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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, 2021

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, 2021, the registrant had 115,199,428 of Class A common stock, $0.0001 par value per share, and 17,199,155 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 Stockholders’ Equity

 

3

 

Condensed Consolidated Statements of Cash Flows

 

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

5

Item 2.

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

 

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

31

Item 4.

Controls and Procedures

 

31

PART II.

OTHER INFORMATION

 

32

Item 1.

Legal Proceedings

 

32

Item 1A.

Risk Factors

 

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

69

Item 3.

Defaults Upon Senior Securities

 

69

Item 4.

Mine Safety Disclosures

 

69

Item 5.

Other Information

 

69

Item 6.

Exhibits

 

70

Signatures

 

71

 

 

 

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

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;

 

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

 

our ability to integrate acquired businesses, products and technologies;

 

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 ability 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.

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), SEC filings, webcasts, press releases, and conference calls. We use these mediums to communicate with investors and the general public about our company, our products and services, and other issues. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors, the media and others interested in our company to review the information that we post on our investor relations website.

Roku, the Roku logo and other trade names, trademarks or service marks of Roku appearing in this report are the property of Roku. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders.

 

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

ROKU, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

 

 

As of

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,077,514

 

 

$

1,092,815

 

Restricted cash

 

 

83

 

 

 

434

 

Accounts receivable, net of allowances of $28,256 and $41,236 as of

 

 

496,173

 

 

 

523,852

 

March 31, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

 

 

Inventories

 

 

41,246

 

 

 

53,895

 

Prepaid expenses and other current assets

 

 

134,375

 

 

 

26,644

 

Total current assets

 

 

2,749,391

 

 

 

1,697,640

 

Property and equipment, net

 

 

155,001

 

 

 

155,197

 

Operating lease right-of-use assets

 

 

265,237

 

 

 

266,197

 

Intangible assets, net

 

 

79,255

 

 

 

62,181

 

Goodwill

 

 

125,684

 

 

 

73,058

 

Other non-current assets

 

 

112,577

 

 

 

16,269

 

Total Assets

 

$

3,487,145

 

 

$

2,270,542

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

96,468

 

 

$

112,314

 

Accrued liabilities

 

 

477,402

 

 

 

347,668

 

Current portion of long-term debt

 

 

6,125

 

 

 

4,874

 

Deferred revenue, current portion

 

 

48,121

 

 

 

55,465

 

Total current liabilities

 

 

628,116

 

 

 

520,321

 

Long-term debt, non-current portion

 

 

87,398

 

 

 

89,868

 

Deferred revenue, non-current portion

 

 

22,618

 

 

 

21,283

 

Operating lease liability, non-current portion

 

 

303,159

 

 

 

307,936

 

Other long-term liabilities

 

 

4,542

 

 

 

3,119

 

Total Liabilities

 

 

1,045,833

 

 

 

942,527

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value

 

 

13

 

 

 

13

 

Additional paid-in capital

 

 

2,697,380

 

 

 

1,660,379

 

Accumulated other comprehensive income

 

 

29

 

 

 

29

 

Accumulated deficit

 

 

(256,110

)

 

 

(332,406

)

Total stockholders’ equity

 

 

2,441,312

 

 

 

1,328,015

 

Total Liabilities and Stockholders’ Equity

 

$

3,487,145

 

 

$

2,270,542

 

 

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,

2021

 

 

March 31,

2020

 

Net Revenue:

 

 

 

 

 

 

 

 

Platform

 

$

466,526

 

 

$

232,557

 

Player

 

 

107,657

 

 

 

88,209

 

Total net revenue

 

 

574,183

 

 

 

320,766

 

Cost of Revenue:

 

 

 

 

 

 

 

 

Platform

 

 

154,590

 

 

 

101,936

 

Player

 

 

92,822

 

 

 

77,729

 

Total cost of revenue

 

 

247,412

 

 

 

179,665

 

Gross Profit:

 

 

 

 

 

 

 

 

Platform

 

 

311,936

 

 

 

130,621

 

Player

 

 

