What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-16 compared with 2022-02-18 · 289 added, 267 removed, 843 unchanged (40% of the section changed)

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Notes to Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Variable consideration related to content distribution services and sale of branded channel buttons on remote controls (“content publisher arrangements”) is included in the estimated transaction price based on the expected value for which a significant reversal of revenue is not expected to occur.

For content distribution services, the estimate of the variable consideration is based on management’s assessment of historical, current, and forecasted performance of the publisher’s content applications.

For the sale of branded channel buttons on remote controls, the estimate of the variable consideration is based on management’s assessment of historical, current, and forecasted player sales volumes.

We identified the revenue forecasts relating to content publisher arrangements as a critical audit matter due to the significant judgment necessary to estimate variable consideration and transaction prices.

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We identified the revenue forecasts relating to content publisher arrangements as a critical audit matter due to the significant judgment necessary to estimate variable consideration.

Such estimates required a high degree of auditor judgment and an increased extent of effort relative to evaluating the reasonableness of management’s estimates and assumptions related to the forecasts of variable consideration.

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◦ Tested the mathematical accuracy of the compilation of the forecasts.

• We considered the existence of contradictory evidence based on reading of internal communication to management, Company press releases, industry reports, publicly available information related to publishers’ content applications as well as our observations and inquires as to the changes within the business.

◦ We considered the existence of contradictory evidence based on reading of internal communication to management, Company press releases, industry reports, publicly available information related to publishers’ content applications as well as our observations and inquiries as to the changes within the business and considerations of macroeconomic and industry factors.

/s/ DELOITTE & TOUCHE LLP

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We have served as the Company's auditor since 2008.

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CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(in thousands, except par value data)

As of December 31,

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Operating lease right-of-use assets 521,695 345,660

Content assets, net 292,766 223,713

Intangible assets, net 58,881 84,126

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Additional paid-in capital 3,234,860 2,856,572

Accumulated other comprehensive income 41 29

Accumulated other comprehensive income (loss) ( 292 ) 41

Accumulated deficit ( 588,026 ) ( 90,021 )

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See accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF OPERATIONS

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Platform $ 2,711,441 $ 2,264,920 $ 1,247,654

Player 479,659 510,644 388,145

Devices 415,093 499,664 530,734

Total net revenue 3,126,534 2,764,584 1,778,388

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Platform 1,179,675 818,506 499,520

Player 532,060 466,992 371,042

Devices 505,737 537,478 470,649

Total cost of revenue 1,685,412 1,355,984 970,169

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Platform 1,531,766 1,446,414 748,134

Player ( 52,401 ) 43,652 17,103

Devices ( 90,644 ) ( 37,814 ) 60,085

Total gross profit 1,441,122 1,408,600 808,219

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Income (Loss) Before Income Taxes ( 492,283 ) 236,587 ( 18,452 )

Income tax benefit ( 5,798 ) ( 945 ) ( 982 )

Income tax expense (benefit) 5,722 ( 5,798 ) ( 945 )

Net Income (Loss) $ ( 498,005 ) $ 242,385 $ ( 17,507 )

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See accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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Net Income (Loss) $ ( 498,005 ) $ 242,385 $ ( 17,507 )

Other comprehensive gain, net of tax:

Unrealized gain on short-term investments, net of tax — — 17

Other comprehensive gain (loss), net of tax:

Foreign currency translation adjustment ( 333 ) 12 —

Other comprehensive gain, net of tax 12 — 46

Comprehensive Net Income (Loss) $ 242,397 $ ( 17,507 ) $ ( 59,891 )

Other comprehensive gain (loss), net of tax ( 333 ) 12 —

Comprehensive Income (Loss) $ ( 498,338 ) $ 242,397 $ ( 17,507 )

See accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands)

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Vesting of early exercised stock options — — 38 — — 38

Share repurchases ( 2 ) — — — — —

Issuance of common stock pursuant to equity incentive plans 4,107 1 16,805 — — 16,806

Issuance of common stock in connection with at-the-market offerings, net of issuance costs of $ 6,400

3,389 — 330,539 — — 330,539

Issuance of common stock in connection with acquisition 571 — 69,684 — — 69,684

Stock-based compensation expense — — 85,175 — — 85,175

Unrealized gain on short-term investments — — — 17 — 17

Foreign currency translation adjustment — — — 29 — 29

Net loss — — — — ( 59,937 ) ( 59,937 )

Balance-December 31, 2019 119,897 12 1,012,218 29 ( 313,833 ) 698,426

Vesting of early exercised stock options — — 38 — — 38

Issuance of common stock pursuant to equity incentive plans 4,107 1 16,805 — — 16,806

Issuance of common stock in connection with at-the-market offering, net of issuance costs of $ 6,800

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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 4,890 — 18,357 — — 18,357

Stock-based compensation expense — — 359,931 — — 359,931

Foreign currency translation adjustment — — — ( 333 ) — ( 333 )

Net loss — — — — ( 498,005 ) ( 498,005 )

Balance-December 31, 2022 140,027 $ 14 $ 3,234,860 $ ( 292 ) $ ( 588,026 ) $ 2,646,556

See accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS

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Amortization of content assets 234,355 95,570 22,392

Foreign currency remeasurement (gains) losses ( 8,230 ) — —

Change in fair value of strategic investment 532 — —

Impairment of intangible assets 7,500 — —

Provision for (recoveries of) doubtful accounts 2,081 ( 904 ) 3,801

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Prepaid expenses and other current assets ( 15,941 ) ( 48,074 ) ( 3,450 )

Deferred cost of revenue — — 1,143

Content assets and liabilities, net ( 313,204 ) ( 193,440 ) ( 22,721 )

Other non-current assets ( 7,304 ) ( 19,335 ) ( 1,128 )

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Cash flows from investing activities:

Purchase of property and equipment ( 40,041 ) ( 82,382 ) ( 77,180 )

Purchase of business, net of cash acquired ( 136,778 ) — ( 68,132 )

Purchases of property and equipment ( 161,696 ) ( 40,041 ) ( 82,382 )

Acquisition of businesses, net of cash acquired — ( 136,778 ) —

Proceeds from escrows associated with acquisition — — 1,058

Purchase of intangible assets — — ( 7,428 )

Purchases of short-term investments — — ( 12,365 )

Sales/maturities of short-term investments — — 54,810

Purchase of strategic investment ( 40,000 ) — —

Net cash used in investing activities ( 201,696 ) ( 176,819 ) ( 81,324 )

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Net cash provided by financing activities 8,357 1,003,147 509,048

Net increase in cash, cash equivalents and restricted cash 1,054,409 575,916 361,740

Net increase (decrease) in cash, cash equivalents and restricted cash ( 181,544 ) 1,054,409 575,916

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 4,170 ) 12 —

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Cash, cash equivalents and restricted cash —End of period $ 1,961,956 $ 2,147,670 $ 1,093,249

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Years Ended December 31,

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Services to be received as part of a business combination $ — $ 6,500 $ —

Issuance of common stock for business combinations $ — $ — $ 69,684

Unpaid portion of property and equipment purchases $ 28,503 $ 3,073 $ 1,242

Unpaid portion of acquisition related expenses $ — $ — $ 2,190

Unpaid portion of purchased intangibles $ — $ — $ 400

Unpaid portion of at-the-market offering costs $ — $ — $ 144

See accompanying Notes to Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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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.

