GOPRO, INC., 10-Q filed on 11/4/2016
Quarterly Report
Document, Entity and Information
9 Months Ended
Sep. 30, 2016
Class of Stock [Line Items]
 
Entity Registrant Name
GoPro, Inc. 
Entity Central Index Key
0001500435 
Current Fiscal Year End Date
--12-31 
Entity Filer Category
Large Accelerated Filer 
Document Type
10-Q 
Document Period End Date
Sep. 30, 2016 
Document Fiscal Year Focus
2016 
Document Fiscal Period Focus
Q3 
Amendment Flag
false 
Entity Well-known Seasoned Issuer
   
Entity Voluntary Filers
   
Entity Current Reporting Status
   
Common Class A [Member]
 
Class of Stock [Line Items]
 
Entity Common Stock, Shares Outstanding
103,968,889 
Common Class B [Member]
 
Class of Stock [Line Items]
 
Entity Common Stock, Shares Outstanding
36,596,489 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Current assets:
 
 
Cash and cash equivalents
$ 131,577 
$ 279,672 
Marketable securities
93,315 
194,386 
Accounts receivable, net
92,351 
145,692 
Inventory
145,231 
188,232 
Prepaid expenses and other current assets
40,566 
25,261 
Total current assets
503,040 
833,243 
Property and equipment, net
77,577 
70,050 
Intangible assets, net
37,496 
31,027 
Goodwill
146,459 
57,095 
Other long-term assets
136,713 
111,561 
Total assets
901,285 
1,102,976 
Current liabilities:
 
 
Accounts payable
158,767 
89,989 
Accrued liabilities
183,905 
192,446 
Deferred revenue
11,499 
12,742 
Total current liabilities
354,171 
295,177 
Long-term liabilities
39,496 
35,766 
Total liabilities
393,667 
330,943 
Commitments, contingencies and guarantees
   
   
Stockholders’ equity:
 
 
Preferred stock, $0.0001 par value, 5,000 shares authorized; none issued
Common stock and additional paid-in capital, $0.0001 par value, 500,000 Class A shares authorized,103,969 and 100,596 shares issued and outstanding, respectively; 150,000 Class B shares authorized, 36,596 and 36,005 shares issued and outstanding, respectively
702,190 
663,311 
Treasury stock, at cost, 1,545 and 1,545 shares, respectively
(35,613)
(35,613)
Retained earnings (accumulated deficit)
(158,959)
144,335 
Total stockholders’ equity
507,618 
772,033 
Total liabilities and stockholders’ equity
$ 901,285 
$ 1,102,976 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2016
Dec. 31, 2015
Preferred Stock, par value (usd per share)
$ 0.0001 
$ 0.0001 
Preferred Stock, Shares Authorized
5,000,000 
5,000,000 
Preferred Stock, Shares Issued
Common stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Treasury Stock, Shares
1,545,000 
1,545,000 
Common Class A [Member]
 
 
Common Stock, Shares Authorized
500,000,000 
500,000,000 
Common Stock, Shares, Issued
103,969,000 
100,596,000 
Common stock, shares, outstanding
103,969,000 
100,596,000 
Common Class B [Member]
 
 
Common Stock, Shares Authorized
150,000,000 
150,000,000 
Common Stock, Shares, Issued
36,596,000 
36,005,000 
Common stock, shares, outstanding
36,596,000 
36,005,000 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Income Statement [Abstract]
 
 
 
 
Revenue
$ 240,569 
$ 400,340 
$ 644,860 
$ 1,183,368 
Cost of revenue
143,500 
213,710 
395,075 
638,665 
Gross profit
97,069 
186,630 
249,785 
544,703 
Operating expenses:
 
 
 
 
Research and development
96,146 
67,372 
266,174 
175,262 
Sales and marketing
91,567 
66,427 
255,904 
186,290 
General and administrative
24,945 
25,195 
74,108 
87,109 
Total operating expenses
212,658 
158,994 
596,186 
448,661 
Operating income (loss)
(115,589)
27,636 
(346,401)
96,042 
Other expense, net
(808)
(363)
(455)
(2,485)
Income (loss) before income taxes
(116,397)
27,273 
(346,856)
93,557 
Income tax expense (benefit)
(12,329)
8,474 
(43,562)
22,975 
Net income (loss)
$ (104,068)
$ 18,799 
$ (303,294)
$ 70,582 
Net income per share attributable to common stockholders - Basic (in dollars per share)
$ (0.74)
$ 0.14 
$ (2.18)
$ 0.53 
Net income per share attributable to common stockholders - Diluted (in dollars per share)
$ (0.74)
$ 0.13 
$ (2.18)
$ 0.48 
Weighted-average shares used to compute net income per share attributable to common stockholders - Basic (in shares)
140,124 
135,800 
138,875 
133,755 
Weighted-average shares used to compute net income per share attributable to common stockholders - Diluted (in shares)
140,124 
146,055 
138,875 
147,201 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Statement of Cash Flows [Abstract]
 
 
Net income (loss)
$ (303,294)
$ 70,582 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
Depreciation and amortization
30,540 
19,385 
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill)
6,000 
Stock-based compensation
51,601 
62,560 
Excess tax benefit from stock-based compensation
(2,374)
(32,550)
Deferred income taxes
(20,956)
(6,888)
Other
4,754 
4,433 
Changes in operating assets and liabilities:
 
 
Accounts receivable, net
53,706 
63,348 
Inventory
43,001 
(136,294)
Prepaid expenses and other assets
(10,526)
(20,027)
Accounts payable and other liabilities
28,584 
113,141 
Deferred revenue
(1,485)
(927)
Net cash provided by (used in) operating activities
(120,449)
136,763 
Investing activities:
 
 
Purchases of property and equipment, net
(26,516)
(32,326)
Purchases of marketable securities
(207,186)
Acquisitions, net of cash acquired
(104,353)
(65,405)
Net cash used in investing activities
(30,854)
(230,426)
Financing activities:
 
