GoPro Inc (GPRO) 2017 Q2 法說會逐字稿

Good day, everyone, and welcome to the GoPro Second Quarter 2017 Results Conference.

Just a reminder that today's call is being recorded.

And now it's my pleasure to turn the conference over to Jeff Brown, Vice President of Communications.

Please go ahead, sir.

Thanks, operator.

Good afternoon, everyone, and welcome to GoPro's Second Quarter 2017 Earnings Conference Call.

With me today are GoPro CEO, Nicholas Woodman; COO, CJ Prober; and CFO, Brian McGee.

Before we get started, I'd like to remind everyone that our remarks today may include forward-looking statements.

Forward-looking statements and all other statements that are not historical facts are not guarantees of future performance and are subject to a number of risks and uncertainties, which may cause actual results to differ materially.

Additionally, any forward-looking statements made today are based on assumptions as of today.

We do not undertake any obligation to update any of these statements as a result of new information or future events.

Information concerning our risk factors is available in our most recent annual report on Form 10-K for the year ended December 31, 2016, which is on file with the Securities and Exchange Commission in other reports that we may file from time to time with the SEC.

Today, we may discuss gross margin, operating expense, net profit and loss as well as basic and diluted net profit and loss 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 choose 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 operating expenses can be found in the press release that was issued this afternoon.

In addition to the earnings press release, we have posted slides containing detailed financial data and metrics for the second quarter of 2017.

These slides and a link to the webcast for today's earnings conference call are posted on the Events & Presentation page of the GoPro Investor Relations website for your reference.

A link to the live webcast today and a replay of today's conference call is posted on the Events & Presentation page of the GoPro Investor Relations website for your reference.

All income statement-related numbers that are discussed today during the call, other than revenue, are not GAAP, unless otherwise noticed.

Now I'd like to turn the call over to GoPro's CEO, Nicholas Woodman.

Nick?

Good afternoon.

Our second quarter performance capped a strong first half of the year for GoPro where brand engagement, consumer demand and sell-through of our products were better than expected.

Our second quarter was EBITDA positive and our revenue grew year-over-year by 34% to $297 million.

Inventory was down 39% in the second quarter, positioning us well for new product releases later this year.

For the third consecutive quarter, our premium-priced camera, HERO5 Black, was the best-selling camera in the United States, and GoPro's drone, Karma, is the nation's #2 selling drone brand.

Our second quarter gross margin was 36%, sequential improvement buoyed by the margin strength of HERO5 Black and HERO5 Session.

We expect margins to continue to improve throughout 2017, with the introduction of new products.

And we remain on track to reduce our annual operating expenses by 30% year-over-year to less than $495 million.

To summarize, we're seeing strength across our business, thanks to strong demand and improved focus and execution.

We continue to track toward our goal of low double-digit revenue growth and full year non-GAAP profitability in 2017.

While it's encouraging to see improved momentum in our business, we're particularly excited about innovations in our road map that will enhance our relevance to consumers in this increasingly smartphone-centric world.

Last week, we launched QuikStories, a new GoPro App feature that represents our biggest leap forward in ease of use since the invention of the GoPro itself.

QuikStories automatically copies footage from your GoPro to your phone, and the GoPro App then creates an awesome ready-to-share video for you.

We think this experience is game-changing for our customers and for our business.

GoPro has sold more than 26 million cameras since the launch of the HD HERO in 2009.

And today, we are the most followed consumer electronics brand on Instagram.

Yet, we achieved this with the sharing experience that proved challenging for most of our customers.

What happens now that sharing with the GoPro is as easy as QuikStories.

We believe the answer is growth.

Growth, further fueled by the mega trend that is sharing from smartphones to platforms like Instagram, YouTube and WeChat.

We believe that GoPro's biggest opportunity may be to serve as an untethered lens for the smartphone, helping users capture more immersive and engaging stories than they can with a smartphone alone.

Central to this vision is the belief that GoPro is no longer just a camera, a standalone device.

Now with our seamless app experience, a GoPro is a powerful extension of the smartphone itself.

To put the opportunity in perspective, consider there are more than 700 million smartphone users on Instagram alone.

