GoPro, Inc. (NASDAQ: GPRO) — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Dollar amounts are in millions unless otherwise noted.
Business context and reporting period
GoPro sells cameras, mounts and accessories, alongside subscription and software services, through GoPro.com and retail and wholesale channels. The company began shipping its HERO11 Black and HERO11 Black Creator Edition in September 2022. It reported one operating segment.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $305.1 | $316.7 | $772.5 | $769.9 |
| Gross profit / margin | $116.0 / 38.0% | $138.1 / 43.6% | $302.5 / 39.2% | $316.0 / 41.0% |
| Operating income | $24.4 | $48.6 | $37.2 | $54.6 |
| Net income | $17.6 | $311.8 | $25.8 | $318.5 |
| Operating cash flow | $40.7 | $67.6 | ($19.8) | $65.3 |
Q3 adjusted EBITDA was $35.2 million, down from $60.4 million; non-GAAP net income was $31.8 million versus $55.2 million. These are non-GAAP measures and should be read alongside GAAP results. Q3 diluted GAAP EPS was $0.10, versus $1.92.
At September 30, cash and cash equivalents were $217.2 million and marketable securities were $131.6 million, totaling $348.8 million. Current assets were $623.3 million and current liabilities $296.0 million. Debt had a $140.8 million carrying value, comprising $143.8 million principal of 1.25% convertible notes due 2025; the $125 million principal of 2022 notes was repaid at maturity in April. The company reported $205.0 million of cash, cash equivalents and marketable securities net of 2025-note principal. It had no borrowings under its $50 million revolver and was in compliance with its covenants.
Material changes versus prior comparable periods
- Q3 revenue declined 3.6% year over year; camera units shipped fell 4% to 797,000. Nine-month revenue was nearly flat, while units shipped declined 7% to 1.961 million.
- Management estimated stronger U.S. dollar effects reduced revenue by $17.8 million in Q3 and $29.6 million in the first nine months. The Q3 gross-margin decline of 560 basis points included an estimated 340-basis-point foreign-exchange impact; higher camera, freight and component costs also weighed on margin.
- Subscription and service revenue rose 48% year over year to $21.4 million in Q3 and 63% to $60.1 million for the nine months. GoPro subscribers reached approximately 2.1 million, up 55% year over year. GoPro.com represented 32.3% of Q3 revenue, compared with 29.8% a year earlier.
- Q3 net income fell sharply from 2021 largely because the prior-year period included a $262.7 million tax benefit from releasing valuation allowances. Thus, reported net-income comparisons are not a like-for-like indicator of operating performance.
- Nine-month operating cash flow turned negative, primarily reflecting $94.3 million of working-capital outflows, including a $67.0 million inventory increase and a $67.1 million decrease in accounts payable and other liabilities. Financing cash use included $125.0 million of debt repayment and $31.6 million of share repurchases.
- Effective January 1, 2022, GoPro adopted ASU 2020-06, changing convertible-debt accounting and diluted EPS to the if-converted method; prior periods were not restated. The change reduced reported interest expense and increased diluted share counts.
Outlook, commentary and risks
- The filing provides no specific numerical revenue or earnings guidance. Management said available cash, securities and credit-facility capacity should meet working-capital, capital-expenditure, commitment and other liquidity needs for at least one year from issuance of the statements.
- Management emphasized growth in direct-to-consumer sales and subscriptions, product innovation, and expense management as drivers of sustainable profitability. It noted that Q4 is historically the strongest revenue quarter, making holiday demand, forecasting and product availability important.
- Key risks include foreign-exchange volatility, inflation and component costs, weaker discretionary spending, retailer inventory management, reliance on third-party and some sole-source suppliers, inventory forecasting, intense competition, and customer concentration. The company also cited ongoing COVID-19 uncertainty, global conflicts and supply-chain disruption.
- The $50 million revolving credit facility requires minimum liquidity of $55 million, including at least $40 million of qualified cash, subject to the agreement’s terms. The company reported covenant compliance at quarter-end.
- Undiscounted future obligations under multi-year agreements with terms over one year totaled $230.9 million. A patent dispute remained on appeal after a court entered judgment for GoPro; the company said it would defend the appeal and could not determine a loss or range of loss. Management did not expect the matter to materially adversely affect the business or financial results.
- GoPro noted that tax rules requiring capitalization and amortization of R&D expenses could materially affect cash flows beginning in 2025 if legislation does not change. It also reported $22.4 million of gross unrecognized tax benefits, primarily related to transfer-pricing matters.
Most important facts for investors to verify
- Whether Q4 holiday demand and new-product sales offset retailer inventory restraint and weaker camera shipments.
- Whether currency movements, freight and component costs continue to pressure revenue and gross margin.
- Whether subscription growth and direct-to-consumer mix can sustain profitability as camera-unit volumes change.
- Inventory levels, working-capital trends and operating cash flow, particularly after the nine-month cash outflow.
- The 2025 convertible notes’ terms, potential dilution or cash settlement exposure, and continued credit-facility covenant compliance.
- Developments in the patent appeal, transfer-pricing tax matters, and potential future cash-flow effects of R&D tax rules.