GOPRO, INC., 10-Q filed on 11/2/2018
Quarterly Report
v3.10.0.1
Document, Entity and Information - USD ($)
9 Months Ended
Sep. 30, 2018
Oct. 31, 2018
Class of Stock [Line Items]    
Entity Registrant Name GoPro, Inc.  
Entity Central Index Key 0001500435  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Current Reporting Status Yes  
Entity Public Float $ 868,700,000,000  
Common Class A [Member]    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding   114,103,292
Common Class B [Member]    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding   35,897,231
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 143,246 $ 202,504
Marketable securities 4,996 44,886
Accounts receivable, net 149,449 112,935
Inventory 123,249 150,551
Prepaid expenses and other current assets 31,958 62,811
Total current assets 452,898 573,687
Property and equipment, net 53,043 68,587
Intangible assets, net 15,147 24,499
Goodwill 146,459 146,459
Other long-term assets 21,026 37,014
Total assets 688,573 850,246
Current liabilities:    
Accounts payable 123,357 138,257
Accrued liabilities 193,913 213,030
Deferred revenue 14,418 19,244
Total current liabilities 331,688 370,531
Long-term taxes payable 19,545 21,188
Long-term debt 136,659 130,048
Other long-term liabilities 28,635 29,774
Total liabilities 516,527 551,541
Commitments, contingencies and guarantees
Stockholders’ equity:    
Preferred stock, $0.0001 par value, 5,000 shares authorized; none issued 0 0
Common stock and additional paid-in capital, $0.0001 par value, 500,000 Class A shares authorized, 103,548 and 101,034 shares issued and outstanding, respectively; 150,000 Class B shares authorized, 35,958 and 35,966 shares issued and outstanding, respectively 886,360 854,452
Treasury stock, at cost, 10,710 and 10,710 shares, respectively (113,613) (113,613)
Accumulated deficit (600,701) (442,134)
Total stockholders’ equity 172,046 298,705
Total liabilities and stockholders’ equity $ 688,573 $ 850,246
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2018
Dec. 31, 2017
Preferred Stock, par value (usd per share) $ 0.0001 $ 0.0001
Preferred Stock, Shares Authorized (shares) 5,000,000 5,000,000
Preferred Stock, Shares Issued (shares) 0 0
Common stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Treasury Stock, Shares (shares) 10,710,000 10,710,000
Common Class A [Member]    
Common Stock, Shares Authorized (shares) 500,000,000 500,000,000
Common Stock, Shares, Issued (shares) 104,682,000 101,034,000
Common stock, shares, outstanding (shares) 104,682,000 101,034,000
Common Class B [Member]    
Common Stock, Shares Authorized (shares) 150,000,000 150,000,000
Common Stock, Shares, Issued (shares) 35,901,000 35,966,000
Common stock, shares, outstanding (shares) 35,901,000 35,966,000
v3.10.0.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Income Statement [Abstract]        
Revenue $ 285,936 $ 329,805 $ 770,959 $ 844,945
Cost of revenue 194,904 199,259 551,642 540,201
Gross profit 91,032 130,546 219,317 304,744
Operating expenses:        
Research and development 41,157 55,098 130,361 176,761
Sales and marketing 55,871 46,622 165,297 171,156
General and administrative 15,358 20,777 50,588 61,976
Total operating expenses 112,386 122,497 346,246 409,893
Operating loss (21,354) 8,049 (126,929) (105,149)
Interest expense (4,616) (4,554) (13,804) (9,152)
Other income, net (661) (322) (268) (705)
Total other expense, net (3,955) (4,232) (14,072) (8,447)
Loss before income taxes (25,309) 3,817 (141,001) (113,596)
Income tax (benefit) expense 1,780 (10,844) (296) 13,429
Net loss $ (27,089) $ 14,661 $ (140,705) $ (127,025)
Net income per share attributable to common stockholders - Basic (in dollars per share) $ (0.19) $ 0.11 $ (1.01) $ (0.92)
Net income per share attributable to common stockholders - Diluted (in dollars per share) $ (0.19) $ 0.10 $ (1.01) $ (0.92)
Weighted-average shares used to compute net income per share attributable to common stockholders - Basic (in shares) 140,072 136,236 139,028 138,450
Weighted-average shares used to compute net income per share attributable to common stockholders - Diluted (in shares) 140,072 140,288 139,028 138,450
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Statement of Cash Flows [Abstract]    
Net loss $ (140,705) $ (127,025)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 27,773 32,260
Stock-based compensation 31,171 36,235
Deferred income taxes (987) (1,818)
Non-cash restructuring charges 5,788 3,859
Amortization of Debt Discount (Premium) 5,988 3,366
Other (301) 3,891
Changes in operating assets and liabilities:    
Accounts receivable, net (36,812) 64,874
Inventory 27,302 (9,998)
Prepaid expenses and other assets 32,203 4,850
Accounts payable and other liabilities (36,467) (106,432)
Deferred revenue (3,350) 2,095
Net cash used in operating activities (88,397) (93,843)
Investing activities:    
Purchases of property and equipment, net (8,204) (18,313)
Purchases of marketable securities (14,896) (31,918)
Maturities of marketable securities 55,000 14,160
Sale of marketable securities 0 11,623
Net cash provided by investing activities 31,900 (24,448)
Financing activities:    
Proceeds from issuance of common stock 5,131 9,623
Payments Related to Tax Withholding for Share-based Compensation (5,388) (11,278)
Proceeds from issuance of convertible senior notes 0 175,000
Payments for Repurchase of Equity, Prepaid Forward 0 (78,000)
Payment of deferred acquisition-related consideration (2,450) (76)
Payments of Debt Issuance Costs 0 (5,963)
Net cash provided by (used in) financing activities (2,707) 89,306
Effect of exchange rate changes on cash and cash equivalents (54) 1,487
Net decrease in cash and cash equivalents (59,258) (27,498)
Cash and cash equivalents at beginning of period 202,504 192,114
Cash and cash equivalents at end of period $ 143,246 $ 164,616
v3.10.0.1
Summary of business and significant accounting policies
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Summary of significant accounting policies
Summary of business and significant accounting policies
GoPro, Inc. and its subsidiaries (GoPro or the Company) is enabling the way people capture and share their lives from a perspective only achieved with a GoPro. What began as an idea to help athletes document themselves engaged in sport, GoPro has become a mobile storytelling solution that helps the world share itself through immersive content. To date, the Company’s cameras and mountable and wearable accessories have generated substantially all of its revenue. The Company sells its products globally through retailers, wholesale distributors and on its website. The Company’s global corporate headquarters are located in San Mateo, California.
Basis of presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The Company’s fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30 and September 30. The condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, that management believes are necessary for the fair statement of the Company's financial statements, but are not necessarily indicative of the results expected for the full fiscal year or any other future period. The condensed consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements at that date, but does not include all the disclosures required by GAAP. This Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K (Annual Report) for the year ended December 31, 2017. Except for accounting policies related to revenue recognition and income tax impacts of intra-entity asset transfers that were updated as a result of adopting Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, and ASU 2016-16, Income Taxes — Intra-Entity Transfers of Assets Other Than Inventory, respectively, there have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report.
Principles of consolidation. These condensed consolidated financial statements include all the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of estimates. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions made by management include those related to revenue recognition (including sales incentives, sales returns and implied post contract support (PCS)), stock-based compensation, inventory valuation, product warranty liabilities, the valuation and useful lives of long-lived assets (property and equipment, intangible assets and goodwill) and income taxes. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from management’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations could be affected.
Comprehensive income (loss). For all periods presented, comprehensive income (loss) approximated net income (loss). Therefore, the condensed consolidated statements of comprehensive income (loss) have been omitted.
Accounts receivable and allowance for doubtful accounts. Accounts receivable are stated at invoice value less estimated allowances for doubtful accounts. Allowances are recorded based on the Company’s assessment of various factors, such as: historical experience, credit quality of its customers, age of the accounts receivable balances, geographic related risks, economic conditions and other factors that may affect a customer’s ability to pay. The allowance for doubtful accounts as of September 30, 2018 and December 31, 2017 was $0.4 million and $0.8 million, respectively.
Warranty. The Company records a liability for estimated product warranty costs at the time product revenue is recognized. The Company’s standard warranty obligation to its end-users generally provides a 12-month warranty coverage on all of its products except in the European Union where the Company provides a 2-year warranty. The Company also offers extended warranty programs for a fee. The Company’s estimate of costs to service its warranty obligations is based on its historical experience of repair and replacement of the associated products and expectations of future conditions. The warranty obligation is affected by product failure rates and the related use of materials, labor costs and freight incurred in correcting any product failure.
Revenue recognition. The Company derives substantially all of its revenue from the sale of cameras, drones, mounts and accessories and the related implied post contract support to customers. The Company recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The transaction price the Company expects to be entitled to is primarily comprised of product revenue, net of returns and variable consideration, including sales incentives provided to customers. For most of the Company’s revenue, revenue is recognized at the time products are delivered and when collection is deemed probable. For customers who purchase products directly from the Company’s website, the Company retains a portion of the risk of loss on these sales during transit, which are accounted for as fulfillment costs. The Company provides sales commissions to internal and external sales representatives which are earned in the period in which revenue is recognized. As a result, the Company expenses such costs as incurred under ASU 2014-19.
The Company's standard terms and conditions of sale for non-web based sales do not allow for product returns other than under warranty. However, the Company grants limited rights of return to certain large retailers. The Company reduces revenue and cost of sales for the estimated returns based on analyses of historical return trends by customer class and other factors. An estimated refund liability along with a right to recover assets are recorded for future product returns. Return trends are influenced by product life cycles, new product introductions, market acceptance of products, product sell-through, the type of customer, seasonality and other factors. Return rates may fluctuate over time but are sufficiently predictable to allow the Company to estimate expected future product returns.
The Company’s camera and drone sales contain multiple performance obligations that generally include the following three separate obligations: a) a hardware component (camera or drone) and the embedded firmware essential to the functionality of the hardware component delivered at the time of sale, b) the implicit right to the Company's downloadable free apps and software solutions, and c) the implied right for the customer to receive support after the initial sale (post contract support or PCS). The Company’s PCS includes the right to receive on a when and if available basis, future unspecified firmware upgrades and features as well as bug fixes, and email and telephone support. The Company allocates the transaction price to PCS based on a cost-plus method. The transaction price is allocated to the remaining performance obligations on a residual value method. The Company’s process to allocate the transaction price considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable, including: the level of support provided to customers, estimated costs to provide the Company’s support, the amount of time and cost that is allocated to the Company’s efforts to develop the undelivered elements and market trends in the pricing for similar offerings.
The transaction prices allocated to the delivered hardware, related embedded firmware and free software solutions are recognized as revenue at the time of sale, provided the conditions for recognition of revenue have been met. The transaction price allocated to PCS is deferred and recognized as revenue on a straight-line basis over the estimated term of the support period, which is estimated to be 15 months based on historical experience. Deferred revenue as of September 30, 2018 and December 31, 2017 also included immaterial amounts related to the Company’s GoPro Care and GoPro Plus fee-based service offerings. The Company’s deferred revenue balance related to PCS was $13.5 million as of September 30, 2018 and the Company recognized $5.1 million and $15.8 million of related revenue during the three and nine months ended September 30, 2018, respectively.
Sales incentives. The Company offers sales incentives through various programs, including cooperative advertising, price protection, marketing development funds and other incentives. Sales incentives are considered to be variable consideration, which the Company estimates and records as a reduction to revenue at the date of sale. The Company estimates sales incentives based on historical experience, product sell-through and other factors.
Sales taxes. Sales taxes collected from customers and remitted to respective governmental authorities are recorded as liabilities and are not included in revenue.
Segment information. The Company operates as one operating segment as it only reports financial information on an aggregate and consolidated basis to its Chief Executive Officer, who is the Company’s chief operating decision maker.
Recent accounting standards
Standard
 
Description
 
Company’s date of adoption
 
Effect on the condensed consolidated financial statements or other significant matters
Standards that were adopted
 
 
 
 
Income Taxes
ASU No. 2016-16 (Topic 740)
 
This standard requires entities to recognize the income tax consequences of intra-entity asset transfers when they occur, which removes the exception to postpone recognition until the asset has been sold to an outside party.
 
January 1, 2018
 
The adoption of the standard resulted in the recognition of previously unrecognized deferred charges using a modified retrospective method. The Company recorded a reversal of $15.0 million of deferred charges, an increase to U.S. deferred tax assets of $1.2 million with a corresponding U.S. valuation allowance of $1.2 million. The net impact to equity was an increase in the accumulated deficit of approximately $15.0 million upon adoption.
Stock Compensation 
ASU No. 2017-09 (Topic 718)

 
This standard clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this standard, modification accounting is required only if the fair value, the vesting conditions or the classification of an award as equity or liability changes as a result of the change in terms or conditions.
 
January 1, 2018
 
The adoption of ASU 2017-09 did not impact the Company’s condensed consolidated financial statements and related disclosures. The Company adopted the standard on a prospective basis.
Revenue from Contracts with Customers
ASU No. 2014-09, 2015-14, 2016-08, 2016-10 and 2016-12 (Topic 606)
 
The updated revenue standard establishes principles for recognizing revenue and develops a common revenue standard for all industries. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard requires that entities disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
 
January 1, 2018
 
Under the updated revenue standard, the recognition of product revenue at the time the product is delivered, and PCS revenue on a straight-line basis remains consistent with the Company’s previous revenue policy.

Sales incentives are considered variable consideration under the new standard and are accounted for as a reduction to the transaction price. This change resulted in a reduction of revenue being recorded earlier than under the previous guidance. As a result of the adoption of the new standard, the Company recorded a $2.9 million increase to its accumulated deficit on January 1, 2018, of which, $4.9 million related to certain estimated sales incentives which would have been recognized at the time the product was shipped in the prior period. Additionally, for customers who purchased products directly from the Company’s website, the new standard provides for a policy election whereby the Company has recorded revenue when the related product was shipped. This change resulted in recognition of revenue earlier than under previous guidance. Upon adoption, the Company’s accumulated deficit decreased by $2.0 million related to revenue that would have been recognized in the prior period from the Company’s website sales that had shipped but had not been delivered as of December 31, 2017. In addition, the Company recorded a $1.0 million increase to deferred tax assets and a corresponding $1.0 million increase in valuation allowance. Additionally, under the new standard, the Company reclassed its refund liability from an offset to accounts receivable to an increase in accrued liabilities, which increased the Company’s days sales outstanding.

The Company adopted the standard using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Prior periods were not retrospectively adjusted. Refer below for the impact on each financial statement line item as of and for the three and nine months ended September 30, 2018 due to the adoption of the standard.


The cumulative effect of the changes made to the Company’s condensed consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-09, Revenue from Contracts with Customers and ASU 2016-16, Income Taxes — Intra-Entity Transfers of Assets Other Than Inventory, were as follows:

(in thousands)
Balance at December 31, 2017
 
Adjustment due to ASU 2014-09
 
Adjustment due to ASU 2016-16
 
Balance at January 1, 2018
Accumulated deficit
$
(442,134
)
 
$
(2,872
)
 
$
(14,990
)
 
$
(459,996
)


As mentioned above, the adoption of ASU 2014-09 impacted the timing of revenue recognized related to certain sales incentives and sales from the Company’s website, which impacted the revenue and current deferred revenue financial statement line items. Additionally, under ASU 2014-09, the Company presents an estimated refund liability along with a right to recover asset for future product returns, which impacts the accounts receivable, net, inventory, net, prepaid expenses and other assets, and accrued liabilities financial statement line items resulting in an increase in the Company’s accounts receivable days sales outstanding (DSO) calculation. The above adjustments do not impact net cash used in operating activities, however, they do impact the changes in operating assets and liabilities for the related accounts within the disclosure of operating activities on the statement of cash flow. Refer to the tables below for the quantitative impact to the Company’s financial statements for the periods ended September 30, 2018 due to the adoption of ASU 2014-09 (ASC 606).

 
Three months ended September 30, 2018
 
Nine months ended September 30, 2018
(in thousands)
As Reported Under ASC 606
 
Effect of Change
 
Balance Under ASC 605
 
As Reported Under ASC 606
 
Effect of Change
 
Balance Under ASC 605
Revenue
$
285,936

 
$
(3,076
)
 
$
282,860

 
$
770,959

 
$
189

 
$
771,148



 
As of September 30, 2018
(in thousands)
As Reported Under ASC 606
 
Effect of Change
 
Balance Under ASC 605
Accounts receivable, net
$
149,449

 
$
(13,728
)
 
$
135,721

Inventory, net
123,249

 
6,012

 
129,261

Prepaid expenses and other current assets
31,958

 
(6,012
)
 
25,946

Accrued liabilities
193,913

 
(13,728
)
 
180,185

Current deferred revenue
14,418

 
4,931

 
19,349


Standard
 
Description
 
Expected date of adoption
 
Effect on the condensed consolidated financial statements or other significant matters
Standards not yet adopted
 
 
 
 
Leases
ASU No.
2016-02,
2018-10,
2018-11, (Topic 842)
 
This standard requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. Lessees would recognize a right-to-use asset and lease liability for all leases with terms of more than 12 months. The new standard should be applied on a modified retrospective basis or cumulative effect transition method.
 
January 1, 2019
 
The Company has completed the process of identifying its population of lease arrangements impacted by this standard, and plans to adopt the standard using the cumulative effect transition method.
Upon adoption, the Company expects that the majority of its operating lease commitments will materially increase total assets and total liabilities on the Company’s condensed consolidated balance sheets. While the Company continues to assess potential impacts of the standard, the Company does not expect the standard to have a material impact on the condensed consolidated income statements and condensed consolidated statement of cash flows.
Intangible - Goodwill and Other
ASU No. 2017-04 (Topic 350)

 
This standard simplifies the accounting for goodwill and removes Step 2 of the annual goodwill impairment test. Upon adoption, goodwill impairment will be determined based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017, and requires a prospective transition method.
 
January 1, 2020
 
The Company does not expect that the adoption of this standard will have a material impact on its condensed consolidated financial statements and related disclosures.

Although there are several other new accounting standards issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these additional accounting pronouncements has had or will have a material impact on its financial statements.
v3.10.0.1
Fair value measurements
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value measurements
Fair value measurements
The Company’s assets that are measured at fair value on a recurring basis within the fair value hierarchy are summarized as follows:
 
September 30, 2018
 
December 31, 2017
(in thousands)
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
58,572

 
$

 
$
58,572

 
$
25,251

 
$

 
$
25,251

Commercial paper

 

 

 
14,981

 

 
14,981

Corporate debt securities

 

 

 

 
2,500

 
2,500

Agency securities

 

 

 

 
4,999

 
4,999

Total cash equivalents
$
58,572

 
$

 
$
58,572

 
$
40,232

 
$
7,499

 
$
47,731

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
$

 
$

 
$

 
$

 
$
4,995

 
$
4,995

Commercial paper

 

 

 
19,888

 

 
19,888

Corporate debt securities

 
4,996

 
4,996

 

 
20,003

 
20,003

Total marketable securities
$

 
$
4,996

 
$
4,996

 
$
19,888

 
$
24,998

 
$
44,886

(1) Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets. Cash balances were $84.7 million and $154.8 million as of September 30, 2018 and December 31, 2017, respectively.
There were no transfers of financial assets between levels for the periods presented.
Cash equivalents and marketable securities are classified as Level 1 or Level 2 because the Company uses quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. The contractual maturities of available-for-sale marketable securities as of September 30, 2018 and December 31, 2017 were all less than one year in duration. At September 30, 2018 and December 31, 2017, the Company had no financial assets or liabilities that were classified as Level 3, which are valued based on inputs supported by little or no market activity.
At September 30, 2018 and December 31, 2017, the amortized cost of the Company’s cash equivalents and marketable securities approximated their fair value and there were no material realized or unrealized gains or losses, either individually or in the aggregate.
In April 2017, the Company issued $175.0 million principal amount of Convertible Senior Notes due 2022 (Notes) (see Note 4, Financing Arrangements). The estimated fair value of the Notes is based on quoted market prices of the Company’s instruments in markets that are not active and are classified as Level 2 within the fair value hierarchy. The Company estimated the fair value of the Notes by evaluating quoted market prices and calculating the upfront cash payment a market participant would require to assume these obligations. The calculated fair value of the Notes, of $166.3 million, is highly correlated to the Company’s stock price and as a result, significant changes to the Company’s stock price will have a significant impact on the calculated fair value of the Notes.
For certain other financial assets and liabilities, including accounts receivable, accounts payable and other current assets and liabilities, the carrying amounts approximate their fair value primarily due to the relatively short maturity of these balances.
v3.10.0.1
Condensed consolidated financial statement details Condensed consolidated financial statement details
9 Months Ended
Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Consolidated financial statement details
Condensed consolidated financial statement details
The following sections and tables provide details of selected balance sheet items.
Inventory
(in thousands)
September 30, 2018
 
December 31, 2017
Components
$
21,150

 
$
18,995

Finished goods
102,099

 
131,556

Total inventory
$
123,249

 
$
150,551


Property and equipment, net
(in thousands)
September 30, 2018
 
December 31, 2017
Leasehold improvements
$
66,466

 
$
67,713

Production, engineering and other equipment
50,704

 
47,502

Tooling
17,661

 
24,871

Computers and software
20,828

 
20,636

Furniture and office equipment
15,114

 
14,895

Tradeshow equipment and other
6,965

 
7,237

Construction in progress
121

 
347

Gross property and equipment
177,859

 
183,201

Less: Accumulated depreciation and amortization
(124,816
)
 
(114,614
)
Property and equipment, net
$
53,043

 
$
68,587


Intangible assets
 
September 30, 2018
(in thousands)
Gross carrying value
 
Accumulated amortization
 
Net carrying value
Purchased technology
$
50,501

 
$
(35,369
)
 
$
15,132

Domain name
15

 

 
15

Total intangible assets
$
50,516

 
$
(35,369
)
 
$
15,147



 
December 31, 2017
(in thousands)
Gross carrying value
 
Accumulated amortization
 
Net carrying value
Purchased technology
$
49,901

 
$
(26,017
)
 
$
23,884

IPR&D
615

 

 
615

Total intangible assets
$
50,516

 
$
(26,017
)
 
$
24,499


For the three and nine months ended September 30, 2018 and 2017, the Company did not record any impairment charges for in-process research and development (IPR&D) assets.
Amortization expense was $3.4 million and $2.2 million for the three months ended September 30, 2018 and 2017, respectively, and $9.4 million and $6.7 million for the nine months ended September 30, 2018 and 2017, respectively. At September 30, 2018, expected amortization expense of intangible assets with definite lives for future periods is as follows:
(in thousands)
Total
Year ending December 31,
 
2018 (remaining 3 months)
$
2,082

2019
7,818

2020
4,363

2021
869

2022

 
$
15,132


Other long-term assets
(in thousands)
September 30, 2018
 
December 31, 2017
Point of purchase (POP) displays
$
11,106

 
$
16,451

Long-term deferred tax assets
1,543

 
825

Deposits and other
8,377

 
19,738

Other long-term assets
$
21,026

 
$
37,014


Accrued liabilities
(in thousands)
September 30, 2018
 
December 31, 2017
Accrued payables (1)
$
44,500

 
$
44,582

Employee related liabilities (1)
18,445

 
24,945

Accrued sales incentives
37,070

 
89,549

Refund liability
13,728

 

Warranty liability
9,258

 
9,934

Customer deposits
4,166

 
8,700

Income taxes payable
2,229

 
1,247

Purchase order commitments
4,767

 
6,162

Inventory received
54,556

 
14,470

Other
5,194

 
13,441

Accrued liabilities
$
193,913

 
$
213,030


(1) 
See Note 11 Restructuring charges, for amounts associated with restructuring liabilities.
Product warranty
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2018
 
2017
 
2018
 
2017
Beginning balance
$
10,692

 
$
9,974

 
$
10,373

 
$
11,945

Charged to cost of revenue
5,055

 
5,986

 
18,163

 
13,394

Settlement of warranty claims
(5,878
)
 
(6,273
)
 
(18,667
)
 
(15,652
)
Ending balance
$
9,869

 
$
9,687

 
$
9,869

 
$
9,687

v3.10.0.1
Financing Arrangements
9 Months Ended
Sep. 30, 2018
Line of Credit Facility [Line Items]  
Financing Arrangements
Financing Arrangements
Credit Facility
In March 2016, the Company entered into a Credit Agreement (Credit Agreement) with certain banks which provides for a secured revolving credit facility (Credit Facility) under which the Company may borrow up to an aggregate amount of $250.0 million. The Company and its lenders may increase the total commitments under the Credit Facility to up to an aggregate amount of $300.0 million, subject to certain conditions. The Credit Facility will terminate and any outstanding borrowings become due and payable in March 2021.
The amount that may be borrowed under the Credit Facility is determined at periodic intervals and is based upon the Company’s inventory and accounts receivable balances. Borrowed funds accrue interest, at the Company’s election, based on an annual rate of (a) London Interbank Offered Rate (LIBOR) or (b) the administrative agent’s base rate, plus an applicable margin of between 1.50% and 2.00% for LIBOR rate loans, and between 0.50% and 1.00% for base rate loans. The Company is required to pay a commitment fee on the unused portion of the Credit Facility of 0.25% or 0.375% per annum, based on the level of utilization of the Credit Facility. Amounts owed under the Credit Agreement and related credit documents are guaranteed by GoPro, Inc. and its material subsidiary. GoPro, Inc. and its Netherlands subsidiary have also granted security interests in substantially all of their assets to collateralize this obligation.
The Credit Agreement contains customary covenants, such as financial statement reporting requirements and limiting the ability of the Company and its subsidiaries to pay dividends or incur debt, create liens and encumbrances, make investments, and redeem or repurchase stock. The Company is required to maintain a minimum fixed charge coverage ratio if and when the unborrowed availability under the Credit Facility is less than the greater of $25.0 million or 10.0% of the borrowing base at such time. The Credit Agreement also contains customary events of default, such as the failure to pay obligations when due, initiation of bankruptcy or insolvency proceedings, or defaults on certain other indebtedness. Upon an event of default, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral.
At September 30, 2018 and December 31, 2017, the Company could borrow up to approximately $101.6 million and $118.0 million, respectively, under the Credit Facility, and was in compliance with all financial covenants contained in the Credit Agreement. The Company has made no borrowings from the Credit Facility to date.
Convertible Notes
In April 2017, the Company issued $175.0 million aggregate principal amount of 3.50% Convertible Senior Notes due 2022 (Notes). The Notes are senior, unsecured obligations of GoPro and mature on April 15, 2022 (Maturity Date), unless earlier repurchased or converted into shares of Class A common stock under certain circumstances. The Notes are convertible into cash, shares of the Company’s Class A common stock, or a combination thereof, at the Company’s election, at an initial conversion rate of 94.0071 shares of Class A common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $10.64 per share of common stock, subject to adjustment. Based on current and projected liquidity, the Company has the intent and ability to deliver cash up to the principal amount of the Notes then outstanding upon conversion. The Company pays interest on the Notes semi-annually in arrears on April 15 and October 15 of each year.
The $175.0 million of proceeds received from the issuance of the Notes were allocated between long-term debt (liability component) of $128.3 million and additional paid-in-capital (equity component) of $46.7 million on the condensed consolidated balance sheet. The fair value of the liability component was measured using rates determined for similar debt instruments without a conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the aggregate face value of the Notes. The liability component will be accreted up to the face value of the Notes of $175.0 million, which will result in additional non-cash interest expense being recognized in the condensed consolidated statements of operations through the Notes’ Maturity Date. The accretion of the Notes to par and debt issuance cost is amortized into interest expense over the term of the Note using an effective interest rate of approximately 10.5%. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.
The Company incurred approximately $5.7 million of issuance costs related to the issuance of the Notes, of which $4.2 million and $1.5 million were recorded to long-term debt and additional paid-in capital, respectively. The $4.2 million of issuance costs recorded as long-term debt on the condensed consolidated balance sheet are being amortized over the five-year contractual term of the Notes using the effective interest method.
The Company may not redeem the Notes prior to the Maturity Date and no sinking fund is provided for the Notes. The indenture includes customary terms and covenants, including certain events of default after which the Notes may be due and payable immediately.
Holders have the option to convert the Notes in multiples of $1,000 principal amount at any time prior to January 15, 2022, but only in the following circumstances:
during any calendar quarter beginning after the calendar quarter ending on September 30, 2017, if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the Notes on each applicable trading day;
during the five-business day period following any five consecutive trading day period in which the trading price for the Notes is less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate for the Notes on each such trading day; or
upon the occurrence of specified corporate events.
At any time on or after January 15, 2022 until the second scheduled trading day immediately preceding the Maturity Date of the Notes on April 15, 2022, a holder may convert its Notes, in multiples of $1,000 principal amount. Holders of the Notes who convert their Notes in connection with a make-whole fundamental change (as defined in the indenture) are, under certain circumstances, entitled to an increase in the conversion rate. In addition, in the event of a fundamental change prior to the Maturity Date, holders will, subject to certain conditions, have the right, at their option, to require the Company to repurchase for cash all or part of the Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the repurchase date.
As of September 30, 2018, the outstanding principal on the Notes was $175.0 million, the unamortized debt discount was $35.4 million, the unamortized debt issuance cost was $2.9 million and the net carrying amount of the liability component was $136.7 million, which was recorded as long-term debt within the condensed consolidated balance sheet. For the three months ended September 30, 2018 and 2017, the Company recorded interest expense of $1.5 million for contractual coupon interest, $0.2 million for amortization of debt issuance costs, and $2.0 million and $1.8 million, respectively, for amortization of the debt discount. For the nine months ended September 30, 2018 and 2017, the Company recorded interest expense of $4.6 million and $2.8 million, respectively, for contractual coupon interest, $0.6 million and $0.4 million, respectively, for amortization of debt issuance costs, and $6.0 million and $3.4 million, respectively, for amortization of the debt discount.
In connection with the offering, the Company entered into a prepaid forward stock repurchase transaction (Prepaid Forward) with a financial institution (Forward Counterparty). Pursuant to the Prepaid Forward, the Company used approximately $78.0 million of the net proceeds from the offering of the Notes to fund the Prepaid Forward. The aggregate number of shares of the Company’s Class A common stock underlying the Prepaid Forward was approximately 9.2 million. The expiration date for the Prepaid Forward is April 15, 2022, although it may be settled earlier in whole or in part. Upon settlement of the Prepaid Forward, at expiration or upon any early settlement, the Forward Counterparty will deliver to the Company the number of shares of Class A common stock underlying the Prepaid Forward or the portion thereof being settled early. The shares purchased under the Prepaid Forward are treated as treasury stock on the condensed consolidated balance sheet (and not outstanding for purposes of the calculation of basic and diluted earnings per share), but will remain outstanding for corporate law purposes, including for purposes of any future stockholders’ votes, until the Forward Counterparty delivers the shares underlying the Prepaid Forward to the Company. The Company’s Prepaid Forward hedge transaction exposes the Company to credit risk to the extent that its counterparty may be unable to meet the terms of the transaction. The Company mitigates this risk by limiting its counterparty to a major financial institution.
v3.10.0.1
Employee benefit plans
9 Months Ended
Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Employee benefit plans
Employee benefit plans
Equity incentive plans. The Company has outstanding equity grants from its three stock-based employee compensation plans: the 2014 Equity Incentive Plan (2014 Plan), the 2010 Equity Incentive Plan (2010 Plan) and the 2014 Employee Stock Purchase Plan (ESPP). No new options or awards have been granted under the 2010 Plan since June 2014. Outstanding options and awards under the 2010 Plan continue to be subject to the terms and conditions of the 2010 Plan. Options granted under the 2014 Plan generally expire within ten years from the date of grant and generally vest over one to four years. Restricted stock units (RSUs) granted under the 2014 Plan generally vest over two to four years based upon continued service and are settled at vesting in shares of the Company’s Class A common stock. Performance stock units (PSUs) granted under the 2014 Plan generally vest over three years based upon continued service and the Company achieving certain revenue targets, and are settled at vesting in shares of the Company’s Class A common stock. The ESPP allows eligible employees to purchase shares of the Company’s Class A common stock through payroll deductions at a price equal to 85% of the lesser of the fair market value of the stock as of the first date or the ending date of each six month offering period. For additional information regarding the Company’s equity incentive plans, refer to the audited financial statements contained in the 2017 Annual Report.
Stock options
A summary of the Company’s stock option activity for the nine months ended September 30, 2018 is as follows:
 
Shares
(in thousands)
 
Weighted- average
exercise price
 
Weighted-average remaining contractual term (in years)
 
Aggregate intrinsic value
(in thousands)
Outstanding at December 31, 2017
9,809

 
$
11.16

 
6.00
 
$
19,971

Granted
1,333

 
5.77

 
 
 
 
Exercised
(605
)
 
0.74

 
 
 
 
Forfeited/Cancelled
(4,326
)
 
16.48

 
 
 
 
Outstanding at September 30, 2018
6,211

 
$
7.32

 
5.85
 
$
16,883

 
 
 
 
 
 
 
 
Vested and expected to vest at September 30, 2018
6,204

 
$
7.31

 
5.85
 
$
16,883

Exercisable at September 30, 2018
4,432

 
$
7.35

 
4.50
 
$
14,972


The aggregate intrinsic value of the stock options outstanding as of September 30, 2018 represents the value of the Company’s closing stock price on September 30, 2018 in excess of the exercise price multiplied by the number of options outstanding.
Restricted stock units
A summary of the Company’s RSU activity for the nine months ended September 30, 2018 is as follows:
 
Shares
(in thousands)
 
Weighted- average grant date fair value
Non-vested shares at December 31, 2017
9,483

 
$
11.87

Granted
4,033

 
5.87

Vested
(2,919
)
 
11.57

Forfeited
(2,864
)
 
11.93

Non-vested shares at September 30, 2018
7,733

 
$
8.83


In June 2014, the Company granted an award of 4.5 million RSUs covering shares of the Company’s Class B common stock to the Company’s CEO (CEO RSUs), which included 1.5 million RSUs that vested immediately upon grant and 3.0 million RSUs that were subject to both a market-based vesting condition and a three year service-based vesting condition. The market-based condition was achieved in January 2015. Stock-based compensation expense related to the CEO RSUs was zero for the three months ended September 30, 2018 and 2017, and zero and $0.6 million, for the nine months ended September 30, 2018 and 2017, respectively.
Performance stock units
In 2018, the Company granted PSUs to certain executives and employees. PSUs are subject to both a one year performance-based vesting condition and a three year service-based vesting condition. The performance-based condition is related to the Company achieving certain revenue targets.
A summary of the Company’s PSU activity for the nine months ended September 30, 2018 is as follows:
 
Shares
(in thousands)
 
Weighted- average grant date fair value
Non-vested shares at December 31, 2017

 
$

Granted
334

 
5.76

Vested

 

Forfeited

 

Non-vested shares at September 30, 2018
334

 
$
5.76


Employee stock purchase plan. For the nine months ended September 30, 2018 and 2017, the Company issued 980,727 and 934,359 shares under its ESPP, respectively, at weighted average prices of $4.78 and $8.02, respectively.
Stock-based compensation expense. The Company measures compensation expense for all stock-based payment awards based on the estimated fair values on the date of the grant. The fair value of stock options granted and ESPP issuance is estimated using the Black-Scholes option pricing model. The fair value of RSUs and PSUs are determined using the Company’s closing stock price on the date of grant. The Company accounts for forfeitures of stock-based payment awards in the period they occur. There have been no significant changes in the Company’s valuation assumptions from those disclosed in its 2017 Annual Report.
The following table summarizes stock-based compensation expense included in the condensed consolidated statements of operations:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2018
 
2017
 
2018
 
2017
Cost of revenue
$
534

 
$
445

 
$
1,406

 
$
1,355

Research and development
4,977

 
5,967

 
14,942

 
17,039

Sales and marketing
2,429

 
2,609

 
7,489

 
7,295

General and administrative
2,397

 
2,854

 
7,334

 
10,546

Total stock-based compensation expense
$
10,337

 
$
11,875

 
$
31,171

 
$
36,235

The income tax benefit related to stock-based compensation expense was zero for the three and nine months ended September 30, 2018 and 2017 due to a full valuation allowance on the Company’s U.S. net deferred tax assets (see Note 7 Income taxes, below).
At September 30, 2018, total unearned stock-based compensation of $60.8 million related to stock options, RSUs, PSUs and ESPP shares is expected to be recognized over a weighted average period of 2.2 years.
v3.10.0.1
Net loss per share
9 Months Ended
Sep. 30, 2018
Earnings Per Share [Abstract]  
Net loss per share
Net income (loss) per share
The following table presents the calculations of basic and diluted net income (loss) per share:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands, except per share data)
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
(27,089
)
 
$
14,661

 
$
(140,705
)
 
$
(127,025
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares—basic for Class A and Class B common stock
140,072

 
136,236

 
139,028

 
138,450

Effect of dilutive stock-based awards

 
4,052

 

 

Weighted-average common shares diluted for Class A and Class B common stock
140,072

 
140,288

 
139,028

 
138,450

 
 
 
 
 
 
 
 
Net income (loss) per share
 
 
 
 
 
 
 
Basic
$
(0.19
)
 
$
0.11

 
$
(1.01
)
 
$
(0.92
)
Diluted
$
(0.19
)
 
$
0.10

 
$
(1.01
)
 
$
(0.92
)

The following potentially dilutive shares were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2018
 
2017
 
2018
 
2017
Effect of anti-dilutive stock-based awards
15,072

 
10,573

 
15,933

 
10,837


The Company’s Notes mature on April 15, 2022, unless earlier repurchased or converted into shares of Class A common stock under certain circumstances as described further in Note 4, Financing Arrangements, above. The Notes are convertible into cash, shares of the Company’s Class A common stock, or a combination thereof, at the Company’s election. Based on the Company’s current and projected liquidity, the Company has the intent and ability to deliver cash up to the principal amount of the Notes subject to conversion. As such, no shares associated with the Note conversion were included in the Company’s weighted-average number of common shares outstanding for any periods presented. While the Company has the intent and ability to deliver cash up to the principal amount, the maximum number of shares issuable upon conversion of the Notes is 20.6 million shares of Class A common stock. Additionally, the calculation of weighted-average shares outstanding for the three months ended September 30, 2018 and 2017 excludes approximately 9.2 million shares, and for the nine months ended September 30, 2018 and 2017, excludes approximately 9.2 million shares and 5.8 million shares, respectively, effectively repurchased and held in treasury stock on the condensed consolidated balance sheet as a result of the Prepaid Forward transaction entered into in connection with the Note offering.
The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock and has no expiration date. Each share of Class B common stock will convert automatically into one share of Class A common stock upon the date when the outstanding shares of Class B common stock represent less than 10% of the aggregate number of shares of common stock then outstanding. Class A common stock is not convertible into Class B common stock. The computation of the diluted net loss per share of Class A common stock assumes the conversion of Class B common stock.
v3.10.0.1
Income taxes
9 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
Income taxes
Income taxes
The Company’s income tax expense and the resulting effective tax rate are based upon the estimated annual effective tax rates applicable for the respective period, including losses generated in countries where the Company is projecting annual losses for which deferred tax assets are not anticipated to be recognized. In the fourth quarter of 2016, the Company recorded a full valuation allowance against its net U.S. deferred tax assets, and for the foreseeable future anticipates providing a valuation allowance against any additional deferred tax assets until such time it is more likely than not the benefit of these deferred tax assets may be recognized.
The Company’s tax provision and the resulting effective tax rate for interim periods is determined based upon its estimated annual effective tax rate, adjusted for the effect of discrete items arising in that quarter. The Company also includes jurisdictions with a projected loss for the year (or year-to-date loss) where the Company cannot or does not expect to recognize a tax benefit from its estimated annual effective tax rate. The impact of such inclusions could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, a cumulative adjustment is made in that quarter.
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
2018
 
2017
 
2018
 
2017
Income tax (benefit) expense
$
1,780

 
$
(10,844
)
 
$
(296
)
 
$
13,429

Effective tax rate
(7.0
)%
 
(284.1
)%
 
0.2
%
 
(11.8
)%

The Company recorded an income tax expense of $1.8 million for the three months ended September 30, 2018 on a pre-tax net loss of $25.3 million, which resulted in a negative effective tax rate of 7.0%. The Company’s income tax expense for the three months ended September 30, 2018 was primarily composed of $1.5 million of tax expense incurred on pre-tax income in profitable foreign jurisdictions, one-time items that included $7.0 million of net non-deductible equity tax expense, and $0.4 million of tax expense related to foreign provision to return adjustments, partially offset by a $1.1 million tax benefit relating to restructuring expense and a $6.3 million net decrease in the valuation allowance. The Company recorded an income tax benefit of $0.3 million for the nine months ended September 30, 2018 on a pre-tax net loss of $141.0 million, which resulted in an effective tax rate of 0.2%. The Company’s income tax benefit for the nine months ended September 30, 2018 was composed of $2.4 million of tax expenses incurred on pre-tax income in profitable foreign jurisdictions, one-time items that included $10.9 million of tax benefit primarily relating to the conclusion of the IRS audit and the release of uncertain tax positions, $9.6 million of net non-deductible equity tax expense, $5.4 million of tax benefit relating to restructuring expenses, $0.6 million of uncertain tax position interest expense and $0.3 million tax expense related to foreign provision to return adjustments, offset by a $3.1 million net increase in the valuation allowance.
For the three months ended September 30, 2017, the Company recorded an income tax benefit of $10.8 million on a pre-tax net income of $3.8 million, which resulted in a negative effective tax rate of 284.1%. The Company’s income tax benefit for the three months ended September 30, 2017 related primarily to foreign taxes and a cumulative adjustment due to the change in the Company’s estimated annual tax rate. The Company recorded an income tax provision of $13.4 million for the nine months ended September 30, 2017 on a pre-tax net loss of $113.6 million, which resulted in a negative effective tax rate of 11.8%. The Company’s income tax provision for the nine months ended September 30, 2017 was principally composed of tax expense incurred on pre-tax income in profitable foreign jurisdictions based on the Company’s estimated annual tax rate.
Due to certain tax structure changes effective January 1, 2018, including the planned liquidation of the Company’s subsidiary, Woodman Labs Cayman, Inc., the Company’s tax provision and resulting effective tax rate for interim periods in 2018 and future years is expected to be subject to less volatility and fluctuation quarter over quarter than in 2017. Further, for both 2018 and 2017, while the Company incurred pre-tax losses in the United States and certain lower-rate jurisdictions, the Company does not expect to recognize any tax benefits on pre-tax losses in the United States due to a full valuation allowance recorded against its U.S. deferred tax assets.
During the nine months ended September 30, 2018, the Internal Revenue Service concluded its audit for the 2012 through 2015 tax years. The Closing Agreement was received on January 24, 2018 and the Company received an income tax refund of approximately $32.9 million, net of IRS adjustments, in February 2018. As a result, the Company recognized a reduction in gross unrecognized tax benefits of $26.0 million and an income tax benefit, net of valuation allowance, of approximately $2.6 million.
At September 30, 2018 and December 31, 2017, the Company’s gross unrecognized tax benefits were $33.5 million and $58.6 million, respectively. If recognized, $16.9 million of these unrecognized tax benefits (net of U.S. federal benefit) at September 30, 2018 would be recorded as a reduction of future income tax provision. These unrecognized tax benefits relate primarily to unresolved matters with taxing authorities regarding tax positions based on the Company’s interpretation of certain U.S. trial and appellate court decisions, which remain subject to appeal and therefore could be overturned in future periods and tax positions on IP transfers. Although the completion, settlement and closure of any audits is uncertain, it is reasonably possible that the total amount of unrecognized tax benefits will not materially change within the next 12 months. However, given the number of years remaining that are subject to examination, the range of the reasonably possible change cannot be estimated reliably.
U.S. Tax Reform. The Tax Cuts and Jobs Act (TCJA) of 2017, enacted on December 22, 2017, reduced the U.S. statutory tax rate from 35% to 21%, effective January 1, 2018. The TCJA also implemented a territorial tax system. Under the territorial tax system, in general, the Company’s foreign earnings would no longer be subject to tax in the U.S. As part of transitioning to the territorial tax system, the TCJA includes a mandatory deemed repatriation of all undistributed foreign earnings that are subject to a U.S. income tax. The Company estimates that the deemed repatriation will not result in any additional U.S. income tax. This estimate may be impacted by a number of additional considerations, including, but not limited to, the issuance of final regulations and the Company's ongoing analysis of the new law.

While the TCJA provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (GILTI) provisions and the base-erosion and anti-abuse tax (BEAT) provisions. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The BEAT provisions in the TCJA eliminate the deduction of certain base-erosion payments made to related foreign corporations and impose a minimum tax if greater than regular tax. The BEAT or GILTI provisions did not result in significant additional U.S. tax beginning in 2018.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities to the extent needed and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the TCJA. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.
v3.10.0.1
Related party transactions
9 Months Ended
Sep. 30, 2018
Related Party Transactions [Abstract]  
Related party transactions
Related party transactions
The Company incurs costs for Company-related chartered aircraft fees for the use of the CEO’s private plane. The Company recorded a de minimis expense in the three and nine months ended September 30, 2018 and September 30, 2017. As of September 30, 2018 and December 31, 2017, the Company had $0.1 million and zero accounts payable associated with these aircraft fees, respectively.
v3.10.0.1
Commitments, contingencies and guarantees
9 Months Ended
Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments, contingencies and guarantees
Commitments, contingencies and guarantees
Facility Leases. The Company leases its facilities under long-term operating leases, which expire at various dates through 2027. As of September 30, 2018, the Company’s total future minimum lease payments under non-cancelable operating leases were $109.7 million. There have been no material changes to the Company’s lease commitments since December 31, 2017. Rent expense was $3.6 million and $4.6 million for the three months ended September 30, 2018 and 2017, respectively, and $10.3 million and $14.6 million for the nine months ended September 30, 2018 and 2017, respectively.
Other Commitments. In the ordinary course of business, the Company enters into multi-year agreements to purchase sponsorships with event organizers, resorts and athletes as part of its marketing efforts; software licenses related to its financial and IT systems; debt agreements; and various other contractual commitments. As of September 30, 2018, the Company’s total undiscounted future expected obligations under multi-year agreements described above with terms longer than one year was $181.0 million. There have been no material changes to the Company’s other commitments since December 31, 2017.
Legal proceedings. From time to time, the Company is involved in legal proceedings in the ordinary course of business, including the litigation matters described in Part II, Item 1 of this Quarterly Report on Form 10-Q. Due to inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of these matters. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the results of operations, financial condition or cash flows of the Company.
Indemnifications. In the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. It is not possible to determine the maximum potential amount under these indemnification agreements due to the Company’s limited history with indemnification claims and the unique facts and circumstances involved in each particular agreement. As of September 30, 2018, the Company has not paid any claims nor has it been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.
v3.10.0.1
Concentrations of risk and geographic information
9 Months Ended
Sep. 30, 2018
Risks and Uncertainties [Abstract]  
Concentrations of risk and segment information
Concentrations of risk and geographic information
Customer concentration. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables. The Company believes that credit risk for accounts receivable is mitigated by the Company’s credit evaluation process, relatively short collection terms and dispersion of its customer base. The Company generally does not require collateral and losses on trade receivables have historically been within management’s expectations.
Customers who represented 10% or more of the Company’s net accounts receivable balance were as follows:
 
September 30, 2018
 
December 31, 2017
Customer A
12%
 
32%
Customer B
*
 
16%
Customer C
*
 
12%
Customer D
*
 
11%


* Less than 10% of net accounts receivable for the period indicated.
The following table summarizes the Company’s accounts receivables sold, without recourse, and factoring fees paid:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2018
 
2017
 
2018
 
2017
Accounts receivable sold
$
31,164

 
$
51,593

 
$
83,618

 
$
130,555

Factoring fees
401

 
473

 
1,056

 
1,153


Customers who represented 10% or more of the Company’s total revenue were as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Customer A
13%
 
16%
 
14%
 
16%

Supplier concentration. The Company relies on third parties for the supply and manufacture of its products, some of which are sole-source suppliers. The Company believes that outsourcing manufacturing enables greater scale and flexibility. As demand and product lines change, the Company periodically evaluates the need and advisability of adding manufacturers to support its operations. In instances where a supply and manufacture agreement does not exist or suppliers fail to perform their obligations, the Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all. The Company also relies on third parties with whom it outsources supply chain activities related to inventory warehousing, order fulfillment, distribution and other direct sales logistics.
Geographic information
Revenue by geographic region, based on ship-to destinations, was as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2018
 
2017
 
2018
 
2017
Americas
$
119,524

 
$
163,430

 
$
341,576

 
$
416,164

Europe, Middle East and Africa (EMEA)
96,056

 
97,179

 
249,207

 
245,256

Asia and Pacific (APAC)
70,356

 
69,196

 
180,176

 
183,525

Total revenue
$
285,936

 
$
329,805

 
$
770,959

 
$
844,945


Revenue in the United States, which is included in the Americas geographic region, was $94.0 million and $148.4 million for the three months ended September 30, 2018 and 2017, respectively, and $286.5 million and $375.9 million for the nine months ended September 30, 2018 and 2017, respectively. No other individual country exceeded 10% of total revenue for any period presented. The Company does not disclose revenue by product category as it does not track sales incentives and other revenue adjustments by product category to report such data.
As of September 30, 2018 and December 31, 2017, long-lived assets, which represent gross property and equipment, located outside the United States, primarily in Hong Kong and China, were $74.2 million and $79.7 million, respectively.
v3.10.0.1
Restructuring charges
9 Months Ended
Sep. 30, 2018
Restructuring and Related Activities [Abstract]  
Restructuring charges
Restructuring charges
Restructuring charges for each period were as follows:
 
Nine months ended September 30,
(in thousands)
2018
 
2017
Cost of revenue
$
1,357

 
$
458

Research and development
12,032

 
8,406

Sales and marketing
5,042

 
5,960

General and administrative
3,095

 
1,964

Total restructuring charges
$
21,526

 
$
16,788


First quarter 2018 restructuring
On January 2, 2018, the Company approved a restructuring plan to further reduce future operating expenses and better align resources around its long-term business strategy. The restructuring provided for a reduction of the Company's global workforce of approximately 18%, the closure of the Company's aerial group and the consolidation of certain leased office facilities. Under the first quarter 2018 restructuring plan, the Company recorded restructuring charges of $16.8 million, including $13.4 million related to severance and $3.4 million related to other charges.
The following table provides a summary of the Company’s restructuring activities for the nine months ended September 30, 2018 and the related liabilities recorded in accrued liabilities on the condensed consolidated balance sheet.
(in thousands)
Severance
 
Other
 
Total
Restructuring liability as of December 31, 2017
$

 
$

 
$

Restructuring charges
13,468

 
3,371

 
16,839

Cash paid
(11,584
)
 
(1,840
)
 
(13,424
)
Non-cash reductions
(528
)
 
(1,299
)
 
(1,827
)
Restructuring liability as of September 30, 2018
$
1,356

 
$
232

 
$
1,588


First quarter 2017 restructuring
On March 15, 2017, the Company approved a restructuring plan to reduce future operating expenses and further align resources around its long-term business strategy. The restructuring provided for a reduction of the Company’s global workforce by approximately 17% and the consolidation of certain leased office facilities. Under the first quarter 2017 restructuring plan, the Company recorded restructuring charges of $21.5 million, including $10.3 million related to severance, and $11.2 million related to accelerated depreciation and other charges. The actions associated with the first quarter 2017 restructuring plan were substantially completed by the fourth quarter of 2017. While the Company anticipates that any additional charges related to this restructuring will be immaterial, actual results may differ from current estimates as it relates to the consolidation of certain leased office facilities.
The following table provides a summary of the Company’s restructuring activities for the nine months ended September 30, 2018 and the related liabilities recorded in accrued liabilities on the condensed consolidated balance sheet.
(in thousands)
Severance
 
Other
 
Total
Restructuring liability as of December 31, 2017
$

 
$
3,550

 
$
3,550

Restructuring charges

 
4,509

 
4,509

Cash paid

 
(2,457
)
 
(2,457
)
Non-cash charges

 
582

 
582

Restructuring liability as of September 30, 2018
$

 
$
6,184

 
$
6,184


Fourth quarter 2016 restructuring
On November 29, 2016, the Company approved a restructuring plan to reduce future operating expenses. The restructuring provided for a reduction of the Company’s global workforce of approximately 15%, the closure of the Company’s entertainment group to concentrate on its core business and the consolidation of certain leased office facilities. Under the fourth quarter 2016 restructuring plan, the Company recorded restructuring charges of $39.9 million, including $36.7 million related to severance, and $3.2 million related to accelerated depreciation and other charges. The actions associated with the fourth quarter 2016 restructuring plan were completed by March 31, 2017, with only small incremental charges recorded through September 30, 2018.
The following table provides a summary of the Company’s restructuring activities for the nine months ended September 30, 2018 and the related liabilities recorded in accrued liabilities on the condensed consolidated balance sheet.
(in thousands)
Severance
 
Other
 
Total
Restructuring liability as of December 31, 2017
$
400

 
$
50

 
$
450

Restructuring charges
151

 

 
151

Cash paid
(244
)
 

 
(244
)
Restructuring liability as of September 30, 2018
$
307

 
$
50

 
$
357


First quarter 2016 restructuring
On January 12, 2016, the Company approved a restructuring plan that provided for a reduction in the Company’s global workforce of approximately 7%. Under the first quarter 2016 restructuring plan, the Company recorded restructuring charges of $6.5 million in the first quarter of 2016, which primarily included cash-based severance costs. The Company completed this plan at the end of the first quarter of 2016 and all costs have been paid. No charges were recorded in periods after March 31, 2016.
v3.10.0.1
Summary of business and significant accounting policies (Policies)
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Basis of presentation
Basis of presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The Company’s fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30 and September 30. The condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, that management believes are necessary for the fair statement of the Company's financial statements, but are not necessarily indicative of the results expected for the full fiscal year or any other future period. The condensed consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements at that date, but does not include all the disclosures required by GAAP. This Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K (Annual Report) for the year ended December 31, 2017. Except for accounting policies related to revenue recognition and income tax impacts of intra-entity asset transfers that were updated as a result of adopting Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, and ASU 2016-16, Income Taxes — Intra-Entity Transfers of Assets Other Than Inventory, respectively, there have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report.
Principles of consolidation
Principles of consolidation. These condensed consolidated financial statements include all the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
Use of estimates. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions made by management include those related to revenue recognition (including sales incentives, sales returns and implied post contract support (PCS)), stock-based compensation, inventory valuation, product warranty liabilities, the valuation and useful lives of long-lived assets (property and equipment, intangible assets and goodwill) and income taxes. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from management’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations could be affected.
Comprehensive income (loss)
Comprehensive income (loss). For all periods presented, comprehensive income (loss) approximated net income (loss). Therefore, the condensed consolidated statements of comprehensive income (loss) have been omitted
Accounts receivable and allowance for doubtful accounts
Accounts receivable and allowance for doubtful accounts. Accounts receivable are stated at invoice value less estimated allowances for doubtful accounts. Allowances are recorded based on the Company’s assessment of various factors, such as: historical experience, credit quality of its customers, age of the accounts receivable balances, geographic related risks, economic conditions and other factors that may affect a customer’s ability to pay. The allowance for doubtful accounts as of September 30, 2018 and December 31, 2017 was $0.4 million and $0.8 million, respectively.
Warranty
Warranty. The Company records a liability for estimated product warranty costs at the time product revenue is recognized. The Company’s standard warranty obligation to its end-users generally provides a 12-month warranty coverage on all of its products except in the European Union where the Company provides a 2-year warranty. The Company also offers extended warranty programs for a fee. The Company’s estimate of costs to service its warranty obligations is based on its historical experience of repair and replacement of the associated products and expectations of future conditions. The warranty obligation is affected by product failure rates and the related use of materials, labor costs and freight incurred in correcting any product failure.
Revenue Recognition, Policy [Policy Text Block]
Revenue recognition. The Company derives substantially all of its revenue from the sale of cameras, drones, mounts and accessories and the related implied post contract support to customers. The Company recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The transaction price the Company expects to be entitled to is primarily comprised of product revenue, net of returns and variable consideration, including sales incentives provided to customers. For most of the Company’s revenue, revenue is recognized at the time products are delivered and when collection is deemed probable. For customers who purchase products directly from the Company’s website, the Company retains a portion of the risk of loss on these sales during transit, which are accounted for as fulfillment costs. The Company provides sales commissions to internal and external sales representatives which are earned in the period in which revenue is recognized. As a result, the Company expenses such costs as incurred under ASU 2014-19.
The Company's standard terms and conditions of sale for non-web based sales do not allow for product returns other than under warranty. However, the Company grants limited rights of return to certain large retailers. The Company reduces revenue and cost of sales for the estimated returns based on analyses of historical return trends by customer class and other factors. An estimated refund liability along with a right to recover assets are recorded for future product returns. Return trends are influenced by product life cycles, new product introductions, market acceptance of products, product sell-through, the type of customer, seasonality and other factors. Return rates may fluctuate over time but are sufficiently predictable to allow the Company to estimate expected future product returns.
The Company’s camera and drone sales contain multiple performance obligations that generally include the following three separate obligations: a) a hardware component (camera or drone) and the embedded firmware essential to the functionality of the hardware component delivered at the time of sale, b) the implicit right to the Company's downloadable free apps and software solutions, and c) the implied right for the customer to receive support after the initial sale (post contract support or PCS). The Company’s PCS includes the right to receive on a when and if available basis, future unspecified firmware upgrades and features as well as bug fixes, and email and telephone support. The Company allocates the transaction price to PCS based on a cost-plus method. The transaction price is allocated to the remaining performance obligations on a residual value method. The Company’s process to allocate the transaction price considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable, including: the level of support provided to customers, estimated costs to provide the Company’s support, the amount of time and cost that is allocated to the Company’s efforts to develop the undelivered elements and market trends in the pricing for similar offerings.
The transaction prices allocated to the delivered hardware, related embedded firmware and free software solutions are recognized as revenue at the time of sale, provided the conditions for recognition of revenue have been met. The transaction price allocated to PCS is deferred and recognized as revenue on a straight-line basis over the estimated term of the support period, which is estimated to be 15 months based on historical experience. Deferred revenue as of September 30, 2018 and December 31, 2017 also included immaterial amounts related to the Company’s GoPro Care and GoPro Plus fee-based service offerings. The Company’s deferred revenue balance related to PCS was $13.5 million as of September 30, 2018 and the Company recognized $5.1 million and $15.8 million of related revenue during the three and nine months ended September 30, 2018, respectively.
Sales Incentives [Policy Text Block]
Sales incentives. The Company offers sales incentives through various programs, including cooperative advertising, price protection, marketing development funds and other incentives. Sales incentives are considered to be variable consideration, which the Company estimates and records as a reduction to revenue at the date of sale. The Company estimates sales incentives based on historical experience, product sell-through and other factors.
Sales Taxes [Policy Text Block]
Sales taxes. Sales taxes collected from customers and remitted to respective governmental authorities are recorded as liabilities and are not included in revenue.
Segment Reporting, Policy [Policy Text Block]
Segment information. The Company operates as one operating segment as it only reports financial information on an aggregate and consolidated basis to its Chief Executive Officer, who is the Company’s chief operating decision maker.
Schedule of recent accounting pronouncements
Recent accounting standards
Standard
 
Description
 
Company’s date of adoption
 
Effect on the condensed consolidated financial statements or other significant matters
Standards that were adopted
 
 
 
 
Income Taxes
ASU No. 2016-16 (Topic 740)
 
This standard requires entities to recognize the income tax consequences of intra-entity asset transfers when they occur, which removes the exception to postpone recognition until the asset has been sold to an outside party.
 
January 1, 2018
 
The adoption of the standard resulted in the recognition of previously unrecognized deferred charges using a modified retrospective method. The Company recorded a reversal of $15.0 million of deferred charges, an increase to U.S. deferred tax assets of $1.2 million with a corresponding U.S. valuation allowance of $1.2 million. The net impact to equity was an increase in the accumulated deficit of approximately $15.0 million upon adoption.
Stock Compensation 
ASU No. 2017-09 (Topic 718)

 
This standard clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this standard, modification accounting is required only if the fair value, the vesting conditions or the classification of an award as equity or liability changes as a result of the change in terms or conditions.
 
January 1, 2018
 
The adoption of ASU 2017-09 did not impact the Company’s condensed consolidated financial statements and related disclosures. The Company adopted the standard on a prospective basis.
Revenue from Contracts with Customers
ASU No. 2014-09, 2015-14, 2016-08, 2016-10 and 2016-12 (Topic 606)
 
The updated revenue standard establishes principles for recognizing revenue and develops a common revenue standard for all industries. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard requires that entities disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
 
January 1, 2018
 
Under the updated revenue standard, the recognition of product revenue at the time the product is delivered, and PCS revenue on a straight-line basis remains consistent with the Company’s previous revenue policy.

Sales incentives are considered variable consideration under the new standard and are accounted for as a reduction to the transaction price. This change resulted in a reduction of revenue being recorded earlier than under the previous guidance. As a result of the adoption of the new standard, the Company recorded a $2.9 million increase to its accumulated deficit on January 1, 2018, of which, $4.9 million related to certain estimated sales incentives which would have been recognized at the time the product was shipped in the prior period. Additionally, for customers who purchased products directly from the Company’s website, the new standard provides for a policy election whereby the Company has recorded revenue when the related product was shipped. This change resulted in recognition of revenue earlier than under previous guidance. Upon adoption, the Company’s accumulated deficit decreased by $2.0 million related to revenue that would have been recognized in the prior period from the Company’s website sales that had shipped but had not been delivered as of December 31, 2017. In addition, the Company recorded a $1.0 million increase to deferred tax assets and a corresponding $1.0 million increase in valuation allowance. Additionally, under the new standard, the Company reclassed its refund liability from an offset to accounts receivable to an increase in accrued liabilities, which increased the Company’s days sales outstanding.

The Company adopted the standard using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Prior periods were not retrospectively adjusted. Refer below for the impact on each financial statement line item as of and for the three and nine months ended September 30, 2018 due to the adoption of the standard.


The cumulative effect of the changes made to the Company’s condensed consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-09, Revenue from Contracts with Customers and ASU 2016-16, Income Taxes — Intra-Entity Transfers of Assets Other Than Inventory, were as follows:

(in thousands)
Balance at December 31, 2017
 
Adjustment due to ASU 2014-09
 
Adjustment due to ASU 2016-16
 
Balance at January 1, 2018
Accumulated deficit
$
(442,134
)
 
$
(2,872
)
 
$
(14,990
)
 
$
(459,996
)


As mentioned above, the adoption of ASU 2014-09 impacted the timing of revenue recognized related to certain sales incentives and sales from the Company’s website, which impacted the revenue and current deferred revenue financial statement line items. Additionally, under ASU 2014-09, the Company presents an estimated refund liability along with a right to recover asset for future product returns, which impacts the accounts receivable, net, inventory, net, prepaid expenses and other assets, and accrued liabilities financial statement line items resulting in an increase in the Company’s accounts receivable days sales outstanding (DSO) calculation. The above adjustments do not impact net cash used in operating activities, however, they do impact the changes in operating assets and liabilities for the related accounts within the disclosure of operating activities on the statement of cash flow. Refer to the tables below for the quantitative impact to the Company’s financial statements for the periods ended September 30, 2018 due to the adoption of ASU 2014-09 (ASC 606).

 
Three months ended September 30, 2018
 
Nine months ended September 30, 2018
(in thousands)
As Reported Under ASC 606
 
Effect of Change
 
Balance Under ASC 605
 
As Reported Under ASC 606
 
Effect of Change
 
Balance Under ASC 605
Revenue
$
285,936

 
$
(3,076
)
 
$
282,860

 
$
770,959

 
$
189

 
$
771,148



 
As of September 30, 2018
(in thousands)
As Reported Under ASC 606
 
Effect of Change
 
Balance Under ASC 605
Accounts receivable, net
$
149,449

 
$
(13,728
)
 
$
135,721

Inventory, net
123,249

 
6,012

 
129,261

Prepaid expenses and other current assets
31,958

 
(6,012
)
 
25,946

Accrued liabilities
193,913

 
(13,728
)
 
180,185

Current deferred revenue
14,418

 
4,931

 
19,349

Recent accounting pronouncements
Standard
 
Description
 
Expected date of adoption
 
Effect on the condensed consolidated financial statements or other significant matters
Standards not yet adopted
 
 
 
 
Leases
ASU No.
2016-02,
2018-10,
2018-11, (Topic 842)
 
This standard requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. Lessees would recognize a right-to-use asset and lease liability for all leases with terms of more than 12 months. The new standard should be applied on a modified retrospective basis or cumulative effect transition method.
 
January 1, 2019
 
The Company has completed the process of identifying its population of lease arrangements impacted by this standard, and plans to adopt the standard using the cumulative effect transition method.
Upon adoption, the Company expects that the majority of its operating lease commitments will materially increase total assets and total liabilities on the Company’s condensed consolidated balance sheets. While the Company continues to assess potential impacts of the standard, the Company does not expect the standard to have a material impact on the condensed consolidated income statements and condensed consolidated statement of cash flows.
Intangible - Goodwill and Other
ASU No. 2017-04 (Topic 350)

 
This standard simplifies the accounting for goodwill and removes Step 2 of the annual goodwill impairment test. Upon adoption, goodwill impairment will be determined based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017, and requires a prospective transition method.
 
January 1, 2020
 
The Company does not expect that the adoption of this standard will have a material impact on its condensed consolidated financial statements and related disclosures.
v3.10.0.1
Summary of business and significant accounting policies (Tables)
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Schedule of recent accounting pronouncements
Recent accounting standards
Standard
 
Description
 
Company’s date of adoption
 
Effect on the condensed consolidated financial statements or other significant matters
Standards that were adopted
 
 
 
 
Income Taxes
ASU No. 2016-16 (Topic 740)
 
This standard requires entities to recognize the income tax consequences of intra-entity asset transfers when they occur, which removes the exception to postpone recognition until the asset has been sold to an outside party.
 
January 1, 2018
 
The adoption of the standard resulted in the recognition of previously unrecognized deferred charges using a modified retrospective method. The Company recorded a reversal of $15.0 million of deferred charges, an increase to U.S. deferred tax assets of $1.2 million with a corresponding U.S. valuation allowance of $1.2 million. The net impact to equity was an increase in the accumulated deficit of approximately $15.0 million upon adoption.
Stock Compensation 
ASU No. 2017-09 (Topic 718)

 
This standard clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this standard, modification accounting is required only if the fair value, the vesting conditions or the classification of an award as equity or liability changes as a result of the change in terms or conditions.
 
January 1, 2018
 
The adoption of ASU 2017-09 did not impact the Company’s condensed consolidated financial statements and related disclosures. The Company adopted the standard on a prospective basis.
Revenue from Contracts with Customers
ASU No. 2014-09, 2015-14, 2016-08, 2016-10 and 2016-12 (Topic 606)
 
The updated revenue standard establishes principles for recognizing revenue and develops a common revenue standard for all industries. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard requires that entities disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
 
January 1, 2018
 
Under the updated revenue standard, the recognition of product revenue at the time the product is delivered, and PCS revenue on a straight-line basis remains consistent with the Company’s previous revenue policy.

Sales incentives are considered variable consideration under the new standard and are accounted for as a reduction to the transaction price. This change resulted in a reduction of revenue being recorded earlier than under the previous guidance. As a result of the adoption of the new standard, the Company recorded a $2.9 million increase to its accumulated deficit on January 1, 2018, of which, $4.9 million related to certain estimated sales incentives which would have been recognized at the time the product was shipped in the prior period. Additionally, for customers who purchased products directly from the Company’s website, the new standard provides for a policy election whereby the Company has recorded revenue when the related product was shipped. This change resulted in recognition of revenue earlier than under previous guidance. Upon adoption, the Company’s accumulated deficit decreased by $2.0 million related to revenue that would have been recognized in the prior period from the Company’s website sales that had shipped but had not been delivered as of December 31, 2017. In addition, the Company recorded a $1.0 million increase to deferred tax assets and a corresponding $1.0 million increase in valuation allowance. Additionally, under the new standard, the Company reclassed its refund liability from an offset to accounts receivable to an increase in accrued liabilities, which increased the Company’s days sales outstanding.

The Company adopted the standard using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Prior periods were not retrospectively adjusted. Refer below for the impact on each financial statement line item as of and for the three and nine months ended September 30, 2018 due to the adoption of the standard.


The cumulative effect of the changes made to the Company’s condensed consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-09, Revenue from Contracts with Customers and ASU 2016-16, Income Taxes — Intra-Entity Transfers of Assets Other Than Inventory, were as follows:

(in thousands)
Balance at December 31, 2017
 
Adjustment due to ASU 2014-09
 
Adjustment due to ASU 2016-16
 
Balance at January 1, 2018
Accumulated deficit
$
(442,134
)
 
$
(2,872
)
 
$
(14,990
)
 
$
(459,996
)


As mentioned above, the adoption of ASU 2014-09 impacted the timing of revenue recognized related to certain sales incentives and sales from the Company’s website, which impacted the revenue and current deferred revenue financial statement line items. Additionally, under ASU 2014-09, the Company presents an estimated refund liability along with a right to recover asset for future product returns, which impacts the accounts receivable, net, inventory, net, prepaid expenses and other assets, and accrued liabilities financial statement line items resulting in an increase in the Company’s accounts receivable days sales outstanding (DSO) calculation. The above adjustments do not impact net cash used in operating activities, however, they do impact the changes in operating assets and liabilities for the related accounts within the disclosure of operating activities on the statement of cash flow. Refer to the tables below for the quantitative impact to the Company’s financial statements for the periods ended September 30, 2018 due to the adoption of ASU 2014-09 (ASC 606).

 
Three months ended September 30, 2018
 
Nine months ended September 30, 2018
(in thousands)
As Reported Under ASC 606
 
Effect of Change
 
Balance Under ASC 605
 
As Reported Under ASC 606
 
Effect of Change
 
Balance Under ASC 605
Revenue
$
285,936

 
$
(3,076
)
 
$
282,860

 
$
770,959

 
$
189

 
$
771,148



 
As of September 30, 2018
(in thousands)
As Reported Under ASC 606
 
Effect of Change
 
Balance Under ASC 605
Accounts receivable, net
$
149,449

 
$
(13,728
)
 
$
135,721

Inventory, net
123,249

 
6,012

 
129,261

Prepaid expenses and other current assets
31,958

 
(6,012
)
 
25,946

Accrued liabilities
193,913

 
(13,728
)
 
180,185

Current deferred revenue
14,418

 
4,931

 
19,349

v3.10.0.1
Fair value measurements (Tables)
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Assets measured at fair value on recurring basis
The Company’s assets that are measured at fair value on a recurring basis within the fair value hierarchy are summarized as follows:
 
September 30, 2018
 
December 31, 2017
(in thousands)
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents (1):