 
Proceeds from issuance of common stock, net
5,342 
23,807 
Excess tax benefit from stock-based compensation
2,374 
32,550 
Payment of deferred acquisition-related consideration
(950)
Payment of credit facility issuance costs
(3,287)
Payment of deferred public offering costs
(903)
Net cash provided by financing activities
3,479 
55,454 
Effect of exchange rate changes on cash and cash equivalents
(271)
(1,751)
Net decrease in cash and cash equivalents
(148,095)
(39,960)
Cash and cash equivalents at beginning of period
279,672 
319,929 
Cash and cash equivalents at end of period
131,577 
279,969 
Maturities of marketable securities
93,224 
50,536 
Sale of marketable securities
$ 6,791 
$ 23,955 
Summary of business and significant accounting policies
Summary of significant accounting policies
Summary of business and significant accounting policies
GoPro, Inc. (GoPro or the Company) makes mountable and wearable cameras, drones and accessories. These GoPro products are sold globally through retailers, wholesale distributors and on the Company’s website. The Company's global corporate headquarters are located in San Mateo, California.
Basis of presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The Company's fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30, and September 30. The condensed consolidated financial statements reflect all adjustments (which are normal and recurring in nature) that management believes are necessary for the fair statement of the Company's financial statements, but are not necessarily indicative of the results expected for the full fiscal year or any other future period. The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date, but does not include all of 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, 2015. There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report.
Principles of consolidation. These condensed consolidated financial statements include all the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of estimates. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions made by management include those related to revenue recognition (including sales returns, implied post contract support and marketing allowances), stock-based compensation, inventory valuation, product warranty liabilities, the valuation and useful lives of long-lived assets (property and equipment, intangible assets and goodwill) and income taxes. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from management's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations could be affected.
Comprehensive income (loss). For all periods presented, comprehensive income (loss) approximated net income (loss). Therefore, the condensed consolidated statements of comprehensive income (loss) have been omitted.
Prior period reclassifications. Reclassifications of certain prior period amounts in the condensed consolidated financial statements have been made to conform to the current period presentation.
Recent accounting pronouncements
Standard
 
Description
 
Date of adoption
 
Effect on the financial statements or other significant matters
Standards that are not yet adopted
 
 
 
 
Accounting Standards Update (ASU) No. 2014-09, 2016-08, 2016-10 and 2016-12, Revenue from Contracts with Customers (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. Early adoption is permitted, but not earlier than the first quarter of 2017. The retrospective or cumulative effect transition method is permitted.
 
January 1, 2018
 
The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures. The Company has not determined whether the effect will be material to its consolidated financial statements.
ASU No. 2016-02, Leases (Topic 842)
 
This standard requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. Lessees would recognize a right-to-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The new standard should be applied on a modified retrospective basis.
 
January 1, 2019
 
The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.
ASU No. 2016-09, Stock Compensation (Topic 718)
 
This standard simplifies certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification on the statement of cash flows. The new guidance also allows an entity to make a policy election to account for forfeitures as they occur. Early adoption is permitted for an entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.
 
January 1, 2017
 
The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.
Standards that were adopted
 
 
 
 
ASU No. 2015-03 and ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30)



 
ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts.
ASU 2015-15 clarified ASU 2015-03 in that fees related to line-of-credit arrangements should continue to be presented as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement.
 
January 1, 2016
 
The adoption of these standards did not have a material impact on the Company's consolidated financial statements.
Business Acquisitions
Business Acquisitions
Business Acquisitions
In March and April 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. Goodwill is primarily attributable to expected synergies in the technologies that can be leveraged by the Company in future software related offerings. Goodwill is not expected to be deductible for U.S. income tax purposes. The operating results of the acquired companies have been included in the Company's condensed consolidated financial statements for the nine months ended September 30, 2016 from the date of acquisition.
The acquired companies were headquartered and are located in Austin, Texas and Paris, France. In addition to the amounts above, aggregate deferred cash and stock compensation of up to approximately $37 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.
Actual and pro forma results of operations for these acquisitions have not been presented because they do not have a material impact to the Company's consolidated results of operations, either individually or in aggregate.
Fair value measurements
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, 2016
 
December 31, 2015
(in thousands)
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
4,954

 
$

 
$
4,954

 
$
51,059

 
$

 
$
51,059

Total cash equivalents
$
4,954

 
$

 
$
4,954

 
$
51,059

 
$

 
$
51,059

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency securities
$

 
$
13,334

 
$
13,334

 
$

 
$
14,451

 
$
14,451

Commercial paper

 

 

 

 
2,197

 
2,197

Corporate debt securities

 
77,621

 
77,621

 

 
165,825

 
165,825

Municipal securities

 
2,360

 
2,360

 

 
11,913

 
11,913

Total marketable securities
$

 
$
93,315

 
$
93,315

 
$

 
$
194,386

 
$
194,386

(1) Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheets. Cash balances were $126.6 million and $228.6 million as of September 30, 2016 and December 31, 2015, 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. At September 30, 2016 and December 31, 2015, 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. There were no transfers of financial assets between levels during the nine months ended September 30, 2016.
The remaining contractual maturities of available-for-sale marketable securities are as follows:
(in thousands)
September 30,
2016
 
December 31,
2015
Less than one year
$
93,315

 
$
122,199

Greater than one year but less than two years

 
72,187

Total
$
93,315

 
$
194,386


At September 30, 2016 and December 31, 2015, the amortized cost of the Company's cash equivalents and marketable securities approximated their fair value and there were no material unrealized gains or losses, either individually or in the aggregate.
For certain other financial assets and liabilities, including accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.
Consolidated financial statement details
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,
2016
 
