GoPro, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise. Comparisons are year over year unless noted.
Business context
GoPro sells cameras, mounts and accessories, and subscriptions and services through retail, distributors and GoPro.com. Subscription and service revenue was $25.9 million, or 16.7% of revenue. The company launched Premium+ and its Quik desktop app in February 2024 and acquired Forcite Helmet Systems, a technology-enabled helmet company, for $14.0 million on February 27.
Financial performance and liquidity
| Metric | Q1 2024 | Comparable period |
|---|---|---|
| Revenue | $155.5 million | $174.7 million in Q1 2023; down 11% |
| Camera units shipped | 393,000 | 462,000 in Q1 2023; down 15% |
| Average selling price | $395 | $378 in Q1 2023 |
| Gross profit / margin | $53.0 million / 34.1% | $52.5 million / 30.0% in Q1 2023 |
| Operating expenses | $94.5 million | $92.3 million in Q1 2023 |
| Operating loss | $(41.4) million | $(39.8) million in Q1 2023 |
| Net loss / diluted loss per share | $(339.1) million / $(2.24) | $(29.9) million / $(0.19) in Q1 2023 |
| Adjusted EBITDA | $(29.3) million | $(27.5) million in Q1 2023 |
| Operating cash flow | $(98.4) million | $(67.1) million in Q1 2023 |
Gross margin improved by 410 basis points, attributed mainly to lower camera component costs, higher subscription and service revenue, and a more favorable operating-cost mix. Research and development expense rose 17% to $44.6 million; sales and marketing expense fell 8% to $35.1 million, and general and administrative expense fell 9% to $14.7 million.
The net loss included a $298.2 million income tax expense, primarily a $294.9 million valuation allowance against U.S. federal and state deferred tax assets. The allowance followed management’s reassessment of recoverability amid expected cumulative GAAP losses in 2024 and future years. Non-GAAP net loss was $31.7 million, versus $25.5 million in Q1 2023; this measure includes tax adjustments and excludes specified items.
Cash and cash equivalents were $133.7 million at March 31, versus $222.7 million at December 31, 2023; there were no marketable securities at quarter-end. Operating cash use was driven by the loss and working-capital outflows, including lower accounts payable and other liabilities and higher inventory. Investing activities provided $10.7 million, including $24.0 million of security maturities, partly offset by $12.3 million for the acquisition. Financing activities used $0.6 million.
Long-term debt had a $92.7 million carrying value and $93.8 million principal outstanding, consisting of 1.25% convertible notes due November 15, 2025. The company reported $44.8 million available under its $50 million revolving credit facility, no borrowings to date, and compliance with financial covenants. Management expects available cash, cost reductions and working-capital measures to fund requirements for at least 12 months from issuance of the statements; it also notes that financing may be needed if circumstances change. The company intends to deliver cash up to the notes’ principal at maturity, while retaining the option to settle conversions in shares under the note terms.
Material changes and management commentary
- Revenue fell as camera shipments declined, which management attributed to softer consumer demand in the Americas and Asia-Pacific, especially China, retail-channel inventory reductions, and increased competition. Subscription and service revenue rose 11.6% year over year.
- Retail revenue increased to $106.3 million, 68.4% of total revenue, from $79.8 million, 45.7% of revenue. GoPro.com revenue, including subscriptions and services, fell to $49.2 million from $94.9 million. Regional revenue was down 14% in the Americas and 31% in APAC, but up 13% in EMEA.
- The subscription attach rate was 48%; annual subscriber retention was 69%, compared with 65% a year earlier. Management is focused on growing unit sales, retail presence and subscriptions while controlling costs and pursuing a return to annual profitability; it cautions that success is not assured.
- In March, GoPro approved a restructuring reducing its global workforce by approximately 4% and consolidating certain office space. It recorded approximately $2.3 million of severance charges, expects an approximately $3.2 million office-space impairment charge, and anticipates approximately $2.1 million of related office charges through January 2027.
- In May 2024, GoPro announced delays of its entry-level product launch from Q2 to Q3 2024 and its next-generation 360 camera to late 2024 because development took longer than expected. Management expects a material shift of revenue from 2024 to 2025.
- Goodwill was not impaired. At March 31, management estimated fair value exceeded the reporting unit’s carrying value by 34% using market capitalization before any control premium; a later stock-price decline would have reduced that excess to 13% as of April 22. Further stock-price declines or weaker performance could trigger a material non-cash impairment.
Risks, contingencies and unusual items
- Key risks include ongoing losses, softer discretionary demand, competition, dependence on camera sales and seasonal fourth-quarter revenue, foreign-exchange movements, tariffs and supply-chain concentration, and the ability to attract and retain subscribers.
- Management’s liquidity outlook depends on current projections and conditions. The $93.8 million notes mature in November 2025; cash payment, refinancing, conversion and credit-facility covenant constraints are relevant liquidity risks.
- GoPro filed patent-infringement complaints against Insta360 in the U.S. ITC and federal court on March 29, 2024. A separate patent appeal by Contour IP Holdings is pending. The company could not determine a loss or range of loss for these matters and does not expect their ultimate resolution to have a material adverse effect based on currently available information.
- The company relies on third parties, including some sole-source suppliers, manufacturers and cloud-service providers. It also identifies cybersecurity, privacy, geopolitical and foreign-currency risks. No material impact from Pillar Two tax rules was reported for the quarter.
Important facts for investors to verify
- Whether camera launches occur on the revised schedule and how much revenue is shifted from 2024 to 2025.
- Whether unit sales, retail-channel performance, subscription revenue, attach rates and retention support management’s path to profitability.
- Cash burn, working-capital trends, cost-reduction execution and the company’s capacity to meet the 2025 notes and other obligations.
- Whether forecast losses, market capitalization or operating performance lead to further tax-asset valuation allowances or a goodwill impairment.
- Developments in the Insta360 and Contour IP proceedings, restructuring costs, and exposure to supplier, tariff, currency and macroeconomic risks.