GoPro (NASDAQ:GPRO) Q3 2020 Earnings Call

0:01 and welcome to the GoPros third quarter 2020 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Vice President of Corporate Communications, Christopher Clark. Mr. Clark, please go ahead. Thank you, Casey. Good afternoon, everyone, and welcome to GoPros Q3 2020 earnings conference call. With me today are GoPros CEO, Nicholas Woodman, and CFO and COO, Brian McGee. Before we get started, 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.

0:50 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 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 ended December 31, 2019, 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, including the quarterly report on Form 10-Q for the quarter ended September 30, 2020.

1:46 Today we may discuss gross margin, operating expense, net profit and loss, 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 non-GAAP reporting internally to evaluate and manage our operations. 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 and which is posted on our website.

2:33 In addition to the earnings press release, we have posted management commentary and slides containing detailed financial data and metrics for the third quarter 2020. The management commentary and slides, as well as a link to today's live webcast and a replay of this conference call, are posted on the GoPro Investor Relations website for your reference. All income statement-related numbers that are discussed today during the call, other than revenue, are non-GAAP unless otherwise noted. Now, I'll turn the call over to GoPro's founder and CEO, Nicholas Woodman. Thanks, Chris, and good afternoon, everyone. Once again, we've chosen to post management commentary for our quarterly results, including Brian's financial overview, to the GoPro Investor Relations page on our website, and we encourage all to read the commentary.

3:24 Now I will give a brief remarks about the third quarter, and then we'll go directly into Q&A. As we shared in the management commentary, thanks to consistent momentum throughout the quarter and a strong launch of Hero 9 Black, coupled with our GoPro subscription service, In Q3, GoPro generated non-GAAP EPS of $0.20, $100 million of operating cash flow, and we expect to be profitable for the full year 2020. I'd like to thank all of GoPro's employees for their tremendous execution in a challenging year. It's thanks to them that we achieved such terrific results in Q3 and are poised for success going forward. With the launch of Hero 9 Black, we debuted not only an exciting new flagship, but our strategy to make the GoPro subscription central to our business and customer experience.

4:21 GoPro subscribers who purchase directly from GoPro.com enjoy far more value than non-subscribers, while generating improved margin and cash flow for our business. This increased value to consumers at GoPro.com is accelerating our direct-to-consumer strategy while driving GoPro subscriber growth, both of which we believe will improve our customers' lifetime value, a positive impact on profitability. We are seeing higher average order values and accessory attach rates with subscriber customers versus non-subscribers. An indication that subscribers are taking advantage of their subscription benefits in a manner that also increases their value to GoPro.

5:08 Other highlights from the quarter include revenue growth of 109% sequentially and record GoPro.com revenue of $81 million. We estimate sell-through of approximately 955,000 cameras, exceeding our expectations. We believe our Q3 performance sets us up for a strong Q4 and we expect to achieve full-year non-GAAP profitability. We expect to exit 2020 with low channel inventory, positioning us well for 2021. Our direct-to-consumer, subscription-centric approach is generating improved cash flow, margin, and LTV while delivering a high-margin subscription revenue stream we expect will have a positive impact on profitability in 2021.

5:59 We'll now move on to Q&A. Thank you. If you would like to ask a question, you may press star 1 on your telephone keypad. If you're using a speakerphone, please ensure your mute function is turned off to allow your signal to reach our equipment. If at any point you would like to remove yourself from the queue, you may press star 2. Again, please press star 1 to ask a question. We will pause for a few moments to allow everyone the opportunity to queue for questions. We will take our first question from Andrew Urquitz of Oppenheimer. Thanks, Richard. Let me ask a couple of questions. I just have two questions. The first one is for Brian.

6:46 Brian, could you talk about the change in the business model from a working capital perspective, the benefits there, and how we should think about that on a go-for-ing basis? Clearly it's been a positive, but how positive should we think it could be for cash management as we head into next year? Oh, hi, Andrew. Thanks. Yeah, the new model being direct-to-consumer is helping substantially. We saw that in Q3 where we had nearly $100 million of operating cash flow in the business, and actually a good chunk of that came from working capital. ESOs improved 25% down to 35 days.

