8-K
GoPro, Inc. (GPRO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 4, 2022
GOPRO, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-36514 | 77-0629474 |
|---|---|---|
| (State or Other Jurisdiction<br><br>of Incorporation) | (Commission File No.) | (I.R.S. Employer<br><br>Identification No.) |
3025 Clearview Way, San Mateo, CA 94402
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (650) 332-7600
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Class A common stock | GPRO | NASDAQ Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition
On August 4, 2022, GoPro, Inc. (the “Company”) issued a press release to report its financial results for its second quarter ended June 30, 2022.
A copy of the press release is furnished as Exhibit 99.1 to this report.
The information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liabilities of that section. The information in Item 2.02 of this Current Report on Form 8-K shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended (“Securities Act”), except as may be expressly set forth by specific reference in such filing or document.
Item 7.01. Regulation FD Disclosure.
On August 4, 2022, the Company held a live audio webcast to discuss its financial results for its second quarter ended June 30, 2022.
A copy of management commentary from Nicholas Woodman, our Chief Executive Officer, and Brian McGee, our Chief Financial Officer and Chief Operating Officer, is furnished as Exhibit 99.2 to this report, and is incorporated by reference into this Current Report on Form 8-K.
The information in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.2, shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. The information in Item 7.01 of this Current Report on Form 8-K shall not be incorporated by reference into any filing or other document pursuant to the Securities Act, except as may be expressly set forth by specific reference in such filing or document.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
| Exhibit<br><br>Number | Description of Document |
|---|---|
| 99.1 | Press Release of GoPro, Inc. dated August 4, 2022 to report its financial results for its second quarter ended June 30, 2022. |
| 99.2 | Management's commentary from Nicholas Woodman, Chief Executive Officer, and Brian McGee, Chief Financial Officer and Chief Operating Officer, dated August 4, 2022 (furnished pursuant to Item 7.01). |
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| GoPro, Inc. | ||
|---|---|---|
| (Registrant) | ||
| Dated: | August 4, 2022 | By: /s/ Brian McGee |
| Brian McGee<br><br>Chief Financial Officer and Chief Operating Officer<br><br>(Principal Financial Officer) |
Document
EXHIBIT 99.1
GoPro Announces Second Quarter 2022 Results
GoPro Subscribers up 65% year-over-year to 1.91 million
GAAP EPS of $0.02 and non-GAAP EPS of $0.08
Camera Sell-through at High-end of Q2 Guidance
SAN MATEO, Calif., August 4, 2022 - GoPro, Inc. (NASDAQ: GPRO) today announced financial results for its second quarter ended June 30, 2022 and posted management commentary on the investor relations section of its website at https://investor.gopro.com.
“GoPro shined in the second quarter, exceeding expectations on sell-through, revenue and earnings per share,” said Nicholas Woodman, GoPro’s founder and CEO. “We’re excited about our upcoming hardware and software launches in the second half of 2022, and we expect them to contribute to continued profitability and impressive subscription growth.”
“In the second quarter, Asia Pacific and Europe recovered with strong year-over-year revenue growth which contributed to solid Q2 revenue and sell-through performance,” said Brian McGee, GoPro’s CFO and COO. “Subscribers grew 65% year-over year with subscription and service revenue representing a powerful driver of profitability.”
Q2 2022 Financial Results & Recent Business Highlights
•Revenue was $251 million, up slightly year-over-year from $250 million, with a strong U.S. dollar unfavorably impacting Q2 revenue by approximately $8 million year-over-year.
•GoPro.com revenue, including subscription and service revenue, increased 9% year-over-year to $95 million, or 38% of total revenue. Subscription and service revenue increased 71% year-over-year to $20 million.
•GoPro subscriber count increased 65% year-over-year to 1.91 million.
•GAAP and non-GAAP gross margin was 38.3% and 38.5% respectively, down from the prior year period at 39.8% and 40.1%, respectively.
•GAAP net income was $3 million, or $0.02 per share, down from net income of $17 million or $0.10 per share which included a $12 million tax benefit in the prior year period. Non-GAAP net income was $13 million, or $0.08 per share, down 36% from $20 million, or $0.12 per share in the prior year period.
•Adjusted EBITDA was $17 million, or 7% of revenue, compared to $25 million, or 10% of revenue in the prior year period.
•Cameras with retail prices at or above $400 represented 93% of Q2 2022 camera revenue, up from 77% in Q2 2021.
•Q2 2022 Street ASP increased 13% year-over-year to $392.
Results Summary:
| Three months ended June 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| ($ in thousands, except per share amounts) | 2022 | 2021 | % Change | |||||
| Revenue | $ | 250,685 | $ | 249,586 | 0.4 | % | ||
| Gross margin | ||||||||
| GAAP | 38.3 | % | 39.8 | % | -150 bps | |||
| Non-GAAP | 38.5 | % | 40.1 | % | -160 bps | |||
| Operating income | ||||||||
| GAAP | $ | 4,655 | $ | 9,502 | (51.0) | % | ||
| Non-GAAP | $ | 14,990 | $ | 20,724 | (27.7) | % | ||
| Net income | ||||||||
| GAAP | $ | 2,519 | $ | 16,952 | (85.1) | % | ||
| Non-GAAP | $ | 12,790 | $ | 19,862 | (35.6) | % | ||
| Diluted net income per share | ||||||||
| GAAP | $ | 0.02 | $ | 0.10 | (80.0) | % | ||
| Non-GAAP | $ | 0.08 | $ | 0.12 | (33.3) | % | ||
| Adjusted EBITDA | $ | 16,891 | $ | 25,065 | (32.6) | % |
Conference Call
GoPro management will host a conference call and live webcast for analysts and investors today at 2 p.m. Pacific Time (5 p.m. Eastern Time) to discuss the Company’s financial results.
Prior to the start of the call, the Company will post Management Commentary on the “Events & Presentations” section of its investor relations website at https://investor.gopro.com. Management will make brief opening comments before taking questions.