We believe that better serving these users and others like them represents a significant opportunity to grow our total addressable market.

With this in mind, we believe GoPro is actually early to the mobile storytelling opportunity.

Looking forward, we envision many new products that will contribute to this new age of visual expression.

The solutions that satisfy consumers today, most certainly, won't be the same tomorrow.

And we're excited that GoPro is already building for that tomorrow today.

With that, I'll hand off to our COO, CJ Prober.

Thanks, Nick, and good afternoon, everyone.

The vision for the future that Nick just shared, evolving GoPro beyond the standalone device into a meaningful extension of the smartphone presents an enormous opportunity for new products and for reaching millions of new consumers.

The work we've been doing to turn GoPro's business around is providing a strong foundation from which to realize this vision.

With that in mind, I'm going to provide an update on GoPro's progress against the 5 key priorities we established at the start of this year.

Our first priority is to achieve profitability through improved efficiency, lower cost and better execution.

Our focus on doing fewer things better is paying off, and you're seeing that in our results.

Our OpEx for the quarter came in below the low end of our expectations.

Our investments in Romania and the Philippines are now paying dividends, and we continue to look for new opportunities to drive additional savings.

On our last call, I noted the efforts to improve the cost profile of our supply chain.

These efforts are contributing to the higher-than-expected gross margin we achieved for the quarter.

Next, a sharp focus on inventory and channel management resulted in a 39% reduction in inventory quarter-over-quarter, forward weeks of supply and the channel is down 25%.

Both of these position us well for upcoming product launch.

Finally, I'm happy to report that the execution across our teams on delivering HERO6 has been stellar, and we're on track for launch later this year.

I'll save the details for our launch event, but I know you're going to be super impressed.

Our second priority is to make the smartphone central to the GoPro experience.

Aligning with the smartphone requires us to deliver products with very intuitive design.

In this regard, our efforts have already received industry recognition.

Three of our products recently received the prestigious Red Dot award, the best of the best award in product design for both Karma and the HERO5 Black.

HERO5 Session also won a Red Dot award.

Our mobile applications continue to perform as well.

Sharing from our GoPro App is up over 30% on a year-over-year basis.

Quick installs and monthly active users are up 84% and 112% year-over-year.

QuikStories adds to this strong foundation.

And if early feedback is any indication, we expect it to be a big hit with our consumers.

Our third key priority is to market the smartphone experience to our existing community.

As we noted earlier this year, we're shifting our marketing target to focus on our existing community and new consumers that fit a similar profile.

As a result, we're seeing dramatic improvements in our return on ad spend and all other related performance metric.

This is also translating the strong sell-through.

Globally, we're seeing approximately 13% year-over-year sell-through growth in the $300 and above price point.

In the spirit of doing fewer things better, we're also producing significantly fewer yet higher impact videos, a combination of user-generated content and our own in-house productions.

The result is that in the first half of 2017, the median number of organic YouTube views is up 65%, and Facebook views are up almost 60% year-over-year.

On social, we continue to expand our community.

We gained 1.6 million new followers in Q2.

Instagram followers were up 39% year-over-year to 13.7 million, with a 94% increase in international followers.

One final note on marketing is that we've made the decision this year to experiment with different types of retail promotion.

In June, a 2-week promotion on HERO5 Black resulted in a 66% increase in average weekly unit sales.

These promotion should not be confused with softness in demand.

There are smart means of driving incremental sales and more actively managing our business.

Our fourth key priority is to grow our international business.

As I've noted on previous calls, we have a sharp focus on driving growth in our most important markets and this strategy is working.

A few highlights.

In Japan, according to GfK, camera unit sales are up 164% and dollars sales are up 147% year-over-year.

Sales in the price band over $300 are up 194%.

In China, a top 10 market for GoPro, and one of our fastest growing opportunities, GfK reports a year-over-year increase in GoPro unit sell-through of 57%.

It's also worth noting that our second largest user base for the Quik app is in China, a trend that points to solid consumer engagement in a massive market.

In Europe, revenue for the quarter was up 32% year-over-year and 18% on a quarter-over-quarter basis.

Big thanks to our teams in region who are doing a great job growing our business internationally.

