GOPRO, INC., 10-Q filed on 7/29/2016
Quarterly Report
Document, Entity and Information
6 Months Ended
Jun. 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
Jun. 30, 2016 
Document Fiscal Year Focus
2016 
Document Fiscal Period Focus
Q2 
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
102,936,387 
Common Class B [Member]
 
Class of Stock [Line Items]
 
Entity Common Stock, Shares Outstanding
36,503,793 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2016
Dec. 31, 2015
Current assets:
 
 
Cash and cash equivalents
$ 163,512 
$ 279,672 
Marketable securities
115,688 
194,386 
Accounts receivable, net
65,016 
145,692 
Inventory
89,889 
188,232 
Prepaid expenses and other current assets
38,057 
25,261 
Total current assets
472,162 
833,243 
Property and equipment, net
66,525 
70,050 
Intangible assets, net
46,073 
31,027 
Goodwill
146,459 
57,095 
Other long-term assets
133,161 
111,561 
Total assets
864,380 
1,102,976 
Current liabilities:
 
 
Accounts payable
63,642 
89,989 
Accrued liabilities
151,102 
192,446 
Deferred revenue
11,605 
12,742 
Total current liabilities
226,349 
295,177 
Long-term liabilities
40,641 
35,766 
Total liabilities
266,990 
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,102,936 and 100,596 shares issued and outstanding, respectively; 150,000 Class B shares authorized, 36,504 and 36,005 shares issued and outstanding, respectively
687,894 
663,311 
Treasury stock, at cost, 1,545 and 1,545 shares, respectively
(35,613)
(35,613)
Retained earnings (deficit)
(54,891)
144,335 
Total stockholders’ equity
597,390 
772,033 
Total liabilities and stockholders’ equity
$ 864,380 
$ 1,102,976 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Jun. 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
102,936,000 
100,596,000 
Common stock, shares, outstanding
102,936,000 
100,596,000 
Common Class B [Member]
 
 
Common Stock, Shares Authorized
150,000,000 
150,000,000 
Common Stock, Shares, Issued
36,504,000 
36,005,000 
Common stock, shares, outstanding
36,504,000 
36,005,000 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Income Statement [Abstract]
 
 
 
 
Revenue
$ 220,755 
$ 419,919 
$ 404,291 
$ 783,028 
Cost of revenue
127,753 
225,579 
251,575 
424,955 
Gross profit
93,002 
194,340 
152,716 
358,073 
Operating expenses:
 
 
 
 
Research and development
93,049 
58,453 
170,028 
107,890 
Sales and marketing
84,888 
63,494 
164,337 
119,863 
General and administrative
24,442 
26,255 
49,163 
61,914 
Total operating expenses
202,379 
148,202 
383,528 
289,667 
Operating income (loss)
(109,377)
46,138 
(230,812)
68,406 
Other income (expense), net
660 
122 
353 
(2,122)
Income (loss) before income taxes
(108,717)
46,260 
(230,459)
66,284 
Income tax expense (benefit)
(16,950)
11,229 
(31,233)
14,501 
Net income (loss)
$ (91,767)
$ 35,031 
$ (199,226)
$ 51,783 
Net income per share attributable to common stockholders - Basic (in dollars per share)
$ (0.66)
$ 0.26 
$ (1.44)
$ 0.39 
Net income per share attributable to common stockholders - Diluted (in dollars per share)
$ (0.66)
$ 0.24 
$ (1.44)
$ 0.35 
Weighted-average shares used to compute net income per share attributable to common stockholders - Basic (in shares)
138,942 
133,150 
138,243 
132,716 
Weighted-average shares used to compute net income per share attributable to common stockholders - Diluted (in shares)
138,942 
146,781 
138,243 
147,720 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Statement of Cash Flows [Abstract]
 
 
Net income (loss)
$ (199,226)
$ 51,783 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
Depreciation and amortization
17,804 
11,791 
Stock-based compensation
33,135 
44,690 
Excess tax benefit from stock-based compensation
(917)
(28,139)
Deferred income taxes
(13,494)
(6,656)
Other
1,162 
2,956 
Changes in operating assets and liabilities:
 
