Edgar Filing: GoPro, Inc.

Intangible - Goodwill and Other
ASU No. 2017-04 (Topic 350)

This standard simplifies the accounting for goodwill and removes Step 2 of the annual goodwill impairment test. Upon adoption, goodwill impairment will be determined based on the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017, and requires a prospective transition method.

January 1, 2020

The Company does not expect that the adoption of this standard will have a material impact on its consolidated financial statements and related disclosures.

Stock Compensation
ASU No. 2017-09 (Topic 718)

This standard clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this standard, modification is required only if the fair value, the vesting conditions, or the classification of an award as equity or liability changes as a result of the change in terms or conditions. The updated standard is effective in annual and interim periods in fiscal years beginning after December 15, 2017, with early adoption permitted.

January 1, 2018

The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2017

	OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ________________ to ________________

Commission file number: 001-36514

GOPRO, INC.

(Exact name of registrant as specified in its charter)



Delaware		77-0629474
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

3000 Clearview Way San Mateo, California		94402
(Address of principal executive offices)		(Zip Code)

(650) 332-7600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one).



Large accelerated filer þ	Accelerated filer ☐	Non accelerated filer ☐
		(Do not check if a smaller reporting company)
Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of October 31, 2017, 109,285,755 and 36,673,286 shares of Class A and Class B common stock were outstanding, respectively.

GoPro, Inc.

Index



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and September 30, 2016	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and September 30, 2016	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	58
	Signatures	59
	Exhibit Index	60

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GoPro, Inc.

Condensed Consolidated Balance Sheets

(unaudited)



(in thousands, except par values)	September 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	164,616		$	192,114
Marketable securities	31,946			25,839
Accounts receivable, net	100,026			164,553
Inventory	177,190			167,192
Prepaid expenses and other current assets	36,471			38,115
Total current assets	510,249			587,813
Property and equipment, net	74,196			76,509
Intangible assets, net	26,860			33,530
Goodwill	146,459			146,459
Other long-term assets	67,665			78,329
Total assets	$	825,429		$	922,640

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	143,054		$	205,028
Accrued liabilities	149,395			211,323
Deferred revenue	16,301			14,388
Total current liabilities	308,750			430,739
Long-term taxes payable	21,670			26,386
Long-term debt	127,861			—
Other long-term liabilities	26,878			18,570
Total liabilities	485,159			475,695

Commitments, contingencies and guarantees (Note 9)

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, 100,079 and 104,647 shares issued and outstanding, respectively; 150,000 Class B shares authorized, 36,673 and 36,712 shares issued and outstanding, respectively	840,169			757,226
Treasury stock, at cost, 10,710 and 1,545 shares, respectively	(113,613		)	(35,613		)
Accumulated deficit	(386,286		)	(274,668		)
Total stockholders’ equity	340,270			446,945
Total liabilities and stockholders’ equity	$	825,429		$	922,640

The accompanying notes are an integral part of these condensed consolidated financial statements.

GoPro, Inc.

Condensed Consolidated Statements of Operations

(unaudited)



	Three months ended						Nine months ended
(in thousands, except per share data)	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Revenue	$	329,805		$	240,569		$	844,945		$	644,860
Cost of revenue	199,259			143,500			540,201			395,075
Gross profit	130,546			97,069			304,744			249,785
Operating expenses:
Research and development	55,098			96,146			176,761			266,174
Sales and marketing	46,622			91,567			171,156			255,904
General and administrative	20,777			24,945			61,976			74,108
Total operating expenses	122,497			212,658			409,893			596,186
Operating income (loss)	8,049			(115,589		)	(105,149		)	(346,401		)
Other income (expense):
Interest expense	(4,554		)	(1,156		)	(9,152		)	(1,815		)
Other income, net	322			348			705			1,360
Total other income (expense), net	(4,232		)	(808		)	(8,447		)	(455		)
Income (loss) before income taxes	3,817			(116,397		)	(113,596		)	(346,856		)
Income tax expense (benefit)	(10,844		)	(12,329		)	13,429			(43,562		)
Net Income (loss)	$	14,661		$	(104,068	)	$	(127,025	)	$	(303,294	)

Net income (loss) per share:
Basic	$	0.11		$	(0.74	)	$	(0.92	)	$	(2.18	)
Diluted	$	0.10		$	(0.74	)	$	(0.92	)	$	(2.18	)

Shares used to compute net income (loss) per share:
Basic	136,236			140,124			138,450			138,875
Diluted	140,288			140,124			138,450			138,875

The accompanying notes are an integral part of these condensed consolidated financial statements.

GoPro, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)



	Nine months ended
(in thousands)	September 30, 2017			September 30, 2016
Operating activities:
Net loss	$	(127,025	)	$	(303,294	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	32,260			30,540
Stock-based compensation	36,235			51,601
Excess tax benefit from stock-based compensation ⁽¹⁾	—			(2,374		)
Deferred income taxes	(1,818		)	(20,956		)
Non-cash restructuring charges	3,859			—
Non-cash interest expense	3,366			—
Impairment of intangible assets	—			6,000
Other	3,891			4,754
Changes in operating assets and liabilities:
Accounts receivable, net	64,874			53,706
Inventory	(9,998		)	43,001
Prepaid expenses and other assets	4,850			(10,526		)
Accounts payable and other liabilities	(106,432		)	28,584
Deferred revenue	2,095			(1,485		)
Net cash used in operating activities	(93,843		)	(120,449		)

Investing activities:
Purchases of property and equipment, net	(18,313		)	(26,516		)
Purchases of marketable securities	(31,918		)	—
Maturities of marketable securities	14,160			93,224
Sale of marketable securities	11,623			6,791
Acquisitions, net of cash acquired	—			(104,353		)
Net cash used in investing activities	(24,448		)	(30,854		)

Financing activities:
Proceeds from issuance of common stock	9,623			6,202
Taxes paid related to net share settlement of equity awards	(11,278		)	(860		)
Proceeds from issuance of convertible senior notes	175,000			—
Prepayment of forward stock repurchase transaction	(78,000		)	—
Excess tax benefit from stock-based compensation ⁽¹⁾	—			2,374
Payment of deferred acquisition-related consideration	(76		)	(950		)
Payment of debt issuance costs	(5,963		)	(3,287		)
Net cash provided by financing activities	89,306			3,479
Effect of exchange rate changes on cash and cash equivalents	1,487			(271		)
Net decrease in cash and cash equivalents	(27,498		)	(148,095		)
Cash and cash equivalents at beginning of period	192,114			279,672
Cash and cash equivalents at end of period	$	164,616		$	131,577

⁽¹⁾Effective January 1, 2017, the Company adopted an accounting standard which addresses, among other items, updates to the presentation and treatment of excess tax benefits related to stock-based compensation. See "Recent Accounting Standards" in Note 1 below.

The accompanying notes are an integral part of these condensed consolidated financial statements.

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

1. Summary of business and significant accounting policies

GoPro, Inc. (GoPro or the Company) makes mountable and wearable cameras, drones and accessories. The Company'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, 2016 has been derived from the audited financial statements at that date, but does not include all the disclosures required by GAAP. This Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K (Annual Report) for the year ended December 31, 2016. 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.

