What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-14 compared with 2024-02-16 · 120 added, 122 removed, 190 unchanged (56% of the section changed)

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Our two reportable segments are the platform segment and the devices segment.

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).

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

Devices revenue is generated from the sale of streaming players, Roku-branded TVs (beginning in March 2023), smart home products and services, audio products, and related accessories as well as revenue from licensing arrangements with service operators.

We expect to continue to manage the average selling prices of Roku streaming devices to increase our Active Accounts.

We expect that the trade off from devices gross profit or loss to grow Active Accounts will result in increased platform revenue and platform gross profit.

During the fiscal year ended December 31, 2023, as part of our continuing evaluation of our operations, we determined to implement additional measures to continue to bring down our year-over-year operating expense growth rate by consolidating our office space utilization, performing a strategic review of our content portfolio, reducing outside services expenses, and slowing our year-over-year headcount expense growth rate through a series of workforce reductions and limiting new hires, among other measures.

We recorded a total restructuring charge of $356.1 million during the fiscal year ended December 31, 2023 as a result of these actions.

See Note 17 to the consolidated financial statements in Item 8 of this Annual Report for additional details.

Business Conditions and Macroeconomic Factors

Macroeconomic factors, such as increased inflation and interest rates, recessionary fears, financial and credit market fluctuations, changes in economic policy, global supply chain constraints, and geopolitical developments (such as the war in Ukraine and the unrest in the Middle East), have had, and we believe may continue to have, an impact on our business and results of operations.

We believe that advertisers in a variety of industries reduce their overall advertising spend when they are impacted by these factors, which in turn adversely affects our platform revenue.

Higher inflation and economic uncertainty also lead to a reduction in consumer discretionary spending, which impacts our devices revenue.

We believe that the direct and indirect impacts of these business conditions and macroeconomic factors are difficult to isolate or quantify.

See Item 1A, Risk Factors, and the Note Regarding Forward Looking Statements elsewhere in this Annual Report for additional details.

Key Performance Metrics

The key performance metrics we use to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions are gross profit, Active Accounts, Streaming Hours, and ARPU.

We use gross profit as the primary metric to measure the performance of our business because we have two revenue segments that have different margin profiles, and we aim to maximize our higher margin platform revenue from our Active Accounts as they stream content on our platform.

All of our gross profit is generated from our platform segment.

Our gross profit was $1,522.6 million and $1,441.1 million for the years ended December 31, 2023 and 2022, respectively, reflecting an increase of 6%.

Active Accounts

We believe that the number of Active Accounts is a relevant measure to gauge the size of our user base.

We define Active Accounts as the number of distinct user accounts that have streamed content on our platform within the last 30 days of the period.

Platform revenue is generated from the sale of digital advertising (including direct and programmatic video advertising, ads integrated into our UI, and related services) and streaming services distribution (including subscription and transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded app buttons on remote controls).

Devices revenue is generated from the sale of streaming players, Roku-branded TVs, smart home products and services, audio products, and related accessories.

We expect to continue to manage the average selling prices of Roku streaming devices in an effort to sell more devices, which we believe will increase our Streaming Households.

We expect that this trade off from devices gross profit or loss to grow Streaming Households should result in increased platform revenue and platform gross profit over time.

Key Performance Metrics and Non-GAAP Measure

The key performance metrics we use to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions are Streaming Households, Streaming Hours, ARPU, and Free Cash Flow.

Beginning with our results for the first quarter of 2025, we will no longer report quarterly updates on Streaming Households, and by extension, ARPU.

Since we first reported our key performance metrics in connection with our initial public offering in 2017, our business and the streaming industry have evolved significantly.

Now, we are primarily focused on the growth of revenue of our platform segment and Adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA).

As a result, effective as of the first quarter of 2025, our key performance metrics will be Streaming Hours, Platform Revenue, Adjusted EBITDA, and Free Cash Flow.

Streaming Households

We believe that the number of Streaming Households is a relevant measure to gauge the size of our user base.

We define Streaming Households as the number of distinct user accounts that have streamed content on our platform within the last 30 days of the period.

We refer to such accounts as “Streaming Households” because a given user account does not necessarily represent a single viewer or a single Roku streaming device.

Rather, a single account may be used by multiple viewers and linked to multiple devices.

