GOPRO, INC., 10-K filed on 2/15/2019
Annual Report
v3.10.0.1
Document, Entity and Information - USD ($)
12 Months Ended
Dec. 31, 2018
Jan. 31, 2019
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-K  
Document Period End Date Dec. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus FY  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Well-known Seasoned Issuer Yes  
Entity Voluntary Filers No  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity Public Float $ 724,660,000  
Common Class A [Member]    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding   114,352,049
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
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 152,095 $ 202,504
Marketable securities 45,417 44,886
Accounts receivable, net 129,216 112,935
Inventory 116,458 150,551
Prepaid expenses and other current assets 30,887 62,811
Total current assets 474,073 573,687
Property and equipment, net 46,567 68,587
Intangible assets, net 13,065 24,499
Goodwill 146,459 146,459
Other long-term assets 18,195 37,014
Total assets 698,359 850,246
Current liabilities:    
Accounts payable 148,478 138,257
Accrued liabilities 135,892 213,030
Deferred revenue 15,129 19,244
Total current liabilities 299,499 370,531
Long-term taxes payable 19,553 21,188
Long-term debt 138,992 130,048
Other long-term liabilities 28,203 29,774
Total liabilities 486,247 551,541
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, 105,170 and 101,034 shares issued and outstanding, respectively; 150,000 Class B shares authorized, 35,897 and 35,966 shares issued and outstanding, respectively 894,755 854,452
Treasury stock, at cost, 10,710 and 10,710 shares, respectively (113,613) (113,613)
Accumulated deficit (569,030) (442,134)
Total stockholders’ equity 212,112 298,705
Total liabilities and stockholders’ equity $ 698,359 $ 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 105,170,000 101,034,000
Common stock outstanding (shares) 105,170,000 101,034,000
Common Class B [Member]    
Common Stock, Shares Authorized (shares) 150,000,000 150,000,000
Common Stock, Shares, Issued 35,897,000 35,966,000
Common stock outstanding (shares) 35,897,000 35,966,000
v3.10.0.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
Revenue $ 1,148,337 $ 1,179,741 $ 1,185,481
Cost of revenue 786,903 795,211 723,561
Gross profit 361,434 384,530 461,920
Operating expenses:      
Research and development 167,296 229,265 358,902
Sales and marketing 222,096 236,581 368,620
General and administrative 66,004 82,144 107,367
Total operating expenses 455,396 547,990 834,889
Operating loss (93,962) (163,460) (372,969)
Interest expense (18,683) (13,660) (2,992)
Other income, net 4,970 733 787
Total other expense, net (13,713) (12,927) (2,205)
Loss before income taxes (107,675) (176,387) (375,174)
Income tax expense 1,359 6,486 43,829
Net loss $ (109,034) $ (182,873) $ (419,003)
Weighted Average Number of Shares Outstanding, Basic and Diluted 139,495 138,056 139,425
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Interest Paid, Including Capitalized Interest, Operating and Investing Activities $ 6,125 $ 3,114 $ 0
Income Taxes Paid, Net (32,090) 8,370 9,690
Capital Expenditures Incurred but Not yet Paid 223 5,785 2,258
Excess Tax Benefit from Share-based Compensation, Financing Activities 0 0 3,463
Net loss (109,034) (182,873) (419,003)
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization 35,063 41,478 41,640
Stock-based compensation 40,887 51,255 69,527
Excess Tax Benefit from Share-based Compensation, Operating Activities 0 0 (3,463)
Deferred income taxes (389) (2,527) 38,568
Non-cash restructuring charges 6,282 7,315 17,601
Amortization of Debt Discount (Premium) 8,112 5,345 0
Asset Impairment Charges 0 0 7,088
Gain (Loss) on Disposition of Intangible Assets (5,000) 0 0
Other 1,696 4,094 7,574
Changes in operating assets and liabilities:      
Accounts receivable, net (16,460) 52,278 (18,816)
Inventory 34,093 16,641 21,040
Prepaid expenses and other assets 35,390 9,303 (14,618)
Accounts payable and other liabilities (70,400) (44,411) 142,941
Deferred revenue (2,674) 5,249 2,168
Net cash used in operating activities (42,434) (36,853) (107,753)
Investing activities:      
Purchases of property and equipment, net (11,004) (24,061) (43,627)
Purchases of marketable securities (57,731) (52,318) 0
Maturities of marketable securities 57,500 21,659 119,918
Sale of marketable securities 0 11,623 47,348
Proceeds from Sale of Intangible Assets 5,000 0 0
Payments to Acquire Businesses, Gross 0 0 (104,353)
Net cash provided by (used in) investing activities (6,235) (43,097) 19,286
Financing activities:      
Proceeds from issuance of common stock 5,169 9,751 9,664
Payments Related to Tax Withholding for Share-based Compensation (6,650) (12,118) (6,889)
Proceeds from issuance of convertible senior notes 0 175,000 0
Payments for Repurchase of Equity, Prepaid Forward 0 (78,000)  
Payment of deferred acquisition-related consideration 0 (75) (950)
Payments of Debt Issuance Costs 0 (5,964) (3,333)
Net cash provided by (used in) financing activities (1,481) 88,594 1,955
Effect of exchange rate changes on cash and cash equivalents (259) 1,746 (1,046)
Net decrease in cash and cash equivalents (50,409) 10,390 (87,558)
Cash and cash equivalents at beginning of period 202,504 192,114 279,672
Cash and cash equivalents at end of period $ 152,095 $ 202,504 192,114
Payments for Repurchase of Common Stock     $ 0
v3.10.0.1
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) Statement - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock Including Additional Paid in Capital [Member]
Treasury Stock [Member]
Retained Earnings [Member]
Special Termination Benefits [Member]
Special Termination Benefits [Member]
Common Stock Including Additional Paid in Capital [Member]
Beginning Balance at Dec. 31, 2015 $ 772,033 $ 663,311 $ (35,613) $ 144,335    
Beginning Balance (shares) at Dec. 31, 2015   136,601        
Common stock issued under employee benefit plans, net of shares withheld for tax 10,103 $ 10,103        
Common stock issued under employee benefit plans, net of shares withheld for tax (shares)   3,936        
Taxes related to net share settlements (6,889) $ (6,889)        
Shares issued to third-party vendor for services (Note 11) 7,297 $ 7,297        
Shares issued to third-party vendor for services (Note 11) (shares)   822        
Allocated share-based compensation expense 69,499 $ 69,499     $ 15,566 $ 15,566
Excess tax benefit from stock-based compensation (1,661) (1,661)        
Net loss (419,003)     (419,003)    
Ending Balance at Dec. 31, 2016 446,945 $ 757,226 (35,613) (274,668)    
Ending Balance (shares) at Dec. 31, 2016   141,359        
Common stock issued under employee benefit plans, net of shares withheld for tax 9,732 $ 9,732        
Common stock issued under employee benefit plans, net of shares withheld for tax (shares)   4,807        
Taxes related to net share settlements (12,118) $ (12,118)        
Allocated share-based compensation expense 54,037 54,037        
Repurchase of common stock under Prepaid Forward contract (Note 5) (78,001) $ (1) (78,000)      
Repurchase of common stock under Prepaid Forward contract (Note 5) (shares)   (9,166)        
Issuance of Convertible Note (Note 5) (45,211) $ (45,211)        
Cumulative effect of adoption of new ASU 15,772 365   15,407    
Net loss (182,873)     (182,873)    
Ending Balance at Dec. 31, 2017 298,705 $ 854,452 (113,613) (442,134)    
Ending Balance (shares) at Dec. 31, 2017   137,000        
Common stock issued under employee benefit plans, net of shares withheld for tax 5,099 $ 5,099        
Common stock issued under employee benefit plans, net of shares withheld for tax (shares)   4,067        
Taxes related to net share settlements (6,650) $ (6,650)        
Allocated share-based compensation expense 41,854 41,854        
Cumulative effect of adoption of new ASU (17,862)     (17,862)    
Net loss (109,034)     (109,034)    
Ending Balance at Dec. 31, 2018 $ 212,112 $ 894,755 $ (113,613) $ (569,030)    
Ending Balance (shares) at Dec. 31, 2018   141,067        
v3.10.0.1
Summary of business and significant accounting policies
12 Months Ended
Dec. 31, 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) helps its consumers capture and share their experiences in immersive and exciting ways. The Company is committed to developing solutions that create an easy, seamless experience for consumers to capture, create and share engaging personal content. To date, the Company’s cameras, drones, 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 consolidated financial statements have been prepared in accordance with United States 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.
Principles of consolidation. These 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 consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s 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), 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 consolidated statements of comprehensive income (loss) have been omitted.
Prior period reclassifications. Reclassifications of certain prior period amounts in the consolidated financial statements have been made to conform to the current period presentation.
Cash equivalents and marketable securities. Cash equivalents primarily consist of investments in money market funds with maturities of three months or less from the date of purchase. Marketable securities consist of commercial paper, U.S. treasury securities and corporate debt securities, and are classified as available-for-sale securities. The Company views these securities as available to support current operations and has classified all available-for-sale securities as current assets. Available-for-sale securities are carried at fair value with unrealized gains and losses, if any, included in stockholders’ equity. Unrealized losses are charged against other income, net, for declines in fair value below the cost of an individual investment that is deemed to be other than temporary. The Company has not identified any marketable securities as other-than-temporarily impaired for the periods presented. The cost of securities sold is based upon a specific identification method.
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 December 31, 2018 and 2017 was $0.5 million and $0.8 million, respectively.