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

Recent accounting standards



Standard	Description	Date of adoption	Effect on the financial statements or other significant matters
Standards that were adopted
Stock Compensation Accounting Standards Update (ASU) No. 2016-09 (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.	January 1, 2017	Adoption of the standard resulted in the recognition of previously unrecognized excess tax benefits using the modified retrospective method. The Company recorded an increase to U.S. deferred tax assets of $179 million which was recorded directly against accumulated deficit. The increased deferred tax asset allowed for an offset against long-term income tax payable of $16 million. A full valuation allowance was provided on the remaining U.S. deferred tax asset of $163 million, which was also recorded against accumulated deficit. The net impact to equity was a decrease in the accumulated deficit of approximately $16 million. The Company elected to apply the change in presentation to the statements of cash flows prospectively and elected to account for forfeitures as they occur.
Standards not yet adopted
Revenue from Contracts with Customers ASU No. 2014-09, 2016-08, 2016-10 and 2016-12 (Topic 606)	The updated revenue standard establishes principles for recognizing revenue and develops a common revenue standard for all industries. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard requires that entities disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Early adoption is permitted, but not earlier than the first quarter of 2017. The retrospective or cumulative effect transition method is permitted.	January 1, 2018	The Company completed an initial analysis of the impact of the standard on its sales contract portfolio by reviewing its current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to its sales contracts. Although the Company is continuing to review certain aspects of its policies and practices, the Company's analysis of its contracts under the new standard supports the recognition of its product revenue at the time product is shipped, consistent with its current revenue policy. The Company expects that, as a result of the adoption of the new guidance, certain sales incentives will need to be estimated as variable consideration at the time product is shipped and included as a reduction to the transaction price. This will result in a reduction of revenue being recorded earlier than under the existing guidance. The Company recognized approximately $30 and $42 million as a reduction to revenue for such sales incentives for the first nine months of 2017 and for the full year 2016, respectively. The Company does not expect that the adoption of ASU 2014-09 will have a material impact to the quarterly or yearly revenue recognized. The Company expects to utilize the modified retrospective transition method.
Leases ASU No. 2016-02(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. The new standard should be applied on a modified retrospective basis.	January 1, 2019	Although the Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures, the Company currently expects that most of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption.
Income Taxes ASU No. 2016-16 (Topic 740)	This standard requires entities to recognize the income tax consequences of intra-entity asset transfers when they occur. This removes the exception to postpone recognition until the asset has been sold to an outside party. The updated standard is effective in annual and interim periods in fiscal years beginning after December 15, 2017, with early adoption permitted during the first interim period of a fiscal year.	January 1, 2018	The Company completed an initial analysis of the impact of the new standard and intends to apply the modified retrospective approach upon adoption. The Company will continue to evaluate the impact of the new standard but does expect that the adoption of ASU 2016-16 on January 1, 2018 will result in a $10-15 million cumulative-effect increase in accumulated deficit on its consolidated financial statements and related disclosures.

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

Although there are several other new accounting standards issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these additional accounting pronouncements has had or will have a material impact on its financial statements.

2. Fair value measurements

The Company’s assets that are measured at fair value on a recurring basis within the fair value hierarchy are summarized as follows:



	September 30, 2017						December 31, 2016
(in thousands)	Level 1		Level 2		Total		Level 1		Level 2		Total
Cash equivalents ⁽¹⁾:
Money market funds	$	45,954	$	—	$	45,954	$	18,024	$	—	$	18,024
Commercial paper	9,991		—		9,991		—		—		—
Corporate debt securities	—		4,500		4,500		—		—		—
Total cash equivalents	$	55,945	$	4,500	$	60,445	$	18,024	$	—	$	18,024
Marketable securities:
U.S. agency securities	$	—	$	—	$	—	$	—	$	8,283	$	8,283
Commercial paper	17,428		—		17,428		—		—		—
Corporate debt securities	—		14,518		14,518		—		15,226		15,226
Municipal securities	—		—		—		—		2,330		2,330
Total marketable securities	$	17,428	$	14,518	$	31,946	$	—	$	25,839	$	25,839

⁽¹⁾ Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheets. Cash balances were $104.2 million and $174.1 million as of September 30, 2017 and December 31, 2016, respectively.

There were no transfers of financial assets between levels for the periods presented.

Cash equivalents and marketable securities are classified as Level 1 or Level 2 because the Company uses quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

value. There were no transfers of financial assets between levels during the nine months ended September 30, 2017. The contractual maturities of available-for-sale marketable securities as of September 30, 2017 and December 31. 2016 were all less than one year in duration. At September 30, 2017 and December 31, 2016, the Company had no financial assets or liabilities that were classified as Level 3, which are valued based on inputs supported by little or no market activity.

At September 30, 2017 and December 31, 2016, 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.

The Company's liabilities that are disclosed but not measured at fair value include the Convertible Senior Notes (see Note 4, "Financing Arrangements") which are reflected on the unaudited condensed consolidated balance sheet at cost. The fair value measurement is classified as Level 2 within the fair value hierarchy since it is based on quoted market prices of the Company's instruments in markets that are not active. The Company estimated the fair value of the Notes by evaluating quoted market prices and calculating the upfront cash payment a market participant would require to assume these obligations. The upfront cash payment used in the calculations of fair value on September 30, 2017, excluding any issuance costs, is the amount that a market participant would be willing to lend at September 30, 2017 to an entity with a credit rating similar to the Company and achieve sufficient cash inflows to cover the scheduled cash outflows. The calculated fair value of the Notes, of $215.8 million, is highly correlated to the Company's stock price and as a result significant changes to stock price will have a significant impact on the calculated fair value of the Notes.

For certain other financial assets and liabilities, including accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.

3. Condensed consolidated financial statement details

The following sections and tables provide details of selected balance sheet items.

Inventory



(in thousands)	September 30, 2017		December 31, 2016
Components	$	25,997	$	25,236
Finished goods	151,193		141,956
Total inventory	$	177,190	$	167,192

Property and equipment, net



(in thousands)	September 30, 2017			December 31, 2016
Leasehold improvements	$	67,611		$	48,103
Production, engineering and other equipment	47,221			46,328
Tooling	24,865			23,742
Computers and software	20,834			18,750
Furniture and office equipment	14,602			12,530
Tradeshow equipment and other	7,549			7,578
Construction in progress	284			1,870
Gross property and equipment	182,966			158,901
Less: Accumulated depreciation and amortization	(108,770		)	(82,392		)
Property and equipment, net	$	74,196		$	76,509

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

Intangible assets



	September 30, 2017
(in thousands)	Gross carrying value		Accumulated amortization			Net carrying value
Purchased technology	$	49,901	$	(23,656	)	$	26,245
In-process research and development (IPR&D)	615		—			615
Total intangible assets	$	50,516	$	(23,656	)	$	26,860



	December 31, 2016
(in thousands)	Gross carrying value		Accumulated amortization			Net carrying value
Purchased technology	$	47,001	$	(17,086	)	$	29,915
IPR&D	3,615		—			3,615
Total intangible assets	$	50,616	$	(17,086	)	$	33,530

As of September 30, 2017, technological feasibility has not been established for the remaining IPR&D assets, which have no alternative future use and, as such, continue to be accounted for as indefinite-lived intangible assets.

Amortization expense was $6.7 million and $6.5 million in the nine months ended September 30, 2017 and 2016, respectively. At September 30, 2017, expected amortization expense of intangible assets with definite lives for future periods is as follows:



(in thousands)	Total
Year ending December 31,
2017 (remaining 3 months)	$	2,361
2018	9,263
2019	8,753
2020	4,998
2021	870
	$	26,245

Accrued liabilities



(in thousands)	September 30, 2017		December 31, 2016
Accrued payables	$	38,504	$	91,655
Employee related liabilities ⁽¹⁾	25,503		42,577
Accrued sales incentives	23,712		40,070
Warranty liability	9,303		11,456
Customer deposits	2,735		4,381
Income taxes payable	7,477		2,756
Purchase order commitments	2,774		4,730
Inventory received	25,669		3,950
Other	13,718		9,748
Accrued liabilities	$	149,395	$	211,323


⁽¹⁾	See Note 11 for amounts associated with restructuring liabilities.

