GPRO - NASDAQ

Good afternoon. Thank you for attending the GoPro First Quarter 2025 Earnings Call. My name is Cameron, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] And I would now like to pass the conference over to your host, Robin Stoecker, Director of Corporate Communications at GoPro. You may proceed.

Thank you, Cam. Good afternoon, and welcome to GoPro's first quarter 2025 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 and Brian, followed by Q&A. For detailed information about our first quarter 2025 performance as well as outlook, please read our Q1 earnings press release and 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 everybody that our remarks today may include forward-looking statements. Following this brief introduction is management commentary from GoPro CEO, Nicholas Woodman, and CFO and COO, Brian McGee. This commentary 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, 2024, which is on file with the Securities and Exchange Commission, and other reports that we 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 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, other than revenue, are non-GAAP. Now, I'll turn the call over to GoPro'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. And I want to encourage everyone to read the detailed management commentary we posted on our Investor Relations website. In the first quarter, we hit our marks for revenue, launched new hardware and software products, and are on track to launch exciting new products later this year. Our focus for the balance of 2025 and into 2026 is to continue making strategic investments in product innovation to return GoPro to growth, vigorously protecting our IP, and further diversifying our supply chain, including exploring domestic production for some products. During the first quarter, we launched several new hardware and software products, including our updated 360-degree camera app experience, and we introduced a refreshed MAX camera, positioning us to recapture share in the 360 market and setting the stage for the launch of MAX2 later this year. We also released a Limited Edition Polar White colorway of HERO13 Black, bringing a fresh new look to our flagship camera. And we recently released the highly anticipated Anamorphic Lens Mod for HERO13 Black, offering creators and professional filmmakers a cost-effective solution for capturing stunning cinematic video. Our new Anamorphic Lens Mod joins our previously released Ultra Wide Lens Mod, Macro Lens Mod and auto-detectable ND Filters, which significantly enhance HERO13 Black's versatility and performance. The GoPro subscription continues to be a highlight, with strong aggregate retention numbers above 67% over the past six quarters. ARPU improved 5% year-over-year and aggregate subscription retention in Q1 set a record at 70%, up from 69% both sequentially and year-over-year. We expect subscriber and revenue growth to resume in tandem with a return to camera unit growth in 2026, and as we add new editing and content management features that help subscribers get more out of their GoPro content. Our patent portfolio protects our IP, and we are committed to taking action to protect these assets when necessary. GoPro welcomes fair competition, but we will litigate to protect our IP when we believe it is being infringed. In January 2025, the U.S. International Trade Commission held a five-day trial regarding a complaint we filed against one of our competitors with the goal to enforce certain GoPro patents related to our cameras and digital imaging technology. We look forward to the ITC's ruling, which is now expected in July of this year. This quarter, we continued to diversify our supply chain to position GoPro as favorably as possible amidst highly variable tariffs, and we expect to offset tariff costs with modest price increases, continued supply chain diversification outside of China, and potentially with the production of certain products in the United States. We are continuously assessing the evolving international trade situation to mitigate the impact of tariffs on our business. We are pleased to report that the OpEx reduction work we began in 2024 is largely behind us, and is starting to yield improvements in our operating model. Operating expenses were down 26% to $62 million from $83 million in Q1 2024. Next, we are excited to provide an update on our tech-enabled motorcycle helmet initiative. As we shared in 2024, when we acquired Forcite Helmet Systems, GoPro plans to launch tech-enabled motorcycle helmets, which we believe will help us grow a meaningful business with a SAM of approximately $3 billion. To help us realize this opportunity, we recently kicked off a joint development partnership with AGV, a leading premium Italian motorcycle helmet brand known for legendary performance, styling and safety. This partnership between GoPro and AGV represents the exciting potential of two powerhouse brands coming together to bring meaningful innovation, improved safety and performance to the world of motorcycling, leveraging each other's design, engineering and brand strengths. We look forward to sharing updates as we move closer towards launching our first product together. Overall, GoPro's performance in Q1 and our outlook for Q2 demonstrate our progress in operating as a leaner, more efficient organization, which is beginning to positively impact our financial results. And we continue to advance our mission to deliver innovative and differentiated products to our existing markets, as well as new adjacent markets, in order to expand our TAM and drive growth in revenue and profitability. Our product roadmap is on track, and we believe that consumers will be very excited about the innovation we intend to bring to market in 2025 and 2026. Now, I'll turn the call over to Brain.

