GoPro, Inc. Price & Performance (GPRO)

With me today are GoPro's CEO, Nicholas Woodman and CFO and CFO, Ryan Magee.

Today's agenda will include brief commentary from Nick and Brian. Followed by Q and 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 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. 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 ks for the year ended 12/31/2023. Which is on file with the Securities and Exchange Commission and other reports that 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, 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 I will mark you today other than revenue, are non GAAP. Now, I'll turn the call over to GoPro 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 and A. And I want to encourage all on the call to read the detailed management comment I'd like to start the call by addressing recent U. S. Tariff announcements on inbound goods to be sold in The U. S. Which we do not expect to materially impact our U. S. Consumer pricing or gross margin due to our proactive supply chain management. This is thanks to the terrific job our teams have done to and sourcing over the years. GoPro'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 twenty twenty five twenty twenty six products in an efficient manner which includes a broadening of our portfolio that we believe will yield profitable returns for GoPro and our shareholders over time. The GoPro 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 and our annual retention rates continue to be consistent with what we previously reported including positive numbers The fourth year renewals of nearly 90%, In 2024, in addition to our flagship HERO13 Black, we introduced an entry level product an exciting tiny four ks 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 firmware update, we added a wider, more immersive in camera for video capture along with a SuperView 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 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 three sixty degree camera market. A market we pioneered and led for several years with category defining IP, and products. As we've shared, three sixty 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 three sixty degree camera market include our recent release of a powerful, totally new and enhanced three sixty degree editing experience in the quick app. Complete with impressive subject tracking, intuitive keyframe based reframing, and more. And later this month, we'll begin selling a Refresh Max three sixty degree camera to serve as an entry level three sixty SKU ahead of the highly anticipated availability of our Max two three sixty camera later this year. And of course, [indiscernible] will be compatible with all the new aforementioned features in the updated Quick App. We're excited about the progress we've made on what we believe are innovative capabilities that will redefine the three sixty camera market and position Max two as the world's most impressive three sixty camera.

Innovation can be hard, and we're proud of our engineers who've stayed committed to making Max two into something truly special.

We cannot wait to launch it later this year. Further on the innovation front, I'm excited 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 MAX2 three sixty 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 releases 2026, and beyond.

To be clear, we are focused on returning GoPro to unit and revenue growth. Along with improved profitability. We plan to do this through a broader, more diversified and innovative roadmap that we believe will expand our TAM and further establish GoPro as a market leading innovator while restoring unit and revenue growth in 2026. It can be challenging to simultaneously be an innovator a 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 twenty twenty four, revenue was in line with guidance of two zero one 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 rates which reached the record 69%. Sell through in the fourth quarter of approximately seven seventy five thousand with expectations and resulted in more than 170,000 camera unit decrease in channel inventory. Additional performance highlights for the fourth quarter include subscribers grew 1% year over year to 2,520,000 including 70,000 premium plus subscribers. Subscription attach rate from cameras sold across all channels was 34% compared to 29% in Q4 twenty twenty three a 16% improvement. And speed ASP was $346 compared to three thirty in Q4 twenty twenty three. Notable performance highlights for the year include subscription and service revenue grew 10% year over year to 107,000,000 primarily from again, improving aggregate retention rates, and subscription gross margin exceeded 70%. Retail revenue was 75% of total revenue at $6.00 1,000,000 down 15% year over year. GoPro.com product revenue was 12% of total revenue at 94,000,000 down 54% year over year.

GD ASP was $330,000,000 compared to three thirty seven in 2023, operating loss was $80,000,000 compared to an operating loss of $34,000,000 in 2023. And finally sell through with 2,500,000 units, down 30% year over year.

As we 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 U. S. Dollar competition and the delay of our new three sixty camera. That said, we have undertaken several initiatives in 2024 for this back end of path to long term success. Notably, this includes our plan to reduce operating expenses nearly 30% from 2024 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 more than 100 basis points in 2025 over 2024 and nearly 300 basis points improved over 2023. And finally, we are actively managing the balance sheet to further reduce inventory to be consistently well below $100,000,000 to preserve cash and operate more efficiently with our working capital. For the first quarter of twenty twenty five, we expect to deliver revenue of $125,000,000 plus or minus $10,000,000 down 20% year over year.

We estimate Street ASP in the first quarter be approximately $365 down year over year from three ninety five. Expect unit sales to be down 20% year over year to 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 twenty twenty five operating expenses to be approximately $63,000,000 plus or minus 2,000,000 a 24% 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 our new GP3 SoC. Non GAAP tax expense is expected to be $1,000,000 in the first quarter of twenty twenty five. We expect non GAAP loss per share in the first quarter of $0.13 at the midpoint of guidance And I expect shares outstanding to be approximately $155,000,000 Turning to the balance sheet, we expect cash to be approximately 80,000,000 at the end of the first quarter. And now I'll provide commentary on full year Some full year 2025. Expect gross margin improvement of more than 100 basis points in 2025 from 2024 based on the following factors: the introduction of our MAX two three sixty 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 improvements.

We expect our full year 2025 operating expenses to be in a range of $250,000,000 to $260,000,000 down $100,000,000 or nearly 30%. Year over year. Non GAAP tax expense is expected to be $3,000,000 and cash tax is expected to be $1,000,000 in 2025. With the anticipated decline in unit sales in 2025 from 2024, Our subscriber count is expected to be approximately 2,400,000.0 at the end of twenty twenty five. We expect subscription and service revenue in 2025 to be approximately $105,000,000 The continued improvement in aggregate retention rate is driving improved ARPU which is softening in 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 $50,000,000 which anticipates the repayment of our convertible debt. In addition, we have a $50,000,000 asset back line or ABL facility [indiscernible] 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 improved gross margin refine our product roadmap improved 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. At the upcoming Morgan Stanley Technology, Media and Telecom Conference on March 5. Operator, with that, we are now ready to take questions. We have a question from Eric Woodring with Morgan Stanley.

Your line is now open. Great. Thank you so much for taking my question, guys. I apologize, I'm hopping between calls. But maybe I guess it's for you, Brian. I think I heard heard your guide to subscribers and in the year of I think it's $2,400,000 which would be down year over year. I realize units will be down but your commentary at least that I caught on renewal rates was sounded very bullish. And so can you just 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 so our tax rates [indiscernible] For the full year, it's about 42%. We're assuming 38% to 40%. On that front. And we do continue to see aggregate retention improve. And so that results in about an improvement in ARPU So that's helping to counterbalance the reduction in units and therefore, you get about $105,000,000 of revenue and about $2,400,000 less than 2,400,000.0 subs down about 120,000.

Okay, perfect. Thank you. Perfect. Thank you for that. And then, and then, 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 Is there any more kind of concrete guidance that you can provide us to how we should be thinking about 2025, 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.

Yes. Sure. We're going to guide quarter to quarter. Eric, it's a long year to go. We feel good about products we have, the products that are coming out. But there's headwinds with consumer competition and FX, right, which is impacted us a lot. I mean, FX from 2021 into 2022, 2023 and 2024 has impacted us about 50,000,000 on the top line margin and bottom line. So now we got to worry about where the dollar is going as well. So but we said it would be I'm not going to give a precise number. The good news is we think we've got good margin going here percent and some really good cost reduction Clearly, the subscription and service is helping us. From a margin perspective. We expect that to continue. I mean, since 2023, probably about a 202 basis point to two fifty basis point improvement in margin. Right there along with the 10035%. But we're not going to guide the top line right now for 2025. Okay. Understood. Thank you so much. Sorry, Ram. Sorry.

I'd like to 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 going to broaden our our portfolio considerably. So that's that's the a bright spot to look forward to 2026. 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 MAX-one back into the market? [indiscernible] you can provide on that decision and how whether that model will be margin accretive for you. Thanks, Martin. [indiscernible] We had cleared the channel of MAX in anticipation of MAX two.

And as we shared the delay of [indiscernible] cause some complications For the business, And so we determined that and we identified that there's a market for MAX It's a slightly refreshed [indiscernible] Along with the significant software enhancements that we just launched recently as a free update to the GoPro Quick App.

The overall three sixty experience is much enhanced So we're super excited to get Max back out into the the marketplace here later this month. And then that's going to serve as a terrific entry level three sixty product paving the way for the momentum towards the launch of MAX two. So was a pretty easy decision to go and essentially refresh the product and bring it back into the market as an entry level experience. Again bolstered by the the new and enhanced software experience that we just recently launched and that we'll be building on throughout the year. So I'm I'm happy to let GoPro three sixty 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.

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

And then the second question is on new products this year. We have MAX two coming up later. And then you referenced the GP3 development updates do we expect TP3 to be [indiscernible] enabled camera to be out this year.

Yes. Martin, I wish that we could be more transparent [indiscernible] 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 going to be able to provide any information on that. I apologize.

Got it. No problem. Last question from me is overall subscription trend. And is there any way when you look at overall long term growth for subscription Do you still view hardware sales as the primary driver of subscription revenue Is there any other levers you can pull to to boost subscription revenue growth or that return of [indiscernible] You want to start? Yes, Brian. Yes, 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 in 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 the functionality and relevance of our hardware products to serve more use cases, more customer groups and more ways through software. 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 as well.

I think you have more to add on that.

Well, I mean the other thing that I'll add Martin is we've continued to and improve aggregate retention rates. 60% year to 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 and come back in and that's what's helping to drive our ARPU [indiscernible] So that's exciting. And as we as Nick mentioned, we returned to subscription growth we believe, in 2026. [indiscernible] has the additional benefit of keeping more people in longer, adding more service capability that enhances the value proposition. For this, which will then fuel aggregate retention. So that both are important. [indiscernible] That drives ultimately drives ARPU 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 as a market leading innovator. Thanks, everyone.

This is team GoPro Signing off.

That concludes today's call. Thank you all for your participation. You may now disconnect your line.