Inventory. Inventory consists of finished goods and component parts, which are purchased directly from contract manufacturers or from suppliers. Inventory is stated at the lower of cost or net realizable value on a first-in, first-out basis. The Company writes down its inventory for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and estimated market value plus the estimated cost to sell. The Company’s assessment of market value is based upon assumptions around market conditions and estimated future demand for its products within a specified time horizon, generally 12 months. Adjustments to reduce inventory to net realizable value are recognized in cost of revenue.
Point of purchase (POP) displays. The Company provides retailers with POP displays, generally free of charge, in order to facilitate the marketing of the Company’s products within retail stores. The POP displays contain a display that broadcasts video images taken by GoPro cameras along with product placement available for cameras and accessories. POP display costs are capitalized as long-term assets and charged to sales and marketing expense over the expected period of benefit, which generally ranges from 24 to 36 months. Cash outflows and amortization related to POP displays are classified as operating activities in the consolidated statement of cash flows. Amortization was $13.5 million, $19.2 million and $19.6 million in 2018, 2017 and 2016, respectively.
Property and equipment, net. Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful life of the assets, ranging from one to nine years. Leasehold improvements are amortized over the shorter of the lease term or their expected useful life. Property and equipment pending installation, configuration or qualification are classified as construction in progress. Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred.
Fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. The Company estimates and categorizes the fair value of its financial assets by applying the following hierarchy:
Level 1
Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to directly access.
Level 2
Valuations based on quoted prices for similar assets or liabilities; valuations for interest-bearing securities based on non-daily quoted prices in active markets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3
Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair value of Level 2 financial instruments is obtained from an independent pricing service, which may use quoted market prices for identical or comparable instruments or model driven valuations using observable market data or inputs corroborated by observable market data.
Leases. The Company leases its office space and facilities under cancelable and non-cancelable operating leases. For leases that contain rent escalation or rent concession provisions, the Company recognizes rent expense on a straight-line basis over the term of the lease. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease inception. The Company also calculates a liability for costs that will continue to be incurred under a lease for its remaining term without economic benefit to the Company upon determination of a cease-use date. The fair value of the liability is determined based on remaining lease payments, estimated sublease income and the effects of any prepaid or deferred items recognized under the lease.
Goodwill and other intangible assets. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Acquired intangible assets other than goodwill are amortized over their useful lives unless the lives are determined to be indefinite. For intangible assets acquired in a business combination, the estimated fair values of the assets received are used to establish their recorded values. Valuation approaches consistent with the market approach, income approach and/or cost approach are used to measure fair value.
Impairment of goodwill and long-lived assets. The Company performs an annual assessment of its goodwill during the fourth quarter of each calendar year or more frequently if indicators of potential impairment exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate it is more likely than not that the fair value of its single reporting unit is less than its carrying value. There was no impairment of goodwill recorded for any periods presented. For the Company’s annual impairment testing in 2018, the Company did not identify any indicators of potential impairment of its single reporting unit. Other indefinite-lived intangible assets are assessed for impairment at least annually. If their carrying value exceeds the estimated fair value, the difference is recorded as an impairment. See Note 4 Consolidated financial statement details, for information regarding impairment charges recorded for indefinite-lived intangible assets.
Long-lived assets, such as property and equipment and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount to the estimated future undiscounted cash flows expected to be generated by the asset group. If it is determined that an asset group is not recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its fair value. There was no material impairment of long-lived assets for any periods presented.
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 Accounting Standards Update (ASU) 2014-19 Revenue from Contracts with Customers, which was adopted on January 1, 2018.
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 December 31, 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 was $16.1 million as of December 31, 2018 and the Company recognized $17.0 million of related revenue during the year ended December 31, 2018.
Prior to January 1, 2018, the Company recognized revenue under Accounting Standards Codification (ASC) 605, Revenue Recognition. ASC 605 is materially similar to ASC 606, Revenue from Contracts with Customers, with the following differences:
The Company recognized revenue when persuasive evidence of an arrangement existed, delivery had occurred, the sales price was fixed and determinable and collectability was reasonably assured.
The Company allocated the transaction price based on its best estimate of the selling price (BESP). The Company’s process for determining BESP was materially the same as its’ current allocation of the transaction price to each performance obligation.
Sales incentives were recorded as a reduction to revenue in the period the incentives were offered to customers or the related revenue was recognized, whichever was later.
Additionally, the Company allocated the transaction price based on its best estimate of the selling price (BESP). The Company’s process for determining BESP was materially the same as its’ current allocation of the transaction price to each performance obligation. Lastly, sales incentives were recorded as a reduction to revenue in the period the incentives were offered to customers or the related revenue was recognized, whichever was later.
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.
Shipping costs. Amounts billed to customers for shipping and handling are classified as revenue and the Company’s related shipping and handling costs incurred are classified as cost of revenue.
Sales taxes. Sales taxes collected from customers and remitted to respective governmental authorities are recorded as liabilities and are not included in revenue.
Advertising costs. Advertising costs consist of costs associated with print, television and e-commerce media advertisements and are expensed as incurred. The Company incurs promotional expenses resulting from payments under event, resort and athlete sponsorship contracts. These sponsorship arrangements are considered to be executory contracts and, as such, the costs are expensed as performance under the contract is received. The costs associated with the preparation of sponsorship activities, including the supply of GoPro products, media team support, and activation fees are expensed as incurred. Prepayments made under sponsorship agreements are included in prepaid expenses or other long-term assets depending on the period to which the prepayment applies. Advertising costs were $73.0 million, $61.3 million and $106.0 million in 2018, 2017 and 2016, respectively.
Stock-based compensation. Stock-based awards granted to employees and directors are measured at fair value and recognized as an expense. The Company primarily issues restricted stock units and accounts for forfeitures as they occur. For service-based awards, stock-based compensation is recognized on a straight-line basis over the requisite service period. For performance and market-based awards which also require a service period, the Company uses graded vesting over the longer of the derived service period or when the performance or market condition is satisfied.
Foreign currency. The U.S. dollar is the functional currency of the Company’s foreign subsidiaries. The Company remeasures monetary assets or liabilities denominated in currencies other than the U.S. dollar using exchange rates prevailing on the balance sheet date, and non-monetary assets and liabilities at historical rates. Foreign currency remeasurement and transaction gains and losses are included in other income, net and have not been material for any periods presented.
Income taxes. The Company utilizes the asset and liability method for computing its income tax provision, under which deferred tax assets and liabilities are recognized for the expected future consequences of temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates. Management makes estimates, assumptions and judgments to determine the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation losses recorded against deferred tax assets. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent the Company believes recovery is not likely, establishes a valuation allowance.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Interest and penalties related to unrecognized tax benefits are recognized within income tax expense.
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 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 United States deferred tax assets of $1.2 million with a corresponding United States 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 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 full year ended December 31, 2018 due to the adoption of the standard.


