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GoPro Q1'16 Earnings Conference Call: Full Transcript

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Operator:

Good day ladies and gentlemen and welcome to the <b>GoPro’s</b> GPRO First Quarter 2016 Earnings Call. Today’s conference is being recorded. And at this time, I would like to turn the conference over to Mr. Peter Salkowski, Head of Investor Relations. Please go ahead sir.

Peter Salkowski:Investor Relations:

Thank you. Good afternoon and welcome to GoPro’s first quarter 2016 earnings conference call. With me today are GoPro’s CEO, Nicholas Woodman; our President, Tony Bates; and our Chief Financial Officer, Brian McGee. Before we begin, I would like to remind you that statements on this call including, but not limited to our projected future financial results, including revenue and expenses, economic and market trends, our future plans, prospects and growth opportunities, the continued adoption of our products, the anticipated benefits of our long-term strategy, our customers, competitive position, market share and leadership position in various markets constitute forward-looking statements.

These forward-looking statements and all other statements that may be made on this call, that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. These forward-looking statements speak only as of today’s call and we do not undertake any obligation to update these forward-looking statements.

We refer you to our Annual Report on Form 10-K for the year ended December 31, 2015, which is on file with the Securities and Exchange Commission, in particular, to the section entitled Risk Factors and so other reports that we may file from time to time with the SEC for additional information on factors that can cause actual results to differ materially from our current expectations.

We report net profit and loss and 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 non-GAAP reporting internally to evaluate and manage our operations. We have chosen to provide this information to enable investors to perform comparisons of operating results in a manner similar to how we analyze our operating results.

A reconciliation of GAAP to non-GAAP financial data can be found in the earnings press release we issued today. We ask that you review this information in conjunction with this call. All numbers that are disclosed in today’s conference call other than revenue are non-GAAP unless otherwise noted. In addition to the earnings press release, we have posted slides containing detailed financial information and metrics for the first quarter of 2016.

These slides and a link for the webcast for today’s earnings conference call are posted on the Events and Presentations page of the GoPro’s Investor Relations website for your reference. In the interest of time, I would like to remind those participating in the Q&A portion of the call to please limit your questions.

Now, I’ll turn the call over to GoPro’s CEO, Nicholas Woodman. Nick?

Nicholas Woodman:Chief Executive Officer:

Good afternoon and welcome. Today I am going to review GoPro’s first quarter performance and then focus on how we are delivering against specific commitments we made on our February earnings call. In the quarter, we generated revenue of $183.5 million above the top end of our guidance. While our revenue was down 49% year-over-year on a sell-in basis.

It’s important to look at sell-through which indicates consumer demand for GoPro remains strong. Based on third-party data and our own estimates, first quarter sell-through exceeded sell-in by approximately 50% and drove down channel inventory by over 20%. In addition first quarter sell-through on a unit basis was down less than 10% when compared to the first quarter of 2015 which benefited from the launch of HERO4.

With respect to commitments we made in February, we acknowledge the need to accelerate the development of software tools that make it easy for our customers to offload, access and added their GoPro content. Later that same month, we announced the acquisition of two of the most popular mobile editing apps Replay and Splice. We believe Replay with over 13 million downloads represents the best automated added experience on mobile while Splice with over 19 million downloads represents the best manual added experience. We intend to combine these two apps to simplify mobile content creation for not only GoPro customers but for smart-phone users as well.

Opening up GoPro as a content enabling platform for billion of smart-phone users is an important evolution of our strategy. One that we are very excited about and on Tuesday we launched updated versions of both apps. Splice features and updated GoPro look and feel while Replay has been rebranded as quick which we believe does a terrific job of describing the app stability to automatically produce engaging at its in just a few seconds. Quick and Splice joined our existing GoPro app which in Q1 saw a 32% increase in daily active users and a 26% increase in monthly exports and in early March we release GoPro for desktop a tool that simplifies the offload, access and sharing of GoPro content.

In the first quarter GoPro for desktop contributed to a 35% year-over-year increase in content exports. We are making additional software advancements with our new GoPro VR app which further establishes GoPro as a leader in virtual reality. GoPro VR is a place to discover some of the world’s most interesting and varied VR content. It’s also a place where users can upload and share their own VR content.

When combine with our new VR capture rigs Omi and Autocy and our stitching software color it’s clear that GoPro has created one of the world’s most comprehensive platforms for capturing, stitching, sharing and enjoying VR content.

