Good day, and welcome to 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 in 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 ending December 31st, 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 $0.90. 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, HERO10 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. We're happy to report that subscriber retention rates remained at the same favorable levels we've mentioned on previous earnings calls, with several opportunities to further improve on this important metric. Our Quik App subscription, which we launched in spring of 2021 for mobile users who do not own a GoPro camera. Grew 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 HyperSmooth 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 deftly 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 review 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 twentieth anniversary year, to deliver what we believe will be another stellar year. With that, operator, we're ready to take questions.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're on speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, and we'll pause a moment so that everyone has an opportunity to signal for questions. We'll go to our first question from Erik Woodring of Morgan Stanley.
Hey, good afternoon, guys. Congrats on the quarter here. Maybe if we take a step back, this is your first year where you had the subscription bundle in the market for the full year. You know, would just love to know what you guys learned and maybe how you plan to enhance the value proposition there, to provide more value for your customers. I have a follow-up.
Hey, Eric. Thank you. This is Nick. Before I answer that and appreciate that question, I just want to acknowledge, you know, this has been a really tough day in the market, and many businesses are facing significant challenges right now. We know the feeling, we've been there, and I wanna acknowledge how tough business can be and how grateful we are to have GoPro in such a stable position with many growth opportunities ahead of us, thanks to, you know, the strength of our execution, most importantly, our people and our partners and our strategy. Business takes heart, it takes faith, and it's working for GoPro, and we're really grateful for it.
Just wanna acknowledge some of the turmoil that's going on in the world, and we've been through it, and we're happy to be on the other side and looking forward to see other businesses pull through as well. Erik, what did we learn, and how are we going to further create value? Well, what we've learned, thankfully, is the subscription offering is a hit with consumers. They're passing the IQ test. They continue to convert at gopro.com with the subscriptions, the camera purchase attach rate greater than 90%. So that's enduring. And we are getting better and better at driving awareness. That's a big opportunity for us. Awareness is still not as high as we'd like it to be, awareness of the offering at gopro.com, I mean.
In general, we recognize that there's more to be done to drive awareness of GoPro in general and drive awareness of our newest products. We're all, you know, living the dream and very much immersed in GoPro, so it's obvious to us and everybody on the call, but the reality is there's a lot more that we can do as a company to drive awareness of our brand, our latest offerings, and the value proposition at gopro.com. We see that as an opportunity, right? In terms of driving further engagement. We are seeing good engagement, as we've mentioned on previous calls, of engagement of the various benefits that we offer.
Subscribers are making use of their subscription, but we see, you know, through research we've done on what they want to see from us, they want to see our editing tools move into the cloud. They want to see more automation and convenience. The experience is really well-tailored for what we would call users that are higher on the passion curve and are more interested in doing some of the work. They're the more creative types. This is a hobby or a profession for them. Our more mass market, mainstream casual users, as you can imagine, they just want it to automatically work for them.
The good news is we have that technology in the app already with our automated edits, and this year we're gonna be porting that and all of the manual edit tools to the cloud and providing for a much more automated experience where, you know, you plug your GoPro in to charge, it uploads all your footage to the cloud. We push you a highlight edit of all of your photos and videos that you just captured before you finished your beer. So that type of convenience is coming later this year, and those are the type of simplification features that we believe are gonna further drive engagement and value for our subscribers and keep that churn rate moving south.
Cool. That was an awesome response. Thank you for that. Maybe to touch on the other side of kind of where you're looking to add value and expand the TAM, you know, you mentioned expanding hardware from two product types to two to four distinct models or product types, and then extending that again in 2023. Just any additional details you can maybe share to help us think about how meaningful that opportunity could be and potentially how it could impact the directionality of sell-through moving forward, and that'll be it for me. Thanks, guys. Congrats.
