GOPRO, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) (Form 10-K)

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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 revenue, cost of revenue and operating expense caption in the consolidated
statements of operations.
•Results of Operations. Analysis of our financial results comparing 2021 to 2020
is presented below. An analysis of our financial results comparing 2020 to 2019
can be found under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Part II, Item 7 in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2020, filed with the SEC on February 12,
2021, which is available free of charge on the SEC's website at www.sec.gov and
our Investor Relations website at https://investor.gopro.com.
•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.
•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 the world capture and share itself 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, lifestyle gear,
and software and subscription offerings. 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 app
editing and sharing solutions, modular accessories, auto-upload capabilities,
local language user-interfaces and voice recognition in more than 12 languages
drive the expansion of our global market.
In the Fall of 2021, we began shipping our HERO10 Black flagship camera that
features our new high-performance GP2 processor, which delivers blistering video
frame rates. The camera's highest video resolution of 5.3K at 60 frames per
second delivers 91% more pixel resolution than 4K at 30 frames per second and
665% more pixel resolution than 1080p HD at an impressive 60 frames per second,
allowing for fluid playback and 2X slow motion. 4K video can be captured at 120
frames per second (4X slow motion) and 2.7K video can be captured at 240 frames
per second (8X slow motion). The new GP2 processor also enables HyperSmooth 4.0
video stabilization, ensuring that HERO10 Black smooths out even the most
shake-ladened experiences. HERO10 Black's in-camera horizon leveling feature
benefits from an increased tilt limit of 45° in high-performance settings,
making even the most chaotic video footage look professionally smooth and
steady. The new GP2 processor combined with the ultra-high resolution 23.6MP
sensor enables life-like image quality. In addition to 23 megapixel photos,
HERO10 Black enables 19.6 megapixel video stills to be pulled from 5K 4:3 video
at 30 frames per second and 15.8 megapixel video stills from 5.3K video at 60
frames per second, which is ideal for capturing
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Management report and analysis of the financial situation and the results of

                                   Operations
still images of sports and fast-paced activities. The HERO10 Black is also cloud
connected while being charged and will automatically upload recently captured
footage to the user's GoPro cloud account. Additionally, the HERO10 Black
continues to build off the noteworthy HERO9 Black features, including Power
Tools, TimeWarp 3.0, front-facing and rear touch displays, and camera Mod
compatibility. Our HERO10 Black, HERO9 Black, HERO8 Black and MAX cameras are
compatible with our ecosystem of mountable and wearable accessories. We also
sell our GoPro subscription, which includes unlimited cloud storage supporting
source video and photo quality, camera replacement and damage protection, access
to a high-quality live streaming service on GoPro.com as well as discounts on
GoPro gear, mounts and accessories.
In March 2021, we launched a refresh of our mobile app, Quik, which makes it
easy for users to get the most out of their favorite photos and videos no matter
which phone or camera is used to capture the footage. We believe the launch of
Quik and the new Quik subscription is an important step in expanding our total
addressable market to those who value organizing the visual moments of their
lives. Quik users can conveniently share their favorite photos or videos to the
Quik app where those special "keeper" photos or videos will be added to a
private "Mural" feed within the app. Quik also features a suite of powerful yet
simple editing tools which allows users to edit photos or videos themselves. In
June 2021, we announced Open GoPro, an open API initiative that makes it easy
for third-party developers to integrate their HERO camera into their own
development efforts.
The COVID-19 pandemic is continuing to have widespread, rapidly evolving, and
unpredictable impacts on global societies, economies, financial markets, supply
chains and business practices. During the year ended December 31, 2021, sales
improved compared to 2020 through both our e-commerce platform on GoPro.com as
well as our retail channel in certain regions. In the first quarter of 2020, we
closed all of our offices and required most of our employees to work remotely.
These changes remained largely in effect in the fourth quarter of 2021. We
expect our offices to remain closed at least through the second quarter of 2022.
At this point, the duration and impact, if any, of these and any additional
operational changes we may implement is uncertain, but changes we have
implemented have not affected and are not expected to affect our ability to
maintain operations, including financial reporting systems, internal control
over financial reporting and disclosure controls and procedures. See Item 1A
Risk Factors for further discussion of the possible impact of the COVID-19
pandemic on our business.
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 2021                  Q4 2020                    % Change              FY 2021             FY 2020              % Change
Revenue                        $    391,149             $    357,772                       9    %       $ 1,161,084          $ 891,925                    30    %
Camera units shipped (1)           1,033                    1,108                         (7)   %             3,145              2,820                    12    %
Gross margin (2)                    41.2  %                  38.0  %                     320  bps              41.1  %            35.3  %                580  bps
Operating expenses             $ 102,449                $  80,728                         27    %       $   363,889          $ 351,333                     4    %
 Net income (loss)             $  52,626                $  44,413                         18    %       $   371,171          $ (66,783)                  656    %
Diluted net income (loss) per
share                          $    0.32                $    0.28                         14    %       $      2.27          $   (0.45)                  604    %
Cash provided by operations    $ 163,848                $ 106,253                         54    %       $   229,153          $  93,782                  

144%

Other financial information:
Adjusted EBITDA (3)            $  71,571                $  67,744                          6    %       $   167,798          $  43,200                   288    %
Non-GAAP net income (4)        $  66,147                $  61,064                          8    %       $   146,068          $  12,779                 1,043    %
Non-GAAP diluted net income
per share                      $    0.41                $    0.39                          5    %       $      0.90          $    0.08                 1,025    %


(1)   Represents the number of camera units that are shipped during a reporting
period, net of any returns.
(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, intangible asset impairment charges, loss on
extinguishment of debt, and restructuring and other costs, including
right-of-use asset impairment charges.
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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

