Q4 2024 GoPro Inc Earnings Call
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Speaker Change: Good afternoon, and thank you for attending today's Gopro fourth quarter 2024 earnings call My.
Cole: My name is cole and I'll be the moderator for todays call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
Cole: If you'd like to queue for a question you can do so by pressing star one on your telephone keypad.
Speaker Change: I'd now like to pass the call over to Robyn Stecher. Please go ahead.
Robyn Stecher: Thanks, Nicole good afternoon, and welcome to <unk> fourth quarter and full year 2024 earnings Conference call with me today are Bill Clough, CEO, Nicholas Woodman, and CFO and CFO, Brian Mcgee.
Robyn Stecher: Today's agenda will include a brief commentary from Nick and Brian followed by Q&A.
Robyn Stecher: For detailed information about our fourth quarter and full year 2020 for performance as well as outlook. Please read our Q4 and full year earnings press release and management commentary, we posted to the Investor Relations section of corporate website.
Robyn Stecher: Before I pass the call today I'd like to remind everybody that our remarks today may include forward looking statements.
Robyn Stecher: 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.
Robyn Stecher: Well go to goodwill at anytime.
Robyn Stecher: Not under any obligation to update these statements as a result of new information or future events.
Robyn Stecher: 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 31st 2023, which is on file with the Securities and Exchange Commission and other reports that we may file from time to time with walking feet.
Robyn Stecher: 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.
Robyn Stecher: A reconciliation of GAAP to non-GAAP operating expenses and departmental parcels, but listen she had this afternoon.
Robyn Stecher: Posted on the Investor Relations section of our website.
Robyn Stecher: Unless otherwise noted all income statement related numbers that are discussed in the management commentary remarks made today other than revenue are non-GAAP.
Robyn Stecher: Now I'll turn the call over to the founder and CEO Nicholas Woodman.
Robyn Stecher: Yeah.
Robyn Stecher: Thanks, Robin and thanks, everybody for joining us today.
Speaker Change: As Robin mentioned, Brian and I will share a brief remarks before going into Q&A.
Speaker Change: And I want to encourage all on the call to read the detailed management commentary posted on our Investor Relations website.
Yeah.
Speaker Change: 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 diversify our manufacturing and sourcing over the years.
Speaker Change: <unk> Q4 results landed largely in line or slightly better than our guidance.
Speaker Change: During the quarter, we took action to rightsize operating expenses.
Speaker Change: We're now focused on delivering our 2025 and 2026 products.
Speaker Change: I shouldn't manner, which includes a broadening of our portfolio that we believe will yield profitable returns for gopro and our shareholders over time.
Speaker Change: The Gopro subscription is the most profitable product we sell in our retention numbers demonstrate the strength and the value we offer subscribers.
Speaker Change: As illustrated by our two improving 8% year over year.
Speaker Change: 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 for fourth year renewals of near 90%.
Speaker Change: In 2024 in addition to our flagship <unk> Black we introduced an entry level product and exciting tiny for K camera, we call hereof.
Speaker Change: This ultra small 86 gram rather wait camera has enormous potential that we're excited to continue to tap into.
Speaker Change: Just last week, we affirmed the firmware update we added a wider more immersive in cameras for by three aspect ratio for video capture along with a superb new digital lab, setting and the App, which combined to enable an aversive.
Speaker Change: Yields like year their point of view perspective during any activity.
Speaker Change: The immersive capture our engineering teams at enable in this tiny entry level Gopro is staggering.
Speaker Change: We expect sales to grow over time, as we and <unk>.
Speaker Change: As we.
Speaker Change: Continue to champion its capabilities with updates.
Speaker Change: And it goes without saying that we're excited to grow our presence in the 360 degree camera market.
Speaker Change: Our market, we pioneered in led for several years with category defining IP and products.
Speaker Change: As we've shared the 360 degree camera market represents a robust growth segment in the broader digital imaging category.
Speaker Change: And it's an understatement.
Speaker Change: Say that we're excited about the opportunity to grow our share in this important market.
Recent and upcoming events related to the 360 degree camera market include our recent release of a powerful totally new and enhanced 360 degree at any experience in the quick out complete with impressive subject tracking intuitive key frame base retraining and more.
