GoPro Inc (GPRO) 2014 Q4 法說會逐字稿

Ladies and gentlemen, good day and welcome to the GoPro fourth-quarter and full-year 2014 financial results conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Jeff Brown, Vice President of Corporate Communications. Please go ahead, sir.

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

Before we begin, I'd 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 market trends, our future plans, prospects and growth possibilities, 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 November 20, 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 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 provide comparisons of our operating results in a manner similar to how we analyze our own operating results. The reconciliation of GAAP to non-GAAP financial data can be found in earnings press release we issued today. With that, we ask that you review this information in conjunction with this call. All numbers that our disclosed in today's conference call, other than revenue, 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 fourth quarter and full-year 2014. 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 and for your reference. In the interest of time, I'd like to remind those participating in the Q&A portion of the call to please limit yourselves to one question each.

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

Hi everyone and thanks for joining the call. Needless to say, GoPro had a great fourth quarter capping off our most exciting year ever. We are extremely pleased with our results and excited about our outlook for 2015 and beyond.

I'm going to steal a bit of Jack's thunder by sharing some of our financial results upfront because I'm so proud of them. In the fourth quarter, GoPro grew revenue by 75% year-over-year to $634 million, more revenue than we generated in all of 2012. Our gross margin dollars nearly doubled year-over-year to $304 million, resulting in earnings per share of $0.99. And we ended the year with a cash balance of $422 million.

Beyond the great financials posted in Q4 in 2014, we're excited how GoPro has evolved from an enabling piece of technology into a global content sharing movement that transcends age, gender, and nationality. GoPro enables the world to capture and share experiences like never before and the resulting perspectives and immersive content allows us to see our world like never before. The limitless points of view our cameras and accessories enable makes it easy for people to capture virtually any life experience. This results in some of the world's most engaging content. Content that goes on to drive awareness of our brand and business, and inspires others to capture and share engaging experiences of their own. And it's snowballing.

In 2014, more than 3.9 years of content with GoPro mentioned in the title was uploaded to YouTube. Up significantly from the 2.8 years of content posted during 2013. The GoPro channel on YouTube generated over 98 million views in the fourth quarter alone, an increase of 34% year-over-year, while total minutes viewed for the quarter was up 59% year-over-year. This performance was enabled by video hits such as our originally produced The Adventure of Life in 4K series, which has received more than 40 million views since being launched. Compelling content like this has helped grow our Facebook fan base to 8.3 million followers in the quarter. While our Instagram audience grew 162% year-over-year, and now stands at 4.1 million followers. Testament to the strength of the GoPro movement, GoPro is a top 10 brand channel on Instagram.

To make GoPro content even more accessible, we are expanding distribution of the GoPro channel to additional platforms. Yesterday we announced that in the spring, the GoPro channel will come to Roku, a market leader in over the top streaming devices. And to take things further, we are bringing GoPro to live television. Responding to demand from broadcasters, we partnered with Vislink to enable the broadcast of GoPro perspectives during live televised events.

We introduced our live GoPro solution in mid January with the National Hockey League during their All-Star weekend and reached approximately 2 million television viewers. That very same weekend ESPN integrated GoPro live feeds into their broadcast of the Winter X Games, reaching over 30 million viewers. Nearly 32 million viewers in its debut weekend. That's a hell of a start and indicative of a significant opportunity for GoPro on live television.

As the GoPro movement grows, and consumers increasingly associate GoPro with highly engaging content, we are seeing other brands and businesses leverage the movement to their own benefit. When a snowstorm recently hit the eastern United States, the Weather Channel began promoting a site where viewers were encouraged to submit GoPro captured blizzard footage. And last month, Marriott started a program at select resorts were they loan GoPros to guests, encouraging them to share their best vacation moments on a website dedicated to GoPro content.

This movement represents a tangible, competitive advantage. It virally expands awareness and enthusiasm for our brand, while defending our position against potential competitors. GoPro succeeds because millions of passionate customers capture and share their lives on our platform. And as their numbers and content sharing grows, so does the momentum of the movement and the momentum of our business. This was most evident in Q4 when we enjoyed our best sales performance to date. Shipping an average of 1,000 cameras an hour throughout the quarter. Talk about momentum.