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

4. Financing Arrangements

Credit Facility

In March 2016, the Company entered into a Credit Agreement (Credit Agreement) with JPMorgan Chase Bank, N.A., as administrative agent, Wells Fargo, 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 determined at periodic intervals and is based upon a borrowing base formula with respect to the Company’s inventory and accounts receivable balances. For additional information regarding the credit facility, please refer to the audited financial statements contained in our Annual Report.

At September 30, 2017 and December 31, 2016, the Company could borrow up to approximately $110 million and $150 million, respectively, under the Credit Facility and was in compliance with all financial covenants contained in the Credit Agreement. No borrowings have been made from the Credit Facility to date.

Convertible Notes

On April 12, 2017, the Company issued $175.0 million aggregate principal amount of 3.50% Convertible Senior Notes due 2022 (Notes) in a private offering to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933, as amended (Securities Act). The Notes were issued pursuant to an Indenture, dated as of April 12, 2017, between the Company and Wells Fargo Bank, National Association, as trustee (Wells Fargo). The Notes are senior, unsecured obligations of GoPro. The Notes mature on April 15, 2022 (Maturity Date), unless earlier repurchased or converted into shares of Class A common stock under certain circumstances described below. The Notes are convertible into cash, shares of the Company’s Class A common stock, or a combination thereof, at the Company’s election, at an initial conversion rate of 94.0071 shares of Class A common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $10.64 per share of common stock, subject to adjustment. The Company currently intends to deliver cash up to the principal amount of the Notes then outstanding upon conversion. The Company will pay interest on the Notes semi-annually in arrears on April 15 and October 15 of each year with interest payments beginning on October 15, 2017.

The $175.0 million of proceeds received from the issuance of the Notes were allocated between long-term debt (the liability component) of $128.3 million and additional paid-in-capital (the equity component) of $46.7 million on the condensed consolidated balance sheet. The fair value of the liability component was measured using rates determined for similar debt instruments without a conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the aggregate face value of the Notes. The liability component will be accreted up to the face value of the Notes of $175.0 million, which will result in additional non-cash interest expense being recognized in the condensed consolidated statements of operations through the Notes' Maturity Date. The effective interest rate on the Notes, including accretion of the notes to par and debt issuance cost amortization, was approximately 10.5%. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.

The Company incurred approximately $5.7 million of issuance costs related to the issuance of the Notes, of which $4.2 million and $1.5 million were recorded to long-term debt and additional paid-in capital, respectively, in proportion to the allocation of the proceeds of the Notes. The $4.2 million of issuance costs recorded as long-term debt on the condensed consolidated balance sheet are being amortized ratably over the five-year contractual term of the Notes.

The Company may not redeem the Notes prior to the Maturity Date and no sinking fund is provided for the Notes. The Indenture includes customary terms and covenants, including certain events of default after which the Notes may be due and payable immediately.

Holders may convert the Notes, at their option, in multiples of $1,000 principal amount at any time prior to January 15, 2022, but only in the following circumstances:

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements


•	during any calendar quarter beginning after the calendar quarter ending on September 30, 2017, if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the Notes on each applicable trading day;


•	during the five-business day period following any five consecutive trading day period in which the trading price for the Notes is less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate for the Notes on each such trading day; or


•	upon the occurrence of specified corporate events.

Regardless of whether any of the foregoing circumstances occurs, a holder may convert its Notes, in multiples of $1,000 principal amount, at any time on or after January 15, 2022 until the second scheduled trading day immediately preceding the Maturity Date of the Notes on April 22, 2022. Holders of the Notes who convert their Notes in connection with a make-whole fundamental change (as defined in the Indenture) are, under certain circumstances, entitled to an increase in the conversion rate. In addition, in the event of a fundamental change prior to the Maturity Date, holders will, subject to certain conditions, have the right, at their option, to require the Company to repurchase for cash all or part of the Notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the repurchase date.

As of September 30, 2017, the outstanding principal on the Notes was $175.0 million, the unamortized debt discount was $43.4 million, the unamortized debt issuance cost was $3.8 million and the net carrying amount of the liability component was $127.9 million, which was recorded as long-term debt within the condensed consolidated balance sheet. For the third quarter and first nine months of 2017, the Company recorded interest expense of $1.5 million and $2.8 million, respectively, for contractual coupon interest, $0.2 million and $0.4 million, respectively, for amortization of debt issuance costs and $1.8 million and $3.4 million, respectively, for amortization of the debt discount.

In connection with the offering, the Company entered into a prepaid forward stock repurchase transaction (Prepaid Forward) with a financial institution (Forward Counterparty). Pursuant to the Prepaid Forward, the Company used approximately $78.0 million of the net proceeds from the offering of the Notes to fund the Prepaid Forward. The aggregate number of shares of the Company’s Class A common stock underlying the Prepaid Forward was approximately 9.2 million. The expiration date for the Prepaid Forward is April 15, 2022, although it may be settled earlier in whole or in part. Upon settlement of the Prepaid Forward, at expiration or upon any early settlement, the Forward Counterparty will deliver to the Company the number of shares of Class A common stock underlying the Prepaid Forward or the portion thereof being settled early. The shares purchased under the Prepaid Forward are treated as treasury stock on the consolidated balance sheet (and not outstanding for purposes of the calculation of basic and diluted earnings per share), but will remain outstanding for corporate law purposes, including for purposes of any future stockholders' votes, until the Forward Counterparty delivers the shares underlying the Prepaid Forward to the Company. The Company’s Prepaid Forward hedge transaction exposes the Company to credit risk to the extent that its counterparty may be unable to meet the terms of the transaction. The Company mitigates this risk by limiting its counterparty to a major financial institution.

5. 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 one to four years. Restricted stock units (RSUs) granted under the 2014 Plan generally vest over two to four-years based upon continued service and are settled at vesting in shares of the Company's Class A common stock. 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 2016 Annual Report.

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

Stock options

A summary of the Company’s stock option activity for the nine months ended September 30, 2017 is as follows:



	Options outstanding
	Shares (in thousands)		Weighted- average exercise price		Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2016:	12,379		$	12.17	$	32,772
Granted	1,773		9.31
Exercised	(1,296	)	1.64
Forfeited/Cancelled	(2,910	)	18.19
Outstanding at September 30, 2017:	9,946		11.28		33,525

Exercisable at September 30, 2017	8,069		$	11.01	$	31,378

The aggregate intrinsic value of the stock options outstanding as of September 30, 2017 represents the value of the Company's closing stock price on September 30, 2017 in excess of the exercise price multiplied by the number of options outstanding.

Restricted stock units

A summary of RSU activity for the nine months ended September 30, 2017 is as follows:



	Shares (in thousands)		Weighted- average grant date fair value
Non-vested shares at December 31, 2016:	7,970		$	18.08
Granted	5,763		9.45
Vested	(3,558	)	14.43
Forfeited	(3,103	)	16.93
Non-vested shares at September 30, 2017:	7,072		$	13.38

In June 2014, the Company granted an award of 4.5 million RSUs covering shares of the Company's Class B common stock to the Company's CEO (CEO RSUs), which included 1.5 million RSUs that vested immediately upon grant and 3.0 million RSUs that were subject to both a market-based vesting condition and a three-year service-based vesting condition. The market-based condition was achieved in January 2015. Stock-based compensation expense related to the CEO RSUs was $0.6 million and $5.5 million for the nine months ended September 30, 2017 and 2016, respectively.

Employee stock purchase plan. For the nine months ended September 30, 2017 and 2016, the Company issued 934,359 and 668,107 shares under its ESPP at weighted average prices of $8.02 and $9.15, respectively.

