Q1 2020 Earnings Call
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[music].
Please standby.
[laughter] and walk inside go piles first quarter 2020 phonemes results conference call.
Conference is being recorded at this time I like turned the coffin sort that Christopher Clark Vice President Corporate Communications. Please go ahead.
<unk>.
The new that'd be wrong and welcome to go codes first quarter 2020, Ernie Conference call.
With me today, I got that C.E.O., Nicole, it's what men and C.F.L.P.O., Brian <unk>.
What we get started I'd like to remind everyone that I remarks today didn't click forward looking statements.
Forward looking statements and all other statements that are not historical facts or not guaranteed a future performance and are subject to a number of books and uncertainty.
Which may cause the actual results to different material.
Additionally, any forward looking statements made today are based on assumptions as up today, including but not limited to the assumption that the carpet 19 pandemic does not materially worrisome.
You do not undertake any obligation to update these statements as a result of new information or future events.
Information concerning our Ritz crackers is available in our most recent annual report on one tend to pay for the year ended December 31st 2019.
Which is on file with the securities and exchange dimension.
In other reports, we make file from time to time with you have to keep.
Did they discuss gross margin operating expense net profit and loss as well as basic and diluted net profit and loss per share in accordance with gap and Additionally on a non got basis.
We believe it nongaap information is useful because it can enhance the understanding of our ongoing economic performance.
We use non gap recording internally to evaluate and manage our operations.
Choose to provide this information to enable investors to perform comparisons of operating results in a manner. It's similar to how we analyze our own operating results.
Reconciliation of gaps and non gap operating expenses can be found in the press release that was issued this afternoon.
In addition to the earnings press release your posts, a management condom commentary and sliced containing detailed financial data and metrics for the first quarter to thousands one.
The management commentary implies as well as they leave today's wide web cast.
Replay of this conference call I posted on the go throw Investor relations that site for your reference.
Oh income statement related numbers that are discussed today during the call other than revenue or not yeah.
<unk>.
Altering the call over to go for its founder and Yeah Nicholas woman.
Thanks, Chris Good afternoon, everyone due to the high volume of companies reporting, earning today, we've chosen to post management commentary for the first quarter of 2022 to go Pro Investor Relations page on our website.
Oh now get brief remarks, and then we'll go directly into couponing.
Brian's financial overview is included in our posted remarks.
As we shared in the management commentary retrain encourage all to read Gopros adapting to these challenging times with a strategic re alignments to transition to a more efficient and profitable direct to consumer business.
It is important to point out that while our business slowed due to cope with 19, we're seeing a positive rebounded demand and people have continued to buy go pro cameras in significant numbers throughout the pandemic as our written commentary outlines in detail.
We believe the <unk> [noise] decisive action you'd taken to lower operating expenses and accelerate our shift to a more consumer directed model capitalize on this continued demand getting efficient manner, giving go pro much improved cash generating business model that sets us up to succeed in the near term.
The potential to be more profitable than ever in the long term.
Assuming that many view on the call have already read are written commentary will now move on to keep her name.
Thank you if you would like to signal what questions. Please press star one he touched on your cell phone.
If you join.
Oh, Please make sure me function is turned off to why your signal to retire equipment.
<unk>.
Star.
If you would like to ask questions.
Our first question today comes from Jim Super we'll see.
Good afternoon, Nick and Brian This is Mike <unk>. So this one question for me, though we appreciate that S.P.'s. The will continue them move in an upward trajectory.
I question to what degree do you think consumers will still continue to spend in excess of $300.
Per product for a go pro product that's when unemployment dated that were seeing is increasing the getting so bad.
Thanks for your question.
Ah well currently we're seeing the trends to the high end continue.
So that's a good sign and given that.
Historically go purchase it's been a mission.
Critical or passion, driven purchase for consumers, which has led the purchase to being a highly researched purchase we know through our consumer research that consumers spend quite a bit of time deciding to buy it go pro deciding which model to buy and be more often than not.
Opt for the high end and we note to our research that that's that their willingness to to buy the bass and and by the the highest price model is related directly to their purpose intent for buying in the first place. So that's a long way of saying that go pros not a sad purchase it's.
Purpose, driven purchase and we see those trends continuing.
As it relates to the economy and People's purchasing power diminishing.
That's a very good question I think that we would likely see people, perhaps buying into were numbers, but still buying towards the high end because of what's the the product does for them and that the the performance at the high end is very.
Thing meaningful to our customers that's why they they buy in the first place. So we're confident about our ability to continue to sell at the high end I think the outright total volume Upsales is what would be in question and that's even more of a reason for our well that's one of the main reasons for our shifted to a more direct.
Businesses that we can be profitable with a much lower threshold of total number of units needed to be cell do sold to achieve that profitability.
Yeah.
Maybe I know that hey, Mike if you can add a little off color to what mix I mean, the trends are clear you know you provide for 2019 and 42% of what we sold through Mexico, rather than 300, but moved to 70% of 19.
And you know we were attacked at 90%. So we are seeing a a surgeon where and strong handyman at the high on just going on eight foot off on Mac.
Mm seven some up as well so that that's important and that's across average you know and especially to outgrow pro Dot com, where the next shift even higher so just to add a little bit color, though.
Oh, Okay cool thank you for the color.
[noise] and our next question come from Eric with Green with Morgan Stanley.
Hey, guys that afternoon. Thank you for taking the question. So so there's just a lot of moving pieces here, obviously I think there's more to a direct to consumer business, but at the same time, you arts scene fell through improved and that color. You know in recent times is very helpful.
I'm just curious if there was a way that you can frame how we should think about the revenue trajectory you know in 20 and 2021 I I realize there's a lot of uncertainty, but with the moving pewter you know I <unk> I just want to make sure that you know I'm, I and and and the rest of US are all thinking about you know how you're thinking about that.
Revenue trajectory <unk> and I would fall back to that things.
Yeah higher he Brian maybe start and and maybe the next 10 comment on top of me <unk> and opening remark commentary, we're stuck soft foods to be in a range of 2.3 point 2 million units in 2020.
Based on what we're seeing on demand in Q.Q., we're feeling <unk> south through every big 700000, approximately Q1. So we're about halfway after that point have a whole year so that <unk>.
And just on on the cheap to commentary, we've seen increases week to week and every G.O.
As a matter of fact, China now 65th grade above there.
It's about 85%.
And and actually I group different dot com, which I compared to where we been 10 being the last few weeks for about three to four times the volume on proper dot com. So we're definitely making a an impact that on the due to see progress. We mentioned we would be corporate are.
<unk> near about 40% of our total revenue and cute too that's a factor in April was just over 50%. So if we get three orders from retailers. They come back to online we expect that to drop to about 40. It's also important to know.
Are there in perspective.
She she rather new and.
<unk> dot com would be very close to slightly below that very close to where we weren't q. fourth 19, which is a record. So we're able to scale and drive a lot of business on on off due to see a platform I'm not commentary also said that we.
Exit or two got 19 into a channel inventory of about 1.4 million units.
Practically it's about half of that by the end of the year. So it for.
Felling at 3 million units volume right. There. So the point of what we expect and we take channel him in 20 pounds by carefully how our selling done with the last to sell through so for 2020 and as we look ahead to 22.
21, which handling mentors aligned correctly for the business exodus to kind of 700000 units should demand. They 15 million you're not level, we could be Uh huh very we'd have revenue growth.
<unk> 21.
<unk>.
And in the model with operating expenses.
Just 250 million.
Margin up in the upper thirties.
To be very profitable company as well.
[noise] that was amazingly helpful. I I really appreciate all by color and kind of piecing, although the the the comment that you put another in the in the press release together if I can I ask your second question here. It's just you mentioned you know you see the operating model I'm driving gross margins in the high 30% in the second half of the year just curious.
How do you think about you know how that may look to the for years from now as you know the majority of their businesses, presumably going to be on go for a dot com that you've mentioned, it's higher margin Cup, just because maybe longterm targets for for gross margins. Thanks.
So no problem.
Let me just start with why we can can you can be in a 30 or 40 points of margin and as we think about how we're modeling through the business in the opening commentary, where we would provide some outside value.
To the consumers and do more obvious guarantee the C.N. with plus.
<unk>.
Thing that into account art margin on our platform anywhere from five to 10 or 12% better than they are at.
Retail quite frankly enter distribution and so that makes shifting to more to our platform.
The c. basis, but I'm about to get through margin points on an on an agricultural school, we see margin expanding into a bug that or I should say expanding on the year over year bases from 20 to 21 I'm not sit there for.
Have a higher amount of volume and I've got to pick the overhead coverage as long as a higher run rate dropped consumer as I said and our opening remarks.
Direct to consumer with about 10% of our revenue and 2019 were expected to be around 25% in 2020 and tick increase further and wants to 21 might be actually the majority about rather so you will see you would see over car and an expanding mark.
Profile on along to model.
Awesome. Thank you very much.
[noise], we'll take our final question from cancer recurrence with Oppenheimer.
Hey, Thanks children are taking my questions I I appreciate it.
If you could <unk> I read through the transcript.
The other remarks.
And you're talking about the retail strategy. There can you go into a bit more detail.
<unk> has little computers are you know for example are big box retailers still getting.
The 300 plus cameras.
What what is the footprint store shrinkage look like.
And then and then on that on this stores are getting shrunk, but how are those chosen was it by sales <unk> strategic location was or branding considerations.
Just a little bit more color on retail or what the new retail channels going with like.
Hi, Andrew.
Yeah in North America.
The are flagships will be beginning in q. for our flagships will be sold primarily go pro Dot com.
Possibly.
With sales at at some key strategic retailers for two periods.
But by and large you can expect our first go pro flagships being available go pro Dot com exclusively.
And we'll be primarily focusing on selling our bed and entry level.
Level products with Big Bucks retailers, which you know consequently there.
They're <unk> for many of them the majority their businesses in the mid an entry level. So that's not a big change for them Oh, that's not the case for everybody, but for both of the big bulky Big Bucks retailers that is the case.
And then we're not sharing information on a total number doors go pro will be available in but you know as it relates the big Bucks is important for us to be represented there with our our data entry level products and our accessory line, which is considerable business for them.
