Q2 2022 GoPro Inc Earnings Call
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Good day and welcome to Gopro squad into 2022 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Lin, who will vice President of Investor Relations. Please go ahead ma'am.
Thank you operator, and thanks for everyone for your patience, we were experiencing some technical difficulties this morning, causing delay and your ability to join and wanted to wait.
So as many of you could join it's possible.
Welcome to go part of second quarter 2022 earnings Conference call with me today are go President and CEO , Nicholas Woodman, and CFO and C O L. Brian Mcgee.
Today's agenda will include a brief introduction from NEC and some commentary from Brian followed by Q&A.
For detailed information about our second quarter 2022 performance and our outlook. Please read the management commentary posted to the Investor Relations section of <unk> website.
Before I pass the call to Nick 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 and the war in Ukraine.
This means that results could change at any time.
Our commentary about our business results and the outlook is based on the information available as of today's date and we do not undertake any obligation to update these statements as a result of new information or future events.
To better understand the risks and uncertainties that could cause actual results to differ from our commentary. We refer you to our most recent annual report on Form 10-K for the year ended December 31, 2021, which is on file with the Securities and Exchange Commission and is updated in future filings with the SEC, including.
The quarterly report on Form 10-Q for the quarter ended June 30th 2022.
Today, we may discuss gross margin operating expense net profit and loss, but that as well as basic and diluted net profit and loss per share in accordance with GAAP and all the 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 well 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, which is posted on the Investor Relations section of our website.
In addition to the earnings press release and that is my commentary, we have posted slides detailed financial information and metrics for the second quarter 2022.
The management commentary lives as well as a link to today's live webcast and a replay of this conference call are posted on the Investor Relations section of <unk> website for your reference.
Unless otherwise noted all income statement related numbers that are discussed in the management commentary other than revenue are non-GAAP .
Now I'll turn the call over the Gulfport founder and CEO Nicholas Woodman.
Thanks, Julian and hi, everybody. Thank you for joining us today.
As we shared in the management commentary, which we posted to the Investor Relations section of our website.
Q2, 2022, Gopro delivered a fifth consecutive profitable quarter on a GAAP basis at <unk> <unk> per share.
And our eighth consecutive quarter of profitability on a non-GAAP basis at <unk> <unk> per share.
Cameras sell through outpaced expectations as we drove significant year over year growth in subscribers and subscription revenue.
Both revenue and non-GAAP EPS in Q2 exceeded expectations at $251 million.
<unk> per share respectively.
Direct to consumer revenue increased nearly 9% year over year to $95 million or 38% of revenue.
Subscription and service revenue hit a new quarterly milestone of $20 million positively impacting our bottom line.
Our subscription service continues to be a powerful financial engine for Gopro and represents our fastest growing highest margin and most profitable product.
We ended Q2 with 1.91 million subscribers.
65% year over year increase of approximately 754000, Gopro subscribers and we are on the cost cuts of surpassing 2 million gopro subscribers, which translates into $100 million of annual recurring subscription revenue with gross margin of 70%.
80%.
We are on track with our plans to launch several exciting new hardware and software products in the back half of 2022 wowing, our customers with blistering new performance made easy thanks to significant updates to our software experience that will put a premium on convenience.
We expect our new products and services to add to the momentum we enjoyed in Q2.
I want to thank everyone at Gopro for their incredible work, we're thriving during challenging times, thanks to your world class execution.
I'd also like to thank all of you on the call with US today is an exciting time at Gopro and we're grateful for your support and participation in our growth story.
Before jumping into Q&A, Brian has a few comments to share.
Thanks, Nick.
And that could provide some color on <unk>.
Q2, Q3, and our 2022 outlook.
As a reminder, the.
Sure Bob.
Oh, and CFO comments and the management commentary posted in the Investor Relations section of our website.
Nick mentioned.
Q2 sell through exceeded guidance on revenue and EPS were also on the high end of guidance Europe , and APAC performed well, particularly due to some rebound in international travel despite macro headwinds in these regions.
Our Q3 and full year 2022 outlook.
<unk> several key macro dynamics impacting our business.
As has been widely reported big box Big box retailers are actively reducing their inventory along with weeks of supply.
In terms of retail Big box channel inventory, we believe we are well positioned at approximately nine to 10 weeks of inventory.
