GoPro, Inc.

Good day and welcome to the GoPros fourth quarter 2019 earnings results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Christopher Clark. Please go ahead, sir.

Thanks, operator. Good afternoon, everyone, and welcome to GoPros fourth quarter and full year 2019 earnings conference call. With me today are Nicholas Woodman, GoPros CEO, and Brian McGee, GoPros CFO and COO. 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 31st, 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. Today, 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 gap to non-gap 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 information and metrics for the fourth quarter and full year 2019. These slides, as well as a link to today's live webcast and a replay of this conference call is 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, we'll review our fourth quarter and fiscal 2019 performance, which was highlighted by our strongest new product lineup ever and a successful return to revenue growth and profitability. I'll also touch on our strategic priorities for 2020, and then Brian will walk you through our full year and fourth quarter financial performance and 2020 outlook. In 2019, We grew revenue 4% year over year and earned $35 million of net income. This represents a $67 million bottom line improvement over 2018. Adjusted EBITDA increased more than three times year over year to $72 million. We are proud of these achievements, and while our 2019 growth and Q4 results fell slightly short of our expectations, It's important to step back and recognize just how much we've strengthened our business and balance sheet. totaled more than 334,000 paid subscribers. And importantly, our industry-leading products continue to drive consumers to the high end of our camera lineup, lifting both ASPs and gross margin. We enter 2020 with the most exciting product lineup in our history, serving new customer segments like vloggers and ultra-creatives with increased performance and versatility. In Q4, we saw phenomenal sell-through of both Hero 8 Black and Max during the Black Friday, Cyber Monday period. However, in December, sell-through returned to levels still slightly up from the Hero 7 line in the prior year, but below our growth expectations. Despite these dynamics, We generated fourth quarter revenue of $528 million, the third largest quarter in our history, and $102 million in profit, our second most profitable quarter ever. Importantly, consumers continue to gravitate towards our highest-end products, which is having a positive impact on ASPs. A very positive trend is that in 2019, 90% of GoPro's revenue came from the $300 and above price band, up from 62% in the prior year. And in the U.S., GoPro captured 93% dollar share of the action camera category in Q4, according to NPD Group. and we continue to grow our multi-lens camera business with the introduction of Max. According to NPD Group, during Q4 in the US, Max, which only began selling on October 24th, captured 54% unit share and 66% dollar share of the spherical camera market. And when combining Max with our legacy Fusion camera, GoPro captured 62% unit share and 72% dollar share, up from 14% and 38%, respectively, year over year. The innovations featured in Hero 8 Black and Max, including best in-camera stabilization of any cameras in the world, continue to keep GoPro on the cutting edge. And with the available media and light mods, which have both received positive reviews and are selling well at gopro.com, we are now serving important new customer segments. And our plus subscription service continues to gain momentum as well. As I mentioned at the top of the call, as of January 31st, paid subscribers grew 69% year over year to more than 334,000 up 10% since our Q3 earnings call. We expect strong growth to continue. And in fact, we are targeting to have between 600,000 to 700,000 paid subscribers a year from now, which would contribute between $35 to $40 million of high margin annual recurring revenue on a forward-looking basis into 2021. and in marketing, an important component of the Hero8 Black and Max launch was our Million Dollar Challenge, where we invited our customer community to shoot our Hero8 Black and Max highlight video. We were floored by the quality and volume of submissions we received. Hero8 Black and Max users submitted more than 42,000 videos, an increase of 68% over last year's Million Dollar Challenge. We awarded just over $22,000 to each of the 45 contributors who were selected for the video, which we published last week. In the first week since publishing, the highlight reel garnered more than five times the views of last year's video. You can see this incredible showcase of our customers' creativity, talent, and passion on any of our brand channels, including Instagram and YouTube. Initiatives like the Million Dollar Challenge bolster engagement within the GoPro community and helped attract 4.2 million new social followers in 2019, up 29% year over year. On any given day in 2019, GoPro content generated more than 2 million organic views, which totaled a record 737 million organic views during the year. A year-over-year increase of 29%. Turning to software, GoPro made significant progress in 2019. In Q4, monthly active users of the GoPro app grew 20% year-over-year, and usage of the app's automatic editing feature grew 400%. In 2020, We plan to monetize a new GoPro app experience that addresses widespread pain points that anyone with a smartphone or a GoPro faces. One that we believe GoPro is uniquely positioned to solve. We believe that our app strategy can significantly expand our TAM while growing a new source of high margin revenue for our business. The time has come for GoPro to establish itself not only as a leader in digital imaging hardware, but in software as well. Our 2020 focus is this, maximize the profitability of our core hardware business by super serving our most engaged customers with high-end, higher ASP products. Scale our plus subscription business to 600,000 to 700,000 paid subscribers by year-end. And release a new GoPro app experience to address what we believe to be a significant TAM and profit-expanding opportunity. And we intend to do this while keeping a tight rein on OpEx. Thank you for joining us. I am pleased to share that Brian McGee, who has served as GoPro's chief financial officer since March 2016, has been appointed to chief operating officer in addition to his ongoing role as CFO. Brian has proven himself to be a tremendously important leader at GoPro with a deep understanding of our business. And all of us at GoPro are excited to work with Brian in his new expanded role. That's a perfect segue to turn the call over to Brian, who will elaborate on our plans to expand profitability and create value for GoPro shareholders in 2020 and beyond.