The cumulative effect of the changes made to the Company’s 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
)


The adoption of ASU 2014-09 (ASC 606) 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 consolidated financial statement line items. Additionally, under ASC 606, 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 consolidated financial statement line items resulting in an increase in the Company’s accounts receivable days sales outstanding (DSO) calculation. These 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 consolidated statements of cash flows. Refer to the tables below for the quantitative impact to the Company’s consolidated financial statements for the periods ended December 31, 2018 due to the adoption of ASC 606.

 
Year ended December 31, 2018
(in thousands)
As Reported Under ASC 606
 
Effect of Change
 
Balance Under ASC 605
Revenue
$
1,148,337

 
$
2,659

 
$
1,150,996



 
As of December 31, 2018
(in thousands)
As Reported Under ASC 606
 
Effect of Change
 
Balance Under ASC 605
Accounts receivable, net
$
129,216

 
$
(13,100
)
 
$
116,116

Inventory, net
116,458

 
5,474

 
121,932

Prepaid expenses and other current assets
30,887

 
(5,474
)
 
25,413

Accrued liabilities
135,892

 
(13,100
)
 
122,792

Current deferred revenue
15,129

 
2,184

 
17,313


Standard
 
Description
 
Expected date of adoption
 
Effect on the 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 reflect most leases on their balance sheets and recognize the expenses on their income statements in a manner similar to current practice. Lessees would recognize a right-to-use asset and a lease liability for all leases with terms of more than 12 months. The new standard should be applied on a modified retrospective basis or using the cumulative effect transition method.
 
