GoPro Inc (GPRO) 2021 Q2 法說會逐字稿

Good day, and welcome to the GoPro's Q2 2021 Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn things over to Mr. Christopher Clark, Vice President of Corporate Communications.

Please go ahead.

Thank you, operator.

Good afternoon, everyone, and welcome to GoPro's second quarter earnings conference call.

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

Our agenda for today will include a brief introduction from Nick, followed by Q&A.

For detailed information about our second quarter performance and our outlook, please read the management commentary we've posted on 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, uncertainty related to the duration and impact of the COVID-19 pandemic.

This means that results could change at any time and our commentary about 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 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 and 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 second quarter of 2021.

The management commentary and slides as well as the 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 non-GAAP, unless otherwise noted.

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

Thanks, Chris, and good afternoon, everyone.

GoPro had a very strong Q2, our fourth consecutive profitable quarter on a non-GAAP basis.

We grew revenue, improved margins and increased cash, thanks to our expanding direct-to-consumer and subscription businesses.

Q2 also benefited from our strong retail relationships, which drove substantial unit sell-through as the world continues to find its way through the pandemic.

Revenue in the second quarter increased 86% year-over-year to $250 million.

Direct-to-consumer revenue from GoPro.com totaled $88 million, up 48% year-over-year and up 7% sequentially.

And GoPro was profitable on both a GAAP and non-GAAP basis in the second quarter, generating EPS of $0.10 and $0.12, respectively, with margins increasing to 40% and operating profit improving by $47 million year-over-year.

Our subscription businesses continue to impress, with GoPro subscribers growing 211% year-over-year and 23% sequentially to 1.16 million subscribers, and subscriber revenue grew 143% year-over-year.

And while it's still early days, we're excited to share that as of this report, the Quik app has exceeded 100,000 paying subscribers, a milestone reached and nearly half the time it took us to achieve the same number of GoPro subscribers.

Our Q2 results reflect not only the strength of our strategy but also the strength of our people.

By embracing a flexible work culture that champions our employees' desire to live and work from wherever they feel most productive, we've been able to thrive over the last 1.5 years.

We're excited to continue supporting our employees in their pursuit of the ultimate life-work balance, an approach we've seen consistently yield strong business results.

As a result of our better-than-expected Q2 momentum, we are raising our revenue, margin and earnings outlook for the second half and 2021, as outlined in our management commentary.

Please be sure to visit our Investor Relations page at gopro.com and give it a read.

Brian and I will now take questions.

(Operator Instructions) And we'll go first to Paul Chung of JPMorgan.

Great quarter.

So just, Brian, on your cash guide for 3Q and 4Q kind of reiterated, it looks like your free cash flow is on track to maybe double this year.

With that added flexibility, what are your intentions there for cash?

Yes, we're excited about our cash position.

It was up nicely in Q2 and largely on earnings.

Last year, it was really -- we had earnings in 2020, but some really good balance sheet management.

We continue to do the balance sheet management, but the strength is in earnings.

And that came in our guide for Q3 and Q4.

So we're very pleased with the quality of the cash coming in from an earnings perspective given our guidance.

I think let's get through this year and post-step cash on the balance sheet.

And then we have options for shareholder returns possibly in 2022.

We do have to repay the $125 million convertible in April of 2022.

We'll have, obviously, plenty of cash to do that.

And then we can also look at other options for shareholder return.

Got you.

And then on revenues, you're nearly at 2019 levels though with maybe 1 million fewer cameras, so nice mix to kind of higher ASP products is working out pretty great and also that shift to GoPro.com.

So -- and I mean, maybe you can argue that you're still feeling the kind of pandemic impact on sales.

So question really is, do you think you can get back to that 4 million-plus units per year?

Or is this kind of a new normal?

I just want to hear your thoughts there.

No, I don't think it's a new normal.

And I know you're comparing to 2019.

But even comparing to 2015, where we shipped a lot of units and had much more -- 30% more kind of revenue than what's in our guidance, our operating profit is much higher.

So we've been able to move the market to the high end of our product line.

That's where we make more money.

We're driving more to direct-to-consumer.

And clearly, subscriptions, as we look ahead, would be about $90 million plus of annual recurring revenue at 70 to 80 points of margin.

That's what's driving the business.

It's not always about tonnage.

Now what we've said in our commentary is, just given what's happened with supply and particularly in semiconductors and shortages, we believe we've got the units to deliver on the revenue and the outlook we've provided to you all.

And as that improves, we can do more in them.

I think we can do more units.

Clearly, as travel comes back, particularly international travel and destination will help drive GoPro.