Stock-based compensation expense. The Company measures compensation expense for all stock-based payment awards based on the estimated fair values on the date of the grant. The fair value of stock options granted and ESPP issuance is estimated using the Black-Scholes option pricing model. The fair value of RSUs 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 2016 Annual Report.

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

The following table summarizes stock-based compensation included in the condensed consolidated statements of operations:



	Three months ended				Nine months ended
(in thousands)	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Cost of revenue	$	445	$	426	$	1,355	$	1,195
Research and development	5,967		8,039		17,039		21,135
Sales and marketing	2,609		3,816		7,295		10,699
General and administrative	2,854		6,185		10,546		18,572
Total stock-based compensation expense	$	11,875	$	18,466	$	36,235	$	51,601

The income tax benefit related to stock-based compensation expense was zero and $15.7 million for the nine months ended September 30, 2017 and 2016, respectively. There was no income tax benefit in the nine months ended September 30, 2017 due to a full valuation allowance on the Company's U.S. net deferred tax assets (see Note 7 below).

At September 30, 2017, total unearned stock-based compensation of $90.2 million related to stock options, RSUs and ESPP shares is expected to be recognized over a weighted average period of 2.1 years.

6. Net income (loss) per share

Basic net income per share is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. 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.

On April 12, 2017, the Company issued $175.0 million of 3.50% Convertible Senior Notes. The Notes mature on April 15, 2022, unless earlier repurchased or converted into shares of Class A common stock under certain circumstances as described further in Note 4, "Financing Arrangements", above. The Notes are convertible into cash, shares of the Company’s Class A common stock, or a combination thereof, at the Company’s election. As the Company currently intends to deliver cash up to the principal amount of the Notes subject to conversion, no shares associated with the Note conversion were included in the Company’s weighted-average number of common shares outstanding for any periods presented. While the Company's intent is to settle any conversion in cash, the maximum number of shares issuable upon conversion of the Notes is 20.6 million shares of Class A common stock. Additionally, the calculation of weighted average shares outstanding as of September 30, 2017 excludes approximately 9.2 million effectively repurchased and held in treasury stock on the condensed consolidated balance sheet as a result of the Prepaid Forward transactions entered into in connection with the Note offering.

The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock and has no expiration date. Each share of Class B common stock will convert automatically into one share of Class A common stock upon the date when the outstanding shares of Class B common stock represent less than 10% of the aggregate number of shares of common stock then outstanding. Class A common stock is not convertible into Class B common stock. The computation of the diluted net income (loss) per share of Class A common stock assumes the conversion of Class B common stock.

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

The following table presents the calculations of basic and diluted net income (loss) per share:



	Three months ended					Nine months ended
(in thousands, except per share data)	September 30, 2017		September 30, 2016			September 30, 2017			September 30, 2016

Numerator:
Net income (loss)	$	14,661	$	(104,068	)	$	(127,025	)	$	(303,294	)

Denominator:
Weighted-average common shares—basic for Class A and Class B common stock	136,236		140,124			138,450			138,875
Effect of dilutive stock-based awards	4,052		—			—			—
Weighted-average common shares—diluted for Class A and Class B common stock	140,288		140,124			138,450			138,875

Net income (loss) per share:
Basic	$	0.11	$	(0.74	)	$	(0.92	)	$	(2.18	)
Diluted	$	0.10	$	(0.74	)	$	(0.92	)	$	(2.18	)

The following potentially dilutive shares were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive:



	Three months ended		Nine months ended
(in thousands)	September 30, 2017	September 30, 2016	September 30, 2017	September 30, 2016
Effect of anti-dilutive stock-based awards	10,573	22,693	10,837	20,803

7. Income taxes

The Company’s income tax expense and the resulting effective tax rate are based upon the estimated annual effective tax rates applicable for the respective period, including losses generated in countries where the Company is projecting annual losses for which a deferred tax asset is not anticipated to be recognized. In the fourth quarter of 2016, the Company recorded a full valuation allowance against its net U.S. deferred tax assets, and for the foreseeable future anticipates providing a valuation allowance against any additional deferred tax assets until such time it is more likely than not the benefit of these deferred tax assets may be recognized.

The Company's tax provision and the resulting effective tax rate for interim periods is determined based upon its estimated annual effective tax rate, adjusted for the effect of discrete items arising in that quarter. The Company also includes jurisdictions with a projected loss for the year (or year-to-date loss) where the Company cannot or does not expect to recognize a tax benefit from its estimated annual effective tax rate. The impact of such inclusions could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections. The Company updates its estimate of the annual effective tax rate each quarter, and if the estimated annual tax rate changes, a cumulative adjustment is made in that quarter.



	Three months ended						Nine months ended
(dollars in thousands)	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Income tax expense (benefit)	$	(10,844	)	$	(12,329	)	$	13,429		$	(43,562	)
Effective tax rate	(284.1		)%	10.6		%	(11.8		)%	12.6		%

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

The Company recorded an income tax benefit of $10.8 million for the three months ended September 30, 2017 on pre-tax net income of $3.8 million, which resulted in a negative effective tax rate of 284.1%. The Company recorded an income tax provision of $13.4 million for the nine months ended September 30, 2017 on a pre-tax net loss of $113.6 million, which resulted in a negative effective tax rate of 11.8%. The Company’s income tax provision for the nine months ended September 30, 2017 was principally composed of tax expense incurred on pre-tax income in profitable foreign jurisdictions based on the Company's estimated annual tax rate. The Company’s income tax benefit for the three months ended September 30, 2017 related primarily to foreign taxes and a cumulative adjustment due to the change in the Company's estimated annual tax rate. While the Company incurred pre-tax losses in the United States and certain lower-rate jurisdictions, the Company does not expect to recognize any tax benefits on pre-tax losses in the United States due to a full valuation allowance recorded against its U.S. deferred tax assets. The effective tax rate of 10.6% and 12.6% for the three and nine months ended September 30, 2016 resulted from the Company providing a net tax benefit on pre-tax losses in the United States, which was offset by income taxes at lower rates in profitable foreign jurisdictions (primarily related to the Company's wholly owned subsidiaries in Europe). Future changes in the forecast annual income (loss) projections, tax rate changes, or discrete tax items could result in significant adjustments to quarterly income tax expense (benefit) in future periods.

The Company is currently under examination by the Internal Revenue Service (IRS) for the 2012 through 2015 tax years. IRS audit fieldwork has been completed however due to the claimed income tax refund relating to the carryback of 2014 and 2015 net operating losses, the case will be submitted to the Congressional Joint Committee on Taxation for approval, which may take 12 months to approve after submission. The Company believes that it has made adequate tax payments or accrued adequate amounts for our tax liabilities for these years and that the outcome of the audit will not have a material adverse effect to the Company's consolidated operating results or financial position.

At September 30, 2017 and December 31, 2016, the Company’s gross unrecognized tax benefits were $70.3 million and $56.9 million, respectively. If recognized, $16.3 million of these unrecognized tax benefits (net of U.S. federal benefit) at September 30, 2017 would be recorded as a reduction of the 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 audit is uncertain, it is reasonably possible that the total amount of unrecognized tax benefits will not materially increase within the next 12 months.

8. Related party transactions

The Company incurs costs for Company-related chartered aircraft fees for the use of the CEO’s private plane. The Company recorded expense of $31 thousand and $68 thousand in the three months ended September 30, 2017 and 2016, respectively, while recording $66 thousand and $670 thousand in the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017 and December 31, 2016, the Company had no accounts payable associated with these aircraft fees.

See Note 5 above for information regarding CEO RSUs.

9. 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, 2016, the Company’s total future minimum lease payments under non-cancelable operating leases were $139.5 million. There have been no material changes to the Company's lease commitments. Rent expense was $4.6 million for both the three months ended September 30, 2017 and 2016 while rent expense for the nine months ended September 30, 2017 and 2016 was $14.6 million and $14.4 million, respectively.