With that said, let's talk about our Q4 performance. The launch of the HERO4 in October stands as the most successful product launch in our history. We sold a record 2.4 million capture devices in the fourth quarter reflecting the strength of our brand, product design, and execution. According to NPD, GoPro capture devices accounted for three of the top five products by dollar share, and once again grabbed the number one spot as the best selling product in the combined digital camera and camcorder category. NPD also reported that GoPro held 7 of the top 10 spots in accessories.

Our sales performance during the holiday quarter reflects a solid return on our channel marketing investments. In October, we rolled out new 12 linear foot POP kiosks in select North American retailers. Featuring a larger brand presence, larger video screens and significantly increased shelf space, the new POP is proving a hit, and retail customers report significantly improved sell-through when compared with our smaller 2 foot and 4 foot POPs.

Looking outside the Americas, GoPro had a strong fourth quarter in both EMEA and Asia Pacific. From Q3 to Q4, our revenue growth in EMEA and APAC significantly exceeded that of our Americas region. Research firm GFK reports that in these markets GoPro enjoys a significant double digit market-share lead over our closest competitors. International expansion is a priority and we are happy with the progress we've made to date. In 2014 we established a sales and marketing headquarters in Europe and expanded sales and marketing efforts in Latin America, Australia, Japan, Korea, and China.

In November we announced a strategy for Brazil, which includes an in-region product assembly to improve margins and reduced retail pricing for consumers. The early results are promising based on HERO3+ sales, and in March we will introduce HERO4 to the Brazilian market.

In mid-January, we took our first steps into China with the countries two largest web retailers Tmall and JD, as well as with select off-line retailers. We are happy with the initial sales results in both online and off-line channels and see positive indication that GoPro has the opportunity to succeed in China, one of the world's largest consumer markets. In 2014, over $0.5 billion of our revenue came from outside of the Americas. We see international expansion as a key part of our revenue growth strategy going forward.

On the product front, we continued to improve the ease of capturing and sharing compelling content. Yesterday, we released a firmware update for HERO4 cameras that introduces exciting new features including; 720 P video capture at 240 frames per second, and time lapse video. A mode that simplifies the capture and sharing of time-lapse content. Both of these powerful new features illustrate our dedication to innovation and improving our customers experience and demonstrate that a GoPro is a smart device capable of receiving periodic updates that enhance its value.

And it's important that a GoPro continues to evolve. As it needs to match the breadth of our vision, because it's a big one. We see a future in which GoPro serves as a platform for people around the world to visually express themselves like never before. A future in which their shared experience and collective content on our platform is as valuable to GoPro, as YouTube is to Google, or Instagram is to Facebook.

With that, I'm going to turn the call over to Jack to discuss our financials.

Thank you Nick and thanks to all of you for joining us today. If you've not only 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 review of Q4 and full-year 2014, as well as our related business trends. I'll then provide our guidance for the first quarter of 2015.

The movement that Nick described in his remarks is happening, and our 2014 financial results demonstrate how beneficial this can be for our shareholders. Over the past three years, GoPro has experienced exceptional growth as evidenced by our revenue compound annual growth rate of over 80%, and the unit compound annual growth rate of over 65%. Across Silicon Valley there are very few companies with over $1 billion in revenue and growth rates in excess of GoPros.

Our full year 2014 revenue of $1.4 billion was up 41% from 2013, providing further evidence of the large and growing market share we are addressing. Gross margin for 2014 was 45.1% compared to 36.9% in 2013, demonstrating our commitment to the development of innovative, cost-effective products and solutions. Operating income was $259.6 million or 18.6%, an increase of $148.9 million from 2013 and within our long-term target model range of 18% to 20%. Adjusted EBITDA was $293.4 million or 21% of revenue, and up almost 120% year-over-year. Earnings per diluted share for the full year of 2014 were a $1.32, up 164% from 2013.