The GoPro VR app is available for both IOS and android we invite to download the app and watch the launch video one of our latest products Omni. Omni is six-camera spherical rig for capturing content for VR. In April we showcased Omni at NAB the National Association of Broadcasters event and we took preorders for delivery in August.

A $5,000 for the complete system which includes six GoPro’s and our stitching software or $1,500 for the rig alone Omni represents the most versatile and cost effective solution for capturing professional quality VR content.

Also at NAB we demonstrated RC GoPro’s 16 cameras stereoscopic rig it works with Google’s Jump VR platform. We invite you watch Odyssey videos on Google’s Jump website. Cameras are the core of our business and in February we committed to a good-better-best product lineup to simplify decision making for consumers. In addition to driving Q1 unit sell-through we saw positive changes to product mix.

According to third-party data, HERO Session at $199 represented more than 20% of our Q1 unit sell-through combined HERO4 Silver and HERO4 Black represented approximately 48% of units sold during the quarter. This along with sell-through and channel inventory information that I already shared clearly validates that our product strategy is working. And as promised later this year we will release HERO5 the next-generation of GoPro. While we’ve made great progress on many initiatives.

Unfortunately there is one where we won’t deliver. The first half of 2016 launch of our drone Karma. As late as this week we believe Karma’s launch was on schedule. However, Karma includes revolutionary features that differentiated from other drones.

Features that make it much more than a drone and deliver the versatility, value and performance that consumers expect from GoPro. To give ourselves more time to find two newest features we have made a difficult decision to push Karma’s launch to the holidays.

I will finish by reiterating some key points. First demand for GoPro remains strong. First quarter sell-through significantly exceeded sell-in resulting in reduced inventories. Second, we made significant improvements to our software.

Our editing apps quick spliced and GoPro for desktop are experiencing strong adoption and are generating impressive results and there is much more to come. Third our simplified product strategy is working. Session is succeeding as our entry-level product and we are excited for the launch of HERO5 later this year. And finally, we made the difficult decision to move Karma’s launch to the holidays.

Now I will turn it over to Tim.

Anthony J. Bates:President and Director:

Thanks, Nick. My remarks today will focus on three areas. An outlook on the global retail landscape with particular focus on our progress in international markets and outline of the GoPro developer program which is expanding GoPro’s consumer ecosystem and finally have our sharpen approach to marketing and entertainment is yielding measurable results.

I will start with North American retail where according to MPD GoPro accounted four of the top five products on a unit basis in the combined digital camera/camcorder category in the US.

HERO4 Silver remains the best-selling digital image camera on a unit and dollar basis. On a unit basis, HERO4 Session moved to the number two spot up from number eight in the fourth quarter a big jump for a great product. This performance reinforces our decision to position Session as the entry level product in our product line. Sessions impressive sell-through reflects increased investment we are making in product specific marketing including global television campaigns. Given the results we’ve seeing we intend to continue this approach.

We continues to make strong in rows in international markets which in Q1 represented roughly 54% of GoPro’s total revenue. A major element of this strategy is a 146 athletes that we sponsor including American Swimmer, Missy Franklin, Scottish trial cyclist Danny MacAskill and Snowboarder Ayumu Hirano from Japan and -- from China. Today roughly, 40% of our athletes come from countries outside of the United States and in the first quarter athletes tag GoPro in more than 5,000 social posts resulting in more than 12 million social engagements on social media. This week we extended our agreement one of the biggest sporting events in the world Tour de France.

The three week advance is broadcast in 190 countries and organizers project a global TV audiences of 3.5 billion viewers.

Each of the teams will have Session mounted on the bikes capturing a massive footage from the riders point of view. This unique prospect will led drama and excitement to the efforts content that GoPro will be producing. Checkout episode one of beyond the rigs comparing today on our blog the inside line.

We are also getting ready for another season with MotoGP the world’s premiere Motorcycle racing championship with a huge international following. GoPro is official variable camera of MotoGP and we produce content to many of the ----. We also of the title sponsor of the GoPro Motorrad Grand Prix Deutschland. A race within onside audience of 210,000 and a TV audience of more than $15 million.

Now onto APAC where the region accounted for 21% of GoPro’s Q1 revenue an increase of 9 percentage points over Q4. The APAC region showed a higher percentage of sell-through versus sell-in and the rest of our businesses.

A quick update on China. A top ten GoPro market where we continue to invest in growth. In March we opened our first retail store one of the most popular shopping streets in Zan Jing. Next I want to highlight the great progress we are making with GoPro development program and initiative for expanding GoPro’s eco system to include companies that integrate GoPro into their products.