The Company operates in two reportable segments and generates platform revenue from the sale of digital advertising and related services including demand-side platform and 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.

The Company generates devices revenue from the sale of streaming players, audio products, smart home products and licensing arrangements with service operators and licensed Roku TV partners.

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

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All intercompany accounts and transactions have been eliminated in consolidation.

Reclassification of Prior Year Presentation

Certain prior period amounts in the consolidated balance sheets and notes to consolidated financial statements have been reclassified to conform to current period presentation.

Reorganization of Reportable Segments and Reclassification of Prior Year Presentation

Effective as of the fourth quarter of fiscal 2022, the Company reorganized its reportable segments to better align with management’s reporting of information reviewed by the CODM for each segment.

The Company renamed the player segment to the devices segment which now includes licensing arrangements with service operators and licensed Roku TV partners in addition to sales of streaming players, audio products and smart home products.

All financial information, current and historical, has been recast based on the reorganized segments to conform to the new presentation in the financial statements and accompanying notes.

See Note 18 for additional details.

In addition to the prior period amounts related to segment reorganization discussed above, certain other prior period amounts in the consolidated financial statements and accompanying notes have also been reclassified to conform to the current period presentation.

Use of Estimates

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• the impairment of intangible assets;

• amortization of content assets;

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

• valuation of strategic investments;

• useful lives of tangible and intangible assets;

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Comprehensive Income (Loss)

Comprehensive income for the year ended December 31, 2021 includes foreign currency translation adjustments.

Comprehensive income (loss) for the year ended December 31, 2022 and December 31, 2021 includes foreign currency translation adjustments.

Comprehensive loss is equal to the net loss for the year ended December 31, 2020.

Comprehensive loss for the year ended December 31, 2019 includes unrealized gains on the Company’s short-term investments and foreign currency translation adjustments.

Income taxes on the unrealized gains are not material.

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Foreign Currency

The Company uses the U.S.

dollar as the functional currency for most of its foreign subsidiaries.

The functional currency of some of the Company’s foreign subsidiaries is the U.S.

Monetary assets and liabilities of these subsidiaries are remeasured into U.S.

dollars from the local currency at rates in effect at period-end and non-monetary assets and liabilities are remeasured at historical rates.

dollars from the local currency at exchange rates in effect at period-end and non-monetary assets and liabilities are remeasured at historical exchange rates.

Revenue and expenses are remeasured at average exchange rates in effect during each period.

Foreign currency gains or losses from re-measurement and transaction gains or losses are recorded as Other income (expense), net in the consolidated statements of operations.

The Company recorded a foreign currency loss of $ 1.2 million, gain of $ 1.3 million, and loss of $ 0.2 million during the years ended December 31, 2021, 2020, and 2019, respectively.

For those foreign subsidiaries where the local currency is designated as the functional currency, the Company records translation of their assets and liabilities into U.S.

dollars at the balance sheet dates as translation adjustments and includes them as a component of Accumulated other comprehensive income (loss).

Foreign currency gains or losses from remeasurement and transaction gains or losses are recorded as Other income (expense), net in the consolidated statements of operations.

The Company recorded a foreign currency gain of $ 8.2 million, loss of $ 1.2 million, and gain of $ 1.3 million during the years ended December 31, 2022, 2021, and 2020, respectively.

The Company also has some foreign subsidiaries which use local currency as their functional currency.

The financial statements of these subsidiaries are translated to U.S.

dollars using month-end exchange rates for assets and liabilities, and average exchange rates for revenue and expenses.

Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component of stockholders' equity.

Cash and Cash Equivalents

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Allowance for Sales Returns :

Allowance for sales returns consist of the following activities (in thousands):

Allowance for sales returns consisted of the following activities (in thousands):

Years Ended December 31,

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Ending balance $ 28,903 $ 48,411 $ 30,838

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Allowance for Doubtful Accounts :

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Provision for (recoveries of) doubtful accounts 2,081 ( 904 ) 3,801

Adjustments for recovery and write-off ( 1,119 ) ( 1,826 ) ( 250 )

Adjustments for write-off ( 741 ) ( 1,119 ) ( 1,826 )

Ending balance $ 3,498 $ 2,158 $ 4,181

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

Customer H accounted for 11 % of the accounts receivable, net balance as of December 31, 2020.

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

Business Combinations

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Any excess of the reporting unit’s carrying amount over its fair value is recorded as an impairment loss, limited to the total amount of goodwill allocated to the reporting unit.

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The Company reviews long-lived assets and intangible assets with finite lives for impairment when events or changes in business circumstances indicate that the carrying amount of the asset or asset group may not be fully recoverable or that the useful lives of the asset or asset group are no longer appropriate.

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If the carrying value of the asset or asset group exceeds the estimated future undiscounted cash flows, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the asset group.

The Company did not recognize any impairment for goodwill or intangible assets in any periods reported.

The impairments of operating right-of-use assets during the years ended December 31, 2021, 2020, and 2019 were not material.

The Company did not recognize any impairment for goodwill in any of the periods reported.

During the year ended December 31, 2022, the Company recognized an impairment charge of $ 7.5 million related to the abandonment of future development of certain technology assets.

This action was taken as part of the restructuring announced in the fourth quarter of fiscal year 2022.

See Note 15 for additional details.

There were no impairments of intangible assets during the years ended December 31, 2021 and 2020.

Content Assets

The Company records content assets as Other non-current assets.

The amortization expense for licensed content is recorded based on the pattern of monetization of such content which is primarily straight-line.

The amortization of produced content is recorded over the applicable content life cycle based upon the ratio of current period revenue to the estimated total revenue to be earned.

Licensed and produced content assets are primarily monetized together as a unit, referred to as a film group.

The film group is evaluated for impairment whenever an event occurs, or circumstances change, indicating the fair value is less

than the carrying value.

The Company recognizes content assets (licensed and produced) as Content assets, net on the consolidated balance sheets.

For licensed content, the cost per title is capitalized along with a corresponding liability when the license period begins, the content is available for streaming and when the fee is determinable.

For produced content, all direct production costs are capitalized.

Payment terms for certain licensed content require advanced payments which are reflected in Prepaid expenses and other current assets.

The amortization expense for content assets (licensed and produced) is based on projected usage which results in accelerated or straight-lined patterns depending on the nature of the content.

Projected usage is mainly based on estimated viewing trends.

Amortization of content assets is included in Cost of revenue, platform in the consolidated statements of operations.

Content assets (licensed and produced) are primarily monetized together as a unit, referred to as a film group.

The film group is evaluated for impairment whenever an event occurs, or circumstances change, indicating the fair value is less than the carrying value.

The Company reviews various qualitative factors and indicators to assess whether the film group is impaired.

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For performance obligations routinely sold separately, the SSP is determined by evaluating such stand-alone sales.

For those performance obligations that are not routinely sold separately, the Company determines SSP based on market conditions and other observable inputs.

For those performance obligations that are not routinely sold separately, the SSP is determined based on market conditions and other observable inputs.

When the Company sells third-party goods and services, it evaluates whether the Company is the principal, and reports revenue on a gross basis, or an agent, and reports revenue on a net basis.