Our fourth-quarter results were quite exceptional. The strong reception for our new line of capture devices was broad-based and we are pleased with our profitability metrics. Fourth-quarter revenue of $633.9 million was up 75% year-over-year, and gross margin of 48% exceeded our long-term target model range of 42% to 44%. Gross margin increased to 600 basis points year-over-year and 350 basis points sequentially. Operating income for the fourth quarter was $193.2 million, or 30.5% of revenue. An increase of $118.8 million from Q4 2013 and an operating profit for Q4 alone was 75% higher than that of our full year in 2013. Adjusted EBITDA was $202.9 million or 32% of revenue, up 148% year-over-year. And earnings per share for the fourth quarter were $0.99, up 200% from the $0.33 recorded in the fourth quarter of 2013.

We continue to be focused on our long-term operating model while also making the investments required to consistently achieve it. Let's take a more detailed look at our performance for Q4. Our revenue growth for the quarter was driven primarily by a 68% year-over-year increase in the capture devices sold. During the quarter we shipped approximately 2.4 million capture devices to our retail and distribution partners throughout the world, with the vast majority being up our newly launched HERO4 line of products. As Nick mentioned, we also achieved a remarkable milestone as we shipped on average over 1,000 units per hour every day of Q4.

We experienced (technical difficulty) across all regions with year-over-year revenue increases 78%, 72%, and 69% in the Americas, EMEA, and APAC respectively. EMEA and APAC sales were also particularly good on a sequential growth basis. ASP remaining strong driven by our HERO4 Black and Silver devices which were our best selling products during the quarter, on both a revenue and unit basis. Overall ASPs during the quarter increased for both our capture devices and our stand-alone accessories.

Revenue from our direct sales channel increased 85% year-over-year to $391.6 million, driven by strong sell-through and sell-in with our domestic and big box retailers. Sales to our distributors increased 61% year-over-year and made up 38% of our fourth-quarter revenue. Fourth-quarter revenue by geography was as follows. The Americas was $407.6 million or 64% of revenue, EMEA was $163.9 million or 26% of revenue, and APAC was $62.4 million or 10% of revenue. EMEA and APAC regions combined made up 36% of Q4 revenue, up 71% from Q4 2013, due to strong sales of the HERO4 products. This geographic mix percentage of revenue was relatively in line with Q4 2013 and significantly up from the 27% reported in Q3 of 2014.

Fourth-quarter gross margin increased nearly 600 basis points year-over-year and 350 basis points sequentially to 48%, due primarily to favorable product and channel mix related to the holiday sales of our HERO4 products. The sequential improvement in gross margin percentage provided us an incremental $0.12 in quarterly EPS.

Operating expenses of $111.1 million were up 43% year-over-year and 15% sequentially, over 85% of the year-over-year increase in operating expenses was in R&D and sales and marketing, with R&D being the largest area of growth. We continue to aggressively invest in new capture devices and our software platform to enable improved user experience and future monetization of content. GAAP net income for the fourth quarter was $122.3 million or $0.83 per diluted share, and this compares with GAAP net income of $43.7 million or $0.33 per diluted share for Q4 2013.

Turning to the balance sheet, we ended the quarter with cash, cash equivalents, and marketable securities of $422.3 million up $184.5 million sequentially due primarily to net proceeds received from our follow-on offering and cash from operations. During 2014 our cash balances increased over 300% to $422 million. Accounts receivable of $184 million increased $61.3 million or 50% compared to Q4 of 2013, with a corresponding DSO decrease to 26 days from 30. Days of inventory decreased 6 days to 42 from 48 in Q4 of 2013, and during the fourth quarter our cash flow from operations was $43.2 million. Our capital expenditures were $4.6 million, and depreciation and amortization was $5.2 million.

I'll now move on to our guidance for the first quarter. After a very strong fourth quarter, we all feel optimistic about our prospects as we enter this new year. We've been closely tracking our channel inventory levels and the initial full quarter (technical difficulty) up growth. We believe that the overall channel inventory levels are healthy going into Q1. We expect continued strong sell-in and sell-through in the first quarter as seasonally adjusted demand remains brisk.

