Q1 2021 GoPro Inc Earnings Call
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Maybe he's and gentlemen, good day and welcome to Gopro first quarter 2021 earnings Conference call. Today's conference is being recorded at this time I would like to turn the cough and temperature Mister Christopher Clark Vice President of Corporate Communications. Please go ahead and.
Thank you operator, good afternoon, everyone and welcome to go for the first quarter earnings Conference call.
With me today I got their C E O Nicholas Woodman, and CFO and C O O Brian Mcgee.
Before we get started I would like to remind every women are remarks today may include forward looking statements.
What were looking statements and all other statements that are not and historical facts and that he's a future of appointments and.
And are subject to a number of risks and uncertainties, which may cause the actual results to differ materially.
Additionally, and 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 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 and of December 31st 2020, which may be updated and future filings with the S. E C K.
Today, we may discuss gross margin operating expenses net profit and loss as well as basic and diluted net profit and loss per share in accordance with gap and and get on a non-GAAP basis.
Leave that non-GAAP information is useful because it can enhance the understanding of our ongoing economic free.
We use non-GAAP reporting internally to evaluate and manage our operation.
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.
And reconciliation of gaps and non-GAAP operating expenses can be found and the press release.
That was issued this afternoon, and which is posted on our website.
And in addition to the earnings press release, we have posted management commentaries 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 or.
Pro Investor Relations website for your reference.
All income statement related numbers that are disgusted day during the call and other than revenue are non-GAAP unless otherwise noted.
Now I'll turn the call over to go for is founder and T E O Nicholas Woodman.
And thanks, Chris and good afternoon, everyone before we get started I would like to encourage everybody to read the commentary and he posted earlier today to go pro Investor Relations page on our website.
In addition to providing and overview of our quarterly results and forward looking guidance and commentary includes meaningful color about our business.
I will now share some brief remarks, and then we'll go directly and to Q&A.
First I want to congratulate R T for driving Gopro subscription business.
Past 1 million subscribers and exciting milestone, we achieved and April.
This represents growth of 80 per cent year to day and.
And 180 per cent year over year.
Equally exciting is that 1 million gopro subscribers represents approximately $50 million of high margin and.
And you've old recurring revenue for Gopro.
I also want to congratulate our team on growing direct to consumer sales at Gopro Dot com to 40 per cent of total revenue for the quarter.
Up from 33% and Q4 2020.
This also helps drive margin and subscriber growth as more than 90 per cent of camera purchases at Gopro Dot com results and a subscription attach.
This is the new gopro.
We've evolved from a heart unit sales centric business to a successful consumer direct subscriptions and.
And that's with a significant opportunity to grow margin and profitability with continued subscriber growth.
Turning to our queue on financial performance revenue and the first quarter of 2021 was $204 million and increase of 71% year over year.
Direct to consumer revenue vehicle per dot com exceeded $80 million or 40 per cent of revenue, representing gopro dot com second highest quarter ever.
After only by the queue for 2020 holiday quarter.
Asps rose to a record $366 as demand for our products and increased and Q1 across all geography.
This had a positive impact on gross margins and non-GAAP EPS.
And Q1, Gopro generated non-GAAP EPS of three.
Our year over year, non-GAAP profitability improvement was $54 million.
Non-GAAP gross margin and Q1 was 39% up from 34% and.
Q1 2020.
As I mentioned.
This is the new gopro.
Brian and I will now take questions.
Thank you ladies and gentlemen at this time the floor is open and for your questions and she would like to ask a question you may do so now by pressing star one on your Touchtone phone. If you are using a speakerphone and please make sure that your mute function is disabled and two around your signal to reach our equipment and again, if you would like to ask a question. Please press star.
And one now.
And our first question on will come from Mister, Jim Sudan, with Citigroup investment research.
Thank you and I want to give my sincere congratulations now and to both of you, but your entire teams just truly remarkable results and your outlook and it shows what the company is evolving Jewish and that's fantastic.
Let me start thinking about you mentioned and you're prepared comments 2 million subscribers I think he said by the end of calendar year 21, that's great. The operating margin should we think about sustaining that operating margins have 50 per cent as opposed to getting and leverage other there may be it you're putting more R and D.
And and more enhancements to the subscriptions and that's why we should keep it at 50 per cent I'm just going on about that.
Yeah, and then I'll take that as we've looked at this year, yeah. We've been running 50 per cent as we continue to drive <unk>.
Subscribers at at a faster rate, it's gonna outpace what we spend and operating expenses. So.
And that is 50 per cent, that's gonna probably grow and per about 60%, that's where you get to 2022.
So it's going to continue to improve and the profit driver and after the company and and it's clearly having an impact on margins and saw that and Q1.
And Ah 39%.
And we've adjusted margin.
For this year previously, where we were gathering 38, 39, and and now at 39 per cent plus and minus.
And a bit so definitely seeing improvement and margin and that's all.
The prescription but also of course, you know doing more sales.
Jack the consumer as well as the higher and higher end of our product line, which was driving.
Wow.
Thank you and again my sincere congratulations to you and and everybody's on all of your teams.
Yeah. Thank you for that gym.
Thank you. Our next question comes from Nick totally Longbow Research.
Hey, guys, Yeah, Uhm, congrats on getting results as well a couple of questions. So Brian and try and do some that you guys had a very good quarter, you guided to 10 per cent increase and sailed through year over year, if my numbers on correct.
I didn't see any comments regarding you were raising the the full your output per cell through I think you said that you expect your sales to grow towards the high end of your guidance range, but.
And you just clarify what are you expecting right now.
<unk> for 2021 and thanks.
Yeah, Hi, and that you did see.
Fell through came in a little bit of had a work week, we thought whoopee and Q1 and so that was that was a positive that helped us achieve that 204 million revenue and and chew on up 70%.
And what gardening up and Q2 825000, and it's a moot point.
So it's positive results and seasonally where we would expect it to be and.
And what's the whole day for 3.6 million and it's.
So soft through for 2021 so.
Outlook hasn't changed although I think on mixes maybe shifting feel a little bit more to the high and and that of course shopping margin is a bit as well [laughter].
Well if I can follow up I think is by my interest correct that implies on your second half filled per will be dumb six to seven per cent year over a year I just wonder you know and it looks a little bit conservator.
I <unk> is.
Is that is.
Is that how you view already tried to you know on their promise over deliver or Ahah I shall review that and not complex.
Yeah and argue.
And when we get to the second half, we'll see we called from a sales perspective.
Our sales for for the year with the guidance with.
And then we we we've talked about 20% to 25%.
You ever hear growth and 21 over 20.
<unk> said that we think we're gonna be towards the higher and does that range now which.
Which is positive. So it's you know from from that song fell through and also I think we're gonna see channel inventories come down.
And it more so what room and we'll see how it goes on and the second half we also want to see how the.
World and merges with the pandemic. So yeah, so that'd probably go to that.
There Yeah quick comment on can you can you talk about what are you seeing a permanent place and everything and I'm going to know so regarding your very particularly components. The anticipate any impact on gopro chrome rise and component prizes or sending shortages store hired logistics costs.
Yeah, and obviously, we're seeing some impact on a semi.
I mean.
And that's just kind of where the where the world is right from from that perspective, but I'm gonna surprise her on [laughter].
You know it's.
Sort of as they've been widely reported but we have enough supply to me on projection. So on patrol good about that and we've been and a pretty good position to manage critical components.
Wow on.
T O D M a supplier table as well and some of what other cute.
Suppliers, so they picking on.
Good shape.
And they're I'm in a continuous and moving around but but we're managing teams on it.
And and and kind of.
That.
Selected.
Already reflected and then on guidance from margin. So despite that we think martens, and we're gonna lift a bit and 2021 and where we were in February.
And just one question on Okay, squeeze, Nick you're mentioning and probably and the prepared.
Prepared remarks, and since you foresee a desktop version of the quick App.
Can you give us any color I know, it's probably you know a forward looking statement, but what should we expect a similar exterior and food the mobile app or or the economic similar and color you can give up there and I appreciate it.
Yeah, we shared that we see a desktop.
Very and of our App and the future as we want to.
Really beat our users where they are and serve them on whatever platform there on be at mobile desktop or cloud and.
Sharing where we are vision of our software suite of offerings.
How we see that and the future I felt it was important to get.
Investors and understanding of sort of the the the potential.
Reach.
R R brand and and and software as a solution set for users addressing their personal content need wherever they are and as you can imagine some of.
The more passionate.
Consumers, who are more passionate photos and videos have large amounts of some stored on hard drives and on their desktop and stuff work and so a desktop platform as a more convenient way to serve them.
And.
We're not sharing anything in terms of timing or.
What the 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 the 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 and significant opportunity. We think it's to serve people and the future.
Got to think that good luck.
Thank you. Our next question comes from Paul Chung with a J P. Morgan.
Hi, Thanks for taking my questions great quarter and yeah.
They may not be.
At the point and there go.
<unk>.
Product experienced lifecycle, where they are ready to upgrade and to take advantage of it. So we certainly have.
A large number of consumers that are waiting and the wings to biofuel product com and they up.
To the next flagship or the flagship after that or what have you. So.
There is a tremendous amount of opportunity left to drive awareness and conversion at Gopro Dot com and Thats from a marketing perspective, and Thats before we even start talking about <unk>.
Proving the.
Platform capabilities of our shopping.
Our web site.
To drive conversion further I mean as I've shared in the past.
We were such a retail <unk>.
Centric and focused business for so many years that the sophistication and capabilities of Gopro dot com as a shopping platform.
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.
And user experience shopper experience and insight capabilities to drive conversion further so lots of accounts.
Gotcha, and then you mentioned attach rate.
And of 90% on the website what are some examples where people opt out and why and then what kind of attach rate for kind of your retail channel as well.
Hi.
And youre asking about the IQ test.
And why would anybody not take advantage of the gopro subscription on.
Save $100 on their basket purchase at Gopro Dot com.
People buy for different reasons, we have commercial customers.
Customers, who are buying for their businesses, whereas subscription doesn't really make sense for that.
Except you would think at a minimum.
You break it we replace it and no questions asked guarantee it will be a benefit to everybody, but whether you are a fire station or your.
<unk>.
Buying it.
For your commercial business are on.
Or.
Other purpose there are corner cases, where the subscriptions and this doesn't make sense also we're aware that some people who are buying as gifts.
Buy it with a subscription because.
We don't currently have the ability to transfer a subscription to somebody at the gift that's something that we're working on.
And so that we can capitalize on getting 100% of gift givers to buy it because why wouldn't you want to say and $100 on your basket purchase.
Bye bye and that subscription and getting into somebody so theres a lot of opportunity left there and that'll be rolling out throughout the rest of this year and on.
And because the opportunity.
You can never get on top of all of it.
Gotcha, and then is on and you ask the question sorry on you asked about retail and there were about 90.
And 90 plus percent of cash on growth for dot com with the subscription and.
And it's.
Actually improving and reach out and with kind of and the quick fix income.
Percent range it looks like it's moving up to eight to 12 as more people become aware of the.
Offering and the benefit so we're starting to see improvement even on the retail side.
Good.
Okay.
And then when you think about Asps.
And <unk>, which were at a record where can we see those as these go kind of beyond.
Fiscal year.
21, you already mentioned, the 8% to 12% Inc.
Greece, but you layer in more sales more accessories, and then do you see some more room to maybe raise prices for the next flagship and the from this time around.
And I wanted to get into pricing per se.
I think just given that we continue to sell more at the high end.
And our accessory attach particularly on.
And our subscribers from Gopro that commerce substantially higher.
On.
On the purchases.
And then coming from retail as far as we can measure.
And so and then the subscription and of course at the.
Numerator and so yeah, I think I think asps continue to push forward.
Definitely in 'twenty, one we gave that range of eight to 12.
And then.
And it will increase and 22 one.
Okay, great. Thanks.
And.
Thank you I want to ask a question you may do so at any time by pressing star One. Our next question comes from Martin Yang with Oppenheimer and company.
Good afternoon, and Nick and Brian Thanks for taking my question.
And so is there anything you can share on the user engagement Gopro App and how many active users are there and whether or not there is high.
And you could derive from that group.
Sure, we're not going to be sharing any specifics of that on this call.
But what.
What.
And I can say is yes, there's a lot of insight.
To be derived from the growth and our team is doing a great job.
Capturing user behavior.
And and also user outreach.
Research to get there the 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 two weeks.
So we're rapidly responding to.
And what our users are telling us and we're dedicated to providing them.
The fastest evolving and best software experience that we can and that's exciting because this is a new.
As I mentioned on.
At the top of the call and Gopro and that doesn't just relate to our.
<unk> business model.
And ability to generate more.
Profit out of our World class brand and products.
This is also the new gopro.
And we're much better at responding.
And developing.
Towards what our customers are asking for.
And the more capable software company.
So we're really happy with what we're seeing.
<unk> and <unk>.
And even before the update of the Quik App.
The.
Previous Gopro App was four and half are better stars.
And the App stores and.
And so we've been really happy with where we've got not active but of course, we think we've taken it to another level with the new new.
<unk> and other quick App and so you should please pay attention to our our updates.
We're going to be rolling off on the line every two weeks and.
Should be and exciting time.
Our boats.
And in the past.
There were references out for yourselves and a certain geography will have.
A more significant uptick in user and.
Engagement and activity, which implies that maybe circle and bj's have more opening up.
And the COVID-19.
Environment.
So are the economies or insight you get from the apps are there any more use where signals for you or inputs for you to do business planning and even product designs.
Hardware product designs.
Yeah. It does help influence I mean, we.
We also learned how important travel is big.
And that's.
And because we can.
Understand I mean, all of the data is anonymous of course, but.
We can understand where a camera.
It's used around the world that they have GPS turned on.
And also where our camera was initiative.
Set up and initially paired to the App.
And that helps us understand.
Directionally, where and owner lives and what region and how much they actually use their gopro when they're out of their home region and the traveling.
And that really helped us learn how important the <unk>.
Travel market was for growing our business and so we adjusted our marketing strategy years ago to court the traveler.
And in advance of when Theyre during their planning stages for their trip and so forth.
Because.
That.
And 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 and 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 if people feel safe again.
Without a doubt our data indicates that this is a real growth opportunity for us but.
Terrific job.
All of Gopro employees for putting us in such a good position to succeed as the business even one on one of our major markets has essentially shut down.
So that's an example of the type of data that we get from.
Camera usage and from our App usage and that helps and inform us in terms of.
Making better business decisions.
No that's right.
Next question is on the accessory opportunities.
On.
Sure.
Do you think about.
If there is any potential innovation you could do regarding the camera accessories and is there.
More access rates with a unique capabilities coming that may allow users to perhaps customized from Canada too.
More specific use cases outside of sports and travel on.
Training facility.
Absolutely.
Our inventories are streaming video.
Could also be opportunities for you.
They are we don't call.
Our cameras the world's most versatile cameras for nothing.
And one other ways that we make.
It's easier for our.
Customers to use their camera and more versatile weigh this with the mouth 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.
And so.
Our accessories business is doing quite well.
And important part of our business, it's one of our key differentiators.
And we are have noticed that.
There is a.
Demand for higher and accessories from us.
On that offer added value added.
Added functionality and consumers are clearly willing to pay for that.
Additional performance when we produce such a product so.
You will see.
On continued new accessories from us at the higher and.
As we seek to accomplish more for our end users and as they keep telling us what they are purchasing behavior that they're interested in buying and such products from us.
It's obviously a win win for everybody.
And our high and accessories.
Different margin profiles versus the Canada.
Brian you want to take on.
Yeah, I've got that Martin.
Yes, accessories and general.
Prior to slightly better than corporate average on margin.
Kind of in aggregate.
So it's accretive to margin.
Got it on one more question.
I'll 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 being.
Our ongoing trajectory of head and a higher percentage of subscription revenues and what does that.
And that seemed to your gross margin longer term.
Yes.
Obviously helps that.
But you have to put it and relative context.
However thing else and that business is moving.
And so.
But it definitely helps that.
They are running 70 to 80 points of growth.
Profit margin.
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 category that is also helping to contribute the margin capture.
About margin, you know lifting up a bit and the.
Second half for example, 2021, we would expect margins and 39% to 40% and rooms and part of that due to on.
And with chairman and sales, but also subscription is definitely helping prop that up.
Got it thank you very much.
Thank you ladies and gentlemen at this time, we have no further questioners and 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 are energized by the opportunity ahead.
For all of Gopro employees and partners around the world.
And 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.
Good day.
And.
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