GoPro, Inc.

Good day and welcome to the GOPRO's Q4 2021 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jalene Hoover, VP of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good afternoon, everyone, and welcome to GOPRO's fourth quarter and 2021 earnings conference call. With me today are GOPRO's CEO, Nicholas Woodman, and CFO and COO, Brian McGee. Today's agenda will include a brief introduction from Nick, followed by Q&A. For detailed information about our fourth quarter and 2021 performance and our outlook, please read the management commentary we've posted to GOPRO'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 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 our 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, 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 the 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. 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 our website. In addition to the earnings press release and management commentary, we have posted slides containing detailed financial data and metrics for the fourth quarter and for 2021. The management commentary and slides, as well as a link of today's live webcast and a replay of this conference call, are posted on the GoPro Investor Relations website for your reference. Unless otherwise noted, all income statement-related numbers that are to discuss today during the call, other than revenue, are non-GAAP. Now, I'll turn the call over to GoPro's founder and CEO, Nicholas Woodman.

Thanks, Jalene, and good afternoon, everyone. In 2021, GoPro navigated a challenging business environment and thrived. We successfully launched innovative new hardware, software, and subscription offerings and leveraged the first full year of our more direct-to-consumer, subscription-centric strategy to grow revenue, margins, and profitability while generating a record year-end cash balance of $539 million. 2021 revenue was $1.16 billion, up 30% year-over-year. Margins grew to 41.1% on a GAAP basis and to 41.4% non-GAAP. GAAP EPS increased to $2.27, with non-GAAP EPS increasing more than 10 times over 2020 to 90 cents. 2021 was our third consecutive profitable year on a non-GAAP basis, with Q4 bringing home the win with the successful launch of our new flagship camera, Hero 10 Black. Effective supply chain management kept shelves stocked globally for the holidays and we grew Q4 revenue and earnings year over year with revenue up 9% to $391 million and net income up 8% to $66 million. This strong performance coupled with our impressive cash generation as well as expected future cash generation contributed to our decision to announce a share repurchase program of up to $100 million of our Class A common stock. In addition to growth in revenue and profitability, 2021 was also a year of optimization across our business, including refining our product development approach and modernizing our e-commerce infrastructure. In 2021, we grew our direct-to-consumer revenue 39% year over year, to a record $392 million, representing 34% of revenue, up from 32% in 2020. Q4 direct-to-consumer revenue was $128 million, or 33% of revenue, up 10% year-over-year. Our direct-to-consumer efforts contributed to the addition of 815,000 new GoPro subscribers in 2021. bringing our GoPro subscriber total to approximately 1.6 million at year end, representing very strong growth of 107% year over year. And we're happy to report that subscriber retention rates remain at the same favorable levels we've mentioned on previous earnings calls, with several opportunities to further improve on this important metric. Our Quick App subscription, which we launched in spring of 2021 for mobile users, who do not own a GoPro camera through to approximately 221,000 subscribers by year end. Looking at 2022 and beyond, we plan to grow our business and expand our TAM by enhancing our product ecosystem, leveraging automation to help our customers more conveniently achieve success, creating derivative cameras to diversify our offerings, targeting TAM expanding use cases, in a more specific manner than we do today, and expanding our cloud, mobile, and upcoming desktop application capabilities to better serve GoPro customers while appealing to new customers who may or may not own a GoPro camera. We believe offering a broader portfolio of hardware products and software solutions to address new customer use cases and needs will enable us to expand our TAM. Our product roadmap is accordingly robust. tailored for consumers and professionals whose digital imaging needs require the types of solutions GoPro is uniquely positioned to provide. In just the past week, GoPro was honored by the National Academy of Television Arts and Sciences with our second Emmy Award, this time recognizing our industry-leading hyper-smooth video stabilization. Our two Emmys are testament to GoPro's thriving culture of innovation and incredibly talented people. At the end of 2022, we plan to increase our hardware offering from the two product types we have today, Hero and Max, to four distinct camera products. And we expect to expand that further by the end of 2023. This is in addition to the aggressive roadmap we have planned for software, including new cloud capabilities and an all-new subscription-based desktop application. To the GoPro team around the world, congratulations and thank you for delivering such impressive results in 2021. You definitely navigated some of the most challenging business conditions the world has ever seen to deliver market-defining products and equally impressive financial results. Your execution also combined with our passionately supportive work culture to land GoPro as the number one large business in Outside Magazine's reviews of the most desirable places to work. Congratulations and thank you again, everyone. We look forward to building on all of this positive momentum in 2022, our 20th anniversary year, to deliver what we believe will be another stellar year. With that, operator, we're ready to take questions.