Q4 2022 GoPro Inc Earnings Call
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Good afternoon. Thank you for attending to Gopro Q4, 2022 earnings call. My name is Matt and I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers.
If you'd like to ask a question. Please press star one on your telephone keypad.
I'd now like to pass the conference over to our host Christopher Clark Vice President of Corporate Communications Christopher. Please go ahead.
Thank you operator.
Afternoon, everyone and welcome to girlfriends fourth quarter and full year 2022 earnings conference call.
With me today are Gopro, CEO , Nicholas Woodman, and CFO in C O O Brian Mcgee.
Does it today's agenda will include a brief introduction from Nick followed by Q&A.
Detailed information about our fourth quarter and full year 2022 performance and our outlook.
Read the detail.
Management commentary, we posted to the Investor Relations section of girlfriends website.
Before I pass the call to Nick I'd like to remind everyone that our remarks today may include forward looking statements forward.
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 any continued impact from the COVID-19 pandemic or the war in Ukraine.
This means that results could change at any time.
Commentary about our business results and 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 in other reports, we may file from time to time with the SEC.
Okay.
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 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 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, which is posted on the Investor relations.
Section of 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 full year 2022.
The management commentary slides 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 Gopro 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 to Gulf was founder and CEO Nicholas Woodman.
Thanks, Chris and Hi, everybody. Thank you for joining us today.
Before we get to Q&A I have some brief remarks that summarized the detailed management commentary posted to the Investor Relations section of our website, which I encourage each of you to read.
I first want to congratulate and thank everybody at Gopro past and present, who contributed to Gopro incredible 20 year history.
In Q4, 2022, we celebrated our 20 year anniversary and it's been inspiring to consider how far we've come from our first product.
35 millimeter film camera designed to be worn and the rest well served today.
Today, one of the world's most popular brands, serving millions of the world's most creative.
Creative and inspired humans.
Gratitude to all.
The strength of our brand and subscription based business strategy was evident in 2022, a year marked by macroeconomic challenges are.
Our high margin subscription business is serving as a powerful financial engine contributing meaningfully to our bottom line.
In 2022, we grew gopro subscribers, 43% year over year to 2.25 million.
Exceeding our annual target of $2 2 million and bringing our.
Subscription and service revenue to an annual run rate of $100 million with 70%, 80% gross margin.
The growth in our subscription business helped us deliver profitability and positive EBITDA.
We paid off debt of $125 million and repurchased $40 million in stock and we exited the year with a strong cash balance of $367 million.
2022 benefited from our complementary direct to consumer and retail channels with each meaningfully contributing to our business throughout the year.
Direct to consumer revenue from Gopro Dot Com was 40% of overall revenue in Q4, and 38% for the full year of 2022 up from 33% and 34% respectively.
In addition, our Gopro Dot Com business grew 5% in 2022 over 2021, driven by 52% growth in subscription and services revenue.
We estimate Gopro dot com revenue growth was 12% in constant currency.
Like many companies Gopro results for the year in quarter were impacted by a stronger U S. Dollar.
On a constant currency basis, we estimate that revenue for the year would've been approximately $50 million higher or 5% above actual results.
Gross margin would've been nearly 41% versus 38, 1% actual results and EBITDA to revenue approximately 13% versus 9% actual results.
Considering the global FX and macro economic challenges, we believe our 2022 results reflect the strength of our subscription based business model and the strong execution of our teams.
The future of Gopro subscription base and we're laser focused on what we believe is a significant high margin growth opportunities.
Gopro is focused on building our direct to consumer channel has increased our understanding of consumer behavior and we are successfully leveraging this to drive engagement and LTV.
While still early in this journey, we see significant opportunities to add further value for new and existing subscribers.
Our 2023 plan is to maintain Gulf coast ongoing profitability and end the year with a strong cash position of $325 million to $350 million, while investing in critical long term growth opportunities that we believe will position gopro well for when the global economy.
It recovers.
We're investing in people technology and innovation that we believe will drive subscriber growth retention and ultimately L. E D.
This includes expanding our hardware lineup to court, a broader consumer base and rolling out a synced mobile cloud and desktop experience that will target gopro owners and non owners alike with a new premium subscriptions here.
As I reflect on our 20 years in business I'm, most proud of the innovation Gopro has become known for.
As well as our purpose.
Serving the world's most active and creative people with digital imaging solutions that help them capture and share their lives in exciting ways.
This purpose combined with the strength of our brand.
Our people and our subscription based business model to give us confidence that we're well positioned for the future.
Despite near term challenges that many businesses, including gopro are likely to face in 2023.
In the meantime, we're innovating towards an exciting tomorrow, where we believe gopro will serve significantly more people than we do today.
