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MarketScreener Homepage  >  Equities  >  Nasdaq  >  GoPro Inc    GPRO

GOPRO INC

(GPRO)
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02/06GOPRO : tops revenue estimates, posts first profit in five quarters
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02/06GOPRO : 4Q Earnings Snapshot
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02/06GOPRO : Announces Fourth Quarter and Full Year 2018 Results
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GOPRO : Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) (form 10-K)

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02/15/2019 | 04:09pm EST
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements, related notes and other financial information appearing elsewhere in
this Annual Report on Form 10-K. In addition to historical consolidated
financial information, the following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward-looking statements
as a result of a variety of factors, including but not limited to, those
discussed in Risk Factors and elsewhere in this Annual Report on Form 10-K. This
MD&A is organized as follows:
•   Overview. Discussion of our business and overall analysis of financial and

other highlights affecting the Company in order to provide context for the

remainder of MD&A.

• Components of Our Results of Operations. Description of the items contained

in each operating revenue and expense caption in the consolidated statements

of operations.

• Results of Operations. Analysis of our financial results comparing 2018 to

2017 and 2017 to 2016.

• Liquidity and Capital Resources. Analysis of changes in our balance sheets

and cash flows, and discussion of our financial condition and potential

sources of liquidity.

• Contractual Commitments. Overview of our contractual obligations, including

expected payment schedule and indemnifications as of December 31, 2018.

• Critical Accounting Policies and Estimates. Accounting estimates that we

believe are important to understanding the assumptions and judgments

incorporated in our reported financial results and forecasts.

• Non-GAAP Financial Measures. A reconciliation and discussion of our GAAP to

non-GAAP financial measures.

Overview

GoPro helps its consumers capture and share their experiences in immersive and
exciting ways. We are committed to developing solutions that create an easy,
seamless experience for consumers to capture, create, and share engaging
personal content. When consumers use our products and services, they often
generate and share content that organically increases awareness for GoPro,
driving a virtuous cycle and a self-reinforcing demand for our products. We
believe revenue growth may be driven by the introduction of new cameras,
accessories, software applications, subscription offerings and value-driven
pricing. We believe new camera features drive a replacement cycle among existing
users and attract new users, expanding our total addressable market. Our
investments in image stabilization, mobile editing and sharing solutions,
auto-upload capabilities, local language user-interfaces and voice recognition
in multiple languages drive the expansion of our total addressable market.

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                                  GoPro, Inc.

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

                                   Operations

In 2018, we began shipping our new HERO7 line of cameras, including our newest
flagship camera, HERO7 Black. Our HERO7 Black camera features HyperSmooth image
stabilization, TimeWarp Video, live streaming, cloud connectivity, voice
control, improved audio and a touch display. HyperSmooth makes it easy to
capture professional-looking, gimbal-like stabilized videos without a gimbal,
while TimeWarp Video applies a high-speed, 'magic-carpet-ride' effect to videos.
Live streaming enables users to share content in real time to Facebook, Twitch,
YouTube, Vimeo and other platforms internationally. Our flagship HERO7 Black
camera, powered by GoPro's custom designed GP1 processor, is the most powerful
and performance featured GoPro camera to date. We also began shipping our HERO7
Silver and HERO7 White cameras in 2018, which feature advanced stabilization,
cloud connectivity, voice control and a touch display. We offer many
professional-grade features with our current good-better-best camera offering
with HERO7 White, HERO7 Silver and HERO7 Black cameras. We also offer a
waterproof 360-degree spherical camera, Fusion. Our cameras are compatible with
our ecosystem of mountable and wearable accessories, and feature automatic
uploading capabilities for photos and videos to GoPro Plus, our premium
cloud-based solution that provides a camera protection plan and enables
subscribers to easily access, edit, store and share their content. All of our
HERO5 and newer cameras are compatible with the GoPro App, our mobile experience
that seamlessly uploads a user's GoPro photos and video clips to a smartphone
and transforms them into a ready-to-share video through GoPro QuikStories. Using
GoPro QuikStories makes it simple for users to automatically create shareable
video edits complete with music, effects and transitions.
The following is a summary of measures presented in our consolidated financial
statements and key metrics used to evaluate our business, measure our
performance, develop financial forecasts and make strategic decisions.
(units and dollars
in thousands, except
per share amounts)     Q4 2018        Q4 2017       % Change        FY 2018         FY 2017        % Change
Revenue              $  377,378     $  334,796           13  %   $ 1,148,337     $ 1,179,741            (3 )%
Camera units shipped
(1)                       1,413          1,361            4  %         4,337           4,303             1  %
Gross margin (2)           37.7 %         23.8 %   1390 bps             

31.5 % 32.6 % (110) bps Operating expenses $ 109,150 $ 138,097 (21 )% $ 455,396 $ 547,990

           (17 )%
Net income (loss)    $   31,671     $  (55,848 )       (157 )%   $  (109,034 )   $  (182,873 )         (40 )%
Diluted net income
(loss) per share     $     0.22     $    (0.41 )       (154 )%   $     (0.78 )   $     (1.32 )         (41 )%
Cash provided by
(used) in operations $   48,413     $   56,990          (15 )%   $   (42,434 )   $   (36,853 )          15  %

Other financial
information:
Adjusted EBITDA (3)  $   58,807     $  (26,544 )       (322 )%   $    21,778     $   (31,368 )        (169 )%
Non-GAAP net income
(loss) (4)           $   42,356     $  (41,319 )       (203 )%   $   (31,909 )   $   (95,867 )         (67 )%
Non-GAAP income
(loss) per share     $     0.30     $    (0.30 )       (200 )%   $     (0.23 )   $     (0.69 )         (67 )%

(1) Represents the number of camera units that are shipped during a reporting

      period, including camera units that are shipped with drones, net of any
      returns. Camera units shipped does not include drones sold without a
      camera, mounts or accessories.


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


(3)   We define adjusted EBITDA as net income (loss) adjusted to exclude the

impact of: provision for income taxes, interest income, interest expense,

      depreciation and amortization, point of purchase (POP) display
      amortization, stock-based compensation, impairment charges and
      restructuring costs.


(4)  We define non-GAAP net income (loss) as net income (loss) adjusted to

exclude stock-based compensation, acquisition-related costs, restructuring

costs, non-cash interest expense, gain on sale and license of intellectual

     property and income tax adjustments. Acquisition-related costs include the
     amortization of acquired intangible assets and impairment write-downs (if

applicable), as well as third-party transaction costs for legal and other

professional services.

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

                                       44
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                                  GoPro, Inc.

