Q4 2021 GoPro Inc Earnings Call

Good day and welcome to the Gopro. This Q4 2021 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Julien Hueber VP of Investor Relations. Please go ahead ma'am.

Thank you operator, good afternoon, everyone and welcome to go past fourth quarter, and 2021 earnings conference call with.

With me today are CEO , Nicholas Woodman, and CFO and C O O Brian Mcgee.

Today's agenda will include a brief introduction from neck, followed by Q&A for detailed information about our fourth quarter and 2021 performance and our outlook for you to read the management commentary, we've posted the Gopro Investor Relations website.

Before I pass the call connect 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.

They 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 in our commentary about our 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 EBITDA 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 the non-GAAP reporting internally to evaluate and manage our operations and 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, well just 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 fourth quarter and for 2021, the management commentary and slides as well as the length of today's live webcast and a replay of this conference call.

And on the Gopro Investor Relations website for your reference.

Unless otherwise noted all income statement related numbers that are discussed today during the call other than revenue are non-GAAP now I'll turn the call over to go pros founder and CEO Nicholas Woodman.

Thanks, Julian and good afternoon, everyone.

In 2021, Gopro navigated a challenging business environment.

Right.

We successfully launched innovative new hardware software and subscription offerings.

Leverage the first full year of our more direct to consumer subscription centric strategy to grow revenue margins and profitability, while generating a record year end cash balance of $539 million.

2021 revenue was 1.16 billion up 30% year over year.

Margins grew to 41, 1% on a GAAP basis and two four.

41, 4% non-GAAP .

GAAP EPS increased to $2.27 with non-GAAP EPS, increasing more than 10 times over 'twenty you'd want to 90 shots.

2021 was our third consecutive profitable year on a non-GAAP basis with Q4, bringing home the win with the successful launch of our new flagship camera hero 10 black.

Effective supply chain management kept shelves stocked globally for the holidays, and we grew Q4 revenue and earnings year over year with revenue up 9% to $391 million and net income up 8% to $66 million.

This strong performance, coupled with our Impressure impressive cash generation as well as the expected future cash generation contributed to our decision to announce a share repurchase program of up to $100 million of our class a common stock.

In addition to growth in revenue and profitability 2021 was also a year of optimization across our business, including refining our product development approach and modernizing our ecommerce infrastructure.

In 2021, we grew our direct to consumer revenue, 39% year over year to a record $392 million, representing 34% of revenue.

Up from 32% in 2020.

Q4 direct to consumer revenue was 128 million or 33% of revenue up 10% year over year.

Our direct to consumer efforts contributed to the addition of 815000, new Gopro subscribers in 2021.

Bringing our gopro subscriber total to approximately $1 6 million at year end, representing very strong growth of 107% year over year.

And we're happy to report that subscriber retention rates remained at the same favorable levels. We've mentioned on previous earnings calls with several opportunities to further improve on this important metric.

Our quik App subscription, which we launched in spring of 2021 for mobile users, who do not own a gopro camera grew to approximately 221000 subscribers by year end.

Looking at 2022 and beyond we plan to grow our business and expand our Tam by enhancing our product ecosystem leveraging automation to help our customers more conveniently achieve success.

Creating derivative cameras to diversify our offerings targeting Tam expanding use cases in a more specific manner than we do today.

And expanding our cloud mobile and upcoming desktop application capabilities to better serve gopro customers, while appealing to new customers, who may or may not own a gopro camera.

We believe offering a broader portfolio of hardware products and software solutions to address new customer use cases or needs will look.

Enable us to expand our channel.

Our product roadmap is accordingly robust tailored for consumers and professionals, whose digital imaging needs require the types of solutions Gopro is uniquely positioned to provide.

In just the past week Gopro was honored by the National Academy of television Arts and Sciences and Sciences with our second Emmy Award. This time, recognizing our industry, leading hyper smooth video stabilization.

Our two Emmys are testament to Gopro is thriving culture of innovation and incredibly talented people.

