UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

	For the quarterly period ended ~~June 30, 2014~~ March 31, 2015

	OR

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

	For the transition period from ________________ to ________________

Commission file number: 001-36514

GOPRO, INC.

(Exact name of registrant as specified in its charter)



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

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

(650) 332-7600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes ¨þ	No þ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



Yes þ	No ¨

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



Large accelerated filer ¨	Accelerated filer ¨	Non accelerated filer þ	Smaller reporting company ¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes ¨	No þ

As of ~~August 1, 2014,~~March 31, 2015, there were ~~20,470,000~~89,404,158 shares of the Registrant’s Class A common stock outstanding and ~~105,542,238~~44,613,243 shares of the Registrant’s Class B common stock outstanding.

GoPro, Inc.

Index



		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014	3
	Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and March 31, 2014 ~~and June 30, 2013~~	4
	Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2015 and March 31, 2014 ~~and June 30, 2013~~	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2816
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3923
Item 4.	Controls and Procedures	4024
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	4125
Item 1A.	Risk Factors	4125
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4225
Item 3.	Defaults Upon Senior Securities	4326
Item 4.	Mine Safety Disclosures	4326
Item 5.	Other Information	4326
Item 6.	Exhibits	4326
	Signatures	S-1
	Exhibit Index	E-1

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

GoPro, Inc.

Condensed ~~consolidated balance sheets~~Consolidated Balance Sheets

(unaudited)


(in thousands, except par value)							March 31, 2015		December 31, 2014
	June 30, 2014			December 31, 2013
	(In thousands)
ASSETS
Assets
Current assets:
Cash	$	104,879		$	101,410
Cash and cash equivalents							$	323,165	$	319,929
Marketable securities							168,741		102,327
Accounts receivable, net	49,230			122,669			105,970		183,992
Inventory, net	80,376			111,994
Inventory							164,044		153,026
Prepaid expenses and other current assets	65,409			21,967			60,334		63,769
Total current assets	299,894			358,040			822,254		823,043
Property and equipment, net	38,939			32,111			43,890		41,556
Intangible assets and goodwill	16,805			17,365			24,874		17,032
Other long-term assets	36,562			32,155			39,616		36,060
Total assets	$	392,200		$	439,671		$	930,634	$	917,691

LIABILITIES
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	54,925		$	126,423		$	91,919	$	126,240
Accrued liabilities	78,819			86,391			103,350		115,775
Deferred revenue	8,158			7,781			12,327		14,022
Income taxes payable	4,366			19,702			2,940		2,732
Current portion of long-term debt	66,306			60,297
Total current liabilities	212,574			300,594			210,536		258,769
Long-term debt, less current portion	41,433			53,315
Other long-term liabilities	13,719			13,930			18,378		17,718
Total liabilities	267,726			367,839			228,914		276,487

Commitments and contingencies (Note 10)
Redeemable convertible preferred stock, $0.0001 par value; 36,000,000 shares authorized: 30,523,036 shares issued and outstanding as of December 31, 2013 and June 30, 2014, respectively	77,227			77,198
Commitments, contingencies and guarantees (see Note 9)

EQUITY
Stockholders’ equity:
Common stock, $0.0001 par value, 150,000,000 shares authorized, 81,420,040 shares issued and outstanding as of December 31, 2013	—			8
Class A common stock, $0.0001 par value, 150,000,000 shares authorized, no shares issued and outstanding	—			—
Class B common stock, $0.0001 par value, 150,000,000 shares authorized, 86,177,848 shares issued and outstanding as of June 30, 2014	9			—
Additional paid-in capital	75,914			14,510
Accumulated deficit	(28,676		)	(19,884		)
Total stockholders’ equity (deficit)	47,247			(5,366		)
Total liabilities and stockholders’ equity (deficit)	$	392,200		$	439,671
Common stock and additional paid-in capital, $0.0001 par value, 500,000 Class A shares authorized, 89,404 and 52,091 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively; 150,000 Class B shares authorized, 44,613 and 77,023 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively							576,764		533,000
Retained earnings							124,956		108,204
Total stockholders’ equity							701,720		641,204
Total liabilities and stockholders’ equity							$	930,634	$	917,691

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

GoPro, Inc.

Condensed ~~consolidated statements~~Consolidated Statements of ~~operations~~Operations

(unaudited)


	Three months ended						Six months ended						Three months ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
(in thousands, except per share data)													March 31, 2015			March 31, 2014
	(In thousands, except per share amounts)
Revenue	$	244,605		$	177,082		$	480,321		$	432,139		$	363,109		$	235,716
Cost of revenue	141,736			120,242			280,938			285,870			199,376			139,202
Gross profit	102,869			56,840			199,383			146,269			163,733			96,514

Operating expenses:
Research and development	34,663			16,687			63,402			28,699			49,437			28,739
Sales and marketing	43,701			39,065			85,042			74,738			56,369			41,341
General and administrative	41,171			7,044			51,049			14,032			35,659			9,878
Total operating expenses	119,535			62,796			199,493			117,469			141,465			79,958
Operating income (loss)	(16,666		)	(5,956		)	(110		)	28,800
Other income (expense), net	(1,536		)	(1,697		)	(3,161		)	(3,391		)
Income (loss) before income taxes	(18,202		)	(7,653		)	(3,271		)	25,409
Income tax (benefit) expense	1,639			(2,568		)	5,521			7,459
Net income (loss)	$	(19,841	)	$	(5,085	)	$	(8,792	)	$	17,950
Operating income													22,268			16,556
Other expense, net													(2,244		)	(1,625		)
Income before income taxes													20,024			14,931
Income tax expense													3,272			3,882
Net income													$	16,752		$	11,049

Less: undistributed earnings allocable to: holders of preferred stock and unvested early exercised options and restricted stock	—			—			—			(4,964		)
Undistributed net income (loss) attributable to common stockholders—basic	$	(19,841	)	$	(5,085	)	$	(8,792	)	$	12,986
Add: adjustments to net income for dilutive securities allocable to: holders of preferred stock and unvested early exercised options and restricted stock	—			—			—			680
Undistributed net income (loss) attributable to common stockholders—diluted	$	(19,841	)	$	(5,085	)	$	(8,792	)	$	13,666
Less: net income allocable to participating securities													—			3,040
Net income attributable to common stockholders—basic													$	16,752		$	8,009
Add: net income allocable to dilutive participating securities													—			443
Net income attributable to common stockholders—diluted													$	16,752		$	8,452

Net income (loss) per share attributable to common stockholders:
Net income per share attributable to common stockholders:
Basic	$	(0.24	)	$	(0.06	)	$	(0.11	)	$	0.16		$	0.13		$	0.10
Diluted	$	(0.24	)	$	(0.06	)	$	(0.11	)	$	0.14		$	0.11		$	0.08

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
Weighted-average shares used to compute net income per share attributable to common stockholders:
Basic	82,936			80,902			82,263			80,836			132,278			81,582
Diluted	82,936			80,902			82,263			98,577			148,573			100,783

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

GoPro, Inc.

Condensed ~~consolidated statements~~Consolidated Statements of ~~cash flows~~Cash Flows

(unaudited)

Six months ended
June 30, 2014 June 30, 2013
(In thousands)
Cash flows from operating activities:
Net income (loss) $ (8,792 ) $ 17,950
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 7,988
5,416
Deferred taxes (799 ) (1,028 )
Excess tax benefit from stock-based compensation (20,836 ) (20 )
Stock-based compensation 38,230
4,627
Provision for doubtful accounts 246
293
Provision for inventory obsolescence 1,316
2,939
Loss on disposals of fixed assets and other 298
759
Changes in operating assets and liabilities:
Accounts receivable, net 73,193
26,020
Inventory 30,301
(51,590 )
Prepaids and other assets (39,504 ) (9,786 )
Accounts payable and accrued liabilities (75,270 ) 2,607
Deferred revenue 378
(1,427 )
Net cash provided by (used in) operating activities 6,749
(3,240 )

Cash flows from investing activities:
Capital expenditures (12,657 ) (7,872 )
Proceeds from sale of property and equipment 288
—
Cash paid for acquisition (3,200 ) —
Net cash used in investing activities (15,569 ) (7,872 )

Cash flows from financing activities:
Proceeds from issuance of common stock 1,429
137
Excess tax benefit from stock-based compensation 20,836
20
Payment of debt issuance costs and deferred public offering costs (3,056 ) (232 )
Purchase of shares and net exercise of stock options (920 ) —
Issuance of debt —
15,000
Repayment of debt (6,000 ) (13,000 )
Net cash provided by financing activities 12,289
1,925
Net increase (decrease) in cash and cash equivalents 3,469
(9,187 )
Cash and cash equivalents at beginning of period 101,410
36,485
Cash and cash equivalents at end of period $ 104,879
$ 27,298

Non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities $ 5,803
$ 2,076
Deferred public offering costs included in accounts payable and accrued liabilities 2,204
366
Exercise of selling stockholder options 1,709
—



	Three months ended
(in thousands)	March 31, 2015			March 31, 2014

Operating activities:
Net income	$	16,752		$	11,049
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,369			3,811
Stock-based compensation	26,501			4,037
Foreign currency remeasurement and transaction losses	2,190			—
Deferred taxes	(1,590		)	(330		)
Other	639			247
Changes in operating assets and liabilities:
Accounts receivable, net	77,684			75,359
Inventory	(11,017		)	21,807
Prepaids and other assets	1,451			1,068
Accounts payable and other liabilities	(50,017		)	(97,042		)
Deferred revenue	(1,695		)	908
Net cash provided by operating activities	66,267			20,914

Investing activities:
Purchases of property and equipment	(5,207		)	(4,701		)
Purchases of marketable securities	(79,368		)	—
Sales and maturities of marketable securities	12,503			—
Business acquisitions	(5,100		)	(3,200		)
Net cash used in investing activities	(77,172		)	(7,901		)

Financing activities:
Proceeds from issuance of common stock, net of repurchases	12,325			522
Taxes paid related to net share settlement of equity awards	(1,321		)	—
Excess tax benefit from stock-based compensation	6,067			69
Payment of deferred public offering costs	(903		)	(799		)
Repayment of debt	—			(3,000		)
Net cash provided by (used in) financing activities	16,168			(3,208		)
Effect of exchange rate changes on cash and cash equivalents	(2,027		)	—
Net increase in cash and cash equivalents	3,236			9,805
Cash and cash equivalents at beginning of period	319,929			101,410
Cash and cash equivalents at end of period	$	323,165		$	111,215

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

GoPro, Inc.

Notes to ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements

(unaudited)

1. Business overview

GoPro, Inc. (GoPro or the Company) ~~was incorporated as Woodman Labs, Inc. in California on February 14, 2004 as an S Corporation. The Company~~ produces mountable and wearable cameras and accessories, which the Company refers to as capture devices. Additionally, GoPro develops and provides desktop editing software and mobile applications for free to consumers. The Company’s ~~products~~capture devices are sold globally through retailers, wholesale distributors and on the Company’s website. The Company has wholly-owned subsidiaries in Hong Kong, Germany, the Netherlands, and the Cayman Islands. The Company’s corporate headquarters are located in San Mateo, California with additional operational support offices in Hong Kong, the Netherlands, and Shenzhen, ~~China and Munich, Germany.~~

~~The Company completed its initial public offering (IPO) of common stock on July 1, 2014 in accordance with the Securities Act of 1933, as amended. The Company sold~~ ~~8,900,000~~ ~~shares and certain of its stockholders sold~~ ~~11,570,000~~ ~~shares, including~~ ~~2,670,000~~ ~~shares for the underwriters' option to purchase additional shares. The shares were sold at an initial public offering price of~~ ~~$24.00~~ ~~per share for net proceeds of~~ ~~$200.8 million~~ ~~to the Company, after deducting underwriting discounts and commissions. See Note 13, Subsequent Events for additional information.~~China.

2. Basis of presentation and ~~Summary~~summary of ~~Significant Accounting Policies~~

~~The Company’s fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30 and September 30.~~significant accounting policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with ~~United States~~U.S. generally accepted accounting principles (GAAP) ~~for interim financial information~~ and in accordance with the ~~instructions to~~interim period reporting requirements of Form ~~10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete~~10-Q. The unaudited condensed consolidated financial ~~statements. In the opinion of management,~~statements reflect all adjustments (consisting only of normal recurring adjustments) ~~considered~~that management believes are necessary ~~to present fairly~~for the ~~financial position~~fair presentation of the ~~Company and its~~Company's financial condition, results of operations, and cash ~~flow~~flows for the ~~interim~~ periods presented, ~~have been included. Operating results for the six months ended June 30, 2014~~but are not necessarily indicative of the results ~~that may be~~ expected for the full fiscal year ~~ending December 31, 2014, for any other interim period~~ or ~~for~~ any other future ~~year.~~

period. The condensed consolidated balance sheet at December 31, ~~2013~~2014 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP. ~~The accompanying condensed consolidated financial statements~~This quarterly report should be read in conjunction with the ~~consolidated financial statements and notes thereto contained in~~Company's Annual Report on Form 10-K (Annual Report) for the ~~Company’s prospectus filed with the Securities and Exchange Commission (SEC) on June 26,~~year ended December 31, 2014.

There have been no significant changes in the Company’s accounting policies from those disclosed in the footnotes to the audited financial statements contained in its ~~prospectus filed with~~Annual Report on Form 10-K for the ~~SEC on June 26,~~year ended December 31, 2014.

Principles of consolidation

These consolidated financial statements include all the accounts of the Company and its wholly-owned subsidiaries. Unless otherwise specified, references to the Company are references to GoPro, Inc. and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated ~~upon~~in consolidation.

Use of estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s condensed consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions in several areas, including those related ~~to its allowance for doubtful~~to: the collectability of accounts receivable, stock-based compensation, inventory valuation, warranty liabilities, revenue recognition and related estimates (including sales returns, ~~web-~~

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

~~based~~web-based sale deliveries at period-end, implied post contract support, and marketing ~~allowances,~~allowances), the valuation and useful ~~life evaluation~~lives of ~~acquired intangibles,~~intangible assets and property and equipment, the valuation of deferred income tax assets, and uncertain tax positions. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. ~~The actual~~Actual results ~~experienced by the Company may~~could differ materially ~~and adversely~~ from ~~management’s~~management's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Comprehensive income

For all periods presented, comprehensive income equaled net income. Therefore, the condensed consolidated statements of comprehensive income have been omitted from the condensed consolidated financial statements.

GoPro, Inc.