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(4)  We define non-GAAP net income as net income (loss) adjusted to exclude
stock-based compensation, acquisition-related costs, restructuring and other
costs, including right-of-use asset impairment charges, non-cash interest
expense, loss on extinguishment of debt and income tax adjustments.
Acquisition-related costs include the amortization of acquired intangible assets
and impairment charges (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.
Full Year and Fourth quarter 2021 financial performance
Revenue was $1.16 billion for the full year 2021 compared to $891.9 million in
2020. The year-over-year improvement in revenue was driven by sales of our
cameras at higher price points, which was positively impacted by a $50 increase
in the manufacturer's suggested retail price (MSRP) on our latest flagship
camera from 2020 to 2021. In addition to sales of our cameras at higher price
points, the year-over-year improvement in revenue was positively impacted by
direct-to-consumer sales and subscriptions and services, as well as sales
through our retail channel as stores began to reopen. Retail revenue for the
full year 2021 was $769.0 million, an increase of 26% year-over-year from $609.4
million in 2020, driven by overall growth across all regions. Revenue from our
retail channel represented 66.2% and 68.3% of total revenue for 2021 and 2020,
respectively. The year-over-year improvement in revenue was also driven by our
continued focus on direct-to-consumer sales through GoPro.com. GoPro.com revenue
for the full year 2021 was $392.1 million, which was a 39% increase
year-over-year from $282.6 million in 2020. GoPro.com revenue represented 33.8%
and 31.7% of total revenue for 2021 and 2020, respectively. We shipped 3,145,000
camera units for the full year 2021, compared to 2,820,000 camera units for the
full year 2020, representing a 12% camera unit growth year-over-year. Our
average selling price, which is defined as total revenue divided by camera units
shipped, for the full year 2021 was $369, or a 17% year-over-year increase,
primarily due to 97% of our camera revenue mix being derived from cameras with a
suggested retail price equal to or greater than $300, along with growth in GoPro
subscribers. We had approximately 1.6 million GoPro subscribers as of December
31, 2021, or a 107% increase year-over-year. Subscription revenue for the full
year 2021 was $52.9 million, or an increase of 131% year-over-year. The gross
margin percentage for 2021 was 41.1%, up from 35.3% in 2020. The 580 bps
year-over-year increase in gross margin was primarily driven by sales of cameras
at higher price points, growth in direct-to-consumer sales, and growth in our
high margin subscription revenue. Operating expenses for the full year 2021 were
$363.9 million, a 4% increase year-over-year, primarily due to increases in
personnel-related expenses and costs to support the growth of our
direct-to-consumer business on GoPro.com. Net income for the full year 2021 was
$371.2 million, an improvement of $437.9 million, when compared to a net loss of
$66.8 million for the full year 2020. The full year 2021 benefitted from the
release of our tax valuation allowances which contributed $284.6 million.
Adjusted EBITDA for the full year 2021 was $167.8 million, or 15% of revenue
compared to $43.2 million for the full year 2020, or 5% of revenue.
Revenue for the fourth quarter of 2021 was $391.1 million, or a 9% increase from
the same period in 2020. The year-over-year increase was primarily driven by
sales of our cameras at higher price points, which was positively impacted by a
$50 increase in MSRP on our latest flagship camera from 2020 to 2021. In
addition to sales of our cameras at higher price points, the year-over-year
improvement in revenue was positively impacted by direct-to-consumer sales and
subscriptions and services, and strong sales through our retail channel as
stores began to reopen. Retail revenue for the fourth quarter of 2021 was $263.4
million, an increase of 9.1% year-over-year from $241.3 million during the same
period in 2020, primarily driven by Europe. Revenue from our retail channel
represented 67.3% and 67.5% of total revenue for the fourth quarter of 2021 and
2020, respectively. The year-over-year improvement in revenue was also driven by
our continued focus on direct-to-consumer sales through GoPro.com. GoPro.com
revenue for the fourth quarter of 2021 was $127.8 million, which was a 9.8%
increase year-over-year from $116.4 million during the same period in 2020.
GoPro.com revenue represented 32.7% and 32.5% of total revenue for the fourth
quarter of 2021 and 2020, respectively. Our average selling price, which is
defined as total revenue divided by camera units shipped, for the fourth quarter
of 2021 was $379, or a 17.2% increase from the same period in 2020, primarily
due to 100% of our camera revenue mix being derived from cameras with a
suggested retail price equal to or greater than $300 and growth in GoPro
subscribers. We shipped 1,033,000 camera units during the fourth quarter of
2021, compared to 1,108,000 camera units for the same period in 2020, or a
decline of 7% year-over-year. Subscription revenue for the fourth quarter of
2021 was $16.8 million, or an increase of 118% from the same period in 2020. The
gross margin percentage for the fourth quarter of 2021 was 41.2%, up from 38.0%
in the fourth quarter of 2020. The 320 bps increase in gross margin year-over-
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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
year was primarily driven by sales of cameras at higher price points, growth in
direct-to-consumer sales, and growth in our high margin subscription revenue.
Operating expenses for the fourth quarter of 2021 were $102.4 million, a 27%
increase year-over-year, primarily due to increases in personnel-related
expenses, advertising expenses, and costs to support the growth of our
direct-to-consumer business on GoPro.com. Net income for the fourth quarter of
2021 was $52.6 million, an 18.5% increase compared to net income of $44.4
million generated in the same period in 2020. Adjusted EBITDA for the fourth
quarter of 2021 was a positive $71.6 million, compared to a positive $67.7
million for the same period in 2020.
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 operate our business and improve our results of operations.
Driving profitability through improved efficiency, lower costs and better
execution. We generated positive operating income for the year ended December
31, 2021, and we continue to make strategic decisions to create sustainable
growth and profitability in our business. Prior to fiscal year 2021, we incurred
operating losses during fiscal years 2020, 2019, and 2018. Our restructuring
actions have significantly reduced our on-going operating expenses, resulting in
a flatter, more efficient global organization that has allowed for improved
communication and better alignment among our functional teams. Primarily as a
result of the impact of the COVID-19 pandemic, we took additional restructuring
actions in April 2020 to further reduce our operating expenses in marketing,
sales, and general and administrative functions, and to reduce our global
facility footprint. Operating expense reductions related to research and
development were minor in order to protect our product roadmap and innovation.
Additionally, in response to the COVID-19 pandemic, we accelerated a shift in
our sales channel strategy to reduce the number of distributors and retailers
that we work with to focus more on direct-to-consumer sales through GoPro.com.
If we are unable to generate adequate revenue growth, particularly in light of
the impact of the COVID-19 pandemic, successfully sustain our direct-to-consumer
sales model and current revenue growth rate, or continue to manage our expenses,
we may incur significant losses in the future and may not be able to achieve
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 those for marketing and advertising, may
not successfully drive increased revenue and our customers may not accept 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.
Improving Profitability. We believe that our continued focus on growing our
direct-to-consumer sales and subscription services will accelerate our ability
to become consistently profitable due to an improved margin structure and lower
operating expenses to support this shift in channel, particularly in light of
the impact of the COVID-19 pandemic. As a result of this shift toward direct
sales, we believe we can become consistently profitable with lower overall unit
sales. We continue to believe that international markets represent a significant
opportunity to achieve continued profitability. While the total market for
digital cameras has continued to decline as 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 support our
business from many of the negative trends facing this market. However, we expect
that the markets in which we conduct our business will remain highly competitive
as we face new product introductions from competitors. We will continue to
leverage the brand recognition of our Company to increase our global presence
through GoPro.com with the active promotion of our brand, the expansion of
localized products in international markets with region-specific marketing, and
a focus on the biggest investment opportunities.
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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
Our profitability also depends on expanding our subscription service offerings.
If we are not successful in our shift to a direct-to-consumer sales model,
expanding our product and subscription offerings and increasing our paid
subscriber base, we might not be able to become consistently profitable and we
may not recognize benefits from our investment in new areas.
Marketing the improved GoPro experience. We intend to focus our marketing
resources to increase traffic to GoPro.com, improve the consumer experience on
GoPro.com, and further improve brand recognition. 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 goal of sustaining profitability depends on continuing to reach,
expand and re-engage with this core user base in alignment with our strategic
priorities. 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 sales and subscription
services, net of returns and sales incentives. Revenue is derived from the sale
of our cameras and accessories directly to retailers, through our network of
domestic and international distributors, and on 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, tariffs and certain allocated costs
related to our manufacturing team, facilities, including right-of-use asset
impairment charges, 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, including right-of-use asset impairment
charges, 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) display expenses and related amortization, sales commissions, webstore and
subscription provider fees, trade show and event costs, sponsorship costs,
consulting and contractor expenses, and allocated facilities, restructuring,
including right-of-use asset impairment charges, 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, including right-of-use asset impairment
charges, depreciation and other supporting overhead expenses.

