GoPro, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed February 16, 2018. GoPro sells cameras, accessories and related software and subscription services, with substantially all revenue generated by cameras and accessories. The filing reports one operating segment.
Financial performance
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $1.180 billion | $1.185 billion |
| Gross profit / margin | $384.5 million / 32.6% | $461.9 million / 39.0% |
| Operating expenses | $548.0 million | $834.9 million |
| Operating loss | $163.5 million | $373.0 million |
| Net loss / diluted loss per share | $182.9 million / $1.32 | $419.0 million / $3.01 |
| Adjusted EBITDA (non-GAAP) | $(31.4) million | $(192.8) million |
| Cash from (used in) operating activities | $(36.9) million | $(107.8) million |
| Cash, cash equivalents and marketable securities at year-end | $247.4 million | $218.0 million |
| Working capital | $203.2 million | $157.1 million |
- Camera units shipped fell 9.6% to 4.303 million. Average selling price increased 10.1%, leaving annual revenue broadly flat.
- Fourth-quarter revenue was $334.8 million, down 38.1% year over year; gross margin was 23.8%, and net loss was $55.8 million. Revenue included approximately $80.5 million of price-protection and related sales-incentive charges. Q4 operating cash flow was positive $57.0 million.
- FY 2017 gross margin fell 640 basis points. Management attributed the decline principally to camera and drone price protection, lower-margin Karma sales, and Karma-related inventory and purchase-order charges.
- Operating expenses declined 34.4% year over year. Management cited lower staffing, marketing and restructuring costs; reported restructuring charges were $20.3 million in 2017 versus $43.1 million in 2016.
Debt, liquidity and cash flow
- Year-end cash, cash equivalents and marketable securities were $247.4 million; cash and cash equivalents alone were $202.5 million. GoPro used $36.9 million in operating cash for the year.
- GoPro issued $175 million of 3.50% convertible senior notes due 2022. Their year-end carrying amount was $130.0 million; principal is due at maturity, subject to conversion or other terms. The initial conversion price was approximately $10.64 per share.
- The company had no borrowings under its secured revolving credit facility; stated borrowing availability at year-end was approximately $118 million. The facility matures in March 2021 and includes covenants.
- Management said available cash and credit were expected to meet liquidity needs for at least 12 months. GoPro received a $32.9 million tax refund in February 2018.
Material changes, outlook and risks
- Although annual revenue was nearly unchanged from 2016, it remained well below 2015’s $1.620 billion. Revenue outside the United States represented 55% of 2017 sales. Asia-Pacific revenue increased 27%, while Americas and EMEA revenue declined.
- Management targeted 2018 non-GAAP operating expenses below $400 million and expected capital spending to be significantly lower than in 2017. The filing does not provide a clear revenue, earnings or margin forecast.
- A January 2018 restructuring planned a workforce reduction of approximately 21%, closure of the aerial business and further facility consolidation, with estimated charges of $23 million to $33 million. GoPro planned to sell remaining Karma drone inventory and continue support for the product.
- Management emphasized efficiency, lower costs, new products, marketing, mobile and cloud services, and expanding GoPro Plus. The company reported more than 130,000 paying Plus subscribers as of January 31, 2018; subscription revenue to date was not material.
- Key risks include continuing losses and uncertain profitability; declining camera demand and smartphone competition; product launch, pricing and inventory execution; reliance on third-party and some sole-source suppliers; seasonality and customer concentration; and restructuring execution. The ten largest customers accounted for 48% of 2017 revenue, and one retailer accounted for 15%.
- GoPro disclosed shareholder class-action and derivative litigation, including cases filed in 2018; outcomes and potential financial effects were uncertain. An IPO-related action had an agreement in principle to settle, subject to final documentation and court approval.
- The Tax Cuts and Jobs Act prompted provisional tax accounting; GoPro reported a full valuation allowance against substantially all U.S. deferred tax assets. Management said its TCJA accounting remained subject to completion and further guidance.
- The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; controls were reported effective as of December 31, 2017.
Important facts for investors to verify
- Whether lower operating expenses and the 2018 restructuring can restore positive operating cash flow and improve margins without impairing product development or demand.
- How much of the $80.5 million Q4 price-protection impact was nonrecurring, and the subsequent effect of camera price reductions on selling prices, channel inventory and gross margin.
- Actual 2018 cash use, capital spending, restructuring charges, and availability under the asset-based credit facility and its covenants.
- Conversion, cash-settlement and dilution implications of the $175 million notes, including the prepaid forward transaction and future debt repayment capacity.
- Developments in shareholder litigation, the IPO-related settlement, tax examinations and final accounting for the TCJA.