 
Accounts receivable, net
80,699 
65,562 
Inventory
98,343 
(66,045)
Prepaid expenses and other assets
(9,282)
(21,598)
Accounts payable and other liabilities
(85,492)
78,521 
Deferred revenue
(1,457)
(724)
Net cash provided by (used in) operating activities
(78,725)
132,141 
Investing activities:
 
 
Purchases of property and equipment, net
(12,192)
(21,269)
Purchases of marketable securities
(112,326)
Maturities and sales of marketable securities
78,093 
34,446 
Acquisitions, net of cash acquired
(104,353)
(57,706)
Net cash used in investing activities
(38,452)
(156,855)
Financing activities:
 
 
Proceeds from issuance of common stock, net
4,405 
17,139 
Excess tax benefit from stock-based compensation
917 
28,139 
Payment of deferred acquisition-related consideration
(950)
Payment of credit facility issuance costs
(3,221)
Payment of deferred public offering costs
(903)
Net cash provided by financing activities
1,151 
44,375 
Effect of exchange rate changes on cash and cash equivalents
(134)
(1,559)
Net increase (decrease) in cash and cash equivalents
(116,160)
18,102 
Cash and cash equivalents at beginning of period
279,672 
319,929 
Cash and cash equivalents at end of period
$ 163,512 
$ 338,031 
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 and accessories. GoPro's 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)
 
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09 to achieve a consistent application of revenue recognition within the United States, resulting in a single revenue model to be applied by reporting companies under GAAP. 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. In March 2016, the FASB issued ASU No. 2016-08, which clarifies the implementation guidance for principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, which amends the new standard related to identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12, which clarifies three aspects including the objective of the collectibility criterion, the measurement date for noncash consideration and the requirements for a completed contract. The new standards may be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption.
 
January 1, 2018
 
The Company is evaluating the impact that the adoption of these standards will have on its consolidated financial statements and related disclosures. The Company has not determined whether the effect will be material to its revenue results.
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.
Accounting Standards Update (ASU) No. 2016-13, Credit Losses (Topic 326)

 
The standard requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.
 
January 1, 2020
 
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 overview
Acquisitions
During the six months ended June 30, 2016, the Company completed acquisitions of two privately-held mobile editing application companies for 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 six months ended June 30, 2016 from the date of acquisition.
The acquired companies are headquartered 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:
 
June 30, 2016
 
December 31, 2015
(in thousands)
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
36,724

 
$

 
$
36,724

 
$
51,059

 
$

 
$
51,059

Total cash equivalents
$
36,724

 
$

 
$
36,724

 
$
51,059

 
$

 
$
51,059

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency securities
$

 
$
13,391

 
$
13,391

 
$

 
$
14,451

 
$
14,451

Commercial paper

 

 

 

 
2,197

 
2,197

Corporate debt securities

 
96,165

 
96,165

 

 
165,825

 
165,825

Municipal securities

 
6,132

 
6,132

 

 
11,913

 
11,913

Total marketable securities
$

 
$
115,688

 
$
115,688

 
$

 
$
194,386

 
$
194,386

(1) Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheets. Cash balances were $126.8 million and $228.6 million as of June 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 June 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 six months ended June 30, 2016.
The remaining contractual maturities of available-for-sale marketable securities are as follows:
(in thousands)
June 30,
2016
 
December 31,
2015
Less than one year
$
90,612

 
$
122,199

Greater than one year but less than two years
25,076

 
72,187

Total
$
115,688

 
$
194,386


At June 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.
Condensed 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)
June 30,
2016
 
December 31,
2015
Components
$
8,190

 
$
9,476

Finished goods
81,699

 
178,756

Total inventory
$
89,889

 
$
188,232


Property and equipment, net
(in thousands)
June 30,
2016
 
December 31,
2015
Leasehold improvements
$
42,369

 
$
40,841

Production, engineering and other equipment
26,957

 
25,174

Tooling
20,156

 
19,537

Computers and software
15,971

 
14,581

Furniture and office equipment
12,006

 
11,389

Construction in progress
6,528

 
4,632

Tradeshow equipment and other
6,448

 
4,136

Gross property and equipment
130,435

 
120,290

Less: Accumulated depreciation and amortization
(63,910
)
 
