Hello, and welcome to GoPro's Second Quarter 2023 Earnings Conference Call. My name is Elliot, and I'll be coordinating your call today. I would now like to hand over to Christopher Clark, Vice President of Corporate Communications. The floor is yours, please go ahead.

Thank you, Elliot. Good afternoon everyone and welcome to GoPro's second quarter 2023 earnings conference call. With me today are GoPro's CEO, Nicholas Woodman; and CFO and COO, Brian McGee. Today's agenda will include commentary from Nick and Brian, followed by Q&A. For detailed information about our second quarter 2023 performance and our outlook, please read our Q2 2023 earnings press release and the management commentary we posted to the Investor Relations section of GoPro's 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 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 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's 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. I want to encourage all on the call to read the detailed management commentary we posted on our Investor Relations website. On May 9th, 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. Sell-through of our entry level priced $199 HERO8 and $249 HERO9 Black cameras enjoyed a combined sequential lift of more than 50%, highlighting the importance of the entry level product category as a Total Addressable Market expanding opportunity. It's 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 at GoPro.com. Reintroducing entry level priced cameras to drive meaningful volume and 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 over time. 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 GoPro.com as consumers primarily shopped 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 to hit the ground running, working closely with existing retail and distribution partners, reengaging former partners, and adding highly motivated new partners. 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 and mass market awareness of our products. Enthusiasm amongst our distributors and retailers is 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. To-date, we've opened nearly 800 new doors in EMEA and we're targeting approximately 2,000 total new doors worldwide by the end of 2023 with additional growth in 2024 and 2025. In addition to new doors, we're enhancing GoPro's 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. It's 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 sales momentum post-strategy shift can be found in GoPro's results during the Amazon Prime Day period. Circana reported that consumer spending over Amazon's July Prime Day saw discretionary and general merchandise sales decrease 3% year-over-year with unit sales down 8%. By contrast, during the same period total GoPro camera unit sales for North America, which include both our retail channels and GoPro.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 2.44 million subscribers, a 27% year-over-year increase. The attach rate via our app from cameras purchased at retail exceeded 40% in the second quarter, up from approximately 33% a year ago. Attach rates from cameras purchased via GoPro.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. Our new desktop app will sync with the subscriber's 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 powerful features at no additional charge. There will also be a premium level subscription offering for consumers that want to import footage from any camera, expanding GoPro's 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 shift. We're excited to grow our brand and business with you and we are grateful for our partnership. GoPro's retail channel represents a phenomenal opportunity to get our products and brand in front of consumers in an experiential way, and we couldn't 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.

Thanks Nick. Stronger than expected sell-through of entry level products contributed to second quarter revenue over performance of $21 million to guidance. This Q2 revenue over performance combined with retailers continuing to carry lower weeks of supply is contributing to a softer Q3 guide, also contributing is a larger than expected drop off in sales at GoPro.com, which is a discontinuation of subscription related camera discounts at the time of purchase. As a reminder, our GoPro customers primarily purchase flagship cameras that are higher in ASP and margin. While we are seeing significant growth in retail sell-through, it is going to take longer than anticipated for this retail growth to offset the drop in GoPro.com sales. This will be accomplished by increasing the number of retail doors, increasing our brand presence in all doors with refreshed point of purchase displays, and scaling marketing, which includes collaborative activations with retailers. Additionally, we have ongoing initiatives to support sales on GoPro.com, including dedicated marketing, CRM, product bundles, 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, down 8% year-over-year. We estimate ASP in the third quarter to be approximately $355, down 7% year-over-year. Our expectation as a result of our strategy shift and associated price move is unit sell-through will increase 10% year-over-year to approximately 750,000 units. Our guidance assumes channel inventory will be flat during the quarter. We believe there may be 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% in the second quarter of 2023. The year-over-year decline in gross margin percentage is primarily related to reduced camera pricing and higher camera demand at our lower margin entry-level price point. It's worth pointing out that we're seeing GoPro subscriber attach rates amongst these entry level camera buyers in a range of 20% to 30%, which is helping to drive subscribers and subscription revenue growth and offset near-term margin impact. We expect subscribers to grow to 2.5 million by the end of the third quarter or 20% growth year-over-year. We expect non-GAAP net income per share for Q3 2023 of $0.02 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, we expect revenue of approximately $1.03 billion, down 6% from 2022. We expect unit sold to grow by approximately 5% year-over-year to approximately 3 million units as a result of our recent price moves. This reduction in units sold from 3.2 million units, which we guided on our Q1 earnings call, is primarily due to a larger than expected drop off of flagship camera sales at GoPro.com due to the discontinuation of subscription related camera discounts at the time of purchase. While retail channel sell-through of our cameras is expected to grow, we expect it will take longer than previously anticipated for it to offset the larger than expected decline in flagship camera sales at GoPro.com. In addition, while on our previous earnings call, we shared our expectation of sales of approximately 3.5 million to 4 million units in 2024, the factors stated above could push this down to a range of 3.4 million to 3.6 million units in 2024. We expect to end 2023 with between 2.5 million to 2.6 million subscribers, in line with our previous guidance of 2.45 million to 2.6 million subscribers. We expect gross margin to be 33% at the midpoint of guidance in 2023, which reflects both lower ASPs 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 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 $0.18 at the midpoint for 2023. We expect 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 in share repurchases. To summarize, our strategic shift is working, albeit with some noise in the numbers in 2023, due to product mix, the impact of price protection, and other factors Nick and I already discussed. We look forward to finishing strong in 2023 and moving into 2024, when we expect to reap the full year benefit of our strategic shift, unburdened by the price protection expense of nearly $30 million in 2023 associated with our price change. We expect improved retail sell-through to continue and as mentioned above, we expect 2024 units to grow to a range of 3.4 million 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 the aforementioned combined with our 2024 product roadmap, including a new entry level priced camera, with a significantly improved margin profile will increase unit, revenue, margin, and profitability substantially in 2024 and beyond. Operator, we are now ready to take questions.