January 1, 2019
 
The Company identified its population of lease arrangements by reviewing its current lease agreements to identify the changes to total assets and total liabilities on the Company’s consolidated balance sheet as a result of adopting the standard. The Company plans to elect the package of practical expedients, which among other things, allows the Company to maintain its existing classification of its current leases. The Company also plans to elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. Additionally, the Company plans to make a policy election to maintain its current lease accounting for leases with an initial term of 12 months or less. The Company plans to adopt the standard using the cumulative effect transition method.
While the Company is finalizing the impact of its restructuring plans on its right of use asset calculation, the Company expects the adoption of the standard will result in the recognition of additional lease liabilities of approximately $89 million to $93 million. The Company does not believe the standard will have a material impact on its consolidated income statement and 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 is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017, and requires use of 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 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 accounting pronouncements has had or will have a material impact on its consolidated financial statements.
v3.10.0.1
Business Acquisitions
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business acquisitions
In 2016, the Company completed acquisitions of two privately-held mobile editing application companies for total cash consideration of approximately $104 million. The aggregate allocation of the purchase prices primarily included $17.4 million of identifiable intangible assets, $3.4 million of net deferred tax liabilities and approximately $89 million of residual goodwill. Net tangible assets acquired were not material. In addition to the amounts above, aggregate deferred cash and stock compensation of up to approximately $35 million is payable to certain continuing employees subject to meeting specified future employment conditions. This amount is being recognized as compensation expense over the requisite service periods of up to four years from the respective acquisition dates, including approximately $22 million recognized in 2016.
Goodwill is primarily attributable to expected synergies in the technologies that can be leveraged by the Company in future product offerings related to device and software related offerings. Goodwill is not expected to be deductible for United States income tax purposes. The operating results of the acquired companies have been included in the Company’s consolidated financial statements from the date of acquisition.
Actual and pro forma results of operations for these acquisitions have not been presented because they did not have a material impact to the Company’s consolidated results of operations, either individually or in aggregate.
v3.10.0.1
Fair value measurements
12 Months Ended
Dec. 31, 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:
 
December 31, 2018
 
December 31, 2017
(in thousands)
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
10,901

 
$

 
$
10,901

 
$
25,251

 
$

 
$
25,251

Commercial paper
7,577

 

 
7,577

 
14,981

 

 
14,981

Corporate debt securities

 

 

 

 
2,500

 
2,500

Agency securities

 

 

 

 
4,999

 
4,999

Total cash equivalents
$
18,478

 
$

 
$
18,478

 
$
40,232

 
$
7,499

 
$
47,731

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
$

 
$
6,336

 
$
6,336

 
$

 
$
4,995

 
$
4,995

Commercial paper
20,657

 

 
20,657

 
19,888

 

 
19,888

Corporate debt securities

 
18,424

 
18,424

 

 
20,003

 
20,003

Total marketable securities
$
20,657

 
$
24,760

 
$
45,417

 
$
19,888

 
$
24,998

 
$
44,886

(1) 
Included in cash and cash equivalents in the accompanying consolidated balance sheets. Cash balances were $133.6 million and $154.8 million as of December 31, 2018 and 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 December 31, 2018 and 2017 were all less than one year in duration. At December 31, 2018 and 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 December 31, 2018 and 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 5 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 $143.3 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
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Consolidated financial statement details
Consolidated financial statement details
The following sections and tables provide details of selected balance sheet items.
Inventory
(in thousands)
December 31, 2018
 
December 31, 2017
Components
$
19,205

 
$
18,995

Finished goods
97,253

 
131,556

Total inventory
$
116,458

 
$
150,551


Property and equipment, net
(in thousands)
Useful life
(in years)
 
December 31, 2018
 
December 31, 2017
Leasehold improvements
1–9
 
$
66,198

 
$
67,713

Production, engineering and other equipment
1-4
 
43,019

 
47,502

Tooling
1–2
 
17,808

 
24,871

Computers and software
2
 
20,865

 
20,636

Furniture and office equipment
3
 
14,969

 
14,895

Tradeshow equipment and other
2–5
 
7,009

 
7,237

Construction in progress
 
 
80

 
347

Gross property and equipment
 
 
169,948

 
183,201

Less: Accumulated depreciation and amortization
 
 
(123,381
)
 
(114,614
)
Property and equipment, net
 
 
$
46,567

 
$
68,587


Depreciation expense was $23.6 million in 2018, and $32.4 million in 2017 and 2016. In 2017 and 2016, the Company recorded accelerated depreciation charges in connection with its plans to vacate certain leased office facilities as disclosed in Note 13 Restructuring charges.
Intangible assets
 
Useful life
(in months)
 
December 31, 2018
(in thousands)
 
 
Gross carrying value
 
Accumulated amortization
 
Net carrying value
Purchased technology
20-72
 
$
50,501

 
$
(37,451
)
 
$
13,050

Domain name
 
 
15

 

 
15

Total intangible assets
 
 
$
50,516

 
$
(37,451
)
 
$
13,065



 
Useful life
(in months)
 
December 31, 2017
(in thousands)
 
 
Gross carrying value
 
Accumulated amortization
 
Net carrying value
Purchased technology
24-72
 
$
49,901

 
$
(26,017
)
 
$
23,884

IPR&D
 
 
615

 

 
615

Total intangible assets
 
 
$
50,516

 
$
(26,017
)
 
$
24,499


In 2018 and 2017, the Company did not record any impairment charges for in-process research and development (IPR&D) assets. In 2016, the Company recorded impairment charges of $6.3 million to research and development expense for abandoned IPR&D assets.
Amortization expense was $11.4 million, $9.0 million and $9.1 million in 2018, 2017 and 2016, respectively. At December 31, 2018, expected amortization expense of intangible assets with definite lives for future periods was as follows:
(in thousands)
Total
Year ending December 31,
 
2019
$
7,818

2020
4,363

2021
869

2022

2023

 
$
13,050


Other long-term assets
(in thousands)
December 31, 2018
 
December 31, 2017
POP displays
$
9,130

 
$
16,451

Long-term deferred tax assets
945

 
825

Deposits and other
8,120

 
19,738

Other long-term assets
$
18,195

 
$
37,014


Accrued liabilities
(in thousands)
December 31, 2018
 
December 31, 2017
Accrued sales incentives
$
40,918

 
$
89,549

Accrued payables (1)
34,696

 
44,582

Employee related liabilities (1)
19,775

 
24,945

Refund liability (2)
13,100

 

