Hello, everybody, and welcome to GoPro's First Quarter 2023 Earnings Conference Call. My name is Sam, and I'll be coordinating your call today. [Operator Instructions]. I will now hand you over to your host, Christopher Clark, Vice President of Corporate Communications, to begin. So, Christopher, please go ahead.

Thank you, Sam. Good afternoon, everyone, and welcome to GoPro's first quarter 2023 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 first quarter 2023 performance and our outlook, please read the 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 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. This means that results could change at any time 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 31, 2022, which is on file with the Securities and Exchange Commission and 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, adjusted EBITDA, as well as basic and diluted net profit and loss per share in accordance with GAAP and on a non-GAAP basis. 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. Unless otherwise noted, all income statement related numbers that are discussed in the management commentary and remarks made today, other than revenue, are non-GAAP. Now I'll turn the call over to GoPro's Founder and CEO, Nicholas Woodman.

Thank you, Chris. Thank you everyone for joining us today. I'm going to briefly cover the highlights from our posted management commentary before Brian and I take questions. I encourage everybody to spend some time reading the details of our management commentary that is posted on our IR website, which includes our updated strategy that we believe will accelerate growth in units, subscribers, revenue, adjusted EBITDA and earnings. Demand for our product during Q1 exceeded expectations. Sell-through was approximately 575,000 units, nearly 10% above our previous guidance of 525,000 units and flat year-over-year. Regionally, North America and Asia Pacific led our Q1 outperformance and demand was better than expected in our direct-to-consumer channel on GoPro.com. We reduced channel inventory in the quarter by nearly 95,000 units to below 600,000 units, setting us up well for the rest of the year. Our high-margin subscription and service revenue continues to contribute meaningfully to our bottom-line, generating $23 million in revenue in the quarter, which was up 24% year-over-year and represented 13% of revenue. We ended the quarter with 2.36 million GoPro subscribers, up 36% year-over-year. We continue to see improvements in retention of annual subscribers, who represent nearly 90% of our total subscriber count. In Q1, our first year renewal was between 60% to 65% and second year renewal was between 70% to 75%. We expect to finish the year with between 2.45 million and 2.6 million subscribers, which should result in $100 million in subscription and service revenue for the year. For more than a year now, we have generated more new subscribers via our retail channel than via GoPro.com, even with GoPro.com's subscriber attach rate remaining above 90%. In Q1 2023, our subscription attach rate from consumers who purchased a camera at retail and later subscribed via our app was…

Thank you. [Operator Instructions] Our first question comes from Erik Woodring of Morgan Stanley. Erik, your line is now open. Please go ahead.

Hi. This is Sabrina on for Erik. Thank you so much for taking the question. And maybe the first one is, can you talk about the reasons -- I know you touched on some of them, but just more in-depth around your changes with the pricing strategy? And should we think about that as structural? And if so, what is changed?

Sure. The rationale behind it is that, as I mentioned, we did a great job adjusting our go-to-market strategy for the pandemic. But ironically that same go-to-market strategy that works so well when consumers weren't going to stores and stores were closed and people were shopping online more, that strategy that allowed us to thrive during that period has been holding us back in this post-pandemic world where people are spending a lot more time, a lot more money in retail. They're shopping in stores as a form of entertainment. And we recognize that there's a lot of opportunity there that we need to address to fully maximize the potential of our business. And the response from retailers has been great. I mean, they're thrilled to have us adjusting our pricing to pre-pandemic levels to drive higher volume. Our data shows that the financial model that results is far superior than not taking this action. And a big enabler is that we have such strong conversion rates of camera [indiscernible] converting into subscribers via the GoPro app that, as I mentioned, retail is now the largest source of new subscribers, whereas during the pandemic, GoPro.com is the biggest source of subscribers. So, all of the stars are aligning to create an opportunity for us to grow at retail again, drive more volume, convert subscribers via our app, and, in many ways, have the best of all worlds. So, it's an exciting time. And when you look at the outlook that we have for the company through 2025, it's very compelling.

Yes. Actually, Sabrina, maybe I'll tag on to what Nick said. We also have an immense amount of data that we've -- over the years, we've made a number of price moves since going back to like 2016, 2017, et cetera. And we've evaluated our historical sell-through list of past price drops and promotional offers, and we have extensive sell-through data that really provides insight into what's the impact of when we move prices $100. Secondly, we've evaluated our historical sell-through volume in different pricing tiers as well, and tiers we plan to enter into in 2023 through 2025. And then, you add marketing investment on top of it, and we can kind of measure through what the direct brand investment is on retail partners and on overall demand. And I guess lastly, the other thing we'll do is expand distribution, which was pretty severely cut back, as Nick had mentioned, about 30%. And I'm actually pleased to say that while we have that data, what matters is what are the results. And I can say over the last couple of days, because we measure the result from some of our largest retail partners in the U.S. and Europe, and while we expected a certain percentage lift in units, it's in fact lifting as much as double or triple what we thought. It's early days. It's a couple days in, but we're definitely seeing a positive impact on demand across the U.S. and Europe so far. I'd also say that as you look at this from a modeling perspective, we would expect to have double-digit unit growth this year, '24 and '25. So, we think that extends through, it's not just the pricing, but we'll also have new products as well. I won't get into that, but that's coming, that'll expand the overall offering. And we're able to actually lift ASPs, as I said in prepared remarks, we'll be down to about $350, average ASP in '23, but it should go back up a little bit in '24 and a little bit more in '25. So -- as you kind of model that out. So, we expect double-digit units, that's going to lead to significant revenue growth and then profitability, as we improve margins back into the upper 30%-s in '24, '25, and drive meaningful EBITDA, which we'll use to buy back a lot of stock. So that's kind of the strategy in a nutshell.

