What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-16 compared with 2023-02-16 · 232 added, 338 removed, 794 unchanged (42% of the section changed)

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Notes to Consolidated Financial Statements

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Significant Accounting Policies and Basis of Presentation

Goodwill and Intangible Assets

Balance Sheet Components

Content Assets

Strategic Investment

Fair Value Disclosure

Stockholders’ Equity

Commitments and Contingencies

Retirement Plans

Net Income (Loss) Per Share

Segment Information

Restructuring

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Variable Consideration Determination of Content Distribution Services and Branded Channel Buttons – Refer to Note 2 to the financial statements

Revenue Recognition - Variable Consideration Determination in Streaming Services Distribution – Refer to Note 2 to the financial statements

Critical Audit Matter Description

As part of the Company’s revenue recognition for its arrangements with content publishers, management is required to estimate variable consideration from transactional revenue sharing related to content distribution services and the sale of branded channel buttons on remote controls.

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 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.

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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.

As part of the Company’s revenue recognition for its arrangements with content partners, management is required to estimate variable consideration from transactional revenue sharing related to streaming services distribution.

Variable consideration related to streaming services distribution (“content partner 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 streaming services distribution, the estimate of the variable consideration is based on management’s assessment of historical, current, and forecasted performance of the partner’s applications.

We identified the forecasts of variable consideration relating to streaming service distribution 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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Our audit procedures related to management’s forecast used in the determination of future variable consideration included the following, among others:

• We tested the effectiveness of controls over management’s forecasting process related to content distribution services and sale of branded channel buttons on remote controls.

• We tested the effectiveness of controls over management’s forecasting process related to streaming services distribution.

• We selected a sample of revenue arrangements with variable consideration and performed the following:

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◦ Analyzed the contractual documents to determine if all arrangement terms that may have an impact on revenue recognition were identified and properly considered in the evaluation of the accounting for the contract, including terms and conditions for transactional revenue sharing.

◦ Performed inquiries with applicable individuals in the Company’s finance, operations, and sales departments regarding the estimates for content distribution services and sales of branded channel buttons on remote controls.

◦ Performed inquiries with applicable individuals in the Company’s finance, operations, and sales departments regarding the estimates for streaming services distribution.

◦ Tested management’s accuracy of forecasting by comparing the historical forecasts of consideration to actual consideration received.

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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 inquiries as to the changes within the business and considerations of macroeconomic and industry factors.

◦ 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 partners’ 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

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Total current liabilities 1,275,527 1,083,273

Long-term debt, non-current portion — 79,985

Deferred revenue, non-current portion 24,572 28,210

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See accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF OPERATIONS

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Income (Loss) from Operations ( 792,377 ) ( 530,888 ) 235,100

Other Income (Expense), Net:

Other Income, Net:

Interest expense ( 730 ) ( 5,161 ) ( 2,980 )

Other income (expense), net 43,766 4,467 5,233

Total other income (expense), net 38,605 1,487 1,801

Other income, net 93,677 43,766 4,467

Total other income, net 92,947 38,605 1,487

Income (Loss) Before Income Taxes ( 699,430 ) ( 492,283 ) 236,587

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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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See accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity

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Stock-based compensation expense — — 188,043 — — 188,043

Adoption of ASU 2016-13 — — — — ( 1,066 ) ( 1,066 )

Net loss — — — — ( 17,507 ) ( 17,507 )

Foreign currency translation adjustment — — — 12 — 12

Net income — — — — 242,385 242,385

Balance-December 31, 2021 135,137 14 2,856,572 41 ( 90,021 ) 2,766,606

Vesting of early exercised stock options — — 4 — — 4

Issuance of common stock pursuant to equity incentive plans 4,890 — 18,357 — — 18,357

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 — — 359,931 — — 359,931

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

Net income — — — — 242,385 242,385

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

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

5 unchanged sentences

See accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS

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Change in fair value of Strategic Investment ( 4,348 ) 532 —

Impairment of intangible assets 7,500 — —

Impairment of assets 269,402 7,500 —

Provision for (recoveries of) doubtful accounts 1,674 2,081 ( 904 )

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

Proceeds from escrows associated with acquisition — — 1,058

Purchase of Strategic Investment ( 10,000 ) ( 40,000 ) —

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Cash flows from financing activities:

Proceeds from borrowings, net of issuance costs — — 69,325

Repayments of borrowings ( 80,000 ) ( 10,000 ) ( 5,000 )

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Proceeds from equity issued under at-the-market offerings, net of offering costs — — 989,615

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

Net cash (used in) provided by financing activities ( 61,243 ) 8,357 1,003,147

Net increase (decrease) in cash, cash equivalents and restricted cash 101,994 ( 181,544 ) 1,054,409

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Cash, cash equivalents and restricted cash —End of period $ 2,066,604 $ 1,961,956 $ 2,147,670

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Years Ended December 31,

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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 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.

