GOPRO, INC., 10-Q filed on 10/29/2015
Quarterly Report
Document, Entity and Information
9 Months Ended
Sep. 30, 2015
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
Non-accelerated Filer 
Document Type
10-Q 
Document Period End Date
Sep. 30, 2015 
Document Fiscal Year Focus
2015 
Document Fiscal Period Focus
Q3 
Amendment Flag
false 
Common Class A [Member]
 
Class of Stock [Line Items]
 
Entity Common Stock, Shares Outstanding
101,654,028 
Common Class B [Member]
 
Class of Stock [Line Items]
 
Entity Common Stock, Shares Outstanding
35,869,701 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and cash equivalents
$ 279,969 
$ 319,929 
Marketable securities
233,133 
102,327 
Accounts receivable, net
120,666 
183,992 
Inventory
289,521 
153,026 
Prepaid expenses and other current assets
79,976 
63,769 
Total current assets
1,003,265 
823,043 
Property and equipment, net
67,644 
41,556 
Intangible assets, net
32,547 
2,937 
Goodwill
57,095 
14,095 
Other long-term assets
48,730 
36,060 
Total assets
1,209,281 
917,691 
Current liabilities:
 
 
Accounts payable
159,901 
126,240 
Accrued liabilities
166,116 
115,775 
Deferred revenue
13,095 
14,022 
Income taxes payable
6,630 
2,732 
Total current liabilities
345,742 
258,769 
Other long-term liabilities
32,849 
17,718 
Total liabilities
378,591 
276,487 
Commitments, contingencies and guarantees (see Note 9)
   
   
Stockholders’ equity:
 
 
Common stock and additional paid-in capital, $0.0001 par value, 500,000 Class A shares authorized,101,654 and 52,091 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively; 150,000 Class B shares authorized, 35,870 and 77,023 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively
651,904 
533,000 
Retained earnings
178,786 
108,204 
Total stockholders’ equity
830,690 
641,204 
Total liabilities and stockholders’ equity
$ 1,209,281 
$ 917,691 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2015
Dec. 31, 2014
Common stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Common Class A [Member]
 
 
Common stock, shares authorized
500,000,000 
500,000,000 
Common Stock, shares, issued
101,654,000 
52,091,000 
Common stock, shares, outstanding
101,654,000 
52,091,000 
Common Class B [Member]
 
 
Common stock, shares authorized
150,000,000 
150,000,000 
Common Stock, shares, issued
35,870,000 
77,023,000 
Common stock, shares, outstanding
35,870,000 
77,023,000 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Income Statement [Abstract]
 
 
 
 
Revenue
$ 400,340 
$ 279,971 
$ 1,183,368 
$ 760,292 
Cost of revenue
213,710 
155,932 
638,665 
436,870 
Gross profit
186,630 
124,039 
544,703 
323,422 
Operating expenses:
 
 
 
 
Research and development
67,372 
42,376 
175,262 
105,778 
Sales and marketing
66,427 
48,109 
186,290 
133,151 
General and administrative
25,195 
20,097 
87,109 
71,146 
Total operating expenses
158,994 
110,582 
448,661 
310,075 
Operating income
27,636 
13,457 
96,042 
13,347 
Other expense, net
(363)
(1,784)
(2,485)
(4,945)
Income before income taxes
27,273 
11,673 
93,557 
8,402 
Income tax expense (benefit)
8,474 
(2,947)
22,975 
2,574 
Net income
18,799 
14,620 
70,582 
5,828 
Less: net income allocable to participating securities
(36)
(1,022)
Net income attributable to common stockholders—basic
18,799 
14,584 
70,582 
4,806 
Add: net income allocable to dilutive participating securities
10 
Net income attributable to common stockholders—diluted
$ 18,799 
$ 14,585 
$ 70,582 
$ 4,816 
Net income per share attributable to common stockholders - Basic (in dollars per share)
$ 0.14 
$ 0.12 
$ 0.53 
$ 0.05 
Net income per share attributable to common stockholders - Diluted (in dollars per share)
$ 0.13 
$ 0.10 
$ 0.48 
$ 0.04 
Weighted-average shares used to compute net income per share attributable to common stockholders - Basic (in shares)
135,800 
125,713 
133,755 
96,905 
Weighted-average shares used to compute net income per share attributable to common stockholders - Diluted (in shares)
146,055 
145,186 
147,201 
115,578 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Statement of Cash Flows [Abstract]
 
 
Net income
$ 70,582 
$ 5,828 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
19,385 
12,769 
Stock-based compensation
62,560 
52,143 
Excess tax benefit from stock-based compensation
(32,550)
(23,592)
Foreign currency remeasurement and transaction losses
2,033 
Deferred income taxes
(6,888)
(3,808)
Other
2,400 
1,608 
Changes in operating assets and liabilities:
 
 
Accounts receivable, net
63,348 
28,106 
Inventory
(136,294)
(5,020)
Prepaids and other assets
(20,027)
(25,842)
Accounts payable and other liabilities
113,141 
11,325 
Deferred revenue
(927)
215 
Net cash provided by operating activities
136,763 
53,732 
Investing activities:
 
 
Purchases of property and equipment, net
(32,326)
(22,566)
Purchases of marketable securities
(207,186)
Sales and maturities of marketable securities
74,491 
Acquisitions, net of cash acquired
(65,405)
(3,200)
Net cash used in investing activities
(230,426)
(25,766)
Financing activities:
 