Notes to condensed consolidated financial statements

(unaudited)

Recent accounting pronouncements

OnIn May ~~28,~~ 2014, the Financial Accounting Standards Board (FASB) issued ~~a new~~Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers, which amends the existing accounting ~~standard update~~standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue ~~from contracts with customers, which supercedes the revenue recognition requirements in Topic 605,~~ ~~Revenue Recognition~~, and most industry-specific guidance throughout the Industry Topics of the Codification. The new guidance adheres to the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers inat an amount ~~that reflects the consideration~~ to which ~~the~~an entity expects to be entitled in exchange for those goods or services. To achieve this principle, the new guidance lists five steps that entities should follow, including identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction pricewhen products are transferred to ~~the performance obligations in the contract and recognizing revenue when the entity satisfies a performance obligation. The new guidance~~customers. ASU 2014-09 becomes effective for the Company on January 1, ~~2017, with retrospective application permitted.~~2017. Early application is not permitted. ~~The Company is currently assessing the impact of this new guidance.~~

In ~~June 2014,~~April 2015, the FASB ~~issued~~proposed a one-year deferral of the effective date of the new ~~accounting~~revenue standard. If approved, the new standard update on the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Compensation cost should be recognized in the period in which it becomes probable that the performance target will ~~be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The new guidance becomes~~become effective for the Company on January 1, ~~2016, with early adoption is permitted.~~2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company ~~does not believe~~is currently evaluating the impact the adoption of ~~this guidance~~ASU 2014-09 will have ~~a material impact~~ on ~~its Condensed Consolidated Financial Statements.~~the Company's consolidated financial statements.

Correction of error

During the preparation of the ~~accompanying~~ condensed consolidated financial statements for the period ended June 30, 2014, the Company determined that within the consolidated statement of cash flows previously disclosed for the quarter ended March 31, 2014, net cash provided by operating activities was understated by $3.2 million and net cash used for investing activities was understated by the same amount. The Company has properly presented its condensed consolidated statement of cash flows for the ~~six month period~~three months ended ~~June 30,~~March 31, 2014 and determined that this revision is not material to prior periods.

Prior Period Reclassifications

Reclassifications of certain prior period amounts in the condensed consolidated financial statements have been made to conform to the current period presentation.

3. Balance sheet components

Inventory

Inventory consisted of the following:



(in thousands)	March 31, 2015		December 31, 2014
Components	$	3,301	$	4,324
Finished goods	160,743		148,702
Total inventory	$	164,044	$	153,026

Property and equipment, net

Property and equipment, net consisted of the following:



(in thousands)	Useful life (in years)	March 31, 2015		December 31, 2014
Leasehold improvements	3–7	$	23,037	$	22,787
Computers, software, equipment and furniture	2–4	27,420		24,636
Tooling	1–4	17,639		16,159
Construction in progress		6,037		3,944
Tradeshow equipment and other	2-5	3,864		3,830
Gross property and equipment		77,997		71,356
Less: Accumulated depreciation and amortization		(34,107)		(29,800)
Property and equipment, net		$	43,890	$	41,556

GoPro, Inc.

Notes to condensed consolidated financial statements

(unaudited)

~~3. Balance sheet components~~Acquired intangible assets and goodwill

~~Inventory, net.~~ ~~Inventory, net consisted~~Intangible assets and goodwill increased from $17.0 million at December 31, 2014 to $24.9 million at March 31, 2015 due to the acquisition of a development-stage company in March 2015, which was accounted for as a business combination. The intangible assets acquired were recorded as in-process research and development. The acquisition did not have an impact on the ~~following:~~

(in thousands) June 30,
2014 December 31,
2013
Components $ 3,754
$ 8,000
Finished goods 76,622
103,994
Total inventory, net $ 80,376
$ 111,994

~~Prepaid expenses~~Company’s condensed consolidated statements of operations. There were no impairments to intangible assets and ~~other current assets.~~ ~~Prepaid expenses and other current assets consisted of~~goodwill during the ~~following:~~

(in thousands) June 30,
2014 December 31,
2013
Prepaid expenses $ 28,239
$ 3,830
Non-trade receivables 19,963
144
Current deferred tax assets 14,984
15,173
Other current assets 2,223
2,820
Total prepaid expenses and other current assets $ 65,409
$ 21,967

~~Property and equipment, net.~~ ~~Property and equipment, net consisted of the following:~~

(in thousands) Useful life (in years) June 30,
2014 December 31,
2013
Leasehold improvements 3–7 $ 22,247
$ 20,111
Computers, software, equipment and furniture 2–7 19,697
11,988
Tooling 1–4 11,317
8,799
Tradeshow equipment and other 2–5 3,759
3,469
Construction in progress 2,650
2,151
59,670
46,518
Less: Accumulated depreciation (20,731)
(14,407)
$ 38,939
$ 32,111
three months ended March 31, 2015.

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

~~Intangible Assets.~~ ~~Intangible asset balances are presented below:~~

Weighted
average
remaining
useful life
(in years)
June 30, 2014
(in thousands) Gross
Accumulated
amortization
Net
Developed technology $ 5,330
$ (2,961 ) $ 2,369
2.7
Other intangible assets 1,160
(819 ) 341
1.6
$ 6,490
$ (3,780 ) $ 2,710

Weighted
average
remaining
useful life
(in years)
December 31, 2013
(in thousands) Gross Accumulated
amortization Net
Developed technology $ 5,330
$ (2,517 ) $ 2,813
3.2
Other intangible assets 1,160
(703 ) 457
2.0
$ 6,490
$ (3,220 ) $ 3,270

4. Fair value measurements

The ~~estimated future amortization expense of acquired intangible~~Company’s assets ~~to be charged to cost of revenue and operating expenses after June 30, 2014, is~~that are measured at fair value on a recurring basis, by level, within the fair value hierarchy are summarized as follows:

(in thousands)
Cost of
revenue

Operating
expenses
Total
Years ending December 31,
2014 (remaining 6 months) $ 444
$ 107
$ 551
2015 888
197
1,085
2016 888
22
910
2017 149
—
149
$ 2,369
$ 326
$ 2,695



	March 31, 2015						December 31, 2014
(in thousands)	Level 1		Level 2		Total		Level 1		Level 2		Total
Cash equivalents:
Money market funds	$	16,618	$	—	$	16,618	$	80,968	$	—	$	80,968
Corporate debt securities	—		—		—		—		2,000		2,000
Total cash equivalents	$	16,618	$	—	$	16,618	$	80,968	$	2,000	$	82,968
Marketable securities:
U.S. treasury securities	$	2,498	$	—	$	2,498	$	1,994	$	—	$	1,994
U.S. agency securities	—		15,287		15,287		—		7,020		7,020
Commercial paper	—		3,697		3,697		—		2,497		2,497
Corporate debt securities	—		147,259		147,259		—		90,816		90,816
Total marketable securities	$	2,498	$	166,243	$	168,741	$	1,994	$	100,333	$	102,327

~~Other long-term assets.~~ ~~Other long-term assets consisted~~The Company classifies its cash equivalents and marketable securities as Level 1 or Level 2 within the fair value hierarchy. The fair value of Level 1 financial instruments, which are traded in active markets, is based on quoted market prices for identical instruments. The fair value of Level 2 financial instruments is obtained from an independent pricing service, which may use quoted market prices for identical or comparable instruments or model driven valuations using observable market data or inputs corroborated by observable market data. The Company's procedures include controls to ensure that appropriate fair values are recorded, including comparing the ~~following:~~

(in thousands) June 30,
2014 December 31,
2013
POP displays $ 19,077
$ 22,379
Deposits 4,999
2,698
Long-term licenses 4,000
4,000
Long-term deferred tax assets and other 2,320
1,683
Deferred public offering costs 6,166
1,395
Total other long-term assets $ 36,562
$ 32,155

~~Deferred public offering costs consist principally of legal, accounting and other fees incurred through the balance sheet date that are directly related to~~fair values obtained from the Company's ~~IPO~~pricing service against fair values obtained from other independent sources. At March 31, 2015 and ~~will be recorded against the proceeds received from the sale of the common stock. As of~~ December 31, ~~2013 and June 30, 2014,~~ ~~$0.4 million~~ ~~and~~ ~~$2.2 million, respectively, of deferred public offering costs were included in accounts payable and accrued liabilities.~~

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

~~Accrued liabilities.~~ ~~Accrued liabilities consisted of the following:~~

(in thousands) June 30,
2014 December 31,
2013
Accrued payables $ 39,778
$ 49,975
Employee related liabilities 12,571
11,932
Customer deposits 1,736
1,316
Warranty liability 4,512
3,691
Taxes payable 11,211
7,766
Accrued sponsorship expense 2,191
2,909
Accrued sales incentives 3,579
4,909
Sales commissions 1,608
2,454
Other 1,633
1,439
Total accrued liabilities $ 78,819
$ 86,391

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

~~4. Redeemable convertible preferred stock~~

At December 31, 2013 and June 30, 2014, there were 36,000,000 shares of Series A preferred stock authorized and 30,523,036 of Series A preferred stock issued and outstanding. Concurrent with the close of the IPO on July 1, 2014, all shares of Series A preferred stock were converted into Class B common stock. Prior to the conversion to Class B common stock, and after giving effect to the Reclassification (defined in Note 5 below), the Series A preferred stock had the following terms:

~~Conversion~~

Each share of Series A preferred stock is convertible, at the option of the holder, into shares of Class B common stock at a rate of 1-for-1. The conversion of all outstanding Series A preferred stock will occur in connection with the closing of an initial public offering, provided the aggregate offering price equals or exceeds $50.0 million.

~~Voting rights~~

The holders of shares of the Company’s Series A preferred stock vote equally with shares of Class B common stock on an as-if converted to common stock basis on all matters, including the election of directors.

~~Dividend rights~~

~~The holders of each Series A share are entitled to receive any noncumulative dividends on an equal basis with common stock, when and if declared by the Board of Directors of the Company (Board).~~

~~Redemption rights~~

In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the Company is required to redeem shares of Series A preferred stock at the original issue price of $2.53 per share plus any noncumulative dividends declared by the Board. If the holders have not previously exercised the rights granted to them, the Series A preferred stock is redeemable within 365 days after July 1, 2017, subject to a majority vote of the then outstanding Series A preferred shares. As the redemption events described above could occur and are not solely within the Company’s control, all shares of preferred stock have been presented outside of permanent equity.

On December 19, 2012, certain Series A stockholders exercised their conversion right and converted 4,211,303 shares of Series A preferred stock to common stock to participate in a common share sale transaction between the Company’s principal stockholder and a new investor pursuant to the pre-existing tag-along right. On December 20, 2012, the Series A preferred stock was modified to eliminate an 8% cumulative dividend and to extend the redemption date to July 2017. The 8% cumulative dividend had been accreted using the effective interest method from the time of issue through February 28, 2016, until the 8% cumulative dividend was eliminated on December 20, 2012. The Company recorded preferred stock dividend accretion of $4.2 million and $3.4 million in the years ended December 31, 2012 and 2011, respectively. On December 21, 2012, a dividend of $1.05 per share was declared and paid to holders of common and preferred stock totaling $117.4 million. The dividend payment to the preferred stockholders represented a settlement of accumulated dividends to date, prepayments of future cumulative dividends and participation in additional dividends paid to common stockholders as contractually provided for. The cash dividend was reflected first as a reduction to preferred stock to the extent that such dividend payments were accreted, with any cash paid in excess of this amount recorded as a reduction of retained earnings until exhausted, then as a reduction of additional paid-in-capital until exhausted, and then as accumulated deficit.

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

~~5. Common stock and stock-based compensation~~

~~Common stock~~

At December 31, 2013, the Company had 150,000,000 shares of common stock authorized for issuance and 81,420,040 shares issued and outstanding. On June 20, 2014, the Company filed a Restated Certificate of Incorporation to establish two classes of authorized common stock (Reclassification): Class A common stock and Class B common stock. As a result of the Reclassification, all outstanding shares of common stock were converted into shares of Class B common stock. At June 30, 2014, the Company had ~~150,000,000 shares of Class A common stock authorized and 150,000,000 shares of Class B common stock authorized. At June 30, 2014, 86,177,848 shares of Class B stock~~no financial assets or liabilities that were ~~issued and outstanding and~~classified as Level 3, which are valued based on inputs supported by little or no ~~shares of Class A stock were issued and outstanding.~~market activity.

~~The~~During the three months ended March 31, 2015, the Company had no transfers of financial assets between levels. At March 31, 2015, $126.5 million of the ~~following shares~~Company's marketable securities had a contractual maturity of ~~common stock reserved for issuance upon the exercise~~one year or ~~vesting~~less and $42.2 million had a contractual maturity of ~~equity instruments:~~one to two years.

(in thousands) June 30,
2014 December 31,
2013
Stock options outstanding 27,294
26,724
Restricted stock units outstanding 3,820
270
Stock options, restricted stock and RSUs available for future grants 13,821
1,306
44,935
28,300
5. Stock-based compensation

Equity incentive plans

~~2010~~The Company has issued equity grants from its three stock-based employee compensation plans: the 2014 Equity Incentive Plan

~~In August 2010, the Board approved the adoption of~~ (2014 Plan), the 2010 Equity Incentive Plan (2010 ~~EIP)~~Plan), and the Employee Stock Purchase Plan (ESPP). ~~As amended,~~

The 2014 Plan serves as the successor to the 2010 ~~EIP permitted the Company to grant up to 40,920,000 shares of the Company’s common stock. The 2010 EIP~~Plan and provides for the ~~grant~~granting of incentive and nonqualified stock options, restricted stock awards (RSAs), restricted stock units (RSUs) ~~and~~, stock appreciation rights, to employees, non-employee directors and consultants of the Company. All shares that were cancelled, forfeited or expired in accordance with the terms of the 2010 EIP were returned to the plan and became available for grant in conjunction with the issuance of new stock awards. Following the Reclassification, all shares subject to the 2010 EIP were Class B common stock. The 2010 EIP terminated with the establishment of the 2014 Equity Incentive Plan (2014 EIP), and no further grants were issued out of the 2010 EIP following termination, though outstandingbonus awards, ~~under the 2010 EIP at the time of the plan’s termination remained outstanding in accordance with their terms.~~

~~2014 Equity Incentive Plan~~

In June 2014, the Board approved the adoption of the 2014 EIP, which became effective on June 26, 2014. The 2014 EIP permits the Company to grant up to 13,809,488 shares of the Company’s Class A common stock, which includes ~~339,259~~ shares of Class B common stock previously reserved but unissued under the 2010 EIP that became available for issuance as Class A common stock under the 2014 EIP. The share reserve may also increase to the extent that outstanding awards under the 2010 EIP expire or terminate unexercised.

The 2014 EIP will terminate in 2024, unless sooner terminated by the board of directors. The 2014 EIP provides for the grant of incentive and nonqualified stock options, restricted stock, RSUs, stock appreciation rights and performance awards to employees, non-employee directors, and ~~consultants of~~consultants. No shares have been issued under the ~~Company. All shares that are cancelled, forfeited or expired are returned to the 2014 EIP and are available for grant in conjunction with the issuance of new stock awards.~~

~~The Board oversees the administration of the Company’s equity plans and generally determines eligibility, vesting schedules and other terms for awards~~2010 Plan since June 2014. Options granted under the ~~plans. Stock options under the~~ 2014 ~~EIP have a maximum contractual term of not more than ten~~Plan generally expire within 10 years from the date of grant and generally vest over four years. Options with performance or market-based conditions are generally ~~exercisable upon vesting. Vesting~~subject to a required service period along with the performance or market condition. RSUs granted under the 2014 Plan generally ~~occurs~~vest either annually or quarterly over three or four years ~~and becomes exercisable at the rate of 25%~~based upon on the first anniversary of the date of grant and ratably on a monthly basis over the remaining 36-month period thereafter. Awards that provide for early exercise are subject to repurchase upon the termination of services prior to vesting.

