GPRO - NASDAQ

Good afternoon. Thank you for attending the GoPro Second Quarter 2024 Earnings Call. My name is Cameron, and I'll be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host, Chris Clark, Vice President of Corporate Communications, GoPro. You may proceed.

Thank you, Cameron. Good afternoon and welcome to GoPro's second 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 a brief commentary from Nick followed by Q&A. For detailed information about our second quarter 2024 performance as well as outlook, please read our Q2 2024 earnings press release and the management commentary we've 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 is updated in filings with SEC including the quarterly report on Form 10-Q for the quarter ended June 30, 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 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. In Q2, we achieved our sell-through goal of more than 600,000 units and reduced channel inventory slightly in the quarter as we head into the second half of the year. GoPro exceeded guidance with revenue of $186 million, gross margin of 30.7% and non-GAAP EPS loss of $0.24. Subscription and service revenue grew 8% year-over-year to $26 million, driven by 4% growth in subscribers to 2.53 million and a 4% increase in ARPU due to improving retention rates. We also continued to expand our global retail presence, adding approximately 800 new doors across all regions, with the strongest door count growth continuing in EMEA along with expansion in Latin America. We've now added more than 5,000 new retail doors since May of 2023 when we prioritized growing our brand at retail globally. Our retail expansion plans are on track with the door count growth expectations we’ve previously discussed. A Q2 win is our partnership with Softbank Group’s SB C&S Corporation to expand distribution in Japan, ensuring GoPro products are more widely available while also improving in-store merchandising and brand exposure. SB C&S will distribute GoPro cameras and accessories through their own SoftBank stores as well as retailers throughout Japan, including two of Japan’s largest consumer electronics retailers, Yodobashi and Yamada. While our Q2 results largely met or exceeded expectations, we’re not satisfied with the way 2024 has taken shape. We previously shared that 2024 would be a transitional year; however, lower than expected consumer confidence, increased competition, and our executional challenges are resulting in reduced unit, revenue, and profitability expectations for the year. We believe we can achieve profitability in 2025 through a combination of new product launches and significantly reduced operating expenses, which will begin in the second half of 2024 and continue in 2025, details of which Brian addresses in his commentary. We are seeing growth in the digital imaging market, driven by new product introductions catering to consumers’ growing interest in alternative forms of capture beyond the phone, including growth in 360-degree cameras where we believe we can recover significant share in 2025. We believe broadening our product portfolio is key to growing our business and restoring long term profitability. Much like how Garmin has built a successful, diversified business by addressing the specialized GPS-driven and data capture needs of various markets, we believe GoPro has the opportunity to leverage our category leadership in digital imaging to deliver a broader range of specialized image capture solutions in markets we currently serve as well as new ones where our brand resonates. Our previously announced expansion into tech-enabled motorcycle helmets is an example of this and we are pursuing similar exciting opportunities across a number of segments. Our rollout of new products starts next month with the launch of our new, significantly enhanced flagship camera, HERO13 Black, along with our new $199 entry-level HERO camera that features an entirely new design that we fully expect to wow both consumers who are new to the brand as well as existing customers who we believe will see value in the unique characteristics of HERO’s exciting new form factor and capabilities. Importantly, our new $199 HERO camera is totally redesigned from the ground-up to be a better margin product than our current low margin entry-level cameras, and we believe this will have a materially positive impact on GoPro’s gross margin in 2025. Looking ahead to 2025 and beyond, we are committed to operating GoPro as a profitable business. Our brand and products are too strong and our value-creation opportunity too significant for us to accept otherwise. Our plan is to deliver 2025 profitability through significantly reduced 2025 operating expenses, while executing on our roadmap diversification strategy that we believe is key to restoring growth and long-term success for GoPro. Now, Brian will take us through details on the second quarter and share our outlook.