7:34 We expect that to go down to 20 to 25 days by the end of Q4 and continue to improve 20 maybe as well as 15 as we get through 2021. So that's definitely helping to drive operating cash flow. We're managing inventory much better. You've noticed actually it's down by 50% from a year ago and down sequentially. and we've continued to reduce our channel inventories which is another area of the business we've been focused on and you'll notice that even in Q4 we expect to reduce channel inventories another 200,000 units and that's more than 800,000 for the year so that has definitely been kind of a headwind for us you know obviously demand's been there at 2.7 our expectation is 2.7 million units of Thank you for joining us.

8:39 You can clearly see it's having a beneficial impact. We've guided for cash to be up $80 million in Q4 sequentially to $225 million, and we should continue to see strong cash generation as we get into 2021. Excellent. Yeah, thank you. It definitely seems like a huge improvement, so I'll update the model for some of those effects in 21. And then, Nick, I have probably an impossible question, so just any comment you can provide, but... Back in March, which seemed years ago, but back in March, obviously, a lot was fluid. A lot was changing. Your sell-through estimates were lower than they were today.

9:27 Clearly, travel hasn't come back. So any color you could provide on changing demographics, changing customers, it matters. Did this open more opportunities for market penetration? Any color on your view of how the customer's changed and what it means going forward? Well, you know, consumers are creative animals, and just because – and they adapt incredibly well to new circumstances. and so even though the coronavirus has placed restrictions on consumers in new ways, you know, travel for example, getting on airplanes, going to foreign countries that won't let you cross their borders anymore, that constraint has led to People traveling more locally and engaging in activities that are closer to home that they can drive to.

10:34 We saw a surge in outdoor activity, be it camping, hiking, biking over the spring and summer months. You know, the old joke about you meet a foreign traveler to your home state and they tell you all the places they've visited and they've always seen more of your state than you have and you were born there. So I think we've seen a shift in that people have gotten to know their local places far more intimately than they did before the coronavirus. There's a lot of positives to that, but including that they've stayed very active and they found a need for a GoPro. There's also arguably an increased need for a GoPro to share these experiences with other people because you can't bring your friends and family along or join them like you used to. So sharing and communicating visually through the use of a camera and when you're being active, that camera is a GoPro for a lot of people.

11:39 That's been obviously a help to our business. But then even with consumers who are staying more at home, staying intensely local if you will they are still creative they have creative needs and desires and whether it's as a hobby or as a part of their work and a GoPro serves as a very capable and versatile tool for creatives for people that want to produce visual content so that hasn't changed at all just because people have stayed at home maybe the content that they're creating has changed a little bit but and then of course you have GoPro's expanded functionality as a web camera. That certainly goes without saying has helped the relevance of our products to people who are working and learning from home and need better video conferencing tools, which a GoPro certainly serves as with its wide-angle view, and you can get a more flattering perspective of yourself than you can from an embedded camera in a laptop or a computer screen. So I think across the board, human interests and tendencies have remained the same, but how they've gone about pursuing them in this era of COVID has changed, but it's not as though humans have stopped being human. They're just doing different things, and fortunately for our business, we still have a meaningful place in their lives.

13:11 We think that the same is going to be for winter, where people aren't going to just stay cooped up in their homes all winter long. just as they had a yearning to get outside and experience their local areas in new ways. We believe they're going to in the wintertime as well. And we think that GoPro is going to continue to serve as a useful communication and creativity tool for people throughout the winter as well as it did throughout the spring and summer. Got it. That's super helpful. I appreciate the color. Congratulations on a strong market. Thanks so much. Thank you. We will take our next question from Jim Siva of Citigroup.

13:56 Thank you so much and congratulations both Nick and Brian. My first question is on the subscribers, are you seeing a higher catch rate of subscribers through GoPro.com or retail or any noticeable difference? And if so, is there anything to glean from that? Hi, Jim. This is Brian. Let me start with that and maybe Nick can chime in. We are definitely seeing a higher tax rate. As we looked in the quarter and we put this in our commentary, particularly in hair and eye and black, 85% of the purchases of hair and eye and black were with the subscription.

14:41 That's a massive number and it's creating a huge opportunity. It's interesting to note that 10% were purchased by listing subscribers and the remaining were without a subscription. So that's really important kind of headed forward because we obviously had strong growth. We expect to be nearly over 700,000 subscribers in 2020. That's greater than 125% growth on a year-over-year basis. And as we look ahead to 2021, If we can start to approach $2 million with the kind of growth rates we're seeing, that's an ARR of about $100 million going forward, just on the subscription, not even counting the long-term costs.

15:33 Thank you for joining us. You know, supplement what we do on hardware and as we talked about, you know, from a model perspective, kind of to Andrew's point, it helps to drive, you know, operating cash flow. It's a diversification from hardware. It's that kind of operating profit is helping to drive margins into the 38% to 40% range that we talked about as a company and to continue to drive earnings per share. So... It's a very exciting development for the company and as well as for the subscribers because they get a lot of value.

16:31 Yeah, I would just add, I think that was well said, and I would add that not only are we seeing higher subscription attach rates, we're seeing higher purchases and accessory attach rates amongst are our subscriber customers. As I mentioned, they're taking advantage, our subscribers are taking advantage of the benefits of being a subscriber. One of those benefits is they get 30% to 50% off mounts and accessories and other goods that we sell at gopo.com. and our subscribers are taking advantage of that subscriber benefit.

17:20 It's driving up their average order value and their accessory attach rate, which obviously indicates we've got a significant lifetime value opportunity to improve that over time through this subscription offering. Great. And then a quick follow-up, but I don't know if it's better for Brian or Nick or both of you, whichever. But in your prepared comments, you mentioned as we begin to contemplate the impact of the expansion in your model, meaning the subscriber base expanding so much. When you talk about contemplating the impact to your model, are you talking about like expanding the scale and scope of your products? Are you contemplating, you know, the way that you go to market because the GoPro.com seems to be direct, seems to be going very well.

18:11 What type of contemplations are you kind of talking about in that reference? Jim, maybe I'll start and then, you know, Mick can chime in. I think it's really related back to what I kind of started talking about. On the model, the direct-to-consumer is a more profitable channel for the company. We're able to sell more subscriptions and more value to the consumer. We're seeing that in records in terms of revenue, and we'll see that again, I think, in Q4. It's expanding our margins. It's expanding our cash flow. and diversifying not so much yet on the revenue basis but definitely on a margin and operating profit basis.

19:04 The direct-to-consumer model is definitely helping along with the subscription benefit. So we see that continuing into 2021 and beyond. Great. Well, congratulations both Nick and Brian. Truly impressive results and thank you so much for the details. Thank you very much. Thank you. And we will take our next question from Paul Chung of JPMorgan. Hi, guys. Thanks for taking my questions. And, you know, great execution this quarter, especially on cash flow. Very nice there. So you saw a big jump in DPC revenues, but your retail mix jumped up as well, sequentially at least. So assume the tax rate for customers going through retail revenues for DTC. I'll start with that. Remember, until The Launch of Hero 9 Black.

20:32 We were growing our subscription business, yes, through direct sales at GoPro.com, where camera buyers could also purchase the subscription at checkout. But we were also growing our subscription numbers by signing on subscribers that bought at retail after the fact, either when they would open their camera packaging and see the literature for the GoPro subscription and explaining the benefits and they'd go online to subscribe, or when they would download the GoPro app to pair with their camera The benefits of being a GoPro subscriber would be explained to them, and they could sign up that way.

21:31 And then, of course, our ongoing CRM and other marketing efforts to convert GoPro users to subscribers. And we grew a nearly 500,000 subscriber base before... incorporating the GoPro subscription more tightly with a camera purchase at GoPro.com and before we drove so much of our business to GoPro.com. So that bodes really well for us to continue to be able to convert retail-based consumers into paying GoPro subscribers using the same methods that we used before the launch of Hero 9 Black. I think that's an important thing to remember that we've gotten quite good at growing our subscriber numbers across multiple channels, and we continue to improve on that.