December 31,
2015
Components
$
35,097

 
$
9,476

Finished goods
110,134

 
178,756

Total inventory
$
145,231

 
$
188,232


Property and equipment, net
(in thousands)
September 30,
2016
 
December 31,
2015
Leasehold improvements
$
48,019

 
$
40,841

Production, engineering and other equipment
40,991

 
25,174

Tooling
22,592

 
19,537

Computers and software
17,771

 
14,581

Furniture and office equipment
12,540

 
11,389

Construction in progress
2,317

 
4,632

Tradeshow equipment and other
7,409

 
4,136

Gross property and equipment
151,639

 
120,290

Less: Accumulated depreciation and amortization
(74,062
)
 
(50,240
)
Property and equipment, net
$
77,577

 
$
70,050


The Company has committed to plans to vacate and sublet certain leased office facilities. Changes in estimated useful life of associated leasehold improvements and office equipment are expected to result in accelerated depreciation expense of approximately $10 million, including $4.3 million recorded for the three months ended September 30, 2016 and $5.4 million ratably over an estimated remaining period of 11 months.
Intangible assets and goodwill
 
September 30, 2016
(in thousands)
Gross carrying value
 
Accumulated
amortization
 
Net carrying value
Purchased technology
$
48,634

 
$
(15,063
)
 
$
33,571

In-process research and development (IPR&D)
3,925

 

 
3,925

Total intangible assets
$
52,559

 
$
(15,063
)
 
$
37,496



 
December 31, 2015
(in thousands)
Gross carrying value
 
Accumulated
amortization
 
Net carrying value
Purchased technology
$
32,952

 
$
(8,540
)
 
$
24,412

IPR&D
6,615

 

 
6,615

Total intangible assets
$
39,567

 
$
(8,540
)
 
$
31,027


A summary of the Company’s IPR&D activity for the nine months ended September 30, 2016 is as follows:
(in thousands)
Total
Balance at December 31, 2015
$
6,615

IPR&D assets acquired
3,760

Technological feasibility achieved
(450
)
Asset impairment
(6,000
)
Balance at September 30, 2016
$
3,925


Purchased technology acquired in 2016 has an estimated useful life of four years. During the three months ended September 30, 2016, the Company recorded an impairment charge of $6.0 million to research and development expense for IPR&D assets acquired in 2015 that were abandoned in the third quarter of 2016. As of September 30, 2016, technological feasibility has not been established for the remaining IPR&D assets, which have no alternative future use and, as such, continue to be accounted for as indefinite-lived intangible assets.
Amortization expense was $6.5 million and $2.7 million in the nine months ended September 30, 2016 and 2015, respectively. At September 30, 2016, the expected amortization expense of amortizable intangible assets for future periods is as follows:
(in thousands)
Total
Year ending December 31,
 
2016 (remaining 3 months)
$
2,567

2017
9,506

2018
8,569

2019
7,786

2020
4,273

Thereafter
870

 
$
33,571

The carrying amount of goodwill was $146.5 million and $57.1 million as of September 30, 2016 and December 31, 2015, respectively. The increase in 2016 was entirely attributable to the acquisitions described above in Note 2.
Accrued liabilities
(in thousands)
September 30,
2016
 
December 31,
2015
Accrued payables
$
73,084

 
$
60,738

Inventory received not billed
29,479

 
4,093

Employee related liabilities
33,935

 
26,491

Accrued sales incentives
19,637

 
29,298

Warranty liability
8,858

 
10,400

Customer deposits
6,520

 
8,877

Income taxes payable
1,979

 
7,536

Purchase order commitments
2,374

 
38,477

Other
8,039

 
6,536

Accrued liabilities
$
183,905

 
$
192,446

Financing Arrangements
Financing Arrangements
Financing Arrangements
In March 2016, the Company entered into a Credit Agreement (Credit Agreement) with JPMorgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, National Association, as co-agent, and the lender parties thereto. The Credit Agreement provides for a secured revolving credit facility (Credit Facility) under which the Company may borrow up to an aggregate of $250 million and the Company and lenders may increase the total commitments under the Credit Facility to up to $300 million, subject to certain conditions. The Credit Facility will terminate, and all outstanding borrowings become due and payable, in March 2021.
The amount that may be borrowed under the Credit Facility is based upon a borrowing base formula with respect to the Company’s inventory and accounts receivable balances. Borrowed funds accrue interest, at the Company’s election, based on an annual rate of (a) London Interbank Offered Rate (LIBOR) or (b) the administrative agent’s base rate, plus an applicable margin of between 1.50% and 2.00% for LIBOR rate loans, and between 0.50% and 1.00% for base rate loans, depending on the level of utilization of the Credit Facility. 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 owing under the Credit Agreement and related credit documents are guaranteed by the Company and its material subsidiaries. The Company and its Cayman and Netherlands subsidiaries have also granted security interests in substantially all of their assets to collateralize these obligations.
The Credit Agreement contains customary affirmative covenants, such as financial statement reporting requirements and delivery of borrowing base certificates, as well as customary covenants that limit the ability of the Company and its subsidiaries to, among other things, pay dividends, 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 contains customary events of default, such as the failure to pay obligations when due, initiation of bankruptcy or insolvency proceedings, defaults on certain other indebtedness, change of control or breach of representations and warranties or covenants. 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.
As of September 30, 2016, the Company may borrow up to approximately $112 million under the Credit Facility and was in compliance with all financial covenants contained in the Credit Agreement. No borrowings have been made from the Credit Facility to date.
Stockholders' equity
Stockholders' equity
Stockholders' equity
Stock repurchase program. On September 30, 2016, the share repurchase program authorized by the Company’s board of directors in September 2015 to repurchase up to $300 million of the Company's Class A common stock expired and has not been renewed. The repurchase program did not obligate the Company to acquire any specific number of shares. At December 31, 2015, the Company had a remaining share repurchase authorization of $264.4 million and no shares were repurchased during 2016.
CEO stock contributions. In the first half of 2015, the CEO contributed an aggregate 5.2 million shares of Class B common stock to the Company without consideration per the terms of a Contribution Agreement dated December 28, 2011, and amended on May 11, 2015, representing all of the then remaining shares subject to the contribution obligations. These shares contributed by the CEO were retired during 2015. Refer to the audited financial statements contained in the Company's 2015 Annual Report.
Employee benefit plans
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 10 years from the date of grant and generally vest over four years. Restricted stock units (RSUs) granted under the 2014 Plan generally vest annually over a four-year period based upon continued service and are settled at vesting in shares of the Company's Class A common stock. The ESPP allows eligible employees to purchase shares of the Company's Class A common stock through payroll deductions at a price equal to 85% of the lesser of the fair market value of the stock as of the first date or the ending date of each six month offering period. For additional information regarding the Company's equity incentive plans, please refer to the audited financial statements contained in its 2015 Annual Report.
Stock options
A summary of the Company’s stock option activity for the nine months ended September 30, 2016 is as follows:
 