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

                                   Operations

Full year and fourth quarter 2018 financial performance
Full year 2018 revenue was slightly down year-over-year at $1.15 billion
compared to $1.18 billion in 2017. The year-over-year revenue decline was
primarily driven by a decrease in Karma drone and drone accessory revenue of
$62.0 million due to our exit of the drone business in 2018, partially offset by
a decrease in sales incentives provided to customers, which included $80.5
million in price protection charges in the fourth quarter of 2017. Camera units
shipped of 4.34 million units in 2018 was flat compared to 4.30 million units
shipped in 2017. Our 2018 average selling price (defined as total revenue
divided by camera units shipped) decreased by 3.4% year-over-year, primarily due
to the impact of Karma drone and drone accessories. Excluding the impact of our
Karma drone, our 2018 average selling price would have increased 1%
year-over-year. In 2018, we estimated camera sell-through to our end consumer
was 4.8 million units, which grew 9% compared to 2017.
Revenue for the fourth quarter of 2018 was $377.4 million, a 13% increase
year-over-year from $334.8 million in the fourth quarter of 2017. Gross margin
in the fourth quarter of 2018 was 37.7%, up from 23.8% in the fourth quarter of
2017. Revenue and gross margin in the fourth quarter of 2018 were positively
impacted by a 3.9% increase in our camera units shipped of 1.41 million units in
the fourth quarter of 2018 compared to 1.36 million units in the fourth quarter
of 2017, strong sales of our higher margin HERO7 cameras and $80.5 million in
price protection charges in the fourth quarter of 2017. Additionally, we
estimated camera sell-through to our end consumer grew 20% in the fourth quarter
of 2018 compared to the fourth quarter of 2017.
Our full year 2018 and fourth quarter of 2018 operating expenses decreased 16.9%
and 21.0%, respectively, primarily attributable to our continued focus on cost
management, expansion into lower cost jurisdictions and the financial benefits
recognized from our restructuring actions. As a result, our 2018 GAAP and
non-GAAP net loss improved by 40% and 67%, respectively. The decrease in
operating expenses for full year 2018 was achieved despite increasing our
advertising expenses by $18.2 million compared to 2017.
Net income was $31.7 million, or $0.22 per share for the fourth quarter of 2018,
while non-GAAP net income was $42.4 million, or $0.30 per share for the same
period. Net loss was $109.0 million, or $0.78 per share for the full year of
2018, while non-GAAP net loss was $31.9 million, or $0.23 per share for the same
period. 2018 adjusted EBITDA increased to $21.8 million from a negative $31.4
million in 2017.
Factors affecting performance
We believe that our future success will be dependent on many factors, including
those further discussed below. While these areas represent opportunities for us,
they also represent challenges and risks that we must successfully address in
order to continue the growth of our business and improve our results of
operations.
Driving profitability through improved efficiency, lower costs and better
execution. We incurred material operating losses in 2018, 2017 and 2016. Our
restructuring actions have significantly reduced our operating expenses in 2018
and 2017 resulting in a flatter, more efficient global organization that has
allowed for improved communication, alignment among our functional teams and a
return to profitability for the second half of 2018. If we are unable to
generate adequate revenue growth, and continue to manage our expenses, we may
incur significant losses in the future and may not be able to maintain
profitability.
Investing in research and development and enhancing our customer experience. Our
performance is significantly dependent on the investments we make in research
and development, including our ability to attract and retain highly skilled and
experienced research and development personnel. We expect the timing of new
product releases to continue to have a significant impact on our revenue and we
must continually develop and introduce innovative new cameras, mobile
applications and other new offerings. We plan to further build upon our
integrated mobile and cloud-based storytelling solutions and subscription
offerings. Our investments, including marketing and advertising expenses, may
not successfully drive increased revenue and our customers may not adopt our new
offerings. If we fail to innovate and enhance our brand, our products, our
integrated storytelling solutions, the value proposition of our subscriptions,
our market position and revenue will be adversely affected. Further, we have
incurred substantial research and development expenses and if our efforts are
not successful, we may not recover the value of these investments.
Growing our total addressable market globally. We continue to believe that
international markets represent a significant growth opportunity for GoPro.
While the total market for digital cameras has continued to decline as

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                                  GoPro, Inc.

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

                                   Operations

smartphone and tablet camera quality has improved, we continue to believe that
our consumers' differentiated use of GoPro cameras, our integrated storytelling
solutions, our continued innovation of product features desired by our users,
and our brand, all help insulate our business from many of the negative trends
facing this category. However, we expect that the markets in which we conduct
our business will remain highly competitive. We will continue to increase our
global presence through the active promotion of our brand, the creation and
cultivation of regional strategic and marketing partnerships, the expansion of
localized products in international markets with regions specific marketing, and
an investment focus on the biggest opportunities.
Our growth also depends on expanding our total addressable market with our
subscription service, GoPro Plus, and capture solutions, including spherical,
which all face intense competition. If we are not successful in penetrating
additional markets, we might not be able to grow revenue and we may not
recognize benefits from our investment in new areas.
Marketing the improved GoPro experience to our extended community. We intend to
continue investing resources in our marketing, advertising and brand management
efforts. Historically, our growth has largely been fueled by the adoption of our
products by people looking to self-capture images of themselves participating in
exciting physical activities. Our future growth depends on continuing to reach,
expand and re-engage with this core user base. We believe that consumers in our
core user base in many markets are not familiar with our brand and products and
believe there is an opportunity for GoPro to expand awareness through a range of
advertising and promotional programs and campaigns, including through social
media. In addition, we may look to expand our user base to include a broader
group of consumers. 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.
Seasonality. Historically, we have experienced the highest levels of revenue in
the fourth quarter of the year, coinciding with the holiday shopping season,
particularly in the United States and Europe. While we have implemented
operational changes aimed at reducing the impact of fourth quarter seasonality
on full year performance, timely and effective product introductions and
forecasting, whether just prior to the holiday season or otherwise, are critical
to our operations and financial performance.

Components of our Results of Operations
Revenue. Our revenue is primarily comprised of product revenue, net of returns
and sales incentives (including price protection). Revenue is derived from the
sale of our cameras and accessories directly to retailers, as well as through
our network of domestic and international distributors, and through gopro.com.
See Critical Accounting Policies and Estimates and Note 1 Summary of business
and significant accounting policies, to the Notes to Consolidated Financial
Statements of this Annual Report on Form 10-K for information regarding revenue
recognition.
Cost of revenue. Our cost of revenue primarily consists of product costs,
including costs of contract manufacturing for production, third-party logistics
and procurement costs, warranty repair costs, tooling and equipment
depreciation, excess and obsolete inventory write-downs, amortization of
acquired developed technology, license fees, and certain allocated costs related
to our manufacturing team, facilities and personnel-related expenses.
Operating expenses. We classify our operating expenses into three categories:
research and development, sales and marketing, and general and administrative.
Research and development. Our research and development expense consists
primarily of personnel-related costs, including salaries, stock-based
compensation and employee benefits. Research and development expense also
includes consulting and outside professional services costs, materials, and
allocated facilities, restructuring, depreciation and other supporting overhead
expenses associated with the development of our product and service offerings.
Sales and marketing. Our sales and marketing expense consists primarily of
advertising and marketing promotions of our products and services and
personnel-related costs, including salaries, stock-based compensation and
employee benefits. Sales and marketing expense also includes point of purchase
(POP)

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                                  GoPro, Inc.

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

                                   Operations

display expenses and related amortization, sales commissions, trade show and
event costs, sponsorship costs, consulting and contractor expenses, and
allocated facilities, restructuring, depreciation and other supporting overhead
expenses.
General and administrative. Our general and administrative expense consists
primarily of personnel-related costs, including salaries, stock-based
compensation and employee benefits for our finance, legal, human resources,
information technology and administrative personnel. The expense also includes
professional service costs related to accounting, tax, legal services, and
allocated facilities, restructuring, depreciation and other supporting overhead
expenses.