Thanks, Nick. We exceeded our expectations in the first quarter on revenue, earnings, sell-through, operating expenses and inventory targets, all while reaching a new high in aggregate retention for subscribers. In addition, we relaunched our MAX 360-camera and delivered a new colorway for our flagship camera during the quarter, and we are on track to launch our next 360-camera this year. First quarter revenue was $134 million, which was at the high-end of our guidance of $125 million due to stronger sell-through in the quarter. Subscription and service revenue grew 4% year-over-year, primarily from 5% ARPU growth as a result of continued improving aggregate retention rates, which reached a record 70%. Q1 2025 non-GAAP operating expenses of $62 million decreased 26% year-over-year. We continue to have a strong focus on operating expense controls while retaining investments in our product roadmap. Notable first quarter performance highlights include: Revenue from our retail channel was $94 million or 70% of Q1 2025 revenue, compared to 68% of Q1 2024 revenue. Growth in our retail channel mix was primarily driven by sales to our big box retailers. Revenue from our GoPro.com channel, which includes subscription and service revenue, was $40 million or 30% of Q1 2025 revenue, compared to 32% of Q1 2024 revenue. Subscription and service revenue grew 4% year-over-year to $27 million, primarily from 5% ARPU growth as a result of improving aggregate retention rates, as well as improvements -- to a record 70%. Subscription attach rate from cameras sold across all channels was 49%, compared to 48% in Q1 '24. Non-GAAP operating expenses were $62 million, compared to $83 million in the prior-year period. GAAP and non-GAAP loss per share was $0.30 and $0.12, respectively. Adjusted EBITDA loss was reduced by nearly 50% year-over-year to negative $16 million. We ended the quarter with inventory of $96 million, a 27% decrease year-over-year, and reflecting the first Q1 sequential decline in inventory since 2018. Sell-through was approximately 440,000 units, compared to 530,000 units in the prior-year period. This was due to unit sell-through decreases in Asia-Pacific, which were primarily driven by consumer-related macroeconomic issues and competition across the region, most notably in China, Japan and South Korea. Channel inventory decreased sequentially by approximately 40,000 units. During the quarter, we took the opportunity to sell out of a slower moving product and convert that inventory into cash more quickly, impacting gross margin. Excluding this $5 million one-time sale, gross margin would have been 35.5%, in-line with guidance and above Q1 2024 of 34.4%. Reported gross margin was 32.3% in the first quarter of 2025. First quarter operating expenses decreased 26% year-over-year to $62 million. The decrease was primarily due to restructuring actions resulting in reduced employee-related costs, a reduction in marketing and advertising related activities, and the completion of our newest system-on-chip, GP3, as well as a strong focus on expense management while retaining our product roadmap, partially offset by legal costs to defend our IP. Turning to the balance sheet, we ended the first quarter of 2025 with $70 million in cash, cash equivalents and marketable securities, which included a $25 million draw on our ABL. Excluding the $25 million draw, cash would have been down $58 million sequentially, compared to our cash usage of $89 million in the first quarter of 2024. Cash used in the first quarter of 2025 was primarily due to adjusted EBITDA of negative $16 million and working capital changes of $36 million. Sequential working capital changes were primarily due to a $63 million decrease in accounts payable and other liabilities, and a $5 million increase in prepaid expenses and other assets, partially offset by a $24 million decrease