22:37 And so part of your question is how do we plan to continue to improve? Well, one of the important aspects of making the GoPro subscription so central is to the GoPro experience was to make the GoPro subscription synonymous with GoPro, with the brand and make it synonymous with being a GoPro owner and stack this GoPro subscription with so many benefits, so much value that you're It's just a no-brainer to the consumer to take advantage of it. We've been very focused on making the math simple for the consumer to do, where they look at the $50 annual subscription cost, and then they compare that to the savings that they're going to get either when buying a camera or buying an accessory or buying a gift for a friend or one of their kids or whatnot. And the math is simple, easy to do to realize, wow, I'm going to pay for this subscription in a heartbeat. And that's even before you consider the unlimited cloud storage, the damaged camera replacement guarantee, and even more benefits that we haven't rolled out yet.

23:55 So I think that given the rate of subscriber growth that we've achieved before the launch of Hero9 Black, that's very promising. and given the rate of growth that we're seeing post Hero 9 Black with the new centralized approach to making subscriptions so central to the brand experience, that's very encouraging. And as we load up the subscription with even more value going forward, you can see why we're feeling quite confident about our ability to continue to grow the subscription side of our business. while importantly delivering phenomenal value to the end user, which results in strong retention of those users, strong re-up rates, which is what we've been seeing so far, and as I've mentioned, and opportunity to improve the lifetime value of our customers.

24:51 So across the board, you know, kudos to the GoPro team that's responsible for this area of our business. It feels like we've got a lot of momentum that we can support going forward. Great. Thanks for that. And then, you know, on free cash flow, really good performance there, you know, primarily driven by your higher net income. Your $225 million in ending cash for 4Q suggests a slightly lower pace but nice finish to the year in cash. So we haven't seen cash flows come in in 3Q like this in a long time. Has your cash flow season now changed based on DTC?

25:37 It sounds like you've been getting a lot more efficient on working cap conversions. So as we think about next year and modeling cash flow. Yeah, thanks, Paul. Yeah, free cash flow for Q3 was actually a record for the company since we've been a publicly traded company. It's impressive. A lot of it came from reducing inventory, getting more efficient in AR, which is a direct result of going more direct to consumer because we get paid in three days, not 30 days. from retailers. So that's an important aspect of just the cash generation.

26:23 We'll continue to reduce inventory in Q4. I think we should be down to about $100 million of inventory, our inventory and AR. I think it goes up simply because of lots of dollars of guidance, but it continues to improve. on the metric of DSO at the end of that 25 days. So that's driving cash flows. And as I look ahead to 21, we'll continue to see some, obviously, benefits from the model and continuing to manage Thank you for joining us. And we get that, Paul, because we think, well, we're doing 3.7 million units of sell-through in 2020. Our sell-in is quite a bit less, right, about 2.8 or so. And that difference is really to reduce the amount of inventory that's in the channel. So that gives us tailwinds going into 2021 because if demand should stay, you know, at that kind of level, 3.7, 4 million units, are still in, of course, would be close to that because we'd have our channel inventories aligned.

27:51 So that bodes well for revenue growth. We'll have more direct-to-consumer and more subscriptions, which should keep us in the operating model of 38% to 40%. We'll continue to be more efficient in operating expenses, and that's going to lead to quite a bit of income generation in 2021. leading off with the cash. And then last one on OpEx. You provided $250 million in OpEx for fiscal year 21 during the one Q print. Does this guide still stand? And then what variables can you either flex this up or down relative to where you expect next year? Is there any more cushion to cut costs if top line doesn't agree next year?

28:44 Thanks, guys. Yeah, no worries. With the model, we've been able to reduce operating expenses in 2020 nearly $75 million or so from 2019 levels. So we're still diving into the $300 to $305 range. The $250 number back in, I think, April was assuming a lower amount of sell-ins. and Sell Thru back at the beginning of the pandemic. That's obviously since change. I believe in August we had guided $2.50 to $2.80. I think as we continue to see improvements in Sell Thru, channel inventory, and then so the resulting effects I think in 21 is probably more in the $2.90 range as we see a lift in revenue and do the same. But if it doesn't materialize, there's some, you know, benefits that or objects that we can reduce further needed.