At the end of 2022, we plan to increase our hardware offerings from the two product types, we have today hero and Max to four distinct camera products and we expect to expand that further by the end of 2023.

This is in addition to the aggressive roadmap we have planned for software.

The new cloud capabilities, and an all new subscription based desktop application.

So the gopro team around the world Congratulations and thank you for delivering such impressive results in 2021.

You definitely navigated some of the most challenging business conditions, the world has ever seen to deliver market defining products and equally impressive financial results.

Your execution also combined with our passionately supported work culture to land Gopro as the number one large business in outside magazine's review of the most desirable places to work.

Congratulations and thank you again everyone.

We look forward to building on all of this positive momentum in 2022, our 20th anniversary year to deliver what we believe will be another stellar year.

With that operator, we're ready to take questions.

Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad and if you're on speakerphone.

Please make sure your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.

And what parts of amendment, so that everyone has an opportunity to signal for questions.

And we'll go to.

Our first question from Erik Woodring with Morgan Stanley .

Hey, good afternoon, guys congrats on the quarter here.

Maybe if we take a step back. This is your first year, where you had the subscription bundle in the market for the full year. So you know.

Would just love to know what you guys learned and maybe how you plan to enhance the value proposition there.

To provide more value for your customers and then I have a follow up.

Hey, Eric Thank you Nick before I answer that I appreciate that question.

Just wanted to acknowledge this has been a really tough day in the market and many businesses are facing significant challenges right now.

We know the deal and we've been there and I wanted to acknowledge how tough business could be and how grateful we are to have gopro such a stable position.

Many growth opportunities ahead of us thanks to.

The strength of our execution and most importantly, our people and our partners and our strategy.

Business takes hard it takes space.

And.

It's working for Gopro, and we're really grateful for it. So I just wanted to acknowledge some of the turmoil that's going on in the world.

We've been through it and we're happy to be on the other side and looking forward to see other businesses pull through as well.

Eric.

What did we learn and how are we going to further create value as well.

What we've learned thankfully is.

The subscription offering as a hit.

With consumers.

They're passing the IQ tests, they continue to convert.

I grew up in the dot com with that subscriptions that camera purchase attach rate.

The 90% so.

So that is enduring.

And we're getting better and better at.

Driving awareness, that's a big opportunity for us.

Awareness is still not as high as we'd like it to be.

Awareness of the offering at Gopro Dot Com IV.

And in general we recognize that there's more to be done to drive awareness of Gopro in general and drive awareness of our newest products.

We're all.

Living the dream and very much.

Burst in Gopro.

So it's obvious to us and everybody on the call, but the reality is there's a lot more that we can do as a company.

To drive awareness of our brand our latest offerings and the value proposition at Gopro com. So.

We see that as an opportunity right in.

In terms of driving further engagement.

We are seeing good engagement as we've mentioned on previous calls.

The engagement.

The various benefits that we offer.

So subscribers are making use of their subscription.

But we see.

Through research, we've done them, what they want to see from us they want to see our editing tools moving to the cloud they want to see more automation.

In convenience the experience is really well tailored for what we would call users that are higher on the passion curves and are more interested in doing some of the work. There is a more creative types. This is a hobby or protection for them.

But our more mass market mainstream casual users.

As you can imagine they just wanted to automatically work for them. The good news is we have that technology in.

In the App already with our automated edits and this year, we're gonna be porting that and all of the manual added tools to the cloud and providing for a much more automated experience, where you plug your gopro to charge. It uploads all your footage the cloud we push you.

A highlight of all of your.

Photos and videos that you just captured before you finished your beer so that type of convenience is coming later this year and those are the type of simplification.

<unk> features that we believe are going to further drive engagement and value for our subscribers and keep that that churn rate moving south.

That was a that was an awesome response, thank you for that and maybe to touch on the other side of kind of where your where youre looking to add value and expand the Tam I'm you know you mentioned them expanding them.

Hardware from from two product types to two to four distinct models or product types.

And then extending that again in 2023. So just any additional details you can maybe share to help us think about how meaningful that opportunity could be and potentially how it could impact the directionality of sell through them moving forward and that'll be it for me. Thanks, guys. Congrats.