Operator, we are now ready to take questions.
Absolutely if you will.
I'd like to ask a question. Please dial star followed by one on your telephone keypad.
If for any reason you don't like to remove that question. Please press star followed by two again to ask a question press Star one as a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered.
Yeah.
Yeah.
The first question is from the line of Anna Glass scan with Jefferies. Your line is now open.
Hey, good afternoon, guys. Thanks for taking my question.
Firstly I want to start on the Sop premium subscriptions here could you talk a little bit more about the research that you're seeing.
That justifies it and what would be the additional features and options that it would give the subscribers.
Yeah.
Brian do you want to start with attach rates and current subscription business.
Take the second part yeah.
That sounds great yeah. Thanks Ana.
And our current.
Subscription business, we ended the year with about 2.25 million subscribers, that's up 43%.
And revenue.
It was up 52%.
Very excited about our subscription business.
And the fact that at 70 to 80 points of gross margin.
Kind of unpack that a little bit.
So everyone can remember on <unk> dot com.
Tax rates are greater than 90%, that's largely bundle subscription with our cameras.
The exciting part of kind of the year was continue attach and and retail so if someone buys in a retail.
Store and then comes to them.
The app store and on signs up for that.
Subscription and that increased our success.
So some low 20% attach in 2021, nearly 35% attach.
Oh 2022, so we saw substantial growth.
On the retail side.
You know the value proposition, which.
Which is great.
Just to kind of add to that point as we look at kind of the.
No subscribers from corporate Dot Com, who came in on the bundle and those who came in retail and paid the initial so.
So the ones, who now through most of 2021.
And 'twenty, two paid twenty-five and upgraded to 51.
And that one came up our retention rate across all of those cohorts.
That's what you pay the same.
We're seeing a nice uptick and you know.
Oh through from that cohort that 225, and now it's moving up to 50.
As a backdrop I'll turn it off in the neck.
Yes, so based on.
You know the success that we're having with converting both.
People that buy their cameras at gopro com and as well as consumers who buy their cameras at retail converting them to become gopro subscribers.
We have a lot of engagement and we've learned a lot from our subscribers about what more they want to see from gopro, what they value. The most and then in parallel we do a lot of consumer research.
To learn perhaps why some people.
People aren't subscribing and what they'd like to see and then we are combining that also with data that we have.
From.
Our previous desktop App that we had in the market some years ago.
It was actually called quick for desktop and at the time of sunsetting that App. Some years ago. We had 1 million monthly active users of that desktop app and it was really encouraging to see that four years after.
Some setting that that that desktop application with no product updates no product support whatsoever, we still have hundreds of thousands of monthly active users. So it's a clear sign that there is significant demand for a desktop application from gopro and our more recent consumer research kit.
Firms that are in it also confirms that the launch of a desktop application that is synced to gopro subscribers cloud and mobile apps.
We will definitely represent value that they're willing to pay.
Our premium subscription.
The amount for <unk>, but what's great is.
It'll be an upsell because we will still provide the current gopro subscription pricing and benefits.
Two existing subscribers new subscribers, if they are not interested in the more premium tier.
But all of our research and past experience indicates that this is a significant opportunity for us we're really excited about it and I'd like to add that.
We do have experience selling subscriptions to people that don't even own a gopro.
As we mentioned on the call we've seen nice growth with the Quik mobile App.
And.
We are going to be taking those learnings and extending them to the.
Desktop application and premium tier and be making that available to people that don't own a gopro so that they can leverage the app it and cloud benefits in mobile editing benefits.
For editing their phone footage or or footage that they're capturing with any.
Any camera, regardless of whether it's a gopro or not so this is an important tam expanding initiative for us.
And it's something that we're going to be more and more focused on when we have the full mobile cloud and desktops out in the market.
Got it thanks a lot.
Turning to guidance.
No one Q implies.
Really a double digit drop in our unit can you talk a little bit about where we are in terms of seeing a more normalized calendar itself.
Particularly.
The big box retailers have been Destocking for.
Several quarters now.
Yes.
Yeah actually let me start before I get into Q1 guidance talk about Q4, I'm a little bit.
You know given the environment and how we drive it we're very pleased with how revenue came out pretty close to the midpoint of what we guided to and we'd be earnings by about 33% on the bottom line. So very proud of that for the quarter and we increased cash.
This is a tale of.
Comparing sell in and sell through if you actually look at it on a sell through basis. The fourth quarter was down about 8% year over year and most of that was in North America. The U S market is definitely under more pressure with the consumer so that's that.
Definitely been an issue I'm on.
On a sell in basis of course, we were down.
Quite a bit more.
In North America, and Europe , which were down 21, and 24% respectively.