29:55 But we also need to continue to invest in a platform that's going to help drive justice consumers even further in 21 and beyond. Thanks, guys. Great job. Thank you. Thank you. We will take our next question from Eric Woodling of Morgan Stanley. Hey, guys. Congrats on the quarter. I guess I just wanted to ask about your subscriber guidance, so exceeding 700,000 by year end. That implies that you gain more than 200,000 new subscribers in the holiday quarter. But I'd imagine, like you said in the press release, that most of your Hero 9 Black purchasers are purchasing through the subscription.

30:43 So I guess why wouldn't your subscription number by year end be far exceed the 700,000 at this point? Hey, I'll start with this and maybe Nick can chime in. Well, let's see. We'll see. Well, we said it would be above $700,000. You can say how far. Remember, you also have Thank you for joining us today. and so when we factor everything in we come up with you know more than 700,000 we think exiting this year and getting to nearly 2 million by the end of 2021 and again that has significant of nearly $100 million if we look ahead past 2021 at very high operating margins in the 50% range.

32:04 So that starts to transform the business both now then on a revenue basis as well as margins and earnings per share and cash flow. Yeah, I would also add that there's a bit of a lag between When a retail consumer buys their camera and when they would sign up for a subscription, so you have to factor that time gap into account. And as well, when you're talking about GoPros that are received as gifts, so we'll sell a number of GoPros during the holidays, they get opened on Christmas, then those customers also there's a lag there where now that gift recipient is now the owner needs to learn about the GoPro subscription and there's a time lag for them to become a subscriber as well.

33:08 So you can't just map the time of purchase of the GoPro necessarily to when that subscriber should show up. Okay, that's helpful. I guess If we're thinking bigger picture with the Hero 9 Black, I think you guys addressed a number of what you could call pain points, whether it's the front-facing color display, the removable lenses, which all look awesome. I guess I'm just thinking as you look forward on your product roadmap, where do you hear from customers or what are customers saying that they're looking for and how could that kind of influence your new hardware and new software features you're thinking about that could drive camera upgrades into the future?

33:56 That's a great question, but I can't share that with you because I would be sharing information Very valuable consumer research that helps us drive our roadmap, right? I'll answer it a different way by reiterating that we do a lot of consumer research to understand both what our existing users are enjoying or not about our current products, what they'd like to see most. That helps us with driving upgrade and keeping people engaged within our community. And then we also do research to understand why aren't potential customers buying a GoPro?

34:54 What's keeping them on the fences? and what would they like to see? Is it something entirely new or is it just one or two things that are irking them? Is it something about the brand? Is it something about the pricing? And is there an entirely new problem that we're not aware of that we can solve for people that maybe results in a new product? That research is ever ongoing. All of the products that we make now, be it hardware or software, is heavily researched, and that should give investors more confidence in GoPro's new product rollouts over time, that they're informed. I can share with you, I think everybody that's been following the company for a while knows that we had so much success in our early years that, you know, we were more of a startup culture, and we were flying by the seat of our pants, just holding onto the rocket ship that was GoPro.

35:56 And it wasn't in our culture to do a lot of this market research. Well, that's changed over the last, oh, about three years ago, three and a half years ago, we started to really invest and get good at it. And now we have an excellent team that works very efficiently at staying in touch with consumers about what they'd like to see from GoPro. So it's said differently. Whether it's the growth in the subscription business, whether it's the critical acclaim Hero 9 Black has received, whether it's the four and a half stars you see for our app in the app store, whether it's all of the above, none of them are accidents.

36:41 They're a result of research that is allowing us to make better, more strategic decisions on behalf of our customers. which is leading to an improved business. You combine that with a B2C and subscription-centric strategy which we also evaluated research with consumers. Again, hats off to the team at GoPro and everybody who's responsible for these areas of the business. They've been doing terrific work. The research has obviously played out as well as the business decisions that came out of that research. No, that's awesome. And if I could sneak one last one in here. Clearly a benefit of the new subscription bundle is the discount on the camera relative to the camera as a standalone. And so I guess how do you guys at GoPro make sure that these new subscribers aren't just taking advantage of the pricing discount and can remain subscribers longer than one year and don't turn off the platform at a higher rate than theoretically the subscribers you had prior to the change in the pricing model?

37:53 Thanks. Well, you'll get some bleed out, right? I mean, that's inevitable. But as long as you're net-net coming out ahead and ideally coming out very far ahead, you've hit on a terrific marketing approach to drive subscription and then prove to these new subscribers how much value there is in the program and ensure that they're educated on that value. And then as they realize that value over their year of subscription, they become long-term subscribers because they realize it. And as I mentioned in my answer to a previous question, we're going at great lengths to make the value very obvious to consumers.

38:45 The math has to be very simple in terms of how quickly a subscriber can recoup value. The cost of the subscription, when they take advantage of the benefits, that's quite obvious. And they can do it very, very quickly, which is really important. You need to make a subscriber a winner quickly. While ensuring that it drives a profitable business, which Brian shared, the subscription business is generating 50% operating profits, not gross margin, operating profits of 50%. And that's something that we believe we can build on over time. And so then it's a win-win for the consumer and for the business and ultimately for investors, we believe. And so our job to retain them is to just make it overwhelmingly obvious how much value they're getting.

39:37 And for what we can tell so far, we're achieving that. Part of the reason that we achieved such good subscription growth prior to the launch of Hero9 Black and prior to this strategy shift is because we had very good retention rates and what we would consider to be low churn rates. And, you know, that's as important as everything you're doing on the other side of the coin to bring new customers in. So that tells us that when we get subscribers in, we impress them with the value. They stay on as subscribers and drive a healthy program for a healthy business for GoPro.

40:23 That's what we've achieved to date. But we're not done yet loading up the GoPro subscription with more benefits that are going to really impress our users but not negatively impact the profitability of the business for GoPro. No, that's really helpful. Thank you, guys, and congrats again on the quarter. Thank you so much. Thank you. We will now take a final question from Nick Telvaroff of Longbow Research. Yeah, thanks. Good afternoon, guys. Nick and Brian, I think you guys talked about, you know, demand coming up above expectations. Uh-oh, did we lose him?

41:17 I believe we may have lost Nick. Did we lose him? Oh, I wasn't sure I got disconnected. Nick, if you're still on the line, please press star 1 now. Okay, we've got Nick. Hello, can you hear me? Yes, sir. Okay, Nick. I'm sorry, guys. I don't know what happened. I could hear you, but apparently you couldn't. Sorry, I'll just start from the over. You guys were saying the demand is coming up above expectations. If I look at the full year guide for sell-through and sell-in, I think you're guiding 3.7 million units of sell-through, which is at the midpoint of your prior quarter guidance, and then 2.8 million of sell-in at the lower end of your 2Q expectations or guidance that you gave at the time.

42:08 I guess how do we square those two? Why are we not leaning more towards the higher end of those ranges that you gave in the last quarter? Hi, Nicholas. This is Brian. Look, we've increased our revenue and earnings per share guidance for 2020 versus our prior outlook. So that's important to point out. We continue to reduce channel inventories by 200,000 or so units in the fourth quarter. And just to put that in perspective, because normally that would be our sell-in as well as sell-through, but by taking the channel inventories down in Q4, if you pro forma that out, that's $60 million of revenue and 10 to 15 cents a share.

43:02 and if you do that on the 800,000 units we're going to take down as channel inventory, that's nearly a quarter of a billion dollars of revenue that we look forward to recouping in 2021 should demand levels kind of stay at kind of the levels they are today. So, you know, it just sets the company up nicely for 2021. I'll also point out, you know, while there's some upside, but, you know, we constrained inventory back earlier in the year just due to the uncertainties in the market. And so, you know, we should see some demand and benefit in the channel as we go to 2021. So I think we're really positioning for the exit of the year with very low inventory, as I mentioned, about $100 million.

43:57 for GoPro, as well as getting Channel done to, I think, the 550 or 600,000 unit range. So that really sets the company up nicely for 2021. Okay, got it. And if I look at GoPro.com, I think in the third quarter results, I guess, I wonder, you know, you expect it to be between 36% and 40%, even if I just, for the upside in revenue. It still looks like GoPro.com came a little bit below that. I wonder, was it all because of retail upside? And then as we look forward, you know, as we think about 70% of revenue being the upper threshold for eventually getting revenue from GoPro.com, you know, how should we think about revenue from direct-to-consumer into 2021?

