GoPro, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited results; amounts below are in U.S. dollars.
Business context and reporting period
GoPro sells cameras, mounts and accessories, alongside subscription services, through retailers, distributors and GoPro.com. The company accelerated its direct-to-consumer shift during the COVID-19 pandemic. It began shipping its HERO9 Black flagship camera in September 2020.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $280.5 million | $131.2 million | $534.2 million | $666.3 million |
| Gross margin | 35.4% | 21.7% | 33.4% | 31.7% |
| Operating income (loss) | $8.9 million | $(71.2) million | $(92.2) million | $(98.4) million |
| Net income (loss) | $3.3 million | $(74.8) million | $(111.2) million | $(110.5) million |
| Diluted EPS | $0.02 | $(0.51) | $(0.75) | $(0.77) |
- Q3 sales and operations: Camera units shipped were 923,000, up 93% year over year; average selling price was $304, up 11%. Cameras priced at $300 or more were 83% of camera revenue mix. GoPro.com generated $81.3 million, or 29.0% of revenue.
- Cash flow: Operating cash flow for the first nine months was negative $12.5 million, versus negative $112.7 million a year earlier. Investing activities provided $9.8 million; financing activities used $1.2 million. Management separately reported Q3 cash generation of $67.2 million, driven largely by working-capital improvement and adjusted EBITDA, partly offset by repayment of Credit Facility borrowings.
- Liquidity: Cash and cash equivalents were $146.9 million at September 30, down from $150.3 million at year-end 2019; marketable securities were nil, compared with $14.8 million at year-end. Current assets were $413.0 million and current liabilities $257.5 million.
- Debt and commitments: Convertible Notes had $175.0 million principal outstanding, due April 2022, and a $156.8 million net carrying value. The company reported no Credit Facility borrowings at quarter-end and up to $48.2 million available to borrow; the facility terminates in March 2021. Lease liabilities totaled $63.3 million. Undiscounted future obligations under specified multiyear agreements were $208.3 million.
Material changes versus the prior comparable period
- Q3 revenue rose 114% year over year, reflecting HERO9 Black’s launch, stronger HERO8 Black demand and a comparison affected by the delayed HERO8 Black launch in Q4 2019. Q3 gross margin increased 1,370 basis points.
- For the first nine months, revenue fell 20% and camera shipments declined 29%, despite a 13% increase in average selling price. The first-half business was adversely affected by COVID-19.
- GoPro.com’s share of revenue increased to 29.0% for Q3 and 31.1% for the first nine months, from 17.8% and 12.0%, respectively, in 2019. Retail revenue remained the larger Q3 channel and was stronger than the company had anticipated.
- Nine-month net loss was broadly similar to the prior year, while operating expenses fell to $270.6 million from $309.4 million. The comparison includes restructuring charges and a significant noncash lease-asset impairment.
Outlook, management commentary, risks and unusual items
- Management said available liquidity was expected to cover working capital, capital expenditures, commitments and other requirements for at least one year from issuance of the financial statements. It also noted that additional financing could be needed and might not be available on acceptable terms.
- Management expects the direct-to-consumer shift to support margins and reduce operating costs, but cautioned that the transition may fail or reduce sales through distributors and retailers. No specific forward quarterly or full-year revenue or earnings guidance is provided in the filing text.
- GoPro reported its historically strongest revenue in Q4, tied to holiday shopping, and warned that demand, retail restrictions, supply disruptions and product-launch timing could make seasonal results volatile. The HERO9 launch and continued demand for HERO8 were key factors in Q3 performance.
- The April 2020 restructuring targeted an approximately 20% workforce reduction and facility consolidation. Nine-month restructuring charges were $26.5 million, including about $12.5 million of right-of-use asset impairment, $7.8 million of severance and other costs. Management said restructuring was intended to lower ongoing expenses.
- Key risks include ongoing COVID-19 uncertainty, consumer demand and discretionary spending, reliance on third-party and some sole-source suppliers, successful execution of the GoPro.com strategy, product-launch and inventory risks, competition and tariffs, and customer concentration. One customer represented 13% of Q3 revenue; one customer represented 23% of receivables at quarter-end.
- Pending matters include shareholder derivative litigation and a patent suit scheduled for jury trial beginning January 25, 2021. The company said it could not determine whether litigation outcomes would materially affect its business or financial results.
- The filing reports effective disclosure controls as of September 30, 2020 and no material change in internal control over financial reporting during Q3.
Most important facts for investors to verify
- Whether HERO9 demand and the Q3 rebound persist, particularly through the holiday season, and whether comparisons are affected by the prior-year launch delay.
- Whether GoPro.com growth and the broader channel shift improve margins without materially weakening retail and distributor sales.
- Cash conversion and working-capital trends: nine-month operating cash flow remained negative, despite management’s reported Q3 cash generation.
- Debt maturity and liquidity terms, including the $175 million Notes due in 2022, the Credit Facility’s March 2021 termination, and cash settlement exposure on note conversion.
- Actual savings from the restructuring, including ongoing facility costs and the effects of workforce reductions on product development and execution.
- Developments in COVID-19 impacts, supply availability, customer concentration and the pending legal matters.