14,835

 

 

 

10,480

 

Total gross profit

 

 

326,771

 

 

 

141,101

 

Operating Expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

101,581

 

 

 

88,278

 

Sales and marketing

 

 

88,873

 

 

 

68,248

 

General and administrative

 

 

60,511

 

 

 

39,740

 

Total operating expenses

 

 

250,965

 

 

 

196,266

 

Income (Loss) from Operations

 

 

75,806

 

 

 

(55,165

)

Other Income (Expense), Net:

 

 

 

 

 

 

 

 

Interest expense

 

 

(742

)

 

 

(863

)

Other income (expense), net

 

 

441

 

 

 

1,261

 

Total other income (expense), net

 

 

(301

)

 

 

398

 

Income (Loss) Before Income Taxes

 

 

75,505

 

 

 

(54,767

)

Income tax (benefit) expense

 

 

(791

)

 

 

(155

)

Net Income (Loss)

 

$

76,296

 

 

$

(54,612

)

 

 

 

 

 

 

 

 

 

Net income (loss) per share — basic

 

$

0.59

 

 

$

(0.45

)

Net income (loss) per share — diluted

 

$

0.54

 

 

$

(0.45

)

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding — basic

 

 

129,674

 

 

 

120,180

 

Weighted-average common shares outstanding — diluted

 

 

140,328

 

 

 

120,180

 

 

See accompanying notes to condensed consolidated financial statements.

2


ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Other Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—December 31, 2020

 

 

128,004

 

 

 

13

 

 

 

1,660,379

 

 

 

29

 

 

 

(332,406

)

 

 

1,328,015

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Issuance of common stock pursuant to equity incentive plans

 

 

1,663

 

 

 

 

 

 

6,705

 

 

 

 

 

 

 

 

 

6,705

 

Issuance of common stock in connection with at-the-market offering, net of issuance costs of $10.4 million

 

 

2,637

 

 

 

 

 

 

989,615

 

 

 

 

 

 

 

 

 

989,615

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

40,677

 

 

 

 

 

 

 

 

 

40,677

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76,296

 

 

 

76,296

 

Balance—March 31, 2021

 

 

132,304

 

 

$

13

 

 

$

2,697,380

 

 

$

29

 

 

$

(256,110

)

 

$

2,441,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—December 31, 2019

 

 

119,897

 

 

 

12

 

 

 

1,012,218

 

 

 

29

 

 

 

(313,833

)

 

 

698,426

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Issuance of common stock pursuant to equity incentive plans

 

 

760

 

 

 

 

 

 

2,743

 

 

 

 

 

 

 

 

 

2,743

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

30,405

 

 

 

 

 

 

 

 

 

30,405

 

Adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,066

)

 

 

(1,066

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54,612

)

 

 

(54,612

)

Balance—March 31, 2020

 

 

120,657

 

 

$

12

 

 

$

1,045,383

 

 

$

29

 

 

$

(369,511

)

 

$

675,913

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

3


ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Three Months Ended

 

 

 

March 31,

2021

 

 

March 31,

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

76,296

 

 

$

(54,612

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

9,605

 

 

 

8,448

 

Stock-based compensation expense

 

 

40,537

 

 

 

30,405

 

Amortization of right-of-use assets

 

 

6,458

 

 

 

9,213

 

Amortization of content assets

 

 

9,818

 

 

 

6,123

 

Provision for doubtful accounts

 

 

(54

)

 

 

3,788

 

Other items, net

 

 

31

 

 

 

(14

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

32,608

 

 

 

32,458

 

Inventories

 

 

12,649

 

 

 

5,736

 

Prepaid expenses and other current assets

 

 

(19,001

)

 

 

(967

)

Other non-current assets

 

 

(60,484

)

 

 

1,469

 

Accounts payable

 

 

(18,857

)

 

 

(13,650

)

Accrued liabilities

 

 

29,052

 

 

 

4,797

 

Operating lease liabilities

 

 

(12,436

)

 

 

13,560

 

Other long-term liabilities

 

 

548

 

