GOPRO, INC., 10-Q filed on 11/8/2019
Quarterly Report
v3.19.3
Document, Entity and Information - shares
9 Months Ended
Sep. 30, 2019
Nov. 04, 2019
Class of Stock [Line Items]    
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 77-0629474  
Entity Address, Address Line One 3000 Clearview Way  
Entity Address, City or Town San Mateo,  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 94402  
Title of 12(b) Security Class A Common Stock  
Trading Symbol GPRO  
Entity Registrant Name GOPRO, INC.  
City Area Code (650)  
Local Phone Number 332-7600  
Entity Central Index Key 0001500435  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2019  
Document Transition Report false  
Entity File Number 001-36514  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Shell Company false  
Security Exchange Name NASDAQ  
Common Class A [Member]    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding   126,859,037
Common Class B [Member]    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding   28,896,866
v3.19.3
Condensed Consolidated Balance Sheets - USD ($)
Sep. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 43,016,000 $ 152,095,000
Marketable securities 35,960,000 45,417,000
Accounts receivable, net 71,977,000 129,216,000
Inventory 250,032,000 116,458,000
Prepaid expenses and other current assets 24,023,000 30,887,000
Total current assets 425,008,000 474,073,000
Property and equipment, net 39,727,000 46,567,000
Operating Lease, Right-of-Use Asset 52,512,000 0
Intangible assets, net 7,111,000 13,065,000
Goodwill 146,459,000 146,459,000
Other long-term assets 16,528,000 18,195,000
Total assets 687,345,000 698,359,000
Current liabilities:    
Accounts payable 140,271,000 148,478,000
Accrued expenses and other current liabilities 159,475,000 135,892,000
Short-term operating lease liabilities 8,890,000 0
Deferred revenue 11,966,000 15,129,000
Total current liabilities 320,602,000 299,499,000
Long-term taxes payable 18,408,000 19,553,000
Long-term debt 146,249,000 138,992,000
Long-term operating lease liabilities 62,554,000 0
Other long-term liabilities 7,973,000 28,203,000
Total liabilities 555,786,000 486,247,000
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, 117,435 and 105,170 shares issued and outstanding, respectively; 150,000 Class B shares authorized, 28,897 and 35,897 shares issued and outstanding, respectively 924,725,000 894,755,000
Treasury stock, at cost, 10,710 and 10,710 shares, respectively (113,613,000) (113,613,000)
Accumulated deficit (679,553,000) (569,030,000)
Total stockholders’ equity 131,559,000 212,112,000
Total liabilities and stockholders’ equity $ 687,345,000 $ 698,359,000
v3.19.3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2019
Dec. 31, 2018
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 117,435,000 105,170,000
Common stock outstanding (shares) 117,435,000 105,170,000
Common Class B [Member]    
Common Stock, Shares Authorized (shares) 150,000,000 150,000,000
Common Stock, Shares, Issued 28,897,000 35,897,000
Common stock outstanding (shares) 28,897,000 35,897,000
v3.19.3
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Income Statement [Abstract]        
Revenue $ 131,169 $ 285,936 $ 666,306 $ 770,959
Cost of revenue 102,737 194,904 455,342 551,642
Gross profit 28,432 91,032 210,964 219,317
Operating expenses:        
Research and development 34,940 41,157 111,215 130,361
Sales and marketing 48,848 55,871 148,273 165,297
General and administrative 15,842 15,358 49,909 50,588
Total operating expenses 99,630 112,386 309,397 346,246
Operating loss (71,198) (21,354) (98,433) (126,929)
Interest expense (4,623) (4,616) (14,032) (13,804)
Other Nonoperating Expense       (268)
Other income (expense), net 738 661 1,503  
Total other expense, net (3,885) (3,955) (12,529) (14,072)
Loss before income taxes (75,083) (25,309) (110,962) (141,001)
Income tax (benefit) expense 273 (1,780) 500 296
Net loss $ (74,810) $ (27,089) $ (110,462) $ (140,705)
Earnings Per Share, Basic and Diluted $ (0.51) $ (0.19) $ (0.77) $ (1.01)
Weighted Average Number of Shares Outstanding, Basic and Diluted 145,617 140,072 144,306 139,028
v3.19.3
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Net loss $ (110,462) $ (140,705)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 19,823 27,773
Amortization of Leased Asset 7,599 0
Stock-based compensation 30,160 31,171
Deferred income taxes 13 (987)
Restructuring Reserve, Settled without Cash   5,788
Non-cash restructuring charges (199)  
Amortization of Debt Discount (Premium) 6,633 5,988
Other (779) (301)
Changes in operating assets and liabilities:    
Accounts receivable, net 57,160 (36,812)
Inventory (133,574) 27,302
Prepaid expenses and other assets 8,136 32,203
Accounts payable and other liabilities 6,481 (38,917)
Deferred revenue (3,686) (3,350)
Net cash used in operating activities (112,695) (90,847)
Investing activities:    
Purchases of property and equipment, net (6,310) (8,204)
Purchases of marketable securities (43,636) (14,896)
Maturities of marketable securities 51,738 55,000
Sale of marketable securities 1,889 0
Net cash provided by investing activities 3,681 31,900
Financing activities:    
Proceeds from issuance of common stock 5,574 5,131
Payments Related to Tax Withholding for Share-based Compensation (5,798) (5,388)
Net cash used in financing activities (224) (257)
Effect of exchange rate changes on cash and cash equivalents 159 (54)
Net change in cash and cash equivalents (109,079) (59,258)
Cash and cash equivalents at beginning of period 152,095 202,504
Cash and cash equivalents at end of period $ 43,016 $ 143,246
v3.19.3
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]
Beginning Balance at Dec. 31, 2017 $ 298,705 $ 854,452 $ (113,613) $ (442,134)
Beginning Balance (shares) at Dec. 31, 2017   137,000    
Common stock issued under employee benefit plans, net of shares withheld for tax 3,186 $ 3,186    
Adjustments Related to Tax Withholding for Share-based Compensation (2,402) $ 2,402    
Common stock issued under employee benefit plans, net of shares withheld for tax (shares)   1,673    
Allocated share-based compensation expense 10,797 $ 10,797    
Cumulative Effect of New Accounting Principle in Period of Adoption (17,862)     (17,862)
Net loss (76,347)     (76,347)
Ending Balance at Mar. 31, 2018 216,077 $ 866,033 (113,613) (536,343)
Ending Balance (shares) at Mar. 31, 2018   138,673    
Beginning Balance at Dec. 31, 2017 298,705 $ 854,452 (113,613) (442,134)
Beginning Balance (shares) at Dec. 31, 2017   137,000    
Net loss (140,705)      
Ending Balance at Sep. 30, 2018 172,046 $ 886,360 (113,613) (600,701)
Ending Balance (shares) at Sep. 30, 2018   140,583    
Beginning Balance at Mar. 31, 2018 216,077 $ 866,033 (113,613) (536,343)
Beginning Balance (shares) at Mar. 31, 2018   138,673    
Common stock issued under employee benefit plans, net of shares withheld for tax 249 $ 249    
Adjustments Related to Tax Withholding for Share-based Compensation (1,350) $ 1,350    
Common stock issued under employee benefit plans, net of shares withheld for tax (shares)   833    
Allocated share-based compensation expense 10,008 $ 10,008    
Net loss (37,269)     (37,269)
