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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 March 31, 2020

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.)

1155 Coleman Avenue

San Jose, California 95110

(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 April 30, 2020, the registrant had 101,747,842 of Class A common stock, $0.0001 par value per share, and 18,971,323 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 Statements 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

 

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4.

Controls and Procedures

 

32

PART II.

OTHER INFORMATION

 

34

Item 1.

Legal Proceedings

 

34

Item 1A.

Risk Factors

 

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

67

Item 3.

Defaults Upon Senior Securities

 

67

Item 4.

Mine Safety Disclosures

 

67

Item 5.

Other Information

 

67

Item 6.

Exhibits

 

68

Signatures

 

69

 

 

 

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. For example, statements in this Form 10-Q regarding the potential future impact of the COVID-19 pandemic on the Company’s business and results of 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;

 

the impact of the COVID-19 pandemic on our business, operations, and the markets and communities in which we and our advertisers, partners, manufacturers, suppliers and users operate;

 

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

 

our ability to attract and retain advertisers;

 

our ability to attract and retain TV brands and service operators to license and 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 and 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;

 

our abilities to address potential and actual security breaches and system failures involving our products, systems and operations;

 

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 and the California Consumer Privacy Act.

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

ii


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

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

588,294

 

 

$

515,479

 

Restricted cash

 

 

1,539

 

 

 

1,854

 

Accounts receivable, net of allowances

 

 

295,361

 

 

 

332,673

 

Inventories

 

 

43,978

 

 

 

49,714

 

Prepaid expenses and other current assets

 

 

39,432

 

 

 

25,943

 

Total current assets

 

 

968,604

 

 

 

925,663

 

Property and equipment, net

 

 

148,064

 

 

 

103,262

 

Operating lease right-of-use assets

 

 

273,305

 

 

 

283,291

 

Intangible assets, net

 

 

72,913

 

 

 

76,668

 

Goodwill

 

 

73,058

 

 

 

74,116

 

Other non-current assets

 

 

5,765

 

 

 

7,234

 

Total Assets

 

$

1,541,709

 

 

$

1,470,234

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

328,873

 

 

$

313,574

 

Current portion of long-term debt

 

 

4,750

 

 

 

4,866

 

Deferred revenue, current

 

 

38,457

 

 

 

39,861

 

Total current liabilities

 

 

372,080

 

 

 

358,301

 

Long-term debt, non-current

 

 

162,626

 

 

 

94,742

 

Deferred revenue, non-current

 

 

14,795

 

 

 

15,370

 

Operating lease liability, non-current

 

 

312,628

 

 

 

301,694

 

Other long-term liabilities

 

 

3,667

 

 

 

1,701

 

Total Liabilities

 

 

865,796

 

 

 

771,808

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value

 

 

12

 

 

 

12

 

Additional paid-in capital

 

 

1,045,383

 

 

 

1,012,218

 

Accumulated other comprehensive loss

 

 

29

 

 

 

29

 

Accumulated deficit

 

 

(369,511

)

 

 

(313,833

)

Total stockholders’ equity

 

 

675,913

 

 

 

698,426

 

Total Liabilities and Stockholders’ Equity

 

$

1,541,709

 

 

$

1,470,234

 

 

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,

2020

 

 

March 31,

2019

 

Net Revenue:

 

 

 

 

 

 

 

 

Platform

 

$

232,557

 

 

$

134,153

 

Player

 

 

88,209

 

 

 

72,509

 

Total net revenue

 

 

320,766

 

 

 

206,662

 

Cost of Revenue:

 

 

 

 

 

 

 

 

Platform

 

 

101,936

 

 

 

40,364

 

Player

 

 

77,729

 

 

 

65,407

 

Total cost of revenue

 

 

179,665

 

 

 

105,771

 

Gross Profit:

 

 

 

 

 

 

 

 

Platform

 

 

130,621

 

 

 

93,789

 

Player

 

 

10,480

 

 

 

7,102

 

Total gross profit

 

 

141,101

 

 

 

100,891

 

Operating Expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

88,278

 

 

 

55,738

 

Sales and marketing

 

 

68,248

 

 

 

33,807

 

General and administrative

 

 

39,740

 

 

 

22,086

 

Total operating expenses

 

 

196,266

 

 

 

111,631

 

Loss from Operations

 

 

(55,165

)

 

 

(10,740

)

Other Income, Net:

 

 

 

 

 

 

 

 

Interest expense

 

 

(863

)

 

 

(98

)

Other income, net

 

 

1,261

 

 

 

967

 

Total other income, net

 

 

398

 

 

 

869

 

Loss Before Income Taxes

 

 

(54,767

)

 

 

(9,871

)

Income tax benefit

 

 

(155

)

 

 

(139

)

Net Loss

 

$

(54,612

)

 

$

(9,732

)

Net loss per share —basic and diluted

 

$

(0.45

)

 

$

(0.09

)

Weighted-average shares used in computing net

  loss per share —basic and diluted

 

 

120,180

 

 

 

110,877

 

 

See accompanying notes to condensed consolidated financial statements.

2


ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

2020

 

 

March 31,

2019

 

Net Loss

 

$

(54,612

)

 

$

(9,732

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Unrealized gain on short-term investments, net of tax

 

 

 

 

 

18

 

Comprehensive Net Loss

 

$

(54,612

)

 

$

(9,714

)

 

See accompanying notes to condensed consolidated financial statements.

3


ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS 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, 2019

 

119,897

 

 

$

12

 

 

$

1,012,889

 

 

$

(671

)

 

$

29

 

 

$

(313,833

)

 

$

698,426

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

17

 

Issuance of common stock pursuant to equity

      incentive plans, net of taxes

 

760

 

 

 

 

 

 

2,743

 

 

 

 

 

 

 

 

 

 

 

 

2,743

 

Stock-based compensation expense

 

 

 

 

 

 

 

30,405

 

 

 

 

 

 

 

 

 

 

 

 

30,405

 

Adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,066

)

 

 

(1,066

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54,612

)

 

 

(54,612

)

Balance—March 31, 2020

 

120,657

 

 

$

12

 

 

$

1,046,054

 

 

$

(671

)

 

$

29

 

 

$

(369,511

)

 

$

675,913

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

2020

 

 

March 31,

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(54,612

)

 

$

(9,732

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,448

 

 

 

2,849

 

Stock-based compensation expense

 

 

30,405

 

 

 

17,864

 

Provision for doubtful accounts

 

 

3,788

 

 

 

181

 

Non-cash interest expense

 

 

 

 

 

344

 

Amortization of premiums on short-term investments

 

 

 

 

 

(182

)

Other items, net

 

 

(14

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

32,458

 

 

 

8,702

 

Inventories

 

 

5,736

 

 

 

2,187

 

Prepaid expenses and other current assets

 

 

(13,814

)

 

 

(8,116

)

Operating lease right-of-use assets

 

 

9,213

 

 

 

3,440

 

Deferred cost of revenue

 

 

 

 

 

552

 

Other noncurrent assets

 

 

1,469

 

 

 

685

 

Accounts payable and accrued liabilities

 

 

10,117

 

 

 

(18,606

)

Operating lease liabilities

 

 

13,560

 

 

 

(2,491

)

Other long-term liabilities

 

 

1,166

 

 

 

(581

)

Deferred revenue

 

 

(1,979

)

 

 

(7,800

)

Net cash provided by (used in) operating activities

 

 

45,941

 

 

 

(10,704

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(45,317

)

 

 

(5,071

)

Proceeds from resolution of purchase acquisition contingencies

 

 

1,058

 

 

 

 

Purchases of short-term investments

 

 

 

 

 

(12,365

)

Sales/maturities of short-term investments

 

 

 

 

 

27,310

 

Net cash provided by (used in) investing activities

 

 

(44,259

)

 

 

9,874

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowing, net of issuance costs

 

 

69,325

 

 

 

 

Repayments made on borrowings

 

 

(1,250

)

 

 

 

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

 

 

 

 

 

98,025

 

Proceeds from equity issued under incentive plans

 

 

2,743

 

 

 

10,091

 

Net cash provided by financing activities

 

 

70,818

 

 

 

108,116

 

Net Increase in cash, cash equivalents and restricted cash

 

 

72,500

 

 

 

107,286

 

Cash, cash equivalents and restricted cash—Beginning of period

 

 

517,333

 

 

 

155,564

 

Cash, cash equivalents and restricted cash—End of period

 

$

589,833

 

 

$

262,850

 

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

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

588,294

 

 

 

236,500

 

Restricted cash

 

 

1,539

 

 

 

26,350

 

Cash, cash equivalents and restricted cash—End of period

 

$

589,833

 

 

$

262,850

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,067

 

 

 

542

 

Cash paid for income taxes

 

$

238

 

 

$

557

 

Supplemental disclosures of non-cash investing and financing

   activities:

 

 

 

 

 

 

 

 

Unpaid portion of property and equipment purchases

 

$

14,148

 

 

$

4,769

 

Unpaid portion of purchased intangibles

 

$

400

 

 

$

 

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 and TV episodes, as well as live sports, music, news and more. The Company operates in two reportable segments and generates platform revenue from advertising, content distribution, audience development and billing services and player revenue from the sale of streaming players and audio products.

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, 2019, filed with the SEC on March 2, 2020 (the “Annual Report”).

The condensed consolidated balance sheet as of December 31, 2019 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. 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, 2020 are not necessarily indicative of the operating results to be expected for the full year or any future periods.

The Company adopted Accounting Standard Codification Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, (“ASC 326”) on January 1, 2020. There are no other material changes to the significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report.

Credit losses for accounts receivable: The Company maintains an allowance for doubtful accounts to reserve for expected uncollectible accounts receivable. The Company assess collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when the Company identifies specific customers with known disputes or collectability issues. The Company regularly reviews the allowance by considering historical collectability based on past due status, credit quality, and makes judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company also considers customer-specific information and current economic conditions that may affect a customer’s ability to pay.

For the three months ended March 31, 2020, the Company’s assessment of its accounts receivable considered the business and market disruptions caused by the novel coronavirus (“COVID-19”) and emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts in credit trends can be difficult to predict causing volatility that may have a material impact on our allowance for credit losses. See Note 6, for the detailed activity in allowance for doubtful accounts as of March 31, 2020 and December 31, 2019.

Use of Estimates

The preparation of the Company’s 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, liabilities, net revenue and expenses. Significant items subject to such estimates and assumptions include: for revenue recognition,

6


determining the nature and timing of satisfaction of performance obligations, estimating variable consideration, determining the stand-alone selling prices of performance obligations, gross versus net revenue recognition, evaluation of customer versus vendor relationships, and other obligations such as sales return reserves and customer incentive programs; the fair value or impairment of goodwill and intangible assets; useful lives of tangible and intangible assets; allowances for doubtful accounts or credit losses; 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 and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the recent outbreak of COVID-19.

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)

The comprehensive loss is equal to the net loss for the three months ended March 31, 2020. Comprehensive loss includes unrealized gains on the Company’s short-term investments for the three months ended March 31, 2019.

Concentrations

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, cash equivalents and accounts receivable. As of March 31, 2020, two financial institutions managed 57% and 43% of the Company’s cash and cash equivalents balance, respectively. As of December 31, 2019, two financial institutions managed 65% and 34% of the Company’s cash and cash equivalents balance, respectively.

The Company did not have any customers accounting for 10% or more of the Company’s net accounts receivable as of March 31, 2020 and December 31, 2019.

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

 

 

 

Three Months Ended

 

 

 

March 31,

2020

 

 

March 31,

2019

 

Customer B

 

*

 

 

 

11

%

Customer C

 

 

14

%

 

 

12

%

 

* 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, 2020, the Company had restricted cash of $1.5 million. As of December 31, 2019, the Company had restricted cash of $1.9 million.

Content Licensing

The Company licenses content for viewing on The Roku Channel. The licensing arrangements can be for a fixed fee and/or advertising revenue share with specific windows of availability. The Company capitalizes the content fees and records a corresponding liability when the license period begins, the cost of the content is known, 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, 2020 and December 31, 2019, licensed content that met these requirements were $14.5 million and $1.7 million, respectively, and is recorded in “Prepaid expenses and other current assets” and “Accrued Liabilities.” The

7


increase in the content asset and liability is due to a change in the mix of content licensed and the period over which such content is available for streaming.

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance amended 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.

On January 1, 2020, the Company adopted this guidance using the modified retrospective adoption method and recorded a cumulative-effect adjustment to the beginning balance of accumulated deficit of approximately $1.1 million. 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. This impact mainly relates to credit losses recognized on the Company’s doubtful accounts. As the Company did not have any available-for-sale debt securities as of the adoption date, there was no additional impact to accumulated deficit.

The Company also adopted the following ASUs effective January 1, 2020, none of which had a material impact on the Company’s financial position or results of operation.

ASU

Description

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

ASU 2018-13

Fair Value Measurements (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

ASU 2017-04

Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

 

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The guidance is effective for fiscal years beginning after December 15, 2020, including interim reporting 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 March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company is currently evaluating the impact of the transition from LIBOR to alternative reference rates.

3. REVENUE

Revenue disaggregation:

The Company’s disaggregated revenues are 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


Contract balances:

Contract balances include the following (in thousands):

 

 

As of

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Accounts receivable, net

 

$

295,361

 

 

$

332,673

 

Contract assets (included in Prepaid expenses and other current assets)

 

$

4,753

 

 

$

3,588

 

 

 

 

 

 

 

 

 

 

Deferred revenue:

 

 

 

 

 

 

 

 

Current

 

 

38,457

 

 

 

39,861

 

Non-current

 

 

14,795

 

 

 

15,370

 

Total deferred revenue

 

$

53,252

 

 

$

55,231

 

Accounts receivable are recorded at the amount invoiced, net of an allowance for doubtful accounts, sales returns, and sales incentives. Payment terms can vary by customer and contract.

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets are created when invoicing occurs subsequent to revenue recognition. Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional. Contract liabilities are included in deferred revenue and reflect consideration invoiced prior to the completion of performance obligations and revenue recognition.

Contract assets increased by approximately $1.2 million during the three months ended March 31, 2020 primarily due to an increase in the growth of platform revenue combined with the timing of billing which falls into a subsequent period. Deferred revenue decreased by approximately $2.0 million during the three months ended March 31, 2020 due to the timing of fulfillment of performance obligations.

During the three months ended March 31, 2020, the Company recognized revenue of approximately $20.5 million from the amounts deferred as of December 31, 2019. During the three months ended March 31, 2019, the Company recognized revenue of approximately $30.7 million from the amounts deferred as of December 31, 2018.

Revenue Allocated to Future Performance Obligations:

Revenue allocated to remaining or unsatisfied performance obligations represents estimated 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 $208.7 million as of March 31, 2020 of which we expect to recognize approximately 57% over the next 12 months and the remainder thereafter.

4. business combination

On November 8, 2019, the Company acquired all outstanding shares of dataxu, Inc., (“dataxu”) according to the terms and conditions of the Agreement and Plan of Merger, dated as of October 22, 2019 (the “Merger Agreement”). dataxu is a demand-side platform (“DSP”) that enables marketers to plan and buy video ad campaigns. The acquisition of dataxu’s platform complements the Company’s OTT advertising platform and enables marketers to access a single, data-driven software solution to plan, buy, and optimize their ad spend across TV and OTT providers.

The total purchase consideration for dataxu was $147.3 million, which consisted of $77.6 million in cash and $