The Company operates in two reportable segments and generates platform revenue from the sale of digital advertising (including direct and programmatic video advertising, media and entertainment promotional spending, and related services) and streaming services distribution (including subscription and transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded app buttons on remote controls).

Streaming services distribution was previously referred to as content distribution services.

The Company generates devices revenue from the sale of streaming players, Roku-branded TVs, smart home products and services, audio products, and related accessories as well as revenue from licensing arrangements with service operators.

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

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All intercompany accounts and transactions have been eliminated in consolidation.

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.

Certain prior period amounts in the consolidated financial statements and accompanying notes have 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;

• amortization and the impairment of content assets;

• the impairment of operating lease right-of-use assets and property and equipment;

• valuation of the Strategic Investment (defined in Note 7);

• useful lives of tangible and intangible assets;

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Comprehensive Income (Loss)

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.

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Comprehensive income (loss) for the years ended December 31, 2023, 2022, and 2021 includes foreign currency translation adjustments.

Foreign Currency

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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 recorded a foreign currency loss of $ 1.5 million, a gain of $ 8.2 million, and a loss of $ 1.2 million during the years ended December 31, 2023, 2022, and 2021, respectively.

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

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The Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents.

Two financial institutions managed 26 % and 21 % of cash and cash equivalents as of December 31, 2022, and 30 % and 27 % as of December 31, 2021.

Cash and cash equivalents consist primarily of bank deposit accounts and investments in money market funds.

The Company’s restricted cash balance is included in Prepaid expenses and other current assets in the consolidated balance sheets and is used to secure outstanding letters of credit related to operating leases for office facilities.

The letters of credit were previously secured by the Credit Facility (defined in Note 10) which matured and was repaid in February 2023.

See Note 10 for additional details.

The Company maintains its cash, cash equivalent, and restricted cash balances with high credit financial institutions and continuously monitors the amount of exposure to any one institution and diversifies as necessary in order to minimize its concentration risk.

Such balances often exceed regulated insured limits.

Accounts Receivable, net

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Ending balance $ 23,024 $ 28,903 $ 48,411

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Allowance for Doubtful Accounts :

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

Impact of adoption of ASU 2016-13 — — 1,066

Adjusted beginning balance $ 2,158 $ 4,181 $ 2,206

Provision for (recoveries of) doubtful accounts 1,674 2,081 ( 904 )

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The Company did not have any customer that individually accounted for more than 10% of its accounts receivable, net balance as of December 31, 2023 and 2022.

Business Combinations

The Company determines whether a transaction meets the definition of a business combination before applying the acquisition method of accounting to that transaction.

The Company allocates the fair value of the purchase consideration of its acquisitions to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill.

The operating results of acquired businesses are included in the Company’s consolidated statements of operations from their effective acquisition date.

Acquisition-related expenses and certain acquisition restructuring and other related charges are recognized separately from the business combination and are expensed as incurred.

Contingent consideration classified as a liability is recognized at fair value as of the acquisition date with subsequent fair value adjustments recorded in the consolidated statements of operations.

While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to consideration transferred, and the assets acquired and liabilities assumed with the corresponding offset to goodwill.

In addition, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date.

The Company continues to collect information and reevaluates these estimates and assumptions and records any adjustments to the Company’s preliminary estimates with a corresponding offset to goodwill during the measurement period.

Upon the conclusion of the measurement period or final determination of the values of consideration transferred, and assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

Intangible Assets

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Impairment Assessments

The Company evaluates goodwill for possible impairment at least annually during the fourth quarter of each fiscal year or more often, if and when circumstances indicate that goodwill may be impaired.

This includes but is not limited to significant adverse changes in the business climate, market conditions, or other events that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value.

In performing its annual assessment, the Company can opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or it can directly perform a quantitative assessment.

Based on the Company’s qualitative assessment, if it is determined that the fair value of the reporting unit is, more likely than not, less than its carrying amount, then the quantitative assessment is performed.

The Company evaluates goodwill and indefinite-lived intangible assets, for possible impairment at least annually during the fourth quarter of each fiscal year or more often, if and when circumstances indicate that goodwill or indefinite-lived intangible assets may be impaired.

In performing its annual assessment, the Company can opt to perform a qualitative assessment to test for impairment or it can directly perform a quantitative assessment.

Based on the Company’s qualitative assessment, if it is determined that the fair value of the reporting unit or indefinite-lived intangible assets is, more likely than not, less than its carrying amount, then the quantitative assessment is performed.

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.

The Company assesses these asset or asset groups for impairment based on their estimated undiscounted future cash flows.

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.