Speaker Change: And later this month, we will begin selling a refreshed Max 360 degree camera to serve as an entry level 360, SKU ahead of the highly anticipated availability of our Max to 360 camera later this year.
Speaker Change: And of course.
Speaker Change: Max.
Speaker Change: We will be compatible with all the new aforementioned features and the updated quick out.
And speaking of Max too we're excited about the progress we've made on what we believe our innovative capabilities that will redefine the 360 camera market and position Max too as the world's most impressive 360 camera.
Speaker Change: Innovation can be hard.
Speaker Change: And we're proud of our engineers who've stayed committed to making Max two into something truly special.
Speaker Change: Cannot wait to launch it later this year.
Speaker Change: Further on the innovation front I'm excited to share that we've completed the validation of our next generation Soc.
Speaker Change: <unk> three.
Speaker Change: Everything we know about the competitive landscape for market available <unk> leads us to believe <unk> will once again set new performance standards not only in our categories cameras, but for the digital imaging industry as a whole.
Speaker Change: As we noted on our last earnings call in 2025, we expect units and revenues to be lower than 2024, primarily driven by macroeconomic headwinds competition.
Speaker Change: And the previously mentioned delay of our new back to 360 camera that we intend to launch later this year in 2025.
Speaker Change: We have 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 in 2026 and beyond.
Speaker Change: To be clear.
Speaker Change: We are focused on returning gopro to unit and revenue growth along with improved profitability.
Speaker Change: 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.
Speaker Change: It can be challenging to simultaneously be an innovator and leader yet we maintain an unwavering commitment to realizing the long term rewards that perseverance innovation and Super serving our end users can yield.
Brian: With that I will turn the call over to Brian.
Brian: Thanks, Nick.
Speaker Change: In the fourth quarter of 2020 for revenue was in line with guidance of $201 million.
Speaker Change: Net loss per share was 24 cents, while non-GAAP net loss per share of nine cents exceeding guidance.
Speaker Change: Subscription and service revenue grew 9% year over year, primarily from 8% <unk> growth as a result of continued improving aggregate retention rate.
Speaker Change: Which reached a record 15, 9%.
Speaker Change: Sell through in the fourth quarter of approximately 775000 camera units was in line with expectations and resulted in more than 170000.
Speaker Change: Camera unit decrease in channel inventory.
Speaker Change: Additional performance highlights for the fourth quarter include subscribers grew 1% year over year to $2, five 2 million, including 70000 premium plus subscribers.
Speaker Change: Subscription attach rate from cameras sold across all channels was 34% compared to 29% in Q4, 'twenty to 'twenty, three and 16% improvement.
Speaker Change: S P was $346 compared to 330.
Speaker Change: In Q4 2023.
Speaker Change: Notable performance highlights.
Speaker Change: For the year include the <unk>.
Speaker Change: Scripts in the service revenue grew 10% year over year to $107 million, primarily from again, improving aggregate retention rate.
Speaker Change: Subscription gross margin exceeded 70%.
Speaker Change: Retail revenue was 75% of total revenue at $601 million down 15% year over year.
Speaker Change: Gopro Dot com product revenue was 12% of total revenue at $94 million down 54% year over year.
Speaker Change: With 330 compared to 337 and 2023.
Speaker Change: Operating loss was $80 million compared to an operating loss of $34 million in 2023.
Speaker Change: And finally fell through with $2 5 million unit count 32% year over year.
Speaker Change: If you look at the outlook.
Speaker Change: As we've previously noted.
Speaker Change: They're not expecting unit and revenue in 'twenty to 'twenty five could be lower than 2024, primarily driven by macroeconomic headwinds.
Speaker Change: Back due to a stronger U S dollar competition and the delay of our new 360 camera.
Speaker Change: That said, we have undertaken several initiatives in 2024 to put us back on a path to long term success.
Speaker Change: Notably this includes our plan to reduce operating expenses nearly 30% from 2024 and honing our roadmap to drive not only faster time to market, but also more efficiently and how we design our products.
Speaker Change: Finally, our focus on operational efficiencies to drive down costs and expand our supply chain outside of China is expected to improve gross margin by more than 100 basis points from 2025 over 2024, and nearly 300 basis points improved.
