ROKU, INC [ROKU] Filings

10-Q 1 roku-20220331.htm 10-Q roku-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2022


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

For the transition period from to

Commission File Number: 001-38211

ROKU, INC.

(Exact name of registrant as specified in its charter)


Delaware						26-2087865
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1155 Coleman Avenue

San Jose, California 95110

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (408) 556-9040

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class:	Trading Symbol(s):	Name of Exchange on Which Registered:
Class A Common Stock, $0.0001 par value	ROKU	The Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of March 31, 2022, the registrant had 119,845,987 of Class A common stock, $0.0001 par value per share, and 16,124,644 shares of Class B common stock, $0.0001 par value per share, outstanding.

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		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION	32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3.	Defaults Upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	68
Signatures		69

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q ("Quarterly Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. For example, statements in this Quarterly Report regarding the potential future impact of the COVID-19 pandemic on our business and results of operations are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “project,” “should,” “will” or the negative of these terms or other similar expressions. We caution you that the foregoing list may not encompass all of the forward-looking statements made in this Quarterly Report.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this Quarterly Report, regarding, among other things:

•our financial performance, including our revenue, cost of revenue, operating expenses, and our ability to maintain and grow our profitability;

•the impact of the COVID-19 pandemic, supply chain disruptions, inflationary pressures, and geopolitical conflicts on our business, operations, and the markets and communities in which we and our advertisers, content providers, Roku TV brand partners, other device licensees, manufacturers, suppliers, retailers, and users operate;

•our ability to attract and retain users and increase streaming hours;

•our ability to attract and retain advertisers;

•our ability to attract and retain TV brands and service operators to license and deploy our technology;

•our ability to produce or acquire rights to distribute popular content on our platform on favorable terms, or at all, including the renewals of our existing agreements with content publishers;

•changes in consumer viewing habits and the growth of TV streaming;

•the growth of our relevant markets, including the growth in advertising spend on TV streaming platforms, and our ability to successfully grow our business in those markets;

•our ability to adapt to changing market conditions and technological developments;

•our ability to develop and launch new products and provide ancillary services and support;

•our ability to integrate acquired businesses, products, and technologies;

•our ability to compete effectively with existing competitors and new market entrants;

•our ability to successfully manage domestic and international expansion;

•our ability to attract and retain qualified employees and key personnel;

•our ability to address potential and actual security breaches and system failures involving our products, systems and operations;

•our ability to maintain, protect, and enhance our intellectual property; and

•our ability to comply with laws and regulations that currently apply or may become applicable to our business both in the United States and internationally, including compliance with privacy and data protection regulations in various U.S. and international jurisdictions.

Other sections of this Quarterly Report may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

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You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report and the documents that we referenced in and filed as exhibits to this Quarterly Report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (roku.com/investor), SEC filings, webcasts, press releases, and conference calls. We use these mediums to communicate with investors and the general public about our company, our products and services, and other issues. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors, the media and others interested in our company to review the information that we post on our investor relations website.

Roku, the Roku logo and other trade names, trademarks or service marks of Roku appearing in this report are the property of Roku. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders.

iii

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ROKU, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)

(unaudited)


	As of
	March 31, 2022		December 31, 2021
Assets
Current Assets:
Cash and cash equivalents	$	2,235,092	$	2,146,043
Accounts receivable, net of allowances of $35,338 and $56,827 as of	675,705		752,393
March 31, 2022 and December 31, 2021, respectively
Inventories	72,863		50,276
Prepaid expenses and other current assets	119,127		105,795
Total current assets	3,102,787		3,054,507
Property and equipment, net	186,308		177,567
Operating lease right-of-use assets	401,154		345,660
Intangible assets, net	79,659		84,126
Goodwill	161,519		161,519
Other non-current assets	294,821		258,766
Total Assets	$	4,226,248	$	4,082,145
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	137,550	$	124,921
Accrued liabilities	574,848		549,055
Current portion of long-term debt	88,648		9,883
Deferred revenue, current portion	54,408		45,760
Total current liabilities	855,454		729,619
Long-term debt, non-current portion	—		79,985
Deferred revenue, non-current portion	25,647		28,726
Operating lease liability, non-current portion	444,115		394,724
Other long-term liabilities	87,867		82,485
Total Liabilities	1,413,083		1,315,539
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Common stock, $0.0001 par value	14		14
Additional paid-in capital	2,929,519		2,856,572
Accumulated other comprehensive income (loss)	(41)		41
Accumulated deficit	(116,327)		(90,021)
Total stockholders’ equity	2,813,165		2,766,606
Total Liabilities and Stockholders’ Equity	$	4,226,248	$	4,082,145

See accompanying notes to condensed consolidated financial statements.