44:52 Yeah, I think to answer your question, it was in our prepared remarks on Q3. Yeah, we had guided it 35% to 40%, and that was on the lower guide of revenue. And actually, .com did better than we had expected, but so did retail. We saw very good strength in retail. There are two important channels for us. Obviously, we're more profitable on gopro.com. versus the retail channel, which is why you're seeing margins come up on both actual results as well as our guidance. So I think that's pretty key, and that leads us to 2021 nicely, right?

45:42 Yeah. Okay. And, Nick, I did want to say, Nikolai, you made a comment that the that the dot-com business being capped at 30%, we don't see it that way. So just that's ballpark where it is now, but we see many opportunities to continue to grow the direct side of our business. Yeah, I think, again, as you mentioned, No, no, because we expect it to be around 40% in Q4. I think we had mentioned that. That'll be about an 80% lift, right? Yeah. And looking ahead to 21, it should still be in that, well, we think it can still be above 50, but we're not really setting a target because they're both important channels, I guess is the point.

46:36 because, you know, 45-grade is a 55-grade if we're making more money as a result of how we're dealing with working capital and margin and op-ex and driving cash and earnings per share. You know, it may float around a little bit between on a percentage basis, but what's important is we have to dollars continue to grow. And that's where we get the margin expansion and operating leverage. Yeah, got it. And last question, Nick. I think in the preparer marks you talked about a new app experience that will bring a solution to a widespread problem that you believe you're uniquely positioned to address. I wonder if you can give us any details around that or any color.

47:23 Thanks. Well, I can't talk about anything at the product level, but what I can share is – We recognize that GoPro's brand is so much bigger than the products that we currently make and the consumers that we currently serve. And our research indicates that one of the most accessible ways to make GoPro more relevant to consumers people that don't own a GoPro camera is through software and through solving problems that we can address with an app and make available to say smartphone users who represent a much bigger TAM to solve for than Just the people who are either going to buy a GoPro or then service those customers that buy a GoPro with additional accessories and subscription and so forth. And so through this research, we went to work on considering what are some big problems that are out there.

48:40 And it turns out that there's a problem. that is coincidentally shared by both GoPro users and smartphone users alike. And so in doing the work to develop this new app experience, we get tremendous leverage because this is something that we want to build for the GoPro community. and we realize that it serves as a phenomenal solution for consumers that are just using their smartphone to capture photos and videos and are dealing with the inherent problems that come with that. And I'm not just talking about editing. It's more in line with editing and content creation but also managing this content in a really compelling way and we believe this is going to really resonate with people. And importantly to our business, one, it can help us extend our brand to serve people outside of just hardware owners. Two, it represents an opportunity to generate a new subscription revenue stream with consumers that don't own our hardware.

49:58 And three, the TAM that we're addressing is obviously a very big one if it's addressing the needs of the average smartphone user. And it's not like these users need to be ultra passionate about content creation or editing or anything like that. We actually think that's one of the smaller opportunities. The problem that we're addressing is much more widespread, and I can almost guarantee that everybody on the call here suffers from it. So we're excited about that, but I want to stress again that we get almost a free option to go and explore this market opportunity with non-hardware owners, smartphone-only users because we're doing this work anyway for our GoPro community and the leverage that we get out of that development is terrific.

50:53 and as I shared, we'll be sharing this first with GoPro users towards the end of this year so you can get a glimpse of what it's going to be for smartphone users and then in Q1, we'll be rolling it out to smartphone users as what we believe a very attractive and accessible subscription program that we think is going to be really meaningful to the smartphone community and users. Thank you. I shared with you a little more than I thought I was, but I thought you deserved it, Nikolai. I appreciate it. Thank you very much. Thank you. At this time, we have no further questions.

51:38 I would now like to turn the conference back over to management for closing remarks. Oops, sorry about that. I was on mute. Okay, well, thank you, operator. I'd like to close by once again thanking GoPro's amazing employees who work so hard to deliver wow to our customers every year. This year, they did it from their home offices, spare bedrooms, and garages. Gang, you are the best of the best, and thank you for being the backbone of both this company and this brand. And thank you to everybody for joining today's call. Stay safe and stay stoked. This is Team GoPro signing off.

52:27 Thank you, ladies and gentlemen, for your participation in today's call. You may now disconnect.