And then specialty stores remain important to US you know provide that they reopened in a at at the appropriate time and as far as you know decision, making goes around which stores to stay there. It's it's obviously a related to revenue but also.
So to.
Ah importance from location and how well those stores represents gopros brand of specialty businesses and that big for us, but it's as we've stated it's important for our brand.
Well represented that what we call passion that that centres, whether they be at the beach or at a ski resorts are about bike resorts and and the like so at the appropriate time will be.
Working with them again, one day reopened, but obviously that she'd be seen when that will be.
Sure.
I appreciate that color, but you can also kind of helped me and isn't this might be a dumb question what would I think of the 300 plus product.
<unk>, Yeah camera sales I think of hero black and and hero Max.
If that ships been upwards of 90%.
That shift actually should we see that shit that's to go down a bit because the heavy retail focused on low admit in or does the silver actually kind of fit into that plus 300.
Let me add got right now and.
Oh, no I think that man.
No you go ahead.
Yeah, Andrew today on the the 90% that would be Max fairly fly and actually hero seven block, which is it through 29.
Gotcha.
All right. So that's helpful.
I've got a little bit Mccall on on top of work next seven minutes prior remarks.
And some of the like laugh when King for when we were the platform that had the hair like life.
When you know we're able to be lost the product we saw outside <unk> basically across.
All of our region in Europe and in your your wife and so we have very good data point on the man profiles, when we're able to have product.
At a pretty small basis <unk> dot com so.
Very good data to align the model on the high with our platform.
Got it that's helpful. Yeah.
Just to add a little color to your question about.
Wood.
Having our flagship not as available ads.
Big Bucks retailers with that shift.
Volume skewed next to the mid and low and we don't believe so because as I mentioned earlier.
It's very clear to us through our customer research that go pro is a highly research purchase it's it's consumers aren't buying go pro and they bump it to it in the store.
And so during that research process. The majority of our customers come to go pro Dot com to learn more so we believe that by having gopro dot com be one of the few places where our flagship available that won't necessarily shift buying behavior because.
Consumers aren't buying out of the convenience of going into a store they're doing their research and then they're buying the flagship where they can find the most valued and that's what really important part of our strategy is that by primarily selling our flagships products at go pro Dot Com we can.
Deliver far more value to consumers be it through bonvillain or with plus subscription and and other value ads. We can layer on a lot more value for the consumers money than we ever could at retail, which will further help drive Ah sales with the flagship to go pro Dot com.
And ultimately be a win for the consumer by well being a win for go pro.
Got it that's that's super help on and I guess my last question and I think you've answered it somewhat.
As far as you know you know, obviously insane researched and purpose purchase but your cell through the last couple of years or so and I guess yourself through based on the comments you've made has been roughly around I think.
4 million a year 4 million units a year, it's been very steady despite the broader.
Industry trends, which are not steady your break even now 2 million a year year shape shifting the district consumer I I don't expect Kobe, we'll have a lasting impact it might be a long time, but I want a lasting impact.
On travel adventure do you think of the new structure he can achieve.
That 4 million Runrate again at some point in the future.
Or is there a certain loss of sales do the new business small.
No I mean consumer interest in passions don't necessarily go away they might get put on hold for a little while as you say.
And then people have different priorities during the pandemic, although we continued to see robust seltzer I think a stronger sell through gopros. During this period and then people would have imagined so that's good to see.
So no I, we believe that the overall Tam for go pro remains the same but we're going to be serving that tan in more direct fashion and as I mentioned with more value offered to consumers at the time with perch.
Yes, so <unk> I mean, they're going to be a balloon a value for consumers that wasn't there before they're already was significant value. So that bodes well in terms of gopro being able to to capitalize and convert on that consumer interest in demand and as you know Ah the board that the world returns to.
Normal or the new normal whatever that is the premise that prominence and the potential of go pro remain the same for the consumer. So there's no reason to believe that over time, we can't grow back into the types of volumes that we sold through with our our old.
Older retail based go to market strategy.
But it's it's great that the threshold to profitability as as low as it is and the the signs that we're seeing as well, we're going to be able to perform quite well during the pandemic.
And increasingly better as and the impact of the pandemic lessons over time, so hopefully that answers. Your question. It's it's I think it's <unk>, it's a matter of when not is.
Yeah, No. That's that's super off I appreciate Jonah I appreciate your time in a good luck.
Thank you. Thank you.
Conclude.
That concludes question answer session and now turned a call from split back over to management for any additional are closing remarks.
Yeah, you've operator.
I'd like to close by underscoring how strongly believe our <unk> our strategy set this up to succeed both during and after this pandemic, we can deliver significantly more value to consumers as more direct company, which we believe will translate into expanded value for investors as well.
I want to think all of go pros employees around the world for the resilience during these difficult times.
You've all come together and maintain exception level of execution, while keeping ourselves and those close to be safe.
Your dedication and passion for go Pro gives me great confidence in our potential going forward.
Thank you everyone. This is team go from signing off.
Thank you that does conclude today's conference what do you think you for your participation have a wonderful.