GoPro Inc (GPRO) 2021 Q1 法說會逐字稿

Ladies and gentlemen, good day, and welcome to GoPro's First Quarter 2021 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Christopher Clark, Vice President of Corporate Communications. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to GoPro's First Quarter Earnings Conference Call. With me today are GoPro's CEO, Nicholas Woodman; and CFO and COO, 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, 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 and 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 on Form 10-K for the year ended December 31, 2020, which may be updated in future filings 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, we have posted management commentary and slides containing detailed financial data and metrics for the first quarter of 2021. The management commentary and 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 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. Before we get started, I'd like to encourage everybody to read the commentary we posted earlier today at the GoPro Investor Relations page on our website. In addition to providing an overview of our quarterly results and forward-looking guidance, the commentary includes meaningful color about our business. I will now share some brief remarks, and then we'll go directly into Q&A.

First, I want to congratulate our team for driving GoPro's subscription business past 1 million subscribers, an exciting milestone we achieved in April. This represents growth of 80% year-to-date and 180% year-over-year. Equally exciting is that 1 million GoPro subscribers represents approximately $50 million of high-margin annual recurring revenue for GoPro.

I also want to congratulate our team on growing direct-to-consumer sales at gopro.com to 40% of total revenue for the quarter, up from 33% in Q4 2020. This also helps drive margin and subscriber growth as more than 90% of camera purchases at gopro.com result in a subscription attached.

This is the new GoPro. We've evolved from a [hardware] unit sales-centric business to a successful consumer-direct subscription-centric business with a significant opportunity to grow margin and profitability with continued subscriber growth.

Turning to our Q1 financial performance. Revenue in the first quarter of 2021 was $204 million, an increase of 71% year-over-year. Direct-to-consumer revenue via gopro.com exceeded $80 million or 40% of revenue, representing gopro.com's second highest quarter ever, topped only by the Q4 2020 holiday quarter.

ASPs rose to a record $366 as demand for our [premium] products increased in Q1 across all geographies. This had a positive impact on gross margins and non-GAAP EPS. In Q1, GoPro generated non-GAAP EPS of $0.03. Our year-over-year non-GAAP profitability improvement was $54 million. Non-GAAP gross margin in Q1 was 39%, up from 34% in Q1 2020. As I mentioned, this is the new GoPro.

Brian and I will now take questions.

(Operator Instructions) And our first question will come from Mr. Jim Suva with Citigroup Investment Research.

I want to give my sincere congratulations not only to both of you but your entire team. It's just truly remarkable results and your outlook, and it shows what the company is evolving to. So that's fantastic.

When we start thinking about -- you mentioned in your prepared comments, 2 million subscribers, I think, you said by the end of calendar year '21, that's great. The operating margins, should we think about sustaining that operating margins at 50% as opposed to getting leverage at it? Or maybe it's you're putting more R&D and more enhancements to the subscriptions, and that's why we should keep it at 50%? I'm just kind of [curious] about that.

Yes. I'll take that. As we look at this year, yes, we've been running 50%. As we continue to drive subscribers at a faster rate, it's going to outpace what we spend in operating expenses. So that 50% is going to probably grow into about 60% as we get to 2022. So it's going to continue to improve as a profit driver after the company.

And it's clearly having an impact on margins. You saw that in Q1, 39%. And we've adjusted margins for this year. Previously, we were guiding 38% to 39%, and now we're at 39%, plus or minus 100 bps. So definitely seeing improvement in margin as a result of subscription but also, of course, doing more sales, direct-to-consumer as well as the higher end of our product line, which is driving ASPs as well.

And again, my sincere congratulations to you and everybody on all of your teams.

Thanks, Jim.

Yes. Thank you for that, Jim.

Our next question comes from Nik Todorov from Longbow Research.

Yes. Congrats on great results as well. A couple of questions. So Brian, if I do some math, you guys had a very good quarter. You guided to 10% increase in sell-through year-over-year if my numbers are correct. I didn't see any comments regarding you raising the full year outlook for sell-through. I think you said that you expect your sales to grow towards the high end of your guidance range. But can you just clarify, what are you expecting right now for sell-through for 2021?