As a result, we may identify more than one Streaming Household within a single dwelling, and more than one dwelling may constitute a Streaming Household.

Users who streamed content from The Roku Channel only on non-Roku platforms are not included in this metric.

Additionally, users who only register an account for use of one of our smart home products are not included in our reported number of Active Accounts.

The number of Active Accounts also does not correspond to the number of unique individuals who actively utilize our platform, or the number of devices associated with an account.

For example, an Active Account may include more than one individual, such as a family, and one Active Account may include use of multiple Roku streaming devices.

We had 80.0 million and 70.0 million Active Accounts as of December 31, 2023 and 2022, respectively, reflecting an increase of 14%.

Additionally, users who only register an account for use of one of our smart home products are not included in our reported number of Streaming Households.

We had 89.8 million and 80.0 million Streaming Households as of December 31, 2024 and 2023 , respectively, reflecting an increase of 12%.

Streaming Hours

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Additionally, smart home products do not contribute to our Streaming Hours.

We report Streaming Hours on a calendar basis.

Additionally, we believe that over time, increasing user engagement on our streaming platform increases our platform monetization because we earn platform revenue from various forms of user engagement, including advertising, as well as revenue shares from subscriptions and transactional video on-demand.

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Moreover, Streaming Hours on our platform are measured whenever a Roku streaming device is streaming content, whether a viewer is actively watching or not.

For example, if a Roku player is connected to a TV, and the viewer turns off the TV, steps away, or falls asleep and does not stop or pause the player, then the particular streaming app may continue to play content for a period of time determined by the streaming app.

a period of time determined by the streaming app.

We believe that this also occurs across a wide variety of non-Roku streaming devices and other set-top boxes.

Since the first quarter of 2020, all of our Roku streaming devices include a Roku OS feature that is designed to identify when content has been continuously streaming on an app for an extended period of time without user interaction.

Since 2020, all of our Roku streaming devices include a Roku TV OS feature that is designed to identify when content has been continuously streaming on an app for an extended period of time without user interaction.

This feature, which we refer to as “Are you still watching,” periodically prompts the user to confirm that they are still watching the selected app and closes the app if the user does not respond affirmatively.

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Some of our leading content partners, including Netflix, also have implemented similar features within their apps.

This Roku OS feature supplements these app features.

This feature has not had and is not expected to have a material impact on our future financial performance.

This Roku TV OS feature supplements these app features.

This feature has not had and is not expected to have a material impact on our financial performance.

We streamed 127.1 billion and 106.0 billion h ours during the years ended December 31, 2024 and 2023, respectively, reflecting an increase of 20%.

Average Revenue per User

We measure our platform monetization progress with ARPU, which we believe represents the inherent value of our business.

We define ARPU as our platform revenue for the trailing four quarters divided by the average of the number of Active Accounts at the end of the current period and the end of the corresponding period in the prior year.

ARPU measures the rate at which we are monetizing our Active Accounts base and the progress of our platform business.

ARPU was $39.92 as of December 31, 2023 as compared to $41.68 as of December 31, 2022, reflecting a decrease of 4%.

The decrease in ARPU is due to an increasing share of Active Accounts in international markets where we are currently focused on growing scale and engagement, rather than monetization of our streaming platform.

We measure our platform monetization progress with ARPU.

We define ARPU as our platform revenue for the trailing four quarters divided by the average of the number of Streaming Households at the end of the current period and the end of the corresponding period in the prior year.

ARPU measures the rate at which we are monetizing our Streaming Households base and the progress of our platform business.

ARPU was $41.49 as of December 31, 2024 as compared to $39.92 as of December 31, 2023, reflecting an increase of 4% .

The increase in ARPU was driven by platform revenue growth in the United States, partially offset by an increasing share of Streaming Households in international markets where we are currently focused more on scale and engagement than monetization.

Free Cash Flow (Non-GAAP Measure)

We use Free Cash Flow as a primary metric to measure the performance of our business because we believe maximizing Free Cash Flow helps indicate the financial strength of our business, as well as provide an indication of cash generated or (used) by the business.

Our goal is to continuously increase Free Cash Flow over time.

We define Free Cash Flow as our trailing 12-month (“TTM”) cash flows from operating activities excluding purchases of property and equipment and the effects of exchange rates on cash.

Our Free Cash Flow was $203.2 million and $175.9 million for the TTM periods ended December 31, 2024 and 2023, respectively.

Free Cash Flow is a non-GAAP financial measure.

The Free Cash Flow reconciliation excludes purchases of property and equipment and effects of exchange rates on cash from the cash flows from operating activities, in each case where applicable.

We believe Free Cash Flow is useful as a supplement in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance.

However, this non-GAAP financial measure has limitations, and should not be considered in isolation or as a substitute for our GAAP financial information, such as GAAP cash flows from operating activities.

For additional information about cash flows from operating activities, see “Liquidity and Capital Resources” below.

In addition, Free Cash Flow may not be comparable to similarly titled metrics of other companies due to differences in methods of calculation.

The following table presents a reconciliation of Free Cash Flow to the most directly comparable GAAP financial measure for each of the periods indicated (in thousands):

Trailing Twelve Months Ended

December 31, 2024 December 31, 2023

Net cash provided by operating activities $ 218,045 $ 255,856

Purchases of property and equipment (5,061) (82,619)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (9,746) 2,654

Free cash flow (TTM) $ 203,238 $ 175,891

Components of Results of Operations

Platform Revenue

We generate 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).

Our ad inventory includes video ad inventory from AVOD content in The Roku Channel, native display ads on our home screen and screen saver, as well as ad inventory we obtain through our streaming services distribution agreements with our content partners.

We generate platform revenue from the sale of digital advertising (including direct and programmatic video advertising, ads integrated into our UI, and related services), as well as streaming services distribution (including subscription and transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded app buttons on remote controls).

Our ad inventory includes video ad inventory from AVOD content in The Roku Channel, native display ads throughout the Roku Experience, as well as ad inventory we obtain through our streaming services distribution

agreements with our content partners.

To supplement supply, we purchase advertising inventory from our content partners, on an as needed basis.

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We generate devices revenue from the sale of streaming players, Roku-branded TVs, smart home products and services, audio products, and related accessories.

Our devices revenue also includes licensing arrangements with service operators.

We generate most of our devices revenue in the United States.

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Cost of Revenue, Platform

Cost of revenue, platform primarily consists of costs associated with acquiring advertising inventory and amortization costs of content, both licensed and produced, and revenue share with content partners .

Cost of revenue, platform also includes other costs such as payment processing fees, allocated expenses associated with the delivery of our services that primarily include costs of third-party cloud services and salaries, benefits, and stock-based compensation for our customer support and platform operations personnel, and amortization of acquired developed technology.

Cost of revenue, platform primarily consists of costs associated with acquiring advertising inventory, content amortization costs for both licensed and produced content, costs for licensed premium subscriptions, and revenue share payments on licensed content.

Cost of revenue, platform also includes other costs such as payment processing fees, allocated expenses associated with the delivery of our services that primarily include costs of third-party cloud services and salaries, benefits, and stock-based compensation for our platform operations personnel, and amortization of acquired developed technology.

Cost of Revenue, Devices

Cost of revenue, devices is comprised mostly of manufacturing costs payable to third-party manufacturers for devices we sell which include streaming players, Roku-branded TVs, audio products and smart home products.

Cost of revenue, devices also includes technology licenses or royalty fees on devices we sell, inbound and outbound freight, duty and logistics costs, third-party packaging, inventory provisions, and allocated overhead costs related to facilities, third-party cloud services, customer support, and salaries, benefits, and stock-based compensation for operations personnel.

Cost of revenue, devices also includes technology licenses or royalty fees on devices we sell, inbound and outbound freight, duty and logistics costs, third-party packaging, inventory provisions, and allocated overhead costs related to facilities, third-party cloud services, and salaries, benefits, and stock-based compensation for operations personnel.

Operating and Other Expenses

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Sales and marketing expenses consist primarily of salaries, benefits, commissions, and stock-based compensation for our employees engaged in sales and sales support, marketing, communications, data science and analytics, business development, product management, and partner support functions.

Sales and marketing expenses also include marketing, retail and merchandising expenses, and allocated facilities and overhead expenses.

Sales and marketing expenses also include marketing, retail and merchandising expenses, consulting and outside services, and allocated facilities and overhead expenses.

General and Administrative

General and administrative expenses consist primarily of salaries, benefits, and stock-based compensation for our finance, legal, information technology, human resources, and other administrative personnel.

General and administrative expenses also include outside legal, accounting, and other professional service fees as well as allocated facility and overhead expenses.

General and administrative expenses also include outside legal, accounting, and other professional service fees as well as allocated facilities and overhead expenses.

Other Income, Net

For the years ended December 31, 2023 and 2022, other income, net consists of interest income on cash and cash equivalents, income recognized related to non-cash consideration associated with the delivery of services as part of a strategic commercial arrangement, i nter est expense that includes interest on our debt and amortization of deferred debt costs, foreign currency re-measurement, transaction gains and losses, and net change in the fair value of the Strategic Investment (as defined in Note 7 to the consolidated financial statements in Item 8 of this Annual Report).

Other income, net primarily consists of interest income on cash and cash equivalents, foreign currency re-measurement, transaction gains and losses, and net change in the fair value of our strategic investments.

Income Tax Expense

Our income tax expense consists primarily of income taxes in certain foreign jurisdictions where we conduct business and income taxes in the United States.

We have a full valuation allowance for deferred tax assets, including net operating losses primarily for the U.S.

and any jurisdiction where we do not expect to realize their benefits in the future.

We have a full valuation allowance against net deferred tax assets in the United States.

We expect to maintain this valuation allowance for the foreseeable future.

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Total operating expenses 49 % 67 % 63 %

Income (Loss) from Operations (23) % (17) % 9 %

Loss from operations (5) % (23) % (17) %

Other income, net:

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Total other income, net 2 % 3 % 1 %

Income (Loss) Before Income Taxes (20) % (16) % 9 %

Income tax expense (benefit) — % — % — %

Net Income (Loss) (20) % (16) % 9 %

Loss before income taxes (3) % (20) % (16) %

Income tax expense — % — % — %

Net loss (3) % (20) % (16) %

Comparison of Years Ended December 31, 2024 and 2023

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Total net revenue $ 4,112,898 $ 3,484,619 $ 628,279 18 %

Platform revenue increased by $282.7 million, or 10%, during the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to an increase in revenue from streaming services distribution, such as revenue share on content subscriptions and Premium Subscriptions through The Roku Channel, which was offset by slightly lower revenue from advertising driven primarily by weakness in media and entertainment promotional spending.

Platform revenue increased by $528.7 million, or 18%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to higher revenue from streaming services distribution, such as revenue share on content subscriptions and Premium Subscriptions through The Roku Channel, in addition to higher advertising revenue, despite continued weakness in the media and entertainment vertical.

Devices revenue increased by $99.6 million, or 20%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023.

$10.0 million of the increase was due to a change in estimated transaction price for a licensing arrangement with a service operator for which performance obligations were satisfied in prior periods and was recognized as revenue during the three months ended March 31, 2023.

The remaining increase was driven primarily by the sales of Roku-branded TVs introduced in March 2023 and to a lesser extent by the sales of smart home products, partially offset by lower revenue from sales of streaming players.

The volume of streaming players sold decreased by 8% and the average selling price of streaming players increased by 1% during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The increase was primarily due to higher revenue from Roku-branded TVs.

This was partially offset by lower revenue from streaming players, audio and smart home products.

During the year ended December 31, 2024, the average selling price of all devices shipped increased by 18% and the volume of all devices shipped increased by 5% as compared to the year ended December 31, 2023.

The increase in average selling price is due to increased sales of Roku-branded TVs, which generally sell at higher prices compared to streaming players.

The increase in the volume of devices shipped was mainly due to higher sales of Roku-branded TVs.

Cost of Revenue and Gross Profit

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The cost of revenue, platform increased by $209.3 million, or 15%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The increase of $182.4 million was primarily driven by higher costs of acquiring content, higher costs of Premium Subscriptions, and higher credit card processing fees, partially offset by lower content asset amortization and lower cost of advertising inventory.

The cost of revenue, platform also includes restructuring charges of $67.0 million of which $65.5 million consisted of impairment charges related to removing selected content assets from The Roku Channel.

The increase was primarily driven by higher costs of acquiring content and higher credit card processing fees.

During the year ended December 31, 2023, cost of revenue, platform also included restructuring charges of $67.0 million of which $65.5 million consisted of impairment charges related to removing selected content assets from The Roku Channel.

Gross profit for the platform segment increased by $319.4 million, or 20%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily driven by the overall growth in our platform revenue.

The cost of revenue, devices increased by $136.0 million, or 25%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The increase was primarily driven by higher manufacturing costs of $8.7 million, higher royalties of $8.6 million, higher inventory provision of $2.2 million, and higher other device related costs such as product warranties and overhead cost allocation of $9.3 million, offset by lower freight costs of $3.5 million.

The increase in manufacturing costs was driven primarily by the cost of Roku-branded TVs that we began selling in March 2023 and the cost of smart home products.

The cost of revenue, devices also includes restructuring charges of $3.3 million that consist of employee severance, facilities exit costs, and asset impairments.

Gross loss for the devices segment decreased by $46.7 million, or 52%, during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The increase was primarily driven by higher manufacturing costs of $115.0 million, driven by the higher cost of manufacturing Roku-branded TVs, and higher freight costs of $31.8 million.

Gross loss for the devices segment increased by $36.4 million, or 83%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The gross loss was driven by a higher cost of manufacturing of products in the devices segment as compared to the revenue generated from them.

We manage the average selling prices of our products to increase our Active Accounts.

We manage the average selling prices of our products to grow our Streaming Households.

Operating Expenses

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Research and development

Research and development expenses increased by $89.6 million, or 11%, during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The increase was primarily driven by higher restructuring charges of $90.9 million comprised of asset impairments, facilities exit costs, and employee severance.

In addition, the increase includes higher office facilities and IT infrastructure expenses of $7.9 million, offset by lower consulting expenses of $6.6 million and lower personnel-related expenses of $3.0 million.

Research and development expenses decreased by $158.3 million, or 18%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The decrease was primarily driven by lower restructuring

charges of $110.6 million, lower personnel-related expenses of $25.2 million, lower office facilities and IT infrastructure expenses of $17.5 million, and lower consulting expenses of $3.3 million.

Sales and marketing

Sales and marketing expenses increased by $194.9 million, or 23%, during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The increase was primarily driven by higher restructuring charges of $102.8 million comprised of asset impairments, facilities exit costs, and employee severance.

In addition, the increase includes higher marketing, retail, and merchandising expenses of $89.7 million, and higher office facilities and IT infrastructure expenses of $11.3 million, offset by lower consulting expenses of $4.8 million, lower other sales and marketing expenses of $2.7 million, and lower personnel-related expenses of $1.5 million.

Sales and marketing expenses decreased by $100.6 million, or 10%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The decrease was primarily driven by lower restructuring charges of $87.7 million, lower office facilities and IT infrastructure expenses of $13.8 million, and lower personnel-related expenses of $12.1 million, partially offset by higher consulting expenses of $6.1 million and higher marketing, retail, and merchandising expenses of $5.9 million.

General and administrative

General and administrative expenses increased by $58.5 million, or 17%, during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The increase was primarily driven by higher restructuring charges of $53.9 million comprised of asset impairments, facilities exit costs, and employee severance.

In addition, the increase includes higher personnel-related expenses of $5.5 million, and higher office facilities and IT infrastructure expenses of $2.3 million, offset by lower legal, consulting, and professional services expenses of $4.8 million.

General and administrative expenses decreased by $32.2 million, or 8%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The decrease was primarily driven by lower restructuring charges of $56.5 million, partially offset by higher legal, consulting, and professional services of $17.6 million and higher personnel-related expenses of $5.6 million.

Other Income, Net

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Total other income, net, increased by $5.3 million, or 6%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The increase was primarily driven by an increase in interest income of $51.0 million from higher interest rates on our cash balances, an increase in other income of $8.6 million that includes income recognized related to non-cash consideration associated with the delivery of services as part of a strategic commercial arrangement and an unrealized gain in the fair value of the Strategic Investment , and a reduction in interest expense of $4.4 million as the Credit Facility (as defined below) was fully repaid in February 2023, offset by an increase in foreign exchange losses of $9.7 million due to fluctuation in exchange rates.

