roku-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

OR

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

For the transition period from                to               

Commission File Number: 001-38211

 

Roku, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

26-2087865

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

150 Winchester Circle

Los Gatos, California 95032

(Address of principal executive offices including zip code)

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

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

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

 

 

 

Title of Each Class:

Trading Symbol(s):

Name of Exchange on Which Registered:

Class A Common Stock, $0.0001 par value

“ROKU”

The Nasdaq Global Select Market

As of April 30, 2019, the registrant had 81,981,559 of Class A common stock, $0.0001 par value per share, and 31,437,092 shares of Class B common stock, $0.0001 par value per share, outstanding.

 

 


Table of Contents

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

1

Item 1.

Financial Statements (Unaudited)

 

1

 

Condensed Consolidated Balance Sheets

 

1

 

Condensed Consolidated Statements of Operations

 

2

 

Condensed Consolidated Statements of Comprehensive Loss

 

3

 

Condensed Consolidated Statement of Stockholders’ Equity

 

4

 

Condensed Consolidated Statements of Cash Flows

 

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4.

Controls and Procedures

 

28

PART II.

OTHER INFORMATION

 

29

Item 1.

Legal Proceedings

 

29

Item 1A.

Risk Factors

 

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

57

Item 3.

Defaults Upon Senior Securities

 

57

Item 4.

Mine Safety Disclosures

 

57

Item 5.

Other Information

 

57

Item 6.

Exhibits

 

58

Signatures

 

59

 

 

 

i


NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “project,” “should,” “will” or the negative of these terms or other similar expressions.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, regarding, among other things:

 

our financial performance, including our revenue, cost of revenue, operating expenses and our ability to attain and sustain profitability;

 

our ability to attract and retain users and increase hours streamed;

 

our ability to attract and retain advertisers;

 

our ability to attract and retain additional TV brands to deploy our technology;

 

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

 

changes in consumer viewing habits or the growth of TV streaming;

 

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

 

our ability to adapt to changing market conditions and technological developments, including developing integrations with our platform partners;

 

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

 

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

 

our ability to successfully manage domestic and international expansion;

 

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

 

security breaches and system failures;

 

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

 

our ability to comply with laws and regulations that currently apply or may become applicable to our business both in the United States and internationally, including compliance with the EU General Data Protection Regulation.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events.  We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

ii


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

 

 

 

 

iii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

ROKU, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

 

 

As of

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

236,500

 

 

$

155,564

 

Short-term investments

 

 

27,401

 

 

 

42,146

 

Restricted cash

 

 

26,350

 

 

 

 

Accounts receivable, net of allowances

 

 

174,195

 

 

 

183,078

 

Inventories

 

 

33,398

 

 

 

35,585

 

Prepaid expenses and other current assets

 

 

21,888

 

 

 

15,374

 

Deferred cost of revenue, current

 

 

636

 

 

 

1,188

 

Total current assets

 

 

520,368

 

 

 

432,935

 

Property and equipment, net

 

 

30,777

 

 

 

25,264

 

Operating lease right-of-use assets

 

 

71,013

 

 

 

 

Intangible assets, net

 

 

1,338

 

 

 

1,477

 

Goodwill

 

 

1,382

 

 

 

1,382

 

Other non-current assets

 

 

3,254

 

 

 

3,939

 

Total Assets

 

$

628,132

 

 

$

464,997

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

146,923

 

 

$

148,562

 

Deferred revenue, current

 

 

41,939

 

 

 

45,442

 

Total current liabilities

 

 

188,862

 

 

 

194,004

 

Deferred revenue, non-current

 

 

15,297

 

 

 

19,594

 

Operating lease liability, non-current

 

 

59,950

 

 

 

 

Other long-term liabilities

 

 

3,089

 

 

 

6,748

 

Total Liabilities

 

 

267,198

 

 

 

220,346

 

Commitments and contingencies (Note 7 and 10)

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value

 

 

11

 

 

 

11

 

Additional paid-in capital

 

 

624,550

 

 

 

498,553

 

Accumulated other comprehensive income (loss)

 

 

1

 

 

 

(17

)

Accumulated deficit

 

 

(263,628

)

 

 

(253,896

)

Total stockholders’ equity

 

 

360,934

 

 

 

244,651

 

Total Liabilities and Stockholders’ Equity

 

$

628,132

 

 

$

464,997

 

 

See accompanying notes to condensed consolidated financial statements.