In the first quarter we anticipate revenue from our distribution channel will be particularly strong and geographic strength in both EMEA and APAC regions. As a result, we currently anticipate revenue of between $330 million and $340 million for the first quarter representing a year-over-year increase of approximately $100 million, or 42% at the midpoint of this guidance. The fourth-quarter gross margins were well in excess of our long-term model of 42% to 44% due to favorable channel and product mix. In addition the seasonal higher volumes in the fourth quarter provided us a benefit as we amortised our fixed operations cost over a larger number of units.

In the first quarter we continue to expect our gross margins will be at or above our long-term target model, but will reflect the seasonality and greater concentration of distribution revenue. Accordingly, we anticipate our gross margin will be 44.5%, plus or minus 50 basis points. And at the midpoint, up 340 basis points from the 41.1% 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. To support our ongoing investments in a broadening family of capture devices, accessories, software and services, we anticipate our operating expenses will be $115 million, plus or minus $2.5 million, with substantially all of the growth coming from R&D. Our tax rate is estimated to be at 29% based on fully diluted shares outstanding of about 150 million. Accordingly, we anticipate EPS to be in the range of $0.15 to $0.17.

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

Thank you, Jack. Before I go further, I want to share an announcement related to our Executive Team.

Our Chief Operating Officer, Nina Richardson, has decided to leave us to pursue Board roles and other opportunities. Nina came to GoPro in 2012 to help us scale operations in product development, and she's been fabulously successful in doing that and more. More than just a terrific executive and leader, Nina is a terrific human being. It's been a privilege and a blast to work with her for the past two years. Going forward Tony, Jack and I will take up the reins for Nina's organization.

Nina, from all of GoPro, we love you and we appreciate all that you've done for us. A huge thank you.

Nick, thank you for such a nice tribute. I've thoroughly enjoyed my time with GoPro. This has been an executive's dream having the privilege to be part of such a great organization at such an exciting time of growth and expansion. I'm incredibly proud of my team and all they've accomplished over the past two years. They're terrific. Each and every one is a solid, experienced, and talented executive and I have full confidence in their ability to continue to excel under the leadership of Tony, Jack and you. Thanks, it's been really great.

Thank you, Nina, and I want to add that the performance you've outlined today is attributable in many ways to the processes and people that Nina has brought to GoPro. Again, thank you Nina.

Operator we are now ready for questions.

(Operator Instructions)

Paul Coster, JPMorgan.

Thanks for taking my question. As we think about growth for 2015, and I'm sure you expect growth, you may not be prepared to be very specific about the quantity of growth this year. But can you perhaps give us some sense of where you're expecting the growth to come from principally? Is it from international expansion, is it from new products, product extensions, new business segments? Or is it just simply largely going to be growing as a result of first-time adoption of the products we know today?

It's Jack.

I think you did a pretty good job of summarizing places where our growth is going to come from. There are just a variety of places.

One of the things that you know, and others we've spoken to, we think that shipping now 5.2 million units in the last year is just a very small number in the grand scheme of consumer electronics and the other markets we are going after. So whether it's international growth, which obviously we're going to see quite a bit of in this first quarter, or whether it's through new products and other things that we bring to market. We just think that there are some really large opportunities. Our results this year showed that. We feel pretty confident it's going to happen again in the upcoming year.

Sean Naughton, Piper Jaffray.

Just looking forward and based on what you're talking about on the international expansion, could you just maybe remind us. Are there any dramatic differences in the margins on those three different segments that you have? And then maybe remind us about the distribution versus the direct margins as well. Thank you.

I think it's kind of a combined question there. I think you're asking about margins on a regional basis and basically on distribution. A lot of our international sales today are actually through distribution, so they kind of go hand in hand. It's not exactly 1 to 1, but it's relatively close.

We do see when we ship through distribution, as you can imagine, that is a lower margin sale for us because there are multiple layers involved. So that's one of the reasons why we pointed to in the gross margin a decline down to the guidance that we provided. Distribution is actually probably the biggest piece of it in the first quarter. So we see that those distributors add a lot of value, and that's a great investment to provide them that incremental margin.

But obviously, we're still running this thing at margins that are over 300 basis points greater than it was being run at this time last year. So I think the overall geographic and distributor mix is something that we are pretty happy with and is working pretty well for us.