(50,240
)
Property and equipment, net
$
66,525

 
$
70,050


In June 2016, the Company committed to a plan to vacate and sublet certain leased office facilities that are auxiliary to our main headquarters. Changes in estimated useful life of associated leasehold improvements and office equipment are expected to result in accelerated depreciation expense of approximately $7 million over the next 13 months, including approximately $4 million in the third quarter of 2016 and approximately $3 million ratably over the remaining period.
Intangible assets and goodwill
 
June 30, 2016
(in thousands)
Gross carrying value
 
Accumulated
amortization
 
Net carrying value
Purchased technology
$
48,184

 
$
(12,486
)
 
$
35,698

In-process research and development (IPR&D)
10,375

 

 
10,375

Total intangible assets
$
58,559

 
$
(12,486
)
 
$
46,073



 
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


Purchased technology acquired in 2016 has an estimated useful life of four years. As of June 30, 2016, technological feasibility has not been established for 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 $3.9 million and $1.2 million in the six months ended June 30, 2016 and 2015, respectively. At June 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 6 months)
$
5,075

2017
9,388

2018
8,452

2019
7,669

2020
4,244

Thereafter
870

 
$
35,698

The carrying amount of goodwill was $146.5 million and $57.1 million as of June 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)
June 30,
2016
 
December 31,
2015
Accrued payables
$
70,083

 
$
64,831

Excess purchase order commitments
12,172

 
38,477

Accrued sales incentive
20,020

 
29,298

Employee related liabilities
25,590

 
26,491

Warranty liability
8,594

 
10,400

Customer deposits
4,127

 
8,877

Income taxes payable
3,070

 
7,536

Other
7,446

 
6,536

Accrued liabilities
$
151,102

 
$
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 U.S., 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 June 30, 2016, the Company may borrow up to approximately $82 million under the Credit Facility. No borrowings have been made from the Credit Facility to date. As of June 30, 2016, the Company was in compliance with all financial covenants contained in the Credit Agreement.
Stockholders' equity
Stockholders' equity
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 or extended 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. At June 30, 2016 and December 31, 2015, the Company had a remaining share repurchase authorization of $264.4 million. The Company has recorded its repurchased shares as treasury stock.
CEO stock contributions. In the first six months 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 six months ended June 30, 2016 and related information 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
2,405

 
11.16

 
 
 
 
Exercised
(947
)
 
1.56

 
 
 
 
Forfeited/Cancelled
(820
)
 
18.67

 
 
 
 
Outstanding at June 30, 2016:
13,719

 
$
12.01

 
6.57
 
$
49,301

 
 
 
 
 
 
 
 
Exercisable at June 30, 2016
8,230

 
$
8.28

 
5.64
 
$
48,772

Vested and expected to vest at June 30, 2016
13,427

 
$
11.90

 
6.53
 
$
49,267


The aggregate intrinsic value of the stock options outstanding as of June 30, 2016 represents the value of the Company's closing stock price on June 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 six months ended June 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
5,672

 
11.58

Vested
(715
)
 
22.01

Forfeited
(814
)
 
25.08

Non-vested shares at June 30, 2016
8,781

 
$
20.35


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 service-based vesting condition. The market-based condition was achieved in January 2015. Stock-based compensation expense related to the CEO RSUs was $4.2 million and $21.8 million for the six months ended June 30, 2016 and 2015, respectively.
Employee stock purchase plan (ESPP)
In the six months ended June 30, 2016 and 2015, the Company issued 431,673 and 313,233 shares under its ESPP at weighted average prices of $8.76 and $20.40, 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 $3.49 and $16.56, 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
 