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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
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)                          2021                     2020                                 2019
Revenue                                                     $ 1,161,084              100  %       $ 891,925              100  %       $ 1,194,651               100  %
Cost of revenue                                                 683,979               59            577,411               65              781,862                65
Gross profit                                                    477,105               41            314,514               35              412,789                35
Operating expenses:
Research and development                                        141,494               12            131,589               15              142,894                12
Sales and marketing                                             156,694               13            151,380               17              206,431                17
General and administrative                                       65,701                6             68,364                8               65,797       

6

Total operating expenses                                        363,889               31            351,333               40              415,122       

35

Operating income (loss)                                         113,216               10            (36,819)              (5)              (2,333)      

Other income (expense):
Interest expense                                                (22,940)              (2)           (20,257)              (2)             (19,229)      

(2)

Other income (expense), net                                        (176)               -             (4,881)              (1)               2,492       

Total other expense, net                                        (23,116)              (2)           (25,138)              (3)             (16,737)      

(2)

Income (loss) before income
taxes                                                            90,100                8            (61,957)              (8)             (19,070)      

(2)

Income tax expense (benefit)                                   (281,071)             (24)             4,826                1               (4,428)               (1)
Net income (loss)                                           $   371,171               32  %       $ (66,783)              (7) %       $   (14,642)               (1) %



Revenue

(camera units and dollars in             Year ended December 31,          2021 vs 2020          2020 vs 2019
thousands, except average selling
price)                                                   2021                 2020                  2019                 % Change                 % Change
Camera units shipped                                      3,145                 2,820                4,260                       12  %                   (34) %

Average selling price                               $       369          $        316          $       280                       17                       13

Retail                                              $   769,019          $    609,368          $ 1,053,502                       26                     

(42)

 Percentage of revenue                                     66.2  %               68.3  %              88.2  %
GoPro.com                                           $   392,065          $    282,557          $   141,149                       39                     

100

 Percentage of revenue                                     33.8  %               31.7  %              11.8  %
Total revenue                                       $ 1,161,084          $    891,925          $ 1,194,651                       30  %                   (25) %

Americas                                            $   607,534          $    483,331          $   523,975                       26  %                    (8) %
 Percentage of revenue                                     52.2  %               54.2  %              43.9  %
Europe, Middle East and Africa
(EMEA)                                              $   305,654          $    218,670          $   359,187                       40                     

(39)

 Percentage of revenue                                     26.3  %               24.5  %              30.0  %
Asia and Pacific (APAC)                             $   247,896          $    189,924          $   311,489                       31                     

(39)

 Percentage of revenue                                     21.4  %               21.3  %              26.1  %
Total revenue                                       $ 1,161,084          $    891,925          $ 1,194,651                       30  %                   (25) %



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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
2021 Compared to 2020. Revenue was $1.16 billion for the full year 2021 compared
to $891.9 million in 2020. The year-over-year improvement in revenue was driven
by sales of our cameras at higher price points, which was positively impacted by
a $50 increase in MSRP on our latest flagship camera from 2020 to 2021. In
addition to sales of our cameras at higher price points, the year-over-year
improvement in revenue was positively impacted by direct-to-consumer sales and
subscriptions and services, as well as sales through our retail channel as
stores began to reopen. Retail revenue for the full year 2021 was $769.0
million, an increase of 26% year-over-year from $609.4 million in 2020, driven
by overall growth across all regions. Revenue from our retail channel
represented 66.2% and 68.3% of total revenue for 2021 and 2020, respectively.
The year-over-year improvement in revenue was also driven by our continued focus
on direct-to-consumer sales through GoPro.com. GoPro.com revenue for the full
year 2021 was $392.1 million, which was a 39% increase year-over-year from
$282.6 million in 2020. GoPro.com revenue represented 33.8% and 31.7% of total
revenue for 2021 and 2020, respectively. We shipped 3,145,000 camera units for
the full year 2021, compared to 2,820,000 camera units for the full year 2020.
Our average selling price, which is defined as total revenue divided by camera
units shipped, for the full year 2021 was $369, or a 17% year-over-year
increase, primarily due to 97% of our camera revenue mix being derived from
cameras with a suggested retail price equal to or greater than $300, along with
growth in GoPro subscribers. We had approximately 1.6 million GoPro subscribers
as of December 31, 2021, or a 107% increase year-over-year. Subscription revenue
for the full year 2021 was $52.9 million, or an increase of 131% year-over-year.
Cost of revenue and gross margin
                                                Year ended December 31,         2021 vs 2020          2020 vs 2019
(dollars in thousands)                                          2021                2020                  2019                  % Change                  % Change
Cost of revenue                                             $ 680,963          $    570,064          $    772,088                        19  %                    (26) %
Stock-based compensation                                        1,794                 1,548                 1,902                        16                       (19)
Acquisition-related costs                                       1,152                 4,598                 7,818                       (75)                      (41)
Restructuring costs                                                70                 1,201                    54                       (94)                    2,124
Total cost of revenue                                       $ 683,979          $    577,411          $    781,862                        18  %                    (26) %
Gross margin                                                     41.1  %               35.3  %               34.6  %                   580 bps                    70 bps