Let me add just one thing. We did touch on it just to give you an example. As we talked about, we just made our first steps into China. And there you do see also a different mix of online and off-line. You do see that trend, and so that's another key factor when we think about margin going forward.

(Operator Instructions)

Ben Bollin, Cleveland Research.

Good afternoon. Thanks for taking the call. When you look at your content and your strategy, you're talking about the widest content angle now. How you monetize that? How does it contribute to the model, and when do you see the content becoming a meaningful opportunity?

Nick Woodman here.

That's a good question as it relates to the live broadcast. In terms of live television and enabling live GoPro perspectives to be included in the televised events, GoPro largely benefits from increased brand exposure, and getting consumers excited about perspectives that are possible with a GoPro, and also the validation that occurs when they see GoPro perspectives used in live television. Hugely validating for the brand and an incredible promotional opportunity for GoPro.

I wouldn't think of those as revenue events. It's more GoPro being used by professional broadcasters as an enabling technology to improve the show for the fans at home. And we get a huge brand boost from that when it happens.

And then I'll turn the second part of your question over to our President, Tony Bates.

Thanks.

Just to reaffirm what Nick just mentioned, the results really reflect, I think, an affirmation of the content-enabled strategy that we've had from the beginning. And just in terms of live, it's just another way to really capture the imagination and see what's possible with the GoPro.

Just to expand a little bit, when we think about the revenue of the media, it isn't our focus today. Our focus today is inherently around continuing to excite and amaze folks in terms of what's possible with a GoPro. And that, again, reflects in our results. Our focus has been, one, to show what's possible with the GoPro but to continue to increase distribution channels.

Nick already mentioned that we talked about Roku. We expect that to come in the spring as just another channel. But I'd also point to, obviously, the great results you continue to see in both viewership and sharing that we see in YouTube.

And an increase that we put our focus on other social channels. Facebook, obviously -- we mentioned Instagram. And there are two phenomena that we see. One is the additional viewership that we see on those channels. But more importantly, the way that people are starting to share GoPro content in a much more social way. So that again reinforces and benefits the content enablement strategy we have around media.

Alex Gauna, JMP Securities.

Thanks for taking my question. Congratulations on the blowout results.

I'm just curious. In terms of what you learned, in terms of that smashing debut performance with the National Hockey League and also with the Winter X games. This live opportunity -- what new directions can you go in, what are the technology challenges, and what can you do with the technology to make those experiences even better?

Great question. I think that we are just in the early days of enabling live GoPro's perspective on television. We haven't officially debuted the product and made it available yet. Stay tuned for more news on that.

But in the first weekend alone, we saw the NHL use it in All-Star Weekend. And then, of course, the X Games -- ESPN using it at the X Games. And it was a huge success from what was effectively the first live debut of the product. And as you know, anything that's live is live. And so we were thrilled with how much both networks used GoPro live perspectives.

And as a viewer at home, I can tell you it was the most exciting Winter X Games that I've ever seen. Because for the first time, we were able to regularly see the action from the perspective of the athlete. And you can tell as the program went on, and ESPN got more comfortable with how fabulous the image quality coming from the GoPros was, they used it more and more and more. So that was really encouraging to see.

I think what we will see is other broadcast professionals are watching this programming. And they're seeing what these other networks are doing with the GoPro, and they're seeing how the show is enhanced. So one can imagine that GoPro live on television could benefit in many of the same ways that the rest of the brand and Company has. It's that the more that broadcasters use GoPros to enhance programming, the more others will be inspired to do the same. And we could see a fabulous extension of the GoPro movement to television and not just digitally distributed content as we are seeing it today.

The only thing I'd add is obviously we showcased some sports events. But I think this technology, to Nick's point, translates across all forms of live television whenever you want to see unique perspectives. So what we're going to have to do in a very small form pack is really enable that solution.

Charlie Anderson, Dougherty & Company.

Thank you for taking my question. I wonder if you could speak a little bit to channel inventory in Europe. I know it's a little bit tougher with the distributors, but where you see that.

And also in terms of mix, what have you seen in Q4 in mix in international versus US? And then as you've been in China for a few weeks, what's that mix kind of look like?

As far as the overall international, I would say that it's multilevel of distribution obviously; but we do keep pretty good tabs on that. We do quite a lot of research, both through external sources and through our partners themselves.