 
Proceeds from issuance of common stock, net of repurchases
35,495 
203,228 
Taxes paid related to net share settlement of equity awards
(11,688)
Excess tax benefit from stock-based compensation
32,550 
23,592 
Payment of deferred public offering and debt issuance costs
(903)
(4,447)
Repayment of debt
(114,000)
Net cash provided by financing activities
55,454 
108,373 
Effect of exchange rate changes on cash and cash equivalents
(1,751)
Net increase (decrease) in cash and cash equivalents
(39,960)
136,339 
Cash and cash equivalents at beginning of period
319,929 
101,410 
Cash and cash equivalents at end of period
$ 279,969 
$ 237,749 
Business overview
Business overview
Business overview
GoPro, Inc. (GoPro or the Company) makes mountable and wearable cameras and accessories, which the Company refers to as capture devices. GoPro also develops and provides free software solutions, the GoPro App (mobile) and GoPro Studio (desktop), that help consumers create, manage, and share GoPro content. The Company’s capture devices 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.
Summary of significant accounting policies
Summary of significant accounting policies
Summary of significant accounting policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and in accordance with the interim period reporting requirements of Form 10-Q. The unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for the fair presentation of the Company's financial condition, results of operations, and cash flows for the periods presented, 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, 2014 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 should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2014 (2014 Annual Report). There have been no significant changes in the Company’s accounting policies from those disclosed in the footnotes to the audited financial statements contained in its 2014 Annual Report.
Principles of consolidation
The condensed consolidated financial statements include all the accounts of the Company and its wholly-owned subsidiaries. Unless otherwise specified, references to the Company are references to GoPro, Inc. and its consolidated 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. The Company regularly evaluates estimates and assumptions in several areas, including those related to: revenue recognition (including sales returns, web-based sale deliveries at period-end, implied post contract support, and marketing allowances), collectability of accounts receivable, stock-based compensation, inventory valuation, product warranty liabilities, the valuation and useful lives of intangible assets and property and equipment, 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
For all periods presented, comprehensive income approximated net income. Therefore, the condensed consolidated statements of comprehensive income have been omitted from the condensed consolidated financial statements.
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
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers, which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount to which an entity expects to be entitled when products and services are transferred to customers. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (ASU 2015-14), which defers the effective date by one year while providing the option to adopt the standard on the original effective date. Accordingly, the Company may adopt the standard either in its first quarter of 2017 or its first quarter of 2018 and it can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company is currently evaluating the timing and the impact the adoption of ASU 2014-09 will have on the Company's consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805), which amends the existing guidance for business combinations. Under the updated guidance, the acquirer in a business combination is required to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This new standard will become effective for the Company on January 1, 2016, and will be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update. The Company is currently evaluating the impact the adoption of ASU 2015-16 will have on the Company's consolidated financial statements.
Condensed consolidated financial statement details
Condensed consolidated financial statement details
Condensed consolidated financial statement details
Inventory
Inventory consisted of the following:
(in thousands)
September 30,
2015
 
December 31,
2014
Components
$
14,478

 
$
4,324

Finished goods
275,043

 
148,702

Total inventory
$
289,521

 
$
153,026


Property and equipment, net
Property and equipment, net consisted of the following:
(in thousands)
Useful life
(in years)
 
September 30,
2015
 
December 31,
2014
Leasehold improvements
3–7
 
$
24,050

 
$
22,787

Computers, software, equipment and furniture
2–4
 
42,936

 
24,636

Tooling
1–2
 
19,876

 
16,159

Construction in progress
 
 
19,507

 
3,944

Tradeshow equipment and other
2-5
 
4,016

 
3,830

Total
 
 
110,385

 
71,356

Less: Accumulated depreciation and amortization
 
 
(42,741
)
 
(29,800)

Property and equipment, net
 
 
$
67,644

 
$
41,556



Construction in progress includes costs primarily related to construction of leasehold improvements to the Company's office facilities. No interest was capitalized during the three and nine months ended September 30, 2015 and 2014.
Acquisitions and acquired intangible assets and goodwill
During the nine months ended September 30, 2015, the Company completed several acquisitions qualifying as business combinations for aggregate consideration of $70.2 million, most of which was cash consideration. These acquisitions were not material to the Company's condensed consolidated financial statements, either individually or in the aggregate, and therefore actual and proforma disclosures under the applicable accounting guidance have not been presented. 
The following table summarizes the preliminary allocation of the fair values of the assets acquired and liabilities assumed, and the related useful lives, where applicable:
(in thousands)
Estimated
useful life
(in years)
 
Fair value
Purchased technology
4 - 6 years
 
$
25,676

In-process research and development (IPR&D)
 
 
6,600

Net liabilities assumed
 
 
(353
)
Deferred income tax liabilities
 
 
(4,676
)
Net assets acquired
 
 
27,247

Goodwill
 
 
43,000

Total fair value consideration
 
 
$
70,247


Goodwill represents the excess of the purchase price over the fair value of the net assets acquired and is primarily attributable to expected synergies in the technologies that can be leveraged by the Company in future product offerings. Goodwill is not expected to be deductible for tax purposes.
The following table summarizes the Company's acquired intangible assets:
 
 
 
 
 
 
 
 
 
September 30, 2015
 
December 31, 2014
(in thousands)
Gross carrying amount
 
Accumulated
amortization
 
Net carrying value
 
Net carrying
value
Purchased technology and other amortizable assets
$
32,951

 
$
(7,019
)
 
$
25,932

 
$
2,922

IPR&D and other non-amortizable assets
6,615

 

 
6,615

 
15

Total intangible assets
$
39,566

 
$
(7,019
)
 
$
32,547

 
$
2,937



As of September 30, 2015, technological feasibility has not been established for IPR&D assets; they have no alternative future use and, as such, continue to be accounted for as indefinite-lived intangible assets.