We don't have any of that business today.

It's lost, until it snaps back, and that's a real opportunity for the company to drive more units and expand revenue.

And in our commentary, as I look to '22, I think we can expand on units and we'll expand on ASP.

We're also saying we think we're going to stay at 40 points of margin.

That's a real milestone to get back to for the company.

Again, that's kind of the quality of earnings and controlling OpEx to drive more operating leverage.

So we're excited about that.

It's driving cash, driving margins, driving bottom line and improvements for shareholders.

Okay.

Great.

And then lastly, Nick, on the API effort, how do we think about the opportunity there?

Is it sports broadcasting and other verticals you mentioned, but any leagues that you see potential there?

And is that really about selling more cameras through that API effort?

Yes.

It's really about increasing the versatility, the utility, the relevance of a GoPro camera to more people.

And the API effort enables third-party companies to more easily and seamlessly integrate a GoPro into their own product offering, their own service offering and thus, using our products as an important utility.

That's just strategically sound because the more that we are used as -- our products are used as tools by other companies reaching other customers, obviously, there's a wonderful network effect that comes from that.

In terms of what it can represent from a growth perspective, I think that's wait and see.

I think it -- at a minimum, it fortifies -- better fortifies our position as a market leader and gives us the potential for some breakout growth opportunities.

And it's always nice to be included in other businesses, marketing efforts and product development efforts because it just helps scale the reach of our brand and the perceived utility of our products.

So it's a great thing.

But in terms of how it's going to contribute, I think that, that's a wait and see.

But even if it's only contributing in the ways that I mentioned, that's still terrific for the business.

And now we will move to Martin Yang from Oppenheimer.

First question on the guidance.

How do you account for any potential risk for an extended shutdown globally in your guidance?

In other words, do you assume a major reopening later in the year, your recently raised guidance?

Yes.

Martin, it's Brian.

No, we've been consistent on that.

We're still wait and see, particularly in international travel.

I think that's a tailwind for the company is international markets and destinations open.

Domestic have opened more.

That's probably benefiting us too.

I think international will be more cruise ships, duty free, are big markets for GoPro that we're really not participating in.

That's been definitely an impact from COVID, and we're not assuming a great resurgence there.

I think that's probably more in 2022, if that helps.

Yes, definitely.

And another question associated with this is when I look at -- assuming you will release a new camera this year.

And so in this very unique macro environment, how do you plan to market the new product maybe in a different way to adapt to the current macro environment?

If any context you can provide us on your potential marketing strategy.

What I can share is that we'll be building upon the utility, people's understanding of the utility of a GoPro and that all the different ways that they can serve them.

Our team has consistently done an outstanding job where I believe that our execution improves every year at storytelling about our products' capabilities, what makes them unique relative to the previous year's products and why the value proposition is so compelling.

And utility is a part of that and being more versatile for the needs of today's consumer is streaming more, has a greater need for webcam usage in addition to all of the traditional ways that people use a GoPro in their active lifestyle.

So I'd say more of the same, but building upon that proven strategy that has been going quite well for us over the past few years as it relates to new product launches.

And yes, I can confirm there will be new products from GoPro this year.

Excellent.

And my next question is around your plan regarding your growing subscriber base.

So coming into this holiday season, I think there will be -- there'll be a larger cohorts who may face the choice of whether to renew their subscription.

Can you even talk about your plan to retain the subscribers?

How do you plan to present to them if there's value in the plan to renew?

And what are -- whether or not you plan to have additional features being added to the GoPro subscription?

And I'll take the first part of that.

And then -- do you want to take it, Brian?

No, no.

Pretty well.

I was going to say that we are -- we have a robust road map of adding value to the GoPro subscription with the goal of continually reducing churn and frankly, engaging more consumers by hitting on value propositions that matter to them.

Kudos to our team for doing a terrific job of engaging with our subscriber base, doing ongoing research to understand what are they getting out of it, where are their hiccups and what -- where are there new opportunities to add more value to continue to sweeten the pot, while at the same time, yielding a very attractive margin for GoPro?

And I'm really excited about the future of GoPro subscription offering because the road map is clear, it's laden with very easy to comprehend value that I think is going to just continue to build upon the very positive momentum that we're seeing.

And that's momentum that's to date resulting in very impressive annual retention and renewal rates amongst the annual subscribers that we do have.

And so that cohort is showing very promising results for the GoPro subscription ongoing.

And that cohort is behaving very similarly, if not the same, in most respects relative to the new cohort that are new or, I should say, at this point, that became a subscriber with the purchase of HERO9 camera.