Sure. Thank you. Yes. I'll start by saying in some ways you could when you look at GoPro's limited hardware line. I mean, we really make a HERO camera and a MAX, and we sell the MAX being our dual lens 360 camera, and we sell you know older HERO cameras at lower price points for consumers that are looking for that type of value. We really have two camera types, HERO and MAX. You look at the scale of the business that we have today, and you could argue that GoPro's success to date is really a proof point of a larger opportunity to serve consumer and professional needs in more specialized ways than we do today with just HERO camera and MAX.
You know, an analogy is if you think about how many cars does Ford have to serve its customer base or Chevrolet or even, like, really high-end specialized brands like Porsche. They have a lot more than two car models to satisfy the various specialized needs and/or demands, be they fashion or function, of their customer base to maximize their TAM penetration. So that's something we're really excited about. Like car manufacturers, we have very powerful platforms of our existing cameras that we can leverage to produce derivative camera types that are just sometimes more narrow in focus but can do a much better job more conveniently for the end user than a full-blown HERO camera can today.
In other areas we think that we can go even further and do even more than a HERO camera can in certain areas of performance where we have had ongoing demand and requests from our users for products like that, and we're finally able as a company to go after some of these new product types and serve customers in these new ways to grow our TAM because the business is stable, the business is growing, the business is profitable, and we also understand how to get a good return on investment from any new product that we introduce. One of the reasons that our product line is as small as it is today is because we spent several years cracking the code on, like, what is the best go-to-market strategy?
What is the best way to derive the most margin and profit from our business? It can't be the way that we were doing it in the past, and so we came up with our direct to consumer and subscription-centric approach, which has obviously turned out to be quite successful for us. Now with that success, with that growth and profitability, we're able to confidently invest in some of these new products to grow our business further.
I do want to stress that the word derivative here is really important because we're able to leverage existing camera technology that we have as a platform to go and make these new cameras at less expense than if we were initiating ground up camera programs, which would be more expensive, and that's why we're able to to attack this opportunity with the modestly increased OpEx that you're gonna hear about today.
Awesome. Thank you, Nick.
I'm gonna go to Martin Yang of Oppenheimer & Company.
Hi. Good afternoon. Thanks for taking my question. I think my first question is around your year-end subscribers, and you mentioned that stronger retail led to a slight miss on that subscriber count. Can you maybe go into details on the reasoning why a relatively stronger retail can lead to a lower sub count and are you expecting perhaps a total revenue level where the mix favors highly higher on gopro.com and now you end up maybe having a more traffic going to retail?
Hey, Martin, this is Brian. Good question. As we looked at Q4, kind of a similar thing happened to Q3. Q4 retail did exceptionally well. gopro.com did well, too. I mean, we were up 39% for the year, $392 million in our sub and subscription revenue was $53 million for the year, more than double year-over-year which is, you know, has very high margins. The fact is if you look at the KPIs around subscription, we increased our subscription attach on gopro.com which was in kind of 90-ish, low 90s, but more mid-90s, so that actually improved. Retail attach has been steadily improving through the year. Q4 a year ago was about 8% and then moved to 15% and by the end of Q4 was about 25% attach from mobile.
That's been very encouraging. The mix shift in just units, given the dynamics of 90% to gopro.com versus 25% to retail, it just, you know, that equation gets pretty tough, right, 90 to 25. The challenge there was just the mix between direct and strength of retail. It's awesome that we have two very strong channels. Retail has done very well for us through the year and direct to consumer did great, up 39% and the company was up 30%. Obviously we were a little bit shy of the 1.7 million, but it's really more of a positive attribute to where the demand came from and actually the KPIs that are driving subscription growth as we look ahead into 2022.
A follow-up on that is that your 2022 sub target is a little higher than what I would expect. Has that 2.2 million target factored in maybe a relatively stronger retail channel that you saw in Q4 or that was more of a normalized mix?
It's about the same mix that we have ending. We had about 34% direct to consumer, and the rest was retail. Now if direct to consumer does better, we can do better on the subs number. It's worth pointing out that about one in four, sometimes one in three cameras go through D2C, and so as you model out, we expect to have unit growth in 2022 as well as ASP growth. You can kind of model out that and kind of get to those numbers.
