GoPro, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with the three months ended March 31, 2014 unless noted. GoPro sells mountable and wearable cameras and accessories globally, alongside free editing software and mobile applications. Financial statements are unaudited.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $363.1 million | $235.7 million | +54% |
| Gross profit / margin | $163.7 million / 45% | $96.5 million / 41% | Margin +4 percentage points |
| Operating expenses | $141.5 million | $80.0 million | +77% |
| Operating income / margin | $22.3 million / 6% | $16.6 million / 8% | Income +35%; margin down 2 points |
| Net income / margin | $16.8 million / 5% | $11.0 million / 5% | +52% |
| Diluted earnings per share | $0.11 | $0.08 | +38% |
| Adjusted EBITDA (non-GAAP) | $56.5 million | $28.6 million | +97% |
| Non-GAAP net income | $35.6 million | $14.3 million | +149% |
Revenue growth was attributed primarily to HERO4 devices, released in Q3 2014. Camera units shipped rose 58% to 1.342 million. Revenue increased across all reported regions: Americas +44%, EMEA +65%, and APAC +67%. Gross-margin improvement reflected a favorable mix shift toward higher-margin HERO4 Black and Silver models. Operating expenses grew faster than revenue, including R&D up 72%, sales and marketing up 36%, and general and administrative up 261%.
Cash, liquidity and balance sheet
- Cash and cash equivalents were $323.2 million at March 31, 2015, versus $319.9 million at year-end; marketable securities were $168.7 million versus $102.3 million. Combined cash and securities totaled $491.9 million.
- Operating cash flow was $66.3 million, compared with $20.9 million a year earlier. Investing cash outflow was $77.2 million, principally reflecting purchases of marketable securities; financing cash inflow was $16.2 million. Cash increased $3.2 million during the quarter.
- Total assets were $930.6 million and total liabilities $228.9 million. No debt balance is presented at March 31, 2015; the company repaid $3.0 million of debt in Q1 2014.
- Management said existing cash, cash equivalents, marketable securities and operating cash flow should cover working-capital and capital-expenditure needs for at least 12 months and the foreseeable future. $49.1 million of cash was held by foreign subsidiaries.
Material changes, outlook and notable items
- Management expected Q2 2015 revenue to increase from Q1, gross margin to remain relatively flat as a percentage of revenue, and operating expenses to rise in absolute dollars, mainly in R&D and sales and marketing. No numerical full-year guidance was provided in the filing text.
- Q1 stock-based compensation rose to $26.5 million from $4.0 million. G&A included a $15.8 million expense tied to achievement of market conditions for CEO restricted stock units. GAAP net income and non-GAAP measures should be considered alongside this substantial compensation expense.
- A March 2015 acquisition of a development-stage company added in-process R&D intangible assets; the $5.1 million acquisition did not affect Q1 operating results.
- Contractual cash obligations totaled $79.1 million, including $44.0 million in operating leases, $11.3 million in sponsorship commitments and $16.1 million in capital-equipment purchase commitments.
- Tax examinations were ongoing for U.S. tax years 2012–2013 and California tax years 2011–2012. The company could not estimate their potential impact; an unfavorable resolution could materially harm results. Gross unrecognized tax benefits were $16.9 million.
- Customer concentration is notable: one distributor represented 26% of accounts receivable, and three retailers each represented at least 10%; one retailer accounted for 12% of revenue. GoPro also relies on third-party manufacturers, including some sole-source suppliers.
- Management cited seasonality, with historically highest sales in Q4, and risks around timely product introductions, innovation, international expansion and investments in software, services and media. A hypothetical 10% increase in interest rates was estimated to reduce the fair value of available-for-sale securities by approximately $14 million.
Important facts for investors to verify
- Whether HERO4-driven growth and the favorable product mix continued, particularly given seasonal sales patterns.
- Whether operating-expense growth and stock-based compensation affect future GAAP profitability and margins.
- Whether the company met its stated Q2 expectations for revenue, gross margin and operating expenses.
- Developments in tax examinations, supplier continuity, customer concentration and the company’s contractual commitments.
- Whether cash generation remains adequate as GoPro increases investment in product development, software and services.