Hello, and welcome to the GoPro First Quarter 2024 Earnings Call. My name is Lauren, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Chris Clark, VP, Corporate Communications, to begin. Please go ahead.

Thank you, Lauren. Good afternoon, and welcome to GoPro's First Quarter 2024 Earnings Conference Call. With me today are GoPro's CEO, Nicholas Woodman; and CFO and COO, Brian McGee. Today's agenda will include brief commentary from Nick followed by Q&A. For detailed information about our first quarter 2024 performance as well as outlook, please read our Q1 2024 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 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. 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, 2023, which is on file with the Securities and Exchange Commission and as updated in filings with the SEC, including the quarterly report on Form 10-Q for the quarter ended March 31, 2024. 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 our remarks 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, everybody, for joining us today. GoPro exceeded guidance in Q1, delivering revenue of $155.5 million, non-GAAP gross margin of 34.4% and non-GAAP EPS loss of $0.21. We ended Q1 with 2.5 million subscribers, a 6% year-over-year increase. Today's earnings call marks the 1-year anniversary of the start of our multiyear transition to expand our TAM by restoring our brand presence at retail, scaling our marketing efforts in our core markets and substantially broadening our product portfolio to serve more people who want to capture, create and share content in ways that go beyond the phone. GoPro's brand resonates with a broad range of end users from active consumers to professional athletes, influencers and film and television professionals who rely on their GoPros to capture unique content that stands out. We see an opportunity to be the world's most exciting brand focused on enabling differentiated alternative forms of content creation across a broad range of markets and use cases. To date, we've been primarily serving this wide range of users and use cases with the world's most versatile camera, the HERO camera. And while the HERO camera has done an amazing job in its role and will continue to be our flagship for some time, we believe we can expand our TAM and business by developing a broader range of products that more specifically meet the needs of our customers while also targeting entirely new market segments. In 2026, we expect to have in market the broadest, most differentiated lineup in our history. We are developing a full spectrum of specialized, diversified products to serve consumers' capture needs in more convenient and enjoyable ways than ever before at price points ranging from entry level through professional. Rather than compete in a digital imaging market with me-too products,…

[Operator Instructions] Our first question comes from Erik Woodring from Morgan Stanley.

This is [ Katy ] on behalf of Erik Woodring. So I just wanted to ask. You alluded to a delay in the launch of your new entry-level camera to the third quarter. So could you please walk us through what's unfolding behind the scene? Like what's the main factor that's causing the delay? And when did you realize this delay and how significant it was? And what gives you confidence that all of your other product launches remain on track this year? And I have a follow-up.

Yes, I think the main focus for our 360 product, as with any of our products, is to launch at the highest quality experience possible. So we're taking more time to get that experience to live up to the brand promise for our customers. And same goes for our entry-level product. Our flagship new HERO camera remains on track. And obviously, we're very excited about that. That's going to be a terrific new product that's going to really impress people with a number of new features and capabilities. And I just want to reiterate that, that product remains on track. And what gives us confidence in the time line for our various products is specifically that we're giving ourselves more time to launch these products at a performance and quality level that people have come to expect from GoPro.

And actually, maybe I'll come over the top -- maybe I'll come over the top on that one before the next question. The quality piece is really important. And I'd argue our HERO12 Black is arguably the best quality product we put out in the market from the accolades from people who use it, but it manifests itself in different ways. Like it's got the lowest return rate of any camera [ you've ever seen ]. It has the lowest warranty rate. The warranty rates are always small anyway, but it's like cut in half or better. The call volumes in the customer support are less than half of what they would be in other cameras. So the team has done a great job improving the quality of the products we put out, and we -- that's what our customers expect. So we'll continue to do that and make sure they're ready when they're ready.

Yes. Sounds good. That's a great explanation. So just on -- just as a follow-up, even if we adjust for the pushout for the entry launch, your revenue guidance is implying a below seasonal 2Q. So how much of that is macro driven or micro driven? Like how would you describe to us elongating replacement cycles or pause in demand for new product launches?