Results of Operations
The following table sets forth the components of our consolidated statements of
operations for each of the periods presented, and each component as a percentage
of revenue:
                                                   Year ended December 31,
(dollars in thousands)              2018                     2017                     2016
Revenue                    $ 1,148,337     100  %   $ 1,179,741     100  %   $ 1,185,481     100  %
Cost of revenue                786,903      69          795,211      67          723,561      61
Gross profit                   361,434      31          384,530      33          461,920      39
Operating expenses:
Research and development       167,296      15          229,265      19          358,902      30
Sales and marketing            222,096      19          236,581      20          368,620      31
General and administrative      66,004       6           82,144       7          107,367       9
Total operating expenses       455,396      40          547,990      46          834,889      70
Operating loss                 (93,962 )    (9 )       (163,460 )   (13 )       (372,969 )   (31 )
Other income (expense):
Interest expense               (18,683 )    (1 )        (13,660 )    (1 )         (2,992 )     -
Other income, net                4,970       -              733       -              787       -
Total other expense, net       (13,713 )    (1 )        (12,927 )    (1 )         (2,205 )     -
Loss before income taxes      (107,675 )   (10 )       (176,387 )   (14 )       (375,174 )   (31 )
Income tax expense               1,359       -            6,486       1           43,829       4
Net loss                   $  (109,034 )   (10 )%   $  (182,873 )   (15 )%   $  (419,003 )   (35 )%



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                                  GoPro, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations

Revenue
                                        Year ended December 31,               2018 vs 2017     2017 vs 2016
(camera units and dollars in
thousands)                       2018            2017            2016           % Change         % Change
Camera units shipped               4,337           4,303           4,762            1  %           (10 )%

Direct channel               $   551,095     $   634,888     $   650,111          (13 )             (2 )
 Percentage of revenue              48.0 %          53.8 %          54.8 %

Distribution channel $ 597,242 $ 544,853 $ 535,370

        10                2
 Percentage of revenue              52.0 %          46.2 %          45.2 %
Total revenue                $ 1,148,337     $ 1,179,741     $ 1,185,481           (3 )%             -  %

Americas                     $   498,633     $   591,879     $   619,784          (16 )%            (5 )%
 Percentage of revenue              43.4 %          50.2 %          52.3 %
Europe, Middle East and
Africa (EMEA)                $   366,037     $   334,872     $   366,352            9               (9 )
 Percentage of revenue              31.8 %          28.4 %          30.9 %

Asia and Pacific (APAC) $ 283,667 $ 252,990 $ 199,345

        12               27
 Percentage of revenue              24.7 %          21.4 %          16.8 %
Total revenue                $ 1,148,337     $ 1,179,741     $ 1,185,481           (3 )%             -  %


2018 Compared to 2017. Revenue was slightly down in 2018 at $1.15 billion
compared to $1.18 billion in 2017. The year-over-year revenue decline was
primarily driven by a decrease in Karma drone and drone accessory revenue of
$62.0 million due to the exit of the drone business in 2018, partially offset by
a decrease in sales incentives provided to customers, which included $80.5
million in price protection charges in the fourth quarter of 2017. Camera units
shipped of 4.34 million units in 2018 was flat compared to 4.30 million units in
2017. The year-over-year average selling price (defined as total revenue divided
by camera units shipped) decreased by 3.4%, primarily due to the impact of Karma
drone and drone accessories. Excluding the impact of Karma, our average selling
price would have increased 1%. In 2018, we estimated camera sell-through to our
end consumer was 4.8 million units, which grew 9% compared to 2017.
2017 Compared to 2016. Revenue was slightly down in 2017 at $1.18 billion
compared to $1.19 billion in 2016. Total revenue was negatively impacted by
price protection charges of $80.5 million, partially offset by an increase in
revenue related to our Karma drone which was launched in February 2017.
Additionally, camera units shipped in 2017 decreased 10%, reflecting a higher
mix of lower price point cameras sold in 2016 compared to 2017.
Cost of revenue and gross margin
                                      Year ended December 31,             2018 vs 2017    2017 vs 2016
(dollars in thousands)           2018           2017           2016         % Change        % Change
Cost of revenue              $  772,136     $  786,657     $  719,689             (2 )%             9 %

Stock-based compensation 1,954 1,935 1,616

        1               20

Acquisition-related costs 11,434 5,985 1,759

       91              240
Restructuring costs               1,379            634            497            118               28

Total cost of revenue $ 786,903 $ 795,211 $ 723,561

      (1 )%            10 %
Gross margin                       31.5 %         32.6 %         39.0 %    (110) bps        (640) bps


2018 Compared to 2017. Gross margin of 31.5% in 2018 decreased from 32.6% in
2017, or (110) bps, reflecting a decrease in average selling price, (397) bps,
sales of previously written off cameras in 2017, (69 bps), and temporarily
higher prices associated with component supply shortages, (29) bps, partially
offset by lower sales incentives, 313 bps, and operational expense improvements.

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                                  GoPro, Inc.

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

                                   Operations

2017 Compared to 2016. Gross margin of 32.6% in 2017 decreased from 39.0% in
2016, or (640) bps. Gross margin in 2017 reflected the impact of camera and
drone related price protection, (400) bps, lower gross margins from Karma drone
sales as compared to camera sales, (143) bps, and inventory and purchase order
charges related to Karma and its accessories, (180) bps, partially offset by
operational expense improvements.
Research and development
                                        Year ended December 31,             2018 vs 2017     2017 vs 2016
(dollars in thousands)             2018           2017           2016         % Change         % Change
Research and development       $  134,866     $  191,182     $  295,901          (29 )%          (35 )%
Stock-based compensation           19,636         24,963         31,365          (21 )           (20 )
Acquisition-related costs               -          3,028         14,439         (100 )           (79 )
Restructuring costs                12,794         10,092         17,197           27             (41 )

Total research and development $ 167,296 $ 229,265 $ 358,902

      (27 )%          (36 )%
Percentage of revenue                14.6 %         19.4 %         30.3 %


2018 Compared to 2017. The year-over-year decrease of $62.0 million, or 27%, in
total research and development expenses in 2018 compared to 2017 reflected our
exit of the aerial business in the first quarter of 2018 and our other
restructuring actions, which contributed to a $36.7 million decrease in
cash-based personnel-related costs due to a reduction in research and
development headcount, a $12.1 million decrease in depreciation and other
supporting overhead expenses, a $6.6 million decrease in professional services
costs and a $5.3 million decrease in stock-based compensation. Additionally,
amortization of intangibles decreased by $2.5 million due to a reclassification
to cost of revenue.
2017 Compared to 2016. The year-over-year decrease of $129.6 million, or 36%, in
total research and development expenses in 2017 compared to 2016 reflected a
$59.7 million decrease in consulting and professional services costs, a $36.7
million decrease in cash-based personnel-related costs due to a reduction in
research and development headcount, and a $6.7 million decrease in depreciation
and other supporting overhead expenses. In addition, in 2017,
acquisition-related costs decreased $11.4 million primarily due to an intangible
impairment charge of $6.0 million related to projects that were discontinued in
the third quarter of 2016 and stock-based compensation decreased $6.4 million
due to lower employee headcount.
Research and development headcount for 2018 and 2017 has decreased by 36% and
23%, year-over-year, from December 31, 2017 and December 31, 2016, respectively,
principally as a result of our restructuring actions. See Restructuring costs
for additional information regarding research and development restructuring
charges recorded in 2018, 2017 and 2016.
Sales and marketing
                                      Year ended December 31,              2018 vs 2017    2017 vs 2016
(dollars in thousands)           2018           2017           2016          % Change        % Change
Sales and marketing          $  207,346     $  219,036     $  342,651           (5 )%           (36 )%

Stock-based compensation 9,459 10,498 13,883

    (10 )            (24 )
Acquisition-related costs             -              -             22            -             (100 )
Restructuring costs               5,291          7,047         12,064          (25 )            (42 )

Total sales and marketing $ 222,096 $ 236,581 $ 368,620

     (6 )%           (36 )%
Percentage of revenue              19.3 %         20.1 %         31.1 %


2018 Compared to 2017. The year-over-year decrease of $14.5 million, or 6%, in
total sales and marketing expenses in 2018 compared to 2017 reflected a $10.9
million decrease in cash-based personnel-related costs due to a reduction in
sales and marketing headcount, a $6.5 million decrease in sponsorship expenses,
a $6.3 million decrease in POP expense, a $2.4 million reduction in travel
related expenses, a $2.2 million decrease in consulting and outside professional
service costs and a $1.8 million decrease in allocated facilities, depreciation

                                       49
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                                  GoPro, Inc.

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

                                   Operations

and other supporting overhead expenses, partially offset by an $18.2 million
increase in advertising activities.
2017 Compared to 2016. The year-over-year decrease of $132.0 million, or 36%, in
total sales and marketing expenses in 2017 compared to 2016 reflected a $73.7
million decrease in advertising and promotional activity, of which $59.0 million
was related to advertising, marketing events and sponsorships. Additionally,
there was a $23.3 million decrease in cash-based personnel-related costs due to
a reduction in sales and marketing headcount, an $8.8 million decrease in
consulting and outside professional service costs, an $8.4 million decrease in
travel related expenses, and a $7.2 million decrease in allocated facilities,
depreciation and other supporting overhead expenses. The favorable reductions in
sales and marketing expenses in 2017 were primarily due to more focused and
strategic marketing efforts in 2017.
Sales and marketing headcount for 2018 and 2017 has decreased by 26% and 16%,
year-over-year, from December 31, 2017 and December 31, 2016, respectively,
principally as a result of our restructuring activities. See Restructuring costs
for additional information regarding sales and marketing restructuring charges
recorded in 2018, 2017 and 2016.
General and administrative
                                          Year ended December 31,             2018 vs 2017    2017 vs 2016
(dollars in thousands)               2018           2017           2016         % Change        % Change
General and administrative       $   52,865     $   65,788     $   70,247          (20 )%           (6 )%
Stock-based compensation              9,838         13,859         22,663          (29 )           (39 )
Acquisition-related costs                22            (22 )        1,126         (200 )          (102 )
Restructuring costs                   3,279          2,519         13,331           30             (81 )

Total general and administrative $ 66,004 $ 82,144 $ 107,367

        (20 )%          (23 )%
Percentage of revenue                   5.7 %          7.0 %          9.1 %


2018 Compared to 2017. The year-over-year decrease of $16.1 million, or 20%, in
total general and administrative expenses in 2018 compared to 2017 reflected a
$6.8 million decrease in cash-based personnel-related costs due to a reduction
in general and administrative headcount, a $4.0 million decrease in stock-based
compensation, a $2.3 million decrease in settlement charges and a $2.0 million
decrease in consulting and outside professional service costs.
2017 Compared to 2016. The year-over-year decrease of $25.2 million, or 23%, in
total general and administrative expenses in 2017 compared to 2016 reflected a
$10.8 million decrease in restructuring costs, of which $8.8 million was due to
restructuring charges for executive stock-based compensation, an $8.8 million
decrease in stock-based compensation, of which $5.8 million was due to the
timing of expense recognition attributable to the CEO RSUs (see Note 7 Employee
benefit plans, to the Notes to Consolidated Financial Statements), a $3.2
million decrease in cash-based personnel-related costs due to a reduction in
general and administrative headcount, and a $1.1 million decrease in
acquisition-related costs due to higher legal costs incurred in conjunction with
our 2016 acquisitions.
General and administrative headcount for 2018 and 2017 has decreased by 24% and
10%, year-over-year, from December 31, 2017 and December 31, 2016, respectively,
principally as a result of our restructuring actions. See Restructuring costs
for additional information regarding general and administrative restructuring
charges recorded in 2018, 2017 and 2016.
Restructuring costs
First quarter 2018 restructuring plan. On January 2, 2018, we approved a
restructuring plan to further reduce future operating expenses and better align
resources around our long-term business strategy. The restructuring provided for
a reduction of our workforce of approximately 18%, the closure of our aerial
group and the consolidation of certain leased office facilities. Under the first
quarter 2018 restructuring plan, we recorded restructuring charges of $17.8
million, including $14.1 million related to severance and $3.7 million related
to accelerated depreciation and other charges, which primarily pertain to
exiting office spaces and the closure of our aerial products business.

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                                  GoPro, Inc.

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

                                   Operations

First quarter 2017 restructuring plan. On March 15, 2017, we approved a
restructuring plan that provided for a reduction of our workforce by
approximately 17% and the consolidation of certain leased office facilities.
Under the first quarter 2017 restructuring plan, we recorded restructuring
charges of $21.7 million, including $10.3 million related to severance and $11.4
million related to accelerated depreciation and other charges. The actions
associated with the first quarter 2017 restructuring plan were substantially
completed by the fourth quarter of 2017. Additional charges were recorded in
2018 due to updated estimates related to the consolidation and exit of certain
leased office facilities.
Fourth quarter 2016 restructuring plan. On November 29, 2016, we approved a
restructuring plan that provided for a reduction in our workforce of
approximately 15%, the closure of our entertainment group and the consolidation
of certain leased office facilities. Under the fourth quarter 2016 restructuring
plan, we recorded restructuring charges of $39.9 million, including $36.7
million related to severance and $3.2 million related to accelerated
depreciation and other charges, which primarily pertain to exiting office
spaces. The actions associated with the fourth quarter 2016 restructuring plan
were substantially completed by March 31, 2017.
First quarter 2016 restructuring plan. On January 12, 2016, we approved a
restructuring plan that provided for a reduction in our workforce of
approximately 7%. Under the first quarter 2016 restructuring plan, we recorded
restructuring charges of $6.5 million in the first quarter of 2016, which
primarily included cash-based severance costs. We completed this plan at the end
of the first quarter of 2016 and all costs have been paid. No charges were
recorded in periods after March 31, 2016.
See Note 13 Restructuring charges, to the Notes to Consolidated Financial
Statements of this Annual Report on 10-K.
Other income (expense)
                                Year ended December 31,           2018 vs 2017     2017 vs 2016
(dollars in thousands)      2018          2017          2016        % Change         % Change
Interest expense         $ (18,683 )   $ (13,660 )   $ (2,992 )          37 %          357  %
Other income, net            4,970           733          787           578             (7 )
Total other expense, net $ (13,713 )   $ (12,927 )   $ (2,205 )           6 

% 486 %



2018 Compared to 2017. Total other expense, net, increased $0.8 million in 2018
compared to 2017, primarily attributable to a $4.7 million increase to interest
expense related to our Convertible Notes and a $1.4 million increase in
unrealized losses due to changes in foreign exchange rates, partially offset by
a $5.0 million gain on the sale and license of intellectual property and a $0.5
million increase in investment interest income.
2017 Compared to 2016. Total other expense, net, increased by $10.7 million in
2017 compared to 2016, primarily attributable to interest expense and the
accretion of debt premium to the face value on our Convertible Notes, which were
issued in April 2017.
Income taxes
                              Year ended December 31,           2018 vs 2017     2017 vs 2016
(dollars in thousands)    2018         2017         2016          % Change         % Change
Income tax expense     $ 1,359      $ 6,486      $ 43,829           (79 )%           (85 )%
Effective tax rate        (1.3 )%      (3.7 )%      (11.7 )%


2018 Compared to 2017. We recorded an income tax provision of $1.4 million for
the year ended December 31, 2018 which resulted in a negative effective tax rate
of 1.3%. Our income tax provision in 2018 was principally composed of tax
expenses incurred on pre-tax income in profitable foreign jurisdictions,
partially offset by United States tax benefits related to the release of
unrecognized tax benefits upon the completion of an IRS audit. While we incurred
pre-tax losses in the United States and certain foreign jurisdictions, we do not
expect to recognize any significant tax benefits on pre-tax losses in the United
States due to a valuation allowance recorded against our United States deferred
tax assets. Our 2017 negative effective tax rate of 3.7% resulted principally
from tax

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                                  GoPro, Inc.