2021 Compared to 2020. Gross margin of 41.1% in 2021 increased from 35.3% in
2020, or 580 bps, primarily due to camera sales at higher price points, 475 bps,
increased margin contribution from subscriptions, 58 bps, and better leverage on
fixed costs and operational expenses, 47 bps.
Research and development
                                             Year ended December 31,         2021 vs 2020          2020 vs 2019
(dollars in thousands)                                       2021                2020                  2019                  % Change                  % Change
Research and development                                 $ 123,631          $    110,112          $    125,142                        12  %                   (12) %
Stock-based compensation                                    17,263                13,415                17,167                        29                      (22)

Restructuring costs                                            600                 8,062                   585                       (93)                   1,278
Total research and development                           $ 141,494          $    131,589          $    142,894                         8  %                    (8) %
Percentage of revenue                                         12.2  %               14.8  %               12.0  %


2021 Compared to 2020. The year-over-year increase of $9.9 million, or 8%, in
total research and development expenses in 2021 compared to 2020 reflected a
$13.6 million increase in cash-based personnel-related costs due to an increase
in R&D headcount and a $3.8 million increase in stock-based compensation,
partially offset by a $7.5 million decrease in restructuring costs.
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   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations
Sales and marketing
                                                 Year ended December 31,         2021 vs 2020          2020 vs 2019
(dollars in thousands)                                           2021                2020                  2019                  % Change                % Change
Sales and marketing                                          $ 148,288          $    134,917          $    198,074                       10  %                  (32) %
Stock-based compensation                                         8,045                 5,779                 8,043                       39                     (28)
Restructuring costs                                                361                10,684                   314                      (97)                  3,303
Total sales and marketing                                    $ 156,694          $    151,380          $    206,431                        4  %                  (27) %
Percentage of revenue                                             13.5  %               17.0  %               17.3  %


2021 Compared to 2020. The year-over-year increase of $5.3 million, or 4%, in
total sales and marketing expenses in 2021 compared to 2020 reflected a $13.8
million increase in webstore and subscription provider fees, a $1.8 million
increase in cash-based personnel-related costs and a $2.3 million increase in
stock-based compensation, partially offset by a $10.3 million decrease in
restructuring costs, and a $3.2 million decrease in allocated facilities,
depreciation and other supporting overhead expenses.
General and administrative
                                            Year ended December 31,        2021 vs 2020          2020 vs 2019
(dollars in thousands)                                     2021                2020                  2019                  % Change                  % 

Change

General and administrative                              $ 53,958          $     53,694          $     55,220                         -  %                    (3) %
Stock-based compensation                                  11,548                 9,221                10,076                        25                       (8)

Restructuring costs                                          195                 5,449                   501                       (96)                     988
Total general and administrative                        $ 65,701          $     68,364          $     65,797                        (4) %                     4  %
Percentage of revenue                                        5.7  %                7.7  %                5.5  %


2021 Compared to 2020. The year-over-year decrease of $2.7 million, or 4%, in
total general and administrative expenses in 2021 compared to 2020 reflected a
$5.3 million decrease in restructuring costs, a $3.6 million decrease in legal
consulting fees, and a $2.4 million decrease in allocated facilities and other
supporting overhead expenses, partially offset by a $5.9 million increase in
cash-based personnel-related costs and $2.3 million increase in stock-based
compensation.
Restructuring costs
Second quarter 2020 restructuring. On April 14, 2020, we approved a
restructuring that provided for a reduction of our global workforce by
approximately 20% and the consolidation of certain leased office facilities.
Under the second quarter 2020 restructuring, we recorded restructuring charges
of $29.0 million to date, including a $12.5 million right-of-use asset
impairment primarily related to our headquarter campus, $7.4 million related to
severance, and $9.1 million related to accelerated depreciation and other
charges. The right-of-use asset impairment charge was recorded as a
restructuring expense, primarily in the operating expense financial statement
line items in the Consolidated Statements of Operations.
We ceased using a portion of our headquarters campus in the third quarter of
2020 as part of the second quarter 2020 restructuring. The unused portion of our
headquarters campus has its own identifiable expenses and is not dependent on
other parts of our business, and thus was considered its own asset group. As a
result, we impaired a part of the carrying value of the related right-of-use
asset to its estimated fair value using the discounted future cash flows method.
The discounted future cash flows were based on future sublease rental rates,
future sublease market conditions and a discount rate based on the
weighted-average cost of capital. Based on the results of our assessment, we
recognized a $12.3 million impairment. On October 2021, the Company entered into
a fully executed and consented sublease agreement for this previously ceased-use
portion of our headquarters campus. The sublease term will extend through
December 2026.
First quarter 2017 restructuring. On March 15, 2017, we approved a restructuring
that provided for a reduction of our workforce by approximately 17% and the
consolidation of certain leased office facilities. Under the first quarter
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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
2017 restructuring, we recorded restructuring charges of $23.5 million to date,
including $10.3 million related to severance and $13.2 million related to
accelerated depreciation and other charges. The actions associated with the
first quarter 2017 restructuring were substantially completed by the fourth
quarter of 2017.
See Note 11 Restructuring charges, to the Notes to Consolidated Financial
Statements.
Other income (expense)
                                                 Year ended December 31,          2021 vs 2020           2020 vs 2019
(dollars in thousands)                                           2021                 2020                   2019                  % Change                 % Change
Interest expense                                             $ (22,940)         $     (20,257)         $     (19,229)                      13  %                     5  %

Other income (expense), net                                       (176)                (4,881)                 2,492                      (96)                    (296)
Total other expense, net                                     $ (23,116)         $     (25,138)         $     (16,737)                      (8) %                    50  %


2021 Compared to 2020. Total other expense, net, decreased $2.0 million in 2021
compared to 2020, primarily due to a $5.4 million loss on the partial
extinguishment of our 2022 Notes in 2020 which did not occur in 2021, which was
partially offset by a $3.8 million increase in non-cash interest expense related
to the amortization of the debt discount of our 2022 and 2025 Notes.
Income taxes
                                            Year ended December 31,          2021 vs 2020           2020 vs 2019
(dollars in thousands)                                     2021                  2020                   2019                  % Change                
% Change
Income tax expense (benefit)                           $ (281,071)         $       4,826          $      (4,428)                  (5,924) %                  (209) %


