GoPro Inc (GPRO) 2019 Q2 法說會逐字稿

Good day, everyone.

Welcome to GoPro's Second Quarter 2019 Earnings Results Conference call.

Today's conference is being recorded.

At this time, I'd like to turn the conference over to Christopher Clark, Vice President of Corporate Communications.

Please go ahead, sir.

Thanks, operator.

Good afternoon, everyone, and welcome to GoPro's Second Quarter 2019 Earnings Conference Call.

With me today are GoPro's CEO, Nicholas Woodman; 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 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, 2018, which is on file with the Securities and Exchange Commission and 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 2019.

These slides as well as a link to today's live webcast and a replay of this conference call are posted on 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 noted.

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

Thanks, Chris, and good afternoon.

Today, Brian and I will take you through GoPro's second quarter 2019 performance.

In short, we are growing and we are profitable.

And as Brian will discuss in a few minutes, we are increasing our full year revenue guidance and tightening our full year EPS guidance, raising the midpoint by 14%.

Revenue in the quarter was $292 million, representing 20% growth sequentially and 3% growth year-over-year.

Excluding our aerial business, revenue grew 9% year-over-year.

Earnings per share was positive $0.03, an $0.18 improvement year-over-year.

And our flagship, HERO7 Black, with its market-leading durability, versatility and revolutionary video stabilization, continues to draw customers to the high end.

Demand for HERO7 Black helped drive ASPs up 7% year-over-year, excluding aerial, to $270.

And in the second quarter, we also saw higher-than-expected retail demand for HERO7 Silver and HERO7 White.

This demand helped GoPro achieve a significant milestone in the quarter, surpassing more than 35 million HERO cameras sold since we launched the first HD HERO in 2009.

In addition to our strong performance at retail, GoPro.com continues to thrive.

In the second quarter, we saw web traffic jump 9% sequentially and 22% year-over-year, a record for Q2.

E-commerce conversion increased 120% year-over-year and e-commerce revenue grew 55% year-over-year.

Thanks to continued demand in all regions, channel inventory is at appropriate levels globally, and we believe we are well positioned for the launch of new products later this year.

And after previewing our upcoming fall product lineup, our distributors and retail partners are very excited about the continued innovation in our upcoming products, and we believe we'll be able to expand our leadership position during the holiday quarter.

GoPro continues to lead in our markets globally.

And in Q2, we did not see an impact to sell-through as a result of competition.

In the U.S., according to NPD Group, in the second quarter, GoPro captured 94% dollar share of our category, and HERO7 Black was the #1 selling camera in all of digital imaging by unit volume.

And the HERO7 line plus our spherical camera, Fusion, were the top 4 selling cameras in our category.

In APAC, according to GfK, GoPro sell-through grew by 1% and 11% year-over-year by units and dollars, respectively.

In Japan, GoPro sell-through increased by 11% year-over-year by dollars, and our share of the action camera category by units increased from 58% to 59% year-over-year in Q2.

And in China, GoPro sell-through in units grew 9% year-over-year in the quarter.

In Europe, according to GfK, GoPro had 3 cameras in the top 5 in our category, and in the $200 and above price band, GoPro held 83% and 82% market share in units and dollars, respectively.

And importantly, based on our sell-through data, demand for cameras at price points of $300 and above increased more than 90% year-over-year, demonstrating our customers' preference for higher performance products, which we believe can help us expand margin over time.

And to generate additional excitement for our products, we launched our spring adventure travel campaign in Q2, which achieved the highest click-through rate of any campaign outside of the HERO7 launch.

During the second quarter, our social followers increased by nearly 1 million, bringing our total following to approximately 41 million.

Notably, social conversions reached an all-time high and GoPro's monthly new follower growth rate is 24% ahead of where it was in 2018.

We continue to see high viewership of GoPro content across all platforms, with 158 million organic, nonpaid views in the quarter, up 21% year-over-year.

And our performance on YouTube was record-setting.

YouTube accounted for 115 million organic views, our highest quarterly total ever.

And in June, our YouTube channel registered 46 million organic views, making it our highest performing month ever.

This momentum is no accident.

We continue to improve our understanding of our customers' interests and the result is an ever sharpening marketing strategy that continues to drive engagement and viewership.

Turning to software.

We continue to both advance and simplify the mobile experience for our customers.

Just yesterday, we merged the Quik mobile editing app into the GoPro App for a simplified, consolidated, one app experience.

This represents an important milestone as we intend to now scale the relevance and functionality of the GoPro App to appeal to not just GoPro owners but to nonowners as well.

The majority of Quik App users are non-GoPro owners who use the app to create and share edits of their smartphone footage.