Yes. Maybe I'll start on this one, and Nick can comment to it. We had anticipated that retail would grow into this year. And in fact, retailers are reporting flat to down revenue in their businesses, largely due to macroeconomic factors. In addition, we're seeing retailers also carrying less inventory. And the economic conditions, I think, in the U.S. and China are good examples of that. You're seeing it reported almost every day. On the flip side, we have been able to grow in Europe. And it was up, I think, 13% year-over-year in the quarter. And that's through expanding our door count and our distributors. I think we added twice the number of distributors over the last year. And the increase in distribution in doors in Europe has overcome or helped offset the impact of larger macroeconomic environment in Europe. So we are seeing positive development from that perspective on getting door count. And I guess the other one I'll point out is our subscription business continues to be a bright spot. We had 48% attach in Q1, a new record, 69% annual aggregate retention rate. And so yes, still at 2.5 million subs. And we're adding, as Nick said, 20,000-plus Premium+ subscribers. So definitely, people who are buying the cameras are engaged and staying engaged on the subscription and with the product.

Thank you. Our next question comes from Andrew Northcutt from Oppenheimer.

This is Andrew on for Martin. I just have 2 questions today. Well, you said that 80% of the Premium+ subscribers have upgraded from the original Premium tier. So where did the other 20% come from? And then I have a follow-up after that.

Andrew, the other 20% were people who are new to subscription, and they bought the Premium+ subscription at $100.

Okay. Got it. And then in the prepared remarks or the management commentary rather, you cite a little bit of increasing competition. Could you give us a little more detail on the competitive pressure? Is that coming from heavier discounting, future differentiation? Any extra detail would be great.

Yes. We've seen some increased competition in our core HERO camera category, specifically through discounting and discounting that is questionable, whether that's at a sustainable level for our competitors. But that's what's been impacting the core HERO camera business specifically, is extremely discounted product, which tells you that they were likely having trouble moving that product without discounting, and sell-through data that we were seeing was indicating that as well. And then in the 360 space, we haven't come out with a new MAX 360 camera since MAX's launch in 2019. And during that period, the 360 category grew considerably. And so we're really excited for MAX 2 and excited to take back considerable share we believe with the launch of that product. Unfortunately, that product pushing out to late Q4 doesn't help us on that front until then. But that's another area where we've been absent with new product introductions for a few years, and MAX 2 represents a significant opportunity for us to take back share there over time. Those are the 2 primary areas of competition that we've been seeing.

Yes. Nick, I'd add on to that. And the price discounting continues actually in China as well. And the combination of the economy in China and folks buying more local brands instead of GoPro, which is I think, a phenomenon we're seeing across the China market with other brands. So that's definitely impacted us as well.

Yes. I would say a bright spot -- a few bright spots with regards to competition is our upcoming new entry-level camera that we're launching in Q3 has received really positive feedback from retailers and distributors and as well athletes and influencers that we've shared that product with. So we're very encouraged by the TAM expanding potential this entry-level product will have. It's a different type of product than we've made before. And it's really in response to consumer research that we've done for what -- not just entry level but what consumers in general want to see from GoPro. So we think we're hitting it on all marks with that product, and that's coming in Q3. And then as well, our new flagship HERO camera, as I previously mentioned, is on track for launch later this year. And we think that that's going to be redefining the HERO camera category with the speakers and capabilities. And then, of course, when we do launch MAX 2 towards the end of Q4, we're expecting that to be very competitive as well. So on all fronts, we think that we're well positioned, but we've got a little bit of ways to go to get to launch those products.

Thank you. We have no further questions. So I will now hand back over to the management team for closing remarks.

Well, thank you, operator, and thank you, everyone, for joining today's call. As we mentioned, we believe that we have the right long-term strategy to expand GoPro into new markets in order to grow -- to drive growth and profitability. However, we recognize that this will require patience, but we believe that patience will be rewarded over the long term. Thank you very much, everybody, for joining today. This is team GoPro signing off.

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