Sure. Thank you.

Yes.

I'll start by saying and in some ways you could when you look at Gopro is limited hardware line I mean, we really make a hero camera and our masks and we sell the vaccine are dual lens 360, count and we sell.

Older Hero cameras.

At lower price points for consumers that are looking for that type of value, but we really have two camera types hero and Max and you look at the scale of the business that we have today and you could argue that gopro success to date is really a proof point of a larger opportunity.

<unk> serves consumer and professional needs.

And more specialized ways than we do today with just hero camera and Max.

And the analogy is if you think about how many cars. This ford halves to serve its customer base or shabby or even like really high end specialized brands like Porsche.

They have a lot more of a two car models to satisfy the various specialized needs and demands being a fashion or function.

Of their customer base to maximize their Tam penetration.

So that's something we're really excited about it's like car manufacturers, we have very powerful platforms.

Existing cameras that we can leverage to produce derivatives camera types.

That are just sometimes more narrow in focus but can do a much better job more conveniently 30 end user than a full blown hero cameras can today and in other areas.

Areas, we think that we can go even further and do even more than the hero camera can in certain areas of performance, where we just we have had ongoing demand and requests from our users for products like that.

We're finally able as a company too.

Go after some of these new product types and serve customers in these new ways to grow our Tam because the business is stable. The business is growing the business is profitable and we also understand how to get a good return on investment for many new product that we introduced one of the reasons that our product line is as small as it is today.

We spent several years cracking the code on like what is the best go to market strategy. What is the best way to derive the most margin and profit from our business. It can't be the way that we were doing it in the past and so we came up with our direct to consumer subscription centric approach, which has obviously.

It turned out to be quite successful for us and now with that success with that growth and profitability, we're able to confidently invest in some of these new products to grow our business further I do want to stress that the word derivative here is really important because we're able to leverage existing.

<unk> camera technology that we have as a platform to go on maintenance new cameras at less expense than if we were.

Initiating wound up camera programs, which would be more expensive and that's why we're able to attack this opportunity with the modestly increased opex that youre going to hear about today.

Awesome. Thank you Nick.

And well go to Martin Yang of Oppenheimer <unk> company.

Hi, good afternoon. Thanks for taking my question. So I think my first question is around your year end subscribers and you mentioned that stronger retail led to a slight miss on that scrubber Cove can you maybe go into details.

The reasoning why relatively stronger retail can that too.

Lower sub count and are you expecting perhaps a total.

Revenue level, where the mix favors highly higher all gopro dot com.

And now you end up maybe having a more traffic going to retail.

Hey, Martin this is Brian to your question as we looked at Q4.

Kind of a similar thing happened.

So Q3, Q4 retail did exceptionally well.

<unk> Dot com did well too I mean, we were up 39% for the year at $392 million.

In our established subscription revenue was $53 million for the year more than doubled.

Year over year, which as you know.

It's very high margins.

The fact is if you read the kpis around subscription we increased.

Our.

Our subscription attach.

Dot Com, which was then kind of 90 ish low nineties with more mid ninety's, so that actually improved and retail attach has been steadily improving through the year.

Q4 year ago was about 8%.

We have moved to 15 and by the end of Q4 was about 25%.

Attach.

Our mobile App.

And so that's been very encouraging, but the mix shift and just units given the dynamics of 90% to drill for dot com versus 25% to retail.

That equation that gets pretty tough right at 90% to 25, so that the.

The challenge there was just the mix between in strength of retail and it's often that we have two very strong channels retail has done very well for us through the year and direct to consumer.

39% and the company was up 30.

Obviously, we're a little bit shy of the $1 7 million, but but it's really more of a positive attribute to where the demand came from and actually the kpis that are driving subscription growth as we look ahead into 2022.

Yeah, and a follow up on that is that your 2022 target is a little higher than what I would expect how is that $2 2 million target factor in.

Maybe a relatively stronger retail.

Channel that you saw in <unk> or that was more of a normalized mix.

It's about the same mix that we have and then we had about 34%, whereas direct to consumer.

And the rest is retail now.

The consumer the better we can do better on the subs number.

It's worth pointing out that about one in four sometimes one in three cameras go through D to C and so as you model that we expect to have.

Unit growth in 2022, as well as AFP growth. So you can kind of model out that.

That and.

You kind of get to those numbers.

Got it thank you very much.

And our next question is from Nick Todorov of Longbow Research.

Hey, guys good afternoon.

First a clarification on the first quarter guidance, Brian if I take the midpoint $2 15 on the sales 41, and a half on gross margin and 80 million for Opex I get to about $10 million of operating profit I think the comments say, 11% to $12 million of net income can you bridge.

Debt.

But for me please.

Yes, I said approximately $80 million in Opex.

And there is a spread on margin as well so I think those two things will get into the 11% to 12.

And it's great to see you know the model that we delivered terrific.

Terrific results in 2021 is continuing in 2000.

You know 22 in Q1, we just guided I think 6% up on the midpoint on revenue.

Hum.

Nearly 150%, 120% to 50% up on net income so we're getting really good leverage on the model.

On 10% fewer units because we're transitioning more units or the high end you have more subscription.

Margins are at we're controlling the opex and that's flowing to the bottom line. So the model's continuing to play out in 'twenty two as it did in <unk> and 'twenty one.

Okay, Alright, maybe it will take.

The offline because again, it's still struggling to get to $11 million.

$12 million of net income, but a question.

A question on sell through I think based on the comments on our first quarter, you're guiding to slight decline in units year over year.

How should we think about sell through in the first quarter and then sell through for the year.

I think you were expecting units to be up and then how can you kind of look.

What can you say about your channel inventory strategy this year.

Yeah.

For Q1, we expect to be over 600000 units and sell through and we're seeing that we've seen in Europe .

<unk> members are getting over Covid <unk> dot com has actually been.

Doing very well in North America is coming back so feel good about the $600000.

And it'll be a little bit less than that of the between five and 600000, So channel inventory would come down a little bit in Q1.

And.

The ebb and flow quarter to quarter for the year, we think units will be up but I think the unit.

From sell in and sell through will be largely balanced through the year.

So I think as Nick talked about on the road map more products I think you'd see.

A bit more.

Maybe sell and then sell through in Q4.

Hannah balances out throughout the year.

Okay.

Nick for your question I guess, how can you compare and contrast, how the new hardware.

Our roadmap is different than the good better best strategy that you are running for the last couple of years.

I know you can always glad you asked yes im glad.

Yeah.

Yes.

So it.

It is important to offer some value options to consumers.

You got to meet the consumer where they they are and not every consumer is at the passion or or need level, where they want to buy your most.

<unk>.

Capable most expensive products. So we still will have.

Value offerings like we do today.

But our focus is more on premium solutions.

Better.

<unk> from one another.

And so without going into detail about the products themselves.

<unk> it.

If you look at our good better best strategy.

That we used to have that was.

Three different price points at the same camera and the camera.

Got a higher resolution hires.

Frame rates, maybe some additional features as you went to the higher price point products, but by and large they were very similar and they were built for the same use cases.

So.

You were you were.

And the same customer.

But just they might've been in entry level mid level or high end customer.

At the same customer type.

Going forward, we think it's important to build.

Very differentiated.

Specialized solutions for different use cases to appeal to entirely new groups of users.

That have new needs that are.

Our hero camera maybe.

Solves, but maybe it got some other aspects to it that are undesirable for that use case and the user doesn't need all these other things that the hero camera does and so it ends up being.

More than they need or not enough of what they need and so we're very focused on identifying what are the particular challenges that people are having.

I make it a point dimension consumer and professional.

Because I think it's sometimes gets missed that goal.

<unk> are used by professionals the world over whether it's for film television.

Their own commercial purposes their own research purposes.

We just won our second Andy Congrats again to the team for their work on Hyperscale video stabilization you guys deserve that recognition and got it.

