GPRO - NASDAQ

Good afternoon. Thank you for attending today's GoPro, Inc. fourth quarter 2024 earnings call. My name is Cole, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to queue for a question, you can do so by pressing star one on your telephone keypad. I'd now like to pass the call over to Robin Stecker, go ahead.

Good afternoon, and welcome to GoPro, Inc.'s fourth quarter and full year 2024 earnings conference call. With me today are GoPro, Inc. CEO, Nicholas Woodman, and CFO, Brian McGee. Today's agenda will include brief commentary from Nicholas Woodman and Brian McGee, followed by Q&A. For detailed information about our fourth quarter and full year 2024, as well as Outlook, please read our Q4 and full year earnings press release and management commentary we posted to the Investor Relations section of GoPro, Inc.'s website. Before I pass the call to Nicholas Woodman, I'd like to remind everybody 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, you may file from time to time with the SEC. 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 with App Premiere, 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 made today, other than revenue, are non-GAAP. Now, I'll turn the call over to GoPro, Inc.'s Founder and CEO, Nicholas Woodman.

Thanks, Robin, and thanks everybody for joining us today. As Robin mentioned, Brian and I will share brief remarks before going into Q&A. I want to encourage all on the call to read the detailed management commentary we posted on our investor relations website. I'd like to start the call by addressing recent US tariff announcements on inbound goods to be sold in the US, which we do not expect to materially impact our US consumer pricing or gross margin due to our proactive supply chain management. This is thanks to the terrific job our teams have done to diversify our manufacturing and sourcing over the years. GoPro, Inc.'s Q4 results landed largely in line or slightly better than our guidance. During the quarter, we took action to right-size operating expenses. We're now focused on delivering our 2025 and 2026 products in an efficient manner, which includes a broadening of our portfolio that we believe will yield profitable returns for GoPro, Inc. and our shareholders over time. The GoPro, Inc. subscription is the most profitable product we sell, and our retention numbers demonstrate the strength and the value we offer subscribers, as illustrated by ARPU improving 8% year over year. Aggregate subscription retention in Q4 was 69%, up from 67% both sequentially and year over year. Our annual retention rates continue to be consistent with what we previously reported, including positive numbers for fourth-year renewals of nearly 90%. In 2024, in addition to our flagship HERO13 Black, we introduced an entry-level product, an exciting, tiny 4K camera we call HERO. This ultra-small 86-gram featherweight camera has enormous potential that we're excited to continue to tap into. Just last week, via a firmware update, we added a wider, more immersive in-camera 4 by 3 aspect ratio for video capture along with a super view digital lens setting in the app, which combined to enable an immersive "it feels like you're there" point of view perspective during any activity. The immersive capture our engineering teams have enabled in this tiny entry-level GoPro, Inc. is staggering. We expect sales to grow over time as we continue to champion its capabilities with updates. And it goes without saying that we're excited to grow our presence in the 360-degree camera market, a market we pioneered and led for several years with category-defining IP and products. As we've shared, the 360-degree camera market represents a robust growth segment in the broader digital imaging category, and it's an understatement to say that we're excited about the opportunity to grow our share in this important market. Recent and upcoming events related to the 360-degree camera market include our recent release of a powerful, totally new, and enhanced 360-degree editing experience in the Quick app, complete with impressive subject tracking, intuitive keyframe-based reframing, and more. Later this month, we'll begin selling a refreshed Max 360-degree camera to serve as an entry-level 360 SKU ahead of the highly anticipated availability of our Max 2 360 camera later this year. Of course, Max will be compatible with all the new aforementioned features in the updated Quick app. Speaking of Max 2, we're excited about the progress we've made on what we believe are innovative capabilities that will redefine the 360 camera market and position Max 2 as the world's most impressive 360 camera. Innovation can be hard, and we're proud of our engineers who've stayed committed to making Max 2 into something truly special. We cannot wait to launch it later this year. Further on the innovation front, I need to share that we've completed the validation of our next-generation SOC GP3. Everything we know about the competitive landscape for market-available SOCs leads us to believe GP3 will once again set new performance standards, not only in our categories of cameras but for the digital imaging industry as a whole. As we noted on our last earnings call, in 2025, we expect units and revenue to be lower than 2024, primarily driven by macroeconomic headwinds, competition, and the previously mentioned delay of our new Max 2 360 camera that we intend to launch later this year in 2025. We've substantially reduced operating expenses for 2025 and believe this lower level of spending enables us to continue to innovate and will lead us to an exciting year of new relations in 2026 and beyond. To be clear, we are focused on returning GoPro, Inc. to unit and revenue growth, along with improved profitability. We plan to do this through a broader, more diverse, and innovative roadmap that we believe will expand our TAM and further establish GoPro, Inc. as a market-leading innovator while restoring unit and revenue growth in 2026. It can be challenging to simultaneously be an innovator and leader, yet we maintain an unwavering commitment to realizing the long-term rewards that perseverance, innovation, and super-serving our end users can yield. With that, I'll turn the call over to Brian.