Speaker Change: Over 2023.
Speaker Change: And finally, we are actively managing the balance sheet to further reduce inventory to be consistently well below $100 million.
Speaker Change: Cash and operate more efficiently without working capital.
Speaker Change: For the first quarter of 2025, we expect to deliver revenue of $125 million, plus or minus $10 million down 20% year over year, we estimate that came in the first quarter to be approximately $365.
Speaker Change: Down year over year from 395.
We expect unit sell through to be down 20% year over year to approximately 430000 unit.
Speaker Change: And channel inventory to reduce by approximately 60000 units sequentially.
Speaker Change: We expect gross margin in the first quarter to be 35%.
Speaker Change: The midpoint of guidance up slightly versus the prior year quarter.
Speaker Change: We expect first quarter 2025, operating expenses to be approximately 63 million plus or minus $2 million a 24% reduction from.
Speaker Change: From the prior year quarter.
Speaker Change: The lower spending on wages from lower head count reduced marketing.
Speaker Change: And lower nonrecurring engineering expenses related to the completion of our new <unk> three or something.
Speaker Change: non-GAAP tax expense is expected to be $1 million in the first quarter of 2025.
Speaker Change: Expect non-GAAP loss per share in the first quarter of 13 cents at the midpoint of guidance.
Speaker Change: I expect shares.
Speaker Change: Turning to be approximately $155 million.
Speaker Change: Turning to the balance sheet, and we expect costs to be approximately $80 million at the end of the first quarter.
And now I'll provide commentary on full year some for your 2025.
Speaker Change: Gross margin improvement of more than 100 basis points in 2025 from 'twenty to 'twenty four based on the following factors.
Speaker Change: The introduction of our Max to 360 camera.
Speaker Change: Identified product cost operating cost as well as further tariff savings due to continued supply chain diversification outside of China.
Speaker Change: And subscription ARPA growth.
Speaker Change: Subscription cost improvement.
We expect our full year 2025 operating expenses to be in a range of $250 million 260 million Danaher.
Speaker Change: <unk> hundred million or nearly 30% year over year.
Speaker Change: non-GAAP tax expense is expected to be 3 million in 2025.
Speaker Change: And cash tax is expected to be $1 million in 2025.
Speaker Change: Yeah.
Speaker Change: With the anticipated.
Speaker Change: The decline in unit sales in 2025 from 'twenty to 'twenty four our subscriber count is expected to be approximately $2 4 million at the end of 'twenty to 'twenty five.
Speaker Change: We expect subscription and service revenue in 2025 to be approximately $105 million.
Speaker Change: The continued improvement in aggregate retention rate.
Speaker Change: This is driving improved off too with the softening of the revenue decline due to slight decrease in subscribers.
Speaker Change: Turning to the balance sheet, we expect cash at the end of the year to be approximately $50 million, which anticipate the repayment of our convertible debt.
Speaker Change: In addition, we have a 50 million dollar asset back line or ABL facility available, we believe our cash position along with our ABL facility will be sufficient to fund our plan.
Speaker Change: In summary.
In 2024, we undertook several initiatives to reduce operating expenses improved gross margin.
Speaker Change: Final product road map.
Speaker Change: Our improved diversification in 2025, and 2026 and implement efficiencies in our approach to product development.
Speaker Change: We are focused on launching new products, while preserving cash to repay our debt in 2025 and.
Speaker Change: And launching a significant number of new products in 2026 to restore growth and profitability.
Speaker Change: To our business.
Speaker Change: Finally, we look forward to seeing many of you at the upcoming Morgan Stanley Technology Media and Telecom conference on March 5th.
Speaker Change: Operator with that we are now ready to take questions.
Speaker Change: Great if you'd like to queue for a question you can do so by pressing star one on your telephone keypad.
Speaker Change: If for any reason that you'd like to remove your question at star too.
Speaker Change: But again to join the question queue. Please press star one.
Speaker Change: We will pause here briefly as questions are registered.
Speaker Change: We have a question from Erik Woodring with Morgan Stanley.
Speaker Change: Your line is now open.
Speaker Change: Great. Thank you so much for taking my question guys.