Any excess of an indefinite-lived intangible asset’s carrying amount over its fair value is recorded as an impairment loss.

The Company reviews long-lived assets, including property and equipment, right-of-use 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 recoverable.

The Company assesses the recoverability of an asset or asset group based on their estimated undiscounted future cash flows directly associated with their use and eventual disposition.

If the asset or asset group is not recoverable, an impairment loss is recognized based on the excess of the carrying amount over the fair value of the asset or asset group.

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.

The Company recorded an impairment charge related to abandoned technology assets of $ 7.5 million for the year ended December 31, 2022.

There were no impairments of intangible assets during the years ended December 31, 2023 and December 31, 2021.

See Note 17 for additional details.

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

During the year ended December 31, 2023, the Company recognized an impairment charge of $ 131.6 million for operating lease right-of-use assets and an impairment charge of $ 72.3 million for property and equipment related to a decision to sub-lease and cease the use of certain office facilities and related property and equipment.

This action was taken as part of the restructuring announced in the third quarter of fiscal year 2023.

See Note 17 for additional details.

There were no impairments of property and equipment, right-of-use assets, and intangible assets with finite lives during the years ended December 31, 2022 and December 31, 2021.

Content Assets

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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.

Projected usage is mainly based on historical and projected viewing patterns.

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

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

The Company did not recognize any impairment of content assets in any periods reported.

In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.

During the year ended December 31, 2023, the Company recognized an impairment charge of $ 65.5 million related to removing select licensed and produced content from The Roku Channel.

This action was taken as part of the restructuring announced in the third quarter of fiscal year 2023.

See Note 17 for additional details.

The Company did not recognize any impairment of content assets during the years ended December 31, 2022 and December 31, 2021.

Revenue Recognition

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The Company’s contracts often contain multiple distinct performance obligations.

The Company estimates the transaction price of a contract based on the expected value for which a significant reversal of revenue is not expected to occur.

The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract which may include fixed consideration or variable consideration.

At the inception of each arrangement, the Company evaluates the likelihood that the payments will be collected.

When arrangements have variable consideration, the Company utilizes the expected value method to estimate the amount expected to be received.

The amount of variable consideration that is included in the transaction price is constrained to the extent that it is probable a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

The estimate of the variable consideration is based on the assessment of historical, current, and forecasted performance noted and expected from the performance obligation.

In arrangements with multiple performance obligations, the estimated transaction price of each contract is allocated to each distinct performance obligation based on relative stand-alone selling price (“SSP”).

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 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.

For performance obligations routinely sold separately, the Company determines SSP based on prices charged to customers for individual products in consideration with historical and expected discounting practices, the size, and volume of transactions, geographic location, and go-to-market strategy.

For those performance obligations that are not routinely sold separately, the Company determines SSP using information that may include market conditions and other observable inputs.

When the Company’s arrangements involve 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.

In this assessment, the Company considers if it obtains control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price.

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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 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.

The Company generates platform revenue from the sale of digital advertising (including direct and programmatic video advertising, media and entertainment promotional spending, and related services) and streaming services distribution (including subscription and transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded app buttons on remote controls).

The Company sells digital advertising to advertisers directly or through advertising agencies or third-party demand and supply-side platforms and to content partners for their media and entertainment promotions via various campaign tools.

Advertising arrangements include video and display advertising delivered through advertising impressions.

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For such arrangements, the Company allocates revenue to each distinct performance obligation based on their relative SSP.

The Company also generates revenue from customers using its ad platform.

The Company also generates revenue from customers using its advertising platform.

For such arrangements, it charges a platform fee, which is a percentage of a customer’s advertising inventory spend during the month, along with data and any add-on features purchased through the platform.

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Advertising arrangements comprised of multiple performance obligations are recognized either at a point in time or over time depending on the nature of the distinct performance obligation.

The Company’s content distribution revenue sharing arrangements include cash or non-cash consideration.

The Company’s revenue sharing arrangements within its streaming services distribution include cash or non-cash consideration.

The revenue sharing arrangements generally apply to new subscriptions for accounts that sign up for new services and at the time of a movie rental or purchase.

Revenue is recognized on a net basis as the Company is deemed to be the agent between content publishers and end users.

Revenue is recognized on a net basis as the Company is deemed to be the agent between content partners and end users.

Revenue is recognized on a time elapsed basis, by day, as the services are delivered over the contractual distribution term.

Non-cash consideration is usually in the form of advertising inventory, the fair value of which is determined based on relevant internal and third-party data.

The Company sells monthly subscriptions for premium content on The Roku Channel for varying fees for different content.

The Company sells Premium Subscriptions for premium content on The Roku Channel for varying fees for different content.

Revenue from such Premium Subscription fees is recognized on a gross basis over the service period as the Company is deemed to be the principal in the relationship with the end user.

