Q3 2024 GoPro Inc Earnings Call
Music
Good afternoon. Thank you for attending today's.
Speaker Change: third quarter 2024 earnings call. My name is Cameron and I will 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. If you would like to ask a question please press star one on your telephone keypad and I would now like to pass the conference over to your host Christopher Clark, Vice President of Corporate Communications. You may proceed.
Christopher Clark: Thank you, Cameron. Good afternoon and welcome to GoPro's third quarter 2024 earnings conference call. With me today are GoPro's CEO, Nicholas Woodman, and CFO and COO, Brian McGee.
Christopher Clark: Today's agenda will include brief commentary from Nick, followed by Q&A.
Christopher Clark: For detailed information about our third quarter 2024 performance as well as outlook, please read our Q3 2024 earnings press release and the management commentary we've posted to the investor relations section of GoPro's website.
Christopher Clark: Before I pass the call to Nick, I'd like to remind everyone that our remarks today may include forward-looking statements. Forward-looking statements and all other statements that are not historical facts.
Christopher Clark: are not guarantees of future performance and are subject to a number of risks and uncertainties which may cause actual results to differ materially.
Christopher Clark: 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.
Christopher Clark: 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, 2023.
Christopher Clark: which is on file with the Securities and Exchange Commission and as updated in filings with the SEC, including the quarterly report on Form 10-Q for the quarter ended September 30th, 2024.
Christopher Clark: Today we may discuss 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.
Christopher Clark: 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.
Christopher Clark: Unless otherwise noted, all income statement-related numbers that are discussed in the Management Commentary and Remarks today, other than revenue, are non-GAAP.
Speaker Change: Now I'll turn the call over to Gopro's founder and CEO, Nicholas Woodman.
Thank you.
Thanks, Chris, and thanks, everybody, for joining us today.
Speaker Change: Today, 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 to our Investor Relations website.
In Q3, GoPro exceeded guidance with revenue of $259 million.
Subscription and service revenue grew 11% year-over-year to $27.5 million.
Speaker Change: primarily driven by our food growth of 9% and overall subscriber growth of 2%.
Speaker Change: EPS was break-even on a non-gap basis and EBITDA was $5 million, a $39 million improvement sequentially.
Despite these directionally positive Q3 results,
Speaker Change: This continues to be a challenging year for GoPro, as we navigate global macroeconomic headwinds impacting consumer discretionary spending, the previously mentioned delay of our new 360 degree camera, and competition.
Speaker Change: While GoPro welcomes fair competition as it encourages innovation and fosters a vibrant market for consumers,
Speaker Change: The principles of fair competition are not served by companies that seek to profit from the hard work, investment, and innovation of others.
Speaker Change: We will litigate in the interest of protecting our inventions and we understand the time and cost associated with defending our IP.
Speaker Change: GoPro has invested substantial time, effort, and money into a culture of innovation over the past 20 years, researching and developing leading-edge technologies that have enabled new ways of capturing and new categories of camels.
Speaker Change: whether that's being the first to enable ultra-wide angle perspectives in consumer cameras, inventing market-leading in-camera video stabilization, or pioneering convenient 360-degree capture.
Speaker Change: This culture of innovation has allowed us to build a patent portfolio consistently recognized by industry experts for its quality, depth, and variety.
Speaker Change: Our patent portfolio is in place to protect our inventions and IP, and we are committed to taking action to protect these assets when necessary.
Speaker Change: Earlier this year, we filed a complaint with the U.S. International Trade Commission and a lawsuit in the U.S. District Court for the Central District of California against one of our competitors with the goal to enforce certain GoPro patents related to our cameras and digital imaging technology.
Again, GOCO welcomes fair competition.
Speaker Change: but we will litigate to protect our IP when we believe it is being infringed.
Speaker Change: As we shared in our QT learnings, the consumer digital imaging market is growing, driven by new products catering to consumers growing interest in alternative forms of capture beyond the phone.
Speaker Change: We are seeing growth in the action camera market, 360 degree cameras, and other new types of cameras.
Speaker Change: We believe our product roadmap positions us to participate in these growth areas and more.
Speaker Change: To better position ourselves to participate in this growth as a profitable company, in 2025 and beyond, we've taken a more aggressive approach to reduce 2025 operating expenses significantly below what we shared on our last earnings call.
Speaker Change: We are now targeting 2025 operating expenses of $250 million, a reduction of approximately $110 million from 2024.
Speaker Change: I want to be clear, we are not cutting our way to profitability.
Speaker Change: We are changing our approach to operate in a leaner, more focused manner that we believe will be sustainable and strategic for long-term success and improved financial performance.
Speaker Change: We are reducing our operating expenses to the lowest level since the foregoing public, while pursuing a product roadmap we believe will drive innovation, differentiation, and growth.
Speaker Change: In September, we launched two new products. Our flagship HERO13 Black is loaded with leading-edge technology, performance, and convenience that includes a suite of innovative new lens mods that massively enhance a user's creative potential.
Speaker Change: We also launched our new entry-level camera, the Tiny Hero Camera.
Speaker Change: Priced at $199, Kiro is our most affordable family making it ideal for travelers, creators, families, kids, adventure seekers, and gift givers looking for the simplest, lightest, 4K GoPro.
Speaker Change: And importantly, HERO has been newly designed from the ground up to yield a better profit margin than our previous entry-level cameras.
Speaker Change: And we continue to execute on the global retail expansion strategy we announced in May 2023, having added approximately 6,300 new doors since then.
bringing our total doors to over 25,000.
Speaker Change: In Q3, we added more than 1,200 doors globally, including approximately 500 Sam's Club doors in the U.S.
Speaker Change: Expanding our global retail footprint to this level not only allows us to reach more consumers with our current products, but also serves as an important foundation for future launches as we expand our product offerings.
In summary,
Speaker Change: We are working through our business challenges and feel good about our go forward strategy.
Speaker Change: We are reducing 2025 operating expenses to the lowest level since the foregoing public while pursuing a product roadmap we believe will drive innovation, differentiation, and growth.
Speaker Change: We are excited to operate GoPro in a leaner manner as we believe it will yield better execution, efficiency, and improved financial performance.
Speaker Change: Now I'll pass the call to Brian to share some details on our financials and outlook.
Brian Mcgee: Thanks Nick. I'd like to first share some notable business highlights.
Brian Mcgee: In Q3, subscription and service revenue grew 11% year-over-year to $27.5 million.
Brian Mcgee: primarily from 9% ARPU growth given by improving our aggregate retention rate which was up 4% year-over-year to 67% as well as growth of our premium plus subscribers.
Brian Mcgee: Also in Q3, subscribers grew 2% year over year to 2.56 million, including 54,000 premium-plus subscribers and subscription attach rate from cameras sold across all channels with 45% in line with prior year.
attach rate.
Brian Mcgee: Third quarter EBITDA was positive $5 million, a $39 million sequential improvement.
Brian Mcgee: For the second half of 2024, growth margin is expected to be 36%, a 250 basis point improvement year over year, as we have outlined in the first half of 2024.
Brian Mcgee: Turning to the balance sheet, we expect cash to be approximately $125 million at the end of the year.
Brian Mcgee: We recently conducted a restructuring to reduce operating expenses by 110 million to approximately 250 million.
in 2025, down from 360 million in 2024.
Brian Mcgee: Looking ahead to 2025, we expect units and revenue to be lower than 2024, primarily driven by macroeconomic headwinds, competition, and the delay of our new 360-degree camera, which we expect to launch in 2025.
Brian Mcgee: We anticipate street ASP to be in the range of $335 to $345 in 2025, a 5% improvement over 2024.
Brian Mcgee: We expect gross margin to improve from 34% in 2024 to a range of 35% to 36% in 2025.
Brian Mcgee: We expect our operating expenses to be between $245 million and $255 million as a result of the 26% reduction in headcount and other expense reductions taken in 2024.
since before becoming a publicly listed company.
care.
Brian Mcgee: In addition, our expectation is for first quarter of 2025, operating expense level of approximately 60 million. We're down nearly 30% year over year.
Brian Mcgee: We believe this annual level of spend enables us to pursue a diversified and innovative road map that we believe will extend Gropro's leadership in the markets we serve and restore unit and revenue growth in 2026.
Brian Mcgee: In summary, as we work through our business challenges, we are adjusting GoPro's operating model to be more efficient to yield improved financial results.
Brian Mcgee: We are excited about 2025. We expect to launch new products while preserving cash to repay our debt and importantly position ourselves for profitability in 2025.
Operator, we are now ready to take questions.
Speaker Change: We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad.
Speaker Change: If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. And as a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question, and we will pause here briefly as questions are registered.
Speaker Change: The first question is from the line of Martin Yang with Oppenheimer. You may proceed.
Martin Yang: Thank you for taking my question. My first question is about the mitigation. What do you consider as the ideal outcome?
EUS ITC Investigations.
Hi, Martin. Thanks for that.
The litigation is to defend our IP.
which we believe is being infringed.
and other the
Martin Yang: I would say, what I can say is the ideal outcome is that the ITC would recognize this infringement, would recognize and validate the validity of our patents and our IP, and that any products...
Martin Yang: that are being sold into the United States market that are infringing, sold in by the company in question, that they would no longer be able to sell those products into the United States market.
Speaker Change: Got it. And is there any timeline or expected date for the investigation to conclude?
We expect, in general terms, a conclusion in 2025.
Got it.
Thank you. My next question is on the 2025.
Outlook, if you were to rank the different
Speaker Change: Edwins, you outlined, you know, what would be the most impactful to do the 2025 outlook.
Speaker Change: will be the least impactful, and how do you reconcile the number of retail doors that you have grown over the year to that reduced outlook?
Speaker Change: probably one of the biggest we're seeing that here in the US. China in the third quarter was down significantly as a market. They're having their issues. We finally saw a little bit of
Speaker Change: sliding in Europe. Europe has been a stronger market for us.
Speaker Change: Followed by, you know, we have to get our 360 camera out Martin. So that's
Speaker Change: That's a growth, that's a market that's growing. You see that across the continent.