Six months ended
(in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016

June 30,
2015
Cost of revenue
$
412

 
$
350

 
$
769

 
$
633

Research and development
7,086

 
3,710

 
13,096

 
7,245

Sales and marketing
3,679

 
2,932

 
6,883

 
5,998

General and administrative
6,227

 
11,197

 
12,387

 
30,814

Total stock-based compensation expense, before income taxes
17,404

 
18,189

 
33,135


44,690

Total tax benefit recognized
(5,386
)
 
(6,240
)
 
(10,150
)

(15,544
)
Total stock-based compensation expense, net of income taxes
$
12,018

 
$
11,949

 
$
22,985


$
29,146


At June 30, 2016, there was total unearned stock-based compensation of $169.4 million related to stock options, RSUs and ESPP, which is expected to be recognized over a weighted average period of 2.9 years.
Net income (loss) per share
Net income per share attributable to common stockholders
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 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.
Undistributed earnings are allocated based on the contractual participation rights of Class A and Class B common stock 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 (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
 
Six months ended
(in thousands, except per share data)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
(91,767
)
 
$
35,031

 
$
(199,226
)
 
$
51,783

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares—basic for Class A and Class B common stock
138,942

 
133,150

 
138,243

 
132,716

Effect of potentially dilutive shares

 
13,631

 

 
15,004

Weighted-average common shares—diluted for Class A and Class B common stock
138,942

 
146,781

 
138,243

 
147,720

 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.66
)
 
$
0.26

 
$
(1.44
)
 
$
0.39

Diluted
$
(0.66
)
 
$
0.24

 
$
(1.44
)
 
$
0.35


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
 
Six months ended
(in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Stock options, ESPP shares and RSUs
21,391

 
1,814

 
19,848

 
1,983

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
 
Six months ended
(dollars in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Income tax expense (benefit)
$
(16,950
)
 
$
11,229

 
$
(31,233
)
 
$
14,501

Effective tax rate
15.6
%
 
24.3
%
 
13.6
%

21.9
%

The Company recorded an income tax benefit of $17.0 million for the three months ended June 30, 2016 due to a pre-tax net loss, which resulted in an effective tax rate of 15.6%. The lower effective tax rates for the three and six months ended June 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. The Company is not able 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. The California Franchise Tax Board has completed an examination for the 2011 and 2012 tax years and the effect on income tax expense was immaterial.
At June 30, 2016 and December 31, 2015, the Company’s gross unrecognized tax benefits was $51.4 million and $36.3 million, respectively. If recognized, $31.2 million of these unrecognized tax benefits (net of U.S. federal benefit) at June 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 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. The Company recorded no expense and $0.2 million in the six months ended June 30, 2016 and 2015, respectively, for services rendered. As of June 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 $0.6 million and $0.7 million in the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016 and December 31, 2015, the Company had accounts payable associated with this vendor 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 would pay a total of $0.5 million over the three year period. As of June 30, 2016, the Company has recorded cumulative expense of $0.5 million, and has also provided 100 GoPro cameras at no cost each year.
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 six months ended June 30, 2016. Rent expense was $9.8 million and $4.9 million for the six months ended June 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; manufacturing equipment for tooling and molds; 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 June 30, 2016 and December 31, 2015, the Company's total undiscounted future expected obligations under these multi-year agreements described above were approximately $67 million and $28.8 million, respectively. The increase in 2016 was primarily attributable to the Red Bull agreement described above and new software licenses unrelated to the Red Bull agreement.
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 June 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
 
Six months ended
(in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Beginning balances
$
8,011

 
$
8,969

 
$
10,855

 
$
6,405

Charged to cost of revenue
5,871

 
5,309

 
8,541

 
11,353

Settlements of warranty claims
(4,943
)
 
(5,559
)
 
(10,457
)
 
(9,039
)
Ending balances
$
8,939

 
$
8,719

 
$
8,939

 
$
8,719


At June 30, 2016, $8.6 million of the warranty liability was recorded as an element of accrued liabilities and $0.3 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:
 
June 30,
2016
 
December 31,
2015
Customer A
30%
 
40%
Customer B
13%
 
*
Customer C
16%
 
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
 
Six months ended
(in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Accounts receivable sold
$
43,794