 

 

1,166

 

Deferred revenue

 

 

(10,971

)

 

 

(1,979

)

Net cash provided by operating activities

 

 

95,799

 

 

 

45,941

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,717

)

 

 

(45,317

)

Acquisitions of businesses, net of cash acquired

 

 

(102,804

)

 

 

 

Proceeds from escrows associated with acquisition

 

 

 

 

 

1,058

 

Net cash used in investing activities

 

 

(106,521

)

 

 

(44,259

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

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

 

 

989,615

 

 

 

 

Proceeds from borrowings, net of issuance costs

 

 

 

 

 

69,325

 

Repayments of borrowings

 

 

(1,250

)

 

 

(1,250

)

Proceeds from equity issued under incentive plans

 

 

6,705

 

 

 

2,743

 

Net cash provided by financing activities

 

 

995,070

 

 

 

70,818

 

Net increase in cash, cash equivalents and restricted cash

 

 

984,348

 

 

 

72,500

 

Cash, cash equivalents and restricted cash —Beginning of period

 

 

1,093,249

 

 

 

517,333

 

Cash, cash equivalents and restricted cash —End of period

 

$

2,077,597

 

 

$

589,833

 

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

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

2,077,514

 

 

 

588,294

 

Restricted cash

 

 

83

 

 

 

1,539

 

Cash, cash equivalents and restricted cash —End of period

 

$

2,077,597

 

 

$

589,833

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

647

 

 

$

1,067

 

Cash paid for income taxes

 

$

277

 

 

$

238

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Unpaid portion of property and equipment purchases

 

$

2,860

 

 

$

14,148

 

Unpaid portion of acquisition related expenses

 

$

1,595

 

 

$

 

Unpaid portion of purchased intangibles

 

$

 

 

$

400

 

Unpaid portion of at-the-market offering costs

 

$

105

 

 

$

 

See accompanying notes to condensed consolidated financial statements.

4


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, 2020, filed with the SEC on February 26, 2021 (the “Annual Report”).

The condensed consolidated balance sheet as of December 31, 2020 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, 2021 are not necessarily indicative of the operating results to be expected for the full year or any future periods.

Use of Estimates

The preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments, 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, 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 recognition, evaluation of customer versus vendor relationships, and other obligations such as sales return reserves and sales incentive programs; the impairment of goodwill and intangible assets; useful lives of tangible and intangible assets; allowances for doubtful accounts; the valuation of deferred income tax assets; 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 consolidated financial statements, which include the accounts of Roku, Inc. and its wholly-owned subsidiaries, have been prepared in conformity with U.S. GAAP. All intercompany accounts and transactions have been eliminated in consolidation.

Reclassification of Prior Year Presentation

Certain prior period amounts within cash flow from operations in the statement of cash flows, have been reclassified to conform to current period presentation. These reclassifications had no effect on net cash provided by operating activities for any period reported.

5


Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of March 31, 2021, two financial institutions managed 61% and 21%, respectively, of the Company’s cash and cash equivalents balance. As of December 31, 2020, two financial institutions managed 46% and 26%, respectively, of the Company’s cash and cash equivalents balance.

Accounts Receivable, net

Accounts receivable are typically unsecured and are derived from revenue earned from customers. They are stated at invoice value less estimated allowances for sales returns, sales incentives and doubtful accounts. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses and doubtful accounts. The Company considers historical experience, ongoing promotional activities, historical claim rate and other factors to determine the allowances for sales returns and sales incentives.

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

 

 

 

Three Months Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

Beginning balance

 

$

(5,912

)

 

$

(6,550

)

Charged to revenue

 

 

(2,526

)

 

 

(2,727

)

Utilization of sales return reserve

 

 

4,670

 

 

 

4,609

 

Ending balance

 

$

(3,768

)

 

$

(4,668

)

 

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

 

 

 

Three Months Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

Beginning balance

 

$

(30,838

)

 

$

(19,476

)

Charged to revenue

 

 

(12,618

)

 

 

(9,409

)

Utilization of sales incentive reserve

 

 

23,320

 

 

 

19,612

 

Ending balance

 

$

(20,136

)

 

$

(9,273

)

 

Allowance for Doubtful Accounts: Allowance for doubtful accounts consists of the following activities (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

Balance, beginning of period

 

$

(4,181

)

 

$

(1,140

)

Impact of adoption of ASU 2016-13

 

 

 

 

 

(1,066

)

Adjusted balance, beginning of period

 

 

(4,181

)

 

 

(2,206

)

Provision for doubtful accounts

 

 

54

 

 

 

(3,788

)

Adjustments for recovery and write-off

 

 

 

 

 

1,035

 

Balance, end of period

 

$

(4,127

)

 

$

(4,959

)

 

The Company did not have any customer that accounted for more than 10% of its accounts receivable, net balance as of March 31, 2021. Customer H accounted for 11% of the accounts receivable, net balance as of December 31, 2020.

Recently Adopted Accounting Standards

On January 1, 2021, the Company adopted the guidance issued in Accounting Standards Updates (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplifies areas such as franchise taxes, step-up in tax basis of goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

 

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships, and other transactions

6


that reference London Interbank Offered Rate (“LIBOR”) that is expected to be discontinued, subject to meeting certain criteria. The guidance is effective as of March 12, 2020 through December 31, 2022. The Company made a policy election in the second quarter of 2020 to elect a different reference rate for the Credit Agreement (as defined below) when LIBOR is discontinued.

3. REVENUE

The Company’s disaggregated revenues are represented by the two reportable segments discussed in Note 15.

The contract balances include the following (in thousands):

 

 

As of

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Accounts receivable, net

 

$

496,173

 

 

$

523,852

 

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

 

 

28,684

 

 

 

7,431

 

 

 

 

 

 

 

 

 

 

Deferred revenue, current portion

 

 

48,121

 

 

 

55,465

 

Deferred revenue, non-current portion

 

 

22,618

 

 

 

21,283

 

Total deferred revenue

 

$

70,739

 

 

$

76,748

 

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. The Company’s contract assets are generally current in nature and are included in Prepaid expenses and other current assets. Contract assets increased by approximately $21.3 million during the three months ended March 31, 2021 primarily due to an increase in the growth of platform revenue combined with the timing of billing which falls into a subsequent period.

Contract liabilities are included in deferred revenue and reflect consideration invoiced prior to the completion of performance obligations and revenue recognition. Deferred revenue decreased by approximately $6.0 million during the three months ended March 31, 2021 due to the timing of fulfillment of performance obligations related to platform revenue contracts.

Revenue recognized during the three months ended March 31, 2021, from amounts included in deferred revenue as of December 31, 2020 was $26.2 million. Revenue recognized during the three months ended March 31, 2020, from amounts included in deferred revenue as of December 31, 2019 was $20.5 million.

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 $900.8 million as of March 31, 2021 of which we expect to recognize approximately 47% over the next 12 months and the remainder thereafter.

The Company recognized $29.0 million and $2.7 million during the three months ended March 31, 2021 and 2020, respectively, from performance obligations that were satisfied in previous periods due to the changes in transaction price of its revenue contracts.

Customer H accounted for 11% of the total net revenue during the three months ended March 31, 2021, and Customer C accounted for 14% of the total net revenue during the three months ended March 31, 2020.

7


4. business combination

On March 19, 2021, the Company acquired all outstanding shares of TOH Intermediate Holdings, LLC (“This Old House”) according to the terms and conditions of the Equity Purchase Agreement. The Company acquired the This Old House business, as the Company believes the content aligns with The Roku Channel’s ad-supported growth strategy.

The total purchase consideration for This Old House was $97.8 million, paid entirely in cash. The Company incurred $2.2 million in acquisition related expenses and has recorded them in General and administrative expenses in the condensed consolidated statement of operations.

The Company is still in the process of finalizing the fair value of the assets and liabilities acquired. The purchase price allocation below is preliminary in nature. The estimates and assumptions regarding the fair value of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income taxes, and goodwill are subject to change as the Company obtains additional information during the measurement period, which usually lasts for up to one year from the acquisition date.

The preliminary allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows (in thousands):

Assets acquired

 

Fair Values

 

Cash and cash equivalents

 

$

7

 

Accounts receivable

 

 

4,875

 

Prepaid and other current assets

 

 

7,310

 

Property and equipment, net

 

 

307

 

Intangible assets:

 

 

 

 

Tradename

 

 

20,000

 

Customer relationships

 

 

700

 

Goodwill

 

 

47,626

 

Operating lease right-of-use assets

 

 

5,498

 

Other long-term assets

 

 

23,487

 

Total assets acquired

 

 

109,810

 

Liabilities assumed

 

 

 

 

Accounts payable and accrued liabilities

 

 

(2,747

)

Deferred revenue, current

 

 

(4,146

)

Operating lease liabilities

 

 

(4,262

)

Deferred revenue, non-current

 

 

(816

)

Other long-term liabilities

 

 

(28

)

Total liabilities assumed

 

 

(11,999

)

Total purchase consideration

 

$

97,811

 

Other long-term assets include $22.5 million of content assets acquired. The fair value of the content assets has been estimated using the income approach. Amortization expense related to this content will be recorded on an accelerated basis according to the pattern of monetization. From the date of acquisition to March 31, 2021, amortization expense is not material and is recorded in Cost of revenue, platform.

The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. Goodwill is primarily attributable to expected synergies in our advertising offerings as we bring more free ad-supported content for our users. The goodwill recorded is deductible for tax purposes.

The fair value of the tradename has been estimated using the relief-from-royalty method. The key valuation assumptions include the Company's estimates of expected future revenue and royalty rate. The Company amortizes the fair value of the tradename on a straight-line basis over its useful life.

8


The valuation of the intangible assets acquired from This Old House along with their estimated useful lives, is as follows (in thousands):

 

 

Estimated Fair Value

 

 

Estimated Useful Lives

(in years)

Tradename

 

$

20,000

 

 

10

Customer relationships

 

 

700

 

 

4

Estimated fair value of acquired intangible assets

 

$

20,700

 

 

 

The revenue, cost of revenue and gross profit recorded by the Company in its condensed consolidated statement of operations from the acquisition date of March 19, 2021 to March 31, 2021 are not material.

5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of purchase consideration in a business combination over the fair value of tangible and intangible assets acquired net of the liabilities assumed. All goodwill relates to the Company’s platform segment.

The following table reflects the carrying value of goodwill (in thousands):

 

 

 

Carrying Value

 

Balance as of December 31, 2020

 

$

73,058

 

Additions:

 

 

 

 

This Old House acquisition

 

 

47,626

 

Other immaterial acquisitions

 

 

5,000

 

Balance as of March 31, 2021

 

$

125,684

 

 

Intangible Assets

The following table is the summary of Company’s intangible assets (in thousands):

 

 

 

As of March 31, 2021

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Weighted-Average Useful Lives

(in years)

 

Developed technology

 

$

62,367

 

 

$

(16,082

)

 

$

46,285

 

 

 

5.9

 

Customer relationships

 

 

14,100

 

 

 

(4,752

)

 

 

9,348

 

 

 

4.0

 

Tradename

 

 

20,400

 

 

 

(466

)

 

 

19,934

 

 

 

9.8

 

Patents

 

 

4,076

 

 

 

(388

)

 

 

3,688

 

 

 

14.0

 

Intangible assets

 

$

100,943

 

 

$

(21,688

)

 

$

79,255

 

 

 

 

 

 

 

 

As of December 31, 2020

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Weighted-Average Useful Lives

(in years)

 

Developed technology

 

$

62,367

 

 

$

(13,439

)

 

$

48,928

 

 

 

5.9

 

Customer relationships

 

 

13,400

 

 

 

(3,908

)

 

 

9,492

 

 

 

4.0

 

Tradename

 

 

400

 

 

 

(400

)

 

 

 

 

 

0.5

 

Patents