Commission file number: 001-36514

(Exact name of registrant as specified in its charter)

(650) 332-7600

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ☑    No ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of September 30, 2016 , 103,968,889 and 36,596,489 shares of Class A and Class B common stock were outstanding, respectively.

(unaudited)

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

(unaudited)

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

(unaudited)

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

GoPro, Inc. (GoPro or the Company) makes mountable and wearable cameras, drones and accessories. These GoPro products are sold globally through retailers, wholesale distributors and on the Company's website. The Company's global corporate headquarters are located in San Mateo, California.

Basis of presentation . The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The Company's fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30, and September 30. The condensed consolidated financial statements reflect all adjustments (which are normal and recurring in nature) that management believes are necessary for the fair statement of the Company's financial statements, but are not necessarily indicative of the results expected for the full fiscal year or any other future period. The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP. This Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K (Annual Report) for the year ended December 31, 2015 . There have been no significant changes in the Company's accounting policies from those disclosed in its Annual Report.

Principles of consolidation. These condensed consolidated financial statements include all the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of estimates. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company's condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions made by management include those related to revenue recognition (including sales returns, implied post contract support and marketing allowances), stock-based compensation, inventory valuation, product warranty liabilities, the valuation and useful lives of long-lived assets (property and equipment, intangible assets and goodwill) and income taxes. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from management's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations could be affected.

Comprehensive income (loss). For all periods presented, comprehensive income (loss) approximated net income (loss). Therefore, the condensed consolidated statements of comprehensive income (loss) have been omitted.

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

Recent accounting pronouncements

In March and April 2016, the Company completed acquisitions of two privately-held mobile editing application companies for total cash consideration of approximately $104 million . The aggregate allocation of the purchase prices primarily included $17.4 million of identifiable intangible assets, $3.4 million of net deferred tax liabilities and approximately $89 million of residual goodwill. Net tangible assets acquired were not material. Goodwill is primarily attributable to expected synergies in the technologies that can be leveraged by the Company in future software related offerings. Goodwill is not expected to be deductible for U.S. income tax purposes. The operating results of the acquired companies have been included in the Company's condensed consolidated financial statements for the nine months ended September 30, 2016 from the date of acquisition.

The acquired companies were headquartered and are located in Austin, Texas and Paris, France. In addition to the amounts above, aggregate deferred cash and stock compensation of up to approximately $37 million is payable to certain continuing employees subject to meeting specified future employment conditions. This amount is being recognized as compensation expense over the requisite service periods of up to four years from the respective acquisition dates.

Actual and pro forma results of operations for these acquisitions have not been presented because they do not have a material impact to the Company's consolidated results of operations, either individually or in aggregate.

The Company's assets that are measured at fair value on a recurring basis within the fair value hierarchy are summarized as follows:

(1) Included in "cash and cash equivalents" in the accompanying condensed consolidated balance sheets. Cash balances were  $126.6 million and $228.6 million as of September 30, 2016 and December 31, 2015 , respectively.

Cash equivalents and marketable securities are classified as Level 1 or Level 2 because the Company uses quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. At  September 30, 2016  and  December 31, 2015 , the Company had no financial assets or liabilities that were classified as Level 3, which are valued based on inputs supported by little or no market activity. There were no transfers of financial assets between levels during the  nine months ended  September 30, 2016 .

The remaining contractual maturities of available-for-sale marketable securities are as follows:

At September 30, 2016 and  December 31, 2015 , the amortized cost of the Company's cash equivalents and marketable securities approximated their fair value and there were no material unrealized gains or losses, either individually or in the aggregate.

For certain other financial assets and liabilities, including accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.

The following sections and tables provide details of selected balance sheet items.

Inventory

Property and equipment, net

The Company has committed to plans to vacate and sublet certain leased office facilities. Changes in estimated useful life of associated leasehold improvements and office equipment are expected to result in accelerated depreciation expense of approximately $10 million , including $4.3 million recorded for the three months ended September 30, 2016 and $5.4 million ratably over an estimated remaining period of 11 months.