We recorded an income tax benefit of $281.1 million for the year ended December
31, 2021, on a pre-tax net income of $90.1 million. Our income tax benefit for
the year ended December 31, 2021, primarily resulted from a tax expense on
pre-tax book income, offset by the income tax benefit from the full release of
valuation allowances on United States federal and state deferred tax assets and
the release of a portion of our uncertain tax positions as a result of a lapse
of the statute of limitations in certain jurisdictions, as well as income tax
benefits from stock-based compensation and federal and California research and
development credits.
Our 2020 negative effective tax rate of 7.8% was primarily related to a
significant benefit on pre-tax book losses, offset by the valuation allowance on
United States federal and state deferred tax assets and by income taxes paid or
accrued in profitable foreign jurisdictions (primarily wholly owned subsidiaries
in Europe).
See Note 8 Income taxes, to the Notes to Consolidated Financial Statements for
additional information.

Quarterly results of operations
The following table sets forth our unaudited quarterly consolidated results of
operations for each of the eight quarterly periods in the two-year period ended
December 31, 2021.
                                                                                          Three months ended
(dollars in thousands,       Dec. 31,          Sept. 30,           June 30,          March 31,           Dec. 31,          Sept. 30,           June 30,          March 31,
except per share amounts)      2021               2021               2021               2021               2020               2020               2020               2020
Revenue                    $ 391,149          $ 316,669          $ 249,586          $ 203,680          $ 357,772          $ 280,507          $ 134,246          $ 119,400
Gross profit                    161,074            138,053             99,282             78,696            136,083             99,312             40,692             38,427
Operating expenses (1)          102,449             89,452             89,780             82,208             80,728             90,458             85,606             94,541
Net income (loss)          $  52,626          $ 311,761          $  16,952          $ (10,168)         $  44,413          $   3,307          $ (50,975)         $ (63,528)

Net income (loss) per
share:
Basic                      $    0.34          $    2.01          $    0.11          $   (0.07)         $    0.29          $    0.02          $   (0.34)         $   (0.43)
Diluted                    $    0.32          $    1.92          $    0.10          $   (0.07)         $    0.28          $    0.02          $   (0.34)         $   (0.43)

(1) Operating expenses include restructuring expenses of $13.7 million
for the quarter ended September 30, 2020and $11.0 million

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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations

for the quarter ended June 30, 2020.


Liquidity and Capital Resources
The following table presents selected financial information as of December 31,
2021 and December 31, 2020:
(dollars in thousands)                                   December 31, 2021         December 31, 2020
Cash and cash equivalents                               $        401,087          $        325,654
Marketable securities                                            137,830                         -

Total cash, cash equivalents and marketable securities $538,917

       $        325,654
Percentage of total assets                                            43  %                     42  %


Our primary source of cash is receipts from sales of our products and services.
Other sources of cash are from proceeds from the issuance of convertible notes,
employee participation in the employee stock purchase plan, the exercise of
employee stock options, tax refunds and facility subleases. 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, other costs of revenue, repurchases of convertible
notes, interest, and taxes.
Our liquidity position has historically been impacted by seasonality, which is
primarily driven by higher revenues during the second half of the year as
compared to the first half. Net cash provided by operating activities during the
second half of 2021 and 2020 was $231.5 million and $205.8 million,
respectively, which represents more than 100% of the total cash provided by
operating activities for each respective year.
As of December 31, 2021, our cash, cash equivalents and marketable securities
totaled $538.9 million, a $211.3 million increase from 2020. Our cash, net of
the outstanding principal balance of the 2022 and 2025 Notes, as of December 31,
2021 was $270.1 million. The overall cash provided by operating activities of
$229.2 million for the year ended December 31, 2021 was attributable to net
income of $371.2 million, net cash inflows from changes in our working capital
of $61.3 million, net cash inflows from other non-cash expenses of $70.2
million, partially offset by a non-cash tax benefit of $273.5 million. The
non-cash tax benefit of $273.5 million was primarily related to the release of
tax valuation allowances against deferred tax assets that we consider is more
likely than not to be realized against future income. Working capital changes
during the year ended December 31, 2021, of $61.3 million was the result of a
decrease in inventory of $11.5 million, an increase in accounts payable and
other liabilities of $56.3 million, and an increase in deferred revenue of $19.2
million, partially offset by an increase in accounts receivable of $8.1 million
and an increase in prepaid expenses and other assets of $17.5 million. As
of December 31, 2021, $11.5 million of cash was held by our foreign
subsidiaries.
Convertible Notes
In April 2017, we issued $175.0 million aggregate principal amount of the 2022
Notes in a private placement to purchasers for resale to qualified institutional
buyers. The 2022 Notes mature on April 15, 2022, unless earlier repurchased or
converted into shares of Class A common stock subject to certain conditions. The
2022 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 2022 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 2022 Notes
semi-annually, which has historically been due on April 15 and October 15 of
each year. We have one interest payment remaining, which will be due on
April 15, 2022. Proceeds received from the issuance of the 2022 Notes are
allocated between a liability component (short-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 2022 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 2022 Notes to pay the
prepayment amount. The aggregate
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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
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 Sheets (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 2022 Convertible
Senior Notes offering of approximately $91 million were used for general
corporate purposes.
In the fourth quarter of 2020, 8.8 million shares out of the 9.2 million shares
of Class A common stock underlying the Prepaid Forward entered into as part of
our 2022 Notes were early settled and delivered to us. In April 2021, the
remaining 0.4 million shares of Class A common stock underlying the Prepaid
Forward were early settled and delivered to us. There was no financial statement
impact due to the return of shares; however, shares outstanding for corporate
law purposes were reduced by the early settlement.
In November 2020, in connection with the offering of the 2025 Notes, we
repurchased $50.0 million of aggregate principal amount of the April 2022 Notes
reducing the amount owed on the 2022 Notes to $125 million.
In November 2020, we issued $143.8 million aggregate principal amount of 2025
Notes in a private placement to purchasers for resale to qualified institutional
buyers. The 2025 Notes mature on November 15, 2025, unless earlier repurchased
or converted into shares of Class A common stock subject to certain conditions.
The 2025 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
107.1984 shares of common stock per $1,000 principal amount of the 2025 Notes,
which is equivalent to an initial conversion price of approximately $9.3285 per
share of common stock, subject to adjustment. We pay interest on the 2025 Notes
semi-annually, which is due on May 15 and November 15. Proceeds received from
the issuance of the 2025 Notes are 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 offering of the 2025 Notes, we entered into privately
negotiated capped call transactions with certain financial institutions (Capped
Calls). We used $10.2 million of the net proceeds from the sale of the 2025
Notes to purchase the Capped Calls and $56.2 million of the net proceeds to
repurchase $50.0 million of aggregate principal amount of the 2022 Notes. The
remaining net proceeds were used for general corporate purposes.
The following table summarizes our contractual obligations related to the 2022
and 2025 Convertible Notes as of December 31, 2021 and the expected timing of
those payments:
(in thousands)                          Total        Next 12 Months       Beyond 12 Months
Short-term and Long-term debt (1)    $ 278,125      $       128,984      $  