Options outstanding
 
Shares (in thousands)
 
Weighted- average
exercise price
 
Weighted-
average
remaining
contractual
term
(in years)
 
Aggregate
intrinsic value
(in thousands)
Outstanding at December 31, 2015:
13,081

 
$
11.82

 
6.70
 
$
108,846

Granted
2,516

 
11.33

 
 
 
 
Exercised
(1,442
)
 
1.53

 
 
 
 
Forfeited/Cancelled
(1,115
)
 
19.61

 
 
 
 
Outstanding at September 30, 2016:
13,040

 
$
12.20

 
6.41
 
$
86,550

 
 
 
 
 
 
 
 
Vested and expected to vest at September 30, 2016
12,803

 
$
12.12

 
6.37
 
$
85,781

Exercisable at September 30, 2016
8,132

 
$
9.28

 
5.51
 
$
73,387


The aggregate intrinsic value of the stock options outstanding as of September 30, 2016 represents the value of the Company's closing stock price on September 30, 2016 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, 2016 is as follows:
 
Shares (in thousands)
 
Weighted- average grant date fair value
Non-vested shares at December 31, 2015
4,638

 
$
32.15

Granted
6,912

 
12.15

Vested
(1,229
)
 
26.23

Forfeited
(1,031
)
 
26.10

Non-vested shares at September 30, 2016
9,290

 
$
18.73


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 $5.5 million and $26.1 million for the nine months ended September 30, 2016 and 2015, respectively.
Employee stock purchase plan. In the nine months ended September 30, 2016 and 2015, the Company issued 668,107 and 436,924 shares under its ESPP at weighted average prices of $9.15 and $26.88, respectively. The weighted-average fair value of each right to purchase shares of the Company's Class A common stock granted under the ESPP for these periods was $4.23 and $15.13, 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 issuances is estimated using the Black-Scholes option pricing model. The fair value of RSUs is 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 2015 Annual Report.
The following table summarizes stock-based compensation included in the condensed consolidated statements of operations:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016

September 30,
2015
Cost of revenue
$
426

 
$
410

 
$
1,195

 
$
1,043

Research and development
8,039

 
4,872

 
21,135

 
12,117

Sales and marketing
3,816

 
3,516

 
10,699

 
9,514

General and administrative
6,185

 
9,072

 
18,572

 
39,886

Total stock-based compensation expense, before income taxes
18,466

 
17,870

 
51,601


62,560

Total tax benefit recognized
(5,573
)
 
(7,323
)
 
(15,723
)

(22,867
)
Total stock-based compensation expense, net of income taxes
$
12,893

 
$
10,547

 
$
35,878


$
39,693


At September 30, 2016, total unearned stock-based compensation of $164.2 million related to stock options, RSUs and ESPP is expected to be recognized over a weighted average period of 2.8 years.
Net income (loss) per share
Net income (loss) per share
Net income (loss) per share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding, including all potentially dilutive common shares.
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 income (loss) per share of Class A common stock assumes the conversion of Class B common stock.
The following table presents the calculations of basic and diluted net income (loss) per share:
 
Three months ended
 
Nine months ended
(in thousands, except per share data)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
(104,068
)
 
$
18,799

 
$
(303,294
)
 
$
70,582

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares—basic for Class A and Class B common stock
140,124

 
135,800

 
138,875

 
133,755

Effect of potentially dilutive shares

 
10,255

 

 
13,446

Weighted-average common shares—diluted for Class A and Class B common stock
140,124

 
146,055

 
138,875

 
147,201

 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.74
)
 
$
0.14

 
$
(2.18
)
 
$
0.53

Diluted
$
(0.74
)
 
$
0.13

 
$
(2.18
)
 
$
0.48


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
 
Nine months ended
(in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Stock options, ESPP shares and RSUs
22,693

 
2,373

 
20,803

 
1,995

Income taxes
Income taxes
Income taxes
The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. 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
 
Nine months ended
(dollars in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Income tax expense (benefit)
$
(12,329
)
 
$
8,474

 
$
(43,562
)
 