But it's not a good better best strategy. It's use case, a b C. D E F G. All very different from one another and.

Rather than make one Smith's arm Swiss Army knife does it offer some people.

Some people want specialized knives, and that's what we're going to build for them.

Got it thanks for answering that.

Thank you.

And we'll go to our next question from Paul Chung with Jpmorgan.

Hey, guys. Thanks for taking the questions. So just to expand again on the <unk>.

The new derivative products.

Are the Asps is going to kind of trend.

Looks like your gross margin guide is pretty similar range. So I expect it to be pretty similar.

And then are you looking to kind of attack different demographics to drive more sub growth there.

Is it kind of existing users combination of both just comments there.

Yes.

Thank you.

As you can see from the guide.

We're.

Going after.

Developing premium solutions.

We had a lot of experience chasing volume unit sales with lower priced products.

And it's.

It's not nearly as fun or profitable business to be in a we don't like dumbing down our products, we like developing.

Hi.

Performing products possible for those.

Consumers and pros that have specific needs and theyre looking for that.

The level of quality from Gopro and that's what we're building our branded business on and it's turning out to be a smart move because theres a lot more margin and ultimate earnings power in that approach.

In terms of you know I would just.

Think about you asked about different demographics and so forth.

More so I would say we're targeting different use cases.

We are targeting some of the same use cases that we serve today, but in a.

More purposeful and specific manner to just better serve that user that really wants to use their gopro for this specific purpose.

We already make a Swiss army knife sets the hero camera that.

You know if if you're an athlete and you want to put it on your helmet. It works great. If Europe Lager building your career as an influencer. It works amazingly well for that throw it in a dive housing units arguably the world's best scuba diving camera I mean, the hero camera is is a jack of all trades, but.

With that comes some lack of.

Specialization that.

Tip of spear customers really need.

Need or desire.

And it also comes with some.

Excess for people that don't need everything that a hero camera does and then for other users. It doesn't do enough and we need to do things that they have been asking for for years that we just can't get done where the hero camera due to certain.

Physics constraints, but if we make an entirely new camera based off the hero camera technology.

Break the mold in terms of like what the cameras form and purposes.

Can deliver for these people and they've indicated that they were willing to pay even more for these types of specialized solutions. So it's going to be really exciting when we get there and we have a broadened product offering.

Broadened broader portfolio.

More and more tools for more people more legs to stand on but we don't need.

These products to be <unk>.

Hero cameras again in terms of sales volume.

When you when you hit a lot of singles doubles, and the occasional triple and occasionally you catch when it goes out of the park, that's great for business and that's our strategy here is to.

Have a bunch more stakes in the fire that are backed by consumer research and work, we're absolutely clear people want this from us.

Time will tell if some of them can take on the hero camera.

For the top spot in terms of volume, but incrementally. We think these are going to add up to be very meaningful for our business from a growth perspective over time.

Alright, Thanks for that and then on cash flow, Brian you know record cash flows for the firm this year.

If you could expand on the performance there the kind of sustainability.

Forking cap efficiency and then your you know your cash guide suggests strong cash flows again.

This year so.

If you could talk about kind of.

Were you know on the share buyback are you going to be quite aggressive there I mean, you haven't really bought back shares and better part of three years. So any comments there. Thanks.

Yeah, No no worries.

Flow was record $211 million in 2021, 18% of revenue and we really brought it home in Q4 were up $160 million or 41% of our revenue and cash.

Oh really.

Driving that on all levels. One is we're more profitable. So most of the cash is coming from earnings.

We've got terrific.

Yeah, we're at 26 days when historically, we'd be in the 30 to 40.

Kind of a year. So the working capital aspect is great you took inventory down $37 million.

In the quarter.

So we've got very good.

Use of cash off the balance sheet, which we expected to do yes, we expect to have cash.

You know basically be.

So about 500 million, but we have to pay back $125 million and one of our converts we'll do that in April .

There'll be over 500 million.

So that goes we're going to generate cash.

Nice tax in 2022.

