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roku-10q_20190630.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 June 30, 2019

☐	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

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

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.

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 ☒

As of July 31, 2019, the registrant had 85,421,696 of Class A common stock, $0.0001 par value per share, and 30,812,380 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 Income (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	29
Item 4.	Controls and Procedures	29
PART II.	OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	59
Signatures		60

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 (“the Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“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.

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
	June 30, 2019			December 31, 2018
Assets
Current Assets:
Cash and cash equivalents	$	375,509		$	155,564
Short-term investments		10,987			42,146
Restricted cash		868			—
Accounts receivable, net of allowances		204,037			183,078
Inventories		39,443			35,585
Prepaid expenses and other current assets		19,063			15,374
Deferred cost of revenue, current		44			1,188
Total current assets		649,951			432,935
Property and equipment, net		48,402			25,264
Operating lease right-of-use assets		115,961			—
Intangible assets, net		1,200			1,477
Goodwill		1,382			1,382
Other non-current assets		3,929			3,939
Total Assets	$	820,825		$	464,997
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued liabilities	$	201,732		$	148,562
Deferred revenue, current		36,536			45,442
Total current liabilities		238,268			194,004
Deferred revenue, non-current		13,889			19,594
Operating lease liability, non-current		105,513			—
Other long-term liabilities		2,473			6,748
Total Liabilities		360,143			220,346
Stockholders’ Equity:
Common stock, $0.0001 par value		12			11
Additional paid-in capital		733,627			498,553
Accumulated other comprehensive income (loss)		4			(17	)
Accumulated deficit		(272,961	)		(253,896	)
Total stockholders’ equity		460,682			244,651
Total Liabilities and Stockholders’ Equity	$	820,825		$	464,997

See accompanying notes to condensed consolidated financial statements.

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Net Revenue:
Platform	$	167,682		$	90,341		$	301,835		$	165,418
Player		82,419			66,469			154,928			127,968
Total net revenue		250,101			156,810			456,763			293,386
Cost of Revenue:
Platform		57,980			27,328			98,344			48,994
Player		77,912			51,730			143,319			103,528
Total cost of revenue		135,892			79,058			241,663			152,522
Gross Profit:
Platform		109,702			63,013			203,491			116,424
Player		4,507			14,739			11,609			24,440
Total gross profit		114,209			77,752			215,100			140,864
Operating Expenses:
Research and development		61,994			40,196			117,732			74,322
Sales and marketing		36,568			22,259			70,375			42,577
General and administrative		26,033			15,429			48,119			30,999
Total operating expenses		124,595			77,884			236,226			147,898
Loss from Operations		(10,386	)		(132	)		(21,126	)		(7,034	)
Other Income, Net:
Interest expense		(571	)		(57	)		(669	)		(108	)
Other income, net		1,240			361			2,207			809
Total other income, net		669			304			1,538			701
Income (Loss) Before Income Taxes		(9,717	)		172			(19,588	)		(6,333	)
Income tax (benefit) expense		(384	)		(354	)		(523	)		(225	)
Net Income (Loss)	$	(9,333	)	$	526		$	(19,065	)	$	(6,108	)
Net income (loss) per share —basic	$	(0.08	)	$	0.01		$	(0.17	)	$	(0.06	)
Net income (loss) per share —diluted	$	(0.08	)	$	0.00		$	(0.17	)	$	(0.06	)

Weighted-average shares used in computing net income (loss) per share —basic		114,572			102,652			112,734			101,079
Weighted-average shares used in computing net income (loss) per share —diluted		114,572			121,698			112,734			101,079

See accompanying notes to condensed consolidated financial statements.

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	Three Months Ended					Six Months Ended
	June 30, 2019			June 30, 2018		June 30, 2019			June 30, 2018
Net Income (Loss)	$	(9,333	)	$	526	$	(19,065	)	$	(6,108	)
Other comprehensive income, net of tax:
Unrealized gain on short-term investments, net of tax		3			—		21			—
Comprehensive Net Income (Loss)	$	(9,330	)	$	526	$	(19,044	)	$	(6,108	)

See accompanying notes to condensed consolidated financial statements.

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

	Three and Six Months Ended June 30, 2019

		Common Stock					Additional Paid-in		Treasury			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
		Shares			Amount		Capital		Stock			Income / (Loss)			Deficit			Equity
Balance—March 31, 2019			113,292		$	11	$	625,221	$	(671	)	$	1		$	(263,628	)	$	360,934
Vesting of early exercised stock options			—			—		15		—			—			—			15
Issuance of common stock pursuant to equity incentive plans, net of taxes			1,867			1		9,056		—			—			—			9,057
Issuance of common stock in connection with at-the-market offering, net of issuance costs of $1.6 million			1,000			—		81,335		—			—			—			81,335
Stock-based compensation expense			—			—		18,671		—			—			—			18,671
Unrealized gain on short-term investments			—			—		—		—			3			—			3
Net loss			—			—		—		—			—			(9,333	)		(9,333	)
Balance—June 30, 2019			116,159		$	12	$	734,298	$	(671	)	$	4		$	(272,961	)	$	460,682

Balance—December 31, 2018			109,770		$	11	$	499,224	$	(671	)	$	(17	)	$	(253,896	)	$	244,651
Vesting of early exercised stock options			—			—		32		—			—			—			32
Share repurchases			(2	)		—		—		—			—			—			—
Issuance of common stock pursuant to equity incentive plans, net of taxes			4,002			1		19,147		—			—			—			19,148
Issuance of common stock in connection with at-the-market offering, net of issuance costs of $3.6 million			2,389			—		179,360		—			—			—			179,360
Stock-based compensation expense			—			—		36,535		—			—			—			36,535
Unrealized gain on short-term investments			—			—		—		—			21			—			21
Net loss			—			—		—		—			—			(19,065	)		(19,065	)
Balance—June 30, 2019			116,159		$	12	$	734,298	$	(671	)	$	4		$	(272,961	)	$	460,682

	Three and Six Months Ended June 30, 2018

		Common Stock					Additional Paid-in		Treasury			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
		Shares			Amount		Capital		Stock			Income / (Loss)			Deficit			Equity
Balance—March 31, 2018			100,968			10		445,862		(723	)		—			(251,673	)		193,476
Vesting of early exercised stock options			—			—		67		—			—			—			67
Issuance of common stock pursuant to equity incentive plans, net of taxes			4,093			1		12,386		—			—			—			12,387
Stock-based compensation expense			—			—		5,309		—			—			—			5,309
Net income			—			—		—		—			—			526