The increase was primarily driven by an increase in interest income of $11.9 million from higher cash balances, partially offset by higher foreign exchange losses of $5.0 million due to exchange rate fluctuations and a decrease in other income of $1.9 million mainly from lower unrealized gains related to the change in the fair value of strategic investments .

Income Tax Expense

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Income tax expense

Income tax expense increased by $4.4 million, or 77%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The increase was driven by the increases in foreign taxes primarily due to the increase of taxable earnings in our foreign operations.

Income tax expense decreased by $0.7 million, or 7%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The decrease was primarily due to a tax benefit from the release of a valuation allowance on certain foreign deferred tax assets, partially offset by increases in U.S.

and foreign current taxes due to the increase of taxable earnings.

Liquidity and Capital Resources

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Our primary sources of cash are receipts from platform and devices revenue.

The primary uses of cash are costs of revenue including costs to acquire advertising inventory, costs to license and produce content, third-party manufacturing costs for our products, as well as operating expenses such as personnel-related expenses including employee termination payments, consulting and professional service expenses, facility expenses, and marketing expenses.

The primary uses of cash are costs of revenue including costs to acquire advertising inventory, costs to license and produce content, third-party manufacturing costs for our products, as well as operating expenses such as personnel-related expenses, consulting and professional service expenses, facility expenses, and marketing expenses.

Other uses of cash include purchases of property and equipment and mergers and acquisitions.

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These activities may materially impact our liquidity and capital resources.

We believe our existing cash and cash equivalents balance will be sufficient to meet our working capital, capital expenditures, and material cash requirements from known contractual obligations for the next twelve months and beyond.

We believe our existing cash and cash equivalents balance, and our undrawn available balance under our Credit Agreement (as discussed below), will be sufficient to meet our working capital, capital expenditures, and material cash requirements from known contractual obligations for the next twelve months and beyond.

Our future capital requirements, the adequacy of available funds, and cash flows from operations could be affected by various risks, uncertainties, including, but not limited to, those detailed in Item 1A, Risk Factors in this Annual Report and the effects of the current macroeconomic environment.

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If we raise additional financing by the incurrence of indebtedness, we may be subject to fixed payment obligations and also to restrictive covenants.

Additionally, due to the current macroeconomic environment, we may be unable to obtain debt or equity financing on terms that are acceptable to us.

Senior Secured Term Loan A and Revolving Credit Facilities

On February 19, 2019, we entered into a Credit Agreement with Morgan Stanley Senior Funding, Inc.

(as amended on May 3, 2019, the “Credit Agreement”), which provided for (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million (the “Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $100.0 million (the “Term Loan A Facility”), and (iii) an uncommitted incremental facility subject to certain conditions (together with the Revolving Credit Facility and the Term Loan A Facility, collectively, the “Credit Facility”).

On November 18, 2019, we borrowed an aggregate principal amount of $100.0 million from the Term Loan A Facility.

We elected an interest rate equal to the adjusted one-month LIBOR rate plus an applicable margin of 1.75% based on our 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, we 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 our existing cash balance, a portion of which is restricted for that purpose.

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

See Note 10 to the consolidated financial statements in Item 8 of this Annual Report for additional details.

Additionally, we may be unable to obtain debt or equity financing on terms that are acceptable to us.

Credit Agreement

On September 16, 2024, we entered into a Credit Agreement, by and among the Company, as borrower, certain of our subsidiaries, as guarantors, the lenders and issuing banks party thereto, and with Citibank N.A., as administrative agent (the “Credit Agreement”), which provides for (i) a five-year revolving credit facility in an aggregate principal amount of up to $300.0 million, and (ii) an uncommitted increase option of up to an additional $300.0 million exercisable upon the satisfaction of certain customary conditions.

The Credit Agreement provides for a $100.0 million sub-facility for the issuance of letters of credit, and certain existing letters of credit were deemed outstanding under this facility.

The Credit Agreement will mature on September 16, 2029.

Proceeds from the Credit Agreement may be used for general corporate purposes, including to finance working capital requirements.

Our obligations under the Credit Agreement are secured by substantially all the assets of the Company and our subsidiaries that are guarantors under the Credit Agreement.