Our fifth and final priority is to expand the GoPro experience for our advanced users.

In April, we announced Fusion, a 5.2K spherical camera designed for capturing fully immersive virtual reality and traditional fixed perspective content.

At GoPro Mountain Games in June, critics were struck by the unique design and simplicity but Fusion's most unique feature is OverCapture, which allows creators to punch out fixed perspective images in HD quality from any angle captured in the spherical frame.

We're currently conducting a pilot program for Fusion, allowing artists and media partners early access to provide feedback that will help us shape the experience for consumers.

Early partners include the Golden State Warriors, USA Today and FOX Sports.

Next, Karma.

This is the first full quarter where we've had our drone in the U.S. market.

According to the NPD Group's retail tracking service, Karma was the #2 selling drone brand on a dollar basis in the U.S. in the second quarter.

We also recently launched Karma in international markets, including the U.K., Germany, France, Korea and Japan.

In closing, the execution you're seeing from GoPro is leading to a definitive turnaround.

Our foundation is strong and we are well positioned to pursue a compelling vision that we expect will lead to the next phase of growth for GoPro.

With that, I'll turn it over to our CFO, Brian McGee.

Thanks, CJ.

I'll provide an overview of our second quarter performance and provide guidance for our third quarter and full year 2017.

The second quarter was highlighted by solid revenue growth across all regions and channels, sequential margin improvement and reduced operating expenses that resulted in positive adjusted EBITDA.

In addition, camera unit sell-through increased sequentially, and forward weeks of supply in the channel are down 25%.

Looking ahead to full year 2017, the launch schedule for our new products remain on track.

We continue to target low double-digit year-over-year revenue growth.

Gross margins improved during Q2, and we are making progress towards our long-term target of 39% to 41%.

And we continue to work towards our goal of achieving non-GAAP profitability.

That said, let's dive into the details of our second quarter financial results.

Second quarter revenue was $297 million, a sequential and year-over-year increase of 36% and 34%, respectively.

Our strong revenue growth was principally driven by demand from our HERO5 Black camera and sequential revenue growth from Karma.

Camera units shipped was over 1 million in the second quarter, a sequential and year-over-year increase of 44% and 40%, respectively.

Our HERO5 Black camera, with the retail price point of $399, accounted for over 60% of our camera unit shipped in the quarter and over 70% of the total second quarter camera revenue.

Camera units sell-through increased globally by more than 18% sequentially, driven by HERO Session and HERO5 Black.

According to NPD and GfK, GoPro's year-over-year global unit sell-through declined approximately 9%, which is partially attributable to our Q2 2016 discounting of legacy products that drove higher-than-normal sales volumes for that period.

HERO5 cameras continue to outsell HERO4 cameras on comparable launch periods, and the unit sell-through increased 13% at price points above $300.

On a reported basis, second quarter's Street ASP, defined as total reported revenue divided by camera units shipped, was down 6% sequentially to $279 due to a higher unit shipments of our HERO Session cameras, lower accessory revenue and a lower mix percentage of Karma.

We expect Street ASPs for 2017 to be higher than 2016.

Revenue in absolute dollars increased both sequentially and year-over-year across all reported geographies and channels.

On a sequential basis, the direct channel and the Americas region accounted for the majority of the revenue growth at 48% and 64%, respectively.

On a year-over-year basis, the APAC region has the strongest revenue growth at 67%.

Gross margin for the second quarter was 36.2%, up from 32.3% in the first quarter of 2017.

The sequential improvement was due to stronger HERO5 camera mix, as well as cost improvement across the supply chain.

Our continued focus on cost management was evident in the second quarter as year-over-year operating expenses declined $66 million or 36% to $117 million.

Operating expenses remain on track to be below $495 million for the year.

Headcount at the end of the second quarter was 1,247, down 20% from December 31, 2016.

We narrowed our net loss in the second quarter to $0.09 per share, which compares to losses of $0.52 in the prior year quarter and $0.44 in the first quarter of 2017.

GAAP net loss for the second quarter was $31 million or $0.22 per share.

This is a sharp improvement of our GAAP net loss of $92 million or $0.66 loss per share in the second quarter of 2016.