Ending Balance at Jun. 30, 2018 187,715 $ 874,940 (113,613) (573,612)
Ending Balance (shares) at Jun. 30, 2018   139,506    
Common stock issued under employee benefit plans, net of shares withheld for tax 1,721 $ 1,721    
Adjustments Related to Tax Withholding for Share-based Compensation (1,636) $ 1,636    
Common stock issued under employee benefit plans, net of shares withheld for tax (shares)   1,077    
Allocated share-based compensation expense 11,335 $ 11,335    
Net loss (27,089)     (27,089)
Ending Balance at Sep. 30, 2018 172,046 $ 886,360 (113,613) (600,701)
Ending Balance (shares) at Sep. 30, 2018   140,583    
Beginning Balance at Dec. 31, 2018 212,112 $ 894,755 (113,613) (569,030)
Beginning Balance (shares) at Dec. 31, 2018   141,067    
Common stock issued under employee benefit plans, net of shares withheld for tax 3,761 $ 3,761    
Adjustments Related to Tax Withholding for Share-based Compensation (2,673) $ 2,673    
Common stock issued under employee benefit plans, net of shares withheld for tax (shares)   3,293    
Allocated share-based compensation expense 9,782 $ 9,782    
Cumulative Effect of New Accounting Principle in Period of Adoption (61)     (61)
Net loss (24,365)     (24,365)
Ending Balance at Mar. 31, 2019 198,556 $ 905,625 (113,613) (593,456)
Ending Balance (shares) at Mar. 31, 2019   144,360    
Beginning Balance at Dec. 31, 2018 212,112 $ 894,755 (113,613) (569,030)
Beginning Balance (shares) at Dec. 31, 2018   141,067    
Net loss (110,462)      
Ending Balance at Sep. 30, 2019 131,559 $ 924,725 (113,613) (679,553)
Ending Balance (shares) at Sep. 30, 2019   146,331    
Beginning Balance at Mar. 31, 2019 198,556 $ 905,625 (113,613) (593,456)
Beginning Balance (shares) at Mar. 31, 2019   144,360    
Common stock issued under employee benefit plans, net of shares withheld for tax 144 $ 144    
Adjustments Related to Tax Withholding for Share-based Compensation (1,324) $ 1,324    
Common stock issued under employee benefit plans, net of shares withheld for tax (shares)   528    
Allocated share-based compensation expense 10,606 $ 10,606    
Net loss (11,287)     (11,287)
Ending Balance at Jun. 30, 2019 196,695 $ 915,051 (113,613) (604,743)
Ending Balance (shares) at Jun. 30, 2019   144,888    
Common stock issued under employee benefit plans, net of shares withheld for tax 1,706 $ 1,706    
Adjustments Related to Tax Withholding for Share-based Compensation (1,801) $ 1,801    
Common stock issued under employee benefit plans, net of shares withheld for tax (shares)   1,443    
Allocated share-based compensation expense 9,769 $ 9,769    
Net loss (74,810)     (74,810)
Ending Balance at Sep. 30, 2019 $ 131,559 $ 924,725 $ (113,613) $ (679,553)
Ending Balance (shares) at Sep. 30, 2019   146,331    
v3.19.3
Summary of business and significant accounting policies
9 Months Ended
Sep. 30, 2019
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, mountable and wearable accessories, and subscription services 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 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. 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, 2018 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, 2018. Except for the accounting policy related to leases that was updated as a result of adopting Accounting Standards Codification (ASC) 842, Leases, there have been no material changes in the Company’s critical accounting policies and estimates 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 condensed 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 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), stock-based compensation, inventory valuation, product warranty liabilities, the valuation and useful lives of long-lived assets (property and equipment, operating lease right-of-use assets, 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.
Prior period reclassifications. Reclassifications of certain prior period amounts in the condensed consolidated financial statements, including a refinement in methodology for revenue by geography, have been made to conform to the current period presentation.
Leases. The Company leases its office space and facilities under cancelable and non-cancelable operating leases. Beginning January 1, 2019, operating leases are presented in operating lease right-of-use (ROU) assets, short-term operating lease liabilities and long-term operating lease liabilities on the Company’s condensed consolidated balance sheets. ROU assets represent the Company’s right to control the use of an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of future lease payments. The Company determines its incremental borrowing rate based on information
available at lease commencement date to calculate the present value of future lease payments. Lease expenses are recognized on a straight-line basis over the lease term. Certain leases include an option to renew with terms that can extend the lease term from one to five years. The exercise of a lease renewal option is at the Company’s sole discretion and is included in the lease term when the Company is reasonably certain it will exercise the option.
Prior to January 1, 2019, the Company recognized leases under ASC 840, Leases, which had the following differences from the current lease standard, ASC 842, Leases:
Operating leases were previously not recorded on the Company’s condensed consolidated balance sheets.
The Company calculated a liability for future costs 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 was determined based on remaining lease payments, estimated sublease income and the effects of any prepaid or deferred items recognized under the lease.
Revenue recognition. The Company derives substantially all of its revenue from the sale of cameras, mounts and accessories, the related implied post contract support to customers, and subscription services. 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 considered probable. For the Company’s subscription services, revenue is recognized on a ratable basis over the subscription term, with payments received in advanced of services being rendered recorded in deferred revenue. 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.
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, primarily 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 sales contain multiple performance obligations that generally include the following three separate obligations: a) a hardware component (camera) 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, 2019 and December 31, 2018 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 $12.3 million and $16.1 million as of September 30, 2019 and December 31, 2018, respectively. During the three months ended September 30, 2019 and 2018, revenue of $5.5 million and $6.1 million, respectively, was recognized that was included in the deferred revenue balances at the beginning of each period. During the nine months ended September 30, 2019 and 2018, revenue of $12.9 million and $14.6 million, respectively, was recognized that was included in the deferred revenue balances at the beginning of each period.
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.
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
 
 
 
 
Leases
ASU No.
2016-02,
2018-10,
2018-11, 2019-01, (ASC 842)
 
This standard replaces existing lease guidance for lessees and requires operating leases to be recognized on the balance sheet. Under the new standard, lessees recognize a lease liability for the present value of future lease payments and a corresponding right-to-use asset.

 
January 1, 2019
 
The new standard was applied using a modified retrospective approach. Prior periods were not retrospectively adjusted.
The Company completed its analysis of the impact of the standard by reviewing its lease agreements to identify changes resulting from applying the requirements of the new standard. The Company elected to utilize a package of practical expedients, which among other things, allowed the Company to maintain its existing classification of its current leases. The Company also elected the hindsight practical expedient to determine a reasonably certain lease term for existing leases. Additionally, the Company made a policy election to maintain its previous lease accounting for leases with an initial term of 12 months or less. Furthermore, the Company made the policy election to not separate non-lease components from lease components. The Company’s analysis of its lease agreements under the new standard resulted in the recognition of lease liabilities of $88.3 million and lease assets of $60.1 million on its condensed consolidated balance sheet as of January 1, 2019. The new standard did not have a material impact on the Company’s condensed consolidated income statement and condensed consolidated statement of cash flows.

The cumulative effect of the changes made to the Company’s condensed consolidated January 1, 2019 balance sheet for the adoption of ASC 842, Leases were as follows:
(in thousands)
Balance at
December 31, 2018
 
Adjustment due to ASC 842
 
Balance at
January 1, 2019
Operating lease right-of-use assets
$

 
$
60,111

 
$
60,111

Property and equipment, net (1)
46,567

 
(57
)
 
46,510

Accrued expenses and other current liabilities (2)
135,892

 
(4,332
)
 
131,560

Short-term operating lease liabilities

 
10,812

 
10,812

Long-term operating lease liabilities

 
77,545

 
77,545

Other long-term liabilities (2)
28,203

 
(23,900
)
 
4,303

Accumulated deficit
(569,030
)
 
(61
)
 
(569,091
)

(1) 
Represents the reclassification of leasehold acquisition costs to operating lease right-of-use assets.
(2) 
Represents the reclassification of deferred rent, tenant incentives and accrued cease-use charges to operating lease right-of-use assets.
Standard
 
Description
 
Expected date of adoption
 
Effect on the condensed consolidated financial statements or other significant matters
Standards not yet adopted
 
 
 
 
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 condensed consolidated financial statements and related disclosures.
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
ASU No. 2016-13
(Topic 326)
 
The standard changes the impairment model for most financial assets and replaces the existing incurred loss model with a current expected credit loss (CECL) model. The standard should be applied on a modified retrospective approach.
 
January 1, 2020
 
The Company’s allowance for doubtful accounts and valuation of available-for-sale securities are subject to this standard. The Company is in the process of quantifying the impact on its condensed consolidated financial statements and related disclosures, but does not expect the impact to be material.

