gpro-20200630
GPRO000150043512/3110-Q2020Q2FALSEClass A common stock, $0.001 par valueNASDAQ Global Select MarketDelaware77-06294743025 Clearview WaySan Mateo,California94402(650)332-7600128,941,26928,887,185falseP1YP2Y12Subsequent events
On April 14, 2020, the Board of Directors approved the Company’s restructuring plan to reduce operating costs, optimize its business model and address the impact of the COVID-19 pandemic. The restructuring provided for a reduction in force of the Company’s global workforce of approximately 20% and is expected to be substantially completed by the end of the second quarter of 2020.
The restructuring plan will result in an estimated aggregate charge of $31 million to $49 million. Cash expenditures will be approximately $5 million of the estimated aggregate charges in the second quarter of 2020 as a result of a reduction in force. The remaining expenditures are approximately $26 million to $44 million primarily pertaining to planned reductions of office space (including $4 million of non-cash charges) and approximately $5 million for other non-cash charges. The Company anticipates the majority of the office space charges will result in future cash expenditures through 2027. The Company anticipates that a substantial portion of these restructuring charges will be reflected in its second quarter results.
31495264445
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
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)
Delaware77-0629474
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3025 Clearview Way
San Mateo, California94402
(Address of principal executive offices)(Zip Code)
(650)332-7600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.001 par valueGPRONASDAQ Global Select Market
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 every Interactive Data File required to be submitted 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 such files). Yes þ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

Large accelerated filer  þ      Smaller reporting company  ☐
Accelerated filer    ☐      Emerging growth company  ☐
Non-accelerated filer  ☐
If an emerging growth company, indicate 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
As of August 3, 2020, 128,941,269 and 28,887,185 shares of Class A and Class B common stock were outstanding, respectively.

1


GoPro, Inc.
Index

Page
PART I. FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GoPro, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except par values)
June 30, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents
$79,679  $150,301  
Marketable securities
  14,847  
Accounts receivable, net
68,498  200,634  
Inventory
142,151  144,236  
Prepaid expenses and other current assets
23,773  25,958  
Total current assets
314,101  535,976  
Property and equipment, net
29,180  36,539  
Operating lease right-of-use assets
48,963  53,121  
Intangible assets, net
2,901  5,247  
Goodwill
146,459  146,459  
Other long-term assets
13,564  15,461  
Total assets
$555,168  $792,803  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$48,959  $160,695  
Accrued expenses and other current liabilities
88,605  141,790  
Short-term operating lease liabilities
8,936  9,099  
Deferred revenue
13,627  15,467  
Short-term debt
30,000    
Total current liabilities
190,127  327,051  
Long-term taxes payable
15,408  13,726  
Long-term debt
154,063  148,810  
Long-term operating lease liabilities
57,916  62,961  
Other long-term liabilities
5,576  6,726  
Total liabilities
423,090  559,274  
Commitments, contingencies and guarantees (Note 8)


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, 119,751 and 117,922 shares issued and outstanding, respectively; 150,000 Class B shares authorized, 28,887 and 28,897 shares issued and outstanding, respectively
943,927  930,875  
Treasury stock, at cost, 10,710 and 10,710 shares, respectively
(113,613) (113,613) 
Accumulated deficit
(698,236) (583,733) 
Total stockholders’ equity
132,078  233,529  
Total liabilities and stockholders’ equity
$555,168  $792,803  
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


GoPro, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended June 30,Six months ended June 30,
(in thousands, except per share data)
2020201920202019
Revenue
$134,246  $292,429  $253,646  $535,137  
Cost of revenue
93,554  190,244  174,527  352,605  
Gross profit
40,692  102,185  79,119  182,532  
Operating expenses:
Research and development
34,558  38,811  66,839  76,275  
Sales and marketing
34,965  52,135  78,467  99,425  
General and administrative
16,083  18,186  34,841  34,067  
Total operating expenses
85,606  109,132  180,147  209,767  
Operating loss
(44,914) (6,947) (101,028) (27,235) 
Other income (expense):
Interest expense
(4,671) (4,882) (9,514) (9,409) 
Other income (expense), net
(321) (63) (493) 765  
Total other expense, net
(4,992) (4,945) (10,007) (8,644) 
Loss before income taxes
(49,906) (11,892) (111,035) (35,879) 
Income tax expense (benefit)1,069  (605) 3,468  (227) 
Net loss
$(50,975) $(11,287) $(114,503) $(35,652) 
Basic and diluted net loss per share
$(0.34) $(0.08) $(0.77) $(0.25) 
Weighted-average number of shares outstanding, basic and diluted
148,497  144,668  148,028  143,640  
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


GoPro, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six months ended June 30,
(in thousands)
20202019
Operating activities:
Net loss
$(114,503) $(35,652) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
10,693  13,402  
Non-cash operating lease cost
4,158  5,389  
Stock-based compensation
13,513  20,391  
Deferred income taxes
53  (97) 
Non-cash restructuring charges
3,299  (199) 
Non-cash interest expense
4,850  4,378  
Other
1,199  229  
Changes in operating assets and liabilities:
Accounts receivable, net
131,889  (15,482) 
Inventory
2,085  (12,712) 
Prepaid expenses and other assets
3,137  5,208  
Accounts payable and other liabilities
(169,944) (49,242) 
Deferred revenue
(2,457) (1,633) 
Net cash used in operating activities
(112,028) (66,020) 
Investing activities:
Purchases of property and equipment, net
(2,163) (1,999) 
Purchases of marketable securities
  (30,167) 
Maturities of marketable securities
14,830  35,278  
Sale of marketable securities
  1,889  
Asset acquisition
(438)   
Net cash provided by investing activities
12,229  5,001  
Financing activities:
Proceeds from issuance of common stock
1,909  3,877  
Taxes paid related to net share settlement of equity awards(2,354) (3,997) 
Proceeds from borrowings
30,000    
Net cash provided by (used in) financing activities
29,555  (120) 
Effect of exchange rate changes on cash and cash equivalents
(378) 294  
Net change in cash and cash equivalents
(70,622) (60,845) 
Cash and cash equivalents at beginning of period
150,301  152,095  
Cash and cash equivalents at end of period
$79,679  $91,250  
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


GoPro, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
Common stock and additional paid-in capitalTreasury stockAccumulated
deficit
Stockholders’ equity
(in thousands)SharesAmountAmount
Balances at December 31, 2018141,067  $894,755  $(113,613) $(569,030) $212,112  
Common stock issued under employee benefit plans, net of shares withheld for tax
3,293  3,761  —  —  3,761  
Taxes paid related to net share settlements
—  (2,673) —  —  (2,673) 
Stock-based compensation expense
—  9,782  —  —  9,782  
Cumulative effect of adoption of new accounting standard
—  —  —  (61) (61) 
Net loss
—  —  —  (24,365) (24,365) 
Balances at March 31, 2019
144,360  905,625  (113,613) (593,456) 198,556  
Common stock issued under employee benefit plans, net of shares withheld for tax
528  144  —  —  144  
Taxes paid related to net share settlements
—  (1,324) —  —  (1,324) 
Stock-based compensation expense
—  10,606  —  —  10,606  
Net loss
—  —  —  (11,287) (11,287) 
Balances at June 30, 2019144,888  $915,051  $(113,613) $(604,743) $196,695  
Balances at December 31, 2019146,818  $930,875  $(113,613) $(583,733) $233,529  
Common stock issued under employee benefit plans, net of shares withheld for tax
1,542  1,863  —  —  1,863  
Taxes paid related to net share settlements—  (2,003) —  —  (2,003) 
Stock-based compensation expense—  7,637  —  —  7,637  
Net loss—  —  —  (63,528) (63,528) 
Balances at March 31, 2020148,360  938,372  (113,613) (647,261) 177,498  
Common stock issued under employee benefit plans, net of shares withheld for tax
278  30  —  —  30  
Taxes paid related to net share settlements—  (351) —  —  (351) 
Stock-based compensation expense (Note 5)—  5,876  —  —  5,876  
Net loss—  —  —  (50,975) (50,975) 
Balances at June 30, 2020148,638  $943,927  $(113,613) $(698,236) $132,078  
The accompanying notes are an integral part of these condensed consolidated financial statements.
6


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements

1. Summary of business and significant accounting policies
GoPro, Inc. and its subsidiaries (GoPro or the Company) help its consumers celebrate and share their experiences in immersive and exciting ways. The Company is committed to developing solutions that create an easy, seamless experience for consumers to capture, create and share engaging personal content. To date, the Company’s cameras, mountable and wearable accessories, and subscription services have generated substantially all of its revenue. The Company sells its products globally on its website, and through retailers and wholesale distributors. The Company’s global corporate headquarters are located in San Mateo, California.
Basis of presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (GAAP). The Company’s fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30 and September 30.
The Company’s operating results, financial position and cash flows were negatively impacted by the COVID-19 pandemic and as a result, the Company accelerated a shift in its sales channel strategy to focus more on direct-to-consumer sales through gopro.com, and implemented a restructuring plan in April 2020, which primarily impacted the Company’s global workforce, sales and marketing expenses, and leased facilities. These actions impacted the Company’s financial results in the second quarter of 2020 by reducing on-going operating expenses and to help accelerate its ability to achieve profitability, thus providing sufficient resources to continue as a going concern for at least one year from the date of issuance of the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.
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, 2019 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, 2019. There have been no material changes in the Company’s critical accounting policies and estimates from those disclosed in its Annual Report.
Principles of consolidation. These condensed consolidated financial statements include all the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of estimates. The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions made by management include those related to revenue recognition (including sales incentives, sales returns and implied post contract support), inventory valuation, product warranty liabilities, the valuation, impairment and useful lives of long-lived assets (property and equipment, operating leases, intangible assets and goodwill), income taxes and going concern. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, including but not limited to the potential impacts arising from the COVID-19 pandemic, 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. The extent and continued impact of COVID-19 has been taken into account in making the significant assumptions and estimates related to the above, however if the duration and spread of the outbreak, the impact on our customers, and the effect on our contract manufacturers, vendors and supply chains is different from the Company’s estimates and assumptions, then actual results could differ materially. Given the uncertainty with respect to COVID-19, the Company’s estimates and assumptions may evolve as conditions change. 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.
7


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
Leases. The Company leases its office space and facilities under cancelable and non-cancelable operating leases. Operating leases are presented as operating lease right-of-use (ROU) assets, short-term operating lease liabilities and long-term operating lease liabilities on the Company’s condensed consolidated balance sheets. ROU assets represent the Company’s right to control the use of an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of future lease payments. The Company determines its incremental borrowing rate based on the approximate rate at which the Company would borrow, on a secured basis, to calculate the present value of future lease payments. Lease expenses are recognized on a straight-line basis over the lease term. Certain leases include an option to renew with terms that can extend the lease term from one to five years. The exercise of a lease renewal option is at the Company’s sole discretion and is included in the lease term when the Company is reasonably certain it will exercise the option.
Revenue recognition. The Company derives substantially all of its revenue from the sale of cameras, mounts and accessories, the related implied post contract support to customers, and subscription services. The Company recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The transaction price the Company expects to be entitled to is primarily comprised of product revenue, net of returns and variable consideration, including sales incentives provided to customers. For most of the Company’s revenue, revenue is recognized at the time products are delivered and when collection is considered probable. For the Company’s subscription services, revenue is recognized on a ratable basis over the subscription term, with payments received in advance of services being rendered recorded in deferred revenue. For customers who purchase products directly from gopro.com, the Company retains a portion of the risk of loss on these sales during transit, which are accounted for as fulfillment costs. The Company provides sales commissions to internal and external sales representatives which are earned in the period in which revenue is recognized. As a result, the Company expenses such costs as incurred.
The Company's standard terms and conditions of sale for non-web-based sales do not allow for product returns other than under warranty. However, the Company grants limited rights of return, primarily to certain large retailers. The Company reduces revenue and cost of sales for the estimated returns based on analyses of historical return trends by customer class and other factors. An estimated return liability along with a right to recover assets are recorded for future product returns. Return trends are influenced by product life cycles, new product introductions, market acceptance of products, product sell-through, the type of customer, seasonality and other factors. Return rates may fluctuate over time but are sufficiently predictable to allow the Company to estimate expected future product returns.
The Company’s camera sales contain multiple performance obligations that generally include the following three separate obligations: a) a hardware component (camera) and the embedded firmware essential to the functionality of the hardware component delivered at the time of sale, b) the implicit right to the Company's downloadable free apps and software solutions, and c) the implied right for the customer to receive support after the initial sale (post contract support or PCS). The Company’s PCS includes the right to receive on a when and if available basis, future unspecified firmware upgrades and features as well as bug fixes, and email and telephone support. The Company allocates a portion of the transaction price to the PCS performance obligation based on a cost-plus methodology. The transaction price is allocated to the remaining performance obligations on a residual value methodology. The Company’s process to allocate the transaction price considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable, including: the level of support provided to customers, estimated costs to provide the Company’s support, the amount of time and cost that is allocated to the Company’s efforts to develop the undelivered elements and market trends in the pricing for similar offerings.
The transaction prices allocated to the delivered hardware, related embedded firmware and free software solutions are recognized as revenue at the time of sale, provided the conditions for recognition of revenue have been met. The transaction price allocated to PCS is deferred and recognized as revenue on a straight-line basis over the estimated term of the support period, which is estimated to be 15 months based on historical experience. Deferred revenue as of June 30, 2020 and December 31, 2019 also included immaterial amounts related to the
8