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

~~The exercise price of stock options must generally be at least 100% of the fair value of the Company’s Class A common stock based on the closing price of the shares on the date of grant.~~

~~Employee Stock Purchase Plan~~

~~Concurrent with the effectiveness of the Company’s registration statement on Form S-1 on June 26, 2014, the Company’s 2014 Employee Stock Purchase Plan (ESPP) became effective.~~continued service. The ESPP allows eligible employees to purchase shares of the ~~Company’s~~Company's Class A common stock ~~at a discount~~ through payroll deductions ~~of up~~at a price equal to 15% of their eligible compensation, subject to any plan limitations. The ESPP generally provides for six-month offering periods, and at the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market ~~value~~values of the ~~Company’s Class A common~~ stock ~~on the first trading day~~as of the beginning or the end of six-month offering ~~period or~~periods. For additional information regarding the Company's equity incentive plans, please refer to the footnotes to the audited financial statements contained in its Annual Report on Form 10-K for the ~~last day of the offering period.~~year ended December 31, 2014.

Stock option activity

A summary of the Company’s stock option activity and related information is as follows:

Options outstanding
(shares in thousands) Shares Weighted-
average
exercise
price Weighted-
average
grant
date fair
value Total intrinsic
value of
options
exercised
(in thousands) Weighted-
average
remaining
contractual
term
(in years) Aggregate
intrinsic value
(in thousands)
Outstanding at December 31, 2013: 26,724
$ 2.47
7.55 $ 367,395
Granted 4,635
17.57
$ 9.35

Exercised (3,835 ) 0.88
$ 80,108

Forfeited/Cancelled (230 ) 11.58

Outstanding at June 30, 2014: 27,294
$ 5.18
7.60 $ 965,340
Exercisable at December 31, 2013 20,605
$ 0.84
7.26 $ 316,812
Vested and expected to vest at December 31, 2013 25,798
$ 2.32
7.52 $ 358,624

Exercisable at June 30, 2014 18,594
$ 1.19
6.90 $ 731,810
Vested and expected to vest at June 30, 2014 26,076
$ 4.84
7.54 $ 931,254



	Options outstanding
(shares in thousands)	Shares		Weighted- average exercise price		Weighted- average grant date fair value		Total intrinsic value of exercises (in thousands)		Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2014:	25,134		$	6.62					$	1,425,339
Granted	420		45.56		$	22.47
Exercised	(4,143	)	1.44				$	203,784
Forfeited/Cancelled	(74	)	20.91
Outstanding at March 31, 2015:	21,337		$	8.34					$	756,135

Exercisable at March 31, 2015	14,678		$	2.68					$	597,831
Vested and expected to vest at March 31, 2015	20,966		$	8.08					$	748,068

~~The total fair value of stock options vested~~At March 31, 2015, there was ~~$1.5~~$66.3 million ~~and $2.3 million in the three months ended June 30, 2013 and June 30, 2014, respectively, and $2.5 million~~ ~~and~~ ~~$4.9 million in the six months ended June 30, 2013 and June 30, 2014, respectively.~~

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

~~The following is a further breakdown of the options outstanding and exercisable at June 30, 2014:~~

Options outstanding Options exercisable
(options in thousands) Options
outstanding
Weighted
average
remaining
contractual
life (in years) Weighted
average
exercise price
Options
exercisable
Weighted
average
exercise price
Range of exercise prices
$    0.18–0.66 8,944
6.62 $ 0.62
8,736
$ 0.62
      0.76–0.76 8,752
6.97 0.76
8,133
0.76
      1.52–2.96 1,795
7.56 1.91
1,031
1.86
      8.30–8.30 513
8.30 8.30
218
8.30
  13.72–13.72 873
8.65 13.72
294
13.72
  15.40–15.40 584
8.94 15.40
171
15.40
  15.59–15.59 444
9.15 15.59
1
15.59
  16.19–16.19 797
9.39 16.19
—
—
  16.22–16.22 1,125
9.59 16.22
—
—
  16.39–16.39 651
9.78 16.39
10
16.39
  18.40–18.40 2,816
9.93 18.40
—
—
$  0.18–18.40 27,294
7.60 $ 5.18
18,594
$ 1.19

~~The amount~~ of unearned stock-based compensation ~~currently estimated to be expensed with respect~~expense related to unvested ~~employee~~ options, ~~at December 31, 2013 and June 30, 2014 was $22.8 million and $53.6 million, respectively. As of December 31, 2013 and June 30, 2014, the weighted-average period over~~ which ~~the unearned stock-based compensation~~ is expected to be ~~recognized was 1.0 year and 2.0 years, respectively. If there are any modifications or cancellations~~amortized over a weighted average period of the underlying unvested awards, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense will increase to the extent that the Company grants additional equity awards or assumes unvested equity awards in connection with acquisitions.2.6 years.

Restricted stock awards

~~The Company has granted restricted stock pursuant to the 2010 EIP. Restricted stock are~~RSAs represent share awards ~~that, upon grant, the holder receives restricted shares~~ of the Company’s ~~Class B~~ common stock that are generally subject to repurchase at the original issuance price upon termination of services prior to vesting. These repurchase terms are considered to be a forfeiture provision and do not result in mark-to-market accounting each reporting period. Restricted stock is legally issued and outstanding. However, restricted stock is only deemed outstanding for basic earnings per share computation purposes upon the lapse of the Company’s right of repurchase.

~~Early exercised stock options subject to repurchase~~

The Company has granted options that provide the right to exercise unvested options for shares of restricted stock pursuant to the 2010 EIP. Restricted shares issued upon early exercise of stock options are legally issued and outstanding. However, these restricted shares are only deemed outstanding for basic earnings per share computation purposes upon the lapse of the Company’s right of repurchase. Cash received from option holders for exercise of unvested options is treated as a refundable deposit shown as a liability on the accompanying condensed consolidated balance sheets, and reclassified to stockholders’ equity (deficit) as the Company’s repurchase right lapses.

148

GoPro, Inc.

Notes to condensed consolidated financial statements

(unaudited)

~~The following table summarizes the activities~~a forfeiture provision and do not result in mark-to-market accounting each reporting period. At March 31, 2015, all RSAs were fully vested. A summary of the Company’s restricted stock ~~and early-exercised stock options subject to repurchase:~~awards is as follows:

(in thousands except for weighted average grant date fair value) Shares
Weighted- average grant date fair value
Aggregate intrinsic value
Non-vested shares at December 31, 2013 487
$ 11.03
$ 7,628
Granted —

Vested (152 )
Non-vested shares at June 30, 2014 335
$ 12.73
$ 13,461

The weighted average remaining vesting term for the restricted stock and unvested early-exercised stock options subject to repurchase as of December 31, 2013 and June 30, 2014 was 1.4 years and 1.3 years, respectively. The amount of unearned stock-based compensation currently estimated to be expensed with respect to unvested restricted stock and early-exercised stock options at December 31, 2013 and June 30, 2014 was $7.4 million and $7.2 million, respectively. The total fair value of vested restricted stock and early exercised stock options subject to repurchase was $0.2 million and $0.5 million~~in the three months ended June 30, 2013 and June 30, 2014, respectively, and $0.3 million and $1.1 million in the six months ended June 30, 2013 and June 30, 2014 respectively.~~



(shares in thousands)	Shares		Weighted- average grant date fair value		Aggregate intrinsic value (in thousands)
Non-vested shares at December 31, 2014	17		$	6.30	$	1,017
Vested	(17	)
Non-vested shares at March 31, 2015	—		$	—	$	—

Restricted stock units

RSUs are share awards that, upon vesting, will deliver to the holder shares of the Company’s Class A common stock under the 2014 EIP or Class B common stock under the 2010 EIP. Typically, vesting of RSUs is subject to the employee’s continuing service to the Company. The cost of ~~these awards~~RSUs is determined using the fair value of the ~~Company’s~~Company's common stock on the date of grant, and compensation is recognized on a straight-line basis over the requisite ~~vesting~~service period. The Company also ~~issues~~has issued RSUs with both a market condition and a service condition. The Company ~~estimates~~estimated the fair value of these market-based RSUs using a Monte Carlo valuation model on the date of grant.

~~The following table summarizes the activities~~ A summary of the Company’s ~~RSUs:~~RSU activity is as follows:

(in thousands except for weighted average grant date fair value) Shares
Weighted- average grant date fair value
Non-vested shares at December 31, 2013 270
$ 1.52
Granted 5,050
16.66
Vested (1,500 ) 18.40
Non-vested shares at June 30, 2014 3,820
14.91



(shares in thousands)	Shares		Weighted- average grant date fair value
Non-vested shares at December 31, 2014	4,307		$	21.98
Granted	332		46.42
Vested	(817	)	15.80
Forfeited	(8	)	79.22
Non-vested shares at March 31, 2015	3,814		25.30

~~The balance as of~~In June ~~30,~~ 2014, ~~included 3~~the Company granted a 4.5 million ~~RSUs subject to a market condition. These RSUs were issued~~RSU award to the Chief Executive Officer ~~(CEO) in~~(CEO RSUs), which included 1.5 million RSUs that vested immediately upon grant and 3.0 million RSUs that were subject to a market-based condition and a service condition. In January 2015, the ~~second quarter~~market-based condition was achieved and the Company recorded stock-based compensation expense of ~~fiscal 2014 and can~~$15.8 million during the three months ended March 31, 2015. At March 31, 2015, $20.6 million of total unearned compensation costs related to the CEO RSUs is expected to be ~~earned ratably~~recognized over the remaining vesting period of 2.3 years.

At March 31, 2015, there was $70.3 million of unearned stock-based compensation related to RSUs (including the CEO RSUs), which is expected to be amortized over a weighted average period of 2.3 years.

Employee stock purchase plan

On February 13, 2015, the first purchase under the Company's ESPP was made and employees purchased an aggregate of 313,233 shares at a price of $20.40 per share. During the three ~~years, subject~~months ended March 31, 2015, the Company recorded $1.1 million of stock-based compensation expense related to the ~~achievement~~ESPP. At March 31, 2015, there was $1.5 million of ~~certain market condition milestones that were set by~~unearned stock-based compensation related to the ~~Compensation Committee.~~ Company’s ESPP, which is expected to be recognized over 0.4 years.

Stock-based compensation expense

The Company measures compensation expense for all stock-based payment awards, including stock options, RSUs, and purchases under the Company's ESPP, based on the estimated fair values on the date of the grant. The fair value of ~~these shares~~stock options granted and purchases under the Company's ESPP is estimated using ~~a Monte Carlo~~the Black-Scholes option pricing model. There have been no significant changes in the Company’s valuation ~~model with~~assumptions for measuring compensation expense from those disclosed in the ~~following weighted-average assumptions:~~



~~Dividend yield~~	~~None~~
~~Expected volatility~~	~~50.9%~~
~~Risk-free interest rate~~	~~2.69%~~
~~Expected term (years)~~	10
~~Grant date fair value of underlying shares~~	~~$18.40~~

footnotes to the audited financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2014.

159

GoPro, Inc.

Notes to condensed consolidated financial statements

(unaudited)

The weighted average remaining vesting term for RSUs as of June 30, 2014 was 3.1 years. The amount of unearned stock-based compensation currently estimated to be expensed with respect to RSUs at December 31, 2013 and June 30, 2014 was $4.7 million and $54.7 million, respectively. The total fair value of RSUs vested in the three and six months ended June 30, 2014 was $27.6 million.

~~Sharing of proceeds from sale of securities~~

During the development stage of the Company, the founder and CEO entered into a verbal agreement with an employee to share 10% of any proceeds from the sale of equity securities held by the founder and CEO. As a result of the issuance of preferred stock to common stockholders in February 2011, and subsequent sale of these preferred shares by the founder and CEO to third parties, an obligation under this verbal agreement arose. In order to satisfy this obligation and any future obligations that may have arisen out of this verbal agreement, the Company entered into a written agreement and provided the following forms of compensation to the employee:

In March 2011, the Company paid the employee $6.1 million in cash, which was recorded as compensation expense within sales and marketing expense. Also in March 2011, the CEO reimbursed the Company for $6.1 million, which was recorded as a stockholder contribution to additional paid-in capital;

In June 2011, the Company issued the employee an option to purchase 6,584,427 shares of common stock at an exercise price of $0.763 per share. The option vested immediately and has a contractual life of 10 years. Stock compensation expense of $6.8 million was recorded in June 2011 within sales and marketing expense as a result of this grant. Upon exercise of this option by the employee, the founder and CEO will contribute an equal number of common shares back to the Company. In June 2014, the employee exercised the option to purchase 665,443 shares, for which the CEO contributed the same number of shares back to the Company; and

~~In December 2011, the Company issued the employee 270,000 RSUs that vest upon a change in control of the Company.~~

~~Stock-based compensation expense.~~ ~~The~~ following tables set forth the detailed allocation of ~~the~~ stock-based compensation ~~expense (in thousands):~~expense:


	Three months ended						Six months ended						Three months ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
(in thousands)													March 31, 2015			March 31, 2014
Stock-based compensation expense:
Cost of revenue	$	154		$	157		$	322		$	377		$	283		$	168
Research and development	1,657			556			3,058			997			3,535			1,401
Sales and marketing	1,654			1,454			3,068			2,658			3,066			1,414
General and administrative	30,728			365			31,782			595			19,617			1,054
Total stock-based compensation expense	34,193			2,532			38,230			4,627			26,501			4,037
Total tax benefit recognized	(11,483		)	(203		)	(11,825		)	(546		)	(9,304		)	(342		)
Decrease in net income	$	22,710		$	2,329		$	26,405		$	4,081		$	17,197		$	3,695

Stock-based compensation expense by type of award:
Stock options	$	3,487		$	2,027		$	6,380		$	3,650		$	5,957		$	2,894
RSUs	29,313			—			29,493			—			18,920			179
Restricted stock	1,352			505			2,316			977
RSAs													566			964
ESPP	41			—			41			—			1,058			—
Total stock-based compensation expense	34,193			2,532			38,230			4,627			$	26,501		$	4,037
Total tax benefit recognized	(11,483		)	(203		)	(11,825		)	(546		)
Decrease in net income	$	22,710		$	2,329		$	26,405		$	4,081

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

~~Stock option valuation assumptions.~~

~~The fair value of the Company’s stock options granted to employees, officers and non-employee board members was estimated using the following weighted average assumptions:~~

Three months ended Six months ended
June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Dividend yield None None None None
Expected volatility 53.9% 59.8% 53.9% - 56.0% 56.0% - 59.8%
Risk-free interest rate 1.7% - 1.9% 0.8% - 1.6% 1.7% - 2.0% 0.8% - 1.6%
Expected term (years) 5.3 - 6.1 5.3 - 6.1 5.3 - 6.3 5.3 - 6.1
Estimated annual forfeiture rate 6.0% 6.0% 6.0% 6.0%
Weighted average fair value at grant date $9.63 $8.64 $9.35 $7.92

~~Employee Stock Purchase Plan Shares.~~

~~The fair value of the Company’s ESPP shares issued to employees was estimated using the following weighted average assumptions:~~



	~~Three months ended~~
	~~June 30, 2014~~
~~Dividend yield~~	~~None~~
~~Expected volatility~~	~~45.5%~~
~~Risk-free interest rate~~	~~0.1%~~
~~Expected term (years)~~	~~0.6~~
~~Weighted average fair value at purchase date~~	~~$7.04~~

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

6. ~~Income tax (benefit) expense~~

Three months ended Six months ended
June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Income tax (benefit) expense 1,639
(2,568 ) 5,521
7,459
Effective tax rate (9.0 )% 33.6 % (168.8 )% 29.4 %

Income tax expense for the three months ended June 30, 2014 was $1.6 million compared to a tax benefit of $2.6 million for the three months ended June 30, 2013. The tax expense for the three months ended June 30, 2014 was higher than for the three months ended June 30, 2013 primarily due to the impact of losses which could not be benefited in 2014 and foreign withholding taxes.