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

                                   Operations

expenses incurred on pre-tax income in profitable foreign jurisdictions.
2017 Compared to 2016. We recorded an income tax provision of $6.5 million for
the year ended December 31, 2017, which resulted in a negative effective tax
rate of 3.7%. Our income tax provision in 2017 was principally composed of tax
expenses incurred on pre-tax income in profitable foreign jurisdictions. While
we incurred pre-tax losses in the United States and certain lower-rate
jurisdictions, we do not expect to recognize any significant tax benefits on
pre-tax losses in the United States due to the valuation allowance recorded
against our United States deferred tax assets. Our 2016 negative effective tax
rate of 11.7% resulted from the tax benefit of $131.3 million on pre-tax book
losses of $375.2 million, offset by the establishment of a valuation allowance
of $101.9 million on United States federal and state net deferred tax assets, as
well as the tax expenses incurred on pre-tax income in profitable foreign
jurisdictions. See Note 9 Income taxes, to the Notes to Consolidated Financial
Statements of this Annual Report on Form 10-K for a reconciliation between the
United States statutory tax rate and our effective tax rates.
Quarterly results of operations
The following table sets forth our unaudited quarterly consolidated results of
operations for each of the eight quarterly periods ended December 31, 2018.
                                                                 Three months ended
(dollars in
thousands, except   Dec. 31,      Sept. 30,     June 30,      March 31,     Dec. 31,      Sept. 30,      June 30,      March 31,
per share amounts)    2018          2018          2018          2018          2017           2017          2017           2017
Revenue (1)        $ 377,378     $ 285,936     $ 282,677     $ 202,346     $ 334,796     $  329,805     $ 296,526     $  218,614
Gross profit         142,117        91,032        83,369        44,916     

79,786 130,546 105,632 68,566 Operating expenses (2)

                  109,150       112,386       114,205       119,655      

138,097 122,497 130,615 156,781 Net income (loss) $ 31,671 $ (27,089 ) $ (37,269 ) $ (76,347 ) $ (55,848 ) $ 14,661 $ (30,536 ) $ (111,150 )


Net income (loss)
per share:
Basic              $    0.22     $   (0.19 )   $   (0.27 )   $   (0.55 )   $   (0.41 )   $     0.11     $   (0.22 )   $    (0.78 )
Diluted            $    0.22     $   (0.19 )   $   (0.27 )   $   (0.55 )   $   (0.41 )   $     0.10     $   (0.22 )   $    (0.78 )

(1) Included in revenue for the quarter ended December 31, 2017 was a reduction

of $80.5 million for price protection and marketing development funds

incurred in connection with the reduction of our camera and drone selling

     prices.


(2)  Included in operating expenses were the restructuring charges of $3.9
     million for the quarter ended September 30, 2018, $15.5 million for the

quarter ended March 31, 2018 and $12.1 million for the quarter ended March

     31, 2017.



Liquidity and Capital Resources
The following table presents selected financial information as of December 31,
2018 and 2017:
(dollars in thousands)                                  December 31, 2018     December 31, 2017
Cash and cash equivalents                              $         152,095     $         202,504
Marketable securities                                             45,417                44,886

Total cash, cash equivalents and marketable securities $ 197,512

  $         247,390
Percentage of total assets                                            28 %                  29 %


Our primary source of cash is receipts from sales of our products and services.
Other sources of cash are from tax refunds, proceeds from employee participation
in the employee stock purchase plan and the exercise of employee stock options,
sale and license of intellectual property and sublease income. The primary uses
of cash are for inventory procurement, payroll-related expenses, general
operating expenses, including advertising, marketing and office rent, purchases
of property and equipment, and other costs of revenue.
As of December 31, 2018, our cash, cash equivalents and marketable securities of
$197.5 million reflected a decrease of $49.9 million, or 20.2%, compared to
December 31, 2017. The decrease was primarily due to payments on accounts
payable, personnel-related costs, inventory purchases and price protection
claims. As of December 31, 2018, $80.1 million of cash was held by our foreign
subsidiaries.

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                                  GoPro, Inc.

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

                                   Operations

Convertible Notes
In April 2017, we issued $175.0 million aggregate principal amount of 3.50%
Convertible Senior Notes in a private placement to purchasers for resale to
qualified institutional buyers. The Notes mature on April 15, 2022, unless
earlier repurchased or converted into shares of Class A common stock subject to
certain conditions. The Notes are convertible into cash, shares of the Class A
common stock, or a combination thereof, at our election, at an initial
conversion rate of 94.0071 shares of common stock per $1,000 principal amount of
the Notes, which is equivalent to an initial conversion price of approximately
$10.64 per share of common stock, subject to adjustment. We pay interest on the
Notes semi-annually in arrears on April 15 and October 15 of each year. Proceeds
received from the issuance of the Notes were allocated between a liability
component (long-term debt) and an equity component (additional paid-in capital).
The fair value of the liability component was measured using rates determined
for similar debt instruments without a conversion feature.
In connection with the Notes offering, we entered into a prepaid forward stock
repurchase transaction agreement (Prepaid Forward) with a financial institution.
Pursuant to the Prepaid Forward, we used approximately $78.0 million of the
proceeds from the offering of the Notes to pay the prepayment amount. The
aggregate number of shares of our Class A common stock underlying the Prepaid
Forward is approximately 9.2 million shares. The expiration date for the Prepaid
Forward is April 15, 2022, although it may be settled earlier in whole or in
part. Upon settlement of the Prepaid Forward, at expiration or upon any early
settlement, the forward counterparty will deliver to us the number of shares of
Class A common stock underlying the Prepaid Forward or the portion thereof being
settled early. The shares purchased under the Prepaid Forward were treated as
treasury stock on the consolidated balance sheet (and not outstanding for
purposes of the calculation of basic and diluted income (loss) per share), but
remain outstanding for corporate law purposes, including for purposes of any
future stockholders' votes, until the forward counterparty delivers the shares
underlying the Prepaid Forward to us. The net proceeds from the Convertible
Senior Notes offering of approximately $91 million were used for general
corporate purposes.
Liquidity
We believe, based on our most current projections, that our cash, cash
equivalents and marketable securities, and amounts available under our credit
facility, will be sufficient to address our working capital needs, capital
expenditures, outstanding commitments and other liquidity requirements for at
least the next 12 months.
•   We expect that operating expenses and inventory purchases will constitute a

material use of our cash balances. We intend to continue to manage our

operating activities in line with our existing cash and available financial

resources.

• In March 2016, we entered into a credit agreement with a syndicate of banks

that provided for a secured revolving credit facility under which we could

borrow up to an aggregate of $250.0 million. Our credit facility terminates

in March 2021. No borrowings have been made from the credit facility to date.

(See Note 5 Financing Arrangements, in the Notes to Consolidated Financial

Statements for additional information.)

• We have completed acquisitions in the past and we may 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.



In the future, we may require additional funding to respond to business
opportunities, challenges or unforeseen circumstances. If we are unable to
obtain adequate financing under our credit facility, or other sources, when we
require it, our ability to grow or support our business and to respond to
business challenges could be significantly limited. 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.

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                                  GoPro, Inc.

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

                                   Operations

Summary of Cash Flows
The following table summarizes our cash flows for the periods indicated:
                                         Year ended December 31,             2018 vs 2017     2017 vs 2016
(in thousands)                      2018           2017           2016         % Change         % Change
Net cash provided by (used in):
Operating activities            $  (42,434 )   $  (36,853 )   $ (107,753 )         15  %           (66 )%
Investing activities            $   (6,235 )   $  (43,097 )   $   19,286          (86 )%          (323 )%
Financing activities            $   (1,481 )   $   88,594     $    1,955         (102 )%         4,432  %