The Company will evaluate its available-for-sale securities for impairment under Topic 326 upon adoption of this standard. The Company does not expect the results of its evaluation of available-for-sale securities for impairment to 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 accounting pronouncements has had or will have a material impact on its condensed consolidated financial statements.
v3.19.3
Fair value measurements
9 Months Ended
Sep. 30, 2019
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, 2019
 
December 31, 2018
(in thousands)
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
3,412

 
$

 
$
3,412

 
$
10,901

 
$

 
$
10,901

Commercial paper

 

 

 
7,577

 

 
7,577

Total cash equivalents
$
3,412

 
$

 
$
3,412

 
$
18,478

 
$

 
$
18,478

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
$

 
$
8,265

 
$
8,265

 
$

 
$
6,336

 
$
6,336

Commercial paper

 
7,694

 
7,694

 
20,657

 

 
20,657

Corporate debt securities

 
20,001

 
20,001

 

 
18,424

 
18,424

Total marketable securities
$

 
$
35,960

 
$
35,960

 
$
20,657

 
$
24,760

 
$
45,417

(1) 
Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets. Cash balances were $39.6 million and $133.6 million as of September 30, 2019 and December 31, 2018, respectively.
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, 2019 and December 31, 2018 were all less than one year in duration. At September 30, 2019 and December 31, 2018, 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, 2019 and December 31, 2018, 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 $168.0 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.
v3.19.3
Condensed consolidated financial statement details Condensed consolidated financial statement details
9 Months Ended
Sep. 30, 2019
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, 2019
 
December 31, 2018
Components
$
32,996

 
$
19,205

Finished goods
217,036

 
97,253

Total inventory
$
250,032

 
$
116,458


Property and equipment, net
(in thousands)
September 30, 2019
 
December 31, 2018
Leasehold improvements
$
50,709

 
$
66,198

Production, engineering and other equipment
45,578

 
43,019

Tooling
19,190

 
17,808

Computers and software
21,085

 
20,865

Furniture and office equipment
10,837

 
14,969

Tradeshow equipment and other
7,009

 
7,009

Construction in progress
81

 
80

Gross property and equipment
154,489

 
169,948

Less: Accumulated depreciation and amortization
(114,762
)
 
(123,381
)
Property and equipment, net
$
39,727

 
$
46,567


Intangible assets
 
September 30, 2019
(in thousands)
Gross carrying value
 
Accumulated amortization
 
Net carrying value
Purchased technology
$
50,501

 
$
(43,405
)
 
$
7,096

Domain name
15

 

 
15

Total intangible assets
$
50,516

 
$
(43,405
)
 
$
7,111


 
December 31, 2018
(in thousands)
Gross carrying value
 
Accumulated amortization
 
Net carrying value
Purchased technology
$
50,501

 
$
(37,451
)
 
$
13,050

Domain name
15

 

 
15

Total intangible assets
$
50,516

 
$
(37,451
)
 
$
13,065


Amortization expense was $1.9 million and $3.4 million for the three months ended September 30, 2019 and 2018, respectively, and $6.0 million and $9.4 million for the nine months ended September 30, 2019 and 2018, respectively. At September 30, 2019, expected amortization expense of intangible assets with definite lives for future periods was as follows:
(in thousands)
Total
Year ending December 31,
 
2019 (remaining 3 months)
$
1,864

2020
4,363

2021
869

2022

2023

 
$
7,096


Other long-term assets
(in thousands)
September 30, 2019
 
December 31, 2018
Point of purchase (POP) displays
$
8,351

 
$
9,130

Long-term deferred tax assets
819

 
945

Deposits and other
7,358

 
8,120

Other long-term assets
$
16,528

 
$
18,195


Accrued expenses and other current liabilities
(in thousands)
September 30, 2019
 
December 31, 2018
Accrued sales incentives
$
43,051

 
$
40,918

Accrued payables (1)
34,573

 
34,696

Employee related liabilities (1)
16,520

 
19,775

Refund liability
5,445

 
13,100

Warranty liability
9,072

 
9,604

Inventory received
25,057

 
5,061

Customer deposits
20,125

 
3,105

Purchase order commitments
613

 
2,015

Income taxes payable
1,261

 
1,948

Other
3,758

 
5,670

Accrued expenses and other current liabilities
$
159,475

 
$
135,892


(1) 
See Note 10 Restructuring charges for amounts associated with restructuring liabilities.
Product warranty
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Beginning balance
$
12,850

 
$
10,692

 
$
10,971

 
$
10,373

Charged to cost of revenue
1,610

 
5,055

 
12,013

 
18,163

Settlement of warranty claims
(3,981
)
 
(5,878
)
 
(12,505
)
 
(18,667
)
Warranty liability
$
10,479

 
$
9,869

 
$
10,479

 
$
9,869

At September 30, 2019 and December 31, 2018, $9.1 million and $9.6 million, respectively, of the warranty liability was recorded as an element of accrued expenses and other current liabilities, and $1.4 million was recorded as an element of other long-term liabilities.
v3.19.3
Financing Arrangements
9 Months Ended
Sep. 30, 2019
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 subsidiaries. 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, 2019 and December 31, 2018, 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 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 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 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, 2019 and December 31, 2018, the outstanding principal on the Notes was $175.0 million, the unamortized debt discount was $26.6 million and $33.3 million, respectively, the unamortized debt issuance cost was $2.1 million and $2.7 million, respectively, and the net carrying amount of the liability component was $146.2 million and $139.0 million, respectively, which was recorded as long-term debt within the condensed consolidated balance sheets. For the three months ended September 30, 2019 and 2018, the Company recorded interest expense of $1.5 million for contractual coupon interest, $0.2 million for amortization of debt issuance costs, and $2.2 million and $2.0 million, respectively, for amortization of the debt discount. For the nine months ended September 30, 2019 and 2018, the Company recorded interest expense of $4.6 million for contractual coupon interest, $0.6 million for amortization of debt issuance costs, and $6.6 million and $6.0 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 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.
v3.19.3
Employee benefit plans
9 Months Ended
Sep. 30, 2019
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 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. For additional information regarding the Company’s equity incentive plans, refer to the 2018 Annual Report.
Stock options
A summary of the Company’s stock option activity for the nine months ended September 30, 2019 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, 2018
5,993