Thanks, Nick. Revenue in the second quarter of 2024 was $186 million, 9% above the mid-point of our guidance, largely driven by increased demand for our flagship HERO12 Black camera in Europe and North America. Gross margin was 30.7% compared to 31.6% in Q2 2023. Our subscriber base increased to 2.53 million in the quarter, or 4% growth year-over-year and up slightly sequentially. Our subscriber base represents approximately $125 million in annual recurring revenue. Cash was flat sequentially as significant inventory reductions in advance of new product launches offset losses in the quarter. Notable second quarter performance highlights, subscription and service revenue grew 8% year-over-year to $26 million, primarily from improved retention rates that resulted in 4% ARPU growth, subscribers grew 4% year-over-year to 2.53 million, including 33,000 Premium+subscribers. Aggregate annual subscription retention was 68%, a 7% improvement year-over-year. Subscription attach rate from cameras sold across all channels was 45%, in-line with prior year attach rates. Retail revenue was $137 million or 74% of total revenue, down 17% year-over-year. GoPro.com product revenue was $23 million or 12% of total revenue. Street ASP was $323, compared to $342 in Q2 2023. GAAP loss per share was $0.31 and non-GAAP loss per share was $0.24. Sell-through was slightly above 600,000 units, down 9% year-over-year. Channel inventory decreased sequentially to approximately 700,000 units. As Nick noted, 2024 has clearly been a challenging year for GoPro. We have been impacted by delayed product launches, muted consumer spending when products were not on price promotion, a continued decline of camera sales at GoPro.com, macroeconomic concerns globally, increasing competition globally and foreign exchange rate fluctuations in China and Japan. Moreover, we're factoring in a further launch delay of our new 360-degree camera into 2025. This is expected to negatively impact revenue in a range of $20 million to $25 million in Q4 2024 relative to prior guidance. The cumulative effect of delayed product launches for 2024 is expected to impact sales by approximately $100 million. Our expectation based on the above factors is for unit sales in 2024 to be in a range of 2.6 million to 2.7 million and revenue in a range of $850 million to $870 million, or down 15% and 13% from the prior year, respectively. However, as Nick noted, we are seeing signs of growth in the overall digital imaging market, and are on track to introduce two new cameras in September including our new flagship with significantly enhanced capabilities and our new $199 HERO camera that features a totally new form factor and attributes that we believe will excite both new and existing customers as well as our new 360-degree camera into 2025. As we mentioned, the digital imaging category is growing, of which the 360 category is growing faster. We sold out of our remaining 360-degree camera inventory in Q4 2023, and our 2024 results to date, plus second-half guidance, reflect essentially no sales of 360-degree cameras in 2024. For reference, the 360-degree camera category represented mid-single digits of revenue - percentage of revenue, in 2022 and 2023, and could represent as much as 5% to 10% of revenue in 2025, making this a renewed growth category for GoPro. We are committed to being profitable in 2025 and plan to reduce 2025 operating expenses to $320 million plus or minus $5 million, a reduction of nearly $50 million from the mid-point of projected 2024 levels. We have reasonable line of sight to reducing operating expenses by $50 million from 2024 to 2025, which is expected to be driven by reductions in non-recurring technology development expenses of approximately of $20 million, and reductions in marketing, salary expenses and other operating expenses. In addition, we will continue to look for ways to reduce expenses further in 2025. In summary, 2024 remains a year of transition but with significant opportunities ahead including our two new camera launches next month, and our growing global retail footprint and our anticipated TAM expansion through product diversification. As Nick stated, we are committed to operating GoPro as a profitable business, our brand and products are too strong and our value-creation opportunity too significant for us to accept otherwise. To that end, we expect gross margin to improve in the second half of 2024 and carry into 2025, combined with significantly lower operating expenses in 2025 to prioritize a return to profitability. Operator, we are now ready to take questions.

[Operator Instructions] The first question is from the line of Erik Woodring with Morgan Stanley. You may proceed. Erik, your line might be muted. In this case, the next question comes from the line of Alicia Reese with Wedbush Securities. You may proceed.

Thank you. Hi, guys. Thanks for taking my question. I wanted to see if you could talk a little bit about what was driving the delays, whether they're on the design side or the manufacturing side, and what you're doing to alleviate those issues and what level of confidence you have that they will be alleviated by next year.