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The Company pays fixed fees per subscriber or fixed percentage of revenue share to the providers of premium content on The Roku Channel based on the contractual arrangement and recognizes that in Cost of revenue, platform.

The Company sells branded channel buttons on remote controls of streaming devices that provide one-touch access to a publisher’s content.

The Company sells branded app buttons on remote controls of streaming devices that provide one-touch access to a content partner’s content.

The Company typically receives a fixed fee per button for each unit sold over a defined distribution period.

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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.

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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.

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

The revenue allocated to unspecified upgrades and updates is recognized on a time elapsed basis, by day, over the service period.

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

Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued liabilities, and operating lease liability in our consolidated balance sheets.

Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued liabilities, and operating lease liability in the consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

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Provisions are made if the cost of the inventories exceeds their net realizable value.

The Company evaluates inventory levels and purchase commitments for excess and obsolete products, based on management’s assessment of future demand and market conditions.

The Company evaluates inventory levels and purchase commitments for excess and obsolete products, based on its assessment of future demand and market conditions.

Property and Equipment

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

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.

During the years ended December 31, 2023, and 2022, the Company did not capitalize any internal-use software development costs.

During the year ended December 31, 2021, the Company capitalized internal-use software development costs of $ 0.5 million.

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.

During the years ended December 31, 2022, 2021, and 2020, the Company amortized expenses of $ 1.0 million, $ 1.0 million, and $ 0.5 million, respectively.

During the years ended December 31, 2023, 2022, and 2021, the Company amortized internal-use software development costs of $ 0.9 million, $ 1.0 million, and $ 1.0 million, respectively.

Deferred Revenue

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 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 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 partners, 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.

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Advertising Expenses

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• Volatility.

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.

The risk-free interest rate is based on the yields of U.S.

Treasury securities with maturities similar to the expected term for each of our stock options.

Treasury securities with maturities similar to the expected term for each of the Company’s stock options.

• Dividend Yield.

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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, 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 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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Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures , that requires companies to provide enhanced disclosures about significant segment expenses within its reportable segment disclosures on an annual and interim basis.

The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The guidance applies retrospectively to all prior periods presented in the financial statements.

The Company is currently in the process of evaluating the effects of the new guidance.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures , that requires incremental disclosures within the income tax disclosures that increase the transparency and usefulness of income tax disclosures.

The updated disclosures primarily require specific categories and greater disaggregation within the rate reconciliation, disaggregation of income taxes paid, and modifying other income tax-related disclosures.

The guidance is effective either prospectively or retrospectively for fiscal years beginning after December 15, 2024.

The Company is currently in the process of evaluating the effects of the new guidance.

The Company’s disaggregated revenue is represented by the two reportable segments discussed in Note 16.

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Contract assets decreased by $ 24.7 million during the year ended December 31, 2023 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.

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.

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

Deferred revenue increased by approximately $ 10.8 million during the year ended December 31, 2023 due to an increase in subscription revenue related to Premium Subscriptions and smart home products, higher device revenue in the year ended December 31, 2023 as compared to the year ended December 31, 2022, and due to the billings in excess of revenue recognized and timing of fulfillment of performance obligations related to platform revenue arrangements.

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.

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 devices revenue for its unspecified upgrades.

Revenue recognized during the year ended December 31, 2023 from amounts included in the total deferred revenue as of December 31, 2022 was $ 88.4 million.

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Estimated contracted revenue for these remaining performance obligations was $ 1,195.9 million as of December 31, 2023, of which the Company expects to recognize approximately 47 % 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 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 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 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 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 based on estimated fair values was as follows (in thousands):

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 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

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 the Equity Purchase Agreement.

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 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

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 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

Tradename $ 20,000 10.0

Customer relationships 700 4.0

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

The Company recognized $ 45.5 million and reversed $ 3.2 million of revenue during the years ended December 31, 2023 and 2022, respectively, from performance obligations that were satisfied in previous periods due to the changes in the estimated transaction price of its revenue contracts .

Customer I accounted for 11 % of the total net revenue for the year ended December 31, 2023.

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

GOODWILL AND INTANGIBLE ASSETS

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All goodwill relates to the platform segment.

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

Carrying Value

Balance as of December 31, 2020 $ 73,058

This Old House acquisition 46,671

Nielsen AVA business acquisition 36,790

Other immaterial acquisition 5,000

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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Total Intangible assets $ 111,943 $ ( 70,190 ) $ 41,753 6.7

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As of December 31, 2022

Weighted-Average Useful Lives

Amount Accumulated

Amount Weighted-Average Useful Lives

Developed technology $ 73,367 $ ( 37,278 ) $ 36,089 5.9

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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

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 recognized an impairment charge of $ 7.5 million during the year ended December 31, 2022 as part of its restructuring efforts related to the abandonment of future development of certain technology assets.

