Q3 2021 GoPro Inc Earnings Call

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Day and welcome to go post third quarter 2021 earnings Conference call.

Today's conference is being recorded at this time I would like to turn the conference over to Jolene Super Vice President of Investor Relations. Please go ahead.

Thank you operator, good afternoon, everyone and welcome to go play third quarter earnings Conference calls.

With me today I got first yeah Nicholas Whitman.

T S O N E L L find nippy.

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

For detailed information about third quarter performance and our outlet.

Three three the management commentary, we've posted to jail parakeet, that's the relations website.

Before I pass the call Tonight I'd like to remind everyone that are are available that may include forward looking statement.

Oh, I'm looking statements and all other statements that are not historical facts are not guarantees defeated with woman.

And are subject to a number of gray and uncertainty, which may cause actual results to different materials.

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 1910 Dupnik.

It seems that results could change at any time and our commentary about our business is all outlets is based on the information available as of today's date.

Who do not undertake any obligation to update these statements as a result of new information or future events.

The outlook for the year.

Strong demand and effectively managed supply chain and channel inventories combined with a successful new product launch to yield our highest gross margins since 2015, and our fifth consecutive profitable quarter on a non-GAAP basis.

Gopro was profitable on both a gap in non-GAAP basis in the third quarter generating EPS of $1.92 and 34 cents respectively.

Non-GAAP gross margin in the quarter was 43, 8% up from 36.2% in Q3 2020.

Sales are are higher end cameras increased direct to consumer revenue.

And 143% year over year growth and Gopros subscription revenue drove the gross margin improvement.

Revenue in the quarter increased 13% year over year to $317 million driven by strong sales and all geography's as well as continued growth in our direct to consumer business.

Direct to consumer revenue from Gopro Dot com totalled $94 million up 16% year over year.

These results illustrate Howard direct to consumer subscription century strategy has transformed gopro cause you a higher margin more profitable business that's growing.

These results illustrate Howard direct to consumer subscription century strategy has transformed gopro cause you a higher margin more profitable business that's growing.

At the close of Q3, we had 134 million gopro subscribers, representing 168% year over year growth.

Adding approximately 840000, new gopro subscribers since the close of Q3 2020.

We've now passed the one year Mark for the subscriber cohort who received their subscription as a part of it or hear Oh nine black bundled purchase and we are encouraged that our annual subscriber retention rates from this cohort are healthy and in line with our expectations.

We expect to exceed 1.7 million subscribers by year end and remain confident in our subscription businesses ability to positively impact margin over the long term.

And are quick App subscription continues to to contribute margin as well having closed the quarter with 168000 subscribers.

Three anp's continue to rise in Q3, 2021, reaching $381 at 25% year over year increase.

The mix of cameras with msrp's of $300 and above including our newly launched $499 MSRP Hero 10, Black grew to 98% of our third quarter camera revenue.

Okay.

We're excited about our Q3 performance and even more so about our future.

Brian and I will now take questions.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

We're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

Press Star one to ask a question.

We'll take our first question from Jim Suva of Citigroup.

Thank you first of all I, just really got to commend you and your team for getting all the supply on the shelves and out there into the holiday season, Youre important quarter coming up it seems like everywhere I look left and right every company's blaming it.

And you guys are well stock can you maybe walk us through about the actions you did.

Such to prepare for the holidays, because you guys are really positive manner, the outline or sharing shining star of our company, whose circumvented a lot of the supply chain challenges. Thank you.

Yes.

Hi, Tim good Brian.

First of all I'd like to welcome Julian.

Investor Relations.

Greg it's great to have her on board.

And so and then before I answer that question I'd also like to really reiterate how excited we are about our outlook our fundamentals.

Growing revenue growing margin growing profit and cash generation.

Driven to be enduring over the last.

Two years.

Proven the positive impact of our direct to consumer.

Business and subscription strategy have cracked the code on how to leverage Gopro as an incredible brand.

And products into meaningful growth and profitability so.

A key theme I think for this quarter and as we look ahead into our guidance in outer years.

Jim specific to your question on action.

We've done.

Talked about that even in Alaska.

A few calls.

Back in <unk>.

Argue April may of 2020, we looked at our.

Our product lineup and are forecasting demand planning.

And that team has done an incredible job of understanding how to manage.

Managed product transitions and forecast.

Thanks, Jim.