~~Income tax expense for the six months ended June 30, 2014 was~~ ~~$5.5 million~~ ~~compared to~~ ~~$7.5 million~~ ~~for the six months ended June 30, 2013. The tax expense for the six months ended June 30, 2014 was lower than for the six months ended June 30, 2013 primarily due to lower U.S. pre-tax income.~~

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

7. Net income ~~(loss)~~ per share attributable to common stockholders

Basic and diluted net income ~~(loss)~~ per common share is presented in conformity with the two-class method required for participating securities. InThe Company considers shares issued upon the early exercise of options subject to repurchase and non-vested restricted shares to be participating securities, because holders of such shares have a non-forfeitable right to dividends. Additionally, prior to the date of the Company's initial public offering (IPO) in June 2014, the Company ~~filed a Restated Certificate~~considered its redeemable convertible preferred stock to be participating securities due to their non-cumulative dividend rights. Immediately after the completion of ~~Incorporation which established two classes~~the Company's IPO, all outstanding shares of ~~authorized common stock: Class A common~~redeemable convertible preferred stock ~~and~~converted to Class B common stock. ~~As a result, all outstanding shares of common stock were converted into shares of Class B common stock.~~

The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock and has no expiration date. The Class B common stock is also convertible into Class A common stock on the same basis upon any transfer, whether or not for value, except for “Permitted Transfers” as defined in the Company’s Restated Certificate of Incorporation. Each share of Class B common stock will convert automatically into one share of Class A common stock upon the date when the outstanding shares of Class B common stock represent less than 10% of the aggregate number of shares of common stock then outstanding. Class A common stock is not convertible into Class B common stock.

Basic net income ~~(loss)~~ per share attributable to common stockholders is computed by dividing the net income

attributable to common stockholders by the weighted-average number of common shares outstanding during the period. All participating securities are excluded from basic weighted average common shares outstanding. Diluted net income ~~(loss)~~ per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding, including all potentially dilutive common ~~shares, if the effect of each class of potential shares of common stock is dilutive.~~shares.

~~The undistributed~~Undistributed earnings are allocated based on the contractual participation rights of ~~the Class A and Class B~~ common shares as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. ~~Further, as the conversion of Class B common stock is assumed in the~~The computation of the diluted net income per share of Class A common stock assumes the ~~undistributed earnings are equal to net income for that computation. As~~conversion of ~~June 30, 2014, there were no~~ Class ~~A shares issued and outstanding.~~B common stock.

1910

GoPro, Inc.

Notes to condensed consolidated financial statements

(unaudited)

The following table presents the calculations of basic and diluted net income ~~(loss)~~ per share attributable to ~~Class B~~ common stockholders:

Three months ended Six months ended
(in thousands, except per share amounts) 2014 2013 2014 2013
Numerator:
Net income (loss) $ (19,841 ) $ (5,085 ) $ (8,792 ) $ 17,950
Less: undistributed earnings allocable to:
holders of preferred stock —
—
—
(4,904)
holders of unvested early exercised options and restricted stock —
—
—
(60 )
Undistributed net income (loss) attributable to common stockholders—basic $ (19,841 ) $ (5,085 ) $ (8,792 ) $ 12,986
Add: adjustments to net income (loss) for dilutive securities allocable to:
holders of preferred stock —
—
—
672
holders of unvested early exercised options and restricted stock —
—
—
8
Undistributed net income (loss) attributable to common stockholders—diluted $ (19,841 ) $ (5,085 ) $ (8,792 ) $ 13,666

Denominator:
Weighted-average common shares—basic 82,936
80,902
82,263
80,836

Effect of potentially dilutive securities:
Stock options and RSUs —
—
—
17,741
Weighted-average common shares—diluted 82,936
80,902
82,263
98,577

Net income per share attributable to common stockholders:
Distributed earnings—basic $ —
$ —
$ —
$ —
Undistributed earnings (loss)—basic (0.24 ) (0.06 ) (0.11 ) 0.16
Basic net income (loss) per share $ (0.24 ) $ (0.06 ) $ (0.11 ) $ 0.16
Distributed earnings—diluted $ —
$ —
$ —
$ —
Undistributed earnings (loss)—diluted (0.24 ) (0.06 ) (0.11 ) 0.14
Diluted net income (loss) per share $ (0.24 ) $ (0.06 ) $ (0.11 ) $ 0.14



	Three months ended
(dollars in thousands, except per share data)	March 31, 2015				March 31, 2014
	Class A		Class B		Common
Numerator:
Allocation of net income	$	8,926	$	7,826	$	11,049
Less: net income allocable to participating securities	—		—		(3,040		)
Net income attributable to common stockholders—basic	$	8,926	$	7,826	$	8,009
Add: net income allocable to dilutive participating securities	—		—		443
Reallocation of net income as a result of conversion of Class B to Class A shares	7,826		—		—
Reallocation of net income to Class B shares	—		968		—
Net income attributable to common stockholders—diluted	$	16,752	$	8,794	$	8,452

Denominator:
Weighted-average common shares—basic	70,483		61,795		81,582
Conversion of Class B to Class A common stock outstanding	61,795		—		—
Effect of potentially dilutive stock options, ESPP shares, and RSUs	16,295		16,202		19,201
Weighted-average common shares—diluted	148,573		77,997		100,783

Net income per share attributable to common stockholders:
Basic	$	0.13	$	0.13	$	0.10
Diluted	$	0.11	$	0.11	$	0.08

The following potentially dilutive shares of ~~common stock subject to options, RSUs, unvested stock awards and redeemable convertible preferred stock~~ were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive:


	Three months ended		Six months ended		Three months ended
(in thousands)	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013	March 31, 2015	March 31, 2014
Series A redeemable convertible preferred stock	30,523	30,523	30,523	30,523	—	30,523
Stock options and RSUs	29,502	25,296	28,550	762
Stock options, ESPP shares, and RSUs					1,984	3,634
Unvested stock awards and stock options	370	347	411	378	5	451
	60,395	56,166	59,484	31,663	1,989	34,608

7. Income tax expense

The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter.

2011

GoPro, Inc.

Notes to condensed consolidated financial statements

(unaudited)

~~8. Financing Arrangements~~

~~Credit facility~~

On December 21, 2012, the Company entered into a $170.0 million syndicated senior secured credit facility consisting of a $120.0 million three-year term loan facility and a $50.0 million four-year revolving credit facility. The Company received net proceeds of $127.6 million, net of $2.4 million of debt issuance and lender costs. The debt issuance and lender costs were allocated between the term loan facility and the revolving credit facility based on the maximum lending commitment amounts. The debt issuance costs allocated to the term loan facility are reported as deferred charges and the lender costs allocated to the term loan facility are included in the carrying value of the term loan as debt discount. The deferred issuance and lender costs allocated to the term loan facility are being amortized to interest expense over the contractual term of the term loan facility using the effective interest method. Costs allocated to the revolving credit facility are deferred and amortized using the straight-line method over the four-year contractual term of the revolving credit facility. Borrowings under the credit facility are collateralized by substantially all of the assets of the Company.



	Three months ended
(dollars in thousands)	March 31, 2015			March 31, 2014
Income tax expense	$	3,272		$	3,882
Effective tax rate	16.3		%	26.0		%

The ~~term loan facility has scheduled quarterly principal repayments due on the last day of each quarter of $1.5~~Company’s income tax expense was $3.3 million ~~per quarter in 2013, $3.0 million per quarter in 2014~~ and ~~$6.0~~$3.9 million for the ~~first~~ three ~~quarters~~months ended March 31, 2015 and 2014, respectively. The Company’s provision for income taxes in each period has differed from the tax computed at the U.S. federal statutory income tax rate due to state taxes, the effect of non-U.S. operations, deductible and non-deductible stock-based compensation expense, non-deductible acquisition-related costs and adjustments to unrecognized tax benefits. The lower income tax expense for the three months ended March 31, 2015, ~~with~~compared to the ~~balance~~same period in 2014, was primarily due to the effects of ~~$84.0 million~~higher deductible stock-based compensation.

The Company is currently under examination by the U.S. Internal Revenue Service for tax years 2012 and 2013. The U.S. federal and U.S. state taxing authorities may choose to audit tax returns for tax years beyond the statute of limitation period due to significant tax attribute carryforwards from prior years, making adjustments only to carryforward attributes. The Company is also currently under examination by the California Franchise Tax Board for tax years 2011 and 2012. At this time, the Company is not able to estimate the potential impact that these examinations may have on ~~December 21, 2015. The interest rate is based~~income tax expense. If the examinations are resolved unfavorably, they may have a material negative impact on the ~~6-month adjusted LIBOR (London Interbank Offered Rate) plus 2.5%. The initial contractual interest rate is 3.06%~~Company's results of operations.

At March 31, 2015 and will adjust every six months. The inception date effective interest rate was 3.71%. The Company may prepay the term loan at any time, without penalty. Mandatory additional principal prepayments may be required based on excess cash flows of the Company. The Company’s excess cash flows, as defined in the credit facility, for 2013 triggered a contractual principal prepayment obligation of $48.5 million, which amount has been classified as a current liability as of December 31, ~~2013 and June 30, 2014. In April~~ 2014, the ~~Company amended the credit facility agreement for its term loan to extend the due date for this contractual principal prepayment from April 2014 to December 2014.~~

AsCompany’s total amount of ~~December 31, 2013 and June 30, 2014, $114.0~~gross unrecognized tax benefits was $16.9 million and ~~$108.0~~$16.6 million, respectively. If recognized, $16.9 million of the ~~term loan were outstanding, respectively. The remaining unamortized discount was $0.4 million~~unrecognized tax benefits (net of federal benefit) at March 31, 2015 would be recorded as a reduction of the income tax provision in future periods. Management believes events that could occur in the next 12 months and ~~$0.3 million as~~cause a material change in unrecognized tax benefits include, but are not limited to, the completion of ~~December 31, 2013~~examinations by the U.S. or foreign taxing authorities, and ~~June 30, 2014, respectively. The effective interest rate~~the expiration of statute of limitations on the ~~term loan was 3.79%~~Company's tax returns. The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. Management regularly assesses the Company's tax positions in light of legislative, bilateral tax treaty, regulatory and ~~4.03% on December 31, 2013 and June 30, 2014, respectively. Concurrent with~~judicial developments in the ~~close~~countries in which it does business. It is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within the next 12 months. However, the range of the ~~IPO on July 1, 2014, the Company repaid, in full, the term loan outstanding of $108.0 million.~~

~~The revolving credit facility, which remains in place, matures on December 21, 2016. Principal can~~reasonably possible change cannot be paid and re-borrowed during the term of the revolving credit facility. The interest rate is based on the 3-month adjusted LIBOR plus 2.5%. The initial interest rate was 2.81% and will adjust quarterly for any balance outstanding. Mandatory additional principal repayments may be required based on excess cash flows of the Company once the term loan facility has been fully repaid. As of December 31, 2013 and June 30, 2014, zero of the revolving credit facility was drawn down. As of December 31, 2013, $20.0 million of the revolving credit facility was committed to a standby letter of credit. In April 2014, the $20.0 million standby letter of credit was terminated.

The credit agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. The credit agreement contains an acceleration clause for certain events related to the Company’s financial creditworthiness, including a financial covenant that requires the Company to maintain specific consolidated ratios. As of December 31, 2013 and June 30, 2014, the Company was in compliance with all covenants.reliably estimated.

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

9.8. Related parties

~~Beginning in fiscal year 2013, the~~The Company ~~entered into~~has agreements for certain contract manufacturing and engineering services with a ~~company~~vendor affiliated with one of ~~its~~the Company's investors. In the three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and 2014, the Company made payments of ~~$3.0~~$0.5 million and ~~$11.4~~$8.4 million, respectively, for services rendered. As

The Company incurs costs for company-related chartered aircraft fees for the use of ~~December~~the CEO’s private plane. In the three months ended March 31, ~~2013~~2015 and ~~June 30,~~ 2014, the Company ~~had accounts payable associated with this vendor~~made payments of ~~$3.9~~$0.4 million and ~~$0.1 million,~~zero, respectively.

In ~~the second quarter of fiscal year~~ 2013, the Company ~~settled an outstanding legal matter~~entered into a three-year agreement with a company affiliated with the son of one of the ~~CEO’s family~~ members of the Company's Board of Directors to acquire certain naming rights to a sprint kart race track. As consideration for ~~$0.2~~these naming rights, the Company would pay a total of $0.5 million in installments beginning in October 2013 over the naming rights period. In addition, the Company would also provide 100 GoPro capture devices at no cost each year over the term of the agreement. As of March 31, 2015, the Company has made cumulative payments related to this agreement of $0.3 million.

In the second quarter of ~~fiscal year~~ 2013, the Company loaned one of its executive officers $150,000 pursuant to a demand payment loan that did not bear interest, which was fully repaid in March 2014.

In the third quarter of fiscal year 2013, the Company entered into an agreement with a company affiliated with the son of one of the members of the Board to acquire certain naming rights to a sprint kart race track. As consideration for these naming rights, the Company will pay a total of $0.5 million in installments beginning in October 2013 over the naming rights period. In addition to the fee, the Company will also provide the company with 100 GoPro capture devices at no cost each year during the term of the agreement, which is three years. As of June 30, 2014, the Company has paid ~~$0.2 million~~ ~~related to this agreement.~~

In fiscal year 2013 and the first six months of fiscal year 2014, the Company incurred and expensed company related chartered aircraft fees for the use of the CEO’s private plane, for which $0.3 million was accrued as of June 30, 2014.