Thanks, Alicia. The delays are due to our pushing innovation and seeking to deliver the best possible product experience for our customers and our commitment to not launching a product until we've achieved the level of quality and performance that GoPro is known for. So it's unfortunate that we did have the two product delays. The good news is that when we do launch the products, one of them next month, we're very confident that they're going to excite and engage consumers. HERO13 Black is on track and will launch on time and has very significant capability enhancements to that product that we are super, super excited about. And on our entry-level product, it has a number of unique characteristics and a new form factor that we think is really going to excite people and stimulate the market at the entry level. But importantly, its characteristics, we believe, will be very appealing to existing customers as well. What I mean by that will be obvious when we launch it next month. And then as it relates to our new 360 camera, MAX 2, we're feeling really good about that product in terms of how it's going to fare in the market competitively. As Brian noted, 360 is a growing category in digital imaging. Digital imaging is growing overall, and 360 cameras are playing a significant role in that. And we were previously a market leader in that category. We established that category. Our MAX camera was the category leader until we sold through it all at the end of 2023. As Brian noted, we're not recognizing any revenue in 2024 in 360 cameras other than the small number of units that we sold on gopro.com that are now sold out. So 2025 represents a very significant revenue opportunity and opportunity to recoup a lot of share in the 360 category that we're really well known for. And we're very well set up for that launch. And in terms of confidence of launching it in 2025, we have full confidence in that. So not the execution that we would like to see, but in the end when we do launch the products, we're very confident in that.

Thanks. And a couple follow-ups if I may. So just to clarify, there were no issues with parts and manufacturing and anything on that procuring any components, correct?

No. Alicia, supply chain is not an issue for the 360 degree camera or any of our cameras actually in the '24, [nor in '25] -

Just driving innovation.

Yes.

Okay, great. Yes, that's exciting in that case. Can't wait to see what you guys come out with. On the 360, as a follow-up, wanting to know that since there are sellouts in that this year and you still have the second half of the year to go, do you have any concerns about losing market share? What's the competitive landscape in 360s that would or would not concern you?

Well, I mean, of course we're going to lose market share. Products that we're selling into the market. So that's a missed opportunity due to mis-execution on our part and not launching our product on time as anticipated. But in terms of the opportunity in 2025 with how our product stacks up against the competition and how we believe our new products will fare and what we believe our go-to-market strategy is, it gives us a lot of confidence in our ability to quickly recoup market share and restore 360 sales as a meaningful percentage of revenue. As Brian noted, we're anticipating somewhere between 5% and 10% of our revenue coming from 360 in 2025. So that gives you a sense of the significant rebound opportunity that we have. And I think it's important to note that GoPro established this category. So awareness for GoPro as a leading brand in the category is very strong. Demand that we see and hear and feel from the channel and from consumers is very strong. So it's not as though we're going to be entering the 360 category from out of nowhere where it's like, oh, wow, GoPro is entering 360. We established the category. So that's a significant opportunity for us to make quick inroads back into the category with the product that we have planned for 2025.

I'm excited to see that product once it comes out.

Alicia, there's no beating around the bush on the execution on our front. We own that. But there is also no beating around the bush as to the opportunity that we have to come back in 2025.

Understood. All right. Thanks for answering my question today, guys.

Thank you.

The next question is from the line of Martin Yang with Oppenheimer. You may proceed.

Hi. Good afternoon. Thank you for taking my question. Can you maybe dig into the cost cuts or sources of cost savings in '25? How would you say the development pipeline and development costs compare between '24 and '25?

Yes. Hi, Martin, Brian. Well, in my prepared remarks, I mentioned that we would reduce operating expenses down $50 million from our projections in 2024. About $20 million of that is due to basically non-recurring engineering development expenses that were incurred in 2024 that we won't have in 2025. So a lot of the innovation that's going into cameras in '24 as well as '25 and beyond are basically behind us now from that perspective. And so we've got the opportunity now to continue to innovate based on the spending we've done in '24 and '25 and '26. In addition, we'll review reductions in marketing and some salary expenses across the company as well as other operating expenses to continue to reduce. I think I'll add that just as a reminder, during COVID we were able to take operating expenses down below $300 million in 2020. So we have ways to drive for efficiencies and operating results, but this time without really impacting a roadmap because a lot of the heavy lifting we've had to do for '25, '26 is behind us from an [NRE] kind of perspective. Right.

Okay. Thanks. My second question is regarding your perception of your consumer profiles. Is there any update on who do you consider your core camera users and who do you consider as incremental users you could potentially gain from competitors or from a market that you currently does not address?

Our primary customers are content creators, bloggers, active consumers. Sorry, we call them active capturers who are interested in both participating in active lifestyles and capturing content during their activities and experiences, either for personal review or for the sharing socially, as well as our customers include professionals, whether they're the world's top influencers creating content for their personal brands, film and television. As we noted in our prepared remarks, the written version, the new Twisters blockbuster film features GoPro being used throughout the film. And there's a lot of great product presentation in there for us, which, by the way, is not a paid relationship or anything like that. The Producers and Directors just decided to use GoPro, which was phenomenal. So thank you very much to them. And in terms of an opportunity for growth and expanding our cam and growing top line margin and subscription, the opportunity is to diversify our product roadmap significantly beyond what we offer today to consumers. HERO camera is a phenomenal tool, a bit of a Swiss army knife, if you will. But there's an opportunity for us to develop a broader range of products that more specifically address the needs, not only of the markets that we serve today, but also new markets as well. We ask a lot of the HERO camera. It's intended originally to be all things to all people. And it's done a phenomenal job of that. But as you can imagine, there's an opportunity to create products that are more tailored for some of the more specific needs of some of our customers. Our foray into tech enabled motorcycle helmets is an example of that. It's serving a market where our brand is very strong. But doing so with a totally new tech enabled helmet product that more specifically meets the needs of motorcyclists today, perhaps than attaching separate third party accessories to the helmet. So in that way, we can create more value, more performance and more convenience for a market where our brand is strong. But maybe we don't have the most convenient or tailored product solution that would allow us to grow even more in that market. We're targeting other similar types of product opportunities and markets that we already serve. Then when you're getting into blogging and more professional content creation, our roadmap contemplates that as well. And so on and so forth. I can't go into any more detail about it. But what I would say is an important word for investors to think about GoPro is diversification and better leveraging this global brand that we have to serve consumers in more ways. But what I would add is that we are committed to doing so as a profitable company. Especially in today's environment, it's critical that GoPro be profitable in 2025 while also maintaining a rollout of new products that are going to help us grow the business, grow margin and grow profitability over the long term.

Hi. Nick, I might add that. Hi, Martin, in addition, as we look at market data from [indiscernible] at least in North America and Europe, the point and shoot category is a growth category. And that's an area where our $199 HERO camera is really going to target into. So we're seeing that growth and given the consumers, they've got to watch the dollars. So we know that there's a market there and we're seeing it grow. And so that's going to fit really nicely into that space. And I'll remind you that on our subscription business, we're attacking at the entry level price point about 25% to subscription, which is terrific. And then the last one, which we talked about earlier, the 360 category, which could represent a pretty significant increase in revenue growth for 2025 from basically zero in 2024.

Thanks, Brian. That's it from me.

The next question is from the line of Erik Woodring with Morgan Stanley. You may proceed.

Hi, guys, thanks for taking my question. And sorry about earlier. Maybe this question is for you, Nick. I understand pointing to a better - 2025 than 2024, obviously a challenging period of consumer demand. When you talk about a commitment to profitability in 2025, can you just give us a little bit of a flavor of the underlying drivers that get you there? Obviously, you've talked about improving margins, cutting costs, but should be the expectations that maybe we set today that you're getting back, to growth in 2025? Or I didn't necessarily say that and I know you don't necessarily want to commit to that, but do you have any comments on how we should think about the top line just as we sit here today for 2025? And then, I have a follow-up please? Thanks.