Got it. Thank you very much.
Our next question is from Nick Todorov, Wedbush Securities.
Hey, guys. Good afternoon. First, clarification on the first quarter guidance. Brian, if I take the midpoint $215 million on the sales, 41.5% on gross margin and $80 million for OpEx, I get to about $10 million of operating profits. I think the comments say $11 million-$12 million of net income. Can you bridge that, for me, please?
Yeah. I said approximately $80 million in OpEx, and there is a spread on margin as well. I think those two things will get you into the $11 million-$12 million range. It's great to see, you know, the model that we delivered, you know, such terrific results in 2021 is continuing in 2022 in Q1. We just guided I think 6% up on the midpoint on revenue and, you know, up nearly 150 percent, 120%-150% up on net income. We're getting really good leverage on the model on 10% higher unit because we're transitioning more units to the high end.
We have more subscriptions, margins are up, we're controlling our OpEx and that's flowing to the bottom line. The model's continuing to play out in 2022 as it did in 2021.
Okay. Maybe we'll take offline because again, I'm still struggling to get to $11 million or $12 million of net income. Question on sell-through. I think based on the comments for the first quarter you're guiding to slight decline in units, year-over-year. How should we think about sell-through in the first quarter and then sell-through for the year? I think you're expecting units to be up and then what can you say about your channel inventory strategy this year?
Yeah. For Q1 we expect to be over 600,000 units in sell-through. We're seeing that. We've seen Europe rebound at the beginning of COVID. gopro.com has actually been doing very well, and North America is coming back. Feel good about the 600,000. Sell-in will be a little bit less than that. It'll be between 500,000 and 600,000. Channel inventory would come down a little bit in Q1. You know, it's gonna ebb and flow quarter to quarter. For the year, we think units would be up, but I think units from sell-in and sell-through will be largely balanced through the year. I think as Nick had talked about on the roadmap, more products, I think you'd see a bit more, maybe sell and then sell through in Q4.
It kind of balances out throughout the year.
Okay. Nick, for your question, I guess. Can you compare and contrast how the new hardware roadmap is different than the good better, best strategy that you were running for the last couple of years? I know you can say-
Oh, I'm glad you asked. Yeah, I'm glad you asked. It is important to offer some value options to consumers. You know, you gotta meet the consumer where they are, and not every consumer is at the passion or need level where they wanna buy your most capable, most expensive product. We still will have, you know, value offerings like we do today. Our focus is more on premium solutions that are differentiated from one another. Without going into detail about the products themselves, if you look at our good, better, best strategy that we used to have, that was three different price points of the same camera.
The camera, you know, got, you know, higher resolution, higher frame rates, maybe some additional features as you went to the higher price point products, but by and large they were very similar, and they were built for the same use cases. You know, you were attracting the same customer, but just they might have been an entry-level, mid-level or high-end customer, but at the same customer type.
Going forward we think it's important to build very differentiated specialized solutions for different use cases to appeal to entirely new groups of users that have new needs that, you know, a HERO camera maybe solves, but you know, maybe it's got some other aspects to it that are undesirable for that use case and the user doesn't need all these other things that the HERO camera does. It ends up being, you know, more than they need or not enough of what they need. We're very focused on identifying what are the particular challenges that people are having.
I make it a point to mention consumer and professional because I think it sometimes gets missed that GoPros are used by professionals the world over, whether it's for film, television, their own commercial purposes, their own research purposes. We just won our second Emmy. Congrats again to the team for their work on HyperSmooth video stabilization. You guys deserve that recognition and got it. It's not a good, better, best strategy. It's use case A, B, C, D, E, F, G, all very different from one another. You know, rather than make one Swiss Army knife that does it all for some people, some people want specialized knives, and that's what we're gonna build for them.
Got it. Thanks for the answer, Nick.
Thank you.