Yes. We did see -- sell-through came in a little bit ahead of where we thought we would be in Q1. And so that was a positive that helped us achieve the $204 million revenue in Q1, up 70%. And we're guiding up in Q2 to 825,000 at the midpoint. So it's positive results and seasonally where we'd expect it to be. And for the year, we're still holding to 3.6 million units sell-through for 2021. So that outlook hasn't changed, although I think the mix is maybe shifting still a little bit more to the high end, and that's, of course, helping margins a bit as well.

Well, if I can follow up, I think if my math is correct, that implies that your second half sell-through will be down 6% to 7% year-over-year. I just wonder, that looks a little bit conservative. Is that how you view it? You try to underpromise, overdeliver? Or how should we do that in that context?

Yes. Our view is when we get to the second half, we'll see we've held, from a sales perspective, our sales for the year with the guidance with the -- we talked about that 20% to 25% year-over-year growth in '21 over '20. We've said that we think we're going to be towards the higher end of that range now, which is positive.

So it's -- from a selling -- sell-through -- and also, I think we're going to see channel inventories come down a bit more. So we will see how it goes in the second half. We also want to see how the world emerges with the pandemic. So yes, so that's how we guided it.

Fair, yes. Quick comment on, can you talk about what you're seeing from an inflationary standpoint? And also regarding your inventory, particularly components, do you anticipate any impact on GoPro from rising component prices or semi shortages or higher logistics costs?

Yes. Obviously, we're seeing some impact on semi. That's just kind of where the world is, right, from that perspective. But on the supply front, it's -- shortages, they've been widely reported. But we have enough supply to meet our projections, so I feel good about that. And we've been in a pretty good position to manage critical components well with our key ODM supplier Jabil as well as some of our other key suppliers.

So we think we're in good shape there. I mean it continues to move around, but we're managing it. Team's on it. And any kind of

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that are reflected -- are already reflected in our guidance for margin. So despite that, we think margins are going to lift a bit in 2021 from where we were in February.

Just one question for Nick if I can squeeze in. Nick, you mentioned if I -- in the prepared remarks that you foresee a desktop version of the Quik app. Can you give us any color -- I know it's probably a forward-looking statement, but what -- should we expect a similar experience with the mobile app? Or are the economics similar? Any color you can give us there? Appreciate it.

Yes. We shared that we see a desktop variant of our app in the future as we want to really meet our users where they are and serve them on whatever platform they're on, be it mobile, desktop or cloud. And sharing where we -- our vision of our software suite of offerings, how we see that in the future, I thought it was important to give investors an understanding of sort of the potential reach of our brand and software as a solution set for users, addressing their personal content needs wherever they are.

And as you can imagine, some of the more passionate -- consumers who are more passionate [about photos] and videos have large amounts of them stored on hard drives and on their desktops and so forth. And so a desktop platform is a more convenient way to serve them.

We're not sharing anything in terms of timing or what the margin profile of that business would be. But I think it does underscore our opportunity to extend GoPro as a personal content solution provider for users regardless of what camera they're using to capture their content and regardless of what platform they're using to engage with, to manage and enjoy that content. So it's a pretty exciting and significant opportunity we think to serve people in the future.

Our next question comes from Paul Chung with JPMorgan.

Great quarter and really good guide. So as we think about gopro.com sales and kind of projections for 40% to 45%, you're at that level today in Q1. I know 4Q and 3Q is probably more retail heavy. But how are you getting consumers to get pushed to the website? Are most customers aware that the camera plus subscription is kind of the best deal out there on your website?

No, there's always going to be work to be done there because -- it would be amazing if we could have instant alignment and awareness amongst all consumers. That would be -- that's like a market [turning green]. But fortunately, that's impossible to do for a good reason. You're always bringing new consumers new interest into the brand, and they need to be educated. You have younger consumers who are growing up into the brand, and they need to be educated.