To listen to the live conference call, please call +1 800-289-0720 (US) or +1 323-701-0160 (International) and enter access code 3600393, approximately 15 minutes prior to the start of the call. A live webcast of the conference call will be accessible on the “Events & Presentations” section of the Company’s website at https://investor.gopro.com. A recording of the webcast will be available on GoPro’s website, https://investor.gopro.com, from approximately two hours after the call through October 27, 2022.
About GoPro, Inc. (NASDAQ: GPRO)
Celebrating its 20th anniversary in 2022, GoPro helps the world to capture and share itself in immersive and exciting ways.
For more information, visit GoPro.com. Open roles can be found on our careers page. Members of the press can access official logos and imagery on our press portal. GoPro customers can submit their photos and videos to GoPro Awards for an opportunity to be featured on GoPro's social channels and receive gear and cash awards. Connect with GoPro on Facebook, Instagram, LinkedIn, TikTok, Twitter, YouTube, and GoPro's blog The Current.
GoPro, HERO and their respective logos are trademarks or registered trademarks of GoPro, Inc. in the United States and other countries.
GoPro’s Use of Social Media
GoPro announces material financial information using the Company’s investor relations website, SEC filings, press releases, public conference calls and webcasts. GoPro may also use social media channels to communicate about the Company, its brand and other matters; these communications could be deemed material information. Investors and others are encouraged to review posts on Facebook, Instagram, LinkedIn, TikTok, Twitter, YouTube, and GoPro’s investor relations website and blog The Current.
Note Regarding Use of Non-GAAP Financial Measures
GoPro reports gross profit, gross margin, operating expenses, operating income (loss), other income (expense), tax expense, net income (loss) and diluted net income (loss) per share in accordance with U.S. generally accepted accounting principles (GAAP) and on a non-GAAP basis. Additionally, GoPro reports non-GAAP adjusted EBITDA. Non-GAAP items exclude, where applicable, the effects of stock-based compensation, acquisition-related costs, restructuring and other related costs, non-cash interest expense, gain on sale and license of intellectual property and the tax impact of these items. When planning, forecasting and analyzing gross margin, operating expenses, other income (expense), tax expense, net income (loss) and net income (loss) per share for future periods, GoPro does so primarily on a non-GAAP basis without preparing a GAAP analysis as that would require estimates for reconciling items which are inherently difficult to predict with reasonable accuracy.
Note on Forward-looking Statements
This press release may contain projections or other forward-looking statements within the meaning Section 27A of the Private Securities Litigation Reform Act. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “should,” “will” and variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements. Forward-looking statements in this press release may include but are not limited to our upcoming hardware and software launches in the second half of 2022 and our expectation that they will continue to contribute to profitability and subscription growth; and overall consumer demand. These statements involve risks and uncertainties, and actual events or results may differ materially. Among the important factors that could cause actual results to differ materially from those in the forward-looking statements include we may not be able to achieve our forecast, sustain revenue growth or profitability in the future, and our operating results may fluctuate unpredictably; our reliance on third party suppliers, some of which are sole source suppliers, to provide services and components for our products which may be impacted due to supply shortages, long lead times for components, and supply changes, any of which could disrupt our supply chain and may increase our costs such as
increased freight rates or shipping delays; the continuing impact of the COVID-19 pandemic and the war in Ukraine and their effects on the United States and global economies and our business in particular; our ability to maintain the value and reputation of our brand and protect our intellectual property and proprietary rights ; the risk that our sales fall below our forecasts, especially during the holiday season; the risk we fail to manage our operating expenses effectively, and may result in our financial performance suffering the fact that our continued profitability depends in part on further penetrating our total addressable market, and we may not be successful in doing so; the fact that sales of our cameras, mounts and accessories for substantially all of our revenue, and any decrease in the sales or change in sales mix of these products could harm our business; the risk that growing our direct-to-consumer and subscription business while reducing our reliance on our other sales channels could impact profitability; any inability to successfully manage product introductions, product transitions, product pricing and marketing; the fact that a small number of retailers and distributors account for a substantial portion of our revenue and our level of business with them could be significantly reduced; our transition away from some distributors and retailers; the fact that an economic downturn or economic uncertainty in our key U.S. and international markets, inflation, and fluctuations in interest rates or currency exchange rates, may adversely affect consumer discretionary spending and demand for our products; the impact of fluctuations in foreign currency exchange rates on our results of operations; our ability to attract, engage and retain qualified personnel; any changes to trade agreements, trade policies, tariffs, and import/export regulations; the effects of the highly competitive market in which we operate, including new market entrants; the fact that we may experience fluctuating revenue, expenses and profitability in the future; risks related to inventory, purchase commitments and long-lived assets; difficulty in attracting and retaining qualified personnel; the importance of maintaining the value and reputation of our brand; the risk that we will encounter problems with our distribution system; the threat of a security breach or other disruption including cyberattacks; the concern that our intellectual property and proprietary rights may not adequately protect our products and services; and other factors detailed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2021, which is on file with the Securities and Exchange Commission (SEC), and as updated in future filings with the SEC including the Quarterly Report on Form 10-Q for the quarter ended June 30, 2022. These forward-looking statements speak only as of the date hereof or as of the date otherwise stated herein. GoPro disclaims any obligation to update these forward-looking statements.
GoPro, Inc.
