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Profoto Holding AB reported a decline in sales for the fourth quarter of 2024, with a 2% drop compared to the same period last year. Despite this, the company’s stock saw a positive movement, rising by 3.76% to 41.4 SEK in pre-market trading. According to InvestingPro data, the company maintains impressive gross profit margins of 81.74% and currently trades at a P/E ratio of 13.2x. Analysis from InvestingPro suggests the stock may be undervalued at current levels. The company introduced new products and announced plans to expand into the cinema lighting market, which could potentially double its total addressable market.
Key Takeaways
- Profoto’s Q4 2024 sales fell by 2%, with a 3% organic decline.
- The company launched new flash products and entered the cinema lighting market.
- Stock price rose by 3.76% following the earnings announcement.
- Weak consumer confidence in Asia affected sales, but no market share loss was reported.
- High R&D investment continues, with a focus on product innovation.
Company Performance
Profoto’s overall performance in Q4 2024 showed a decrease in sales by 2%, marking a challenging period for the company. The full-year sales declined by 7%, reflecting broader market challenges. Despite these figures, the company maintained a strong position in the premium photography equipment market. The entry into the cinema lighting market is seen as a strategic move to counteract the sales decline.
Financial Highlights
- Revenue: Not specified, but sales declined by 2% in Q4.
- EBIT: 52 million SEK with a 26% margin.
- Non-adjusted EBIT: 57 million SEK.
- Proposed dividend: 2 SEK per share.
- R&D investment: 121 million SEK, 16% of sales.
Outlook & Guidance
Profoto remains cautious about providing specific sales estimates but is committed to long-term financial targets. The company plans to continue its high investment in product development, with R&D spending expected to be less than 16% of sales in 2024. The expansion into cinema lighting is anticipated to significantly increase the market size.
Executive Commentary
CEO Anders Heddeberg emphasized the relevance of light shaping and the opportunities presented by AI in photography. He stated, "Light shaping has never been more relevant now than ever before," and expressed optimism about AI, saying, "We see a lot of possibilities in this area."
Risks and Challenges
- Weak consumer confidence in Asia, particularly China and Japan, poses a risk to sales.
- Increased competition from Chinese manufacturers could pressure market share.
- Tariffs and economic uncertainties may affect profitability.
- Sustaining high R&D investment could impact short-term financial performance.
- The transition into cinema lighting requires successful market penetration.
Q&A
During the earnings call, analysts inquired about the sales decline in Asia, which was attributed to market weakness rather than a loss of market share. The company also addressed the potential impact of AI on photography, viewing it as an opportunity rather than a threat. Tariff challenges and potential production shifts to the U.S. were also discussed, highlighting the company’s strategic adaptations to mitigate risks.
Full transcript - Profoto Holding AB (PRFO) Q4 2024:
Moderator/Investor Relations, ProFoto: Good morning, and welcome to ProFoto’s q four and year end telco.
Amandla Ostrom, Head of Investor Relations, ProFoto: My name is Amandla Ostrom, and I’m Head
Moderator/Investor Relations, ProFoto: of Investor Relations. Today, I have with me our CEO, Anders Heddeberg, and our acting CFO, Linus Maranstaedt. I will start off by handing over to Anders, who will start off by giving some highlights for the quarter.
Anders Heddeberg, CEO, ProFoto: Good morning, everyone. Thank you for listening in. The fourth quarter last year, sales dropped by 2% and organically 3%. Our EBIT was 52,000,000 with an EBIT margin of 26%. However, the EBIT non adjusted was $57,000,000 and Linus, you will develop on that further down in the presentation.
We launched fantastic products actually during the quarter, the d third and the pro b three. And now just after, our report, we are launching l 1,600 d next week, and we’re showing it on, on a trade show in London, from Friday and onwards. Slide. So we see great opportunities in the market. As you all know, Profoto is the premium product in lighting for still photography.
And we now are trying to enter the market of cinema lighting. And our first product is the l 1,600 d that we have worked on for a couple of years years. And we have more to come during the end of the towards the end of the year to actually be able to offer a full product line for the cinema lighting market. We see also see actually, the same product, great potential in selling it to existing large still photography studio, so to existing customers. But we have also updated our product lines for still photography and those products are also well received in the market.