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

Other Commitments. In the ordinary course of business, the Company enters into multi-year agreements to purchase sponsorships with event organizers, resorts and athletes as part of its marketing efforts, software licenses related to its financial and IT systems and various other contractual commitments. As of September 30, 2017, the Company's total undiscounted future expected obligations under multi-year agreements described above with terms longer than one year was $11.8 million, composed of payments of $2.9 million to be made during the remaining three months of 2017, and $5.4 million and $3.5 million in 2018 and 2019, respectively. The decrease of $41.9 million from future expected obligations of $53.7 million at December 31, 2016 was primarily due to the termination of a 3.5-year agreement the Company entered into with Red Bull GmbH in May 2016 and the termination of a contract with a software technology development vendor that resulted in a reduction to the Company's future expected obligations. There were no other material changes during the first nine months of 2017.

Product warranty

The following table summarizes the warranty liability activity:



	Three months ended						Nine months ended
(in thousands)	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Beginning balances	$	9,974		$	8,939		$	11,944		$	10,855
Charged to cost of revenue	5,986			4,485			13,394			13,026
Settlements of warranty claims	(6,273		)	(4,068		)	(15,651		)	(14,525		)
Ending balances	$	9,687		$	9,356		$	9,687		$	9,356

Legal proceedings. From time to time, the Company is involved in legal proceedings in the ordinary course of business, including the litigation matters described in Part II, Item 1 of this Quarterly Report on Form 10-Q. Due to inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of these matters. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the results of operations, financial condition or cash flows of the Company.

Indemnifications. In the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. It is not possible to determine the maximum potential amount under these indemnification agreements due to the Company’s limited history with indemnification claims and the unique facts and circumstances involved in each particular agreement. As of September 30, 2017, the Company has not paid any claims nor has it been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

10. Concentrations of risk and geographic information

Customer concentration. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables. The Company believes that credit risk for accounts receivable is mitigated by the Company's credit evaluation process, relatively short collection terms and dispersion of its customer base. The Company generally does not require collateral and losses on trade receivables have historically been within management’s expectations.

Customers who represented 10% or more of the Company's net accounts receivable balance were as follows:



	September 30, 2017	December 31, 2016
Customer A	13%	15%
Customer B	20%	27%

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

The following table summarizes the Company's accounts receivables sold, without recourse, and factoring fees paid:



	Three months ended				Nine months ended
(in thousands)	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Accounts receivable sold	$	51,593	$	35,210	$	130,555	$	99,514
Factoring fees	473		267		1,153		726

Customers who represented 10% or more of the Company's total revenue were as follows:



	Three months ended		Nine months ended
	September 30, 2017	September 30, 2016	September 30, 2017	September 30, 2016
Customer A	16%	21%	16%	19%
Customer B	*	10%	*	12%

* Less than 10% of total revenue for the period indicated

Supplier concentration. The Company relies on third parties for the supply and manufacture of its products, some of which are sole-source suppliers. The Company believes that outsourcing manufacturing enables greater scale and flexibility. As demand and product lines change, the Company periodically evaluates the need and advisability of adding manufacturers to support its operations. In instances where a supply and manufacture agreement does not exist or suppliers fail to perform their obligations, the Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all. The Company also relies on third parties with whom it outsources supply chain activities related to inventory warehousing, order fulfillment, distribution and other direct sales logistics.

Geographic information

Revenue by geographic region, based on ship-to destinations, was as follows:



	Three months ended				Nine months ended
(in thousands)	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Americas	$	163,430	$	135,895	$	416,164	$	345,770
Europe, Middle East and Africa (EMEA)	97,179		77,346		245,256		198,338
Asia and Pacific (APAC)	69,196		27,328		183,525		100,752
Total revenue	$	329,805	$	240,569	$	844,945	$	644,860

Revenue in the United States, which is included in the Americas geographic region, was $375.9 million and $310.7 million for the nine months ended September 30, 2017 and 2016, respectively. No other individual country exceeded 10% of total revenue for any period presented. The Company does not disclose revenue by product category as it does not track sales incentives and other revenue adjustments by product category to report such data.

As of September 30, 2017 and December 31, 2016, long-lived assets, which represent gross property and equipment, located outside the United States, primarily in Hong Kong and China, were $79.9 million and $76.6 million, respectively.

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements

11. Restructuring charges

Restructuring charges for each period were as follows:



	Nine months ended
(in thousands)	September 30, 2017		September 30, 2016
Cost of revenue	$	458	$	364
Research and development	8,406		2,655
Sales and marketing	5,960		2,678
General and administrative	1,964		811
Total restructuring charges	$	16,788	$	6,508

First quarter 2017 restructuring

On March 15, 2017, the Company approved a restructuring to further reduce future operating expenses and better align resources around its long-term business strategy. The restructuring provided for a reduction of employee headcount and open positions, eliminating a total of approximately 270 positions, as well as the consolidation of certain leased office facilities. In the first nine months of 2017, the Company recorded restructuring charges of $13.6 million, including $10.4 million related to severance and $3.2 million related to accelerated depreciation and other charges. The actions associated with the first quarter 2017 restructuring are expected to be substantially completed in the fourth quarter of 2017. While the Company anticipates that any additional charges related to this restructuring will be immaterial, actual results may differ from current estimates as it relates to the consolidation of certain leased office facilities.

The following table provides a summary of the Company's restructuring activities for the first nine months of 2017 and the related liabilities recorded in accrued liabilities on the condensed consolidated balance sheet.



(in thousands)	Severance			Other			Total
Restructuring liability as of December 31, 2016	$	—		$	—		$	—
Restructuring charges	10,435			3,171			13,606
Cash paid	(9,103		)	(71		)	(9,174		)
Non-cash reductions	(803		)	(2,925		)	(3,728		)
Restructuring liability as of September 30, 2017	$	529		$	175		$	704

Fourth quarter 2016 restructuring

On November 29, 2016, the Company approved a restructuring to reduce future operating expenses. The restructuring provided for a reduction of the Company's global workforce of approximately 15%, the closure of the Company’s entertainment group to concentrate on its core business and the consolidation of certain leased office facilities. Under the fourth quarter 2016 restructuring, the Company has recorded cumulative charges of $40.7 million, including $3.2 million related to severance, facilities contract terminations in the nine months ended September 30, 2017. The fourth quarter 2016 restructuring actions were completed by March 31, 2017, with only small incremental charges recorded through the third quarter of 2017.

GoPro, Inc.

Notes to Condensed Consolidated Financial Statements



(in thousands)	Severance			Other			Total
Restructuring liability as of December 31, 2016	$	9,660		$	879		$	10,539
Restructuring charges	2,127			1,055			3,182
Cash paid	(11,363		)	(1,884		)	(13,247		)
Non-cash reductions	—			—			—
Restructuring liability as of September 30, 2017	$	424		$	50		$	474

First quarter 2016 restructuring

On January 12, 2016, the Company approved a restructuring 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 plan was completed as of March 31, 2016 and all costs have been paid. No charges were recorded in periods after March 31, 2016.

GoPro, Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

Our MD&A is provided in addition to the accompanying consolidated condensed financial statements and accompanying notes to assist readers in understanding our results of operations, financial condition and cash flows.

This MD&A is organized as follows:


•	Overview. Discussion of our business and overall analysis of financial and other highlights affecting the Company in order to provide context for the remainder of MD&A.


•	Results of Operations. Analysis of our financial results comparing the third quarter and first nine months of 2017 to 2016.


•	Liquidity and Capital Resources. Analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.


•	Contractual Commitments. Material changes, outside our ordinary course of business, to our contractual obligations, off-balance sheet arrangements and indemnifications from December 31, 2016.