In May 2014, the Company amended the outstanding stock options granted to the former Chief Financial Officer to facilitate the net exercise of those options and subsequently repurchased 41,154 shares of common stock from the former Chief Financial Officer’s estate at a purchase price of $18.40 per share.

On June 3, 2014, the Company granted to the newly hired President of the Company an option to purchase 2,227,106 shares of common stock. In addition, the Company issued the President 248,749 RSUs and the CEO 4,500,000 RSUs. Of the 4,500,000 RSUs issued to the CEO, 1,500,000 RSUs vested immediately, 1,500,000 RSUs vest over a three-year period with the attainment of a milestone stock price for 30 consecutive days, and 1,500,000 RSUs vest over a 3-year period with the attainment of a second milestone stock price for 30 consecutive days.

~~In June 2014, the CEO purchased seven automobiles from the Company for a total purchase price of $0.3 million.~~

~~Other related party transactions involving the Company’s CEO are discussed in Note 5, “Common stock and stock-based compensation.”~~

2212

GoPro, Inc.

Notes to condensed consolidated financial statements

(unaudited)

~~10.~~9. Commitments, contingencies and guarantees

The following table summarizes the Company’s contractual commitments as of ~~June 30, 2014:~~March 31, 2015:

(in thousands) Total
1 year (remaining 6 months fiscal 2014)
2-3 years (fiscal 2015 and 2016)
4-5 years (fiscal 2017 and 2018)
More than 5 years (beyond fiscal 2018)
Term loan principal and interest(1) $ 112,340
$ 57,419
$ 54,921
$ —
$ —
Operating leases(2) 29,459
4,332
13,829
10,705
593
Sponsorship commitments(3) 17,851
4,929
12,621
301
—
Other contractual commitments(4) 3,937
232
3,705
—
—
Capital equipment purchase commitments(5) 12,242
12,242
—
—
—
Total contractual cash obligations $ 175,829
$ 79,154
$ 85,076
$ 11,006
$ 593



(in thousands)	Total		1 year (remaining 9 months in 2015)		2-3 years (2016 and 2017)		4-5 years (2018 and 2019)		More than 5 years (beyond 2019)
Operating leases⁽¹⁾	$	44,004	$	7,870	$	21,927	$	14,207	$	—
Sponsorship commitments⁽²⁾	11,314		4,912		6,402		—		—
Other contractual commitments⁽³⁾	7,697		2,673		5,024		—		—
Capital equipment purchase commitments⁽⁴⁾	16,107		16,107		—		—		—
Total contractual cash obligations	$	79,122	$	31,562	$	33,353	$	14,207	$	—


(1)	~~See Note 8, “Financing arrangements.” Interest payments were calculated using the applicable rate as of June 30, 2014.~~


~~(2)~~	The Company leases its facilities under long-term operating leases, which expire at various dates through ~~May~~ 2019. The lease agreements frequently include leasehold improvement incentives, escalating lease payments, renewal provisions and other provisions which require the Company to pay taxes, insurance, maintenance costs or defined rent increases.


~~(3)~~(2)	The Company sponsors sporting events, resorts and athletes as part of its marketing efforts. In many cases, the Company enters into multi-year agreements with event organizers, resorts and athletes.


~~(4)~~(3)	The Company purchases software licenses and engages outside consultants to assist with upgrading or implementing its financial and IT systems, which require payments over multiple years.


~~(5)~~(4)	The Company enters into contracts to acquire equipment for tooling and molds as part of its manufacturing operations. In addition, the Company incurs purchase commitments related to the manufacturing of its ~~POP~~point-of-purchase (POP) displays by third parties.

Rent expense was ~~$0.9~~$2.4 million and ~~$1.9~~$1.3 million for the three months ended ~~June 30, 2013~~March 31, 2015 and ~~June 30, 2014, respectively, and $1.6 millionand $3.2 million for the six months ended June 30, 2013 and June 30,~~ 2014, respectively.

Legal proceedings

From time to time, the Company is involved in legal proceedings in the ordinary course of business. The Company believes that the outcome of any existing litigation, either individually or in the aggregate, will not have a material impact on the results of operations, financial condition or cash flows of the Company.

Indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. ~~To date,~~As of March 31, 2015, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

Product warranty

The following table summarizes the warranty liability activity:



	Three months ended
(in thousands)	March 31, 2015			March 31, 2014
Beginning balances	$	6,405		$	3,870
Charged to cost of revenue	6,044			271
Settlements of warranty claims	(3,480		)	(1,590		)
Ending balances	$	8,969		$	2,551

At March 31, 2015, $8.5 million of the warranty liability was recorded as an element of accrued liabilities and $0.4 million was recorded as an element of other long-term liabilities.

2313

GoPro, Inc.

Notes to condensed consolidated financial statements

(unaudited)

~~Product warranty~~

As of December 31, 2013, $3.7 million of the Company's warranty liability was recorded as an element of accrued liabilities and $0.2 million was recorded as an element of other long-term liabilities. As of June 30, 2014, $4.5 million of the warranty liability was recorded as an element of accrued liabilities and $0.2 million was recorded as an element of other long-term liabilities.

~~The following table summarizes the warranty liability activity:~~

Three months ended Six months ended
(in thousands) June 30,
2014 June 30,
2013 June 30,
2014 June 30,
2013
Beginning balances $ 2,551
$ 2,695
$ 3,870
$ 1,937
Charged to cost of revenue 3,928
1,291
4,200
3,119
Settlements of warranty claims (1,801 ) (1,169 ) (3,392 ) (2,239 )
Ending balances $ 4,678
$ 2,817
$ 4,678
$ 2,817

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

~~11. Employee retirement plan~~

The Company has established a 401(k) tax-deferred savings plan (401(k) Plan), which permits participants to make contributions by salary deduction pursuant to Section 401(k) of the Internal Revenue Code. In March 2014, the Company modified its 401(k) Plan to allow the Company to make a matching contribution up to 4% of the employees' 401(k) eligible compensation, which was made retroactive to January 1, 2014.

~~12.~~10. Concentrations of risk and segment information

Segment information

The Company operates as one operating segment as it only reports financial information on an aggregate and consolidated basis to its CEO, who is the Company’s chief operating decision maker.

Customer concentration

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

~~Customers with~~The Company had the following customers who represented 10% or more of its net accounts receivable ~~equal to or greater than 10% of total accounts receivable as of December 31, 2013 and June 30, 2014 were as follows:~~balance:

June 30,
2014 December 31,
2013
Customer A 20% 21%
Customer B 12% 14%
Customer C * 11%



	March 31, 2015	December 31, 2014
A (retailer)	16%	17%
B (distributor)	26%	14%
C (retailer)	10%	11%
D (retailer)	12%	*
E (distributor)	11%	*

* Less than 10% of total accounts receivable for the period indicated

In the three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and 2014, ~~respectively,~~ the Company sold accounts receivables, without recourse, of ~~$37.9~~$35.3 million and ~~$69.2~~$31.3 million, respectively, ~~from a retail customer~~ to a third-party banking institution. Factoring fees of $0.3 million ~~and $0.6 million in the three and six months ended June 30, 2014, respectively, related to the sale~~for each of ~~trade accounts receivable~~these periods were included in ~~interest expense.~~other expense, net.

Customers with revenue equal to or greater than 10% of total revenue ~~for the three and six months ended June 30, 2013 and June 30, 2014~~ were as follows:

Three months ended Six months ended
June 30,
2014 June 30,
2013 June 30,
2014 June 30,
2013
Customer A 17% 15% 15% 14%
Customer B * 10% * *



	Three months ended
	March 31, 2015	March 31, 2014
A (retailer)	12%	13%
B (distributor)	*	10%


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

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

Supplier concentration

The Company relies on third parties for the supply and manufacture of its capture ~~devices.~~devices, some of which are sole-source suppliers. The Company believes that outsourcing manufacturing enables greater scale and flexibility. As demand and product lines change, the Company periodically evaluates the need and advisability of adding manufacturers to support its operations. In instances where a supply and manufacture agreement does not exist or suppliers fail to perform their obligations, the Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all.

The Company also relies on third parties with whom it outsources supply chain activities related to inventory warehousing, order fulfillment, distribution and other direct sales logistics. The Company cannot be sure that these parties will perform their obligations as expected or that any cost savings, or other benefits will be derived from the efforts of these parties. If any of these parties breaches or terminates their agreement with the Company or otherwise fails to perform their obligations in a timely manner, the Company’s financial results may be adversely affected.logistics.

Geographic and other information

GoPro, Inc.

Notes to condensed consolidated financial statements

(unaudited)

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


	Three months ended				Six months ended				Three months ended
(in thousands)	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		March 31, 2015		March 31, 2014
Americas	$	152,710	$	102,017	$	277,876	$	235,491	$	180,093	$	125,166
Europe, Middle East and Africa	62,832		58,925		142,939		146,708
Asia and Pacific area countries	29,063		16,140		59,506		49,940
Europe, Middle East and Africa (EMEA)									139,079		84,174
Asia and Pacific area countries (APAC)									43,937		26,376
	$	244,605	$	177,082	$	480,321	$	432,139	$	363,109	$	235,716

Revenue in the United States, which is included in the Americas geographic region, was ~~$92.1~~$155.3 million and ~~$132.7~~$110.7 million for the three months ended ~~June 30, 2013~~March 31, 2015 and ~~June 30,~~ 2014, ~~respectively, and $207.6~~respectively. During the three months ended December 31, 2014, the Company reclassified four countries it had previously included in the APAC geographical region to now be included in the EMEA geographical region. This caused $4.1 million ~~and $243.3 million~~of revenue to be reclassified from the APAC region to the EMEA region for the ~~six~~three months ended ~~June 30, 2013 and June 30, 2014, respectively.~~

~~As of December~~March 31, ~~2013 and June 30, 2014, long-lived assets, which represent property and equipment, located outside the United States, primarily China, were $6.0 million and $10.8 million, respectively.~~

2014. The Company does not disclose revenue by product category as it does not track sales incentives and other revenue adjustments by product category to report such data.

~~GoPro, Inc.~~

~~Notes to condensed consolidated financial statements~~

~~(unaudited)~~

~~13. Subsequent events~~

~~On July 1,~~As of March 31, 2015 and December 31, 2014, ~~subsequent to~~long-lived assets, which represent gross property and equipment, located outside the close of the Company’s second quarter ended June 30, 2014, the Company completed its IPO of 17,800,000 shares of Class A common stock, at $24.00 per share, before underwriting discounts and commissions. The Company sold 8,900,000 shares and existing stockholders sold an aggregate of 11,570,000 shares, including 2,670,000 shares as a result of the underwriters’ exercise of their option to purchase additional shares. The IPO generated net proceeds to the Company of approximately $200.8 million, after deducting underwriting discounts and commissions. Offering costs incurred by the CompanyUnited States, primarily China, were ~~approximately $6.2~~$28.8 million and ~~will be recorded against the proceeds received from the sale of the common stock. The Company did not receive any proceeds from the sale of shares by the selling stockholders.~~

The outstanding shares of convertible preferred stock converted into shares of the Company’s Class B common stock concurrent with the close of the IPO on July 1, 2014. Following the IPO, there were no shares of the Company’s convertible preferred stock outstanding.

~~Concurrent with the close of the IPO, the Company paid off, in full, the term loan balance outstanding of $108.0 million.~~$25.4 million, respectively.

2715

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statements in this report, which are not historical facts, are forward-looking statements within the meaning of the federal securities laws. These statements may contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” or other wording indicating future results or expectations. Forward looking statements include statements of our expectations regarding revenue, factors affecting performance, gross margin, operating expense items and liquidity and capital resources.Forward-looking statements are subject to significant risks and uncertainties. Our actual results may differ materially from the results discussed in these forward-looking statements. Factors that could cause our actual results to differ materially include, but are not limited to, those referenced in “Risk Factors” in Part II, Item 1A, and elsewhere in this report. Our business, financial condition or results of operations could be materially harmed by any of these or other factors. We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that arises after the date of this report. References in this report to “GoPro,” “we,” “us,” “our” and the “Company” refer to GoPro, Inc., a Delaware corporation, and its subsidiaries.

Overview

GoPro is transforming the way consumers capture, manage, share and enjoy meaningful life experiences. We do this by enabling people to capture compelling, immersive photo and video content of themselves participating in their favorite activities.

The volume and quality of their shared GoPro content, coupled with their enthusiasm for our brand, are virally driving awareness and demand for our products. We were founded in 2004 to address the limitations of traditional cameras. In 2004, we shipped our first product, a wrist-mounted, waterproof, film-based capture device, and in 2006 we shipped our first digital capture device, the Digital HERO. We introduced our first HD capture device in 2009, the HD HERO, and we introduced our current HERO3+ family ofsell capture devices ~~in late 2013. We~~and also ~~sell~~ mountable and wearable accessories that enable professional quality capture at affordable ~~prices.~~

Weprices, and to date these products have ~~continued to~~generated substantially all of our revenue. In addition, we enhance our product offering by providing software solutions that address the pain points of managing, editing and sharing content. GoPro Studio enables ~~our customers~~consumers to easily edit and share simple or complex videos. The GoPro App enables ~~customers~~consumers to easily and wirelessly manage and share content from our ~~HERO~~ capture devices.

Since we launched our first HD camera in 2009, we have experienced rapid growth. In the three months ended June 30, 2013 and June 30, 2014, we generated revenue of $177.1 million and $244.6 million, respectively, and in the six months ended June 30, 2013 and June 30, 2014, we generated revenue of $432.1 million and $480.3 million, respectively. In the three months ended June 30, 2013 and June 30, 2014, we reported net income (loss) of $(5.1) million and $(19.8) million, respectively, and in the six months ended June 30, 2013 and June 30, 2014, we reported net income (loss) of $18.0 million and $(8.8) million, respectively. Substantially all of our revenue has been generated from the sale of cameras and accessories.

~~Our sales strategy initially targeted independent specialty retailers focused on action sports markets, which we believe helped to establish the authenticity of our brand.~~ We ~~now~~ sell our products both directly and through distribution. Our direct channel includes big box, mid-market and independent specialty retailers, as well as our website. We use our distribution channel to sell both domestically and internationally and into certain specialty markets.

In the first quarter of 2015, we achieved significant growth as compared to the same period in 2014, generating revenue of $363.1 million, an increase of 54%, and generating net income of $16.8 million, an increase of 52%. Our growth was enabled by both our introduction of our current HERO4 family and HERO capture devices in September 2014 and the overall expanding market acceptance of our products.

As of ~~June 30, 2014,~~March 31, 2015, our products were sold to customers in more than 100 countries and through more than 25,000 retail outlets. Sales outside of the United States represented ~~48%~~57% and ~~46%~~53% of our revenue for the ~~three months ended June 30, 2013~~first quarter of 2015 and ~~June 30, 2014, respectively, and 52% and 49% of our revenue for the six months ended June 30, 2013 and June 30,~~ 2014, respectively.

We believe consumer demand for compelling content, combined with our self-capture technology and the popularity of social media, create a significant media opportunity for GoPro. GoPro programming, a combination of GoPro originally produced content and “best of” user-generated content, or UGC, has developed a growing audience. To scale this, we have built a team of production professionals who regularly produce content based on inspiring stories from around the world, captured exclusively with our capture devices. In addition, we actively curate and redistribute, with permission, UGC as GoPro-branded content through the GoPro Network, which includes the GoPro Channels on Facebook, Instagram, Twitter, Virgin America, Xbox 360 and YouTube.

We face potential challenges that could limit our ability to take advantage of these opportunities, including the risk that we may not be able to continue to develop and introduce new products and attract new customers. We do not expect to sustain or increase our revenue growth rates. In addition, we rely on a small number of retailer and distributor customers for a significant portion of our revenue. One retailer accounted for 15% and 17% of our revenue for the three months ended June 30, 2013 and June 30, 2014, respectively, and 14% and 15% of our revenue for the six months ended June 30, 2013 and June 30, 2014, respectively.

We rely on contract manufacturers for the production of our cameras and accessories. All of the components that go into the manufacture of our cameras and accessories are sourced from third-party suppliers, and some of these suppliers are the sole source for important components. We utilize third-party logistics providers for product fulfillment.

Key business metrics

In addition to the measures presented in our condensed consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.


	Three months ended				Six months ended				Three months ended
(in thousands)	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		March 31, 2015		March 31, 2014
Key business metrics:
Units shipped	854		653		1,706		1,607		1,342		852
Adjusted EBITDA	$	25,724	$	2,341	$	54,351	$	43,264	$	56,507	$	28,627
Non-GAAP net income									$	35,619	$	14,282

Units shipped. Units shipped ~~represent~~represents the number of individual packaged camera units that are shipped during a reporting period, net of any returns. ~~Packaged camera units include a waterproof housing, a battery, selected mounts and other accessories which vary by model.~~ We monitor units shipped on a daily basis as it is a key indicator of revenue trends for a reporting period. We use units shipped to help optimize our fulfillment operations and shipment allocations in order to better maintain operating efficiencies and improve customer satisfaction.

Adjusted EBITDA. Adjusted EBITDA ~~is a non-GAAP financial measure that we calculate as~~represents net income ~~(loss),~~ adjusted ~~after excluding~~to exclude the impact of: provision ~~(benefit)~~ for income taxes, interest income, interest expense, depreciation and amortization, ~~POP~~point-of-purchase (POP) display amortization, and stock-based compensation.

Non-GAAP net income. Non-GAAP net income represents GAAP net income adjusted to exclude stock-based compensation, acquisition-related charges, and taxes related to the tax effect of these adjustments.

We use ~~adjusted~~the non-GAAP financial measures of Adjusted EBITDA ~~as a key measure~~and non-GAAP net income to help us understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short- and long-term operational plans. ~~Accordingly, we~~We believe that ~~adjusted~~Adjusted EBITDA ~~provides~~and non-GAAP net income provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. Adjusted EBITDA is not prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. You should consider ~~adjusted~~Adjusted EBITDA and non-GAAP net income alongside other financial performance measures, including our financial results presented in accordance with GAAP.

The following table presents a reconciliation of net income to adjusted EBITDA:


	Three months ended						Six months ended					Three months ended
(in thousands)	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013		March 31, 2015		March 31, 2014
Net income (loss)	$	(19,841	)	$	(5,085	)	$	(8,792	)	$	17,950
Income tax (benefit) expense	1,639			(2,568		)	5,521			7,459
Interest (income) and expense, net	1,390			1,369			2,725			2,701
Net income												$	16,752	$	11,049
Income tax expense												3,272		3,882
Interest expense, net												65		1,335
Depreciation and amortization	4,177			3,207			7,988			5,416		5,369		3,811
POP display amortization	4,166			2,886			8,679			5,111		4,548		4,513
Stock-based compensation	34,193			2,532			38,230			4,627		26,501		4,037
Adjusted EBITDA	$	25,724		$	2,341		$	54,351		$	43,264	$	56,507	$	28,627

The following table presents a reconciliation of net income to non-GAAP net income:



	Three months ended
(in thousands)	March 31, 2015			March 31, 2014
Net income	$	16,752		$	11,049
Stock-based compensation	26,501			4,037
Amortization of acquisition-related intangible assets	342			284
Income tax adjustments	(7,976		)	(1,088		)
Non-GAAP net income	$	35,619		$	14,282

2917

Factors affecting performance

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

Investing in research and development. We believe that our performance is significantly dependent on the investments we make in research and development and that we must continually develop and introduce innovative new products, enhance existing products and effectively stimulate customer demand for existing and future products. If we fail to innovate and enhance our product offerings, our brand, market position and revenue may be adversely affected. Further, if our research and development efforts are not successful, we will not recover the investments that we make in this aspect of our business.

Investing in sales and marketing. We intend to continue to invest significant resources in our marketing, advertising and brand management efforts. Sales and marketing investments will often occur in advance of any sales benefits from these activities, and it may be difficult for us to determine if we are efficiently allocating our resources in this area.

Leveraging software, services and media content. We expect to increase our investment in the development of software and services as well as the GoPro Network and its related content. We believe we have significant opportunities to establish new revenue streams from these investments. However, we do not have significant experience deriving revenue from the distribution of GoPro content, and we cannot be assured that these investments will result in increased revenue or profitability.

Expanding into new vertical markets and growing internationally. Our long-term growth will depend in part on our continued ability to expand our customer base and increase revenue and our presence in international markets. We intend to expand into new vertical markets and to increase our presence globally through the active promotion of our brand, the formation of strategic partnerships, the introduction of new products and the growth of our international sales channel.

Seasonality. Historically, we have experienced the highest levels of revenue in the fourth quarter of the year, coinciding with the holiday shopping season in the United States and Europe. We have historically introduced our newest generation of product offerings just prior to this peak holiday shopping season further contributing to the significant seasonality of our sales. Timely and effective product introductions and forecasting, whether just prior to the holiday season or otherwise, are critical to our operations and financial performance.

Results of Operations

The following table sets forth the components of our condensed consolidated statements of operations for each of the periods presented:


	Three months ended						Six months ended
Consolidated statements of operations data:													Three months ended
(in thousands)	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013			March 31, 2015			March 31, 2014
Revenue	$	244,605		$	177,082		$	480,321		$	432,139		$	363,109		$	235,716
Cost of revenue(1)	141,736			120,242			280,938			285,870
Cost of revenue⁽¹⁾													199,376			139,202
Gross profit	102,869			56,840			199,383			146,269			163,733			96,514

Operating expenses:
Research and development(1)	34,663			16,687			63,402			28,699
Sales and marketing(1)	43,701			39,065			85,042			74,738
General and administrative(1)	41,171			7,044			51,049			14,032
Research and development⁽¹⁾													49,437			28,739
Sales and marketing⁽¹⁾													56,369			41,341
General and administrative⁽¹⁾													35,659			9,878
Total operating expenses	119,535			62,796			199,493			117,469			141,465			79,958
Operating income (loss)	(16,666		)	(5,956		)	(110		)	28,800
Other income (expense), net	(1,536		)	(1,697		)	(3,161		)	(3,391		)
Income (loss) before income taxes	(18,202		)	(7,653		)	(3,271		)	25,409
Income tax (benefit) expense	1,639			(2,568		)	5,521			7,459
Net income (loss)	$	(19,841	)	$	(5,085	)	$	(8,792	)	$	17,950
Operating income													22,268			16,556
Other expense, net													(2,244		)	(1,625		)
Income before income taxes													20,024			14,931
Income tax expense													3,272			3,882
Net income													$	16,752		$	11,049

(1) Includes stock-based compensation expense as follows:
Cost of revenue	$	154		$	157		$	322		$	377		$	283		$	168
Research and development	1,657			556			3,058			997			3,535			1,401
Sales and marketing	1,654			1,454			3,068			2,658			3,066			1,414
General and administrative	30,728			365			31,782			595			19,617			1,054
Total stock-based compensation expense	$	34,193		$	2,532		$	38,230		$	4,627		$	26,501		$	4,037

3019

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


	Three months ended		Six months ended		Three months ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013	March 31, 2015		March 31, 2014
Revenue	100%	100%	100%	100%	100	%	100	%
Cost of revenue	58%	68%	58%	66%	55		59
Gross profit	42%	32%	42%	34%	45		41

Operating expenses:
Research and development	14%	9%	13%	7%	14		12
Sales and marketing	18%	22%	18%	17%	15		17
General and administrative	17%	4%	11%	3%	10		4
Total operating expenses	49%	35%	42%	27%	39		33
Operating income (loss)	(7)%	(3)%	0%	7%
Other income (expense), net	—%	(1)%	(1)%	(1)%
Income (loss) before income taxes	(7)%	(4)%	(1)%	6%
Income tax (benefit) expense	1%	(1)%	1%	2%
Net income (loss)	(8)%	(3)%	(2)%	4%
Operating income					6		8
Other expense, net					—		(1	)
Income before income taxes					6		7
Income tax expense					1		2
Net income					5	%	5	%

Revenue


	Three months ended								Six months ended								Three months ended
(dollars in millions)	June 30, 2014		June 30, 2013		$ Change		Percent Change		June 30, 2014		June 30, 2013		$ Change		Percent Change
(dollars in thousands)																	March 31, 2015		March 31, 2014		$ Change		Percent Change
Revenue	$	244.6	$	177.1	$	67.5	38	%	$	480.3	$	432.1	$	48.2	11	%	$	363,109	$	235,716	$	127,393	54	%

Americas																	$	180,093	$	125,166	$	54,927	44	%
EMEA																	139,079		84,174		54,905		65
APAC																	43,937		26,376		17,561		67
Total revenue																	$	363,109	$	235,716	$	127,393	54	%

Revenue for the ~~three months ended June 30,~~first quarter of 2015 increased $127.4 million, or 54%, compared to the same period in 2014, ~~increased 38% to $244.6 million from $177.1 million for the three months ended June 30, 2013,~~ primarily due to ~~an increase~~shipments related to our HERO4 capture devices, which were released in ~~units shipped.~~the third quarter of 2014. Units shipped ~~in the three months ended June 30, 2014~~of capture devices increased ~~31%~~58% to ~~0.9 million from 0.7~~1.3 million in the ~~three months ended June 30, 2013. Further contributing to the increase in revenue~~first quarter of 2015 from 0.9 million in the ~~three months ended June 30, 2014 was a 5% increase~~same period in the average selling price of units shipped. The increase in average selling price in the three months ended June 30, 2014 was primarily driven by a shift in product mix to the HERO3+ Black edition capture devices. Our revenue in the three months ended June 30, 2014 also increased, to a lesser extent, as a result of an increase in accessory unit shipments. Our revenue2014. Revenue increased in each of our primary geographical regions of the Americas, ~~Asia Pacific~~APAC, and EMEA ~~(Europe, Middle East and Africa) in~~during the ~~three months ended June 30, 2014~~first quarter of 2015 compared to the ~~three months ended June 30, 2013.~~

~~Revenue for the six months ended June 30, 2014 increased 11% to $480.3 million from $432.1 million for the six months ended June 30, 2013, due to an increase~~same period in units shipped and their average selling price. Units shipped in the six months ended June 30, 2014 increased 6% to 1.7 million from 1.6 million in the six months ended June 30, 2013. Average selling price of units shipped increased 4% in the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase in average selling price in the six months ended June 30, 2014 was primarily driven by a shift in product mix to the HERO3+ Black edition capture devices. Our revenue in the six months ended June 30, 2014 also increased, to a lesser extent, as a result of an increase in accessory unit shipments. Our revenue increased in each of our primary geographical regions of the Americas, Asia Pacific and EMEA in the six months ended June 30, 2014 compared to the six months ended June 30, 2013.

2014. We expect revenue to increase in the ~~three month period ending September 30, 2014~~second quarter of 2015 compared to the ~~three months ended September 30, 2013 and June 30, 2014.~~

first quarter of 2015.

Cost of revenue, gross profit and gross profit margin


	Three months ended										Six months ended											Three months ended
(dollars in millions)	June 30, 2014			June 30, 2013			$ Change		Percent Change		June 30, 2014			June 30, 2013			$ Change			Percent Change
(dollars in thousands)																						March 31, 2015			March 31, 2014			$ Change		Percent Change
Cost of revenue	$	141.7		$	120.2		$	21.5	18	%	$	280.9		$	285.9		$	(5.0	)	(2	)%	$	199,376		$	139,202		$	60,174	43	%
Gross profit	$	102.9		$	56.8		$	46.1	81	%	$	199.4		$	146.3		$	53.1		36	%	$	163,733		$	96,514		$	67,219	70	%
Gross profit margin	42		%	32		%					42		%	34		%						45		%	41		%

Gross profit margin increased to ~~42%~~45% in the ~~three months ended June 30, 2014~~first quarter of 2015 from ~~32%~~41% in the ~~three months ended June 30, 2013~~first quarter of 2014, primarily due to ~~lower product costs for our HERO3+~~a favorable mix shift to the higher margin HERO4 Black and Silver capture devices. Gross profit dollars increased 70% during the first quarter of 2015 due to a 58% increase in capture devices ~~introduced in the fourth quarter of 2013 compared to our previous generation HERO3 capture devices, coupled with a 5% increase in average selling prices of~~ units ~~shipped. In addition, reserves for unused purchase commitments declined from the three months ended June 30, 2013, which contributed to an increase of three percentage points in~~shipped and expanding gross ~~margin.~~

~~Gross~~ profit margin increased to 42% in the six months ended June 30, 2014 from 34% in the six months ended June 30, 2013 primarily due to lower product costs for our HERO3+ capture devices compared to our previous generation HERO3 capture devices, coupled with a 4% increase in average selling prices of units shipped. This was partially offset by increased sales of lower margin LCD BacPac and Battery BacPac accessories.

margins. We expect gross profit margin to fluctuate over time based on product mix, changes in product costs related to the release of different capture device models and changes in average selling price. We expect our gross margin percentage to increase in the ~~three month period ending September 30, 2014 compared to~~second quarter of 2015 will remain relatively flat as a percentage of revenue. Gross product margin will fluctuate in the ~~three months ended September 30, 2013~~future based upon product and ~~to decrease compared to the three months ended June 30, 2014.~~geographical mix.

~~Research and Development~~Operating expenses

Three months ended Six months ended
(dollars in millions) June 30,
2014 June 30,
2013 $ Change Percent
Change June 30,
2014 June 30,
2013 $ Change Percent
Change
Research and development $ 34.7
$ 16.7
$ 18.0
108 % $ 63.4
$ 28.7
$ 34.7
121 %
% of revenue 14 % 9 % 13 % 7 %



	Three months ended
(dollars in thousands)	March 31, 2015		March 31, 2014		$ Change		Percent Change
Research and development	$	49,437	$	28,739	$	20,698	72	%
Sales and marketing	56,369		41,341		15,028		36
General and administrative	35,659		9,878		25,781		261
Total operating expenses	$	141,465	$	79,958	$	61,507	77	%

Research and development expense increased ~~$18.0~~$20.7 million, or ~~108%~~72%, ~~for~~in the ~~three months ended June 30, 2014~~first quarter of 2015 compared to the ~~three months ended June 30, 2013, due~~same period in 2014, primarily attributable to ~~a $8.5~~an $8.2 million increase in ~~personnel related~~personnel-related costs ~~associated with increased~~resulting from a 57% growth in employee headcount, ~~to support our broadened product portfolio,~~ a ~~$4.5~~$5.3 million increase in consulting and outside professional service costs, a ~~$2.3~~$2.9 million increase in ~~facility~~allocated facilities, depreciation, and ~~information technology support costs~~other supporting overhead expenses, and a ~~$2.0~~$2.1 million increase in ~~equipment costs.~~stock-based compensation. These higher expenses were primarily driven by investments in the development of our next generation of devices and our software and services platform development.

~~Research~~Sales and ~~development~~marketing expense increased ~~$34.7~~$15.0 million, or ~~121%~~36%, ~~for~~in the ~~six months ended June 30, 2014~~first quarter of 2015 compared to the ~~six months ended June 30, 2013, due~~same period in 2014, primarily attributable to a ~~$16.8~~$5.2 million increase in personnel related costs ~~associated with an~~resulting from a 55% growth in employee headcount, a $3.2 million increase in ~~headcount,~~advertising and promotional activity costs, a ~~$9.6~~$2.1 million increase in consulting and outside professional service costs, a ~~$3.7~~$1.9 million increase in ~~facility~~allocated facilities, depreciation, and ~~information technology support costs~~other supporting overhead expenses, and a ~~$3.1~~$1.7 million increase in ~~equipment costs.~~

We expect our research and development expense for the period ending September 30, 2014 to increase in absolute dollars as we continue to make significant investments in developing new products, applications, functionality and other offerings. We expect research and development expense to increase in the three month period ending September 30, 2014 compared to the three months ended September 30, 2013 and June 30, 2014.

~~Sales and Marketing~~

Three months ended Six months ended
(dollars in millions) June 30,
2014 June 30,
2013 $ Change Percent
Change June 30,
2014 June 30,
2013 $ Change Percent
Change
Sales and marketing $ 43.7
$ 39.1
$ 4.6
12 % $ 85.0
$ 74.7
$ 10.3
14 %
% of revenue 18 % 22 % 18 % 17 %

Sales and marketing expense increased $4.6 million, or 12%, for the three months ended June 30, 2014 compared to the three months ended June 30, 2013, due primarily to a $4.1 million increase in personnel related costs associated with an increase in headcount, a $1.0 million increase in facility and information technology support costs, a $0.8 million increase in consulting and outside professional service costs and a $0.8 million increase in sales commissions and other selling expense, partially offset by a $1.0 million decrease in advertising and promotional activity costs and a $0.4 million decrease in equipment costs.

Sales and marketing expense increased $10.3 million, or 14%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013, due primarily to a $7.9 million increase in personnel related costs associated with an increase in headcount and a $1.8 million increase in facility and information technology support costs.

We expect our sales and marketing expense for the period ending September 30, 2014 to increase in absolute dollars as we continue to actively promote our products. We expect sales and marketing expense to increase in the three month period ending September 30, 2014 compared to the three months ended September 30, 2013 and June 30, 2014.

~~General and Administrative~~

Three months ended Six months ended
(dollars in millions) June 30,
2014 June 30,
2013 $ Change Percent
Change June 30,
2014 June 30,
2013 $ Change Percent
Change
General and administrative $ 41.2
$ 7.0
$ 34.2
489 % $ 51.0
$ 14.0
$ 37.0
264 %
% of revenue 17 % 4 % 11 % 3 %
stock-based compensation.

General and administrative expense increased ~~$34.2~~$25.8 million, or ~~489%~~261%, ~~for~~in the ~~three months ended June 30, 2014~~first quarter of 2015 compared to the ~~three months ended June 30, 2013, due~~same period in 2014. This increase was primarily attributable to ~~a $30.4~~an $18.6 million increase in stock-based compensation expense and a ~~$2.9~~$3.7 million increase in ~~personnel related~~personnel-related costs ~~associated with an increase~~resulting from a 43% growth in ~~headcount, a $0.5 million increase in consulting and outside professional service costs and a $0.2 million increase in facility and information technology support costs.~~employee headcount. Of the total increase in stock-based compensation, ~~$27.6~~$15.8 million was attributable to the ~~issuance~~achievement of ~~4.5 million RSUs to our CEO during~~certain market conditions resulting in the ~~quarter,~~immediate vesting of ~~which~~ 1.5 million ~~RSUs immediately vested during~~shares in the current quarter.

~~General and administrative expense increased $37.0 million, or 264%, for~~ (See Note 5 "Stock-based Compensation" of the ~~six months ended June 30, 2014 compared~~Notes to the six months ended June 30, 2013, due primarily to a $31.2 million increase in stock-based compensation, a $4.8 million increase in personnel related costs associated with an increase in headcount, a $0.5 million increase in consulting and outside professional service costs and a $0.5 million increase in facility and information technology support costs.Condensed Consolidated Financial Statements of this Form 10-Q.)

We expect ~~our general and administrative expense, when excluding stock-based compensation,~~total operating expenses to increase in absolute dollars ~~due to the anticipated growth of our business and the required infrastructure to support our growth. Including stock-based compensation, we expect general and administrative expense to increase~~ in the ~~three month period ending September 30, 2014~~second quarter of 2015, compared to the ~~three months ended September 30, 2013~~first quarter of 2015, with a majority of the increase occurring in research and ~~to decrease compared to the three months ended June 30, 2014.~~

~~Other income (expense), net~~

Three months ended Six months ended
(dollars in millions) June 30,
2014 June 30,
2013 $ Change Percent
Change June 30,
2014 June 30,
2013 $ Change Percent
Change
Interest expense $ (1.4 ) $ (1.4 ) $ —
0 % $ (2.7 ) $ (2.7 ) $ —
0 %
Other income (expense), net (0.1 ) (0.3 ) 0.2
(67 )% (0.5 ) (0.7 ) 0.2
(29 )%
Total other income (expense), net $ (1.5 ) $ (1.7 ) $ 0.2
(12 )% $ (3.2 ) $ (3.4 ) $ 0.2
(6 )%

~~Interest expense for the three~~development, and ~~six months ended June 30, 2014 remained relatively flat compared to the three~~sales and ~~six months ended June 30, 2013.~~marketing.

Provision for Income Taxes

Three months ended Six months ended
(dollars in millions) June 30,
2014 June 30,
2013 $ Change Percent
Change June 30,
2014 June 30,
2013 $ Change Percent
Change
Income tax (benefit) expense $ 1.6
$ (2.6 ) $ 4.2
(162)% $ 5.5
$ 7.5
$ (2.0 ) (27)%
Effective tax rate (9.0 )% 33.6 % (168.8 )% 29.4 %



	Three months ended
(dollars in thousands)	March 31, 2015			March 31, 2014			$ Change			Percent Change
Income tax expense	$	3,272		$	3,882		$	(610	)	(16	)%
Effective tax rate	16.3		%	26.0		%

~~Income~~Our income tax expense was $3.3 million for the first quarter of 2015 compared to $3.9 million for the same period in 2014. Our provision for income taxes in each period has differed from the tax computed at the U.S. federal statutory income tax rate due to state taxes, the effect of non-U.S. operations, deductible and non-deductible stock-based compensation expense, non-deductible acquisition-related costs and adjustments to unrecognized tax benefits. The lower income tax expense for the ~~three months ended June 30, 2014 was $1.6 million~~first quarter of 2015, compared to ~~a tax benefit of $2.6 million for~~ the ~~three months ended June 30, 2013. The tax expense for the three months ended June 30,~~same period in 2014,

was ~~higher than for the three months ended June 30, 2013~~ primarily due to the ~~impact~~effects of ~~losses which could not be benefited in 2014 and foreign withholding taxes.~~higher deductible stock-based compensation.(See Note 7 "Income Taxes" of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.)

Income tax expense for the six months ended June 30, 2014 was $5.5 million compared to $7.5 million for the six months ended June 30, 2013. The tax expense for the six months ended June 30, 2014 was lower than for the six months ended June 30, 2013 primarily due to lower U.S. pre-tax income.

Liquidity and Capital Resources

As of ~~June 30, 2014,~~March 31, 2015, our principal sources of liquidity were our cash ~~balances totaling $104.9~~and cash equivalents of $323.2 million and ~~$50.0~~marketable securities of $168.7 million. Our cash equivalents and marketable securities are comprised primarily of money market funds, U.S. treasury securities, U.S. agency securities, commercial paper and corporate debt securities. As of March 31, 2015, $49.1 million ~~available under~~of cash was held by our ~~revolving credit facility.~~foreign subsidiaries. We do not presently anticipate a need to repatriate these funds for use in our domestic operations, but if we were to do so, any such repatriated cash and cash equivalents could be subject to U.S. income taxes, less any previously paid foreign income taxes.

We believe our existing cash, cash equivalent and marketable securities balances and cash flow from operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and the foreseeable future. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products, and overall economic conditions. We have completed several acquisitions and we expect to evaluate additional possible acquisitions of, or strategic investments in, businesses, products, and technologies that are complementary to our business, which may require the use of cash.

To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. In the event additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

Cash ~~Flows.~~Flows

The following table sets forth the major components of our consolidated statements of cash flows data for the periods presented:

Six months ended
(dollars in thousands) June 30,
2014 June 30,
2013 Percent
Change
Net cash provided by (used in) operating activities $ 6,749
$ (3,240 ) 308%
Net cash used in investing activities (15,569 ) (7,872 ) (98)%
Net cash provided by financing activities 12,289
1,925
538%
Net increase (decrease) in cash and cash equivalents $ 3,469
$ (9,187 ) 138%



	Three months ended
(dollars in thousands)	March 31, 2015		March 31, 2014		Percent Change
Net cash provided by operating activities	66,267		20,914		217	%
Net cash used in investing activities	(77,172	)	(7,901	)	(877	)%
Net cash provided by (used in) financing activities	16,168		(3,208	)	(604	)%

Cash flows from operating activities

Cash ~~flows from~~flow provided by operating activities ~~consist~~ of $66.3 million during the first quarter of 2015 was comprised of $16.8 million in net income, adjusted for $33.1 million of certain non-cash items ~~including depreciation and amortization, deferred income taxes, stock-based~~(including share-based compensation expense of $26.5 million), and ~~excess tax benefits~~cash inflow of $16.4 million that resulted from ~~stock-based compensation, as well as~~ the effect of changes in working capital and other ~~activities.~~

~~Cash provided by~~carrying balances. The increase in cash flow from operating activities of ~~$6.7~~$45.4 million during the first quarter of 2015 compared to the same period in ~~the six months ended June 30,~~ 2014 ~~increased from cash used in operating activities of $3.2 million in the six months ended June 30, 2013,~~was primarily due ~~primarily~~ to a ~~$23.3~~$31.0 million increase in ~~cash flows from operating assets and liabilities and a $13.5~~net income, as adjusted for the non-cash items described above, as well as favorable changes of $14.4 million ~~increase~~ in ~~non-cash expense items,~~working capital accounts, primarily ~~consisting of stock-based compensation expense, partially offset by a $26.7 million decrease in net income. Changes in cash flows~~ related to operating assets and liabilities primarily consisted of an $81.9 million increase in cash due to utilization of inventory in the six months ended June 30, 2014 compared to an increase in inventory in the six months ended June 30, 2013, a $47.2 million increase in cash due to timing of accounts receivable collections and the factoring of certain receivables in the six months ended June 30, 2014, partially offset by an $77.9 million decrease in cash due to the timing of payments associated with our accounts payable and accrued ~~liabilities and a $29.7 million decrease in cash due to increased expenditures for prepaid expenses and other assets.~~liabilities.

Cash flows from investing activities

Our primary investing activities consisted of purchases and disposal of marketable securities, purchases of property and equipment, and business acquisitions. Cash used in investing activities was $77.2 million during the

first quarter of ~~$15.6~~2015 and resulted from $79.4 million ~~in the six months ended June 30, 2014 increased from cash~~for purchases of marketable securities, $5.2 million for purchases of property and equipment, and $5.1 million for a business acquisition, partially offset by $12.5 million for net sales and maturities of marketable securities. Cash used ~~for~~in investing activities ofwas $7.9 million induring the ~~six months ended June 30, 2013 due primarily to $4.8~~first quarter of 2014 and resulted from $4.7 million for purchases of ~~increased capital expenditures~~property and ~~a payment of~~equipment and $3.2 million ~~related~~for a business acquisition. The increase in cash outflow used in investing activities during the first quarter of 2015 was primarily due to purchases of marketable securities. We did not hold any marketable securities during the ~~acquisition~~first quarter of ~~General Things, Inc.~~2014.

Cash flows from financing activities

Our primary financing activities consisted of issuances of securities under our common stock plans. Cash provided ~~cash~~by financing activities was $16.2 million during the first quarter of 2015 and resulted from $12.3 million in proceeds received from employee stock option exercises and stock purchases made through our ESPP, as well as $6.1 million of excess tax benefit from stock award activities. Cash used by financing activities was $3.2 million during the ~~six months ended June 30, 2014. Cash~~first quarter of 2014, which primarily resulted from $3.0 million for the repayment of debt. The increase in cash flow provided by financing activities induring the ~~six months ended June 30, 2014 consisted~~first quarter of 2015 was primarily ~~of a $20.8 million excess tax benefit related~~due to ~~stock-based compensation and~~ proceeds from the issuance of shares under our common stock ~~of $1.4 million, partially offset by repayments of our long-term debt of $6.0 million and payments of deferred IPO costs of $3.1 million.~~

Our financing activities provided cash of $1.9 million in the six months ended June 30, 2013. Cash flow provided by financing activities in the six months ended June 30, 2013 consisted primarily of borrowings under the revolving credit facility of $15.0 million, partially offset by repayments of long-term debt and repayments of our revolving credit facility of $13.0 million.

~~Credit facility~~

As of June 30, 2014, we had a $120.0 million term loan with scheduled quarterly principal repayments, due on the last day of each quarter, of $1.5 million per quarter in 2013, $3.0 million per quarter in 2014 and $6.0 million per quarter forplans, including the first three quarters of 2015, with the remaining balance due on December 21, 2015. Our excess cash flow, as defined in the credit facility, triggered a contractual principal prepayment obligation of $48.5 million,

which amount has been classified as a current liability as of December 31, 2013 and June 30, 2014. Concurrent with the close of our IPO on July 1, 2014, we paid off, in full, the term loan outstanding of $108.0 million. See Note 13, "Subsequent Events," of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

Our $50.0 million revolving credit facility, which is still outstanding, matures on December 21, 2016, and we can repay and re-borrow principal amounts under and during the term of our revolving credit facility. Of the $50.0 million availablepurchase under our revolving credit facility, as of December 31, 2013, $20.0 million was committed to a standby letter of credit, and there was no balance outstanding. In April 2014, the $20.0 million standby letter of credit was terminated. See Note 8, "Financing Arrangements," of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.ESPP in February 2015.

Our short term liquidity could be impacted in part by our ability to maintain compliance with covenants in the credit agreement. As of December 31, 2013 and June 30, 2014, we were in compliance with all financial covenants.

Contractual Obligations and Off-Balance Sheet Arrangements

Our contractual obligations and off-balance sheet arrangements at ~~June 30, 2014,~~March 31, 2015, and the effect those contractual obligations are expected to have on our liquidity and cash flow over the next five years are presented in ~~textual and tabular format in~~ Note ~~10, “Commitments,~~9 "Commitments, Contingencies and Guarantees,”" of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that can significantly impact the amounts we report as assets, liabilities, revenue, costs and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates.

We believe that our accounting policies and estimates associated with revenue recognition (including sales incentives), inventory, POP displays, warranty, income taxes, goodwill, acquired intangible assets and other long-lived assets, and stock-based compensation are critical to understanding our historical and future performance as these policies involve a ~~greater~~high degree of judgment and complexity.

Therefore, we consider these to be our critical accounting policies and estimates. There ~~were~~have been no ~~significant~~material changes to our critical accounting policies and estimates during the three months ended ~~June 30, 2014. For information about~~March 31, 2015. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2014 for a discussion of our critical accounting policies ~~see the discussion of critical accounting policies in the final prospectus filed with the U.S. Securities~~ and ~~Exchange Commission on June 26, 2014 in connection with our initial public offering.~~estimates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~We are exposed to market risks in the ordinary course of our business. These risks primarily include foreign currency and interest rate risks as follows:~~

Foreign currency risk

To date, ~~all~~a majority of our product sales and inventory purchases have been denominated in U.S. dollars. We therefore have ~~not~~ had ~~any~~insignificant foreign currency risk associated with these two activities. The functional currency of all of our entities is the U.S. dollar. Our operations outside of the United States incur a portion of their operating expenses in foreign currencies, principally the Euro and the Hong Kong Dollar. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. However, we

believe that the exposure to foreign currency fluctuation from operating expenses is immaterial at this time as the related costs do not constitute a significant portion of our total expenses. As we grow our operations, or if foreign currency held in our U.S. dollar functional currency entities increases, our exposure to foreign currency risk could become more significant. To date, we have not entered into any foreign currency exchange contracts and currently do not expect to enter into foreign currency exchange contracts for trading or speculative purposes. We analyzed our foreign currency exposure to identify assets and liabilities denominated in other currencies. For those assets and liabilities, we evaluated the effects of a 10% shift in exchange rates between those currencies and the U.S. dollar. We have determined that there would be an immaterial effect on our results of operations from such a shift.

Interest rate risk

~~We had~~Our exposure to market risk for changes in interest rates primarily relates to our cash ~~totaling $101.4 million~~ and ~~$104.9 million at December 31, 2013~~cash equivalents and ~~June 30, 2014, respectively.~~marketable securities. Our cash ~~consists~~equivalents and marketable securities are comprised primarily of ~~cash in bank accounts.~~money market funds, U.S. treasury securities, U.S. agency securities, commercial paper and corporate debt securities. The primary objectives of our investment activities are to preserve principal and provide liquidity without significantly increasing risk. Our cash isand cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes.

~~We had outstanding term debt~~ A hypothetical 10% increase in interest rates would result in a decrease of ~~$114.0~~approximately $14 million ~~and $108.0 million at December 31, 2013 and June 30, 2014, respectively. The interest rate is based on~~in the ~~six-month adjusted LIBOR plus 2.5%. The initial contractual interest rate is 3.06% and adjusts every six months. The term loan had scheduled quarterly principal repayments due on the last day~~fair value of each quarter of $1.5 million per quarter in 2013, and provided for payments of $3.0 million per quarter in 2014 and $6.0 million for the first three quarters of 2015, with the remaining balance due on December 21, 2015. Our excess cash flows for 2013 triggered a contractual principal prepayment obligation of $48.5 million, which amount has been classified as a current liabilityour available-for-sale securities as of ~~December~~March 31, 2013 and June 30, 2014. In April 2014, we amended our credit facility to extend the due date for this contractual principal prepayment from April 2014 to December 2014. A hypothetical 50 basis point increase in the LIBOR rate as of June 30, 2014, applied to our outstanding debt balance as of June 30, 2014, would have resulted in an approximately $0.6 million increase in our interest expense and an increase of 7% in our net loss for the six months ended June 30, 2014.2015.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and ~~Procedures.~~ Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of ~~June 30, 2014.~~March 31, 2015. Based on their evaluation as of ~~June 30, 2014,~~March 31, 2015, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was (i) recorded, processed, summarized and reported within the time periods specified in the ~~SEC’s~~Securities and Exchange Commission's rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended ~~June 30, 2014~~March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4024

PART II. OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings~~

Item 1. Legal Proceedings

For a discussion of legal proceedings, see Note ~~10,~~9, “Commitments, Contingencies and Guarantees,” inof the Notes to Condensed Consolidated Financial Statements of this Form 10-Q. There have been no material developments in the legal proceeding described in “Business - Legal proceedings” in the final prospectus that we filed with the Securities and Exchange Commission on June 26, 2014 in connection with our initial public offering.


~~Item 1A.~~	Item 1A. Risk Factors

The risks described in "Risk Factors," in our Annual Report on Form 10-K for the ~~final prospectus that we filed with the Securities and Exchange Commission on June 26,~~year ended December 31, 2014 ~~in connection with our initial public offering~~ could materially and adversely affect our business, financial condition and results of operations. There have been no material changes in such risks. These risk factors do not identify all risks that we face - our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

~~Unregistered~~ Sales of ~~Equity~~Unregistered Securities

From April 1, 2014 to June 25, 2014 (the date of the filing of our registration statement on Form S-8), we granted options to purchase 3,603,915 shares of our Class B common stock, after giving effect to the Reclassification and net of expirations, forfeitures and cancellations, under our 2010 Equity Incentive Plan to a total of 74 employees, directors, consultants and other service providers, with exercise prices ranging from $16.39 to $18.40 per share. During this period, 3,409,697 shares were issued pursuant to option exercises, at a weighted average exercise price of approximately $0.83 per share, for aggregate consideration of $2.8 million, which includes 2,476,548 shares issued pursuant to option exercises by the selling stockholders in connection with the IPO. In addition, in June 2014, we granted an aggregate of 4,750,379 restricted stock units to two employees and a director under our 2010 Equity Incentive Plan. Of these restricted stock units, 1,500,000 have settled to date. The offers, sales and issuances of these securities were deemed to be exempt from registration under the Securities Act in reliance upon either (1) Rule 701 promulgated under the Securities Act as transactions pursuant to benefit plans and contracts relating to compensation in compliance with Rule 701 or (2) Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering. The recipients of such securities in each of these transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us.

Not applicable

Use of Proceeds ~~from Public Offering of Common Stock~~

On June 25, 2014, the Securities and Exchange Commission declared our registration statement on Form S-1 (File No. 333-196083) effective for our IPO, and the offering commenced the following day. The offering did not terminate before all the securities registered in the registration statement were sold. J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Barclays Capital Inc. acted as joint book-running managers of the offering and Allen & Company LLC, Stifel, Nicolaus & Company, Incorporated, Robert W. Baird & Co. Incorporated, MCS Capital Markets LLC, Piper Jaffray & Co. and Raymond James & Associates, Inc. acted as co-managers of the offering.

We registered 17,800,000 shares of Class A common stock (8,900,000 shares of which were held before our IPO by certain of our stockholders), plus 2,670,000 additional shares to cover the underwriters’ option to purchase additional shares (all of which were held before our IPO by certain of our stockholders). The aggregate public offering price of the offering amount registered, including shares to cover the underwriters’ option to purchase additional shares was $491.3 million. On July 1, 2014, we closed the IPO, in which we sold 8,900,000 shares of our Class A common stock and the selling stockholders sold 11,570,000 shares of our Class A common stock. The shares sold and issued in the IPO included the full exercise of the underwriters’ option to purchase additional shares. All sales were at the IPO price of $24.00 per share, for an aggregate offering price of $213.6 million for the shares sold by us and $277.7 million for the shares sold by the selling stockholders, making the aggregate offering price of the shares sold $491.3 million.

The net offering proceeds to us, after deducting underwriters’ discounts and commissions of $12.8 million and other offering expenses of $6.2 million, were $194.6 million. We expect to pay the remaining unpaid offering expenses in the third quarter of 2014. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates in connection with the issuance and sale of the securities registered. On July 1, 2014, we used $108.0 million of the IPO proceeds to repay our term loan under our credit facility. See Note 8, “Financing Arrangements,” of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

IPO. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the Securities and Exchange Commission on June 26, ~~2012.~~2014.

~~Pending the use~~Issuer Purchases of ~~proceeds from the IPO, we intend~~Equity Securities

The table below provides information with respect to ~~invest the net proceeds in short-term, interest-bearing, investment-grade securities. Our management has broad discretion in the application~~repurchases of ~~the net proceeds from the IPO and investors will be relying on the judgment~~shares of our ~~management regarding~~Class B common stock. No shares of our Class A common stock were repurchased during this period.



Period	(a) Total Number of Shares (or Units) purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1 - 31, 2015⁽¹⁾	20,526	$	50.63	—	—
February 1 - 28, 2015	—	—		—	—
March 1 - 31, 2015⁽¹⁾	7,073	$	39.93	—	—
Total	27,599	$	47.88	—	—

⁽¹⁾ Represents shares withheld to satisfy tax withholding obligations in connection with the ~~application~~vesting of ~~the proceeds.~~

employee restricted stock units.

Stock Contribution

~~In June 2014, our~~Our Chief Executive Officer (CEO) contributed ~~665,443~~180,000 shares of Class B common stock back to us in each of February and March 2015, for a total of 360,000 shares during this period. The shares were contributed for no additional consideration ~~in connection with the exercise of options to purchase 665,443 shares by a current employee,~~ pursuant to a pre-existing ~~agreement. See Note 5, “Common~~agreement whereby the CEO must contribute a number of

shares equal to the number of shares we issue upon exercise of an outstanding stock ~~and stock-based compensation - Sharing of proceeds from sale of securities,” of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.~~option by a specific current employee.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

Item 6.Exhibits

The information required by this item is set forth on the exhibit index which follows the signature page of this report.

4326

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.



	GoPro, Inc.
	(Registrant)




Dated: ~~August 11, 2014~~April 28, 2015	By: /s/ Nicholas Woodman
	Nicholas Woodman Chief Executive Officer (Principal Executive Officer)




Dated: April 28, 2015	By: /s/ Jack Lazar
	Jack Lazar Chief Financial Officer (Principal Financial Officer)

S-1

EXHIBIT INDEX

Exhibit
Number
Description of Document Incorporated by Reference
Form File No. Exhibit Filing Date Filed Herewith
3.1 Restated Certificate of Incorporation X
3.2 Restated Bylaws X
10.1 2014 Equity Incentive Plan and forms thereunder S-1/A 333-196083 10.3 June 11, 2014
10.2 2014 Employee Stock Purchase Plan and forms thereunder S-1/A 333-196083 10.4 June 11, 2014
31.1 Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 X
31.2 Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 X
32.1* Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X
32.2* Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X
101.INS** XBRL Instance Document. X
101.SCH** XBRL Taxonomy Extension Schema Document. X
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document. X
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document. X
101.LAB** XBRL Taxonomy Extension Label Linkbase Document. X
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document. X



Exhibit Number	Description of Document	Incorporated by Reference
Exhibit Number	Description of Document	Form	File No.	Exhibit	Filing Date	Filed Herewith
31.1	Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2	Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1*	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2*	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101.INS	XBRL Instance Document.					X
101.SCH	XBRL Taxonomy Extension Schema Document.					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.					X

* This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

** Pursuant to applicable securities laws and regulations, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, are deemed not filed for purposes of section 18 of the Exchange Act and otherwise are not subject to liability under these sections.

E-1



(in thousands)	Useful life (in years)	June 30, 2014		December 31, 2013
Leasehold improvements	3–7	$	22,247	$	20,111
Computers, software, equipment and furniture	2–7	19,697		11,988
Tooling	1–4	11,317		8,799
Tradeshow equipment and other	2–5	3,759		3,469
Construction in progress		2,650		2,151
		59,670		46,518
Less: Accumulated depreciation		(20,731)		(14,407)
		$	38,939	$	32,111



								Weighted average remaining useful life (in years)
	December 31, 2013
(in thousands)	Gross		Accumulated amortization			Net
Developed technology	$	5,330	$	(2,517	)	$	2,813	3.2
Other intangible assets	1,160		(703		)	457		2.0
	$	6,490	$	(3,220	)	$	3,270



(in thousands)	Cost of revenue		Operating expenses		Total
Years ending December 31,
2014 (remaining 6 months)	$	444	$	107	$	551
2015	888		197		1,085
2016	888		22		910
2017	149		—		149
	$	2,369	$	326	$	2,695



	Options outstanding				Options exercisable
(options in thousands)	Options outstanding	Weighted average remaining contractual life (in years)	Weighted average exercise price		Options exercisable	Weighted average exercise price
Range of exercise prices
$ 0.18–0.66	8,944	6.62	$	0.62	8,736	$	0.62
0.76–0.76	8,752	6.97	0.76		8,133	0.76
1.52–2.96	1,795	7.56	1.91		1,031	1.86
8.30–8.30	513	8.30	8.30		218	8.30
13.72–13.72	873	8.65	13.72		294	13.72
15.40–15.40	584	8.94	15.40		171	15.40
15.59–15.59	444	9.15	15.59		1	15.59
16.19–16.19	797	9.39	16.19		—	—
16.22–16.22	1,125	9.59	16.22		—	—
16.39–16.39	651	9.78	16.39		10	16.39
18.40–18.40	2,816	9.93	18.40		—	—
$ 0.18–18.40	27,294	7.60	$	5.18	18,594	$	1.19



(in thousands)	Total		1 year (remaining 6 months fiscal 2014)		2-3 years (fiscal 2015 and 2016)		4-5 years (fiscal 2017 and 2018)		More than 5 years (beyond fiscal 2018)
Term loan principal and interest(1)	$	112,340	$	57,419	$	54,921	$	—	$	—
Operating leases(2)	29,459		4,332		13,829		10,705		593
Sponsorship commitments(3)	17,851		4,929		12,621		301		—
Other contractual commitments(4)	3,937		232		3,705		—		—
Capital equipment purchase commitments(5)	12,242		12,242		—		—		—
Total contractual cash obligations	$	175,829	$	79,154	$	85,076	$	11,006	$	593



	June 30, 2014	December 31, 2013
Customer A	20%	21%
Customer B	12%	14%
Customer C	*	11%