And so the answer is, no, we do not have universal awareness amongst consumers that the best value proposition is at gopro.com, but that's a good thing because it means that there's a significant amount of growth opportunity. And then even amongst those users who -- those consumers, those GoPro customers who are aware, who are existing GoPro users, they may not be at the point in their GoPro product experience life cycle where they're ready to upgrade and to take advantage of it. So we certainly have a large number of consumers that are waiting in the wings to buy at gopro.com when they hop to the next flagship or the flagship after that or what have you.

So there's a tremendous amount of opportunity left to drive awareness and conversion at gopro.com. And that's from a marketing perspective. And that's before we even start talking about improving the platform capabilities of our shopping -- of our website to drive conversion further. I mean as I've shared in the past, we were such a retail-centric and focused business for so many years that the sophistication and capabilities of gopro.com as a shopping platform kind of just suffered from a lack of investment and focus. The positive to that now is there's just a ton of low-hanging fruit to continue to improve the user experience, shopper experience and the site capabilities to drive conversion further. So lots to come.

Got you. And then you mentioned attach rate of 90% on the website. What are some examples where kind of people opt out and why? And then what's that attach rate for kind of your retail channel as well?

You're -- what you're asking about is the IQ test. Why would anybody not take advantage of the GoPro subscription and save $100 on their basket purchase at gopro.com? People buy for different reasons. We have commercial customers who are buying for their businesses where a subscription doesn't really make sense for that, except you would think at a minimum, the, "You break it, we replace it, no questions asked," guarantee would be a benefit to everybody.

But whether you're a fire station or you're buying it for your commercial business or other purpose, there are corner cases where the subscription just doesn't make sense. Also, we're aware that some people who are buying as gifts don't buy it with a subscription because we don't currently have the ability to transfer subscription to somebody as a gift. That's something that we're working on so that we can capitalize on getting 100% of gift givers to buy it because why wouldn't you want to save $100 on your basket purchase by buying that subscription and giving it to somebody?

So there's a lot of opportunity left there. And that will be rolling out throughout the rest of this year and on because the opportunity just -- you can never get on top of all of it.

Got you. And then as you -- oh, go ahead.

And Paul, you asked a question -- sorry, you asked about retail. So we're about 90-plus percent attach on gopro.com with the subscription. And it's actually improving in retail. It was kind of in the 6 -- call it, 6% to 10% range. It looks like it's moving up to 8% to 12% as more people become aware of the offering and the benefits. So we're starting to see improvement even on the retail side, which is good.

Okay. And then when we think about ASPs in 1Q, which were at a record, where can we see those ASPs go kind of beyond fiscal year '21? You already mentioned the 8% to 12% increase, but you layer in more subs, more accessories. And then do you see some more room to maybe raise prices for the next flagship from this time around?

Yes. And I'm not going to get into pricing per se. But I think just given that we continue to sell more at the high end, our accessory attached, particularly on subscribers from gopro.com, are substantially higher on purchases that are coming from retail as far as we can measure it. And so -- and then the subscription, of course, add to the numerator. And so yes, I think ASPs continue to push forward definitely in '21. We gave that range 8% to 12%, right? And then it will increase in '22 as well.

(Operator Instructions) Our next question comes from Martin Yang with Oppenheimer & Co.

Nick and Brian, so is there anything you can share on the user engagement for your GoPro app and how many active users are there and whether or not there's any insight you could derive from that group?

Sure. We're not going to be sharing any specifics of that on this call. But what I can say is there's a lot of insight to be derived from the group. And our team is doing a great job of capturing user behavior and also user outreach research to get their direct feedback to the new and improved Quik app experience that we launched at the end of Q1, and the team is learning a ton. We put out a new release of the app every 2 weeks. So we're rapidly responding to what our users are telling us, and we're dedicated to providing them the fastest-evolving and best software experience that we can.

That's exciting because this is a new, as I mentioned on -- at the top of the call, new GoPro. And that doesn't just relate to our business model and ability to generate more profit out of our world-class brand and products. This is also the new GoPro because we're much better at responding and developing towards what our customers are asking for as a more capable software company.

So we're really happy with what we're seeing. And even before the update to the Quik app, the previous GoPro app was 4.5 or better stars in the app stores. And so we've been really happy with where we've gotten that app to. But of course, we think we've taken it to another level with the new version of the Quik app. And so you should please pay attention to our updates as they're going to be rolling off of the line here every 2 weeks and should be an exciting time.