Cash flows from operating activities
Cash used in operating activities of $42.4 million was primarily attributable to
an adjusted net loss of $22.4 million (net loss adjusted for non-cash expenses
of $86.7 million) and a net cash outflow of $20.0 million from changes in
operating asset and liabilities. Cash outflow related to operating assets and
liabilities consisted primarily of decreases in accounts payable and other
liabilities of $70.4 million due to payments of 2017 year-end liabilities,
partially offset by the receipt of an IRS tax refund of $32.9 million, and other
changes in assets and liabilities.
Cash flows from investing activities
Our primary investing activities consist of purchases and maturities of
marketable securities, purchases of property and equipment, and a gain on a sale
and license of intellectual property. Cash used in investing activities was $6.2
million in 2018 resulting from the gain on a sale and license of intellectual
property of $5.0 million, offset by the net purchases of property and equipment
of $11.0 million and net purchases of marketable securities of $0.2 million.
Cash flows from financing activities
Our primary financing activities consisted of the issuance of equity securities
under our common stock plans. Cash used in financing activities was $1.5 million
in 2018 resulting from $6.7 million in tax payments for net RSU settlements,
partially offset by $5.2 million received from stock purchases made through our
employee stock purchase plan and employee stock option exercises.
Contractual Commitments
Contractual obligations. As of December 31, 2018, our total undiscounted future
expected payment obligations under our agreements with terms longer than one
year were approximately $289.3 million, including $175.0 million for our
Convertible Senior Notes, $107.8 million for operating leases, $4.0 million for
sponsorship agreements and $2.4 million for other multi-year agreements. See
Note 5 Financing Arrangements, for discussion regarding our Convertible Senior
Notes and Note 11 Commitments, contingencies and guarantees, for discussion
regarding facility leases and other contractual commitments in the Notes to
Consolidated Financial Statements.
Off-balance sheet arrangements. During the periods presented, we did not have
any relationships with unconsolidated organizations or financial partnerships,
such as structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes.
Indemnifications. We have entered into indemnification agreements with our
directors and executive officers which require us to indemnify our directors and
executive officers against liabilities that may arise by reason of their status
or service. In addition, in the normal course of business, we enter into
agreements that contain a variety of representations and warranties and provide
for general indemnification. It is not possible to determine the maximum
potential amount under these indemnification agreements due to our limited
history with prior indemnification claims and the unique facts and circumstances
involved in each particular agreement. To date, the payments we have made under
these agreements have not had a material effect on our operating results,
financial position or cash flows. However, we may record charges in the future
as a result of these indemnification agreements.

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                                  GoPro, Inc.

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

                                   Operations


Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP. 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. Note 1 Summary of business and significant accounting policies, to
the Notes to Consolidated Financial Statements of this Annual Report on Form
10-K describes the significant accounting policies and methods used in the
preparation of the consolidated financial statements. 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 the accounting policies discussed below are critical
to understanding our historical and future performance as these policies involve
a greater degree of judgment and complexity. Our senior management has reviewed
these critical accounting policies and related disclosures with the Audit
Committee of our board of directors.
Revenue recognition
We derive substantially all of our revenue from the sale of cameras, drones,
mounts and accessories and the related implied post contract support, or PCS. We
recognize revenue when control of the promised goods or services is transferred
to customers, in an amount that reflects the consideration we expect to be
entitled to in exchange for those goods or services. The transaction price we
expect to be entitled to is primarily comprised of product revenue, net of
returns and variable consideration, including sales incentives provided to
customers.
For most of our revenue, revenue is recognized at the time the product is
delivered and when collection is deemed probable. For customers who purchase
products directly from our website, we retain a portion of the risk of loss on
these sales during transit, which are accounted for as fulfillment costs.
Our standard terms and conditions of sale for non-web based sales do not allow
for product returns other than under warranty. However, we grant limited rights
to return product for certain large retailers and distributors. Estimates of
expected future product returns are recognized at the time of sale based on
analyses of historical return trends by customer class and other factors. An
estimated refund liability along with a right to recover assets are recorded for
future product returns. Return trends are influenced by product life cycles, new
product introductions, market acceptance of products, product sell-through, the
type of customer, seasonality and other factors. Return rates may fluctuate over
time, but are sufficiently predictable to allow us to estimate expected future
product returns. Actual returns in any future period could differ from our
estimates, which could impact the revenue that we report.
Our camera and drone sales contain multiple performance obligations that
generally include the following three separate obligations: a) a hardware
component (camera, drone and/or accessories) and the embedded firmware essential
to the functionality of the hardware delivered at the time of sale, b) the
implicit right to our downloadable free apps and software solutions, and c) the
implied right for the customer to receive post contract support after the
initial sale (PCS). PCS includes the right to receive, on a when and if
available basis, future unspecified firmware upgrades and features as well as
bug fixes, and email and telephone support. Judgment is required to properly
identify the accounting units of multiple performance obligations and to
determine the manner in which revenue should be allocated among the obligations.
We allocate the transaction price to PCS based on a cost-plus method. The
transaction price is allocated to the remaining performance obligations on a
residual value method. Our process to allocate the transaction price considers
multiple factors that may vary over time depending upon the unique facts and
circumstances related to each deliverable, including: the level of support
provided to customers, estimated costs to provide our support, the amount of
time and cost that is allocated to our efforts to develop the undelivered
elements, and market trends in the pricing for similar offerings. While changes
in the allocation of the transaction price among the performance obligations
will not affect the amount of total revenue ultimately recognized for a
particular sales arrangement, any material changes in these allocations could
impact the timing of revenue recognition, which could have a material effect on
our financial condition and results of operations.
We provide our customers with sales incentives through various programs,
including cooperative advertising, price protection, marketing development funds
and other incentives. Sales incentives are considered to be

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                                  GoPro, Inc.

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

                                   Operations

variable consideration, which we estimate and record as a reduction to revenue
at the date of sale. Sales incentives are influenced by historical experience,
product sell-through and other factors. Actual sales incentives and their impact
on reported revenue could differ from our estimates.
See Note 1 Summary of business and significant accounting policies, to the Notes
to Consolidated Financial Statements of this Annual Report on Form 10-K.
Inventory valuation and liability for purchase commitments
Inventory consists of finished goods and component parts and is stated at the
lower of cost or net realizable value on a first-in, first-out basis. Our
inventory balances were $116.5 million and $150.6 million as of December 31,
2018 and 2017, respectively. Our assessment of market value requires the use of
estimates regarding the net realizable value of our inventory balances,
including an assessment of excess or obsolete inventory. We determine excess or
obsolete inventory based on multiple factors, including an estimate of the
future demand for our products within a specified time horizon, generally 12
months, product life cycle status, product development plans and current sales
levels. We also record a liability for noncancelable purchase commitments with
contract manufacturers for quantities in excess of our future demand forecasts
consistent with the valuation of our excess and obsolete inventory. The
estimates used for future demand are also used for near-term capacity planning
and inventory purchases and are consistent with our revenue forecast
assumptions. If our demand forecast is greater than the actual demand, the
amount of our loss will be impacted by our contractual ability to reduce
inventory purchases and commitments from our contract manufacturers. Our
assumptions of future demand for our products are inherently uncertain, and if
there were to be an abrupt and substantial decline in demand for one or more of
our products or a change in our product development plans, we may be required to
increase our inventory write-downs and our liability for purchase commitments
that would adversely affect our results of operations in the period when such
write-downs and/or excess commitments are recorded.
Warranty
We generally provide a 12-month warranty coverage on all of our products except
in the EU where we provide a 24-month warranty. An extended warranty is also
available for a fee under our GoPro Care program which provides for accidental
damage coverage along with other perquisites. Our standard warranty provides for
repair or replacement of the associated products during the warranty period. We
establish a liability for estimated product warranty costs at the time product
revenue is recognized. The warranty obligation is affected by product failure
rates and the related use of materials, labor costs and freight incurred in
correcting any product failure. Should actual product failure rates, use of
materials or other costs differ from our estimates, additional warranty
liabilities could be required, which could materially affect our results of
operations.
Income taxes
We are subject to income taxes in the United States and multiple foreign
jurisdictions. Our effective tax rates differ from the United States federal
statutory rate, primarily due to changes in our valuation allowance, the effect
of non-United States operations, deductible and non-deductible stock-based
compensation expense, state taxes, federal research and development tax credits
and other adjustments. Our negative effective tax rate was 1.3%, 3.7% and
11.7% in 2018, 2017 and 2016, respectively. The calculation of our provision for
income taxes involves the use of estimates, assumptions and judgments while
taking into account current tax laws, our interpretation of current tax laws and
possible outcomes of future tax audits. We review our tax positions quarterly
and adjust the balances as new information becomes available. Our income tax
rate is materially affected by the tax rates that apply to our foreign earnings.
As of December 31, 2018, we liquidated our Cayman Islands entity and elected to
treat our wholly-owned foreign subsidiaries as disregarded entities (foreign
branches) and include them in the United States tax group. We continue to assert
indefinite reinvestment to the extent of any foreign withholding taxes on the
undistributed earnings related to these foreign branches. Any foreign
withholding tax on these earnings is deemed not to be material.
Deferred tax assets. Deferred tax assets arise because of temporary differences
between the financial reporting and tax bases of assets and liabilities, as well
as from net operating loss and tax credit carryforwards. We evaluate the
recoverability of these future tax deductions and credits by assessing the
adequacy of future

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                                  GoPro, Inc.

