GoPro, Inc. Q3 FY2025 Earnings Call

Hello, everyone, and welcome to the GoPro Third Quarter 2025 Earnings Call. My name is Charlie, and I'll be coordinating the call today. I will now hand over to your host, Robin Stoecker, Director of Corporate Communications at GoPro, Inc., to begin. Robin, please go ahead.

Thank you, Charlie. Good afternoon, and welcome to GoPro's Third 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 third quarter as well as outlook, please read our Q3 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. 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 and remarks made today 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 all on the call to read the detailed management commentary we posted on our Investor Relations website. The third quarter marked significant progress in our strategy to grow our business by developing our hardware and software offerings, and diversifying our hardware and software offerings. In Q3, we launched 3 new hardware products and several new software products that helped us exceed our Q3 revenue guidance. Our teams are executing with efficient precision, and we're excited to build on this momentum. As you'll hear from Brian, we believe we have turned an important corner, and we expect to return to unit revenue and profitability growth on a year-over-year basis in Q4 and for 2026. Our innovation machine is accelerating to increase our total addressable market beyond the 3 million unit action camera category. In Q3, we launched our highly anticipated MaX2 360-camera, our new ultra-compact LIT HERO camera, and Fluid Pro AI, our new multi-camera compatible gimbal designed for creators that own multiple types of cameras and need one gimbal to meet their multi-camera stabilization needs. MaX2 360-camera opens up a new growth segment, which we estimate the total addressable market to be nearly 2 million units annually. We're excited to regain market share with the launch of our MaX2 360-camera and we're further expanding our total addressable market with LIT HERO, with its playful aesthetic, ease of use, and versatility, making it especially appealing to a younger demographic looking to capture and share moments on the go. Additionally, the low-light capable camera segment, which we estimate the total addressable market to be 2 million to 2.5 million units annually, represents a significant opportunity for GoPro as we do not currently participate in this market, but plan to. Our tech-enabled motorcycle helmets initiative is progressing and collaboration with AGV is already underway. Both teams are working closely to deliver innovative safety and performance features combined with the fun of effortlessly capturing immersive GoPro video while riding. We look forward to providing updates as development progresses. Starting with MAX2, what a game changer. Its industry-leading 360 technology combines with its True 8K video resolution to capture up to 21% more resolution than the competition. MAX2 also features convenient and durable twist-and-go replaceable lenses, making it easy to swap out a lens in the field without tools or calibration, an inconvenience inherent with competitive products. And we recently launched an innovative and expansive new line of 16 360-centric accessories and mounts that expand MAX2's creative potential and versatility. Early customer feedback has been resoundingly positive, with many praising MAX2's superior image quality, ease of use, and durability. And in September, GoPro won a 2025 Technology & Engineering Emmy Award in recognition of our innovative 360 technology, which is core to our 360 cameras and software. This is GoPro's third Emmy for innovations related to digital imaging and our first in the 360-technology category. We believe MAX2 will help grow share in the global 360-camera market. MAX2 is now available online and on shelf at retailers globally. We're also excited about a second new camera we launched in Q3, LIT HERO, an ultra-compact lifestyle camera designed for 'whatever, whenever' capture with its built-in photo and video light. LIT HERO opens up creative possibilities in any setting, day or night, and delivers a fun retro-inspired look to the images it captures. And the third new hardware product we launched in Q3 is Fluid Pro AI, our advanced multi-camera, AI subject tracking gimbal designed for today's multi-camera content creators looking for a high-performance gimbal that meets their multi-camera needs. Fluid Pro AI is compatible with all GoPro cameras, smartphones, and point-and-shoot cameras up to 400 grams, making it remarkably versatile for capturing smooth, professional-looking content while vlogging, capturing sports, or documenting life's most meaningful moments. Fluid Pro AI represents an exciting opportunity for GoPro to participate in the global gimbal market. As we enter the holiday season, GoPro now offers a diversified line of 8 industry-leading camera SKUs that range from an MSRP of $199 to $649, more than 70 versatility expanding camera mounts and accessories, and an industry-leading mobile app and subscription experience that adds enormous convenience and value to GoPro subscribers. And we're just getting started. We believe our current offerings serve as an incredible foundation to build on with the planned launch of several exciting new products in 2026 that we believe will result in revenue, profit, and market share growth across our business. Turning to software. In Q3, we launched several new 360-related editing tools that make immersive 360 content creation easy for everyone. And we updated our Quik mobile app with several new 360 editing features, including AI-powered subject tracking, convenient POV and selfie modes, and cloud-based 360 editing. These powerful new features significantly enhance the convenience and creative experience for MAX and MAX2 owners and GoPro subscribers. Our subscription model continues to exceed our expectations, contributing enormous value to both subscribers and our bottom line. We anticipate renewed subscriber and associated revenue growth in 2026, fueled by camera unit growth and the launch of new editing and content management features that we expect to significantly enhance convenience, capability, and value. And we continue to see strong engagement from subscribers, opting into our AI training program, which will earn them 50% of the third-party licensing revenue we expect to generate on their behalf. GoPro subscribers have contributed more than 270,000 hours of video content during the AI training program's invitation-only outreach period, which began in July 2025. We are in discussion with several AI data licensees to address their demand for authentic real-world video content for AI model training. We believe this program represents a meaningful opportunity over time for both our subscribers and GoPro, and we look forward to sharing progress as the program continues to evolve. As Brian will detail, we've amended our Second Lien Credit Agreement to address volatility in tariff rates. Given our commitment and expectation to achieve the minimum $40 million in trailing 12-month adjusted EBITDA by year-end 2026, I'm personally backing our commitment with a $2 million equity infusion into the company. In summary, we're executing against our strategy, and we're seeing the results, improved product diversification via the launch of industry-leading hardware and software products and an expected return to unit revenue and profitability growth in Q4 2025. We expect to build on this momentum in 2026 with the launch of several new innovative and differentiated products and services that we believe will lead to consistent quarterly camera unit and revenue growth on a year-over-year basis and a swing from losses in recent years to solid adjusted EBITDA profitability in 2026. Many thanks to all of GoPro's incredibly talented, passionate, and committed employees. Your execution is enabling us to realize our vision to the benefit of our customers and investors alike. Now I'll turn the call over to Brian to share some details on our financials and outlook.