Warranty liability
9,604

 
9,934

Inventory received
5,061

 
14,470

Customer deposits
3,105

 
8,700

Purchase order commitments
2,015

 
6,162

Income taxes payable
1,948

 
1,247

Other
5,670

 
13,441

Accrued liabilities
$
135,892

 
$
213,030


(1) 
See Note 13 Restructuring charges, for amounts associated with restructuring liabilities.
(2) 
See Note 1 Summary of business and significant accounting policies for a discussion on recently adopted accounting standards.
Product warranty
 
Year ended December 31,
(in thousands)
2018
 
2017
 
2016
Beginning balance
$
10,373

 
$
11,945

 
$
10.856

Charged to cost of revenue
24,725

 
20,139

 
19.272

Settlement of warranty claims
(24,127
)
 
(21,711
)
 
(18.183
)
Warranty liability
$
10,971

 
$
10,373

 
$
11.945

At December 31, 2018, $9.6 million of the warranty liability was recorded as an element of accrued liabilities and $1.4 million was recorded as an element of other long-term liabilities.
v3.10.0.1
Financing Arrangements
12 Months Ended
Dec. 31, 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 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 December 31, 2018 and 2017, the Company 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 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 consolidated statements of operations through the Notes’ Maturity Date. The accretion of the Notes to par and debt issuance cost recorded to long-term debt 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 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 December 31, 2018 and 2017, the outstanding principal on the Notes was $175.0 million, the unamortized debt discount was $33.3 million and $41.4 million, respectively, the unamortized debt issuance cost was $2.7 million and $3.6 million, respectively, and the net carrying amount of the liability component was $139.0 million and $130.0 million, respectively, which was recorded as long-term debt within the consolidated balance sheets. For the year ended December 31, 2018 and 2017, the Company recorded interest expense of $6.1 million and $4.4 million, respectively, for contractual coupon interest, $0.8 million and $0.6 million, respectively, for amortization of debt issuance costs, and $8.1 million and $5.3 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 consolidated balance sheet (and not outstanding for purposes of the calculation of basic and diluted income (loss) 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
Stockholders' equity Stockholders' equity
12 Months Ended
Dec. 31, 2018
Equity [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]
Stockholders’ equity
Common stock. The Company has two classes of authorized common stock: Class A common stock with 500 million shares authorized and Class B common stock with 150 million shares authorized. As of December 31, 2018, 105.2 million shares of Class A stock were issued and outstanding and 35.9 million shares of Class B stock were issued and outstanding. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting power and conversion rights. 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. The Class B common stock is also convertible into Class A common stock on the same basis upon any transfer, whether or not for value, except for “permitted transfers” as defined in the Company’s restated certificate of incorporation. 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. As of December 31, 2018, the Class B stock continued to represent greater than 10% of the overall outstanding shares.
The Company had the following shares of common stock reserved for issuance upon the exercise of equity instruments as of December 31, 2018:
(in thousands)
December 31, 2018
Stock options outstanding
5,993

Restricted stock units outstanding
7,217

Performance stock units outstanding
300

Common stock available for future grants
31,421

Total common stock shares reserved for issuance
44,931

v3.10.0.1
Employee benefit plans
12 Months Ended
Dec. 31, 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.
The 2014 Plan serves as a successor to the 2010 Plan and provides for the granting of incentive and nonqualified stock options, restricted stock awards (RSAs), restricted stock units (RSUs), stock appreciation rights, stock bonus awards and performance awards to qualified employees, non-employee directors and consultants. Options granted under the 2014 Plan generally expire within ten years from the date of grant and generally vest over one to four years. 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 Company accounts for forfeitures of stock-based payment awards in the period they occur.
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. The 2014 Plan and the ESPP also provide for automatic annual increases in the number of shares reserved for future issuance.
Employee retirement plan. The Company has a defined contribution retirement plan covering the United States and other international full-time employees that provides for voluntary employee contributions from 1% to 100% of annual compensation, subject to a maximum limit allowed by Internal Revenue Service guidelines. The Company matches 100% of each employee’s contributions up to a maximum of 4% of the employee’s eligible compensation. The Company’s matching contributions to the plan were $4.3 million, $5.5 million and $7.2 million in 2018, 2017 and 2016, respectively.
Stock options
A summary of the Company’s stock option activity 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
(654
)
 
0.74

 
 
 
 
Forfeited/Cancelled
(4,495
)
 
16.26

 
 
 
 
Outstanding at December 31, 2018
5,993

 
$
7.28

 
5.44
 
$
7,897

 
 
 
 
 
 
 
 
Vested and expected to vest at December 31, 2018
5,988

 
$
7.28

 
5.44
 
$
7,897

Exercisable at December 31, 2018
4,459

 
$
7.40

 
4.20
 
$
7,897


The weighted average grant date fair value of all options granted and assumed was $2.95, $4.06 and $4.84 per share in 2018, 2017 and 2016, respectively. The total fair value of all options vested was $6.1 million, $19.5 million and $27.2 million in 2018, 2017 and 2016, respectively. The aggregate intrinsic value of the stock options outstanding as of December 31, 2018 represents the value of the Company’s closing stock price on the last trading day of the year in excess of the exercise price multiplied by the number of options outstanding.
Restricted stock units
A summary of the Company’s RSU activity is as follows:
 
Shares
(in thousands)
 
Weighted average grant date fair value
Non-vested shares at December 31, 2017
9,483

 
$
11.87

Granted
4,612

 
5.83

Vested
(3,559
)
 
11.70

Forfeited
(3,319
)
 
11.75

Non-vested shares at December 31, 2018
7,217

 
$
8.15


The weighted average grant date fair value of all RSUs granted was $5.83, $9.40 and $12.10 per share in 2018, 2017 and 2016, respectively. The total fair value of all RSUs vested was $41.6 million, $57.7 million and $49.5 million in 2018, 2017 and 2016, respectively.
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, $0.6 million and $6.4 million for 2018, 2017 and 2016, 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 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
(34
)
 
5.74

Non-vested shares at December 31, 2018
300

 
$
5.76


The total fair value of all PSUs vested was zero in 2018.
Employee stock purchase plan. In 2018, 2017 and 2016, the Company issued 981,000, 934,000 and 668,000 shares under its ESPP, respectively, at weighted average prices of $4.78, $8.02 and $9.15, respectively.
Fair value disclosures. 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 RSUs and PSUs are determined using the Company’s closing stock price on the date of grant. The fair value of stock options granted and purchases under the Company’s ESPP is estimated using the Black-Scholes option pricing model. Expected term of stock options granted was estimated based on the simplified method. Expected stock price volatility was estimated by taking the Company’s average historic volatility and the historical volatility for industry peers based on daily price observations over a period equivalent to the expected term. Risk-free interest rate was based on the yields of U.S. Treasury securities with maturities similar to the expected term. Dividend yield was zero as the Company does not have any history of, nor plans to make, dividend payments.
The fair value of stock options granted was estimated as of the grant date using the following assumptions:
 
Year ended December 31,
 
2018
 
2017
 
2016
Volatility
51%
 
44%-49%
 
44%-45%
Expected term (years)
5.4-6.1
 
5.3-5.8
 
5.2-6.1
Risk-free interest rate
2.7%-3.0%
 
1.8%-2.1%
 
1.2%-2.0%
Dividend yield
—%
 
—%
 
—%

The fair value of stock purchase rights granted under the ESPP was estimated using the following assumptions:
 
Year ended December 31,
 
2018
 
2017
 
2016
Volatility
48%-53%
 
33%-36%
 
43%-54%
Expected term (years)
0.5
 
0.5
 
0.5
Risk-free interest rate
1.8%-2.2%
 
0.7%-1.2%
 
0.4%-0.5%
Dividend yield
—%
 
—%
 
—%

Stock-based compensation expense. The following table summarizes stock-based compensation expense included in the consolidated statements of operations:
 
Year ended December 31,
(in thousands)
2018
 
2017
 
2016
Cost of revenue
$
1,954

 
$
1,935

 
$
1,616

Research and development
19,636

 
24,963

 
31,365

Sales and marketing
9,459

 
10,498

 
13,883

General and administrative
9,838

 
13,859

 
22,663

Total stock-based compensation expense
$
40,887

 
$
51,255

 
$
69,527

The income tax benefit related to stock-based compensation expense was zero for 2018, 2017 and 2016 due to a full valuation allowance on the Company’s United States deferred tax assets (see Note 9 Income taxes).
At December 31, 2018, total unearned stock-based compensation of $49.0 million related to stock options, RSUs, 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
12 Months Ended
Dec. 31, 2018
Earnings Per Share [Abstract]  
Net loss per share
Net loss per share
The following table presents the calculations of basic and diluted net loss per share:
 
Year ended December 31,
(in thousands, except per share data)
2018
 
2017
 
2016
Numerator:
 
 
 
 
 
Net loss
$
(109,034
)
 
$
(182,873
)
 
$
(419,003
)
 
 
 
 
 
 
Denominator:
 
 
 
 
 
Weighted-average common shares—basic and diluted for Class A and Class B common stock
139,495

 
138,056

 
139,425

 
 
 
 
 
 
Basic and diluted net loss per share
$
(0.78
)
 
$
(1.32
)
 
$
(3.01
)

The following potentially dilutive shares were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive:
 
Year ended December 31,
(in thousands)
2018
 
2017
 
2016
Anti-dilutive stock-based awards
15,267

 
18,994

 
21,000


The Company has the intent and ability to deliver cash up to the principal amount of the Notes subject to conversion, based on the Company’s current and projected liquidity. 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. 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 5 Financing Arrangements. The Notes are convertible into cash, shares of the Company’s Class A common stock, or a combination thereof, at the Company’s election. 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 year ended December 31, 2018 and 2017, excludes approximately 9.2 million shares and 6.6 million shares, respectively, effectively repurchased and held in treasury stock on the consolidated balance sheets 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
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income taxes
Income taxes
Loss before income taxes consisted of the following:
 
Year ended December 31,
(in thousands)
2018
 
2017
 
2016
United States
$
(110,318
)
 
$
(123,325
)
 
$
(200,595
)
Foreign
2,643

 
(53,062
)
 
(174,579
)
 
$
(107,675
)
 
$
(176,387
)
 
$
(375,174
)

In 2018, the Company made changes to its overall entity structure, including elections to treat certain wholly-owned foreign subsidiaries as disregarded entities (foreign branches) for United States income tax purposes.
Income tax expense consisted of the following:
 
Year ended December 31,
(in thousands)
2018
 
2017
 
2016
Current
 
 
 
 
 
Federal
$
(2,821
)
 
$
(1,857
)
 
$
(2,925
)
State
175

 
240

 
(356
)
Foreign
4,394

 
10,631

 
8,542

Total current
1,748

 
9,014

 
5,261

Deferred
 
 
 
 
 
Federal
248

 
(248
)
 
37,573

State

 

 
4,436

Foreign
(637
)
 
(2,280
)
 
(3,441
)
Total deferred
(389
)
 
(2,528
)
 
38,568

Income tax expense
$
1,359

 
$
6,486

 
$
43,829



 
Year ended December 31,
 
2018
 
2017
 
2016
(dollars in thousands)
$
 
%
 
$
 
%
 
$
 
%
Reconciliation to statutory rate
 
 
 
 
 
 
 
 
 
 
 
Tax at federal statutory rate
$
(22,612
)
 
21.0
 %
 
$
(61,735
)
 
35.0
 %
 
$
(131,311
)
 
35.0
 %
Change in valuation allowance
42,772

 
(39.7
)
 
(36,497
)
 
20.7

 
101,878

 
(27.2
)
DTA rate change impact due to TCJA

 

 
73,423

 
(41.6
)
 

 

Impact of foreign operations
3,285

 
(3.1
)
 
34,039

 
(19.3
)
 
84,491

 
(22.5
)
Stock-based compensation
10,974

 
(10.2
)
 
12,001

 
(6.8
)
 
15,718

 
(4.2
)
State income taxes, net of federal benefit
(2,997
)
 
2.8

 
(6,469
)
 
3.7

 
(14,195
)
 
3.8

Impact of IRS audit
(9,687
)
 
9.0

 

 

 

 

Restructuring adjustment
(18,694
)
 
17.4

 

 

 

 

Tax credits
(5,996
)
 
5.6

 
(9,957
)
 
5.6

 
(12,992
)
 
3.5

Permanent tax adjustments
3,786

 
(3.5
)
 

 

 

 

Other
528

 
(0.6
)
 
1,681

 
(1.0
)
 
240

 
(0.1
)
Income tax provision at effective tax rate
$
1,359

 
(1.3
)%
 
$
6,486

 
(3.7
)%
 
$
43,829

 
(11.7
)%

The negative effective tax rate of 1.3% for 2018 resulted from a benefit related to the conclusion of the IRS audit and a benefit related to the set up and current year activity of disregarded entities (foreign branches) for United States tax purposes, all offset by the valuation allowance on United States federal and state net deferred tax assets and a shortfall tax impact from stock-based compensation. The negative effective tax rate of 3.7% for 2017 resulted from a significant benefit on pre-tax book losses, offset by the valuation allowance on United States federal and state net deferred tax assets and by income taxes paid at lower rates in profitable foreign jurisdictions (primarily wholly owned subsidiaries in Europe). In addition, due to the United States enactment of the Tax Cuts and Jobs Act (TCJA), United States deferred tax assets were revalued by $73.4 million at the statutory rate of 21% effective January 1, 2018, with a corresponding and equivalent valuation allowance adjustment. Overall, the provision for income taxes in each period has differed from the tax computed at United States federal statutory tax rates due to changes in the valuation allowance, the effect of non-United States operations, deductible and non-deductible stock-based compensation expense, states income taxes, United States research and development tax credits and other adjustments.
The lower negative effective tax rate of 3.7% for 2017 compared to the negative effective tax rate of 11.7% for 2016 resulted from a significant benefit on pre-tax book losses, offset by the establishment of a valuation allowance on all United States federal and state net deferred tax assets and by income taxes paid at lower rates in profitable foreign jurisdictions (primarily wholly owned subsidiaries in Europe). The provision for income taxes in each period has differed from the tax computed at United States federal statutory tax rates due to changes in the valuation allowance, the effect of non-United States operations, deductible and non-deductible stock-based compensation expense, states taxes, United States research and development tax credits, and other adjustments.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows:
 
Year ended December 31,
(in thousands)
2018
 
2017
Deferred tax assets:
 
 
 
Net operating loss carryforwards
$
166,281

 
$
121,952

Tax credit carryforwards
70,189

 
66,983

Stock-based compensation
6,414

 
13,055

Allowance for returns
3,147

 
5,452

Intangible assets
4,591

 
770

Depreciation and amortization
609

 

Accruals and reserves
20,975

 
18,981

Total deferred tax assets
272,206

 
227,193

Valuation allowance
(271,374
)
 
(226,458
)
Total deferred tax assets, net of valuation allowance
832

 
735

Deferred tax liabilities:
 
 
 
Depreciation and amortization

 
(292
)
Total deferred tax liabilities

 
(292
)
Net deferred tax assets
$
832

 
$
443


Recognition of deferred tax assets is appropriate when the realization of such assets is more likely than not. Based upon the weight of available evidence, the Company believes it is not more likely than not that the United States deferred tax assets will be realized. Accordingly, a valuation allowance has been established and maintained against United States deferred tax assets. The remaining deferred tax asset balances at December 31, 2018 reflect foreign deferred tax assets in each jurisdiction and are supported by taxable income or in the case of acquired companies, by the future reversal of deferred tax liabilities. It is more likely than not that a significant portion of the Company’s foreign deferred tax assets will be realized and thus, only a $0.3 million valuation allowance is required on its foreign deferred tax assets. The Company will continue to assess the realizability of the deferred tax assets in each of the applicable jurisdictions going forward. The Company’s valuation allowance increased by $44.9 million to $271.4 million as of December 31, 2018, primarily due to $21.0 million of set up of net beginning deferred assets of the disregarded entities (foreign branches) for United States tax purposes, current year deferred movement primarily on the United States deferred tax assets of $14.9 million, IRS audit related adjustments of $7.2 million, adoption of new accounting standards adjustments of $2.1 million, and other deferred movements on deferred tax assets of negative $0.3 million.
As of December 31, 2018, the Company’s federal, California and other state net operating loss carryforwards for income tax purposes were $639.6 million, $229.8 million and $251.9 million, net of reserves, respectively. Also, the Company’s federal and California state tax credit carryforwards were $40.7 million and $37.4 million, net of reserves, respectively. If not utilized, federal losses that arose before 2018, federal credit and California loss carryforwards will begin to expire from 2030 to 2038, while other state loss carryforwards will begin to expire from 2019 to 2038. Federal losses that arose in 2018 and will arise in subsequent years, and California tax credits will be carried forward indefinitely.
Under the provisions of §382 of the Internal Revenue Code, a change of control may impose an annual limitation on the amount of the Company’s net operating loss and tax credit carryforwards that can be used to reduce future tax liabilities. Of the Company’s total $639.6 million federal net operating loss carryforwards, approximately $8.1 million was from one of the Company’s acquisitions in 2016. These acquired tax attributes are subject to an annual limitation of $1.7 million per year for federal purposes and will begin to expire in the year 2034, if not utilized.
Uncertain income tax positions. The Company had gross unrecognized tax benefits of $32.6 million, $58.6 million and $56.9 million, as of December 31, 2018, 2017 and 2016, respectively. For fiscal year 2018, 2017 and 2016, total unrecognized income tax benefits were $17.3 million, $19.8 million and $24.1 million, respectively, and if recognized, would reduce income tax expense after considering the impact of the change in the valuation allowance in the United States. A material portion of the Company’s gross unrecognized tax benefits, if recognized, would increase the Company’s net operating loss carryforward, which would be offset by a full valuation allowance based on present circumstances.
These unrecognized tax benefits relate primarily to unresolved matters with taxing authorities regarding the Company’s transfer pricing positions and tax positions based on the Company’s interpretation of certain United States trial and appellate court decisions, which remain subject to appeal and therefore could be overturned in future periods. Although the completion, settlement and closure of any audits are 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.
A reconciliation of the beginning and ending amount of gross unrecognized income tax benefits are as follows:
 
Year ended December 31,
(in thousands)
2018
 
2017
 
2016
Balance at January 1
$
58,584

 
$
56,909

 
$
36,273

Increase related to current year tax positions
483

 
20,002

 
20,594

Decrease related to tax rate change for current year tax positions

 
(2,299
)
 

Increase related to prior year tax positions
445

 

 
130

Decrease related to prior year tax positions
(26,956
)
 
(3,927
)
 
(88
)
Decrease related to tax rate change for prior year tax positions

 
(12,101
)
 

 
$
32,556

 
$
58,584

 
$
56,909


The Company’s policy is to account for interest and penalties related to income tax liabilities within the provision for income taxes. The balances of accrued interest and penalties recorded in the balance sheets and provision were not material for any period presented.
The Company files income tax returns in the United States and in non-United States jurisdictions. During 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.
In 2018, the Company liquidated its Cayman Islands entity and elected to treat its wholly-owned foreign subsidiaries as disregarded entities (foreign branches) and include them in the United States consolidated tax group. As of December 31, 2018, the Company continues to assert indefinite reinvestment to the extent of any foreign withholding taxes on the undistributed earnings related to these foreign branches. Any foreign withholding tax on these earnings is deemed not to be material.
United States Tax Reform. The Tax Cuts and Job Act (TCJA) of 2017, enacted on December 22, 2017, contained significant changes to the United States tax law, including lowering the United States corporate income tax rate to 21%, implementing a territorial tax system, and imposing a one-time tax on deemed repatriated earnings of foreign subsidiaries.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of United States GAAP in situations when a registrant did 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 TCJA reduced the United States statutory tax rate from 35% to 21%, effective January 1, 2018. During the three months ended December 31, 2017, the Company recorded a $73.4 million tax expense representing the detriment of remeasuring its United States deferred tax assets at the lower 21% statutory tax rate, as well as a corresponding valuation allowance for the same amount resulting in no impact to the Company’s statement of operations.
The TCJA also implemented a territorial tax system. Under the territorial tax system, in general, the Company’s foreign earnings will no longer be subject to tax in the United States. As part of transitioning to the territorial tax system the TCJA included a mandatory deemed repatriation of all undistributed foreign earnings that were subject to United States income tax. On December 31, 2017, the Company concluded that the deemed repatriation would not result in any additional United States income tax due to an overall accumulated foreign deficit.
As of December 31, 2018, the Company completed accounting for all of the enactment date income tax effects of the TCJA and determined that there were no material adjustments in the three and twelve months ended December 31, 2018.
While the TCJA provides for a territorial tax system, beginning in 2018, it includes two new United States tax base erosion provisions, the global intangible low-taxed income (GILTI) provisions and the base-erosion and anti-abuse tax (BEAT) provisions. As of December 31, 2018, the Company has determined that these provisions did not have a tax impact on the Company in 2018.
v3.10.0.1
Related party transactions
12 Months Ended
Dec. 31, 2018
Related Party Transactions [Abstract]  
Related party transactions
Related party transactions
The Company incurred costs for Company-related chartered aircraft fees for the use of the CEO’s private plane. The Company recorded a de minimis expense in 2018, and $0.1 million and $0.5 million in 2017 and 2016, respectively. As of December 31, 2018 and 2017, the Company had zero accounts payable associated with these aircraft fees.
In 2016, the Company obtained services from a vendor whose CEO is also one of the members of the Company’s board of directors. The Company recorded expense of $0.1 million in 2018, zero in 2017, and $0.4 million in 2016. As of December 31, 2018 and 2017, the Company had $0.1 million and zero in accounts payable, respectively, associated with this vendor.
See Note 7 Employee benefit plans for information regarding CEO RSUs.
v3.10.0.1
Commitments, contingencies and guarantees
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments, contingencies and guarantees
Commitments, contingencies and guarantees
(in thousands)
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
Operating leases (1)
$
107,817

 
$
14,845

 
$
17,654

 
$
17,763

 
$
17,552

 
$
17,052

 
$
22,951

Sponsorship commitments (2)
4,018

 
3,906

 
112

 

 

 

 

Other contractual commitments (3)
2,447

 
2,229

 
114

 
104

 

 

 

Long-term debt (4)
175,000

 

 

 

 
175,000

 

 

Total contractual cash obligations
$
289,282

 
$
20,980

 
$
17,880

 
$
17,867

 
$
192,552

 
$
17,052

 
$
22,951

(1) 
The Company leases its facilities under long-term operating leases, which expire at various dates through 2027.
(2) 
The Company enters into multi-year sponsorship agreements with event organizers, resorts and athletes as part of its marketing efforts.
(3) 
The Company enters into other contractual commitments, including software licenses related to the Company’s financial and IT systems which require payments over several years.
(4) 
The Company's convertible senior notes are due April 2022. Refer to Note 5 Financing Arrangements.
In 2017 and 2016, the Company entered into sub-lease agreements for its office facilities that decreased the Company’s total future minimum lease payments by sub-lease rentals of approximately $0.9 million which approximates the corresponding remaining lease rentals.
Rent expense was $13.6 million, $19.1 million and $19.8 million for 2018, 2017 and 2016, respectively.
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 I, Item 3 Legal Proceedings, of this Annual Report on Form 10-K. 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 December 31, 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
12 Months Ended
Dec. 31, 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:
 
December 31, 2018
 
December 31, 2017
Customer A
12%
 
11%
Customer B
11%
 
32%
Customer C
*
 
16%
Customer D
*
 
12%