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The as-invoiced practical expedient is applied when the amount of consideration the Company has a right to invoice corresponds directly with the value to the customer of the entity’s performance completed to date.

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Nature of Products and Services

Platform segment:

The Company 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 sale of branded channel buttons on remote controls), and licensing arrangements with service operators and TV brands.

The Company generates platform revenue from the sale of digital advertising and related services including the demand-side ad platform and content distribution services such as subscription and transaction revenue shares, media and entertainment promotional spending, the sale of Premium Subscriptions, and sale of branded channel buttons on remote controls.

The Company sells digital advertising to advertisers directly or through advertising agencies and to content publishers for their media and entertainment promotions via various campaign tools.

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Revenue is recognized on a time elapsed basis, by day, over the distribution term.

The Company licenses the Roku OS, including updates and upgrades, to TV brands and service operators.

Devices segment:

The Company generates devices revenue from the sale of streaming players, audio products, smart home products and accessories that are sold through retailers and distributors, as well as directly to customers through the Company’s website.

Effective as of the fourth quarter of 2022, the Company renamed the segment from player to devices which now also includes revenue from licensing arrangements with service operators and licensed Roku TV partners.

The Company sells the majority of its devices in the U.S.

through retailers and distributors as well as through the Company’s website.

Devices revenue primarily consists of hardware, embedded software, and unspecified upgrades and updates on a when and if-available basis.

The hardware and embedded software are considered as one performance obligation and revenue is recognized at a point in time when the control transfers to the customer.

Unspecified upgrades and updates are available to customers on a when-and-if available basis.

The Company records the allocated value of the unspecified upgrades and updates as deferred revenue and recognizes it as devices revenue ratably on a time elapsed basis over the estimated economic life of the associated products.

The Company’s devices revenue includes allowances for sales returns and sales incentives in the estimated transaction price.

These estimates are based on historical experience and anticipated performance.

Shipping charges billed to customers are included in devices revenue and the related shipping costs are included in Cost of revenue, devices.

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The Company licenses the Roku OS, including updates and upgrades, to licensed Roku TV partners and service operators.

The licensing revenue is recognized at a point in time, when the Company makes the intellectual property available and the control transfers to the customer.

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Hosting fees are recognized on a time elapsed basis, by day, over the service period.

Player segment:

The Company sells the majority of its streaming players and audio products to retail distribution channels in the U.S.

including brick and mortar and online retailers, as well as through the Company’s website.

Player revenue primarily consists of hardware, embedded software, and unspecified upgrades and updates on a when and if-available basis.

The hardware and embedded software are considered as one performance obligation and revenue is recognized at a point in time when the control transfers to the customer.

Unspecified upgrades and updates are available to customers on a when-and-if available basis.

The Company records the allocated value of the unspecified upgrades and updates as deferred revenue and recognizes it as player revenue ratably on a time elapsed basis over the estimated economic life of the associated players products.

The Company’s player revenue includes allowances for sales returns and sales incentives in the estimated transaction price.

These estimates are based on historical experience and anticipated performance.

Shipping charges billed to customers are included in Player revenue and the related shipping costs are included in Cost of revenue, player.

The Company determines if an arrangement contains a lease at its inception.

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The Company considers the options to extend or terminate the lease in determining the lease term, when it is reasonably certain to exercise one of the options.

The Company combines lease and non-lease components into a single lease component for its real estate and equipment leases.

Fair Value of Financial Instruments

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Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of the assets, generally ranging between eighteen months and five years .

Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives, which range from five to ten years .

Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives, which range from one to eleven years .

The Company capitalizes costs to develop its internal-use software.

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Costs incurred for enhancements that are expected to result in additional material functionality are capitalized.

During the years ended December 31, 2021, 2020, and 2019, the Company capitalized internal-use software development costs of $ 0.5 million, $ 2.2 million, and $ 0.1 million, respectively.

During the year ended December 31, 2022, the Company did not capitalize any internal-use software costs.

During the years ended December 31, 2021, and 2020, the Company capitalized internal-use software development costs of $ 0.5 million and $ 2.2 million, respectively.

Capitalized costs are amortized using the straight-line method over the estimated useful life of the asset, which is generally two to three years , beginning when the asset is ready for its intended use.

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The Company’s deferred revenue reflects fees received in advance that will be recognized as revenue over time or as services are rendered.

Deferred revenue balances consist of the amount of player revenue allocated to unspecified upgrades and updates on a when-and-if available basis, licensing and services fees received from service operators and TV brands, and advance payments from advertisers and content publishers where performance obligations are not yet fulfilled.

Deferred revenue balances consist of the amount of devices revenue allocated to unspecified upgrades and updates on a when-and-if available basis, and advance payments from advertisers, content publishers, and licensing or services fees received from service operators and TV brands, where performance obligations are not yet fulfilled.

Deferred revenue expected to be realized within one year is classified as a current liability and the remaining is recorded as a non-current liability.

Advertising Costs

Advertising costs are expensed when incurred and are included in Sales and marketing expense in the consolidated statements of operations.

The Company incurred advertising costs of $ 35.2 million, $ 7.1 million, and $ 7.3 million for the years December 31, 2021, 2020, and 2019, respectively.

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Advertising Expenses

Advertising expenses are recognized when incurred and are included in Sales and marketing expense in the consolidated statements of operations.

The Company incurred advertising expenses of $ 10.0 million, $ 35.2 million, and $ 7.1 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Stock-Based Compensation

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• Volatility.

The expected volatility is derived from an average of the historical volatilities of several peer companies which are similar in size and operational and economic activities.

The expected volatility is derived from an average of the historical volatility of the Company’s Class A common stock price and the stock price volatilities of several peer companies which are similar in size and operational and economic activities.

• Risk-free Rate.

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The Company accounts for income taxes using an asset and liability approach.

Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax basis of assets and liabilities using

enacted tax rates in effect for the year in which the differences are expected to affect taxable income.

Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income.

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not to be realized.

Recently Adopted Accounting Standards

On January 1, 2021, the Company adopted the guidance issued in Accounting Standards Update (“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.

On January 1, 2022, the Company adopted the guidance issued in Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

ASU 2021-08 requires 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 consolidated financial statements.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This guidance provides optional expedients and exceptions for applying U.S.

GAAP to contract modifications, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) that is expected to be discontinued, subject to meeting certain criteria.

The guidance is effective as of March 12, 2020 through December 31, 2022.

The Company made a policy election in the second quarter of 2020 to elect a different reference rate for the Credit Agreement (as defined below) when LIBOR is discontinued.

On January 1, 2020, the Company adopted the guidance in ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , using the modified retrospective adoption method and recorded a cumulative-effect adjustment to the beginning balance of accumulated deficit of approximately $ 1.1 million.

The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statements of operations.

This impact mainly relates to credit losses recognized on the Company’s doubtful accounts.

As the Company did not have any available-for-sale debt securities as of the adoption date, there was no additional impact to accumulated deficit.

On January 1, 2020, the Company adopted the guidance in ASU 2019-02, Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350):

Improvements to Accounting for Costs of Films and License Agreements for Program Materials , in order to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization.

ASU 2019-02 required that an entity reassess estimates of the use of a film in a film group and account for any changes prospectively.

In addition, ASU 2019-02 required that an entity test films and license agreements for program material for impairment at a film group level when the film or license agreements are predominantly monetized with other films and license agreements.