Thanks, Nick. For the third quarter of 2025, revenue was $163 million and gross profit was 35.2%, in line with guidance. We achieved a second consecutive quarter of positive cash flow from operations of $12 million, a $14 million improvement year-over-year. Demand for our cameras as measured via sell-through was 5% better than we predicted. Channel inventory declined 30% from the prior year quarter and has reduced for 4 consecutive quarters as we prepare for the upcoming holiday quarter. As we look to the fourth quarter, our outlook is prefaced by highlighting heightened uncertainty that exists due to volatility in tariff rates, consumer confidence, competition, component supply chain, and global economic uncertainty. For the fourth quarter, we expect revenue growth at the midpoint of guidance of 10% to $220 million, non-GAAP net income per share of $0.03, plus or minus $0.02, and adjusted EBITDA positive $12 million compared to a prior year adjusted EBITDA loss of $14 million, a $26 million improvement. All of these expected improvements are due to the actions we took in 2024 to launch new products in the second half of 2025, reduce operating expenses, diversify our supply chain, and drive product cost reductions, which were partially offset by higher tariffs. We estimate street ASP in the fourth quarter to be approximately $350, up slightly year-over-year. We expect unit sell-through to be down 18% year-over-year at the midpoint of guidance to 625,000 units and channel inventory to be nominally up sequentially. We continue to actively manage the balance sheet and expect to further reduce inventory sequentially in the fourth quarter. In addition, we expect to end the year with cash and cash equivalents in the range of $60 million to $65 million, along with an additional $50 million available under our ABL facility. We expect gross margin in the fourth quarter to be 32% at the midpoint of guidance, down compared to the prior year quarter of 35%, primarily due to tariffs. Excluding tariffs, gross margin in the fourth quarter 2025 would be approximately 37%. We expect fourth quarter 2025 operating expenses to be $63 million at the midpoint of our guidance range, a more than 25% reduction from the prior year quarter due to lower spending on wages from lower headcount, reduced marketing, and lower engineering expenses. We expect shares outstanding to be approximately 177 million in the fourth quarter. As we look ahead to 2026, we expect the following: to grow units and revenue in 2026 based on both our existing lineup of products as well as new products and services expected to be introduced next year. Our expectation is to grow units and revenue each quarter in 2026 on a year-over-year basis. Full year 2026 operating expenses to be approximately $250 million, slightly down year-over-year to continue to offset approximately half of our expected tariff costs of $45 million in 2026 with modest price increases and continued supply chain diversification. Subscription ARPU growth of 5% and to end 2026, up 2% to 2.4 million subscribers. Our liquidity position to be more than adequate during 2026, and we expect to end 2026 with approximately $80 million in cash, plus or minus $5 million, along with an additional $50 million available under our ABL facility. To experience some margin pressure year-over-year due to tariffs and increasing component prices, which we expect to partially offset with improvements in supply chain. As detailed in the management commentary in our filing, we have amended our debt agreement due to changes in tariff rates. We expect adjusted EBITDA to be greater than $40 million in 2026, an improvement from losses of $18 million in 2025 and $72 million in 2024. In closing, we believe our strategy is working. We are in the midst of an innovation cycle with the continued launch of new products and services expected over the next several years. Combined with the initiatives we undertook in 2024 to reduce operating expenses and improve supply chain in 2025, we believe we will restore unit and revenue growth and deliver strong adjusted EBITDA of at least $40 million in 2026. Operator, we are now ready to take questions.