So for example, we get data from our distributors that tells us what's being sold through, what they have in inventory. But we've also started an effort to get closer to the retailers throughout Europe. So we actually are getting some pretty good information, and we are learning a lot. Obviously, we feel like the sell-through is good; and the sell-in has been probably not enough to keep up. And that is one of the reasons why we're seeing particular strength in the first quarter in the EMEA and in the APAC regions. So I think that's pretty telling.

Mix-wise, I still think we're in an early phase to make long-standing statements about what the mix is going to be in the future. Clearly, we mentioned in North America, we had the number one selling product in the fourth quarter according to NPD. We are seeing a pretty favorable mix, obviously, from a sell-in basis because you can see that in our Q4 numbers. But even on a sell-through basis, the mix is actually quite good. And I think we're very, very happy with the way in which that's worked out.

The one other thing I can point you to is we did point out, and I think this is consistent for Europe as well as in the US. Our two best-selling products, both on a unit and revenue basis this last quarter, were the HERO4 Black and the HERO4 Silver. So hopefully that gives you an idea.

Joseph Wolf, Barclays.

Hello, thanks. I wanted to ask a question about the ease of use for customers. You mentioned some new tools for capturing video. But if you look out and see customer comments and reviews, there's talk about battery life issues and just the editing tools. And I was wondering what kind of things we can expect over the course of the next couple months to address those issues.

Good question. Battery life is an ongoing challenge for any consumer electronics device. As devices become more powerful, processing becomes more intensive. And we are all a bit slave to the development of new battery technologies that would provide for longer run times. It's something that we all want, so it's something that we look at very closely.

And years ago, there was nothing that GoPro could do about it because we were a very small Company without a lot of leverage and without a lot of engineering talent. And that's changing, and GoPro is becoming a bigger player in the consumer electronics space. And we are hiring incredibly talented engineers who are helping us shape the future.

I wouldn't say this is something that's going to happen in the next two months. In fact, I'll go so far as to say it's not going to happen in the next two months. But we do feel that we have the opportunity to improve battery performance of the GoPro in the future. But to be frank, it is incredible that you can capture the quality of footage, 4K video at 30 frames a second, cinema-quality content, for an hour with a HERO4 is stunning. You tell that to a professional; they're blown away.

Unfortunately the consumer has different expectations; everything should work better than it does. And we are not satisfied either, so we will continue to improve. But it's pretty darn impressive when you stop and consider what a HERO4 can do today.

In terms of making it easier for our customers to offload their content, easily access it when they're on the go with their mobile device, more easily edit it into short, consumable format to content that they can share more you easily -- that is one of the primary focuses of GoPro today. I can't tell you the timeline for new products and services related to that.

But I can tell you that we're making significant investments; we are hiring fabulous people. And what I know from behind the scenes, I'm incredibly upbeat about the development that I'm seeing and the user experience that we are going to roll out for consumers to address this problem. So stay tuned for that. But just know that we see that as a big, big part of GoPro's future and how we continue to grow the Company.

Jim Duffy, Stifel.

Thanks.

Hello, everyone. Compliments to the team on the strong execution in 2014. Nina, best of luck.

Thank you.

My questions, looking across 2015, Nick, what are the priority areas for investment? And then related to that, with cash balances building cash generation capacity strong, have potential acquisitions become more top of mind?

Good question. We believe we've got a huge opportunity at GoPro. We have got a fantastic brand that resonates with consumers around the world for the simple reason that the world is filled with people that have interest and passions, filled with people that would like to see themselves living out those interests and passions.

And before GoPro, it was very difficult for anybody to capture footage of themselves doing what they love to do in life. We've made that easy. And lo and behold, we've built a fabulous business around the strong consumer demand for our products and services.

Having said that, we're not resting on our laurels and patting ourselves on the back with the success of the products that we've launched to date. We have a very big vision for this business, for this brand where we see GoPro as a platform to truly help the world visually express itself in a new way. And on a more regular basis, share compelling short format content of one's personal experiences. This is the future.

And to be clear, we need to invest in that. So areas of investments for us are in people; are in the development of our road map, which is quite impressive. And along with that, yes, absolutely come potential acquisition opportunities. It would only be prudent if we were looking at ways to accelerate the realization of our vision. And so that's something that we take very seriously and didn't go and raise this money just to sit on it.

We raised this money last year to put it to work in help growing this business; but to be said, we're going to do it prudently. This business is 13 years old, and we have not had a history of throwing money around. We've been very prudent in our approach to how we spend our money, and that will continue to be the case. But to be sure, there are more and more opportunities coming our way.

I'll just add one thing to that. You have a series of people here that have joined Nick over the years that actually have a fair amount of experience doing M&A and those types of things. And we are all very aware of the pluses and minuses of doing M&A. So I think any approach that we would take, if we were to take it, would be very thoughtful and one where we would obviously keep in mind what's best for the shareholders.

(Operator Instructions)

James Faucette, Morgan Stanley.

Thanks very much.

I just wanted to ask about your distribution. And wondering if you can give a breakdown, by geography, of how far you think you are in terms of your distribution or potential distribution in places just around the world. Just trying to get a sense for how much further you think you can go and reach. Thanks.

This is one of the things that we brought up when I was discussing this earlier, and I was talking about the international piece. This is actually one of the really big opportunities because we are now working not just with the distributors; we are working actually with the direct retailers too. And that combination we're addressing by having more and more people on the street to learn what customers want.

And so I think that enables us to not only do a better job of even marketing the products, but actually get into more doors. There are plenty of doors for us to go after; there's no doubt about that. You can go all over Europe, and you can find plenty of places where you can't get a GoPro. We look at that as just a massive opportunity for the Company.

And then in APAC, we're even earlier stage; it's really a long ways away. Outside of Australia, where we've done pretty well; but even Australia, there are plenty of places to go. So while I'm not going to quantify, we clearly wouldn't be talking about it if we didn't think this was really and truly a very large opportunity internationally.

Brad Erickson, Pacific Crest Securities.

Hello, thanks for taking my question. When you look at the challenges that face you on the software development side, where are you most optimistic at this point? And what areas concern you most around driving a path towards being able to monetize the media portion of the business?

Just on the software side, I would point you back to a little bit of what Nick has already talked about. We are very confident, one, in the team that we are building. And on the road map that we can continue to address pinpoints around, one, making it much easier for us to capture your content; two, to manage that; and then, three, to actually make it simpler for you to edit and create great high-quality short-form content and then, of course, share that. So we feel very good about that. It's work, no doubt; and we are going to be continuing to invest in that.

Jack mentioned already the level investment we're making in R&D, up 85% year on year. We are very committed to that. And I would really separate the two pieces when we talk about monetization. We see that as a potential for us to, one, help improve the experience as we talked about. But over time, potentially monetize those services.

And then when we talk about media, I want to reaffirm what we are about today is really content-enabling our business so more and more people see the power of what you can do with GoPro -- the enhancement around the software strategy I outlined. And then over time, we will look to see where there is potential to monetize that content. But that's not the focus. Right now, the focus is really driving a great seamless software experience.

Yes, this is Nick again.

Just to add to that, since going public, we've let you know that there's a cadence to this, all right? And that first and foremost, you have to enable the capture of great content. Then you have to enable the easy management and editing of that content to increase the rate of sharing so that you increase the pool of content that you have from which to aggregate and then redistribute the best of as GoPro-branded programming. The GoPro channel.

The one begets the other. We are obviously doing very well on the capture front with the sale of our devices. And what you're going to see from us in the future is a new user experience related to the management and editing of that content to facilitate more sharing. And then from that, we will have an expanded media opportunity.

I just want to be clear that you are hearing a very consistent message from us, and we feel very good about our progress and execution to date.

Jeremy David, with Citigroup.

Thanks for taking my question. Congrats on the quarter. I want to ask you a question about the seasonality you got into in Q1.

You're getting Q1 revenue of $330 million, $340 million. That's down about 47% quarter to quarter at the midpoint. Last year, I think your revenue was down about 35% quarter over quarter in Q1. So it's a big difference. And I'm scratching my head to reconcile the guidance and your comment that seasonality, that inventory are healthy in the channel without detail. Any help you could provide would be helpful.

