GoPro, Inc.

Good day, everyone. Welcome to GoPro's second quarter 2019 earnings results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Christopher Clark, Vice President of Corporate Communications. Please go ahead, sir.

Thanks, Operator. Good afternoon, everyone, and welcome to GoPro's second quarter 2019 earnings conference call. With me today are GoPro CEO Nicholas Woodman and CFO Brian McGee. Before we get started, 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. We do not undertake any obligation to update these statements as a result of new information or future events. Information concerning our risk factors is available in our most recent annual report on Form 10-K for the year ended December 31, 2018, which is on file with the Securities and Exchange Commission and in other reports that we may file from time to time with the SEC. We may discuss gross margin, operating expense, net profit and loss, as well as basic and diluted net profit and loss per share in accordance with GAAP and additionally 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. 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. In addition to the earnings press release, we have posted slides containing detailed financial data and metrics for the second quarter 2019. These slides, as well as a link to today's live webcast and a replay of this conference call, are posted on the GoPro Investor Relations website for your reference. All income statement-related numbers that are discussed today during the call, other than revenue, are not GAAP, unless otherwise noted. Now I'd like to turn the call over to GoPro's founder and CEO, Nicholas Woodman.

Thanks, Chris, and good afternoon. Today, Brian and I will take you through GoPRO's second quarter 2019 performance. In short, we are growing and we are profitable. And as Brian will discuss in a few minutes, we are increasing our full year revenue guidance and tightening our full year EPS guidance, raising the midpoint by 14%. Revenue in the quarter was $292 million. Representing 20% growth sequentially and 3% growth year-over-year. Excluding our aerial business, revenue grew 9% year-over-year. Earnings per share was positive 3 cents, an 18-cent improvement year-over-year. And our flagship, Hero 7 Black, with its market-leading durability, versatility, and revolutionary video stabilization, continues to draw customers to the high end. Demand for Hero 7 Black helped drive ASPs up 7% year-over-year, excluding Ariel, to $270. And in the second quarter, we also saw higher-than-expected retail demand for Hero 7 Silver and Hero 7 White. This demand helped GoPro achieve a significant milestone in the quarter, surpassing more than 35 million Hero cameras sold since we launched the first HD Hero in 2009. In addition to our strong performance at retail, GoPro.com continues to thrive. In the second quarter, we saw web traffic jump 9% sequentially and 22% year-over-year, a record for Q2. E-commerce conversion increased 120% year-over-year, and e-commerce revenue grew 55% year-over-year. Thanks to continued demand in all regions, channel inventory is at appropriate levels globally, and we believe we are well positioned for the launch of new products later this year. And after previewing our upcoming fall product lineup, our distributors and retail partners are very excited about the continued innovation in our upcoming products, and we believe we'll be able to expand our leadership position during the holiday quarter. GoPro continues to lead in our markets globally, and in Q2, we did not see an impact to sell through as a result of competition. In the U.S., according to NPD Group, in the second quarter, GoPro captured 94% dollar share of our category, and Hero 7 Black was the number one selling camera in all of digital imaging by unit volume. and the HERO7 line plus our spherical camera fusion were the top four selling cameras in our category. In APAC, according to GFK, GoPro sell-through grew by 1% and 11% year-over-year by units and dollars, respectively. In Japan, GoPro sell-through increased by 11% year-over-year by dollars and our share of the action camera category by units increased from 58% to 59% year-over-year in Q2. And in China, GoPro sell-through in units grew 9% year-over-year in the quarter. In Europe, according to GFK, GoPro had three cameras in the top five in our category and in the $200 and above price band, GoPro held 83% and 82% market share in units and dollars, respectively. And importantly, based on our sell-through data, demand for cameras at price points of $300 and above increased more than 90% year over year, demonstrating our customers' preference for higher performance products, which we believe can help us expand margin over time. and to generate additional excitement for our products, we launched our Spring Adventure Travel Campaign in Q2, which achieved the highest click-through rate of any campaign outside of the HERO7 launch. During the second quarter, our social followers increased by nearly 1 million, bringing our total following to approximately 41 million. Notably, Social conversions reached an all-time high, and GoPro's monthly new follower growth rate is 24% ahead of where it was in 2018. We continue to see high viewership of GoPro content across all platforms, with 158 million organic, non-paid views in the quarter, up 21% year-over-year. And our performance on YouTube was record-setting. YouTube accounted for 115 million organic views, our highest quarterly total ever. And in June, our YouTube channel registered 46 million organic views, making it our highest performing month ever. This momentum is no accident. We continue to improve our understanding of our customers' interests. and the result is an ever sharpening marketing strategy that continues to drive engagement and viewership. Turning to software, we continue to both advance and simplify the mobile experience for our customers. Just yesterday, we merged the quick mobile editing app into the GoPro app for a simplified, consolidated one app experience. This represents an important milestone as we intend to now scale the relevance and functionality of the GoPro app to appeal to not just GoPro owners, but to non-owners as well. The majority of Quick app users are non-GoPro owners who use the app to create and share edits of their smartphone footage. It is our goal to transition these users to the new and improved GoPro app, which will benefit from a rapidly advancing feature set over the Quick app. Our goal is to engage and monetize these new non-GoPro owners over time. We believe software represents an important path to extend our brand to serve a larger, total addressable market than we do today. Turning to subscription, we continue to make steady progress with our GoPro Plus subscription service. As of yesterday, paid subscribers grew 15%, to more than 252,000 since we reported on our last earnings call. We've made steady progress in advancing the value, awareness, and adoption of Plus. In April, we rolled out the full benefits of Plus to 30 additional international markets. In June, we optimized the shopping experience at GoPro.com to allow customers to add a Plus subscription to their cart at checkout. And starting yesterday, We began selling annual subscriptions for Plus at GoPro.com. These incremental improvements are driving accelerated growth for Plus, which is increasingly important to GoPro given the high-margin nature of this service offering. To summarize Q2, we ended up right where we wanted to be, and our momentum continued through July. We are on track for an exciting fall product launch that we believe sets us up for a great second half. Given our continued sell-through momentum, channel inventory levels, and the strength of our upcoming launch, we are raising our outlook for the second half of 2019. And we believe that we can translate this momentum into both top line and operating profit expansion in 2020. and now I'll turn the call over to Brian.