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ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended
	March 31, 2022		March 31, 2021
Net Revenue:
Platform	$	646,904	$	466,526
Player	86,795		107,657
Total net revenue	733,699		574,183
Cost of Revenue:
Platform	266,985		154,590
Player	101,907		92,822
Total cost of revenue	368,892		247,412
Gross Profit (Loss):
Platform	379,919		311,936
Player	(15,112)		14,835
Total gross profit	364,807		326,771
Operating Expenses:
Research and development	163,998		101,581
Sales and marketing	146,522		88,873
General and administrative	77,777		60,511
Total operating expenses	388,297		250,965
Income (Loss) from Operations	(23,490)		75,806
Other Income (Expense), Net:
Interest expense	(1,057)		(742)
Other income (expense), net	409		441
Total other income (expense), net	(648)		(301)
Income (Loss) Before Income Taxes	(24,138)		75,505
Income tax expense (benefit)	2,168		(791)
Net Income (Loss)	$	(26,306)	$	76,296

Net income (loss) per share — basic	$	(0.19)	$	0.59
Net income (loss) per share — diluted	$	(0.19)	$	0.54

Weighted-average common shares outstanding — basic	135,539		129,674
Weighted-average common shares outstanding — diluted	135,539		140,328

See accompanying notes to condensed consolidated financial statements.

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ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


	Three Months Ended
	March 31, 2022		March 31, 2021
Net Income (Loss)	$	(26,306)	$	76,296
Other comprehensive loss, net of tax:
Foreign currency translation adjustment	(82)		—
Comprehensive Net Income (Loss)	$	(26,388)	$	76,296

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ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


				Additional		Accumulated				Total
	Common Stock			Paid-in		Other Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity
Three Months Ended March 31, 2022







Balance—December 31, 2021	135,137	$	14	$	2,856,572	$	41	$	(90,021)	$	2,766,606
Issuance of common stock pursuant to equity incentive plans	834	—		3,352		—		—		3,352
Stock-based compensation expense	—	—		69,595		—		—		69,595
Foreign currency translation adjustment	—	—		—		(82)		—		(82)
Net income (loss)	—	—		—		—		(26,306)		(26,306)
Balance—March 31, 2022	135,971	$	14	$	2,929,519	$	(41)	$	(116,327)	$	2,813,165

				Additional		Accumulated				Total
	Common Stock			Paid-in		Other Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income		Deficit		Equity
Three Months Ended March 31, 2021









Balance—December 31, 2020	128,004	$	13	$	1,660,379	$	29	$	(332,406)	$	1,328,015
Vesting of early exercised stock options	—	—		4		—		—		4
Issuance of common stock pursuant to equity incentive plans	1,663	—		6,705		—		—		6,705
Issuance of common stock in connection with at-the-market offering, net of issuance costs of $10,400	2,637	—		989,615		—		—		989,615
Stock-based compensation expense	—	—		40,677		—		—		40,677
Net income (loss)	—	—		—		—		76,296		76,296
Balance—March 31, 2021	132,304	$	13	$	2,697,380	$	29	$	(256,110)	$	2,441,312

See accompanying notes to condensed consolidated financial statements.

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ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended
	March 31, 2022		March 31, 2021
Cash flows from operating activities:
Net income (loss)	$	(26,306)	$	76,296
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	11,486		9,605
Stock-based compensation expense	69,580		40,537
Amortization of right-of-use assets	11,143		6,458
Amortization of content assets	44,452		9,818
Provision for (recoveries of) doubtful accounts	1,013		(54)
Other items, net	(264)		31
Changes in operating assets and liabilities:
Accounts receivable	75,675		32,608
Inventories	(22,587)		12,649
Prepaid expenses and other current assets	(15,751)		(19,001)
Other non-current assets	(9,764)		(60,484)
Accounts payable	12,307		(18,857)
Accrued liabilities	(45,513)		29,052
Operating lease liabilities	(9,193)		(12,436)
Other long-term liabilities	(49)		548
Deferred revenue	5,569		(10,971)
Net cash provided by operating activities	101,798		95,799
Cash flows from investing activities:
Purchases of property and equipment	(14,764)		(3,717)
Acquisition of businesses, net of cash acquired	—		(102,804)
Net cash used in investing activities	(14,764)		(106,521)
Cash flows from financing activities:
Proceeds from equity issued under at-the-market offering, net of issuance costs	—		989,615
Repayments of borrowings	(1,250)		(1,250)
Proceeds from equity issued under incentive plans	3,352		6,705
Net cash provided by financing activities	2,102		995,070
Net increase in cash, cash equivalents and restricted cash	89,136		984,348
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(82)		—
Cash, cash equivalents and restricted cash —beginning of period	2,147,670		1,093,249
Cash, cash equivalents and restricted cash —end of period	$	2,236,724	$	2,077,597
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	2,235,092		2,077,514
Restricted cash, current	—		83
Restricted cash, non-current	1,632		—
Cash, cash equivalents and restricted cash —end of period	$	2,236,724	$	2,077,597