Yes, we will grow the business. We will grow top line. We will grow margin, because we will be introducing products that we simply just do not have in the market today. I mean, it's a, we are completely absent from the 360 market today, minus whatever inventory is still selling through the channel. As I shared, we sold our last 360 MAX camera into the channel at the end of 2023. So aside from a smattering of sales through GoPro.com, we've had essentially no revenue from the 360 category in 2024. So simply by re-entering that category with what we believe is going to be a very competitive industry leading product in that market, that is certainly going to help us win back share. And we believe at a meaningful level that is going to - meaningfully contribute to top line and bottom line growth. So that's a very big lever for us. And then as well, our entry level camera, which we're super, super, super excited about, has a creative margin for us relative to the entry level products that we've been selling previously, which were legacy products that we reduced MSRP on over time. But they were they were never designed to be sold at an entry level price point. So their margin was very compromised. Whereas our new $199 HERO camera is designed from the ground up, to be sold as a $199 product and as a result has much better margin. So that's going to be a major contributor to the bottom line while also being a major contributor to the brand and top line growth, just thanks to what we believe is going to be a very strong market appeal for that product. Then you get into our other products of, which I can speak of the HERO line, HERO13 Black, which is launching next month. That's really going to allow people in terms of expanded capability and how we just continue to build on the HERO cameras ability to, not only serve active consumers that are looking to use HERO13 Black as a way to document their active lifestyle, but also the growing blogger market. The pro content creator, the influencer who are all looking for, differentiated looks. For their content to help keep their brand and their content fresh and their audiences engaged HERO13 Black. We believe hits this right on the head. This will become more obvious, of course, at launch in a month. But that's going to benefit us, we believe, throughout 2025. And then, of course, we have more product on TAM for 2025 that we believe is going to continue with the momentum. I would say the silver lining of 2024 is that it sets us up for so much new product and new revenue generating opportunities in 2025 that, yes, we're targeting growth. Yes, we're targeting profitability. And then when we combine these new product launches with the momentum that we believe it's going to bring with significantly reduced OpEx, that's a recipe, we believe, for ensuring profitability in 2025. Erik, the brand is too strong. Our products are too strong. Our opportunity is too significant, especially in this macroeconomic environment. We're going to be getting very serious about OpEx reductions to ensure it's not a nip and tuck scenario for 2025, but a profitability year that we look to grow on into '26 and beyond. And so as a part of that, we're looking at transformational ways to operate the business, recognizing it's time.

Okay. No, I love all that. Thank you. And then maybe if I follow-up on that, Nick, it's rare for you to talk about competition as much as I felt you've talked about the last two quarters. Obviously, FX headwinds play a role in that. But is there something about the competitive environment that is different today? Again, maybe outside of some of the stock outs that you have in things like 360 cams and FX. We'd just love to know if anything is changing under the hood there. And that's it for me? Thanks.

We missed a product launch, which led to us missing a year in the market in a growing category in which we were a both pioneer and market leader, essentially seeding the category or competition. So, yes, competition is a more important topic this year than it's been before. Unfortunately, it's self-inflicted largely. But we are extremely passionate about the 360 category, extremely bullish about our opportunity to regain share. And we are extremely committed to restoring GoPro to a leadership position in the category. That's why you're hearing so much more about competition on this call, because it's a bigger factor this year than it has been before. And we've got to - restore our leadership position in 2025.

Got you. So it's not necessarily about competitor product…?

Just for clarification, though, we are not basing our 2025 profitability on regaining a leadership position in 2025. That is not. Of course, we're going to do everything that we can to reclaim a leadership position, as it relates to market share. But our 2025 profitability is not dependent on that. I just want to make that clear. Don't confuse my passion for the space, with the understanding that it's going to take time for us to get back to a leadership position in that category. But we're determined to do it.

Okay. I got you. Thank you so much Nick for the detail.

Thanks, Erik.

There are no further questions at this time. I would like to pass the conference back over to the management team for any closing remarks.

Thank you, operator. And thank you, everyone, for joining today's call. As we shared passionately, we are committed to operating GoPro as a profitable business in 2025. Our brand products and opportunity are too strong, as is our value creation opportunity too significant, for us to accept otherwise. We're excited by our new product launches coming up next month and we are committed to being profitable in 2025. Thank you, everybody. This is team GoPro signing off.