149 141

Total cash contractual obligations $278,125 $128,984 $

149 141


(1) Our convertible senior notes are due in April 2022 and November 2025. The
balances include accrued and unpaid interest as of December 31, 2021. Refer to
Note 4 Financing arrangements, for additional discussion regarding our 2022 and
2025 Notes.
Other Contractual Commitments
In the ordinary course of business, we enter into multi-year agreements to
purchase sponsorships with event organizers, resorts and athletes as part of our
marketing efforts; software licenses related to our financial and IT systems;
operating lease arrangements to support our operations in the US and
international locations; and various other contractual commitments. The
following table summarizes our other contractual obligations as of December 31,
2021, and the expected timing of those payments:

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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
(in thousands)                          Total        Next 12 Months       Beyond 12 Months
Operating lease obligations (1)      $  61,394      $        12,727      $         48,667
Sponsorship commitments                  1,059                  960                      99
Other contractual commitments           65,484               27,052                38,432

Total cash contractual obligations $127,937 $40,739 $

87 198


(1) Operating lease obligations exclude cash inflows from existing contractual
facility subleases thru the end of 2026 as of December 31, 2021.
See Note 9 Commitments, contingencies and guarantees, for a discussion regarding
facility leases and other contractual commitments in the Notes to Consolidated
Financial Statements.
Liquidity
Based on our most current projections, we believe that our cash, cash
equivalents, 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 one year from the issuance of these financial statements.
•The $125.0 million aggregate principal amount of the 2022 Notes matures on
April 15, 2022, unless earlier repurchased or converted into shares of Class A
common stock subject to certain conditions. We intend to deliver cash up to the
principal amount of the 2022 Notes.
•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 January 2021, we entered into a Credit Agreement which provides for a
revolving credit facility under which we may borrow up to an aggregate amount of
$50.0 million. Our credit facility will terminate and any outstanding borrowings
become due and payable on the earlier of (i) January 2024 and (ii) unless we
have cash in a specified deposit account in an amount equal to or greater than
the amount required to repay our convertible notes due April 2022, 91 days prior
to the maturity date of such convertible notes. No borrowings have been made
from the credit facility to date. (See Note 4 Financing arrangements, in the
Notes to Consolidated Financial Statements for additional information.)
In the future, we may require additional financing to respond to business
opportunities, challenges or unforeseen circumstances. If we are unable to
obtain adequate debt or equity financing when we require it or on terms
acceptable to us, especially in light of the market volatility and uncertainty
as a result of the COVID-19 pandemic, our ability to grow or support our
business, repay debt and respond to business challenges could be significantly
limited. Although we believe we have adequate sources of liquidity over the long
term, the success of our operations and the global economic outlook, in each
case, in light of the market volatility and uncertainty as a result of the
COVID-19 pandemic, among other factors, could impact our business and liquidity.
In January 2022, our board of directors authorized the repurchase of up to $100
million of its Class A common stock. Share repurchases under the program may be
made from time-to-time through open market purchases, block trades or otherwise
in compliance with all federal and state securities laws and state corporate law
and in accordance with the single broker, timing, price and volume guidelines
set forth in Rule 10b­18 under the Securities Exchange Act of 1934, as amended,
as such guidelines may be modified by the SEC from time to time. We expect to
fund repurchases through cash generated from operations. This stock repurchase
program has no time limit and may be modified, suspended, or discontinued at any
time.
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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
Summary of Cash Flow
The following table summarizes our cash flows for the periods indicated:
                                            Year ended December 31,          2021 vs 2020           2020 vs 2019
(in thousands)                                             2021                  2020                   2019                  % Change                 % Change
Net cash provided by (used in):
Operating activities                                   $  229,153          $      93,782          $     (24,444)                     144  %                   484  %
Investing activities                                   $ (143,719)         $       9,511          $      22,771                   (1,611)                     (58) %
Financing activities                                   $   (9,889)         $      71,977          $      (1,044)                    (114) %                 6,994  %


Cash flows from operating activities
Cash provided by operating activities of $229.2 million for the year ended
December 31, 2021 was attributable to net income of $371.2 million, net cash
inflows from changes in our working capital of $61.3 million, net cash inflows
from other non-cash expenses of $70.2 million, partially offset by a non-cash
tax benefit of $273.5 million. The non-cash tax benefit of $273.5 million was
primarily related to the release of tax valuation allowances against deferred
tax assets that we consider is more likely than not to be realized against
future income. Working capital changes during the year ended December 31, 2021,
of $61.3 million was the result of a decrease in inventory of $11.5 million, an
increase in accounts payable and other liabilities of $56.3 million, and an
increase in deferred revenue of $19.2 million, partially offset by an increase
in accounts receivable of $8.1 million and an increase in prepaid expenses and
other assets of $17.5 million.
Cash flows from investing activities
Cash used in investing activities of $143.7 million for the year ended December
31, 2021, was primarily attributable to purchases of marketable securities of
$146.5 million and net purchases of property and equipment of $5.5 million,
partially offset by maturities of marketable securities of $8.3 million.
Cash flows from financing activities
Cash used in financing activities of $9.9 million for the year ended December
31, 2021, was primarily attributable to $17.4 million in tax payments for net
restricted stock unit (RSU) settlements, partially offset by $7.5 million
received from stock purchases made through our employee stock purchase plan and
employee stock option exercises.
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. Our exposure under these agreements is unknown because it
involves claims that may be made against us in the future, but have not yet been
made. It is not possible to determine the maximum potential amount under these
indemnification agreements due to our limited history with indemnification
claims and the unique facts and circumstances involved in each particular
agreement. As of December 31, 2021, we have not paid any claims, nor has it been
required to defend any action related to its indemnification obligations.
However, we may record charges in the future as a result of these
indemnification obligations.

