GoPro, Inc.

Good day and welcome to GoPRO's third quarter 2021 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jalene Hoover, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and welcome to GoPRO's third quarter earnings conference call. With me today are GoPRO's CEO, Nicholas Woodman, and CFO and COO, Brian McKee. Our agenda for today will include a brief introduction from Nick, followed by Q&A. For detailed information about third quarter performance and our outlook, please read the management commentary we've posted to DOPO's investor relations 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 guaranteed the 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. It seems that results could change at any time, and our commentary about our business results 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, 2020, 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, EBITDA, 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. and 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. The reconciliation of GAAP and non-GAAP operating expenses can be found in the press release that was issued this afternoon, which is posted on our website. In addition to the earnings press release and management commentary, we have posted slides containing detailed financial data and metrics for the third quarter of 2021. 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 DOPRO's 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 DOPRO's founder and CEO, Nicholas Woodman.

Thanks, Jolene, and good afternoon, everyone. GoPro had an outstanding third quarter with strong revenue, earnings, margin, and cash flow growth that have led us to raise our margin and profitability outlook for the year. Strong demand and effectively managed supply chain and channel inventories combined with a successful new product launch can yield our highest gross margins since 2015 and our fifth consecutive profitable quarter on a non-GAAP basis. GoPro was profitable on both a GAAP and non-GAAP basis in the third quarter, generating EPS of $1.92 and 34 cents, respectively. Non-GAAP gross margin in the quarter was 43.8%, up from 36.2% in Q3 2020. Sales of our higher-end cameras increased direct-to-consumer revenue And 143% year-over-year growth in GoPro's subscription revenue drove the gross margin improvement. Revenue in the quarter increased 13% year-over-year to $317 million, driven by strong sales in all geographies, as well as continued growth in our direct-to-consumer business. Direct-to-consumer revenue from GoPro.com totaled $94 million, up 16% year-over-year. These results illustrate how our direct-to-consumer, subscription-centric strategy has transformed GoPro into a higher margin, more profitable business that's growing. At the close of Q3, we had 1.34 million GoPro subscribers, representing 168% year-over-year growth, adding approximately 840,000 new GoPro subscribers since the close of Q3 2020. We've now passed the one-year mark for the subscriber cohort who received their subscription as a part of their Hero 9 Black bundle purchase, and we are encouraged that our annual subscriber retention rates from this cohort are healthy and in line with our expectations. We expect to exceed 1.7 million subscribers by year-end and remain confident in our subscription business's ability to positively impact margin over the long term. And our Quick App subscription continues to contribute margin as well, having closed the quarter with 168,000 subscribers. Street ASPs continue to rise in Q3 2021, reaching $381, a 25% year-over-year increase. The mix of cameras with MSRPs of $300 and above, including our newly launched $499 MSRP Hero 10 Black, grew to 98% of our third quarter camera revenue. Despite supply chain constraints that are affecting many industries, we have successfully partnered with our suppliers to produce inventory to support our fourth quarter revenue expectations. GoPro.com and our retail partners will be stocked and ready for shoppers this holiday season. I'd like to thank our roughly 750 global employees who have done an incredible job executing on all fronts amidst the many challenges the world is facing. Whether it be adapting to remote work, supply chain shortages, or geopolitical hurdles, You all continue to rally on behalf of our customers to deliver world-class products and services. Thank you. It's an exciting time at GoPro. In addition to expanding margins and profitability, our subscription strategy can expand our TAM by super-serving subscribers with value, performance, and simplicity. Helping people get the most out of their personal content can also yield a very sticky relationship that we can leverage to maximize lifetime value over the long term. And our investments in software development across mobile, desktop, and cloud can grow our TAM further. Establishing GoPro is a powerful yet convenient content management, editing, and sharing solution for GoPro camera owners and non-owners alike. We believe our brand and technical capabilities afford us a unique opportunity to establish GoPro as a much larger player in the digital imaging space while offering exciting, differentiated solutions for a significantly greater number of consumers than we do today. We're excited about our Q3 performance and even more so about our future. Brian and I will now take questions.