So we're expecting those cohorts to behave quite similarly going forward.

And Brian, you want to add anything to that?

Actually, I think you did a good job and covered it.

Just as one thing, Martin, that I remind you and everyone that our subscription business is growing very strongly.

We've added 800,000 subscribers year-over-year.

Our guidance would imply we'd add about 1 million subscribers in 2021 over 2020.

Those are terrific results.

And as a reminder, we're making 70 to 80 points of margin on that.

And that's actually one of the primary reasons we're able to improve our margin outlook on our guide.

So as we look at the second half of 2021 and then going into 2022.

So we're excited about how we're doing, how the business is going, and as Nick had mentioned, and the fact that our cohorts for annual subscriber renewal rates continue to be very strong.

Thank you for the very detailed answer.

Any insight you can provide us on how high do we renewal rates are?

No, we're not going to get into the numbers, but we can say they're very strong, they're very good.

And our next question will come from Nik Todorov of Longbow Research.

Congrats on strong results.

Brian, can you update us on how you see unit sell-through for 2021?

And as a follow-up to that, assuming you are not facing supply chain component constraints, where do you think the unit sell-through would have been in the third quarter?

Actually, I don't think we've got -- while we've got some constraints, right, because we've definitely shifted to the high-end FX expense kind of mid tier and low tier, where we just don't make as much money.

For the year, sell-through is going to be in the $3.4 million range, maybe $3.5 million.

I think it's in that kind of ballpark.

So we'll continue.

As you've seen, we've reduced channel inventories now to below 500,000 units, which is a really important metric because that's been a real headwind for the company since the beginning of 2020 when we had nearly 1.4 million units in the channel.

Now it's less than 500,000.

So that becomes more of a tailwind for us.

So we don't have to drive channel inventories down, that can be more balanced.

So that's the approach we've taken, and it's proving out, I think, on the business.

And you're seeing it reflected in margin too.

And now we will go to Jim Suva of Citigroup.

First, I want to say, really congratulations on making such a pivot point in the company and then turning it for subscriptions and reoccurring subscribers and such.

Just truly remarkable, and I sincerely mean that.

It's kind of funny here we sit in August, and I'm going to ask a question about Christmas.

With the supply constraints and things, I'm just wondering how you're feeling kind of about the Christmas season because it seems like the component shortages are percolating everywhere in the economy we're going with.

And I think Brian even mentioned it in his prepared comments, which I read ahead of this.

A lot of times, designs need to be tested in beta type before you can put in mass, mass order for production.

So any thoughts you can give us around kind of this newer variable that's coming into the supply chain now and your thoughts around Christmas in Q4, which is important to the company?

Yes.

Jim, it's Brian.

Let me take that.

As I said in prepared remarks, you're right, supply chain has continuously been a challenge, not just for us, it's an industry problem.

We got honest about a year ago and have done a very good job forecasting where we're going to be, what products we needed and got in front of suppliers on that.

So that's really helped us tremendously.

We have that visibility probably earlier, and that's really helped us from a forecast and supply chain perspective.

That said, it's still topsy-turvy out there.

But we also believe we've got supply we need to make the numbers we just have outlined on this call and in our management commentary for the year.

So we feel very good about Q3 as well as Q4 and the holiday season.

Okay.

And then a follow-up.

As you mentioned in your prepared comments that I read that you're shifting any allocations to more higher-end products, which is absolutely the right thing to do.

And I believe your average selling price guidance is about $5 higher for the Q3 outlook compared to the Q2 results.

If I'm right on that, I'm just kind of wondering if you're shifting more to higher end, is it possible we could see a bigger increase than $5 quarter-over-quarter?

Or are there some variables that I just need to be reminded of?

Anything is possible.

We'd be -- I think Q2, there's always a plus/minus on how we look at kind of ASP and unit.

But as a reminder, we were at about $300, I think, in Q3 of 2020.

So this is a nice uptick in ASP to $350 in Q3.

And another reason why we're able to get margins at 40 points as we've outlined in our guidance, right?

We're moving the market into higher press point products.

Our greater than $300 ASP products with 94% in Q2, we expect it to continue into Q3.

Subscribers will continue to grow at a very high margin and more growth in direct-to-consumer, all of which is helping on the margin front.

So we're excited about what we've been able to do as we've transformed the business more to direct-to-consumer and subscription.

It's paying off in margin and bottom line.

And now we will go to Erik Woodring of Morgan Stanley.

Congrats on the quarter.

I guess I wanted to ask another question about the Quik app.

Obviously, it's been 4 months since you launched the refreshed app.