Thank you we'll take our next question from Erik Woodring with Morgan Stanley.

Hey, guys. Good evening I would love to just know your where do you guys think you were able to outperform in three Q relative to the expectations that you set.

Three months ago will start with that and then I have a follow up thanks.

Yes, Hi, this is Brian let me start and maybe Nick can chime in.

Paul.

The good news is we have strong demand.

That's fundamentally stuck there.

In the quarter and we're seeing that.

In Q4, as well, we launched terrific new product, that's doing well and I think with the retail.

Really outperformed nicely in the quarter.

To have two strong channel direct to consumer as well as you know our retail partners around the world and in particular in Europe, and Asia Pacific in those countries have had higher vaccination rates.

And more of our stores have opened.

We performed really well from a D. C perspective, but also I think you know we've seen reach.

Reach out well if people have gotten out and go shopping so that and growing in store.

And the second part of that is just I I remember last quarter you mentioned.

Perhaps some headwinds to producing and shipping legacy models, just because of the supply chain environment curious if you were able to outperform your own expectations. There on the legacy side as well, but that's it for me thanks guys.

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Let me start with that I think what we've said is.

You know we have the supplies to meet the demand for she four and 2021 and that continues to hold I think we put it in a prepared remarks, we would sell about $3.1 million.

So and keep out from 21, we think we're on track to do that and that that was pretty consistent with what we have talked about in August.

And so what was the supply chain.

If we could have more units, maybe mid-tier entry level would that have been more demand yes.

But we're not able to build that and that's pretty consistent with what we talked.

Talked about it in August.

And so you know we focus on you.

The products quite frankly that are.

You know the at the top of our lineup. That's also the best experience for people are going to go perhaps and so that's that's a double benefit Ah we make more money, we shifted more to the high and I think it was 98% of products, we sort of had M. S. P a greater than 300.

Dollars are S T.

Twenty-five percent year over year.

$381. So it's from that perspective, it's not a a tennis game as much as it is how to make money and I think we.

Crack that code as I said in my opening remarks.

Huh drive meaningful growth and profitability, even though it may be fewer units.

So hopefully that helps.

That makes perfect sense. Thank you. Thank you Brian.

Thank you we'll take our next question from Paul Chung of J P. Morgan.

You know he's at his you know supply and demand level off in Q1, and so that we should be able to stay in that in that region will get 41% margin.

2021.

We haven't been at that level of margin 2015. So.

So that's a nice step up.

You know and and it's driven by you know sifting through the high end.

Driving afp's up subscription really add to it.

And more direct to consumer cause we get better ALG go for that time, so, it's all really working and and a fundamentally good way that's driving a massive.

Massive cash generation, we had pressed $60 million in Q3, 19% of revenue in a trailing 12 month cash generation spend 15%.

So I just I would point out that there is a very powerful.

Aspect to to to recognize and appreciate.

That the majority of our sales come from our flagship that.

That just tells you straight up there is an opportunity to continue to go upstream.

Great and then on the sub base can you expand on the cohort that were kind of laughing now into the holiday season from you know the large subs taken in last year. So what's been the attrition rate what's been the feedback from customers regarding what features are any.

Making them keep the subscription.

And then I have a last question of that.

Brian maybe you want to speak to the first part I fix that.

[laughter] Oh, sorry, I was on mute my dad, Yeah, I'm subscription itself attach the camera purchase a coke or dot com <unk>.

We've done some small M&A here and there tuck and kind of things that are small I don't see a big thing on the horizon.

Made up a lot of cash.

Thanks, guys.

Thank you once again, if you would like to ask a question. Please press star one we'll take our next question from Martin Yang with Oppenheimer and company.

Hi, Good evening and good afternoon very impressive results. My first question is call you're sure P. P. C sales spilled a quarter, it's up slightly year over year, but I talk to you.

You got a proposition for the both of those sales and discounts.

Sure might be maybe a higher so what what was the you can see share of total associate in line with your expectations.

Actually it was and retail outperformed, particularly in Europe and Asia. So yeah.

Yeah. It's a matter of fact I think you'd also put out a note ahead of earnings we were just counting 10, we actually didn't discount 10 here at 10 o'clock at all in Q3. It was a normal offer of a of a stand alone price of 399 or goodbye and Ah.

Bundle I think.

Your next earnings call in February.

Until then this is team gopro signing off.

This concludes today's call. Thank you for your participation you may now disconnect.

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