We'll go to our next question from Paul Chung with JP Morgan.
Hey, guys. Thanks for taking the question. So just to expand again on the, you know, the new derivative products, how are the ASPs gonna kind of trend? Looks like your gross margin guide is pretty similar range, so I expect it to be pretty similar. Are you looking to kind of attack different demographics to, you know, drive more sub-growth there? Is it kind of existing users, combination of both? Just comments there.
Yeah, the ASPs.
Can you hear me, Paul?
As you can see from the guide, we're going after developing premium solutions. You know, we had a lot of experience chasing volume unit sales with lower priced products and it's not nearly as fun or profitable a business to be in. We don't like dumbing down our products. We like developing the highest performing products possible for those consumers and pros that have specific needs, and they're looking for that level of quality from GoPro. That's what we're building our brand and business on, and it's turning out to be a smart move 'cause there's a lot more margin and ultimate earnings power in that approach. In terms of you know, I would just think about you asked about different demographics and so forth.
More so I would say we're targeting different use cases and we're targeting some of the same use cases that we serve today, but in a more purposeful and specific manner to just better serve that user that really wants to use their GoPro for this specific purpose. We already make a Swiss Army knife. That's the HERO camera that you know if you're an athlete and you wanna put it on your helmet, it works great. If you're a vlogger building your career as an influencer, it works amazingly well for that. Throw it in a dive housing and it's arguably the world's best scuba diving camera. I mean, the HERO camera is a jack of all trades. With that comes some lack of specialization that some tip of spear customers really need or desire.
It also comes with some excess for people that don't need everything that a HERO camera does. Then for other users, it doesn't do enough, and we need to do things that they have been asking for years that we just can't get done with a HERO camera due to certain, you know, physics constraints. If we make an entirely new camera based off of HERO camera technology, but we break the mold in terms of, like, what the camera's form and purpose is, we can deliver for these people, and they've indicated that they're willing to pay even more for these types of specialized solutions. It's gonna be really exciting when we get there, and we have a broadened product offering, broader portfolio, more tools for more people, more legs to stand on.
We don't need these products to be HERO cameras again in terms of sales volume. When you hit a lot of singles, doubles, and the occasional triple, and occasionally you catch one that goes out of the park, that's great for business. That's our strategy here, to have a bunch more stakes in the fire that are backed by consumer research, and we're absolutely clear people want this from us. Time will tell if some of them can take on the HERO camera, you know, for the top spot in terms of volume. Incrementally, we think these are gonna add up to be very meaningful for our business from a growth perspective over time.
Great. Thanks for that. On cash flow, Brian, you know, record cash flows for the firm this year. You know, if you could expand on the performance there, the kind of sustainability of working cap efficiency. Your, you know, your cash guide suggests strong cash flows again, this year. If you could talk about kind of where you know on the share buyback, are you gonna be quite aggressive there? I mean, you haven't really bought back shares in the better part of three years. Any comments there? Thanks.
Yeah. No, no worries. Yeah. Cash flow was record $211 million in 2021, 18% of revenue. We really brought it home in Q4 with up $160 million or 41% of our revenue in cash. The model is really driving that on all levels. One is we're more profitable, so most of the cash is coming from earnings. We get terrific AR. You know, we're at 26 days when historically we'd be in the 30s or 40s this time of year. The working capital aspect is great. We took inventory down 30-some million in the quarter. We got very good use of cash working off the balance sheet, which we expected to do.
Yes, we expect to have cash, you know, basically still above $500 million, but we have to pay back $125 million in one of our converts. We'll do that in April. Yeah, still be over $500 million. That tells us we're gonna generate cash, you know, nice cash in 2022. And the model is really, really driving that. Strategic shift to D to C, and we have great collections and inventory management even in retail. That's paving the way for us to do it. We will, you know, buy back shares throughout the year and, it's great that, you know, we have the opportunity to do that again and work down shares.