Adjusted EBITDA for the second quarter was positive $5.1 million, which represents an $82 million improvement year-over-year and a $51 million improvement sequentially.

Turning to the balance sheet.

We ended the quarter with cash of $150 million, a 100% increase from the end of the first quarter.

The increase in cash was due primarily to the net proceeds from our convertible debt offering, which netted $91 million and the lower use of cash from operating activity.

We expect cash to increase in both the third and fourth quarters of 2017 due to our anticipated results from operations.

We are carefully managing our product inventory.

Second quarter inventory decreased $81 million sequentially to $127 million, or down 39%, reflecting reductions across all products.

Accounts receivable at June 30 was $96 million, up from $55 million at the end of Q1 2017.

And DSOs were 29 days.

Our untapped borrowing availability under our credit facility was $89 million at the end of the second quarter.

I will now move on to guidance for Q3 and 2017.

We expect revenue for the third quarter of 2017 to be between $290 million and $310 million.

We expect third quarter gross margin to be 37%, plus or minus 1 percentage point.

We expect operating expenses for the third quarter to be in the range of $115 million and $117 million.

We expect GAAP and non-GAAP tax expenses for the full year of between $14 million and $17 million, and $8 million and $9 million, respectively.

For the third quarter, we expect GAAP and non-GAAP tax expense of approximately $7 million and $1.7 million, respectively.

We expect our third quarter basic share count to be approximately 137 million shares.

We expect earnings per share for the third quarter to be minus $0.06, plus or minus $0.05.

We are very excited about the second half of 2017.

We are building good momentum in the business and reiterating our prior comments that we expect to achieve low double-digit revenue growth for 2017.

Given the outperformance in the first half and third quarter guidance, we believe our fourth quarter percent of annual revenue will be lower than our historical average.

This is due to operational improvements related to our new product launches that are driving third quarter performance.

In addition, we have intentionally constrained our second half inventory purchases to both enable us to achieve low double-digit revenue growth while exiting 2017 with low inventory, coupled with a significant planned reduction in channel inventory at the end of 2017 as compared to 2016.

We believe this sets us up well in 2018.

We expect to end the year on a high note and look forward to seeing analysts and investors on the road at upcoming conferences.

With that, operator, we are ready to take questions.

(Operator Instructions) And we'll go first to Paul Coster at JPMorgan.

Moving forward, though, the fourth quarter -- it was the full year guidance and the fourth quarter commentary, Brian or Nick, it points to -- it sounds like you're throttling back intentionally with sales in the fourth quarter so you avoid some of the seasonality you've had in the past.

Am I interpreting that correctly?

And am I also correct in assuming that the product launches actually occur within the third quarter, not in the fourth quarter?

Thanks very much, Paul.

You're spot on.

You're seeing the results of our shift to run GoPro in a more predictable manner.

We are on track to launch our new products on time this year, and this is allowing us to shift more of our second half revenue into Q3 than we have in the last couple of years.

And we're also building inventory to achieve a specific revenue target that results, we hope, in double-digit revenue growth and profitability for the year.

And this approach also ensures that we'll exit 2017 with appropriate inventory levels that set us up well for the start of the year.

And I want to be very clear that we are building specific inventory levels to achieve low double-digit revenue growth and profitability.

And if there is demand that exceeds this, we won't be able to realize it, but that's okay.

This is how we ran GoPro for many years before going public and allows us -- it's a very responsible approach that allows us to be more predictable and manage our growth.

And as you noted, importantly, exit the year with appropriate inventory levels.

And to your point about the timing of a launch, we're not sharing specifics around the timing, but we generally will sell in product -- ship products to customers in advance of a launch.

And we realize those revenues at that point.

So that is why we are able to realize revenue from new product shipments in the third quarter.

All right.

Got it.

So you're now approaching within capacity and not pushing the boundaries for sort of, kind of excess in both directions that previously was experienced, is my interpretation there and you can comment upon that, Nick.

But also just one thought here is that at one point you talk about this massive TAM opportunity and yet, at the same time, maybe this is more of the same.

You're focusing in on expanding the experience for your existing customer base.

Can you sort of reconcile those 2 thoughts for us?

Is it that you kind of trying to reestablish some momentum from the core and then building out or something of that nature?