in inventory and a $9 million decrease in accounts receivable. In the second quarter of 2025, we plan to repay the $25 million ABL draw. Headcount ended at 659 full-time employees, down 30% from the prior year of 937. Turning to our outlook. For the second quarter, we expect revenue to be $145 million at the mid-point of guidance, non-GAAP loss per share of $0.07, and a nearly $30 million improvement in adjusted EBITDA year-over-year. All of these improvements are due to the actions we took in 2024 to reduce operating expenses, diversify our supply chain and drive product cost reductions. Additionally, we are focused on further operational efficiencies to drive down costs and expand our supply chain outside of China. At current tariff rates, we expect the tariff impact in 2025 will be approximately $8 million on our cameras, which is expected to be fully offset by modest product price moves of less than 5% globally. This expected $8 million impact for 2025 is further mitigated by the fact that we are still selling through inventory that entered the United States before April. And we continue to actively manage the balance sheet and expect to further reduce inventory sequentially by $20 million to approximately $75 million and increase cash net of debt by $25 million sequentially as we operate working capital more efficiently. For the second quarter of 2025, we expect to deliver revenue of $145 million, plus or minus $10 million, down 22% year-over-year. We estimate Street ASP in the second quarter to be approximately $370, up nearly 15% year-over-year. We expect unit sell-through to be down 20% on a year-over-year basis to approximately 500,000 units and channel inventory to reduce by approximately 60,000 units sequentially. We expect gross margin in the second quarter to be 35.5% at the mid-point of guidance, up nearly 500 basis points versus the prior-year quarter. We expect second quarter of 2025 operating expenses to be $60 million, plus or minus $1 million, a 36% reduction from the prior-year quarter due to lower spending on wages from lower headcount, reduced marketing and lower non-recurring engineering expenses related to the completion of GP3. We expect non-GAAP loss per share in the second quarter of $0.07 at the midpoint of guidance and expect shares outstanding to be approximately [57 million] (ph). Turning to the balance sheet, we expect cash net of debt to improve $25 million in the second quarter. Looking at 2025 commentary, overall, we expect units and revenue in '25 to be lower than 2024, primarily driven by an uncertain macro environment, competition and the delay of our new 360-camera, partially offset by FX due to a weaker U.S. dollar. To provide some color on expectations for the balance of 2025: we expect to introduce MAX2 360-camera in 2025; we expect our full-year 2025 operating expenses to improve further to a range of $240 million to $250 million, down more than $100 million or 30% year-over-year; we expect to offset tariff costs with modest price increases, continued supply chain diversification outside of China and potentially produce certain products in the U.S.; we expect subscription ARPU growth, subscription cost improvements and to end the year with 2.4 million subscribers; we now expect to end 2025 with $75 million in cash, with no debt and a $50 million available ABL facility. This improvement from our last report is driven by continued reductions in operating expenses and improvements in FX from a weaker U.S. dollar. The initiatives we undertook in 2024 to reduce operating expenses and improve gross margins are bearing fruit. 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 2025 and 2026 to restore growth and profitability to our business. Operator, with that, we are ready to take questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Erik Woodring with Morgan Stanley. You may proceed.