Preliminary Condensed Consolidated Statements of Operations
(unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands, except per share data) | 2022 | 2021 | 2022 | 2021 | ||||
| Revenue | $ | 250,685 | $ | 249,586 | $ | 467,390 | $ | 453,266 |
| Cost of revenue | 154,681 | 150,304 | 280,910 | 275,288 | ||||
| Gross profit | 96,004 | 99,282 | 186,480 | 177,978 | ||||
| Operating expenses: | ||||||||
| Research and development | 36,218 | 37,800 | 67,816 | 70,230 | ||||
| Sales and marketing | 39,439 | 35,670 | 74,812 | 71,460 | ||||
| General and administrative | 15,692 | 16,310 | 31,035 | 30,298 | ||||
| Total operating expenses | 91,349 | 89,780 | 173,663 | 171,988 | ||||
| Operating income | 4,655 | 9,502 | 12,817 | 5,990 | ||||
| Other income (expense): | ||||||||
| Interest expense | (1,538) | (5,532) | (3,747) | (11,412) | ||||
| Other expense, net | (488) | 1,312 | (807) | 1,755 | ||||
| Total other expense, net | (2,026) | (4,220) | (4,554) | (9,657) | ||||
| Income (loss) before income taxes | 2,629 | 5,282 | 8,263 | (3,667) | ||||
| Income tax expense (benefit) | 110 | (11,670) | 59 | (10,451) | ||||
| Net income | $ | 2,519 | $ | 16,952 | $ | 8,204 | $ | 6,784 |
| Net income per share: | ||||||||
| Basic | $ | 0.02 | $ | 0.11 | $ | 0.05 | $ | 0.04 |
| Diluted | $ | 0.02 | $ | 0.10 | $ | 0.06 | $ | 0.04 |
| Shares used to compute net income per share: | ||||||||
| Basic | 156,645 | 153,634 | 156,751 | 152,911 | ||||
| Diluted | 176,860 | 164,857 | 183,170 | 162,455 |
GoPro, Inc.
Preliminary Condensed Consolidated Balance Sheets
(unaudited)
| (in thousands) | June 30,<br>2022 | December 31,<br>2021 | ||
|---|---|---|---|---|
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 203,279 | $ | 401,087 |
| Marketable securities | 119,172 | 137,830 | ||
| Accounts receivable, net | 88,419 | 114,221 | ||
| Inventory | 126,007 | 86,409 | ||
| Prepaid expenses and other current assets | 28,549 | 42,311 | ||
| Total current assets | 565,426 | 781,858 | ||
| Property and equipment, net | 16,400 | 19,003 | ||
| Operating lease right-of-use assets | 25,012 | 27,320 | ||
| Goodwill | 146,459 | 146,459 | ||
| Other long-term assets | 290,774 | 285,239 | ||
| Total assets | $ | 1,044,071 | $ | 1,259,879 |
| Liabilities and Stockholders’ Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 96,988 | $ | 171,545 |
| Accrued expenses and other current liabilities | 105,249 | 128,572 | ||
| Short-term operating lease liabilities | 9,886 | 9,819 | ||
| Deferred revenue | 46,116 | 42,505 | ||
| Short-term debt | — | 122,391 | ||
| Total current liabilities | 258,239 | 474,832 | ||
| Long-term debt | 140,542 | 111,289 | ||
| Long-term operating lease liabilities | 38,271 | 43,025 | ||
| Other long-term liabilities | 14,508 | 14,819 | ||
| Total liabilities | 451,560 | 643,965 | ||
| Stockholders’ equity: | ||||
| Common stock and additional paid-in capital | 944,642 | 1,008,872 | ||
| Treasury stock, at cost | (135,375) | (113,613) | ||
| Accumulated deficit | (216,756) | (279,345) | ||
| Total stockholders’ equity | 592,511 | 615,914 | ||
| Total liabilities and stockholders’ equity | $ | 1,044,071 | $ | 1,259,879 |
GoPro, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||
| Operating activities: | ||||||||
| Net income | $ | 2,519 | $ | 16,952 | $ | 8,204 | $ | 6,784 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 2,253 | 2,694 | 4,555 | 6,228 | ||||
| Non-cash operating lease cost | 630 | 1,526 | 2,308 | 2,446 | ||||
| Stock-based compensation | 10,251 | 10,029 | 20,087 | 18,898 | ||||
| Deferred income taxes | (534) | (7) | 2,397 | (9) | ||||
| Non-cash restructuring charges | — | — | — | (99) | ||||
| Non-cash interest expense | — | 3,512 | — | 6,945 | ||||
| Other | 1,012 | (943) | 2,016 | (831) | ||||
| Net changes in operating assets and liabilities | (3,275) | (10,589) | (100,118) | (42,680) | ||||
| Net cash provided by (used in) operating activities | 12,856 | 23,174 | (60,551) | (2,318) | ||||
| Investing activities: | ||||||||
| Purchases of property and equipment, net | (774) | (950) | (1,294) | (2,018) | ||||
| Purchases of marketable securities | (23,966) | (32,890) | (47,077) | (32,890) | ||||
| Maturities of marketable securities | 49,249 | — | 65,149 | — | ||||
| Net cash provided by (used in) investing activities | 24,509 | (33,840) | 16,778 | (34,908) | ||||
| Financing activities: | ||||||||
| Proceeds from issuance of common stock | 87 | 1,202 | 2,686 | 4,200 | ||||
| Taxes paid related to net share settlement of equity awards | (1,313) | (1,729) | (8,488) | (7,975) | ||||
| Repurchase of outstanding common stock | (11,762) | — | (21,762) | — | ||||
| Repayment of borrowings | (125,000) | — | (125,000) | — | ||||
| Net cash used in financing activities | (137,988) | (527) | (152,564) | (3,775) | ||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1,417) | 245 | (1,471) | (847) | ||||
| Net change in cash, cash equivalents and restricted cash | (102,040) | (10,948) | (197,808) | (41,848) | ||||
| Cash, cash equivalents and restricted cash at beginning of period | 305,319 | 296,754 | 401,087 | 327,654 | ||||
| Cash, cash equivalents and restricted cash at end of period | $ | 203,279 | $ | 285,806 | $ | 203,279 | $ | 285,806 |
GoPro, Inc.
Reconciliation of Preliminary GAAP to Non-GAAP Financial Measures
To supplement our unaudited selected financial data presented on a basis consistent with GAAP, we disclose certain non-GAAP financial measures, including non-GAAP gross profit, gross margin, operating expenses, operating income (loss), other income (expense), tax expense, net income (loss), diluted net income (loss) per share and adjusted EBITDA. We also provide forecasts of non-GAAP gross margin, non-GAAP operating expenses, non-GAAP other income (expense), non-GAAP tax expense, non-GAAP net income (loss) and non-GAAP diluted net income (loss) per share. We use these non-GAAP financial measures to help us understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short-term and long-term operational plans. Our management uses, and believes that investors benefit from referring to these non-GAAP financial measures in assessing our operating results. These non-GAAP financial measures should not be considered in isolation from, or as an alternative to, the measures prepared in accordance with GAAP, and are not based on any comprehensive set of accounting rules or principles. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by facilitating:
•the comparability of our on-going operating results over the periods presented;
•the ability to identify trends in our underlying business; and
•the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.
These non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. Some of these limitations are:
•adjusted EBITDA does not reflect tax payments that reduce cash available to us;
•adjusted EBITDA excludes depreciation and amortization and, although these are non-cash charges, the property and equipment being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA does not reflect any cash capital expenditure requirements for such replacements;
•adjusted EBITDA excludes the amortization of point of purchase (POP) display assets because it is a non-cash charge, and is treated similarly to depreciation of property and equipment and amortization of acquired intangible assets;
•adjusted EBITDA and non-GAAP net income (loss) exclude restructuring and other related costs which primarily include severance-related costs, stock-based compensation expenses, facilities consolidation charges recorded in connection with restructuring actions, including right-of-use asset impairment charges, and the related ongoing operating lease cost of those facilities recorded under Accounting Standards Codification 842, Leases. These expenses do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of current operating performance or comparisons to the operating performance in other periods;
•adjusted EBITDA and non-GAAP net income (loss) exclude stock-based compensation expense related to equity awards granted primarily to our workforce. We exclude stock-based compensation expense because we believe that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In particular, we note that companies calculate stock-based compensation expense for the variety of award types that they employ using different valuation methodologies and subjective assumptions. These non-cash charges are not factored into our internal evaluation of net income (loss) as we believe their inclusion would hinder our ability to assess core operational performance;
•non-GAAP net income (loss) excludes acquisition-related costs including the amortization of acquired intangible assets (primarily consisting of acquired technology), the impairment of acquired intangible assets (if applicable), as well as third-party transaction costs incurred for legal and other professional services. These costs are not factored into our evaluation of potential acquisitions, or of our performance after completion of the acquisitions, because these costs are not related to our core operating performance or reflective of ongoing operating results in the period, and the frequency and amount of such costs vary significantly based on the timing and magnitude of our acquisition transactions and the maturities of the businesses being acquired. Although we exclude the amortization of acquired intangible assets from our non-GAAP net income (loss), management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation. Additionally, in connection with the adoption of ASU 2020-06 on January 1, 2022, we add back the tax
effected cash interest expense associated with our 2022 Notes and 2025 Notes, as if converted at the beginning of the period, if the impact is dilutive;
•non-GAAP net income (loss) excludes non-cash interest expense. Prior to the adoption of ASU 2020-06 in fiscal year 2022, we were required to recognize non-cash interest expense related to the amortization of a debt discount associated with our 2022 Notes and 2025 Notes in accordance with the prior authoritative accounting guidance for convertible debt that may be settled in cash. From fiscal year 2022 and onwards, this debt discount accounting requirement was removed, and as a result, non-cash interest expense will no longer be a reconciling item between GAAP and non-GAAP net income (loss);
•non-GAAP net income (loss) includes income tax adjustments. We utilize a cash-based non-GAAP tax expense approach (based upon expected annual cash payments for income taxes) for evaluating operating performance as well as for planning and forecasting purposes. This non-GAAP tax approach eliminates the effects of period specific items, which can vary in size and frequency and does not necessarily reflect our long-term operations. Historically, we computed a non-GAAP tax rate based on non-GAAP pre-tax income on a quarterly basis, which considered the income tax effects of the adjustments above;
•GAAP and non-GAAP net income (loss) per share includes the dilutive, tax effected cash interest expense associated with our 2022 Notes and 2025 Notes, as if converted at the beginning of the period in connection with the adoption of ASU 2020-06 on January 1, 2022; and,
•other companies may calculate these non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.
GoPro, Inc.
Reconciliation of Preliminary GAAP to Non-GAAP Financial Measures
(unaudited)
Reconciliations of non-GAAP financial measures are set forth below:
| Three months ended June 30, | Six months ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands, except per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||
| GAAP net income | $ | 2,519 | $ | 16,952 | $ | 8,204 | $ | 6,784 | ||||
| Stock-based compensation: | ||||||||||||
| Cost of revenue | 483 | 508 | 930 | 937 | ||||||||
| Research and development | 4,405 | 4,615 | 8,563 | 8,751 | ||||||||
| Sales and marketing | 2,229 | 2,153 | 4,352 | 4,018 | ||||||||
| General and administrative | 3,134 | 2,753 | 6,242 | 5,192 | ||||||||
| Total stock-based compensation | 10,251 | 10,029 | 20,087 | 18,898 | ||||||||
| Acquisition-related costs: | ||||||||||||
| Cost of revenue | — | 288 | 47 | 1,011 | ||||||||
| Total acquisition-related costs | — | 288 | 47 | 1,011 | ||||||||
| Restructuring and other costs: | ||||||||||||
| Cost of revenue | 4 | 49 | 9 | 99 | ||||||||
| Research and development | 43 | 432 | 82 | 873 | ||||||||
| Sales and marketing | 24 | 279 | 46 | 478 | ||||||||
| General and administrative | 13 | 145 | 26 | 288 | ||||||||
| Total restructuring and other costs | 84 | 905 | 163 | 1,738 | ||||||||
| Non-cash interest expense | — | 3,512 | — | 6,945 | ||||||||
| Income tax adjustments | (64) | (11,824) | (515) | (10,679) | ||||||||
| Non-GAAP net income | $ | 12,790 | $ | 19,862 | $ | 27,986 | $ | 24,697 | ||||
| GAAP net income - basic | $ | 2,519 | $ | 16,952 | $ | 8,204 | $ | 6,784 | ||||
| Add: Interest on convertible notes, tax <br> effected* | 715 | — | 2,236 | — | ||||||||
| GAAP net income - diluted | $ | 3,234 | $ | 16,952 | $ | 10,440 | $ | 6,784 | ||||
| Non-GAAP net income - basic | $ | 12,790 | $ | 19,862 | $ | 27,986 | $ | 24,697 | ||||
| Add: Interest on convertible notes, tax <br> effected* | 715 | — | 2,236 | — | ||||||||
| Non-GAAP net income - diluted | $ | 13,505 | $ | 19,862 | $ | 30,222 | $ | 24,697 | ||||
| GAAP and non-GAAP shares for diluted net income per share | 176,860 | 164,857 | 183,170 | 162,455 | ||||||||
| GAAP diluted net income per share | $ | 0.02 | $ | 0.10 | $ | 0.06 | $ | 0.04 | ||||
| Non-GAAP diluted net income per share | $ | 0.08 | $ | 0.12 | $ | 0.16 | $ | 0.15 | ||||
| * Reflects the use of the if-converted method for our convertible notes, effective January 1, 2022 due to the adoption of ASU 2020-06. | ||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (dollars in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||
| GAAP gross profit as a % of revenue | 38.3 | % | 39.8 | % | 39.9 | % | 39.3 | % | ||||
| Stock-based compensation | 0.2 | 0.2 | 0.2 | 0.2 | ||||||||
| Acquisition-related costs | — | 0.1 | — | 0.2 | ||||||||
| Non-GAAP gross profit as a % of revenue | 38.5 | % | 40.1 | % | 40.1 | % | 39.7 | % | ||||
| GAAP operating expenses | $ | 91,349 | $ | 89,780 | $ | 173,663 | $ | 171,988 | ||||
| Stock-based compensation | (9,768) | (9,521) | (19,157) | (17,961) | ||||||||
| Restructuring and other costs | (80) | (856) | (154) | (1,639) | ||||||||
| Non-GAAP operating expenses | $ | 81,501 | $ | 79,403 | $ | 154,352 | $ | 152,388 | ||||
| GAAP operating income | $ | 4,655 | $ | 9,502 | $ | 12,817 | $ | 5,990 | ||||
| Stock-based compensation | 10,251 | 10,029 | 20,087 | 18,898 | ||||||||
| Acquisition-related costs | — | 288 | 47 | 1,011 | ||||||||
| Restructuring and other costs | 84 | 905 | 163 | 1,738 | ||||||||
| Non-GAAP operating income | $ | 14,990 | $ | 20,724 | $ | 33,114 | $ | 27,637 | ||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||
| GAAP net income | $ | 2,519 | $ | 16,952 | $ | 8,204 | $ | 6,784 | ||||
| Income tax expense (benefit) | 110 | (11,670) | 59 | (10,451) | ||||||||
| Interest expense, net | 1,244 | 5,484 | 3,355 | 11,280 | ||||||||
| Depreciation and amortization | 2,253 | 2,694 | 4,555 | 6,228 | ||||||||
| POP display amortization | 430 | 671 | 1,117 | 1,308 | ||||||||
| Stock-based compensation | 10,251 | 10,029 | 20,087 | 18,898 | ||||||||
| Restructuring and other costs | 84 | 905 | 163 | 1,738 | ||||||||
| Adjusted EBITDA | $ | 16,891 | $ | 25,065 | $ | 37,540 | $ | 35,785 |
# # #
Investor Contact
investor@gopro.com
Media Contact
pr@gopro.com
Document
EXHIBIT 99.2
August 4th, 2022
GoPro, Inc. (NASDAQ: GPRO)
Management Commentary
Q2 2022 Earnings Call
Jalene Hoover
Vice President, Investor Relations, GoPro, Inc.
Enclosed is GoPro’s second quarter 2022 earnings report. Following this brief introduction is management commentary from GoPro’s CEO, Nicholas Woodman, and CFO and COO, Brian McGee. This commentary may include forward-looking statements. Forward-looking statements and all other statements that are not historical facts are not guarantees of future performance and are subject to a number of risks and uncertainties which may cause actual results to differ materially. Additionally, any forward-looking statements made today are based on assumptions as of today, including but not limited to uncertainty related to the duration and impact of the COVID-19 pandemic and the war in Ukraine. This means that results could change at any time. Our commentary about our business results and outlook is based on the information available as of today’s date, and we do not undertake any obligation to update these statements as a result of new information or future events. To better understand the risks and uncertainties that could cause actual results to differ from our commentary, we refer you to our most recent annual report on Form 10-K for the year ended December 31, 2021, which is on file with the Securities and Exchange Commission (“SEC”) and as updated in future filings with the SEC including the Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.
In the management commentary, we may discuss gross margin, operating expense, net profit and loss, EBITDA as well as basic and diluted net profit and loss per share in accordance with GAAP and on a non-GAAP basis. We believe that non-GAAP information is useful because it can enhance the understanding of our ongoing economic performance. We use non-GAAP reporting internally to evaluate and manage our operations, and we choose to provide this information to enable investors to perform comparisons of operating results in a manner similar to how we analyze our own operating results. A reconciliation of GAAP to non-GAAP operating expenses can be found in the press release that was issued this afternoon, which is posted on the investor relations section of our website.
In addition to the earnings press release, we have posted slides containing detailed financial data and metrics for the second quarter of 2022. These slides, as well as a link to today’s live
webcast and a replay of this conference call are posted on the investor relations section of GoPro’s website for your reference. Unless otherwise noted, all income statement-related numbers that are discussed in the management commentary, other than revenue, are non-GAAP.
Nicholas Woodman
Founder, Chief Executive Officer and Chairman, GoPro, Inc.
In Q2 2022, GoPro delivered a fifth consecutive profitable quarter on a GAAP basis ($0.02 in Q2’22) and our eighth consecutive quarter of profitability on a non-GAAP basis ($0.08 in Q2’22). Camera sell-through out-paced expectations and we drove significant year-over-year growth in subscribers and subscription revenue.
Revenue and non-GAAP EPS in Q2 exceeded expectations at $251 million and $0.08 per share, respectively. Direct to consumer revenue increased nearly 9% year-over-year to $95 million, or 38% of revenue. And subscription and service revenue hit a new quarterly milestone of $20 million, positively impacting our bottom line.
Our subscription service continues to be a powerful financial engine for GoPro and represents our fastest-growing, highest-margin and most profitable product. We ended Q2 with 1.91 million GoPro subscribers – a 65% year-over-year increase of 754,200 subscribers, and are on the cusp of surpassing two million GoPro subscribers, which translates into $100 million in annual recurring subscription revenue with gross margin of 70-80%.
Subscriber growth continues to benefit from high attach-rates in the mid to upper 90%s on camera purchases at GoPro.com as well as from low to mid 30%s attach rates (up from the high teens year-over-year) among customers who purchased their GoPro at retail and later subscribed via our app. We expect subscription growth to continue as we add significant new features and benefits on an ongoing basis – including our planned roll out of cloud-based editing later this year and a robust, sync’d mobile, cloud and desktop experience coming in 2023.
As fall approaches, it’s time to start getting excited about our upcoming new product launches. We are on track to wow customers with two new cameras, innovative accessories, and a significantly updated software experience. GoPro is no longer just a hardware business. Just as we ushered in a new era of capture innovation with our Emmy-Award winning cameras, we expect to make our mark in digital content management and creation with exciting new software-based products and services. From a technology and brand standpoint, we believe we’re well positioned to help people get the most out of their content in convenient and exciting ways – providing us with the opportunity to acquire, engage and retain subscribers in a meaningful, TAM-expanding way. As financially impactful as our subscription service is today, we expect it to be even more so as we roll out additional subscription-based software products starting this fall.
GoPro has also significantly improved our engagement with consumers online and via our customer service touchpoints. In the first half of 2022, we significantly increased direct communication with consumers on social platforms, answering product questions and addressing customer support inquiries to educate consumers as well as to demonstrate our commitment to being present and supportive as a brand. We also focused our customer support efforts on efficiently resolving common issues without the need for a live agent while accelerating the resolution of escalated support cases when an agent is needed. As a result, we’ve seen improvements in CSAT and NPS scores that firmly rank GoPro’s customer support performance amongst the very best consumer and retail brands in the world.
We’re also excited about the personalized shopping improvements we’re making at GoPro.com. We continue to advance our ability to serve new and existing customers at the individual level, which helps drive conversion. We’re improving our ability to target key customer segments with intuitive shopping tools like our newly released “Shop by Activity” pages that curate expertly designed bundles for a specific sport or activity. And at the macro level, we’re tailoring our products to better meet the more specialized needs of our customers. For example, the successful launch of HERO10 Black Creator Edition earlier this year, which pairs some of our highest-end accessories with our flagship HERO10 Black camera to deliver the ultimate “Hollywood in your Hand” solution for aspiring, pro-minded content creators, serves as proof that
we can grow our business by offering tailored solutions to customer segments with specialized needs.
All our efforts – whether refining the shopping experience for our customers, developing and launching world-class products, or navigating the current business environment – are possible because we continue to attract, retain and engage world class talent. Our employee-first approach to flexible and remote-work continues to pay off. Employee satisfaction and engagement levels remain at historic highs. And enabling remote work opportunities for each of our employee regions around the world remains a priority as the data is clear – our approach is resulting in engaged and productive employees who are helping GoPro achieve consistently solid performance.
GoPro shined during the first half of 2022, and we are poised to maintain that momentum with an exciting flurry of new hardware and software products slated for launch in the back half. We believe our business fundamentals are as strong as our roadmap, and we feel encouraged by our customers’ growing engagement with our products and services.
This Q4, we plan to deliver the next level of convenience and capability for our customers, and most notably for our subscribers, in a manner that we expect will only add to our momentum. It’s an exciting time at GoPro and we’re grateful for your support and participation in our growth story.
Brian McGee
Executive Vice President, Chief Financial Officer and Chief Operating Officer, GoPro, Inc.
We continued to deliver solid financial performance in Q2. Second quarter 2022 EPS was $0.02 per share on a GAAP basis and $0.08 per share on a non-GAAP basis. Subscription and service revenue grew 71% year-over-year to $20 million. Based on sell-through, demand for our cameras was at the high-end of guidance at 700,000 units, and we reduced channel inventory slightly, putting us in a solid position as we head into the back half of 2022.
Notable second quarter performance highlights follow:
•Revenue was $251 million
•Direct-to-consumer (DTC) revenue grew 9% year-over-year to $95 million, or 38% of revenue
•Europe and Asia Pacific delivered year-over-year revenue growth against macro headwinds
•Sell-through units were 700,000
•Street ASP was $392, up 13% from $345 in Q2’21
•Subscription and service revenue grew 71% year-over-year to $20 million
•GoPro subscribers grew 65% year-over-year to 1.91 million
•Quik subscribers grew 270% year-over-year to 276,000
•GAAP EPS was $0.02, our fifth consecutive profitable quarter on a GAAP basis
•Non-GAAP EPS was $0.08, our eighth consecutive profitable quarter on a non-GAAP basis
•Adjusted EBITDA (EBITDA) was $17 million
•Repurchased $12 million of GoPro stock ($22 million cumulatively in 1H 2022) under the current $100 million buy-back authorization
We ended Q2’22 with over $320 million in cash, cash equivalents and marketable securities (collectively “Cash”), with second quarter Cash net of debt at $179 million, up 258% from $50 million of Cash net of debt in Q2’21. Our first to second quarter 2022 Cash balance roll forward:
| million | |
|---|---|
| Cash at 3/31/22 | 450 |
| Convert debt payment + interest | |
| Stock repurchases | |
| Working capital | |
| EBITDA | |
| Cash at 6/30/22 | 322 |
All values are in US Dollars.
Actual Q2’22 results compared to guidance for the same period follows:
Second Quarter 2022 Results and Prior Guidance
| Q2’22 Results | Q2’22 Guidance | |
|---|---|---|
| Revenue | 251 | $240M +/- $5M |
| Unit sell-through | 700k | 675k +/- 25k |
| Street ASP | 392 | ~$400 |
| Gross margin | 38.5 | 40.5% +/- 50bps |
| Non-GAAP earnings per share | 0.08 | $0.06 +/- $0.02 |
All values are in US Dollars.
Three items negatively impacted second quarter gross margin by $4.5 million, or 140 basis points, relative to our guidance, as well as on a year-over-year basis:
1.Fx from a strengthening U.S. dollar negatively impacted revenue and gross margin by $2.5 million versus guidance, and approximately $8 million in Q2 year-over-year;
2.Delay in high margin new accessory availability to Q3’22 resulted in a one-time margin impact of $1.5 million; and,
3.Higher freight costs negatively impacted gross margin dollars by $0.5 million.
We managed to offset these impacts through operating expense savings to preserve profitability, cash and deliver non-GAAP EPS at the high end of guidance for the quarter. We expect to continue to navigate a strong U.S. dollar through the second half of 2022.
Second quarter revenue of $251 million was up less than 1% year-over-year, reflecting a 12% decline in camera units offset by a 13% increase in Street ASP, despite the unfavorable impact of the strong U.S. dollar. On a year-over-year basis, Fx negatively impacted revenue by approximately $8 million. On a constant currency basis, the $8 million Fx impacted revenue growth, which would have been approximately 4%.
The decline in camera units on a year-over-year basis is due to eliminating low-end cameras from our line-up, which positively impacted our ASPs. In Q2’22, cameras with suggested retail prices of $400 and above made up 93% of our camera revenue, up from 77% in Q2’21.
Q2’22 sell-through was at the high-end of expectations at 700,000 units, down 15% year-over-year. As we’ve discussed previously, shifting our ASPs up the price curve affords us greater earnings power. If we narrow the lens on our Q2’22 sell-through to the $300 and above price point, our year-over-year unit sell-through declined only 2%. Strong second quarter demand drove down channel inventory below 600,000 units, consistent with expectations.
Street ASP is defined as total reported revenue divided by camera units shipped. Q2’22 Street ASP was $392, up 13% from $345 in Q2’21, and largely attributable to growth in subscription revenue and the continued shift of our camera portfolio up the price curve.
Revenue from retail and direct-to-consumer channels in the second quarter was $156 million and $95 million, respectively, representing a year-over-year decline of 4% and growth of 9%, respectively.
Looking at revenue by geography, year-over-year, Asia Pacific and Europe grew 26% and 17% respectively, while the Americas declined 14%. We are especially pleased with the continued growth in Europe and the emergence of growth in Asia Pacific.
On a percentage basis, second quarter 2022 DTC revenue was 38% of revenue, up from 35% in Q2’21. DTC product sales in international markets increased 7% year-over-year as we gained more share in Asia Pacific and Europe. As a reminder, direct-to-consumer revenue includes all revenue generated from GoPro.com including camera, accessory, and subscription and service revenue.
Subscription and services are integral to our strategy and represent our fastest growing and most profitable revenue stream, generating 70-80% gross margin. Second quarter subscription and service revenue grew to $20 million, or 8% of revenue, up 71% year-over-year. As Nick shared, we have several initiatives under way that we expect will drive continued growth in subscriptions and engagement.
GoPro subscriber count increased 65% year-over-year to 1.91 million, with new subscriber attach rates on GoPro.com holding in the mid to upper-90’s. Retail attach was in the low to mid 30%s, as expected, nearly doubling from the high teens in the year ago quarter.
Annual subscriptions represented 84% of total subscriptions, up from 73% in Q2’21 and from 24% in Q2’20. We are pleased with the continued migration of GoPro subscription plans to annual from monthly, which improves overall retention.
Our Quik mobile subscription also continues to do well with subscribers growing more than 270% year-over-year, to 276,000 in Q2’22, up from 74,000.
Second quarter operating expenses increased 3% year-over-year, to $82 million, largely due to increases in marketing and advertising expenses. We also added critical headcount to support our innovation roadmap.
Turning to the balance sheet, days sales outstanding was 32, down slightly from 35 days in Q2’21.
Inventory in Q2’22 was $126 million, while Q2’22 days of inventory was 74 days, down from 85 in Q1’22 and up from 64 days year-over-year.
Shifting focus to the second half of 2022, it’s important to address key macro dynamics impacting our business and contemplated in our guidance:
•As has been widely reported, Big Box retailers are actively reducing their inventories along with weeks of supply. In terms of retail channel inventory, we believe we are well-positioned from a weeks of inventory (WOI) perspective at approximately 9-10 weeks. However, we expect retailers to generally reduce WOI in the second half, which could impact our sales into the channel.
•We expect the U.S. dollar to stubbornly remain at current levels relative to the Yen, Euro, Australian dollar and GB Pound. The year-over-year Fx impact to GoPro based on the mid-point of guidance for revenue, gross margin and earnings is approximately $10 million and $11 million in Q3 and Q4 of 2022, respectively, or twice as much as in the first half of 2022. For 2022, based on our outlook, we expect the overall Fx impact to revenue, margin and earnings to be approximately $33 million compared to 2021.
•Inflation, rising interest rates and other macro-economic issues may impact demand as well as competition for share of wallet.
For 2022, we expect to sell between 2.9 million and 3.1 million units, which is down from our prior guidance of approximately 3.2 million units, as well as year-over-year. Note that we expect unit sales in the second half of 2022 to grow nearly 60% compared to the first half of 2022, up from 46% in the same period in 2021. This reflects continued strong demand heading into Q3, and is fueled by the launch of two new cameras rather than one flagship camera in the second half, as well as our planned roll out of cloud-based editing later this year. We expect ASPs in 2022 to increase 8% over 2021, despite the estimated $33 million year-over-year impact from a stronger U.S. dollar.
We anticipate 2022 DTC revenue mix to hold relatively consistent with 2021, in the mid 30%s.
We continue to effectively manage the supply chain, with third quarter inventory secured and the fourth quarter pipeline well-developed.
We expect to be just under 2.1 million GoPro subscribers at the end of the third quarter and end the year at 2.2 million, which is 40% annual growth in GoPro subscribers, and represents more than $80 million in subscription and service revenue in 2022. Looking forward, our targeted 2022 exit rate of 2.2 million GoPro subscribers translates into annual recurring revenue of more than $100 million at 70-80% gross margin. It’s also worth highlighting subscription seasonality. We have historically experienced the highest growth in subscribers from retail attach rates in the first quarter of the year, following the seasonally high fourth quarter holiday period.
We expect to deliver full year 2022 gross margin at the low-end of our target range of 40.0% to 43.0%, primarily due to a strengthening U.S. dollar, along with freight and component price increases. Longer term, we expect to move back up the margin range with a continued shift in camera mix to the high-end, as well as growth in direct-to-consumer sales led by higher margin subscription revenue. We believe continued execution of our strategy and roadmap will expand our TAM and support unit growth along with subscription and service revenue.
We have reviewed our operating expenses and taken proactive measures, including prioritizing certain hiring, while slowing other hiring and taking other actions, to reduce our 2022 operating expenses to a range of between $325 million and $330 million, down from $340 million to $345 million. To execute on planned product roadmap launches, we will continue to invest in product innovation in hardware, software and the cloud experience, as well as in targeted marketing, while continuing to drive efficiencies in all areas of our business.
We expect 2022 and 2023 non-GAAP tax expense to remain low at approximately $1.5 million and $1.7 million, respectively. Non-GAAP tax expense is primarily related to actual cash tax paid as we utilize our U.S. net operating losses and other tax attributes to offset tax expenses. We expect our GAAP effective tax rate in 2022 and 2023 to be approximately 24%.
We expect the above factors to result in 2022 EBITDA of between $150 million and $160 million, down slightly from $168 million in 2021, which would be a very impressive year for GoPro considering the current business environment. We believe the impact of slightly lower annual unit volumes on profitability will largely be offset by savings in operating expenses as well as other operational savings. However, a strong U.S. dollar remains the main reason we expect EBITDA to decline slightly from 2021 as well as from our prior estimates for 2022.
Shifting to the balance sheet, we have established a track record of delivering higher second half cash flows for the past three years and anticipate this trend to continue in 2022. We expect to exit 2022 with Cash between $420 million and $440 million, which contemplates continued share repurchases under our existing program. We expect free cash flow for 2022 to be approximately equal to our expected EBITDA. We expect to end the third quarter with Cash of approximately $340 million inclusive of share repurchases.
Narrowing in on the third quarter 2022, the following table details related guidance expectations.
Third Quarter 2022 Guidance
| Q3’22 Guidance | |
|---|---|
| Revenue | $300M +/- $5M |
| Unit sell-through | 700k +/- 25k |
| Street ASP | ~$400 |
| Gross margin | 39.0% +/- 50bps |
| Non-GAAP earnings per share | $0.17 +/- $0.02 |
We expect to deliver Q3’22 revenue of approximately $300 million, down 5% year-over-year based on the midpoint of guidance, which reflects 5% growth in ASPs and a 10% decline in units. We anticipate Q3’22 sell-through units to decline between 5% and 10% year-over-year to 700,000 units, or down roughly 3% if we exclude lower-end HERO 7 units from Q3’21. And, excluding Fx impacts, revenue in the third quarter would be down approximately 2%. Furthermore, on the demand side, for the third quarter to date, we are running ahead of projected demand in sell-through, which is encouraging relative to our third quarter outlook.
Continued shift of our camera mix to the high-end and growth in subscription revenue is expected to lift our third quarter Street ASP. Accordingly, we estimate third quarter Street ASP to be approximately $400, up 5% year-over-year.
We expect third quarter gross margin to be 39.0% at the midpoint of guidance, down from 43.8% in the prior year quarter, and up slightly sequentially. The year-over-year decline in gross margin percentage is primarily related to a strengthening U.S. dollar, along with freight and component price increases. On a sequential basis, sales of higher-end units and growth in high margin subscription revenue are being tempered by Fx in the third quarter.
We expect to deliver EPS between $0.15 and $0.19, down from $0.34 in Q3’21, with a $0.06 Fx impact embedded in Q3’22 guidance.
We expect shares outstanding to decline slightly to approximately 173 million in the third quarter, and to approximately 172 million in the fourth quarter based on our current stock price.
We believe our business model is performing as expected and we are well-positioned for long-term growth in revenue, profitability, and subscribers. While proactively managing the day-to-day operations, we are actively evaluating options to optimize profitability while staying laser focused on our longer-term strategy and growth initiatives, including:
•Increasing our value proposition and engagement to retain and grow subscribers;
•Continuing to move up the price curve on hardware; and,
•Broadening our hardware and software portfolios by offering new products to expand our TAM.
We are proud of our first half performance and optimistic about our ability to continue to navigate macro challenges well to yield continued profitability and impressive subscription growth.
14