Speaker Change: and DFK. So we need to get that product in the market and resume selling and of course there's competition so I would kind of you know put them in in that order we got to get products out into the market.
My final question on competition.
Speaker Change: Do you see most of the sheer erosion happening on the 360-degree camera category, or do you see more happening for the main camera, the action camera category?
Speaker Change: Well, I'll start if you want to chime in. Oh, go ahead. Sure.
No, no, no, you go ahead.
Speaker Change: Yeah, I would say that the action camera category one is actually growing slightly.
And we're seeing, if you think about alternative capture, 360.
Speaker Change: it's definitely been a growth category. Again, I'll reiterate that's why we needed to get a product back in the market. And there's, you know, other forms of capture that are growing as well, particularly in blogging. So those are areas of opportunity for us to grow into those markets.
Speaker Change: Yeah, I would say the biggest share hit Martin is in 360.
Speaker Change: due to the delay of the launch of our new camera. We are seeing some share erosion in the hero camera category, action category.
as well. The biggest revenue impact, though, is coming from
Speaker Change: from us not watching our Max 2 360 camera. And as it relates to reconciliating the new door growth globally.
with
Speaker Change: sell through and some of the challenges that we're facing, be it macroeconomic,
not having launched our 360 camera or in competition.
Speaker Change: I'd say that we're, while we're really excited about the 25,000 plus
Speaker Change: doors that we're in now and all of the new merchandising that's gone out.
It's obviously very helpful, but...
Speaker Change: When we don't have our full suite of products out in the market, then obviously we're not fully exploiting that retail network and that really strong in-store presence. So that's, while that's...
something that's
Speaker Change: hurting us in 2024, that's something we believe is going to help us in 2025.
Speaker Change: when we get our full suite of new products out, including Max 2 in 2025.
Speaker Change: So, unfortunately, we're not realizing the full benefit of the 25,000-plus doors today, but we expect to realize the full benefit in 2025. So, there's a number of positive factors that we believe are going to contribute to a stronger 2025.
that 25,000-plus door count that will continue to grow.
Speaker Change: launch of new products to fill those doors, including our new 360 Camera Max 2 and more. So quite a bit to look forward to, but yeah, there's no denying that we've got a bit of a path between here and there.
Speaker Change: Got it. That's it for me. Thank you, Nick. Great. Goodbye.
Thank you, Mark.
Speaker Change: There are currently no questions registered. So as a reminder, it is star one to ask a question.
Speaker Change: There are no additional questions waiting at this time. I would like to pass the conference over to the management team for any closing remarks.
. . . . . .
Speaker Change: Thank you, operator. Well, thanks for joining the call today, everybody. I'd like to remind everyone that
and the OpEx.
target that we have in 2025.
Speaker Change: and yield better financial results. But we're confident that it's going to enable us to continue to drive innovation, differentiation into our product roadmap, to allow us to participate in the growth that we're seeing in the digital imaging market.
Our market opportunity is in what we consider alternative capture.
cameras. That is, you know, cameras that go beyond
the capabilities of the phone go beyond the capabilities
traditional cameras.
Speaker Change: and our innovations and product development is really focused at helping people.
Speaker Change: capture, document their lives, their experiences, either for personal enjoyment or for their careers, for professional, commercial purposes, in ways that just simply would be convenient with a traditional phone or a camera.
Speaker Change: And these categories of cameras are growing. The proliferation of cameras, be they as standalone cameras or cameras that are embedded into other devices or equipment or gear or vehicles.
is growing.
Speaker Change: And GoPro's tech stack, expertise, and brand are uniquely well positioned for us to develop as an enabler of these types of capture use cases. Historically, we've been known as the hero camera company.
Speaker Change: and while that's been terrific for growing our business and our brand over time,
Speaker Change: It's a subset of what GoPro is capable of. It's a subset of what our product development and engineering teams are capable of.
Speaker Change: It's a subset of what our existing distribution is capable of getting in front of consumers.
Speaker Change: And ultimately, it's been a subset of the greater opportunity for our brand and business to exploit.
Speaker Change: all of the incredible people, the incredible talent, the incredible technology that we've developed over the years.
Speaker Change: including, as I mentioned, the incredible patent portfolio that we have that we're now defending and will put to use going forward in new ways. So the opportunity ahead is very significant for us.
Speaker Change: We've moved through the challenges of 2024 and we're really looking forward to executing in 2025 as a leaner, meaner organization.
that's really focused on efficiency and execution.
Speaker Change: In the process of getting out exciting new products that we believe are going to help us grow our business. So
Speaker Change: While these are challenging, this is a challenging, immediate moment in GoPro.
Speaker Change: history, we're really looking forward to the changes that we've made in the business and putting those changes to use in a more efficient operating model in 2025.
Speaker Change: So, you know, with that, thank you everybody for joining today's call. We're looking forward to our next one with you at the beginning of next year and until then.
This is Team GoPro, signing off.
. . . . . .
Speaker Change: That concludes the GoPo third quarter 2024 earnings call. Thank you for your participation and enjoy the rest of your day.