1


ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

 

Three Months Ended

 

 

 

March 31,

2019

 

 

March 31,

2018

 

Net Revenue:

 

 

 

 

 

 

 

 

Platform

 

$

134,153

 

 

$

75,077

 

Player

 

 

72,509

 

 

 

61,499

 

Total net revenue

 

 

206,662

 

 

 

136,576

 

Cost of Revenue:

 

 

 

 

 

 

 

 

Platform

 

 

40,364

 

 

 

21,666

 

Player

 

 

65,407

 

 

 

51,798

 

Total cost of revenue

 

 

105,771

 

 

 

73,464

 

Gross Profit:

 

 

 

 

 

 

 

 

Platform

 

 

93,789

 

 

 

53,411

 

Player

 

 

7,102

 

 

 

9,701

 

Total gross profit

 

 

100,891

 

 

 

63,112

 

Operating Expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

55,738

 

 

 

34,126

 

Sales and marketing

 

 

33,807

 

 

 

20,318

 

General and administrative

 

 

22,086

 

 

 

15,570

 

Total operating expenses

 

 

111,631

 

 

 

70,014

 

Loss from Operations

 

 

(10,740

)

 

 

(6,902

)

Other Income, Net:

 

 

 

 

 

 

 

 

Interest expense

 

 

(98

)

 

 

(51

)

Other income, net

 

 

967

 

 

 

448

 

Total other income, net

 

 

869

 

 

 

397

 

Loss Before Income Taxes

 

 

(9,871

)

 

 

(6,505

)

Income tax (benefit) expense

 

 

(139

)

 

 

129

 

Net Loss Attributable to Common Stockholders

 

$

(9,732

)

 

$

(6,634

)

Net loss per share attributable to

    common stockholders—basic and diluted

 

$

(0.09

)

 

$

(0.07

)

Weighted-average shares used in computing net

   loss per share attributable to

   common stockholders—basic and diluted

 

 

110,877

 

 

 

99,488

 

 

See accompanying notes to condensed consolidated financial statements.

2


ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

2019

 

 

March 31,

2018

 

Net Loss Attributable to Common Stockholders

 

$

(9,732

)

 

$

(6,634

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Unrealized gain on short-term investments, net of tax

 

 

18

 

 

 

 

Comprehensive Net Loss

 

$

(9,714

)

 

$

(6,634

)

 

See accompanying notes to condensed consolidated financial statements.

3


ROKU, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Treasury

 

 

Accumulated Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Income / (Loss)

 

 

Deficit

 

 

Equity

 

Balance—December 31, 2017

 

 

99,157

 

 

 

10

 

 

 

436,278

 

 

 

(671

)

 

 

 

 

 

(283,338

)

 

 

152,279

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

106

 

 

 

 

 

 

 

 

 

 

 

 

106

 

Issuance of common stock upon exercise of

   stock options, net

 

 

1,670

 

 

 

 

 

 

5,049

 

 

 

(52

)

 

 

 

 

 

 

 

 

4,997

 

Issuance of common stock pursuant to exercise

   of common warrants, net

 

 

141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,429

 

 

 

 

 

 

 

 

 

 

 

 

4,429

 

Adoption of ASU 2016-16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40

)

 

 

(40

)

Adoption of ASU 2014-09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,339

 

 

 

38,339

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,634

)

 

 

(6,634

)

Balance—March 31, 2018

 

 

100,968

 

 

$

10

 

 

$

445,862

 

 

$

(723

)

 

$

 

 

$

(251,673

)

 