See Note 17 for additional details.

The Company recorded expenses of $ 17.1 million, $ 17.7 million, and $ 17.3 million for amortization of intangible assets during the years ended December 31, 2023, 2022, and 2021, 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 most of the amortization of developed technology in Cost of revenue, platform for the year ended December 31, 2023, and in Cost of revenue, platform and Research and development expenses for the years ended December 31, 2022 and 2021.

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.

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Accounts receivable, net $ 816,337 $ 760,793

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Property and Equipment, net :

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Depreciation and amortization expense for property and equipment assets for the years ended December 31, 2023, 2022, and 2021 was $ 53.3 million, $ 31.0 million, and $ 25.4 million, respectively.

During the year ended December 31, 2023, the Company recognized an impairment charge of $ 72.3 million related to property and equipment associated with the leased office facilities that are part of its restructuring efforts.

See Note 17 for additional details.

Accrued Liabilities :

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As of December 31,

Payments due to content publishers $ 201,054 $ 165,894

Payments due to content partners

$ 239,196 $ 201,054

Accrued cost of revenue 147,875 105,347

Marketing, retail and merchandising costs 163,367 47,428

Marketing, retail and merchandising expenses

147,853 163,367

Operating lease liability, current 68,099 54,689

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Total Accrued liabilities

$ 788,040 $ 750,810

Deferred Revenue :

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Total Other long-term liabilities $ 49,186 $ 69,911

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CONTENT ASSETS

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Total amortization costs $ 207,852 $ 234,355 $ 95,570

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

During the year ended December 31, 2023, the Company recognized an impairment charge of $ 65.5 million related to removing select licensed and produced content from The Roku Channel as part of its restructuring efforts.

See Note 17 for additional details.

The Company did not recognize any impairment of content assets during the years ended December 31, 2022 and December 31, 2021.

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

Years Ended December 31,

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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.

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.

The advances are in the form of convertible promissory notes (the “Strategic Investment”) and are recognized as Other non-current assets on the consolidated balance sheets.

The Strategic Investment accrues interest at 5 % per annum.

The convertible promissory notes have maturity dates as reflected in the table below, or are due upon a redemption event or in the event of a default.

The convertible promissory notes and their date of investment and maturity are as follows (in thousands):

As of December 31, 2023

Date of Investment Amount of Investment Date of Maturity

June 15, 2022 $ 40,000 June 15, 2025

March 23, 2023 $ 5,000 March 23, 2026

May 23, 2023 $ 5,000 May 23, 2026

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

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See Note 8 for additional details on the fair value of the Strategic Investment.

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FAIR VALUE DISCLOSURE

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Money market funds 1,431,398 1,431,398 — 608,409 608,409 —

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

Restricted cash, current 40,713 40,713 — — — —

Strategic Investment 53,816 — 53,816 39,468 — 39,468

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

Balance, December 31, 2021 $ —

Years Ended December 31,

Beginning balance $ 39,468 $ —

Purchase of Strategic Investment 10,000 40,000

Change in estimated fair value of Strategic Investment 4,348 ( 532 )

Balance, December 31, 2022 $ 39,468

Ending balance $ 53,816 $ 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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Financial assets and liabilities measured using Level 1 inputs include cash equivalents including 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 considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents.

The Company measured money market funds of $ 1,431.4 million and $ 608.4 million as cash equivalents as of December 31, 2023 and 2022, respectively, using Level 1 inputs.

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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 recorded an unrealized gain of $ 4.3 million and an unrealized loss of $ 0.5 million in Other income, net related to the change in the fair value of the Strategic Investment for the years ended December 31, 2023 and 2022, respectively.

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

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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.

During the year ended December 31, 2023, the Company recorded total impairment charges of $ 269.4 million that included $ 131.6 million of operating lease right-of-use assets impairment, $ 72.3 million of property and equipment impairment, and $ 65.5 million of content assets impairment related to removing select licensed and produced content from The Roku Channel.

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.

The Company did not record any impairment charges during the year ended December 31, 2021.

The fair value of the impaired operating lease right-of-use assets and property and equipment were estimated using discounted cash flow models, or the income approach, based on market participant assumptions with Level 3 inputs.

The significant assumptions used in estimating fair value include the expected downtime prior to the commencement of future subleases, projected sublease income over the remaining lease periods, and discount rates that reflect the level of risk associated with the expected future cash flows.

For the licensed and produced content that was removed from The Roku Channel, the net carrying amount of the content assets was written off.

For the abandoned technology assets, the net carrying amount of the technology assets was written off.

