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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 September 30, 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

 

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.

 

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  

As of October 31, 2019, the registrant had 90,968,113 of Class A common stock, $0.0001 par value per share, and 26,547,304 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

 

 

 

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 (“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 integrate the business and operations of dataxu, Inc., a demand-side platform (DSP) company that we recently acquired;

 

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.

ii


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

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

385,999

 

 

$

155,564

 

Short-term investments

 

 

1,496

 

 

 

42,146

 

Restricted cash

 

 

868

 

 

 

 

Accounts receivable, net of allowances

 

 

196,044

 

 

 

183,078

 

Inventories

 

 

73,531

 

 

 

35,585

 

Prepaid expenses and other current assets

 

 

28,908

 

 

 

15,374

 

Deferred cost of revenue, current

 

 

45

 

 

 

1,188

 

Total current assets

 

 

686,891

 

 

 

432,935

 

Property and equipment, net

 

 

61,878

 

 

 

25,264

 

Operating lease right-of-use assets

 

 

142,110

 

 

 

 

Intangible assets, net

 

 

1,061

 

 

 

1,477

 

Goodwill

 

 

1,382

 

 

 

1,382

 

Other non-current assets

 

 

3,983

 

 

 

3,939

 

Total Assets

 

$

897,305

 

 

$

464,997

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

241,519

 

 

$

148,562

 

Deferred revenue, current

 

 

35,912

 

 

 

45,442

 

Total current liabilities

 

 

277,431

 

 

 

194,004

 

Deferred revenue, non-current

 

 

12,932

 

 

 

19,594

 

Operating lease liability, non-current

 

 

142,134

 

 

 

 

Other long-term liabilities

 

 

1,031

 

 

 

6,748

 

Total Liabilities

 

 

433,528

 

 

 

220,346

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value

 

 

12

 

 

 

11

 

Additional paid-in capital

 

 

761,883

 

 

 

498,553

 

Accumulated other comprehensive loss

 

 

(2

)

 

 

(17

)

Accumulated deficit

 

 

(298,116

)

 

 

(253,896

)

Total stockholders’ equity

 

 

463,777

 

 

 

244,651

 

Total Liabilities and Stockholders’ Equity

 

$

897,305

 

 

$

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

 

 

Nine Months Ended

 

 

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

Net Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platform

 

$

179,322

 

 

$

100,050

 

 

$

481,157

 

 

$

265,468

 

Player

 

 

81,606

 

 

 

73,331

 

 

 

236,534

 

 

 

201,299

 

Total net revenue

 

 

260,928

 

 

 

173,381

 

 

 

717,691

 

 

 

466,767

 

Cost of Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platform

 

 

67,075

 

 

 

29,504

 

 

 

165,419

 

 

 

78,498

 

Player

 

 

75,376

 

 

 

64,884

 

 

 

218,695

 

 

 

168,412

 

Total cost of revenue

 

 

142,451

 

 

 

94,388

 

 

 

384,114

 

 

 

246,910

 

Gross Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platform

 

 

112,247

 

 

 

70,546

 

 

 

315,738

 

 

 

186,970

 

Player

 

 

6,230

 

 

 

8,447

 

 

 

17,839

 

 

 

32,887

 

Total gross profit

 

 

118,477

 

 

 

78,993

 

 

 

333,577

 

 

 

219,857

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

68,487

 

 

 

45,370

 

 

 

186,219

 

 

 

119,692

 

Sales and marketing

 

 

46,666

 

 

 

25,603

 

 

 

117,041

 

 

 

68,180

 

General and administrative

 

 

29,873

 

 

 

19,769

 

 

 

77,992

 

 

 

50,768

 

Total operating expenses

 

 

145,026

 

 

 

90,742

 

 

 

381,252

 

 

 

238,640

 

Loss from Operations

 

 

(26,549

)

 

 

(11,749

)

 

 

(47,675

)

 

 

(18,783

)

Other Income, Net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(767

)

 

 

(112

)

 

 

(1,436

)

 

 

(220

)

Other income, net

 

 

2,065

 

 

 

2,162

 

 

 

4,272

 

 

 

2,971

 

Total other income, net

 

 

1,298

 

 

 

2,050

 

 

 

2,836

 

 

 

2,751

 

Loss Before Income Taxes

 

 

(25,251

)

 

 

(9,699

)

 

 

(44,839

)

 

 

(16,032

)

Income tax benefit

 

 

(96

)

 

 

(172

)

 

 

(619

)

 

 

(397

)

Net Loss

 

$

(25,155

)

 

$

(9,527

)

 

$

(44,220

)

 

$

(15,635

)

Net loss per share —basic and diluted

 

$

(0.22

)

 

$

(0.09

)

 

$

(0.39

)

 

$

(0.15

)

Weighted-average shares used in computing net

  loss per share —basic and diluted

 

 

116,681

 

 

 

106,884

 

 

 

114,064

 

 

 

103,035

 

 

See accompanying notes to condensed consolidated financial statements.

2


ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

Net Loss

 

$

(25,155

)

 

$

(9,527

)

 

$

(44,220

)

 

$

(15,635

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on short-term investments, net of tax

 

 

(6

)

 

 

(7

)

 

 

15

 

 

 

(7

)

Comprehensive Net Loss

 

$

(25,161

)

 

$

(9,534

)

 

$

(44,205

)

 

$

(15,642

)

 

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—June 30, 2019

 

116,159

 

 

$

12

 

 

$

734,298

 

 

$

(671

)

 

$

4

 

 

$

(272,961

)

 

$

460,682

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

20

 

Issuance of common stock pursuant to equity

     incentive plans, net of taxes

 

1,279

 

 

 

 

 

 

5,618

 

 

 

 

 

 

 

 

 

 

 

 

5,618

 

Stock-based compensation expense

 

 

 

 

 

 

 

22,618

 

 

 

 

 

 

 

 

 

 

 

 

22,618

 

Unrealized gain (loss) on short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

(6

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,155

)

 

 

(25,155

)

Balance—September 30, 2019

 

117,438

 

 

$

12

 

 

$

762,554

 

 

$

(671

)

 

$

(2

)

 

$

(298,116

)

 

$

463,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—December 31, 2018

 

109,770

 

 

$

11

 

 

$

499,224

 

 

$

(671

)

 

$

(17

)

 

$

(253,896

)

 

$

244,651

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

52

 

 

 

 

 

 

 

 

 

 

 

 

52

 

Share repurchases

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock pursuant to equity

      incentive plans, net of taxes

 

5,281

 

 

 

1

 

 

 

24,765

 

 

 

 

 

 

 

 

 

 

 

 

24,766

 

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

 

 

 

 

 

 

 

59,153

 

 

 

 

 

 

 

 

 

 

 

 

59,153

 

Unrealized gain (loss) on short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,220

)

 

 

(44,220

)

Balance—September 30, 2019

 

117,438

 

 

$

12

 

 

$

762,554

 

 

$

(671

)

 

$

(2

)

 

$

(298,116

)

 

$

463,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Treasury

 

 

Accumulated Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Income / (Loss)

 

 

Deficit

 

 

Equity

 

Balance—June 30, 2018

 

105,061

 

 

 

11

 

 

 

463,624

 

 

 

(723

)

 

 

 

 

 

(251,147

)

 

 

211,765

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

40

 

 

 

 

 

 

 

 

 

 

 

 

40

 

Issuance of common stock pursuant to equity

      incentive plans, net of taxes

 

3,738

 

 

 

 

 

 

8,123

 

 

 

(17

)

 

 

 

 

 

 

 

 

8,106

 

Stock-based compensation expense

 

 

 

 

 

 

 

11,499

 

 

 

 

 

 

 

 

 

 

 

 

11,499

 

Unrealized gain (loss) on short-term investments

 

 

 

 

 

 

 

-

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,527

)

 

 

(9,527

)

Balance—September 30, 2018

 

108,799

 

 

$

11

 

 

$

483,286

 

 

$

(740

)

 

$

(7

)

 

$

(260,674

)

 

$

221,876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—December 31, 2017

 

99,157

 

 

 

10

 

 

 

436,278

 

 

 

(671

)

 

 

 

 

 

(283,338

)

 

 

152,279

 

Vesting of early exercised stock options