Speaker Change: Apologize I'm hopping between calls but.
Speaker Change: Maybe I guess Thats for you Brian.
Speaker Change: Or would you guide to subscribers I mean next year I think it was $2 4 million, which would be down year over year.
Speaker Change: You realize units will be down.
Speaker Change: But your commentary at least that I caught on renewal rates was sounded very bullish and so can you just help us understand the moving pieces for how you'd get to subscriber declines.
Speaker Change: 25, please and then I have a quick follow up.
Speaker Change: Sure well, we said units would be down and so you know our attach rate.
For the full year was about 42% were assuming 38% to 40%.
Speaker Change: On that front.
Speaker Change: And we do continue to see aggregate retention improve and so.
Speaker Change: That results in.
Speaker Change: About.
Speaker Change: An improvement in our food.
Speaker Change: So that's helping to counterbalance the reduction in units and therefore, you get about $105 million of revenue and about $2 4 million less than that.
Speaker Change: Uh huh.
Speaker Change: Or $2 4 million subs down about 120000.
Speaker Change: Okay perfect. Thank you perfect. Thank you for that.
Speaker Change: And then and then Brian maybe just a follow up you provided obviously a handful of details on 2025 gross margin opex taxes.
Speaker Change: I realize that 2025 revenue will decline is there any is there any more kind of concrete guidance that you can provide us for how we should be thinking about 2025, the revenue base, you're considering for that base of Opex. Just just anything that can help us kind of maybe narrow down expectations into 2025.
Speaker Change: And thats it for me thanks, so much.
Speaker Change: Yeah sure.
Speaker Change: On the guide quarter to quarter Eric.
Speaker Change: The long year to go we feel good about Fox, we have the products that are coming out.
Speaker Change: But theres headwinds with consumer competition.
Speaker Change: FX right, which is impacted.
Speaker Change: Impacted us a lot I mean, FX from 2021 2022 three and four has impacted us about $50 million on the top line margin and bottom line. So no. We got to worry about where the dollar is growing as well. So it's a but we said it would be down.
Speaker Change: I'm not going to give a precise number.
The good news is we think we've got good margin.
Speaker Change: Here at 35%.
And some really good cost reduction clearly the subscription.
Speaker Change: So that is helping us.
Speaker Change: From a margin perspective, we expect that to continue.
Speaker Change: Since 2023, it's probably about a 200 and.
Speaker Change: 200, and 250 basis point improvement in margin right, there along with another 100 something basis points.
Speaker Change: Other costs like the trade tariff.
Speaker Change: Once he is we have much better product experience for our customers. So.
Speaker Change: All those things combine to make 35%, but we're not going to guide to the top line right now for 2025.
Speaker Change: Yes.
I'm sorry.
Speaker Change: Alright.
Speaker Change: I'd just like to add one more point on subscription while we expect it to be down in 2024, we I'm sorry in 2025.
Speaker Change: We expect to grow subscription again in 2026 with the launch of <unk>.
Speaker Change: Slew of exciting new products that are going on.
Speaker Change: <unk> brought in R.
Speaker Change: Our portfolio considerably.
Speaker Change: So that's that's the.
A bright spot to look forward to 2026.
As it relates thank you very much Nick.
Nick: Thank you.
Speaker Change: As an additional reminder, it is star one to join the question queue.
Martin Yang: Our next question is from Martin Yang with Oppenheimer.
Speaker Change: Your line is now open.
Martin Yang: Alright. Thank you for taking my question first question on Max and.
Speaker Change: Curious to hear your decision to reintroduce.
Martin Yang: Max one back into the market.
Speaker Change:
Speaker Change: Any context, you could provide on that decision and how.
Whether that model will be margin accretive for you.
Martin Yang: Thanks Martin.
Speaker Change: We had.
Martin Yang:
Martin Yang: Cleared the channel of Max in anticipation of Max too.
Martin Yang: And.
Martin Yang: As we shared the delay of Max too.
Martin Yang: Constant complications.
Martin Yang: For the business and so we determine that and we identified that there is a market for mass.
Martin Yang: Slightly refreshed.
Martin Yang: Product.