The program of this GoPro tool kits for developers enabling them to connect directly to GoPro products in innovative ways. We -- developer program in April with more than a 100 companies including BMW, Fisher-Price, Polar, Telefonica and Toyota. These companies and others integrated GoPro solutions for a broad range of products and services including automotive, security entertainment, coaching and family products. In the last month we received more than 200 new applications from developers hoping to participate in our program works with GoPro.

A verification program that will help consumers identify accessories and software that seamlessly to GoPro products.

Before I finish I want to highlight an upcoming event that reflects how we tie together new technology and global marketing. On May 27 GoPro Entertainment is partnering with Wing Suite Superstar Jack Collis for an event in China is going to generate a lot of attention. Jeff will jump out of the helicopter 6,000 feet flying through the air 120 mile per hour and ponds through a target with just 10 feet between him and the great of Wall of China. The entire jump is going to be broadcast live using GoPro’s HEROCast.

Jeff will transmit experience live by China’s Tianjin TV, when audience expected to reach a total of more than 500 million. Yes 500 million people. The great Wall event is just one example of how GoPro technology is creating significant opportunities for us in entertainment.

With that I’ll pass of to Brain.

Brain McGee:Chief Financial Officer:

Thank you Tony and thanks to all of you for joining us today. If you have not early done so I would encourage you to download from the investor section of our website the financial slides we posted concurrent with our press release earlier today. Our prepared remarks will be focus on the financial overview of Q1 as well as all as our related business trends I will then provide an update to our guidance. Our first quarter revenue of a $183.5 million was above our guidance range of $160 million to $180 million and down 49% year-over-year and 58% sequentially we shipped 7,1000 cameras in the quarter.

As Nick, noted in our first quarter global units sell-through was approximately 50% higher than global units sell-in along our global channel inventory to decline by over 20%. Looking ahead to the second quarter we again expect channel sell-through to be significantly higher and sell-in enabling our global channels to further reduce their inventory ahead of our new product launches. Regionally the Americas accounted for the largest portion of our revenue making up 46% of Q1 revenue followed by EMEA at 33% and APAC at 21%.

Looking at our channel, direct and distribution revenue made up 46% and 54% of Q1 revenue respectively in line with the percentages of revenue we’ve reported in the prior year quarter. Based on retail price point, our 399 and above cameras combined to make up over 50% of our units shipped in the quarter and addition our 199 and below cameras accounted for over 40% of unit shipped. Throughout -- performance greatly improved during the quarter accounting for over 50% of unit shipped at the 199 and below retail price point.

The average selling price of unit shipped increased 16% sequentially. This is defined as total revenue provided by camera unit shipments and excludes price protection related to charges taken in both quarters. The improvement and average selling price was due to a higher proportion of 399 and above cameras and the 199 HERO Session replacing the 129 HERO. Seasonally higher first quarter accessory revenue has a favorable impact on the comparison to the fourth quarter average selling price.

On a year-over-year basis, the average selling prices were slightly lower. We did not experience any noticeable pricing pressure for our products during the quarter.

Gross margin for the first quarter was 33% impacted by charges related to our legacy products of $8 million for excess purchase commitments, inventory write-downs and marketing development funds or MDF compared to 45.2% in the year-ago period. Excluding the charges, our gross margin in the first quarter would have been 36.8%.

These charges were the results of lower sales estimate for end of life HERO products. We have no further financial exposure remaining from either purchase commitments or our inventory specifically related to our end of life HERO camera line.

Operating expenses of $157.5 million in the first quarter of 2016 were up 37% year-over-year. R&D was up 46% year-over-year reflecting our investment in the development of next-generation cameras and drone-related products, as well as our software and entertainment initiatives.

So the marketing expenses grew 38% year-over-year reflecting the increase in our extended branding and product marketing efforts which began in earnest during the fourth quarter of 2015.

In January, we adopted a structuring plan designed to better align our resources to key growth initiatives resulting from restructuring expenses of $6.5 million in the first quarter. We plan to reinvest savings related to the restructuring into our most important priorities to drive revenue growth. Headcount at the end of March was 1,483.

We recorded an operating loss in the first quarter of $96.8 million and an adjusted EBITDA loss of per share in the first quarter was $0.53 down from diluted earnings per share of $0.24 in the prior year comparable quarter.

