GoPro, Inc.

and welcome to the GoPros third quarter 2020 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Vice President of Corporate Communications, Christopher Clark. Mr. Clark, please go ahead. Thank you, Casey.

Good afternoon, everyone, and welcome to GoPros Q3 2020 earnings conference call. With me today are GoPros CEO, Nicholas Woodman, and CFO and COO, 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. including but not limited to uncertainty related to the duration and impact of the COVID-19 pandemic. This means that results could change at any time and our commentary about business results and outlook is based on the information available as of today's date. 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, 2019, 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, including the quarterly report on Form 10-Q for the quarter ended September 30, 2020. 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 GAAP to non-GAAP operating expenses can be found in the press release that was issued this afternoon and which is posted on our website. In addition to the earnings press release, we have posted management commentary and slides containing detailed financial data and metrics for the third quarter 2020. The management commentary and 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 non-GAAP unless otherwise noted. Now, I'll turn the call over to GoPro's founder and CEO, Nicholas Woodman.

Thanks, Chris, and good afternoon, everyone. Once again, we've chosen to post management commentary for our quarterly results, including Brian's financial overview, to the GoPro Investor Relations page on our website, and we encourage all to read the commentary. Now I will give a brief remarks about the third quarter, and then we'll go directly into Q&A. As we shared in the management commentary, thanks to consistent momentum throughout the quarter and a strong launch of Hero 9 Black, coupled with our GoPro subscription service, In Q3, GoPro generated non-GAAP EPS of $0.20, $100 million of operating cash flow, and we expect to be profitable for the full year 2020. I'd like to thank all of GoPro's employees for their tremendous execution in a challenging year. It's thanks to them that we achieved such terrific results in Q3 and are poised for success going forward. With the launch of Hero 9 Black, we debuted not only an exciting new flagship, but our strategy to make the GoPro subscription central to our business and customer experience. GoPro subscribers who purchase directly from GoPro.com enjoy far more value than non-subscribers, while generating improved margin and cash flow for our business. This increased value to consumers at GoPro.com is accelerating our direct-to-consumer strategy while driving GoPro subscriber growth, both of which we believe will improve our customers' lifetime value, a positive impact on profitability. We are seeing higher average order values and accessory attach rates with subscriber customers versus non-subscribers. An indication that subscribers are taking advantage of their subscription benefits in a manner that also increases their value to GoPro. Other highlights from the quarter include revenue growth of 109% sequentially and record GoPro.com revenue of $81 million. We estimate sell-through of approximately 955,000 cameras, exceeding our expectations. We believe our Q3 performance sets us up for a strong Q4 and we expect to achieve full-year non-GAAP profitability. We expect to exit 2020 with low channel inventory, positioning us well for 2021. Our direct-to-consumer, subscription-centric approach is generating improved cash flow, margin, and LTV while delivering a high-margin subscription revenue stream we expect will have a positive impact on profitability in 2021. We'll now move on to Q&A.