We should have you come over and help us with our communications.

You're spot on.

While we are building experience-sharing products and solutions for a much larger addressable market, we feel that the easiest way to gain momentum and at the appropriate way, frankly, is to market these improved solutions to our existing community, our existing customer base and look-alike customers, consumers who fit a GoPro customer profile, but haven't yet purchased from us.

It's just more effective to go and market to these lower-hanging fruit customers, if you were, enable them with our new products so that they can be successful in sharing their experiences and go on to become advocates for our brand and our products.

That's the approach that we built the business on, that's the approach that has built GoPro into one of the strongest brands in the world.

And that approach seems to be working, as we're seeing in our Q1 and Q2 results.

And we'll move next to Yuuji Anderson at Morgan Stanley.

Two actually on the Karma.

One, was it a 10% plus contributor in the quarter?

and then #2, can you update us on its effect to margin.

Understand it was dilutive last quarter.

Was there a quarter-over-quarter or a sequential improvement on that end?

This is Brian, it's not a 10% contributor in the quarter.

And we actually were able to improve margins a little bit actually on Karma.

It's still very low.

But I think as we talk about margins, we've been able to increase margins, both in the second and the third quarter in terms of our guidance.

I think we're making progress towards our long-term goal of getting into the 39% to 41% range.

Last year, we achieved 40% margin in the fourth quarter of 2016.

And given the anticipated product launches, pricing and mix of our products, we expect similar or better margins than we had in the prior year in this fourth quarter.

I think that margin expansion trend, coupled with really solid operating expense performance for the company, gives us a clear line of sight for, obviously, profitability in Q4, but also for the year, as we've been talking about.

We will go next to Stanley Kovler at Citi.

This is actually Josh (inaudible) for Stan.

Based on our guidance, OpEx in Q4 could be as high as $130 million.

I'm wondering how much conservatism is baked into that OpEx guided below $495 million?

Could we see at $480 million even?

And on that, what are your expectations for 2018?

Yes.

So for OpEx, we do expect OpEx actually to increase a little bit in the fourth quarter, and that's due to the fact that we need to have a little bit more customer support, because we plan to be selling more products to customers, so we need that.

We'll also be doing some more marketing related to our products launches.

So the increase there is really driven by those two things.

Everything else will be -- continuing to be control from an OpEx perspective.

As we look at 2018, I think the story comes back around growth, continued growth, with new products on our road map.

I think we'll see a gross margin trend targeting to our long-term model.

We'll continue to have constraints in OpEx and be able to drive both the profitability and drive operating leverage in the model as we've talked about previously, and I believe we'll continue to have positive cash flow as a result.

And on the back of your comments of more market marketing for the new products coming out, when we see you build marketing campaign for the Fusion, and what is your differentiation there from other 360-degree cameras coming to the market?

On the last point, around the differentiation, we've had a lot of recent conversations with our retail partners and they're very excited about Fusion.

The 360 category is still relatively small, but it's growing.

And they see the opportunity for Fusion to breakout -- to really breakout in that category.

And the reason for that is we've made significant investments in our software experience and we plan to extend that to Fusion and then add the capability to do OverCapture, which we've talked a lot about, and us and our partners are really quite excited about.

And so it's really going to come down to the experience.

And nobody's really delivering an experience in 360 yet that allows the broader consumer base to take advantage of that.

Now even before getting there, the great news for us is that our prosumer and professional customers are giving us really, really positive feedback on their experience with Fusion.

And that -- in their category, that doesn't rely on kind of the ease-of-use software experience that we do need for consumers.

So we're excited about the initial feedback that we've gotten from our pilot partners today.

I would add that another differentiator is our brand.

GoPro has proven that it's a category maker and our customers look to us for products like Fusion that the brand is built on enabling immersive experience, sharing and Fusion takes that to the ultimate level with its ability to spherically capture everything around you and share that as either a VR, video or as a traditional content -- piece of content as you would punch out from the OverCaptured content.

And I think that Karma is a great example of GoPro's brand ability to introduce new products and to do well as we all know, Karma had a challenged start, but since its launch, it's grown to become the #2 best-selling drone in United States, $1,000 and up.

And that's testament, both to the product quality and user experience of Karma and as well to the strength of the brand and its ability to introduce new products.

And we'll move next to Jason Mitchell at Bank of America.

Just a couple of questions.

First, can you kind of elaborate on maybe some of the drivers that seem to be helping Japan versus the other markets in APAC, and then on your launch of Karma, kind of into the international markets, any earlier read how the reception is over there?

It's CJ, I'll take the question on APAC.

As I mentioned in my opening -- or my prepared remarks, we've really focused our attention from a sales and marketing perspective on key markets.

And Japan, in particular, the consumer there has received GoPro and the brand and our products really well.

And so what really comes down to in Japan and China and the growth that we're seeing in APAC over all, it’s focus on execution from our teams on the ground there.

And we're starting to enable them with additional resources, whether it's marketing or otherwise.

As it relates to Karma and our roll out internationally, we've -- it's really too early to say.

We're happy with the progress we've made to bring the product to market to date.

The -- when you think about kind of an international rollout of a product like Karma, it's more complicated than just the U.S. because it's several countries.

We've got to get our POP into the -- into our retailers, we've got to set up the right customer support, infrastructure, et cetera, et cetera.

But it's really too early to say internationally on Karma.

One thing I would add to GoPro's growth in international markets is our very focused effort to localize both our products, our marketing and our brand for these specific regions.

In previous years, GoPro's marketing didn't really vary very much from the U.S. to selling in Japan, to selling in China and Europe and Latin America, et cetera.

And then over the last couple of years, it really -- we gained a lot of traction over the last year in localizing our products, whether it was -- the user interface is now available in 10 languages; voice control available in 10 languages.

Our data shows that our customers in region more than 70% of them are using GoPro's voice control feature in their native tongue, which is great to see that they're finding value in that feature.

Instructions are localized.

Marketing features local content and we've just done a really terrific job of making GoPro relevant at the local level and that is making a big impact on our relevance to that consumer.

And that's also going -- flowing through to how we sell in-store.

We've modified our in-store merchandising to fit the retail formats of stores in Japan.

We had to go with a much different merchandising strategy than we used in other countries, and that is paying off big dividends, as you can see.

So across-the-board, we're becoming more sensitive to the markets that we're selling in and as a result, we're doing a lot better.

And just a quick follow-up, is Karma being localized internationally?

And then I think you said in your comments, you expect gross margins improvements with introduction of new products.

Does that imply that the next line of cameras may have better margins than the current lines?

Localization is flowing through all of our touch points, all of our products and I'll pass the second part of the question on to Bryan.

Yes, you'd expect margins for our newer products to be higher than the corporate average.

(Operator Instructions) And we'll go next to Joe Wittine at Longbow Research.

This is Nikolay Todorov for Joe Wittine.

Again I wanted to clarify something.

Thanks for providing the color on (inaudible).

Did the tailwind exceeded sell-through in second quarter?

They're about equal, actually in selling and sell-through.

I think it's -- since you brought up kind of the sell-through, I think it's good to point out, we mentioned it's up 18% on a sequential basis.

Every geo actually was up on a sequential basis, which I think, for the ones we track between NPD and GfK.

We were down 9% overall.

But if you adjust for a lot of the units that we had to basically work through the channel of our (inaudible) products last year, we've would've been up.

So that's an interesting point.

And then really on a year-over-year basis, the strength has been in the $300 and above price point, which is up 13%.

Quickly to clarify, you mentioned that the HERO5 was outselling the HERO4 Silver and Black at the comparable launch period.

Did I hear that correctly?

That's correct.

And a quick follow-up...

That's on a unit basis.

Just to clarify.

On a unit basis.

Quick follow-up, I wanted to confirm that you launched the QuikStories.

It seems like this is -- it does not accept footage captured from smartphone's native camera.

I believe the legacy Quik app when you acquired it allowed that.

So do I have this right and is that the strategic going forward?

The QuikStories can accept footage captured natively from your smartphone.

The footage won't be, at this time, it won't be automatically pulled into your QuikStories from your smartphone's camera roll.

But when you're reviewing a quick story, you can very easily add any photos and videos that you may have captured with your smartphone to the story.

And our strategy moving forward is to keep that open because we realize that our goal is to seamlessly align a GoPro with a smartphone so that it feels like -- using a GoPro is really like using an untethered lens for your smartphone and that anything you capture with your GoPro automatically ends up on your phone.

And so to the user, on when they're reviewing their story, is as though they captured it with their phone itself.

And part of that seamless sort of alignment is that we would allow users to include footage captured with their smartphone, because we recognize that's primarily how people are sharing today.

And we really see this as a significant opportunity for us to address a larger market of smartphone users who are so actively sharing themselves and their experiences to Instagram, YouTube, WeChat and other platforms of the like.

Quickly on Karma, give us any idea of any updates around market share date, you know how is that trended since DJI introduced lower priced drone.

Any color will be helpful.

The only information that we're sharing at this time is that Karma continues to sell well.

And as we stated on the call, according to NPD, Karma is the #2 best-selling drone brand in the United States and we're very happy with both Karma sell-through and also the feedback we're getting from customers about their experience with the product and we believe Karma is serving as a fantastic foundation for GoPro in drones to develop and launch new products in the future.

And we'll go back to Paul Coster at JPMorgan.

Just want to make sure that you're not sharing either unit volumes for the Karma obviously nor ASP for the fusion products or for the new HERO?

Just want to hear that.

You're correct, Paul.

We're not sharing that (inaudible) at this time.

Okay, then I'm sorry to be so picky, but I wonder if you could just -- Brian, you can just elaborate on the -- or share again the tax outlook, boring stuff, sorry.

No problem.

Tax on a non-GAAP basis for the third quarter should be $1.7 million, and for the year, it'd be about $8 million to $9 million.

And we'll go back to Longbow Research.

We're seeing signs of heavy HERO5 Session inventory in retail and (inaudible) of product being removed from big-box shelves.

What is retailer support for that SKU and the brand over all?

Maybe you can give us some sense of what kind of signals and lessons you're learning from that little price point.

It's like a -- maybe give us how is that relative to (inaudible).

Yes.

We feel good about how HERO5 session is performing.

The feedback from retailers is good.

It's performing in line with our expectations from a mix perspective.

So yes, I'm not sure what you're hearing there but we're happy with the performance of that product.

And I would just add that just being candid and self-aware that the original Session camera had a rocky start and we priced it incorrectly.

Eventually, we got it right and it's selling extremely well now at its new price point.

HERO5 Session has never had a problem in the market.

It's a phenomenal product, shooting at 4K and voice control, and most of the features of the more premium HERO5 Black, but packaged into this smaller form factor.

Don't confuse HERO5 Session with the original HERO Session.

HERO5 Session has always done well in the marketplace and continues to do so.

And lastly, the Prime Day's test that you gave were impressive both for HERO5 Black and Session (inaudible).

What does this equate in terms of maybe a rough percentage as part of the (inaudible) sales guide?

It seems to be non -- not an immaterial factor behind the nice guidance based on those (inaudible)?

Could you clarify the question?

I think you're referring to Q2 sales, but how would those connect to our third quarter guidance?

No.

The statistics you gave for Prime Day, the nice sale-through for HERO5 Black and Session?

I mean, can you quantify if you can what's kind of a percentage of (inaudible) sales guide was that?

Is that something material or...

Yes.

No.

The performance on Prime Day was great.

We're super happy with it, it's not going to have a meaningful impact on the quarter.

And ladies and gentlemen, I have no additional questions at this time.

Mr. Woodman, I'd like to turn the program back over to you for any additional or concluding remarks, sir.

Thank you very much.

To summarize, GoPro's momentum is growing.

We're on track to achieve growth and profitability this year, and we see significant opportunities to grow in 2018 and beyond by continuing to develop GoPro as a natural extension of the smartphone.

We see an opportunity to create new products that better address the needs of mobile users' desire -- growing desire, to share experiences on platforms like Instagram, YouTube, WeChat and more.

Stay tuned.

Thanks for joining today's call, everyone.

This is team GoPro signing off.

And ladies and gentlemen, once again, that does conclude today's conference.

And again, I'd like to thank everyone for joining us today.