You can see through various data sources that there has been really strong growth in monthly active users there, so kudos to you guys.

Just curious what features you see users engaging with?

And I ask that partially in the context of Apple coming out this summer with new features to the photo app that somewhat resemble what you guys are trying to do.

And so just curious how you're able to kind of keep your users on the Quik app or move the old Quik users onto the new Quik app and keep them engaged?

And then I have a follow-up.

Thanks.

It's across the board.

And in terms of what they're using, the editing side of the app is very strong in terms of engagement, which is great to see because that's definitely an area where we can continue to innovate and differentiate going forward.

And an exciting aspect about where we're at now with the Quik app is that we are in development of it for quite some time.

And for sure, we're doing consumer research and engaging what consumers are going to gravitate towards and running usability tests and so forth.

But you don't really get a true sense of how people are going to use the app until you get it out into the wild.

And now that the Quik app is in the wild with such a significant number of users, we're getting tremendous feedback as to areas where we can improve, features that users want to see more than others, which is helping us prioritize.

And with the ballpark every 2- to 3-week cadence of release for new updates to the app, we're able to continue to evolve the experience in a way that can meaningfully impact subscriber conversion and retention rates.

So I mean, it's going to be fun to see over the course of the rest of the year, how much the app is going to evolve.

And any changes you see, you can be sure are coming directly from user feedback, which we think is going to have a very material impact on our subscriber growth rate in a positive way.

Okay.

That's really helpful.

I guess maybe my follow-up question would just be about around DTC mix.

And so first half of the year, you're trending at around 37.5% of revenue come in DTC.

You're still guiding to 40% to 45%.

So maybe what gives you confidence that you're going to increase direct-to-consumer mix in the second half of the year?

And then maybe the add-on to that would just be, do you plan to change any of your go-to-market strategies in the second half of the year vis-à-vis perhaps not selling the flagship camera at your channel partners?

Just curious there.

Yes.

Erik, it's Brian.

And let me take the first part, and maybe Nick can add on to the second.

In our prepared remarks, we did say that we expect DTC to be, well, within the 40% to 45% for the year, a little bit less than 40% in Q3.

That's largely due to just putting newer products into some channels internationally, right?

So it's a little bit of a mix thing and then being more towards the higher end of that 40% to 45% range in Q4.

And as a reminder, the -- or seasonality, Q4 is obviously substantially bigger than Q3 or even Q2.

So that mix shifting up into the higher end, there's an X factor that comes on top of it, which kind of gets us into that range, if that helps.

Yes.

And then in terms of any modification of go-to-market strategy, distribution strategy, the way I'd characterize it is that we're building upon a proven strategy.

So there'll be little puts and takes here that are opportunistic, and we think will materially contribute to our success in the fourth quarter.

But whereas last year was an enormous amount of change with the associated risks, and it all went to the positive.

That was terrific.

This year is no big moves that would introduce any risk to the business and any changes that you see are opportunistic.

So the benefit of being 1 year into this strategy, learning where there's opportunities to improve and excel, and we'll be taking advantage of those.

Awesome.

And then maybe if I could just sneak in a last one.

The language slightly changed for your subscribers at year-end from approaching 2 million to exceeding 1.7 million.

Just curious, any thoughts there?

Why the change in language?

Would love to get your thoughts, but otherwise, congrats on the quarter again.

Yes.

Thanks, Erik.

We surpassed 1 million GoPro subscribers in Q2 and added 800,000 new subscribers versus Q2 of last year.

So massive growth, 211%, which is great.

We're kind of halfway through the year and have maybe better line of sight, and we expect to exceed, if we were to exceed 1.7 million subscribers by the end of the year and approaching the 2 million milestone that we've been talking about.

So I think it's an important milestone that means we would expect to have annual recurring revenues, subscription revenue at the start of '22, and it's about $90 million at very high margins.

So excited about that.

Maybe a little bit more kind of definitive too and where we think we are for the year and looking ahead into 2022, which continues to be strong.

And our outlook even on margin continues to be strong, partly on the strength of subscription, but also in the mix of both what we're selling and the channels of selling through it.

And with that, that does conclude today's question-and-answer session.

I would like to turn the call back over to management for closing remarks.

Well, sorry about that, I was muted.

Well, thank you, everybody.

Q2 was outstanding.

Our people, products and strategy are coming together in a powerful way, and we're excited to see our strategy delivering on its potential and what it can mean for GoPro going forward, big things.

So thank you, everyone, for joining today's call.

This is Team GoPro signing off.

And again, everyone, that does conclude today's call.

We'd like to thank you again for your participation.

You may now disconnect.