GoPro, Inc.

Good afternoon. Thank you for attending the GoPro first quarter 2025 earnings call. My name is Cameron and I'll 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 Robin Stecker, Director of Corporate Communications at GoPro. May proceed.

Good afternoon and welcome to the first quarter 2025 earnings conference call. With me today are GoPro 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 and posted to the investor relations section of the 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 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 10K for the year ended December 31st, 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 GoPros 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 everyone to read the detailed management commentary we posted on our investor relations website. In the first quarter, we hit our marks for revenue, launch 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 Max 2 later this year. We also released a limited edition polar white colorway of Hero 13 Black, bringing a fresh new look to our flagship camera. And we recently released the highly anticipated anamorphic lens mod for Hero 13 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 Hero 13 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. Our food 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 are infringing. 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 continue 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 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 four-side 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 three 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 motorcycle, 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.

Thanks, Nick. We've exceeded our expectations in the first quarter on revenue, earnings, sell-through, operating expenses, and inventory targets, all while reaching a new high in aggregate retention for subscribers. In addition, we relaunched our MAX 360 camera and delivered a new colorway for our flagship camera during the quarter, and we are on track to launch our next 360 camera this year. First quarter revenue was $134 million, which was at the high end of our sell-through in the quarter. Subscription and service revenue grew 4% year over year, primarily from 5% ARPU growth as a result of continued improving aggregate retention rates, which reached a record 70%. P1 2025 non-GAAP operating expenses of $62 million decreased 26% year over year. We continue to have a strong focus on operating expense controls while retaining investments in our product roadmap. Notable first quarter performance highlights include revenue from our retail channel was $94 million, or 70% of Q1 2025 revenue, compared to 68% of Q1 2024 revenue. Growth in our retail channel mix was primarily driven by sales to our big box retailers. Revenue from our GoPro.com channel, which includes subscription and service revenue, was $40 million, or 30% of Q1 2025 revenue, compared to 32% Q1 2024 revenue. Subscription and service revenue grew 4% year over year to $27 million, primarily from 5% ARPU growth as a result of improving aggregate retention rates, as well as improvements to a record of 70%. Subscription attach rate from cameras sold across all channels was 49% compared to 48% in Q1 2024. Non-GAAP operating expenses were $62 million compared to $83 million in the prior year period. GAAP and non-GAAP loss per share was $0.30 and $0.12 respectively. Adjusted EBITDA loss was reduced by nearly 50% year over year to negative $16 million. We ended the quarter with inventory of $96 million, a 27% decrease year over year, and reflect in the first Q1 sequential decline in inventory since 2018. Sell-through was approximately 440,000 units compared to 530,000 units in the prior year period. This was due to unit sell-through decreases in Asia Pacific, which were primarily driven by consumer-related macroeconomic issues and competition across the region, most notably in China, Japan, and South Korea. Family inventory decreased sequentially by approximately 40,000 units. During the quarter, we took the opportunity to sell out of a slower moving product and convert that inventory into cash, more quickly impacting gross margin. Excluding this $5 million one-time sale, gross margin would have been .5% in line with guidance above Q1 2024 of 34.4%. Reported gross margin was .3% in the first quarter of 2025. First quarter operating expenses decreased 26% year over year to $62 million. The decrease was primarily due to restructuring actions resulting in reduced employee-related costs, a reduction in advertising-related activities, and the completion of our newest system on TIP, GP3, as well as a strong focus on expense management while retaining our product roadmap, partially offset by legal costs to defend our IP. Turning to the balance sheet, we ended the first quarter of 2025 with $70 million in cash, cash equivalents, and marketable securities, which included a $25 million draw on our ABL. Excluding the $25 million draw, cash would have been down $58 million sequentially compared to our cash usage of $89 million in the first quarter of 2024. Cash used in the first quarter of 2025 was primarily due to adjusted EBITDA of $16 million and working capital changes of $36 million. Sequential working capital changes were primarily due to a $63 million decrease in accounts payable and other liabilities and a $5 million increase in prepaid expenses and other assets, partially offset by a $24 million decrease in inventory and a $9 million decrease in accounts receivable. In the second quarter of 2025, we plan to repay the $25 million ABL draw. That count ended at 659 full-time employees, down 30 percent from our prior year of 937. Turning to our outlook, for the second quarter, we expect revenue to be $145 million at the midpoint of guidance, NIME gap lost for share of $0.07, and then nearly $30 million improvement in adjusted EBITDA year over year. All these improvements are due to the actions we took in 2024 to reduce operating expenses, diversify supply chain, and drive product cost reductions. Additionally, we are focused on further operational efficiencies to drive down costs and expand our supply chain outside of China. At current tariff rates, we expect the tariff impact in 2025 will be approximately $8 million on our cameras, which is expected to be fully offset by modest product price moves of less than 5 percent globally. This expected $8 million impact for 2025 is further mitigated by the fact that we are still selling through inventory at the end of the United States before April. As we continue to actively manage the balance sheet and expect to reduce inventory sequentially by $20 million to approximately $75 million and increase cash net of debt by $25 million sequentially as we operate working capital more efficiently. For the second quarter of 2025, we expect to deliver revenue of $145 million plus or minus $10 million down 22 percent year over year. We estimate Street ASP in the second quarter to be approximately $370, up nearly 15 percent year over year. We expect unit sell-through to be down 20 percent on a year over year basis to approximately 500,000 units and channel inventory to reduce by approximately 60,000 units sequentially. We expect gross margin in the second quarter to be 35.5 percent at the midpoint of guidance, up nearly 500 basis points versus the prior year quarter. We expect second quarter 2025 operating expenses to be $60 million plus or minus $1 million, a 36 percent reduction from the prior year quarter due to lower spending on wages, from lower headcount, reduced marketing, and lower nonrecurring engineering expenses related to completion of GP3. We expect non-GAAP loss per share in the second quarter of the year to be $57.7 at the midpoint of guidance and expect shares outstanding to be approximately $57 million, depending on the balance you re-expect cash net of debt to improve $25 million in the second quarter. Looking at 2025 commentary, overall we expect units and revenue in 2025 to be lower than 2024, primarily driven by an uncertain macro environment, competition, and a delay of our new 360 camera, partially offset by FX due to a weaker U.S. dollar. To provide some color on expectations for the balance of 2025, we expect to introduce Max 2, 360 camera in 2025. We expect our four-year 2025 operating expenses to improve further to a range of $240 million to $250 million, down more than $100 million or 30 percent year over year. We expect offset tariff costs with modest price increases, continuous supply chain diversification outside of China, and potentially produce certain products in the United States. We expect subscription after growth, subscription cost improvements, and to end the year with 2.4 million subscribers. We now expect to end 2025 with $75 million in cash, with no debt, and a $50 million available ABL facility. This improvement from our last report is driven by continued reductions in operating expenses and improvements in FX from a weaker U.S. dollar. The initiatives we undertook in 2024 to reduce operating expenses and improve gross margins are bearing fruit. 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 2025 and 2026 to restore growth and profitability to our business. Operator, with that we are ready to take questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. 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. As a reminder, if you are using a speaker phone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. The first question is from the line of Eric Woodring with Morgan Stanley. You may proceed.

Good afternoon, guys. Thank you for taking my questions. I have two. Brian, I guess maybe I'll start with you. Can you maybe help us understand the sources of stronger sell-through in the quarter? I guess my question is, do you have any triangulation data or can you look at any kind of linearity data or even channel feedback to help determine how much that stronger sell-through was pulled forward ahead of potential pricing increases, how much was real demand, and how much how much of that type of behavior is factored into Q2Q at all? Then I have a quick follow-up, please.

I don't think we saw any pull forward demand in the quarter. It was pretty linear throughout. 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. We didn't see that happen in the quarter.

Okay. Super helpful. I might just be reading this wrong, but I think your sell-through in the United States was down 10% -over-year, but sell-in was up 7% -over-year. Obviously, you reduced overall channel inventory, but can you just maybe help us understand exactly what happened, that gap in one queue, and then extend that conversation to Asia, just revenue down over 50% -over-year, just help us contextualize. Is that mostly competition or are there other factors there? Thanks so much.

Yeah. Mike prepared remarks and talked about Asia being down 54%. That was mostly macro, as well as competition. We saw from a country perspective, we were down in China, Japan, and South Korea were the most impacted countries in the Asia-Pacific region. The US had the best sell-through. It was down the least, as we reported. Some of the sell-in was due to, in the quarter, we had that one-time $5 million sale of products in the quarter. We took out some inventory to convert it to cash. That would be the delta there. That's expected to sell through pretty quickly, to preferable price points.

Okay. Super. Thank you for that, Colorado.

We have no more inventory to do that with. That's partly why our margins are up sequentially to 35.5%. We're selling mostly between 13 and 12.

Okay. Thank you so much,

Ryan. The next question is from the line of Alicia Reese with Web of Securities. You may proceed.

Thank you for taking my question. I'm wondering if you could dig in a little bit on the situation. Obviously, some of the quarter will get the 145% tariffs from China, but obviously, the rest of the quarter, hopefully, into the following quarter will have 30% or thereabouts. I'm just wondering how much of your inventory headed to the US 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?

Good question. On the tariff front, actually, the amount on cameras into the US is zero because we've diversified all of our camera production outside of China. What comes from the US is manufactured in Thailand, so that's about a 10% tariff rate, especially about a 150% tariff rate just prior to today. Accessories would have a little bit of tariff, but with the reduction in rates today, that goes to only a couple million in the quarter. Those would be offset by small price increases. The elasticity around that, we're not moving prices very much. We only have to move 3% or 4% globally to offset the cost of the tariff, which we will do. We find ourselves in a pretty good position from a supply chain perspective, from camera production into the United States, and we use China for balance the rest of the world for capacity. Tariffs will continue to migrate accessories out of China into mostly Vietnam. We've done a pretty good job insulating ourselves on the tariff front.

I have a couple more questions, if I may. I was wondering if you could talk a little bit more about what's going on, what are the dynamics happening currently in Asia over the past couple quarters? It's been pretty weak, so I'm just wondering if you could highlight that and what the difference was in the Americas in the quarter?

Yeah, in Asia, China's 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 around, and there's definitely more competition that's happening in China and macroeconomic issues that are happening, particularly, as I mentioned, China, but also Japan and South Korea. The US started to shore up in a much better way in the last quarter, and our expectation is that it will continue in Q2. That's kind of the moving part, geographically.

Fair enough. Lastly, I was wondering if you had any plans to do a reverse stock split or anything of that nature to change the stock price from here?

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.

Understood. Thanks so much for the time.

Thank you. There are no additional questions waiting at this time. I would now like to pass the conference back over to the management team for any closing remarks.

Thank you, operator, and thank you everybody for joining today's call. With our leaner operating model and exciting new products we have planned for the balance of 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.

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