GoPro, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. GoPro sells cameras, mounts and accessories, and subscription services through retail and distribution partners and GoPro.com.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $249.6 million | $134.2 million | $453.3 million | $253.6 million |
| Gross margin | 39.8% | 30.3% | 39.3% | 31.2% |
| Operating income (loss) | $9.5 million | $(44.9) million | $6.0 million | $(101.0) million |
| Net income (loss) | $17.0 million | $(51.0) million | $6.8 million | $(114.5) million |
| Diluted EPS | $0.10 | $(0.34) | $0.04 | $(0.77) |
- Revenue and sales: Q2 revenue rose 86% year over year; first-half revenue rose 79%. Camera shipments increased 62% in both periods. Average selling price was $345 in Q2 (+15%) and $354 for the first half (+10%). GoPro.com revenue was $87.8 million in Q2 (+48%) and $169.8 million for the first half (+100%).
- Profitability: Q2 gross margin improved 950 basis points year over year, mainly from improved pricing and higher unit volume that leveraged overhead costs. First-half operating income was $6.0 million, versus a $101.0 million operating loss a year earlier.
- Cash flow: Operating cash flow was $23.2 million in Q2 and negative $2.3 million for the first half, compared with negative $43.7 million and negative $112.0 million, respectively, in 2020. First-half cash use reflected lower accounts payable and other liabilities and increased inventory.
- Liquidity and debt: Cash, cash equivalents and marketable securities totaled $318.7 million at June 30, down from $325.7 million at year-end 2020. The company had no borrowings under its $50 million revolving facility and was in compliance with its covenants. Convertible notes had $268.8 million aggregate principal outstanding: $125 million due in April 2022 and $143.8 million due in November 2025. The 2022 notes are classified as short-term debt.
Material changes and management commentary
- Retail revenue rose 116% year over year in Q2 as stores reopened; GoPro.com revenue also grew. Channel inventory fell about 15% sequentially and 35% year over year, to below 500,000 camera units.
- Subscription revenue increased 143% in Q2 to $11.6 million; GoPro reported 1.16 million subscribers at quarter-end. Management highlighted the March Quik app refresh and subscription offerings as part of its strategy to broaden its market and support higher-margin direct sales.
- Q2 GAAP net income included an $11.7 million income-tax benefit, primarily from a $12.6 million release of uncertain tax positions after statutes of limitations lapsed. Management estimated this benefit added about $0.08 to Q2 EPS. The first-half tax benefit was $10.5 million; the six-month pretax result remained a $3.7 million loss.
- Management said available liquidity should cover working capital, capital expenditures, commitments and other needs for at least one year from issuance of the financial statements. No specific revenue or earnings guidance is provided in the filing text.
- Management noted that revenue is typically strongest in Q4 and weaker in the first half. COVID-19 effects remained uncertain, including potential impacts on consumer demand, suppliers, operations and the global economy. Other cited risks include dependence on third-party and some sole-source suppliers, competition, customer and channel concentration, e-commerce and cybersecurity disruptions, and the ability to sustain direct-to-consumer and subscription growth.
Contingencies and unusual items
- A shareholder derivative-action settlement received final court approval in July 2021 and was not expected to materially affect the financial statements. A patent-infringement case was consolidated with a related action; trial was scheduled for April 2022. GoPro said it intended to defend the claims and could not determine a loss or range of loss.
- Other multi-year contractual commitments were $358.1 million of undiscounted future obligations as of June 30, 2021. The filing states there were no material changes to contract obligations disclosed in the 2020 Form 10-K.
Important facts for investors to verify
- Whether revenue growth, gross-margin improvement, subscriber gains and lower channel inventory persist beyond the reopening-driven Q2 comparison.
- How much reported earnings depended on the one-time tax benefit, and the company’s underlying profitability and tax position excluding that benefit.
- The company’s ability to meet the $125 million 2022 note principal at maturity, including any effects on liquidity or refinancing needs.
- Whether working-capital movements, particularly accounts payable and inventory, affect cash generation in coming periods.
- Exposure to key suppliers and concentrated customers: one customer represented 38% of accounts receivable at June 30, and a customer represented 11% of Q2 revenue.
- Developments in the patent litigation, COVID-19 and supply-chain risks, and the company’s ability to sustain its direct-sales and subscription strategy.