There was no material impact to the Company’s consolidated financial statements.

Recent Accounting Standards Not Yet Adopted

In October 2021, the FASB issued 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 guidance is effective for fiscal years beginning after December 15, 2022, including interim reporting periods within those fiscal years, with early adoption permitted.

The Company expects to adopt ASU 2021-08 in the first quarter of fiscal 2022.

The Company believes that the adoption of this guidance will not have a material impact on the financial statements.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 .

This guidance defers the sunset date for applying the reference rate reform relief in ASC 848 to December 31, 2024.

The guidance is effective as of December 21, 2022 through December 31, 2024.

The adoption did not have a material impact on the Company’s consolidated financial statements.

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The Company’s disaggregated revenue is represented by the two reportable segments discussed in Note 18.

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The Company’s contract assets are current in nature and are included in Prepaid expenses and other current assets.

Contract assets increased by $ 39.5 million during the year ended December 31, 2021 and by $ 3.8 million during the year ended December 31, 2020 primarily due to an increase in the growth of platform revenue combined with the timing of billing which falls into a subsequent period.

Contract assets decreased by $ 4.3 million during the year ended December 31, 2022 due to the timing of billing to customers and a slower growth rate in platform revenue.

Contract assets increased by $ 39.5 million during the year ended December 31, 2021 primarily due to an increase in the growth of platform revenue combined with the timing of billing which fell into a subsequent period.

Deferred revenue reflects consideration invoiced prior to the completion of performance obligations and revenue recognition.

Deferred revenue decreased by approximately $ 2.3 million during the year ended December 31, 2021 primarily due to the timing of fulfillment of performance obligations related to content arrangements offset by an increase in deferred revenue from advertising arrangements due to growth in the platform business and an increase in the deferral period of player revenue for its unspecified upgrades.

Deferred revenue increased by approximately $ 21.5 million during the year ended December 31, 2020 due to the increase in estimated values of content publisher and licensing partner arrangements and change in the timing of fulfillment of performance obligations of approximately $ 12.4 million, and higher growth in the player segment, resulting in a net increase in deferred revenue related to unspecified upgrades and updates of approximately $ 8.4 million.

Deferred revenue increased by approximately $ 41.4 million during the year ended December 31, 2022 primarily due to the billings in excess of revenue recognized and timing of fulfillment of performance obligations related to revenue arrangements.

Revenue recognized during the year ended December 31, 2022 from amounts included in the total deferred revenue as of December 31, 2021 was $ 47.6 million.

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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 was $ 1,148.3 million as of December 31, 2021 of which the Company expects to recognize approximately 43 % over the next 12 months and the remainder thereafter.

The Company recognized $ 28.6 million and $ 14.4 million during the years ended December 31, 2021 and 2020, respectively, from performance obligations that were satisfied in previous periods due to the 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 as of December 31, 2021.

Customer C accounted for 12 % and 14 % of the total net revenue during the years ended December 31, 2020 and 2019, respectively.

Estimated contracted revenue for these remaining performance obligations was $ 997.4 million as of December 31, 2022, of which the Company expects to recognize approximately 56 % over the next 12 months and the remainder thereafter.

The Company reversed $ 3.2 million and recognized $ 28.6 million during the years ended December 31, 2022 and 2021, respectively, from performance obligations that were satisfied in previous periods due to the changes in the estimated transaction price of its revenue contracts .

The Company did not have any customer that individually accounted for more than 10% of its total net revenue as of December 31, 2022 and 2021.

Customer C accounted for 12 % of total net revenue during the year ended December 31, 2020.

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BUSINESS COMBINATIONS

Nielsen’s Advanced Video Advertising Business

On February 28, 2021, the Company entered into an Asset and Stock Purchase Agreement (the “ASPA”) to purchase the Advanced Video Advertising (“AVA”) business from Nielsen Holdings PLC (“Nielsen”).

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”).

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.

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These services are recognized as Cost of revenue, platform in the consolidated statements of operations over the six year service period.

In addition, there are earn-out conditions in the ASPA which may trigger an additional payment to Nielsen.

As of December 31, 2021, no contingent consideration conditions have been triggered.

The Company incurred $ 3.9 million in acquisition-related expenses and has recorded them in General and administrative expenses in the consolidated statements of operations.

During the fourth quarter of 2021, the Company obtained additional information regarding facts and circumstances in existence as of the acquisition date.

As a result, the Company recorded a measurement period adjustment in the fourth quarter of 2021 consisting of a $ 6.0 million increase to purchase consideration, $ 4.2 million decrease to intangible assets acquired, $ 4.5 million increase to other long-term liabilities, and $ 14.7 million increase to goodwill.

The allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed, reflecting measurement period adjustments through December 31, 2021, is based on estimated fair values and is as follows (in thousands):

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 based on estimated fair values was as follows (in thousands):

Assets acquired

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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 has been 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 has been estimated using the multi-period-excess-earnings

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.

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):

The excess of the total consideration over the tangible assets, intangible assets, and liabilities assumed was recorded as goodwill.

Goodwill was primarily attributable to expected synergies in advertising offerings and cross-selling opportunities.

The majority of the goodwill recorded was deductible for tax purposes.

The fair value of the developed technology was estimated using the relief-from-royalty method.

The key valuation assumptions included 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 estimated useful life.

The fair value of the in-process research and development (“IPR&D”) technology was estimated using the multi-period-excess-earnings method.

The key valuation assumptions included the Company’s estimates of expected future revenue and margin.

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

Estimated Fair Value Estimated Weighted-Average Useful Lives

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Estimated fair value of acquired intangible assets $ 18,500 5.9

The operations of Nielsen’s AVA business are included in the Company’s operating results beginning on the date of acquisition.

The revenue, cost of revenue, and gross profit recorded by the Company in its consolidated statements of operations from the acquisition date to December 31, 2021 are not material.

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 the 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 Company acquired the This Old House business because the Company believed the content aligned 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 are recorded in General and administrative expenses in the consolidated statements of operations.

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 based on estimated fair values was as follows (in thousands):

Assets acquired

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Total purchase consideration $ 97,811

Other non-current assets include $ 22.5 million of content assets acquired.

The fair value of the content assets has been 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.

The fair value of the tradename has been 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):

Other non-current assets included $ 22.5 million of content assets acquired.

The fair value of the content assets was estimated using the income approach.

Amortization expense related to the content assets was 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 was recorded as goodwill.

Goodwill was primarily attributable to expected synergies in the advertising offerings as the Company expected to bring more free ad-supported content to the users.

The goodwill recorded was deductible for tax purposes.

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The fair value of the tradename was estimated using the relief-from-royalty method.

The key valuation assumptions included 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 estimated useful life.

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

Estimated Fair Value Estimated Weighted-Average Useful Lives

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Estimated fair value of acquired intangible assets $ 20,700 9.8

The operations of This Old House were included in the Company’s operating results beginning on the date of acquisition.

The Company recorded platform revenue of $ 18.7 million, cost of revenue, platform, of $ 11.8 million and gross profit of $ 6.9 million in its consolidated statements of operations from the acquisition date to December 31, 2021.

GOODWILL AND INTANGIBLE ASSETS

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All goodwill relates to the platform segment.