However, we expect retailers to generally reduce weeks of inventory in the second half, which could impact our sales into the channel.
The continued strength in the U S dollar relative to international currencies.
Year over year FX impact to go probe based on the midpoint of guidance for revenue gross margin and earnings.
Awesome really $10 million and $11 million in Q3 and Q4, respectively.
Or two times as much.
As in the first half of 2022.
For 2022 based on our outlook, we expect the overall FX impact to revenue margin and earnings to be approximately $33 million.
Compared to 2021.
Inflation rising interest rates and other macro economic issues may impact demand as well as competition for share of wallet.
During the second half.
Taking these macro dynamics into consideration for 2022, we expect the camera unit sales of between $2 9 million and three 1 million units, which is down from our prior guidance of approximately $3 2 million units as well as year over year.
We expect second half 2022, compared to first half 2022 unit sales to grow nearly 60% up from 46% in the same period in 2021.
Reflective of continued solid demand heading into Q3 and fueled by the launch of two new cameras, rather than one flagship camera in the second half.
Our planned rollout of cloud based editing later this year.
Furthermore, on the demand side through July we're running ahead of projected demand and sell through which is encouraging relative to our third quarter outlook.
We expect Asps in 2022 increased 8% over 2021.
We continue to effectively manage supply chain, where third quarter cameras secured in the fourth quarter pipeline is well developed.
We expect full year 2022 gross margin to be at the low end of our target range of 40% to 43%.
Primarily due to a strengthening U S dollar.
Along with some freight and component price increases.
We expect to reduce our 2022 operating expenses to a range of between $325 million and $330 million down from 340 million to 345 million.
We are prioritizing certain hiring while slowing other hiring as well as taking other actions.
To execute on planned product launches, we will continue to invest in product innovation in hardware software and the cloud experience as well.
Well as in targeted marketing, while continuing to drive efficiencies in all areas of our business.
I hope that additional color is helpful.
Operator, we are now ready to take questions.
Thank you Sir.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask the question maybe I'll take the first question from Martin Yang from Oppenheimer. Your line is open. Please go ahead.
Hi, good afternoon, and thank you for taking my question.
My first question is regarding camera shipped two to hiring or do you also observed maybe a higher attach rate to accessories as a.
Hari and cameras.
Contribute a higher percentage in units.
Oh, Hi, Martin Ryan R.
Our our attach has been pretty consistent through the years, although I have to say because we've come out with new accessories.
Of late we are seeing a bit more and accessory sales.
And our quarters, so that's definitely helping on the top line.
Got it. Thank you. Your next question is on the geographic weakness its trends.
Americas why is it down.
Comparing to Europe , and APAC, what was true with respect to driving force.
Behind the growth for Europe .
Behind the decline in Americas.
Yeah, I think there's been a bit more travel in Europe , and we're starting to see it.
Pacific opening up.
We talked about travel before historically been about 10% of ourselves now to get there. It's a combination of like.
Direct to crew direct into duty free at airports.
And then you know people will then buy we'd have to extrapolate.
Purchases from.
Our online <unk> dot com, Amazon and other retailers, which is the bulk of the purchases and so we've done.
A lot of.
Surveys with customers on how they buy and why they buy we have seen particularly in Europe and Asia.
Bound and travel we've all seen that but through duty free and crews were seeing that come back and that was part of our upside in the quarter, which is great.
It's also you know those two channels and about 50% of where they were pre pandemic. So that also says the world keeps opening up we have more room to grow which will be a tailwind for us if that happens.
Got it. Thank you very much I have no more questions.
Yeah.
We will take the next question from ANAC Luskin from Jefferies. Your line's open. Please go ahead.
Hey, Thanks for taking my question.
I wanted to dig a little bit into the expectations for three Q.
Given you know retailer commentary I understand wanting to be conservative around you know their open to buys and appetite for more inventory in light of where position it was.
That said you know you guys. Obviously have had a flagship launch around the same time every year.
A while I guess, how long it is Dan are you putting those orders than it is this guidance contemplating ship to those orders or more so.
Conservatism around open to buy cheap.
Our budget.
Yeah, Hi, this is Brian .
We feel very good about.
And if sell through so the demand is definitely there. It's a matter of fact that there continues and we expect it to.
We'd be at the upper end of our sell through of guidance and and if that happens that's great because that gives more open to buy dollars from retailers.
So because they have to replenish their stock so as long as our products moving theyre going to keep buying I think we have pretty good visibility on the third quarter in terms of.
Who's going to take what product and product availability.
And the strength also go for Dot Com, which has been very encouraging as well.
So from that perspective, it's good and yeah and.
And then we'll get to the fourth quarter, we have really good data historically.
On new products and how many products in our lineup and which products move at all.
What rates and relative to each other.
So.
We will have a flagship product.
For the fall and an additional product that additional product, we expect to do well, but it doesn't have to knock it out of the pockets like third or fourth and.
So really what we have to do and sell through so we're not completely dependent on it to meet all the numbers, but it's still important in terms of volatility.
Numbers and expectations for the year.
Great and just going off of the prior questions around the dispersion across regions and performance.
Are you expecting or.
What are you expecting for the Americas to the back half of the year.
Yeah.
We expect Europe and Asia to continue to open.
And we're not expecting a lot of additional growth.
North America, we're seeing some of it which has been encouraging.
Popping up here in July .
But that would be maybe upside too.
Members in the second half.
Great. Thanks.
We will take the next question from Eric.
<unk> from Morgan Stanley . Your line is open. Please go ahead.
Thank you good evening guys. So.
Maybe if I just start on the on the kind of sell in forecast. So you know you're there.
Rationale that you described is very clear I just wanted to get a better understanding of you know is the cut to your sell in forecast.
Or what what what percentage of the cut and you're selling forecast is due to retailers carrying lower inventory versus like a real time demand real time reaction to demand that youre seeing on Gopro I'd, let's just take the bifurcation there and then I don't know if I missed it in the prepared comments, but.
Did you provide any comments on sell through for <unk> and 'twenty, two and then I have a follow up thanks guys.
Hum.
On the demand front.
<unk>.
We're actually seeing a stronger demand than you know we initially.
Got it for in the quarter, which is very encouraging July was.
Actually ahead of expectation so we're seeing.
Solid demand really picked up in Q2 picked up more in Asia.
And continued in Europe .
Second quarter now of your airports.
No year over year.
Very positive.
So as long as the sell through continues like I said is we expect it to.
We have very good.
The ability then into sell in so.
Okay.
And then maybe just Brian again on I'm thinking about seasonality.
Back of the envelope math for me it kind of implies you need to get towards the higher end of seasonality revenue seasonality in both <unk> and for Q. If we take kind of the mid point of your sell in plus your E. S. P comments and so is that the right way to think about it or will revenue be overly skewed to <unk> because of the product launch cadence I just wanted to make sure we're.
Thinking about <unk> revenue in four key revenue correctly and that's it for me thanks guys.
Yeah, I know I threw too would be a little bit below.
In terms of units, where we've historically been.
Q4.
A touch higher.
But that's because we have.
Two new products coming out in the fourth quarter.
Ever since one so.
If it wasn't for that we would have temporary.
The outlook to be less but.
Considering we have more products to sell we will get the load in and the sales and the sell through and that's what's driving the numbers for <unk>.
<unk> 22, and it will help drive it for 'twenty three as well.
Again breast I wanted to ask a question.
We take the next question from Nick Todorov from Longbow Research. Please go ahead Sir.
Thank you.
One question on Americas.
Ryan I think you mentioned that you don't expect much growth from America in the second half I just wonder maybe if you can explain why are you seeing this bifurcation in America revenue in demand versus the rest of the world I understand the retail big box inventory digestion as one hand, but is there anything besides that.
See that driving that differentiation and demand.
Yeah Yeah.
Actually a couple of things one is with big box retailers or large part of our North American business. So that definitely has an impact and so we'll see how that goes but good news is we have as I said in prepared remarks.
Inventory of nine to 10 weeks, which are pretty good.
And historically right.
We would want them to be so that they're not missing sales. So hopefully we can keep it.
We expect it to come down, but if we keep selling through and see the demand like we've been seeing in July that.
Maybe that doesn't get cut.
Maybe that's upside for us I think since the pandemic I think we're seeing a little bit of a cycle too because north America back in.
The second half of 'twenty.
And the first half of.
Most of 'twenty, one was very strong for North America, and Europe , and Asia were much more tempered.
On our business and we're seeing that cycle, whereas North America over the last couple of quarters to kind of come down a bit, but Europe and Asia have come up. So I think we're seeing just a cycle and part of that's on reopening.
So that's our that's.
The beauty about having a global business as we get the managed a global business and you know sometimes certain geos are up and others are down and then a big cycle around and we continue to enjoy the benefits of being diversified globally.
Okay got it.
For a second question is more of a kind of a strategy going forward. So obviously I think you you move to that.
Moving camera demand too to the high end of your product said.
So increasing the ASB and kind of maybe lowering our units, but looking forward. It sounds like youre going to have an additional product launch this year, how should we think about this going forward are the new products outside of the maybe hero 11 coming are those kind of a complimentary products that are just in addition to the Tam.
And asps should be continuing to trend up obviously for one reason because the subscription, but even if we strip out subscription and how should we think about the mix of ASP versus units going forward into next year.
I think as we look at it going into next year, we expect to have.
Asps continuing to go up.
More to the high end.
And.
And unit growth. So it will have we expect to have units growing a bit in 2023.
And that's largely due to Asia and I've been in Europe is going to drive that in North America.
Come back if it's in a recession or.
Going through some of those.
Economic issues that that comes back then we'd do better.
I think I'd also point out the strength of what's going to help drive ASP Gs in 'twenty, three and I said this on the call as I look at subscription and the number of subscribers. We expect to be at $2 2 million, that's going to continue to grow into 2023, given the model and we expect to see.
Subscription revenue up.
About 50% year over year, it's up we're already doing that in 'twenty one over 'twenty.
So that's also going to have a positive impact on gross margin, while we're at 40 points.
2020, or 2022, sorry.
Expect to be up you know at least a point 'twenty three because of the growth in subscription and that's continuing to drive to the high end, where we make more money as well as D C.
Okay got it last question for me quick one.
What do you expect for sell through for the fourth quarter or for the full year.
Through for the whole year.
It's going to be about.
Two $3 1 million units.
So pretty close to.
Sell in.
Got it thanks, Thanks for the answer Brian .
Next question from Jim Suva from Citigroup. Your line is open. Please go ahead.
Okay.
Thank you.
Brian You mentioned big box retailer in North America kind of nine to 10 weeks inventory you talked that that was pretty good.
Is that confirmed with the big box retailers and they're fine with that or is there a chance that the big box retailers may actually want to take things lower I'm, just kind of curious about that nine to 10 weeks reference you made.
Yeah, we see that as a good level because those are good healthy and stocks, where they don't they don't lose camera sales.
They could choose to drop you know inventories they have their business to run too and I'm trying to get their inventories down and cash flow. So we'll see what they do and each one will deal with it differently. After one I'll do the same thing but.
I think if they go too low.
And you know even in seven to eight weeks it could be.
Please stocked out in Marseille now maybe that comes back to corporate Dot com too so maybe.
Maybe it slips to us, but we'll work with the retailers to try and hold.
As much weeks of inventory as possible.
So that that's just the dynamic we have to work through between Q3 Q4.
But that's all right and then Brian .
Took the numbers down right because you don't know exactly where theyre going to go because they're managing their business too so it's pretty dynamic.
Yeah, So Brian was than previous you know I'm, making this up three six months ago your inventory bigger than nine to 10 weeks or is it more of their comments about lowering inventory on other consumer electronics as they have in the stores.
No. It's more the latter we've been consistent in the nine to 10 week range.
Yeah, that's what I thought okay.
Can we just yeah just for the record I mean, we've done a really really good job of managing channel inventory.
And not getting over our skis, because we know that if it goes too high that's just trouble for us and for the retailers and that causes discounting et cetera. So we've seen how that's played out historically, we haven't had to do that in the last two years.
Great. Thank you it helps US bridge they are concerned about what they're saying and in the media versus the reality of behind the doors of what Youre doing so thank you so much Brian and Nick for the details.
Thanks, Jim.
It appears that there is no further question at this time, Mr. Because thats just in a conference back to you for any additional or closing remarks.
Okay.
Thank you operator.
And thank you everybody for asking Brian all the questions you made my job here.
I'd just like to close by saying we're excited for the rest of the year.
And all of the new products and services that we've got on tap.
For later this year, it's going to be very exciting and we're also excited to connect with you at a slate of upcoming events. Later this quarter. So thank you again for your attention for your support and 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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