GoPro, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; includes fourth-quarter results. GoPro sells cameras, mounts and accessories, with subscription and software services, through retail/distributors and GoPro.com. It operates as one reportable segment.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Revenue | $1,093.5 million | $1,161.1 million | Down 5.8% |
| Camera units shipped | 2.81 million | 3.15 million | Down 10.6% |
| Average selling price | $389 | $369 | Up 5.4% |
| Gross margin | 37.2% | 41.1% | Down 390 bps |
| Operating income | $39.0 million | $113.2 million | Down 65.6% |
| Net income | $28.8 million | $371.2 million | Down 92% |
| Diluted EPS | $0.18 | $2.27 | Down 92% |
| Cash from operations | $5.7 million | $229.2 million | Down 97% |
Fourth-quarter revenue was $321.0 million, down 17.9% year over year; gross margin was 32.5% versus 41.2%, net income was $3.1 million versus $52.6 million, and operating cash flow was $25.6 million versus $163.8 million.
FY 2022 subscription and service revenue rose 52.1% to $82.4 million, with 2.25 million subscribers at year-end, up 43%. GoPro.com accounted for 37.6% of annual revenue, up from 33.8%; retail revenue declined 11%. Cash, cash equivalents and marketable securities totaled $367.3 million at year-end. The company reported $143.8 million principal on its 1.25% convertible notes due November 2025; the balance-sheet carrying amount was $141.0 million. Its $50 million revolving credit facility had no borrowings, and the company reported compliance with its financial covenants.
Changes and drivers
- Revenue and unit shipments fell amid macroeconomic pressure, lower U.S. big-box customer inventory, and a stronger U.S. dollar. Currency reduced FY 2022 revenue by an estimated $50.4 million and gross margin by about 270 bps.
- Higher camera price mix lifted average selling price, while subscription growth and higher subscription contribution partially offset weaker hardware performance.
- Gross margin also faced lower hardware margins, restructuring costs and lower volume. Operating expenses were broadly stable at $367.9 million, up 1%.
- FY 2021 net income was unusually high in part because of a $284.6 million release of U.S. federal and state deferred-tax valuation allowances. This makes the year-over-year GAAP earnings decline a poor standalone measure of operating performance.
- Operating cash flow fell sharply, primarily reflecting $80.1 million of working-capital outflows, including lower accounts payable and higher inventory. Inventory rose to $127.1 million from $86.4 million.
Outlook, risks and unusual items
- Management expected first-quarter 2023 unit sell-through to decline 9% year over year as retailers reduced on-hand inventory amid anticipated macroeconomic headwinds. The filing does not provide clear full-year 2023 revenue or earnings guidance.
- Management said available cash, marketable securities and credit-facility availability should cover working capital, capital expenditures, commitments and other liquidity needs for at least one year from issuance of the statements. It intends to settle up to the principal amount of the 2025 notes in cash, subject to liquidity.
- In December 2022, GoPro approved a manufacturing realignment concentrating production in China and Thailand. It recorded $8.1 million of production-related restructuring charges, mainly for line closures and transition costs; total FY 2022 restructuring charges were $8.5 million.
- Key risks include discretionary consumer demand, inflation and foreign exchange exposure, product competition and seasonality, dependence on third-party and some sole-source suppliers, retailer concentration, inventory forecasting, and cybersecurity/privacy risks. The fourth quarter historically contributes a large share of annual revenue.
- GoPro repaid $125 million principal and $2.2 million accrued interest on its 2022 notes at maturity in April 2022. It repurchased $39.6 million of shares during 2022, leaving $60.4 million under its $100 million authorization.
- The company adopted ASU 2020-06 in 2022, changing convertible-debt accounting and diluted EPS to the if-converted method; prior periods were not restated. The 2025 notes add potential cash-payment and dilution considerations, partly mitigated by capped-call transactions.
- A patent case brought by Contour IP Holdings had been decided in GoPro’s favor after the patents were ruled invalid; the opposing party’s appeal was pending. GoPro said it could not determine a loss or range of loss for legal matters, but did not expect their ultimate cost to have a material adverse effect.
Important facts for investors to verify
- Whether subscription growth and retention can offset declining camera shipments and hardware margins, and how subscribers and recurring revenue develop in 2023.
- Whether the Q1 sell-through decline and retailer inventory reductions persist, and whether reported channel inventory of approximately 685,000 units clears without added discounts or margin pressure.
- How currency movements, inflation and production realignment affect revenue, gross margin, restructuring cash costs and supply continuity.
- Whether working-capital needs and cash generation improve, and whether liquidity remains adequate for commitments and the 2025 note principal and potential conversion obligations.
- Any material development in the pending patent appeal or other legal, tax, supplier, cybersecurity or customer-concentration exposures.
The financial statements received an unqualified audit opinion, and the auditor and management reported effective internal control over financial reporting as of December 31, 2022.