It's also worth pointing out, you know, in my prepared remarks, you know, our share count was 163 million. In 2021, it's gonna increase about 26 million shares just because we have to increase the share count relative to the converts. That's the new standard we have to implement in Q1. Obviously, that has a impact on EPS, but the absolute dollar growth of net income is there for Q1 as well as, you know, 2022. Wanted to make sure I pointed that out when you do your models.
Great. Thank you.
We'll go to our next question from Jim Suva of Citigroup.
Thank you. I have two questions. The first one is, I guess, more of an observation and looking for your commentary. You know, I travel quite a bit, and suffice it to say, a lot of destination and international travel has been on pause for, say, two years or so. I was just thinking as I walked past, like, the duty-free shops and the shops in the airport where people buy spontaneous, "Hey, I just arrived to, you know, Australia and I'm gonna go scuba diving, so I buy a GoPro camera that's waterproof." Those type of things really haven't, you know, activities haven't occurred for a couple years. With that, I'm just wondering, in your outlook, are you assuming some travel comes back, all travel comes back, no travel comes back?
I assume that channel has kind of been, what's the right word, dormant for the past couple years or so. But any commentary on this, or maybe it's not material, but I would think it's kind of meaningful because people buy when they go on destinations.
Yeah. Hi, Jim. Fine. You are absolutely right. They do. That has been dormant. If there's one area. Well, COVID has impacted GoPro. It's been international travel and travel destination. We've been out of duty free, out of cruise, you know, that spontaneous purchase or people just buying in advance of going somewhere, you know, on Best Buy, Amazon, or on gopro.com. So that's definitely been absent. It's, you know, and historically been about 10% of our revenue. So it is material from that perspective. So when it does come back, it will be a nice tailwind for GoPro. We've not factored in. I have not factored in a big return to international travel, not yet for 2022. It may happen, but we're not in the current guide that we have. It's not there.
That's a call option, if you will. If it does come back, we'll be in position with supply chain to meet that demand.
Great. Then my follow-up question was, you announced a stock buyback of $100 million, but then you also have a convert, and I assume given inflationary environment and your employees have been doing so well, there's probably some compensation, you know, boosts that come into share count or something. Nick, can you walk us through again the share count from where we kinda exited the December quarter? Seems like there's a fair amount of moving parts for the share count we should be aware of, and your stock buyback adds additional, you know, guidance if we could get some thoughts on that.
I'd love to answer that, but Brian would kick me in the shins under the table even through the phone line. I'm gonna hand that one over to Brian.
Yeah, Nick, I hope you're rewarding your employees for really doing a good job, Nick. They really did. Hopefully they get some merit increase.
Oh, yeah. No, it's been a good year for GoPro on all fronts, and thanks for saying that.
Okay. Brian?
Yeah. No, I appreciate that. As a matter of fact, in our OpEx in 2021, we will be paying bonus for our employees. We did not pay a bonus in 2020, so it's well earned for the employees of the company. Congrats to them. We still do our, you know, standard share issuance to employees. You know, the buyback in part is intended to, at a minimum, cover that dilution. If we can generate enough cash flow, we can take it down further. We have that opportunity. If as we continue to perform, we can cover more than just employee dilution.
Great. Thanks so much, Brian.
With no other questions in the queue at this time, I will now turn the call back over to management.
Thank you, operator, and thank you everyone for joining today's call. This year marks GoPro's twentieth anniversary, and we couldn't be more proud of the work that we're doing. We believe the world needs specialized camera and software solutions that GoPro is uniquely positioned to provide, and we intend to deliver such solutions at a brisk pace over the next few years to diversify our offerings and appeal to a larger audience of consumers. Our teams are strong, our brand is strong, and our balance sheet is strong. We intend to leverage all three to create more value than ever before for consumers and investors alike. We look forward to seeing you at upcoming investor events and at our next earnings call in May. Until then, thank you very much. This is Team GoPro signing off.
This concludes today's call. Thank you for your participation. You may now disconnect.