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

                                   Operations

expected taxable income from all sources, including reversal of taxable
temporary differences, forecast operating earnings and available tax planning
strategies. As of December 31, 2018, we had a valuation allowance on all of our
United States net deferred tax assets based on our assessment that it is not
more likely than not that the deferred tax asset will be realized.
Uncertain tax positions. We recognize tax benefits from uncertain tax positions
only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. We file annual income tax returns in multiple taxing jurisdictions
around the world and a number of years may elapse before an uncertain tax
position is audited by the relevant tax authorities and finally resolved. We
have established reserves to address potential exposures related to tax
positions that could be challenged by tax authorities. While it is often
difficult to predict the final outcome or the timing of resolution of any
particular uncertain tax position, we believe that our reserves reflect the more
likely outcome.
Our future effective tax rates could be adversely affected if actual earnings
are different than our estimates, by changes in the valuation of our deferred
tax assets or liabilities, outcomes resulting from income tax examinations, or
by changes or interpretations in tax laws, regulations or accounting principles.
We were under examination by the Internal Revenue Service (IRS) for the 2012
through 2015 tax years. In the first quarter of 2018, the IRS audit concluded
and an income tax refund of $32.9 million was received.
United States Tax Reform. The Tax Cuts and Jobs Act (TCJA) of 2017, enacted on
December 22, 2017, contained significant changes to United States tax law,
including lowering the United States corporate income tax rate to 21%,
implementing a territorial tax system, and imposing a one-time tax on deemed
repatriated earnings of foreign subsidiaries.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118
(SAB 118) to address the application of United States GAAP in situations when a
registrant did not have the necessary information available, prepared, or
analyzed (including computations) in reasonable detail to complete the
accounting for certain income tax effects of the TCJA.
We recognized the provisional tax impacts related to deemed repatriated earnings
and the revaluation of deferred tax assets and liabilities to the extent needed
and included these amounts in our consolidated financial statements for the year
ended December 31, 2017.
As of December 31, 2018, we completed accounting for all of the enactment-date
income tax effects of the TCJA and determined that there were no material
adjustments in the three and twelve months ended December 31, 2018.
While the TCJA provides for a territorial tax system, beginning in 2018, it
includes two new United States tax base erosion provisions, the global
intangible low-taxed income (GILTI) provisions and the base-erosion and
anti-abuse tax (BEAT) provisions. As of December 31, 2018, we have determined
that these provisions did not have a tax impact to us in 2018. See Note 9 Income
taxes, to the Notes to Consolidated Financial Statements of this Annual Report
on Form 10-K for more information.
Stock-based compensation
We measure and recognize stock-based compensation based on the fair value
measurement for all stock-based awards granted to employees and directors over
the service period for awards which vest. See Note 7 Employee benefit plans, to
the Notes to Consolidated Financial Statements of this Annual Report on Form
10-K. We use the Black-Scholes option-pricing model to determine the fair value
of stock options and employee stock purchase plan options. The determination of
the grant date fair value of options using an option-pricing model is affected
by our common stock fair value as well as assumptions regarding a number of
variables, of which the most subjective were estimated as follows:
•   Expected Term. We do not have sufficient historical exercise data to provide

a reasonable basis upon which to estimate expected term due to the limited

period of time stock-based awards have been exercisable since the completion

of our IPO in July 2014. As a result, we used the simplified method to

calculate the expected term estimate based on the vesting and contractual

    terms of the option. Under the simplified method, the



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

                                   Operations

expected term is equal to the average of the stock-based awards weighted average
vesting period and its contractual term.
•   Volatility. The expected stock price volatility for our common stock was

estimated by taking the average of our historic volatility and the historical

volatility of the common stock of a group of comparable publicly traded

companies over a period equivalent to the expected term.



Goodwill and acquired intangible assets
When we acquire a business, we allocate the purchase price to the net tangible
and identifiable intangible assets, with the residual of the purchase price
recorded as goodwill. The determination of the fair value of the intangible
assets acquired involves significant judgments and estimates. These judgments
can include, but are not limited to, the cash flows that an asset is expected to
generate in the future, technology obsolescence, and the appropriate weighted
average cost of capital. Our estimate of the fair value of certain assets may
differ materially from that determined by others who use different assumptions
or utilize different business models.
We perform an annual assessment of our goodwill during the fourth quarter to
determine if any events or circumstances exist, such as an adverse change in
business climate or a decline in the overall industry demand, that would
indicate that it is more likely than not that the fair value of our single
reporting unit would be reduced below its carrying amount. If further testing is
deemed necessary, we perform a two-step process. The first step involves
comparing the fair value of our reporting unit to its carrying value. The second
step, if necessary, measures the amount of impairment, if any, by comparing the
carrying value of the goodwill to its implied fair value. As of December 31,
2018, we determined that no impairment of the carrying value of goodwill was
required.

Recent Accounting Pronouncements
Refer to Recent Accounting Pronouncements in Note 1 Summary of business and
significant accounting policies, to Consolidated Financial Statements included
in Part II, Item 8 of this Annual Report on Form 10-K.

Non-GAAP Financial Measures
We report net income (loss) and diluted net income (loss) per share in
accordance with United States generally accepted accounting principles (GAAP)
and on a non-GAAP basis. Additionally, we report non-GAAP adjusted EBITDA. We
use non-GAAP financial measures to help us understand and evaluate our core
operating performance and trends, to prepare and approve our annual budget, and
to develop short-term and long-term operational plans. Our management uses, and
believes that investors benefit from referring to, these non-GAAP financial
measures in assessing our operating results. These non-GAAP financial measures
should not be considered in isolation from, or as an alternative to, the
measures prepared in accordance with GAAP, and are not based on any
comprehensive set of accounting rules or principles. We believe that these
non-GAAP measures, when read in conjunction with our GAAP financials, provide
useful information to investors by facilitating:
•   the comparability of our on-going operating results over the periods

presented;

• the ability to identify trends in our underlying business; and

• the comparison of our operating results against analyst financial models and

operating results of other public companies that supplement their GAAP

results with non-GAAP financial measures.



These non-GAAP financial measures have limitations in that they do not reflect
all of the amounts associated with our results of operations as determined in
accordance with GAAP. Some of these limitations are:
•   adjusted EBITDA does not reflect tax payments that reduce cash available to

us;

• adjusted EBITDA excludes depreciation and amortization and, although these

are non-cash charges, the property and equipment being depreciated and

amortized often will have to be replaced in the future, and adjusted EBITDA

    does not reflect any cash capital expenditure requirements for such
    replacements;



                                       58
--------------------------------------------------------------------------------

                                  GoPro, Inc.