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	Three Months Ended
	March 31, 2022		March 31, 2021
Supplemental disclosures of cash flow information:
Cash paid for interest	$	656	$	647
Cash paid for income taxes	$	511	$	277
Supplemental disclosures of non-cash investing and financing activities:
Unpaid portion of property and equipment purchases	$	3,413	$	2,860
Unpaid portion of acquisition-related expenses	$	—	$	1,595
Unpaid portion of at-the-market issuance costs	$	—	$	105

See accompanying notes to condensed consolidated financial statements.

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ROKU, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

Organization and Description of Business

Roku, Inc. (the “Company” or “Roku”), was formed in October 2002 as Roku LLC under the laws of the State of Delaware. On February 1, 2008, Roku LLC was converted into Roku, Inc., a Delaware corporation. The Company operates in two reportable segments and generates platform revenue from the sale of digital advertising and related services including the OneView ad platform, content distribution services (such as subscription and transaction revenue shares, media and entertainment promotional spending, the sale of Premium Subscriptions, and the sale of branded channel buttons on remote controls), and licensing arrangements with service operators and TV brands and player revenue from the sale of streaming players and audio products.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 18, 2022 (the “Annual Report”).

The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements as of that date but does not include all of the information and footnotes included in the Company’s Annual Report. The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results to be expected for the full year or any future periods.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, net revenue, and expenses. Significant items subject to such estimates and assumptions include:

•revenue recognition: determining the nature and timing of satisfaction of performance obligations, variable consideration, determining the stand-alone selling prices of performance obligations, gross versus net revenue recognition, and evaluation of customer versus vendor relationships;

•the impairment of intangible assets;

•valuation of assets acquired and liabilities assumed in connection with business combinations;

•useful lives of tangible and intangible assets;

•allowances for sales returns and sales incentives; and

•the valuation of deferred income tax assets.

The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from the Company’s estimates and assumptions.

Principles of Consolidation

The condensed consolidated financial statements, which include the accounts of Roku, Inc. and its wholly-owned subsidiaries, have been prepared in conformity with U.S. GAAP. All intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Two financial institutions managed 23% and 30% of the Company’s cash and cash equivalents balance

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as of March 31, 2022 and 30% and 27% of the Company’s cash and cash equivalents balance as of December 31, 2021, respectively.

Accounts Receivable, net

Accounts receivable are typically unsecured and are derived from revenue earned from customers. They are stated at invoice value less estimated allowances for sales returns, sales incentives, doubtful accounts, and other miscellaneous allowances. The Company performs ongoing credit evaluations of its customers to determine allowances for potential credit losses and doubtful accounts. The Company considers historical experience, ongoing promotional activities, historical claim rates, and other factors to determine the allowances for sales returns and sales incentives.

Allowance for Sales Returns: Allowance for sales returns consists of the following activities (in thousands):


	Three Months Ended
	March 31, 2022		March 31, 2021
Beginning balance	$	6,015	$	5,912
Add: Charged to revenue	3,521		2,526
Less: Utilization of sales return reserve	(5,437)		(4,670)
Ending balance	$	4,099	$	3,768

Allowance for Sales Incentives: Allowance for sales incentives consists of the following activities (in thousands):


	Three Months Ended
	March 31, 2022		March 31, 2021
Beginning balance	$	48,411	$	30,838
Add: Charged to revenue	17,611		12,618
Less: Utilization of sales incentive reserve	(38,134)		(23,320)
Ending balance	$	27,888	$	20,136

Allowance for Doubtful Accounts: Allowance for doubtful accounts consists of the following activities (in thousands):


	Three Months Ended
	March 31, 2022		March 31, 2021
Beginning balance	$	2,158	$	4,181
Provision for (recoveries of) doubtful accounts	1,013		(54)
Adjustments for recovery and write-off	—		—
Ending balance	$	3,171	$	4,127

The Company did not have any customer that accounted for more than 10% of its accounts receivable, net balance as of March 31, 2022 and December 31, 2021.