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
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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
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, mounts,
accessories, subscriptions and services, and the related implied post contract
support to customers. We recognize revenue when control of the promised goods or
services are 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, which
includes sales incentives provided to customers.
For most of our revenue, revenue is recognized at the time the product is
delivered and when collection is considered probable. For the Company's
subscription services, revenue is recognized on a ratable basis over the
subscription term, with payments received in advance of services being rendered
recorded in deferred revenue. For customers who purchase products directly from
GoPro.com, we retain a portion of the risk of loss on these sales during
transit, which are accounted for as fulfillment costs.
Our camera sales contain multiple performance obligations that can include the
following four separate obligations: a) a camera hardware component (which may
be bundled with hardware accessories) and the embedded firmware essential to the
functionality of the camera component delivered at the time of sale, b) the
implicit right to our downloadable free apps and software solutions, c) the
implied right for the customer to receive post contract support after the
initial sale (PCS), and d) a subscription service. 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, chat and telephone support.
Judgment is required to properly identify the units of accounting for our camera
sales arrangements.
For our camera sale arrangements with multiple performance obligations, revenue
is allocated to each performance obligation based on its relative standalone
selling price. Standalone selling prices are based on observable prices at which
we separately sell our products, subscriptions, and services. If a standalone
selling price is not directly observable, then we estimate the standalone
selling prices considering market conditions and entity-specific factors. For
example, the standalone selling price for PCS is determined based on a cost-plus
approach, which incorporates the level of support provided to customers,
estimated costs to provide our support, and the amount of time and cost that is
allocated to our efforts to develop the undelivered elements. 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
camera sales arrangement, any significant change in these allocations could
impact the timing of revenue recognition, which could have a material effect on
our financial condition and results of operations.
Our standard terms and conditions 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. 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 return liability
along with a right to recover assets are recorded for future product returns.
Return trends are influenced by product life cycles, new product introductions,
market acceptance of products, product sell-through, the type of customer,
seasonality and other factors. Return rates may fluctuate over time, but are
sufficiently predictable to allow 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.
We provide our customers with sales incentives through various programs,
including cooperative advertising, marketing development funds and other
incentives. Sales incentives are considered to be 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.
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                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
Inventory valuation
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 $86.4 million and $97.9 million as of December 31, 2021
and 2020, 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 market conditions, 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.
Warranty
We establish a liability for estimated product warranty costs at the time
product revenue is recognized. We generally provide a 12-month warranty coverage
on all of our products except in the European Union where we provide a 24-month
warranty. The Company also offers extended warranty programs for a fee. Our
estimate of costs to service our warranty obligations are based on historical
experience of repair and replacement of the associated products and expectations
of future conditions. 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 and state research and development
tax credits and other adjustments. Our effective tax rate was negative 312.0%,
negative 7.8% and positive 23.2% in 2021, 2020 and 2019, 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 primarily affected by the tax rates
that apply to our foreign earnings.
Each quarter we assess the recoverability of our existing deferred tax assets
under ASC Topic 740. We assess available positive and negative evidence to
estimate whether sufficient future taxable income will be generated to use our
existing deferred tax assets. In the assessment for the period ended September
30, 2021, we concluded it was more likely than not that our deferred tax assets
related to future United States federal and state income taxes will be
realizable. Therefore, in 2021 the United States federal and state valuation
allowances were released, which resulted in a $284.6 million non-cash net
benefit to earnings for the year ended December 31, 2021. Our Company's foreign
deferred tax assets in each jurisdiction are supported by taxable income or in
the case of acquired companies, by the future reversal of deferred tax
liabilities. It is more likely than not that our Company's foreign deferred tax
assets will be realized and thus, a valuation allowance is not required on its
foreign deferred tax assets. We will continue to assess the realizability of the
deferred tax assets in each of the applicable jurisdictions going forward.
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 and we can provide no assurance that the final
tax outcome of these matters will not be materially different, we believe that
we have adequately reserved for our uncertain tax positions.
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.
                                       53
--------------------------------------------------------------------------------

                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
Impairment of goodwill and long-lived assets. We perform an annual assessment of
our goodwill during the fourth quarter of each calendar year or more frequently
if indicators of potential impairment exist, such as an adverse change in
business climate or a decline in the overall industry demand, that would
indicate it is more likely than not that the fair value of our single reporting
unit would be less than its carrying value. If we determine that it is more
likely than not that the fair value of our single reporting unit is less than
its carrying value, we measure the amount of impairment as the amount the
carrying value of our single reporting entity exceeds the fair value. As of
December 31, 2021, we determined that no impairment of the carrying value of
goodwill was required.
Long-lived assets, such as property and equipment, intangible assets subject to
amortization and right-of-use assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
group may not be recoverable. Recoverability of assets to be held and used is
measured by comparing the carrying amount to the estimated future undiscounted
cash flows expected to be generated by the asset group. If it is determined that
an asset group is not recoverable, an impairment charge is recognized for the
amount by which the carrying amount of the asset group exceeds its fair value.
We recorded a $12.5 million right-of-use asset impairment in 2020 primarily
related to our headquarters campus. We used the following significant
assumptions to determine the impairment charge: future sublease rental rates,
future sublease market conditions and a discount rate based on the
weighted-average cost of capital.
Convertible Senior Notes
We account for our convertible senior notes in accordance with ASC 470-20, Debt
with Conversion and Other Options. As our 2022 Notes and 2025 Notes have a net
settlement feature and may be settled wholly or partially in cash upon
conversion, we are required to separately account for the liability (debt) and
equity (conversion option) components of the instrument. The carrying amount of
the liability component of the instrument is determined by estimating the fair
value of a similar liability without the conversion option using income and
market based approaches. For the income-based approach, we use a convertible
bond pricing model that includes several assumptions such as volatility and the
risk-free rate. For the market-based approach, we evaluate issuances of
convertible debt securities by other companies at the time of issuance. The
amount of the equity component is then calculated by deducting the fair value of
the liability component from the principal amount of the instrument. The
difference between the principal amount and the liability component represents a
debt discount that is amortized to interest expense over the respective terms of
the 2022 Notes and 2025 Notes using an effective interest rate method. The
equity component is not remeasured as long as it continues to meet the
conditions for equity classification. In accounting for the issuance costs
related to the 2022 Notes and 2025 Notes, the allocation of issuance costs
incurred between the liability and equity components were based on their
relative values. Similarly, in accordance with ASC 470-20, transactions
involving contemporaneous exchanges of cash between the same debtor and creditor
in connection with the issuance of a new debt obligation and satisfaction of an
existing debt obligation by the debtor, such as the contemporaneous 2022 Notes
partial repurchase and issuance of the 2025 Notes, should be evaluated as a
modification or an exchange transaction depending on whether the exchange is
determined to have substantially different terms. The 2022 Notes partial
repurchase and issuance of the 2025 Notes were deemed to have substantially
different terms due to the significant difference between the value of the
conversion option immediately prior to and after the exchange, and consequently,
we accounted for the 2022 Notes partial repurchase as a debt extinguishment. The
total consideration for the 2022 Notes partial repurchase was separated into
liability and equity components by estimating the fair value of a similar
liability without a conversion option and assigning the residual value to the
equity component. The effective interest rate used to estimate the fair value of
the liability component of the 2022 Notes partial repurchase is based on the
income approach used to determine the effective interest rate of the 2025 Notes,
adjusted for the remaining term of the 2022 Notes. The gain or loss on
extinguishment of the debt is subsequently determined by comparing repurchase
consideration allocated to the liability component to the sum of the carrying
value of the liability component, net of the proportionate amounts of
unamortized debt discount and remaining unamortized debt issuance costs.

                                       54
--------------------------------------------------------------------------------

                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
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;
•adjusted EBITDA excludes the amortization of point of purchase (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 restructuring and other
related costs which primarily include severance-related costs, stock-based
compensation expenses, facilities consolidation charges recorded in connection
with restructuring actions announced in the fourth quarter of 2016, first
quarter of 2017, first quarter of 2018 and second quarter of 2020, including
right-of-use asset impairment charges, and the related ongoing operating lease
cost of those facilities recorded under ASC 842, Leases. 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;
•adjusted EBITDA and non-GAAP net income (loss) exclude the loss on
extinguishment of debt because it is not reflective of ongoing operating results
in the period, and such losses vary in the frequency and amount;
•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
                                       55
--------------------------------------------------------------------------------

                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations
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 vary significantly based on the timing and
magnitude of our acquisition transactions and the maturities of the businesses
being acquired. Although we exclude the amortization of acquired intangible
assets from our non-GAAP net income (loss), management believes that it is
important for investors to understand that such intangible assets were recorded
as part of purchase accounting and contribute to revenue generation;
•non-GAAP net income (loss) excludes non-cash interest expense. In connection
with the issuance of the Convertible Senior Notes in April 2017 and November
2020, we are required to recognize non-cash interest expense, such as the
amortization of debt discounts, in accordance with the authoritative accounting
guidance for convertible debt that may be settled in cash;
•non-GAAP net income (loss) includes income tax adjustments. We utilize 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.
The following tables present a reconciliation of net income (loss) to adjusted
EBITDA:
                                          Three months ended December 31,
     (in thousands)                                  2021                            2020
     Net income                       $                         52,626            $ 44,413
     Income tax expense (benefit)                                 (392)                116
     Interest expense, net                                       5,701               5,442
     Depreciation and amortization                               2,363               3,570
     POP display amortization                                      737                 708
     Stock-based compensation                                   10,423               8,037

     Loss on extinguishment of debt                                  -               5,389
     Restructuring and other costs                                 113                  69
     Adjusted EBITDA                  $                         71,571            $ 67,744



                                                           Year ended December 31,
 (in thousands)                      2021           2020           2019            2018            2017
 Net income (loss)                $ 371,171      $ (66,783)     $ (14,642)  

($109,034) ($182,873)

Income taxes (benefits) (281,071) 4,826 (4,428)

         1,359           6,486
 Interest expense                    22,678         19,993         17,872   

17,278 12,804

Depreciation and amortization 10,962 19,065 26,268

35 063 41 478

 POP display amortization             2,759          4,176          7,504   

13,482 19,190

 Stock-based compensation            38,650         29,963         37,188   

40,887 51,255

 Loss on extinguishment of debt           -          5,389              -               -               -

Restructuring and other costs 2,649 26,571 2,196

       22,743          20,292
 Adjusted EBITDA                  $ 167,798      $  43,200      $  71,958      $   21,778      $  (31,368)


                                       56
--------------------------------------------------------------------------------

                                  GoPro, Inc.

Management report and analysis of the financial situation and the results of

                                   Operations

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)                                  2021                                       2020
Net income                                                      $         52,626                            $      44,413
Stock-based compensation                                                  10,423                                    8,037
Acquisition-related costs                                                     71                                      723
Restructuring and other costs                                                113                                       69
Non-cash interest expense                                                  3,673                                    3,018

Loss on extinguishment of debt                                                 -                                    5,389
Income tax adjustments                                                      (759)                                    (585)
Non-GAAP net income                                             $         66,147                            $      61,064

GAAP diluted net income per share                               $           0.32                            $        0.28
Non-GAAP diluted net income per share                           $           0.41                            $        0.39

GAAP and non-GAAP shares for diluted net income per share                162,742                                  156,464



                                                                           Year ended December 31,
(in thousands)                                2021               2020               2019               2018                2017
Net income (loss)                         $ 371,171          $ (66,783)    

($14,642) ($109,034) ($182,873)
Stock-based compensation

                     38,650             29,963             37,188              40,887              51,255
Acquisition-related costs                     1,152              4,598              7,818              11,456               8,991
Restructuring and other costs                 2,649             26,571              2,196              22,743              20,292
Non-cash interest expense                    14,208             10,366              8,987               8,112               5,345
Loss on extinguishment of debt                    -              5,389                  -                   -                   -
Gain on sale and license of intellectual
property                                          -                  -                  -              (5,000)                  -
Income tax adjustments                     (281,762)             2,675             (6,292)             (1,073)              1,123
Non-GAAP net income (loss)                $ 146,068          $  12,779      

$35,255 ($31,909) ($95,867)

Diluted net earnings (loss) per share under GAAP $2.27 $(0.45)

$(0.10) $(0.78) $(1.32)
Non-GAAP diluted net earnings (loss) per share

                                     $    0.90          $    0.08      

$0.24 $(0.23) $(0.69)

GAAP shares for diluted net income (loss)
per share                                   163,178            149,037            144,891             139,495             138,056
Add: effect of dilutive shares                    -              3,096              1,580                   -                   -
Non-GAAP shares for diluted net income
(loss) per share                            163,178            152,133            146,471             139,495             138,056



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