GoPro, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. GoPro sells cameras, accessories, software and subscription services through retail and direct-to-consumer channels.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $316.7 million | $280.5 million | $769.9 million | $534.2 million |
| Gross profit / margin | $138.1 million / 43.6% | $99.3 million / 35.4% | $316.0 million / 41.0% | $178.4 million / 33.4% |
| Operating income (loss) | $48.6 million | $8.9 million | $54.6 million | $(92.2) million |
| Net income (loss) | $311.8 million | $3.3 million | $318.5 million | $(111.2) million |
| Diluted EPS | $1.92 | $0.02 | $1.96 | $(0.75) |
| Adjusted EBITDA | $60.4 million | $39.2 million | Not clearly provided for the nine-month period | Not clearly provided for the nine-month period |
- Q3 revenue increased 13% year over year; camera units shipped fell 10% to 832,000, while average selling price rose 25% to $381. For the first nine months, revenue increased 44% and shipments increased 23% to 2.112 million.
- Q3 subscription revenue was $14.2 million, up 143%; GoPro reported 1.34 million subscribers at quarter-end. GoPro.com revenue was $94.4 million, up 16%.
- Cash provided by operations was $65.3 million for the first nine months, versus cash used of $12.5 million a year earlier. Q3 operating cash flow was $67.6 million versus $99.6 million in Q3 2020, as reported in MD&A. Investing activities used $87.1 million, primarily for $82.3 million of marketable securities; financing activities used $7.8 million.
- At September 30, cash and cash equivalents were $296.4 million and marketable securities were $82.2 million, totaling $378.5 million. Current assets were $643.1 million and current liabilities $395.5 million.
- Debt carrying value was $229.7 million: $120.2 million current and $109.5 million long-term. The underlying note principal totaled $268.8 million, including $125.0 million of 3.50% convertible notes due April 2022 and $143.8 million of 1.25% notes due November 2025. The $50 million revolving credit facility was undrawn; GoPro reported covenant compliance.
Material changes versus comparable periods
- Q3 gross margin rose 820 basis points year over year, driven chiefly by higher-priced camera sales, improved fixed-cost leverage and subscription growth. Nine-month gross margin rose 764 basis points.
- Q3 operating expenses were nearly flat at $89.5 million. Nine-month expenses fell to $261.4 million from $270.6 million, as lower restructuring and other costs more than offset increased personnel, stock compensation and direct-to-consumer infrastructure spending.
- Q3 net income included a $270.2 million income tax benefit; the principal item was a $262.7 million non-cash benefit from releasing U.S. federal and state deferred-tax valuation allowances. This benefit, rather than operating performance alone, explains most of the reported net income increase. The filing says the release would be remeasured in Q4.
- Cash and cash equivalents declined from $325.7 million at year-end 2020, while marketable securities increased from zero to $82.2 million. Inventory rose from $97.9 million to $120.9 million. Stockholders’ equity increased to $555.0 million from $216.0 million, primarily reflecting reported earnings.
Outlook, commentary, risks and unusual items
- The filing provides no specific numeric revenue or earnings guidance. Management said available cash, securities and credit-facility capacity should cover working capital, capital expenditures, commitments and other liquidity needs for at least one year from issuance of the financial statements. Management intends to pay cash up to principal on the $125 million 2022 Notes at maturity.
- Management cited the HERO10 Black launch, growth in higher-priced cameras, direct-to-consumer sales and subscriptions as business drivers. The company expects the historically strong holiday season to remain important and Q4 revenue is subject to seasonality.
- COVID-19 and global supply-chain disruption remain material uncertainties, including component availability, manufacturing, freight and delivery delays, and potential cost or margin pressure. Other risks include dependence on third-party and some sole-source suppliers, competition, consumer demand, retailer concentration, e-commerce and cybersecurity, and execution of the direct-to-consumer and subscription strategy.
- In October 2021, GoPro signed a headquarters sublease expected to generate approximately $20 million of cash inflows beginning in Q2 2022. Multi-year contractual commitments were $353.5 million undiscounted at quarter-end.
- A consolidated patent-infringement case was scheduled for trial in May 2022. GoPro said it believes the claims lack merit; it could not estimate a loss or range of loss and did not expect the matters to have a material adverse effect. Previously pending derivative actions were settled or dismissed, with no expected material financial impact.
- The filing notes that the 2022 Notes mature in April 2022 and that conversion, refinancing, or cash repayment could affect liquidity. The credit facility also includes covenants and a minimum-liquidity requirement.
Important facts for investors to verify
- How much of earnings and the increase in deferred tax assets depends on the $262.7 million valuation-allowance release, and whether the Q4 remeasurement changes the tax benefit.
- GoPro’s plan and available liquidity for repaying or otherwise settling the $125 million of 2022 Notes, including facility conditions and covenant headroom.
- Whether higher average selling prices, subscription growth and improved gross margins persist through the holiday quarter amid supply-chain constraints and shipping costs.
- Customer and supplier concentration: two customers represented 49% of net accounts receivable at September 30, and the company relies on third parties, including sole-source suppliers.
- The potential timing and financial effect of the patent case, other legal matters, and the sublease’s expected cash inflows.