Thanks, Nick. In the fourth quarter of 2024, revenue was in line with guidance of $201 million. GAAP net loss per share was $0.24, while non-GAAP net loss per share of $0.09 exceeded guidance. Subscription and service revenue grew 9% year over year, primarily from 8% ARPU growth as a result of continued improving aggregate retention rate, which reached a record 69%. Sell-through in the fourth quarter of approximately 770,000 camera units was in line with expectations and resulted in more than a 170,000 camera unit decrease in channel inventory. Additional performance highlights for the fourth quarter included subscribers growing 1% year over year to 2.52 million, including 70,000 premium plus subscribers. Subscription attached rate from cameras sold across all panels was 34% compared to 29% in Q4 2023, a 16% improvement. ASP was $346 compared to $330 in Q4 2023. Notable performance highlights for the year include subscription and service revenue growing 10% year over year to $107 million, primarily from again improving aggregate retention rate, and subscription gross margin exceeding 70%. Retail revenue was 75% of total revenue at $601 million, down 15% year over year. GoPro, Inc. product revenue was 12% of total revenue at $94 million, down 54% year over year. ASP was $330 compared to $337 in 2023. Operating loss was $80 million compared to an operating loss of $34 million in 2023. Finally, sell-through was 2.5 million units, down 32% year over year. If you look at the outlook, as we previously noted, we continue to expect unit and revenue in 2025 to be lower than 2024, primarily driven by macroeconomic headwinds, FX due to a stronger US dollar, competition, and the delay of our new 360 camera. That said, we have undertaken several initiatives in 2024 for this back end of the path to long-term success. Notably, this includes our plan to reduce operating expenses nearly 30% from 2024 and honing our roadmap to drive not only faster time to market but also more efficiency in how we design our products. Additionally, our focus on operational efficiencies to drive down costs and expand our supply chain outside of China is expected to improve gross margin by more than 100 basis points in 2025 over 2024, a nearly 300 basis points improvement over 2023. Finally, we are actively managing the balance sheet to further reduce inventory to be consistently well below $100 million to preserve cash and operate more efficiently with our working capital. For the first quarter of 2025, we expect to deliver revenue of $125 million plus or minus $10 million, down 20% year over year. We estimate ASP in the first quarter to be approximately $365, down year over year from $395. We expect unit sales to be down 20% year over year, approximately 430,000 units, and channel inventory to reduce by approximately 60,000 units sequentially. We expect gross margin in the first quarter to be 35% at the midpoint of guidance, up slightly versus the prior year quarter. We expect first quarter 2025 operating expenses to be approximately $63 million plus or minus $2 million, a 24% reduction from the prior year quarter due to lower spending on wages from lower headcount, reduced marketing, and lower nonrecurring engineering expenses related to the completion of our new GP3 SOC. Non-GAAP tax expense is expected to be $1 million in the first quarter of 2025. We expect non-GAAP loss per share in the first quarter of $0.15 at the midpoint of guidance, and I expect shares outstanding to be approximately 155 million. Turning to the balance sheet, we expect cash to be approximately $80 million at the end of the first quarter. Now I'll provide commentary on the full year 2025. With respect to a smart improvement of more than 100 basis points in 2025 from 2024, based on the following factors: the introduction of our Max 2 360 camera, identified product cost operating cost, as well as further tariff savings due to continued supply chain diversification outside of China, and subscription ARPU growth subscription cost improvement. We expect our full year 2025 operating expenses to be in a range of $250 million to $260 million, down $100 million or nearly 30% year over year. Non-GAAP tax expense is expected to be $3 million in 2025, and cash tax is expected to be $1 million in 2025. With the anticipated decline in unit sales in 2025 from 2024, our subscriber count is expected to be approximately 2.4 million at the end of 2025. We expect subscription and service revenue in 2025 to be approximately $105 million. The continued improvement in aggregate retention rate is driving improved ARPU, which is softening the revenue decline due to the slight decrease in subscribers. Turning to the balance sheet, we expect cash at the end of the year to be approximately $50 million, which anticipates the repayment of our convertible debt. In addition, we have a $50 million asset-backed line or ABL facility available. We believe our cash position along with our ABL facility will be sufficient to fund our plan. In summary, in 2024, we undertook several initiatives to reduce operating expenses, improve gross margin, refine our product roadmap, improve diversification in 2025 and 2026, and implement efficiencies in our approach to product development. We are focused on launching new products while preserving cash to repay our debt in 2025 and launching a significant number of new products in 2026 to restore growth and profitability to our business. Finally, we look forward to seeing many of you at the upcoming Morgan Stanley Technology, Media, and Telecom Conference on March 5th. Operator, with that, we are now ready to take questions.