And if you also comment a little bit on seasonality through the year. Should be expect 2015 to be similar to 2014? Or is there anything we should be aware of? Thank you.

Thanks for the question, and I appreciate the insight. I think you kind of have to look at it a different way, or at least the way I look at it is a little differently.

The way I look at it is we're growing 42%, I think, at the mid point of the guidance. And from that perspective, given we grew 41% all of last year, I think that seems like a pretty good situation for the Company. And $100 million in growth in revenue in one quarter year over year is actually a pretty good situation.

So I can only tell you that we are quite pleased with the way in which this looks going into the year. We are particularly pleased with the international side of things and how that's going. And yet we also know that the opportunities domestically are still significant and large. So frankly, we're pretty happy with the way this Outlook is; and we look forward to delivering it during the quarter.

(Operator Instructions)

James Faucette, Morgan Stanley.

Yes, thanks for the follow-up question. I just wanted to circle back once again on the point of distribution and that kind of thing, and understanding that you have a lot of opportunity outside the US.

One of the questions I had was that I think there have been some comments earlier this year perhaps indicating that you might think you might grow a little slower internationally than originally anticipated. Just wondering, was that interpretation of previous comments accurate? And if so, what has modified your plans to grow internationally? Thanks.

Yes, it's a fair question; and thanks for the question, James.

What I'd tell you is if you look back at maybe things that we've said during the year, what we've been pretty consistent about all year is that there was a level of inventory in the channels before we started gathering some of the information that we gather now in the earliest part of the year that made it more difficult to actually show sell-in growth, right? And I think that's what we were alluding to.

I don't think there are challenges in growing internationally, other than going out and just executing and working closely with our distribution partners. And in some cases, as I think we've mentioned, we've taken people, like Amazon EMEA, direct. But we're really just doing all that we can do to actually grow out the doors and the opportunities overseas. So hopefully this is pretty consistent with what we've said -- is that international is a big opportunity for us.

Follow-up from Alex Gauna, JMP Securities.

Jack, to follow-up on two questions ago, you've done a pretty good job of exceeding your expectations last couple of quarters. I'm kind of wondering in this last December quarter, what was the greatest variance that came in stronger than you expected? And what maybe could go better than expected in Q1?

I'm also curious. With Q1, you gave some answers that year-over-year growth is comparable for that first quarter to what you did for the full year 2014. Is that really how you're setting the bar there? Or are there other insights setting that guidance to be greater than normal seasonality for you? Thanks.

Alex, the big thing that happened in Q4 was there was just a tremendous ground swell of demand. We really saw a lot of pull from all of our customers. We moved a lot of units in this last quarter. And frankly, I think it's a testament to the operations team within the Company. Because if you look at it, we really were able to fulfill demand while being careful about making sure that people weren't over ordering on product.

And so I just think that we just saw it across the board. There are some regions where we weren't able to get stuff probably as fast as we wanted to. But we caught up as the quarter went by. But overall, we just see a lot of demand for these new products that our engineering teams put together -- the HERO4s that are, frankly, quite good in our view.

I think looking at Q1, there are all sorts of variances that could possibly happen. But we have to give you our view as of today and what we think is the most likely situation for the quarter. When I look out there, we obviously have to keep tracking things like sell-through so that we can get the proper levels of sell-in.

But remember, one of the things we been pretty adamant about is that we just want to make sure that we are priming the channel to meet the demand. And we know that long-term, 5.2 million units in a year is really a pretty small number compared to what we should be able to do. And given that, we just want to have controlled growth as we go forward. Hopefully that helps a little bit.

Ladies and gentlemen, that does conclude our question and answer session. I would now like to turn the call back to management for any closing comments.

Thanks again, everyone, for joining the call. Nick Woodman here. Before we go, I want to let everyone know that we'll be at the Morgan Stanley Technology Media & Telecom Conference being held in San Francisco on March 4.

On behalf of our thousand plus employees around the world, thank you for your ongoing support and interest in GoPro. This is team GoPro signing off.

Once again, that does conclude today's conference. We do thank you for your participation.