•	Non-GAAP Financial Measures. A presentation of results reconciling GAAP to non-GAAP adjusted measures.

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016 and the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q of GoPro, Inc. (“GoPro” or “we” or “the Company”). Our MD&A contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, product and marketing plans, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. To identify forward-looking statements, we use such words as “expect," “anticipate," “believe," "may," "will," "estimate," "continue," "intend," "target," "goal," "plan," or variations of such words and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their date. If any of management's assumptions prove incorrect or should unanticipated circumstances arise, the Company's actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those factors identified and detailed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2016 and in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2017. Forward-looking statements include new product offering plans and key hardware and software features, research and development plans, marketing plans, plans for international expansion, plans to reduce operating expense and drive profitability, and projections of results of operations, and any discussion of the trends and other factors that drive our business and future results in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including the discussion appearing thereunder in "Looking Ahead" and other sections of this Quarterly Report on Form 10-Q including but not limited to Item 1A Risk Factors. Readers are strongly encouraged to consider the foregoing including those factors when evaluating any forward-looking statements concerning the Company. The Company does not undertake any obligation to update any forward-looking statements in this Quarterly Report on Form 10-Q to reflect future events or developments.

Overview

GoPro, Inc. is transforming the way people capture and share their lives. What began as an idea to help athletes self-document themselves engaged in sport, GoPro has become a mobile storytelling solution that helps the world share itself through immersive content.

Helping people capture and share experiences is at the core of our business. We are committed to developing solutions that create an easy, seamless experience for consumers to capture, create and enjoy engaging personal content. We sell our products globally through retailers, wholesale distributors and on our website.

In the third quarter of 2017, we began shipping our newest cloud connected camera, HERO6 Black, which is powered by GoPro's custom designed GP1 processor and is the most powerful and performance featured GoPro camera to date. HERO6 Black is compatible with our ecosystem of mountable, wearable and voice activated accessories. We offer many professional-grade features with our current good-better-best offering, which includes our HERO5 Session, HERO5 Black and HERO6 Black cameras. These cameras feature voice control and automatic uploading capabilities for photos and videos to GoPro Plus, our premium cloud-based solution that enables subscribers to easily access,

GoPro, Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations

edit and share content. HERO5 and HERO6 cameras are also compatible with GoPro QuikStories, our mobile experience that seamlessly copies your GoPro photos and video clips to your smartphone and transforms them into a ready-to-share video. GoPro QuikStories makes it simple to automatically create a polished, shareable edit complete with music, effects and transitions.

Our product offerings also include our recently announced Fusion waterproof spherical camera which is expected to be available in the fourth quarter of 2017, Karma, our drone and stabilization solution, and our entry level camera, HERO Session.

The following is a summary of measures presented in our condensed consolidated financial statements and key metrics used to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.



										% Change
(units and dollars in thousands, except per share amounts)	Q3 2017			Q2 2017			Q3 2016			Q3 2017 vs. Q2 2017		Q3 2017 vs. Q3 2016
Revenue	$	329,805		$	296,526		$	240,569		11	%	37	%
Camera units shipped ⁽¹⁾	1,144			1,061			1,018			8	%	12	%
Gross margin⁽²⁾	39.6		%	35.6		%	40.3		%	400 bps		(70) bps
Operating expenses	$	122,497		$	130,615		$	212,658		(6	)%	(42	)%
Net income (loss)	$	14,661		$	(30,536	)	$	(104,068	)	(148	)%	(114	)%
Diluted net income (loss) per share	$	0.10		$	(0.22	)	$	(0.74	)	(145	)%	(114	)%
Cash provided by (used in) operations	$	55,523		$	(11,428	)	$	(41,724	)	(586	)%	(233	)%

Other financial information:
Adjusted EBITDA ⁽³⁾	$	35,725		$	5,120		$	(73,622	)	598	%	(149	)%
Non-GAAP net income (loss) ⁽⁴⁾	$	21,149		$	(12,914	)	$	(84,279	)	(264	)%	(125	)%
Non-GAAP income (loss) per share	$	0.15		$	(0.09	)	$	(0.60	)	(267	)%	(125	)%

⁽¹⁾Represents the number of camera units that are shipped during a reporting period, including camera units that are shipped with drones, net of any returns. Camera units shipped does not include drones, mounts or accessories.

⁽²⁾One basis point (bps) is equal to 1/100th of 1%.

⁽³⁾We define adjusted EBITDA as net income (loss) adjusted to exclude the impact of: provision for income taxes, interest income, interest expense, depreciation and amortization, POP display amortization, stock-based compensation, impairment charges and restructuring costs.

⁽⁴⁾We define non-GAAP net income (loss) as net income (loss) adjusted to exclude stock-based compensation, acquisition-related costs, restructuring costs, non-cash interest expense and income tax adjustments. Acquisition-related costs include amortization and impairment write-downs (if applicable) of acquired intangible assets as well as third-party transaction costs for legal and other professional services.

Reconciliations of non-GAAP adjusted measures to the most directly comparable measures are presented under "Non-GAAP Financial Measures" below.

Third quarter 2017 and recent highlights

Our third quarter performance marks a return to profitability on both a GAAP and non-GAAP basis. Third quarter 2017 revenue of $329.8 million grew 11% sequentially and 37% from the second quarter of 2016 primarily due to increases in camera units shipped as well as the average selling price of units shipped. Our recently launched HERO6 Black camera contributed to our third quarter performance as we shipped units to customers in advance of our September 28, 2017 global product launch. We shipped 1.1 million camera units in the third quarter, up 7.8% and 12.4% from the second quarter of 2017 and third quarter of 2016, respectively. Gross margin of 39.6% in the third quarter of 2017 increased from 35.6% in the second quarter of 2017 and decreased slightly from 40.3% in the third quarter of 2016. The sequential improvement in gross margin was primarily due to the introduction of our HERO6 Black camera and, to a lesser extent, lower Karma sales in the third quarter of 2017. Our focus on effective cost management, the implementation of cost-saving initiatives and the financial benefits recognized from our restructuring actions drove operating expenses down $90.2 million year-over-year to $122.5 million for the third quarter of 2017. As a result of these year-over-year operating improvements, as well as higher revenue and gross margin dollars, adjusted EBITDA improved $109.3 million compared to the third quarter of 2016.

GoPro, Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations

As of September 30, 2017, our cash, cash equivalents and marketable securities of $196.6 million was up 31.3% compared to $149.8 million at June 30, 2017. The increase was primarily due to results of operations, notably reduced operating expenses and strong collection efforts in the third quarter of 2017.

As of September 30, 2017, we had 1,254 employees, down 19% from 1,552 at the end of 2016.

Looking ahead

Our business outlook for the fourth quarter of 2017 and full year 2017 includes, where applicable, our current expectations for revenue, gross margin, operating expenses, income tax benefit/expense, adjusted EBITDA, weighted-average shares, cash and investment balances and average selling prices. We publish our business outlook in our quarterly earnings release. Our business outlook and any updates thereto are publicly available on our investor relations website, http://investor.gopro.com. Our business outlook and investor relations website are not incorporated by reference in this Quarterly Report on Form 10-Q.

Factors affecting performance

We believe that our future success will be dependent on many factors, including those further discussed below. While these areas represent opportunities for us, they also represent challenges and risks that we must successfully address in order to continue the growth of our business and improve our results of operations.

Driving profitability through improved efficiency, lower costs and better execution. We incurred material operating losses in 2016 and in the first nine months of 2017. In the third quarter of 2017, our increased revenue, gross margin and lower operating expenses enabled us to return to profitability. Our recent restructuring actions have significantly reduced our operating expenses in 2017 compared to the comparable periods in 2016, while also providing a flatter, more efficient global organization that has allowed for improved communication and alignment among our functional teams. If we are unable to generate adequate revenue growth and to manage our expenses, we may incur significant losses in the future and may not be able to maintain profitability.

Investing in research and development and making the smartphone central to the GoPro experience. Our performance is significantly dependent on the investments we make in research and development, including our ability to attract and retain highly skilled and experienced research and development personnel. We expect the timing of new product releases to continue to have a significant impact on our revenue and we must continually develop and introduce innovative new cameras, drones, mobile applications and other new products and services. We plan to further build upon our integrated storytelling solution in future periods with the smartphone playing a central role in the GoPro experience. Our investments, including marketing and advertising expenses, may not successfully drive increased sales of our products and our users may not adopt our new offerings. If we fail to innovate and enhance our integrated storytelling solution, our brand, market position and revenue will be adversely affected. Further, we have incurred substantial research and development expenses and if our efforts are not successful, we will not recover the value of these investments.

Marketing the improved GoPro experience to our extended community. We intend to continue investing resources in our marketing, advertising and brand management efforts. Historically, our growth has largely been fueled by the adoption of our products by people looking to self-capture images of themselves participating in exciting physical activities. Our future growth depends on continuing to reach, expand and re-engage with this core demographic and grow it. In addition, we need to expand our user base to include a broader group of consumers. We believe that consumers in many markets are not familiar with our brand and products and believe there is a significant opportunity for GoPro to expand awareness through a range of advertising and promotional programs and campaigns, including social media. Sales and marketing investments will often occur in advance of any sales benefits from these activities, and it may be difficult for us to determine if we are efficiently allocating our resources in this area.

Growing our total addressable international market. We continue to believe that international markets represent a significant growth opportunity for GoPro. Revenue from outside the United States comprised 55% of total revenue in the third quarter of 2017. While the total market for digital cameras has declined in recent periods, as smartphone and tablet camera quality has improved, we continue to believe our consumers’ differentiated use of GoPro cameras, our integrated storytelling solution and our powerful brand helps insulate our business from many of the negative trends facing this category. However, we expect that the markets in which we conduct our business will remain highly competitive. We plan to increase our presence internationally through the active promotion of our brand, the creation

GoPro, Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations

and cultivation of regional strategic and marketing partnerships, the continued introduction of localized products in international markets with region specific marketing, and an investment focus on the biggest opportunities in Europe and the Asia-Pacific region.

Expanding the GoPro experience to advanced users. Our growth also depends on expanding our total addressable market with new capture perspectives, including aerial and spherical, which are resource-intensive initiatives in highly competitive markets. Prior to the launch of our Karma drone, we had no prior experience in the consumer drone market and expect to face significant competition from incumbent companies promoting their own drones and related products. Furthermore, we recently announced our new spherical camera, Fusion, that is expected to be available in the fourth quarter of 2017. If we are not successful in penetrating additional markets, we might not be able to grow our revenue and we may not recognize benefits from our investment in new areas.

Seasonality. Historically, we have experienced the highest levels of revenue in the fourth quarter of the year, coinciding with the holiday shopping season, particularly in the United States and Europe. While we have implemented operational changes aimed at reducing the impact of fourth quarter seasonality on full year performance, timely and effective product introductions and forecasting, whether just prior to the holiday season or otherwise, are critical to our operations and financial performance.

See Item 1A. Risk Factors, for further discussion on risks that could materially and adversely affect our business, financial condition and results of operations.

Results of Operations

The following table sets forth the components of our condensed consolidated statements of operations for each of the periods presented, and each component as a percentage of revenue:



	Three Months Ended September 30,										Nine Months Ended September 30,
(dollars in thousands)	2017					2016					2017					2016
Revenue	$	329,805		100	%	$	240,569		100	%	$	844,945		100	%	$	644,860		100	%
Cost of revenue	199,259			60		143,500			60		540,201			64		395,075			61
Gross profit	130,546			40		97,069			40		304,744			36		249,785			39
Operating expenses:
Research and development	55,098			17		96,146			40		176,761			21		266,174			41
Sales and marketing	46,622			14		91,567			38		171,156			20		255,904			40
General and administrative	20,777			6		24,945			10		61,976			7		74,108			11
Total operating expenses	122,497			37		212,658			88		409,893			48		596,186			92
Operating income (loss)	8,049			3		(115,589		)	(48	)	(105,149		)	(12	)	(346,401		)	(54	)
Other income (expense):
Interest expense	(4,554		)	(1	)	(1,156		)	—		(9,152		)	(1	)	(1,815		)	—
Other income, net	322			—		348			—		705			—		1,360			—
Total other income (expense), net	(4,232		)	(1	)	(808		)	—		(8,447		)	(1	)	(455		)	—
Income (loss) before income taxes	3,817			2		(116,397		)	(48	)	(113,596		)	(13	)	(346,856		)	(54	)
Income tax expense (benefit)	(10,844		)	(3	)	(12,329		)	(5	)	13,429			2		(43,562		)	(7	)
Net income (loss)	$	14,661		5	%	$	(104,068	)	(43	)%	$	(127,025	)	(15	)%	$	(303,294	)	(47	)%

GoPro, Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Revenue



	Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands)	2017			2016			% Change		2017			2016			% Change
Camera units shipped	1,144			1,018			12	%	2,942			2,478			19	%

Direct channel	$	171,018		$	147,979		16	%	$	455,455		$	359,810		27	%
Percentage of revenue	52		%	62		%			54		%	56		%
Distribution channel	$	158,787		$	92,590		71	%	$	389,490		$	285,050		37	%
Percentage of revenue	48		%	38		%			46		%	44		%
Total revenue	$	329,805		$	240,569		37	%	$	844,945		$	644,860		31	%

Americas	$	163,430		$	135,895		20	%	$	416,164		$	345,770		20	%
Percentage of revenue	50		%	56		%			49		%	54		%
EMEA	$	97,179		$	77,346		26	%	$	245,256		$	198,338		24	%
Percentage of revenue	29		%	32		%			29		%	31		%
APAC	$	69,196		$	27,328		153	%	$	183,525		$	100,752		82	%
Percentage of revenue	21		%	12		%			22		%	15		%
Total revenue	$	329,805		$	240,569		37	%	$	844,945		$	644,860		31	%

The year-over-year increase in revenue for the third quarter and first nine months of 2017 was primarily driven by shipments of our HERO5 and HERO6 cameras, which were released in September 2016 and 2017, respectively, shipments of our Karma drone, which was released in February 2017, and strong accessory revenue including our Karma Grip, which was released in December 2016. Revenue increased during the third quarter and first nine months of 2017, compared to 2016, across all reported geographies and channels.

Camera units shipped in the third quarter were 1.1 million, an increase of 12% over the same prior year period driven by product execution which enabled the global market introduction of the HERO6 Black camera at the time of launch in the third quarter of 2017. Additionally, strong demand in APAC contributed to incremental units shipped for the quarter.

Estimated global unit sell-thru increased by approximately 2% for the third quarter of 2017, from the same prior year period.

The average selling price of units shipped increased by 22% year-over-year for the third quarter of 2017 due to higher priced camera offerings which includes our recently released HERO6 Black camera that has a retail price of $499, our HERO5 Black camera with a retail price of $399, and Karma drone units shipped in 2017 which were not available in 2016. The average selling price of units shipped increased by approximately 10% year-over-year for the first nine months of 2017 due to shipments of HERO5 Black, HERO6 Black and Karma drone and accessories. We define the average selling price of camera units shipped as total revenue divided by camera unit shipments.

Cost of revenue and gross margin



	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2017			2016			% Change		2017			2016			% Change
Cost of revenue	$	197,579		$	142,852		38	%	$	534,763		$	392,850		36	%
Stock-based compensation	445			426			4	%	1,355			1,195			13	%
Acquisition-related costs	1,195			222			438	%	3,625			666			444	%
Restructuring costs	40			—			100	%	458			364			26	%
Total cost of revenue	$	199,259		$	143,500		39	%	$	540,201		$	395,075		37	%
Gross margin	39.6		%	40.3		%			36.1		%	38.7		%

GoPro, Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Gross margin of 39.6% in the third quarter of 2017 remained relatively flat from 40.3% in the third quarter of 2016. Gross margin for the third quarter of 2017 benefited by 310 bps from a higher mix of camera units sold with a retail price point of $399 and above, while the third quarter of 2016 benefited by 147 bps from the sale of previously reserved inventory. Gross margin of 36.1% in the first nine months of 2017 decreased from 38.7% compared with the same period in 2016, or (260) bps, primarily attributable to lower gross margin contribution from Karma drone sales as compared to camera sales, (294) bps, higher sales incentives in 2017 (199) bps, partially offset by operational expense improvements and the allocation of fixed overhead costs across higher unit shipments, 256 bps.

Research and development



	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2017			2016			% Change		2017			2016			% Change
Research and development	$	47,160		$	79,752		(41	)%	$	148,288		$	230,526		(36	)%
Stock-based compensation	5,967			8,039			(26	)%	17,039			21,135			(19	)%
Acquisition-related costs	946			8,355			(89	)%	3,028			11,858			(74	)%
Restructuring costs	1,025			—			100	%	8,406			2,655			217	%
Total research and development	$	55,098		$	96,146		(43	)%	$	176,761		$	266,174		(34	)%
Percentage of revenue	16.7		%	40.0		%			20.9		%	41.3		%

The year-over-year decrease of $41.0 million and $89.4 million, or 43% and 34%, in total research and development expenses in the third quarter and first nine months of 2017, respectively, reflected decreases in consulting and outside professional service costs of $11.1 million and $35.1 million, respectively, and decreases in material and equipment costs of $6.1 million and $16.6 million, respectively. Cash-based personnel-related costs decreased by $10.4 million and $24.1 million (excluding restructuring costs) in the third quarter and first nine months of 2017, respectively, driven by a 30% reduction in global research and development headcount as a result of our recent restructuring actions. Additionally, cash-based personnel-related costs for the first nine months of 2016 included compensation expense of approximately $7 million payable to certain continuing employees of a company acquired in the first half of 2016. Acquisition related-costs decreased $7.4 million and $8.8 million for the third quarter and first nine months of 2017, respectively, principally due to an intangible impairment charge of $6.0 million related to projects that were discontinued in the third quarter of 2016. See "Restructuring costs" below for information regarding restructuring charges recorded in 2017 and 2016. Operationally, the decrease in research and development expenses reflected the significant initial investments we made during 2016 to develop and build our Karma aerial capture system along with recent cost reduction initiatives implemented by our restructuring plans.

Sales and marketing



	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2017			2016			% Change		2017			2016			% Change
Sales and marketing	$	43,656		$	87,751		(50	)%	$	157,901		$	242,505		(35	)%
Stock-based compensation	2,609			3,816			(32	)%	7,295			10,699			(32	)%
Acquisition-related costs	—			—			N/A		—			22			(100	)%
Restructuring costs	357			—			N/A		5,960			2,678			123	%
Total sales and marketing	$	46,622		$	91,567		(49	)%	$	171,156		$	255,904		(33	)%
Percentage of revenue	14.1		%	38.1		%			20.3		%	39.7		%

The year-over-year decrease of $44.9 million and $84.7 million, or 49% and 33%, in total sales and marketing expenses in the third quarter and first nine months of 2017, respectively, was primarily attributable to decreases in advertising and promotional activity of $25.5 million and $45.4 million, respectively, decreases in consulting and outside professional service costs of $4.5 million and $6.5 million, respectively, decreases in allocated facilities, depreciation and other supporting overhead expenses of $3.5 million and $6.2 million, respectively, and decreases in travel and entertainment of $2.3 million and $6.0 million, respectively. Cash-based personnel-related costs decreased by $7.5 million and $18.2 million (excluding restructuring costs) in the third quarter and first nine months

GoPro, Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations

of 2017, respectively, driven by a 31% reduction in global sales and marketing headcount. The favorable reductions in sales and marketing expenses in the third quarter and first nine month of 2017 were all primarily attributable to our recent restructuring actions, which included the closure of our entertainment group in the fourth quarter of 2016. See "Restructuring costs" below for information regarding restructuring charges recorded in 2017 and 2016.

General and administrative



	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2017			2016			% Change		2017			2016			% Change
General and administrative	$	17,368		$	18,764		(7	)%	$	49,488		$	53,625		(8	)%
Stock-based compensation	2,854			6,185			(54	)%	10,546			18,572			(43	)%
Acquisition-related costs	—			(4		)	(100	)%	(22		)	1,100			(102	)%
Restructuring costs	555			—			N/A		1,964			811			142	%
Total general and administrative expenses	$	20,777		$	24,945		(17	)%	$	61,976		$	74,108		(16	)%
Percentage of revenue	6.3		%	10.4		%			7.3		%	11.5		%

The year-over-year decrease of $4.2 million and $12.1 million, or 17% and 16%, in total general and administrative expenses in the third quarter and first nine months of 2017, respectively, was primarily attributable to decreases in stock-based compensation of $3.3 million and $8.0 million, respectively, due to the timing of expense recognition attributable to the CEO RSUs (see Note 5 to the Notes to Condensed Consolidated Financial Statements). Cash-based personnel-related costs (excluding restructuring costs) decreased by $0.9 million and $2.5 million year-over-year in the third quarter and first nine months of 2017 compared to 2016, respectively.

Restructuring costs

First quarter 2017 restructuring plan. On March 15, 2017, we approved a restructuring plan to further reduce future operating expenses and further align resources around our long-term business strategy. The restructuring provided for a reduction of our global workforce as well as the consolidation of certain leased office facilities. In the first nine months of 2017, we recorded restructuring charges of $13.6 million related to our first quarter 2017 restructuring plan, which consisted of $10.4 million for severance and related costs and $3.2 million for accelerated depreciation and other charges. The actions associated with the first quarter 2017 restructuring are expected to be substantially completed in the fourth quarter of 2017. While we anticipate that any additional charges related to this restructuring will be immaterial, actual results may differ from our current estimates as it relates to the consolidation of certain leased office facilities.

Fourth quarter 2016 restructuring plan. On November 29, 2016, we approved a plan to restructure our business to reduce operating expenses and work toward achieving our goal of returning to non-GAAP profitability for 2017. The fourth quarter 2016 restructuring plan included a reduction in our global workforce of approximately 15%, the elimination of our entertainment group and the consolidation of certain leased office facilities. Associated with this plan, we recorded cumulative restructuring charges of $40.7 million, of which $3.2 million was recognized in the first half of 2017. The plan is substantially completed and we anticipate that any additional charges related to this restructuring will be immaterial.

First quarter 2016 restructuring plan. On January 12, 2016, we approved a restructuring plan that provided for a reduction in our global workforce of approximately 7%. We incurred aggregate restructuring charges of $6.5 million in the first quarter of 2016, which primarily included cash-based severance costs. We completed this plan at the end of the first quarter of 2016 and all costs have been paid.

See Note 11 to the Notes to Condensed Consolidated Financial Statements for accrued payable balance associated with our restructuring plans as of September 30, 2017.

GoPro, Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Other income (expense)



	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2017			2016			% Change		2017			2016	% Change
Interest expense	$	(4,554	)	$	(1,156	)	294	%	$	(9,152	)