$

193,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—December 31, 2018

 

 

109,770

 

 

$

11

 

 

$

499,224

 

 

$

(671

)

 

$

(17

)

 

$

(253,896

)

 

$

244,651

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

17

 

Share repurchases

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock pursuant to equity

   incentive plans, net of taxes

 

 

2,135

 

 

 

 

 

 

10,091

 

 

 

 

 

 

 

 

 

 

 

 

10,091

 

Issuance of common stock in connection with at-the-market offering, net of issuance costs of $2.0 million

 

 

1,389

 

 

 

 

 

 

98,025

 

 

 

 

 

 

 

 

 

 

 

 

98,025

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

17,864

 

 

 

 

 

 

 

 

 

 

 

 

17,864

 

Unrealized gain on short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

18

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,732

)

 

 

(9,732

)

Balance—March 31, 2019

 

 

113,292

 

 

$

11

 

 

$

625,221

 

 

$

(671

)

 

$

1

 

 

$

(263,628

)

 

$

360,934

 

 

See accompanying notes to condensed consolidated financial statements.

4


ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Three Months Ended

 

 

 

March 31,

2019

 

 

March 31,

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(9,732

)

 

$

(6,634

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,849

 

 

 

1,656

 

Stock-based compensation expense

 

 

17,864

 

 

 

4,429

 

Provision for doubtful accounts

 

 

181

 

 

 

201

 

Non-cash interest expense

 

 

344

 

 

 

 

Loss from exit of facilities

 

 

 

 

 

129

 

Amortization of premiums on short-term investments

 

 

(182

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

8,702

 

 

 

26,986

 

Inventories

 

 

2,187

 

 

 

(5,430

)

Prepaid expenses and other current assets

 

 

(8,116

)

 

 

(11,643

)

Operating lease right-of-use assets

 

 

3,440

 

 

 

 

Deferred cost of revenue

 

 

552

 

 

 

2,090

 

Other noncurrent assets

 

 

685

 

 

 

(353

)

Accounts payable and accrued liabilities

 

 

(18,606

)

 

 

(18,474

)

Operating lease liabilities

 

 

(2,491

)

 

 

 

Other long-term liabilities

 

 

(581

)

 

 

(118

)

Deferred revenue

 

 

(7,800

)

 

 

(7,476

)

Net cash used in operating activities

 

 

(10,704

)

 

 

(14,637

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(5,071

)

 

 

(3,407

)

Purchases of short-term investments

 

 

(12,365

)

 

 

 

Sales/maturities of short-term investments

 

 

27,310

 

 

 

 

Net cash provided by (used in) investing activities

 

 

9,874

 

 

 

(3,407

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from equity issued under incentive plans

 

 

10,091

 

 

 

1,544

 

Proceeds from equity issued under at-the-market program, net of offering costs

 

 

98,025

 

 

 

 

Net cash provided by financing activities

 

 

108,116

 

 

 

1,544

 

Net Increase (Decrease) in cash, cash equivalents and restricted cash

 

 

107,286

 

 

 

(16,500

)

Cash, cash equivalents and restricted cash—Beginning of period

 

 

155,564

 

 

 

177,250

 

Cash, cash equivalents and restricted cash—End of period

 

$

262,850

 

 

$

160,750

 

Cash, cash equivalents and restricted cash at end of period:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

236,500

 

 

 

160,750

 

Restricted cash

 

 

26,350

 

 

 

 

Cash, cash equivalents and restricted cash—End of period

 

$

262,850

 

 

$

160,750

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

542

 

 

 

 

Cash paid for income taxes

 

$

557

 

 

$

180

 

Supplemental disclosures of non-cash investing and financing

   activities:

 

 

 

 

 

 

 

 

Unpaid portion of property and equipment purchases

 

$

4,769

 

 

$

1,460

 

Unpaid portion of at-the-market offering costs

 

$

249

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

5


ROKU, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

Organization and Description of Business

Roku, Inc. (the “Company” or “Roku”), was formed in October 2002 as Roku LLC under the laws of the State of Delaware. On February 1, 2008, Roku LLC was converted into Roku, Inc., a Delaware corporation. The Company’s TV streaming platform allows users to easily discover and access a wide variety of movies, TV episodes, live programming and more. The Company operates in two reportable segments and generates revenue through the sale of streaming players, advertising, content distribution, subscription and transaction revenue sharing, as well as through licensing arrangements with TV brands.  