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

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

The leases have remaining terms ranging from less than 1 year to 10 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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2023 2022 2021

Operating lease cost $ 76,359 $ 46,410 $ 42,127

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

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

Operating lease expense $ 83,060 $ 76,359 $ 46,410

Variable lease expense 23,331 18,991 15,080

Total operating lease expense $ 106,391 $ 95,350 $ 61,490

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

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Operating leases $ 40,866 $ 231,728 $ 110,845

Decrease in operating lease right-of-use assets due to impairment (See Note 17) $ 131,646 $ — $ —

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

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Weighted-average discount rate for operating leases 3.94 % 3.80 %

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Future lease payments under operating leases as of December 31, 2023 are as follows (in thousands):

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expected tenant improvement allowance ( 6,850 )

Total $ 639,340

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 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):

As of December 31,

Amount Effective

Interest Rate

(1) Total lease liabilities include liabilities related to operating lease right-of-use assets which were included in the impairment charges as part of the Company’s restructuring efforts.

See Note 17 for additional details.

As of December 31, 2023, the Company had no commitments relating to operating leases that have not yet commenced.

The Company does not have any outstanding debt as of December 31, 2023.

In February 2023, the Company repaid the debt balance in full and satisfied all outstanding debt obligations under the Credit Facility (as defined below) when it matured.

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

Amount Effective

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The carrying amount of debt approximates fair value due to its variable interest rates.

The interest expense for the years ended December 31, 2022 and 2021 relating to the Credit Agreement is $ 3.6 million and $ 2.2 million, respectively.

The interest expense associated with the Credit Facility for the years ended December 31, 2023 and 2022 is $ 0.6 million and $ 3.6 million, respectively.

Senior Secured Term Loan A and Revolving Credit Facilities

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On November 18, 2019, the Company borrowed the Term Loan A facility in the aggregate principal amount of $ 100.0 million.

In March 2020, the Company borrowed the available balance of $ 69.3 million from the Revolving Credit Facility.

For both borrowings, 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.

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.

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.

The Company’s obligations under the Credit Agreement are secured by substantially all of its assets.

In the future, certain of its direct and indirect subsidiaries may be required to guarantee the Credit Agreement.

The Company may prepay, and in certain circumstances would be required to prepay, loans under the Credit Agreement without payment of a premium.

The Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, a financial covenant that is tested quarterly and requires the Company to maintain a certain adjusted quick ratio of at least 1.00 to 1.00, and customary events of default.

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

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 Credit Facility matured on February 19, 2023 and the outstanding Term Loan A Facility was repaid in full.

As of December 31, 2022, the Company had outstanding letters of credit against the Revolving Credit Facility of $ 37.7 million.

Upon maturity of the Credit Facility on February 19, 2023, the outstanding letters of credit were secured by the Company’s existing cash balance, a portion of which is restricted for that purpose.

As of December 31, 2023 the Company had outstanding letters of credit of $ 37.5 million, which are secured by restricted cash of $ 40.7 million.

STOCKHOLDERS’ EQUITY

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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

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 Company currently grants equity under 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.

Restricted stock units granted under the 2017 Plan are subject to continuous service.

The outstanding equity relates to the 2017 Plan and the 2008 Equity Incentive Plan (“2008 Plan”), a pre-IPO plan.

No additional equity grants have been made pursuant to the 2008 Plan subsequent to the IPO.

The equity granted under the 2017 Plan is subject to continuous service.

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.

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Stock Options

The following table summarizes the Company’s stock option activities under the 2008 Plan and 2017 Plan (in thousands, except years and per share data):

Stock option activity for the year ended December 31, 2023 is as follows (in thousands, except years and per share data):

Weighted-Average

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Balance, December 31, 2023- Exercisable 3,317 $ 60.42 5.7 — $ 133,742

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The weighted-average grant date fair value per share of options granted during the years ended December 31, 2023, 2022, and 2021 was $ 42.43 , $ 36.66 , and $ 139.76 , 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.

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 .

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

Restricted stock units generally vest over one to four years .

No stock-based compensation was capitalized for the years ended December 31, 2023 and 2022.

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Cost of revenue, platform $ 1,478 $ 1,229 $ 827

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

Cost of revenue, devices 3,761 2,440 2,035

Research and development 147,989 147,653 77,770

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Total stock-based compensation $ 370,130 $ 359,931 $ 187,532

The fair value of stock options granted under the 2008 Plan and 2017 Plan is estimated on the grant date using the Black-Scholes option-valuation model.

The fair value of stock options granted is estimated on the grant date using the Black-Scholes option-valuation model.

The assumptions used to value stock options granted during the years ended December 31, 2023, 2022, and 2021 are as follows:

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1.37 - 4.33 %

0.22 - 1.67 %

Expected volatility 61 - 63 %

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Content Commitments

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

The Company enters into contracts with content partners 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.

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The unknown obligations could be material.

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The Company also licenses content under arrangements where the payments are variable and based on the revenue earned by the Company.

Since those amounts cannot be determined, they are not included in the obligations below.

As of December 31, 2023, the Company’s total obligation for licensed and produced content is $ 286.1 million, of which the Company recorded $ 59.2 million in Current liabilities and $ 24.1 million in Other long-term liabilities in the consolidated balance sheets.

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Total content liabilities $ 286,078

The Company also licenses content under arrangements where the payments are variable and based on the revenue earned by the Company.

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

Letters of Credit

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Contingencies

The Company accrues for loss contingencies, including liabilities for intellectual property licensing claims, when it believes such losses are probable and reasonably estimable.

The Company accounts for loss contingencies, including liabilities for intellectual property licensing and other claims, when it believes such losses are probable and reasonably estimable.

These contingencies are reviewed at least quarterly and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events.

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From time to time, the Company is subject to legal proceedings, claims, and investigations in the ordinary course of business, including claims relating to employee relations, business practices, and patent infringement.

The Company is involved in litigation matters not listed herein.

The Company is involved in proceedings, claims and investigations not listed herein.

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, 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.

During the years ended December 31, 2023, 2022, and 2021, the Company did not have any loss contingencies that were material.

Indemnification

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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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1,271 582 ( 6,877 )

Total $ 5,722 $ ( 5,798 ) $ ( 945 )

Total income tax expense (benefit) $ 10,131 $ 5,722 $ ( 5,798 )

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:

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Change in valuation allowance ( 23.6 ) ( 39.1 ) 140.0

Federal research and development tax credit 14.6 ( 30.7 ) 102.9

Research and development tax credit 6.8 14.6 ( 30.7 )

Stock-based compensation ( 2.8 ) 4.0 ( 114.3 )

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Effective tax rate ( 1.4 ) % ( 1.2 ) % ( 2.5 ) %

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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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Section 174 capitalization 280,906 165,219

Other 6,190 286

Total deferred tax assets 1,334,134 1,179,129

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Operating lease right-of-use assets ( 111,164 ) ( 128,517 )

Other ( 4,357 ) —

Total deferred tax liabilities ( 115,521 ) ( 128,517 )

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Net deferred tax assets $ 8,791 $ 10,271

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.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) eliminated the right to deduct research and development expenses for tax purposes in the period the expenses were incurred and instead requires all U.S.

and foreign research and development expenses to be amortized over five and fifteen tax years, respectively.

Due to this required capitalization of research and development expenses, the Company has recorded U.S.

current income tax expense of $ 3.7 million for the year ended December 31, 2023.

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.

As a result of the Company’s analysis of all available objective evidence, both positive and negative, as of December 31, 2022, management believes it is more likely than not that the U.S.

As a result of the Company’s analysis of all available objective evidence, both positive and negative, as of December 31, 2023, the Company believes it is more likely than not that the U.S.

and Netherlands deferred tax assets will not be fully realizable.

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federal and state valuation allowance increased by $ 166.0 million and $ 199.2 million during the years ended December 31, 2023 and 2022, 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.

The change in the valuation allowance during the years ended December 31, 2023 and 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.

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

income tax reporting purposes, the net operating loss carryforwards of $ 8.0 million, $ 1.6 million, $ 23.5 million, and $ 26.2 million, respectively, are available to reduce future taxable income, if any, in those countries.

Brazil, Denmark, and U.K.

For federal and state income tax reporting purposes, respective net operating loss carryforwards of $ 1,807.3 million and $ 1,604.0 million are available to reduce future taxable income.

The federal net operating loss carryforwards will begin to expire in 2037, and certain state net operating losses have expired in 2023.

For Brazil, Netherlands, and U.K.

income tax reporting purposes, the net operating loss carryforwards of $ 8.6 million, $ 47.6 million, and $ 14.0 million, respectively, are available to reduce future taxable income, if any.

Brazil and U.K.

net operating losses can be carried forward indefinitely.

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The total amount of unrecognized tax benefits as of December 31, 2023 is $ 88.5 million, of which $ 71.8 million is composed of research and development credits and $ 16.7 million is related to international activities.

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

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Gross decrease for tax positions of prior years ( 12,689 ) ( 1,185 )

Decrease relating settlements with taxing authorities ( 184 ) —

Decrease relating to settlements with taxing authorities ( 43 ) ( 184 )

Unrecognized tax benefits balance at end of year $ 88,548 $ 88,028

As of December 31, 2023, $ 5.2 million of the Company's gross unrecognized tax benefits, if recognized, would affect the effective tax rate and $ 83.3 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 does not expect its 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.

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

federal jurisdiction and various state jurisdictions.

federal jurisdiction, various state jurisdictions, and certain foreign jurisdictions.

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

These audits include questioning the timing and amount of deductions;

the nexus of income among various tax jurisdictions;

and compliance with federal, state, and local tax laws.

These audits include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with federal, state, and local tax laws.

The Company will continue to indefinitely reinvest earnings from its foreign subsidiaries, which are not significant.

While federal income tax expense has been recognized as a result of the Tax Cuts and Jobs Act of 2017, the Company has not provided any additional deferred taxes with respect to items such as foreign withholding taxes, state income tax or foreign exchange gain or loss.

While federal income tax expense has been recognized as a result of the Tax Act, the Company has not provided any additional deferred taxes with respect to items such as foreign withholding taxes, state income tax or foreign exchange gain or loss.

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

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

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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.

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

for its U.K.-based employees.

The Company contributed $ 2.3 million, $ 1.3 million, and $ 0.7 million to the plan for the years ended December 31, 2022, 2021, and 2020, respectively.

No Company contributions were made for the years ended December 31, 2023, 2022, and 2021.

The Company has defined contribution plans in the U.K.

and Korea for the employees in those countries.

The Company contributed $ 3.2 million, $ 2.3 million, and $ 1.3 million in total to these plans for the years ended December 31, 2023, 2022, and 2021, respectively.

NET INCOME (LOSS) PER SHARE

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Net income (loss) per share — diluted $ ( 5.01 ) $ ( 3.62 ) $ 1.71

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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Common stock equivalents excluded from the calculation of diluted net income (loss) per share because of their anti-dilutive effect were 14.0 million, 14.4 million and 1.1 million units of equity awards to purchase common stock granted under the Company’s equity plans for the years ended December 31, 2023, 2022, and 2021, respectively.

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 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 Chief Operating Decision Maker (“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.

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.

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

Platform revenue is generated from the sale of digital advertising (including direct and programmatic video advertising, media and entertainment promotional spending, and related services) and streaming services distribution (including subscription and transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded app buttons on remote controls).

Devices revenue is generated from the sale of streaming players, Roku-branded TVs, smart home products and services, audio products, and related accessories as well as revenue from licensing arrangements with service operators.

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

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Customer H * * 10 %

Customer I 13 % * *

Devices segment revenue

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Total $ 636,000 $ 856,726

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RESTRUCTURING CHARGES

The Company began efforts to reduce its operating expense growth rate due to economic conditions in the fourth quarter of fiscal 2022.

The Company recorded employee termination expenses, and an impairment charge related to abandoned technology assets during the year ended December 31, 2022.

During the year ended December 31, 2023, the Company implemented additional measures including consolidating its office space utilization, performing a strategic review of its content portfolio, reducing outside services expenses, and slowing its year-over-year headcount expense growth rate through a workforce reduction and limiting new hires, among other measures.

As a result of these measures, the Company recorded restructuring charges associated with employee termination expenses consisting primarily of severance payments, employee benefits contributions, payroll taxes and related costs, impairment charges related to decisions to sub-lease and cease the use of certain office facilities and related property and equipment, and impairment charges related to removing select licensed and produced content from The Roku Channel.

The restructuring charges for the years ended December 31, 2023 and 2022 are recorded as follows (in thousands):

Year Ended December 31, 2023

Year Ended December 31, 2022

Employee Terminations Facilities Exit Costs Asset Impairment Charges

Total Employee Terminations Asset Impairment Charges

Cost of revenue, platform $ 1,164 $ 1 $ 65,867 $ 67,032 $ — $ — $ —

Cost of revenue, devices 524 6 2,793 3,323 — — —

Research and development 31,160 1,320 78,011 110,491 12,092 7,500 19,592

Sales and marketing 29,786 517 83,411 113,714 10,904 — 10,904

General and administrative 20,531 1,683 39,320 61,534 7,644 — 7,644

Total restructuring charges $ 83,165 $ 3,527 $ 269,402 $ 356,094 $ 30,640 $ 7,500 $ 38,140

The asset impairment charges for the year ended December 31, 2023 include $ 131.6 million of operating lease right-of-use assets impairment, $ 72.3 million of property and equipment impairment, and $ 65.5 million of content assets impairment.

The asset impairment charge for the year ended December 31, 2022 includes a $ 7.5 million impairment charge related to abandoned technology assets.

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

Year Ended December 31, 2023

Year Ended December 31, 2022

Employee Terminations Facilities Exit Costs Total Employee Terminations Total

Beginning balance $ 22,093 $ — $ 22,093 $ — $ —

Restructuring charges incurred

83,165 3,527 86,692 30,640 30,640

Payments made

( 92,597 ) ( 2,329 ) ( 94,926 ) ( 8,547 ) ( 8,547 )

Ending balance $ 12,661 $ 1,198 $ 13,859 $ 22,093 $ 22,093

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