Understood. Thank you so much for all that color. My -- the second question we have is, wondering if you could talk a little bit about consumer demand. I know you said things were stronger in the U.S. and Europe. But how was linearity through the quarter? Were there any changes of behavior that you saw in April? And then, what is being baked into your 2023 outlook? Thanks.

Yes, actually, when I was at your conference in early March, I had mentioned we could be up to as much as 575,000 units sell-through in the quarter. In fact, we hit that number on the high end of what I had said. From -- the quarter wasn't linear at all. Actually March lifted about 33% from where we were in January and February. So, we continue to see strong demand through the quarter. April was about where we needed it to be. And we've continued to see good strength in GoPro.com. And yes, we're seeing the U.S. -- actually Europe starting to do well and Asia doing well. So, getting to 3.2 million units, that's going to be -- the low end is going to help contribute, our entry-level products, to drive growth and we're seeing very strong growth right now on HERO11 Black. So, we're pretty excited by the results of what we're seeing on the price move.

Perfect. Thank you.

[Operator Instructions] Our next question comes from Martin Yang over Oppenheimer to begin. Martin, your line is now open. Please go ahead.

Hi. Good afternoon. Thank you for taking my question. First, I want to ask about the hardware. How would you size or would you model additional benefits for hardware margins for higher volume embedded in your longer-term outlook? And do you benefit anything from recently declined component cost?

Hi, Martin. Yes, we have seen component costs come down, particularly in memory, but discrete as well. And that will mostly start to hit -- positively affect our numbers in the second half. I've got to work through more expensive inventory in the first half. And we'll continue to see some cost reduction into '24. We would also -- some of the price points -- well, entry-level price points with products today that we'll introduce aren't at the optimized cost either. And so, we'll take a bit of a margin hit there, but we'll convert product to cash, and that's embedded in our outlook. And in '24, we would expect to continue with entry-level, but at cost points that actually would be margin positive versus not right now in '23. So, we have that going for us, and we'll have some newer products as well in '24 and '25, that help kind of round out kind of the overall demand and product profile for the company. And that all leads to margins that -- to go up between 36% to 40%. And if currency goes back to 2021 levels, it's about 10%, you'd see margins in the kind of 39% to 43% range. So, if the dollar should weaken further, that would also benefit us, back to where we used to be.

Got it. Thanks. And the second question is on subscribers. So, do you see or do you have a relatively lower ARPU for subscribers coming from the retail channel? Is there a meaningful difference? If there is, are both channel subscribers from both channels going to converge over time or there will be a sustained gap between ARPU from the two sets of subscribers?

Yes, good question. The ARPU between the two are pretty close actually. So, they're going to both converge to the pricing, it's not going to collapse to be the same, whether it be subscriber on GoPro.com or you subscribe via the app post retail purchase. And so, we'll see ARPU up over time, because as people move from kind of the entry-level price point of $25 and then upgrade to $50, that will have a positive effect on ARPU. And speaking of which, we gave a range of outcomes for subscribers. And we assumed that at the low end, it's about a 35% retail attach, and on the high end, it's about 40%. Our guidance of 2.5 million is kind of in the middle of that. And Q1, we said was nearly 50%, which was amazing, up a lot, I mean 23% year-over-year from an attach perspective on retail. That's a bit of an anomaly, because we have a lot of demand in Q4 that turns into subscribers in Q1 and we have a low base obviously of sell-through in proportion to the people coming in. You'll see that normalize a little bit more down to about 40%, I think, in Q2 and Q3 and maybe a little bit less in Q4 where it flips the other way where we sell a lot and the sell-through is big, but the people who buy don't convert until Q1. So, the seasonality is a bit opposite in subscriber growth quarter-to-quarter versus our revenue growth, if that makes sense. So, we're still pretty excited, 35% to 40% still pretty darn good attach, and obviously, we'll do more to continue to grow that, as Nick had said. But those are the assumptions behind how we came up with the range. And those same assumptions were used for estimating '24 and '25.

Got it. Thank you. Really appreciate the details. That's all the questions from me.

[Operator Instructions] And there are no further questions. So, I'll hand back to management for any closing remarks.

Wow, showstopper. Well, thank you, operator. And thank you everybody for joining today's call. As I said earlier, this is a very exciting time at GoPro and we believe our best days are ahead of us. It's time to grow again, and we're really excited about our new go-to-market strategy and it's great to see such compelling results straight out of the gates. So, stay tuned for more from us. And until then, thank you. This is Team GoPro, signing off.

And this concludes today's call. Thank you everyone for joining. You may now disconnect your lines.