$
22,975

Effective tax rate
10.6
%
 
31.1
%
 
12.6
%

24.6
%

The Company recorded an income tax benefit of $12.3 million for the three months ended September 30, 2016 due to a pre-tax net loss, which resulted in an effective tax rate of 10.6%. The lower effective tax rates for the three and nine months ended September 30, 2016 compared to 2015 resulted from the Company providing a net tax benefit on pre-tax losses in the United States, which was offset by income taxes paid at lower rates in profitable foreign jurisdictions (primarily Europe). The Company's provision for income taxes in each period has differed from the tax computed at U.S. federal statutory tax rates due to state taxes, the effect of non-U.S. operations, deductible and non-deductible stock-based compensation expense, federal research and development tax credits, and adjustments to unrecognized tax benefits.
The Company is currently under examination by the Internal Revenue Service for the 2012 through 2014 tax years and is unable to estimate the potential impact that the examination may have on income tax expense. If the examination is resolved unfavorably, there is a possibility it may have a material negative impact on the Company's results of operations.
At September 30, 2016 and December 31, 2015, the Company’s gross unrecognized tax benefits were $49.3 million and $36.3 million, respectively. If recognized, $31.2 million of these unrecognized tax benefits (net of U.S. federal benefit) at September 30, 2016 would be recorded as a reduction of future income tax provision. 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 U.S. trial and appellate court decisions, which remain subject to appeal and therefore could be overturned in future periods. The Company’s existing tax positions will continue to generate an increase in unrecognized tax benefits in subsequent periods. Management believes events that could occur in the next 12 months and cause a material change in unrecognized tax benefits include, but are not limited to, the completion of examinations by the U.S. or foreign taxing authorities and the expiration of statute of limitations on the Company's tax returns. Although the completion, settlement and closure of any audits is uncertain, it is reasonably possible that the total amount of unrecognized tax benefits will materially increase 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.
Related party transactions
Related party transactions
Related party transactions
The Company has agreements for certain contract manufacturing and engineering services with a vendor affiliated with one of the Company's investors. The Company recorded no expense in the nine months ended September 30, 2016 and 2015. The Company made payments of $0.2 million to this vendor in 2015. As of September 30, 2016 and December 31, 2015, the Company had no accounts payable associated with this vendor.
The Company incurs costs for Company-related chartered aircraft fees for the use of the CEO’s private plane. The Company recorded expense of $0.7 million and $0.7 million in the nine months ended September 30, 2016 and 2015, respectively. As of September 30, 2016 and December 31, 2015, the Company had accounts payable associated with these aircraft fees of zero and $0.1 million, respectively.
In 2013, the Company entered into a three-year agreement, which was amended in July 2016 to continue through the end of 2016, with a company affiliated with the son of one of the members of the Company's board of directors to acquire certain naming rights to a kart racing facility. As consideration for these naming rights, the Company paid $0.5 million over the three year period. As of September 30, 2016, the Company has recorded cumulative expense of $0.5 million, and has also provided 100 GoPro cameras at no cost each year. As of September 30, 2016 and December 31, 2015, the Company had no accounts payable associated with this agreement.
See Notes 6 and 7 above for information regarding CEO RSUs and Class B common stock contributed by the CEO back to the Company.
Commitments, contingencies and guarantees
Commitments, contingencies and guarantees
Commitments, contingencies and guarantees
Facility Leases. The Company leases its facilities under long-term operating leases, which expire at various dates through 2027. As of December 31, 2015, the Company’s total future minimum lease payments under noncancelable operating leases were $152.2 million. In June 2016, the Company entered into a sub-lease agreement for one of its office facilities that decreased the Company’s total future minimum lease payments by sub-lease rentals of approximately $5 million, which approximates the corresponding remaining lease rentals. The Company has not entered into any new material lease commitments during the nine months ended September 30, 2016. Rent expense was $14.4 million and $8.2 million for the nine months ended September 30, 2016 and 2015, respectively.
Other Commitments. In the ordinary course of business, the Company also 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; and various other contractual commitments. In May 2016, the Company entered into a 3.5 year agreement with Red Bull GmbH (Red Bull) that includes content production, distribution and cross-promotion. As part of the agreement, Red Bull will receive equity and cash consideration over the term of the agreement. During the second quarter of 2016, the Company issued unregistered restricted shares of its Class A common stock to Red Bull with a fair value of approximately $7 million.
As of September 30, 2016, the Company's total undiscounted future expected obligations under multi-year agreements described above with terms longer than one year was $53.7 million, composed of payments to be made of $2.8 million during the fourth quarter of 2016, and $17.9 million, $17.6 million, $15.4 million in 2017, 2018 and 2019, 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 II, Item 1 of this Quarterly Report on Form 10-Q. Due to inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of these matters. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the results of operations, financial condition or cash flows of the Company.
Indemnifications. In the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. It is not possible to determine the maximum potential amount under these indemnification agreements due to the Company’s limited history with indemnification claims and the unique facts and circumstances involved in each particular agreement. As of September 30, 2016, the Company has not paid any claims or 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.
Product warranty
The following table summarizes the warranty liability activity:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Beginning balances
$
8,939

 
$
8,719

 
$
10,855

 
$
6,405

Charged to cost of revenue
4,485

 
6,515

 
13,026

 
18,335

Settlements of warranty claims
(4,068
)
 
(5,809
)
 
(14,525
)
 
(15,315
)
Ending balances
$
9,356

 
$
9,425

 
$
9,356

 
$
9,425


At September 30, 2016, $8.9 million of the warranty liability was recorded as an element of accrued liabilities and $0.5 million was recorded as an element of other long-term liabilities.
Concentrations of risk and geographic information
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's management 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,
2016
 
December 31,
2015
Customer A
27%
 
*
Customer B
*
 
40%
Customer C
*
 
18%
* Less than 10% of total 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
 
Nine months ended
(in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Accounts receivable sold
$
35,210

 
$
55,136

 
$
99,514

 
$
140,852

Factoring fees
267

 
482

 
726

 
1,219


Customers who represented 10% or more of the Company's total revenue were as follows:
 
Three months ended
 
Nine months ended
 
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Customer A
21%
 
14%
 
19%
 
14%
Customer B
10%
 
11%
 
12%
 
*
* 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 cameras and accessories, some of which are sole-source suppliers. The Company's management believes that outsourcing manufacturing enables greater scale and flexibility. As demand and product lines change, the Company periodically evaluates the need and advisability of adding manufacturers to support its operations. In instances where a supply and manufacture agreement does not exist or suppliers fail to perform their obligations, the Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all. The Company also relies on third parties with whom it outsources supply chain activities related to inventory warehousing, order fulfillment, distribution and other direct sales logistics.
Geographic information
Revenue by geographic region, based on ship-to destinations, was as follows:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Americas
$
135,895

 
$
190,839

 
$
345,770

 
$
583,282

Europe, Middle East and Africa (EMEA)
77,346

 
156,639

 
198,338

 
432,904

Asia and Pacific area countries (APAC)
27,328

 
52,862

 
100,752

 
167,182

Total revenue
$
240,569

 
$
400,340

 
$
644,860

 
$
1,183,368


Revenue in the United States, which is included in the Americas geographic region, was $122.5 million and $169.2 million for the three months ended September 30, 2016 and 2015, respectively, and $310.7 million and $513.6 million for the nine months ended September 30, 2016 and 2015, 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, 2016 and December 31, 2015, long-lived assets, which represent gross property and equipment, located outside the United States, primarily in Hong Kong and China, were $71.2 million and $47.6 million, respectively.
Restructuring charges
Restructuring charges
Restructuring charges
On January 12, 2016, the Company adopted a restructuring plan that provided for a reduction in the Company’s global workforce of approximately 7%. The Company incurred aggregate restructuring expenses of $6.5 million in the first quarter of 2016, which primarily included cash-based severance costs. As of September 30, 2016, the plan was completed and all costs have been paid.
Summary of business and significant accounting policies (Policies)
Basis of presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The Company's fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30, and September 30. The condensed consolidated financial statements reflect all adjustments (which are normal and recurring in nature) that management believes are necessary for the fair statement of the Company's financial statements, but are not necessarily indicative of the results expected for the full fiscal year or any other future period. The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date, but does not include all of 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, 2015. There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report.
Principles of consolidation. These condensed consolidated financial statements include all the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of estimates. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions made by management include those related to revenue recognition (including sales returns, implied post contract support and marketing allowances), stock-based compensation, inventory valuation, product warranty liabilities, the valuation and useful lives of long-lived assets (property and equipment, intangible assets and goodwill) and income taxes. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from management's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations could be affected.
Comprehensive income (loss). For all periods presented, comprehensive income (loss) approximated net income (loss). Therefore, the condensed consolidated statements of comprehensive income (loss) have been omitted
Prior period reclassifications. Reclassifications of certain prior period amounts in the condensed consolidated financial statements have been made to conform to the current period presentation.
Recent accounting pronouncements
Standard
 
Description
 
Date of adoption
 
Effect on the financial statements or other significant matters
Standards that are not yet adopted
 
 
 
 
Accounting Standards Update (ASU) No. 2014-09, 2016-08, 2016-10 and 2016-12, Revenue from Contracts with Customers (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. Early adoption is permitted, but not earlier than the first quarter of 2017. The retrospective or cumulative effect transition method is permitted.
 
January 1, 2018
 
The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures. The Company has not determined whether the effect will be material to its consolidated financial statements.
ASU No. 2016-02, Leases (Topic 842)
 
This standard requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. Lessees would recognize a right-to-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The new standard should be applied on a modified retrospective basis.
 
January 1, 2019
 
The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.
ASU No. 2016-09, Stock Compensation (Topic 718)
 
This standard simplifies certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification on the statement of cash flows. The new guidance also allows an entity to make a policy election to account for forfeitures as they occur. Early adoption is permitted for an entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.
 
January 1, 2017
 
The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.
Standards that were adopted
 
 
 
 
ASU No. 2015-03 and ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30)



 
ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts.
ASU 2015-15 clarified ASU 2015-03 in that fees related to line-of-credit arrangements should continue to be presented as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement.
 
January 1, 2016
 
The adoption of these standards did not have a material impact on the Company's consolidated financial statements.
Summary of business and significant accounting policies (Tables)
Schedule of recent accounting pronouncements
Recent accounting pronouncements
Standard
 
Description
 
Date of adoption
 
Effect on the financial statements or other significant matters
Standards that are not yet adopted
 
 
 
 
Accounting Standards Update (ASU) No. 2014-09, 2016-08, 2016-10 and 2016-12, Revenue from Contracts with Customers (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. Early adoption is permitted, but not earlier than the first quarter of 2017. The retrospective or cumulative effect transition method is permitted.
 
January 1, 2018
 
The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures. The Company has not determined whether the effect will be material to its consolidated financial statements.
ASU No. 2016-02, Leases (Topic 842)
 
This standard requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. Lessees would recognize a right-to-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The new standard should be applied on a modified retrospective basis.
 
January 1, 2019
 
The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.
ASU No. 2016-09, Stock Compensation (Topic 718)
 
This standard simplifies certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification on the statement of cash flows. The new guidance also allows an entity to make a policy election to account for forfeitures as they occur. Early adoption is permitted for an entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.
 
January 1, 2017
 
The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.
Standards that were adopted
 
 
 
 
ASU No. 2015-03 and ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30)



 
ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts.
ASU 2015-15 clarified ASU 2015-03 in that fees related to line-of-credit arrangements should continue to be presented as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement.
 
January 1, 2016
 
The adoption of these standards did not have a material impact on the Company's consolidated financial statements.
Fair value measurements (Tables)
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, 2016
 
December 31, 2015
(in thousands)
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
4,954

 
$

 
$
4,954

 
$
51,059

 
$

 
$
51,059

Total cash equivalents
$
4,954

 
$

 
$
4,954

 
$
51,059

 
$

 
$
51,059

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency securities
$

 
$
13,334

 
$
13,334

 
$

 
$
14,451

 
$
14,451

Commercial paper

 

 

 

 
2,197

 
2,197

Corporate debt securities

 
77,621

 
77,621

 

 
165,825

 
165,825

Municipal securities

 
2,360

 
2,360

 

 
11,913

 
11,913

Total marketable securities
$

 
$
93,315

 
$
93,315

 
$

 
$
194,386

 
$
194,386

(1) Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheets. Cash balances were $126.6 million and $228.6 million as of September 30, 2016 and December 31, 2015, respectively.
The remaining contractual maturities of available-for-sale marketable securities are as follows:
(in thousands)
September 30,
2016
 
December 31,
2015
Less than one year
$
93,315

 
$
122,199

Greater than one year but less than two years

 
72,187

Total
$
93,315

 
$
194,386

Condensed consolidated financial statement details (Tables)
Inventory
(in thousands)
September 30,
2016
 
December 31,
2015
Components
$
35,097

 
$
9,476

Finished goods
110,134

 
178,756

Total inventory
$
145,231

 
$
188,232

Property and equipment, net
(in thousands)
September 30,
2016
 
December 31,
2015
Leasehold improvements
$
48,019

 
$
40,841

Production, engineering and other equipment
40,991

 
25,174

Tooling
22,592

 
19,537

Computers and software
17,771

 
14,581

Furniture and office equipment
12,540

 
11,389

Construction in progress
2,317

 
4,632

Tradeshow equipment and other
7,409

 
4,136

Gross property and equipment
151,639

 
120,290

Less: Accumulated depreciation and amortization
(74,062
)
 
(50,240
)
Property and equipment, net
$
77,577

 
$
70,050

Intangible assets and goodwill
 
September 30, 2016
(in thousands)
Gross carrying value
 
Accumulated
amortization
 
Net carrying value
Purchased technology
$
48,634

 
$
(15,063
)
 
$
33,571

In-process research and development (IPR&D)
3,925

 

 
3,925

Total intangible assets
$
52,559

 
$
(15,063
)
 
$
37,496



 
December 31, 2015
(in thousands)
Gross carrying value
 
Accumulated
amortization
 
Net carrying value
Purchased technology
$
32,952

 
$
(8,540
)
 
$
24,412

IPR&D
6,615

 

 
6,615

Total intangible assets
$
39,567

 
$
(8,540
)
 
$
31,027


A summary of the Company’s IPR&D activity for the nine months ended September 30, 2016 is as follows:
(in thousands)
Total
Balance at December 31, 2015
$
6,615

IPR&D assets acquired
3,760

Technological feasibility achieved
(450
)
Asset impairment
(6,000
)
Balance at September 30, 2016
$
3,925

At September 30, 2016, the expected amortization expense of amortizable intangible assets for future periods is as follows:
(in thousands)
Total
Year ending December 31,
 
2016 (remaining 3 months)
$
2,567

2017
9,506

2018
8,569

2019
7,786

2020
4,273

Thereafter
870

 
$
33,571

Accrued liabilities
(in thousands)
September 30,
2016
 
December 31,
2015
Accrued payables
$
73,084

 
$
60,738

Inventory received not billed
29,479

 
4,093

Employee related liabilities
33,935

 
26,491

Accrued sales incentives
19,637

 
29,298

Warranty liability
8,858

 
10,400

Customer deposits
6,520

 
8,877

Income taxes payable
1,979

 
7,536

Purchase order commitments
2,374

 
38,477

Other
8,039

 
6,536

Accrued liabilities
$
183,905

 
$
192,446

Employee benefit plans (Tables)
A summary of the Company’s stock option activity for the nine months ended September 30, 2016 is as follows:
 
Options outstanding
 
Shares (in thousands)
 
Weighted- average
exercise price
 
Weighted-
average
remaining
contractual
term
(in years)
 
Aggregate
intrinsic value
(in thousands)
Outstanding at December 31, 2015:
13,081

 
$
11.82

 
6.70
 
$
108,846

Granted
2,516

 
11.33

 
 
 
 
Exercised
(1,442
)
 
1.53

 
 
 
 
Forfeited/Cancelled
(1,115
)
 
19.61

 
 
 
 
Outstanding at September 30, 2016:
13,040

 
$
12.20

 
6.41
 
$
86,550

 
 
 
 
 
 
 
 
Vested and expected to vest at September 30, 2016
12,803

 
$
12.12

 
6.37
 
$
85,781

Exercisable at September 30, 2016
8,132

 
$
9.28

 
5.51
 
$
73,387

A summary of the Company’s RSU activity for the nine months ended September 30, 2016 is as follows:
 
Shares (in thousands)
 
Weighted- average grant date fair value
Non-vested shares at December 31, 2015
4,638

 
$
32.15

Granted
6,912

 
12.15

Vested
(1,229
)
 
26.23

Forfeited
(1,031
)
 
26.10

Non-vested shares at September 30, 2016
9,290

 
$
18.73

The following table summarizes stock-based compensation included in the condensed consolidated statements of operations:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016

September 30,
2015
Cost of revenue
$
426

 
$
410

 
$
1,195

 
$
1,043

Research and development
8,039

 
4,872

 
21,135

 
12,117

Sales and marketing
3,816

 
3,516

 
10,699

 
9,514

General and administrative
6,185

 
9,072

 
18,572

 
39,886

Total stock-based compensation expense, before income taxes
18,466

 
17,870

 
51,601


62,560

Total tax benefit recognized
(5,573
)
 
(7,323
)
 
(15,723
)

(22,867
)
Total stock-based compensation expense, net of income taxes
$
12,893

 
$
10,547

 
$
35,878


$
39,693


Net income (loss) per share (Tables)
The following table presents the calculations of basic and diluted net income (loss) per share:
 
Three months ended
 
Nine months ended
(in thousands, except per share data)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
(104,068
)
 
$
18,799

 
$
(303,294
)
 
$
70,582

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares—basic for Class A and Class B common stock
140,124

 
135,800

 
138,875

 
133,755

Effect of potentially dilutive shares

 
10,255

 

 
13,446

Weighted-average common shares—diluted for Class A and Class B common stock
140,124

 
146,055

 
138,875

 
147,201

 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.74
)
 
$
0.14

 
$
(2.18
)
 
$
0.53

Diluted
$
(0.74
)
 
$
0.13

 
$
(2.18
)
 
$
0.48

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
 
Nine months ended
(in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Stock options, ESPP shares and RSUs
22,693

 
2,373

 
20,803

 
1,995

Income taxes (Tables)
Schedule of Income before Income Tax, Domestic and Foreign
The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. 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
 
Nine months ended
(dollars in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Income tax expense (benefit)
$
(12,329
)
 
$
8,474

 
$
(43,562
)
 
$
22,975

Effective tax rate
10.6
%
 
31.1
%
 
12.6
%

24.6
%
Commitments, contingencies and guarantees (Tables)
Schedule of Product Warranty Liability Activity
The following table summarizes the warranty liability activity:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Beginning balances
$
8,939

 
$
8,719

 
$
10,855

 
$
6,405

Charged to cost of revenue
4,485

 
6,515

 
13,026

 
18,335

Settlements of warranty claims
(4,068
)
 
(5,809
)
 
(14,525
)
 
(15,315
)
Ending balances
$
9,356

 
$
9,425

 
$
9,356

 
$
9,425

Concentrations of risk and geographic information (Tables)
The following table summarizes the Company's accounts receivables sold, without recourse, and factoring fees paid:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Accounts receivable sold
$
35,210

 
$
55,136

 
$
99,514

 
$
140,852

Factoring fees
267

 
482

 
726

 
1,219

Revenue by geographic region, based on ship-to destinations, was as follows:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Americas
$
135,895

 
$
190,839

 
$
345,770

 
$
583,282

Europe, Middle East and Africa (EMEA)
77,346

 
156,639

 
198,338

 
432,904

Asia and Pacific area countries (APAC)
27,328

 
52,862

 
100,752

 
167,182

Total revenue
$
240,569

 
$
400,340

 
$
644,860

 
$
1,183,368

Customers who represented 10% or more of the Company's net accounts receivable balance were as follows:
 
September 30,
2016
 
December 31,
2015
Customer A
27%
 
*
Customer B
*
 
40%
Customer C
*
 
18%
* Less than 10% of total accounts receivable for the period indicated
Customers who represented 10% or more of the Company's total revenue were as follows:
 
Three months ended
 
Nine months ended
 
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Customer A
21%
 
14%
 
19%
 
14%
Customer B
10%
 
11%
 
12%
 
*
* Less than 10% of total revenue for the period indicated
(Details) (USD $)
9 Months Ended 2 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
Apr. 30, 2016
Series of Individually Immaterial Business Acquisitions [Member]
business_acquisition
Business Acquisition [Line Items]
 
 
 
 
Number of businesses acquired
 
 
 
Cash consideration
$ 104,353,000 
$ 65,405,000 
 
$ 104,000,000 
Identifiable intangible assets
 
 
 
17,400,000 
Net deferred tax liabilities
 
 
 
3,400,000 
Goodwill
146,459,000 
 
57,095,000 
89,000,000 
Deferred cash and stock compensation
 
 
 
$ 37,000,000 
Fair value measurements (Details) (USD $)
Sep. 30, 2016
Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
$ 93,315,000 
$ 194,386,000 
Cash and cash equivalents
126,600,000 
228,600,000 
Fair Value, Measurements, Recurring [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
4,954,000 
51,059,000 
Marketable securities
93,315,000 
194,386,000 
Marketable securities with contractual maturity of one year or less
93,315,000 
122,199,000 
Marketable securities with contractual maturity of one to two years
72,187,000 
Fair Value, Measurements, Recurring [Member] |
US Agency Securities [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
13,334,000 
14,451,000 
Fair Value, Measurements, Recurring [Member] |
Commercial Paper [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
2,197,000 
Fair Value, Measurements, Recurring [Member] |
Corporate Debt Securities [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
77,621,000 
165,825,000 
Fair Value, Measurements, Recurring [Member] |
Municipal Notes [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
2,360,000 
11,913,000 
Fair Value, Measurements, Recurring [Member] |
Money Market Funds [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
4,954,000 
51,059,000 
Fair Value, Measurements, Recurring [Member] |
Level 1 [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
4,954,000 
51,059,000 
Marketable securities
Fair Value, Measurements, Recurring [Member] |
Level 1 [Member] |
US Agency Securities [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
Fair Value, Measurements, Recurring [Member] |
Level 1 [Member] |
Commercial Paper [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
Fair Value, Measurements, Recurring [Member] |
Level 1 [Member] |
Corporate Debt Securities [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
Fair Value, Measurements, Recurring [Member] |
Level 1 [Member] |
Municipal Notes [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
Fair Value, Measurements, Recurring [Member] |
Level 1 [Member] |
Money Market Funds [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
4,954,000 
51,059,000 
Fair Value, Measurements, Recurring [Member] |
Level 2 [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
Marketable securities
93,315,000 
194,386,000 
Fair Value, Measurements, Recurring [Member] |
Level 2 [Member] |
US Agency Securities [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
13,334,000 
14,451,000 
Fair Value, Measurements, Recurring [Member] |
Level 2 [Member] |
Commercial Paper [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
2,197,000 
Fair Value, Measurements, Recurring [Member] |
Level 2 [Member] |
Corporate Debt Securities [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
77,621,000 
165,825,000 
Fair Value, Measurements, Recurring [Member] |
Level 2 [Member] |
Municipal Notes [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
2,360,000 
11,913,000 
Fair Value, Measurements, Recurring [Member] |
Level 2 [Member] |
Money Market Funds [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
$ 0 
$ 0 
Condensed consolidated financial statement details - Inventory (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]
 
 
Components
$ 35,097 
$ 9,476 
Finished goods
110,134 
178,756 
Total inventory