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 1, 2019.

The condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements as of that date but does not include all of the information and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results to be expected for the full year or any future periods.

There have been no material changes in the Company’s significant accounting policies other than the adoption of Accounting Standards Update (“ASU”) ASU 2016-02, Leases (Topic 842), (“ASC 842”), described below and in Note 7, and debt issuance costs, described below in Note 8, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Use of Judgements and Estimates

The preparation of the Company’s condensed consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgements, and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant items subject to such estimates and assumptions include: for 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 reporting, evaluation of customer versus vendor relationships, and other obligations such as sales return reserves and customer incentive programs; the valuation of inventory, the valuation of deferred income tax assets, the recognition and disclosure of contingent liabilities and stock-based compensation. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from the Company’s estimates and assumptions.

Principles of Consolidation

The condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Comprehensive Income (Loss)

Comprehensive income (loss) includes unrealized gains (loss) on the Company’s short-term investments for the three months ended March 31, 2019. The Company did not have any short-term investments during the three months ended March 31, 2018. As a result, comprehensive income (loss) was equal to the net loss for the three months ended March 31, 2018.

6


Concentrations

Customers accounting for 10% or more of the Company’s net revenue were as follows:

 

 

 

Three Months Ended

 

 

 

 

March 31,

2019

 

 

March 31,

2018

 

 

Customer B

 

 

11

%

 

 

10

%

 

Customer C

 

 

12

%

 

 

17

%

 

Customer G

 

*

 

 

 

11

%

 

 

 

Customers accounting for 10% or more of the Company’s accounts receivable were as follows:

 

 

 

As of

 

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

Customer D

 

 

15

%

 

 

11

%

 

 

* Less than 10%

Restricted Cash

Restricted cash is comprised of cash collateral for outstanding letters of credit related to operating leases of office facilities. As of March 31, 2019, the Company had restricted cash of $26.4 million. The Company did not have any restricted cash as of December 31, 2018.

 

Content Licensing Fees

The Company acquires rights to video content for viewing on The Roku Channel. Consideration for these content rights can include a fixed fees and/or a share of advertising revenue. The Company capitalizes the content fees and records a corresponding liability at the gross amount of the liability when the license period has begun, the cost of the content is determinable, and the content is accepted and available for streaming. The Company amortizes licensed content assets into “Cost of Revenue, Platform” over the contractual window of availability.

As of March 31, 2019, content related expenses that met these requirements were not material.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases (Topic 842), in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet.

On January 1, 2019, the Company adopted the guidance in ASC 842 using the optional transition method and recorded right-of-use (“ROU”) assets and lease liabilities on its condensed consolidated balance sheet. As a result, periods prior to 2019 were not adjusted. On the adoption date, the Company recognized ROU assets totaling $39.9 million, lease liabilities totaling $42.1 million and reclassification of deferred and prepaid rents of $2.2 million to ROU assets on its condensed consolidated balance sheet. There was no impact to the accumulated deficit. The Company elected the package of practical expedients permitted under the transition guidance that allowed, among other things, the historical lease classification to be carried forward without reassessment. The Company did not elect the hindsight practical expedient to determine the lease term for existing leases. Refer to Note 7 for additional disclosures.  

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Topic 350), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires hosting arrangements that are service contracts to follow the guidance for internal-use software to determine which implementation costs can be capitalized. The guidance is effective either prospectively or retrospectively for fiscal years beginning

7


after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently in the process of evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently in the process of evaluating the effects of the new guidance but does not expect the impact from this standard to be material.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance amends reporting of credit losses for assets held at amortized cost basis and available-for-sale debt securities to require that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statements of operations. The amendments in this update will be effective beginning January 1, 2020. The Company is currently in the process of evaluating the effects of the new guidance but does not expect the impact from this standard to be material.

3. REVENUE

Revenue Recognition

The Company enters into contracts that may include various combinations of products and services, which are generally capable of being distinct and are accounted for as separate performance obligations.

Revenue is recognized when control of promised products or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services.

Shipping charges billed to customers are included in revenue and the related shipping costs are included in cost of revenue. Revenue is recorded net of taxes collected or accrued. Sales taxes are recorded as current liabilities until remitted to the relevant government authority.

The Company does not have any capitalized costs associated with contract acquisition because most direct contract acquisition costs relate to contracts that are recognized over a period of one year or less.

Arrangements with Multiple Performance Obligations

The Company’s contracts may contain multiple distinct performance obligations. The computed transaction price of each contract is allocated to each performance obligation based on a relative stand-alone selling price (“SSP”). For performance obligations routinely sold separately, the SSP is determined by evaluating such stand-alone sales. For those performance obligations that are not routinely sold separately, the Company determines SSP based on a market assessment approach, or on an expected cost-plus margin approach.

Nature of Products and Services

Platform Segment:

The Company’s platform segment generates revenue from advertising sales, subscription and transaction revenue shares, the sale of branded channel buttons on remote controls and licensing arrangements with TV brands and service operators.

Player Segment:

The Company sells the majority of its players through retail distribution channels, including brick and mortar and online retailers, and through the Company’s website. The Company’s player revenue includes allowances for returns and sales incentives in the estimated transaction price.   These estimates are based on historical experience and anticipated performance.

Revenue Disaggregation

The Company’s disaggregated revenue is represented by the two reportable segments discussed in Note 14. The disaggregation is based on the evaluations that are regularly performed 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.

 

8


Revenue Allocated to Future Performance Obligations

Revenue allocated to remaining performance obligations represents estimated contracted revenue that has not yet been recognized which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Estimated contracted revenue was $100.3 million as of March 31, 2019 of which we expect to recognize approximately 84% over the next 12 months and the remainder thereafter.

Contract Balances

Contract balances include accounts receivable, contract assets and contract liabilities. Accounts receivable are recorded at the amount invoiced, net of an allowance for doubtful accounts and sales incentives. The payment terms with customers vary by contract. Contract assets are created when the timing of invoicing to a customer occurs subsequent to revenue recognition. Contract assets are transferred to accounts receivable when the right to bill becomes unconditional. The Company’s contract assets are current in nature and are included in “Prepaid expenses and other current assets”. The Company did not have any impairments relating to contract assets.

Contract liabilities are recorded as deferred revenue and primarily relate to timing differences between the billing terms and the fulfillment of performance obligations. Revenue is recognized when the performance obligation is completed and delivered or transfer of control occurs.

The table below reflects the contract balances of the Company (in thousands):

 

 

 

As of

 

 

As of

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Accounts receivable, net

 

$

174,195

 

 

$

183,078

 

Contract assets, current

 

 

2,351

 

 

 

753

 

 

 

 

 

 

 

 

 

 

Deferred revenue, current

 

 

41,939

 

 

 

45,442

 

Deferred revenue, non-current

 

 

15,297

 

 

 

19,594

 

Total deferred revenue

 

$

57,236

 

 

$

65,036

 

Contract assets increased by approximately $1.6 million during the three months ended March 31, 2019 primarily due to a $1.8 million increase in contract asset from one customer where the Company’s right to bill falls into subsequent period. Deferred revenue decreased by approximately $7.8 million during the three months ended March 31, 2019 primarily due to revenue recognized of $5.0 million pursuant to customer acceptance of a milestone.

4. Balance sheet components

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

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Gross accounts receivable

 

$

185,971

 

 

$

204,975

 

Allowance for sales returns

 

 

(4,596

)

 

 

(7,335

)

Allowance for sales incentives

 

 

(6,183

)

 

 

(13,750

)

Other allowances

 

 

(997

)

 

 

(812

)

Total allowances

 

 

(11,776

)

 

 

(21,897

)

Total Accounts Receivable—net of allowances

 

$

174,195

 

 

$

183,078

 

 

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

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Beginning balance

 

$

(7,335

)

 

$

(6,907

)

Charged to revenue

 

 

(2,222

)

 

 

(17,396

)

Utilization of sales return reserve

 

 

4,961

 

 

 

16,968

 

Ending balance

 

$

(4,596

)

 

$

(7,335

)

9


 

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

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Beginning balance

 

$

(13,750

)

 

$

(10,442

)

Charged to revenue

 

 

(7,980

)

 

 

(50,958

)

Utilization of sales incentive reserve

 

 

15,547

 

 

 

47,650

 

Ending balance

 

$

(6,183

)

 

$

(13,750

)

 

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

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Computers and equipment

 

$

17,093

 

 

$

16,056

 

Leasehold improvements

 

 

25,544

 

 

 

18,396

 

Website and internal-use software

 

 

6,423

 

 

 

6,423

 

Office equipment and furniture

 

 

4,107

 

 

 

4,069

 

Total property and equipment

 

 

53,167

 

 

 

44,944

 

Accumulated depreciation and amortization

 

 

(22,390

)

 

 

(19,680

)

Property and Equipment, net

 

$

30,777

 

 

$

25,264

 

 

Depreciation and amortization expense for the three months ended March 31, 2019 and 2018 was $2.7 million and $1.5 million, respectively.  

Accounts Payable and Accrued Liabilities—Accounts payable and accrued liabilities consisted of the following (in thousands):

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Accounts payable

 

$

44,622

 

 

$

56,576

 

Accrued royalty expense

 

 

5,024

 

 

 

7,939

 

Accrued inventory

 

 

7,566

 

 

 

6,008

 

Accrued payroll and related expenses

 

 

8,228

 

 

 

12,217

 

Accrued cost of revenue

 

 

17,658

 

 

 

22,830

 

Accrued payments to content publishers

 

 

39,576

 

 

 

32,463

 

Operating lease liability, current

 

 

14,208

 

 

 

 

Taxes and related liabilities

 

 

331

 

 

 

1,314

 

Customer prepayments

 

 

2,700

 

 

 

3,124

 

Other accrued expenses

 

 

7,010

 

 

 

6,091

 

Total Accounts Payable and Accrued Liabilities

 

$

146,923

 

 

$

148,562

 

 

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

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Platform, current

 

$

24,789

 

 

$

28,569

 

Player, current

 

 

17,150

 

 

 

16,873

 

Total deferred revenue, current

 

 

41,939

 

 

 

45,442

 

Platform, non-current

 

 

8,783

 

 

 

12,783

 

Player, non-current

 

 

6,514

 

 

 

6,811

 

Total deferred revenue, non-current

 

 

15,297

 

 

 

19,594

 

Total Deferred Revenue

 

$

57,236

 

 

$

65,036

 

10


 

5. SHORT-TERM INVESTMENTS

The following is a summary of the Company’s short-term investments (in thousands):

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Loss

 

 

Fair Value

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Loss

 

 

Fair Value

 

Corporate bonds and commercial paper

 

$

22,437

 

 

$

1

 

 

$

(1

)

 

$

22,437

 

 

$

37,168

 

 

$

 

 

$

(17

)

 

$

37,151

 

U.S. government securities

 

 

4,963

 

 

 

1

 

 

 

 

 

 

4,964

 

 

 

4,995

 

 

 

 

 

 

 

 

 

4,995

 

Total Short-Term Investments

 

$

27,400

 

 

$

2

 

 

$

(1

)

 

$

27,401

 

 

$

42,163

 

 

$

 

 

$

(17

)

 

$

42,146