GoPro, Inc.

Good afternoon. Thank you for attending the GoPro Q4 2022 earnings call. My name is Matt and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Christopher Clark, Vice President of Corporate Communications. Christopher, please go ahead.

Thank you, operator. Good afternoon everyone and welcome to GOPRO's fourth quarter and full year 2022 earnings conference call. With me today are GOPRO 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 full year 2022 performance and our outlook, please read the detailed management commentary we posted to the investor relations section of GoPro's 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 any continued impact from the COVID-19 pandemic or the war in Ukraine. This means that results could change at any time. Our commentary about our business results and outlook is based on the information available as of today's date, and we do not undertake any obligation to update these statements as a result of new information or future events. To better understand the risks and uncertainties that could cause actual results to differ from our commentary, we refer you to our most recent annual report on Form 10-K for the year ended December 31st, 2021, which is on file with the Securities and Exchange Commission. And in other reports, 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 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. 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 the Investor Relations section of 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 full year 2022. the management commentary slides as well as the link to today's live webcast and a replay of this conference call are posted on the investor relations section of gopro's website for your reference unless otherwise noted all income statement related numbers that are discussed in the management commentary other than revenue, are non-GAAP. Now I'll turn the call over to GoPro's founder and CEO, Nicholas Wooden.

Thanks, Chris, and hi, everybody. Thank you for joining us today. Before we get to Q&A, I have some brief remarks that summarize the detailed management commentary we posted to the investor relations section of our website, which I encourage each of you to read. I first want to congratulate and thank everybody at GoPro, past and present, who contributed to GoPro's incredible 20-year history. In Q4 2022, we celebrated our 20-year anniversary, and it's been inspiring to consider how far we've come from our first product, a 35-millimeter film camera designed to be worn on the wrist while surfing, to today, one of the world's most popular brands serving millions of the world's most active, creative, and inspired humans. Gratitude to all. The strength of our brand and subscription-based business strategy was evident in 2022, a year marked by macroeconomic challenges. Our high margin subscription business is serving as a powerful financial engine, contributing meaningfully to our bottom line. In 2022, we grew GoPro subscribers 43% year over year to 2.25 million. exceeding our annual target of $2.2 million and bringing our subscription and service revenue to an annual run rate of $100 million with 70% to 80% gross margin. The growth in our subscription business helped us deliver profitability and positive EBITDA. We paid off debt of $125 million and repurchased $40 million in stock, and we exited the year with a strong cash balance of $367 million. 2022 benefited from our complimentary direct-to-consumer and retail channels, with each meaningfully contributing to our business throughout the year. Direct-to-consumer revenue from gopro.com was 40% of overall revenue in Q4 and 38% for the full year of 2022, up from 33% and 34% respectively. In addition, our GoPro.com business grew 5% in 2022 over 2021, driven by 52% growth in subscription and services revenue. We estimate GoPro.com revenue growth was 12% in constant currency. Like many companies, GoPro's results for the year and quarter were impacted by a stronger U.S. dollar. On a constant currency basis, we estimate that revenue for the year would have been approximately $50 million higher or 5% above actual results. Gross margin would have been nearly 41% versus 38.1% actual results, and EBITDA to revenue approximately 13% versus 9% actual results. Considering the global effects and macroeconomic challenges, we believe our 2022 results reflect the strength of our subscription-based business model and the strong execution of our teams. The future of GoPro is subscription-based, and we're laser-focused on what we believe is a significant high-margin growth opportunity. GoPro's focus on building our direct-to-consumer channel has increased our understanding of consumer behavior, and we are successfully leveraging this to drive engagement and LTV. While still early in this journey, we see significant opportunities to add further value for new and existing subscribers. Our 2023 plan is to maintain GoPro's ongoing profitability and end the year with a strong cash position of $325 to $350 million, while investing in critical long-term growth opportunities that we believe will position GoPro well for when the global economy recovers. We're investing in the people, technology, and innovation that we believe will drive subscriber growth, retention, and ultimately LTV. This includes expanding our hardware lineup to court a broader consumer base and rolling out a synced mobile cloud and desktop experience that will target GoPro owners and non-owners alike with a new premium subscription tier. As I reflect on our 20 years in business, I'm most proud of the innovation GoPro has become known for, as well as our purpose, serving the world's most active and creative people with digital imaging solutions that help them capture and share their lives in exciting ways. This purpose combines with the strength of our brand, our people, and our subscription-based business model to give us confidence that we are well positioned for the future. despite near-term challenges that many businesses, including GoPro, are likely to face in 2023. In the meantime, we're innovating towards an exciting tomorrow where we believe GoPro will serve significantly more people than we do today. Operator, we are now ready to take questions.