So in the model is really really driving that and strategic shift to D to C and we have great collections and inventory management, even in retail so that's paving the way for us to do it we will.

Buy back shares throughout the year and it's.

It's great that you never have the opportunity to do that again and work down chairs.

Okay.

Also worth pointing out in my prepared remarks.

Yeah.

Our share count was $163 million.

In 2021, that's going to increase about 26 million shares just because you have to.

Increase the share count relative to the convert the new.

Standard we have to implement in Q1, obviously that has the impact on EPS, but the absolute dollar growth of net income.

Therefore, Q1 as well as 2022, so I wanted to make sure I pointed that out and into your model.

Great.

Thank you.

And well go to our next question from Jim Suva Citigroup.

Thank you I have two questions. The first one is I guess more of an observation and looking for your commentary.

Travel quite a bit.

And suffice it to say a lot of destination in international travel has been on pause for say two years or so and I was just thinking as I walk past like the duty free shops in the shops, and the airport where people buy spontaneous hey, I just arrived to.

Trailing I'm Gonna go scuba diving, so I buy a gopro camera that's waterproof.

Those type of things really haven't.

All of that activity having occurred for a couple of years, so with that I'm. Just wondering in your outlook are you assuming some travel comes back all travel comes back no travel comes back and I assume that channel has kind of been dormant for the past couple of years or so but any commentary on this or maybe its not much.

But I would think it's kind of meaningful because.

People buy when they go on destinations.

Yeah, Hi, Jim Brian .

Right, but do that has been dormant if theres one area that.

Covid has impacted gopro and international travel and travel destination.

We've been out of duty free out of crews.

You know that spontaneous purchase or people just buying in advance of going somewhere.

You know on best buy Amazon at Aimco for Dot Com.

So that's definitely been absent.

You know and historically have been about 10% of our revenue.

It is material from that perspective, so when it has come back it will be a nice tailwind for gopro.

Not factored in.

Have not factored in.

A big return to international travel.

Not yet for 2022, it may happen, but we're not.

And the current guide that we have it's not there. So that's a call option. If you well if it does come back we'll be in position with supply chain.

To meet that demand.

Great and then my follow up question was you announced the stock buyback of about $100 million. But then you also have a convert and I assume given inflationary environment and your employees have been doing so well, there's probably some compensation boost that come into share count or something.

Can you walk us through again, the share count from where we kind of exited the December quarter. It seems like there is a lot of a fair amount of moving parts for the share count we should be aware of in your stock buyback adds additional.

And if we can get some thoughts on that.

I'd love to answer that but Brian would kick me under in the shins under the table even.

The phone line, so I'm going to hand that one over to Brian Yeah, but Nick I Hope you and your employees for really doing a good job. They really good so hopefully they get some merit.

Yeah.

It's been a good year for Gopro on all fronts, and thanks for saying that.

Okay, Yeah, no I appreciate that and it's a matter of fact in our Opex in 2021.

We will be.

<unk> bonus for our employees, we did not pay up on us in 2020, so well earn for the employees of the company.

Graph to them.

We still do our our standard share.

Issuance to employees and the buyback and part is intended to.

At a minimum cover that dilution and if we can generate enough cash flow. We can take it down further so we have that opportunity if.

As we continue to perform we can we can cover more than just one point of dilution.

Great. Thanks, so much Brian .

And with no other questions in the queue at this time I will now turn the call back over to management.

Thank you operator.

Thank you everyone for joining today's call.

This year marks gopro, 20th anniversary and we couldnt be more proud of the work that we're doing.

We believe the world needs specialized camera and software solutions that gopro is uniquely positioned to provide and we intend to deliver such solutions at a brisk pace over the next few years to diversify our offerings and appeal to a larger audience of consumers.

Our teams are strong our brand is strong and our balance sheet is strong.

We intend to leverage all three to create more value than ever before for consumers and investors alike.

We look forward to seeing you at upcoming Investor events and at our next earnings call in May until then thank.

Thank you very much this is team gopro signing off.

And so this concludes today's call. Thank you for your participation you may now disconnect.

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