I think in the past, there were references on, for instance, certain geography we have a more significant uptick in user engagement or activity, which implies that maybe certain regions have more opening up in the COVID environment. So are -- the kind of user insight you get from the apps, are there any more useful signals for you or inputs for you to do business planning and even product designs -- hardware product designs?

Yes. It does help influence. I mean we also learned how important travel is -- business because we can understand -- I mean all the data is anonymous, of course, but we can understand where a camera is used around the world that they have GPS turned on and also where a camera was -- like set up and initially paired to the app.

And that helps us understand directionally where an owner lives in what region and then how much they actually use their GoPro when they're out of their home region and they're traveling. And that really helped us learn how important the travel market was for growing our business. And so we adjusted our marketing strategy years ago to court the traveler in advance of -- when they're -- during their planning stages for their trip and so forth because that's a target-rich environment for us from converting consumers perspective. And it also tells us now that we're doing remarkably well as a business given that travel is all but turned off in so much of the world.

And so that's really encouraging as we look to the future of GoPro and growth opportunities as the world hopefully begins to recover from the pandemic in earnest. As more people get vaccinated and as more countries open back up for travel and as people feel safe again, without a doubt, our data indicates that this is a real growth opportunity for us.

But a terrific job, all of GoPro's employees, for putting us in such a good position to succeed as a business even when one of our major markets is essentially shut down. So that's an example of the type of data that we get from camera usage and from our app usage that helps inform us in terms of making better business decisions.

No, that's great. My next question is on the accessory opportunities. How do you think about if there's any potential innovation you could do regarding camera accessories? And is there more accessories with unique abilities coming that may allow users to perhaps customize our cameras to more specific use cases outside of sports and travel? Streaming or some of the online influencer video, could those be opportunities for you?

They are. We don't call our cameras the world's most versatile cameras for nothing. And one of the ways that we make it easier for our customers to use their camera in more versatile ways is with the mounts and accessories that we produce. It helps consumers connect the dots as to the capabilities of their GoPro and how it might serve them.

And so the -- our accessories business is doing quite well. It's a really important part of our business. It's one of our key differentiators. And we are -- have noticed that there is a demand for higher-end accessories from us that offer added value, added functionality. And consumers are clearly willing to pay for that additional performance when we produce such a product.

So you will see continued new accessories from us at the higher end as we seek to accomplish more for our end users and as they keep telling us with their purchasing behavior that they're interested in buying such products from us. It's obviously a win-win for everybody.

And higher-end accessories have different margin profiles versus the camera?

Brian, do you want to take that?

Yes, I've got that. Yes, accessories in general are priced slightly better than corporate average on margin kind of in aggregate. So it's accretive to margin.

Got it. One more question, and then I'll then jump back to the queue. Brian, when you think about maybe the margin sensitivity to every $100 million subscription revenues, what's the sensitivity to gross margins? And how should we think about the ongoing trajectory of having a higher percentage of subscription revenues? And how -- and what does that do to your gross margins longer term?

Yes. It obviously helps it, but you have to put it in relative context of how everything else in the business is moving, right? So -- but it definitely helps it [because] it is running 70 to 80 points of gross profit margin on subscription and about 50 points or so, as I talked about earlier. And that's going to improve over time on operating profit.

So it's definitely a contributor. It's one of our fastest-growing product categories that is also helping to contribute to margins. And so when I talk about margins lifting up a bit in the second half, for example, of 2021, we'd expect margins in the 39% to 40% range. And part of that is due to obviously more camera sales, but also subscription is definitely helping prop that up.

Ladies and gentlemen, at this time, we have no further questioners in the queue. So I will turn it back to Mr. Woodman for closing comments.

Thank you, operator. Well, this is an exciting time for GoPro. And as you can hear, we're energized by the opportunity ahead. To all of GoPro's employees and partners around the world, thank you for making the magic happen. And thank you, everyone, for joining today's call. We appreciate your time and support very much. This is Team GoPro signing off.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.