 
$
50,416

 
$
64,304

 
$
85,716

Factoring fees
317

 
446

 
459

 
736


Customers who represented 10% or more of the Company's total revenue were as follows:
 
Three months ended
 
Six months ended
 
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Customer B
21%
 
16%
 
18%
 
14%
Customer A
14%
 
*
 
14%
 
*
* Less than 10% of total revenue for the period indicated
Supplier concentration. The Company relies on third parties for the supply and manufacture of its 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
 
Six months ended
(in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Americas
$
124,570

 
$
212,350

 
$
209,875

 
$
392,443

Europe, Middle East and Africa (EMEA)
60,714

 
137,186

 
120,992

 
276,265

Asia and Pacific area countries (APAC)
35,471

 
70,383

 
73,424

 
114,320

Total revenue
$
220,755

 
$
419,919

 
$
404,291

 
$
783,028


Revenue in the United States, which is included in the Americas geographic region, was $188.2 million and $344.4 million for the six months ended June 30, 2016 and 2015, respectively. 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 June 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 $54.1 million and $47.6 million, respectively.
Restructuring charges 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. The restructuring plan was substantially completed in the first quarter 2016. As of June 30, 2016, the remaining accrued liability was not material.
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)
 
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09 to achieve a consistent application of revenue recognition within the United States, resulting in a single revenue model to be applied by reporting companies under GAAP. 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. In March 2016, the FASB issued ASU No. 2016-08, which clarifies the implementation guidance for principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, which amends the new standard related to identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12, which clarifies three aspects including the objective of the collectibility criterion, the measurement date for noncash consideration and the requirements for a completed contract. The new standards may be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption.
 
January 1, 2018
 
The Company is evaluating the impact that the adoption of these standards will have on its consolidated financial statements and related disclosures. The Company has not determined whether the effect will be material to its revenue results.
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.
Accounting Standards Update (ASU) No. 2016-13, Credit Losses (Topic 326)

 
The standard requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.
 
January 1, 2020
 
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)
 
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09 to achieve a consistent application of revenue recognition within the United States, resulting in a single revenue model to be applied by reporting companies under GAAP. 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. In March 2016, the FASB issued ASU No. 2016-08, which clarifies the implementation guidance for principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, which amends the new standard related to identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12, which clarifies three aspects including the objective of the collectibility criterion, the measurement date for noncash consideration and the requirements for a completed contract. The new standards may be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption.
 
January 1, 2018
 
The Company is evaluating the impact that the adoption of these standards will have on its consolidated financial statements and related disclosures. The Company has not determined whether the effect will be material to its revenue results.
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.
Accounting Standards Update (ASU) No. 2016-13, Credit Losses (Topic 326)

 
The standard requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.
 
January 1, 2020
 
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:
 
June 30, 2016
 
December 31, 2015
(in thousands)
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
36,724

 
$

 
$
36,724

 
$
51,059

 
$

 
$
51,059

Total cash equivalents
$
36,724

 
$

 
$
36,724

 
$
51,059

 
$

 
$
51,059

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency securities
$

 
$
13,391

 
$
13,391

 
$

 
$
14,451

 
$
14,451

Commercial paper

 

 

 

 
2,197

 
2,197

Corporate debt securities

 
96,165

 
96,165

 

 
165,825

 
165,825

Municipal securities

 
6,132

 
6,132

 

 
11,913

 
11,913

Total marketable securities
$

 
$
115,688

 
$
115,688

 
$

 
$
194,386

 
$
194,386

(1) Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheets. Cash balances were $126.8 million and $228.6 million as of June 30, 2016 and December 31, 2015, respectively.
The remaining contractual maturities of available-for-sale marketable securities are as follows:
(in thousands)
June 30,
2016
 
December 31,
2015
Less than one year
$
90,612

 
$
122,199

Greater than one year but less than two years
25,076

 
72,187

Total
$
115,688

 
$
194,386

Condensed consolidated financial statement details (Tables)
Inventory
(in thousands)
June 30,
2016
 