Recently Adopted Accounting Standards

On January 1, 2022, the Company early adopted the guidance issued by the Financial Accounting Standards Board (“FASB”) in October 2021. The FASB issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to require companies to apply Accounting Standards Codification, Revenue from Contracts with Customers (Topic 606) to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. The adoption did not have a material impact on the Company's condensed consolidated financial statements.

On January 1, 2021, the Company adopted the guidance issued in ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplifies areas such as franchise taxes, step-up in tax basis of goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

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3. REVENUE

The Company’s disaggregated revenue is represented by the two reportable segments discussed in Note 15.

The contract balances include the following (in thousands):


	As of
	March 31, 2022		December 31, 2021
Accounts receivable, net	$	675,705	$	752,393
Contract assets (included in Prepaid expenses and other current assets)	61,681		46,952

Deferred revenue, current portion	$	54,408	$	45,760
Deferred revenue, non-current portion	25,647		28,726
Total deferred revenue	$	80,055	$	74,486

Accounts receivable are recorded at the amount invoiced, net of allowances for sales returns, sales incentives, and doubtful accounts. Payment terms can vary by customer and contract.

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets are created when invoicing occurs subsequent to revenue recognition. Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional. The Company’s contract assets are current in nature and are included in Prepaid expenses and other current assets. Contract assets increased by $14.7 million during the three months ended March 31, 2022 primarily due to an increase in revenue from content publishers during the period combined with the timing of billing which falls into a subsequent period.

Deferred revenue reflects consideration invoiced prior to the completion of performance obligations and revenue recognition. Deferred revenue increased by approximately $5.6 million during the three months ended March 31, 2022 primarily due to the timing of fulfillment of performance obligations related to platform revenue contracts.

Revenue recognized during the three months ended March 31, 2022, from amounts included in total deferred revenue as of December 31, 2021, was $22.4 million. Revenue recognized during the three months ended March 31, 2021, from amounts included in total deferred revenue as of December 31, 2020, was $26.2 million.

Revenue allocated to remaining performance obligations represents estimated contracted revenue that has not yet been recognized which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Estimated contracted revenue for these remaining performance obligations was $1,427.4 million as of March 31, 2022 of which the Company expects to recognize approximately 39% over the next 12 months and the remainder thereafter.

The Company recognized revenue of $11.2 million and $29.0 million during the three months ended March 31, 2022 and 2021, respectively, from performance obligations that were satisfied in previous periods due to changes in the estimated transaction price of its revenue contracts.

The Company did not have any customer that accounted for more than 10% of its total net revenue during the three months ended March 31, 2022. Customer H accounted for 11% of the total net revenue during the three months ended March 31, 2021.

4. BUSINESS COMBINATIONS

Nielsen’s Advanced Video Advertising Business

On February 28, 2021, the Company entered into an Asset and Stock Purchase Agreement to purchase the Advanced Video Advertising (“AVA”) business from Nielsen Holdings PLC (“Nielsen”). The AVA business consists primarily of video automatic content recognition and dynamic ad insertion technologies. On April 15, 2021, the Company closed the transaction, acquiring from Nielsen the AVA business, consisting of certain assets and liabilities and all of the equity interests in a subsidiary associated with the AVA business (the “Acquisition”). In conjunction with the Acquisition, the Company and Nielsen entered into a strategic commercial arrangement under which the parties will provide certain advertising measurement solutions to each other. The Company acquired Nielsen’s AVA business to accelerate its launch

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of an end-to-end linear ad replacement solution and to further integrate Nielsen’s ad and content measurement products into the Company’s ad platform.

The total purchase consideration for Nielsen’s AVA business was $53.4 million, which consisted of (i) $38.5 million paid in cash and (ii) $21.4 million of non-cash consideration related to obligations to deliver services to Nielsen, offset by (iii) $6.5 million of services to be received from Nielsen. The obligations to deliver services to Nielsen were recorded at fair value using the incremental cash flow method. The services to be delivered to Nielsen are recognized within Other income (expense), net in the condensed consolidated statements of operations over the six year service period. The services to be received from Nielsen represent contract terms that the Company entered into for future goods and services that were recorded at fair value using the incremental cash flow method. These services are recognized as Cost of revenue, platform in the condensed consolidated statements of operations over the six year service period. The Company incurred $3.9 million in acquisition-related expenses that were recorded in General and administrative expenses in the consolidated statements of operations during the year ended December 31, 2021.

The allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed, reflecting measurement period adjustments through March 31, 2022, is based on estimated fair values and is as follows (in thousands):


	Fair Values
Assets acquired
Cash and cash equivalents	$	3,057
Prepaid expenses and other current assets	85
Property and equipment, net	584
Intangible assets:
Developed technology	11,000
IPR&D technology	7,500
Goodwill	36,790
Operating lease right-of-use assets	1,235
Other non-current assets	1,905
Total assets acquired	62,156
Liabilities assumed
Accounts payable and accrued liabilities	(1,168)
Operating lease liabilities, non-current portion	(830)
Other long-term liabilities	(6,767)
Total liabilities assumed	(8,765)
Total purchase consideration	$	53,391

The excess of the total consideration over the tangible assets, intangible assets, and liabilities assumed is recorded as goodwill. Goodwill is primarily attributable to expected synergies in advertising offerings and cross-selling opportunities. The majority of the goodwill recorded is deductible for tax purposes.

The fair value of the developed technology is estimated using the relief-from-royalty method. The key valuation assumptions include the Company’s estimates of expected future earnings and royalty rate. The Company amortizes the fair value of the developed technology on a straight-line basis over its useful life. The fair value of the in-process research and development (“IPR&D”) technology is estimated using the multi-period-excess-earnings method. The key valuation assumptions include the Company’s estimates of expected future revenue and margin. Once the project reaches technological feasibility, the Company will amortize the fair value of the IPR&D technology on a straight-line basis over its useful life.

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The valuation of the intangible assets acquired from Nielsen’s AVA business along with their estimated useful lives, is as follows (in thousands, except years):


	Estimated Fair Value		Estimated Weighted-Average Useful Lives (in years)
Developed technology	$	11,000	5.9
IPR&D technology	7,500
Estimated fair value of acquired intangible assets	$	18,500	5.9

This Old House

On March 19, 2021, the Company acquired all outstanding shares of TOH Intermediate Holdings, LLC (“This Old House”), a home improvement media business, according to the terms and conditions of an Equity Purchase Agreement. The Company acquired the This Old House business because the Company believes the content aligns with The Roku Channel’s ad-supported growth strategy.

The total purchase consideration for This Old House was $97.8 million, paid entirely in cash. The Company incurred $2.4 million in acquisition-related expenses that were recorded in General and administrative expenses in the consolidated statements of operations during the year ended December 31, 2021.

The allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed, is based on estimated fair values and is as follows (in thousands):


	Fair Values
Assets acquired
Cash and cash equivalents	$	7
Accounts receivable	5,830
Prepaid expenses and other current assets	7,310
Property and equipment, net	307
Intangible assets:
Tradename	20,000
Customer relationships	700
Goodwill	46,671
Operating lease right-of-use assets	5,498
Other non-current assets	23,487
Total assets acquired	109,810
Liabilities assumed
Accounts payable and accrued liabilities	(2,747)
Deferred revenue, current portion	(4,146)
Operating lease liabilities, non-current portion	(4,262)
Deferred revenue, non-current portion	(816)
Other long-term liabilities	(28)
Total liabilities assumed	(11,999)
Total purchase consideration	$	97,811

Other non-current assets include $22.5 million of content assets acquired. The fair value of the content assets is estimated using the income approach. Amortization expense related to the content assets is recorded on an accelerated basis according to the pattern of monetization.

The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. Goodwill is primarily attributable to expected synergies in the advertising offerings as the Company brings more free ad-supported content to the users. The goodwill recorded is deductible for tax purposes.

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The fair value of the tradename is estimated using the relief-from-royalty method. The key valuation assumptions include the Company's estimates of expected future revenue and royalty rate. The Company amortizes the fair value of the tradename on a straight-line basis over its useful life.

The valuation of the intangible assets acquired from This Old House along with their estimated useful lives, is as follows (in thousands, except years):


	Estimated Fair Value		Estimated Weighted-Average Useful Lives (in years)
Tradename	$	20,000	10.0
Customer relationships	700		4.0
Estimated fair value of acquired intangible assets	$	20,700	9.8

5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of purchase consideration in a business combination over the fair value of tangible and intangible assets acquired net of the liabilities assumed. All goodwill relates to the Company’s platform segment.

Intangible Assets

The following table is the summary of the Company’s intangible assets (in thousands, except years):


	As of March 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted-Average Useful Lives (in years)
Developed technology	$	73,367	$	(28,362)	$	45,005	5.9
Customer relationships	14,100		(8,277)		5,823		4.0
Tradename	20,400		(2,466)		17,934		9.8
Patents	4,076		(679)		3,397		14.0
Intangible assets subject to amortization	111,943		(39,784)		72,159		6.7
IPR&D technology	7,500		—		7,500
Total Intangible assets	$	119,443	$	(39,784)	$	79,659


	As of December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted-Average Useful Lives (in years)
Developed technology	$	73,367	$	(25,350)	$	48,017	5.9
Customer relationships	14,100		(7,395)		6,705		4.0
Tradename	20,400		(1,966)		18,434		9.8
Patents	4,076		(606)		3,470		14.0
Intangible assets subject to amortization	111,943		(35,317)		76,626		6.7
IPR&D technology	7,500		—		7,500
Total Intangible assets	$	119,443	$	(35,317)	$	84,126

The Company recorded expenses of $4.5 million and $3.6 million for amortization of intangible assets during the three months ended March 31, 2022 and 2021, respectively. During the three months ended March 31, 2022 and 2021, the Company recorded amortization of developed technology in Cost of revenue, platform and Research and development expenses. The Company recorded amortization of customer relationships and tradename in Sales and marketing expenses, and recorded amortization of patents in General and administrative expenses in the condensed consolidated statements of operations.

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As of March 31, 2022, the estimated future amortization expense for intangible assets for the next five years and thereafter is as follows (in thousands):


Year Ending December 31,
2022 (remaining 9 months)	$	13,278
2023	17,066
2024	14,275
2025	12,571
2026	4,074
Thereafter	10,895
Total	$	72,159

6. BALANCE SHEET COMPONENTS

Accounts Receivable, net: Accounts receivable, net consisted of the following (in thousands):


	As of
	March 31, 2022		December 31, 2021
Accounts receivable, gross	$	711,043	$	809,220
Less: Allowances
Allowance for sales returns	4,099		6,015
Allowance for sales incentives	27,888		48,411
Allowance for doubtful accounts	3,171		2,158
Other allowances	180		243
Total allowances	35,338		56,827
Accounts receivable, net	$	675,705	$	752,393

Property and Equipment, net: Property and equipment, net consisted of the following (in thousands):


	As of
	March 31, 2022		December 31, 2021
Computers and equipment	$	39,913	$	38,473
Leasehold improvements	194,788		182,229
Internal-use software	7,274		7,274
Office equipment and furniture	22,550		20,829
Property and equipment, gross	264,525		248,805
Less: Accumulated depreciation and amortization	(78,217)		(71,238)
Property and equipment, net	$	186,308	$	177,567

Depreciation and amortization expense, for property and equipment assets, for the three months ended March 31, 2022 and 2021 was $7.0 million and $6.0 million, respectively.

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Accrued Liabilities: Accrued liabilities consisted of the following (in thousands):


	As of
	March 31, 2022		December 31, 2021
Payments due to content publishers	$	177,724	$	165,894
Accrued cost of revenue	106,866		142,014
Marketing, retail, and merchandising costs	67,388		47,428
Operating lease liability, current	43,273		37,116
Content liability, current	78,224		70,462
Other accrued expenses	101,373		86,141
Total accrued liabilities	$	574,848	$	549,055

Deferred Revenue: Deferred revenue consisted of the following (in thousands):


	As of
	March 31, 2022		December 31, 2021
Platform, current	$	33,181	$	22,240
Player, current	21,227		23,520
Total deferred revenue, current	54,408		45,760
Platform, non-current	5,214		9,324
Player, non-current	20,433		19,402
Total deferred revenue, non-current	25,647		28,726
Total deferred revenue	$	80,055	$	74,486

Other Long-term Liabilities: Other Long-term liabilities consisted of the following (in thousands):


	As of
	March 31, 2022		December 31, 2021
Content liability, non-current	$	56,432	$	51,211
Other long-term liabilities	31,435		31,274
Total other long-term liabilities	$	87,867	$	82,485

7. CONTENT ASSETS

Content assets, net recorded as part of Other non-current assets consisted of the following (in thousands):


	As of
	March 31, 2022		December 31, 2021
Licensed content, net	$	228,978	$	199,290
Produced content:
Released, less amortization	21,013		20,030
Completed, not released	1,235		881
In production	10,455		3,512
Total produced content, net	32,703		24,423
Total content assets, net	$	261,681	$	223,713

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Amortization of content assets is included in Cost of revenue, platform in the condensed consolidated statements of operations and is reflected in the table below (in thousands):


	Three Months Ended
	March 31, 2022		March 31, 2021
Licensed content	$	41,625	$	9,616
Produced content	2,827		202
Total amortization costs	$	44,452	$	9,818

8. FAIR VALUE DISCLOSURE

The Company’s financial assets measured at fair value are as follows (in thousands):


	As of March 31, 2022				As of December 31, 2021
	Fair Value		Level 1		Fair Value		Level 1
Assets:
Cash and cash equivalents:
Cash	$	1,634,957	$	1,634,957	$	1,130,172	$	1,130,172
Money market funds	600,135		600,135		1,015,871		1,015,871
Restricted cash, non-current	1,632		1,632		1,627		1,627
Total assets measured and recorded at fair value	$	2,236,724	$	2,236,724	$	2,147,670	$	2,147,670

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous market, in the absence of a principal market) for the asset or liability in an orderly transaction between market participants at the measurement date. Further, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs in measuring fair value, and utilizes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Financial assets and liabilities measured using Level 1 inputs include cash, cash equivalents, restricted cash, accounts receivable, prepaid expenses, accounts payable and accrued liabilities.

The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. The Company measured money market funds of $600.1 million and $1,015.9 million as cash equivalents as of March 31, 2022 and December 31, 2021, respectively, using Level 1 inputs.

Level 2—Observable inputs other than quoted prices included within Level 1, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation or other means.

The Company did not have Level 2 instruments as of March 31, 2022 and December 31, 2021.

Level 3—Unobservable inputs that are supported by little or no market activity, are significant to the fair value of the assets or liabilities and reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The Company did not have Level 3 instruments as of March 31, 2022 and December 31, 2021.

Assets and liabilities that are measured at fair value on a non-recurring basis

Non-financial assets such as goodwill, intangible assets, property and equipment, operating lease right-of-use assets, and content assets are evaluated for impairment and adjusted to fair value using Level 3 inputs, only when impairment is recognized.

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9. LEASES

The Company's operating leases are primarily for office facilities. The leases have remaining terms ranging from one year to eleven years and may include options to extend or terminate the lease. The depreciable life of right-of-use assets is limited by the expected lease term.

The components of lease expense are as follows (in thousands):


	Three Months Ended
	March 31, 2022		March 31, 2021
Operating lease cost (1)	$	15,357	$	10,266
Variable lease cost	4,225		2,952
Total operating lease cost	$	19,582	$	13,218

(1)Operating lease cost is presented net of sublease income. Sublease income for the three months ended March 31, 2022 and 2021, respectively, was not material.

Supplemental cash flow information related to leases is as follows (in thousands):


	Three Months Ended
	March 31, 2022		March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	13,658	$	16,224
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	66,690	$	5,498

Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):


	As of
	March 31, 2022			December 31, 2021
Operating lease right-of-use assets	$	401,154		$	345,660

Operating lease liability, current (included in Accrued liabilities)	$	43,273		$	37,116
Operating lease liability, non-current	444,115			394,724
Total operating lease liability	$	487,388		$	431,840

Weighted-average remaining term for operating leases (in years)	8.47			8.38
Weighted-average discount rate for operating leases	3.70		%	3.98		%

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Future lease payments under operating leases as of March 31, 2022 are as follows (in thousands):


Year Ending December 31,	Operating Leases
2022 (remaining 9 months)	$	42,216
2023	66,166
2024	64,539
2025	68,737
2026	69,013
Thereafter	273,507
Total future lease payments	584,178
Less: imputed interest	(84,730)
Less: expected tenant improvement allowance	(12,060)
Total	$	487,388

As of March 31, 2022, the Company’s commitment relating to operating leases that have not yet commenced was $192.6 million. These operating leases will commence starting in fiscal year 2022 with lease terms of approximately three to eleven years.

10. DEBT

The Company’s outstanding debt as of March 31, 2022 and December 31, 2021 is as follows (in thousands, except interest rates):


	As of
	March 31, 2022			December 31, 2021
	Amount		Effective Interest Rate	Amount		Effective Interest Rate
Term Loan A Facility	$	88,750	3.4%	$	90,000	2.0%
Less: Debt issuance costs	(102)			(132)
Net carrying amount of debt	$	88,648		$	89,868

The carrying amount of debt approximates fair value due to its variable interest rates. The interest expense for the three months ended March 31, 2022 and 2021 was $0.8 million and $0.5 million, respectively.

Senior Secured Term Loan A and Revolving Credit Facilities

On February 19, 2019, the Company entered into a Credit Agreement with Morgan Stanley Senior Funding, Inc. (as amended on May 3, 2019, the “Credit Agreement”), which provides for (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million (the “Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $100.0 million (the “Term Loan A Facility”) and (iii) an uncommitted incremental facility subject to certain conditions. See Note 10 to the consolidated financial statements in our Annual Report for additional details regarding the Credit Agreement.

On November 18, 2019, the Company borrowed an aggregate principal amount of $100.0 million from the Term Loan A Facility. The Company elected an interest rate equal to the adjusted one-month LIBOR rate plus an applicable margin of 1.75% based on the Company’s secured leverage ratio. The borrowings under the Credit Agreement mature or have to be repaid in full by February 2023.

The Company had outstanding letters of credit against the Revolving Credit Facility of $38.0 million as of March 31, 2022 and December 31, 2021.

As of March 31, 2022, the Company was in compliance with all of the covenants of the Credit Agreement.

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11. STOCKHOLDERS’ EQUITY

Preferred Stock

The Company has 10 million shares of undesignated preferred stock authorized but not issued with rights and preferences determined by the Company’s Board of Directors at the time of issuance of such shares. As of March 31, 2022 and December 31, 2021, there were no shares of preferred stock issued and outstanding.

Common Stock

The Company has two classes of authorized common stock, Class A common stock and Class B common stock. Holders of Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders and holders of Class B common stock are entitled to ten votes for each share of Class B common stock held on all matters submitted to a vote of stockholders. Except with respect to voting, the rights of the holders of Class A and Class B common stock are identical. Shares of Class B common stock are voluntarily convertible into shares of Class A common stock at the option of the holder and are generally automatically converted into shares of the Company's Class A common stock upon sale or transfer. Shares issued in connection with exercises of stock options, vesting of restricted stock units, or shares purchased under the employee stock purchase plan are generally automatically converted into shares of the Company’s Class A common stock.

At-the-Market Offering

On March 2, 2021, the Company entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC, Citigroup Global Markets Inc. and Evercore Group L.L.C., as its sales agents, pursuant to which the Company could offer and sell from time-to-time shares of its Class A common stock for aggregate gross proceeds of up to $1,000.0 million. In March 2021, the Company sold approximately 2.6 million shares of Class A common stock at an average selling price of $379.26 per share, for aggregate gross proceeds of $1,000.0 million and incurred issuance costs of $10.4 million.

Common Stock Reserved for Future Issuance

At March 31, 2022, the Company’s common stock reserved for issuance in the future is as follows (in thousands):


			As of March 31, 2022
Common stock awards granted under equity incentive plans			12,291
Common stock awards available for issuance under the 2017 Employee Stock Purchase Plan (1)			5,089
Common stock awards available for issuance under the 2017 Equity Incentive Plan			30,103
Total reserved shares of common stock			47,483

(1) The Company has not issued any common stock pursuant to the 2017 Employee Stock Purchase Plan.

Equity Incentive Plans

The Company has two equity incentive plans, the 2008 Equity Incentive Plan (the “2008 Plan”) and the 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan became effective September 2017 in connection with the Company’s initial public offering (“IPO”). No additional equity grants have been made pursuant to the 2008 Plan subsequent to the IPO. The 2017 Plan provides for the grant of incentive stock options to the Company’s employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of equity compensation to the Company’s employees, directors and consultants.

Stock options granted under the 2017 Plan generally are granted at a price per share equivalent to the fair market value on the date of grant. Recipients of option grants who possess more than 10% of the combined voting power of the Company are subject to certain limitations, and incentive stock options granted to such recipients are at a price per share no less than 110% of the fair market value on the date of grant.

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Restricted Stock Units

Restricted stock unit activity for the three months ended March 31, 2022 is as follows (in thousands, except per share data):


	Number of Shares	Weighted-Average Grant Date Fair Value per Share
Balance as of December 31, 2021	3,286	$	169.76
Awarded	3,796	140.48
Released	(395)	99.76
Forfeited	(136)	160.81
Balance as of March 31, 2022	6,551	$	157.20

As of March 31, 2022, the Company had $913.3 million of unrecognized stock-based compensation expense related to unvested restricted stock units that is expected to be recognized over a weighted-average period of approximately 2.82 years.

Stock Options

The following table summarizes the Company’s stock option activities under the 2008 Plan and 2017 Plan for the three months ended March 31, 2022 (in thousands, except years and per share data):

Number of

Weighted-

Average

Exercise

Price

Weighted-

Average

Remaining

Contractual

Life (Years)

Aggregate

Intrinsic

Value

Balance as of December 31, 2021

ROKU, INC [ROKU] Filings
10-Q	[2022-04-29]
10-K	[2022-02-18]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-07]
10-K	[2021-02-26]
10-Q	[2020-11-06]
10-Q	[2020-08-07]
10-Q	[2020-05-11]
10-K	[2020-03-02]
10-Q	[2019-11-08]
10-Q	[2019-08-09]
10-Q	[2019-05-10]
10-K	[2019-03-01]
10-Q	[2018-11-09]
10-Q	[2018-08-10]
10-Q	[2018-05-11]
10-K	[2018-03-01]
10-Q	[2017-11-09]
S-1	[2017-09-01]