Our first question comes from Erik Woodring of Morgan Stanley.

Nick, maybe if I just start on 4Q sell-through, I think it was saying that you expect sell-through to be down, I think it was 18% year-over-year. Can you just talk about kind of the puts and takes there? You launched 3 new cameras this year versus 2 last year. I think the timing of the launches this year was a little later than last year. So just why we're seeing sell-through down as opposed to others because there's no flagship camera. Just any detail you could help us understand there, please?

Yes, you are correct. I had to approach this with some caution. It's evident that we did not introduce a new flagship HERO camera this year in the third quarter for fourth quarter sales. What I can share is that this decision is part of our strategy in preparation for our launches in 2026. A little patience now can lead to significant benefits in 2026. We have something special planned, and we appreciate the patience of the market and investors. We believe this choice will greatly assist us in increasing units, revenue, and profits in the first half of 2026. To provide some additional context, I need to be cautious regarding competition, but we think that by concentrating on a more substantial upgrade, we can achieve a much larger impact than if we had released a product in the third quarter of this year.

I'm really looking forward to this. I wanted to ask about innovation, particularly regarding where you see camera innovation heading. You've successfully introduced 360 technology, a lifestyle camera, and a gimbal system, and you've mentioned motorcycle helmets. Without revealing too much for competitive reasons, what do you think are the promising end markets or use cases moving forward? Any insights you can share would be greatly appreciated.

It's clear that the opportunity for growth is in diversification and meeting more of the specific needs of the market, not through one SKU. Traditionally, the HERO camera, the product that GoPro was built on, was a bit of a Swiss Army knife that did it all for everybody. And that was terrific for a time. But as consumer and professional demands have grown and become more specialized, and we've seen the end customer want to not have a do-it-all Swiss Army knife as much as they want additional tools, multiple tools, multiple cameras that help them achieve more specifically the solution for whatever capture scenario they're solving for. So that's terrific for us because that can expand the total addressable market, help us relate GoPro to more end users, and not burden any one product with the task of doing everything for everyone. So what I would say is diversification, diversification, diversification. You're seeing that already in our product line, and you'll see that scale in 2026. And we believe that will result in total addressable market expansion, unit growth, subscriber growth, and sustained profitability growth.

Yes, Nick, I think in addition to that, the GP3 processor is also leading in its capabilities and what we're able to achieve in terms of imaging and innovation. So that's another area where we are at the forefront with the products that will be released next year using that processor.

Yes, what Brian just alluded to is 2026 will be the year of GP3. Our current cameras are based on a GP2 processor. And 2026 is the debut of our line of GP3-based processors that will take GoPro and the industry to the next level of performance.

Okay, great. Lastly, I appreciate the insights on 2026. At a high level, how are you envisioning the world in 2026? There's quite a bit of uncertainty, especially with the upcoming holiday season. What gives you the confidence to provide guidance as you have? How are you incorporating your perspective on the world in 2026 into that guidance? That's all from me.

Yes, I'll start and then...

Go ahead.

What I wanted to add regarding market demand for diversification is that we see consumers behaving in this way today. All of our research indicates that there is a clear opportunity to broaden our product lineup to better address the varied needs of the market. This is what our roadmap aims to achieve by 2026. Coupling that diversification with the next-generation GP3 processor from GoPro is expected to position us as a market leader in all the essential categories we are involved in. We anticipate that the demand for our products will increase as we progress into this new era of performance and capability at GoPro next year. Brian, please feel free to expand on that.

Yes. I believe that even in the fourth quarter of this year, which is arguably challenging due to consumer conditions and other factors, we are still on track to meet our sell-through and sell-in targets. We also have new products launching in 2026 that will contribute to this success. It’s exciting to anticipate both unit and revenue growth in the fourth quarter with the introduction of two or three new products this year and more on the way for next year.

Yes. And just to be clear, the cadence of launching new products next year will be steadily throughout the year. So that's also something to look forward to as opposed to being so back-end loaded.

Thank you. We have no further questions registered on today's call. So I'll hand back over to the management team for any further or final remarks.

Thank you, operator, and thank you, everyone, for joining today's call. To summarize, we're executing well against our strategy to launch industry-leading hardware and software products with improved product diversification expected to restore unit revenue and profitability growth this fourth quarter and throughout 2026. Thank you, everyone. This is Team GoPro signing off.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect.