ROKU, INC 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 34 ) 65 Consolidated Balance Sheets 67 Consolidated Statements of Operations 68 Consolidated Statements of Comprehensive Income (Loss ) 69 Consolidated Statements of Stockholders’ Equity 70 Consolidated Statements of Cash Flows 71 Notes to Consolidated Financial Statements 73 1. The Company 73 2. Significant Accounting Policies and Basis of Presentation 73 3. Revenue 79 4. Goodwill and Intangible Assets 80 5. Balance Sheet Components 81 6. Content Assets 82 7. Strategic Investment 83 8. Fair Value Disclosure 84 9. Leases 85 10. Debt 86 11. Stockholders’ Equity 87 12. Commitments and Contingencies 89 13. Income Taxes 91 14. Retirement Plans 93 15. Net Income (Loss) Per Share 94 16. Segment Information 95 17. Restructuring 96 64 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Roku, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Roku, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. 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 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 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. 65 Table of Contents How the Critical Audit Matter Was Addressed in the Audit 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 streaming services distribution. • We selected a sample of revenue arrangements with variable consideration and performed the following: ◦ Obtained contractual documents for each selection, including master agreements and other related documents. ◦ 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 streaming services distribution. ◦ Tested management’s accuracy of forecasting by comparing the historical forecasts of consideration to actual consideration received. ◦ Evaluated changes from prior period forecasts to current period forecasts, when applicable. ◦ 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 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 San Jose, California February 16, 2024 We have served as the Company's auditor since 2008. 66 Table of Contents ROKU, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value data) As of December 31, 2023 2022 Assets Current Assets: Cash and cash equivalents $ 2,025,891 $ 1,961,956 Accounts receivable, net of allowances of $ 34,127 and $ 40,191 as of 816,337 760,793 December 31, 2023 and 2022, respectively Inventories 92,129 106,747 Prepaid expenses and other current assets 138,585 135,383 Total current assets 3,072,942 2,964,879 Property and equipment, net 264,556 335,031 Operating lease right-of-use assets 371,444 521,695 Content assets, net 257,395 292,766 Intangible assets, net 41,753 58,881 Goodwill 161,519 161,519 Other non-current assets 92,183 77,830 Total Assets $ 4,261,792 $ 4,412,601 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable $ 385,330 $ 164,800 Accrued liabilities 788,040 750,810 Current portion of long-term debt — 79,985 Deferred revenue, current portion 102,157 87,678 Total current liabilities 1,275,527 1,083,273 Deferred revenue, non-current portion 24,572 28,210 Operating lease liability, non-current portion 586,174 584,651 Other long-term liabilities 49,186 69,911 Total Liabilities 1,935,459 1,766,045 Commitments and contingencies (Note 12) Stockholders’ Equity: Common stock, $ 0.0001 par value; 14 14 1,150,000 (Class A - 1,000,000 and Class B - 150,000 ) shares authorized as of December 31, 2023 and 2022; 143,502 (Class A - 126,118 and Class B - 17,384 ) shares and 140,027 (Class A - 122,602 and Class B - 17,425 ) shares issued and outstanding as of December 31, 2023 and 2022, respectively Additional paid-in capital 3,623,747 3,234,860 Accumulated other comprehensive income (loss) 159 ( 292 ) Accumulated deficit ( 1,297,587 ) ( 588,026 ) Total stockholders’ equity 2,326,333 2,646,556 Total Liabilities and Stockholders’ Equity $ 4,261,792 $ 4,412,601 See accompanying Notes to Consolidated Financial Statements 67 Table of Contents ROKU, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Years Ended December 31, 2023 2022 2021 Net Revenue: Platform $ 2,994,105 $ 2,711,441 $ 2,264,920 Devices 490,514 415,093 499,664 Total net revenue 3,484,619 3,126,534 2,764,584 Cost of Revenue: Platform 1,427,546 1,179,675 818,506 Devices 534,458 505,737 537,478 Total cost of revenue 1,962,004 1,685,412 1,355,984 Gross Profit (Loss): Platform 1,566,559 1,531,766 1,446,414 Devices ( 43,944 ) ( 90,644 ) ( 37,814 ) Total gross profit 1,522,615 1,441,122 1,408,600 Operating Expenses: Research and development 878,474 788,913 461,602 Sales and marketing 1,033,359 838,419 455,601 General and administrative 403,159 344,678 256,297 Total operating expenses 2,314,992 1,972,010 1,173,500 Income (Loss) from Operations ( 792,377 ) ( 530,888 ) 235,100 Other Income, Net: Interest expense ( 730 ) ( 5,161 ) ( 2,980 ) 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 Income tax expense (benefit) 10,131 5,722 ( 5,798 ) Net Income (Loss) $ ( 709,561 ) $ ( 498,005 ) $ 242,385 Net income (loss) per share — basic $ ( 5.01 ) $ ( 3.62 ) $ 1.83 Net income (loss) per share — diluted $ ( 5.01 ) $ ( 3.62 ) $ 1.71 Weighted-average common shares outstanding — basic 141,572 137,668 132,710 Weighted-average common shares outstanding — diluted 141,572 137,668 141,668 See accompanying Notes to Consolidated Financial Statements 68 Table of Contents ROKU, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Years Ended December 31, 2023 2022 2021 Net Income (Loss) $ ( 709,561 ) $ ( 498,005 ) $ 242,385 Other comprehensive gain (loss), net of tax: Foreign currency translation adjustment 451 ( 333 ) 12 Other comprehensive gain (loss), net of tax 451 ( 333 ) 12 Comprehensive Income (Loss) $ ( 709,110 ) $ ( 498,338 ) $ 242,397 See accompanying Notes to Consolidated Financial Statements 69 Table of Contents ROKU, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Shares Amount Balance-December 31, 2020 128,004 $ 13 $ 1,660,379 $ 29 $ ( 332,406 ) $ 1,328,015 Vesting of early exercised stock options — — 4 — — 4 Issuance of common stock pursuant to equity incentive plans 4,496 1 18,531 — — 18,532 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 — — 188,043 — — 188,043 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 Issuance of common stock pursuant to equity incentive plans 4,890 — 18,357 — — 18,357 Stock-based compensation expense — — 359,931 — — 359,931 Foreign currency translation adjustment — — — ( 333 ) — ( 333 ) Net loss — — — — ( 498,005 ) ( 498,005 ) Balance-December 31, 2022 140,027 14 3,234,860 ( 292 ) ( 588,026 ) 2,646,556 Issuance of common stock pursuant to equity incentive plans 3,475 — 18,757 — — 18,757 Stock-based compensation expense — — 370,130 — — 370,130 Foreign currency translation adjustment — — — 451 — 451 Net loss — — — — ( 709,561 ) ( 709,561 ) Balance-December 31, 2023 143,502 $ 14 $ 3,623,747 $ 159 $ ( 1,297,587 ) $ 2,326,333 See accompanying Notes to Consolidated Financial Statements 70 Table of Contents ROKU, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income (loss) $ ( 709,561 ) $ ( 498,005 ) $ 242,385 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 70,447 48,651 42,621 Stock-based compensation expense 370,130 359,931 187,532 Amortization of right-of-use assets 57,579 55,507 31,024 Amortization of content assets 207,852 234,355 95,570 Foreign currency remeasurement (gains) losses 1,457 ( 8,230 ) — Change in fair value of Strategic Investment ( 4,348 ) 532 — Impairment of assets 269,402 7,500 — Provision for (recoveries of) doubtful accounts 1,674 2,081 ( 904 ) Other items, net ( 1,510 ) ( 190 ) ( 101 ) Changes in operating assets and liabilities: Accounts receivable ( 56,937 ) ( 10,887 ) ( 221,768 ) Inventories 14,725 ( 56,471 ) 3,619 Prepaid expenses and other current assets 15,058 ( 15,941 ) ( 48,074 ) Content assets and liabilities, net ( 267,155 ) ( 313,204 ) ( 193,440 ) Other non-current assets ( 592 ) ( 7,304 ) ( 19,335 ) Accounts payable 248,175 14,190 8,428 Accrued liabilities 57,714 167,526 128,931 Operating lease liabilities ( 27,786 ) ( 9,245 ) ( 20,083 ) Other long-term liabilities ( 1,309 ) ( 403 ) ( 1,100 ) Deferred revenue 10,841 41,402 ( 7,224 ) Net cash provided by operating activities 255,856 11,795 228,081 Cash flows from investing activities: Purchases of property and equipment ( 82,619 ) ( 161,696 ) ( 40,041 ) Acquisition of businesses, net of cash acquired — — ( 136,778 ) Purchase of Strategic Investment ( 10,000 ) ( 40,000 ) — Net cash used in investing activities ( 92,619 ) ( 201,696 ) ( 176,819 ) Cash flows from financing activities: Repayments of borrowings ( 80,000 ) ( 10,000 ) ( 5,000 ) Proceeds from equity issued under incentive plans 18,757 18,357 18,532 Proceeds from equity issued under at-the-market offerings, net of offering costs — — 989,615 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 Effect of exchange rate changes on cash, cash equivalents and restricted cash 2,654 ( 4,170 ) 12 Cash, cash equivalents and restricted cash —Beginning of period 1,961,956 2,147,670 1,093,249 Cash, cash equivalents and restricted cash —End of period $ 2,066,604 $ 1,961,956 $ 2,147,670 Cash, cash equivalents and restricted cash at end of period: Cash and cash equivalents 2,025,891 1,961,956 2,146,043 Restricted cash, current 40,713 — — Restricted cash, non-current — — 1,627 Cash, cash equivalents and restricted cash —End of period $ 2,066,604 $ 1,961,956 $ 2,147,670 71 Table of Contents Years Ended December 31, 2023 2022 2021 Supplemental disclosures of cash flow information: Cash paid for interest $ 915 $ 3,894 $ 2,578 Cash paid for income taxes $ 6,632 $ 7,016 $ 1,363 Supplemental disclosures of non-cash investing and financing activities: Non-cash consideration for business combination $ — $ — $ 21,400 Services to be received as part of a business combination $ — $ — $ 6,500 Unpaid portion of property and equipment purchases $ 429 $ 28,503 $ 3,073 See accompanying Notes to Consolidated Financial Statements 72 Table of Contents ROKU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY Organization and Description of Business Roku, Inc. (the “Company” or “Roku”), was formed in October 2002 as Roku LLC under the laws of the State of Delaware. On February 1, 2008, Roku LLC was converted into Roku, Inc., a Delaware corporation. The Company operates in two reportable segments and generates platform revenue from the sale of digital advertising (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. 2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION Basis of Presentation and Principles of Consolidation The consolidated financial statements, which include the accounts of Roku, Inc. and its wholly-owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). All intercompany accounts and transactions have been eliminated in consolidation. 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 The preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, net revenue, and expenses. Significant items subject to such estimates and assumptions include: • revenue recognition: determining the nature and timing of satisfaction of performance obligations, variable consideration, determining the stand-alone selling prices of performance obligations, gross versus net revenue recognition, and evaluation of customer versus vendor relationships; • the impairment of intangible assets; • 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; • allowances for sales returns and sales incentives; and • the valuation of deferred income tax assets The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from the Company’s estimates and assumptions. Comprehensive Income (Loss) Comprehensive income (loss) for the years ended December 31, 2023, 2022, and 2021 includes foreign currency translation adjustments. Foreign Currency The functional currency of some of the Company’s foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of these subsidiaries are remeasured into U.S. dollars from the local currency at exchange rates in effect at period-end and non-monetary assets and liabilities are remeasured at historical exchange rates. Revenue and expenses are remeasured at average exchange rates in effect during each period. Foreign currency gains or losses from 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 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. 73 Table of Contents The Company also has some foreign subsidiaries which use local currency as their functional currency. The financial statements of these subsidiaries are translated to U.S. dollars using month-end exchange rates for assets and liabilities, and average exchange rates for revenue and expenses. Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component of stockholders' equity. Cash and Cash Equivalents 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. 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 Accounts receivable are typically unsecured and are derived from revenue earned from customers. They are stated at invoice value less estimated allowances for sales returns, sales incentives, doubtful accounts, and other miscellaneous allowances. The Company performs ongoing credit evaluations of its customers to determine allowances for potential credit losses and doubtful accounts. The Company considers historical experience, ongoing promotional activities, historical claim rates, and other factors to determine the allowances for sales returns and sales incentives. Allowance for Sales Returns : Allowance for sales returns consisted of the following activities (in thousands): Years Ended December 31, 2023 2022 2021 Beginning balance $ 7,417 $ 6,015 $ 5,912 Add: Charged to revenue 16,560 19,068 16,181 Less: Utilization of sales return reserve ( 16,169 ) ( 17,666 ) ( 16,078 ) Ending balance $ 7,808 $ 7,417 $ 6,015 Allowance for Sales Incentives : Allowance for sales incentives consisted of the following activities (in thousands): Years Ended December 31, 2023 2022 2021 Beginning balance $ 28,903 $ 48,411 $ 30,838 Add: Charged to revenue 85,178 94,731 90,530 Less: Utilization of sales incentive reserve ( 91,057 ) ( 114,239 ) ( 72,957 ) Ending balance $ 23,024 $ 28,903 $ 48,411 Allowance for Doubtful Accounts : Allowance for doubtful accounts consisted of the following activities (in thousands): Years Ended December 31, 2023 2022 2021 Beginning balance $ 3,498 $ 2,158 $ 4,181 Provision for (recoveries of) doubtful accounts 1,674 2,081 ( 904 ) Adjustments for write-off ( 2,959 ) ( 741 ) ( 1,119 ) Ending balance $ 2,213 $ 3,498 $ 2,158 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. 74 Table of Contents Intangible Assets Intangible assets acquired through business combinations are recorded at their fair values as of the acquisition date. Intangible assets are amortized using the straight-line method over their estimated useful lives. The Company evaluates the estimated remaining useful lives of its intangible assets annually and when events or changes in circumstances warrant a revision to the remaining periods of amortization. Impairment Assessments 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. 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 or indefinite lived-intangible asset is less than its carrying value. 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. 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. 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. 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 The Company recognizes content assets (licensed and produced) as Content assets, net on the consolidated balance sheets. For licensed content, the cost per title is capitalized along with a corresponding liability when the license period begins, the content is available for streaming and when the fee is determinable. For produced content, all direct production costs are capitalized. Payment terms for certain licensed content require advanced payments which are reflected in Prepaid expenses and other current assets. The amortization expense for content assets (licensed and produced) is based on projected usage which results in accelerated or straight-lined patterns depending on the nature of the content. Projected usage is mainly based on historical and projected viewing patterns. Amortization of content assets is included in Cost of revenue, platform in the consolidated statements of operations. Content assets (licensed and produced) are primarily monetized together as a unit, referred to as a film group. The film group is evaluated for impairment whenever an event occurs, or circumstances change, indicating the fair value is less than the carrying value. The Company reviews various qualitative factors and indicators to assess whether the film group is impaired. 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. 75 Table of Contents Revenue Recognition Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company’s contracts include various product or services or a combination of both, which are generally capable of being distinct and are accounted for as separate performance obligations. The Company’s contracts often contain multiple distinct performance obligations. 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 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. Revenue is recorded net of taxes collected from customers which are subsequently remitted to the relevant government authority. The Company does not capitalize any cost associated with contract acquisition because it applies a practical expedient and expenses commissions when incurred as most direct contract acquisition costs relate to contracts that are recognized over a period of one year or less. Sales commissions are included in Sales and marketing expenses in the consolidated statements of operations. 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. Nature of Products and Services Platform segment: 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. Advertising arrangements include multiple performance obligations as they contain distinct advertising products or services. 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 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. The Company recognizes revenue on either a gross or net basis for digital advertising based on its determination as to whether it is acting as the principal in the revenue generation process or as an agent. Where the Company is the principal, it controls the advertising inventory before it is transferred to its customers. This is further supported by the Company being primarily responsible to its customers for the fulfillment and having a level of discretion in establishing pricing. 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. 76 Table of Contents 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 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 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. The Company obtains control of the content before transferring to the end user and has latitude in establishing pricing. 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 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. Revenue is recognized on a time elapsed basis, by day, over the distribution term. Devices segment: 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. The Company sells the majority of its devices in the U.S. through retailers and distributors as well as through the Company’s website. Devices revenue primarily consists of hardware, embedded software, and unspecified upgrades and updates on a when and if-available basis. The hardware and embedded software are considered as one performance obligation and revenue is recognized at a point in time when the control transfers to the customer. Unspecified upgrades and updates are available to customers on a when-and-if available basis. The Company records the allocated value of the unspecified upgrades and updates as deferred revenue and recognizes it as devices revenue ratably on a time elapsed basis over the estimated economic life of the associated products. The Company’s devices revenue includes allowances for sales returns and sales incentives in the estimated transaction price. These estimates are based on historical experience and anticipated performance. Shipping charges billed to customers are included in devices revenue and the related shipping costs are included in Cost of revenue, devices. 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. Professional services revenue is recognized as services are provided or accepted. Hosting fees are recognized on a time elapsed basis, by day, over the service period. Leases 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 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. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future lease payments. The Company takes into consideration its credit rating and the length of the lease when calculating the incremental borrowing rate. The Company considers the options to extend or terminate the lease in determining the lease term, when it is reasonably certain to exercise one of the options. Fair Value of Financial Instruments The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies fair value accounting for all assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements. The carrying amounts reported in the consolidated financial statements for cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to their short-term nature. The carrying amount of debt approximates fair value due to its variable interest rates. 77 Table of Contents Inventories The Company’s inventories consist primarily of finished goods and are stated at the lower of cost or net realizable value with cost determined on a first-in, first-out basis. 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 its assessment of future demand and market conditions. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of the assets, generally ranging between eighteen months and five years . Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives, which range from one to eleven years . The Company capitalizes costs to develop its internal-use software. Costs that relate to the planning and post-implementation phases of development are expensed as incurred. Costs are capitalized when preliminary efforts are successfully completed, management has authorized and committed to funding the project, and it is probable that the project will be completed and will be used as intended. Costs incurred for enhancements that are expected to result in additional material functionality are capitalized. 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, 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 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. Advertising Expenses Advertising expenses are recognized when incurred and are included in Sales and marketing expense in the consolidated statements of operations. The Company incurred advertising expenses of $ 3.7 million, $ 10.0 million, and $ 35.2 million for the years ended December 31, 2023, 2022, and 2021, respectively. Stock-Based Compensation The Company measures compensation expense for all stock-based awards, including restricted stock units and stock options granted to employees, based on the estimated fair value of the award on the date of grant. For restricted stock units, the grant date fair value is based on the closing market price of the Company’s Class A common stock on the date of grant. The fair value of each stock option is estimated using the Black-Scholes option pricing model. The Company accounts for forfeitures as they occur. Stock-based compensation is recognized on a straight-line basis over the requisite vesting period. The Black-Scholes option pricing model used to fair value stock options include the following assumptions: • Fair Value of Our Common Stock . The Company uses the closing market price of its Class A common stock as reported on The Nasdaq Global Select Market on the date of grant. • Expected Term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. The Company uses the simplified calculation of the expected term, which reflects weighted-average time to vest and the contractual life of the stock options granted, in absence of its own historical exercise data. • 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/or operational and economic activities. 78 Table of Contents • 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 the Company’s stock options. • Dividend Yield. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. Income Taxes The Company accounts for income taxes using an asset and liability approach. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not to be realized. 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. 3. REVENUE The Company’s disaggregated revenue is represented by the two reportable segments discussed in Note 16. The contract balances include the following (in thousands): As of December 31, 2023 2022 2021 Accounts receivable, net $ 816,337 $ 760,793 $ 752,393 Contract assets (included in Prepaid expenses and other current assets) 17,964 42,617 46,952 Deferred revenue, current portion 102,157 87,678 45,760 Deferred revenue, non-current portion 24,572 28,210 28,726 Total deferred revenue $ 126,729 $ 115,888 $ 74,486 Accounts receivable are recorded at the amount invoiced, net of an allowance for sales returns, sales incentives, and doubtful accounts. Payment terms can vary by customer and contract. The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets are created when invoicing occurs subsequent to revenue recognition. Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional. The Company’s contract assets are current in nature and are included in Prepaid expenses and other current assets. Contract assets 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 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. 79 Table of Contents 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. 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. Revenue recognized during the year ended December 31, 2022 from amounts included in the total deferred revenue as of December 31, 2021 was $ 47.6 million. Revenue allocated to remaining performance obligations represents estimated contracted revenue that has not yet been recognized which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Estimated contracted revenue for these remaining performance obligations was $ 1,195.9 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 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. 4. GOODWILL AND INTANGIBLE ASSETS Goodwill Goodwill represents the excess of purchase consideration in a business combination over the fair value of tangible and intangible assets acquired net of the liabilities assumed. All goodwill relates to the platform segment. Goodwill is evaluated for impairment annually. No impairment was recognized during the years ended December 31, 2023, 2022, and 2021. Intangible Assets The following tables summarize the Company’s intangible assets for the periods presented (in thousands, except years): As of December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted-Average Useful Lives (in years) Developed technology $ 73,367 $ ( 49,087 ) $ 24,280 5.9 Customer relationships 14,100 ( 13,948 ) 152 4.0 Tradename 20,400 ( 5,966 ) 14,434 9.8 Patents 4,076 ( 1,189 ) 2,887 14.0 Total Intangible assets $ 111,943 $ ( 70,190 ) $ 41,753 6.7 As of December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted-Average Useful Lives (in years) Developed technology $ 73,367 $ ( 37,278 ) $ 36,089 5.9 Customer relationships 14,100 ( 10,920 ) 3,180 4.0 Tradename 20,400 ( 3,966 ) 16,434 9.8 Patents 4,076 ( 898 ) 3,178 14.0 Total Intangible assets $ 111,943 $ ( 53,062 ) $ 58,881 6.7 80 Table of Contents 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. 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. As of December 31, 2023, the estimated future amortization expense for intangible assets for the next five years and thereafter is as follows (in thousands): Year Ending December 31, 2024 $ 14,252 2025 12,533 2026 4,074 2027 2,737 2028 2,291 Thereafter 5,866 Total $ 41,753 5. BALANCE SHEET COMPONENTS Accounts Receivable, net : Accounts receivable, net consisted of the following (in thousands): As of December 31, 2023 2022 Accounts receivable, gross $ 850,464 $ 800,984 Less: Allowances Allowance for sales returns 7,808 7,417 Allowance for sales incentives 23,024 28,903 Allowance for doubtful accounts 2,213 3,498 Other allowances 1,082 373 Total allowances 34,127 40,191 Accounts receivable, net $ 816,337 $ 760,793 Property and Equipment, net : Property and equipment, net consisted of the following (in thousands): As of December 31, 2023 2022 Computers and equipment $ 51,320 $ 45,989 Leasehold improvements 292,418 353,245 Internal-use software 6,980 7,274 Office equipment and furniture 36,900 28,614 Property and equipment, gross 387,618 435,122 Accumulated depreciation and amortization ( 123,062 ) ( 100,091 ) Property and equipment, net $ 264,556 $ 335,031 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. 81 Table of Contents 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 : Accrued liabilities consisted of the following (in thousands): As of December 31, 2023 2022 Payments due to content partners $ 239,196 $ 201,054 Accrued cost of revenue 147,875 105,347 Marketing, retail and merchandising expenses 147,853 163,367 Operating lease liability, current 68,099 54,689 Content liability, current 54,319 88,717 Other accrued expenses 130,698 137,636 Total Accrued liabilities $ 788,040 $ 750,810 Deferred Revenue : Deferred revenue consisted of the following (in thousands): As of December 31, 2023 2022 Platform, current $ 66,636 $ 59,276 Devices, current 35,521 28,402 Total deferred revenue, current 102,157 87,678 Platform, non-current 625 969 Devices, non-current 23,947 27,241 Total deferred revenue, non-current 24,572 28,210 Total Deferred revenue $ 126,729 $ 115,888 Other Long-term Liabilities : Other Long-term liabilities consisted of the following (in thousands): As of December 31, 2023 2022 Content liability, non-current $ 24,115 $ 39,587 Other long-term liabilities 25,071 30,324 Total Other long-term liabilities $ 49,186 $ 69,911 6. CONTENT ASSETS Content assets consisted of the following (in thousands): As of December 31, 2023 2022 Licensed content, net and advances $ 148,777 $ 243,226 Produced content: Released, less amortization 77,951 42,605 Completed, not released 11,235 3,537 In production 38,275 42,904 Total produced content, net 127,461 89,046 Total Content assets, net and advances $ 276,238 $ 332,272 Current portion $ 18,843 $ 39,506 Non-current portion $ 257,395 $ 292,766 82 Table of Contents Amortization of content assets is included in Cost of revenue, platform in the consolidated statements of operations and is as follows (in thousands): Years Ended December 31, 2023 2022 2021 Licensed content $ 161,633 $ 216,393 $ 84,133 Produced content 46,219 17,962 11,437 Total amortization costs $ 207,852 $ 234,355 $ 95,570 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, 2024 2025 2026 Licensed content $ 76,586 $ 28,824 $ 17,637 Produced content 32,640 20,512 18,936 Total expected amortization costs $ 109,226 $ 49,336 $ 36,573 7. 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. 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. The Company elected to apply the fair value option and account for the hybrid instrument containing the host contract and the embedded derivatives at fair value as a single instrument, with any subsequent changes in fair value included in Other income (expense), net in the consolidated statements of operations. See Note 8 for additional details on the fair value of the Strategic Investment. 83 Table of Contents 8. FAIR VALUE DISCLOSURE The Company’s financial assets measured at fair value on a recurring basis are as follows (in thousands): As of December 31, 2023 As of December 31, 2022 Fair Value Level 1 Level 3 Fair Value Level 1 Level 3 Assets: Cash and cash equivalents: Cash $ 594,493 $ 594,493 $ — $ 1,353,547 $ 1,353,547 $ — Money market funds 1,431,398 1,431,398 — 608,409 608,409 — Restricted cash, current 40,713 40,713 — — — — Strategic Investment 53,816 — 53,816 39,468 — 39,468 Total assets measured and recorded at fair value $ 2,120,420 $ 2,066,604 $ 53,816 $ 2,001,424 $ 1,961,956 $ 39,468 The following table reflects the changes in the fair value of the Company’s Level 3 financial assets (in thousands): Years Ended December 31, 2023 2022 Beginning balance $ 39,468 $ — Purchase of Strategic Investment 10,000 40,000 Change in estimated fair value of Strategic Investment 4,348 ( 532 ) 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. Further, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs in measuring fair value, and utilizes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows: Level 1 —Quoted prices in active markets for identical assets or liabilities. Financial assets and liabilities measured using Level 1 inputs include cash equivalents including restricted cash, accounts receivable, prepaid expenses, accounts payable, and accrued liabilities. 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. Level 2 —Observable inputs other than quoted prices included within Level 1, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation or other means. The Company did not have any Level 2 instruments as of December 31, 2023 and 2022. Level 3 —Unobservable inputs that are supported by little or no market activity, are significant to the fair value of the assets or liabilities and reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. As of December 31, 2023, the Company measured the Strategic Investment using Level 3 inputs. The fair value of the Strategic Investment on the date of purchase was determined to be equal to its principal amount. The Company recorded an unrealized 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. 84 Table of Contents The Company classified the Strategic Investment as Level 3 due to the lack of relevant observable market data over fair value inputs. The fair value of the Strategic Investment was estimated using a scenario-based probability weighted discounted cash flow model. Significant assumptions include the discount rate, and the timing and probability weighting of the various redemption scenarios that impact the settlement of the Strategic Investment. Assets and liabilities that are measured at fair value on a non-recurring basis 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. 9. LEASES The Company has entered into operating leases primarily for office real estate. 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. The components of lease expense are as follows (in thousands): Years Ended December 31, 2023 2022 2021 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): Years Ended December 31, 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 74,278 $ 56,370 $ 51,657 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 40,866 $ 231,728 $ 110,845 Decrease in operating lease right-of-use assets due to impairment (See Note 17) $ 131,646 $ — $ — 85 Table of Contents Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate): As of December 31, 2023 2022 Operating lease right-of-use assets $ 371,444 $ 521,695 Operating lease liability, current (included in Accrued liabilities) 68,099 54,689 Operating lease liability, non-current 586,174 584,651 Total operating lease liability $ 654,273 $ 639,340 Weighted-average remaining term for operating leases (in years) 7.94 8.62 Weighted-average discount rate for operating leases 3.94 % 3.80 % Future lease payments under operating leases as of December 31, 2023 are as follows (in thousands): Year Ending December 31, Operating Leases 2024 $ 89,751 2025 98,702 2026 100,237 2027 99,686 2028 100,099 Thereafter 282,716 Total future lease payments 771,191 Less: imputed interest ( 110,068 ) Less: expected tenant improvement allowance ( 6,850 ) Total (1) $ 654,273 (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. 10. DEBT 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 Interest Rate Term Loan A Facility $ 80,000 4.4 % Less: Debt issuance costs ( 15 ) Net carrying amount of debt $ 79,985 The carrying amount of debt approximates fair value due to its variable interest rates. 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. 86 Table of Contents Senior Secured Term Loan A and Revolving Credit Facilities On February 19, 2019, the Company entered into a Credit Agreement with Morgan Stanley Senior Funding, Inc. (as amended on May 3, 2019, the “Credit Agreement”), which provides for (i) a four-year revolving credit facility in the aggregate principal amount of up to $ 100.0 million (the “Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $ 100.0 million (the “Term Loan A Facility”), and (iii) an uncommitted incremental facility, subject to the satisfaction of certain financial and other conditions, in the amount of up to (v) $ 50.0 million, plus (w) 1.0 x of the Company’s EBITDA for the most recently completed four fiscal quarter period, plus (x) an additional amount at the Company’s discretion, so long as, on a pro forma basis at the time of incurrence, the Company’s secured leverage ratio does not exceed 1.50 to 1.00 , plus (y) voluntary prepayments of the Revolving Credit Facility and Term Loan A Facility to the extent accompanied by concurrent reductions to the applicable Credit Facility (together with the Revolving Credit Facility and the Term Loan A Facility, collectively, the “Credit Facility”). On November 18, 2019, the Company borrowed the Term Loan A facility in the aggregate principal amount of $ 100.0 million. 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. 11. STOCKHOLDERS’ EQUITY Preferred Stock The Company has 10 million shares of undesignated preferred stock authorized but not issued with rights and preferences determined by the Company’s Board of Directors at the time of issuance of such shares. As of December 31, 2023 and 2022, there were no shares of preferred stock issued and outstanding. Common Stock The Company has two classes of authorized common stock, Class A common stock and Class B common stock. Holders of Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders and holders of Class B common stock are entitled to ten votes for each share of Class B common stock held on all matters submitted to a vote of stockholders. Except with respect to voting, the rights of the holders of Class A and Class B common stock are identical. Shares of Class B common stock are voluntarily convertible into shares of Class A common stock at the option of the holder and are generally automatically converted into shares of the Company’s Class A common stock upon sale or transfer. Shares issued in connection with exercises of stock options, vesting of restricted stock units, or shares purchased under the employee stock purchase plan are generally automatically converted into shares of the Company’s Class A common stock. At-the-Market Offering On March 2, 2021, the Company entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC, Citigroup Global Markets Inc., and Evercore Group L.L.C., as its sales agents, pursuant to which the Company could offer and sell from time-to-time shares of its Class A common stock for aggregate gross proceeds of up to $ 1,000.0 million. In March 2021, the Company sold approximately 2.6 million shares of Class A common stock at an average selling price of $ 379.26 per share, for aggregate gross proceeds of $ 1,000.0 million and incurred issuance costs of $ 10.4 million. Common Stock Reserved For Issuance As of December 31, 2023, the Company’s common stock reserved for issuance in the future is as follows (in thousands): Common stock awards granted under equity incentive plans 13,984 Common stock awards available for issuance under the 2017 Employee Stock Purchase Plan * 5,089 Common stock awards available for issuance under the 2017 Equity Incentive Plan 27,880 Total reserved shares of common stock 46,953 * The Company has not issued any common stock pursuant to the 2017 Employee Stock Purchase Plan. 87 Table of Contents Equity Incentive Plans 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”). 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. 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. Recipients of option grants who possess more than 10 % of the combined voting power of the Company are subject to certain limitations, and incentive stock options granted to such recipients are at a price no less than 110 % of the fair market value at the date of grant. Restricted Stock Units Restricted stock unit activity for the year ended December 31, 2023 is as follows (in thousands, except per share data): Number of Shares Weighted-Average Grant Date Fair Value Per Share Balance, December 31, 2022 8,577 $ 120.82 Awarded 4,594 70.73 Released ( 2,722 ) 115.33 Forfeited ( 1,775 ) 114.42 Balance, December 31, 2023 - Outstanding 8,674 $ 97.33 The weighted-average grant date fair value of restricted stock units granted during the years ended December 31, 2023, 2022, and 2021 was $ 325.0 million, $ 916.8 million, and $ 342.6 million, respectively. The fair value of restricted stock units that vested during the years ended December 31, 2023, 2022, and 2021 was $ 314.0 million, $ 282.6 million, and $ 135.6 million, respectively. The unrecognized stock-based compensation expense related to restricted stock units awarded to employees as of December 31, 2023 was $ 692.9 million, which the Company expects to recognize over a weighted-average period of approximately 2.37 years. Stock Options Stock option activity for the year ended December 31, 2023 is as follows (in thousands, except years and per share data): Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (Years) Weighted-Average Grant Date Fair Value Per Share Aggregate Intrinsic Value Balance, December 31, 2022 5,807 $ 72.79 7.1 — Granted 559 72.75 — $ 42.43 Exercised ( 753 ) 24.92 — — Forfeited and expired ( 303 ) 143.59 — — Balance, December 31, 2023 - Outstanding 5,310 $ 75.55 6.8 — $ 178,169 Balance, December 31, 2023- Exercisable 3,317 $ 60.42 5.7 — $ 133,742 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. 88 Table of Contents The intrinsic value for stock options exercised in the years ended December 31, 2023, 2022, and 2021 was $ 38.9 million, $ 210.0 million, and $ 997.6 million, respectively. Intrinsic value represents the difference between the fair values of the Company’s common stock and the stock options’ exercise price on the date of grant. As of December 31, 2023, the Company had $ 69.4 million of unrecognized stock-based compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of approximately 2.2 years. Stock-based Compensation 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 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. The amount of stock-based compensation capitalized as part of internal-use software for the year ended December 31, 2021 was not material. The following table presents total stock-based compensation expense for the years ended December 31, 2023, 2022, and 2021 (in thousands): Years Ended December 31, 2023 2022 2021 Cost of revenue, platform $ 1,478 $ 1,229 $ 827 Cost of revenue, devices 3,761 2,440 2,035 Research and development 147,989 147,653 77,770 Sales and marketing 130,362 123,946 63,503 General and administrative 86,540 84,663 43,397 Total stock-based compensation $ 370,130 $ 359,931 $ 187,532 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: Years Ended December 31, 2023 2022 2021 Expected term (in years) 5.0 - 5.8 5.0 - 6.8 5.0 - 6.8 Risk-free interest rate 3.48 - 4.72 % 1.37 - 4.33 % 0.36 - 1.2 % Expected volatility 61 - 63 % 57 - 61 % 38 - 39 % Dividend rate — — — 12. COMMITMENTS AND CONTINGENCIES Manufacturing Purchase Commitments The Company has various manufacturing contracts with vendors in the conduct of the normal course of its business. In order to manage future demand for its products, the Company enters into agreements with manufacturers and suppliers to procure inventory based upon certain criteria and timing. Some of these commitments are non-cancelable. As of December 31, 2023, the Company had $ 131.5 million of non-cancelable purchase commitments for inventory. Content Commitments 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. Certain licensing agreements, such as film output deals, include the obligation to license rights for unknown future titles for which the ultimate quantity and/or fees are not determinable as of the reporting date. The Company does not include any estimated obligation for these future titles beyond the known minimum amount. The unknown obligations could be material. 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. 89 Table of Contents 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. The remaining $ 202.8 million is not yet recognized on the consolidated balance sheets as the content does not meet the criteria for asset recognition. The expected timing of payments for these content obligations are as follows (in thousands): Year Ending December 31, 2024 $ 184,716 2025 62,655 2026 21,971 2027 12,732 2028 1,436 Thereafter 2,568 Total content liabilities $ 286,078 Letters of Credit As of December 31, 2023 and 2022, the Company had irrevocable letters of credit outstanding in the amount of $ 37.5 million and $ 37.7 million, respectively, related to facilities leases. The letters of credit have various expiration dates through 2030. Contingencies 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. The resolution of these contingencies and of other legal proceedings can be, however, inherently unpredictable and subject to significant uncertainties. 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 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 years ended December 31, 2023, 2022, and 2021, the Company did not have any loss contingencies that were material. Indemnification In the ordinary course of business, the Company has entered into contractual arrangements which provide indemnification provisions of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. The Company’s obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each agreement. To date, the Company has not incurred any material costs as a result of such obligations and has not accrued any liabilities related to such obligations in the consolidated financial statements. 90 Table of Contents 13. INCOME TAXES The components of income (loss) before income taxes consist of the following (in thousands): Years Ended December 31, 2023 2022 2021 United States $ ( 699,114 ) $ ( 486,886 ) $ 240,560 Foreign ( 316 ) ( 5,397 ) ( 3,973 ) Net income (loss) before income taxes $ ( 699,430 ) $ ( 492,283 ) $ 236,587 The income tax expense (benefit) consisted of the following (in thousands): Years Ended December 31, 2023 2022 2021 Current: Federal $ 697 $ 694 $ — State 2,715 2,444 589 Foreign 5,448 2,002 490 8,860 5,140 1,079 Deferred: Federal 233 448 193 State 222 220 256 Foreign 816 ( 86 ) ( 7,326 ) 1,271 582 ( 6,877 ) 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: Years Ended December 31, 2023 2022 2021 U.S. federal income tax at statutory rate 21.0 % 21.0 % 21.0 % U.S. state and local income taxes ( 0.4 ) ( 0.5 ) 0.2 Change in valuation allowance ( 23.6 ) ( 39.1 ) 140.0 Research and development tax credit 6.8 14.6 ( 30.7 ) Stock-based compensation ( 2.8 ) 4.0 ( 114.3 ) Discrete tax benefit due to intellectual property transfer — — ( 19.1 ) Meals and entertainment ( 0.2 ) ( 0.1 ) 0.1 Foreign rate differential — 0.2 0.1 Section 162(m) limitation ( 2.1 ) ( 0.5 ) 1.1 State apportionment change — 0.1 — Tax rate change — — ( 0.7 ) Provision to return true-up 0.1 ( 0.1 ) ( 0.1 ) Other ( 0.2 ) ( 0.8 ) ( 0.1 ) Effective tax rate ( 1.4 ) % ( 1.2 ) % ( 2.5 ) % 91 Table of Contents Significant components of the Company’s deferred income tax assets and liabilities consist of the following (in thousands): As of December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 484,136 $ 517,787 Reserves and accruals 23,677 20,068 Research and development credits 248,381 230,586 Operating lease liabilities 183,359 153,145 Stock-based compensation 55,785 50,661 Depreciation and amortization 51,700 41,377 Section 174 capitalization 280,906 165,219 Other 6,190 286 Total deferred tax assets 1,334,134 1,179,129 Deferred tax liabilities: Operating lease right-of-use assets ( 111,164 ) ( 128,517 ) Other ( 4,357 ) — Total deferred tax liabilities ( 115,521 ) ( 128,517 ) Valuation allowance ( 1,209,822 ) ( 1,040,341 ) Net deferred tax assets $ 8,791 $ 10,271 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, 2023, the Company believes it is more likely than not that the U.S. and Netherlands deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its U.S. and Netherlands deferred tax assets. The Company’s U.S. 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 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. 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. Netherlands net operating losses can be carried back one year and carried forward indefinitely. As of December 31, 2023, the Company has research and development tax credit carryforwards of $ 194.7 million and $ 149.5 million for federal and state income tax purposes, respectively. If not utilized, the federal and state carryforwards will begin to expire in 2030 and 2039, respectively. 92 Table of Contents 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. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands): As of December 31, 2023 2022 Unrecognized tax benefits at beginning of year $ 88,028 $ 66,150 Gross increase for tax positions of current year 13,166 22,888 Gross decrease due to statute expiration ( 54 ) ( 317 ) Gross increase for tax positions of prior years 140 676 Gross decrease for tax positions of prior years ( 12,689 ) ( 1,185 ) 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. 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. The Company recorded $ 1.0 million and $ 0.8 million of accrued interest and penalties related to uncertain tax positions as of December 31, 2023 and December 31, 2022, respectively. The Company files income tax returns in the U.S. 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. 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 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. 14. RETIREMENT PLANS The Company maintains a 401(k) tax deferred saving plan (the “Savings Plan”) for the benefit of qualified employees. Qualified employees may elect to make contributions to the Savings Plan on a biweekly basis, subject to certain limitations. The Company may make contributions to the Savings Plan at the discretion of the Board of Directors. 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. 93 Table of Contents 15. NET INCOME (LOSS) PER SHARE The Company’s basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding for the period. The Company uses the two-class method to calculate net income (loss) per share. Except with respect to certain voting, conversion, and transfer rights and as otherwise expressly provided in the Company’s amended and restated certificate of incorporation or required by applicable law, shares of the Company’s Class A common stock and Class B common stock have the same rights and privileges and rank equally, share ratably, and are identical in all respects as to all matters. Accordingly, basic and diluted net income (loss) per share are the same for both classes. For purposes of the calculation of diluted net income (loss) per share, options to purchase common stock and restricted stock units are considered common stock equivalents. Dilutive shares of common stock are determined by applying the treasury stock method. The dilutive shares are excluded from the calculation of diluted net loss per share in the period of net loss, as their effect is antidilutive. The following table presents the calculation of basic and diluted net income (loss) per share as follows (in thousands, except per share data): Years Ended December 31, 2023 2022 2021 Numerator: Net income (loss) $ ( 709,561 ) $ ( 498,005 ) $ 242,385 Denominator: Basic net income (loss) per share: Weighted-average common shares outstanding — basic 141,572 137,668 132,710 Net income (loss) per share — basic $ ( 5.01 ) $ ( 3.62 ) $ 1.83 Diluted net income (loss) per share: Weighted-average common shares outstanding — basic 141,572 137,668 132,710 Effect of potentially dilutive securities: Restricted stock units — — 2,744 Stock options — — 6,214 Weighted-average common shares outstanding — diluted 141,572 137,668 141,668 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 14.0 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. 94 Table of Contents 16. SEGMENT INFORMATION An operating segment is defined as a component of an entity for which discrete financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) for purposes of allocating resources and evaluating financial performance. 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. The Company uses the management approach to determine the segment financial information that should be disaggregated and presented separately in the Company’s notes to its consolidated financial statements. The management approach is based on the manner by which management has organized the segments within the Company for making operating decisions, allocating resources, and assessing performance. The Company reports its financial results consistent with the manner in which financial information is viewed by management for decision-making purposes. The Company does not manage operating expenses such as research and development, sales and marketing and general and administrative expenses at the segment level. The Company does not allocate property and equipment or any other assets or capital expenditures to reportable segments. Descriptions of the Company’s two reportable segments are as follows: Platform 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 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: Years Ended December 31, 2023 2022 2021 Platform segment revenue Customer H * * 10 % Customer I 13 % * * Devices segment revenue Customer A 15 % * * Customer B 15 % 21 % 22 % Customer C 41 % 38 % 35 % * Less than 10% Revenue in international markets was less than 10% in each of the periods presented. Long-lived assets, net The following table presents long-lived assets, net, which consist primarily of property and equipment and operating lease right-of-use assets, by geographic area (in thousands): As of December 31, 2023 2022 United States $ 497,024 $ 686,902 United Kingdom 109,315 127,538 Other countries 29,661 42,286 Total $ 636,000 $ 856,726 95 Table of Contents 17. 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 Total 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 $ — $ — Add: Restructuring charges incurred 83,165 3,527 86,692 30,640 30,640 Less: Payments made ( 92,597 ) ( 2,329 ) ( 94,926 ) ( 8,547 ) ( 8,547 ) Ending balance $ 12,661 $ 1,198 $ 13,859 $ 22,093 $ 22,093 96 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.