GoPro, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. GoPro sells cameras, accessories, subscriptions and related services through GoPro.com and retail and distribution channels. Results are unaudited and should be read with the company’s 2022 Form 10-K.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $174.7 million | $216.7 million |
| Gross profit / gross margin | $52.5 million / 30.0% | $90.5 million / 41.8% |
| Operating income (loss) | $(39.8) million | $8.2 million |
| Net income (loss) | $(29.9) million; $(0.19) per diluted share | $5.7 million; $0.04 per diluted share |
| Adjusted EBITDA (non-GAAP) | $(27.5) million | $20.6 million |
| Operating cash flow | $(67.1) million | $(73.4) million |
Revenue decreased 19% year over year. Camera shipments fell 12% to 462,000 and average selling price declined 9% to $378. GoPro.com revenue rose 7% to $94.9 million, or 54.3% of revenue; retail revenue fell 38% to $79.8 million. Subscription and service revenue increased 24% to $23.2 million. Subscribers reached 2.36 million, up 36% year over year.
Operating expenses increased 12% to $92.3 million, including R&D of $38.2 million, sales and marketing of $38.1 million, and general and administrative expense of $16.1 million. Higher R&D reflected increased next-generation system-on-chip development and personnel costs.
Liquidity, debt and cash flow
- At March 31, cash and cash equivalents were $157.8 million and marketable securities were $136.8 million, totaling $294.6 million, down from $367.3 million at year-end 2022.
- Long-term debt had a $141.3 million carrying value; the underlying 1.25% convertible notes have $143.8 million principal and mature November 2025. GoPro said it currently intends to deliver cash up to principal upon conversion. The company had not borrowed under its $50 million revolving facility and reported compliance with its financial covenants.
- Operating cash outflow was $67.1 million, reflecting a $29.9 million net loss and working-capital outflows, including a $27.7 million inventory increase and a $27.6 million decrease in accounts payable and other liabilities, partly offset by lower receivables. Investing activities provided $7.7 million; financing activities used $6.9 million, including $5.0 million of share repurchases.
- Management stated that cash, securities and available credit were expected to meet liquidity needs for at least one year from issuance of the statements. The credit agreement requires minimum liquidity of $55 million, including at least $40 million of qualified cash, unless an alternative borrowing-base test applies.
Material changes and unusual items
- A strategic camera MSRP reduction planned for May 2023 led to a $23.5 million Q1 price-protection charge based on estimated channel inventory. Management attributed about 830 basis points of the year-over-year gross-margin decline to this charge; actual claims could differ from estimates.
- Other cited gross-margin pressures were lower volume, foreign exchange and higher product costs; subscription contribution partially offset them. Management estimated that, at constant currency, Q1 revenue would have been about $7.4 million higher and gross margin 33.1%.
- Retailers reduced channel inventory by approximately 95,000 camera units sequentially. Management said the planned pricing move was intended to drive volume and expected retail sales to increase relative to GoPro.com sales.
- The U.S. dollar remained strong against the prior-year period, weighing on revenue and margins. GoPro does not currently use foreign-exchange contracts or derivatives.
- GoPro repurchased $5.0 million of shares in Q1. The board authorized an additional $40 million of repurchases in February; $95.4 million remained available at March 31.
- A 2022 manufacturing-footprint restructuring concentrated production in China and Thailand. The plan incurred $8.1 million of charges in Q4 2022; $0.4 million of related liability remained at March 31, 2023. Q1 2023 restructuring charges were not material.
Outlook, risks and contingencies
No numerical revenue or earnings guidance is provided in the supplied filing text. Management said it expects continued focus on unit volume, subscription growth and retention, operating-expense control, and improving retail sales, and believes these efforts could support a return to annual profitability. It cautioned that failure to grow sales and subscriptions, manage expenses, or navigate macroeconomic conditions could result in significant future losses. Results are seasonal, with historically higher revenue in the second half, especially Q4.
- Key risks include consumer-demand weakness, inflation, currency movements, intense competition and pricing pressure, product-launch execution, inventory forecasting, reliance on third-party and some sole-source suppliers, and retail/distributor concentration.
- Future cash needs include the 2025 convertible-note maturity and $222.5 million of undiscounted obligations under multi-year agreements with terms longer than one year. The filing also notes possible financing needs if business conditions or opportunities require them.
- A patent-infringement case brought by Contour IP Holdings had been decided in GoPro’s favor after the patents were ruled invalid; the plaintiff’s appeal was pending. GoPro said it could not determine a loss or range of loss for legal matters and did not expect a material adverse effect based on information available.
- Gross unrecognized tax benefits were $24.4 million; the company said up to $2.4 million of uncertain tax positions could possibly be released within 12 months, but the net effect was not quantifiable.
- Two customers represented 26% and 11% of accounts receivable at quarter-end. No customer represented at least 10% of revenue in the quarter.
Important facts for investors to verify
- Whether May’s price reductions lift unit volume and retail sell-through enough to offset lower average selling prices and price-protection claims.
- Whether gross margin recovers from 30.0%, and whether subscription revenue, attach rates and retention continue to grow.
- Inventory levels, retailer channel inventory and operating cash use, particularly through the seasonally weaker first half.
- Liquidity and covenant headroom, and the company’s ability to fund or settle the $143.8 million notes due in 2025.
- Developments in the patent appeal, tax positions and other contingencies; management reported effective disclosure controls as of March 31, 2023.