But again the sell through kind of balanced out now if we look at it. The good news is drilled for dot com helped to offset some of the negative retail trends.
Was actually flat year over year. So we're very pleased.
With that outcome.
I'll also note in a management commentary, we wanted to sell through about 950000 units.
In Q4, and we ended up at about 900000, so a little bit short.
Channel inventory actually is in.
In line with kind of where we've been historically.
And end up a little bit just because of you know we introduced the new product with hero 11. Many later in the quarter. So fans that pull that out and actually went down year over year on channel inventory, but we wanted to be 50000 left and put us in a healthier position kind of exiting.
Yeah, So we'll actually see that come out in Q1, which is impacting ourselves and in the first quarter sell through is actually normalizing to what does that down 9% on the midpoint of our guide so not as bad as the sell in so that the channel.
Inventory aspect to consumer and retailers.
Trying to get their own inventories housing Oh, that's not a gopro thing that they're trying to manage their own business.
Has impacted us in Q4, and then in Q1.
That's the normalized because theyre getting down to some we're going to get down to some pretty low levels in Q2.
And in Q1 and getting into Q2 so.
That's kind of how we see that playing out and hopefully is much stronger.
Market as we get through the second half of 2023.
Oh, great. Thanks.
Yeah.
Thank you for your question.
The next question is from the line of Erik Woodring with Morgan Stanley . Your line is now open.
Yeah.
Hi. Thank you. This is my on for Eric.
Just starting where do you believe kind of year end subscribers will land for 2023.
Yeah.
Yeah, So we didn't give guidance for the whole year.
Just because of the macro complexity, that's going on in the market.
We do expect our subscribers to be up but it'll be up about 100000 in Q1, we expect and that we're not going to give guidance for the year, but we do expect to have growth.
The other thing I'll point out is we expect to have.
At least $100 million of revenue from subscription in service in 2023 that'll be up from about $82 million or so in 2022. So we'll see nice revenue growth and we'll still have subscriber growth.
And won't be adding to the subscriber tiers as Nick said, which will.
Have a nice upsell generate a higher subscription.
All of them out.
And and better margin, so looking forward to that.
Great. Thank you and then just as a follow up how would you kind of characterize the pricing environment from the December quarter, and do you expect that to continue trending into the March quarter or how do you see that.
The pricing environment.
Yeah, I think the.
The pricing environment.
We were promotional in Q4, and we're able to come in within our numbers I think Q1 will be.
It's not as promotional Q4.
The more promotional.
But the margins, we expect about 36% plus or minus a bit.
39% in constant currency in the first quarter.
That takes.
Taking into account the pricing environment, we expect in the quarter.
Great. Thank you.
Thank you for your question.
The next question is from the line of Jim Suva with Citi. Your line is now open.
Thank you, Brian and Nick the December quarter also was pretty challenged in terms of like whether in airports and people being stocking canceling vacations.
Vacations in just getting from point a to point B I'm wondering if that has some impact and also post COVID-19 now that people are starting to travel again are their behaviors turning back to pre COVID-19 of purchasing of gopro like when they go on a big exciting trips, where there'd be skiing, scuba diving or any changes in <unk>.
Behavior. Thank you.
Okay.
I can Jim let me start and then are you do you Wanna go neck or you want me to.
I'll take the second half you take the first half.
Alright, and on the first half Jim.
I think we saw really good travel.
Uh huh.
And in sales and like September October .
Remember, there's a lot of people were traveling to Europe . So our business has been really strong there it kind of add off a bit in December .
The bigger issues is quite honestly has been North America and the consumer.
I'll buy retail I'm cutting back on their inventory that's had I think a bigger impact.
Pack than necessarily travel and then.
China kind of in the fourth quarter was going through ebbs and flows with Covid.
They're trying to come out of that but as people want to travel in China or out of China there'd been restricted.
And a number of countries. It's a matter of fact I saw flights to I think and to Europe and you can see if we can reduce dramatically I'm from China, just given the current COVID-19 situation. So.
China represents about 20% of that or historically have 20% of the travel market.
So that's.
That's been an area that's been a little bit more more talent.
But the North America piece in Europe , too since kind of propped up I would say and.
Travel perspective, and use a gopro.
Yeah.
Yeah and on the behavioral front.
<unk> see.
It increased.
Usage.
Customers using their gopro connections to Gopro app.
Since the start of Covid.
When travel shut down.
We shared that.
'twenty two we had.
Approximately $15 million.
<unk> unique gopro cameras connects to the Gopro quick out during the year.
Which is great because in 2020 that number was about.
About $12 1 million.
And we've seen it steadily climbing back since I see that.
That's really encouraging to see the correlation.
When.
Peoples, you know increased activity increased travel and increased camera and App usage and we think we're also benefiting from the improved overall gopro experience and how well the camera worse with the App, how youre Gopro now auto upload.
Your most recent footage to your Gopro cloud account, while the cameras charging if you're a gopro subscriber now.
Now your.
SD card is automatically cleared after that upload is complete and you can now access edit.
Share and enjoy your content without.
Ever Offloading to a computer or dealing with previous complexity. So we're seeing overall improves.
Engagement improved user success rates and that's also.
We believe contributing to that 15 million active camera connects in 2022, but to your to your to your question, Jim There's a direct correlation between <unk>.
People getting out more and people.
Getting more use have been seeing more value in their and their gopro and we're seeing that.
<unk> purchases as well and unfortunately, that's somewhat tempered by.
Macroeconomic challenges.
Consumer confidence.
As it relates to there.
They are spending.
But it's it's it's really good to see the overall gopro community, becoming more and more active as we move further and further from the pandemic.
Thanks for the color and my last question is the equilibrium of retailers working down basically everything on their shelves not just Gulf of everything but can you comment on when we're going to hit the equilibrium for the Gopro product on the channel side do you feel.
Yeah.
No that's fair.
Some.
Retailers, who are having out of stock to them. We can see that so we're getting down to a point, where they're gonna have to swap the inventory balances I think we'll get through Q1 with our guide and we'll pull channel inventory down.
There are 50000 units and I think at that point, we're probably pretty darn close to the equilibrium level.
So I think it starts to normalize in Q2.
Thank you, Brian and thank you so much for the details.
Thank you.
Thank you for your question.
As a reminder, it is star one on your telephone keypad to register your question.
The next question is from the line of Martin Yang with Oppenheimer. Your line is now open.
Yeah.
Hi, Good afternoon. Thank you for taking my question. My first question is on margins.
Do you expect any no foreign exchange related headwinds to dissipate in the rest of 2023 that could potentially improve your margins.
Okay.
Yeah.
And our management commentary.
Put down what our current assumptions are for FX, and we're just holding to that I'm not hedging.
One way or another on FX and trying to provide a directional element.
I can say in Q1 and I'll repeat it.
I think we would be at 36% plus or minus five.
Uh huh.
Point out five but that equates to about 39% margins relative to 2022 actually if you went back to Tony wanted it'd be even better so margins have still been a.
A headwind for the company I think levels.
So does that imply inflation.
Component cost associated margins headwinds was roughly two two.
Two points.
Yes.
If we.
You mean from 'twenty one.
Be more on currency too and then a little bit on the component pricing.
1% to 2% so components to come up.
That's an area that is probably at some point going to come under pressure too and you'll start to see components coming down and haven't seen that yet.
And then maybe memory, but.
I mean, that's oh, some tailwind probably given the current environment, we'd get through work our way through 'twenty three.
Thank you. My next question is about the direct to consumer all Gopro dotcom.
Contribution in the fourth quarter, usually in previous years, we see.
During the December quarter, Gopro Dot com have.
A slight dip in revenue contribution relative to previous quarters.
From high <unk> or 40% down to mid <unk>. This quarter. It was really strong is there any particular factors thats driving up the coproduct com sales for Q.
Yeah, I think there's a couple of factors in an accident and it'll play into 2023.
As well so.
One is we have.
So you have the better pricing on <unk> dot com and I think that.
Award I'm, not giving out we can measure a part of that.
Retail coming back.
Probably helped on the DTC.
Right.
So balance stood on the holiday I think we had.
A bit of promotional activity until for dot com. So we're lumping basketball in driving sales and.
And margin and subscribers. So this is the sub aspect to this is very important.
It's where we get some real good lifetime value going into 'twenty three 'twenty four 'twenty five with those customers and then of course, our revenue from subscription in service in 'twenty.
$22 million in the quarter and about 82 million on yeah really helps on the Coker Dotcom site and so as we look ahead as we drive more than 100 million of subscription and service revenue.
The drive to Gopro Dot com, you probably be over 40% on DTC business too.
2023.
The directional trend is moving that way.
Partly because we've got a very good competitive position outgrow for dot com, but also the growth of.
Subscription and service revenue.
Got it thank you very much.
Thank you for your question.
There are no additional questions waiting at this time, so I'll pass the call back to the management team for any closing remarks.
Thank you operator, and thanks, everyone for joining us today as we mentioned we're really excited for the year ahead, despite macroeconomic challenges.
We're investing in the people technologies and innovation to continue releasing market, leading hardware and software products that we believe will continue to grow our subscription business and position us well for when the global economy recovers.
So here's to the start of Gopro, 21st year as a market leading company let's go.
This is team gopro signing off.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.