Intangible assets and goodwill

Purchased technology acquired in 2016 has an estimated useful life of four years. During the three months ended September 30, 2016 , the Company recorded an impairment charge of $6.0 million to research and development expense for IPR&D assets acquired in 2015 that were abandoned in the third quarter of 2016. As of  September 30, 2016 , technological feasibility has not been established for the remaining IPR&D assets, which have no alternative future use and, as such, continue to be accounted for as indefinite-lived intangible assets.

Amortization expense was $6.5 million and $2.7 million in the nine months ended September 30, 2016 and 2015 , respectively. At September 30, 2016 , the expected amortization expense of amortizable intangible assets for future periods is as follows:

The carrying amount of goodwill was $146.5 million and $57.1 million as of September 30, 2016 and December 31, 2015 , respectively. The increase in 2016 was entirely attributable to the acquisitions described above in Note 2.

Accrued liabilities

In March 2016, the Company entered into a Credit Agreement (Credit Agreement) with JPMorgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, National Association, as co-agent, and the lender parties thereto. The Credit Agreement provides for a secured revolving credit facility (Credit Facility) under which the Company may borrow up to an aggregate of $250 million and the Company and lenders may increase the total commitments under the Credit Facility to up to $300 million , subject to certain conditions. The Credit Facility will terminate, and all outstanding borrowings become due and payable, in March 2021.

The amount that may be borrowed under the Credit Facility is based upon a borrowing base formula with respect to the Company's inventory and accounts receivable balances. Borrowed funds accrue interest, at the Company's election, based on an annual rate of (a) London Interbank Offered Rate (LIBOR) or (b) the administrative agent's base rate, plus an applicable margin of between 1.50% and 2.00% for LIBOR rate loans, and between 0.50% and 1.00% for base rate loans, depending on the level of utilization of the Credit Facility. The Company is required to pay a commitment fee on the unused portion of the Credit Facility of 0.25% or 0.375% per annum, based on the level of utilization of the Credit Facility. Amounts owing under the Credit Agreement and related credit documents are guaranteed by the Company and its material subsidiaries. The Company and its Cayman and Netherlands subsidiaries have also granted security interests in substantially all of their assets to collateralize these obligations.

The Credit Agreement contains customary affirmative covenants, such as financial statement reporting requirements and delivery of borrowing base certificates, as well as customary covenants that limit the ability of the Company and its subsidiaries to, among other things, pay dividends, incur debt, create liens and encumbrances, make investments and redeem or repurchase stock. The Company is required to maintain a minimum fixed charge coverage ratio if and when the unborrowed availability under the Credit Facility is less than the greater of $25.0 million or 10.0% of the borrowing base at such time. The Credit Agreement contains customary events of default, such as the failure to pay obligations when due, initiation of bankruptcy or insolvency proceedings, defaults on certain other indebtedness, change of control or breach of representations and warranties or covenants. Upon an event of default, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral.

As of September 30, 2016, the Company may borrow up to approximately $112 million under the Credit Facility and was in compliance with all financial covenants contained in the Credit Agreement. No borrowings have been made from the Credit Facility to date.

Stock repurchase program . On September 30, 2016, the share repurchase program authorized by the Company's board of directors in September 2015 to repurchase up to $300 million of the Company's Class A common stock expired and has not been renewed. The repurchase program did not obligate the Company to acquire any specific number of shares. At December 31, 2015 , the Company had a remaining share repurchase authorization of  $264.4 million and no shares were repurchased during 2016.

CEO stock contributions. In the first half of 2015, the CEO contributed an aggregate 5.2 million shares of Class B common stock to the Company without consideration per the terms of a Contribution Agreement dated December 28, 2011, and amended on May 11, 2015, representing all of the then remaining shares subject to the contribution obligations. These shares contributed by the CEO were retired during 2015. Refer to the audited financial statements contained in the Company's 2015 Annual Report.

Equity incentive plans . The Company has outstanding equity grants from its  three stock-based employee compensation plans: the 2014 Equity Incentive Plan (2014 Plan), the 2010 Equity Incentive Plan (2010 Plan) and the 2014 Employee Stock Purchase Plan (ESPP). No new options or awards have been granted under the 2010 Plan since June 2014. Outstanding options and awards under the 2010 Plan continue to be subject to the terms and conditions of the 2010 Plan. Options granted under the 2014 Plan generally expire within  10 years  from the date of grant and generally vest over  four years . Restricted stock units (RSUs) granted under the 2014 Plan generally vest annually over a  four -year period based upon continued service and are settled at vesting in shares of the Company's Class A common stock. The ESPP allows eligible employees to purchase shares of the Company's Class A common stock through payroll deductions at a price equal to  85%  of the lesser of the fair market value of the stock as of the first date or the ending date of each six month offering period. For additional information regarding the Company's equity incentive plans, please refer to the audited financial statements contained in its 2015 Annual Report.

S tock options

A summary of the Company's stock option activity for the nine months ended September 30, 2016 is as follows:

The aggregate intrinsic value of the stock options outstanding as of  September 30, 2016  represents the value of the Company's closing stock price on September 30, 2016 in excess of the exercise price multiplied by the number of options outstanding.

Restricted stock units

A summary of the Company's RSU activity for the nine months ended September 30, 2016 is as follows:

In June 2014, the Company granted an award of 4.5 million RSUs covering shares of the Company's Class B common stock to the Company's CEO (CEO RSUs), which included 1.5 million RSUs that vested immediately upon grant and 3.0 million RSUs that were subject to both a market-based vesting condition and a three-year service-based vesting condition. The market-based condition was achieved in January 2015. Stock-based compensation expense related to the CEO RSUs was $5.5 million and $26.1 million for the nine months ended September 30, 2016 and 2015 , respectively.

Employee stock purchase plan. In the nine months ended September 30, 2016 and 2015 , the Company issued 668,107 and 436,924 shares under its ESPP at weighted average prices of $9.15 and $26.88 , respectively. The weighted-average fair value of each right to purchase shares of the Company's Class A common stock granted under the ESPP for these periods was $4.23 and $15.13 , respectively.

Stock-based compensation expense. The Company measures compensation expense for all stock-based payment awards based on the estimated fair values on the date of the grant. The fair value of stock options granted and ESPP issuances is estimated using the Black-Scholes option pricing model. The fair value of RSUs is determined using the Company's closing stock price on the date of grant. There have been no significant changes in the Company's valuation assumptions from those disclosed in its 2015 Annual Report.

The following table summarizes stock-based compensation included in the condensed consolidated statements of operations:

At September 30, 2016 , total unearned stock-based compensation of $164.2 million related to stock options, RSUs and ESPP is expected to be recognized over a weighted average period of 2.8 years.

Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding, including all potentially dilutive common shares.

The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to  one  vote per share and each share of Class B common stock is entitled to  ten  votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock and has no expiration date. Each share of Class B common stock will convert automatically into  one share of Class A common stock upon the date when the outstanding shares of Class B common stock represent less than  10%  of the aggregate number of shares of common stock then outstanding. Class A common stock is not convertible into Class B common stock. The computation of the diluted net income (loss) per share of Class A common stock assumes the conversion of Class B common stock.

The following table presents the calculations of basic and diluted net income (loss) per share:

The following potentially dilutive shares were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive:

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

The Company recorded an income tax benefit of $12.3 million for the three months ended September 30, 2016 due to a pre-tax net loss, which resulted in an effective tax rate of 10.6% . The lower effective tax rates for the three and nine months ended September 30, 2016 compared to 2015 resulted from the Company providing a net tax benefit on pre-tax losses in the United States, which was offset by income taxes paid at lower rates in profitable foreign jurisdictions (primarily Europe). The Company's provision for income taxes in each period has differed from the tax computed at U.S. federal statutory tax rates due to state taxes, the effect of non-U.S. operations, deductible and non-deductible stock-based compensation expense, federal research and development tax credits, and adjustments to unrecognized tax benefits.

The Company is currently under examination by the Internal Revenue Service for the 2012 through 2014 tax years and is unable to estimate the potential impact that the examination may have on income tax expense. If the examination is resolved unfavorably, there is a possibility it may have a material negative impact on the Company's results of operations.

At September 30, 2016 and December 31, 2015 , the Company's gross unrecognized tax benefits were $49.3 million and $36.3 million , respectively. If recognized, $31.2 million of these unrecognized tax benefits (net of U.S. federal benefit) at September 30, 2016 would be recorded as a reduction of future income tax provision. These unrecognized tax benefits relate primarily to unresolved matters with taxing authorities regarding the Company's transfer pricing positions and tax positions based on the Company's interpretation of certain U.S. trial and appellate court decisions, which remain subject to appeal and therefore could be overturned in future periods. The Company's existing tax positions will continue to generate an increase in unrecognized tax benefits in subsequent periods. Management believes events that could occur in the next 12 months and cause a material change in unrecognized tax benefits include, but are not limited to, the completion of examinations by the U.S. or foreign taxing authorities and the expiration of statute of limitations on the Company's tax returns. Although the completion, settlement and closure of any audits is uncertain, it is reasonably possible that the total amount of unrecognized tax benefits will materially increase within the next 12 months. However, given the number of years remaining that are subject to examination, the range of the reasonably possible change cannot be estimated reliably.

The Company has agreements for certain contract manufacturing and engineering services with a vendor affiliated with one of the Company's investors. The Company recorded no expense in the nine months ended September 30, 2016 and 2015 . The Company made payments of $0.2 million to this vendor in 2015. As of September 30, 2016 and December 31, 2015 , the Company had no accounts payable associated with this vendor.

The Company incurs costs for Company-related chartered aircraft fees for the use of the CEO's private plane. The Company recorded expense of $0.7 million and $0.7 million in the nine months ended September 30, 2016 and 2015 , respectively. As of September 30, 2016 and December 31, 2015 , the Company had accounts payable associated with these aircraft fees of zero and $0.1 million , respectively.

In 2013, the Company entered into a three -year agreement, which was amended in July 2016 to continue through the end of 2016, with a company affiliated with the son of one of the members of the Company's board of directors to acquire certain naming rights to a kart racing facility. As consideration for these naming rights, the Company paid  $0.5 million  over the three year period. As of September 30, 2016 , the Company has recorded cumulative expense of $0.5 million , and has also provided  100  GoPro cameras at no cost each year. As of September 30, 2016 and December 31, 2015 , the Company had no accounts payable associated with this agreement.

See Notes 6 and 7 above for information regarding CEO RSUs and Class B common stock contributed by the CEO back to the Company.

Facility Leases. The Company leases its facilities under long-term operating leases, which expire at various dates through 2027. As of December 31, 2015, the Company's total future minimum lease payments under noncancelable operating leases were $152.2 million . In June 2016, the Company entered into a sub-lease agreement for one of its office facilities that decreased the Company's total future minimum lease payments by sub-lease rentals of approximately $5 million , which approximates the corresponding remaining lease rentals. The Company has not entered into any new material lease commitments during the nine months ended September 30, 2016 . Rent expense was  $14.4 million and  $8.2 million  for the nine months ended September 30, 2016 and  2015 , respectively.

Other Commitments. In the ordinary course of business, the Company also enters into multi-year agreements to purchase sponsorships with event organizers, resorts and athletes as part of its marketing efforts; software licenses related to its financial and IT systems; and various other contractual commitments. In May 2016, the Company entered into a 3.5 year agreement with Red Bull GmbH (Red Bull) that includes content production, distribution and cross-promotion. As part of the agreement, Red Bull will receive equity and cash consideration over the term of the agreement. During the second quarter of 2016, the Company issued unregistered restricted shares of its Class A common stock to Red Bull with a fair value of approximately $7 million .

As of September 30, 2016 , the Company's total undiscounted future expected obligations under multi-year agreements described above with terms longer than one year was $53.7 million , composed of payments to be made of $2.8 million during the fourth quarter of 2016, and $17.9 million , $17.6 million , $15.4 million in 2017, 2018 and 2019, respectively.

Legal proceedings. From time to time, the Company is involved in legal proceedings in the ordinary course of business, including the litigation matters described in Part II, Item 1 of this Quarterly Report on Form 10-Q. Due to inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of these matters. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the results of operations, financial condition or cash flows of the Company.

Indemnifications. In the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and provide for general indemnification. The Company's exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. It is not possible to determine the maximum potential amount under these indemnification agreements due to the Company's limited history with indemnification claims and the unique facts and circumstances involved in each particular agreement. As of September 30, 2016 , the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

Product warranty

The following table summarizes the warranty liability activity:

At September 30, 2016 , $8.9 million of the warranty liability was recorded as an element of accrued liabilities and $0.5 million was recorded as an element of other long-term liabilities.

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

Customers who represented 10% or more of the Company's net accounts receivable balance were as follows:

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

The following table summarizes the Company's accounts receivables sold, without recourse, and factoring fees paid:

Customers who represented 10% or more of the Company's total revenue were as follows:

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

Supplier concentration. The Company relies on third parties for the supply and manufacture of its cameras and accessories, some of which are sole-source suppliers. The Company's management believes that outsourcing manufacturing enables greater scale and flexibility. As demand and product lines change, the Company periodically evaluates the need and advisability of adding manufacturers to support its operations. In instances where a supply and manufacture agreement does not exist or suppliers fail to perform their obligations, the Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all. The Company also relies on third parties with whom it outsources supply chain activities related to inventory warehousing, order fulfillment, distribution and other direct sales logistics .

Geographic information

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

Revenue in the United States, which is included in the Americas geographic region, was $122.5 million and $169.2 million for the three months ended September 30, 2016 and 2015, respectively, and $310.7 million and $513.6 million for the nine months ended September 30, 2016 and 2015 , respectively. No other individual country exceeded 10% of total revenue for any period presented. The Company does not disclose revenue by product category as it does not track sales incentives and other revenue adjustments by product category to report such data.

As of September 30, 2016 and December 31, 2015 , long-lived assets, which represent gross property and equipment, located outside the United States, primarily in Hong Kong and China, were $71.2 million and $47.6 million , respectively.

On January 12, 2016, the Company adopted a restructuring plan that provided for a reduction in the Company's global workforce of approximately 7% . The Company incurred aggregate restructuring expenses of $6.5 million in the first quarter of 2016, which primarily included cash-based severance costs. As of September 30, 2016 , the plan was completed and all costs have been paid.

Our MD&A is provided in addition to the accompanying consolidated condensed financial statements and accompanying notes to assist readers in understanding our results of operations, financial condition and cash flows. This MD&A is organized as follows:

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the U.S. Securities and Exchange Commission (SEC) and the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Our MD&A contains a number of forward-looking statements that involve a number of risks and uncertainties. Words such as "expect," "anticipate," "believe," "may," "will," "estimate," "continue," "intend," "target," "goal," "plan," or variations of such words and similar expressions are intended to identify such forward-looking statements. Forward looking statements include but are not limited to, those regarding our business outlook for the fourth quarter of 2016 and for calendar year 2017. These statements involve risks and uncertainties, and actual events or results may differ materially. Among the important factors that could cause actual results to differ materially from those in the forward-looking statements are our dependence on sales of our cameras and accessories for substantially all of our revenue and the effect of a fall in sales during the holiday season; the fact that we do not expect to continue to grow in the future at the same rate as we have in the past, that we may fail to manage our growth, and profitability in past periods might not be indicative of future performance; any inability to successfully manage frequent product introductions and transitions, including managing our sales channel and inventory; any inability to anticipate consumer preferences and successfully develop desirable products; the risks associated with our entrance into the consumer drone market; the effects of the highly competitive market in which we operate; the risks related to inventory, purchase commitments and long-lived assets; difficulty in accurately predicting our future customer demand; the importance of maintaining the value and reputation of our brand; and other factors detailed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2015 , and in "Risk Factors" in Part II, Item A of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 . Our business, financial condition or results of operations could be materially harmed by any of these or other factors. These forward-looking statements speak only as of the date hereof or as of the date otherwise stated herein. GoPro disclaims any obligation to update these forward-looking statements.  References in this Quarterly Report on Form 10-Q to "GoPro," "we," "us," "our" and the "Company" refer to GoPro, Inc., a Delaware corporation, and its subsidiaries.

GoPro, Inc. is transforming the way people capture and share their lives. What began as an idea to help athletes document themselves engaged in sport, GoPro has become an end-to-end storytelling solution that helps the world share itself through immersive and engaging content. To date, our cameras and mountable and wearable accessories have generated substantially all of our revenue. We sell our products globally through retailers, wholesale distributors, and on our website. As of September 30, 2016 , our products were sold to customers in more than 100 countries and through more than 45,000 retail outlets.

The following is a summary of measures presented in our condensed consolidated financial statements and key metrics used to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions.

(1) Represents the number of individually packaged camera units that are shipped during a reporting period, net of any returns. Units shipped does not include sales of drones, mounts, or accessories for cameras and drones.

(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, POP display amortization, stock-based compensation, impairment charges and restructuring costs.

(4) We define non-GAAP net income (loss) as net income (loss) adjusted to exclude stock-based compensation, restructuring costs, acquisition-related costs and taxes related to the income tax effect of these adjustments. Acquisition-related costs include amortization and impairment write-downs (if applicable) of acquired intangible assets, as well as third-party transaction costs for legal and other professional services.

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

Third quarter 2016 and recent highlights

We began shipping our all-new cloud connected HERO5 Black and HERO5 Session cameras into our global channel in late September 2016, which became available beginning October 2, 2016 at select stores, online retailers and at GoPro.com. Our HERO5 cameras can auto-upload photos and videos to GoPro Plus, a new cloud-based subscription service that enables consumers to easily access, edit and share content. In addition, GoPro Plus offers a range of additional premium benefits. GoPro Plus launched in the United States on October 2, 2016 and is expected to be available in international markets in the first quarter of 2017. Complementing our new HERO5 cameras and GoPro Plus, we also released new versions of our Quik mobile and desktop applications, which are offered at no charge. We began shipping our Karma drone and accessories after quarter-end, which became available online beginning October 23, 2016 and now available at major U.S. retailers.

Third quarter 2016 revenue of $240.6 million increased 9% from the preceding quarter due to a 34% increase in units shipped, which resulted in a 19% reduction in average selling price of units shipped (defined as total revenue divided by unit shipments). The sequential reduction in average selling price was primarily due to changes in camera mix and lower accessory sales. Units shipped in the third quarter were lower than expected due to production issues primarily related to our new HERO5 Black camera that limited our ability to meet initial retailer and distributor demand. Based on retail price points, camera mix in the third quarter reflected a higher proportion of $199 cameras and the introduction of a $299 HERO5 Session camera. We have not experienced any notable pricing pressures in the average selling price of individual camera models shipped during the quarter.

We estimate that channel inventory of our HERO4 products in the third quarter of 2016 decreased sequentially by more than 70% while our HERO5 channel inventory increased to support our global product launch. We estimate that global channel unit sell-through slightly exceeded global unit sell-in for the third quarter of 2016 and exceeded global unit sell-in by more than 30% for the first nine months of 2016. Our inventory balance increased $55.3 million sequentially to $145.2 million at September 30, 2016, reflecting a build of HERO5 Black, HERO5 Session and HERO Session inventory in anticipation of the upcoming holiday season. Our balance of HERO4 inventory declined sequentially by more than 50% and we expect the majority of the remaining HERO4 inventory to be shipped in the fourth quarter.

Third quarter 2016 gross margin of 40.3% decreased from 42.1% in the preceding quarter, primarily due to changes in camera mix and lower accessory sales. Third quarter 2016 operating loss of $115.6 million increased sequentially by $6.2 million , or 5.7% , resulting from modest growth in our operating expenses, including a charge of $6.0 million for impaired intangible assets and accelerated depreciation charges of $4.3 million resulting from our plans to consolidate certain leased office facilities, which were partially offset by increased revenues. Cash-based personnel-related costs were approximately flat sequentially. See "Results of Operations" below for year-over-year discussion.

We ended the third quarter of 2016 with total cash and investments of $224.9 million , a decrease of $54.3 million or 19% sequentially from June 30, 2016 . Cash used in operations in the third quarter of $41.7 million primarily reflected cash outflows from increased operating expenses partially offset by net cash inflows related to operating assets and liabilities, reflecting increased accounts payable and accrued liabilities associated with the increase in inventory described above.

Looking Ahead

We expect revenue to grow significantly in the fourth quarter of 2016 on both a sequential and year-over-year basis, based on demand expectations for our HERO5 cameras and Karma drone. We expect unit sell-thru to exceed sell-in for the fourth quarter of 2016. We estimate our full year 2016 revenue to be in the range of $1.25 billion to $1.30 billion, a decrease from our previously disclosed range of $1.35 billion to $1.50 billion, reflective of production issues that resulted in lower than expected supply of HERO5 Black cameras, and to a lesser extent lower supply of Karma drones, that will limit our ability to meet estimated retailer and distributor demand for the 2016 holiday season.

Gross margin will fluctuate in future periods based on product, distributor and geographical mix and volume. We expect total operating expenses to grow modestly on a sequential basis for the fourth quarter, with a majority of this growth occurring in marketing expenses to support the launch of our new products and services, partially offset by a decrease in research and development expenses.

Factors affecting performance

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

Investing in research and development. We believe that our performance is significantly dependent on the investments we make in research and development and that we must continually develop and introduce innovative new products, enhance existing products and effectively stimulate customer demand for existing and future products. If we fail to innovate and enhance our product offerings, our brand, market position and revenue will be adversely affected. Further, if our research and development efforts are not successful, we will not recover the value of these investments. We recently launched our HERO5 cameras and our Karma drone for the consumer market which were accompanied by releases of new versions of our mobile and desktop editing applications, Quik. In future periods, we plan to further expand our software and services offerings.

Expanding our total addressable market and growing internationally. Our long-term growth will depend in part on our ability to expand our consumer base and our presence in international markets. We intend to broaden our user base to include a more diverse group of consumers by providing both innovative and easy-to-use cameras as well as offering intuitive and simple software tools that enable the seamless and easy sharing of content. In the first half of 2016, we acquired two mobile video editing application companies that complement our strategy of enabling content management, editing and sharing across platforms. We plan to increase our presence globally through the active promotion of our brand, the formation of strategic partnerships, the introduction of new products and the growth of

our international sales channel. We have begun offering localized customer experiences in multiple languages. For example, our HERO5 cameras feature voice control with support for seven languages, with additional languages coming later this year.

Investing in sales and marketing.  We intend to continue investing significant resources in our marketing, advertising and brand management efforts. We believe consumers in many emerging markets are not familiar with our brand and products and believe there is a significant opportunity for GoPro to expand awareness through increased marketing efforts. Sales and marketing investments will often occur in advance of any sales benefits from these activities, and it may be difficult for us to determine if we are efficiently allocating our resources in this area.

Leveraging software and services. We intend to continue to invest in the development of software and services. We believe we have significant opportunities to establish new revenue streams from these non-hardware investments. However, our experience deriving revenue from the distribution of GoPro content or software is limited, and we cannot be assured that these ongoing investments, which will occur before any material revenue contribution is received, will result in additional revenue or profitability.

Seasonality. Historically, we have experienced the highest levels of revenue in the fourth quarter of the year, coinciding with the holiday shopping season in the United States and Europe. Timely and effective product introductions and forecasting, whether just prior to the holiday season or otherwise, are critical to our operations and financial performance.

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

Revenue