December 31,
2015
Components
$
8,190

 
$
9,476

Finished goods
81,699

 
178,756

Total inventory
$
89,889

 
$
188,232

Property and equipment, net
(in thousands)
June 30,
2016
 
December 31,
2015
Leasehold improvements
$
42,369

 
$
40,841

Production, engineering and other equipment
26,957

 
25,174

Tooling
20,156

 
19,537

Computers and software
15,971

 
14,581

Furniture and office equipment
12,006

 
11,389

Construction in progress
6,528

 
4,632

Tradeshow equipment and other
6,448

 
4,136

Gross property and equipment
130,435

 
120,290

Less: Accumulated depreciation and amortization
(63,910
)
 
(50,240
)
Property and equipment, net
$
66,525

 
$
70,050

Intangible assets and goodwill
 
June 30, 2016
(in thousands)
Gross carrying value
 
Accumulated
amortization
 
Net carrying value
Purchased technology
$
48,184

 
$
(12,486
)
 
$
35,698

In-process research and development (IPR&D)
10,375

 

 
10,375

Total intangible assets
$
58,559

 
$
(12,486
)
 
$
46,073



 
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

At June 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 6 months)
$
5,075

2017
9,388

2018
8,452

2019
7,669

2020
4,244

Thereafter
870

 
$
35,698

Accrued liabilities
(in thousands)
June 30,
2016
 
December 31,
2015
Accrued payables
$
70,083

 
$
64,831

Excess purchase order commitments
12,172

 
38,477

Accrued sales incentive
20,020

 
29,298

Employee related liabilities
25,590

 
26,491

Warranty liability
8,594

 
10,400

Customer deposits
4,127

 
8,877

Income taxes payable
3,070

 
7,536

Other
7,446

 
6,536

Accrued liabilities
$
151,102

 
$
192,446

Employee benefit plans (Tables)
A summary of the Company’s stock option activity for the six months ended June 30, 2016 and related information 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
2,405

 
11.16

 
 
 
 
Exercised
(947
)
 
1.56

 
 
 
 
Forfeited/Cancelled
(820
)
 
18.67

 
 
 
 
Outstanding at June 30, 2016:
13,719

 
$
12.01

 
6.57
 
$
49,301

 
 
 
 
 
 
 
 
Exercisable at June 30, 2016
8,230

 
$
8.28

 
5.64
 
$
48,772

Vested and expected to vest at June 30, 2016
13,427

 
$
11.90

 
6.53
 
$
49,267

A summary of the Company’s RSU activity for the six months ended June 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
5,672

 
11.58

Vested
(715
)
 
22.01

Forfeited
(814
)
 
25.08

Non-vested shares at June 30, 2016
8,781

 
$
20.35

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

June 30,
2015
Cost of revenue
$
412

 
$
350

 
$
769

 
$
633

Research and development
7,086

 
3,710

 
13,096

 
7,245

Sales and marketing
3,679

 
2,932

 
6,883

 
5,998

General and administrative
6,227

 
11,197

 
12,387

 
30,814

Total stock-based compensation expense, before income taxes
17,404

 
18,189

 
33,135


44,690

Total tax benefit recognized
(5,386
)
 
(6,240
)
 
(10,150
)

(15,544
)
Total stock-based compensation expense, net of income taxes
$
12,018

 
$
11,949

 
$
22,985


$
29,146


Net income (loss) per share (Tables)
The following table presents the calculations of basic and diluted net income (loss) per share:
 
Three months ended
 
Six months ended
(in thousands, except per share data)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
(91,767
)
 
$
35,031

 
$
(199,226
)
 
$
51,783

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares—basic for Class A and Class B common stock
138,942

 
133,150

 
138,243

 
132,716

Effect of potentially dilutive shares

 
13,631

 

 
15,004

Weighted-average common shares—diluted for Class A and Class B common stock
138,942

 
146,781

 
138,243

 
147,720

 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.66
)
 
$
0.26

 
$
(1.44
)
 