Great. If you'd like to queue for a question, you can do so by pressing star one on your telephone keypad. If for any reason you'd like to remove your question, press star two. But again, to join the question queue, please press star one. We have a question from Erik Woodring with Morgan Stanley. Your line is now open.

Great. Thank you so much for taking my question, guys. Apologize. I'm hopping between calls, but maybe I guess it's for you, Brian. I think I heard your guide to subscribers next year of I think it was 2.4 million, which would be down year over year. I realize units will be down, but your commentary, at least, that I caught on renewal rates sounded very bullish. Can you just help us understand the moving pieces for how you get to subscriber declines in 2025, please? And then I have a quick follow-up.

Sure. Well, we said units would be down, and so our attach rate for the full year is about 42%. We're assuming 38% to 40% on that front. We do continue to see aggregate retention improve, and so that results in an improvement in ARPU. So that's helping to counterbalance the reduction in units, and therefore, you get about $105 million of revenue and about 2.4 million subscribers, so down about 120,000.

Okay. Perfect. Thank you for that. And then, Brian, maybe just a follow-up. You provide obviously a handful of details on 2025. Gross margin, OpEx, taxes. I realize that 2025 revenue will decline. Is there any more kind of concrete guidance that you can provide us for how we should be thinking about 2025, you know, the revenue base you're considering for that base of OpEx? Just anything that can help us kind of maybe narrow down expectations into 2025. And that's it for me. Thanks so much.

Yeah. Sure. We're gonna guide quarter to quarter, Erik. It's a long year to go. We feel good about the products we have, the products that are coming out. But there's headwinds with consumer competition and FX, right? Which has impacted us a lot. I mean, FX from 2021 into 2022, 2023, and 2024 has impacted us about $50 million on the top line margin and bottom line. So now we gotta worry about where the dollar is going as well. But we said it would be down. Not gonna give a precise number. The good news is we think we've got good margin going here. It's 35% and some really good cost reduction. Clearly, the subscription and service is helping us from a margin perspective, and we expect that to continue. I mean, since 2023, probably about a 200 to 250 basis point improvement in margin right there along with, you know, the hundred and something basis points of other costs like the freight tariff and warranty as we have much better product experience for our customers. So all those things combined to make 35% that? But we're not gonna guide the top line right now for 2025.

Okay. I understand. Thank you so much.

I'd just like to add one more point on subscription. While we expect it to be down in 2024, we—sorry, in 2025, we expect to grow subscription again in 2026 with the launch of a slew of exciting new products that are gonna broaden our portfolio considerably. So that's a bright spot to look forward to in 2026.

Perfect. Thank you very much, Nick. Thank you.

Our next question is from Martin Yang with Oppenheimer. Your line is now open.

Hi. Thank you for taking my question. First question on Max, and curious to hear your decision to reintroduce the Max 1 back into the market. Any context you could provide on that decision and whether that model will be margin accretive for you.

Thanks, Martin. Yeah. You know, we had cleared the channel of Max in anticipation of Max 2. And as we shared, the delay of Max 2 caused some complications for the business. So we determined that and identified that there's a market for Max. It's a slightly refreshed product, along with the significant software enhancements that we just launched recently as a free update to the GoPro, Inc. Quick app. The overall 360 experience is much enhanced, so we're super excited to get Max back out into the marketplace here later this month. And then that's gonna serve as a terrific entry-level 360 product, paving the way for momentum towards the launch of Max 2. So it was a pretty easy decision to go and essentially refresh the product, bring it back into the market as an entry-level experience, again bolstered by the new and enhanced software experience that we just recently launched and that we will be building on throughout the year. So I'm happy to let GoPro, Inc. 360 camera owners know that the software experience will continue to expand over the course of the year, so look forward to that. And on the margin front, I'll hand it over to Brian.

Yeah. Martin, it is absolutely margin accretive. More on dollars than necessarily percentage, but the percentage is built into our model of 35% for the year.

Got it. Thank you. And then the second question is on new products this year. So we have Max 2 coming up later. And then in reference to GP3 development updates, do we expect GP3 to be or GP3-enabled camera to be out this year?

Yeah. Martin, I wish that we could be more transparent with our roadmap, but just due to competition, we're going to have to be a bit more opaque than we have in the past as it relates to upcoming product releases. So we're not gonna be able to provide any information on that. I apologize.

Got it. No problem. Last question for me is overall subscription trend. Is there any way when you look at overall long-term growth or subscription, do you still view hardware sales as the primary driver of subscription revenue? Is there any other levers you can pull to boost subscription revenue growth or that return of—

Yeah. Brian, you wanna start?

Yeah, Brian. I'll just start with one thing. It is tied to—historically, it's been tied to hardware. But we are identifying opportunities to create new software experiences that we think will lead to not only added engagement within our existing subscriber community but also help improve conversion rates amongst buyers. So we've identified a number of opportunities that we'll address over time to expand the functionality and relevance of our hardware products to serve more use cases, more customer groups, and more ways through software that we think can have an accretive impact on subscription over time. In addition to selling more units, which is the primary driver of subscription, but we think we can improve on that and expand beyond just hardware sales through software as a service as a driver of subscription as well.

I think that's more to add on that. Well, I mean, the other thing that I'll add, Martin, is we've continued to improve aggregate retention rates. Like, year one is 60%, year two 70%, then 80%, and now nearly 90% in year four. So the longer subscribers stay in the program, the more likely they are to engage and come back in, and that's what's helping to drive our ARPU year after year. So that's exciting. And as we, you know, as Nick mentioned, we return to subscription growth, we believe, in 2026. And so that has the additional benefit of keeping more people in longer, adding more service capability that enhances the value proposition for this, which all then fuel aggregate retention. So both are important. Right. That ultimately drives growth and revenue growth and margin.

Got it. Thank you, Brian. That's it for me.

We have no further questions at this time, so I'll pass the call back to the management team for any final remarks.

Thank you, operator, and thank you everyone for joining today's call. We believe we're positioned to return to unit revenue growth along with improved profitability in 2026, as we plan to introduce a broader, more diversified, and innovative roadmap that we believe will expand our TAM and further establish GoPro, Inc. as a market-leading innovator. Thanks, everyone. This is team GoPro, Inc. signing off.