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

The Credit Agreement also contains customary representations and warranties, customary affirmative and negative covenants, financial covenants requiring the maintenance of a minimum interest coverage ratio and a maximum total net leverage ratio, as well as customary events of default, the occurrence of which could result in amounts borrowed under the Credit Agreement becoming due and payable and remaining commitments terminated prior to its scheduled September 16, 2029 termination date.

We had outstanding letters of credit secured by the Credit Agreement of $36.4 million as of December 31, 2024.

As of December 31, 2024, we had not borrowed against the Credit Agreement, and we were in compliance with all of the covenants of the Credit Agreement.

See Note 10 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report for additional details.

The following table summarizes our cash flows for the periods presented (in thousands):

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Cash flows used in investing activities $ (25,061) $ (92,619)

Cash flows (used in) provided by financing activities $ (61,243) $ 8,357

Cash flows used in financing activities $ (89,203) $ (61,243)

Cash Flows from Operating Activities

Our operating activities provided cash of $218.0 million for the year ended December 31, 2024.

Our net loss of $709.6 million for the year ended December 31, 2023 was adjusted by non-cash charges of $972.7 million comprised mainly of stock-based compensation, amortization of content assets, depreciation and amortization of property and equipment and intangible assets, amortization of operating right-of-use assets, impairment of assets as part of restructuring charges, and change in fair value of the Strategic Investment.

The changes in our operating assets and liabilities used cash totaling $7.3 million mainly due to payments made to acquire content, payments made for operating leases liabilities, and an increase in the accounts receivable balance at the end of the year due to higher revenue, offset by an increase in accounts payable and accrued liabilities due to timing of payments, an increase in deferred revenue, a decrease in prepaid expenses, and a decrease in inventory balances at the end of fiscal 2023.

Our net loss of $129.4 million for the year ended December 31, 2024 was adjusted by non-cash charges of $756.2 million comprised mainly of stock-based compensation, amortization and write-off of content assets, depreciation and amortization of property and equipment and intangible assets, amortization of operating right-of-use assets, impairment of assets as part of restructuring charges, foreign currency remeasurement losses, and fair value changes of strategic investments.

The negative impact from changes in operating assets and liabilities of $408.8 million was primarily due to payments made to acquire content, a decrease in accounts payable, payments made for operating leases liabilities, an increase in inventory, an increase in other long-term assets, and an increase in prepaid expenses and other current assets, partially offset by an increase in accrued liabilities due to timing of payments and an increase in deferred revenue.

Cash Flows from Investing Activities

Our investing activities for the year ended December 31, 2023 included cash outflows of $92.6 million consisting of purchases of property and equipment and expenditures related to the expansion of our office facilities of $82.6 million and an additional investment in the Strategic Investment of $10.0 million.

Net cash used in investing activities of $25.1 million for the year ended December 31, 2024 included purchases of property and equipment and expenditures related to the expansion of our office facilities of $5.1 million and an additional strategic investment of $20.0 million.

Cash Flows from Financing Activities

Our financing activities used cash of $61.2 million for the year ended December 31, 2023.

The cash outflow related primarily to the repayment of $80.0 million of our Credit Facility that became due in February 2023 offset by $18.8 million received from proceeds from the exercise of employee stock options.

Net cash used in financing activities of $89.2 million for the year ended December 31, 2024 was primarily due to tax payments of $96.4 million to net settle equity awards vested during the period and the payment of $2.2 million in issuance costs related to our Credit Agreement, offset by $9.4 million received from proceeds from the exercise of employee stock options.

Material Cash Requirements from Known Contractual Obligations

Our material cash requirements from known contractual obligations as of December 31, 2023 consisted of:

• Commitments to purchase finished goods from our contract manufacturers and other inventory related items.

Consistent with industry practices, we enter into firm, non-cancelable, and unconditional purchase commitments with our contract manufacturers to acquire products through a combination of purchase orders, supplier contracts, and open orders based on projected demand information.

Our contract manufacturers source components and build our products based on these demand forecasts.

Changes to projected demand or in the subsequent sales mix of our products may result in us being committed to purchase excess inventory to satisfy these commitments.

For additional information regarding manufacturing purchase commitments, see Note 12 to the consolidated financial statements in Item 8 of this Annual Report.

• Commitments to license content from content partners and produce content under contractual arrangements.

For additional information regarding content commitments, see Note 12 to the consolidated financial statements in Item 8 of this Annual Report.

