinced that Europe in particular is a very important part of our strategy going forward.

That is helpful and if I could ask a follow-up, the DSO is at 18 days obviously a tremendous performance. I assume that is kind of a low point. What should we think of in terms of a reasonable range for DSOs especially as we kind of get more towards the stronger selling season?

So actually one of the reasons why the DSOs -- well, there is two main reasons why the DSOs stayed low here and obviously they were 18 for both quarters so this isn't a one quarter phenomenon. It is really impressive. It is frankly a testament to how Nick grew the business from the early days. This is what you do when you are growing from the ground up because it is all about cash flow.

What really makes this happen is we get prepaid for much of our international business. Frankly they prepay us for the goods and so that creates a pretty nice DSO when you prepay.

Then the other part of it is some of -- one particular customer here in the US we get some pretty decent sized receivables but we actually do factor them and so the combination of the two is what's really been keeping the DSOs down at these levels. They are not going to get a lot better than 18 so -- but I don't expect them to jump up at this point to something on a more traditional 30 to 45 day type thing. However that being said, over time that could change but in the short term we don't expect it to.

Great. Thanks a lot.

Jim Duffy, Stifel.

Thanks. Hi, guys. Great start. Nice job on the gross margins. Nick, I was a little disappointed you didn't bring a video component to the investor call but maybe we can save that for future quarters.

Don't tempt us.

We are a nerdy audience but there has to be an advertising angle there somehow. A question on the inventory. It looks really tight coming into the seasonally stronger second half, better that than the other way around I suppose. But do you think you are adequately positioned to meet demand and/or excess demand in the second half should that materialize?

This is Jack here, Jim. Related to inventory levels, this is another thing that the Company has done exceptionally well over the last few years. If you go back and look at the inventory levels going into any of the selling seasons, we have actually done a very good job of keeping them lean but then turning it on when we need to. And right now we are in the process of turning it on.

So we are comfortable with -- we are not looking at inventory availability as a reason for us not to make numbers. Obviously we guided up for this upcoming quarter and we feel pretty good about -- with the sellthrough data that we are seeing and the feedback we are getting from our customers, we feel pretty good about the opportunities. We don't think inventory is going to be the thing that holds us back.

I will say just philosophically, Nina and I have talked about this quite a bit, I believe that working capital is extremely useful for building inventory and so I'm not going to be looking personally and I think Nina would concur with me and speak up if you don't, but I think we would say that we would rather use working capital to actually build up inventory when we know that there is demand for these types of products. And going into the seasonally stronger part of the year obviously it makes sense to build up inventory. She is nodding her head, she agrees by the way.

I am agreeing wholeheartedly as we are ramping from Q4.

The video would have captured that. Thank you.

Charlie Anderson, Dougherty & Company.

My congrats as well on a great IPO. So I wanted to ask about the Asia market. Nick, as you were building the business I wonder level of focus on that market, it is a very small percent of sales relative to maybe other consumer electronics peers. Do you see any barriers to being much larger in that market in some of the main geographies?

Thanks, Charlie. Great question. The answer is no, we don't see barriers other than bandwidth and focus. We have great indication that there is no reason that GoPro can't be as successful in Asia as it has been in the rest of the world. We are a little bit guilty of being busy dealing with the growth that we have had in other markets and scaling up the business. So it is entirely a matter of focus and then following up with execution in those areas as opposed to we have had any trouble in those areas to date.

What effort we put into various Asian markets we have had terrific success and we are excited about the opportunity moving forward.

One thing to think about if you look on a trailing four quarter basis, Asia is about one-half of what Europe was and Europe is about one-half of what the Americas was. So I think that is kind of the way we position when we first started to talking to people about the geographical reach of the Company is the opportunity in EMEA is similar to what we are already establishing in the Americas.

We still believe there is a lot of growth in the Americas but each one of these is kind of step function in a way. In Asia, there really is a tremendous opportunity we put very little into it to date. We have been lucky to have some interesting opportunities there and sell a fair amount of product but there is really so much more that we can do over the next few years and I think we are pretty excited about that.

This is Tony. I would add that we also believe that the go to market approach we have has worked well just as we start to see that happen from the US to EMEA and we believe the same model will work just as well in the APAC so it isn't necessarily that we need to make a lot of changes to the way we think about going to market.

Thank you so much.

Mitch Kummetz, Robert Baird.

If I heard you guys correctly, device sales were up 31% which given that overall revenues were up 38% would suggest that accessories sales were really strong in the quarter, something probably north of 50% and I am just curious what drove that? Was it some of the new accessories and with the launch of some things like the sportsmen's mount, the music edition, are you seeing a lot more content being generated in those areas now?

I will talk about the flux for the quarter. So accessories were strong, there was no doubt about it. We did launch a bunch of accessories as we mentioned on the call and some things like the 3-Way are really starting to grab hold. So we see some good opportunities there but remember there is multiple pieces to this mix here.

Price also matters. So we had a better mix of Black in this last quarter which means that it obviously plays into the differential between the 31% units and the 38% revenue growth so it is kind of a combination of all of these things. But you are hitting on a key point which is accessories did have a very strong quarter in the most recent quarter.

I think the other piece was around content. Can you, I'm not sure I really got what the question was there, Mitch.

You launched some new accessories or some accessories in different areas recently like the sportsmen's mount or the music edition. I am just wondering with those new accessories are you seeing a lot more content being generated in let's say hunt, fish or music and how that might play into kind of the virtuous cycle given those are sort of new areas for you guys?

Thanks, Mitch. This is Nick. Yes, absolutely we do. It goes without saying that when people buy accessories for a particular use case, it is one step beyond just buying the camera. So generally you can be fairly sure they are going to more often than not put it to use to create compelling content. And you can see examples of that on GoPro's Facebook wall for example and the content that our customers are sharing. So absolutely we see it and then it becomes this beautiful reinforcing phenomenon, a sub virtuous cycle if you will where say in music circles where musicians start sharing content unlike any that has been shared before, the natural question from others in the community is, how did you do that? And then it just sort of grows virally within that community and we are seeing that.

And what is fantastic even in music is that we see not only the musicians or the bands adopting it but then fans as well see cameras being used on stage and then they use it to document their experience at music festivals and concerts in new ways. And I just recently saw an article in a German media article that was about Tomorrowland which is a huge music Festival in Germany and the article was specifically about -- I'm sorry in Belgian -- that was specifically about how many fans were using GoPros to document their experience at the music festival and so it was really encouraging to see how use of GoPro in one application like on stage for example inspires fans and the crowd to adopt GoPro to document their experience in this sort of circular loop fashion.

Let me just add a little bit more color because I think it is a great connection as you mentioned between the type of content we are starting to see and as we enter new verticals. I would actually point you I think a good proxy is if you look at the types of content that is recently starting to show up in our own GoPro channel and some of the more compelling viewership we are getting, it is not only coming from music but we have actually seen quite an uptick in the hunting and fishing market and we will give a little shout out for one of our own -- our CMO, Paul Crandell, who put together a very compelling piece of fishing content with some really unique point of views and we really are starting to see that increase.

I would also add though we are seeing an increase overall in the types of content that we are seeing across the board from family to nature and so on so it goes far beyond just us driving a new vertical, a new specialty market.

Alex Gauna, JMP Securities.

Thanks for taking my question. A lot of great questions have been already asked but I am wondering -- I hate to put you on the spot -- but if there is any flips that haven't been seen, what are the top three that we need to go out and make sure that we see on the GoPro channel?

Top three, that is a tough one. There are so many. I think one of the best ways to check out what is on the GoPro channel right now is we just recently made an update to the GoPro App and one of the most convenient ways to consume the GoPro channel is on your mobile device and you can now just as of I think a couple of days ago, you can now watch genre specific for the full GoPro channel play list of content which wasn't possible before and so I would encourage anybody who is interested in checking out the latest and greatest GoPro content to download the app the best way to access it.

My favorites, I would have to say the Pelican Learning to Fly video is absolutely staggering. A pelican was rescued after a storm in Tanzania and was taught how to fly. It was an orphan and it didn't yet know how to fly and its human rehabilitators taught it to fly by running up and down the beach flapping their arms and they had the foresight to mount GoPro to the pelican's beak looking back at the pelican when it took its first flight. So that is an emotional video. I see Jack gesticulating here that he has a favorite video that he wants to promote.

Another great video about this incredible dog driving along in a Porsche. So if you just go on to YouTube, do dog and Porsche search you will find it. It is the way his gums flop is just amazing so that is differently one of my favorites.

Alex, it is Tony and one of these things is always subjective you are getting is the enthusiasm which is awesome. I think one of the phenomenons that we see happening is just how quickly something can go viral and this is the nature of the way that people consume content in general but in particular the way our users and our customers are really starting to consume content.

And I will point you to one in real time that is going super viral right now in the last 48 hours which is one called the Epic Roof Jump. And just an example of the type of things that can happen overnight.

This is a stuntman who is doing an incredible from one roof to another and then landing on a staircase and it is just one of those wow breathtaking moments. So one of the things about this I think really is the take away is that there are some real epic iconic classic ones but we just have so much rich content coming in all the time being generated from our users but also from the in-house thing that I would encourage you to go look at it each and every day.

One more, this is Nick here. One more that is a great example of how our customer base extends to content creation professionals is search for Superman GoPro; Superman goes on a mission to deliver a GoPro that he found back to its owner and when he is en route to deliver the GoPro, he ends up saving a bunch of people, solving a bunch of crimes and whatnot and it is a professional quality production produced by a creative agency I think in LA that was just using a GoPro and it is incredible and it is an example of the range of quality of content we see being shared and it is content like this that is part of the reason that GoPro is what it is today.

Maybe just to add one other thing that we talked to about in the summary at the top is we have just recently improved our own GoPro App so not only does it give you the ability to really see how we think about GoPro content and the curation of that, just making it that much easier to share across all of the different viewing experiences so whether you want to do that as a 10 foot experience in your living room using what we have done on the Xbox 360 or the Xbox One app or you want to do that from on the go in your mobile device you get that same rich immersive experience.

So I would encourage everyone to take a look at it. If you haven't downloaded it, it is a wonderful experience. You can also control our camera devices as well as get you quick and easy access to the content. It is just a great experience.

We are very proud of our app.

Alright, thank you and congratulations on the first quarter out of the box.

That concludes our question-and-answer session. I would like to turn things back over to Nick for any additional or closing comments.

Thanks everyone for joining us today. Really appreciate you taking the time and for your interest and support of GoPro and I specifically would like to thank our ballpark 800 employees now and our millions of customers and fans around the world whose collective passion has helped GoPro become the amazing company that it is today.

I should let you know that GoPro will be participating in two investor conferences this quarter on August 12, the Pacific Crest Investor Conference in Vail, Colorado. That is a fun one to attend. And on September 3, the Citibank Global Tech conference in New York City. So thanks again for your interest in GoPro and support, everybody. This is team GoPro signing off.

That does conclude today's teleconference. Thank you all for joining us.