Q1 2023 GoPro Inc Earnings Call
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Hello, everybody and welcome to <unk> first quarter 2023 earnings Conference call. My name is Tom unhealthy coordinator today.
If you'd like to ask a question during the presentation you may do so by pressing star followed by one on your telephone keep up.
I will now hand, you over to your host Christopher Clark Vice President of corporate Communications to begin the Christopher Please go ahead.
Thank you Sam.
Good afternoon, everyone and welcome to <unk> first quarter 2023 earnings conference call.
With me today are Gopro, CEO , Nicholas Woodman, and CFO and COO, Brian Mcgee.
Today's agenda will include a brief introduction from Nick followed by Q&A.
For detailed information about our first quarter 2023 performance and our outlook. Please read the management commentary posted to the Investor Relations section of <unk> website.
Unless otherwise noted all income statement related numbers that are discussed in the management commentary and remarks made today other than revenue are non-GAAP .
Now I will turn the call over to <unk> founder and CEO Nicholas Woodman.
Thank you, Chris and thank you everyone for joining us today.
I'm going to briefly cover the highlights from our posted management commentary before Brian and I take questions.
I encourage everybody to spend some time reading the details of our management commentary that is posted on our IR website, which includes our updated strategy that we believe will accelerate growth in units subscribers revenue adjusted EBITDA and earnings.
Yeah.
Demand for our products during Q1 exceeded expectations.
Sell through was approximately 575000 units nearly 10% above our previous guidance of 525000 units and flat year over year.
Regionally North America, and Asia Pacific, Let our Q1 outperformance and demand was better than expected and our direct to consumer channel on Gopro Dot com.
We reduced channel inventory in the quarter by nearly 95000 units to below 600000 units setting us up well for the rest of the year.
Our high margin subscription and service revenue continues to contribute meaningfully to our bottomline.
Generating $23 million in revenue in the quarter, which was up 24% year over year and represented 13% of revenue.
We ended the quarter with $2 $3 6 million Gopro subscribers up 36% year over year.
We continue to see improvements in retention of annual subscribers, who represent nearly 90% of our total subscriber count.
In Q1, our first year renewal was between 60% to 65% and second year renewal was between 70% to 75%.
We expect to finish the year with between $2 $4 5 million and $2 6 million subscribers, which should result in $100 million in subscription and service revenue for the year.
For more than a year now we have generated more new subscribers via our retail channel.
<unk> via Gopro Dot com, even with Gopro dot com subscriber attach rate remaining above 90%.
In Q1, 2023, our subscription attach rate from consumers, who purchased the camera at retail and later subscribe to be our App was approximately 50% a 23% year over year improvement.
This is largely due to improved in app marketing of Gopro subscription benefits.
With the world of having essentially moved on from the pandemic and consumers are spending more of their time and money in retail stores. We believe an updated go to market strategy will accelerate growth in units subscribers revenue adjusted EBITDA and earnings.
To help frame this opportunity.
I'll share a brief retrospective on the changes we made in early 2020 to position Gopro for success during the pandemic when consumers shifted their spending online and physical retailers were either closed or operating under severely restricted conditions back.
Back then we effectively reduced gopro retail presence by approximately 30% globally.
Significantly reduced gopro marketing budgets.
Increased gopro flagship camera pricing $100 in response to supply chain constraints.
We exited our higher volume lower price point entry level SKU in response to supply chain constraints.
And we shifted to a much more direct to consumer business model growing direct sales at Gopro com as a percentage of revenue from approximately 10% in 2019% to 38% in 2022.
This strategy benefited gopro.
Driving asps.
Increasing profitability and rapidly growing our subscriber base.
We added 2 million subscribers during this time and generated more than $260 million of adjusted EBITDA between 2021, and 2022, which enabled us to repay $125 million in debt.
Repurchased $40 million of our stock in 2022 with cash of approximately $370 million.
We achieved this despite a decline in camera unit sell through of more than 30%.
