Hello, and welcome to GoPro Second Quarter 2023 Earnings Conference Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to Christopher Clark, Vice President of Corporate Communications. The floor is yours, please go ahead.

Thank you, Elliot. Good afternoon everyone and welcome to GoPro's second 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 commentary from Nick and Brian, followed by Q&A. For detailed information about our second quarter 2023 performance and our outlook, please read our Q2 2023 earnings press release and 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 31st, 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.

Thanks Chris and thanks everyone for joining us today. Today, Brian and I will share commentary on our Q2 performance as well as our outlook before going into Q&A. I want to encourage all on the call to read the detailed management commentary we posted on our Investor Relations website. On May 9th, we announced an updated go-to-market strategy, which included a return to lower pre-pandemic pricing, and a renewed emphasis on our retail channels to better serve consumers post-pandemic shopping behavior. We're happy to report that this has had a positive impact on our business and second quarter revenue and subscriber growth exceeded our expectations. Our improved sell-through has sustained thus far into Q3, driven by our retail channels. Revenue in the quarter was $241 million, 10% above our guidance. GoPro subscribers grew 27% year-over-year to 2.44 million, also surpassing our expectations. Sell-through of our entry level priced $199 HERO8 and $249 HERO9 Black cameras enjoyed a combined sequential lift of more than 50%, highlighting the importance of the entry level product category as a TAM expanding opportunity. It's important to note that the sales lift was incremental and did not cannibalize our higher priced products. As a reminder, the key points of our Q2 updated go-to-market strategy included restoring camera pricing to lower pre-pandemic price points, and discontinuing subscription related camera discounts at the time of purchase at GoPro.com. Reintroducing entry level price cameras to drive meaningful volume and subscriber growth, restoring our world-class presence at retail, by increasing global distribution to best-in-class retailers that can help drive awareness and sell-through, and scaling our marketing spend to pre pandemic levels over time. At the start of the COVID pandemic, we exited approximately 30% of our retail doors globally, and focused on driving much of our business to GoPro.com…

Thanks Nick. Stronger than expected sell-through of entry level products contributed to second quarter revenue over performance of $21 million to guidance. This Q2 revenue over performance combined with retailers continuing to carry lower weeks of supply is contributing to a softer Q3 guide, also contributing as a larger than expected drop off in sales at GoPro.com, which is a discontinuation of subscription related camera discounts at the time of purchase. As a reminder, our GoPro customers primarily purchase flagship cameras that are higher in ASP and margin. While we are seeing significant growth in retail sell-through, it is going to take longer than anticipated for this retail growth to offset the drop in GoPro.com sales. This will be accomplished by increasing the number of retail doors, increasing our brand presence in all doors with refresh point of purchase display, and scaling marketing, which includes collaborative activations with retailers. Additionally, We have ongoing initiative to support sales on GoPro.com, including dedicated marketing, CRM, product bundle, and tactics to improve conversion. For the third quarter of 2023, we expect to deliver revenue of approximately $280 million plus or minus $10 million, down 8% year-over-year. We estimate ASP in the third quarter to be approximately $355, down 7% year-over-year. Our expectation as a result of our strategy shift and associated price move is unit sell-through will increase 10% year-over-year to approximately 750,000 units. Our guidance assumes channel inventory will be flat during the quarter. We believe there may be also macro macroeconomic pressures that impact consumer spending in the second half. We expect gross margin in the third quarter to be 34% at the midpoint of guidance, down from 38.2% in the prior year quarter, but up from 31.6% in the second quarter of 2023. The year-over-year decline in gross margin percentage…

Thank you. [Operator Instructions] We have a question from Martin Yang with Oppenheimer. Your line is open.

Hi. Good afternoon. Thanks for taking my question. Can you maybe talk first about, the new users you're getting from the lower price to your cameras? Do you have a sense of, you know, the key incentive [Technical Difficulty] uses completely new to the GoPro ecosystem, of those new camera buyers -- camera tiers, are they different than previously -- in previous years?

I don't know if Nick heard it. Martin, thanks. Let me maybe take that and Nick can come over the top of me. We clearly recognize and I talked about this in, I mean, back in March, with the economy and what's going on, on a macro level, we're trying to meet the customer where they are. That we're shopping more in retail and also recognizing, the fact that consumer wallets are getting squeezed by inflation, another cost that they're experiencing. And so we've reinstituted the entry level price point between $199 and $249. And that's historically, driven a lot of growth for us, pre-pandemic. We had a soft because of supply chain, of course, and when COVID hit in 2020, but it usually represents 25% or so of sales, which it immediately that's what it generated, right, of revenue in Q2. So, that's an important, growth driver for us and units and can represent anywhere from 600,000 to 1 million units of demand that new TAM, we haven't been experiencing for nearly four years. So, that's on that kind of business front. The incentive, I think, is price point in getting a really good value proposition. In addition we're seeing 20% to 30% attached at -- on the subscription on entry level price point when we're seeing just over 40% on somebody who's buying in at the flagship level. So, that's really encouraging to see where -- obviously, it's less but that's still -- that's an attach rate of where we were nearly a year ago, and now we've been able to move it up. So, it's good to see that people are coming into the subscription, they're buying into the cameras. We can also measure and we've measured it before. The behavior characteristics of all subscribers tend to be the same in the ecosystem, what they download, how much they uploads. And I guess we're seeing even more uploads happen on HERO11, than we even saw on HERO Black, as well as the total number of people kind of taking advantage of our cloud system, and I'll highlight that. So, that's very encouraging sign that the behavioral characteristics of people in the entry level really do mirror, actually, now the our flagship product. So, I think that's encouraging.

Yes. I would just add that the entry level customers buying behavior is matching historically how and where GoPro customers buy. The bulk of entry level purchasing is done at retail where GoPro.com primarily sells through our higher priced products. And even with the introduction -- the lowering of our prices to pre-pandemic levels and the introduction of -- reintroduction of entry level pricing on our HERO8 and then HERO9 cameras, that that trend didn't shift. Those cameras were primarily sold through retail. And also our marketing, messaging didn't shift. We're -- for the entry level, introduction, so pricing introduction. So, it was nothing that we were doing that that would have been a catalyst to attract a different type of buyer, but that was a natural market -- consumer market reaction to pricing. It shows the interest in GoPro and the desire to purchase, but sometimes, people just can't afford it or they're not confident enough yet to be buying our high end products, but when we have something that better matches their budget, they're quick to buy. So, that in in combination with what Brian said, we believe that that this is reaching the same type of customer, but excitingly, it's showing that there's a bigger market for, for GoPro and for our products. There are many consumers waiting in the wings ready to buy when we have the right product for them at the right price point.

Got it. Thank you very much. A quick second question is can you share your updated view on the competitive landscape, and more recently, we saw a competitor -- smaller competitor over announcing their new generation of cameras. Do you have a view on -- the new term computer landscape and overall how are you seeing, you're performing on both a lower price tier and higher price?

We feel really good. We take our competitors very seriously. We've always had competition at GoPro and it drives us to passionately develop the highest performance products that we can and then also offer them at a really astounding value to consumers so that we never lose our leadership position. And we're aware of new competitive product that comes out and we feel really, really, really good about how we stack up not only with our existing products, but also with what we have planned for launch a little bit later this year. So, all good on that front, but, no, we don't take competition lightly. It's what drives us and we can -- our consume -- our customers can thank our competition for where GoPro is today because it really pushes us to be best-in-class.

Thanks Nick.

Yes. There -- I wouldn't factor in any change in your outlook for GoPro based on anything new that's come out competitively.

Got it. Thank you.

This concludes our Q&A. I'll now hand back to the management team for closing remarks.

Thank you, Elliot and thank you everybody for joining today's call, as I said earlier, we're excited for our upcoming launch and holiday season, and we look forward to updating you on our next earnings call. Between now and then, we'll be presenting at the Oppenheimer 26th Annual Technology Internet & Communications Conference next week. And thanks again for joining today's call. This is team GoPro signing off.

Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.