Hey, good afternoon, guys. Thank you for taking my questions. I have two. Brian, I guess maybe I'll start with you. Just can you maybe help us understand the sources of stronger sell-through in the quarter? I guess, my question is, do you have any triangulation data or can you look at any kind of linearity data or even channel feedback to help determine how much that stronger sell-through was pull-forward ahead of potential pricing increases, how much was real demand, and how much is factored -- how much of that type of behavior is factored into 2Q at all? And then, I have a quick follow-up, please.

Sure. I don't think we saw any pull-forward demand in the quarter. It was pretty linear throughout. So, our sales came later in the quarter as sell-through did well and our sales ended up coming in more back-end loaded, which is why DSO was a bit higher. So, we didn't see that happen in the quarter.

Okay. Super helpful. And then, and I might just be reading this wrong, but I think your sell-through in the United States was down 10% year-over-year, but sell-in was up 7% year-over-year. Obviously, you reduced overall channel inventory, but can you just maybe help us understand exactly what happened kind of that gap in 1Q and then extend that conversation to Asia, just revenue down over 50% year-over-year. Just kind of help us contextualize, is that mostly competition or are there other factors there? Thanks so much.

Yeah. In my prepared remarks, we talked about Asia being down 54% and that was mostly macro as well as competition. We saw, from a country perspective, we were down in China, Japan and South Korea, where the most impacted countries in the Asia Pacific region. The U.S. had the best sell-through. It was down the least, as we reported. And some of the sell-in was due to -- in the quarter, we had that one-time $5 million sale of products in the quarter. So, we took out some inventory to convert it to cash. And so, that would be the kind of delta there. That's expected to sell-through pretty quickly, clearly, at pretty favorable price points.

Okay. Super. Thank you for that color, Brain.

We have no more inventory to do that with, and that's partly why our margins are up sequentially to 35.5%, right, so we're selling mostly from 13 and 12.

Okay. Thank you so much, Brian.

The next question is from the line of Alicia Reese with Wedbush Securities. You may proceed.

Thank you for taking my question. So, I'm wondering if you could dig in a little bit on the tariff situation. Obviously, some of the quarter, we'll get the 145% tariffs from China, but obviously the rest of the quarter, hopefully, into the following quarter, we'll have 30% or thereabouts. I'm just wondering how much of your inventory headed to the U.S. is coming from China, how much you're able to diversify in the quarter, and how much price elasticity there is on the products you have out right now.

Yeah, good question. On the tariff front, actually the amount on cameras into the U.S. is zero, because we've diversified all of our camera production outside of China. And what comes from the U.S. is manufactured in Thailand, so that's about a 10% tariff rate versus about 150% tariff rate just prior to today. Accessories would have a little bit of tariff, but with the reduction in rates today, that goes to only a couple of million in a quarter. And those would be offset by small price increases. And the elasticity around that, we're not moving prices very much. We only have to move 3% or 4% globally to offset the cost of the tariff, which we will do. So, we find ourselves in a pretty good position from a supply chain perspective, from a camera production into the United States and we use China for the rest -- balance of the rest of the world for capacity. And tariffs should be -- we'll continue to migrate accessories out of China into mostly Vietnam. So, we've done a pretty good job insulating ourselves on the tariff front.

And I have a couple more questions, if I may. I was wondering if you could talk a little bit more about what's going -- what are the dynamics happening currently in Asia over the past couple of quarters. It's been pretty weak. So, just wondering if you could highlight that and what the difference was in the Americas in the quarter.

Yeah. In Asia, China has been the biggest impact, and there's been more of a, I'll call it, nationalistic trend to buy more local. We've seen that across a number of brands, not just our own. And there's definitely more competition that's happening in China and macroeconomic issues that are happening, particularly in, as I mentioned, China, but also Japan and South Korea. And the U.S. started to shore up in a much better way in the last quarter, and our expectation is that it'll continue in Q2. So, that's kind of the moving parts geographically.

Fair enough. And lastly, I was wondering if you had any plans to do, like, a reverse stock split or anything of that nature to change the stock price from here.

Well, hopefully, our performance that we continue to hit our numbers and drive top-line growth with new products, margins continue to improve year-over-year, OpEx is down, and making more money and driving more cash flow would help move the stock up as well.

Understood. Thanks so much for the time.

Thank you.

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

Thank you, operator, and thank you everybody for joining today's call. With our leaner operating model and exciting new products we have planned to balance 2025 and 2026, we believe we are well-positioned to match the financial strength of GoPro to that of our incredible brand. We're very much looking forward to realizing this on behalf of our customers, our employees and our investors. Thank you, everyone. This is team GoPro signing off.