Amortization expense for the nine months ended September 30, 2015 and 2014 was $2.7 million and $0.8 million, respectively. Estimated amortization expense for future periods as of September 30, 2015, is as follows:
(in thousands)
 
Total
Year ending December 31,
 
 
Remainder of 2015
 
$
1,521

2016
 
5,956

2017
 
5,172

2018
 
4,779

2019
 
4,269

Thereafter
 
4,235

 
 
$
25,932


The carrying amount of goodwill was $57.1 million and $14.1 million as of September 30, 2015 and December 31, 2014, respectively. The increase during the nine months ended September 30, 2015 was entirely attributable to goodwill acquired. The Company did not have any goodwill impairments during the periods presented.
Fair value measurements
Fair value measurements
Fair value measurements
The Company’s assets that are measured at fair value on a recurring basis, by level, within the fair value hierarchy are summarized as follows:
 
 
September 30, 2015
 
December 31, 2014
(in thousands)
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
12,173

 
$

 
$
12,173

 
$
80,968

 
$

 
$
80,968

Corporate debt securities
 

 
100

 
100

 

 
2,000

 
2,000

Total cash equivalents
 
$
12,173

 
$
100

 
$
12,273

 
$
80,968

 
$
2,000

 
$
82,968

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
3,014

 
$

 
$
3,014

 
$
1,994

 
$

 
$
1,994

U.S. agency securities
 

 
19,565

 
19,565

 

 
7,020

 
7,020

Commercial paper
 

 
997

 
997

 

 
2,497

 
2,497

Corporate debt securities
 

 
197,554

 
197,554

 

 

 

Municipal securities
 

 
12,003

 
12,003

 

 
90,816

 
90,816

Total marketable securities
 
$
3,014

 
$
230,119

 
$
233,133

 
$
1,994

 
$
100,333

 
$
102,327

(1) Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheets as of September 30, 2015 and December 31, 2014, in addition to cash of $267.7 million and $237.0 million, respectively.
The Company classifies its cash equivalents and marketable securities as Level 1 or Level 2 within the fair value hierarchy. The fair value of Level 1 financial instruments, which are traded in active markets, is based on quoted market prices for identical instruments. The fair value of Level 2 financial instruments is obtained from an independent pricing service, which may use quoted market prices for identical or comparable instruments or model driven valuations using observable market data or inputs corroborated by observable market data. The Company's procedures include controls to ensure that appropriate fair values are recorded, including comparing the fair values obtained from the Company's pricing service against fair values obtained from other independent sources. At September 30, 2015 and December 31, 2014, 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. During the nine months ended September 30, 2015, the Company had no transfers of financial assets between levels.
At September 30, 2015 and December 31, 2014, the amortized cost of the Company's cash equivalents and marketable securities approximated their fair value and there were no material unrealized gains/(losses) either individually or in total.
At September 30, 2015, $134.6 million of the Company's marketable securities had a contractual maturity of one year or less and $98.5 million had a contractual maturity of one to two years.
Stockholders' equity
Stock-based compensation
Stockholders' equity
Stock repurchase program
On September 30, 2015, the Company's Board of Directors authorized a program to repurchase up to $300 million of the Company's Class A common stock. The repurchase program, which expires in September 2016, does not obligate the Company to acquire any specific number of shares and may be discontinued at any time by the Board of Directors. Share repurchases under the program may be made from time-to-time through open market transactions, block trades, privately negotiated transactions or otherwise, including under plans complying with both Rule 10b-18 and Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The Company has not repurchased any shares under the program.
Stock contributions
In the second quarter of 2015, the CEO contributed an aggregate 4,858,180 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.  Under the original Contribution Agreement, the CEO agreed to contribute back to the Company from time-to-time the same number of shares of common stock as are issued to a certain Company employee upon the exercise of certain stock options held by such employee.  Pursuant to this agreement, the CEO contributed back to the Company 180,000 shares of Class B common stock in April 2015.  In May 2015, the CEO contributed back to the Company 4,678,180 shares of Class B common stock pursuant to the amended agreement, representing all of the then remaining shares subject to the contribution obligations. All of the shares contributed by the CEO were retired in the second quarter of 2015.
Equity incentive plans
The Company has outstanding equity grants from its three stock-based employee compensation plans: the 2014 Equity Incentive Plan (2014 Plan), the 2010 Equity Incentive Plan (2010 Plan), and the 2014 Employee Stock Purchase Plan (ESPP). No new options or awards have been granted under the 2010 Plan since June 2014. Outstanding options and awards under the 2010 plan continue to be subject to the terms and conditions of the 2010 Plan. The 2014 Plan serves as the successor to the 2010 Plan and provides for the granting of incentive and nonqualified stock options, restricted stock awards (RSAs), restricted stock units (RSUs), stock appreciation rights, stock bonus awards, and performance awards to qualified employees, non-employee directors, and consultants. Options granted under the 2014 Plan generally expire within 10 years from the date of grant and generally vest over four years. Options with performance or market-based conditions are generally subject to a required service period along with the performance or market condition. 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 values of the stock as of the first date or the ending date of each six-month offering periods. For additional information regarding the Company's equity incentive plans, please refer to the footnotes to the audited financial statements contained in its 2014 Annual Report.
Stock option activity
A summary of the Company’s stock option activity and related information is as follows:
 
 
Options outstanding
(shares in thousands)
 
Shares
 
Weighted- average
exercise price
 
Aggregate
intrinsic value
(in thousands)
Outstanding at December 31, 2014:
 
25,134

 
$
6.62

 
$
1,425,339

Granted
 
527

 
47.37

 
 
Exercised
 
(12,027
)
 
1.97

 
 
Forfeited/Cancelled
 
(249
)
 
18.65

 
 
Outstanding at September 30, 2015:
 
13,385

 
$
12.19

 
$
276,067

 
 
 
 
 
 
 
Exercisable at September 30, 2015
 
8,258

 
$
5.48

 
$
214,083

Vested and expected to vest at September 30, 2015
 
13,127

 
$
11.94

 
$
273,232


At September 30, 2015, there was $54.6 million of unearned stock-based compensation expense related to unvested options, which is expected to be amortized over a weighted average period of 2.31 years.
Restricted stock units
A summary of the Company’s RSU activity is as follows:
(shares in thousands)
Shares
 
Weighted- average grant date fair value
Non-vested shares at December 31, 2014
4,307

 
$
21.98

Granted
1,525

 
52.93

Vested
(1,372
)
 
16.53

Forfeited
(52
)
 
69.51

Non-vested shares at September 30, 2015
4,408

 
$
33.82


In June 2014, the Company granted an award of 4.5 million RSUs to the Chief Executive Officer (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 condition and a service condition. In January 2015, the market-based condition was achieved and the Company recorded stock-based compensation expense of $4.3 million and $26.1 million during the three and nine months ended September 30, 2015.
At September 30, 2015, there was $107.3 million of unearned stock-based compensation related to RSUs (including $10.2 million related to the CEO RSUs), which is expected to be amortized over a weighted average period of 2.51 years.
Employee stock purchase plan
During the nine months ended September 30, 2015, employees purchased an aggregate of 436,924 shares under the ESPP at a price of $26.88 per share. During the three and nine months ended September 30, 2015, the Company recorded $1.0 million and $3.0 million of stock-based compensation expense related to the ESPP. At September 30, 2015, there was $1.7 million of unearned stock-based compensation related to the Company’s ESPP, which is expected to be recognized over 0.37 years.
Stock-based compensation expense
The Company measures compensation expense for all stock-based payment awards, including stock options, RSUs, and purchases under the Company's ESPP, based on the estimated fair values on the date of the grant. The fair value of stock options granted and purchases under the Company's ESPP is estimated using the Black-Scholes option pricing model. The fair value of RSUs is determined using the Company's stock price on the date of grant. There have been no significant changes in the Company’s valuation assumptions for measuring compensation expense from those disclosed in the footnotes to the audited financial statements contained in its 2014 Annual Report.
Total stock-based compensation expense recognized was as follows:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Stock-based compensation expense:
 
 
 
 
 
 
 
Cost of revenue
$
410

 
$
233

 
$
1,043

 
$
555

Research and development
4,872

 
2,428

 
12,117

 
5,486

Sales and marketing
3,516

 
3,225

 
9,514

 
6,293

General and administrative
9,072

 
8,027

 
39,886

 
39,809

Total stock-based compensation expense
17,870

 
13,913

 
62,560

 
52,143

Total tax benefit recognized
(7,323
)
 
(2,949
)
 
(22,867
)
 
(14,774
)
Decrease in net income
$
10,547

 
$
10,964

 
$
39,693

 
$
37,369

Net income per share attributable to common stockholders
Net income per share attributable to common stockholders
Net income per share attributable to common stockholders
Basic and diluted net income per common share is presented in conformity with the two-class method required for participating securities. The Company considers shares issued upon the early exercise of options subject to repurchase and non-vested restricted shares to be participating securities, because holders of such shares have a non-forfeitable right to dividends. Additionally, prior to the date of the Company's initial public offering (IPO) in June 2014, the Company considered its redeemable convertible preferred stock to be participating securities due to their non-cumulative dividend rights. Immediately after the completion of the Company's IPO, all outstanding shares of redeemable convertible preferred stock converted to Class B common stock.
The rights of the holders of Class A 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.
Basic net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. All participating securities are excluded from basic weighted average common shares outstanding. Diluted net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding, including all potentially dilutive common shares.
Undistributed earnings are allocated based on the contractual participation rights of common shares as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. The computation of the diluted net income 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 per share attributable to common stockholders:
 
Three months ended 
 September 30,
 
Nine months ended 
 September 30,
(in thousands, except per share data)
2015
 
2014
 
2015
 
2014
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allocation of net income
$
13,849

 
$
4,950

 
$
2,395

 
$
12,225

 
$
46,561

 
$
24,021

 
$
417

 
$
5,411

Less: net income allocable to participating securities

 

 
(6
)
 
(30
)
 

 

 
(73
)
 
(949
)
Net income attributable to common stockholders—basic
13,849

 
4,950

 
2,389

 
12,195

 
46,561

 
24,021

 
344

 
4,462

Add: net income allocable to dilutive participating securities

 

 
1

 
4

 

 

 
10

 
130

Reallocation of net income as a result of conversion of Class B to Class A shares
4,950

 

 
12,195

 

 
24,021

 

 
4,462

 

Reallocation of net income to Class B shares

 
960

 

 

 

 
4,215

 

 