It is our goal to transition these users to the new and improved GoPro App, which will benefit from a rapidly advancing feature set over the Quik App.

Our goal is to engage and monetize these new non-GoPro owners over time.

We believe software represents an important path to extend our brand to serve a larger, total addressable market than we do today.

Turning to subscription.

We continue to make steady progress with our GoPro Plus subscription service.

As of yesterday, paid subscribers grew 15% to more than 252,000, since we reported on our last earnings call.

We've made steady progress in advancing the value, awareness and adoption of Plus.

In April, we rolled out the full benefits of Plus to 30 additional international markets.

In June, we optimized the shopping experience at GoPro.com to allow customers to add a Plus subscription to their card at checkout.

And starting yesterday, we began selling annual subscriptions for Plus at GoPro.com.

These incremental improvements are driving accelerated growth for Plus, which is increasingly important to GoPro given the high-margin nature of this service offering.

To summarize Q2, we ended up right where we wanted to be, and our momentum continued through July.

We are on track for an exciting fall product launch that we believe sets us up for a great second half.

Given our continued sell-through momentum, channel inventory levels and the strength of our upcoming launch, we are raising our outlook for the second half of 2019.

And we believe that we can translate this momentum into both top line and operating profit expansion in 2020.

And now, I'll turn the call over to Brian.

Thanks, Nick.

I'll begin with an overview of our performance for the second quarter and then discuss our outlook for 2019.

We are increasing our 2019 annual revenue guidance and now expect revenue to grow between 9% and 12% or $1.25 billion to $1.28 billion, and we are increasing the midpoint of our EPS guidance by approximately 14% to $0.40 per share.

We continue to expect positive EBITDA of approximately $100 million for 2019, and I'll give you more color on that at the end of my prepared remarks.

In the second quarter of 2019, we continued to execute on the business, delivering revenue growth and profitability.

Our results for revenue, margin, operating expenses and earnings were all in line with our prior guidance.

Several financial metrics for the second quarter are noteworthy.

Revenue increased 20% sequentially, 3% year-over-year and 9% year-over-year, excluding our aerial business.

Street ASP increased 7% year-over-year excluding our aerial business.

Based on sell-through data, demand for cameras at price points of $300 and above increased more than 90% year-over-year, meaning we are selling more profitable products.

Margins improved to 36%.

GAAP and non-GAAP operating expenses reduced year-over-year by 4% and 6%, respectively.

GAAP loss per share improved 70% to $0.08, while non-GAAP net income was $4.2 million or $0.03 per share, a $25 million improvement year-over-year.

And inventory over the past 15 months has consistently turned approximately every 2 months.

Turning to the balance sheet for the quarter.

Accounts receivable were $145 million and DSOs were 45 days.

In light of the uncertainty around tariffs, we proactively increased U.S.-bound camera production.

We continue to manage our inventory tightly, maintaining approximately 60 days, ending the period with $129 million in inventory.

Cash and equivalents ended the quarter at $130 million.

Now let's discuss our quarterly business performance in more detail.

We estimate camera unit sell-through for the second quarter of 2019 was in line with our expectation of approximately 1 million units.

While this represents a 14% year-over-year decline, more than 90% of our sell-through is in our premium higher-margin products, which contributed to our profitability in the quarter.

We believe channel inventories are in a good position as we enter the second half of the year and should improve further as we head into launch in the fall.

In particular, we saw weeks of inventory decline in Europe as sell-through exceeded sell-in.

Camera units shipped during the quarter totaled 1.1 million, a 1% increase year-over-year.

HERO7 Black represented over 85% of our camera revenue, and we experienced stronger-than-anticipated demand for our HERO7 Silver and White cameras during the second quarter.

Second quarter street ASP was $270, a 2% increase year-over-year and a 7% increase year-over-year, excluding our aerial business.

Street ASP is defined as total reported revenue divided by camera units shipped.

Geographically, excluding our aerial business, growth was primarily driven by North America at 19%, Asia Pacific and Latin America, which grew 10% and 31%, respectively, which is partially offset by a 6% decline in Europe.

We began ramping our U.S.-bound camera production in June in Guadalajara, Mexico, to support sales beginning in Q3.

We expect most of our U.S.-bound cameras to be in production in Mexico in the second half of 2019.

As stated previously, our decision to move most of our U.S.-bound production to Mexico supports our goal to mitigate the possible impact of tariffs as well as recognize some cost savings and efficiencies in our supply chain.

Turning to guidance.

We are increasing guidance for the full year 2019 and will give you more color on the second half of the year.

Our business outlook is improving from the previous quarter.

Product sell-through was strong in Q2 and it continues to be on track in July.

We are further encouraged on the second half outlook given positive feedback from both channel and retail partners on our fall product lineups, and we expect our mix of cameras to remain skewed to the high end.

And as a result, we continue to expect ASPs to be above $280 per camera for the year.

We expect to continue to grow our Plus subscription service in 2019 through enhancing our offering, international expansion and increased marketing.

Our full year expectation based on the above is revenue to grow between 9% to 12%, or $1.25 billion to $1.28 billion, an improvement over our prior guidance of 7% to 10% growth; margins to be 36.5%, plus or minus 50 basis points; operating expenses to be approximately $390 million; non-GAAP tax expense to be between $2 million and $2.5 million; other income and expense to be approximately $10 million in expense; fully diluted share count of approximately 147 million shares; non-GAAP EPS in the range of $0.35 to $0.45 per share; GAAP EPS to be approximately breakeven.

More specifically, for the second half of 2019, we expect revenue to be in the range of $715 million to $746 million, gross margin in a range of 37.5% plus or minus 50 basis points, operating expenses of $202 million plus or minus $3 million, non-GAAP earnings of $0.37 to $0.49 per share, and GAAP earnings of $0.10 to $0.30 per share.

To summarize, we are pleased with our performance in the second quarter of 2019.

With this momentum and continued execution for the full year 2019, we expect to deliver positive EBITDA of approximately $100 million and increase cash above $200 million.

With that, operator, we're ready to take questions.

(Operator Instructions) We'll hear first today from Andrew Uerkwitz with Oppenheimer.

It seems like in Q2 in this June quarter, Silver and White delivered better than expected.

However, it sounds like the second half, you're still assuming the higher end cameras will do better.

Is that something you're getting that feedback from your retail partners?

Or is that something you're seeing in your data?

How should we think about that mix?

Thanks, Andrew.

Silver and White did do better than expected in the second quarter, but it wasn't at the expense of 7 Black, just to be clear.

So that's a net positive, just selling more of the entire line and it's feedback that we're getting from sell-through data.

Got it.

And then if you could share -- it sounds like your partners are pretty excited for this fall.

Has there been any discussion on how we should think about channel going forward for the current products, promotions, that sort of thing?

Well, obviously, sell -- strong sell-through in Q2 and continued strong sell-through in July helps us achieve the appropriate channel inventories that position us well for the introduction of new product.

I can't comment on what the new product line is, but I can share that our strategy works really well for a product transition.

And our retailers are all -- so far the reaction has been universally positive on the new product line.

We learned a tremendous amount from HERO7 Black and what it is specifically about our products, both current and future, that would excite consumers in the line.

And whereas, last year, the holiday success was really dependent on HERO7 Black being the star.

I'd say, our strategy this year is to perpetuate our flagship as the faraway runaway star, but we have built more performance and excitement into our entire product line.

So we think we're de-risking our 2019 Q4 strategy by having a much stronger lineup overall, where each of the SKUs, we believe, is going to be a strong contributor.

And that can help us both de-risk the quarter, grow and maintain and build upon the momentum we've got, but then carry that importantly into 2020 as well.

Great.

I appreciate the color.

And if I can just ask another quick one.

Brian, it may be too early to know, but how should we think about the mix between the 2 quarters in the second half?

Is it similar to last -- similar to '18?

Between the 2 quarters, let's just put it this way, I think the way the street has Q3 modeled, that wouldn't be ahead of that.

So I think some of the upside is we think probably more in Q4.

We'll hear next from Erik Woodring with Morgan Stanley.

I was just wondering if you could talk about the profile of some of the Plus subscribers that you see signing up?

Are they, [I don't know how to tell, like] photographers?

Are they your average consumer?

Just curious on that.

And then I have a follow-up.

We don't have consumer data at that level.

We do know what is driving the subscription conversion of customers.

We've done a lot of research to understand what features they're more interested, what's compelling them to sign up for a free trial in the first place, what's compelling them to convert to a paid subscriber, and what's compelling them to stay on, and in the case of some churn, what's compelling them to churn out.

And so we're getting a better understanding of the motivations of our subscribers.

And so you've seen us make consistent improvements to the service, adding value, adding benefits, of course, rolling the subscription out more globally and improving the discoverability of the service and the ease by which our customers can sign up, and all of this is contributing to accelerated growth for the service, which is obviously really important to us given the high-margin nature of the service.

We have more advancements planned for later this year and look forward to hopefully reporting on continued acceleration of the growth.

Awesome.

And then just as it relates to ASP performance in the first half, if I just look back at my notes, I think you guys said ASPs would be up 8% year-over-year in the first half.

They weren't up quite that much.

Just curious if that's more of a product of mix because you talked about White and Silver doing okay in 2Q.

If there are any other factors?

Erik, it's not a systemic issue in the business.

It has more to do with mix with Silver and White just being a little bit stronger in the quarter and that drove most of it.

And now it's really more timing between Q2 and Q3.

So we still expect to be above $280 a camera for the year, so that -- and we're staying on that.

Yes.

(Operator Instructions) We'll hear next from Nik Todorov with Longbow Research.

Congrats on the good results and outlook.

Brian, if we can go to the guidance, it implies some really strong lift into the ASP in the second half in order to get to that $280 for the full year, specifically, either the third quarter or the fourth quarter.

You just mentioned that the third quarter should be closer to the street at $310.

Can you give us some colors on how should we think about ASP versus units in the second half?

Yes.

For the second half -- and we guided the second half by the way because we can end up with timing differences between Q3 and Q4, right, as we kind of go into the fall.

But if you're comfortable with that, that would be about the right level for Q3.

Unit growth in the second half, if I take the midpoint of what we talked about, will be about 3% unit growth year-over-year and ASP growth will be about 7%.

So we're going to continue to see migration to the upper end.

By the way, that's also driving the whole model, right.

It's driving revenue lift, our margin improvement, sequentially from the first half to the second half.

We're holding OpEx and that's driving a lot of earnings leverage in the second half.

I'm talking for the year.

Okay.

Got it.

And that 3% unit growth, do you expect that to be more centered around the fourth quarter, just because I'm looking at the September quarter last year, it wasn't an easy comp from a unit perspective?

Yes.

I think, units will be up in both quarters.

Okay.

All right.

That's helpful.

And lastly, in the fourth quarter also kind of -- it seems like ASP is going to be historically high, at least that's what's implied.

Is there something -- is there a function of the product that you guys are launching?

I think, Nick, you mentioned there is a potential for maybe even ahead of HERO7 Black tier, probably a camera at $499?

Or it's just the fact that you're probably going to refresh the Fusion?

Multiple products in our road map are going to contribute to this.

Okay.

Got it.

And are you guys sharing how much in absolute value is the sales to GoPro.com?

We didn't.

We were above 10% in the first quarter and slightly under that in the second quarter.

So good growth, 55% up year-over-year.

So solid performance and execution on the website.

Okay.

And a last one from me, I'm sorry.

So you mentioned sell-through was about 1 million units and that was down 14% year-over-year.

I just want to make sure that's correct?

Yes.

That's correct.

And I'd also point out that, at the $300 and above price point as we mentioned in our prepared remarks, that was up more than 90%.

So with the continued execution and innovation we're bringing into the market and the value proposition, that's driving to the higher end for our consumers.

And from Wedbush Securities, we'll hear from Alicia Reese.

I was just wondering if you could give us a little bit more color on the Quik Apps?

And perhaps if you can go into some detail about how many non-GoPro users are on the app roughly?

And how are you going to engage them and potentially expand your addressable market that way?

The majority of users of the Quik App are non-GoPro owners, which is, on one hand, an opportunity for us to get more of our GoPro users -- GoPro owners using the Quik App, which is why we combined the GoPro App and the Quik App into one app, to improve discovery and overall simplification of our software experience for our customers.

So we're really excited that those 2 apps are now combined.

And the positive about the majority of Quik App users being non-GoPro owners is, it shows that we have the ability to engage and provide a valuable content solution for consumers that don't yet own a GoPro or may never own a GoPro.

And so it creates the -- affords us the opportunity to better learn about these customers and how we can serve them through software.

And our belief is that we can leverage our brand and technical capabilities to monetize them over time.

And it's interesting when you think that the ticket to admission to benefit from GoPro as a brand and as a solution provider has historically started at $199 with our HERO7 White product.

And then we have our free Quik App and now the GoPro App that's free, that non-GoPro owners can use.

And so there's this big field of opportunity between $3 and $199, that we can target consumers that maybe aren't passionate enough about our tools, brands and services to spend $199, but they may be interested in buying services or solutions from us that are somewhere between free and that $199 hardware ticket to enter the GoPro 10.

And with no other questions, I'd like to turn things back to management for closing remarks.

Thank you, operator.

We feel great about the second half of the year and the upcoming holiday quarter.

And we've got strong momentum, and we're very enthusiastic about our new product line that's coming this fall.

So to our customers, fans and partners around the world, thanks so much for helping us achieve this position of strength, and we look forward to wowing you soon.

Investors, we will be in New York City at the Citi Conference on September 4, and hope to see you there.

Thanks to everyone for joining today's call.

This is team GoPro signing off.

And again, that will conclude today's conference.

Thank you all for joining us.