The other thing is that we get a lot of question about artificial intelligence and the one of you I also got that question on the, Dawkins industry TV call earlier on today. And light shaping has never been more relevant now than than ever before. And, Profoto has been forced to adapt to technology shifts a couple of times during history, and at all times, we have thrived after those changes. And we see the same thing with the artificial intelligence. If we do the right things, we see a lot of possibilities in this area.
However, we also have the general macro uncertainties that is higher interest rates and based on on most probably tariffs and also consumer confident confidence in Asia that is affecting us and the future sales. So there is not only, you know, positive things in the market. There are also some things that needs to be handled, and we need simply to work harder in order to promote our products. Coming back to, to product launches, this is what drives us. We are investing heavily in in in new products, and we can see during history that launches launching new products is driving future sales.
And as you can see in this graph, the last the period of last two years, we have launched a limited number of products and that has also affected our sales and that is one of the things that has resulted in the decline of sales. And this year, so far, we have three launches and we are now launching next week the L and D and starting to invoice and ship, which we already have started in January and in February year. So we hope a lot for the future. So what kind of products have we launched? In this slide, I tried to show that the left side of the slide are flash products, xenon products.
And we have started to update our full product portfolio. So we have launched the Pro b three, the Pro d three, and the d 30 into the market. And this has offset the negative trend in the market and have balanced our sales the last quarter. And in addition to this, we are entering the lead market. The lead market is the product, and LED.
But that kind of product is selling both to the cinema, lighting market, the film production market, as well as existing products, large studios that are doing content production in mainly still but also simpler or more smaller, shorter videos for promotion of products of different sorts. So LED will sell to a lot of different the full range of our existing and new types of products. With the enter of the customer group of cinema lighting, we expect our total addressable market to at least double. So that is a substantial and already a large market. So we have a big hope for that.
And we are continuing our high investments. So last year, we invested SEK 121,000,000 in new products, which was 16% of sales. And we expect the SEK 16 to actually go down in coming years, whereas the 121 might be on a stable level. So that we will continue the high operation, be more efficient in our product development process. But we also expect that to pay off in more customer orders and higher sales.
So in entering the cinema lighting market, our first product is the L1600D, and we’re doing this this quarter, actually next week. And we were focusing on getting new customers that we do not have as customers today, as I earlier said. And we have, during the year, we have employed key staff in London and in Los Angeles, which is the two main markets for film production, cinema production, in the world and especially for Profoto products. And London is actually as big as California in this respect. I did myself a tour, for instance, visiting Pinewood Studios in London, and we see a great of opportunities.
And gaffers that are already gaffers are the electricians that are doing the light setting on set for film production. And the people that has tried it, we get a lot of positive feedback already. And and you could follow this on on Instagram, for instance, a person called Julian White. However, we will not stop with the l 1,600 d. It’s important for us to continue to invest to offer a full line of products into this market.
And during towards the end of the year, we will have something that looks like a full full line of premium products for, for film production. We will continue to invest in or start actually invest heavier in marketing, mainly this exhibiting on trade shows and also on the on the staff that I just mentioned. We will also, and we have already started this to grow our dealer network with the dealers that are specifically targeting the film market. This is not a total revamping or renewal of our dealer network. I would say that we will approximately increase our dealer network with around 10%.
And we will do that with with our existing key account manager that are already handling the dealer network around the world. But as I said, LED products will also be sold to existing ProForti customers, And we hope to see a good effect on sales towards the end of this year. So I leave continue, please continue, Linus, and develop on the figures.
Linus Maranstaedt, Acting CFO, ProFoto: Okay. Thank you, Aris. Despite a fairly cautious and a continuous challenging market, we actually delivered a solid end of the year with both sales and EBIT on the same level as previous year. And we recorded a healthy margin of around 26%. During the quarter, we also released the final payment or the liability of the earn out related to a smaller software acquisition that we did in 2023.
If we look at the different geographies, we saw that we had a fairly good solid development in U. S. And in Europe, but also we saw a sharp decline in Asia and especially there in China and Japan. For the full year, we had a fairly we had a drop of 7% on the sales, and we reported an EBIT margin decline of five percentage points. So it was a fairly challenging year, but also that we invested in product launches as
Anders Heddeberg, CEO, ProFoto: we know. Okay.
Linus Maranstaedt, Acting CFO, ProFoto: And for the full year, we did not receive the financial target. However, based on what we’re doing internally and also what we are investing in for the future, we are very confident and committed to actually reach our financial target for the longer term. And as you saw, the board also decided to expand the dividend policy to now include the possibility to do share buybacks. And for the full year 2024, we have or the board had proposed to deliver a dividend of 2 Swedish kronor per share. Okay.
That’s all for me.
Moderator/Investor Relations, ProFoto: Great. We will now open up for questions.
Conference Operator: If you wish to ask a question, please dial 5 on your telephone keypad to enter the queue. The next question comes from Marcela Klang from Handelsbanken. Please go ahead.
Marcela Klang, Analyst, Handelsbanken: Good morning. A couple of questions from me. You mentioned increased competition in the report. Can you talk more about it? And I wonder, is that especially in Asia and the sharp decline in your sales in Asia?
Does that mean that you’re losing market share? Or is it weakening in Asia?
Anders Heddeberg, CEO, ProFoto: Hi, Marcela. Thank you for your question. Concerning higher competition, this is all over the world. But they are Asian competitors, specifically Chinese competitors that are are doing better and better. But the decline sales in Asia is dependent on the lower consumer confidence.
And we mainly also see the concerning, as I say in in my report or in my letter, it is mainly due to LED products that are also competing with flash products. But we do not see any specific in different markets.
Marcela Klang, Analyst, Handelsbanken: So not really losing market share to competitors rather than weak market in Asia?
Anders Heddeberg, CEO, ProFoto: Yes. It’s the same there are two trends at the same time. Okay.
Frederic Reuterheld, Analyst, Redi: And
Anders Heddeberg, CEO, ProFoto: we see all over the world, we see an increase in competitive environment, especially from competitors from China. That is slightly now offset by higher custom fees, of course, from China to The US with 10% higher tariffs. But mainly in both Japan and in China, we see that consumers are not as confident as before and that it has a result in the investments of content production for market building and users like brands. So they invest not as much as before and or they are waiting with their investments in lighting for that kind of productions.
Marcela Klang, Analyst, Handelsbanken: Thank you. And then a question regarding your LED launch and your expected effect towards year end. Why so late? Is there any movie season to take into account? Because you mentioned you already started shipping and invoicing in January.
Anders Heddeberg, CEO, ProFoto: I also want you to be careful in every expectation of how fast we will enter this market. It take things take time, especially market enter. We need to work hard, visit customers. We need to showcase that our products are much better and easier to work with than than competitor products that they’re working, that they’re high end products that are really beneficial for film production sets. And remember that our products, even if they are the most expensive in the markets, film production has to even higher extent than than, than still photography productions, that the money doesn’t go to really to lighting.
It is to a lot of other things on the set that are much more important. So efficiency in lighting side helps the productions to be more cost efficient. And that is our aim by so we have constructed a product that are the highest, you know, power light output per kilo and fast setup so that gaffers can handle the setup and concentrate on creative light setting on the set, which really matters for the quality of the production. So that is our concentration. However, we need to see this fly.
And this we also expect by the experience of earlier product launches, we expect this to take some time. That isn’t reason number one. Reason number two is that we do not have a full line of product yet. And we need a much broader and that that Mike could also discuss what does it mean with the full line, but we will need to have a broader line than one product anyway. And right now, we have one product running with that and and and promoting that.
And then we’ll see what kind of other products we will be able to launch towards the end of the year.
Marcela Klang, Analyst, Handelsbanken: So it’s more about you being cautious. Still, can you do you want to give any kind of a cautious estimate how big this segment can be for you towards year end?
Anders Heddeberg, CEO, ProFoto: No, I cannot. Sorry.
Marcela Klang, Analyst, Handelsbanken: And then another question. No problem. Then we’ll just have to wait. Then another question. You mentioned in your presentation, the R and D CapEx SEK 121,000,000 last year, 16% of sales.
That number to be rather stable 2025, but the smaller portion of sales, are we talking about back to old numbers like 13% the year before or even lower?
Anders Heddeberg, CEO, ProFoto: I don’t know.
Marcela Klang, Analyst, Handelsbanken: I’m trying to get a sales guidance from you.
Anders Heddeberg, CEO, ProFoto: I’m guiding you. Less than 16.
Marcela Klang, Analyst, Handelsbanken: Less than 16 or less than 16?
Anders Heddeberg, CEO, ProFoto: Less than 16 because it was a 16 in 2024. So when we stand here in twelve months down the line, it has to be lower than 16. And how much lower, it depends on what it states. And and we do not know. It’s as simple as that.
There is no meaning in in in giving any forecast because we we have a I am confident. I am passionate about this new industry. I am also confident of the still photography market that we are able to do a lot of sales and our new products will deliver what customers expect. But there is uncertainties in the market. I’m sure you already know, Marcel, about the other companies have the same issue about the confidence in Asia.
We also have the something maybe a Trump effect that people are, since a lot of things are moving in The US, that people are might be more cautious because of this and because of interest rate that might not fall. All that I do not control. We control that we are delivering new products, that we are marketing the products, that we are ensuring that the customers are very happy with our products. And we’re doing this one by one by one. And and we have always done that.
And and and we will continue to do that. And before this really takes off, I do not know when it will take off. But I I I think that we will, that we need to work hard and we will work hard and passionate in order to actually ensure that the customers are happy with what we’re launching. Hence, I cannot give you an estimate.
Marcela Klang, Analyst, Handelsbanken: Asia to The U. S. And can’t blame me for trying.
Anders Heddeberg, CEO, ProFoto: No, please tell me.
Marcela Klang, Analyst, Handelsbanken: And you mentioned tariffs. Are you looking into some kind of production or assembly in The U. S?
Anders Heddeberg, CEO, ProFoto: So right now around 10% of our sales have in The U. S. Have a country of origin from China that are affected by the 10% tariffs. So, we have some limited effect on tariffs. We’re looking into the possibility how we are going to push this further down to the American consumers so that they pay for this.
That’s raising prices. So that is number one. We’re also looking, of course, with and negotiating with our suppliers in order how they can assume part of this. And thirdly, we have more long term contingency plans that if there is an effect of that we need to move part of the production into the inside the borders of The United States. Because this is still our still and will be our biggest market into the future.
So it is very important that we have a cost efficient way of getting the products to the American customers, of course. So it could happen, but this is a more medium long term plan. And it will you’re not moving a factor within a quarter. It takes much longer time, even if we are faster in doing that than if we would have owned our own factories. And we do not.
As you know, we are using sub suppliers. Part of our sub suppliers, they already have factors in in The US. But they need to be it still will take time in order to move their production. And it also needs to be overall cost efficient because we have placed our production in the places around the world because we believe that they are the most efficient way for us to produce the products.
Marcela Klang, Analyst, Handelsbanken: And that’s clear. And a final question. In terms of lag, time lag from product launch to sales for your core products. Is that longer now than previously due to generally more uncertain customers? And how long is the lag right now?
Anders Heddeberg, CEO, ProFoto: No, I don’t really understand. What do you mean with lag? Normally, product development process takes eighteen to thirty six months. It should be two point five years, but it could be thirty six months. And sometimes with new types of technology, it will take even longer time.
Is that what you mean with lag? Because when we are ready to launch I
Frederic Reuterheld, Analyst, Redi: was
Marcela Klang, Analyst, Handelsbanken: thinking from when when you launch, when you are ready until the bulk of the volume comes. Is that period longer now?
Anders Heddeberg, CEO, ProFoto: No, not really. We have a sell in period that is affecting sales and we see this sell in because we’re filling the channel. So all the dealers, they need to have stock both for demo demonstration purposes and also for actually being able to support their customers immediately. So they need to have stock and we are pushing that. So there is a sell in effect in the beginning when we are launching.
But then there is normally after a couple of months, after that there is a slower period and then the sell out process comes and there takes time. But it is not longer now than it was seven before. It looks the same, the lag period or the time from launch is when we see the figures in the profit and loss and in the sales figures. So no, there is no change.
Marcela Klang, Analyst, Handelsbanken: And what is this typical lag from a launch of ready product until you have increased in sales? When do you typically notice that? It’s like two quarters or
Anders Heddeberg, CEO, ProFoto: No, no. But we so but we it looks approximately like this. At immediately around launch, as I said, we have a sell in effect when we’re filling the channel. And that is the one to three months around launch time. And then we have a slightly lower sales after that.
And after that, we see an upturn again when sell out from the dealer starts and the normal consumption from dealer and our own stock starts. So that I would say a quarter before you have an upturn, a downturn and then you have an upturn again after that. That is the normal way when we have a normal product launch.
Marcela Klang, Analyst, Handelsbanken: Thank you. That’s clear. Thank you so much. That’s all for me.
Anders Heddeberg, CEO, ProFoto: Thank you. More questions, maybe.
Conference Operator: The next question comes from Frederic Reuterheld from Redi. Please go ahead.
Frederic Reuterheld, Analyst, Redi: Good morning. Anders Linusen. Anders?
Anders Heddeberg, CEO, ProFoto: Good morning.
Frederic Reuterheld, Analyst, Redi: I want to pick up the weakness that you would be seeing for some time both in China and Japan. I understand it’s going to be very hard for you to give a feeling for the market going forward. But I mean, can you give some more color on the Japanese market? I mean, you’ve been doing this network for quite some time. Do you think this is a new normal?
Or should we see a pickup there?
Anders Heddeberg, CEO, ProFoto: The only thing I can say about that, we are traveling. Amanda is going there in a couple of weeks. We have a great team in Japan, and we’re doing our utmost to sell more flash. I have no idea about the macro, and I think you guys know much more about the macro and meet more companies. We see that we are consumer are slightly less confident than before.
Normally, the Japanese market is not so volatile in the demand. And so we see that I do not expect it to go down further though, given the historical figures that we seen. And we have more activities than ever in the Japanese overall market, thanks to product launches and other marketing activities. So but the general market trend in Japan, I don’t know. That is not we sell flash, we are not macro.
Frederic Reuterheld, Analyst, Redi: Okay, good. And then on the East Coast in The U. S, and particularly New York, I wonder if you can paint a picture of the current demand landscape there? I’m thinking about demand from retail, large studios and rental houses and so on. What is the trend there?
Anders Heddeberg, CEO, ProFoto: On the East Coast, specifically?
Frederic Reuterheld, Analyst, Redi: Yes, particularly in New York and the area around New York there.
Anders Heddeberg, CEO, ProFoto: That is a too detailed question that I cannot answer. However, I must say If you
Frederic Reuterheld, Analyst, Redi: think about the whole U. S. Then or Americas.
Anders Heddeberg, CEO, ProFoto: Yes, I’m afraid, yes. But the thing is that we have our two biggest dealers in The U. S. That are based on Manhattan. And we work very hard with them in order for that sales.
But they are not only selling to the studios in New York, they’re selling all over US and actually also outside even if they say that they don’t. They’re also shipping outside The US. So it is hard to say. And I cannot we, of course, we meet the studios in in around New York and on the on the West Coast, but I don’t wanna go into those details, frankly speaking.
Frederic Reuterheld, Analyst, Redi: Okay. Okay, good. In the Q4 twenty twenty three letter, you wrote that the you had the ambition of two major product releases during last year, 2024. And you actually released three flash products, but just the LED product. But how many product releases can we expect now in 2025?
Anders Heddeberg, CEO, ProFoto: So our target is, as we said before, two releases around. So but that is also how we succeed in product development. Product development, when you’re passing technology hurdles, which is part we are not only doing known technology, but you need to actually be sure that you are innovative and do the right thing technologically, that we actually do the for the customer important technology steps. And that could take longer time and it could take shorter time. So you’re not always sure exactly when you will launch the product.
So that’s why we are not able to give a forecast on exactly how many launches that we’re doing. Of course, we have a thorough plan, but we are working in a very agile way in order to actually get that happened as fast as possible. And we cannot commit to officially saying how many we will launch this year.
Frederic Reuterheld, Analyst, Redi: Okay. Makes sense. And my last question is regarding your activated thirty five minutes second this quarter. And then you broke down and said that it was activation for product development, but also for the ERP system and e commerce platform. Is it possible to break out how much the ERP system and e commerce platform was?
Anders Heddeberg, CEO, ProFoto: No, that is not something that we’re disclosing.
Frederic Reuterheld, Analyst, Redi: Okay. That was all for me. Thank you very much.
Anders Heddeberg, CEO, ProFoto: Thank you.
Conference Operator: On your telephone keypad. There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.
Moderator/Investor Relations, ProFoto: So I have received a question here. Can you provide any information on the financial performance of the StyleShoots acquisition?
Anders Heddeberg, CEO, ProFoto: You want me to take that? Okay. Thank you, Amanda. So first of all, Linos, you already commented on that because I think that question is coming from the financial
Linus Maranstaedt, Acting CFO, ProFoto: Yes, exactly. So I mean, it’s not related to the release of the liability. It’s not related to the style shoot acquisition. It’s as I said, it’s related to smaller software acquisition that we did in 2023. But also if I start to comment on the first question, it’s so that we have actually merged the companies into one entity.
So it’s not actually possible for us to comment on the overall financial performance from these entities. But as of course, it’s a kind of a signal effect that if we are doing the release, everything has not really been according to plan.
Moderator/Investor Relations, ProFoto: Okay. I have another question here. How does Profoto see the competition arising from AI generated product photography? If there is any significant threat, how will Profoto conquer this threat?
Anders Heddeberg, CEO, ProFoto: So I think I already slightly commented on that. Do you want me to develop further on it? And Amanda is nodding. So the answer is yes, I should do that. So we see this as a possible technology shift.
Please remember that all our products are sold to photographers and used on assignment where we’re shooting and photographing people. And people is not general people or specific people. So it is either it’s myself or it’s someone else that needs to be shown on the next annual report or things like that. So that is hard to actually AI generate a specific person. That is not really possible and not really done today.
You could make you look better with and that is Photoshop already doing. So that kind of amelioration or making the images better or adjustment of postproduction part of the is already used and has been used in that way since actually the analog times in different ways. So that is not a real change. The change here, the possibility we see is that, of course, you need to actually put the person into a different environment. That is actually handling the background.
We are working together with photographers in order to make this process better because the fact is that the demand on doing the right kind of light setting, light shaping for that kind of image is even more important than in in reality and on on location or in in the studio photography. So we see a lot of possibilities actually promoting light shaping, and that’s where what Profoto is. Profoto is, as you know, the light shaping company for still and for film. So we see a lot of possibilities for this for high end production like we are targeting today. So we have a lot of hope for this for future AI development.
And I would also like you to remember that we’ve I’ve been at least through two major tech shifts or technology shifts. That is one reason I’m old enough to be from analog to digital photography, where we actually thrive a very good way because the demand on the products went up. You went from shooting up to seven twenty images per fashion shoot to up to now you’re up to five or even 10,000 images per shoot, and you need high quality equipment for that. And secondly, we also went through the technology shift from manual to automatic exposure control for Studio Flash. And this happened 2014, where Profoto sales increased fifty percent two year in a row.
So we are happy for everything that is happening in the market. Change is good and we love that the change and this gives us new possibilities for content creation. We are the leader in the premium brand for capture of any kind of content in the real world. That is what we do, and we have a lot of belief in that we will thrive in this new environment too.
Moderator/Investor Relations, ProFoto: Great. So I don’t have any more questions. So thank you for listening in today. And a gentle reminder about our next report, which will be published on the May 9.
Marcela Klang, Analyst, Handelsbanken: Thank you.
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