GAAP net loss for the first quarter was $107.5 million or a loss of $0.78 per share. This compares with GAAP net income of $16.8 million or $0.11 per diluted share for Q1 2015.

Turning to the balance sheet; we ended the quarter with cash, cash equivalents, and marketable securities of approximately $389 million, down $85 million from year-end including $45 million in acquisition-related payments.

In March we secured a $250 million asset-backed credit facility. As of March 31, the borrowing base available to the company under the facility was approximately $86 million and no borrowings have been made to-date.

Accounts receivable were $46.5 million at March 31 and DSOs were 23 days with net collections of nearly $100 million. Net inventory of $139.7 million was down 26% sequentially and reflects our lowest inventory level since the third quarter of 2014. In addition we expect inventory to decline further in the second quarter.

I will now move on to our guidance. We are affirming our 2016 revenue guidance range of $1.35 billion to $1.5 billion. We expect modest sequential revenue growth in the second quarter resulting in the vast majority of our full year revenue occurring in the second half of the year. Our guidance takes into account to the delay in Karma, the launch of our VR products, and the introduction of our next generation HERO5 cameras and accessories.

We expect gross margin for the first quarter of 2016, excluding the charges related to our legacy HERO products to represent the low point for the year. A hardware launch of this year will be accompanied by ongoing software improvements and robust editing tools with desktop and mobile platforms. In addition as Tony mentioned, our marketing efforts are having a positive impact on sell-through and we remain committed to both brand and product marketing for the remainder of the year. As a result, we expect total operating expenses to grow sequentially throughout the year with research and development contributing to the majority of the growth.

So with that operator, we are ready to take questions.

Question & Answer

Operator:

Ladies and gentlemen the question-and-answer session will be conducted electronically. Your first question will come from Paul Coster with JPMorgan.

Paul Coster:JP Morgan:

Yes thanks for taking my question. First up, you’ve depleted the channel inventory in readiness for the next HERO launch later this year. Can you just talk to us a little bit about what the plan would be for the HERO4 product would in the channel? Because one of the problems you had last year was you had a lot of products on sale at the same time. As you bring our HERO5, I assume that you’ll try and retire the HERO4 product a bit more quickly this time and the other question is on HERO Session which is obviously doing much better.

It is doing much better but it is doing so at a price point and a gross margin that was not originally intended. Is it sustainable as you look at the portfolio rolling forward? Thank you.

Brian McGee:Chief Financial Officer:

Hi Paul. This is Brian McGee. Let me take a kind of this is for you. Yes, clearly with HERO4 we will transition it.

I think we have a very effective transition plan for the product. We’ve already reduced channel inventory for HERO4 lineup as well as our inventory. So I think that one I think we have pretty well on hand. I think we learned a lot since form the last time.

As far as Session goes, we’ve actually done a pretty good job of cost reducing that product. A more expensive product was sold in Q1 and a less expensive cost per unit product will be introduced in Q2. So we’ve actually taken pretty good cut at the product cost -- to drive that margin.

Anthony J. Bates:

Yes and Paul just to add - it’s Tommy - just to clarify what Brian said is you’ll actually see the HERO Session in the marketplace and not the HERO4 Session.

Paul Coster:

Right. So as we kind of approach this new product cycle, I think summer you named 4 or 5 factors that you kind of got wrong you know so many products the differentiation was right. There wasn’t enough marketing et cetera. You feel like all of the boxes have been ticked off this time and just sort of summarize how you -- your degree of confidence going into this product cycle?

Nicholas Woodman:

Hi Paul this is Nick speaking. Yes, we are feeling very good about lessons learned from last year and traditionally GoPro has succeeded with a good-better-best product strategy that has the right products for consumer at pretty clear and easy to understand price points. Three has been a magic number for us in the past and it will be a magic number for us moving forward and we’re already seeing the benefits of our simple simplified product line up in the market today. Sell-through is improving and we are seeing beneficial changes to skew mix.

So, so far it seems that our strategy is working.

Anthony J. Bates:

Yes and Paul the other lesson learned and we touching it before was really making sure we put in the right level of emphasis on the marketing spend and I touched on that in the prepared remarks but we have seen the increase in sell-through that we described so that will be key part and a key element moving forward as well.

Paul Coster:

Got it. Thank you.

Operator:

Next we’ll hear from Joseph Wolf with Barclays.

Brian:Barclays:

Hey guy’s its Brian on for Joe. Just a quick question on Karma. Now that you’ve kind of come to the decision to delay till March, does that have any impact on the HERO5 timing or could those be launched in conjunction for the holidays? Thanks.

Nicholas Woodman:

Good question and just the simple answer is no. Karma’s schedule does not have any effect on a relation to HERO5.

Brian:

Okay Great. And then is there -- can you guys give any more color on sort of the margin profile of Karma or how we should sort of think about layering it into our model in ‘17 and ‘18.

Brain McGee:

No. This is Brian again. We didn’t do that and in fact we have Karma built into our model and we can’t develop margins in prepared remarks we could say that Q1 would be kind of a low point for the quarter through the invest the charges for the year 2016.

Brian:

Okay. Thanks guys.

Nicholas Woodman:

Thank you.

Operator:

From Goldman Sachs, Simona Jankowski.

Doug Clark:Goldman Sachs:

Hi. This is actually Doug Clark on behalf of Simona. First question going back to the kind of channel inventory and sell-in versus sell-through. Understand sell-through is supposed to be higher again in the second quarter.

Can you give us a sense of where we are in absolute levels or where you expect to be kind of exiting second quarter in terms of that inventory reduction?

Brain McGee:

This is Brian again. I mean we would expect to see inventories come down pretty substantially in the channel in Q2 order of magnitude think in the range of 35% to 50% down on the inventory basis in the channel, it’s pretty substantial and our inventory will come down as well.

Doug Clark:

Okay. That’s helpful and then second question was and I think you kind of talked about this in terms of the back end loaded year but I want to revisit the monetization of kind of software products and now it’s sounds like VR products. Can you talk a little bit about kind of your current strategy with a broader portfolio and some of the acquisitions that you made?

Nicholas Woodman:

Yes, in terms of as you mentioned we have a much broader portfolio including mobile now, I wouldn’t say that you should focus heavily on a monetization strategy at this stage. We’re really trying do is put the best possible portfolio of products across an ecosystem ranging from desktop to mobile both for traditional capture devices as well as VR. There is a small amount of revenue that does come from the VR side of it. As you know we acquired Color but I wouldn’t say that’s going to be material in this year.

Doug Clark:

Okay great. Thanks for taking my questions.

Operator:

From Dougherty and Company, Charlie Anderson.

Charlie Anderson:Dougherty and Company:

Yes. Thanks for taking my question. I am sorry I was jumping between calls and missed the scripts so may be this has been answered but on Karma I wonder now that you have the benefit of time, is there anything that will change there as far as pricing or the way it’s been engineered look and feel anything like that, and I wanted to see your views on the drone market. Is there something we’re going to have to annually refresh kind of like the big competitors there where is pricing looks like it’s going to shake up by the time looking to Q4 just any color there will be helpful. Thanks.

Nicholas Woodman

Hey, Charlie this is Nicholas are good questions. We can’t share any information about how Karma may or may not evolve as we get closer to launch, but what I can share is that we are incredibly excited about this product and the upside to the delay is that it does allow us launch Karma at terrific time in the year and we do expected to benefit from the holidays and then additionally as it relates to product refreshers moving forward again it’s something that we can’t share and we historically don’t share information about our roadmap or changes that may occur.

Charlie Anderson:

Okay. Thanks so much.

Nicholas Woodman:

Thank you.

Operator:

Next we hear from Andrew Uerkwitz with Oppenheimer.

Andrew Uerkwitz:Oppenheimer & Company:

Hey thanks for taking my call question. Just could you talk about little about the strategy of integrating the mobile apps is their way to monetize that and if you could share number of active users and kind of how you view that fit into everything. Thank you.

Brain McGee:

Sure. We are really excited about our acquisition in both Replay and Splice they are both best in class mobile editors Splice being a more manual added experience and Replay now quick being a more automated edict experience and what we shared on the call is that we plan to unite those two experiences into one combined apps overtime. That will make it easy for our customers and for smart-phone users as well to more easily create terrific engaging edits in the matter of seconds and this is an interesting and important evolution of our strategy. We see GoPro as a content enabling platform, but historically we’ve seen it is content enabling platform for people that on the GoPro and now moving forward we’ve expanded our view to look at GoPro as a platform to enable anyone with the GoPro or with the smartphone to create to help them create terrific content.

So I invite you to download and try the Quik and Splice apps and why do want to GoPro or not you can create awesome footage using content you already have in your smartphone and you can see how the strategy extends our brand and extends our solutions in a meaningful way in the smartphone users so that we can prove GoPro to them and overtime potentially up sell them on our other products and services and so that’s an opportunity for us to leverage our software to grow our core business.