• Operating lease liabilities that are included in our consolidated balance sheets and liabilities related to the lease arrangements that have not yet commenced.

For additional information regarding our lease liabilities, see Note 9 to the consolidated financial statements in Item 8 of this Annual Report.

Our restructuring efforts to consolidate office space did not materially change our operating lease obligations.

The contractual commitments discussed above are associated with agreements that are enforceable and legally binding.

Obligations under contracts that we can cancel without a significant penalty are not included above.

For a description of our purchase obligations and operating lease obligations, refer to Note 12 and Note 9 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report, respectively.

In addition, we have $4.8 million of uncertain tax positions as of December 31, 2024.

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The transaction price in some of our arrangements include non-cash consideration.

We determine the fair value of non-cash consideration at contract inception by using historical internal and observable third-party data.

We determine the fair value of non-cash consideration at contract inception by using historical internal and current observable third-party data.

For the sale of third-party goods and services, we evaluate whether we are the principal, and report revenue on a gross basis, or an agent, and report revenue on a net basis.

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Amortization of Content Assets

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

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

Judgment is required to determine the amortization patterns of our content assets which are monetized as a group.

Critical judgments include:

(i) the predominant monetization strategy of content, (ii) the grouping of content with similar characteristics, and (iii) the application of historical viewership model and projected decay.

the predominant monetization strategy of content, (ii) the grouping of content with similar characteristics, and (iii) the application of historical viewership model and projected decay.

These judgments and underlying analysis are reviewed regularly and adjusted as needed on a prospective basis.

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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.

During the year ended December 31, 2024, we recognized an impairment charge of $22.6 million for operating lease right-of-use assets and an impairment charge of $7.0 million for property and equipment related to a decision to cease the use of certain office facilities and related property and equipment.

During the year ended December 31, 2023, we 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.

The impairment was a result of the restructuring efforts 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.

There were no impairments of property and equipment or operating lease right-of-use assets during the year ended December 31, 2022.

See Note 17 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report.

Significant judgments and estimates included in the determination of the fair value of the assets were identification of events or changes in circumstances necessitating an impairment assessment, 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.

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We account for income taxes using the asset and liability method.

Under this method, deferred income tax assets and liabilities are determined based upon the difference between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are expected to be reversed.

In determining the need for a valuation allowance, we assess both positive and negative evidence in the various jurisdictions to determine whether it is more likely than not that our deferred tax assets are recoverable.

We regularly assess all available evidence, including cumulative historic losses and forecasted earnings.

A valuation allowance is established when it is more likely than not that the deferred tax assets will not be realized.

We have established a full valuation allowance for our U.S.

and Netherlands net deferred tax assets due to the uncertainty of realizing future tax benefits from our net operating loss carry-forwards and other deferred tax assets.

A change in the assessment of the realizability of deferred tax assets may materially impact our tax provision in the period in which a change of assessment occurs.

Release of the valuation allowance would result in the recognition of U.S.

federal and state deferred tax assets and a corresponding decrease to income tax expense in the period the release is recorded.

Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year.

In addition, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities using the enacted tax rates.

The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance when it is more likely than not they will not be realized.

In determining the need for a valuation allowance, we assess all available positive and negative evidence, including cumulative historic losses and forecasted earnings.

We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

We have established reserves to address potential exposures related to tax positions that could be challenged by tax authorities.

While we believe we have adequately reserved for our uncertain tax positions, including interest and penalties, we provide no assurance that the final tax outcome of these matters will not be materially different.

We make assumptions, judgments and estimates while taking into account current tax laws to determine the current income tax provision (benefit), deferred tax asset and liabilities, and valuation allowance recorded against a deferred tax asset.

Changes in tax law, their interpretation, and resolution of tax audits could significantly impact the income taxes provided in our consolidated financial statements.

Assumptions, judgments and estimates relative to the amount of deferred income taxes take into account future taxable income.

Any of the assumptions, judgments and estimates mentioned above could cause the actual income tax obligations to differ from our estimates.

Recent Accounting Pronouncements

The recent accounting pronouncements are discussed and included in Note 2 to the consolidated financial statements in Item 8 of this Annual Report.

The recent accounting pronouncements are discussed and included in Note 2 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report.

They are incorporated herein by reference.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis