GoPro Inc (GPRO) 2021 Q4 法說會逐字稿

Good day, and welcome to the GoPro's Q4 2021 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jalene Hoover, VP of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good afternoon, everyone, and welcome to GoPro's Fourth Quarter and 2021 Earnings Conference Call. With me today are GoPro's CEO, Nicholas Woodman; and CFO and COO, Brian McGee. Today's agenda will include a brief introduction from Nick, followed by Q&A. For detailed information about our fourth quarter and 2021 performance and our outlook, please read the management commentary we've posted to GoPro's Investor Relations website.

Before I pass the call to Nick, 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, including, but not limited to, uncertainties related to the duration and impact of the COVID-19 pandemic. This means that results could change at any time, and our commentary about our business results and outlook is based on the information available as of today's date. 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, 2020, 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, EBITDA 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 the non-GAAP reporting internally to evaluate and manage our operations, and 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, which is posted on our website.

In addition to the earnings press release and management commentary, we have posted slides containing detailed financial data and metrics for the fourth quarter and for 2021. The management commentary and slides as well as a link of today's live webcast and a replay of this conference call are posted on the GoPro Investor Relations website for your reference.

Unless otherwise noted, all income statement-related numbers that are discussed today during the call other than revenue are non-GAAP.

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

Thanks, Jalene, and good afternoon, everyone. In 2021, GoPro navigated a challenging business environment and thrived. We successfully launched innovative new hardware, software and subscription offerings and leveraged the first full year of our more direct-to-consumer, subscription-centric strategy to grow revenue, margins and profitability while generating a record year-end cash balance of $539 million. 2021 revenue was $1.16 billion, up 30% year-over-year. Margins grew to 41.1% on a GAAP basis and to 41.4% non-GAAP. GAAP EPS increased to $2.27, with non-GAAP EPS increasing more than 10x over 2020 to $0.90.

2021 was our third consecutive profitable year on a non-GAAP basis, with Q4 bringing home the win with the successful launch of our new flagship camera, HERO10 Black. Effective supply chain management kept shelves stocked globally for the holidays, and we grew Q4 revenue and earnings year-over-year with revenue up 9% to $391 million and net income up 8% to $66 million. This strong performance, coupled with our impressive cash generation as well as expected future cash generation, contributed to our decision to announce a share repurchase program of up to $100 million of our Class A common stock.

In addition to growth in revenue and profitability, 2021 was also a year of optimization across our business, including refining our product development approach and modernizing our e-commerce infrastructure. In 2021, we grew our direct-to-consumer revenue 39% year-over-year to a record $392 million, representing 34% of revenue, up from 32% in 2020. Q4 direct-to-consumer revenue was $128 million or 33% of revenue, up 10% year-over-year.

Our direct-to-consumer efforts contributed to the addition of 815,000 new GoPro subscribers in 2021, bringing our GoPro subscriber total to approximately 1.6 million at year-end, representing very strong growth of 107% year-over-year. And we're happy to report that subscriber retention rates remained at the same favorable levels we've mentioned on previous earnings calls with several opportunities to further improve on this important metric. Our Quik app subscription, which we launched in spring of 2021 for mobile users who do not own a GoPro camera, grew to approximately 221,000 subscribers by year-end.

Looking at 2022 and beyond, we plan to grow our business and expand our TAM by enhancing our product ecosystem, leveraging automation to help our customers more conveniently achieve success; creating derivative cameras to diversify our offerings, targeting TAM expanding use cases in a more specific manner than we do today; and expanding our cloud, mobile and upcoming desktop application capabilities to better serve GoPro customers while appealing to new customers who may or may not own a GoPro camera.

We believe offering a broader portfolio of hardware products and software solutions to address new customer use cases and needs will enable us to expand our TAM. Our product road map is accordingly robust, tailored for consumers and professionals whose digital imaging needs require the types of solutions GoPro is uniquely positioned to provide. In just the past week, GoPro was honored by the National Academy of Television Arts & Sciences with our second Emmy Award, this time recognizing our industry-leading HyperSmooth video stabilization. Our 2 Emmys are testament to GoPro's thriving culture of innovation and incredibly talented people.

At the end of 2022, we plan to increase our hardware offering from the 2 product types we have today, HERO and MAX, to 4 distinct camera products. And we expect to expand that further by the end of 2023. This is in addition to the aggressive road map we have planned for software, including new cloud capabilities and an all-new subscription-based desktop application.

To the GoPro team around the world, congratulations and thank you for delivering such impressive results in 2021. You definitely navigated some of the most challenging business conditions the world has ever seen to deliver market-defining products and equally impressive financial results. Your execution also combined with our passionately supportive work culture to land GoPro as the #1 large business in Outside Magazine's review of the most desirable places to work. Congratulations and thank you again, everyone. We look forward to building on all of this positive momentum in 2022, our 20th anniversary year, to deliver what we believe will be another stellar year.

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

(Operator Instructions) And we'll go to our first question from Erik Woodring of Morgan Stanley.

Congrats on the quarter here. Maybe if we take a step back, this is your first year where you had the subscription bundle in the market for the full year. So would just love to know what you guys learned and maybe how you plan to enhance the value proposition there to provide more value for your customers. And then I have a follow-up.

Erik, thank you. This is Nick. Before I answer that, I appreciate that question, I just want to acknowledge, this has been a really tough day in the market. And many businesses are facing significant challenges right now. We know the feeling. We've been there. And I want to acknowledge how tough business can be and how grateful we are to have GoPro in such a stable position with many growth opportunities ahead of us, thanks to the strength of our execution and most importantly, our people and our partners and our strategy. Business takes heart. It takes faith, and it's working for GoPro. And we're really grateful for it. So I just want to acknowledge some of the turmoil that's going on in the world. And we've been through it, and we're happy to be on the other side and looking forward to see other businesses pull through as well.

Erik, what did we learn and how are we going to further create value? Well, what we've learned, thankfully, is the subscription offering is a hit with consumers. They're passing the IQ test. They continue to convert at GoPro.com with a subscription to camera purchase attach rate of greater than 90%. So that's enduring, and we are getting better and better at driving awareness. That's a big opportunity for us. Awareness is still not as high as we'd like it to be, awareness of the offering at GoPro.com, I mean. And in general, we recognize that there's more to be done to drive awareness of GoPro in general and drive awareness of our newest products. We're all living the dream and very much immersed in GoPro. So it's obvious to us and everybody on the call, but the reality is there's a lot more that we can do as a company to drive awareness of our brand, our latest offerings and the value proposition of GoPro.com. So we see that as an opportunity, right?

In terms of driving further engagement, we are seeing good engagement, as we've mentioned on previous calls, engagement of the various benefits that we offer. So subscribers are making use of their subscription. But we see -- through research we've done on what they want to see from us, they want to see our editing tools move into the cloud. They want to see more automation and convenience. The experience is really well tailored for what we would call users that are higher on the passion curve and are more interested in doing some of the work. They're the more creative types, this is a hobby or a profession for them, but are more mass-market, mainstream casual users. As you can imagine, they just want it to automatically work for them.

The good news is we have that technology in the app already with our automated edits. And this year, we're going to be porting that and all of the manual edit tools to the cloud and providing for a much more automated experience where you plug your GoPro into charge, it uploads all your footage to the cloud. We push you a highlight edit of all of your photos and videos that you just captured before you finish your beer. So that type of convenience is coming later this year. And those are the type of simplification features that we believe are going to further drive engagement and value for our subscribers and keep that churn rate moving south.

Cool. That was an awesome response. Maybe to touch on the other side of kind of where you're looking to add value and expand the TAM. You mentioned expanding hardware from 2 product types to 2 -- to 4 distinct models or product types and then expanding that again in 2023. So just any additional details you can maybe share to help us think about how meaningful that opportunity could be and potentially how it could impact the directionality of sell-through moving forward? And that will be it for me. Congrats.

Sure. Thank you. Yes, I'll start by saying, in some ways, you could -- when you look at GoPro's limited hardware line, I mean, we really make a HERO camera and a MAX. And we sell -- the MAX being our dual lens 360 camera. And we sell older HERO cameras at lower price points for consumers that are looking for that type of value. But we really have 2 camera types, HERO and MAX. And you look at the scale of the business that we have today, and you could argue that GoPro's success to date is really a proof point of a larger opportunity to serve consumer and professional needs in more specialized ways than we do today with just HERO camera and MAX.

An analogy is if you think about how many cars does Ford have to serve its customer base or Chevy or even like really high-end specialized brands like Porsche, they have a lot more than 2 car models to satisfy the various specialized needs and/or demands, be they fashion or function, of their customer base to maximize their TAM penetration. So that's something we're really excited about. And like car manufacturers, we have very powerful platforms of our existing cameras that we can leverage to produce derivative camera types that are just sometimes more narrow in focus but can do a much better job, more conveniently for the end user than a full-blown HERO camera can today. And in other areas, we think that we can go even further and do even more than a HERO camera can in certain areas of performance where we just -- we have had ongoing demand and requests from our users for products like that.

And we're finally able as a company to go after some of these new product types and serve customers in these new ways to grow our TAM because the business is stable. The business is growing. The business is profitable, and we also understand how to get a good return on investment from any new product that we introduce. But one of the reasons that our product line is as small as it is today is because we spent several years cracking the code on like what is the best go-to-market strategy? What is the best way to derive the most margin and profit from our business? It can't be the way that we were doing it in the past.

And so we came up with our direct-to-consumer and subscription-centric approach, which has obviously turned out to be quite successful for us. And now with that success, with that growth in profitability, we're able to confidently invest in some of these new products to grow our business further.

But I do want to stress that the word derivative here is really important because we're able to leverage existing camera technology that we have as a platform to go and make these new cameras at less expense than if we were initiating ground-up camera programs, which would be more expensive. And that's why we're able to attack this opportunity with the modestly increased OpEx that you're going to hear about today.

And we'll go to Martin Yang of Oppenheimer & Co.

So I think my first question is around your [year-end] subscribers. And you mentioned that stronger retail led to a slight miss on the subscriber count. Can you maybe go into details on the reasoning why relatively stronger retail can lead to lower sub count? And are you expecting perhaps a total revenue level where the mix favors highly -- higher on GoPro.com and now you end up maybe having more traffic going to retail?

Martin, this is Brian. Good question. As we looked at Q4, kind of a similar thing happened to Q3. Q4 retail did exceptionally well. GoPro.com did well, too. I mean, we were up 39% for the year, $392 million. Our sub and subscription revenue was $53 million for the year, more than doubled year-over-year, which is -- has very high margins.

The fact is if you have a KPI around subscription, we increased our subscription attach on GoPro.com, which was in kind of 90-ish, low 90s to more mid-90s. So that actually improved. And retail attach has been steadily improving through the year. Q4 a year ago was about 8% and then moved to 15%. And by the end of Q4, it was about 25% attach from mobile. And so that's been very encouraging.

But the mix shift in just units, given the dynamics of 90% to GoPro.com versus 25% to retail, just that equation gets pretty tough, right, 90% to 25%. So the challenge there was just the mix between strength at retail. And it's often that we have 2 very strong channels. Retail has done very well for us through the year, and direct-to-consumer did great at 39%. And the company was up 30%. So obviously, we were a little bit shy of the 1.7 million, but it's really more of a positive attribute to where the demand came from and actually the KPIs that are driving subscription growth as we look ahead into 2022.

Yes. And a follow-up on that is that your 2022 sub target is a little higher than what I would expect. Has that 2.2 million target factored in maybe a relative stronger retail channel that you saw in 4Q or that was more of a normalized mix?

It's about the same mix that we have ending. We had about 34% was direct-to-consumer, and the rest was retail. Now if direct-to-consumer does better, we can do better on the subs number. It's worth pointing out that about 1 in 4, sometimes 1 and 3, cameras goes through D2C. And so as you model out, we expect to have unit growth in 2022 as well as ASP growth. So you can kind of model out that and kind of get to those numbers.

And the next question is from Nik Todorov of Longbow Research.

First, a clarification on the first quarter guidance. Brian, if I take the midpoint $215 million on the sales, 41.5% on gross margin and $80 million for OpEx, I get to about $10 million of operating profit. I think the comments say $11 million to $12 million of net income. Can you bridge that for me, please?

Yes. I said approximately $80 million in OpEx, and there is a spread on margin as well. So I think those 2 things will get you into the $11 million to $12 million range. And it's great to see the model that we delivered such terrific results in 2021 is continuing in 2022 in Q1. We just guided, I think, 6% up on the midpoint on revenue and up nearly 150%, 120% to 150%, up on net income. So we're getting really good leverage on the model on 10% to your unit because we're transitioning more units at the high end. You have more subscription. Margins are up. We're controlling more OpEx, and that's flowing to the bottom line. So the model is continuing to play out in '22 as it did in '21.

Okay. All right. Maybe we'll take it off-line because, again, I'm still struggling to get to $11 million or $12 million of net income.

But a question on sell-through. I think based on the comments for the first quarter, you're guiding to slight decline in units year-over-year. How should we think about sell-through in the first quarter and then sell-through for the year? I think you're expecting units to be up. And then how can you -- what can you say about your channel inventory strategy this year?

Yes. For Q1, we expect to be over 600,000 units in sell-through. We're seeing that. We've seen Europe rebound at the beginning of COVID; GoPro.com has actually been doing very well. And North America is coming back. So we feel good about the 600,000. Sell-in will be a little bit less than that. It'll be between 500,000 and 600,000. So channel inventory would come down a little bit in Q1, and it's going to ebb and flow quarter-to-quarter.

For the year, we think units would be up. But I think units from sell-in and sell-through will be largely balanced for the year. So I think as Nick had talked about kind of the road map, more products, I think you'd see a bit more maybe sell-in and sell-through in Q4. So it kind of balances out throughout the year.

Okay. And Nick, for your question, I guess can you compare and contrast how the new hardware road map is different than the good, better, best strategy that you are running for the last couple of years? I know you can't say...

Glad you asked. Yes, I'm glad you asked. So it is important to offer some value options to consumers. You got to meet the consumer where they are, and not every consumer is at the passion or need level where they want to buy your most capable, most expensive product. So we still will have value offerings like we do today. But our focus is more on premium solutions that are differentiated from one another.

And so without going into detail about the products themselves, if you look at our good, better, best strategy that we used to have, that was 3 different price points of the same camera. And the camera got higher resolution, higher frame rates, maybe some additional features as you went to the higher price point product. But by and large, they were very similar, and they were built for the same use cases. So you were attracting the same customer, but just they might have been an entry-level, mid-level or high-end customer but at the same customer type.

Going forward, we think it's important to build very differentiated specialized solutions for different use cases to appeal to entirely new groups of users that have new needs that a HERO camera maybe solved, but maybe it's got some other aspects to it that are undesirable for that use case, and the user doesn't need all these other things that the HERO camera does. And so it ends up being more than they need or not enough of what they need. And so we're very focused on identifying what are the particular challenges that people are having. And I make it a point to mention consumer and professional because I think it sometimes gets missed that GoPros are used by professionals the world over, whether it's for film, television, their own commercial purposes, their own research purposes. We just won our second Emmy. Congrats again to the team for their work on HyperSmooth video stabilization. You guys deserve that recognition and got it.

But it's not a good, better, best strategy. It's use case A, B, C, D, E, F, G, all very different from one another. And rather than make one Swiss Army knife that does it all for some people, some people want specialized knives. And that's what we're going to build for them.

And we'll go to our next question from Paul Chung with JPMorgan.

So just to expand again on the new derivative products. How are the ASPs going to kind of trend? Looks like your gross margin guide is pretty similar range, so I expect it to be pretty similar. And then are you looking to kind of attack different demographics to drive more sub growth there? Is it kind of existing users, combination of both, just comments there?

Yes. As you can see from the guide, we're going after developing premium solutions. We had a lot of experience chasing volume unit sales with lower-priced products, and it's not nearly as fun or profitable a business to be in. We don't like dumbing down our products. We like developing the highest-performing products possible for those consumers and pros that have specific needs, and they're looking for that level of quality from GoPro. And that's what we're building our brand and business on. And it's turning out to be a smart move because there's a lot more margin and ultimate earnings power in that approach.

In terms of -- I would just think about -- you asked about different demographics and so forth. More so, I would say we're targeting different use cases, and we're targeting some of the same use cases that we serve today but in a more purposeful and specific manner to just better serve that user that really wants to use their GoPro for this specific purpose. We already make a Swiss Army knife. It's the HERO camera that if you're an athlete and you want to put it on your helmet, it works great. If you're a vlogger building your career as an influencer, it works amazingly well for that. Throw it in a dive housing, and it's arguably the world's best scuba-diving camera.

I mean, the HERO camera is a jack-of-all-trades. But with that comes some lack of specialization that some tip-of-spear customers really need or desire. And it also comes with some excess for people that don't need everything that a HERO camera does. And then for other users, it doesn't do enough. And we need to do things that they have been asking for, for years that we just can't get done with a HERO camera due to certain physics constraints. But if we make an entirely new camera based off of HERO camera technology but we break the mold in terms of like what the cameras form and purpose is, we can deliver for these people. And they've indicated that they're willing to pay even more for these types of specialized solutions.

So it's going to be really exciting when we get there and we have a broadened product offering, a broader portfolio, more tools for more people, more legs to stand on. But we don't need these products to be HERO cameras again in terms of sales volume. When you hit a lot of singles, doubles and the occasional triple, and occasionally, you catch one and it goes out of the park, that's great for business. And that's our strategy here is to have a bunch more stakes in the fire that are backed by consumer research and we're absolutely clear people want this from us. And time will tell if some of them can take on the HERO camera for the top spot in terms of volume. But incrementally, we think these are going to add up to be very meaningful for our business from a growth perspective over time.

Great. And then on cash flow, Brian, record cash flows for the firm this year. If you could expand on the performance there, the kind of sustainability of working cap efficiency? And then your cash guide suggests strong cash flows again this year. So if you could talk about kind of where -- on the share buyback, are you going to be quite aggressive there? I mean, you haven't really bought back shares in the better part of 3 years. So any comments there.

Yes. No, no worries. Yes, cash flow was a record $211 million in 2021, 18% of revenue. And we really brought it home in Q4 with up $160 million or 41% of our revenue in cash. The model is really driving that on all levels. One is we're more profitable. So most of the cash is coming from earnings. We get terrific AR with 26 days when historically, we'd be in the 30s or 40s this time of year. So the working capital aspect is great. We took inventory down $37 million in the quarter. So we got very good use of cash working off the balance sheet, which we expected to do. Yes, we expect to have cash basically be still above $500 million, but we have to pay back $125 million in one of our converts. We'll do that in April. But yes, there'll be over $500 million. So that goes, we're going to generate cash, nice cash in 2022. So -- and the model is really driving that and strategic shift to B2C, and we have great collections and inventory management even in retail.

So that's paving the way for us to do it. We will buy back shares throughout the year, and it's great that we have the opportunity to do that again and work down shares. It's also worth pointing out, in my prepared remarks, our share count was 163 million. In 2021, it's going to increase about 26 million shares just because of we have to increase the share count relative to the converts. That's the new standard we have to implement in Q1. Obviously, that has an impact on EPS, but the absolute dollar growth of net income is there for Q1 as well as 2022. So I wanted to make sure I pointed that out to redo your model.

And we'll go to our next question from Jim Suva of Citigroup.

I have 2 questions. The first one is, I guess, more of an observation and looking for your commentary. I travel quite a bit. And suffice it to say, a lot of destination and international travel has been on pause for, say, 2 years or so. And I was just thinking as I walk past like the duty-free shops and the shops in the airport where people buy spontaneous, "Hey, I just arrived to Australia, and I'm going to go scuba diving, so I buy a GoPro camera that's waterproof," those types of things really haven't -- activities haven't occurred for a couple years.

So with that, I'm just wondering, in your outlook, are you assuming some travel comes back, all travel comes back, no travel comes back? And I assume that channel has kind of been, let's start with, dormant for the past couple years or so. But any commentary on this or maybe it's not material, but I would think it's kind of meaningful because people buy when they go on destinations.

Jim, it's Brian. You are absolutely right. They do. That has been dormant. If there's one area that COVID has impacted GoPro, it's been in international travel and travel destinations. We've been out of duty-free, out of cruise, that spontaneous purchase or people just buying in advance of going somewhere on Best Buy, Amazon, on GoPro.com. So that's definitely been absent. It's -- and historically, it's been about 10% of our revenue. So it is material from that perspective.

So when it does come back, it will be a nice tailwind for GoPro. We have not factored in a big return to international travel, not yet for 2022. It may happen, but we're not -- in the current guide that we have, it's not there. So that's a call option, if you will, if it does come back. We'll be in position with supply chain to meet that demand.

Great. And then my follow-up question was you announced a stock buyback of $100 million, but then you also have a convert. And I assume given inflationary environment and your employees have been doing so well, there's probably some compensation boost that come into share count. So I think, Nick, can you walk us through again the share count from where we kind of exited the December quarter? It seems like there's a lot of -- a fair amount of moving parts to the share count we should be aware of? And your stock buyback adds additional guidance, if we could get some thoughts on that?

I'd love to answer that, but Brian would kick me in the shins under the table even through the phone line. So I'm going to hand that one over to Brian.

Yes. But Nick, I hope you reward your employees for really doing a good job, Nick. They really did. So hopefully, they get some merit increase.

Yes. It's been a good year for GoPro on all fronts, and thanks for saying that.

Yes. No, I appreciate that. And as a matter of fact, in our OpEx in 2021, we will be paying a bonus for our employees. We did not pay a bonus in 2020. So it's well earned for the employees of the company, so congrats to them.

We still do our standard share issuance to employees, and the buyback in part is intended to, at a minimum, cover that dilution. And if we can generate enough cash flow, we can take it down further. So we have that opportunity. If -- as we continue to perform, we can cover more than just employee dilution.

And with no other questions in the queue at this time, I will now turn the call back over to management.

Thank you, operator, and thank you, everyone, for joining today's call. This year marks GoPro's 20th anniversary, and we couldn't be more proud of the work that we're doing. We believe the world needs specialized camera and software solutions that GoPro is uniquely positioned to provide, and we intend to deliver such solutions at a brisk pace over the next few years to diversify our offerings and appeal to a larger audience of consumers.

Our teams are strong. Our brand is strong, and our balance sheet is strong. We intend to leverage all 3 to create more value than ever before for consumers and investors alike. We look forward to seeing you at upcoming investor events and at our next earnings call in May. Until then, thank you very much. This is team GoPro signing off.

And so this concludes today's call. Thank you for your participation. You may now disconnect.