But now in our post pandemic world, we see an opportunity to adjust our go to market strategy to increase units to $3 2 million in 2020, 335 to 4 million units by the end of 2024 and over 4 million units by the end of 2025.
We believe this investment in our retail channel will also have a meaningful impact on subscriber growth and profitability.
And drive adjusted EBITDA of over $300 million.
Over the combined 2024 and 2025 period.
The key points of our updated go to market strategy, which we kicked off this week include.
Restoring pricing of our products to 2019 levels with an MSRP reduction of $100 for our flagship <unk> Black hero 11 many.
Hero 10, black and hero <unk> black cameras.
Reductions in inbound freight and product cost along with an improved supply chain are helping to enable this price adjustment from a margin perspective as will the introduction of new higher priced higher margin skus in the future.
Reintroducing an entry level price point, SKU with <unk> black to drive meaningful volume and subscriber growth.
Restoring our world class presence at retail by increasing global distribution to best in class retailers.
And <unk>.
Eliminating camera discounts at the time of purchase at Gopro Dot com.
Thanks to the strength of in App subscriber conversion of retail consumers as well as improvements in subscriber retention. We believe we can generate more subscribers.
With growth in retail sales than if we continue our pandemic driven strategy of focusing primarily on gopro dot com sales for subscriber growth.
As I mentioned, we believe this improved strategy will drive unit sell in and sell through to an improved $3 2 million units in 2023 three.
$3 5 million to 4 million units in 'twenty four.
And above 4 million units in 2025.
We believe gopro subscribers will grow to four 5 million to $2 6 million in 2023.
$2 7 million to $2 8 million subscribers in 2024 and.
And $2 9 million to $3 1 million subscribers by the end of 2025.
We believe we will generate significantly improved adjusted EBITDA of approximately $300 million over the combined 2024 and 2025 period.
And we will use these proceeds to accelerate the repurchasing of stock while also investing in growing our business.
Our updated pricing and go to market strategy has been well received by our retail partners and we're excited to grow our business and brands through this important channel.
In addition to our updated go to market strategy. We're also excited to introduce several new products later this year, including the Q4 launch of our brand new desktop editing experience that will be included in the current gopro subscription at no additional charge to subscribers.
The Gopro desktop App will sink you're editing projects with the Gopro Quik mobile app.
Transitioning between the apps seamless.
Our research indicates that gopro camera owners will highly value our desktop app and that it should help further improve our already notable subscriber conversion and retention rates.
We're also excited to launch a new premium gopro subscriptions here in Q4 targeting both gopro camera owners as well as non owners.
We believe gopro can serve as a convenient solution for getting the most out of your personal content no matter what camera you use and we're excited to leverage our software and services offerings to expand Gopro Tam.
Speaking of serving non Gopro camera owners are quick subscription, which caters mostly to non gopro owners consumers looking for a convenient content editing and organizational app.
<unk> to see organic growth despite limited marketing support.
At the end of Q1 2023, we had 289000 quick subscribers paying $10 per year to access the apps mobile editing tools.
We're excited to build on this organic success with the upcoming Q4 launches I mentioned.
Above.
The go to market changes, we're implementing come at a time of strength in demand, but also recognize where the world is potentially headed economically.
Pandemic related supply challenges are easing and.
And lower product and freight costs are enabling us to shift value back to the consumer with more accessible pricing and in entry level SKU, both of which we expect will bolster our unit growth in units subscribers revenue and adjusted EBITDA that we will use to drive innovation and signet.
Secondly increased share buybacks.
This is a very exciting time at Gopro and we believe our best days are ahead of us.
Operator, we are now ready to take questions.
Thank you if you had a lot to ask a question. Please press star followed by one on your telephone keypad now if you change your mind chief of staff budget when.
When <unk> to ask a question. Please ensure your line is on mute.
Again that stoffel above one.
Okay.
Our first question comes from Erik Woodring of Morgan Stanley Eric. Your line is now open. Please go ahead.
Hi, This is sabrina unfair I. Thank you so much for taking the question maybe the first one is can you talk about the reasons any touch on some of them, but just more in depth around your changes with the pricing strategy and how should we think about that as structural and if so what has changed.
Sure.
The rationale behind it is that.
As I mentioned.
We did a great job.
Adjusting our go to market strategy for the pandemic.
But ironically.
Yes.
That same go to market strategy that worked so well.
When consumers aren't going to stores and stores were closed and people.
People were shopping online more.
That strategy that allowed us to thrive during that period has been holding us back in.
In this post pandemic world, where people are spending a lot more time, a lot more money in retail there.
Shopping in stores as a form of entertainment.
And we.
Ignite that.
There's a lot of opportunity there.
We need to.
Drafts to fully maximize the potential of our business and the response from retailers has been great.
We're thrilled to have her.
Adjusting our pricing to pre pandemic levels to drive higher volume.
Our data shows that the financial model that results is far superior.
And not taking this action.
And a big enabler is that.
We have such strong conversion rates.
The camera.
Converting into subscribers via the Gopro App that as I mentioned retail is now the largest source of new subscribers.
Whereas during the pandemic Gopro dot com is the biggest source of subscribers.
All of the stars are aligning too.
Create an opportunity for us to grow at retail again.
Drive more volume converged subscribers' VR App and.
In many ways have the best of all worlds.
It's an exciting time and when you look at the outlook that we have for the company through 2025.
Compelling.
Yeah actually Sabrina.
Tag onto.
Mix of.
We also have an immense amount of data that we have.
Over the years, we've made a number of price moves.
Since going back to like 2016, 2017 et cetera.
And we've evaluated.
Historical sell through lift pass price drops in.
Promotional offers and we have extensive sell through data that really provides insight into what's the impact of when we move prices 100 Bucks.
Secondly, we've evaluated our historical sell through volume and different pricing tiers as well.
We plan to enter into in 2000 $23 million.
Through 2025.
And then.
Marketing investment on top of it and we can kind of measure through what the direct brand investment is on retail partners and on overall demand.
And I guess lastly, the other thing we'll do is expand distribution.
Which was pretty severely cut back as Nick had mentioned about 30%.
And then I'm actually pleased to say that while we have that data what matters is what are the results and I can say over the last couple of days because we measure the results from some of our largest retail partners in the U S and Europe .
And we expected a certain percentage lift.
In units in fact lifting as much as double or triple what we thought.
It's early days with a couple of days and but we're definitely seeing a positive impact.
On demand.
Across the U S and Europe , so far.
I'd also say that as you look at this from a modeling perspective.
We would expect to have double digit.
Unit growth. This year 24, 25, so we think that extend through not just the pricing, but we also have new products as well I won't get into that but.
That's coming that will expand.
The overall offering.
We're able to actually lift asps as I said in prepared remarks will be down to about 350 Bucks.
Average ASP 23, but it should go back up.
A little bit in 'twenty, four and a little bit more than 25. So you can kind of model that out so.
We expect double digit units.
Me too.
Significant.
Revenue growth and profitability.
We improved margins back into the upper 30 in 'twenty four 'twenty five.
And drive meaningful EBITDA.
We'll use to buy back a lot of stock so.
That's kind of the strategy in a nutshell.
Yeah.
Okay.
Understood. Thank you so much for all that color Mike.
The second question. We have is wondering if you could talk a little bit about consumer demand. I know you said things were stronger in the U S and Europe , but how was linearity through the quarter were there any changes in behavior that you saw in April and then what is being baked into your 2023 outlook. Thanks.
Yes.
Yes.
Since then early March I'd mentioned, we could be up to as much as 575000 unit sell through in the <unk>.
In fact, we hit that number on the high end of what I said from.
It was the quarter wasn't linear at all actually March listed about 33% from where we were in January and February .
So.
We continued to see strong demand.
Through the quarter.
April was about where we need it to be.
And we've continued to see good strength in grill <unk> Dot com.
And yes, we are seeing in the U S.
Actually Europe , starting to do well in Asia doing well so.
Me too.
$3 2 million units, that's going to be.
The low end is going to help contribute.
Entry level products.
To drive growth and we're seeing very strong growth right now on Harrow 11 blocks. So.
We're pretty excited by the results, we're seeing on the pricing.
Perfect. Thank you.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad now.
Our next question comes from Martin Yang of Oppenheimer to begin Martin. Your line is now open. Please go ahead.
Hi, Good afternoon. Thank you for taking my question.
First of all if you ask about the hour.
How would you size or would you model additional benefits or hardware margins from higher volume embedded in your longer term outlook and do you benefit anything from recently declined component cost.
Hi, Martin.
We have seen component costs come down, particularly in memory, but discrete as well.
And that will mostly start to.
Positively affect our numbers in the second half has got to work through more expensive inventory in the first half.
And we'll continue to see some cost reduction.
And to 'twenty four.
We would also some of the price points entry level price points with products today that will introduce arent at the optimized cost either.
And so it will take a bit of a margin hit there, but we'll convert product to cash and that's embedded in our outlook.
And then 'twenty four we would expect to continue with entry level, but it.
Cost points that actually.
It would be margin positive.
Versus.
Not right now in 'twenty three.
So we have that going for us and we will have some newer products as well in 2025 that help kind of round out Canada overall.
Command.
<unk> profile for the company.
That all leads to margins that go up between 36% to 40% and if currency. It goes back to 2021 levels.
It's about 10%.
And margins and the kind of 39% to 43% range. So if the dollar should weaken further.
Also benefit us back to where we used to be.
Got it thanks and second question is on subscribers.
Subscribers, so do you.
Or do you.
Have a relatively lower all pool for subscribers coming from the retail channel.
Is there a meaningful difference if there is or.
Multichannel subscribers.
From both channels going to converge over time or there will be a sustained gap between our pro forma the two sets of subscribers.
Yes, good question.
The <unk> between the two are pretty close actually.
So.
They're going to both converts because the pricing now going to be the same whether the subscribe on <unk> dot com or subscribed posted retail purchase.
And so we'll see <unk> up over time, because as people move from kind of the entry level price point of 25 and then.
Upgrade to 50 that will have a positive effect on.
And speaking of which we gave a range of outcomes for subscribers.
And we assumed.
At the low end, it's about a 35% retail attach and I'm I am it's about 40.
Our guidance of $2 5 million.
It's kind of in the middle of that.
In Q1, we said was nearly 50%, which was amazing up 23% year over year from an attach perspective on retail.
That's a bit of an anomaly because we have a lot of demand in Q4 that turns into subscribers in Q1, when we have a low base obviously.
Sell through.
Proportionate to the people coming in and you'll see that normalize a little bit more down to about 40% I think in Q2, and Q3, and maybe a little bit less in Q4, where it flips the other way where we sell a lot in the sell through is big but.
The people, who buy it wont convert until Q1, so the seasonality is a bit opposite of subscriber growth.
Quarter to quarter versus or.
Revenue growth if that makes sense so.
We're still pretty excited at 35, 40% still pretty darn good attach and obviously, we'll we'll do more to continue to grow that as Nick said.
Those are the assumptions behind how we came up with the range and those same assumptions, we use for estimating 2025.
Got it. Thank you really appreciate the detail that's all the questions for me.
Okay.
Okay.
And as a reminder to ask any further questions. Please press star followed by one on your satisfying key personnel.
Just pulls for any further questions come in.
Okay.
Yeah.
And then my final question, so I'll hand back to management for any closing remarks.
Yeah.
Yeah.
Wow show stopper.
Well, thank you operator, and thank you everybody for joining today's call.
As I said earlier this is a very exciting time at Gopro and we believe our best days are ahead of US it's time to grow again, and we're really excited about our new go to market strategy and it's great to see such compelling results straight out of the gate. So stay tuned for more from us.
And until then.
Thank you this is team gopro signing off.
And this concludes today's call. Thank you everyone for joining you may now disconnect your lines.
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