Martin Yang: And along with the significant software enhancements that we just launched recently is a free update to the quik App. The overall 360 experience.
Martin Yang: Is much enhanced so we're super excited to get Max back out into the marketplace. Here later this month.
Martin Yang: And then that's going to serve as a terrific entry level 360 product.
Martin Yang: Paving the way for momentum.
Martin Yang: Towards the launch of Max too so.
Martin Yang: It was a pretty easy decision too.
Martin Yang: Go in and.
Martin Yang: Essentially refreshed the product and bring it back into the market as an entry level.
Martin Yang: Experience again bolstered by the new and enhanced software experience that we just recently launched and that will be building on.
Martin Yang: Throughout the year so.
Martin Yang: I'm happy to.
Martin Yang: To let Gopro 360 camera owners know that the software experience will continue to.
Brian: Expand over the course of the year, so look forward to that and on the margin side I'll hand, it over to Brian.
Martin Yang: Yeah.
Martin Yang: Yes Martin.
Martin Yang: There is absolutely margin accretive.
Martin Yang: More on dollars than necessarily percentage, but the percentages built into our model of 35% for the year.
Martin Yang: Yeah.
Martin Yang: Got it. Thank you and then the second question is on new products. This year. So we have Max to coming up to come up later.
Martin Yang: And then you referenced the GPS III development updates so we expect to be free to be.
Martin Yang: <unk> III enabled camera to be out this year.
Martin Yang: Okay.
Martin Yang: Yes, Martin I wish that we could be more transparent with our roadmap, but just due to competition.
Martin Yang: Going to have to be a bit more.
Martin Yang: 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.
Martin Yang: Got it no problem.
Speaker Change: Last question for me is.
Martin Yang: Overall subscription trends.
Martin Yang: Is there any way when you look at the overall long term growth or subscription.
Martin Yang: Do you still view.
Martin Yang: Our sales.
Speaker Change: Great driver of subscription revenue is there any other levels levers you can pull.
Speaker Change: Q2 booths subscription revenue growth our debt returned.
Correct.
Speaker Change: Yeah.
Speaker Change: Brian.
Speaker Change: All right.
You want to start this is Brian.
Speaker Change: Yeah, I'll just start with one thing.
Speaker Change: It is tied to historically, it's been tied to hardware.
Speaker Change: But we are identifying opportunities to create new software experiences that.
Speaker Change: That we think will lead to not only added engagement within our existing subscriber community, but also help improve.
Speaker Change: Conversion rates.
Speaker Change: Amongst buyers so.
Speaker Change: We've identified a number of opportunities that we'll address over time to expand.
Speaker Change: The functionality and relevance of our hardware products to serve more use cases more customer groups in more ways through software that we think can have an accretive impact on subscription over time in addition to selling more units, which.
Speaker Change: Is the primary driver of subscription, but we think we can we can improve on that and expand beyond just hardware sales.
Speaker Change: Through software as a service as a as a driver of subscription as well.
Speaker Change: Got it.
Speaker Change: More to add on that.
Speaker Change: The other thing that I'll add Martin as we've continued to improve aggregate retention rate.
Speaker Change: You Wanna, 60%.
Speaker Change: Your 270 then.
Speaker Change: And now nearly 90% in year four so the longer subscribers stay in the program the more likely they are to stay engaged and then come back in and that's what's helping to drive our two up.
Speaker Change: Year after year.
Speaker Change: That's exciting and it's really you know as Nick mentioned, we returned to subscription growth. We believe in 2026, and so that has a good day.
Speaker Change: So benefit of keeping more people in longer adding more.
Speaker Change: Service capability that enhances the value proposition for this which will then fuel aggregate retention. So that both are important right, but that drive ultimately drive the walk through in revenue growth and margin.
Speaker Change: Yes.
Speaker Change: Got it thank you Brian that's assumption.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: We have no further questions at this time, so I'll pass the call back to the management team for any final remarks.
Speaker Change: Yeah.
Speaker Change: Thank you operator, and thank you everyone for joining today's call.
Speaker Change: We believe we are 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.
Speaker Change: Thanks, everyone. This is team gopro signing.
Speaker Change: That concludes today's call. Thank you all for your participation you may now disconnect your lines.