 
$
7.28

 
5.44
 
$
7,897

Granted
527

 
7.42

 
 
 
 
Exercised
(2,159
)
 
0.75

 
 
 
 
Forfeited/Cancelled
(225
)
 
18.62

 
 
 
 
Outstanding at September 30, 2019
4,136

 
$
10.09

 
6.99
 
$
488

 
 
 
 
 
 
 
 
Vested and expected to vest at September 30, 2019
4,136

 
$
10.09

 
6.99
 
$
488

Exercisable at September 30, 2019
2,927

 
$
11.41

 
6.19
 
$
475


The aggregate intrinsic value of the stock options outstanding as of September 30, 2019 represents the value of the Company’s closing stock price on September 30, 2019 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, 2019 is as follows:
 
Shares
(in thousands)
 
Weighted-average grant date fair value
Non-vested shares at December 31, 2018
7,217

 
$
8.15

Granted
5,293

 
5.88

Vested
(3,231
)
 
8.95

Forfeited
(670
)
 
7.61

Non-vested shares at September 30, 2019
8,609

 
$
6.49


Performance stock units
A summary of the Company’s PSU activity for the nine months ended September 30, 2019 is as follows:
 
Shares
(in thousands)
 
Weighted-average grant date fair value
Non-vested shares at December 31, 2018
300

 
$
5.76

Granted
819

 
7.51

Forfeited
(300
)
 
5.76

Non-vested shares at September 30, 2019
819

 
$
7.51


Employee stock purchase plan. For the nine months ended September 30, 2019 and 2018, the Company issued 958,000 and 981,000 shares under its ESPP, respectively, at weighted-average prices of $4.13 and $4.78, 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. There have been no significant changes in the Company’s valuation assumptions from those disclosed in its 2018 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)
2019
 
2018
 
2019
 
2018
Cost of revenue
$
448

 
$
534

 
$
1,483

 
$
1,406

Research and development
4,507

 
4,977

 
14,068

 
14,942

Sales and marketing
2,084

 
2,429

 
6,518

 
7,489

General and administrative
2,730

 
2,397

 
8,091

 
7,334

Total stock-based compensation expense
$
9,769

 
$
10,337

 
$
30,160

 
$
31,171

The income tax benefit related to stock-based compensation expense was zero for the three and nine months ended September 30, 2019 and 2018 due to a full valuation allowance on the Company’s United States net deferred tax assets (see Note 7 Income taxes).
At September 30, 2019, total unearned stock-based compensation of $54.3 million related to stock options, RSUs, PSUs and ESPP shares is expected to be recognized over a weighted-average period of 2.3 years.
v3.19.3
Net loss per share
9 Months Ended
Sep. 30, 2019
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:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands, except per share data)
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net loss
$
(74,810
)
 
$
(27,089
)
 
$
(110,462
)
 
$
(140,705
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares—basic and diluted for Class A and Class B common stock
145,617

 
140,072

 
144,306

 
139,028

 
 
 
 
 
 
 
 
Basic and diluted net loss per share
$
(0.51
)
 
$
(0.19
)
 
$
(0.77
)
 
$
(1.01
)

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)
2019
 
2018
 
2019
 
2018
Anti-dilutive stock-based awards
13,168

 
15,075

 
13,064

 
15,965


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 4 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 three and nine months ended September 30, 2019 and 2018 excludes approximately 9.2 million shares effectively repurchased and held in treasury stock on the condensed 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.
v3.19.3
Income taxes
9 Months Ended
Sep. 30, 2019
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.
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)
2019
 
2018
 
2019
 
2018
Income tax (benefit) expense
$
(273
)
 
$
1,780

 
$
(500
)
 
$
(296
)
Effective tax rate
0.4
%
 
(7.0
)%
 
0.5
%
 
0.2
%

The Company recorded an income tax benefit of $0.3 million for the three months ended September 30, 2019 on a pre-tax net loss of $75.1 million, which resulted in an effective tax rate of 0.4%. The Company’s income tax benefit for the three months ended September 30, 2019 was primarily composed of $0.3 million of tax expense incurred on pre-tax income, and discrete items that included a $1.6 million of net non-deductible equity tax expense for employee stock-based compensation, $0.3 million of tax benefit relating to foreign provision to income tax returns adjustments and a $0.4 million tax benefit for other items, partially offset by a net decrease in the valuation allowance of $1.5 million. The Company recorded an income tax benefit of $0.5 million for the nine months ended September 30, 2019 on a pre-tax net loss of $111.0 million, which resulted in an effective tax rate of 0.5%. The Company’s income tax benefit for the nine months ended September 30, 2019 was primarily composed of $1.2 million of tax expense incurred on pre-tax income, and discrete items that included $1.2 million of tax benefit relating to foreign provision to income tax returns adjustments, $0.7 million of net non-deductible equity tax expense for employee stock-based compensation, $0.5 million of tax benefits relating to restructuring charges, and $0.3 million of tax benefits for the release of uncertain tax positions primarily attributable to the expiration of tax statute of limitations, partially offset by a $0.2 million net decrease in the valuation allowance and a $0.2 million tax benefit related to other items.
For the three months ended September 30, 2018, the Company recorded an income tax expense of $1.8 million 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 composed of $1.5 million of tax expense incurred on pre-tax income in profitable foreign jurisdictions, discrete 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, discrete 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, partially offset by a $3.1 million net increase in the valuation allowance. Further, for both 2019 and 2018, while the Company incurred pre-tax losses in the United States, 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 United States deferred tax assets.
At September 30, 2019 and December 31, 2018, the Company’s gross unrecognized tax benefits were $31.5 million and $32.6 million, respectively. If recognized, $17.1 million of these unrecognized tax benefits (net of United States federal benefit) at September 30, 2019 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 is uncertain, it is reasonably possible that the total amount of unrecognized tax benefits may change in a range of up to $5.0 million 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 beyond the next 12 months.
v3.19.3
Commitments, contingencies and guarantees
9 Months Ended
Sep. 30, 2019
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.
The components of net lease cost, which were recorded in operating expenses, were as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
 
2019 (1)
 
2018 (2)
 
2019 (1)
 
2018 (2)
Operating lease cost
 
$
4,092

 
$
3,619

 
$
13,656

 
$
10,349

Sublease income
 
(129
)
 
(191
)
 
(528
)
 
(570
)
Net lease cost
 
$
3,963

 
$
3,428

 
$
13,128

 
$
9,779

(1) 
Operating lease cost includes variable lease costs, which are immaterial.
(2) 
Represents rent expense and sublease income under ASC 840, Leases.
Supplemental cash flow information related to leases was as follows:
(in thousands)
 
Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
10,402

Right-of-use assets obtained in exchange for new operating lease liabilities
 
10,541


Supplemental balance sheet information related to leases was as follows:
 
 
September 30, 2019
Weighted-average remaining lease term (in years) - operating leases
 
6.59
Weighted-average discount rate - operating leases
 
6.3%

As of September 30, 2019, maturities of operating lease liabilities under ASC 842, Leases, were as follows:
(in thousands)
 
September 30, 2019
2019 (remaining 3 months)
 
$
2,611

2020
 
13,811

2021
 
12,974

2022
 
12,426

2023
 
11,657

Thereafter
 
35,452

Total lease payments
 
88,931

Less: Imputed interest
 
(17,259
)
Present value of lease liabilities
 
$
71,672


As of December 31, 2018, future minimum lease payments under ASC 840, Leases, were as follows:
(in thousands)
 
December 31, 2018
2019
 
$
14,845

2020
 
17,654

2021
 
17,763

2022
 
17,552

2023
 
17,052

Thereafter
 
22,951

Total lease payments
 
$
107,817


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, 2019, the Company’s total undiscounted future expected obligations under multi-year agreements described above with terms longer than one year was $195.8 million.
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 Legal Proceedings, 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, 2019, 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.
v3.19.3
Concentrations of risk and geographic information
9 Months Ended
Sep. 30, 2019
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, 2019
 
December 31, 2018
Customer A
*
 
12%
Customer B
*
 
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)
2019
 
2018
 
2019
 
2018
Accounts receivable sold
$
23,804

 
$
31,164

 
$
78,752

 
$
83,618

Factoring fees
423

 
401

 
1,121

 
1,056


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,
 
2019
 
2018
 
2019
 
2018
Customer A
*
 
13%
 
12%
 
14%

* Less than 10% of total revenue for the period indicated.
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. In instances where an outsourcing agreement does not exist or these third parties fail to perform their obligations, the Company may be unable to find alternative partners or satisfactorily deliver its products to its customers on time.
Geographic information
Revenue by geographic region was as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Americas
$
60,409

 
$
120,061

 
$
311,750

 
$
337,111

Europe, Middle East and Africa (EMEA)
49,387

 
95,564

 
203,146

 
250,016

Asia and Pacific (APAC)
21,373

 
70,311

 
151,410

 
183,832

Total revenue
$
131,169

 
$
285,936

 
$
666,306

 
$
770,959


Revenue in the United States, which is included in the Americas geographic region, was $50.9 million and $93.2 million for the three months ended September 30, 2019 and 2018, respectively, and $251.6 million and $264.9 million for the nine months ended September 30, 2019 and 2018, 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, 2019 and December 31, 2018, long-lived assets, which represent net property and equipment, located outside the United States, primarily in Hong Kong and Mainland China, were $13.3 million and $15.9 million, respectively.
v3.19.3
Restructuring charges
9 Months Ended
Sep. 30, 2019
Restructuring and Related Activities [Abstract]  
Restructuring charges Restructuring charges
Restructuring charges for each period were as follows:
 
Nine months ended September 30,
(in thousands)
2019
 
2018
Cost of revenue
$
54

 
$
1,357

Research and development
556

 
12,032

Sales and marketing
314

 
5,042

General and administrative
501

 
3,095

Total restructuring charges
$
1,425

 
$
21,526


First quarter 2018 restructuring plan
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 $17.8 million, including $14.1 million related to severance and $3.7 million related to other charges.
The following table provides a summary of the Company’s restructuring activities and the movement in the related liabilities recorded in accrued expenses and other current liabilities on the condensed consolidated balance sheet under the first quarter 2018 restructuring plan.
(in thousands)
Severance
 
Other
 
Total
Restructuring liability as of December 31, 2018
$
1,119

 
$
399

 
$
1,518

Restructuring charges

 
3

 
3

Cash paid
(1,095
)
 
(20
)
 
(1,115
)
Non-cash reductions
(24
)
 
(250
)
 
(274
)
Restructuring liability as of September 30, 2019
$

 
$
132

 
$
132


First quarter 2017 restructuring plan
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 $23.1 million, including $10.3 million related to severance, and $12.8 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.
The following table provides a summary of the Company’s restructuring activities and the movement in the related liabilities recorded in accrued expenses and other current liabilities on the condensed consolidated balance sheet under the first quarter 2017 restructuring plan.
(in thousands)
Severance
 
Other
 
Total
Restructuring liability as of December 31, 2018
$

 
$
5,667

 
$
5,667

Restructuring charges

 
1,395

 
1,395

Cash paid

 
(1,082
)
 
(1,082
)
Non-cash reductions

 
(335
)
 
(335
)
Restructuring liability as of September 30, 2019
$

 
$
5,645

 
$
5,645


Fourth quarter 2016 restructuring plan
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 $40.0 million, including $36.8 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 substantially completed by March 31, 2017.
The following table provides a summary of the Company’s restructuring activities and the movement in the related liabilities recorded in accrued expenses and other current liabilities on the condensed consolidated balance sheet under the fourth quarter 2016 restructuring plan.
(in thousands)
Severance
 
Other
 
Total
Restructuring liability as of December 31, 2018
$
299

 
$
50

 
$
349

Restructuring charges
27

 

 
27

Cash paid
(78
)
 

 
(78
)
Non-cash reductions

 
(50
)
 
(50
)
Restructuring liability as of September 30, 2019
$
248

 
$

 
$
248


v3.19.3
Summary of business and significant accounting policies (Policies)
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Basis of presentation
Basis of presentation. The accompanying unaudited condensed 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. 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, 2018 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, 2018. Except for the accounting policy related to leases that was updated as a result of adopting Accounting Standards Codification (ASC) 842, Leases, there have been no material changes in the Company’s critical accounting policies and estimates 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 condensed 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 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), stock-based compensation, inventory valuation, product warranty liabilities, the valuation and useful lives of long-lived assets (property and equipment, operating lease right-of-use assets, 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
Comparability of Prior Year Financial Data, Policy [Policy Text Block]
Prior period reclassifications. Reclassifications of certain prior period amounts in the condensed consolidated financial statements, including a refinement in methodology for revenue by geography, have been made to conform to the current period presentation.
Lessee, Operating Leases [Text Block]
Leases. The Company leases its office space and facilities under cancelable and non-cancelable operating leases. Beginning January 1, 2019, operating leases are presented in operating lease right-of-use (ROU) assets, short-term operating lease liabilities and long-term operating lease liabilities on the Company’s condensed consolidated balance sheets. ROU assets represent the Company’s right to control the use of an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of future lease payments. The Company determines its incremental borrowing rate based on information
available at lease commencement date to calculate the present value of future lease payments. Lease expenses are recognized on a straight-line basis over the lease term. Certain leases include an option to renew with terms that can extend the lease term from one to five years. The exercise of a lease renewal option is at the Company’s sole discretion and is included in the lease term when the Company is reasonably certain it will exercise the option.
Prior to January 1, 2019, the Company recognized leases under ASC 840, Leases, which had the following differences from the current lease standard, ASC 842, Leases:
Operating leases were previously not recorded on the Company’s condensed consolidated balance sheets.
The Company calculated a liability for future costs 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 was determined based on remaining lease payments, estimated sublease income and the effects of any prepaid or deferred items recognized under the lease.
Revenue Recognition, Policy [Policy Text Block]
Revenue recognition. The Company derives substantially all of its revenue from the sale of cameras, mounts and accessories, the related implied post contract support to customers, and subscription services. 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 considered probable. For the Company’s subscription services, revenue is recognized on a ratable basis over the subscription term, with payments received in advanced of services being rendered recorded in deferred revenue. 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.
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, primarily 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 sales contain multiple performance obligations that generally include the following three separate obligations: a) a hardware component (camera) 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, 2019 and December 31, 2018 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 $12.3 million and $16.1 million as of September 30, 2019 and December 31, 2018, respectively. During the three months ended September 30, 2019 and 2018, revenue of $5.5 million and $6.1 million, respectively, was recognized that was included in the deferred revenue balances at the beginning of each period. During the nine months ended September 30, 2019 and 2018, revenue of $12.9 million and $14.6 million, respectively, was recognized that was included in the deferred revenue balances at the beginning of each period.
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.
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
 
 
 
 
Leases
ASU No.
2016-02,
2018-10,
2018-11, 2019-01, (ASC 842)
 
This standard replaces existing lease guidance for lessees and requires operating leases to be recognized on the balance sheet. Under the new standard, lessees recognize a lease liability for the present value of future lease payments and a corresponding right-to-use asset.

 
January 1, 2019
 
The new standard was applied using a modified retrospective approach. Prior periods were not retrospectively adjusted.
The Company completed its analysis of the impact of the standard by reviewing its lease agreements to identify changes resulting from applying the requirements of the new standard. The Company elected to utilize a package of practical expedients, which among other things, allowed the Company to maintain its existing classification of its current leases. The Company also elected the hindsight practical expedient to determine a reasonably certain lease term for existing leases. Additionally, the Company made a policy election to maintain its previous lease accounting for leases with an initial term of 12 months or less. Furthermore, the Company made the policy election to not separate non-lease components from lease components. The Company’s analysis of its lease agreements under the new standard resulted in the recognition of lease liabilities of $88.3 million and lease assets of $60.1 million on its condensed consolidated balance sheet as of January 1, 2019. The new standard did not have a material impact on the Company’s condensed consolidated income statement and condensed consolidated statement of cash flows.

The cumulative effect of the changes made to the Company’s condensed consolidated January 1, 2019 balance sheet for the adoption of ASC 842, Leases were as follows:
(in thousands)
Balance at
December 31, 2018
 
Adjustment due to ASC 842
 
Balance at
January 1, 2019
Operating lease right-of-use assets
$

 
$
60,111

 
$
60,111

Property and equipment, net (1)
46,567

 
(57
)
 
46,510

Accrued expenses and other current liabilities (2)
135,892

 
(4,332
)
 
131,560

Short-term operating lease liabilities

 
10,812

 
10,812

Long-term operating lease liabilities

 
77,545

 
77,545

Other long-term liabilities (2)
28,203

 
(23,900
)
 
4,303

Accumulated deficit
(569,030
)
 
(61
)
 
(569,091
)

(1) 
Represents the reclassification of leasehold acquisition costs to operating lease right-of-use assets.
(2) 
Represents the reclassification of deferred rent, tenant incentives and accrued cease-use charges to operating lease right-of-use assets.
Recent accounting pronouncements
Standard
 
Description
 
Expected date of adoption
 
Effect on the condensed consolidated financial statements or other significant matters
Standards not yet adopted
 
 
 
 
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 condensed consolidated financial statements and related disclosures.
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
ASU No. 2016-13
(Topic 326)
 
The standard changes the impairment model for most financial assets and replaces the existing incurred loss model with a current expected credit loss (CECL) model. The standard should be applied on a modified retrospective approach.
 
January 1, 2020
 
The Company’s allowance for doubtful accounts and valuation of available-for-sale securities are subject to this standard. The Company is in the process of quantifying the impact on its condensed consolidated financial statements and related disclosures, but does not expect the impact to be material.

The Company will evaluate its available-for-sale securities for impairment under Topic 326 upon adoption of this standard. The Company does not expect the results of its evaluation of available-for-sale securities for impairment to 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 accounting pronouncements has had or will have a material impact on its condensed consolidated financial statements.
v3.19.3
Summary of business and significant accounting policies (Tables)
9 Months Ended
Sep. 30, 2019
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
 
 
 
 
Leases
ASU No.
2016-02,
2018-10,
2018-11, 2019-01, (ASC 842)
 
This standard replaces existing lease guidance for lessees and requires operating leases to be recognized on the balance sheet. Under the new standard, lessees recognize a lease liability for the present value of future lease payments and a corresponding right-to-use asset.

 
January 1, 2019
 
The new standard was applied using a modified retrospective approach. Prior periods were not retrospectively adjusted.
The Company completed its analysis of the impact of the standard by reviewing its lease agreements to identify changes resulting from applying the requirements of the new standard. The Company elected to utilize a package of practical expedients, which among other things, allowed the Company to maintain its existing classification of its current leases. The Company also elected the hindsight practical expedient to determine a reasonably certain lease term for existing leases. Additionally, the Company made a policy election to maintain its previous lease accounting for leases with an initial term of 12 months or less. Furthermore, the Company made the policy election to not separate non-lease components from lease components. The Company’s analysis of its lease agreements under the new standard resulted in the recognition of lease liabilities of $88.3 million and lease assets of $60.1 million on its condensed consolidated balance sheet as of January 1, 2019. The new standard did not have a material impact on the Company’s condensed consolidated income statement and condensed consolidated statement of cash flows.

The cumulative effect of the changes made to the Company’s condensed consolidated January 1, 2019 balance sheet for the adoption of ASC 842, Leases were as follows:
(in thousands)
Balance at
December 31, 2018
 
Adjustment due to ASC 842
 
Balance at
January 1, 2019
Operating lease right-of-use assets
$

 
$
60,111

 
$
60,111

Property and equipment, net (1)
46,567

 
(57
)
 
46,510

Accrued expenses and other current liabilities (2)
135,892

 
(4,332
)
 
131,560

Short-term operating lease liabilities

 
10,812

 
10,812

Long-term operating lease liabilities

 
77,545

 
77,545

Other long-term liabilities (2)
28,203

 
(23,900
)
 
4,303

Accumulated deficit
(569,030
)
 
(61
)
 
(569,091
)

(1) 
Represents the reclassification of leasehold acquisition costs to operating lease right-of-use assets.
(2) 
Represents the reclassification of deferred rent, tenant incentives and accrued cease-use charges to operating lease right-of-use assets.
v3.19.3
Fair value measurements (Tables)
9 Months Ended
Sep. 30, 2019
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, 2019
 
December 31, 2018
(in thousands)
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
3,412

 
$

 
$
3,412

 
$
10,901

 
$

 
$
10,901

Commercial paper

 

 

 
7,577

 

 
7,577

Total cash equivalents
$
3,412

 
$

 
$
3,412

 
$
18,478

 
$

 
$
18,478

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
$

 
$
8,265

 
$
8,265

 
$

 
$
6,336

 
$
6,336

Commercial paper

 
7,694

 
7,694

 
20,657

 

 
20,657

Corporate debt securities

 
20,001

 
20,001

 

 
18,424

 
18,424

Total marketable securities
$

 
$
35,960

 
$
35,960

 
$
20,657

 
$
24,760

 
$
45,417

(1) 
Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets. Cash balances were $39.6 million and $133.6 million as of September 30, 2019 and December 31, 2018, respectively.