Q2 2023 GoPro Inc Earnings Call
Ladies and gentlemen, thank you for standing by for <unk> second quarter earnings Conference call will begin shortly.
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Okay.
Hello, and welcome to the <unk> second quarter trends.
Earnings Conference call.
My name is and ill be course, 19 go cold spring.
If you'd like to register for a question James Page. Please press star followed by one on your telephone keypad.
I would now like to hand over to Christopher Clark Vice President of corporate Communications Floor's Yours. Please go ahead.
Thank you Elliot and good afternoon, everyone and welcome to Gopro second quarter 2023 earnings Conference call.
With me today are Gopro, CEO , Nicholas Woodman, and CFO and COO, Brian Mcgee.
Today's agenda will include commentaries from Nick and Brian followed by Q&A for.
For detailed information about our second quarter 2023 performance and our outlook. Please.
Please read our Q2 2023 earnings press release, and the management commentary, we've 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.
This means that results could change at any time 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 differ from our commentary.
We refer you to our most recent annual report on Form 10-K for the year ended December 31st 2022, which is on file with the Securities and Exchange Commission and 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 adjusted EBITDA as well as basic and diluted net profit and loss per share in accordance with GAAP and on a non-GAAP basis, 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.
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'll turn the call over to Gopro is founder and CEO Nicholas Woodman.
Thanks, Chris and thanks, everyone for joining us today.
Today, Brian and I will share commentary on our Q2 performance as well as our outlook before going into Q&A.
Wanted to encourage all on the call to read the detailed management commentary posted on our Investor Relations website.
On May nine we announced an updated go to market strategy, which included a return to lower pre pandemic pricing and a renewed emphasis on our retail channels to better serve consumers.
Post pandemic shopping behavior.
We're happy to report that this has had a positive impact on our business and second quarter revenue and subscriber growth exceeded our expectations.
Our improved sell through has sustained thus far into Q3, driven by our retail channels.
Revenue in the quarter was $241 million.
10% above our guidance Gopro subscribers grew 27% year over year to 2.44 million also surpassing our expectations cell.
Sell through of our entry level price $199 hero, 8% $249 Huron nine black cameras.
Joining combined sequential lift of more than 50% highlighting the importance of the entry level product category as a tam expanding opportunity.
It is important to note that the sales lift was incremental and did not cannibalize our higher priced products.
As a reminder.
The key points of our Q2 updated go to market strategy included.
Restoring camera pricing to lower pre pandemic price points and discontinuing subscription related camera discounts at the time of purchase of Gopro Dot com.
Reintroducing entry level price cameras to drive meaningful volume in subscriber growth.
Restoring our world class presence at retail by increasing global distribution to best in class retailers that can help drive awareness and sell through and scaling our marketing spend to pre pandemic levels overtime.
At the start of the Covid pandemic, we exited approximately 30% of our retail doors globally and focused on driving much of our business to go pro dot com as consumers primarily shop from home.
We significantly reduced our marketing spend and raised camera prices by $100 over a two year period due to supply chain constraints.
This strategy worked extremely well for us during the pandemic, yet limited our growth post pandemic.
With our updated go to market strategy, we saw an immediate uptick in demand at retail across all regions.
This enabled our global sales team hit the ground running working closely with existing retail and distribution partners re engaging former partners and adding highly motivated new partners are.
Our strategy is to grow our business with best in class distributors and retailers, who span the spectrum from influential core specialty retailers, who enhance our brand to larger big box retailers, who drive volume in mass market awareness of our products.
Enthusiasm amongst our distributors and retailers as high as they recognize the strength of our product line, our brand and the opportunity to grow our respective businesses together.
We're excited about the pace at which we're opening new doors, particularly in EMEA, which was the hardest hit by our pandemic door count reductions.
Date, we've opened nearly 800 new doors.
And we're targeting approximately 2000 total new doors worldwide by the end of 2023 with additional growth in 'twenty four and 2025.
In addition to new doors or enhancing <unk> brand presence at retail with updated point of purchase displays.
To drive greater awareness of Gopro and to support revenue growth in the second half of this year, we are increasing our investment in marketing.
We are partnering with key retailers to amplify awareness leveraging our collective reach to excite consumers during our upcoming launch and throughout the holiday season.
Great to be aligning once again with our retail partners in a meaningful way that we haven't been able to do since before the pandemic.
An indication of our sell through momentum post strategy shift can be found in <unk> results during the Amazon Prime day period.
Sir corner.
Reported that consumer spending over Amazon's July Prime day saw discretionary and general merchandise sales decreased 3% year over year with unit sales down 8%.
By contrast during the same period total Gopro cameras unit sales for North America, which includes both our retail channels and Gopro Dot com were up 6% year over year.
Our subscription business continues to be a highlight.
As mentioned, we closed Q2 ahead of our expectations with 244 million subscribers, a 27% year over year increase.
The attach rate via our App from cameras purchased at retail.
You did 40% in the second quarter up from approximately 33% a year ago.
Attach rates from cameras purchased via Gopro Dot Com post our go to market strategy shift exceeded 40% as well.
These subscription attach rates confirm the value our customers see in our subscription offering.
In Q4, we're excited to introduce an all new desktop app that will make it easy for gopro subscribers to organize and edit their gopro content.
Desktop app with zinc with the subscribers cloud and mobile app to provide a consistent and convenient experience across platforms.
Gopro subscribers will enjoy full access to the desktop app and all of its power powerful features at no additional charge.
There will also be a premium level subscription offerings for consumers that want to import footage from any camera expanding gopro relevance as a digital imaging software solution to a much broader audience.
An opportunity we intend to aggressively pursue over time.
I want to thank our employees, who have continued to execute at such a high level time and time again.
Your passion for our customers and our products are what make gopro such a powerful brand.
And I also want to thank our retail and distribution partners for their positive response to our go to market strategy shifts we're excited to grow our branded business with you and we are grateful for our partnership.
<unk> retail channel represents a phenomenal opportunity to get our products and brand in front of consumers and an experiential way and we couldnt be more excited for this upcoming holiday season.
Now I'll hand, the call over to Brian to share some color on Q2, and our outlook for the rest of the year.
Okay.
Thanks, Craig.
Stronger than expected sell through of entry level product contributed to second quarter revenue over performance of $21 million to guidance.
Q2 revenue over performance combined with retailer continuing to carry lower weeks of supply is contributing to a softer Q3 guide also contributing was a larger than expected drop off in sales that go for dot com.
Discontinuation of subscription related camera discount at the time of purchase.
As a reminder.
Our gopro customers, primarily purchase flagship camera.
At a higher margin.
We are seeing significant growth in retail sell through.
To take longer than anticipated for this retail growth to offset the drop in dot com sale.
This will be accomplished by increasing the number of retail doors, increasing our brand presence in all doors with refreshed point of purchase displays.
Scaling marketing, which include collaborative activations with retailers.
Additionally, we have ongoing initiatives to support Phil for Dot com, including dedicated marketing.
Product bundle and tactics to improve conversion.
For the third quarter of 2023, we expect to deliver revenue of approximately $280 million plus or minus $10 million.
Percent year over year.
Through the end of the third quarter to be approximately $355 down 7% year over year.
Our expectation as a result of our strategy shift and the associated price move is unit sell through well increase.
10% year over year to approximately 750000 units.
Our guidance assumes channel inventory will be flat during the quarter.
We believe there may be also macro macroeconomic pressures that impact consumer spending in the second half.
We expect gross margin in the third quarter to be 34% at the midpoint of guidance down from 38, 2% in the prior year quarter, but up from 31, 6%.
Second quarter 2023.
The year over year decline in gross margin percentage was primarily related to reduced camera pricing and higher camera demand.
Our lower margin entry level price point.
It's worth pointing out that we are seeing gopro subscriber attach rates amongst these entry level camera buyers in a range of 20% to 30%, which is helping to drive subscriber and subscription and service revenue growth and offset near term margin impact.
We expect subscribers to grow to $2 5 million by the end of the third quarter with 20% growth year over year.
We expect non-GAAP net income per share for Q3 2020.
<unk> per share at the midpoint of guidance.
We expect shares outstanding to be approximately 169 million shares in the third quarter based on our current stock price and anticipated share repurchases in the quarter.
For 2023.
Expect revenue of approximately $1 <unk> billion.
<unk> down 6% from 2022.
We expect unit growth to grow by approximately 5% year over year.
Approximately $3 million in it.
As a result of our recent partner.
This reduction in unit sell through from $3 2 million units, which we guided to.
Our Q1 earnings call, primarily due to a larger than expected drop off a flagship chairman of sale Echo dot com due to the discontinuation of subscription related camera discount at the time of character.
While retail channel sell through of our cameras.
To grow we expect it will take longer than previously anticipated for it to offset the larger than.
The decline in <unk>.
Camera sales at Gopro com.
In addition, while on our previous earnings call, we shared our expectation of sales of approximately $3 five to 4 million units in 2024, the factors David above could push this down to a range of $3 four to $2 6 million units in 2024.
Yeah.
We expect to end 2023.
Between two five to $2 6 million subscriber in line with our previous guide of $2 four five to $2 6 million subscribers.
We expect gross margin to be 33% at the midpoint of guidance in 2023.
Correct, both Laura piece.
And the related price protection costs required to achieve lower pricing at retail to drive volume.
We expect gross margin to improve sequentially each quarter in 2023.
We expect operating expenses to be approximately $370 million in 2023 up nearly 12% from.
From 2022, largely driven by investments in research and development and increased marketing, which we expect to have an impact in Q4 and into 2024.
We expect non-GAAP EPS loss of approximately 18 cents at the midpoint for 2023.
Back to be profitable in the third and fourth quarter and generate adjusted EBITDA of approximately $15 million in the second half of 2023.
We expect to end 2023 with cash of $300 million, which includes an estimated $40 million and share repurchases.
To summarize our strategic shift is working albeit with some noise in our numbers in 2023 due to product mix the impact of price protection and other factors Mick and I already discussed.
We look forward to finishing strong in 2023 and moving into 2024.
We expect to reap the full year benefit of our strategic shift unburdened by price protecting the expense of nearly $30 million in 2023 associated with the price change.
We expect improved retail sell through to continue and as mentioned above we expect 2024 units to grow to a range of $3 four to $3 6 million units.
We expect to add additional doors globally and to expand our rollout of new point of purchase displays to improve our in store presence.
We also plan to expand marketing and collaboration with our retailers to drive awareness and sell through.
We believe all of the aforementioned combined with our 2024 product roadmap, including a new entry level price chamber with a significantly improved margin profile will increase unit revenue margin and profitability substantially in 2024 and beyond.
Operator, we're now ready to take questions.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad.
To withdraw your question. Please press star followed by two.
When <unk> asked the question patients showing a device.
Let me say that.
As a reminder, that star one on your telephone keypad to ask the question.
We have a question from Martin Young with Oppenheimer. Your line is open.
Yeah.
Thanks for taking my question.
Can you maybe talk first about.
The new user you are getting from the lower priced tier cameras do you have a sense of.
The key.
Okay.
Okay.
Maybe Kate.
Sure.
Users are completely new to the gopro.
Ecosystem.
This new camera buyers symbolic camera tiers are different that previously.
Previous years.
Yeah.
Got it.
Martin Thanks.
Let me, maybe take that and Nick can come over the top.
We clearly recognize.
Think about this and you can back in March.
With the economy and what's going on.
Macro level.
We're trying to meet the customer where they are.
They're shopping more.
In retail and also recognizing the fact that.
Consumer wallets are getting squeezed by inflation and other costs.
Or anything and so.
So.
We reinstituted the entry level price points between 199.
And $2 49.
And that's historically.
Driven a lot of growth for our pre pandemic, we had a stop because the supply chain of course.
When COVID-19 hit in 2020.
But usually represent 25% or so of sales, which it immediately that's sort of generated revenue in Q2.
So that's an important growth driver for us in units and can represent.
Anywhere from six 2 million units.
Up demand that maybe Pam we haven't been.
Experiencing for nearly four years.
So that's on the kind of business right.
<unk>.
Then kind of I think is price point and they are getting a really good value proposition. In addition, we're seeing 20% to 30% attack.
No.
On the subscription on that.
Entry level price point, when we're seeing just over 40%.
Bye bye.
Buying in at the <unk>.
Chip level, so that's really encouraging to see.
Obviously flat.
But that's it.
That's an attach rate.
We were nearly a year ago.
We've been able to move it up so.
It's good to see that.
People are coming in to the subscription that buying into the cameras. We can also imagine we've mentioned it before.
The.
Behavior characteristics of all.
Subscribers tends to be the same in the ecosystem.
Download how much the uploads and FX were seeing even more offload happen on hero 11 than where you've been Sun Herald black as well as the total number of people.
Taking advantage of a cloud system.
Highlight that so.
That's very encouraging sign that the.
Behavioral characteristics of people in the entry level really do mirror actually now.
Our flagship product so I think that's encouraging.
Okay.
Yes, I would just add.
Okay.
Ed.
The entry level customers buying behavior.
Is is matching historically how.
And where gopro customers buy the bulk of.
Entry level purchasing is done at retail.
We're at Gopro Dot com.
Primarily sells through.
Our higher priced products and even with the.
Introduction, the lowering of our prices to pre pandemic levels and the introduction of reintroduction of entry level pricing on.
Our hero eight and then here on nine cameras.
That trend and shift those cameras with primarily sold through retail.
And also our marketing.
Messaging didn't shift.
For that.
Entry level.
Introduction, so pricing introduction. So there was nothing that we were doing that that would've been a catalyst to attract a different type of buyer, but that that was.
Our natural market consumer market reaction to pricing.
It shows the interest in Gopro.
And the desire to purchase but sometimes.
Just can't afford it or they're not.
Not confident enough yet to be <unk>.
Our high end products, but when we have something that better matches.
Their budget they are quick to quick to buy so.
That in combination with what Brian said, we believe that.
This is reaching the same type of customer, but excitingly, it's showing that there is a bigger market for us.
Gopro and for our products there are many consumers waiting in the wings are ready to buy when we have the right product for them at the right price point.
Got it thank you very much.
A quick.
My question is can you share your updated view on the competitive landscape and more recently, we saw a competitors smaller competitors.
Announcing a new generation cameras.
I have a view.
The.
Neutral because David overall are in school.
Youre performing on both lower price tier on the higher price.
We feel really good.
We take our competitors very seriously.
We've always had.
Competition at Gopro, and it drives us to passionately and develop.
<unk>.
The highest performance products that we can and then also offered them.
Really.
Astounding value.
To consumers so that we.
Nevertheless, our leadership position.
And we're aware of new competitive product that comes out and we feel really really really good about how we stack up.
Not only with our existing products.
But also with what we have planned for launch a little bit later this year. So all good on that front, but no. We don't take competition lightly it's what drives us.
Can consume our customers can think.
Competition for where gopro is today, because it really pushes us to be best in class.
Thanks, Nick.
Okay.
Yes, I would.
I wouldn't factor in any.
Change in.
Your outlook for Gopro based on anything new that's come out competitively.
Got it thank you.
This concludes our Q&A I'll now hand back to the management team for closing remarks.
Thank you Elliot and thank you everybody for joining today's call as I said earlier, we're excited for our upcoming launch and holiday season, and we look forward to updating you on our next earnings call.
<unk> now and then we will be presenting at the Oppenheimer 26th.
Annual technology Internet and Communications Conference next week.
And thanks again for joining today's call.
This is team gopro signing off.
Ladies and gentlemen, today's call is now concluded.
Thank you for your participation you may now disconnect your lines.
Yeah.
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Yes.