GoPro, Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period. GoPro designs and sells cameras, mounts and accessories, and subscription and software services. This unaudited report covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods unless noted. GoPro operates as one reportable segment.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $250.7m | $249.6m | $467.4m | $453.3m |
| Gross profit / margin | $96.0m / 38.3% | $99.3m / 39.8% | $186.5m / 39.9% | $178.0m / 39.3% |
| Operating income / margin | $4.7m / 1.9% | $9.5m / 3.8% | $12.8m / 2.7% | $6.0m / 1.3% |
| Net income | $2.5m | $17.0m | $8.2m | $6.8m |
| Diluted EPS | $0.02 | $0.10 | $0.06 | $0.04 |
- Revenue drivers. Q2 camera units shipped fell 12% to 640,000, while average selling price rose 14% to $392. Management cited higher-priced camera mix, a $50 increase in flagship-camera MSRP and subscription growth; stronger U.S. dollar effects partly offset these gains. Subscription and service revenue rose 71% to $20.1m, and GoPro subscribers reached approximately 1.91m, up 65% year over year. GoPro.com generated $95.3m, or 38% of Q2 revenue.
- Profitability. Q2 gross margin declined 150 basis points year over year, primarily due to foreign exchange; management estimated the stronger dollar reduced Q2 revenue and operating income by approximately $8m. Q2 net income fell from $17.0m to $2.5m, primarily because 2021 included an $11.7m income-tax benefit. Q2 adjusted EBITDA was $16.9m, down from $25.1m; this is a non-GAAP measure.
- Cash flow. For the six months, operating activities used $60.6m, versus $2.3m used in 2021. The main drivers included a $101.7m decrease in accounts payable and other liabilities and a $39.6m increase in inventory, partly offset by lower receivables. Investing activities provided $16.8m; financing activities used $152.6m, including repayment of the 2022 notes and share repurchases. Management reported Q2 operating cash flow of $12.9m, compared with $23.2m in Q2 2021.
- Liquidity and debt. At June 30, cash and cash equivalents were $203.3m and marketable securities were $119.2m, totaling $322.5m, down from $538.9m at year-end 2021. Current assets were $565.4m and current liabilities $258.2m. The $125m principal balance of 3.50% convertible notes due 2022 was repaid at maturity on April 15, along with $2.2m accrued interest. Remaining long-term debt was $140.5m, representing the 1.25% convertible notes due 2025. The company had a $50m revolving facility with no borrowings and a $5.2m letter of credit; it reported compliance with facility covenants.
- Capital allocation. GoPro repurchased $21.8m of shares in the first half under its $100m authorization, leaving approximately $78.2m available at June 30.
Material changes versus the prior comparable period
- Q2 revenue was nearly flat, while first-half revenue increased 3.1%. Higher average selling prices and subscription revenue were offset by lower unit shipments and currency effects.
- Q2 gross margin declined, although first-half gross margin improved 60 basis points to 39.9%, with subscription contribution and selling-price mix more than offsetting some currency pressure.
- First-half operating income rose to $12.8m from $6.0m, but Q2 operating income fell to $4.7m from $9.5m. Sales and marketing expense increased 11% in Q2, partly reflecting advertising and subscription-provider costs.
- Interest expense declined substantially, partly because adoption of ASU 2020-06 eliminated convertible-debt discount amortization as non-cash interest expense. The adoption also changed diluted EPS accounting to the if-converted method; prior periods were not restated, limiting comparability.
- First-half cash use increased materially, reflecting working-capital outflows, the 2022-note repayment and share repurchases.
Outlook, commentary, risks and unusual items
- No specific revenue or earnings guidance is provided in the supplied filing text. Management stated that cash, cash equivalents, marketable securities and available credit were expected to meet working-capital, capital-expenditure, commitment and other liquidity needs for at least one year from issuance of the financial statements.
- Management expects operating expenses and inventory purchases to remain significant uses of cash and said R&D spending is expected to remain substantial in 2022. It noted that U.S. tax rules requiring capitalization and amortization of R&D expenses could materially affect cash flows beginning in 2024 if legislation does not change.
- Management cited typical seasonality, with higher revenue historically in the second half and the fourth quarter. Principal risks include consumer-demand and macroeconomic uncertainty, inflation, foreign exchange, supply-chain and sole-source supplier exposure, inventory forecasting, competition, customer concentration, and the company’s ability to grow direct-to-consumer sales and subscriptions.
- GoPro adopted ASU 2020-06 effective January 1, 2022. The adoption materially reclassified convertible-note balances and equity and changed diluted-share calculations; it reduced ongoing reported interest expense. The 2021 comparative results were not restated.
- In a patent dispute, the court entered judgment for GoPro after finding the asserted patents invalid; the plaintiff appealed. GoPro said it intended to defend the appeal and did not believe the matter would have a material adverse effect, while noting it could not determine a loss range.
- Management said disclosure controls and procedures were effective as of June 30, 2022, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether higher average selling prices and subscription growth can offset declining camera shipments and foreign-exchange pressure.
- Whether inventory and working capital normalize, given the first-half cash use and increase in inventory.
- The company’s ability to maintain adequate liquidity while meeting the 2025 note obligations and credit-facility requirements.
- How ASU 2020-06 and the if-converted method affect diluted share counts and period-to-period comparisons.
- Developments in the patent appeal, tax positions, and potential cash-flow effects of R&D tax capitalization rules.