GoPro Inc (GPRO) 2014 Q3 法說會逐字稿

Good day and welcome to the GoPro third-quarter 2014 financial results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Jeff Brown, Vice President of Communications. Please go ahead, sir.

Thank you. Good afternoon, and welcome to GoPro's third-quarter 2014 earnings report. With me today are GoPro's CEO, Nicholas Woodman; our President, Tony Bates; our Chief Financial Officer, Jack Lazar; and Chief Operating Officer, Nina Richardson.

Before we begin, I would like to remind you that statements 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 business, 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 this 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 to today's call, and we do not undertake any obligation to update these forward-looking statements. We refer you to the financial prospectus that we filed with the Securities and Exchange Commission on June 26, 2014 in connection with our initial public offering. 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 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 with -- 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 the earnings press release we issued today. We ask that you review this information in conjunction with this call.

All numbers that are disclosed 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 [third quarter] (corrected by company after the call). Both of those 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'll turn the call over to GoPro CEO, Nicholas Woodman. Nick?

Thanks Jeff, good afternoon and thanks for joining us everyone. First, I'd like to congratulate our hometown San Francisco Giants on their World Series win. Way to go guys, and don't forget to rock your GoPro's when celebrating. Now turning our attention to GoPro, GoPro benefits from having a bold long-term vision, that we've built on strong fundamentals and proven management. By enabling people to self capture and share their lives in a new way, we've created a totally new market, one of the fastest growing and most exciting consumer brands in the world, and a very profitable business. This afternoon I'll recap some of our key accomplishments of our third-quarter, Jack will provide a more detailed update on our financials as well as guidance for the current fourth quarter, and then Jack, Tony, Nina, and I will take your questions.

We're proud of our third-quarter results. The outstanding launch of our new HERO4 line of cameras, software, and related accessories was complimented by expanded presence at Best Buy and other retailers. Financially, we exceeded revenue, gross margin, and EPS guidance, and recorded an outstanding quarter. Third-quarter revenue was $280 million and represents a 46% increase year-over-year. Gross margin was 44.5% and our operating income was $27.6 million with an EPS of $0.12.

Now, I'm going to highlight some of our recent accomplishments. By now many of you are familiar with the four pillars of our business. GoPro enables consumers to capture, manage, share, and enjoy immersive and engaging personal content in a way never before possible. It's in this context that I'll provide my remarks today.

I will start with our progress in capture and provide some highlights related to new product advancements. On September 29, we announced our new line of HERO4 cameras, delivering twice the performance of the previous generation. GoPro's product line is built on a good, better, best strategy with pricing and features that suit an increasingly broad spectrum of consumers.

The top-of-the-line is the HERO4 Black, a professional quality capture device featuring incredibly high resolution 4K30, and 2.7K50 video, and high frame rate 1080p 120 video. Now one of the great things about 4K is that each frame has the equivalent of an 8.3 megapixel photo. Therefore when shooting in 4K30, you're conveniently capturing lifelike 4K video and 8.3 megapixel photos simultaneously. HERO4 Black also benefits from improved lowlight performance and features new modes such as night photo and night lapse, which allow you to capture images in ultra lowlight scenes. HERO4 Black provides faster Wi-Fi, and now includes Bluetooth for simple connectivity and improved power efficiency. And because great audio is as important as image quality, HERO4 Black features a totally redesigned audio system, capturing twice the dynamic range and even higher fidelity sound. Demand for HERO4 Black remains strong at $499, a slightly higher price point than our previous best-selling flagship product, the HERO3+ Black.

HERO4 Silver represents our mid-level offering at a price point of $399. Professional quality 1080p 60 video combines with 12 megapixel photo capture, improved Wi-Fi and Bluetooth connectivity, and an integrated touch display to deliver a powerful combination of convenience and performance. And at the entry-level, we've made GoPro more accessible than ever with HERO, a simple yet high-quality GoPro available for just $129.

On behalf of all of GoPro we want to give a huge shoutout to our engineering team who is responsible for these amazing new devices. You all never cease to amaze us, thank you guys and gals a ton. And I'm proud to say that our team delivered the best worldwide product launch in the history of GoPro. From initial design, to final engineering, to effective cost and inventory management, and ultimately the global rollout of these fabulous new products, this launch demonstrates the strength of the entire GoPro team.

The launch of HERO4 leveraged the public's increasing awareness of GoPro. According to a GoPro commission survey conducted by Ipso's in September, global awareness of GoPro has jumped significantly in the past six months. In the United States, overall aided consumer awareness is 36%, an increase of more than 40% since April. In our three largest European markets, the UK, France, and Germany, aided awareness has reached an average of 27%. To scale awareness of the HERO4's launch we held synchronized media events in Tokyo, London and San Francisco, resulting in more than 850 articles, generating an estimated 1.3 billion impressions.

We also reached out to our database of more than 4.6 million customers with news of the HERO4 along with a spectacular four-minute launch film. With roughly 17 million views, Adventure: Life in 4K, produced by our GoPro original production team is the first of a seven part series we will release during the holidays promoting the HERO4. While it's still early, we're happy with the results of the HERO4 launch, and we are moving quickly to meet demand during this important holiday season.

Part of why the HERO4 had such a great start is due to terrific retail execution. Earlier this month we announced that important GoPro POP expansion began with North America's largest consumer electronics retailer: Best Buy. The centerpiece of this program is a spectacular 12 foot kiosk featuring a 40 inch monitor displaying best of GoPro content to engage consumers. Best Buy plans to continue adding over 5,000 linear feet of this new GoPro POP in the coming months.

I'll wrap up discussing our capture business with a few highlights about some new accessories. In August, we launched Fetch, a dog harness now that makes it easy to capture your dog's view of the world. Fetch had a strong launch that was further enhanced by our customers' viral video. Run Walter, Run, is the name of the video. This video has gone on to attract over 14 million views and in true GoPro fashion, has virally driven awareness and demand for GoPro.

Then in October, we launched the Handler, a floating handgrip for convenient and stable handheld capture, and Smart Remote, and wearable and waterproof remote that provides full camera control and highlight tagging of key moments as they happen for easy playback and editing at a later date. I'll touch more on the highlight tag feature during the manage part of our discussion which conveniently begins now.

The next pillar of our business is of no surprise, manage, which includes the software tools we develop to help our customers manage their content and produce compelling edits. We regularly update GoPro Studio, our desktop application, and the GoPro app, our mobile application, to provide our customers with an increasingly convenient and seamless GoPro experience. In the past year, we have grown our software and services team with more than 50 new employees, including engineers, designers, and project managers. They're part of a larger team charged with fulfilling our long-term vision and bringing together GoPro Studio in the GoPro app as a cross-platform content management solution for our customers. We view the manage pillar of our business as critical for helping our customers realize why they bought a GoPro in the first place, for that great video edit or photo that allows them to easily relive and share a meaningful experience. Be it on your mobile, desktop, or television, our goal is to give you easy access to your content so you can watch, edit, share, and enjoy it with friends.

In October, we introduced several new features to GoPro Studio in the GoPro app that further streamlined this process for customers. First, we've got automatic offloading. Now, when your GoPro is plugged into your computer, GoPro Studio will automatically offload your content and organize it for easy playback and editing.

Another new feature is highlight tagging. Now you can easily mark key moments while recording with the push of an on-camera button, using the smart remote, or the GoPro app. Highlight tags make it easy to find and watch and share your favorite moments.

And finally, there's Flux, a powerful slow-motion and speed ramping tool that makes it easy to add high-impact cinematic speed-related effects to your videos. In the third quarter, GoPro's Studio software has been downloaded over 1 million times. The mobile app, 2.4 million times.

The final pillars of our business strategy are share and enjoy, the process whereby our customers share their content online and we then distribute best of GoPro content as programming across the GoPro network for millions of fans around the world to enjoy. We are excited about the growth of our customers' content sharing across all social channels. As an example, the amount of content our customers submitted to our photo and video of the day program jumped 159% from September to October alone.

And there are things we do as a Company to further promote content sharing. We ran a Share the Stoke campaign concurrent with the launch of the HERO4, whereby we enlisted athletes such as Shaun White, Lindsey Vonn, Kelly Slater, and Julia Mancuso to share their first HERO4 experiences. In just 25 days, our athletes posted more than 3,000 photos and videos, reaching more than 50 million fans, and generating more than 7.8 million shares, likes, and comments.

Progress related to the enjoy pillar of our business is best reflected by the sustained growth of viewership across the entire GoPro network. On our YouTube GoPro channel alone, Q3 views totaled 72 million, an increase of 99% year-over-year, while total minutes viewed was up more than133% year-over-year. And during the same period, our recently launched Xbox 360 and Xbox One GoPro channels generated 6.5 million views. We now have roughly 8 million followers on Facebook, and we increased our Instagram audience by over 750,000 people in the third quarter, bringing our total Instagram followers to over 3 million. In the last month, we released several exciting new videos on the GoPro network which include Waltz On The Walls Of City Hall, Golf Trick Shot, and Adventure: Life in 4K, which is rapidly approaching 17 million views alone.

And I'd like to give a quick shoutout to an incredible video we released earlier this week called, Descent Into the Lava of Marum in 4K, the second in a seven part series that we produced to showcase the HERO4. It's an incredible experience and I encourage everybody to take a look. Our content and media strategy, while in the early stages of generating traditional media revenue, has been a big part of our hardware sales success. In the past three years, we have recorded almost $2 billion in revenue and over $250 million in operating profit by leveraging engaging GoPro content to inspire consumers to capture and share their lives with our products. The more customers we attract, and the more we enable them to produce and share compelling content, the larger our overall media opportunity becomes.

With that, I'll turn it over to our CFO, Jack Lazar.

Thank you, Nick, and thanks all of you for joining us today. If you've not already done so, I'd encourage you to download from the investor section of our website the financials slides we posted concurrent with the press release earlier today. My prepared remarks will be focused on the financial overview of Q3 and the related business trends. I'll then provide our guidance for the fourth quarter.

The third quarter was particularly a strong one for GoPro. Our financial results reflect both better than expected revenue and profitability growth. Additionally, as Nick has already discussed, our ongoing R&D investments enabled us to bring to market a line of new capture devices and accessories that have been well received by consumers. It's truly an exciting time for GoPro.

Third-quarter revenue of $280 million was up 46% year-over-year and up 14% sequentially. Gross margin for the quarter was 44.5%, slightly above our long-term target model range and 300 basis points greater than the midpoint of our guidance. Gross margin increased 1,100 basis points year-over-year and 230 basis points sequentially. Operating income for the third quarter was $27.6 million or 9.9% of revenue, an increase of $25.3 million year-over-year, and $9.8 million sequentially.

Adjusted EBITDA was $36.2 million or 12.9% of revenue, up 320% year-over-year and up 41% sequentially. And earnings per share for the third quarter were $0.12, up 50% sequentially, and significantly above our guidance of $0.06 to $0.08. We continue to be focused on our long-term operating model while also making the investments required to achieve it.

So let's take a more detailed look at our performance for Q3. Our revenue growth for the quarter was driven primarily by increase in capture devices sold of 32% year-over-year and [28%] sequentially. During the quarter, we shipped several hundred thousand units of our new capture devices to our retail and distribution partners primarily in the United States, and we experienced a greater than anticipated demand for our flagship HERO4 Black product, which is also seeing strong sellthrough in our channels. Much of our launch efforts were focused initially on some of the big box retailers primarily in the United States, which led to stronger than usual sales to the Americas region and a greater concentration of direct revenue.

ASPs for capture devices remained strong, but decreased slightly on a sequential basis as we ended light our best-selling HERO3+ Black edition early in the quarter, resulting in an increased demand for HERO3+ Silver and HERO3 White products. However, the HERO3+ Black edition continued to be our best-selling product during the quarter, both on a revenue and a unit basis. Revenue from our direct sales channels increased 115% year-over-year to $187.2 million and was up 44% sequentially, driven by strong sell-in and sell-through with our big box retailers. As previously mentioned, the initial launch of our new products was focused on direct customers in the Americas regions. As a result, distribution revenue of $92.8 million was down 12% year-over-year and 19% sequentially.

Third-quarter revenue by geography was as follows: Americas was $204.9 million, and that compares to $92.5 million in the prior-year comparable quarter, EMEA was $50.9 million, that's comparing to $72.2 million in the prior-year comparable quarter, and APAC was $24.2 million versus $27.4 million in the prior-year comparable quarter. Our Americas revenue was particularly strong related to both existing HERO3+ products and initial sell-in related to the HERO4 launch. In the EMEA and APAC regions, which we serve primarily through distributors, we added strong sell-through of existing HERO3+ products by reduced sell-in as our distributors awaited the launch of our new products. This trend was in line with our expectations going into the quarter.

Third-quarter gross margin increased 1,100 basis points year-over-year and 230 basis point sequentially to 44.5% due primarily to favorable product and channel mix, coupled with continued supply chain cost reductions for our capture devices. The sequential improvement in gross margin provided us with incremental $0.03 of EPS. With strong sell-through in our channels, we also successfully managed the transition from our previous generation HERO3+ Black line of capture devices to our new line of products. (Inaudible) expenses of $96.8 million were up 56% year-over-year, and 13% sequentially due to our efforts to retain and expand our market leadership position.

Our focus on the development of new capture devices and our software platform to enable the improved user experience and the future monetization of content, resulted in R&D increasing 112% year-over-year and 21% sequentially. Additionally our sales and marketing expenses were up 25% year-over-year, related to the product launch cycle we've just commenced. Net income for the third quarter was $18 million or $0.12 per diluted share compared to $1 million or $0.01 per diluted share in Q3 of 2013 and $11.8 million or $0.08 per diluted share in the second quarter of 2014. Adjusted EBITDA for the third quarter of 2014 was $36.2 million or 12.9% of revenue, up $27.6 million from Q3 of 2013 and up $10.5 million sequentially. GAAP net income for the third quarter was $14.6 million or $0.10 per diluted share, which compares with a GAAP net loss of $1.1 million or $0.01 per diluted share for Q3 2013, and a GAAP net loss of $19.8 million or $0.24 per diluted share in the second quarter of 2014.

Turning the balance sheet, we ended the quarter with cash and cash equivalents of $237.7 million, up $132.9 million primarily due to the closing of our IPO transaction, offset by the full repayment of our outstanding term loan debt. Accounts Receivable of $94.6 million increased $45.3 million sequentially with a corresponding increase in DSO to 30 days from 18 days due to higher sales occurring in the last month of the quarter and reduced concentration of international sales. Inventory increased by 17 days to 68 days as we ramped up inventory in preparation for our recent launch of new products. During the third quarter of 2014, our cash flow from operations was $47 million, up 101% year-over-year, and an increase of $61.1 million compared to the second quarter of 2014. Our capital expenditures were $10.2 million and depreciation and amortization was $4.8 million.

I'll now move on to our guidance for the fourth quarter, which as you know, is our seasonally strongest quarter. We anticipate particular strength in our direct channel, both with our big box and midmarket customers. Geographically, we expect the Americas region to outperform our other two territories. However, we also expect revenue from all three regions to be up sequentially and on a year-over-year basis. As a result, we currently anticipate revenue of between $550 million and $580 million for the fourth quarter, representing a year-over-year increase of just over 55% at the midpoint of the guidance.

We anticipate favorable product mix given the orders already placed by our customers and the initial sell-through data we have received to date for our new products. While it is still early in our launch cycle, we currently expect a product mix that is strong for both our HERO4 Black and Silver products. We anticipate that gross margin will remain strong at 44%, plus or minus 50 basis points. And at the midpoint representing a significant increase from the 42% gross margin we recorded 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. Our expanded gross margin enables us to continue investing back in the product development areas that we believe are critical to our long-term success and market leadership. Accordingly, we anticipate operating expenses will be $105 million, plus or minus $2.5 million, with a significant portion of that in sales and marketing. Our tax rate for the quarter is expected to be approximately 30%, based on fully diluted shares outstanding of $148 million. Accordingly, we currently expect EPS to be in the range of $0.65 to $0.69.

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

Thanks, Jack, and thanks again everybody for listening. In the months ahead, we're planning to visit several investor conferences to meet with you all. These include NASDAQ, NASDAQ's 31st Investor Program in London on December 3, Raymond James' Systems, Semiconductors, Software & Supply Chain Conference in New York City on December 8, Barclays' Global Technology Conference in San Francisco on December 9. On behalf of our 870 employees, thank you for your ongoing support and interest in GoPro. This is (multiple speakers) we're ready to take your questions.

(Operator Instructions)

We'll take our first question from Paul Coster with JPMorgan.

Thanks very much. So you know the HERO4 launch has been awesome and the question is whether or not you're going to be able to predict how to fill that channel correctly? Certainly the last time around HERO3 had a little bit of an issue with over ordering and under ordering and then having too much channel and venture in the first quarter.

Can you just talk us through a little bit about the transition as we go through the holidays and then into the first quarter of the seasonality? And how you expect the channel to be managed over the course of next two months or three months?

Hey Paul thanks, it's Jack. There's a lot of questions in there but I'll try to hit a couple of them at least.

So first, related to the HERO4 launch, yes, I think we are obviously very pleased with the way in which the launch has gone. It's clearly been the most successful launch we've had as measured by a variety of different metrics. But now the real challenge is getting product out there to the consumers, who we certainly see a fair amount of demand from.

We spent a lot of time planning for this launch. I'll tell you that we actually launched this product on the day that we thought we were going to launch it. And so we feel like we've been really prepared for this.

We've -- as I mentioned in the prepared remarks, we've moved several hundred thousand units out into the quarter to prepare for launch, and clearly we're moving a lot of product now. But I think the key is we're listening to our customers and we're trying to fulfill demand as quickly as possible, and get as much product out there into the channel. But at the same time, we are being prudent.

And I can tell you that every day we look at the sell-through data that we get and we talk about it, and we make decisions about those allocations of product and the distribution of product, you know, as a team, so that we know that we're getting product to the right places and if we're not putting too much product in the channel. Now we're human, we make mistakes like everyone else, but we feel like we've got much better information than what we've had in the previous years. And we are relatively confident on our approach to meeting the demand for this quarter.

Just two quick followups, will there be any price action around the holidays around the lower-end products? And also can you make comments on lockups expiring, and what his intentions are when the shares are unlocked?

So the first part of the question you're asking about price action, are you just saying (multiple speakers) --

Are you going to have a sort of product that's priced at checkout in Best Buy at $99, for instance, is are going to be any price action, is that already in your assumptions?

One of the most amazing things about this product launch is we have hit just a variety of price points already at $129 for the HERO product, it's clearly the affordable product. We like to refer to it as the stocking stuffer, so I think that that's a product that should be attractive to a variety of folks and at a price point never achieved for a GoPro product in the past.

We think that's pretty affordable and clearly on the higher-end with Silver and Black, we have the real premium products on the market. So I think the whole line is pretty well set up for the holiday season and we look forward to people buying a lot of GoPros.

Hey Paul, it's Nick. With regards to your questions, to the lack of coming off and my intentions, obviously been a big believer in GoPro over the last 12 years and I only continue to become an even bigger believer as I see how capable our team is at executing against this big, long-term vision that we've got. And I intend to remain a very significant shareholder in GoPro for a very significant period of time.

As a reminder we ask that you limit yourself to one question today. We'll take our next question from Alex Gauna from JMP Securities.

Thanks very much, great quarter, congratulations. I know you talked about the HERO4 Black seeing stronger than anticipated demand, I just wanted to check, did you run into any capacity constraints?

And I'm also curious is there any color you can give us in terms of once you got to balance here towards the end of the quarter, are you seeing more momentum behind Silver or Black? And does it have implications on gross margins as we roll forward?

Hey Alex, it's Jack. Regarding capacity constraints, so we've been in mode of trying to plan for this for quite some time. We feel pretty confident that we can meet demand. Obviously we don't know what the final end demand's going to be, but so far we're heading down a path that looks pretty good.

As far as the combination of Black and Silver and margins and all of that, we're not going to get into that granular level of detail today. What I can tell you is one thing is for sure, we're selling two products that are $399 and above and we used to sell one.

So I think from that perspective, we feel like we have some pretty good products on the market that should generate some nice revenue momentum and hopefully some margin momentum. Obviously 44% gross margins that we just guided to plus or minus 50 bips is at or above or certainly at the high end of our target range, which is pretty good given that we are just a couple quarters out of the gate here after the IPO.

So I think product mix looks good, demand looks good, we're pretty confident but a lot's got to play out here in the fourth quarter still.

Okay and as a follow up, I know Nick, you said you're appealing to an increasingly broad spectrum of consumers. I'm wondering here if you can point to any specifics maybe that reaching with the new HERO at that $129 price point or even just with your strategies and marketing that you're seeing some success?

Sure. Well, we believe that everyone in the world has a passion of an interest, and that we all share an inherent desire to see ourselves engaged in our favorite activities, pursuing those passions and interests. And so our job is to make GoPro as appealing -- as accessible as possible to as many consumers as possible, and the HERO at $129 is the most accessible, affordable GoPro that we've ever made. So we're excited to get that out, and you know, that's a brand-new product and time will tell.

I think one of the most effective ways that we are going to continue to appeal to consumers is not just on hardware, but is also to solve for why a customer buys a GoPro in the first place. And that's for the incredible content that a GoPro enables. People don't buy a GoPro for the thing, they buy a GoPro for the content that they can capture and share with others.

And so we feel really proud about advancements that we continue to make in our software applications, both GoPro Studio and GoPro app. Advancements like making it easy now to automatically offload content from your GoPro onto your computer, directly into Studio, making it easier to view that content and edit that content. Bringing new tools like Flux that add incredible speed ramping and slow motion effects to your content to make it even cooler to share and watch with your friends and family. And as we continue to make progress towards this cross-platform combination of GoPro Studio in the GoPro app, we think we're going to continue to make GoPro more appealing not just to tip of the spear consumers but to moms, dads, and the entire household.

(Operator Instructions)

In the interest of time, please limit yourself to one question today. We'll move to our next question from Sean Naughton with Piper Jaffray.

Hi, thanks for taking the question and congrats on a really nice quarter. I guess a question on the international business, maybe just on Europe.

Some chatter about some consumer weakness in this market, and it does sound like some of your distributors held off on some new products in Q3. But just curious maybe about what you're seeing in that market, how the operating margins there really differ a little bit compared to the Company average? And are there any things we should be thinking about in terms of currency impacts on the model longer-term there, that'd be great? Thank you.

Hey Sean, it's Jack. So, trying to address those comments or questions.

As far as the overall macro market, I'm not sure we're the best read for that, because we are kind of a fast-growing product and I don't think we're as affected by kind of the normal GDP -- our goal is to get these new and exciting products out to our customers and we've been trying to do that. Obviously the focus in the third quarter was really, with the product launch, was actually more in the Americas.

And so, unfortunately, we didn't get as much product out to EMEA and APAC as we would've liked to at the time of launch, but we will be catching up as we indicated in our guidance. I think our focus there is to make sure that we get the product into the market and then we think we'll see some pretty good demand.

As far as your question on margin, by definition, typically we're shipping through distribution, it probably won't be quite as good a margin as shipping direct. So we tend to -- so that's obviously one of the things that played into the margins in a quarter. And I think you had asked about currency, certainly in the short-term that's not really an issue for us in that most of our -- well, all of our business is effectively denominated in dollars today. If we were to move to more local currencies in the future, then we'd be more exposed.

We are exposed to a certain extent because we have operating expenses in places like Hong Kong and Europe. But for the most part we are pretty currency agnostic in our business model today.

Our next question from Mitch Kummetz with Robert Baird.

Yes, thanks. Just real quickly can you give us an update on the media side? Did you recognize any media revenue in the quarter, is there any media revenue in the guidance for Q4, and you know, to what extent can you talk about how you see that playing out on a go forward basis?

Great question, this is Tony. We have breakouts of media revenue, we all recognize a very small amount from media revenue.

But I would take you back, when we think about media strategy first and foremost, we continue to be very pleased with the overall strategy which is to drive great content, have our customers continue to create great content that fuels the capture part of the business.

As we mentioned the last call, we will continue to experiment with different forms of monetization. We want to make sure that we do this in a very careful way that continues to create a great experience for the way that people consume our content and share it. And right now we feel very confident in our overall media strategy and consistent with the guidance we gave before.

Okay thanks, good luck guys.

Thanks Mitch.

Thank you.

We'll move to our next question from Charlie Anderson with Dougherty & Company.

Good afternoon and thanks for taking my questions, and congrats on the great quarter and guidance and execution here. So I wanted to ask Nick about sort of product adjacencies, you've had this form factor really since the beginning, and you're spending a lot on R&D, obviously there's you can address on the software side, we see that. But I wonder in terms of on the hardware side, and different modalities of capture, you know, your view on where GoPro goes over the long-term there would be helpful.

That's a great question. As we push the limits of what our capture technology, what our engineering is capable of producing, we are always looking at new ideas, new form factors, new innovations that could lead to a more effective and convenient experience for our customers.

To-date the HERO4 is the sum total of all of that development and engineering and innovation. The HERO4 Black is without a doubt the most powerful, easy-to-use, and high-performance GoPro that we've ever made. And we're extremely proud of it.

But to be sure, you never know what you're going to see from GoPro next. So I will leave it at that.

And we'll move to our next question from Joseph Wolf with Barclays.

Thanks, can you hear me okay?

Yes

My question is with regard to units and if you tried on an international basis if we take your guidance, it would imply about 100% sequential uptick. But should we be looking at in units, are you talking about a 2.1 million, 2.2 million unit number or is the mix still skewed because of the gross margin towards a lower unit count with the higher ASPs from the new product launch? And then does everybody -- do your specialty stores have the new project or is it mainly the big channels in the direct market in the US?

This is Jack -- I'll point out that we really tried very hard from the beginning to get product into the specialty stores. Their really the core of what's made GoPro GoPro, so you'll find it in those stores and we'll continue to keep pushing more and more product there.

I think with regard to units, clearly we're not giving any ASP guidance here so it's a little bit hard to kind of get to a unit number. What I can tell you [sequentially] we're going to see a lot of units move in the fourth quarter, we believe. We also have introduced products that have a higher price point, and that will affect the number of units that are embedded in the revenue guidance that we've provided you.

I would like to just point out that -- and we said this in the prepared remarks -- we are seeing very nice acceptance of the HERO4 Black. And I think you can -- you guys can go through your own channel checks if you like but I think what you'll find is that HERO4 Black has been very eagerly accepted by the consumers. Now, what that mix will look like in the long-term, we'll see. But I think what we're comfortable with is that we have a pretty nice set of products that we just put out on the market and consumers seem to like them.

We'll take our next question from Brad Erickson at Pacific Crest Securities.

Great, thanks for taking my questions.

You mentioned the event in Tokyo around the launch, can you talk about where you are in terms of getting into Asia further, excluding Australia, I guess, where you already have a pretty good presence? And when that might become more meaningful in the future, and I guess I'd also be curious to know if that's a driver here in the Q4 guidance outside of Australia? Thank you.

This is Tony. Actually that's a great question, I just came back from a agents rep meeting with our key distributors and partners.

One, we're already in Asia, in a number of countries, and Jack, I think some of that we definitely see strength in Q4 in general across-the-board internationally, as well as in Asia. The feedback was around a new product, we are very excited about those new products, so we don't see any differences in terms of some of the way that our customers and partners will think about the line. So we have global content that really works across all the markets.

So our go-to-market will be very strong in Asia just like it has been in other parts of the market. I would say for right now, we're going to continue to invest in growing to that market over time and we'll give you more updates as we continue to drive Asia.

Specific to the question about the guidance, I don't think there was anything in particular embedded in there for Asia or China or any particular region. We're just seeing strong demand across-the-board, exactly.

We'll take our next question from the Ben Bollin with Cleveland Research.

Good afternoon, thanks for taking the call. Jack, when you look at gross margins, and the strength that you saw in 3Q and kind of the opportunity you see going forward, can you talk a little bit about how much of that is product mix? How much is increased attachments with accessories, and maybe how much of it would be doing material reductions? And what would it take for you to start feeling differently about those long-term targets?

Time is the thing that would probably take -- that would affect us the most in evaluating our long-term targets. One quarter does not a company make, I guess, is the way I always look at it. We're really focused on what the business model's going to look like in the long term.

Right now things look pretty good, from a gross margin perspective. There's a lot of components to this. I mean, I've got to tell you, I think a lot of the starts with the development that our engineers do in the early days, they really focus in on cost. And you've seen that really flow through with the HERO3+ and now with the HERO4, these products were designed and focused on very specific cost points. So we could bring them to market in a profitable way and that's playing out into the gross margins right now.

Mix does have an effect on it, obviously, by introducing higher ASP products, that probably helps the gross margin a bit, but you know where that mix is going to flow over time, we don't know, it's just too early to tell. Initial information's great. But, you know, we'll see where it goes.

Regarding accessories, I will comment that in the last quarter, we actually had a little bit better mix of higher-margin accessories in the most recent quarter. That did have some impact on the overall amount -- the overall gross margin, but in general, we're doing a good job of maintaining costs. We're getting high-end products out there and that's a pretty good combination.

And we'll take our next question from Jim Duffy with Stifel.

Thanks. Hi guys. Great job on the launch.

Hey Jack, you mentioned you expected distributor markets to lag some in the third quarter. Can you speak in more detail around the dynamics behind that and then inventories are super tight again, particularly in the context of the fourth quarter guide, do the west coast port delays create issues for you guys?

Okay yes hey Jim. So maybe we'll go backwards into this one. Regarding west coast port delays, no, our focus is just building products up.

While I said we did get the product out on the day in which we expected to get them out, there is a lot of work involved in actually getting, you know, products through the MP process and then moving them the CMs and moving into our hubs and all of that and just takes time to get the engine rolling.

Inventories were relatively light, actually, coming into the quarter, but we are building quite a bit right now and that's to meet the demands for this upcoming quarter. I don't think we can really look at port delays or anything else, I think it's just a natural cycle of bringing out a new product.

Regarding the distributors in Europe, essentially what happened there was we had to make decisions about where we could get products out, in, you know, the quickest way to support the launch and we simply just chose certain areas and were not able to accommodate everyone. Since then we've been very busy getting more product into the channel and as we said, we expect increases both year-over-year and sequentially across all the regions this quarter.

Our next question from Tavis McCourt with Raymond James

Hey, thanks for taking my question. I had a bigger picture question, you know you run into the happy problem that a lot of successful consumer device companies have which is you start selling more product than you expected and you end up with a lot of profit.

I'm wondering to what degree should we expect you to allow that to flow directly to the bottom line versus kind of reinvestments either into higher advertising, trying to maintain a longer-term operating margin structure to maybe build more sustainability beyond the cycle? Thanks.

I'll comment a little, and maybe Nick or Tony or Nina can jump in if they have some thoughts too. We just got done doing an IPO. We gave a target model and it's a long-term model.

What we really are trying to preach is that the market that we are addressing is much, much larger than what people probably believe it is. This whole ability to self capture is something that's become very prevalent in basically our everyday lives. So we're investing, and we have been investing and building both products in the form of hardware, software, services and you're starting to see -- and media content, you're starting to see some of those results, right.

At the same time we're trying to generate decent operating margin for the investors who are supporting us and so this last quarter we had a 9.9% operating profit, that's pretty good. We're going to be disciplined about the model, but at the same time we really believe the opportunity is large here. We've been highly profitable for quite some time, we are not planning on going away from that. But we're making decisions about what's the best way to return to you guys some long-term profitability, and I think that's really our focus.

I think we have -- we're quite fortunate because Nick's been doing this for a long time, so we've had a real focus on how to build the business, what the big opportunities could be. And his guidance is really important here because nobody understands this market better than he does. So that's kind of my thoughts, I don't know if anybody else has anything else to add.

No I think Jack sums up -- summed it up perfectly. We've got a big vision, a long-term vision, lots to do, and we're thrilled with how the business is going. And if increased profitability allows us to address some of our opportunities a little earlier than we might have been able to, then that can only be a great thing for investors. But we're just feeling terrific about the business on all fronts.

Our next question from Jeremy David with Citi.

Hi, congratulations to your team on a great quarter, and a very, very solid guidance. I wanted to go back to the dichotomy we're seeing between sales in the US and other regions of the world. Americas have grown much faster than other parts of the world in Q2, beginning Q3, and now in Q4, so it's not just from the HERO4 launch, and year-to-date the EMEA revenue is down about 10% year-over-year.

So is there something else you're not doing intentionally that you're doing in the US that's leading to slower growth or are retailers less keen outside of the US to expand shelf space for GoPro? Can you just comment on, again, the year-long trend that we've seen and again, I don't think that's just around the HERO4. Thank you.

Thanks for your question we really appreciate it. Yes, I guess the trend is our revenue's up 46% year-over-year, and I think that's what we're really -- we try to focus in on that. As we look at some of the regions, you know, we go through ups and downs in all those regions, but frankly we look in Europe and APAC as some of the biggest opportunities we have going forward.

One thing we know, for example, I mentioned in our prepared remarks the sell-through was actually exceptionally strong, we just couldn't get enough product into Europe in the most recent quarter. So I think with a good product launch and some of the outlook that we have for the fourth quarter, we're actually pretty happy about the way things are going in EMEA and APAC. You know, lots of work to do, but lots of opportunity in front of us.

I would just reiterate what Nick has said having just been out in both Europe and Asia, very strong response to the new products, very, very excited about what we're doing.

And we take our next question from Andrew Uerkwitz with Oppenheimer and Company.

Hey thanks guys, congratulations on the quarter, thanks for taking my question.

You guys have done like a really good job building brand, had very good success on your higher-priced devices like the HERO3+, sounds like the Black is doing quite tremendous. So I guess we would view GoPro as a price maker, so with that kind of in mind, could you talk about the strategy and kind of the expectations around the entry-level HERO? Essentially, why offer that model now when it seems like you guys could just keep going rolling out the $300, $400 ones and have similar success, thanks.

That's a great question. Nick here, I'll answer that.

You know, it's important that we stay innovative and progressive in all areas of the business. Not just in product design and features, but also in product offerings in general and how we present GoPro to the consumer and how we attempt to appeal to them. So obviously price is very interesting that GoPro sort of bucks the norm for consumer products in that we typically sell more of our higher-end products than we do our lower-priced products.

With that said, it doesn't mean we're just going to rest on our laurels and ride that trend. We also needed to experiment with expanding the customer base at the entry-level price point with exciting low-priced products as well. We have a great understanding, we believe, of our skew mix, we have many years of history here, and we were confident in introducing a new low-priced $129 HERO without much fear of it cannibalizing from the higher-end products.

It just seemed a really smart and obvious route to go to make GoPro more accessible and more appealing to new customers. You mentioned why now, why not just focus on the higher-end and it's all for all reasons I just mentioned. We're aggressive with our business, we are passionate about this, and when we see an opportunity, we're going to go for it.

The only thing I'd add on top, with the $129 HERO, clearly that does open the product to more people, I'll take you back to our key [product] media strategy, the more people that we get capturing great content, getting that share the more it fuels the overall business, and the [booking] cycle we talked about a number of times.

Well said.

There are no further questions in queue, I will turn the call back to Nick Woodman for any additional or closing remarks.

Alright everybody, well again on behalf of all 870 employees at GoPro, I want to thank you for your ongoing support and interest in GoPro, and thanks for joining us today. This is Team GoPro, signing off.

And that does conclude today's conference. Thank you for your participation. You may now disconnect.