Earnings Call Transcript - GPRO Q1 2025

Operator, Operator

Good afternoon. Thank you for joining the GoPro First Quarter 2025 Earnings Call. My name is Cameron, and I will be your moderator today. All lines will be muted during the presentation portion, and there will be a chance for questions and answers at the end. I will now hand the conference over to your host, Robin Stoecker, Director of Corporate Communications at GoPro. You may proceed.

Robin Stoecker, Director of Corporate Communications

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.

Nicholas Woodman, CEO

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 Brian.

Brian McGee, CFO and COO

Thanks, Nick. We performed better than expected in the first quarter in terms of revenue, earnings, sell-through, operating expenses, and inventory targets, achieving a new high in overall subscriber retention. Additionally, we relaunched our MAX 360-camera and introduced a new color for our flagship camera during the quarter, with plans to launch our next 360-camera this year. First quarter revenue totaled $134 million, reaching the high end of our guidance of $125 million, driven by stronger sales during the quarter. Subscription and service revenue increased by 4% year-over-year, mainly due to a 5% growth in ARPU, thanks to improving retention rates that hit a record 70%. Our non-GAAP operating expenses for Q1 2025 were $62 million, down 26% from the previous year. We are maintaining a strong emphasis on controlling expenses while continuing our investment in the product roadmap. Key performance highlights from the first quarter include: revenue from our retail channel was $94 million, accounting for 70% of total revenue, up from 68% in Q1 2024, driven by sales to big box retailers. Revenue from our GoPro.com channel, which includes subscription and service revenue, was $40 million, making up 30% of total revenue, down from 32% in Q1 2024. Subscription and service revenue grew 4% year-over-year to $27 million, with a 5% ARPU increase due to higher retention rates reaching 70%. The subscription attach rate from cameras sold across all channels was 49%, compared to 48% in Q1 2024. Our non-GAAP operating expenses were $62 million, compared to $83 million the previous year. Both GAAP and non-GAAP losses per share were $0.30 and $0.12, respectively, with adjusted EBITDA loss nearly halving year-over-year to negative $16 million. We wrapped up the quarter with $96 million in inventory, a 27% year-over-year decline, reflecting the first sequential decrease in Q1 inventory since 2018. Sell-through was about 440,000 units, down from 530,000 units last year, primarily due to decreased unit sales in Asia-Pacific, affected by macroeconomic factors and competition, especially in China, Japan, and South Korea. Channel inventory fell sequentially by about 40,000 units. During the quarter, we capitalized on a slower-moving product to convert inventory into cash more quickly, which impacted gross margin. Excluding a one-time $5 million sale, gross margin would have been 35.5%, aligning with guidance and exceeding Q1 2024's 34.4%. Our reported gross margin for Q1 2025 was 32.3%. First quarter operating expenses were down 26% year-over-year to $62 million, mainly due to restructuring that reduced employee costs, decreased marketing expenses, and the completion of our new GP3 system-on-chip. However, this was slightly offset by legal costs for IP defense. Moving to the balance sheet, we ended Q1 2025 with $70 million in cash, cash equivalents, and marketable securities, including a $25 million draw on our ABL. Excluding this draw, cash would have declined by $58 million compared to our cash usage of $89 million in Q1 2024. The cash used this quarter was primarily due to an adjusted EBITDA of negative $16 million and $36 million in working capital changes. Sequential changes in working capital were largely due to a $63 million drop in accounts payable and liabilities, alongside a $5 million rise in prepaid expenses and other assets, partially offset by a $24 million reduction in inventory and a $9 million decrease in accounts receivable. In Q2 2025, we plan to repay the $25 million ABL draw. Our headcount ended at 659 full-time employees, down 30% from last year's 937. Now, looking ahead, we expect Q2 revenue to be $145 million at the midpoint of guidance, a non-GAAP loss per share of $0.07, and nearly a $30 million year-over-year improvement in adjusted EBITDA. All these enhancements stem from our 2024 initiatives to lower operating expenses, diversify our supply chain, and reduce product costs. We are also focused on further improving operational efficiencies to cut costs and expand our supply chain beyond China. At current tariff rates, we anticipate an approximate $8 million tariff impact on our cameras for 2025, which we expect to offset with modest price changes of less than 5% globally. This expected $8 million impact for 2025 is further mitigated by selling through inventory that arrived in the U.S. before April. We aim to continue actively managing our balance sheet, expecting to reduce inventory sequentially by $20 million to about $75 million and increase cash net of debt by $25 million sequentially through more efficient working capital management. For Q2 2025, we project revenue to be $145 million, plus or minus $10 million, representing a 22% year-over-year decrease. We estimate the Street ASP in Q2 will be around $370, an increase of nearly 15% year-over-year. We expect unit sell-through to drop by 20% year-over-year to around 500,000 units, with channel inventory decreasing by approximately 60,000 units sequentially. We forecast a gross margin of 35.5% at the midpoint for the second quarter, which is nearly 500 basis points higher than the same quarter last year. We anticipate second quarter operating expenses to be $60 million, plus or minus $1 million, a 36% reduction from the prior-year quarter due to decreased spending on wages related to lower headcount, reduced marketing costs, and lesser non-recurring engineering expenses tied to the completion of GP3. We project a non-GAAP loss per share of $0.07 at the midpoint for Q2 and about 57 million shares outstanding. On the balance sheet front, we expect cash net of debt to improve by $25 million in Q2. For 2025 overall, we anticipate lower units and revenue compared to 2024, largely due to an uncertain macroeconomic environment, heightened competition, and a delay in launching our new 360-camera, although partially offset by favorable FX trends from a weaker U.S. dollar. Regarding expectations for the remainder of 2025, we plan to introduce the MAX2 360-camera and improve our full-year operating expenses further to a range of $240 million to $250 million, a reduction of over $100 million or 30% year-over-year. We expect to counteract tariff costs with modest price increases, continue diversifying our supply chain away from China, and potentially manufacture certain products in the U.S. We expect subscription ARPU growth and cost improvements while aiming to finish the year with 2.4 million subscribers. We now project ending 2025 with $75 million in cash, no debt, and a $50 million available ABL facility. This revised outlook reflects ongoing operating expense reductions and favorable FX impacts from a weaker U.S. dollar. The initiatives we implemented in 2024 are yielding positive results for reducing operating expenses and enhancing gross margins. We are committed to launching new products while being prudent with cash to pay off our debt in 2025 and to introduce a significant number of new products in 2025 and 2026 to restore growth and profitability. Operator, with that, we are ready for questions.

Erik Woodring, Analyst

Good afternoon, everyone. Thank you for taking my questions. I have two. Brian, I would like to start with you. Can you help us understand the factors behind the stronger sell-through this quarter? Specifically, do you have any triangulation data or insights into linearity or channel feedback that can help us assess how much of the stronger sell-through was due to pulling forward demand ahead of potential price increases, how much was genuine demand, and whether any of this behavior will impact the second quarter? I also have a quick follow-up.

Brian McGee, CFO and COO

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.

Erik Woodring, Analyst

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.

Brian McGee, CFO and COO

In my prepared remarks, I mentioned that Asia experienced a 54% decline, primarily due to macroeconomic factors and competition. Country-wise, we saw declines in China, Japan, and South Korea, which were the most affected in the Asia Pacific region. The U.S. had the best sell-through, showing the smallest decrease as we reported. Some of the sell-in during the quarter was related to a one-time $5 million sale of products. This allowed us to reduce inventory and convert it to cash. That explains the differences you noted. We expect the remaining inventory to sell-through quickly at favorable price points.

Erik Woodring, Analyst

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

Alicia Reese, Analyst

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.

Brian McGee, CFO and COO

That's a great question. Regarding tariffs, we currently have no tariffs on cameras coming into the U.S. because we have shifted all our camera production outside of China. The cameras manufactured in Thailand face about a 10% tariff, a significant decrease from prior rates of around 150%. While accessories do incur some tariffs, the recent reduction means they will only amount to a few million dollars each quarter, which we can manage with small price increases. We only need to increase prices globally by about 3% to 4% to cover the tariff costs, and we will implement those adjustments. Overall, our supply chain is well-positioned for camera production in the U.S., and we will be moving more accessories out of China and into Vietnam. We've effectively minimized our exposure to tariffs.

Alicia Reese, Analyst

I have a couple more questions. Could you elaborate on the current dynamics in Asia over the past few quarters? It's been somewhat weak, so I would appreciate it if you could discuss that and also note the differences in the Americas for this quarter.

Brian McGee, CFO and COO

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.

Alicia Reese, Analyst

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.

Brian McGee, CFO and COO

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.

Alicia Reese, Analyst

Understood. Thanks so much for the time.

Brian McGee, CFO and COO

Thank you.

Nicholas Woodman, CEO

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.

Operator, Operator

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.