$
0.39

Diluted
$
(0.66
)
 
$
0.24

 
$
(1.44
)
 
$
0.35

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
 
Six months ended
(in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Stock options, ESPP shares and RSUs
21,391

 
1,814

 
19,848

 
1,983

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
 
Six months ended
(dollars in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Income tax expense (benefit)
$
(16,950
)
 
$
11,229

 
$
(31,233
)
 
$
14,501

Effective tax rate
15.6
%
 
24.3
%
 
13.6
%

21.9
%
Commitments, contingencies and guarantees (Tables)
Schedule of Product Warranty Liability Activity
The following table summarizes the warranty liability activity:
 
Three months ended
 
Six months ended
(in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Beginning balances
$
8,011

 
$
8,969

 
$
10,855

 
$
6,405

Charged to cost of revenue
5,871

 
5,309

 
8,541

 
11,353

Settlements of warranty claims
(4,943
)
 
(5,559
)
 
(10,457
)
 
(9,039
)
Ending balances
$
8,939

 
$
8,719

 
$
8,939

 
$
8,719

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
 
Six months ended
(in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Accounts receivable sold
$
43,794

 
$
50,416

 
$
64,304

 
$
85,716

Factoring fees
317

 
446

 
459

 
736

Revenue by geographic region, based on ship-to destinations, was as follows:
 
Three months ended
 
Six months ended
(in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Americas
$
124,570

 
$
212,350

 
$
209,875

 
$
392,443

Europe, Middle East and Africa (EMEA)
60,714

 
137,186

 
120,992

 
276,265

Asia and Pacific area countries (APAC)
35,471

 
70,383

 
73,424

 
114,320

Total revenue
$
220,755

 
$
419,919

 
$
404,291

 
$
783,028

Customers who represented 10% or more of the Company's net accounts receivable balance were as follows:
 
June 30,
2016
 
December 31,
2015
Customer A
30%
 
40%
Customer B
13%
 
*
Customer C
16%
 
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
 
Six months ended
 
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Customer B
21%
 
16%
 
18%
 
14%
Customer A
14%
 
*
 
14%
 
*
* Less than 10% of total revenue for the period indicated
(Details) (USD $)
6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2015
Business Acquisition [Line Items]
 
 
 
Cash consideration
$ 104,353,000 
$ 57,706,000 
 
Goodwill
146,459,000 
 
57,095,000 
Series of Individually Immaterial Business Acquisitions [Member]
 
 
 
Business Acquisition [Line Items]
 
 
 
Number of businesses acquired
 
 
Cash consideration
104,000,000 
 
 
Identifiable intangible assets
17,400,000 
 
 
Net deferred tax liabilities
3,400,000 
 
 
Goodwill
89,000,000 
 
 
Deferred cash and stock compensation
$ 37,000,000 
 
 
Fair value measurements (Details) (USD $)
Jun. 30, 2016
Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Marketable securities
$ 115,688,000 
$ 194,386,000 
Cash and cash equivalents
126,800,000 
228,600,000 
Fair Value, Measurements, Recurring [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
36,724,000 
51,059,000 
Marketable securities
115,688,000 
194,386,000 
Marketable securities with contractual maturity of one year or less
90,612,000 
122,199,000 
Marketable securities with contractual maturity of one to two years
25,076,000 
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
13,391,000 
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
96,165,000 
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
6,132,000 
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
36,724,000 
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
36,724,000 
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
36,724,000 
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
115,688,000 
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
13,391,000 
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
96,165,000 
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
6,132,000 
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
Jun. 30, 2016
Dec. 31, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]
 
 
Components
$ 8,190 
$ 9,476 
Finished goods
81,699 
178,756 
Total inventory
$ 89,889 
$ 188,232 
Condensed consolidated financial statement details - Property and Equipment, Net (Details) (USD $)
Jun. 30, 2016
Dec. 31, 2015
Property, Plant and Equipment [Line Items]
 
 
Gross property and equipment
$ 130,435,000 
$ 120,290,000 
Less: Accumulated depreciation and amortization
(63,910,000)