Net income attributable to common stockholders—diluted
$
18,799

 
$
5,910

 
$
14,585

 
$
12,199

 
$
70,582

 
$
28,236

 
$
4,816

 
$
4,592

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average common shares—basic
100,040

 
35,760

 
20,597

 
105,116

 
88,234

 
45,521

 
6,941

 
89,964

Conversion of Class B to Class A common stock outstanding
35,760

 

 
105,116

 

 
45,521

 

 
89,964

 

Effect of potentially dilutive shares
10,255

 
10,159

 
19,473

 
19,317

 
13,446

 
13,366

 
18,673

 
18,621

Weighted-average common shares—diluted
146,055

 
45,919

 
145,186

 
124,433

 
147,201

 
58,887

 
115,578

 
108,585

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per share attributable to common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.14

 
$
0.14

 
$
0.12

 
$
0.12

 
$
0.53

 
$
0.53

 
$
0.05

 
$
0.05

Diluted
$
0.13

 
$
0.13

 
$
0.10

 
$
0.10

 
$
0.48

 
$
0.48

 
$
0.04

 
$
0.04


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)
2015
 
2014
 
2015
 
2014
Redeemable convertible preferred stock

 

 

 
20,237

Stock options, ESPP shares, and RSUs
2,373

 
366

 
1,993

 
2,871

Unvested restricted stock awards

 
308

 
2

 
376

 
2,373

 
674

 
1,995

 
23,484

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, the Company makes a cumulative adjustment in that quarter.
 
Three months ended
 
Nine months ended
(dollars in thousands)
September 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Income tax expense (benefit)
$
8,474

 
$
(2,947
)
 
$
22,975

 
$
2,574

Effective tax rate
31.1
%
 
(25.2
)%
 
24.6
%
 
30.6
%

The higher income tax expense for the three and nine months ended September 30, 2015, compared to the same periods in 2014, was primarily due to higher pre-tax income. The income tax benefit for the third quarter of 2014 was primarily attributable to the impact of net losses that are not benefited, foreign withholding taxes, and non-deductible stock based compensation offset, in part, by research tax credits. The Company's provision for income taxes in each period has differed from the tax computed at U.S. federal statutory income tax rate due to state taxes, the effect of non-U.S. operations, deductible and non-deductible stock-based compensation expense, and adjustments to unrecognized tax benefits.
The Company is currently under examination by the U.S. Internal Revenue Service for tax years 2012 and 2013 and the California Franchise Tax Board for tax years 2011 and 2012. At this time, the Company is not able to estimate the potential impact that these examinations may have on income tax expense. If the examinations are resolved unfavorably, they may have a material negative impact on the Company's results of operations.
At September 30, 2015 and December 31, 2014, the Company’s total amount of gross unrecognized tax benefits was $25.2 million and $16.6 million, respectively. If recognized, $23.6 million of the unrecognized tax benefits (net of federal benefit) at September 30, 2015 would be recorded as a reduction of the income tax provision in future 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. It is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within the next 12 months. However, the range of the reasonably possible change cannot be reliably estimated.
Related parties
Related parties
Related parties
The Company has agreements for certain contract manufacturing and engineering services with a vendor affiliated with one of the Company's investors. In the nine months ended September 30, 2015 and 2014, the Company made payments of $0.2 million and $11.9 million, respectively, for services rendered. 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. In the nine months ended September 30, 2015 and 2014, the Company made payments of $0.9 million and $0.3 million, respectively.
In 2013, the Company entered into a three-year agreement, which was amended in August 2015, 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 would pay a total of $0.5 million over the three year period. As of September 30, 2015, the Company has made cumulative payments of $0.4 million and also provided 100 GoPro capture devices at no cost each year.
In 2013, the Company loaned one of its executive officers $0.2 million pursuant to a demand payment loan that did not bear interest, which was fully repaid in March 2014.
See Note 5, "Stockholders' Equity" for information regarding CEO RSUs and common stock contributed by the CEO back to the Company.
Commitments, contingencies and guarantees
Commitments, contingencies and guarantees
Commitments, contingencies and guarantees
The following table summarizes the Company’s contractual commitments as of September 30, 2015:
(in thousands)
Total
 
1 year (remaining
3 months in 2015)
 
2-3 years (2016 and 2017)
 
4-5 years (2018 and 2019)
 
More than
5 years (beyond 2019)
Operating leases(1)
$
61,003

 
$
4,121

 
$
30,489

 
$
18,979

 
$
7,414

Sponsorship commitments(2)
11,277

 
2,694

 
8,571

 
12

 

Other contractual commitments(3)
5,337

 
841

 
4,496

 

 

Capital equipment purchase commitments(4)
10,048

 
10,048

 

 

 

Total contractual cash obligations
$
87,665

 
$
17,704

 
$
43,556

 
$
18,991

 
$
7,414

(1)
The Company leases its facilities under long-term operating leases, which expire at various dates through 2023.
(2)
The Company sponsors sporting events, resorts and athletes as part of its marketing efforts. In many cases, the Company enters into multi-year agreements with event organizers, resorts and athletes.
(3)
The Company purchases software licenses and engages outside consultants to assist with upgrading or implementing its financial and IT systems, which require payments over multiple years.
(4)
The Company enters into contracts to acquire equipment for tooling and molds as part of its manufacturing operations. In addition, the Company incurs purchase commitments related to the manufacturing of its point-of-purchase (POP) displays by third parties.
Rent expense was $3.3 million and $2.0 million for the three months ended September 30, 2015 and 2014, respectively, and $8.2 million and $5.2 million for the nine months ended September 30, 2015 and 2014, respectively.
Legal proceedings
From time to time, the Company is involved in legal proceedings in the ordinary course of business. The Company believes that the outcome of any existing litigation, either individually or in the aggregate, will not 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. As of September 30, 2015, 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,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Beginning balances
$
8,719

 
$
4,678

 
$
6,405

 
$
3,870

Charged to cost of revenue
6,515

 
2,778

 
18,335

 
6,978

Settlements of warranty claims
(5,809
)
 
(2,073
)
 
(15,315
)
 
(5,465
)
Ending balances
$
9,425

 
$
5,383

 
$
9,425

 
$
5,383


At September 30, 2015, $9.1 million of the warranty liability was recorded as an element of accrued liabilities and $0.4 million was recorded as an element of other long-term liabilities. As of December 31, 2014, $6.0 million of the warranty liability was recorded as an element of accrued liabilities and $0.4 million was recorded as an element of other long-term liabilities.
Concentrations of risk and segment information
Concentrations of risk and segment information
Concentrations of risk and segment information
Segment information
The Company operates as one operating segment as it only reports financial information on an aggregate and consolidated basis to its CEO, who is the Company’s chief operating decision maker.
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 in its 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.
The Company had the following customers who represented 10% or more of its net accounts receivable balance:
 
September 30,
2015
 
December 31,
2014
Customer A
17%
 
14%
Customer B
16%
 
17%
Customer C
12%
 
*
Customer D
10%
 
*
Customer E
*
 
11%
* Less than 10% of total accounts receivable for the period indicated
The Company sold accounts receivables, without recourse, of $55.1 million and $52.4 million in the three months ended September 30, 2015 and 2014, respectively, and $140.9 million and $121.6 million in the nine months ended September 30, 2015 and 2014, respectively, to a third-party banking institution. Factoring fees of $0.5 million and $0.5 million in the three months ended September 30, 2015 and 2014, respectively and $1.2 million and $1.1 million in the nine months ended September 30, 2015 and 2014, respectively, were included in other expense, net.
Customers with revenue equal to or greater than 10% of the Company's total revenue were as follows:
 
Three months ended
 
Nine months ended
 
September 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Customer A
14%
 
27%
 
14%
 
19%
Customer B
11%
 
*
 
*
 
*
* 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 capture devices, some of which are sole-source suppliers.  The Company believes that outsourcing manufacturing enables greater scale and flexibility. As demand and product lines change, the Company periodically evaluates the need and advisability of adding manufacturers to support its operations.  In instances where a supply and manufacture agreement does not exist or suppliers fail to perform their obligations, the Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all.  The Company also relies on third parties with whom it outsources supply chain activities related to inventory warehousing, order fulfillment, distribution and other direct sales logistics.
Geographic and other information
Revenue by geographic region, based on ship-to destinations, was as follows:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Americas
$
190,839


$
204,893

 
$
583,282


$
482,769

Europe, Middle East and Africa (EMEA)
156,639


56,068

 
432,904


207,285

Asia and Pacific area countries (APAC)
52,862


19,010

 
167,182


70,238

 
$
400,340

 
$
279,971

 
$
1,183,368

 
$
760,292


Revenue in the United States, which is included in the Americas geographic region, was $169.2 million and $185.6 million for the three months ended September 30, 2015 and 2014, respectively, and $513.6 million and $428.9 million for the nine months ended September 30, 2015 and 2014, respectively. During the three months ended December 31, 2014, the Company reclassified four countries it had previously included in the APAC geographical region to be included in the EMEA geographical region. This caused $13.4 million of revenue to be reclassified from the APAC region to the EMEA region for the nine months ended September 30, 2014. 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, 2015 and December 31, 2014, long-lived assets, which represent gross property and equipment, located outside the United States, primarily in China, were $46.7 million and $25.4 million, respectively.
Summary of 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) and in accordance with the interim period reporting requirements of Form 10-Q. The unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for the fair presentation of the Company's financial condition, results of operations, and cash flows for the periods presented, 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, 2014 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 should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2014 (2014 Annual Report). There have been no significant changes in the Company’s accounting policies from those disclosed in the footnotes to the audited financial statements contained in its 2014 Annual Report.
Principles of consolidation
The condensed consolidated financial statements include all the accounts of the Company and its wholly-owned subsidiaries. Unless otherwise specified, references to the Company are references to GoPro, Inc. and its consolidated 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. The Company regularly evaluates estimates and assumptions in several areas, including those related to: revenue recognition (including sales returns, web-based sale deliveries at period-end, implied post contract support, and marketing allowances), collectability of accounts receivable, stock-based compensation, inventory valuation, product warranty liabilities, the valuation and useful lives of intangible assets and property and equipment, 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
For all periods presented, comprehensive income approximated net income. Therefore, the condensed consolidated statements of comprehensive income have been omitted from the condensed consolidated financial statements.
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
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers, which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount to which an entity expects to be entitled when products and services are transferred to customers. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (ASU 2015-14), which defers the effective date by one year while providing the option to adopt the standard on the original effective date. Accordingly, the Company may adopt the standard either in its first quarter of 2017 or its first quarter of 2018 and it can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company is currently evaluating the timing and the impact the adoption of ASU 2014-09 will have on the Company's consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805), which amends the existing guidance for business combinations. Under the updated guidance, the acquirer in a business combination is required to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This new standard will become effective for the Company on January 1, 2016, and will be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update. The Company is currently evaluating the impact the adoption of ASU 2015-16 will have on the Company's consolidated financial statements.
Condensed consolidated financial statement details (Tables)
Inventory consisted of the following:
(in thousands)
September 30,
2015
 
December 31,
2014
Components
$
14,478

 
$
4,324

Finished goods
275,043

 
148,702

Total inventory
$
289,521

 
$
153,026

Property and equipment, net consisted of the following:
(in thousands)
Useful life
(in years)
 
September 30,
2015
 
December 31,
2014
Leasehold improvements
3–7
 
$
24,050

 
$
22,787

Computers, software, equipment and furniture
2–4
 
42,936

 
24,636

Tooling
1–2
 
19,876

 
16,159

Construction in progress
 
 
19,507

 
3,944

Tradeshow equipment and other
2-5
 
4,016

 
3,830

Total
 
 
110,385

 
71,356

Less: Accumulated depreciation and amortization
 
 
(42,741
)
 
(29,800)

Property and equipment, net
 
 
$
67,644

 
$
41,556

The following table summarizes the preliminary allocation of the fair values of the assets acquired and liabilities assumed, and the related useful lives, where applicable:
(in thousands)
Estimated
useful life
(in years)
 
Fair value
Purchased technology
4 - 6 years
 
$
25,676

In-process research and development (IPR&D)
 
 
6,600

Net liabilities assumed
 
 
(353
)
Deferred income tax liabilities
 
 
(4,676
)
Net assets acquired
 
 
27,247

Goodwill
 
 
43,000

Total fair value consideration
 
 
$
70,247

The following table summarizes the Company's acquired intangible assets:
 
 
 
 
 
 
 
 
 
September 30, 2015
 
December 31, 2014
(in thousands)
Gross carrying amount
 
Accumulated
amortization
 
Net carrying value
 
Net carrying
value
Purchased technology and other amortizable assets
$
32,951

 
$
(7,019
)
 
$
25,932

 
$
2,922

IPR&D and other non-amortizable assets
6,615

 

 
6,615

 
15

Total intangible assets
$
39,566

 
$
(7,019
)
 
$
32,547

 
$
2,937

Estimated amortization expense for future periods as of September 30, 2015, is as follows:
(in thousands)
 
Total
Year ending December 31,
 
 
Remainder of 2015
 
$
1,521

2016
 
5,956

2017
 
5,172

2018
 
4,779

2019
 
4,269

Thereafter
 
4,235

 
 
$
25,932

Fair value measurements (Tables)
Fair Value, Assets Measured on Recurring Basis
The Company’s assets that are measured at fair value on a recurring basis, by level, within the fair value hierarchy are summarized as follows:
 
 
September 30, 2015
 
December 31, 2014
(in thousands)
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
12,173

 
$

 
$
12,173

 
$
80,968

 
$

 
$
80,968

Corporate debt securities
 

 
100

 
100

 

 
2,000

 
2,000

Total cash equivalents
 
$
12,173

 
$
100

 
$
12,273

 
$
80,968

 
$
2,000

 
$
82,968

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
3,014

 
$

 
$
3,014

 
$
1,994

 
$

 
$
1,994

U.S. agency securities
 

 
19,565

 
19,565

 

 
7,020

 
7,020

Commercial paper
 

 
997

 
997

 

 
2,497

 
2,497

Corporate debt securities
 

 
197,554

 
197,554

 

 

 

Municipal securities
 

 
12,003

 
12,003

 

 
90,816

 
90,816

Total marketable securities
 
$
3,014

 
$
230,119

 
$
233,133

 
$
1,994

 
$
100,333

 
$
102,327

(1) Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheets as of September 30, 2015 and December 31, 2014, in addition to cash of $267.7 million and $237.0 million, respectively.
Stockholders' equity (Tables)
A summary of the Company’s stock option activity and related information is as follows:
 
 
Options outstanding
(shares in thousands)
 
Shares
 
Weighted- average
exercise price
 
Aggregate
intrinsic value
(in thousands)
Outstanding at December 31, 2014:
 
25,134

 
$
6.62

 
$
1,425,339

Granted
 
527

 
47.37

 
 
Exercised
 
(12,027
)
 
1.97

 
 
Forfeited/Cancelled
 
(249
)
 
18.65

 
 
Outstanding at September 30, 2015:
 
13,385

 
$
12.19

 
$
276,067

 
 
 
 
 
 
 
Exercisable at September 30, 2015
 
8,258

 
$
5.48

 
$
214,083

Vested and expected to vest at September 30, 2015
 
13,127

 
$
11.94

 
$
273,232

A summary of the Company’s RSU activity is as follows:
(shares in thousands)
Shares
 
Weighted- average grant date fair value
Non-vested shares at December 31, 2014
4,307

 
$
21.98

Granted
1,525

 
52.93

Vested
(1,372
)
 
16.53

Forfeited
(52
)
 
69.51

Non-vested shares at September 30, 2015
4,408

 
$
33.82

Total stock-based compensation expense recognized was as follows:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Stock-based compensation expense:
 
 
 
 
 
 
 
Cost of revenue
$
410

 
$
233

 
$
1,043

 
$
555

Research and development
4,872

 
2,428

 
12,117

 
5,486

Sales and marketing
3,516

 
3,225

 
9,514

 
6,293

General and administrative
9,072

 
8,027

 
39,886

 
39,809

Total stock-based compensation expense
17,870

 
13,913

 
62,560

 
52,143

Total tax benefit recognized
(7,323
)
 
(2,949
)
 
(22,867
)
 
(14,774
)
Decrease in net income
$
10,547

 
$
10,964

 
$
39,693

 
$
37,369

Net income per share attributable to common stockholders (Tables)
The following table presents the calculations of basic and diluted net income per share attributable to common stockholders:
 
Three months ended 
 September 30,
 
Nine months ended 
 September 30,
(in thousands, except per share data)
2015
 
2014
 
2015
 
2014
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allocation of net income
$
13,849

 
$
4,950

 
$
2,395

 
$
12,225

 
$
46,561

 
$
24,021

 
$
417

 
$
5,411

Less: net income allocable to participating securities

 

 
(6
)
 
(30
)
 

 

 
(73
)
 
(949
)
Net income attributable to common stockholders—basic
13,849

 
4,950

 
2,389

 
12,195

 
46,561

 
24,021

 
344

 
4,462

Add: net income allocable to dilutive participating securities

 

 
1

 
4

 

 

 
10

 
130

Reallocation of net income as a result of conversion of Class B to Class A shares
4,950

 

 
12,195

 

 
24,021

 

 
4,462

 

Reallocation of net income to Class B shares

 
960

 

 

 

 
4,215

 

 

Net income attributable to common stockholders—diluted
$
18,799

 
$
5,910

 
$
14,585

 
$
12,199

 
$
70,582

 
$
28,236

 
$
4,816

 
$
4,592

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average common shares—basic
100,040

 
35,760

 
20,597

 
105,116

 
88,234

 
45,521

 
6,941

 
89,964

Conversion of Class B to Class A common stock outstanding
35,760

 

 
105,116

 

 
45,521

 

 
89,964

 

Effect of potentially dilutive shares
10,255

 
10,159

 
19,473

 
19,317

 
13,446

 
13,366

 
18,673

 
18,621

Weighted-average common shares—diluted
146,055

 
45,919

 
145,186

 
124,433

 
147,201

 
58,887

 
115,578

 
108,585

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per share attributable to common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.14

 
$
0.14

 
$
0.12

 
$
0.12

 
$
0.53

 
$
0.53

 
$
0.05

 
$
0.05

Diluted
$
0.13

 
$
0.13

 
$
0.10

 
$
0.10

 
$
0.48

 
$
0.48

 
$
0.04

 
$
0.04

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)
2015
 
2014
 
2015
 
2014
Redeemable convertible preferred stock

 

 

 
20,237

Stock options, ESPP shares, and RSUs
2,373

 
366

 
1,993

 
2,871

Unvested restricted stock awards

 
308

 
2

 
376

 
2,373

 
674

 
1,995

 
23,484

Income taxes (Tables)
Schedule of Components of Income Tax Expense (Benefit)
 
Three months ended
 
Nine months ended
(dollars in thousands)
September 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Income tax expense (benefit)
$
8,474

 
$
(2,947
)
 
$
22,975

 
$
2,574

Effective tax rate
31.1
%
 
(25.2
)%
 
24.6
%
 
30.6
%
Commitments, contingencies and guarantees (Tables)
The following table summarizes the Company’s contractual commitments as of September 30, 2015:
(in thousands)
Total
 
1 year (remaining
3 months in 2015)
 
2-3 years (2016 and 2017)
 
4-5 years (2018 and 2019)
 
More than
5 years (beyond 2019)
Operating leases(1)
$
61,003

 
$
4,121

 
$
30,489

 
$
18,979

 
$
7,414

Sponsorship commitments(2)
11,277

 
2,694

 
8,571

 
12

 

Other contractual commitments(3)
5,337

 
841

 
4,496

 

 

Capital equipment purchase commitments(4)
10,048

 
10,048

 

 

 

Total contractual cash obligations
$
87,665

 
$
17,704

 
$
43,556

 
$
18,991

 
$
7,414

(1)
The Company leases its facilities under long-term operating leases, which expire at various dates through 2023.
(2)
The Company sponsors sporting events, resorts and athletes as part of its marketing efforts. In many cases, the Company enters into multi-year agreements with event organizers, resorts and athletes.
(3)
The Company purchases software licenses and engages outside consultants to assist with upgrading or implementing its financial and IT systems, which require payments over multiple years.
(4)
The Company enters into contracts to acquire equipment for tooling and molds as part of its manufacturing operations. In addition, the Company incurs purchase commitments related to the manufacturing of its point-of-purchase (POP) displays by third parties.
The following table summarizes the warranty liability activity:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Beginning balances
$
8,719

 
$
4,678

 
$
6,405

 
$
3,870

Charged to cost of revenue
6,515

 
2,778

 
18,335

 
6,978

Settlements of warranty claims
(5,809
)
 
(2,073
)
 
(15,315
)
 
(5,465
)
Ending balances
$
9,425

 
$
5,383

 
$
9,425

 
$
5,383

Concentrations of risk and segment information (Tables)
Revenue by geographic region, based on ship-to destinations, was as follows:
 
Three months ended
 
Nine months ended
(in thousands)
September 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Americas
$
190,839


$
204,893

 
$
583,282


$
482,769

Europe, Middle East and Africa (EMEA)
156,639


56,068

 
432,904


207,285

Asia and Pacific area countries (APAC)
52,862


19,010

 
167,182


70,238

 
$
400,340

 
$
279,971

 
$
1,183,368

 
$
760,292

The Company had the following customers who represented 10% or more of its net accounts receivable balance: