0001500435-20-000058.txt : 20201105 0001500435-20-000058.hdr.sgml : 20201105 20201105170258 ACCESSION NUMBER: 0001500435-20-000058 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 68 CONFORMED PERIOD OF REPORT: 20200930 FILED AS OF DATE: 20201105 DATE AS OF CHANGE: 20201105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GoPro, Inc. CENTRAL INDEX KEY: 0001500435 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 770629474 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36514 FILM NUMBER: 201291423 BUSINESS ADDRESS: STREET 1: 3025 CLEARVIEW WAY CITY: SAN MATEO STATE: CA ZIP: 94402 BUSINESS PHONE: 650-332-7600 MAIL ADDRESS: STREET 1: 3025 CLEARVIEW WAY CITY: SAN MATEO STATE: CA ZIP: 94402 FORMER COMPANY: FORMER CONFORMED NAME: Woodman Labs, Inc. DATE OF NAME CHANGE: 20100901 10-Q 1 gpro-20200930.htm 10-Q gpro-20200930
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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 September 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
gpro-20200930_g1.jpg
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 November 2, 2020, 121,861,718 and 28,887,185 shares of Class A and Class B common stock were outstanding, respectively.

1


GoPro, Inc.
Index


2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GoPro, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except par values)
September 30, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents
$146,871 $150,301 
Marketable securities
 14,847 
Accounts receivable, net
107,168 200,634 
Inventory
132,816 144,236 
Prepaid expenses and other current assets
26,124 25,958 
Total current assets
412,979 535,976 
Property and equipment, net
26,455 36,539 
Operating lease right-of-use assets
33,218 53,121 
Intangible assets, net
1,937 5,247 
Goodwill
146,459 146,459 
Other long-term assets
12,539 15,461 
Total assets
$633,587 $792,803 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$124,996 $160,695 
Accrued expenses and other current liabilities
104,026 141,790 
Short-term operating lease liabilities
9,053 9,099 
Deferred revenue
19,459 15,467 
Total current liabilities
257,534 327,051 
Long-term taxes payable
16,783 13,726 
Long-term debt
156,782 148,810 
Long-term operating lease liabilities
54,293 62,961 
Other long-term liabilities
5,098 6,726 
Total liabilities
490,490 559,274 
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, 121,337 and 117,922 shares issued and outstanding, respectively; 150,000 Class B shares authorized, 28,887 and 28,897 shares issued and outstanding, respectively
951,639 930,875 
Treasury stock, at cost, 10,710 and 10,710 shares, respectively
(113,613)(113,613)
Accumulated deficit
(694,929)(583,733)
Total stockholders’ equity
143,097 233,529 
Total liabilities and stockholders’ equity
$633,587 $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 September 30,Nine months ended September 30,
(in thousands, except per share data)
2020201920202019
Revenue
$280,507 $131,169 $534,153 $666,306 
Cost of revenue
181,195 102,737 355,722 455,342 
Gross profit
99,312 28,432 178,431 210,964 
Operating expenses:
Research and development
37,235 34,940 104,074 111,215 
Sales and marketing
34,378 48,848 112,845 148,273 
General and administrative
18,845 15,842 53,686 49,909 
Total operating expenses
90,458 99,630 270,605 309,397 
Operating income (loss)8,854 (71,198)(92,174)(98,433)
Other income (expense):
Interest expense
(5,260)(4,623)(14,774)(14,032)
Other income, net955 738 462 1,503 
Total other expense, net
(4,305)(3,885)(14,312)(12,529)
Income (loss) before income taxes4,549 (75,083)(106,486)(110,962)
Income tax expense (benefit)1,242 (273)4,710 (500)
Net income (loss)$3,307 $(74,810)$(111,196)$(110,462)
Basic net income (loss) per share$0.02 $(0.51)$(0.75)$(0.77)
Diluted net income (loss) per share$0.02 $(0.51)$(0.75)$(0.77)
Weighted-average number of shares outstanding, basic149,406 145,617 148,491 144,306 
Weighted-average number of shares outstanding, diluted151,849 145,617 148,491 144,306 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


GoPro, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine months ended September 30,
(in thousands)
20202019
Operating activities:
Net loss
$(111,196)$(110,462)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
15,495 19,823 
Non-cash operating lease cost
4,907 7,599 
Stock-based compensation
21,926 30,160 
Deferred income taxes
(51)13 
Non-cash restructuring charges
5,242 (199)
Restructuring-related impairment12,460  
Non-cash interest expense
7,348 6,633 
Other
738 (779)
Changes in operating assets and liabilities:
Accounts receivable, net
93,240 57,160 
Inventory
11,420 (133,574)
Prepaid expenses and other assets
3,613 8,136 
Accounts payable and other liabilities
(81,325)6,481 
Deferred revenue
3,712 (3,686)
Net cash used in operating activities
(12,471)(112,695)
Investing activities:
Purchases of property and equipment, net
(4,560)(6,310)
Purchases of marketable securities (43,636)
Maturities of marketable securities
14,830 51,738 
Sale of marketable securities 1,889 
Asset acquisition(438) 
Net cash provided by investing activities
9,832 3,681 
Financing activities:
Proceeds from issuance of common stock3,508 5,574 
Taxes paid related to net share settlement of equity awards(4,713)(5,798)
Proceeds from borrowings30,000  
Repayment of borrowings(30,000) 
Net cash used in financing activities(1,205)(224)
Effect of exchange rate changes on cash and cash equivalents
414 159 
Net change in cash and cash equivalents
(3,430)(109,079)
Cash and cash equivalents at beginning of period
150,301 152,095 
Cash and cash equivalents at end of period
$146,871 $43,016 
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 
Common stock issued under employee benefit plans, net of shares withheld for tax
1,443 1,706 — — 1,706 
Taxes paid related to net share settlements— (1,801)— — (1,801)
Stock-based compensation expense— 9,769 — — 9,769 
Net loss— — — (74,810)(74,810)
Balances at September 30, 2019146,331 $924,725 $(113,613)$(679,553)$131,559 
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— 5,876 — — 5,876 
Net loss— — — (50,975)(50,975)
Balances at June 30, 2020148,638 943,927 (113,613)(698,236)132,078 
Common stock issued under employee benefit plans, net of shares withheld for tax
1,586 1,658 — — 1,658 
Taxes paid related to net share settlements— (2,359)— — (2,359)
Stock-based compensation expense (Note 5)— 8,413 — — 8,413 
Net income— — — 3,307 3,307 
Balances at September 30, 2020150,224 $951,639 $(113,613)$(694,929)$143,097 
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) helps the world capture and share itself 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 starting in the second quarter of 2020 by reducing on-going operating expenses and helped 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 lease right-of-use assets, 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.

The Company performs periodic assessments of its ROU assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The recoverability of assets is measured by comparing the net carrying amount to the estimated future undiscounted cash flows. If it is determined that an asset is not recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value. Significant assumptions under the Company’s assessment include future sublease rates, future sublease market conditions and a discount rate based on the weighted-average cost of capital.
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 can include four 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) a subscription service, c) the implicit right to the Company's downloadable free apps and software solutions and d) 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
8


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
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 September 30, 2020 and December 31, 2019 also included immaterial amounts related to the Company’s subscription services. The Company’s short-term and long-term deferred revenue balances totaled $20.4 million and $16.6 million as of September 30, 2020 and December 31, 2019, respectively. Of the deferred revenue balance as of June 30, 2020 and 2019, the Company recognized $5.6 million and $5.5 million of revenue in the three months ended September 30, 2020 and 2019, respectively. Of the deferred revenue balance as of December 31, 2019 and 2018, the Company recognized $12.9 million of revenue in the nine months ended September 30, 2020 and 2019.
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.
9


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
StandardDescriptionExpected date of adoptionEffect on the condensed consolidated financial statements or other significant matters
Standards not yet adopted
Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)
ASU No. 2020-06

This standard simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible debt instruments and contracts on an entity’s own equity. Specifically, the standard removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative under ASC 815 or if the convertible debt was issued at a substantial premium. This standard also removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception. Lastly, entities are required to use the if-converted method for convertible instruments in the diluted earnings per share calculation. Early adoption is permitted, but no earlier than the fiscal year beginning after December 15, 2020. The standard can be applied using a full or modified retrospective approach.January 1, 2021The Company is currently evaluating the impact of adopting this standard 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.

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, 2020December 31, 2019
(in thousands)Level 1Level 2TotalLevel 1Level 2Total
Cash equivalents (1):
Money market funds$19,444 $ $19,444 $4,413 $ $4,413 
Total cash equivalents$19,444 $ $19,444 $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 $127.4 million and $145.9 million as of September 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 September 30, 2020 and December 31, 2019, the Company had no financial assets or liabilities measured at fair value on a recurring basis that were classified as Level 3, which are valued based on inputs supported by little or no market activity.
At September 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.
10


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
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 $169.7 million and $170.0 million as of September 30, 2020 and December 31, 2019, respectively. The calculated fair value 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.
The Company also measures certain non-financial assets at fair value on a nonrecurring basis, primarily goodwill, intangible assets and operating lease right-of-use assets, in connection with periodic evaluations for potential impairment. In the third quarter of 2020, the fair value of Company’s operating lease right-of-use asset related to its headquarters campus was determined based on unobservable (Level 3) inputs, as discussed in Note 10 Restructuring charges.

3. Condensed consolidated financial statement details
The following sections and tables provide details of selected balance sheet items.
Inventory
(in thousands)
September 30, 2020December 31, 2019
Components
$16,205 $20,370 
Finished goods
116,611 123,866 
Total inventory
$132,816 $144,236 
Property and equipment, net
(in thousands)
September 30, 2020December 31, 2019
Leasehold improvements (1)
$35,527 $50,736 
Production, engineering and other equipment48,813 45,649 
Tooling17,571 19,216 
Computers and software22,349 21,719 
Furniture and office equipment6,315 10,846 
Tradeshow equipment and other5,886 7,009 
Construction in progress81 45 
Gross property and equipment
136,542 155,220 
Less: Accumulated depreciation and amortization(110,087)(118,681)
Property and equipment, net
$26,455 $36,539 
(1)    Refer to Note 10 Restructuring charges, for details of operating lease right-of-use asset impairment charges in the three and nine months ended September 30, 2020.
11


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
Intangible assets
September 30, 2020
(in thousands)Gross carrying valueAccumulated amortizationNet carrying value
Purchased technology $51,066 $(49,144)$1,922 
Domain name15 — 15 
Total intangible assets
$51,081 $(49,144)$1,937 

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 $1.9 million for the three months ended September 30, 2020 and 2019, respectively, and $3.9 million and $6.0 million for the nine months ended September 30, 2020 and 2019, respectively. At September 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 3 months)$723 
20211,152 
202247 
$1,922 
Other long-term assets
(in thousands)
September 30, 2020December 31, 2019
Point of purchase (POP) displays
$4,228 $7,595 
Long-term deferred tax assets
915 864 
Deposits and other
7,396 7,002 
Other long-term assets$12,539 $15,461 
12


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
Accrued expenses and other current liabilities
(in thousands)
September 30, 2020December 31, 2019
Accrued payables (1)
$40,622 $42,153 
Accrued sales incentives
21,782 39,120 
Employee related liabilities (1)
4,846 20,494 
Return liability
10,014 14,854 
Warranty liability
7,118 9,899 
Inventory received
3,819 5,737 
Customer deposits
4,486 2,063 
Purchase order commitments
2,314 1,710 
Income taxes payable
960 1,166 
Other
8,065 4,594 
Accrued expenses and other current liabilities$104,026 $141,790 
(1)    See Note 10 Restructuring charges for amounts associated with restructuring liabilities.
Product warranty
Three months ended September 30,Nine months ended September 30,
(in thousands)
2020201920202019
Beginning balance
$7,326 $12,850 $11,398 $10,971 
Charged to cost of revenue
4,560 1,610 7,546 12,013 
Settlement of warranty claims
(4,269)(3,981)(11,327)(12,505)
Warranty liability
$7,617 $10,479 $7,617 $10,479 
At September 30, 2020 and December 31, 2019, $7.1 million and $9.9 million, respectively, of the warranty liability was recorded as a component of accrued expenses and other current liabilities, and $0.5 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 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.
13


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
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 September 30, 2020 and December 31, 2019, the Company was in compliance with all financial covenants contained in the Credit Agreement. As of September 30, 2020, the Company could borrow up to $48.2 million. As of September 30, 2020 and 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 Sheets. 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 Sheets 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.
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
14


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
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 September 30, 2020 and December 31, 2019, the outstanding principal on the Notes was $175.0 million, the unamortized debt discount was $16.9 million and $24.3 million, respectively, the unamortized debt issuance cost was $1.3 million and $1.9 million, respectively, and the net carrying amount of the liability component was $156.8 million and $148.8 million, respectively, which was recorded as long-term debt within the Condensed Consolidated Balance Sheets. For the three months ended September 30, 2020 and 2019, the Company recorded interest expense of $1.5 million for contractual coupon interest, $0.2 million for amortization of debt issuance costs, and $2.4 million and $2.2 million, respectively, for amortization of the debt discount. For the nine months ended September 30, 2020 and 2019, the Company recorded interest expense of $4.6 million for contractual coupon interest, $0.6 million for amortization of debt issuance costs, and $7.3 million and $6.6 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 Sheets (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.
On October 22, 2020, 8.8 million shares of common stock underlying the Prepaid Forward entered into as part of the Company’s Convertible Notes were early settled and delivered to the Company. The remaining 0.4 million shares of common stock under the Prepaid Forward will continue to be treated as treasury stock on the Condensed Consolidated Balance Sheets until the Forward Counterparty delivers the remaining underlying shares to the Company. There was no financial statement impact due to the return of shares, however shares outstanding for corporate law purposes will be reduced by the early settlement.

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 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
15


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
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 nine months ended September 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 
Granted1,025 4.01 
Exercised(42)0.94 
Forfeited/Cancelled(1,041)10.15 
Outstanding at September 30, 20203,905 $8.65 6.23$703 
Vested and expected to vest at September 30, 20203,905 $8.65 6.23$703 
Exercisable at September 30, 20202,614 $10.54 4.83$233 
The aggregate intrinsic value of the stock options outstanding as of September 30, 2020 represents the value of the Company’s closing stock price on September 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 nine months ended September 30, 2020 is as follows:
Shares
(in thousands)
Weighted-average grant date fair value
Non-vested shares at December 31, 20198,225 $6.11 
Granted8,005 4.33 
Vested(3,212)6.17 
Forfeited(2,176)5.42 
Non-vested shares at September 30, 202010,842 $4.91 
Performance stock units
A summary of the Company’s PSU activity for the nine months ended September 30, 2020 is as follows:
Shares
(in thousands)
Weighted-average grant date fair value
Non-vested shares at December 31, 2019788 $7.51 
Granted1,231 4.05 
Vested(214)7.50 
Forfeited(291)6.60 
Non-vested shares at September 30, 20201,514 $4.87 
16


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
Employee stock purchase plan. For the nine months ended September 30, 2020 and 2019, the Company issued 1,014,000 and 958,000 shares under its ESPP, respectively, at weighted-average prices of $3.42 and $4.13, respectively.
Stock-based compensation expense. The Company measures compensation expense for all stock-based payment awards based on the estimated fair values on the date of the grant. The fair value of stock options granted and ESPP issuance is estimated using the Black-Scholes option pricing model. The fair value of RSUs and PSUs are 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 2019 Annual Report.
The following table summarizes stock-based compensation expense included in the Condensed Consolidated Statements of Operations:
Three months ended September 30,Nine months ended September 30,
(in thousands)
2020201920202019
Cost of revenue
$340 $448 $1,175 $1,483 
Research and development
3,597 4,507 9,682 14,068 
Sales and marketing
1,601 2,084 4,107 6,518 
General and administrative
2,875 2,730 6,962 8,091 
Total stock-based compensation expense
$8,413 $9,769 $21,926 $30,160 

The income tax benefit related to stock-based compensation expense was zero for the three and nine months ended September 30, 2020 and 2019 due to a full valuation allowance on the Company’s United States net deferred tax assets (see Note 7 Income taxes).
At September 30, 2020, total unearned stock-based compensation of $51.3 million related to stock options, RSUs, PSUs and ESPP shares is expected to be recognized over a weighted-average period of 2.2 years.

6. Net income (loss) per share
The following table presents the calculations of basic and diluted net income (loss) per share:
Three months ended September 30,Nine months ended September 30,
(in thousands, except per share data)
2020201920202019
Numerator:
Net income (loss)$3,307 $(74,810)$(111,196)$(110,462)
Denominator:
Weighted-average common shares - basic for Class A and Class B common stock149,406 145,617 148,491 144,306 
Effect of dilutive stock-based awards
2,443 — — — 
Weighted-average common shares - diluted for Class A and Class B common stock151,849 145,617 148,491 144,306 
Basic net income (loss) per share$0.02 $(0.51)$(0.75)$(0.77)
Diluted net income (loss) per share$0.02 $(0.51)$(0.75)$(0.77)
17


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements

The following potentially dilutive shares were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive:
Three months ended September 30,Nine months ended September 30,
(in thousands)
2020201920202019
Anti-dilutive stock-based awards10,598 13,168 14,652 13,064 
The Company has the intent and ability to deliver cash up to the principal amount of the Notes subject to conversion, based on the Company’s current and projected liquidity. As such, no shares associated with the Note conversion were included in the Company’s weighted-average number of common shares outstanding for any periods presented. The Company’s 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. The Notes are convertible into cash, shares of the Company’s Class A common stock, or a combination thereof, at the Company’s election. While the Company has the intent and ability to deliver cash up to the principal amount, 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 for the three and nine months ended September 30, 2020 and 2019 excludes approximately 9.2 million shares, effectively repurchased and held in treasury stock on the Condensed Consolidated Balance Sheets as a result of the Prepaid Forward transaction 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 loss per share of Class A common stock assumes the conversion of Class B common stock.

7. Income taxes
The Company’s income tax expense (benefit) 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 deferred tax assets are not anticipated to 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 excludes 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. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, a cumulative adjustment is made in that quarter.
Three months ended September 30,Nine months ended September 30,
(dollars in thousands)2020201920202019
Income tax expense (benefit) $1,242 $(273)$4,710 $(500)
Effective tax rate27.3 %0.4 %(4.4)%0.5 %

The Company recorded an income tax expense of $1.2 million for the three months ended September 30, 2020, on a pre-tax net income of $4.5 million, which resulted in an effective tax rate of 27.3%. The Company’s
18


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements
income tax expense for the three months ended September 30, 2020, was composed of $1.5 million of tax expense incurred on pre-tax income, and discrete items that primarily included $0.3 million of net non-deductible equity tax expense for employee stock-based compensation, partially offset by a $3.5 million tax benefit related to restructuring charges, a $0.3 million tax benefit related to foreign provision to return adjustments and other items, and a net increase in the valuation allowance of $3.2 million. The Company recorded an income tax expense of $4.7 million for the nine months ended September 30, 2020, on a pre-tax net loss of $106.5 million, which resulted in a negative effective tax rate of 4.4%. The Company’s income tax expense for the nine months ended September 30, 2020, was composed of $4.4 million of tax expense incurred on pre-tax income, and discrete items that primarily included $2.1 million of net non-deductible equity tax expense for employee stock-based compensation, $2.6 million of tax expense relating to a reduction in deferred tax assets due to the treatment of stock-based compensation as a result of the Altera Corp. vs. Commissioner decision by the Ninth Circuit Court of appeals and $0.5 million of tax expense relating to certain states and foreign jurisdiction reserves, partially offset by a $5.9 million tax benefit related to restructuring charges, a $0.2 million tax benefit related to foreign provision to return adjustments and other items, and a net increase in the valuation allowance of $1.3 million.
For the three months ended September 30, 2019, the Company recorded an income tax benefit of $0.3 million on a pre-tax net loss of $75.1 million, which resulted in an effective tax rate of 0.4%. The Company’s income tax benefit for the three months ended September 30, 2019 was primarily composed of $0.3 million of tax expense incurred on pre-tax income, and discrete items that included a $1.6 million of net non-deductible equity tax expense for employee stock-based compensation, $0.3 million of tax benefit relating to foreign provision to income tax returns adjustments and a $0.4 million tax benefit for other items, partially offset by a net decrease in the valuation allowance of $1.5 million. The Company recorded an income tax benefit of $0.5 million for the nine months ended September 30, 2019 on a pre-tax net loss of $111.0 million, which resulted in an effective tax rate of 0.5%. The Company’s income tax benefit for the nine months ended September 30, 2019 was primarily composed of $1.2 million of tax expense incurred on pre-tax income, and discrete items that included $1.2 million of tax benefit relating to foreign provision to income tax returns adjustments, $0.7 million of net non-deductible equity tax expense for employee stock-based compensation, $0.5 million of tax benefits relating to restructuring charges, and $0.3 million of tax benefits for the release of uncertain tax positions primarily attributable to the expiration of tax statute of limitations, partially offset by a $0.2 million net decrease in the valuation allowance and a $0.2 million tax benefit related to other items. Further, for both the nine months ended September 30, 2020 and 2019, while the Company incurred pre-tax losses in the United States, the Company does not expect to recognize any tax benefits on pretax losses in the United States due to a full valuation allowance recorded against its United States deferred tax assets.
On June 22, 2020, the U.S. Supreme Court declined a Writ of Certiorari in the case of Altera Corp vs. Commissioner challenging a decision by the Ninth Circuit Court of appeals (which itself reversed a previous decision of the United States Tax Court) holding that the United States Treasury Department’s regulations requiring the inclusion of stock-based compensation expense in a taxpayer’s cost sharing calculations were valid. The Company’s condensed consolidated financial statements have been prepared consistent with this outcome and reflect adjustments to deferred tax assets as a result of this development.
At September 30, 2020 and December 31, 2019, the Company’s gross unrecognized tax benefits were $30.2 million and $27.2 million, respectively. If recognized, $14.8 million of these unrecognized tax benefits (net of United States federal benefit) at September 30, 2020 would reduce income tax expense after considering the impact of the change in the valuation allowance in the United States. A material portion of the Company’s gross unrecognized tax benefits, if recognized, would increase the Company’s net operating loss carryforward, which would be offset by a full valuation allowance based on present circumstances. These unrecognized tax benefits relate primarily to unresolved matters with taxing authorities regarding the Company’s transfer pricing positions. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its reserves reflect the more likely outcome. The Company believes, due to statute of limitations expiration, that within the next 12 months, it is possible that up to $13.0 million of uncertain tax position could be released. It is also reasonably possible that additional uncertain tax positions will be added. It is not reasonably possible at this time to quantify the net effect.
19


GoPro, Inc.
Notes to Condensed Consolidated Financial Statements