Nicholas Woodman:

And Andrew just I will address the couple of other parts of your question. One you just said give me updates on usage. What we can tell right now is both these apps coming in over a million used top number. The other thing just to give you a real time update we just as I mentioned earlier we just put in US in the apps store and we’ve been really, really pleased with the over writings and just level of interest and downloads.

So we bit about what’s going on there and you ask monetization again yes, in the short term the plan is ready to create the best anything solutions out those drive more engagement or drive more people to get excited about GoPro and that’s our best strategy for now.

Andrew Uerkwitz:

I appreciate that thanks guys

Operator:

from Robert Baird we will hear from Will Power.

Will Power:Robert Baird:

Great thanks for taking the question. Yes I guess the couple of questions. I know you maintain full year guidance I guess Splice the delay of the Karma I guess I am wondering what you expect that to offset can you have the color there will be helpful?

Nicholas Woodman:

Could you ask the question again. I am sorry.

Will Power:

Okay, yes I am sorry you couldn’t hear me. So you maintained the full year guidance despite the delay of the Karma and I am guess I am trying to understand what might be offset in that to give you confidence in the full year number.?

Brian McGee:

Yes so, well first of all we’ve been doing a great job in Q1 hitting those numbers and we have a pretty good visibility coming into the next quarter and the back half of the year with the nice launch it’s going to be both capture devices as well Karma so both from the mix we expect to be shipping both and we are going to stay in the guidance range.

Will Power:

Okay, and may be just a long those lives if you could comment on your confidence around the Q2 guidance going for sequentially increased without new products I assume that just normal seasonality any other color there would be helpful.

Brian McGee:

No we’ve said it would be up bit modestly to Q2 and actually Q2 tends to be seasonally little bit lower quite frankly but we have pretty good -- that going to come out that.

Nicholas Woodman:

The other thing just to touch on in terms of confidence level as we took about couple of times in the remarks we have seen I am very effective response B2B the marketing spend particularly the product marketing so that just gives the -- level of confidence in terms of execution.

Will Power:

Okay. Thank you.

Operator:

And moving on from Pacific Crest Securities, will hear from Brad Erickson.

Brad Erickson:Pacific Crest Securities:

Hi. Thanks for taking my questions. Obviously since its Brain I guess two years now since your last high-end launch with the HERO Black and Silver how should we think about the -- your expectation I guess the HERO5 consumer mix and replacement sales versus sort of new buyers with the categories just be curious your expectation for the portion of each for that products.

Brain McGee:

That’s a good question. I think we feel very about HERO5 value proposition both two core existing customers as well as new more mass market customers. We have been very open about our desire and focus on a broader customer base for the last couple of years and you are seeing it now in terms of the types of software that we’re developing and experiences we’re creating and how we’re are now are positioning GoPro as a content enabling solution for smart-phone users and casual users as well as our existing core customer base and you are going to see that approach continue in our hardware design as well.

Brad Erickson:

Got it and then could you maybe talk little bit about the distribution plan for Cameras and hence there is that something that’s going to get into the majority of your stores where you already add for cameras initially I guess any specific geographies that maybe included or excluded first. Thanks

Brian McGee:

Again a good question we can’t share that expert what we can share is that we do believe that ---- is going to benefit from our global distribution it’s going to benefit from the global strength of our brand and -- is very much in line with types of value preposition that have resonated with consumers so far from GoPro so expect consistency there but beyond that we can’t share any information about our distribution plans for --.

Brad Erickson:

No that was all. Thank you very much

Operator:

Moving on from Stifel we have Jim Duffy.

Jim Duffy:Stifel:

Hello guys couple of questions for me around the software platform in the strategy. Firstly are you on track for the content management platform introduction later this year

Nicholas Woodman:

Yes I think what we can tell you about specific that we really feel good about the progress we have made in software both in recent evolution of the application side of it and continued progress on the content management side in fact I would point you to even some of the pieces the work we done on the recent GoPro for desktop where we you see the first sort of vision a great unified media management platform can look like. So we haven’t really disclosed details or timing but we feel very good about the progress.

Jim Duffy:

Okay and then you touched on the some parameter. Can you help us a little more on the decision process and strategic rationale for supporting smartphone footage you mentioned overtime up sell opportunities to these customers little bit more shape around just how that generates revenue?

Nicholas Woodman:

Sure it’s a good question specifically we believe that smartphone users and GoPro users like there is obviously a lot of overlap. All have a shared interest in creating short and engaging videos to share, so for example if you go on a holiday with your family and if you just using your smartphone and you capture 15 different videos and 30 photos it’s difficult for a smartphone users to simplify that into a short summary added that they can use to share their experience themselves and with family so there is a desire for smart phone users to create compelling confidence just there as a desire for GoPro customers and that if GoPro can provide solutions to smart phone users that help them be more successful story tellers more habitual video story tellers than overtime we can get them thinking about our hardware products in ways that they haven’t before. So few more regularly creating and sharing video from your smart phone content. It’s not a stretch to think that you’ve thinking about using a GoPro to help you capture new prospective and new types of content and you otherwise could with you smart phone.

So in short opening up our software solutions just to include smart phone users allows us to build the relationship with the community consumers that we are not currently reaching.

Jim Duffy:

That’s helpful Nick thanks for that and my last question just on the go forward strategy on build versus buyer license any new thinking with respect to that you continue to invest in the R&D line what we’ve seen in a more of recent activity with acquisitions?

Nicholas Woodman:

Well, where we see opportunities to accelerate our vision and where it make sense from a product and from a cultural perspective we will go for it. We are excited about our vision. The vision remains the same and we are aggressive and are pursued a bit. So where we can build internally well but where we need to look at the outside we will do that as well.

Jim Duffy:

Okay. Thank you.

Operator:

From Piper Jaffray will hear from Erin Murphy.

Erin Murphy:Piper Jaffray:

Great. Thanks. Good afternoon. Couple of questions first Nicks I was hoping you can may be speak to the decision to bring Danny Coster from Apple and how do you plans that kind of work alongside with him and then when this I can’t remember when he start so when he start kind of what products or what kind of future product pipeline here already have you are working on. Thanks.

Nicholas Woodman:

Sure. Danny has been here a couple of weeks now and he is acting as my right hand in design across all of the company and the rational out for bringing Danny and is that we are constantly looking to advanced and enhanced our approach to business and our approach to design we are a customer consumer facing business and we recognize the need continue to push who one that is applicable on all fronts and really that means bringing in the best possible of people to help expand the potential of our team. We have incredible team here at GoPro I think over the last couple of years you have seen outstanding advancements in the design and presentation of GoPro’s products and brand and Danny is just a fabulous addition to that.

Erin Murphy:

And then in terms of the product that he will be working on or you guys kind of working on 2017, 2018 assist plan or is he able to effect some of the product launches that could even be are they you’ve already talked about for the back half of this year.

Brain McGee:

Yes to both aspect to your question we are certainly on products that go years out. But where there are opportunities to effect more near-term products Danny and the rest of the design team are making improvements there as well.

Erin Murphy:

Okay. And then I guess just in terms of overall retail ASPs during the quarter can you just speak to kind of the trends of the capture devices in the quarter itself if you just kind of get back to -- map think a little bit better than you are anticipating but if you could just provide any color for the pricing trends during the quarter that will be great.

Brain McGee:

Yes --. First in terms were our favorable because of mix in price and also with Session kind of replacing the HERO 129 products. So more favorable at more Session last of the 129 product and I think with seasonal impacts from accessories also have as well and then and we saw really no pricing pressure in the market and you see that even on the year-over-year comparison where ASPs were essentially unchanged year-over-year.

Erin Murphy:

Okay thanks and then

Anthony J. Bates:

And then it’s Tony just add me one my to look at it is with for the clearing of the inventory what you seeing is obviously the sell-in and that’s whey its much similar to last year. It’s much more like the good-better-best portfolio strategy that we have before right so it’s that’s why it’s going to playing out that way.

Erin Murphy:

Thanks Tony for that and then not be the dead horse on the Karma but I guess what I’m trying to understand is if you guys have obviously push the back half of the year what maybe would the revenue guidance in Q2 potentially it looks like I mean you looking for little bit of an acceleration versus Q1. How much more would have been in Q2 and then I guess with just lack of the runway at the end of the year when you do start shipping into the channel closer to holiday. I guess I saw I am struggling to understand the content that you guys have if it is more unit shipping in more retailer -- commitment because you just don’t have that runway on the back into the launch to really see the sell-through rates necessarily materialized this year. So any kind of context around that will be helpful for our model.

Brain McGee:

Yes and I think in the most products most of the revenue we have had has been second half anyway quite frankly. So that’s I think the way you need to think about it. And we don’t really give guidance on specific products so but in this case it’s really second half driven and principally has been anyway.

Erin Murphy:

Thank you guys. Best of luck.

Brain McGee:

Thank you.

Operator:

From Morgan Stanley we will go to James Faucette.

Yuuji Anderson:Morgan Stanley:

Hi this is Yuuji Anderson on for James. Thanks for taking my question. Just the question on the APAC growth. Was that mostly China there I mean specifically curious to hear with the contribution was like from the -- relationship or is there any other region sort of on the up there and how should we think about product mix in APAC generally?

Anthony J. Bates:

No actually it was actually the broad countries that contributes we still feel very good about China but it wasn’t they won’t necessarily be stand out. So is abroad say across APAC and common give you too much color on the overall mix but the mix in generally was very, very similar what we’re seeing in the rest our business.

Yuuji Anderson:

Got it. And then so when we think about just as a follow up on the channel reduction. How much of what is left is waited towards the legacy products versus perhaps like some other reduction for your core line up there?

Brain McGee:

Yuuji this is Brian. We’ve actually reduced inventories similar to across the board quite frankly and I think still over broad Session is may be come down a little bit quicker. You should be mostly through the HERO, HERO+ by in this second quarter from the sell-through prospective and HERO+ LCD take a little bit longer but its they are all moving pretty well.

Yuuji Anderson:

Great. Thanks so much.

Operator:

Next question will come from Rob Stone with Cowen and Company.

Rob Stone:Cowen and Company:

Hi guys. Thanks for taking my question. First one is for Brian. Could you just comment on how we should think about the effective tax rate for this year. The rate that equates to the benefit for this quarter was little lower than I was expecting and I do have a follow up. Thanks.

Brain McGee:

So we expect non-GAAP tax rate to be approximately 11% for the year.

Rob Stone:

That’s helpful and then a high level question maybe for Nick. You got a lot of horse power in VR for professional how you thinking about the consumer of VR and VR capture market.

Nicholas Woodman:

We think that GoPro has an opportunity to be a leader in consumer VR just as it has been a leader in its current market enabling new perspective that weren’t possible before and differentiated forms of capture we think that our brand and our reputation translate directly into virtual reality and something that we’re extremely excited about and you can see our interest and our dedication through the acquisition of Color and through our advancements in more professional capture solutions like Autocy and now Omni and as you see those products get smaller more compact and simplified you can see what direction we’re headed in for consumers.

Rob Stone:

Great I want to ask you when consumer products come in. Thanks.

Nicholas Woodman:

Thanks for not asking.

Operator:

From Sterne Agee here from Rob Cihra.

Rob Cihra:Sterne Agee:

Great. Thanks very much I just want go back to software strategy and investments. Second which is just kind I’m trying to figure out what the key goal is because if you look at video pile ups always been a big pain point for video and that’s always been relatively easy to shoot video and hard to do something with it. So I am trying to what GoPro is looking to do I mean is that the replay now the quick product is that automation is that kind of a key and whether there is not I guess it is that how you differentiate your product to get value add and sell more cameras and if so how you do that by making openly available as of that earlier. Thanks.

Brain McGee:

I think we have been very consistent on the vision for software in general which has been always one of the biggest time points as you mentioned it’s easy to capture a lot of content but have you ever manage it and in easy way and then get to that great add quickly and then have the ability to share it and that feels how about your cycle could have see this great content has been shared by your friends on social media and so on then you are more excited go and do that and by GoPro capture devices and so we really believe, we need to bring that the whole solution and we see in particular as you probably aware mobile is a key aspects of that because people are snacking quickly and far sharing and so.

So that’s the premise of the strategy and the most important thing for us to do is really make that seamless as easy as possible and to address what you lost one of the things that we saw with during the two acquisitions is not one or the other but it is automatic. You always going to have new users who would like to have something very quick and get you to a very quick story that you can share and that’s more on the automatic side but one of the things we loved about Splice in particular thing of it is fairly advanced ---- with the lot of control for the creative to do and so really as Nick eluded to the thing that is very powerful strategy of brining those two things together.

Operator:

And at this time I would like to turn the Conference back over to Mr. Woodman for any additional or concluding remarks.

Nicholas Woodman:

Well I would just like to thank everybody for joining the Call. We appreciate very much and on behalf of all of GoPro this is Team GoPro signing of.

Operator:

Ladies and gentlemen that does concludes today’s presentation we do thank everyone for your participation.

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