The following table reflects the carrying value of goodwill (in thousands):

The following table reflects the changes in the carrying value of goodwill (in thousands):

Carrying Value

Balance as of December 31, 2020 $ 73,058

Dataxu working capital adjustment ( 1,058 )

Balance as of December 31, 2020 $ 73,058

This Old House acquisition 46,671

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Balance as of December 31, 2021 $ 161,519

Balance as of December 31, 2022 $ 161,519

Goodwill is evaluated for impairment annually.

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Intangible Assets

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

The following tables summarize the Company’s intangible assets for the periods presented (in thousands, except years):

As of December 31, 2022

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Patents 4,076 ( 898 ) 3,178 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 $ 111,943 $ ( 53,062 ) $ 58,881 6.7

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As of December 31, 2021

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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

In the fourth quarter of 2022, the Company recognized an impairment charge of $ 7.5 million as part of its restructuring efforts related to the abandonment of future development of certain technology assets.

See Note 15 for details.

The Company recorded expenses of $ 17.7 million, $ 17.3 million, and $ 14.5 million for amortization of intangible assets during the years ended December 31, 2022, 2021, and 2020, respectively.

During the years ended December 31, 2022, 2021, and 2020, 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 tradenames in

Sales and marketing expenses, and recorded amortization of patents in General and administrative expenses in the consolidated statements of operations.

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 consolidated statements of operations.

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

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Accounts Receivable, net $ 760,793 $ 752,393

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Property and Equipment, net :

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Platform, current $ 59,276 $ 17,144

Player, current 23,520 27,878

Devices, current 28,402 28,616

Total deferred revenue, current 87,678 45,760

Platform, non-current 969 1,066

Player, non-current 19,402 11,374

Devices, non-current 27,241 27,660

Total deferred revenue, non-current 28,210 28,726

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Total Other long-term liabilities $ 69,911 $ 82,485

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CONTENT ASSETS

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

Content assets consisted of the following (in thousands):

As of December 31,

Licensed content, net $ 199,290 $ 7,907

Licensed content, net and advances $ 243,226 $ 218,456

Produced content:

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Total produced content, net 89,046 24,423

Total Content Assets, net $ 223,713 $ 7,907

On January 8, 2021, the Company entered into an agreement with the mobile-first video distribution service known as Quibi to acquire certain content rights.

The transaction was accounted for as an asset acquisition.

As discussed in Note 4, the Company also acquired content assets as part of the This Old House acquisition.

The increase of $ 215.8 million in

content assets during the year ended December 31, 2021 includes content assets acquired from Quibi and This Old House, programming content licensed from various other content publishers, as well as content produced during the year.

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

Total content assets, net and advances $ 332,272 $ 242,879

Current portion $ 39,506 $ 19,166

Non-current portion $ 292,766 $ 223,713

Amortization of content assets is included in Cost of revenue, platform in the consolidated statements of operations and is as follows (in thousands):

Years Ended December 31,

2022 2021 2020

Licensed content $ 216,393 $ 84,133 $ 22,392

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Total amortization costs $ 234,355 $ 95,570 $ 22,392

The following table reflects the amortization expense for the next three years for content assets, net (in thousands):

Year Ending December 31, Licensed content Produced content Total

2022 $ 86,584 $ 4,055 $ 90,639

2023 38,861 4,202 43,063

The following table reflects the expected amortization expense of released produced and licensed content assets, net for the next three years (in thousands):

Years Ended December 31,

2023 2024 2025

Total $ 148,738 $ 12,208 $ 160,946

Licensed content $ 109,075 $ 50,655 $ 29,770

Produced content 16,185 8,403 8,035

Total expected amortization costs $ 125,260 $ 59,058 $ 37,805

STRATEGIC INVESTMENT

In June 2022, the Company agreed to provide financing of up to $ 60.0 million in the aggregate to a counterparty with whom the Company has a commercial relationship, of which $ 40.0 million was advanced in the form of convertible promissory notes (the “Strategic Investment”) and is recognized in Other non-current assets on the consolidated balance sheets.

The Strategic Investment accrues interest at 5 % per annum and has a maturity date of June 15, 2025, or is due upon a redemption event or in the event of a default.

The Strategic Investment contains certain redemption features that meet the definition of embedded derivatives and require bifurcation.

The Company elected to apply the fair value option and account for the hybrid instrument containing the host contract and the embedded derivatives at fair value as a single instrument, with any subsequent changes in fair value included in Other income (expense), net in the consolidated statements of operations.

See Note 9 for additional details on the fair value of the Strategic Investment.

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FAIR VALUE DISCLOSURE

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

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

As of December 31, 2022

As of December 31, 2021

Fair Value Level 1 Fair Value Level 1

Fair Value Level 1 Level 3 Fair Value Level 1 Level 3

Cash and cash equivalents:

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Money market funds 608,409 608,409 — 1,015,871 1,015,871 —

Restricted cash, current — — 434 434

Restricted cash, non-current — — — 1,627 1,627 —

Strategic Investment — — 39,468 — — —

Total assets measured and recorded at fair value $ 1,961,956 $ 1,961,956 $ 39,468 $ 2,147,670 $ 2,147,670 $ —

The following table reflects the changes in the fair value of the Company’s Level 3 financial assets (in thousands):

Balance, December 31, 2021 $ —

Purchase of Strategic Investment 40,000

Change in estimated fair value of Strategic Investment ( 532 )

Balance, December 31, 2022 $ 39,468

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.

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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 any Level 3 instruments as of December 31, 2021 and 2020.

As of December 31, 2022, the Company measured the Strategic Investment using Level 3 inputs.

The fair value of the Strategic Investment on the date of purchase was determined to be equal to its principal amount.

The Company recorded an unrealized loss of $ 0.5 million in Other income (expense), net related to the adjustment to fair value of the Strategic Investment for the year ended December 31, 2022.

The Company did not have any Level 3 financial assets or liabilities as of December 31, 2021.

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The Company classified the Strategic Investment as Level 3 due to the lack of relevant observable market data over fair value inputs.

The fair value of the Strategic Investment was estimated using a scenario-based probability weighted discounted cash flow model.

Significant assumptions include the discount rate, and the timing and probability weighting of the various redemption scenarios that impact the settlement of the Strategic Investment.

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

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The Company has entered into operating leases primarily for office real estate.

The leases have remaining terms ranging from one year to 10 years and may include options to extend or terminate the lease.

The leases have remaining terms ranging from 1 year to 11 years and may include options to extend or terminate the lease.

The depreciable life of ROU assets is limited by the expected lease term.

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Variable lease cost 18,991 15,080 12,116

Net operating lease cost $ 61,490 $ 54,243 $ 32,524

(1) Operating lease cost is presented net of sublease income.

Sublease income for the years ended December 31, 2021, 2020, and 2019 was not material.

Total operating lease cost $ 95,350 $ 61,490 $ 54,243

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

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Operating lease right-of-use assets $ 521,695 $ 345,660

Included in accounts payable and accrued liabilities:

Operating lease liability, current 37,116 35,647

Operating lease liability, current (included in Accrued liabilities) 54,689 37,116

Operating lease liability, non-current 584,651 394,724

Total operating lease liability $ 639,340 $ 431,840

Weighted-average remaining lease term:

Operating leases (in years) 8.38 9.05

Weighted-average discount rate:

Operating leases 3.98 % 4.60 %

Weighted-average remaining term for operating leases (in years) 8.62 8.38

Weighted-average discount rate for operating leases 3.80 % 3.98 %

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

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As of December 31, 2022, the Company’s commitment relating to operating leases that have not yet commenced was $ 36.2 million.

These operating leases will commence starting in fiscal year 2022 with lease terms of approximately two to 12 years .

These operating leases will commence starting in fiscal year 2023 with lease terms of approximately 4 years to 11 years .

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

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In May 2020, the Company repaid the outstanding balance on the Revolving Credit Facility.

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Loans under the Term Loan A Facility amortize in equal quarterly installments beginning on March 31, 2020, in an aggregate annual amount equal to (i) on or prior to December 31, 2021, 1.25 % of the drawn principal amount of the Term Loan Facility or $ 1.25 million and (ii) thereafter, 2.50 % of the drawn principal amount of the Term Loan Facility or $ 2.5 million, with the remaining balance payable on the maturity date of the Term Loan A Facility in February 2023.

Revolving Credit Facility may be borrowed, repaid, and reborrowed until the fourth anniversary of the Closing Date in February 2023, at which time all outstanding balances of the Revolving Credit Facility are due to be repaid.

The Revolving Credit Facility may be borrowed, repaid, and reborrowed until the fourth anniversary of the Closing Date in February 2023, at which time all outstanding balances of the Revolving Credit Facility are due to be repaid.

The Company had outstanding letters of credit against the Revolving Credit Facility of $ 37.7 million and $ 38.0 million as of December 31, 2022 and 2021, respectively.

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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 Offerings

At-the-Market Offering

On March 2, 2021, the Company entered into an Equity Distribution Agreement with Morgan Stanley & Co.

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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.

On May 13, 2020, the Company entered into an Equity Distribution Agreement with Morgan Stanley & Co.

LLC and Citigroup Global Markets Inc., as its sales agents, pursuant to which the Company sold an aggregate of 4.0 million shares of the Company’s Class A common stock at an average selling price of $ 126.01 per share, for aggregate gross proceeds of $ 504.0 million and incurred issuance costs of $ 6.8 million.

On November 19, 2019, the Company entered into an Equity Distribution Agreement with Citigroup Global Markets Inc., as its sales agent, pursuant to which the Company sold an aggregate of 1.0 million shares of the Company’s Class A common stock at an average selling price of $ 153.99 per share, for aggregate gross proceeds of $ 154.0 million and incurred issuance costs of $ 2.8 million.

On May 16, 2019, the Company entered into an Equity Distribution Agreement with Morgan Stanley & Co.

LLC, as its sales agent, pursuant to which the Company sold an aggregate of 1.0 million shares of the Company’s Class A common stock at an average selling price of $ 82.90 per share, for aggregate gross proceeds of $ 82.9 million and incurred issuance costs of $ 1.6 million.

On March 12, 2019, the Company entered into an Equity Distribution Agreement with Citigroup Global Markets Inc., as its sales agent, pursuant to which the Company sold approximately 1.4 million shares of the Company’s Class A common stock at an average selling price of $ 72.00 per share, for aggregate gross proceeds of $ 100.0 million and incurred issuance costs of $ 2.0 million.

Common Stock Reserved For Issuance

At December 31, 2021, the Company’s common stock reserved for issuance in the future is as follows (in thousands):

As of December 31, 2021

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

Common stock awards granted under equity incentive plans 14,384

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

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Equity Incentive Plans

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Balance, December 31, 2022 - Outstanding 8,577 $ 120.82

The grant date fair value of restricted stock units granted during the years ended December 31, 2021, 2020, and 2019 was $ 342.6 million, $ 210.1 million, and $ 195.2 million, respectively.

The weighted-average grant date fair value of restricted stock units granted during the years ended December 31, 2022, 2021, and 2020 was $ 916.8 million, $ 342.6 million, and $ 210.1 million, respectively.

The fair value of restricted stock units that vested during the years ended December 31, 2022, 2021, and 2020 was $ 282.6 million, $ 135.6 million, and $ 83.7 million, respectively.

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Balance, December 31, 2022- Exercisable 2,831 $ 39.06 5.0 — $ 51,630

The weighted-average grant date fair value of options granted during the years ended December 31, 2021, 2020, and 2019 was $ 139.76 , $ 54.39 , and $ 39.23 , respectively.

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The weighted-average grant date fair value per share of options granted during the years ended December 31, 2022, 2021, and 2020 was $ 36.66 , $ 139.76 , and $ 54.39 , respectively.

The intrinsic value for stock options exercised in the years ended December 31, 2022, 2021, and 2020 was $ 210.0 million, $ 997.6 million, and $ 470.8 million, respectively.

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The Company measures the cost of employee services received in exchange for an equity award based on the grant date fair value of the award.

Generally, stock options granted to employees under the 2008 Plan vest 25 % after one year and then 1/48 th monthly thereafter and have a term of ten years .

Restricted stock units generally vest over 4 years.

For the years ended December 31, 2021, 2020, and 2019, the amount of stock-based compensation capitalized as part of internal-use software was not material.

The following table shows total stock-based compensation expense for the years ended December 31, 2021, 2020, and 2019 (in thousands):

Stock options granted to employees generally vest over one to four years have a term of ten years .

Restricted stock units generally vest over four years .

No stock-based compensation was capitalized for the years ended December 31, 2022 and 2020.

The amount of stock-based compensation capitalized as part of internal-use software for the year ended December 31, 2021 was not material.

The following table presents total stock-based compensation expense for the years ended December 31, 2022, 2021, and 2020 (in thousands):

Years Ended December 31,

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Cost of revenue, platform $ 1,229 $ 827 $ 847

Cost of revenue, player 2,035 1,407 1,072

Cost of revenue, device 2,440 2,035 1,407

Research and development 147,653 77,770 58,412

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As of December 31, 2022, the Company had $ 169.7 million of non-cancelable purchase commitments for inventory.

The Company records a liability for non-cancelable purchase commitments in excess of projected demand forecasts.

The Company recorded $ 0.2 million and $ 1.2 million for these purchase commitments in Accrued liabilities as of December 31, 2021 and 2020, respectively.

Licensed Content Commitments

The Company enters into contracts with content publishers to license content for streaming.

When a title becomes available, the Company records an asset and a liability on the consolidated balance sheets.

As of December 31, 2021, the Company’s total obligation for licensed content is $ 421.0 million, of which the Company recorded $ 92.1 million in Current liabilities and $ 51.2 million in Other long-term liabilities in the consolidated balance sheets.

Content Commitments

The Company enters into contracts with content publishers to license and produce content for streaming.

When a title becomes available, the Company records a content asset and liability on the consolidated balance sheets.

Certain licensing agreements, such as film output deals, include the obligation to license rights for unknown future titles for which the ultimate quantity and/or fees are not determinable as of the reporting date.

The Company does not include any estimated obligation for these future titles beyond the known minimum amount.

The unknown obligations could be material.

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As of December 31, 2022, the Company’s total obligation for licensed and produced content is $ 393.1 million, of which the Company recorded $ 94.6 million in Current liabilities and $ 39.6 million in Other long-term liabilities in the consolidated balance sheets.

The remaining $ 258.9 million is not yet recognized on the consolidated balance sheets as the content does not meet the criteria for asset recognition.

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Since those amounts cannot be determined as of December 31, 2022, they are not included in the obligations above.

In connection with the acquisition of certain content rights during the quarter ended March 31, 2021, the Company assumed liabilities related to certain costs of the development and use of certain assets that had been incurred but not paid at the time assumed.

Escrow arrangements were put in place such that selling shareholders would cover such costs.

Accordingly, the Company recognized both an indemnification asset and liability of $ 81.4 million, respectively, as of March 31, 2021.

As of December 31, 2021, $ 77.5 million of both the indemnification asset and liability were released related to payments made for a portion of the liabilities assumed.

The remaining indemnification balance as of December 31, 2021 is $ 3.9 million, with the indemnification asset recorded as part of Prepaid expenses and other current assets and the indemnification liability recorded as part of Accrued liabilities in the consolidated balance sheets.

Letters of Credit

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Although the results of these proceedings, claims, and investigations cannot be predicted with certainty, the Company does not believe that the final outcome of any matters that it is currently involved in are reasonably likely to have a material adverse effect on its business, financial condition, or results of operations.

During the year ended December 31, 2021 the Company recorded expenses of $ 4.8 million in Cost of revenue, player, $ 1.8 million in Cost of revenue, platform, and $ 3.4 million in General and administrative expenses for claims related to patent infringement.

During the year ended December 31, 2020 the Company did not have any loss contingencies that were material.

During the year ended December 31, 2019, the Company recorded expenses of $ 9.9 million, in Cost of revenue, player for various claims related to patent infringements.

During the year ended December 31, 2022 and 2020, the Company did not have any loss contingencies that were material.

During the year ended December 31, 2021 the Company recorded expenses of $ 4.8 million in Cost of revenue, device, $ 1.8 million in Cost of revenue, platform, and $ 3.4 million in General and administrative expenses for claims related to patent infringement.

Indemnification

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It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each agreement.

To date, the Company has not incurred any material costs as a result of such obligations and have not accrued any liabilities related to such obligations in the consolidated financial statements.

To date, the Company has not incurred any material costs as a result of such obligations and has not accrued any liabilities related to such obligations in the consolidated financial statements.

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The components of income (loss) before income taxes consist of the following (in thousands):

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Net income (loss) before income taxes $ ( 492,283 ) $ 236,587 $ ( 18,452 )

The income tax (benefit) expense consisted of the following (in thousands):

The income tax expense (benefit) consisted of the following (in thousands):

Years Ended December 31,

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Stock-based compensation 4.0 ( 114.3 ) 577.8

Discrete tax benefit due to IP transfer ( 19.1 ) — —

Discrete tax benefit due to intellectual property transfer — ( 19.1 ) —

Meals and entertainment ( 0.1 ) 0.1 ( 1.6 )

Foreign rate differential 0.2 0.1 —

Acquisition costs — — ( 1.3 )

Section 162(m) limitation ( 0.5 ) 1.1 ( 7.2 )

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Effective tax rate ( 1.2 ) % ( 2.5 ) % 5.2 %

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Significant components of the Company’s deferred income tax assets and liabilities consist of the following (in thousands):

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Depreciation and amortization 41,377 40,583

Section 174 capitalization 165,219 —

Total deferred tax assets 1,179,129 935,243

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Operating lease right-of-use assets ( 128,517 ) ( 85,713 )

Depreciation and amortization — ( 11,707 )

Total deferred tax liabilities ( 128,517 ) ( 85,713 )

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Net deferred tax assets $ 10,271 $ 10,581

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the ability to deduct research and development expenses for tax purposes in the period the expenses were incurred.

As a result, the Company has recorded additional U.S.

income tax expense of $ 3.0 million for the year ended December 31, 2022.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized through future operations.

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The Company’s U.S.

federal and state valuation allowance increased by $ 261.8 million and $ 169.7 million during the years ended December 31, 2021 and 2020, respectively, primarily due to U.S.

federal and state tax losses and credits incurred during the period.

The change in the valuation allowance, during the year ended December 31, 2021, is primarily attributable to an increase in domestic net operating loss carryforwards, primarily due to stock-based compensation expense, and an increase of approximately $ 46.2 million in deferred tax assets that are not realizable, related to the IP transfer completed during 2021, giving rise to foreign amortizable assets.

federal and state valuation allowance increased by $ 199.2 million and $ 261.8 million during the years ended December 31, 2022 and 2021, respectively.

The change in the valuation allowance, during the year ended December 31, 2022, is primarily attributable to an increase in deferred tax assets generated through capitalization of section 174 research and development expenses for U.S.

federal and conforming state purposes.

The change in the valuation allowance during the year ended December 31, 2021 is primarily attributable to an increase in domestic net operating loss carryforwards primarily due to stock-based compensation expense, and an increase of approximately $ 46.2 million in deferred tax assets that are not realizable, related to the intellectual property transfer completed during 2021, giving rise to foreign amortizable assets.

For federal and state income tax reporting purposes, respective net operating loss carryforwards of $ 1,959.1 million and $ 1,677.7 million are available to reduce future taxable income, if any.

These net operating loss carryforwards will begin to expire in 2033 for federal and certain state net operating losses have expired in 2022.

The federal net operating loss generated subsequent to 2017 can be carried forward indefinitely.

For Brazil, Denmark, Netherlands, and U.K.

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Netherlands net operating losses can be carried back one year and carried forward indefinitely.

The Company also has U.K.

research and development tax credit carryforwards of $ 0.5 million, which can be carried forward indefinitely.

As of December 31, 2022, the Company has research and development tax credit carryforwards of $ 188.7 million and $ 134.7 million for federal and state income tax purposes, respectively.

If not utilized, the federal and state carryforwards will begin to expire in 2028 and 2035, respectively.

The Internal Revenue Code of 1986, as amended (the “Code”), contains provisions that may limit the net operating loss and credit carryforwards available for use in any given period upon the occurrence of certain events, including a statutorily defined significant change in ownership.

Utilization of the net operating loss and tax credit carryforwards is subject to an annual limitation due to an ownership change, as defined by section 382 of the Code.

The Company completed a recent study to assess whether any section 382 ownership change has occurred since the Company’s

Based on the study, the Company had a section 382 ownership change on December 18, 2009 and tax attributes generated by the Company through the ownership change date are subject to the limitation.

A section 382 study was completed for dataxu, which the Company acquired in November 2019, covering the period from inception beginning May 1, 2008 through the acquisition date of November 8, 2019.

Based on the study, the Company identified four ownership changes for section 382 purposes.

As such, tax attributes generated by dataxu through the ownership change dates are subject to the limitation.

The total amount of unrecognized tax benefits as of December 31, 2022 is $ 88.0 million, of which $ 71.3 million is composed of research and development credits and $ 16.7 million is related to international activities.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

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A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):

As of December 31,

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Gross decrease due to statute expiration ( 317 ) ( 330 )

Gross increase (decrease) for tax positions of prior years 1,107 ( 196 )

Gross increase for tax positions of prior years 676 1,107

Gross decrease for tax positions of prior years ( 1,185 ) —

Decrease relating settlements with taxing authorities ( 184 ) —

Unrecognized tax benefits balance at end of year $ 88,028 $ 66,150

As of December 31, 2022, $ 5.3 million of the Company's gross unrecognized tax benefits, if recognized, would affect the effective tax rate and, $ 82.7 million would result in an adjustment to deferred tax assets with corresponding adjustments to the valuation allowance.

We do not expect our gross unrecognized tax benefits to change significantly within the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of its income tax expense.

As of December 31, 2021, the Company recorded $ 0.4 million of accrued interest and penalties related to uncertain tax positions.

Change in the Company’s unrecognized tax benefits, if any, would have an immaterial impact on its effective tax rate.

The Company does not expect its gross unrecognized tax benefits to change significantly within the next 12 months.

The Company recorded $ 0.8 million and $ 0.3 million of accrued interest and penalties related to uncertain tax positions as of December 31, 2022 and December 31, 2021, respectively.

The Company files income tax returns in the U.S.

federal jurisdiction and various state jurisdictions.

The Company is currently under examination by the Texas Comptroller for calendar tax years 2015, 2016, and 2017.

All tax years remain subject to examination by federal and state authorities.

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It is not practicable for the Company to determine the amount of unrecognized tax expense on these reinvested international earnings.

RELATED-PARTY TRANSACTIONS

The Company did not engage in any material related party transactions for the years ended December 31, 2021 and 2020.

In the year ended December 31, 2019, the Company engaged in transactions with one of its strategic investors.

With respect to this investor, the Company recorded revenue of $ 8.5 million and expenses of $ 1.3 million for the year ended December 31, 2019.

During the years ended December 31, 2021 and 2020, the Company did not consider this investor to be a related party, as this investor did not meet the defined criteria.

In the year ended December 31, 2019, the Company had engaged in transactions with another company in which the Company’s Chief Executive Officer held a majority voting interest and was a member of such company’s board of directors at that time, and another member of the Company’s Board of Directors is presently such company’s Chief Executive Officer.

With respect to transactions with this company, the Company incurred expenses of $ 1.2 million for the year ended December 31, 2019.

RESTRUCTURING CHARGES

In November 2022, the Company approved a plan to reduce its operating expense growth rate due to economic conditions.

The Company eliminated employee positions in the United States and internationally, and also abandoned future development for certain technology assets.

Accordingly, the Company recorded employee termination expenses consisting primarily of severance payments, notice pay (where applicable), employee benefits contributions, payroll taxes and related costs, and an impairment charge related to the abandoned technology assets.

The restructuring charges are recorded as follows (in thousands):

Year Ended December 31, 2022

Employee Terminations Impairment Charge Total

Research and development $ 12,092 $ 7,500 $ 19,592

Sales and marketing 10,904 — 10,904

General and administrative 7,644 — 7,644

Total restructuring charges $ 30,640 $ 7,500 $ 38,140

A reconciliation of the beginning and ending balance of employee termination restructuring charges, which are included in Accrued liabilities in the consolidated balance sheets, is as follows (in thousands):

Employee Terminations

Balance as of December 31, 2021 $ —

Employee termination restructuring charges incurred 30,640

Cash payments ( 8,547 )

Balance as of December 31, 2022 $ 22,093

The Company expects the plan to be substantially complete by the end of the first quarter in fiscal 2023.

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RETIREMENT PLANS

The Company maintains a 401(k) tax deferred saving plan (the “Savings Plan”) for the benefit of qualified employees.

Qualified employees may elect to make contributions to the Savings Plan on a biweekly basis, subject to certain

Qualified employees may elect to make contributions to the Savings Plan on a biweekly basis, subject to certain limitations.

The Company may make contributions to the Savings Plan at the discretion of the Board of Directors.

No contributions were made for the years ended December 31, 2022, 2021, and 2020.

In 2014, the Company established a defined contribution plan in the U.K.

The Company has a defined contribution plan in the U.K.

for its U.K.-based employees.

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Accordingly, basic and diluted net income (loss) per share are the same for both classes.

For purposes of the calculation of diluted net income (loss) per share, options to purchase common stock, restricted stock units, and unvested shares of common stock issued upon the early exercise of stock options are considered common stock equivalents.

For purposes of the calculation of diluted net income (loss) per share, options to purchase common stock and restricted stock units are considered common stock equivalents.

Dilutive shares of common stock are determined by applying the treasury stock method.

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Net income (loss) per share — diluted $ ( 3.62 ) $ 1.71 $ ( 0.14 )

Common stock equivalents excluded from the calculation of diluted net income (loss) per share because of their anti-dilutive effect are as follows (in thousands):

Years Ended December 31,

2021 2020 2019

Equity awards to purchase common stock 1,128 13,088 15,668

Unvested shares of common stock issued upon early exercise of stock options and business acquisition — 1 31

Total 1,128 13,089 15,699

Common stock equivalents excluded from the calculation of diluted net income (loss) per share because of their anti-dilutive effect were 14.4 million, 1.1 million and 13.1 million units of equity awards to purchase common stock granted under our equity plans for the years ended December 31, 2022, 2021, and 2020, respectively.

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SEGMENT INFORMATION

An operating segment is defined as a component of an entity for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) for purposes of allocating resources and evaluating financial performance.

An operating segment is defined as a component of an entity for which discrete financial information is available that is evaluated regularly by the CODM for purposes of allocating resources and evaluating financial performance.

The Company’s CODM is its Chief Executive Officer, and the CODM evaluates performance and makes decisions about allocating resources to its operating segments based on financial information presented on a consolidated basis and on revenue and gross profit for each operating segment.

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The Company does not allocate property and equipment or any other assets or capital expenditures to reportable segments.

The Company is organized into two reportable segments as follows:

Consists of revenue generated from the sale of digital advertising and related services including the demand-side 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.

Consists of revenue generated from sale of streaming players, audio products and accessories through retailers and distributors, as well as directly to customers through the Company’s website.

Effective as of the fourth quarter of fiscal 2022, the Company reorganized reportable segments to better align with management’s reporting of information reviewed by the CODM for each segment.

The Company’s segment and related financial information has been recast to reflect the following changes;

the Company renamed the player segment to the devices segment which now includes licensing arrangements with service operators and licensed Roku TV partners in addition to sales of streaming players, audio products and smart home products.

All financial information, current and historical, has been recast based on the reorganized segments.

Updated descriptions of the Company’s two reportable segments are as follows:

The platform segment generates revenue from the sale of digital advertising and related services including the demand-side platform and 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.

The devices segment generates revenue from the sale of streaming players, audio products, smart home products and accessories that are sold through retailers and distributors, as well as directly to customers through the Company’s website.

In addition, revenue from licensing arrangements with service operators and licensed Roku TV partners is now included in the devices segment.

Customers accounting for 10% or more of segment revenue, net, were as follows:

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Customer H * 10 % 14 %

Player segment revenue

Devices segment revenue

Customer A * * 10 %

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Revenue in international markets was less than 10% in each of the periods presented.

Substantially all Company assets were held in the United States and were attributable to the operations in the United States as of December 31, 2021 and 2020.

Long-lived assets, net

The following table presents long-lived assets, net, which consist primarily of property and equipment and operating lease right-of-use assets, by geographic area (in thousands):

As of December 31,

United States $ 686,902 $ 442,012

United Kingdom 127,538 59,168

Other countries 42,286 22,047

Total $ 856,726 $ 523,227

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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data