GoPro, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. GoPro sells mountable and wearable cameras and accessories worldwide, alongside free capture, editing and sharing software. Unless otherwise noted, amounts are in U.S. dollars.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $419.9M | $244.6M | $783.0M | $480.3M |
| Gross profit / margin | $194.3M / 46.3% | $102.9M / 42.1% | $358.1M / 45.7% | $199.4M / 41.5% |
| Operating income (loss) | $46.1M | ($16.7M) | $68.4M | ($0.1M) |
| Net income (loss) | $35.0M | ($19.8M) | $51.8M | ($8.8M) |
| Diluted EPS | $0.24 | ($0.24) | $0.35 | ($0.11) |
- Q2 revenue grew 72% year over year; six-month revenue grew 63%. Units shipped rose 93% in Q2 to 1.647 million.
- Gross margin improved, which management attributed primarily to a favorable mix of higher-margin HERO4 Black and Silver cameras.
- Q2 operating expenses increased 24% to $148.2M, but declined to 35% of revenue from 49% a year earlier. R&D spending rose 69% in Q2; sales and marketing rose 45%. Q2 general and administrative expense fell, mainly due to lower stock-based compensation tied to the timing of CEO RSU expense.
- Adjusted EBITDA was $75.3M in Q2 and $131.9M for the first half; non-GAAP net income was $50.7M and $86.3M, respectively. These are company-defined non-GAAP measures.
Cash, liquidity and balance sheet
- At June 30, cash and cash equivalents were $338.0M and marketable securities were $179.0M, totaling $517.0M in cash and securities. Cash was $319.9M at year-end 2014; marketable securities were $102.3M.
- Six-month operating cash flow was $132.1M, compared with $6.7M a year earlier. Investing cash outflow was $156.9M, including $112.3M of securities purchases, $57.7M for acquisitions and $21.3M of capital spending. Financing cash inflow was $44.4M.
- Inventory rose to $219.3M from $153.0M at year-end, while receivables fell to $118.6M from $184.0M. Current assets were $935.4M and current liabilities $307.9M.
- No debt balance is reported on the June 30 balance sheet. Management said existing cash, securities and operating cash flow should cover working capital and capital expenditure needs for at least 12 months. It noted that foreign-subsidiary cash of $84.2M could incur U.S. taxes if repatriated.
Changes, outlook and notable items
- Growth reflected strong demand for HERO4 Silver and Black, with contributions from the new HERO+ LCD, which began shipping in May, and HERO4 Session, which began shipping in late June. Revenue increased across the Americas, EMEA and APAC; international sales were 55% of Q2 revenue versus 46% a year earlier.
- Management expected Q3 2015 revenue to exceed both Q3 2014 and Q2 2015, and expected operating expenses to increase in absolute dollars versus both comparison periods, mainly in R&D and sales and marketing. No full-year numerical guidance is provided in the supplied filing text.
- GoPro completed several acquisitions for aggregate consideration of $59.3M in the first half. Preliminary purchase accounting included $36.9M of goodwill; the acquisitions were described as not material individually or in aggregate.
- Contractual cash obligations totaled $85.9M, including operating leases, sponsorships, other commitments and capital equipment purchases. Legal proceedings were described as not expected to have a material impact; a patent case settlement in Q2 was not material.
- Key risks include reliance on third-party and some sole-source manufacturers and logistics providers, customer concentration (one customer was 16% of Q2 revenue), product demand and execution risks, seasonality (typically strongest in Q4), and the ability to monetize planned software, services and GoPro Network investments. The company also disclosed ongoing IRS examinations for 2012–2013 and a California tax examination for 2011–2012; any unfavorable resolution could materially affect results. Management said there were no material changes to the risks in its 2014 Form 10-K.
- Interest-rate sensitivity: a hypothetical 10% rate increase was estimated to reduce the fair value of available-for-sale securities by approximately $13M. Management considered estimated foreign-currency exposure immaterial at the time.
Important facts for investors to verify
- Whether Q3 revenue growth and higher operating spending developed as management expected, and whether demand and product mix sustained the gross-margin improvement.
- Inventory levels, sell-through and customer concentration, particularly given reliance on third-party manufacturing and the increase in inventory.
- Cash generation after acquisition spending and capital investment, and the composition, maturity and interest-rate sensitivity of the securities portfolio.
- Acquisition integration and the expected returns from R&D, software, services and media-content investments.
- Progress and potential financial effects of the disclosed tax examinations and any changes in commitments or contingencies.