Thank you. We have a question from Martin Yang with Oppenheimer. Your line is open.

Hi, good afternoon. Thank you for taking my question. Can you first discuss the new users you're attracting due to the lower price of your cameras? Do you have any insight into the main motivations for these new buyers who are completely new to the GoPro ecosystem? Are the new camera tiers different from previous years?

I’m not sure if Nick caught that. Thank you, Martin. Let me address that and then Nick can add his perspective. We fully recognize the current economic conditions and what’s happening on a macro scale, which requires us to connect with our customers where they are. More people are shopping in retail, and we acknowledge that consumers are feeling financial pressure from inflation and other rising costs. As a result, we have reintroduced an entry level price point between $199 and $249. Historically, this price point has driven significant growth for us before the pandemic. We experienced a dip due to supply chain issues, particularly when COVID hit in 2020, but typically this price range accounts for about 25% of our sales and generated strong demand in Q2. Therefore, this is a critical growth factor for us, representing potential demand of 600,000 to 1 million units in a Total Addressable Market that we haven’t accessed for almost four years. From a business standpoint, the key incentive is the price point, which offers a compelling value proposition. Additionally, we’re observing a 20% to 30% attach rate on subscriptions for customers at the entry level price point, compared to over 40% for those purchasing the flagship model. This improvement is promising as it shows that while the attachment rate is lower with entry-level customers, it has increased since last year. It’s encouraging to see that new customers are engaging with our subscription services and purchasing cameras. We can also quantify and have previously measured the behavior of our subscribers, which shows consistency across our ecosystem in terms of what they download and upload. Notably, we’re seeing even more uploads on the HERO11 compared to HERO Black, alongside an increase in users utilizing our cloud system. This is a reassuring indicator that the behavior of entry-level customers is beginning to mirror that of our flagship product users, which is positive news.

I would like to add that the purchasing behavior of entry-level customers reflects historical patterns of GoPro customers. Most entry-level purchases occur at retail locations, while GoPro.com mainly features our higher-priced products. Even after we reduced prices to pre-pandemic levels and reintroduced entry-level pricing for our HERO8 and HERO9 cameras, that trend remained unchanged. Those cameras were primarily sold through retail channels. Our marketing and messaging also stayed consistent for the entry-level price introduction. Thus, we weren't doing anything specific to attract a different type of buyer; instead, it was a natural consumer response to pricing. This demonstrates interest in GoPro and a willingness to buy, but sometimes consumers may be unable to afford our high-end products or may lack confidence in making that purchase. However, when we offer something that aligns with their budget, they are quick to purchase. Combining this with what Brian mentioned, we believe we are reaching the same type of customer, but it also indicates a larger market for GoPro and our products. Many consumers are poised to buy when we present the right product at the right price point.

Got it. Thank you very much. A quick second question is can you share your updated view on the competitive landscape, and more recently, we saw a competitor – a smaller competitor announcing their new generation of cameras. Do you have a view on the new term computer landscape and overall how are you seeing, you're performing on both a lower price tier and higher price?

We feel very confident about our position. We take our competitors seriously. Competition has always been part of GoPro, and it motivates us to develop high-performance products while offering exceptional value to consumers, ensuring we maintain our leadership. We are aware of new products entering the market, and we feel very positive about how our existing offerings compare, as well as what we are planning to launch later this year. Overall, things are looking good, but we do not underestimate the competition. It drives us, and our customers can attribute our current success to our competitors, as it pushes us to excel.

Thanks Nick.

Yes. I wouldn't consider any changes in your outlook for GoPro based on new competitive developments.

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. Between now and then, we'll be presenting at the Oppenheimer 26th Annual Technology Internet & 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. We'd like to thank you for your participation. You may now disconnect your lines.