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

                                   Operations

• adjusted EBITDA excludes the amortization of POP display assets because it is

a non-cash charge, and is treated similarly to depreciation of property and

equipment and amortization of acquired intangible assets;

• adjusted EBITDA and non-GAAP net income (loss) exclude the impairment of

intangible assets because it is a non-cash charge that is inconsistent in

amount and frequency;

• adjusted EBITDA and non-GAAP net income (loss) exclude restructuring costs

which primarily include severance-related costs, stock-based compensation

expenses and facilities consolidation charges recorded in connection with

restructuring actions announced in the first and fourth quarters of 2016,

first quarter of 2017 and first quarter of 2018. These expenses do not

reflect expected future operating expenses and do not contribute to a

meaningful evaluation of current operating performance or comparisons to the

operating performance in other periods;

• adjusted EBITDA and non-GAAP net income (loss) exclude stock-based

compensation expense related to equity awards granted primarily to our

workforce. We exclude stock-based compensation expense because we believe

that the non-GAAP financial measures excluding this item provide meaningful

supplemental information regarding operational performance. In particular, we

note that companies calculate stock-based compensation expense for the

variety of award types that they employ using different valuation

methodologies and subjective assumptions. These non-cash charges are not

factored into our internal evaluation of net income (loss) as we believe

their inclusion would hinder our ability to assess core operational

performance;

• non-GAAP net income (loss) excludes acquisition-related costs including the

amortization of acquired intangible assets (primarily consisting of acquired

technology), the impairment of acquired intangible assets (if applicable), as

well as third-party transaction costs incurred for legal and other

professional services. These costs are not factored into our evaluation of

potential acquisitions, or of our performance after completion of the

acquisitions, because these costs are not related to our core operating

performance or reflective of ongoing operating results in the period, and the

frequency and amount of such costs are inconsistent and vary significantly

based on the timing and magnitude of our acquisition transactions and the

maturities of the businesses being acquired;

• non-GAAP net income (loss) excludes non-cash interest expense. In connection

with the issuance of the Convertible Senior Notes in April 2017, we are

required to recognize non-cash interest expense in accordance with the

authoritative accounting guidance for convertible debt that may be settled in

cash;

• non-GAAP net income (loss) excludes a gain on the sale and license of

intellectual property. This gain is not related to our core operating

performance or reflective of ongoing operating results in the period, and the

frequency and amount of such gains are inconsistent;

• non-GAAP net income (loss) includes income tax adjustments. Beginning in the

first quarter of 2017, we implemented a cash-based non-GAAP tax expense

approach (based upon expected annual cash payments for income taxes) for

evaluating operating performance as well as for planning and forecasting

purposes. This non-GAAP tax approach eliminates the effects of period

specific items, which can vary in size and frequency and does not necessarily

reflect our long-term operations. Historically, we computed a non-GAAP tax

rate based on non-GAAP pre-tax income on a quarterly basis, which considered

the income tax effects of the adjustments above; and

• other companies may calculate these non-GAAP financial measures differently

    than we do, limiting their usefulness as comparative measures.



                                       59
--------------------------------------------------------------------------------

                                  GoPro, Inc.

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

                                   Operations

The following tables present a reconciliation of net income (loss) to adjusted
EBITDA:
                                    Three months ended December 31,
(in thousands)                            2018                   2017
Net income (loss)             $       31,671                  $ (55,848 )
Income tax (benefit) expense           1,655                     (6,943 )
Interest expense, net                  4,470                      4,163
Depreciation and amortization          7,290                      9,218
POP display amortization               2,788                      4,342
Stock-based compensation               9,716                     15,020
Restructuring costs                    1,217                      3,504
Adjusted EBITDA               $       58,807                  $ (26,544 )


                                                        Year ended December 31,
(in thousands)                      2018           2017           2016           2015           2014
Net income (loss)               $ (109,034 )   $ (182,873 )   $ (419,003 )   $   36,131     $  128,088
Income tax expense                   1,359          6,486         43,829         16,454         52,887
Interest expense                    17,278         12,804          1,401            234          5,038
Depreciation and amortization       35,063         41,478         41,639         28,981         17,945
POP display amortization            13,482         19,190         19,623         16,829         18,023
Stock-based compensation            40,887         51,255         69,527         80,680         71,399
Impairment of intangible assets          -              -          7,088              -              -
Restructuring costs                 22,743         20,292         43,089              -              -
Adjusted EBITDA                 $   21,778     $  (31,368 )   $ (192,807 )   $  179,309     $  293,380

The following tables present a reconciliation of net income (loss) to non-GAAP net income (loss):

                                                            Three months ended December 31,
(in thousands, except per share data)                          2018                  2017
Net income (loss)                                       $        31,671       $        (55,848 )
Stock-based compensation                                          9,716                 15,020
Acquisition-related costs                                         2,101                  2,360
Restructuring costs                                               1,217                  3,504
Non-cash interest expense                                         2,124                  1,979
Gain on sale and license of intellectual property                (5,000 )                    -
Income tax adjustments                                              527                 (8,334 )
Non-GAAP net income (loss)                              $        42,356       $        (41,319 )
Non-GAAP income (loss) per share                        $          0.30     

$ (0.30 )


GAAP shares for diluted net income (loss) per share             140,882                136,886
  Add: effect of potentially dilutive shares                      2,359                      -

Non-GAAP shares for diluted net income (loss) per share 143,241

           136,886




                                       60
--------------------------------------------------------------------------------

                                  GoPro, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations

                                                    Year ended December 31,
(in thousands)                  2018           2017           2016           2015           2014
Net income (loss)           $ (109,034 )   $ (182,873 )   $ (419,003 )   $   36,131     $  128,088
Stock-based compensation        40,887         51,255         69,527         80,680         71,399
Acquisition-related costs       11,456          8,991         17,346          5,370          1,133
Restructuring costs             22,743         20,292         43,089              -              -
Non-cash interest expense        8,112          5,345              -              -              -
Gain on sale and license of
intellectual property           (5,000 )            -              -              -              -
Income tax adjustments (1)      (1,073 )        1,123         87,794        (10,617 )      (11,707 )
Non-GAAP net income (loss)  $  (31,909 )   $  (95,867 )   $ (201,247 )   $  111,564     $  188,913
Non-GAAP diluted income
(loss) per share            $    (0.23 )   $    (0.69 )   $    (1.44 )   $     0.76     $     1.32

GAAP shares for diluted net
income (loss) per share        139,495        138,056        139,425        146,486        123,630
  Add: preferred shares
conversion                           -              -              -              -         15,136
  Add: initial public
offering shares                      -              -              -              -          4,414
Non-GAAP shares for diluted
net income (loss) per share    139,495        138,056        139,425        146,486        143,180


(1) Beginning in the first quarter of 2017, we implemented a cash-based non-GAAP

expense approach (based upon expected annual cash payments for income taxes)

for evaluating operating performance as well as for planning and forecasting

purposes. This non-GAAP approach eliminates the effects of period specific

items, which can vary in size and frequency and does not necessarily reflect

our long-term operations. Historically, we computed a non-GAAP tax rate

based on non-GAAP pre-tax income on a quarterly basis, which considered the

     income tax effects of the adjustments above.




                                       61

--------------------------------------------------------------------------------

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Sales 2019 1 218 M
EBIT 2019 50,1 M
Net income 2019 -15,5 M
Finance 2019 110 M
Yield 2019 -
P/E ratio 2019 -
P/E ratio 2020
EV / Sales 2019 0,65x
EV / Sales 2020 0,62x
Capitalization 900 M
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Mean consensus HOLD
Number of Analysts 6
Average target price 6,25 $
Spread / Average Target 4,3%
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NameTitle
Nicholas Woodman Chairman & Chief Executive Officer
Brian McGee CFO, Principal Accounting Officer & Executive VP
Sandor Barna Chief Technology Officer & Senior Vice President
Kenneth A. Goldman Lead Independent Director
Peter C. Gotcher Independent Director
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