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
Company’s subscription services. The Company’s short-term and long-term deferred revenue balances totaled $14.1 million and $16.6 million as of June 30, 2020 and December 31, 2019, respectively. During the three months ended June 30, 2020 and 2019, revenue of $5.5 million and $5.3 million, respectively, was recognized that was included in the deferred revenue balances at the beginning of each period. During the six months ended June 30, 2020 and 2019, revenue of $9.8 million and $9.7 million, respectively, was recognized that was included in the deferred revenue balances at the beginning of each period.
Sales incentives. The Company offers sales incentives through various programs, including cooperative advertising, price protection, marketing development funds and other incentives. Sales incentives are considered to be variable consideration, which the Company estimates and records as a reduction to revenue at the date of sale. The Company estimates sales incentives based on historical experience, product sell-through and other factors.
Segment information. The Company operates as one operating segment as it only reports financial information on an aggregate and consolidated basis to its Chief Executive Officer, who is the Company’s chief operating decision maker.
Recent accounting standards
StandardDescriptionCompany’s date of adoptionEffect on the condensed consolidated financial statements or other significant matters
Standards that were adopted
Intangible - Goodwill and Other
ASU No. 2017-04 (Topic 350)

This standard simplifies the accounting for goodwill and removes Step 2 of the annual goodwill impairment test. Upon adoption, goodwill impairment is 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. The standard is applied on a prospective transition method.January 1, 2020The adoption of this standard did not impact the Company’s condensed consolidated financial statements and related disclosures.
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
ASU No. 2016-13
(Topic 326)
The standard changes the impairment model for most financial assets and replaces the existing incurred loss model with a current expected credit loss (CECL) model. The standard is applied on a modified retrospective approach.January 1, 2020The Company’s allowance for doubtful accounts and valuation of available-for-sale securities are subject to this standard. The Company concluded the adoption of this standard did not have a material impact on its condensed consolidated financial statements and related disclosures.
Although there are several other new accounting standards issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its condensed consolidated financial statements.

9


GoPro, Inc.
Notes to Condensed Consolidated 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:
June 30, 2020December 31, 2019
(in thousands)Level 1Level 2TotalLevel 1Level 2Total
Cash equivalents (1):
Money market funds$19,442  $  $19,442  $4,413  $  $4,413  
Total cash equivalents$19,442  $  $19,442  $4,413  $  $4,413  
Marketable securities:
Corporate debt securities$  $  $  $  $14,847  $14,847  
Total marketable securities$  $  $  $  $14,847  $14,847  
(1) Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets. Cash balances were $60.2 million and $145.9 million as of June 30, 2020 and December 31, 2019, respectively.
Cash equivalents and marketable securities are classified as Level 1 or Level 2 because the Company uses quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. The contractual maturities of available-for-sale marketable securities as of December 31, 2019 were all less than one year in duration. At June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019, the amortized cost of the Company’s cash equivalents and marketable securities approximated their fair value and there were no material realized or unrealized gains or losses, either individually or in the aggregate.
In April 2017, the Company issued $175.0 million principal amount of Convertible Senior Notes due 2022 (Notes) (see Note 4 Financing Arrangements). The estimated fair value of the Notes is based on quoted market prices of the Company’s instruments in markets that are not active and are classified as Level 2 within the fair value hierarchy. The Company estimated the fair value of the Notes by evaluating quoted market prices and calculating the upfront cash payment a market participant would require to assume these obligations. The calculated fair value of the Notes was $154.0 million as of June 30, 2020, and is highly correlated to the Company’s stock price and as a result, significant changes to the Company’s stock price will have a significant impact on the calculated fair value of the Notes.
For certain other financial assets and liabilities, including accounts receivable, accounts payable and other current assets and liabilities, the carrying amounts approximate their fair value primarily due to the relatively short maturity of these balances.

3. Condensed consolidated financial statement details
The following sections and tables provide details of selected balance sheet items.
Inventory
(in thousands)
June 30, 2020December 31, 2019
Components
$24,232  $20,370  
Finished goods
117,919  123,866  
Total inventory
$142,151  $144,236  
10


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
Property and equipment, net
(in thousands)
June 30, 2020December 31, 2019
Leasehold improvements$49,846  $50,736  
Production, engineering and other equipment47,019  45,649  
Tooling18,223  19,216  
Computers and software22,431  21,719  
Furniture and office equipment10,527  10,846  
Tradeshow equipment and other7,083  7,009  
Construction in progress287  45  
Gross property and equipment
155,416  155,220  
Less: Accumulated depreciation and amortization(126,236) (118,681) 
Property and equipment, net
$29,180  $36,539  
Intangible assets
June 30, 2020
(in thousands)Gross carrying valueAccumulated amortizationNet carrying value
Purchased technology $51,066  $(48,180) $2,886  
Domain name15  —  15  
Total intangible assets
$51,081  $(48,180) $2,901  

December 31, 2019
(in thousands)Gross carrying valueAccumulated amortizationNet carrying value
Purchased technology $50,501  $(45,269) $5,232  
Domain name15  —  15  
Total intangible assets
$50,516  $(45,269) $5,247  

Amortization expense was $1.0 million and $2.0 million for the three months ended June 30, 2020 and 2019, respectively, and $2.9 million and $4.1 million for the six months ended June 30, 2020 and 2019, respectively. At June 30, 2020, expected amortization expense of intangible assets with definite lives for future periods was as follows:
(in thousands)
Total
Year ending December 31,
2020 (remaining 6 months)$1,687  
20211,152  
202247  
$2,886  
11


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements

Other long-term assets
(in thousands)
June 30, 2020December 31, 2019
Point of purchase (POP) displays
$6,023  $7,595  
Long-term deferred tax assets
811  864  
Deposits and other
6,730  7,002  
Other long-term assets$13,564  $15,461  
Accrued expenses and other current liabilities
(in thousands)
June 30, 2020December 31, 2019
Accrued payables (1)
$28,970  $42,153  
Accrued sales incentives
23,701  39,120  
Employee related liabilities (1)
6,574  20,494  
Return liability
12,430  14,854  
Warranty liability
5,679  9,899  
Inventory received
1,281  5,737  
Customer deposits
3,332  2,063  
Purchase order commitments
2,083  1,710  
Income taxes payable
1,101  1,166  
Other
3,454  4,594  
Accrued expenses and other current liabilities$88,605  $141,790  
(1) See Note 10 Restructuring charges for amounts associated with restructuring liabilities.
Product warranty
Three months ended June 30,Six months ended June 30,
(in thousands)
2020201920202019
Beginning balance
$8,954  $11,593  $11,398  $10,971  
Charged to cost of revenue
1,269  4,254  2,986  10,403  
Settlement of warranty claims
(2,897) (2,997) (7,058) (8,524) 
Warranty liability
$7,326  $12,850  $7,326  $12,850  
At June 30, 2020 and December 31, 2019, $5.7 million and $9.9 million, respectively, of the warranty liability was recorded as a component of accrued expenses and other current liabilities, and $1.6 million and $1.5 million, respectively, was recorded as a component of other long-term liabilities.

4. Financing Arrangements
For a discussion around the Company’s liquidity requirements for at least one year from the issuance of these financial statements, see Note 1 Summary of business and significant accounting policies, to the Notes to Condensed Consolidated Financial Statements.
Credit Facility
In March 2016, the Company entered into a Credit Agreement (Credit Agreement) with certain banks which provides for a secured revolving credit facility (Credit Facility) under which the Company may borrow up to an aggregate amount of $250.0 million. The Company and its lenders may increase the total commitments under the
12


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
Credit Facility to up to an aggregate amount of $300.0 million, subject to certain conditions. The Credit Facility will terminate and any outstanding borrowings become due and payable in March 2021.
The amount that may be borrowed under the Credit Facility is determined at periodic intervals and is based upon the Company’s inventory and accounts receivable balances. Borrowed funds accrue interest based on an annual rate of (a) London Interbank Offered Rate (LIBOR) or (b) the administrative agent’s base rate, plus an applicable margin of between 1.50% and 2.00% for LIBOR rate loans, and between 0.50% and 1.00% for base rate loans. The Company is required to pay a commitment fee on the unused portion of the Credit Facility of 0.25% or 0.375% per annum, based on the level of utilization of the Credit Facility. Amounts owed under the Credit Agreement and related credit documents are guaranteed by GoPro, Inc. and its material subsidiaries. GoPro, Inc. has also granted security interests in substantially all of its assets to collateralize this obligation.
The Credit Agreement contains customary covenants, such as financial statement reporting requirements and limiting the ability of the Company and its subsidiaries to pay dividends or incur debt, create liens and encumbrances, make investments, and redeem or repurchase stock. The Company is required to maintain a minimum fixed charge coverage ratio if and when the unborrowed availability under the Credit Facility is less than the greater of $25.0 million or 10.0% of the borrowing base at such time. The Credit Agreement also contains customary events of default, such as the failure to pay obligations when due, initiation of bankruptcy or insolvency proceedings, or defaults on certain other indebtedness. Upon an event of default, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral.
At June 30, 2020 and December 31, 2019, the Company was in compliance with all financial covenants contained in the Credit Agreement. As of June 30, 2020, the Company could borrow up to $58.5 million and had $30.0 million borrowings outstanding on the Credit Facility. As of December 31, 2019, the Company had zero borrowings outstanding on the Credit Facility.
Convertible Notes
In April 2017, the Company issued $175.0 million aggregate principal amount of 3.50% Convertible Senior Notes due 2022 (Notes). The Notes are senior, unsecured obligations of GoPro and mature on April 15, 2022 (Maturity Date), unless earlier repurchased or converted into shares of Class A common stock under certain circumstances. The Notes are convertible into cash, shares of the Company’s Class A common stock, or a combination thereof, at the Company’s election, at an initial conversion rate of 94.0071 shares of Class A common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $10.64 per share of common stock, subject to adjustment. Based on current and projected liquidity, the Company has the intent and ability to deliver cash up to the principal amount of the Notes then outstanding upon conversion. The Company pays interest on the Notes semi-annually in arrears on April 15 and October 15 of each year.
The $175.0 million of proceeds received from the issuance of the Notes were allocated between long-term debt (liability component) of $128.3 million and additional paid-in-capital (equity component) of $46.7 million on the condensed consolidated balance sheet. The fair value of the liability component was measured using rates determined for similar debt instruments without a conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the aggregate face value of the Notes. The liability component will be accreted up to the face value of the Notes of $175.0 million, which will result in additional non-cash interest expense being recognized in the condensed consolidated statements of operations through the Notes’ Maturity Date. The accretion of the Notes to par and debt issuance cost recorded to long-term debt is amortized into interest expense over the term of the Note using an effective interest rate of approximately 10.5%. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.
The Company incurred approximately $5.7 million of issuance costs related to the issuance of the Notes, of which $4.2 million and $1.5 million were recorded to long-term debt and additional paid-in capital, respectively. The $4.2 million of issuance costs recorded as long-term debt on the condensed consolidated balance sheet are being amortized over the five-year contractual term of the Notes using the effective interest method.
The Company may not redeem the Notes prior to the Maturity Date and no sinking fund is provided for the Notes. The indenture includes customary terms and covenants, including certain events of default after which the Notes may be due and payable immediately.
13


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
Holders have the option to convert the Notes in multiples of $1,000 principal amount at any time prior to January 15, 2022, but only in the following circumstances:
during any calendar quarter beginning after the calendar quarter ending on September 30, 2017, if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the Notes on each applicable trading day;
during the five-business day period following any five consecutive trading day period in which the trading price for the Notes is less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate for the Notes on each such trading day; or
upon the occurrence of specified corporate events.
At any time on or after January 15, 2022 until the second scheduled trading day immediately preceding the Maturity Date of the Notes on April 15, 2022, a holder may convert its Notes, in multiples of $1,000 principal amount. Holders of the Notes who convert their Notes in connection with a make-whole fundamental change (as defined in the indenture) are, under certain circumstances, entitled to an increase in the conversion rate. In addition, in the event of a fundamental change prior to the Maturity Date, holders will, subject to certain conditions, have the right, at their option, to require the Company to repurchase for cash all or part of the Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the repurchase date.
As of June 30, 2020 and December 31, 2019, the outstanding principal on the Notes was $175.0 million, the unamortized debt discount was $19.4 million and $24.3 million, respectively, the unamortized debt issuance cost was $1.5 million and $1.9 million, respectively, and the net carrying amount of the liability component was $154.1 million and $148.8 million, respectively, which was recorded as long-term debt within the condensed consolidated balance sheets. For the three months ended June 30, 2020 and 2019, the Company recorded interest expense of $1.6 million for contractual coupon interest, $0.2 million for amortization of debt issuance costs, and $2.5 million and $2.3 million, respectively, for amortization of the debt discount. For the six months ended June 30, 2020 and 2019, the Company recorded interest expense of $3.1 million for contractual coupon interest, $0.4 million for amortization of debt issuance costs, and $4.9 million and $4.4 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 condensed consolidated balance sheet (and not outstanding for purposes of the calculation of basic and diluted income (loss) per share), but will remain outstanding for corporate law purposes, including for purposes of any future stockholders’ votes, until the Forward Counterparty delivers the shares underlying the Prepaid Forward to the Company. The Company’s Prepaid Forward hedge transaction exposes the Company to credit risk to the extent that its counterparty may be unable to meet the terms of the transaction. The Company mitigates this risk by limiting its counterparty to a major financial institution.

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
14


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
and conditions of the 2010 Plan. Options granted under the 2014 Plan generally expire within ten years from the date of grant and generally vest over one to four years. Restricted stock units (RSUs) granted under the 2014 Plan generally vest over two to four years based upon continued service and are settled at vesting in shares of the Company’s Class A common stock. Performance stock units (PSUs) granted under the 2014 Plan generally vest over three years based upon continued service and the Company achieving certain revenue targets, and are settled at vesting in shares of the Company’s Class A common stock. The Company accounts for forfeitures of stock-based payment awards in the period they occur. The ESPP allows eligible employees to purchase shares of the Company’s Class A common stock through payroll deductions at a price equal to 85% of the lesser of the fair market value of the stock as of the first date or the ending date of each six-month offering period. For additional information regarding the Company’s equity incentive plans, refer to the 2019 Annual Report.
Stock options
A summary of the Company’s stock option activity for the six months ended June 30, 2020 is as follows:
Shares
(in thousands)
Weighted-average exercise price
Weighted-average remaining contractual term (in years)
Aggregate intrinsic value (in thousands)
Outstanding at December 31, 20193,963  $10.16  6.35$374  
Granted1,006  3.99  
Exercised(25) 1.13  
Forfeited/Cancelled(773) 9.88  
Outstanding at June 30, 20204,171  $8.78  6.59$1,064  
Vested and expected to vest at June 30, 20204,171  $8.78  6.59$1,064  
Exercisable at June 30, 20202,676  $10.93  5.12$324  
The aggregate intrinsic value of the stock options outstanding as of June 30, 2020 represents the value of the Company’s closing stock price on June 30, 2020 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, 2020 is as follows:
Shares
(in thousands)
Weighted-average grant date fair value
Non-vested shares at December 31, 20198,225  $6.11  
Granted5,604  4.09  
Vested(1,649) 6.78  
Forfeited(1,823) 5.50  
Non-vested shares at June 30, 202010,357  $5.02  
15