UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2020
or
Commission file number: 001-38211
ROKU, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
4841
(Primary standard industrial
code number)
1155 Coleman Avenue
San Jose, California 95110
(408) 556-9040
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
26-2087865
(I.R.S. employer identification no.)
Title of each class
Class A Common Stock, $0.0001 par value
Trading Symbol(s)
ROKU
Securities registered pursuant to Section 12(g) of the Act:
None
Name of each exchange on which registered
The Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
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, a 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
Non-accelerated filer
Emerging Growth Company
☑
☐
☐
Accelerated Filer
Smaller reporting 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of June 30, 2020, the aggregate market value of voting stock held by non-affiliates of the registrant, based upon the closing sales price for the registrant’s common stock, as reported in
the Nasdaq Global Select Market System, was $12,291,076,562. Shares of common stock beneficially owned by each executive officer and director of the Registrant and by each person known by
the Registrant to beneficially own 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for any other purpose.
As of January 31, 2021, the registrant had 111,081,169 shares of Class A common stock, $0.0001 par value per share and 17,340,776 shares of Class B common stock, $0.0001 par value
per share.
Part III incorporates by reference certain information from the Registrant’s definitive proxy statement (the “2020 Proxy Statement”) for the 2021 Annual Meeting of Stockholders. The
2020 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Item 16
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
Part I
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART III
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
PART IV
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“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-K 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 Form 10-K, regarding, among other things:
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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 acquired in 2019;
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 Annual Report on Form 10-K.
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Other sections of this report 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 Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K 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.
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Item 1: Business
Overview
PART I
Roku, Inc. (“Roku”, “the Company”, “we” or “us”) is the leading TV streaming platform in the U.S. by hours streamed.
We pioneered streaming to the TV and were founded on the belief that all TV content will be streamed. The re-platforming of the TV ecosystem is
underway and is creating more options for consumers, content publishers, advertisers and other industry participants. TV streaming is now mainstream and
consumers are spending more time watching TV streaming services, with many ‘cutting the cord’ from legacy pay TV services entirely. Over the past several
years, many of the biggest names in media have transitioned toward streaming offerings and similarly, advertisers looking to reach and engage with streaming
audiences are increasingly taking advantage of the benefits inherent to the digital advertising capabilities of TV streaming platforms and are re-allocating
their budgets accordingly. These trends continued to gain momentum in 2020 as consumers spent more time at home due to the COVID-19 pandemic.
Our Strategy
Our mission is to be the streaming platform that connects the entire TV ecosystem of viewers, content publishers and advertisers. Through our TV
streaming platform, we are focused on connecting consumers to the entertainment they love, enabling content publishers to build and monetize large
audiences, and providing advertisers with unique capabilities to engage consumers. Central to our platform is the Roku operating system (the “Roku OS”).
The Roku OS is purpose built for TV and designed to run on low-cost hardware which allows us to manufacture and sell streaming players that are
affordable. The Roku OS also powers Roku TV models that are manufactured and sold by our TV brand partners who license the Roku OS and leverage our
smart TV hardware reference designs. Roku TV models and Roku streaming players enable consumers to access a wide selection of content by connecting
their Roku device to our streaming platform via a home broadband network.
The features and functionality of our platform, powered by the Roku OS, enable us to address the needs of our consumers, content publishers,
advertisers, Roku TV brand partners, and other partners. Consumers can discover and access a wide variety of streaming content, content publishers can
reach our highly-engaged user base of over 50 million active accounts and utilize our billing services and data insight tools, advertisers can serve targeted and
measurable ads to the TV viewers that they want to reach, Roku TV brand partners can build market share by offering high performance smart TVs in a range
of sizes and price points, and retailers can offer customers Roku’s highly-rated streaming devices on-line and in stores. We continue to invest significant
resources to advance the Roku OS; to provide an industry-leading platform for our consumers, content publishers, and advertisers; and to extend Roku’s
advantage as the streaming decade continues.
Our Business Model
Three core areas of focus define our business model. First, we build scale by increasing our active accounts. Second, we increase engagement by
growing the hours of content streamed through our platform. And third, we monetize the activities that consumers engage in through our platform.
Furthermore, our business model is designed to fulfill the needs of the participants in the TV streaming ecosystem: consumers, content publishers,
advertisers, TV OEMs, other device licensees and consumer electronics retailers.
Scale: Increasing the number of active accounts
We make TV streaming affordable by offering a lineup of stand-alone streaming players that connect to a user’s TV. Furthermore, to enhance our
users’ experience and to provide a better audio experience we also offer our Roku Smart Soundbars and Roku Streambars, each with a streaming player built
in that enables the soundbar to connect to our streaming platform, Roku wireless speakers that connect to Roku TV models, and our Roku Wireless
Subwoofers. We launch new devices and provide updates via the Roku OS periodically to ensure they offer the highest performance at an affordable price.
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We also partner with TV brands that manufacture and sell co-branded Roku TV models that integrate the Roku OS to enable basic TV functions and
connect to our TV streaming platform. We have driven strong growth in our Roku TV licensing program. Using our reference designs results in relatively low
hardware costs, enabling these TV brand licensees to manufacture and sell smart TVs that are competitively priced for consumers and that are automatically
updated whenever we issue a Roku OS update.
We also license the Roku OS and our streaming player designs, as well as provide ongoing technology and support services, to certain international
pay TV and telco service operators that distribute co-branded players to their subscribers in their markets.
Taken together, we offer consumers tremendous optionality and value when it comes to gaining access to the Roku platform, and combined with the
exceptional user experience. We have been able to significantly scale our active account base over a multi-year period. In 2020, we added over 14 million
active accounts, ending the year with 51.2 million active accounts.
Engagement: Growing streaming hours
We believe that offering users a wide range of content drives increased user engagement by delivering a better overall streaming experience.
Streaming hours on our platform have grown from 37.8 billion hours in 2019 to 58.7 billion hours in 2020, as we have grown active accounts through the
distribution of Roku streaming players and Roku TV models, and as our active accounts stream more hours per day, on average.
Through our streaming platform and our streaming devices, we make it easy and affordable for our users to watch their favorite TV shows and
movies, as well as listen to streaming audio. Furthermore, we believe our platform offers users an incredible streaming experience through a user interface
that is easy to use and navigate. From the Roku home screen, our users can easily find and access the 500,000+ free and paid movies and TV episodes
including live TV, news, sports, hit movies, popular shows, and more that are available from the thousands of channels on our streaming platform. And
Roku’s powerful cross-channel search capabilities make it simple for our users to find the entertainment they’re looking for. Users have the optionality to
align their spend to their budget by choosing content that is available on an ad-supported, subscription, or transactional basis. Our direct relationship with our
users provides us with detailed insights about our users and their behavior on our platform, including certain content they search for, the channels they install,
the channels they watch, and certain content that they purchase or subscribe to on our platform. Our first party data enables us to develop actionable insights
such as content recommendations to improve our users’ experience.
We enable our content partners to publish streaming channels, quickly and easily, which makes us an attractive platform for content publishers to
partner with as they seek to reach TV streaming, or over-the-top (“OTT”), users. Content publishers can deliver content directly to our large and relevant
audiences and reach those users who no longer use or those who never used legacy pay TV or paid TV subscriptions. As consumers shift to TV streaming,
content publishers that use our platform are able to reach these streaming audiences at scale and engage users directly.
The Roku Channel is our own streaming channel that drives user engagement on our platform by providing our users free, ad-supported access to a
large library of third-party content that we directly license, in addition to content made available through The Roku Channel by our content publishers. In this
way, The Roku Channel also is intended to help content publishers drive additional viewership and maximize the value of their content on our platform. The
Roku Channel is available in the U.S., U.K. and Canada. In 2020, in the U.S., we added a line-up of more than 100 free live/linear channels on the Roku
Channel and introduced a new Live TV Channel Guide, offering users a convenient way to discover and watch live TV.
Monetization: Growing our revenue and gross profit by monetizing user activity
We believe that running relevant display and digital ads enhances the user experience on our platform. We generate revenue by monetizing our
users’ engagement on our platform through a variety of services and capabilities, including video advertising in ad supported channels, sales of subscription
services and other commerce transactions, brand sponsorship and promotions, and billing services. Each individual user on our platform creates multiple
revenue opportunities for Roku, whether they’re purchasing content, enjoying ad-supported content or simply opening the Roku home page. We measure
monetization of our platform by calculating the average revenue per user (“ARPU”), which we believe represents the inherent value of our business model,
and growth in gross profit. In 2020, ARPU (which we measure
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on a trailing twelve-month basis) increased from $23.14 to $28.76 and gross profit for the full year grew from $495.2 million to $808.2 million.
Our sophisticated and leading streaming platform enables advertisers, including content publishers, brands and agencies, to reach audiences that are
no longer reachable or are increasingly unavailable through advertising on traditional TV. We make it easy for content publishers to distribute and monetize
their streaming content through three primary business models: transaction video on demand (“TVOD”), subscription video on demand (“SVOD”), and
advertising-supported video on demand (“AVOD”). Through our platform we are also able to assist content partners with billing services, including billing
customers for in-channel purchases like a movie rental, managing subscriptions and customer invoices. Roku Pay, our platform billing solution, is a key
platform capability that simplifies consumer subscription signups and drives purchase and retention for partners.
Content publishers also have access to our promotional and audience development tools to help them attract and retain viewers. Content publishers
can use a variety of ad placements, including native display ads on the Roku home screen or a screen saver to drive channel downloads, promote a channel’s
content, and direct traffic to their channels in order to drive subscriptions or movie and TV show consumption. We also sell branded channel buttons on
streaming player and Roku TV remote controls that are intended to increase incremental usage of the channel by allowing users to launch straight into the
channel from the home screen. Our analytics and reporting assist content publishers with analyzing viewership trends and metrics for specific titles. Using
machine learning, we also can help content publishers target new audiences that are more likely to subscribe to their services.
The Roku Channel provides monetization for both our content partners and Roku through digital advertising. The Roku Channel provides our users
with free access to over 50,000 titles, including hit Hollywood movies, TV episodes, news channels, and more and is a leading sources of advertising
inventory. Through Premium Subscriptions within The Roku Channel, we resell ad-free premium content subscription services from providers such as
Showtime, Starz, and Epix directly to our users. In addition, we have developed and implemented various features within The Roku Channel that can be used
to recruit and retain subscribers for Premium Subscription. For example, we provide personalized content selection for users and integrated The Roku
Channel into our billing services to enable one-click subscriptions.
Advertisers are able to use our platform to leverage our direct relationship with our users, as well as our advertising capabilities and user data and
insights, to serve relevant, targeted advertisements. Advertisers on our platform also can measure both the effectiveness of the ads served and their return on
investment. We offer engagement analytics such as ad impressions served, click-through rates, and video completion rates. We work with a wide variety of
third-party measurement companies to measure the branding impact of the ads served and audience demographics, validate ad effectiveness, and quantify
sales lift from advertising on our platform. Furthermore, we have relationships with third-party providers that focus on transactional or point of sale data,
which enables our advertisers to compare the effectiveness of ads served on our platform to advertising on traditional TV. Additional promotional advertising
opportunities include content sponsorships to give users the opportunity to experience a free movie or show and sponsored themes on our home screen. We
also sell branded content rows within The Roku Channel.
In May 2020, we announced the rebranding of the OneView Ad Platform, a single platform leveraging TV identity data to manage advertising across
OTT, desktop, and mobile campaigns. As consumers move to TV streaming, OneView provides advertisers with a toolset to scale their OTT advertising and
marketers self-serve capabilities to optimize and measure effectiveness across screens. OneView integrates the reach, inventory, and capabilities of Roku
advertising with the identity and attribution tools of demand-side platform dataxu, which the company acquired in November 2019.
International Markets
We believe that the value our business delivers to participants in the TV ecosystem in the U.S. — consumers, content publishers, advertisers, TV
OEMs, other device licensees, and retailers — is also compelling in international markets. To date, we have brought the same business model to certain
markets that has enabled us to develop the No. 1 TV streaming platform in the U.S. by hours streamed. In 2020, Roku TV was the No. 1 selling smart TV
operating system in Canada. Also, in 2020, we launched in Brazil, first in partnership with AOC to bring the AOC Roku TV to consumers and then with the
launch of Roku Express, our first streaming device in the country. In these newer markets, we will continue to focus on building scale, increasing
engagement, and ultimately driving monetization.
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Sales and Marketing
We engage in a wide variety of sales and marketing activities to continuously drive scale, engagement, and monetization and dedicate significant
resources to this area. Our sales and marketing activities are primarily focused on building and expanding relationships with content publishers, advertisers,
TV brands, retailers and service operators, and driving sales of our streaming players and audio products and Roku TV models to consumers through retail
distribution channels.
We have dedicated business development teams that develop and maintain relationships, to promote and build awareness of the features and
advantages of the Roku platform among content publishers, advertisers, TV brands, and service operators. Our data science team supports our sales and
marketing efforts by analyzing data on our platform to increase effectiveness for our content publishers and advertisers as well as for our consumer marketing
campaigns. We enter into distribution agreements with our content publishers and license their content through our dedicated content relationship
management team. Our relationship with content publishers is typically client-direct. We secure direct access to publishers’ video ad inventory as part of our
distribution agreements and serve as an additional channel for content publishers to monetize their audience. These sales efforts are differentiated and
complementary to that of our content publishers. Whereas our publishers typically sell on a cross-platform basis and feature their brand and content in their
sale, we focus on delivering a large OTT audience across many channels at once. We sell advertising to a wide range of advertisers helping them reach their
goals across numerous key performance indicators. Our sales teams and products are organized into six groups that specialize in the unique needs of each
area: (i) agency holding companies and Fortune 500 brands, (ii) independent agency and mid-market clients, (iii) content publishers and entertainment
brands, (iv) performance and direct to consumer brands, (v) international markets and (vi) local advertising.
We work with our Roku TV brand partners to assist in all phases of the development of Roku TV models, including development, planning,
manufacturing and marketing. Similarly, we work with service operators on the planning and development of their co-branded players.
In the United States, the majority of our streaming players, audio products and Roku TV models are sold through traditional brick and mortar
retailers, such as Best Buy, Target and Walmart, including their online sales platforms, and online retailers such as Amazon, and to a lesser extent our
website. We also sell products internationally through distributors and to retailers. In the years ended December 31, 2020 and December 31, 2019, sales
through Amazon, Best Buy and Walmart each accounted for more than 10% of our player segment revenue. These three retailers collectively accounted for
69% and 72% of our player segment revenue for the years ended December 31, 2020, and 2019, respectively. We support retailers with an experienced sales
management team and work closely with these retailers to assist with in-store marketing and product mix forecasting. We intend to continue to invest
significant resources in our sales and marketing efforts.
Seasonality
We have historically seen seasonality in our business related to advertising and streaming player sales. Our revenue and gross profit are traditionally
strongest in the fourth quarter of each fiscal year and represent a high percentage of the total net revenue for such fiscal year due to higher consumer
purchases and increased advertising during holiday seasons. Furthermore, a significant percentage of our player sales through retailers in the fourth quarter of
the fiscal year are pursuant to committed sales agreements with retailers for which we recognize significant discounts in the average selling prices in the third
quarter in an effort to grow our active accounts, which will reduce our player gross margin.
Research and Development
Our research and development model relies on a combination of in-house staff and out-sourced design and manufacturing partners to cost-effectively
improve and enhance our platform, and to develop new players, audio products, TVs, features and functionality. We work closely with content publishers,
advertisers, TV brands, and service operators to understand their current and future needs. We have designed a product development process that captures and
integrates their feedback. In addition, we solicit user feedback in the development of new features and enhancements to the Roku platform.
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We intend to continue to significantly invest in research and development to bring new devices to market and enhance our platform and capabilities.
Manufacturing
We outsource the manufacturing of our products to our contract manufacturers, using our design specifications. All of our products are manufactured
by our contract manufacturers in the People’s Republic of China, Southeast Asia and Brazil. Our contracts do not obligate them to supply products to us in
any specific quantity or at any specific price. Our contract manufacturers procure components and assemble our products to demand forecast we establish
based upon historical trends and analysis from our sales and product management functions. The contract manufacturers ship our products to our third-party
warehouses in California, the United Kingdom and Brazil where they ship players directly to retailers, wholesale distributors and to end users.
Government Regulation
Our business and our devices and platform are subject to numerous domestic and foreign laws and regulations covering a wide variety of subject
matters. These laws and regulations include general business regulations and laws, as well as regulations and laws specific to providers of Internet-delivered
streaming services and Internet-connected devices. New laws and regulations in these areas may have an adverse effect on our business. The costs of
compliance with these laws and regulations are substantial and are likely to increase in the future. Compliance with existing or future laws and regulations,
including, but not limited to, those pertaining to internet and online services, data privacy and security, consumer protection, global trade, employee health
and safety, and taxes, could have an adverse impact on our business in subsequent periods. If we fail to comply with these laws and regulations, we may be
subject to significant liabilities and other penalties.
In particular, our business is subject to foreign and domestic laws and regulations applicable to companies conducting business using the Internet.
Both domestic and foreign jurisdictions vary widely as to how, or whether, existing laws governing areas such as privacy and data security, online platform
liability, consumer protection, payment processing or sales and other taxes and intellectual property apply to the Internet and e-commerce, and these laws are
continually evolving. Moreover, the laws governing these areas, as well as those governing electronic contracts and Internet content and access restrictions,
among other areas, are rapidly evolving. The laws in these areas are unsettled and future developments are unpredictable. Laws that lead to more stringent
regulation of companies engaging in businesses using the Internet may have a negative impact on our business.
In the United States, the regulatory framework for privacy and security issues is rapidly evolving. State and federal consumer protection regulators
generally exercise oversight of consumer privacy protections and the security of online services. For example, California recently adopted the California
Consumer Privacy Act of 2018 (“CCPA”), which gives California residents expanded rights to access and require deletion of their personal information, opt
out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA has prompted a number
of proposals for new federal and state privacy legislation. State laws may also impose obligations on us in the event of a security breach or inadvertent
disclosure of personal information. Foreign jurisdictions impose different, and sometimes more stringent, consumer and privacy protections, including the
European Union (“EU”) General Data Protection Regulation (“GDPR”). The GDPR broadly regulates the processing of personal information about
individuals in the EU and includes significant penalties for non-compliance. Such consumer privacy laws are constantly changing and may become more
diverse and restrictive over time, challenging our ability to fully comply with these laws in all jurisdictions. Privacy laws also may limit the ability of
advertisers to fully utilize our platform, which could have a negative impact on our business.
Tax regulations in domestic and international jurisdictions where we do not currently collect state or local taxes may subject us to the obligation to
collect and remit such taxes, to additional taxes or to requirements intended to assist jurisdictions with their tax collection efforts. New legislation or
regulation, the application of laws from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to
the Internet and e-commerce generally could result in significant additional taxes on our business. An increasing number of jurisdictions are considering or
have adopted laws or administrative practices that impose new tax measures, including revenue-based taxes, targeting online commerce and the remote
selling of goods and services. These include new obligations to collect sales, consumption, value added, or other taxes on online marketplaces and remote
sellers, or other requirements that may result
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in liability for third-party obligations. For example, Maryland recently passed legislation establishing a tax on certain advertising activities and in certain
jurisdictions outside of the United States, including member states of the EU have proposed or enacted taxes on online advertising and marketplace service
revenues. Our results of operations and cash flows could be adversely affected by additional taxes of this nature imposed on us prospectively or retroactively
or additional taxes or penalties resulting from the failure to comply with any collection obligations. The continued growth and demand for e-commerce is
likely to result in more laws and regulations that impose additional compliance burdens on e-commerce companies, and any such developments could harm
our business.
In addition, the Internet is a vital component of our business and also is subject to a variety of laws and regulations in jurisdictions throughout the
world. We expect to rely on the historical openness and accessibility of the Internet to conduct our business, and government regulations that impede or fail to
preserve the open Internet could harm our business. To the extent regulatory agencies adopt rules that allow network operators to restrict the flow of content
over the Internet, such operators may seek to extract fees from us or our content publishers to deliver our traffic or may otherwise engage in blocking,
throttling or other discriminatory practices with respect to our traffic, which could adversely impact our business.
Our content publishers also are subject to a wide range of government regulations that may vary by jurisdiction. Because our business depends on the
availability of third-party content delivered over the Internet, increased regulation of our content publishers or changes in laws or regulations governing
Internet retransmission of third-party content could increase our expenses and adversely affect our business and the attractiveness of our platform.
Intellectual Property
Our success depends in part upon our ability to protect our core technology and intellectual property. To establish and protect our proprietary rights,
we rely on a combination of intellectual property rights, including patents, trademarks, copyrights, trade secret laws, license agreements, confidentiality
procedures, employee disclosure and invention assignment agreements and other contractual rights.
As of December 31, 2020, we have approximately 195 issued patents and 200 pending applications in the United States and foreign countries. We
also license technology from third parties when we believe it will facilitate our product offerings or business.
Competition
The TV streaming industry is highly competitive and, as it continues to evolve, we will continue to face aggressive competition in every aspect of our
business. We compete with much larger companies which have resources and brand recognition that pose significant competitive challenges. In the face of
this competition, we believe our success depends on our ability to acquire users by delivering high quality streaming devices at competitive prices, partnering
with Roku TV brands to bring co-branded smart TVs to market, and developing and monetizing our streaming platform with compelling content, promotional
services and advertising.
Our competitors include:
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legacy pay TV service operators;
companies that offer TV streaming devices that compete with our streaming players and Roku TV models and companies that license their
operating systems for integration into smart TVs and other streaming products;
TV brands that offer their own TV streaming solutions within their TVs and well as other devices like game consoles, DVD players, Blu-
ray players and set-top boxes that leverage their own operating systems;
mobile streaming platforms, that enable users to stream content on phones and tablets;
companies that offer advertisers the opportunity to reach consumers on other content and advertising mediums; and
companies that operate in the same locations as our offices that may be better able attract and retain top talent in engineering, research and
development, sales and marketing, operations and other organizations.
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As the TV streaming market continues to develop, we may become subject to additional competition as we introduce or develop new products and
services, as our existing products and services evolve, or as other companies introduce competing products and services.
Human Capital Management
As the leading TV streaming platform in the U.S. by hours streamed, we believe our success depends on our culture and our ability to attract and
retain our employees. As of December 31, 2020, we employed approximately 1,925 full-time employees located in nine countries. Only our employees in
Brazil are represented by a labor union with respect to their employment. The majority of our employees currently are working remotely as a result of the
COVID-19 pandemic.
Culture
We want our employees to be proud to work at Roku. Our entrepreneurial, execution focused culture focuses on recruiting talented individuals,
encouraging teamwork and expecting our employees to perform at a high level. Across Roku, teams are expected to communicate clearly, in real time.
Because our employees are trusted and encouraged to make decisions, leadership communicates plans, milestones and strategic context broadly, and
employees are trusted to maintain the confidentiality of such information. Our employees are encouraged to use our broad talent base for diverse points of
view when making decisions.
Diversity and Inclusion
Roku is committed to being a diverse and inclusive organization. We follow through on this commitment through our annual pay equity analysis
designed to ensure we pay fairly and equitably across gender and ethnicity, year over year; our hiring and management trainings that incorporate topics on
mitigating unconscious bias; and by having diverse interviews panel that limit questions to those that are legally compliant and objectively tied to applicable
job openings.
During 2020, we furthered our commitment to diversity and inclusion by promoting a new Vice President of Inclusion Strategy and Talent
Development who is building a growing team that is focusing on priorities in four key areas: Inclusive Employee Experiences, Inclusive Recruiting, Inclusive
Communities & Social Impact, and Inclusive Customer Advocacy.
Inclusive Employee Experiences: Among other initiatives, we have launched an Employee Resource Group (ERG) Program and are currently
developing seven ERGs. We also launched a series of educational employee-led dialogues that cover various topics of diversity ranging from ethnic diversity
to neurodiversity and are providing diversity and inclusion training and curriculum in the areas of bias, leading diverse teams, and sourcing diverse talent.
Inclusive Recruiting: Every member of our recruiting team is trained on how to source, engage, and recruit qualified diverse candidates. In fact, all
recruiters are equipped to discuss a diverse hiring strategy with every hiring manager to ensure we continue to widen the candidate pipeline for all roles. Our
University Recruiting and Intern programs weave diversity and inclusion into their strategies so that we are recruiting not only from diverse schools but also
diverse clubs and programs across all schools. Our external relationships also are focused on organizations that represent diverse communities, including
technical and non-technical women and ethnic minority organizations, as well as professional Veteran’s networks, to enable our hiring managers and
recruiters to attend or speak at diverse conferences, share our job descriptions, and tell our employer brand story to a wider audience.
Inclusive Communities & Social Impact: We are in the process of developing new social impact programs to support employees and Roku in
volunteerism, charitable activities, and youth engagement and anticipate we will have more to share related to our commitment to leaving a positive impact
on young people and our wider community in future periods.
Inclusive Customer Advocacy: As a TV streaming platform for viewers in the U.S. and certain international locations, we want to reflect our users in
our overall user experience and accessibility, content we license, and the channel on our platform. During 2020, we launched a policy designed to
acknowledge key areas of diversity and identity thoughtfully, meaningfully, and inclusive of our diverse customer base, year-round.
Training & Employee Development
Our Learning and Development function provides our employees with the training and development needed to support our growth. Our employee
training programs begin with a comprehensive New Hire Orientation that covers our
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culture and business. Our Orientation is supplemented by checklists and resources for an employee’s first 90 days. In addition to mandatory training covering
Anti-Harassment, Anti-Discrimination, and Privacy trainings, we offer employees a highly encouraged suite of training offerings such as Effective Feedback,
Effective Meetings, and Communication and Presentation Skills. Managers also are provided an additional set of trainings on Expectations for Managers,
Interviewing and Hiring, and Performance Management to support new and newly promoted leaders in how to manage and lead effectively. Our employees
also have free access to additional training in technical and non-technical subjects through LinkedIn Learning. We intend to continue to review, refresh,
purchase and/or custom build additional training materials to support the performance and development needs of our global employees.
Compensation and Benefits
Our total compensation program is designed to attract, retain, and reward talented professionals. As a result, we endeavor to pay competitive total
compensation that is guided by market rates and tailored to account for the specific needs and responsibilities of a particular position as well as the unique
qualifications of the individual employee. In determining each employee’s total compensation, we consider what they would be paid by another employer,
what we would have to pay to replace them it they leave Roku, and the amount we would pay to retain them. We pay employees total compensation that is
comprised of salary and equity awards rather than offer specific benefits or perks that might be valued differently by different employees. We do not pay cash
bonuses or have performance-based equity awards because our employees are expected to work at the highest level regardless of possible bonus payouts or
awards.
Available Information
Our website address is www.roku.com. We make available, free of charge through our website, our annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Sections 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, as amended, as soon as reasonably practicable after they have been electronically filed with, or furnished to, the Securities Exchange
Commission (“SEC”). Investors and others should note that we announce material financial information to our investors using our investor relations website
(ir.roku.com), 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 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 we post on our investor relations website.
The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC.
Information contained on or accessible through the websites listed above is not incorporated by reference nor otherwise included in this report, and
any references to these websites are intended to be inactive textual references only.
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Item 1A. Risk Factors
Our business involves significant risks, some of which are described below. You should carefully consider the risks and uncertainties described below,
together with all the other information in this Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and the consolidated financial statements and the related notes. If any of the following risks actually occurs, our business, reputation,
financial condition, results of operations, revenue, and future prospects could be seriously harmed. In addition, you should consider the interrelationship and
compounding effects of two or more risks occurring simultaneously. Unless otherwise indicated, references to our business being harmed in these risk factors
will include harm to our business, reputation, financial condition, results of operations, revenue, and future prospects. In that event, the market price of our
Class A common stock could decline, and you could lose part or all of your investment.
Risk Factors Summary
Below is a summary of the principal factors that make an investment in our Class A common stock speculative or risky:
Risks Related to Our Business and Industry
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the highly competitive nature of the TV streaming industry that is rapidly evolving;
our ability to monetize our streaming platform;
our ability to attract advertisers and advertising agencies to our demand-side advertising platform;
our ability to develop relationships with TV brands and service operators;
our ability to establish and maintain relationships with important content publishers;
popular or new content publishers not publishing their content on our streaming platform;
maintaining an adequate supply of quality video ad inventory on our platform and selling the available supply;
content publishers electing not to participate in platform features that we develop;
irrelevant or unengaging advertising, marketing campaigns or other promotional advertising on our platform;
our ability to attract users to and generate revenue from The Roku Channel;
users signing up for offerings and services outside of our platform;
the evolution of our industry and the impact of many factors that our outside of our control;
changes in consumer viewing habits;
our and our Roku TV brand partners’ reliance on retail sales channels to sell products;
our ability to build a strong brand and maintain customer satisfaction and loyalty;
advertiser and/or advertising agency delayed payment or failure to pay;
maintaining adequate customer support levels;
our ability to manage streaming device and other product introductions and transitions;
our and our Roku TV brand partners’ reliance on contract manufacturers and limited manufacturing capabilities;
our ability to forecast manufacturing requirements and manage inventory;
our ability to obtain key components from sole source suppliers;
interoperability of our streaming devices with content publishers’ offerings, technologies and systems;
detecting hardware errors or software bugs in our products before they are released to users;
component manufacturing, design or other defects that render our devices permanently inoperable;
our ability to obtain necessary or desirable third-party technology licenses;
Risks Related to Operating and Growing Our Business
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our history of operating losses;
volatility of our quarterly operating results that could cause our stock price to decline;
our ability to manage our growth;
our ability to successfully expand our international operations;
seasonality of our business and its impact our revenue and gross profit;
attracting and retaining key personnel and managing succession;
maintaining systems that can support our growth, business arrangements and financial rules;
our ability to successfully complete acquisitions and investments and integrate acquired businesses;
our ability to comply with the terms of our outstanding credit facility;
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our ability to secure funds to meet our financial obligations and support our planned business growth;
Risks Related to Cybersecurity, Reliability and Data Privacy
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significant disruptions of information technology systems or data security breaches;
legal obligations and potential liability related to our users’ personal information;
our actual or perceived failure to adequately protect the personal and confidential information;
disruptions in computer systems or other services that results in a degradation of our platform;
changes in how network operators manage data that travel across their networks;
Risks Related to Intellectual Property
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litigation resulting in the loss of important intellectual property rights;
failure to protect or enforce our intellectual property or proprietary rights;
our use of open source software;
our agreement to indemnify certain of our partners if our technology is alleged to infringe on third-parties’ intellectual property rights;
Risks Related to Macroeconomic Conditions
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the current and future impact of the COVID-19 pandemic on our business;
natural disasters or other catastrophic events;
Legal and Regulatory Risks
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enactment of or changes to government regulation or laws related to our business;
changes in general economic conditions, geopolitical conditions, and/or U.S. trade policies that impact our business;
U.S. or international rules that permit ISPs to limit internet data consumption by users;
changes to current or future laws, regulations or government actions that impact our partners;
liability for content that is distributed through or advertising that is served through our platform;
our ability to maintain effective internal controls over financial reporting;
the impact of changes in accounting principles;
compliance with laws and regulations related to the collection of sales tax and payment of income tax;
changes to U.S. or foreign taxation laws or regulations;
regulatory inquiries, investigations and proceedings;
Risks Related to Ownership of our Class A Common Stock
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The dual class structure of our Class A common stock;
The volatility in the trading price of our Class A common stock;
Potential dilution or a decline in our stock price caused by future sales or issuance of our capital stock or rights to purchase capital stock;
A decline in our stock prices caused by future sales by existing stockholders;
Dependency on favorable securities and industry analyst reports;
The significant legal, accounting and other expenses associated with being a publicly-traded company;
The absence of dividends on our Class A or Class B common stock;
anti-takeover provisions in our charter; and
the limitations resulting from our selection of the Delaware Court of Chancery and the federal district courts of the United States as the
exclusive forums for substantially all disputes between us and our stockholders.
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Risks Related to Our Business and Industry
TV streaming is highly competitive and many companies, including large technology companies, content owners and aggregators, TV brands
and service operators, are actively focusing on this industry. If we fail to differentiate ourselves and compete successfully with these companies, it will be
difficult for us to attract and retain users and our business will be harmed.
TV streaming is highly competitive and global. Our success depends in part on attracting and retaining users on, and effective monetization of,
our streaming platform. To attract and retain users, we need to be able to respond efficiently to changes in consumer tastes and preferences and to offer our
users access to the content they love on terms that they accept. Effective monetization requires us to continue to update the features and functionality of our
streaming platform for users, content publishers and advertisers. We also must effectively support popular sources of streaming content that are available on
our platform, such as Amazon Prime Video, Disney+, Discovery+, HBO Max, Hulu, Peacock, Netflix and YouTube. And we must respond rapidly to actual
and anticipated market trends in the TV streaming industry.
Companies such as Amazon, Apple and Google offer TV streaming devices that compete with our streaming players. In addition, Google licenses
its Android operating system software for integration into smart TVs and service provider set-top boxes, and Amazon licenses its operating system software
for integration into smart TVs. These companies have greater financial resources than we do and can subsidize the cost of their streaming devices in order to
promote their other products and services, which could make it harder for us to acquire new users, retain existing users and increase streaming hours. These
companies could also implement standards or technology that are not compatible with our products or that provide a better streaming experience. These
companies also promote their brands through traditional forms of advertising, such as TV commercials, as well as digital advertising or website product
placement, and have greater resources to devote to such efforts than we do.
In addition, many TV brands offer their own TV streaming solutions within their TVs. Other devices, such as game consoles and many DVD and
Blu-ray players, also incorporate TV streaming functionality. Similarly, some service operators offer TV streaming applications as part of their cable service
plans and can leverage their existing consumer bases, installation networks, broadband delivery networks and name recognition to gain traction in the TV
streaming market. If consumers of TV streaming content prefer alternative products to our streaming players and our partners' Roku TV models, we may not
be able to achieve our expected growth in active accounts, streaming hours, revenue, gross profit or ARPU.
We expect competition in TV streaming from the large technology companies and service operators described above, as well as new and growing
companies, to increase in the future. This increased competition could result in pricing pressure, lower revenue and gross profit or the failure of our players,
Roku TV models or our platform to gain or maintain broad market acceptance. To remain competitive and maintain our position as a leading TV streaming
platform we need to continuously invest in our platform, product development, marketing, service and support and device distribution infrastructure. In
addition, evolving TV standards such as 8K, HDR and unknown future developments may require further investments in the development of our players,
Roku TV models, and our platform. We may not have sufficient resources to continue to make the investments needed to maintain our competitive position.
In addition, most of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial,
technical, sales, marketing and other resources than us, which provide them with advantages in developing, marketing or servicing new products and
offerings. As a result, they may be able to respond more quickly to market demand, devote greater resources to the development, promotion, sales and
distribution of their products or their content, and influence market acceptance of their products better than we can. These competitors may also be able to
adapt more quickly to new or emerging technologies or standards and may be able to deliver products and services at a lower cost. Increased competition
could reduce our sales volume, revenue and operating margins, increase our operating costs, harm our competitive position and otherwise harm our business.
In July 2018, we introduced our Roku TV Wireless Speakers, designed specifically for use with Roku TV models, in September 2019, we
launched our Roku Smart Soundbar and Roku Wireless Subwoofer and in September 2020, we launched our Roku Streambar. As a result of these
developments, we may face additional competition from makers of TV audio speakers and soundbars, as well as makers of other TV peripheral devices.
While our audio products have not generated material amounts of revenue, if these products do not operate as designed or do not enhance the Roku TV or
other viewing experience as we intend, our users’ overall viewing experience may be diminished, and this may impact the overall demand for Roku TV
models or our other products.
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We also compete for video viewing hours with mobile platforms (phones and tablets), and users may prefer to view streaming content on such
devices. Increased use of mobile or other platforms for TV streaming could adversely impact the growth of our streaming hours, harm our competitive
position and otherwise harm our business.
Our future growth depends on the acceptance and growth of OTT advertising and OTT advertising platforms.
We operate in a highly competitive advertising industry and we compete for revenue from advertising with other streaming platforms and
services, as well as traditional media, such as radio, broadcast, cable and satellite TV, and satellite and internet radio. These competitors offer content and
other advertising mediums that may be more attractive to advertisers than our streaming platform. These competitors are often very large and have more
advertising experience and financial resources than we do, which may adversely affect our ability to compete for advertisers and may result in lower revenue
and gross profit from advertising. If we are unable to increase our revenue from advertising by, among other things, continuing to improve our platform’s
capabilities to further optimize and measure advertisers’ campaigns, increase our advertising inventory and expand our advertising sales team and
programmatic capabilities, our business and our growth prospects may be harmed. We may not be able to compete effectively or adapt to any such changes or
trends, which would harm our ability to grow our advertising revenue and harm our business.
Many advertisers continue to devote a substantial portion of their advertising budgets to traditional advertising, such as linear TV, radio and print.
The future growth of our business depends on the growth of OTT advertising, and on advertisers increasing their spend on advertising on our platform.
Although traditional TV advertisers showed growing interest in OTT advertising during 2020, we cannot be certain that their interest will continue to increase
or that they will not revert to traditional TV advertising, especially if our users no longer stream TV or significantly reduce the amount of TV they stream
either as a result of lifting of stay-at-home orders, the end of the COVID-19 pandemic or for other reasons. If advertisers, or their agency relationships, do not
perceive meaningful benefits of OTT advertising, the market may develop more slowly than we expect, which could adversely impact our operating results
and our ability to grow our business.
We may not be successful in our efforts to further monetize our streaming platform, which may harm our business.
Our business model depends on our ability to generate platform revenue from advertisers and content publishers. We generate platform revenue
primarily from advertising and audience development campaigns that run across our streaming platform and from content distribution services. As such, we
are seeking to expand the number of active accounts and increase the number of hours that are streamed across our platform in an effort to create additional
platform revenue opportunities. As our user base grows and as we increase the amount of content offered and streamed across our platform, we must
effectively monetize our expanding user base and streaming activity. The total number of streaming hours, however, does not correlate with platform revenue
on a period-by-period basis, primarily because we do not monetize every hour streamed on our platform. Moreover, streaming hours on our platform are
measured whenever a player or a Roku TV is streaming content, whether a viewer is actively watching or not. For example, if a player is connected to a TV,
and the viewer turns off the TV, steps away or falls asleep and does not stop or pause the player then the particular streaming channel may continue to play
content for a period of time determined by the streaming channel. We believe that this also occurs across a wide variety of non-Roku streaming devices and
other set-top boxes. Beginning in the third quarter of 2019 through the first quarter of 2020, we updated the Roku OS with a feature that is designed to
identify when content has been continuously streaming on a channel for an extended period of time without user interaction. This feature, which we refer to
as “Are you still watching,” periodically prompts the user to confirm that they are still watching the selected channel and closes the channel if the user does
not respond affirmatively. We believe that the implementation of this feature across the Roku platform benefits us, our customers, channel partners and
advertisers. Some of our leading channel partners, including Netflix, also have similar features within their channels. This Roku OS feature supplements
these channel features. This feature has not had and is not expected to have a material impact on our financial performance.
Our ability to deliver more relevant advertisements to our users and to increase our platform’s value to advertisers and content publishers depends
on the collection of user engagement data, which may be restricted or prevented by a number of factors. Users may decide to opt out or restrict our ability to
collect personal viewing data or to provide them with more relevant advertisements. Content publishers may also refuse to allow us to collect data regarding
user engagement or refuse to implement mechanisms we request to ensure compliance with our legal obligations or technical requirements. For example, we
are not able to fully utilize program level viewing data from many of our most popular channels to improve the relevancy of advertisements provided to our
users. Other channels available on our platform, such
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as Amazon Prime Video, Apple TV+, Hulu and YouTube, are focused on increasing user engagement and time spent within their channel by allowing users
to purchase additional content and streaming services within their channels. In addition, we do not currently monetize content provided on non-certified
channels, which are not displayed in our channel store and must be added manually by the user, on our streaming platform. If our users spend most of their
time within particular channels where we have limited or no ability to place advertisements or leverage user information, or users opt out from our ability to
collect data for use in providing more relevant advertisements, we may not be able to achieve our expected growth in platform revenue or gross profit. If we
are unable to further monetize our streaming platform, our business may be harmed.
In order to materially increase the monetization of our streaming platform through the sale of video advertising, we will need our users to stream
significantly more ad-supported content. Our efforts to monetize our streaming platform through ad-supported content are still developing and may not
continue to grow as we expect. Further, while we have experienced, and expect to continue to experience, growth in our revenue from advertising, our efforts
to monetize our streaming platform through the distribution of AVOD content are still developing and our advertising revenue may not grow as we expect.
This means of monetization will require us to continue to attract advertising dollars to our streaming platform as well as deliver AVOD content that appeals to
users. Accordingly, there can be no assurance that we will be successful in monetizing our streaming platform through the distribution of ad-supported
content.
If we are unable to attract advertisers or advertising agencies to our OneView Ad Platform or if we are not successful in running a demand-
side advertising platform, our business may be harmed.
In 2020, we announced the rebranding of the OneView Ad Platform, a demand-side platform through which advertisers and advertising agencies
can programmatically purchase and manage their OTT, desktop and mobile advertising campaigns. OneView leverages the DSP developed by dataxu, which
we acquired in November 2019, and integrates the reach, inventory and capabilities of our proprietary advertising products and services. The market for
programmatic OTT ad buying is an emerging market, and our current and potential advertisers and advertising agencies may not shift to programmatic ad
buying from other buying methods as quickly as we expect or at all. If the market for programmatic OTT ad buying deteriorates or develops more slowly
than we expect, advertisers and advertising agencies may not use OneView or we may not attract prospective advertisers or advertising agencies to OneView,
and our business could be harmed. In addition, we have limited experience running a DSP and if OneView does not have the functionality or services
expected by advertisers or advertising agencies, we may not be able to attract their advertising spend to OneView or our existing customers may not maintain
or increase their spend on OneView. If we fail to adapt to our rapidly changing industry or to our customers evolving needs, advertisers and advertising
agencies will not adopt OneView and our business may be harmed. We also may not be able to compete effectively with more established DSPs or be able to
adapt to changes or trends in programmatic OTT advertising, which would harm our ability to grow our advertising revenue and harm our business.
Our growth will depend in part on our ability to develop and expand our relationships with TV brand partners in the United States and
international markets and, to a lesser extent, service operators.
We have developed, and intend to continue to develop and expand, relationships with TV brand partners and, to a lesser extent, service operators
in both the United States and international markets. Our licensing arrangements are complex and time-consuming to negotiate and complete. Our current and
potential partners include TV brands, cable and satellite companies and telecommunication providers. We continue to invest in the growth and expansion of
our Roku TV program both in the United States and International markets. Our licensing program for service operators has historically been primarily
focused on international markets and has not been growing in scale in recent years, as we have shifted the focus of our international growth to the sale of
Roku streaming players and Roku TV models.
In the past few years, the sale of Roku TV models by our TV brand partners has materially contributed to our active account growth, to our
streaming hours, and to our platform monetization efforts. This growth has primarily been in the United States; however, our Roku TV licensing program has
been expanded to certain international markets. We license the Roku OS and our smart TV reference designs to certain TV brand partners to manufacture co-
branded smart TVs. We have not received, nor do we expect to receive, license revenue from these arrangements, but we expect to incur expenses in
connection with these commercial agreements. The primary economic benefits that we derive from these license arrangements have been and will likely
continue to be indirect, primarily from growing our active accounts, increasing streaming hours and generating advertising-related revenues on our platform.
If these arrangements do not continue to
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result in increased active accounts and streaming hours, and if that growth does not in turn lead to successfully monetizing that increased user activity, our
business may be harmed.
The loss of a relationship with a TV brand or service operator could harm our results of operations, damage our reputation, increase pricing and
promotional pressures from other partners and distribution channels, or increase our marketing costs. If we are not successful in maintaining existing and
creating new relationships with any of these third parties, or if we encounter technological, content licensing or other impediments to our development of
these relationships, our ability to grow our business could be adversely impacted.
Under these license arrangements, we generally have limited control over the amount and timing of resources these entities dedicate to the
relationship. If our TV brand or service operator partners fail to meet their forecasts for distributing licensed streaming devices, or chose to deploy competing
streaming solutions within their product lines, our business may be harmed.
We depend on a small number of content publishers for a majority of our streaming hours, and if we fail to maintain these relationships, our
business could be harmed.
Historically, a small number of content publishers have accounted for a significant portion of the hours streamed on our platform. In the year
ended December 31, 2020, the top three streaming services represented over 50% of all hours streamed in the period. If, for any reason, we cease distributing
channels that have historically streamed a large percentage of the aggregate streaming hours on our platform, our streaming hours, active accounts or
streaming device sales may be adversely affected, and our business may be harmed.
If popular or new content publishers do not publish content on our platform, we may fail to retain existing users and attract new users.
We must continuously maintain existing relationships and identify and establish new relationships with content publishers to provide popular
streaming channels and popular content. In order to remain competitive, we must consistently meet user demand for popular streaming channels and content;
particularly as we launch new players, new Roku TV models are introduced, or we enter new markets, including international markets. If we are not
successful in helping our content publishers launch and maintain streaming channels that attract and retain a significant number of users on our streaming
platform or if we are not able to do so in a cost-effective manner, our business will be harmed. Our ability to successfully help content publishers maintain
and expand their channel offerings on a cost-effective basis largely depends on our ability to:
effectively promote and market new and existing streaming channels;
minimize launch delays of new and updated streaming channels; and
minimize streaming platform downtime and other technical difficulties.
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In addition, if service operators, including pay TV providers, refuse to grant our users access to stream certain channels or only make content
available on devices they prefer, our ability to offer a broad selection of popular streaming channels or content may be limited. If we fail to help our content
publishers maintain and expand their audiences on the Roku platform or their channels are not available on our platform, our business may be harmed.
Most of our agreements with content publishers are not long term and can be terminated by the content publishers under certain
circumstances. Any disruption in the renewal of such agreements may result in the removal of certain channels from our streaming platform and may
harm our active account growth and engagement.
We enter into agreements with all our content publishers, which have varying terms and conditions, including expiration dates. Our agreements
with content publishers generally have terms of one to three years and can be terminated before the end of the term by the content publisher under certain
circumstances, such as if we materially breach the agreement, become insolvent, enter bankruptcy, commit fraud or fail to adhere to the content publishers’
security or other platform certification requirements. Upon expiration of these agreements, we are required to re-negotiate and renew them in order to
continue providing content from these content publishers on our streaming platform. We have in the past been unable, and in the future may not be able, to
reach a satisfactory agreement with certain content publishers before our existing agreements have expired. If we are unable to renew such agreements on a
timely basis on mutually agreeable terms, we may be required to temporarily or permanently remove certain channels from our streaming platform. The loss
of such channels from our streaming platform for any period of time may harm our business. More broadly, if we fail to
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maintain our relationships with the content publishers on terms favorable to us, or at all, or if these content publishers face problems in delivering their
content across our platform, we may lose channel partners or users and our business may be harmed.
If we are unable to maintain an adequate supply of quality video ad inventory on our platform or effectively sell our available video ad
inventory, our business may be harmed.
Our business model depends on our ability to grow video ad inventory on our streaming platform and sell it to advertisers. While The Roku
Channel serves as a valuable source of video ad inventory for us to sell, we are also dependent on our ability to monetize video ad inventory within other ad-
supported channels on our streaming platform. We seek to obtain the ability to sell such inventory from the content publishers of such channels. We may fail
to attract content publishers that generate a sufficient quantity or quality of ad-supported content hours on our streaming platform, or fail to obtain access to a
sufficient quantity and quality of ad inventory from the publishers of such content. Our access to video ad inventory in ad-supported streaming channels on
our platform varies greatly among channels; accordingly, we do not have access to all of the video ad inventory on our platform. For certain channels,
including YouTube’s ad supported channel, we have no access to video ad inventory at this time, and we may not secure access in the future. The amount,
quality and cost of video ad inventory available to us can change at any time. If we are unable to grow and maintain a sufficient supply of quality video ad
inventory at reasonable costs to keep up with demand, our business may be harmed.
If our content publishers do not participate in new features that we may introduce from time to time, our business may be harmed.
As our streaming platform and products evolve, we will continue to introduce new features, which may or may not be attractive to our content
publishers or meet their requirements. For example, some content publishers have elected not to participate in our cross-channel search feature, our integrated
advertising framework, or have imposed limits on our data gathering for usage within their channels. In addition, our streaming platform utilizes our
proprietary Brightscript scripting language in order to allow our content publishers to develop and create channels on our streaming platform. If we introduce
new features or utilize a new scripting language in the future, such a change may not comply with our content publishers' certification requirements. In
addition, our content publishers may find other languages, such as HTML5, more attractive to develop for and shift their resources to developing their
channels on other platforms. If content publishers do not find our streaming platform simple and attractive to develop channels for, do not value and
participate in all of the features and functionality that our streaming platform offers, or determine that our software developer kit or new features of our
platform do not meet their certification requirements, our business may be harmed.
If the advertising and audience development campaigns and other promotional advertising on our platform are not relevant or not engaging
to our users, our growth in active accounts and streaming hours may be adversely impacted.
We have made, and are continuing to make, investments to enable advertisers and content publishers to deliver relevant advertisement, audience
development campaigns and other promotional advertising to our users. Existing and prospective advertisers and content publishers may not be successful in
serving ads and audience development campaigns and sponsoring other promotional advertising that lead to and maintain user engagement. Those ads and
campaigns may seem irrelevant, repetitive or overly targeted and intrusive. We are continuously seeking to balance the objectives of our advertisers and
content publishers with our desire to provide an optimal user experience, but we may not be successful in achieving a balance that continues to attract and
retain users, advertisers and content publishers. If we do not introduce relevant advertisers, audience development campaigns and other promotional
adverting or such advertisements, audience development campaigns and other promotional advertising are overly intrusive and impede the use of our
streaming platform, our users may stop using our platform which will harm our business.
The Roku Channel may not continue to attract a large number of users and/or generate significant revenue from advertising, and our users
may not purchase Premium Subscriptions.
We operate The Roku Channel, which offers both ad-supported free access for users to a collection of films, television series and other content as
well as Premium Subscriptions, which allowing our users to pay for ad-free content from various content publishers, all on one streaming channel. We have
incurred, and will continue to incur, costs and expenses in connection with the development, expansion and operation of The Roku Channel, which we
monetize primarily through advertising. For example, in the first quarter of 2021, we acquired global content distribution rights, including rights to certain
projects in development, from the mobile-first video distribution service known as Quibi, and announced
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that The Roku Channel will become the home of such content. If our users do not continue to stream the free, ad-supported content we make available on The
Roku Channel, we will not have the opportunity to monetize The Roku Channel through revenue generated from advertising. In order to attract users to the
ad-supported content on The Roku Channel and drive streaming of ad-supported video on The Roku Channel, we must secure rights to stream content that is
appealing to our users and advertisers. In part, we do this by directly licensing certain content from content owners, such as television and movie studios. The
agreements that we enter into with these content owners have varying terms and provide us with rights to make specific content available through The Roku
Channel during certain periods of time. Upon expiration of these agreements, we are required to re-negotiate and renew these agreements with the content
owners, or enter into new agreements with other content owners, in order to obtain rights to distribute additional titles or to extend the duration of the rights
previously granted. If we are unable to enter into content license agreements on acceptable terms to access content that enables us to attract and retain users
of the ad-supported content on The Roku Channel, or if the content we do secure rights to stream, including for example the content that we acquired through
the Quibi transaction described above, is ultimately not appealing to our users and advertisers, usage of The Roku Channel may decline, and our business
may be harmed. Furthermore, if the advertisements on The Roku Channel are not relevant to our users or such advertisements are overly intrusive and
impede our users’ enjoyment of the available content, our users may not stream content and view advertisements on The Roku Channel, and The Roku
Channel may not generate sufficient revenue from advertising to be cost effective for us to operate, regardless of our ability to sell Premium Subscriptions. In
addition, we distribute The Roku Channel on platforms other than our own streaming platform, and there can be no assurance that we will be successful in
attracting a large number of users and/or generating significant revenue from advertising through the distribution of The Roku Channel on such other
streaming platforms.
If our users sign up for offerings and services outside of our platform or through other channels on our platform, our business may be
harmed.
We earn revenue by acquiring subscribers for certain of our content publishers activated on or through our platform. If users do not use our
platform for these purchases or subscriptions for any reason, and instead pay for services directly with content publishers or by other means that we do not
receive attribution for, our business may be harmed. In addition, certain channels available on our platform allow users to purchase additional streaming
services from within their channels. The revenue we earn from these transactions is generally not equivalent to the revenue we earn from activations on or
through our platform that we receive full attribution credit for. Furthermore, for Premium Subscriptions, we only earn revenue for SVOD channels, including
subscriptions to these services through The Roku Channel. Accordingly, if users activate subscriptions for SVOD channels, including channels available as
Premium Subscriptions, other than on our platform, our business may be harmed.
We operate in a rapidly evolving industry that will be impacted by many factors that our outside of our control, which makes it difficult to
evaluate our business and prospects.
TV streaming is a rapidly evolving industry, making our business and prospects difficult to evaluate. The growth and profitability of this industry
and the level of demand and market acceptance for our products and streaming platform are subject to a high degree of uncertainty. We believe that the
continued growth of streaming as an entertainment alternative will depend on the availability and growth of cost-effective broadband internet access, the
quality of broadband content delivery, the quality and reliability of new devices and technology, the cost for users relative to other sources of content, as well
as the quality and breadth of content that is delivered across streaming platforms. Accordingly, the future evolution of TV streaming as an industry, which is
likely to impact our success, is dependent many of the factors that are outside of our control.
Changes in consumer viewing habits could harm our business.
The manner in which consumers access streaming content is changing rapidly. As the technological infrastructure for internet access continues to
improve and evolve, consumers will be presented with more opportunities to access video, music and games on-demand with interactive capabilities. Time
spent on mobile devices is growing rapidly, in particular by young adults streaming content as well as content from cable or satellite providers available live
or on-demand on mobile devices. In addition, personal computers, smart TVs, DVD players, Blu-ray players, gaming consoles and cable set-top boxes allow
users to access streaming content. If other streaming or technology providers are able to respond and take advantage of changes in consumer viewing habits
and technologies better than us, our business could be harmed.
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New entrants may enter the TV streaming market with unique service offerings or approaches to providing video. In addition, our competitors
may enter into business combinations or alliances that strengthen their competitive positions. If new technologies render the TV streaming market obsolete or
we are unable to successfully compete with current and new competitors and technologies, our business will be harmed.
We and our Roku TV brand partners depend on our retail sales channels to effectively market and sell our players and Roku TV models, and
if we or our partners fail to maintain and expand effective retail sales channels, we could experience lower player or Roku TV model sales.
To continue to increase our active accounts, we must maintain and expand our retail sales channels. The majority of our players and our TV brand
partners' Roku TV models are sold through traditional brick and mortar retailers, such as Best Buy, Target and Walmart, including their online sales
platforms, and online retailers such as Amazon. To a lesser extent, we sell players directly through our website and internationally through distributors. For
the year ended December 31, 2020, Amazon, Best Buy and Walmart in total accounted for 69% of our player segment revenue. These three retailers
collectively accounted for 72% and 68% of our player revenue for the years ended December 31, 2019 and 2018, respectively. These retailers and our
international distributors also sell products offered by our competitors. We have no minimum purchase commitments or long-term contracts with any of these
retailers or distributors. If one or several retailers or distributors were to discontinue selling our players or our TV brand partners' Roku TV models, choose
not to prominently display those devices in their stores or on their websites, or close or severely limit access to their brick and mortar locations because of
shutdowns related to the COVID-19 pandemic, the volume of our streaming devices sold could decrease, which would harm our business. If any of our
existing TV brands choose to work exclusively with, or divert a significant portion of their business with us to, other operating system developers, this may
impact our ability to license the Roku OS and our smart TV reference design to TV brands and our ability to continue to grow active accounts. Traditional
retailers have limited shelf and end cap space in their stores and limited promotional budgets, and online retailers have limited prime website product
placement space. Competition is intense for these resources, and a competitor with more extensive product lines and stronger brand identity, such as Amazon
or Google, possesses greater bargaining power with retailers. In addition, one of our online retailers, Amazon, sells its own competitive streaming devices
and is able to market and promote these products more prominently on its website, and could refuse to offer or promote our devices on its website. Any
reduction in our ability to place and promote our devices, or increased competition for available shelf or website placement, could require us to increase our
marketing expenditures to maintain our product visibility or result in reduced visibility for our products, which may harm our business. In particular, the
availability of product placement during peak retail periods, such as the holiday season, is critical to our revenue growth, and if we are unable to effectively
sell our devices during these periods, our business would be harmed.
If our efforts to build a strong brand and maintain customer satisfaction and loyalty are not successful, we may not be able to attract or retain
users, and our business may be harmed.
Building and maintaining a strong brand is important to attract and retain users, as potential users have a number of TV streaming choices.
Successfully building a brand is a time consuming and comprehensive endeavor and can be positively and negatively impacted by any number of factors.
Certain factors, such as the quality or pricing of our players or our customer service, are within our control. Other factors, such as the quality and reliability of
Roku TV models and the quality of the content that our content publishers provide, may be out of our control, yet users may nonetheless attribute those
factors to us. Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can. Many of our
competitors are larger companies and promote their brands through traditional forms of advertising, such as print media and TV commercials, and have
substantial resources to devote to such efforts. Our competitors may also have greater resources to utilize digital advertising or website product placement
more effectively than we can. If we are unable to execute on building a strong brand, it may be difficult to differentiate our business and streaming platform
from our competitors in the marketplace, therefore our ability to attract and retain users may be adversely affected and our business may be harmed.
Our streaming platform allows our users to choose from thousands of channels, representing a variety of content from a wide range of content
publishers. Our users can choose and control which channels they download and watch, and they can use certain settings to prevent channels from being
downloaded to our streaming devices. While we have policies that prohibit the publication of content that is unlawful, incites illegal activities or violates
third-party rights, among other things, we may distribute channels that include controversial content. Controversies related to the content included on certain
of the channels that we distribute could result in negative publicity, cause harm to our reputation and brand, or subject us to claims and may harm our
business.
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We are subject to payment-related risks and, if our advertisers or advertising agencies do not pay or dispute their invoices, our business may
be harmed.
Many of our contracts with advertising agencies provide that if the advertiser does not pay the agency, the agency is not liable to us, and we must
seek payment solely from the advertiser, a type of arrangement called sequential liability. Contracting with these agencies, which in some cases have or may
develop higher-risk credit profiles, may subject us to greater credit risk than if we were to contract directly with advertisers. This credit risk may vary
depending on the nature of an advertising agency’s aggregated advertiser base. In addition, typically, we are contractually required to pay advertising
inventory data suppliers within a negotiated period of time, regardless of whether our advertisers or advertising agencies pay us on time, or at all. In addition,
we typically experience slow payment cycles by advertising agencies as is common in the advertising industry. While we attempt to balance payment periods
with our suppliers and advertisers and advertising agencies, we are not always successful. As a result, we can often face a timing issue with our accounts
payable on shorter cycles than our accounts receivables, requiring us to remit payments from our own funds, and accept the risk of credit losses.
We may also be involved in disputes with agencies and their advertisers over the operation of our streaming platform, the terms of our agreements
or our billings for purchases made by them through on our streaming platform or through our DSP. If we are unable to collect or make adjustments to bills,
we could incur credit losses, which could have a material adverse effect on our results of operations for the periods in which the write-offs occur. In the
future, bad debt may exceed reserves for such contingencies and our bad debt exposure may increase over time. Any increase in write-offs for bad debt could
have a materially negative effect on our business, financial condition and operating results. If we are not paid by our advertisers or advertising agencies on
time or at all, our business may be harmed.
The quality of our customer support is important to our users and licensees, and, if we fail to provide adequate levels of customer support, we
could lose users and licensees, which would harm our business.
Our users and licensees depend on our customer support organization to resolve any issues relating to our devices. A high level of support is
critical for the successful marketing and sale of our devices. We currently outsource our customer support operation to a third-party customer support
organization. If we do not effectively train, update and manage our third-party customer support organization to assist our users, and if that support
organization does not succeed in helping them quickly resolve issues or provide effective ongoing support, it could adversely affect our ability to sell our
devices to users and harm our reputation with potential new users and our licensees.
We must successfully manage streaming device and other product introductions and transitions to remain competitive.
We must continually develop new and improved streaming devices and other products that meet changing consumer demands. Moreover, the
introduction of a new streaming device or other product is a complex task, involving significant expenditures in research and development, promotion and
sales channel development. For example, in 2018, we introduced our Roku TV Wireless Speakers, designed specifically for use with Roku TV models, in
2019 we introduced our Roku Smart Soundbar and Roku Wireless Subwoofer, and in 2020 we launched our Roku Streambar. Whether users will broadly
adopt new streaming devices or other products is not certain. Our future success will depend on our ability to develop new and competitively priced
streaming devices and other products and add new desirable content and features to our streaming platform. Moreover, we must introduce new streaming
devices and other products in a timely and cost-effective manner, and we must secure production orders for those products from our contract manufacturers.
The development of new streaming devices and other products is a highly complex process, and while our research and development efforts are aimed at
solving increasingly complex problems, we do not expect that all of our projects will be successful. The successful development and introduction of new
streaming devices and products depends on a number of factors, including:
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the accuracy of our forecasts for market requirements beyond near term visibility;
our ability to anticipate and react to new technologies and evolving consumer trends;
our development, licensing or acquisition of new technologies;
our timely completion of new designs and development;
the ability of our contract manufacturers to cost-effectively manufacture our new products;
the availability of materials and key components used in manufacturing;
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tariffs and trade and export restrictions by the U.S. or foreign governments which could impact the pricing and availability of such devices and
depress consumer demand; limit the ability of our contract manufacturers to obtain key parts, components, software, and technologies; lead to
shortages; and
our ability to attract and retain world-class research and development personnel.
If any of these or other factors materializes, we may not be able to develop and introduce new products in a timely or cost-effective manner, and
our business may be harmed.
We do not have manufacturing capabilities and primarily depend upon a limited number of contract manufacturers, and our operations could
be disrupted if we encounter problems with our contract manufacturers.
We do not have any internal manufacturing capabilities and rely on a limited number of contract manufacturers to build our players, smart
soundbars, wireless subwoofers and our wireless speakers. Our contract manufacturers are vulnerable to:
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capacity constraints,
reduced component availability,
production disruptions or delays, including from strikes, mechanical issues, quality control issues, natural disasters, and public health crises, such
as the pandemic caused by the outbreak of the coronavirus, known as COVID-19; and
the impact of U.S. or foreign tariffs or trade restrictions on components, finished goods, software, or other products;
increases in U.S. tariffs on imports of our players; and
foreign tariffs on U.S. parts or components for finished players or other Roku products that are assembled in Asia.
As a result, we have limited control over delivery schedules, manufacturing yields and costs, particularly when components are in short supply or
when we introduce new streaming devices or other products. For example, during the quarter ended March 31, 2020, one of our contract manufacturers
experienced extended factory closures related to the spread of COVID-19 resulting in supply chain disruptions for our players and elevated air freight costs to
meet demand.
We also have limited control over our contract manufacturers’ quality systems and controls, and therefore must rely on them to manufacture our
players and other products to our quality and performance standards and specifications. Delays, component shortages and other manufacturing and supply
problems could impair the retail distribution of our players and other products and ultimately our brand. Furthermore, any adverse change in our contract
manufacturer’s financial or business condition could disrupt our ability to supply our players or other products to our retailers and distributors.
Our contracts with our contract manufacturers generally do not obligate them to supply our players or other products in any specific quantity or at
any specific price. In the event our contract manufacturers are unable to fulfill our production requirements in a timely manner, their costs increase because of
U.S. or international tariffs or export or import restrictions, or they decide to terminate their relationship with us, our order fulfillment may be delayed, and
we would have to identify, select and qualify acceptable alternative contract manufacturers. Alternative contract manufacturers may not be available to us
when needed or may not be in a position to satisfy our production requirements at commercially reasonable prices, to our quality and performance standards
or at all. Any significant interruption in manufacturing at our contract manufacturers for any reason could require us to reduce our supply of players or other
products to our retailers and distributors, which in turn would reduce our revenue, or to incur higher freight costs than anticipated, which would negatively
impact our player gross margin. In addition, our contract manufacturer’s facilities are located in Southeast Asia, the People’s Republic of China and Brazil
and may be subject to political, economic, labor, trade, social and legal uncertainties that may harm or disrupt our relationships with these parties. We believe
that the international location of these facilities increases supply risk, including the risk of supply interruptions, tariffs, and trade restrictions on exports or
imports. Furthermore, any manufacturing issues affecting the quality of our products, including players and audio products, could harm our business.
If our contract manufacturers fail for any reason to continue manufacturing our players or other products in required volumes and at high quality
levels, or at all, we would have to identify, select and qualify acceptable alternative contract manufacturers. Alternative contract manufacturers may not be
available to us when needed, or at all, or may not be
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in a position to satisfy our production requirements at commercially reasonable prices, to our quality and performance standards, or at all. Any significant
interruption in manufacturing at a contract manufacturer could require us to reduce our supply of players or other products to our retailers and distributors,
which in turn would reduce our revenue, active account growth or streaming hour growth.
Certain Roku TV brands do not have manufacturing capabilities and primarily depend upon contract manufacturers, and the supply of Roku
TV models to the market could be disrupted if they encounter problems with their contract manufacturers or suppliers.
Certain Roku TV brands do not have internal manufacturing capabilities and primarily rely upon contract manufacturers to build the Roku TV
models that they sell to retailers. Their contract manufacturers may be vulnerable to capacity constraints and reduced component availability, increases in
U.S. tariffs on imports of Roku TV models, future possible changes in U.S. regulations on exports of U.S. technologies or dealings with certain countries or
parties, foreign tariffs on U.S. parts or components for Roku TV models that are assembled outside of the U.S., and their control over delivery schedules,
manufacturing yields and costs, particularly when components are in short supply may be limited. Delays, component shortages, factory shutdowns due to the
COVID-19 pandemic and other manufacturing and supply problems could impair the retail distribution of their Roku TV models. A significant interruption
in the supply of Roku TV models to retailers and distributors could, in turn, reduce our active accounts and streaming hours.
Furthermore, any manufacturing issues affecting the quality of our Roku TV brand partners’ Roku TV models, could harm our brand and our
business.
If we fail to accurately forecast our manufacturing requirements and manage our inventory with our contract manufacturers, we could incur
additional costs, experience manufacturing delays and lose revenue.
We bear supply risk under our contract manufacturing arrangements. Lead times for the materials and components that our contract manufacturers
order on our behalf through different component suppliers vary significantly and depend on numerous factors, including the specific supplier, contract terms
and market demand for a component at a given time. Lead times for certain key materials and components incorporated into our players or other products are
currently lengthy, requiring our contract manufacturers to order materials and components several months in advance. If we overestimate our production
requirements, our contract manufacturers may purchase excess components and build excess inventory. If our contract manufacturers, at our request,
purchase excess components that are unique to our products or build excess products, we could be required to pay for these excess components or products.
In the past, we have agreed to reimburse our contract manufacturers for purchased components that were not used as a result of our decision to discontinue a
certain model of player or the use of particular components. If we incur costs to cover excess supply commitments, this would harm our business.
Conversely, if we underestimate our player or other product requirements, our contract manufacturers may have inadequate component inventory,
which could interrupt the manufacturing of our players or other products and result in delays or cancellation of orders from retailers and distributors. In
addition, from time to time we have experienced unanticipated increases in demand that resulted in the need to ship players via air freight, which is more
expensive than ocean freight, and adversely affected our player gross margin during such periods of high demand, for example, during end-of-year holidays.
If we fail to accurately forecast our manufacturing requirements, our business may be harmed.
Our players incorporate key components from sole source suppliers and if our contract manufacturers are unable to source these components
on a timely basis, due to fabrication capacity issues or other material supply constraints, we will not be able to deliver our players to our retailers and
distributors.
We depend on sole source suppliers for key components in our players. Our players utilize specific system on chip, or SoC, Wi-Fi silicon products
and Wi-Fi front-end modules from various manufacturers, depending on the player, for which we do not have a second source. Although this approach allows
us to maximize player performance on lower cost hardware, reduce engineering qualification costs and develop stronger relationships with our strategic
suppliers, this also creates supply chain risk. These sole-source suppliers could be constrained by fabrication capacity issues or material supply issues, such as
tariffs or other export or import restrictions on U.S. parts or components for finished players that are used in final assembly of their components or on the
finished players themselves. There is also the risk that the strategic supplier may stop producing such components, cease operations or be acquired by, or
enter into exclusive arrangements with, our competitors or other companies, or become subject to U.S. or foreign sanctions or export control restrictions or
penalties.
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Such suppliers may also face production, shipping, or logistical constraints arising from the COVID-19 pandemic. Any such interruption or delay may force
us to seek similar components from alternative sources, which may not be available. Switching from a sole-source supplier would require that we redesign
our players to accommodate new components and would require us to re-qualify our players with regulatory bodies, such as the Federal Communications
Commission (“FCC”), which would be costly and time-consuming.
Our reliance on sole-source suppliers involves a number of additional risks, including risks related to:
supplier capacity constraints;
price increases;
timely delivery;
component quality; and
delays in, or the inability to execute on, a supplier roadmap for components and technologies.
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Any interruption in the supply of sole-source components for our players could adversely affect our ability to meet scheduled player deliveries to
our retailers and distributors, result in lost sales and higher expenses and harm our business.
Our players and Roku TV models must operate with various offerings, technologies and systems from our content publishers that we do not
control. If our streaming devices do not operate effectively with those offerings, technologies and systems, our business may be harmed.
The Roku OS is designed for performance using relatively low-cost hardware, which enables us to drive user growth with our players and Roku
TV models offered at a low cost to consumers. However, this hardware must be interoperable with all channels and other offerings, technologies and systems
from our content publishers, including virtual multi-channel video programming distributors. We have no control over these offerings, technologies and
systems beyond our channel certification requirements, and if our players and Roku TV models do not provide our users with a high-quality experience on
those offerings on a cost-effective basis or if changes are made to those offerings that are not compatible with our players or Roku TV models, we may be
unable to increase active account growth and user engagement, we may be required to increase our hardware costs and our business will be harmed. We plan
to continue to introduce new products regularly and we have experienced that it takes time to optimize such products to function well with these offerings,
technologies and systems. In addition, many of our largest content publishers have the right to test and certify our new products before we can publish their
channels on these devices. The certification processes can be time consuming and introduce third-party dependencies into our product release cycles. If
content publishers do not certify new products on a timely basis or require us to make changes in order to obtain certifications, our product release plans may
be adversely impacted, or we may not continue to offer certain channels. To continue to grow our active accounts and user engagement, we will need to
prioritize development of our streaming devices to work better with new offerings, technologies and systems. If we are unable to maintain consistent
operability of our devices that is on parity with or better than other platforms, our business could be harmed. In addition, any future changes to offerings,
technologies and systems from our content publishers, such as virtual service operators, may impact the accessibility, speed, functionality, and other
performance aspects of our streaming devices. We may not successfully develop streaming devices that operate effectively with these offerings, technologies
or systems. If it becomes more difficult for our users to access and use these offerings, technologies or systems, our business could be harmed.
Our streaming devices are technically complex and may contain undetected hardware errors or software bugs, which could manifest
themselves in ways that could harm our reputation and our business.
Our streaming devices and those of our licensees are technically complex and have contained and may in the future contain undetected software
bugs or hardware errors. These bugs and errors can manifest themselves in any number of ways in our devices or our streaming platform, including through
diminished performance, security vulnerabilities, data quality in logs or interpretation of data, malfunctions or even permanently disabled devices. Some
errors in our devices may only be discovered after a device has been shipped and used by users and may in some cases only be detected under certain
circumstances or after extended use. We also update the Roku OS and our software on a regular basis, and, despite our quality assurance processes, we could
introduce bugs in the process of any such update. The introduction of a serious software bug could result in devices becoming permanently disabled. We offer
a limited one-year warranty in the United States and any such defects discovered in our devices after commercial release could result in loss of revenue or
delay in revenue recognition, loss of customer goodwill and users and increased service costs, any of which could harm our business, operating results and
financial condition. We could also face claims for product or information liability, tort or breach of warranty, or other violations of laws or regulations. In
addition, our contracts with users contain provisions
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relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert
management’s attention and adversely affect the market’s perception of Roku and our products. In addition, if our insurance coverage proves inadequate or
future coverage is unavailable on acceptable terms or at all, our business could be harmed.
Components used in our products may fail as a result of manufacturing, design or other defects over which we have no control and render
our devices permanently inoperable.
We rely on third-party component suppliers to provide certain functionalities needed for the operation and use of our products. Any errors or
defects in such third-party technology could result in errors in our products that could harm our business. If these components have a manufacturing, design
or other defect, they can cause our products to fail and render them permanently inoperable. For example, the typical means by which our users connect their
home networks to our players is by way of a Wi-Fi access point in the home network router. If the Wi-Fi receiver in our player fails, then our player cannot
detect a home network’s Wi-Fi access point, and our player will not be able to display or deliver any content to the TV screen. As a result, we may have to
replace these players at our sole cost and expense. Should we have a widespread problem of this kind, our reputation in the market could be adversely
affected and our replacement of these players would harm our business.
If we are unable to obtain necessary or desirable third-party technology licenses, our ability to develop new streaming players or platform
enhancements may be impaired.
We utilize commercially available off-the-shelf technology in the development of our players and streaming platform. As we continue to
introduce new features or improvements to our players and our streaming platform, we may be required to license additional technologies from third parties.
These third-party licenses may be unavailable to us on commercially reasonable terms, if at all. If we are unable to obtain necessary third-party licenses, we
may be required to obtain substitute technologies with lower quality or performance standards, or at a greater cost, any of which could harm the
competitiveness of our players, streaming platform and our business.
Risks Related to Operating and Growing Our Business
We have incurred operating losses in the past, expect to incur operating losses in the future and may never achieve or maintain profitability.
We began operations in 2002 and we have experienced net losses and negative cash flows from operations in each year since inception. As of
December 31, 2020, we had an accumulated deficit of $332.4 million and for the year ended December 31, 2020 we experienced a net loss of $17.5 million.
We expect our operating expenses to increase in the future as we continue to expand our operations. If our revenue and gross profit do not grow at a greater
rate than our operating expenses, we will not be able to achieve and maintain profitability. We expect to incur significant losses in the future for a number of
reasons, including without limitation the other risks and uncertainties described herein. Additionally, we may encounter unforeseen operating or legal
expenses, difficulties, complications, delays and other factors that may result in losses in future periods. If our expenses exceed our revenue, we may never
achieve or maintain profitability and our business may be harmed.
Our quarterly operating results may be volatile and are difficult to predict, and our stock price may decline if we fail to meet the expectations
of securities analysts or investors.
Our revenue, gross profit and other operating results could vary significantly from quarter-to-quarter and year-to-year and may fail to match our
past performance due to a variety of factors, including many factors that are outside of our control. Factors that may contribute to the variability of our
operating results and cause the market price of our Class A common stock to fluctuate include:
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the entrance of new competitors or competitive products or services, whether by established or new companies;
our ability to retain and grow our active account base, increase engagement among new and existing users, and monetize our streaming platform;
our ability to maintain effective pricing practices, in response to the competitive markets in which we operate or other macroeconomic factors,
such as inflation or increased taxes;
our revenue mix, which drives gross profit;
supply of advertising inventory on our advertising platform and advertiser demand for advertising inventory;
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seasonal, cyclical or other shifts in revenue from advertising or player sales;
the timing of the launch of new or updated products, channels or features;
the addition or loss of popular content or channels;
the expense and availability of content to license for The Roku Channel;
the ability of retailers to anticipate consumer demand;
an increase in the manufacturing or component costs of our players or the manufacturing or component costs of our TV brand licensees for Roku
TV models;
delays in delivery of our players or our partners’ Roku TV models, or disruptions in our or our licensees’ supply or distribution chains, including
any disruptions caused by the COVID-19 pandemic, tariffs, or other trade restrictions or disruptions; and
an increase in costs associated with protecting our intellectual property, defending against third-party intellectual property infringement allegations
or procuring rights to third-party intellectual property.
Our gross margins vary across our devices and platform offerings. Our player segment revenue has a lower gross margin compared to our
platform segment revenue derived through our arrangements with advertising, content distribution, billing, and licensing activities. Gross margins on our
players vary across player models and can change over time as a result of product transitions, pricing and configuration changes, component costs, player
returns and other cost fluctuations. In addition, our gross margin and operating margin percentages, as well as overall profitability, may be adversely
impacted as a result of a shift in device, geographic or sales channel mix, component cost increases, price competition, or the introduction of new streaming
devices, including those that have higher cost structures with flat or reduced pricing. We have in the past and may in the future strategically reduce our player
gross margin in an effort to increase the number of active accounts and grow our gross profit. As a result, our player segment revenue may not increase as
rapidly as it has historically, or at all, and, unless we are able to continue to increase our platform revenue and grow the number of active accounts, we may
be unable to grow gross profit and our business will be harmed. If a reduction in gross margin does not result in an increase in our active accounts or increase
our platform revenue and gross profit, our financial results may suffer, and our business may be harmed.
If we have difficulty managing our growth in operating expenses, our business could be harmed.
We have experienced significant growth in our research and development, sales and marketing, support services, operations, and general and
administrative functions in recent years and expect to continue to expand these activities. Our historical growth has placed, and expected future growth will
continue to place, significant demands on our management, as well as our financial and operational resources, to:
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hire more employees, including engineers with relevant skills and experience;
expand internationally;
increase our sales and marketing efforts;
expand the capacity to manufacture and distribute our players;
broaden our customer support capabilities;
support a larger number of TV brand and service operators;
implement appropriate operational and financial systems; and
maintain effective financial disclosure controls and procedures.
If we fail to manage our growth effectively, we may not be able to execute our business strategies and our business will be harmed.
We may be unable to successfully expand our international operations and our international expansion plans, if implemented, will subject us
to a variety of risks that may harm our business.
We currently generate the vast majority of our revenue in the United States and have limited experience marketing, selling, licensing and
supporting our devices and running or monetizing our streaming platform outside the United States. In addition, we have limited experience managing the
administrative aspects of a global organization. While we intend to continue to explore opportunities to expand our business in international markets in which
we see compelling opportunities, we may not be able to create or maintain international market demand for our devices and streaming platform.
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In the course of expanding our international operations and operating overseas, in addition to the risks we face in the United States, we will be
subject to a variety of risks that could adversely affect our business, including:
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differing regulatory requirements, including country-specific data privacy and security laws and regulations, consumer protection laws and
regulations, tax laws, trade laws, labor regulations, tariffs, export quotas, custom duties on cross-border movements of goods or data flows,
extension of limits on TV advertising minutes to OTT advertising, local content requirements, data or data processing localization requirements,
or other trade restrictions;
compliance with laws such as the Foreign Corrupt Practices Act, UK Bribery Act and other anti-corruption laws, U.S. or foreign export controls
and sanctions, and local laws prohibiting corrupt payments to government officials;
compliance with various privacy, data transfer, data protection, accessibility, consumer protection and child protection laws in the European Union
(“EU”) and other international markets that we operate in;
slower adoption and acceptance of streaming devices and services in other countries;
competition with other devices that consumers may use to stream TV or existing local traditional pay TV services and products, including those
provided by incumbent pay TV service providers;
greater difficulty supporting and localizing our streaming devices and streaming platform, including delivering support and training
documentation in languages other than English;
our ability to deliver or provide access to popular streaming channels or content to users in certain international markets;
different or unique competitive pressures as a result of, among other things, the presence of local consumer electronics companies and the greater
availability of free content on over-the-air channels in certain countries;
availability of reliable broadband connectivity and wide area networks in areas targeted for expansion;
challenges inherent in efficiently staffing and managing an increased number of employees over large geographic distances, including the need to
implement appropriate systems, policies, compensation and benefits, and compliance programs;
difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions;
differing legal and court systems, including limited or unfavorable intellectual property protection;
unstable political and economic conditions whatever the cause, including pandemics, impacts from the United Kingdom’s withdrawal from the EU
(commonly referred to as “Brexit”), tariffs, trade wars, local or global recessions, or long-term environmental risks;
international political or social unrest or economic instability, including U.S.-China tensions, and other political, security, or economic tensions
between countries in which we do business or which serve as sources for Roku products;
adverse tax consequences such as those related to changes in tax laws or tax rates or their interpretations could impact our judgment in
determining our tax provision and effective tax rate;
the imposition of customs duties on cross-border data flows for streaming services, which are currently prohibited under the WTO’s e-commerce
moratorium, but could be permitted if certain WTO Members continue to oppose extension of the moratorium when it is considered at the WTO’s
MC-12 Ministerial Meeting, which was postponed due to the COVID-19 pandemic and is scheduled to take place in 2021;
digital services taxes, which have been imposed or are under consideration by several European and other countries, which would lead to taxes on
certain digital services even though the providers would not be subject to tax under existing international tax rules and treaties;
the COVID-19 pandemic or any other pandemics or epidemics could result in decreased economic activity in certain markets, decreased use of
our products or platform, or in our decreased ability to import, export, ship, or sell our products to supply such services to existing or new
customers in international markets;
fluctuations in currency exchange rates could impact our revenue and expenses of our international operations and expose us to foreign currency
exchange rate risk;
restrictions on the repatriation of earnings from certain jurisdictions;
future possible changes in U.S. regulations on exports of U.S. technologies or dealings with certain countries or parties, including expanding
export control restrictions on China and Hong Kong; and
working capital constraints.
If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our
business and financial condition may be harmed.
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Our revenue and gross profit are subject to seasonality and if our sales during the holiday season fall below our expectations, our business
may be harmed.
Seasonal consumer shopping patterns significantly affect our business. Specifically, our revenue and gross profit are traditionally strongest in the
fourth quarter of each fiscal year and represent a high percentage of the total net revenue for such fiscal year due to higher consumer purchases and increased
advertising during holiday seasons. Furthermore, a significant percentage of our player sales through retailers in the fourth quarter are pursuant to committed
sales agreements with retailers for which we recognize significant discounts in the average selling prices in the third quarter in an effort to grow our active
accounts, which will reduce our player gross margin.
Given the seasonal nature of advertising and our device sales, accurate forecasting is critical to our operations. We anticipate that this seasonal
impact on revenue and gross profit is likely to continue, and any shortfall in expected fourth quarter revenue due to a decline in the effectiveness of our
promotional activities, actions by our competitors, disruptions in our supply or distribution chain, tariffs or other restrictions on trade, or for any other reason,
would cause our full year results of operations to suffer significantly. For example, delays or disruptions at U.S. ports of entry could adversely affect our or
our distributors’ ability to timely deliver players and co-branded Roku TV models to retailers during the holiday season. A substantial portion of our
expenses are personnel related, including salaries, stock-based compensation and benefits, and facilities related none of which are seasonal in nature.
Accordingly, in the event of a revenue shortfall, we would be unable to mitigate the negative impact on gross profit and operating margins, at least in the
short term, and our business would be harmed.
If we fail to attract and retain key personnel, effectively manage succession, or hire, develop, and motivate our employees, we may not be able
to execute our business strategy or continue to grow our business.
Our success depends in large part on our ability to attract and retain key personnel on our senior management team and in our engineering,
research and development, sales and marketing, operations and other organizations. In particular, our founder, President and Chief Executive Officer,
Anthony Wood, is critical to our overall management, as well as the continued development of our devices and streaming platform, our culture and our
strategic direction. We do not have long-term employment or non-competition agreements with any of our key personnel. The loss of one or more of our
executive officers or the inability to promptly identify a suitable successor to a key role could have an adverse effect on our business.
Our ability to compete and grow depends in large part on the efforts and talents of our employees. Our employees, particularly engineers and
other product developers, are in high demand, and we devote significant resources to identifying, hiring, training, successfully integrating and retaining these
employees. Because we face significant competition for personnel, particularly in the San Francisco Bay Area where our headquarters is located, to attract
top talent, we have had to offer, and believe we will need to continue to offer, competitive compensation packages before we can validate the productivity of
those employees. To retain employees, we also may need to increase our employee compensation levels in response to competition. The loss of employees or
the inability to hire additional skilled employees is necessary to support our growth could result in significant disruptions to our business, and the integration
of replacement personnel could be time-consuming and expensive and cause disruptions.
We believe a critical component to our success and our ability to retain our best people is our culture. As we continue to grow, we may find it
difficult to maintain our entrepreneurial, execution-focused culture. In addition, many of our employees may be able to receive significant proceeds from
sales of our equity in the public markets, which may reduce their motivation to continue to work for us. Moreover, the equity ownership of many of our
employees could create disparities in wealth among our employees, which may harm our culture and relations among employees and our business.
We need to maintain operational and financial systems that can support our expected growth, increasingly complex business arrangements,
and rules governing revenue and expense recognition and any inability or failure to do so could adversely affect our financial reporting, billing and
payment services.
We have a complex business that is growing in size and complexity both in the United States and in international jurisdictions. To manage our
growth and our increasingly complex business operations, especially as we move into new markets internationally or acquire new businesses, we will need to
maintain and may need to upgrade our operational and financial systems and procedures, which requires management time and may result in significant
additional expense. Our business arrangements with our content partners, advertisers, Roku TV brand partners and other licensees, and the rules that govern
revenue and expense recognition in our business are increasingly complex. To manage the expected growth of our
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operations and increasing complexity, we must maintain operational and financial systems, procedures and controls and continue to increase systems
automation to reduce reliance on manual operations. An inability to do so will negatively affect our financial reporting, billing and payment services. Our
current and planned systems, procedures and controls may not be adequate to support our complex arrangements and the rules governing revenue and
expense recognition for our future operations and expected growth. Delays or problems associated with any improvement or expansion of our operational and
financial systems and controls could adversely affect our relationships with our users, content publishers, advertisers, advertisement agencies, Roku TV brand
partners, or other licensees; cause harm to our reputation and brand; and could also result in errors in our financial and other reporting.
We may pursue acquisitions, which involve a number of risks, and if we are unable to address and resolve these risks successfully, such
acquisitions could harm our business.
We have in the past and may in the future acquire businesses, products or technologies to expand our offerings and capabilities, user base and
business. We have evaluated, and expect to continue to evaluate, a wide array of potential strategic transactions; however, we have limited experience
completing or integrating acquisitions. Any acquisition could be material to our financial condition and results of operations and any anticipated benefits
from an acquisition may never materialize. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could
adversely affect our operating results, may cause unfavorable accounting treatment, may expose us to claims and disputes by third parties, including
intellectual property claims, and may not generate sufficient financial returns to offset additional costs and expenses related to the acquisitions. In addition,
the process of integrating acquired businesses, products or technologies may create unforeseen operating difficulties and expenditures. Acquisitions of
businesses, products or technologies in international markets would involve additional risks, including those related to integration of operations across
different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries. We may not be
able to address these risks successfully, or at all, without incurring significant costs, delays or other operational problems and if we were unable to address
such risks successfully our business could be harmed.
We have outstanding debt and our credit facility provides our lender with a first-priority lien against substantially all of our assets and
contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our financial
condition.
We entered into a credit agreement among us, as borrower, the lenders and issuing banks from time to time party thereto, and Morgan Stanley
Senior Funding, Inc., or the Agent providing for a (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million, (the
“Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $100.0 million, (the “Term Loan A
Facility”) and (iii) an uncommitted incremental facility subject to certain conditions (collectively, the “Credit Agreement”). The Credit Agreement contains a
number of affirmative and negative covenants, which may restrict our current and future operations, particularly our ability to respond to certain changes in
our business or industry or take future actions. The Credit Agreement also contains a financial covenant requiring us to maintain a minimum adjusted quick
ratio of at least 1.00 to 1.00, tested as of the last day of any fiscal quarter on the basis of the prior period of our four consecutive fiscal quarters. Pursuant to
the Credit Agreement, we granted the Agent a security interest in substantially all of our assets. See the section titled “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Term Loan A and Revolving Credit
Facilities.”
In November 2019, we borrowed $100.0 million aggregate principal amount pursuant to the Term Loan A Facility and in March 2020, we
borrowed $69.3 million aggregate principal amount of revolving loans pursuant to the Revolving Credit Facility. In May 2020, we entered into the Equity
Distribution Agreement, pursuant to which we sold 4.0 million shares of our Class A common stock at an average selling price of $126.01 per share, for
aggregate gross proceeds of $504.0 million, a portion of which was used to repay the $69.3 million outstanding under our Revolving Credit Facility. We also
have outstanding letters of credit as of December 31, 2020 totaling $30.8 million against the Revolving Credit Facility.
As of December 31, 2020, we were in compliance with all of the financial covenants of the Credit Agreement. However, if we fail to comply with
the covenants, make payments as specified in the Credit Agreement, or undergo any other event of default contained in the Credit Agreement, the Agent
could declare an event of default, which would give it the right to terminate the commitments to provide additional loans and declare any borrowings
outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, the Agent would have the right to proceed
against the assets we provided as collateral pursuant to the Credit Agreement. If the outstanding debt under the
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Credit Agreement is accelerated, we may not have sufficient cash or be able to sell sufficient assets to repay it, which would harm our business and financial
condition.
When we borrowed pursuant to the Revolving Credit Facility, we chose a variable interest rate based on London Inter-bank Offered Rate
(“LIBOR”) as the benchmark for establishing the applicable interest rate. LIBOR is the subject of national, international and other regulatory guidance and
proposals for phase out. The future of LIBOR at this time is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity
related to LIBOR’s phaseout could cause LIBOR to perform differently than in the past or cease to exist. The consequences of the developments cannot be
entirely predicted and could have an adverse impact on the value of our LIBOR-linked financial obligations, such as an increase in the cost of our credit
agreement indebtedness.
We may require additional capital to meet our financial obligations and support planned business growth, and this capital might not be
available on acceptable terms or at all.
We intend to continue to make significant investments to support planned business growth and may require additional funds to respond to
business challenges, including the need to develop new devices and enhance our streaming platform, maintain adequate levels of inventory to support our
retail partners’ demand requirements, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Our primary
uses of cash include operating costs such as personnel-related expenses and capital spending. Our future capital requirements may vary materially from those
currently planned and will depend on many factors including our growth rate and the continuing market acceptance of our streaming platform, the Roku OS
and players along with the timing and effort related to the introduction of new platform features, players, hiring of experienced personnel, the expansion of
sales and marketing activities, as well as overall economic conditions.
We may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or
convertible debt securities, our then existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights,
preferences and privileges superior to those of holders of our Class A common stock. Any debt financing we secure could involve additional restrictive
covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional
capital and to pursue business opportunities, including potential acquisitions. If we were to violate such restrictive covenants, we could incur penalties,
increased expenses and an acceleration of the payment terms of our outstanding debt, which could in turn harm our business.
We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on
terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly
impaired, and our business may be harmed.
Risks Related to Cybersecurity, Reliability, and Data Privacy
Significant disruptions of our information technology systems or data security incidents could harm our reputation, cause us to modify our
business practices and otherwise adversely affect our business and subject us to liability.
We are increasingly dependent on information technology systems and infrastructure to operate our business. In the ordinary course of our
business, we collect, store, process and transmit large amounts of sensitive corporate, personal and other information, including intellectual property,
proprietary business information, user payment card information, other user information and other confidential information. It is critical that we do so in a
secure manner to maintain the confidentiality, integrity and availability of such information. Our obligations under applicable laws, regulations, contracts,
industry standards, self-certifications, and other documentation may include maintaining the confidentiality, integrity and availability of personal information
in our possession or control, maintaining reasonable and appropriate security safeguards as part of an information security program, and limits on the use
and/or cross-border transfer of such personal information. These obligations create potential legal liability, to regulators, our business partners, our users, and
other relevant stakeholders and also impact the attractiveness of our subscription service to existing and potential users.
We have outsourced certain elements of our operations (including elements of our information technology infrastructure) to third parties, or may
have incorporated technology into our platform, that collects, processes, transmits
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and stores our users’ or others’ personal information (such as payment card information) and as a result, we manage a number of third-party vendors who
may or could have access to our information technology systems (including our computer networks) or to our confidential information. In addition, many of
those third parties in turn subcontract or outsource some of their responsibilities to third parties. As a result, our information technology systems, including
the functions of third parties that are involved or have access to those systems, is very large and complex. While all information technology operations are
inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the size, complexity, accessibility and distributed
nature of our information technology systems, and the large amounts of sensitive or personal information stored on those systems, make such systems
potentially vulnerable to unintentional or malicious, internal and external threats on our technology environment. Vulnerabilities can be exploited from
inadvertent or intentional actions of our employees, third-party vendors, business partners, or by malicious third parties. Attacks of this nature are increasing
in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a
wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states and
others. For example, despite our efforts to secure our information technology systems and the data contained in those systems, including any efforts to
educate or train our employees, we remain vulnerable to phishing attacks.
Although we have, and may in the future, implement remote working protocols and offer work-issued devices to employees, the actions of our
employees while working remotely may have a greater effect on the security of our systems and the data we process, including by increasing the risk of
compromise to our systems or data arising from employees’ combined personal and private use of devices, accessing our systems or data using wireless
networks that we do not control, or the ability to transmit or store company-controlled data outside of our secured network. These risks have been heightened
by the dramatic increase in the numbers of our employees who have been and are continuing to work from home as a result of government guidelines and
internal policies that have been put in place in response to the COVID-19 pandemic.
In addition to the threat of unauthorized access or acquisition of sensitive or personal information, other threats could include the deployment of
harmful malware, ransomware attacks, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the
confidentiality, integrity and availability of information. Some of these external threats may be amplified by the nature of our third-party web hosting, cloud
computing, or network-dependent streaming services or suppliers. Our systems likely experience directed attacks on at least a periodic basis that are intended
to interrupt our operations; interrupt our users’, content publishers’ and advertisers’ ability to access our platform; extract money from us; and/or obtain our
data (including without limitation user or employee personal information or proprietary information). Although we have implemented certain systems,
processes, and safeguards intended to protect our information technology systems and data from such threats and mitigate risks to our systems and data, we
cannot be certain that threat actors will not have a material impact on our systems or services in the future. Our safeguards intended to prevent or mitigate
certain threats may not be sufficient to protect our information technology systems and data due to the developing sophistication and means of attack in the
threat landscape. Recent developments in the threat landscape include an increased number of cyber extortion and ransomware attacks, with increases in the
amount of ransom demands and the sophistication and variety of ransomware techniques and methodology. Additionally, our third-party vendors or business
partners’ information technology systems may be vulnerable to similar threats and our business could be affected by those or similar third-party relationships.
We maintain insurance policies to cover certain losses relating to our information technology systems. However, there may be exceptions to our
insurance coverage such that our insurance policies may not cover some or all aspects of a security incident. Even where an incident is covered by our
insurance, the insurance limits may not cover the costs of complete remediation and redress that we may be faced with in the wake of a security incident. The
successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies
(including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition,
we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our
insurers will not deny coverage as to any future claim. Though it is difficult to determine what harm may directly result from any specific interruption or
breach, any failure to maintain performance, reliability, security and availability of our network infrastructure to the satisfaction of our users, business
partners, regulators or other relevant stakeholders may harm our reputation and our ability to retain existing users and attract new users. Because of our
prominence in the TV streaming industry, we believe we may be a particularly attractive target for threat actors. Our platform also incorporates licensed
software from third parties, including open-source software, and we may also be vulnerable to attacks that focus on such third-party software. Any attempts
by threat actors to
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disrupt our platform, our streaming devices, website, computer systems or our mobile apps, if successful, could harm our business, subject us to liability, be
expensive to remedy, cause harm to our systems and operations and damage our reputation. Efforts to prevent threat actors from entering our computer
systems or exploiting vulnerabilities in our devices are expensive to implement and may not be effective in detecting or preventing intrusion or
vulnerabilities. Such unauthorized access to our data could damage our reputation and our business and could expose us to the risk of contractual damages,
litigation and regulatory fines and penalties that could harm our business. The risk of harm to our business caused by security incidents may also increase as
we expand our product and service offerings and as we enter into new markets. Implementing, maintaining, and updating security safeguards requires
substantial resources now and will likely be an increasing and substantial cost in the future.
Significant disruptions of our third-party vendors’ and/or commercial partners’ information technology systems or other similar data security
incidents could adversely affect our business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the
prevention of access to, sensitive or personal information, which could harm our business. In addition, information technology system disruptions, whether
from attacks on our technology environment or from computer viruses, natural disasters, terrorism, war and telecommunication and electrical failures, could
result in a material disruption of our product development and our business operations.
There is no way of knowing with certainty whether we have experienced any data security incidents that have not been discovered. While we
have no reason to believe that we have experienced a data security incident that we have not discovered, attackers have become very sophisticated in the way
they conceal their unauthorized access to systems, and many companies that have been attacked are not aware that they have been attacked. Any event that
leads to unauthorized access, use or disclosure of personal information, including but not limited to personal information regarding our users, could disrupt
our business, harm our reputation, compel us to comply with applicable federal and/or state breach notification laws and foreign law equivalents, subject us
to time consuming, distracting and expensive litigation, regulatory investigation and oversight, mandatory corrective action, require us to verify the
correctness of database contents, or otherwise subject us to liability under laws, regulations and contractual obligations, including those that protect the
privacy and security of personal information. This could result in increased costs to us and result in significant legal and financial exposure and/or
reputational harm. For example, in the wake of a data breach involving payment card data, we may be subject to substantial penalties and related enforcement
for failure to adhere to the technical or operational security requirements of the Payment Card Industry (“PCI”) Data Security Standards (“DSS”) imposed by
the PCI Council to protect cardholder data. Penalties arising from PCI DSS enforcement are inherently uncertain as penalties may be imposed by various
entities within the payment card processing chain without regard to any statutory or universally mandated framework. Such enforcement could threaten our
relationship with our banks, card brands we do business with, and our third-party payment processors.
In addition, any actual or perceived failure by us or our vendors or business partners to comply with our privacy, confidentiality or data security-
related legal or other obligations to third parties, or any further security incidents or other unauthorized access events that result in the unauthorized access,
release or transfer of sensitive information, which could include personal information, may result in governmental investigations, enforcement actions,
regulatory fines, litigation, or public statements against us by advocacy groups or others, and could cause third parties, including current and potential
partners, to lose trust in us including existing or potential users’ perceiving our platform, system or networks as less desirable or we could be subject to
claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and
prospects. There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from
liabilities or damages. Moreover, data security incidents and other inappropriate access can be difficult to detect, and any delay in identifying them may lead
to increased harm of the type described above. While we have implemented security measures intended to protect our information technology systems and
infrastructure, as well as the personal and proprietary information that we possess or control, there can be no assurance that such measures will successfully
prevent service interruptions or further security incidents. Data protection laws around the world often require “reasonable”, “appropriate” or “adequate”
technical and organizational security measures, and the interpretation and application of those laws are often uncertain and evolving, and there can be no
assurance that our security measures will be deemed adequate, appropriate or reasonable by a regulator or court. Moreover, even security measures that are
deemed appropriate, reasonable, and/or in accordance with applicable legal requirements may not be able to protect the information we maintain. In addition
to potential fines, we could be subject to mandatory corrective action due to a data security incident, which could adversely affect our business operations and
result in substantial costs for years to come.
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We and our service providers collect, process, transmit and store the personal information of our users, which creates legal obligations and
exposes us to potential liability.
We collect, process, transmit and store information about a variety of individuals including our users and their devices, and rely on third party
service providers to collect, process, transmit and store personal information of our users, including our users’ payment card data. Further, we and our service
providers as well as business partners use tracking technologies, including cookies, device identifiers and related technologies, to help us manage and track
our users’ interactions with our platform, devices, website and partners’ content to deliver relevant advertising and personalized content for ourselves and on
behalf of our partners on our devices.
We collect information about the interaction of users with our platform, devices, website, advertisements, and content publishers’ streaming
channels. To deliver relevant advertisements effectively, we must successfully leverage this data as well as data provided by third parties. Our ability to
collect and use such data could be restricted by a number of factors, including users’ having the ability to refuse consent to or opt out from our, our service
providers or our advertising partners’ collection and use of this data, restrictions imposed by advertisers, content publishers and service providers, changes in
technology, and developments in laws, regulations and industry standards. For example, certain EU laws and regulations prohibit access to or storage of
information on a user’s device (such as cookies and similar technologies that we use for advertising) that is not “strictly necessary” to provide a user-
requested service or used for the “sole purpose” of a transmission unless the user has provided unambiguous, affirmative consent, and users may choose not
to provide this consent to collection of information which is used for advertising purposes. Any restrictions on our ability to collect or use data could harm
our ability to grow our revenue, particularly our platform revenue which depends on engaging the relevant recipients of advertising campaigns.
Various federal, state, and foreign laws and regulations as well as industry standards and contractual obligations govern the collection, use,
retention, cross-border transfer, localization, sharing and security of the data we receive from and about our users, employees and other individuals. The
regulatory environment for the collection and use of personal information by device manufacturers, online service providers, content distributors, advertisers
and publishers is evolving in the United States and internationally. Privacy groups and government bodies, including the Federal Trade Commission (“FTC”),
state attorneys general, the European Commission and European data protection authorities, have increasingly scrutinized privacy issues with respect to
devices that identify or are identifiable to a person (or household or device) and personal information collected through the internet, and we expect such
scrutiny to continue to increase. The United States, U.S. states, and foreign governments have enacted and are considering laws and regulations that could
significantly restrict industry participants’ ability to collect, use and share personal information, such as by regulating the level of consumer notice and
consent required before a company can place cookies or other tracking technologies. For example, the EU General Data Protection Regulation (“GDPR”)
became effective in May 2018 and imposes detailed requirements related to the collection, storage and use of personal information related to people located
in the EU or which is processed in the context of EU operations and places new data protection obligations and restrictions on organizations and may require
us to make further changes to our policies and procedures in the future beyond what we have already done.
Further, in the wake of Brexit, there has been uncertainty with regard to the regulation of data protection in the United Kingdom. Although the
United Kingdom enacted a Data Protection Act in May 2018, and the EU may declare the United Kingdom’s privacy laws as adequate for receiving personal
information from the EU, a level of uncertainty remains regarding how data transfers to and from the United Kingdom will be regulated after Brexit. We
made changes to our data protection compliance program to prepare for the GDPR and will continue to monitor the implementation and evolution of data
protection regulations, but if we are not compliant with GDPR or other data protection laws or regulations if and when implemented, we may be subject to
significant fines and penalties (such as restrictions on personal information processing) and our business may be harmed. For example, under the GDPR,
fines of up to EUR 20 million or 4% of the annual global revenue of a noncompliant company, whichever is greater, as well as data processing restrictions
could be imposed for violation of certain of the GDPR’s requirements. Other countries have also proposed or passed legislation with obligations similar to
that of the GDPR.
The U.S. data protection legal landscape also continues to evolve, with states such as California and Nevada having enacted broad-based data
privacy and protection legislation and with states and the federal government continuing to consider additional data privacy and protection legislation. The
potential effects of this legislation are far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and
expenses in an effort to comply. Effective October 1, 2019, Nevada amended its existing Security of Personal Information Law (“SPI Law”) to
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now require, among other things, that certain businesses provide a designated request address to intake requests from consumers to opt out of the sale of their
personal data. The California Consumer Privacy Act went into effect in January 2020 and gives California residents certain rights with respect to their
personal information such as rights to access and require deletion of their personal information, opt out of the sale of their personal information, and receive
detailed information about how their personal information is used. The CCPA also provides for civil penalties for violations, as well as a private right of
action for data breaches that may increase data breach litigation. The CCPA was amended and the California Office of the Attorney General published final
regulations to implement portions of the CCPA. In November 2020, the California Privacy Rights Act (“CPRA”) was passed into law and goes into effect on
January 1, 2023 (with a ‘look-back’ to January 1, 2022). The CPRA builds on the CCPA and amongst other things, requires the establishment of a dedicated
agency to regulate consumer privacy issues.
Data protection laws continue to proliferate throughout the world and such laws likely apply to our business. For example, Brazil’s General Data
Protection Law (“LGPD”) came into effect on August 15, 2020. The LGPD bears many substantive similarities to the GDPR such as extra-territorial reach,
enhanced privacy rights for individuals, data transfer restrictions and mandatory breach notification obligations. It carries penalties of up to 2% of a
company’s Brazilian revenue.
We are continuing to assess the impact of new and proposed data privacy and protection laws and proposed amendments to existing laws on our
business.
Applicable data privacy and security laws may also obligate us to employ security measures that are appropriate to the nature of the data we
collect and process and, among other factors, the risks attendant to our data processing activities in order to protect personal information from unauthorized
access or disclosure, or accidental or unlawful destruction, loss, or alteration. We have implemented security measures that we believe are appropriate, but a
regulator could deem our security measures not to be appropriate given the lack of prescriptive measures in certain data protection laws. Given the evolving
nature of security threats and evolving safeguards, we cannot be sure that our chosen safeguards will protect against security threats to our business including
the personal information that we process. However, even security measures that are appropriate, reasonable, and/or in accordance with applicable legal
requirements may not be able to fully protect our information technology systems and the data contained in those systems, or our data that is contained in
third parties’ systems. Moreover, certain data protection laws impose on us responsibility for our employees and third parties that assist with aspects of our
data processing. Our employees’ or third parties’ intentional, unintentional, or inadvertent actions may increase our vulnerability or expose us to security
threats, such as phishing attacks, and we may remain responsible for successful access, acquisition or other disclosure of our data despite the quality and legal
sufficiency of our security measures.
As part of our data protection compliance program, we have implemented data transfer mechanisms to provide for the transfer of personal
information from the European Economic Area (the “EEA”) to the United States. However, there are certain unsettled legal issues regarding the adequacy of
these data transfer mechanisms, the resolution of which may adversely affect our ability to transfer personal information from the EEA to the United States.
On July 16, 2020, the European Court of Justice (the highest EU Court) ruled the EU-US Privacy Shield to be an invalid data transfer mechanism, confirmed
that the Model Clauses remain valid, and left unaddressed some issues regarding supplementary measures that may need to be taken to support transfers. We
are currently awaiting regulatory guidance from EU Data Protection Authorities and the US Department of Commerce on the impact of this ruling on broader
international data transfer compliance for companies, including guidance on specific supplementary measures that all companies would be required to
implement in addition to the Model Clauses. This may involve changes that require significant time and resources to implement, including through adjusting
our operations, conducting requisite data transfer assessments, and revising our contracts. Our ability to continue to transfer personal information outside of
the EU may become significantly more costly and may subject us to increased scrutiny and liability under the GDPR, and we may experience operating
disruptions if we are unable to conduct these transfers in the future. In addition, cloud service providers upon which our services depend are experiencing
heightened scrutiny from EU regulators, which may lead to significant shifts or unavailability of cloud services to transfer personal information outside the
EU, which may significantly impact our costs or ability to operate.
We will continue to review our business practices and may find it necessary or desirable to make changes to our personal information processing
to cause our transfer and receipt of EEA residents’ personal information to conform to applicable European law. The regulation of data privacy in the EU
continues to evolve, and it is not possible to predict the ultimate effect of evolving data protection regulation and implementation over time. Member states
also have some
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flexibility to supplement the GDPR with their own laws and regulations and may apply stricter requirements for certain data processing activities.
In addition, some countries are considering or have enacted ‘data localization’ laws requiring that user data regarding users in their country be
maintained in their country. Maintaining local data centers in individual countries could increase our operating costs significantly. We expect that, in addition
to the business as usual costs of compliance, the evolving regulatory interpretation and enforcement of laws such as the GDPR and CCPA, as well as other
domestic and foreign data protection laws will lead to increased operational and compliance costs and will require us to continually monitor and, where
necessary, make changes to our operations, policies, and procedures. Any failure or perceived failure to comply with privacy-related legal obligations, or any
compromise of security of user data, may result in governmental enforcement actions, litigation, contractual indemnity or public statements against us by
consumer advocacy groups or others. In addition to potential liability, these events could harm our business.
We publish privacy policies, notices and other documentation regarding our collection, processing, use and disclosure of personal information,
credit card information and/or other confidential information. Although we endeavor to comply with our published policies, certifications, and
documentation, we may at times fail to do so or may be perceived to have failed to do so. Moreover, despite our efforts, we may not be successful in
achieving compliance if our employees or vendors fail to comply with our published policies, certifications, and documentation. Such failures can subject us
to potential international, local, state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices.
We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols imposed by law, regulation,
industry standards and contractual obligations. Increased regulation of data collection, use and security practices, including self-regulation and industry
standards, changes in existing laws, enactment of new laws, increased enforcement activity, and changes in interpretation of laws, could increase our cost of
compliance and operation, limit our ability to grow our business or otherwise harm our business.
Our actual or perceived failure to adequately protect personal information and confidential information that we (or our service providers or
business partners) collect, store or process could trigger contractual and legal obligations, harm our reputation, subject us to liability and otherwise
adversely affect our business including our financial results.
In the ordinary course of our business, we collect, store and process personal information (including payment card information) and/or other
confidential information of our employees, our partners, and our users. We use third-party service providers and subprocessors to help us deliver our
services. These vendors may store or process personal information, payment card information and/or other confidential information of our employees, our
partners, or our users. We collect such information from individuals located both in the United States and abroad and may store or process such information
outside the country in which it was collected.
A variety of state, national, and foreign laws and regulations apply to the collection, use, retention, protection, disclosure, security, transfer, cross-
border transfer, localization, and other processing of personal information. These privacy and data protection-related laws and regulations are evolving, with
new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. In
addition, each state and the District of Columbia, Guam, Puerto Rico, the U.S. Virgin Islands, EU member states, and the United Kingdom, as well as some
other foreign nations, have passed laws requiring notification to regulatory authorities, to affected users, and/or others within a specific timeframe when there
has been a security breach involving certain personal information as well as impose additional obligations for companies. Additionally, our agreements with
certain users or partners may require us to notify them in the event of a security breach. Such statutory and contractual disclosures are costly, could lead to
negative publicity, may cause our users to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other
resources to respond to and/or alleviate problems caused by the actual or perceived security breach. Compliance with these obligations could delay or impede
the development of new products and may cause reputational harm.
Litigation resulting from security breaches may adversely affect our business. Unauthorized access to our platform, systems, networks, or
physical facilities could result in litigation with our users or other relevant stakeholders. These proceedings could force us to spend money in defense or
settlement, divert management’s time and attention, increase our costs of doing business, and/or adversely affect our reputation. We could be required to
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fundamentally change our business activities and practices or modify our products and/or platform capabilities in response to such litigation, which could
have an adverse effect on our business. Any actual or perceived inability to adequately protect the privacy of individuals’ information in our possession,
custody or control may render our products or services less desirable and could harm our reputation and business. Any costs incurred as a result of this
potential liability could harm our business.
Any significant disruption in our computer systems or those of third parties we utilize in our operations could result in a loss or degradation
of service on our platform and could harm our business.
We rely on the expertise of our engineering and software development teams for the performance and operation of the Roku OS, streaming
platform and computer systems. Service interruptions, errors in our software or the unavailability of computer systems used in our operations could diminish
the overall attractiveness of our devices and streaming platform to existing and potential users. We utilize computer systems located either in our facilities or
those of third-party server hosting providers and third-party internet-based or cloud computing services. Although we generally enter into service level
agreements with these parties, we exercise no control over their operations, which makes us vulnerable to any errors, interruptions or delays that they may
experience. In the future, we may transition additional features of our services from our managed hosting systems to cloud computing services, which may
require significant expenditures and engineering resources. If we are unable to manage such a transition effectively, we may experience operational delays
and inefficiencies until the transition is complete. Upon the expiration or termination of any of our agreements with third-party vendors, we may not be able
to replace their services in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and a transition from one
vendor to another vendor could subject us to operational delays and inefficiencies until the transition is complete. In addition, fires, floods, earthquakes,
power losses, telecommunications failures, break-ins and similar events could damage these systems and hardware or cause them to fail completely. As we do
not maintain entirely redundant systems, a disrupting event could result in prolonged downtime of our operations and could adversely affect our business.
Any disruption in the services provided by these vendors could have adverse impacts on our business reputation, customer relations and operating results.
If any aspect of our computer systems or those of third parties we utilize in our operations fails, it may lead to downtime or slow processing time,
either of which may harm the experience of our users. We have experienced, and may in the future experience, service disruptions, outages and other
performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. We expect to continue
to invest in our technology infrastructure to maintain and improve the user experience and platform performance. To the extent that we or our third-party
service hosting provider do not effectively address capacity constraints, upgrade or patch systems as needed and continually develop technology and network
architecture to accommodate increasingly complex services and functions, increasing numbers of users, and actual and anticipated changes in technology, our
business may be harmed.
Changes in how network operators manage data that travel across their networks could harm our business.
Our business relies upon the ability of our users to access high-quality streaming content through the internet. As a result, the growth of our
business depends on our users’ ability to obtain and maintain low-cost, high-speed access to the internet, which relies in part on the network operators’
continuing willingness to upgrade and maintain their equipment as needed to sustain a robust internet infrastructure as well as their continued willingness to
preserve the open and interconnected nature of the internet. We exercise no control over network operators, which makes us vulnerable to any errors,
interruptions or delays in their operations. Any material disruption or degradation in internet services could harm our business.
To the extent that the number of internet users continues to increase, network congestion could adversely affect the reliability of our streaming
platform. We may also face increased costs of doing business if network operators engage in discriminatory practices with respect to streamed video content
in an effort to monetize access to their networks by data providers. In the past, internet service providers have attempted to implement usage-based pricing,
bandwidth caps and traffic “shaping” or throttling. To the extent network operators were to create tiers of internet access service and either charge us for
access to these tiers or prohibit our content offerings from being available on some or all of these tiers, our quality of service could decline, our operating
expenses could increase and our ability to attract and retain users could be impaired, each of which would harm our business.
In addition, most network operators that provide consumers with access to the internet also provide these consumers with multichannel video
programming. These network operators have an incentive to use their network
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infrastructure in a manner adverse to the continued growth and success of other companies seeking to distribute similar video programming. To the extent
that network operators are able to provide preferential treatment to their own data and content, as opposed to ours, our business could be harmed.
Risks Related to Intellectual Property
Litigation regarding intellectual property rights could result in the loss of rights important to our devices and streaming platform, cause us to
incur significant legal costs or otherwise harm our business.
Some internet, technology and media companies, including some of our competitors, own large numbers of patents, copyrights and trademarks,
which they may use to assert claims against us. Third parties have asserted, and may in the future assert, that we have infringed, misappropriated or otherwise
violated their intellectual property rights. As we grow and face increasing competition, the possibility of intellectual property rights claims against us will
grow. Plaintiffs who have no relevant product revenue may not be deterred by our own issued patents and pending patent applications in bringing intellectual
property rights claims against us. The cost of patent litigation or other proceedings, even if resolved in our favor, has been or could be substantial. Some of
our competitors may be better able to sustain the costs of such litigation or proceedings because of their substantially greater financial resources. Patent
litigation and other proceedings may also require significant management time and divert management from our business. Uncertainties resulting from the
initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the
foregoing could harm our business.
As a result of intellectual property infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third
parties. These licenses may not be available on commercially reasonable terms, or at all. Even if we are able to obtain a license, the license would likely
obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, with the potential for our competitors to gain access to
the same intellectual property. In addition, the rights that we secure under intellectual property licenses may not include rights to all of the intellectual
property owned or controlled by the licensor, and the scope of the licenses granted to us may not include rights covering all of the products and services
provided by us and our licensees. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and
attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property; cease making, licensing or using technologies that are alleged to
infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our products; enter into potentially
unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content or materials; and to indemnify our partners and
other third parties. In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and would divert
the time and attention of our management and technical personnel.
If we fail to protect or enforce our intellectual property or proprietary rights, our business and operating results could be harmed.
We regard the protection of our patents, trade secrets, copyrights, trademarks, trade dress, domain names and other intellectual property or
proprietary rights as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as
contractual restrictions. We seek to protect our confidential proprietary information, in part, by entering into confidentiality agreements and invention
assignment agreements with all our employees, consultants, contractors, advisors and any third parties who have access to our proprietary know-how,
information or technology. However, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our
intellectual property or who had access to our proprietary information, nor can we be certain that our agreements will not be breached. Any party with whom
we have executed such an agreement could potentially breach that agreement and disclose our proprietary information, including our trade secrets, and we
may not be able to obtain adequate remedies for such breaches. We cannot guarantee that our trade secrets and other confidential proprietary information will
not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and
techniques. Detecting the disclosure or misappropriation of a trade secret and enforcing a claim that a party illegally disclosed or misappropriated a trade
secret is difficult, time-consuming and could result in substantial costs and the outcome of such a claim is unpredictable.
Further, the laws of certain foreign countries do not provide the same level of protection of corporate proprietary information and assets such as
intellectual property, trademarks, trade secrets, know-how and records as the laws of the United States. For instance, the legal systems of certain countries,
particularly certain developing countries, do not favor the
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enforcement of patents and other intellectual property protection. As a result, we may encounter significant problems in protecting and defending our
intellectual property or proprietary rights abroad. Additionally, we may also be exposed to material risks of theft or unauthorized reverse engineering of our
proprietary information and other intellectual property, including technical data, manufacturing processes, data sets or other sensitive information. Our efforts
to enforce our intellectual property rights in such foreign countries may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop, which could have a material adverse effect on our business, financial condition and results of operations. Moreover, if we are
unable to prevent the disclosure of our trade secrets to third parties, or if our competitors independently develop any of our trade secrets, we may not be able
to establish or maintain a competitive advantage in our market, which could harm our business.
We have filed and will in the future file patent applications on inventions that we deem to be innovative. There is no guarantee that our patent
applications will issue as granted patents, that the scope of the protection gained will be sufficient or that an issued patent may subsequently be deemed
invalid or unenforceable. Patent laws, and scope of coverage afforded by them, have recently been subject to significant changes, such as the change to “first-
to-file” from “first-to-invent” resulting from the Leahy-Smith America Invents Act. This change in the determination of inventorship may result in inventors
and companies having to file patent applications more frequently to preserve rights in their inventions, which may favor larger competitors that have the
resources to file more patent applications. Another change to the patent laws may incentivize third parties to challenge any issued patent in the United States
Patent and Trademark Office (“USPTO”), as opposed to having to bring such an action in U.S. federal court. Any invalidation of a patent claim could have a
significant impact on our ability to protect the innovations contained within our devices and platform and could harm our business.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and
other provisions to maintain patent applications and issued patents. We may fail to take the necessary actions and to pay the applicable fees to obtain or
maintain our patents. Noncompliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or
complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to use our technologies and enter the market earlier than
would otherwise have been the case.
We pursue the registration of our domain names, trademarks and service marks in the United States and in certain locations outside the United
States. We are seeking to protect our trademarks, patents and domain names in an increasing number of jurisdictions, a process that is expensive and time-
consuming and may not be successful or which we may not pursue in every jurisdiction in which we conduct business.
Litigation may be necessary to enforce our intellectual property or proprietary rights, protect our trade secrets or determine the validity and scope
of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs, adverse publicity or
diversion of management and technical resources, any of which could adversely affect our business and operating results. If we fail to maintain, protect and
enhance our intellectual property or proprietary rights, our business may be harmed.
Our use of open source software could impose limitations on our ability to commercialize our devices and our streaming platform.
We incorporate open source software in our streaming platform. From time to time, companies that incorporate open source software into their
products and services have faced claims challenging the ownership of open source software and/or compliance with open source license terms. Therefore, we
could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms.
Although we monitor our use of open source software, the terms of many open source software licenses have not been interpreted by U.S. courts, and there is
a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on the sale of our devices. In such event,
we could be required to make our proprietary software generally available to third parties, including competitors, at no cost, to seek licenses from third
parties in order to continue offering our devices, to re-engineer our devices or to discontinue the sale of our devices in the event re-engineering cannot be
accomplished on a timely basis or at all, any of which could harm our business.
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Under our agreements with many of our content publishers, licensees, distributors, retailers, contract manufacturer and suppliers, we are
required to provide indemnification in the event our technology is alleged to infringe upon the intellectual property rights of third parties.
In certain of our agreements we indemnify our content publishers, licensees, distributors, retailers, manufacturing partners and suppliers. We have
in the past, and may in the future, incur significant expenses defending these partners if they are sued for patent infringement based on allegations related to
our technology. If a partner were to lose a lawsuit and in turn seek indemnification from us, we also could be subject to significant monetary liabilities. In
addition, because the devices sold by our licensing partners and Roku TV brands often involve the use of third-party technology, this increases our exposure
to litigation in circumstances where there is a claim of infringement asserted against the streaming device in question, even if the claim does not pertain to
our technology.
Risks Related to Macroeconomic Conditions
The ongoing COVID-19 pandemic has impacted our business and we are unable to predict the extent to which the pandemic and related effects
will continue to impact our business.
Beginning in the first quarter of 2020 and continuing into 2021, there has been widespread global impact from the COVID-19 pandemic, and our
business has been, and will continue to be, impacted by the pandemic and resulting economic consequences. The spread of COVID-19 has caused us to take
precautionary measures intended to help minimize the risk of the virus to our employees, including mandatory work-from-home policies, suspending non-
essential business travel and canceling physical participation in meetings, events and conferences. We may take further actions as required by government
authorities or that we determine are in the best interests of our employees, TV brand partners, content publishers, advertisers, retail and distribution partners,
contract manufacturers, services venders and supply chain. There is no certainty that such measures will be sufficient to mitigate the risks posed by the
COVID-19 pandemic, and an extended period of remote work arrangements could disrupt our business, introduce business and operational risks, including
cybersecurity risks, and could make it more difficult for us to effectively manage our business.
The COVID-19 pandemic and the precautionary measures that we have taken in response have had a mixed impact on our business during the year
ended December 31, 2020. When staying-at-home restrictions were first issued in the first quarter of 2020, we saw an acceleration in both streaming hours,
which has moderated since peaking in early in the second quarter, and account activations. In our platform segment, we experienced increases in trials of and
subscriptions to SVOD content, growth in the consumption of AVOD content, and increased purchases of TVOD content. During the second quarter of 2020,
we experienced delays in the start of some video advertising campaigns and an increase in advertising campaign cancellations. We also have encountered
supply chain disruptions related to our players that resulted in elevated air freight costs to replenish inventory and meet increased demand. Additionally, at
times some of our retail partners have had to close or severely limit access to their brick-and-mortar locations, resulting in reduced sale of devices in these
locations. For example, during the holiday season our partners saw fewer shoppers in their brick-and-mortar locations. Further, our management team has
focused on addressing the impacts of the COVID-19 pandemic on our business, which has required and will continue to require, a significant investment of
their time and resources, and has diverted their attention away from other aspects of our business. In light of the COVID-19 pandemic, during 2020 our
management team took steps to slow the rate of growth of our operating expenses and capital expenditures. Our management team also monitored our
liquidity and in May 2020, we entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC and Citigroup Global Markets Inc., as sales
agents (the “Equity Distribution Agreement”), pursuant to which we sold 4.0 million shares of our Class A common stock at an average selling price of
$126.01 per share, for aggregate gross proceeds of $504.0 million, a portion of which was used to repay $69.3 million that we drew down on our Revolving
Credit Facility in March 2020. Our management team will continue to evaluate our investments and initiatives for 2021 and will continue to monitor our
liquidity as the COVID-19 pandemic continues to evolve.
The extent to which the COVID-19 pandemic ultimately impacts our business will depend on future developments, which are uncertain and cannot be
predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions taken by governmental authorities to contain the virus
or treat its impacts, the development and rollout of effective vaccines, possible variants of the virus that render vaccines ineffective, and how quickly and to
what extent economic and operating conditions normalize. As staying-at-home restrictions are eased consumers may spend less time streaming TV, which
could reduce our streaming hours and number of active accounts and also could negatively impact our platform revenue if we experience a decrease in sales
of advertising or transactional revenue shares from content
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publishers. We also may incur significant operating costs and be exposed to increased liability risks as a result of the COVID-19 pandemic, both now and
increasingly as once staying-at-home restrictions are lifted and employees begin to return to our offices, such as the cost of collecting additional information
(including health and medical information) about our employees, contractors and visitors at our facilities; and testing supplies and personal protective
equipment for on-site staff. In addition, with the increase in remote working during the COVID-19 pandemic, we may not be able to maintain the same level
of control over the security of our systems or the personal information that we collect, store and process, particularly as cyber attackers appear to increasingly
attempt to compromise systems and data in an effort to exploit this pandemic. Even after the COVID-19 pandemic itself has subsided, we may continue to
experience impacts to our business as a result of any global economic impact, including as a result of an ongoing recession. For instance, a prolonged
economic downturn may result in the purchase of fewer streaming devices which could lead to a reduction in account activations and streaming hours, and
also could negatively impact our revenue. Our platform business also may be negatively impacted by decreases in total advertising spend, if advertising
budgets do not continue to shift to OTT advertising or if acquiring content that our users want to watch becomes more difficult or costly for us or our content
partners as the amount of new content decreases due to the COVID-19 pandemic. A prolonged economic downturn could also impact the overall financial
condition of our TV brand partners, content publishers, advertisers, retailers, contract manufacturer, services venders and supply chain all of whom we
depend on in order to operate our business. As a result, the current level of uncertainty over the economic and operational impacts of the COVID-19
pandemic means the impact on our business cannot be reasonably estimated at this time.
Natural disasters or other catastrophic events could disrupt and impact our business.
Occurrence of any catastrophic event, including earthquake, flood, tsunami or other weather event, power loss, internet failure, software or
hardware malfunctions, cyber-attack, war, terrorist attack, medical epidemic or pandemic (such as the COVID-19 pandemic), other man-made disasters or
other catastrophic events could disrupt our business operations. Any of these business disruptions could require substantial expenditures and recovery time in
order to fully resume operations. In particular, our principal offices are located in California, our contract manufacturer and some of our suppliers are located
in Asia both of which are regions known for seismic activity making our operations in these areas vulnerable to natural disasters or other business disruptions
in these areas. Our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster. In
addition, acts of terrorism could cause disruptions to the internet or the economy as a whole. If our streaming platform was to fail or be negatively impacted
as a result of a natural disaster or other event, our ability to deliver streaming content, including advertising, to our users would be impaired. Disruptions in
the operations of our contract manufacturer as a result of a disaster or other catastrophic event could delay the manufacture and shipment of our players or
other products, which could impact our business. If we are unable to develop adequate plans to ensure that our business functions continue to operate during
and after a disaster or other catastrophic event and to execute successfully on those plans in the event of a disaster or catastrophic event, our business would
be harmed.
Legal and Regulatory Risks
If government regulations or laws relating to the internet, video, advertising, or other areas of our business change, we may need to alter the
manner in which we conduct our business, or our business could be harmed.
We are subject to general business regulations and laws, as well as regulations and laws specific to the internet and online services, which may
include laws and regulations related to data privacy and security, consumer protection, data localization, law enforcement access to data, encryption,
telecommunications, social media, payment processing, taxation, intellectual property, competition, electronic contracts, internet access, net neutrality,
advertising, calling and texting, content restrictions, protection of children and accessibility, among others. We cannot guarantee that we have been or will be
fully compliant in every jurisdiction. Litigation and regulatory proceedings are inherently uncertain, and the laws and regulations governing issues such as
data privacy and security, payment processing, taxation, net neutrality, video, telecommunications, e-commerce tariffs and consumer protection related to the
internet continue to develop. For example, laws relating to the liability of providers of online services for activities of their users and other third parties have
been tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement,
and other theories based on the nature and content of the materials searched, the advertisements posted, actions taken or not taken by providers in response to
user activity or the content provided by users. Congress has also enacted legislation related to liability of providers of online services and may continue to
legislate in this area. The CCPA and Nevada SPI Law also apply to entities that do business in California and Nevada, respectively, and
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impose a number of requirements on internet and online services. Moreover, as internet commerce and advertising continue to evolve, increasing regulation
by federal, state and foreign regulatory authorities becomes more likely.
As we develop new services and devices, and improve our streaming platform, we may also be subject to new laws and regulations specific to
such technologies. For example, in developing our Roku TV reference design, we were required to understand, address and comply with an evolving
regulatory framework for developing, manufacturing, marketing and selling TVs. If we fail to adequately address or comply with such regulations regarding
the manufacture and sale of TVs, we may be subject to fines or sanctions, and our licensees may be unable to sell Roku TV models at all, which would harm
our business and our ability to grow our user base.
Laws relating to data privacy and security, data localization, law enforcement access to data, encryption, and similar activities continue to
proliferate, often with little harmonization between jurisdictions and limited guidance. A number of existing bills are pending in the U.S. Congress and other
government bodies that contain provisions that would regulate, for example, how companies can use cookies and other tracking technologies to collect, use
and share user information. The CCPA also imposes requirements on certain tracking activity. The EU already has existing laws, which are due for update in
2021, requiring advertisers or companies like ours to, for example, obtain unambiguous, affirmative consent from users for the placement of cookies or other
tracking technologies and the delivery of relevant advertisements. If we or the third parties that we work with, such as contract payment processing services,
content publishers, vendors or developers violate or are alleged to violate applicable privacy or security laws, industry standards, our contractual obligations,
or our policies, such violations and alleged violations may also put our users’ information at risk and could in turn harm our business and reputation and
subject us to potential liability. Any of these consequences could cause our users, advertisers or publishers to lose trust in us, which could harm our business.
Furthermore, any failure on our part to comply with these laws may subject us to liability and reputational harm.
Our use of data to deliver relevant advertising and other services on our platform places us and our content publishers at risk for claims under
various unsettled laws, including the Video Privacy Protection Act (“VPPA”). Some of our content publishers have been engaged in litigation over alleged
violations of the VPPA relating to activities on our platform in connection with advertising provided by unrelated third parties. The Federal Trade
Commission has also in recent years revised its rules implementing the Children’s Online Privacy Protection Act (“COPPA Rules”) broadening the
applicability of the COPPA Rules, including the types of information that are subject to these regulations, and it is currently examining whether additional
changes are appropriate. Such actions could limit the information that we or our content publishers and advertisers may collect and use through certain
content publishers, the content of advertisements and in relation to certain channel partner content. The CCPA also imposes certain opt in and opt out
requirements for certain information about minors. We and our content publishers and advertisers could be at risk for violation or alleged violation of these
and other privacy, advertising, or similar laws.
Changes in general economic conditions, geopolitical conditions, U.S. trade policies and other factors beyond our control may adversely
impact our business and operating results.
Our business is subject to risks generally associated with doing business abroad, such as U.S. and foreign governmental regulation in the countries
in which our contract manufacturer and component suppliers are located. Our operations and performance depend significantly on global, regional and U.S.
economic and geopolitical conditions. For example, there has been discussion and dialogue regarding potential significant changes to U.S. trade policies,
legislation, treaties and tariffs. For example, in November 2018, the United States, Mexico, and Canada signed the United States-Mexico-Canada Agreement
(“USMCA”) which supersedes the North American Free Trade Agreement. The USMCA has been ratified by the respective legislatures of each of the three
countries. Congress approved the USMCA in the United States-Mexico-Canada Agreement Implementation Act (H.R.5430) in January 2020 (the “Act”), and
the President signed the Act into law. The USMCA agreement entered into force on July 1, 2020, although there are some remaining issues with respect to
ensuring that Mexico’s and Canada’s laws and regulations to ensure that both are fully in compliance with the USMCA obligations and commitments, and
there may be further changes to interim regulations regarding customs procedures, rules of origin, and other provisions that could affect products sourced
from Mexico or Canada, and their eligibility for duty-free entry into the U.S., Mexican, and Canadian markets.
The previous U.S. Administration threatened tougher trade terms with China, the European Union, and other countries, including the imposition
of substantially higher U.S. Section 301 tariffs on roughly $320 billion of imports from China. In response, China imposed higher Chinese tariffs on a large
amount of U.S. exports to China, which could affect
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the prices of U.S. origin parts or components of our products assembled in China. In January 2020, the U.S. and China signed a “Phase One” trade deal
pursuant to which, among other things, the U.S. will modify its Section 301 tariff actions. As part of the Phase One agreement, the U.S. canceled additional
Section 301 duties that were originally scheduled to go into effect in December 2019 on certain imported products, including certain of our products, and
reduced the duties on certain other imported products, including televisions assembled in China by Roku TV brand partners, from 15% ad valorem to 7.5%.
While the new U.S. Administration has promised a detailed review of U.S. policies toward China, it is unclear what the outcomes of the review will be or
whether it could lead to additional U.S. tariffs, export controls, or sanctions.
At this time, it is unknown whether the Phase One deal will last or whether there will be sufficient progress on Phases Two and Three to lead to a
further reduction in U.S.-China trade tensions: whether additional Section 301 tariffs will be imposed on Roku products, imported from China and, if so, how
long U.S. tariffs on Chinese goods will remain in effect or whether even higher tariffs will be imposed, or new regulatory proposals to restrict trade will be
adopted. There are also pressures on the new U.S. Administration to retaliate against China over China’s actions in Hong Kong and Xinjiang Province, which
could lead to additional U.S., Chinese and other tariffs, or a resumption of trade hostilities, exposing us to increased tariffs in the U.S. and Chinese markets.
Finally, there are questions whether international trade agreements will be negotiated or existing free trade agreements re-negotiated; whether new trade or
tariff actions will be announced by the new Administration; or the effect that any such action would have, either positively or negatively, on our industry or
our business or licensees. If any new legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or terminated, or if
tariffs are imposed on foreign-sourced or U.S. goods, it may be inefficient and expensive for us to alter our business operations in order to adapt to or comply
with such changes, and higher prices could depress consumer demand. Such operational changes could have a material adverse effect on our business,
financial condition, results of operations or cash flows.
On January 15, 2021, the U.S. Trade Representative found that Vietnam’s currency practices violate Section 301 of the Trade Act of 1974 but
deferred any decision whether to take any specific actions in connection with its findings, leaving the decision whether to impose higher U.S. tariffs or other
trade restrictions to the new U.S. Administration. This decision could lead to increased tariffs on products assembled in Vietnam, but none have been
announced as of this time.
In addition, on October 2, 2020, the Office of the U.S. Trade Representative (USTR) initiated an investigation under Section 301 of the Trade Act
of 1974 regarding Vietnam’s acts, policies, and practices related to the import and use of illegally harvested timber. While no decision has been reached yet in
this investigation, as with China, USTR's Section 301 investigations of Vietnam could lead to retaliatory tariffs on U.S. imports from Vietnam if the U.S.
concerns cannot be resolved through negotiations. Such tariffs may not be limited to products directly involved in the acts, policies, and practices found to
violate Section 301 (e.g. tropical timber) and thus could affect other, unrelated products, including those sourced by us or our suppliers and licensees.
Also, various countries, in addition to the United States, regulate the import and export of certain commodities, software, and technology,
including import and export licensing requirements, and have enacted laws that could limit our ability to distribute our products or collaborate on technology
with our commercial or strategic partners, or could limit our commercial and/or strategic partners’ ability to implement our products in those countries.
Changes in our products or future changes in export and import regulations may create delays in the introduction of our products in international markets,
prevent our commercial and/or strategic partners with international operations from deploying our products globally or, in some cases, prevent the export or
import of our products to certain countries, governments, or persons altogether. In particular, the U.S. government continues to expand export control
restrictions on China and Hong Kong, which may limit the company’s ability to collaborate with and transfer technology to partners in the region. Cross-
border data transmissions are currently exempt from customs duties under the WTO’s temporary e-commerce moratorium on customs duties on electronic
transmissions, but the moratorium faces opposition from certain WTO Members when it comes up for renewal at the WTO Ministerial Meeting, which was
originally scheduled for June 2020. It has been postponed because of COVID-19 but may take place in 2021. Other potential barriers include the further
proliferation of digital services taxes which potentially could expose certain digital services to new taxes, U.S. or foreign sanctions or related sanctions
legislation, increased export and import restrictions stemming from governmental policies or U.S.-China “de-coupling,” or changes in the countries,
governments, persons or technologies targeted by such regulations, restrictions, and sanctions. Any change in export or import regulations, the imposition of
customs duties or other restrictions on intangible goods such as cross-border data flows, could result in decreased use of our products by, or in our decreased
ability to export or sell our products to, existing or new customers in international markets or hamper our ability to source
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products, components, and parts from certain suppliers. Any decreased use of our products or limitation on our ability to export, import, or sell our products,
or source parts and/or components, would harm our business.
Further, following the result of a referendum in 2016, the United Kingdom formally left the EU on January 31, 2020. The effects of Brexit have
been and are expected to continue to be far-reaching. Brexit and the perceptions as to its impact may adversely affect business activity and economic
conditions globally and could continue to contribute to instability in global financial markets. Brexit could also have the effect of disrupting the free
movement of goods, services, and people between the United Kingdom and the EU. In addition, Brexit could lead to legal uncertainty and potentially
divergent national laws and regulations as the United Kingdom determines which EU laws to replace or replicate. The full effects of Brexit are uncertain.
Given these possibilities and others we may not anticipate, as well as the lack of comparable precedent, the full extent to which our business, results of
operations, and financial condition could be adversely affected by Brexit is uncertain.
The supply chains of our contract manufacturers and many of our licensees may source products, parts or components from China and other
countries in the Asia-Pacific region. There are many uncertainties around the COVID-19 pandemic, including scientific and health issues, the unknown
duration and extent of economic disruption in China and other markets in the region, and the impact on the Chinese, U.S., and global economies. As a result,
the COVID-19 pandemic may result in further supply shortages of our products or our licensees’ products, and delays in shipping and transportation services
that negatively impact our ability or our licensees’ ability to import, export, ship, or sell streaming devices to customers in U.S. and international markets.
Any decrease, limitations or delays on our or our licensees’ ability to produce, import, export, ship, or sell our streaming devices would harm our business.
United States or international rules that permit ISPs to limit internet data consumption by users, including unreasonable discrimination in the
provision of broadband internet access services, could harm our business.
Laws, regulations or court rulings that adversely affect the popularity or growth in use of the internet, including decisions that undermine open
and neutrally administered internet access, could decrease customer demand for our service offerings, may impose additional burdens on us or could cause us
to incur additional expenses or alter our business model.
In February 2015, the FCC adopted open internet rules intended to protect the ability of consumers and content producers to send and receive
non-harmful, lawful information on the internet, known as the Open Internet Order. The Open Internet Order prohibited broadband internet access service
providers from: (i) blocking access to legal content, applications, services or non-harmful devices; (ii) throttling, impairing or degrading performance based
on content, applications, services or non-harmful devices; and (iii) charging more for favorable delivery of content or favoring self-provisioned content over
third-party content (collectively, the “prohibited activities”). The Open Internet Order also prohibited broadband internet access service providers from
unreasonably interfering with consumers’ ability to select, access and use the lawful content, applications, services or devices of their choosing as well as
edge providers’ ability to make lawful content, applications, services or devices available to consumers.
In January 2018, the FCC released a new order, known as the Restoring Internet Freedom Order (the “Order”), that repealed most of the blocking,
throttling, and paid prioritization restrictions adopted in the Open Internet Order. The Order reclassified broadband internet access service as a non-common
carrier “information service” and repealed rules that had prohibited broadband internet access service providers from conducting the “prohibited activities”
but continued to require broadband internet access service providers to be transparent about their policies and network management practices, and subjected
discriminatory practices to case-by-case assessment under antitrust and consumer protection laws. Most portions of the Order went into effect in April 2018
and the remainder went into effect in June 2018. Numerous judicial challenges to the Order were filed, and in October 2019, the Court of Appeals for the
District of Columbia Circuit upheld nearly all of the Order, but reversed the FCC's decision to prohibit all state and local regulation targeted at broadband
internet access service, requiring case by case determinations as to whether state and local regulation conflicts with the FCC's rules. The court also required
the FCC to reexamine three issues from the Order where it found insufficient analysis but allowed the Order to remain in effect pending the FCC’s review.
The original parties were denied a rehearing by the full U.S. Court of Appeals for the D.C. Circuit in February 2020 and the period to seek review by the
Supreme Court has ended. On remand, the FCC reaffirmed its existing approach in October 2020; however, four petitioners sought reconsideration of the
FCC’s decision in February 2021. The FCC, now newly organized following the inauguration of President Joe Biden, has yet to issue a decision in response
to these petitions. To the extent the courts, the agencies or the states do not uphold or adopt sufficient safeguards to protect against discriminatory conduct,
network operators may seek to extract fees from us or our
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content publishers to deliver our traffic or otherwise engage in blocking, throttling or other discriminatory practices, and our business could be harmed.
Several states have adopted or are considering network neutrality legislation or regulation. For example, California’s legislation codifies portions
of the FCC’s rescinded Open Internet Order. The U.S. Department of Justice filed suit in September 2018 to block implementation of the California law, and
the California Attorney General agreed to delay implementation of the state law until the litigation is resolved. While the Department of Justice withdrew its
challenge of the California net neutrality law in February 2021, the status of state net neutrality legislation remains uncertain because several broadband
service provider trade associations also have sued California to invalidate its net neutrality law on grounds that the law is preempted by the Order, among
other claims. Several states in addition to California have enacted net neutrality legislation and several governors have signed executive orders requiring
broadband internet access service providers contracting with state agencies to adhere to network neutrality principles. The regulatory framework for network
neutrality thus remains unsettled and is subject to ongoing federal litigation as well as federal and state legislative and regulatory activity.
As we expand internationally, government regulation protecting the non-discriminatory provision of internet access may be nascent or non-
existent. In those markets where regulatory safeguards against unreasonable discrimination are nascent or non-existent and where local network operators
possess substantial market power, we could experience anti-competitive practices that could impede our growth, cause us to incur additional expenses or
otherwise harm our business. Future regulations or changes in laws and regulations or their existing interpretations or applications could also hinder our
operational flexibility, raise compliance costs and result in additional liabilities for us, which may harm our business.
Broadband internet providers are subject to government regulation and enforcement actions, and changes in current or future laws,
regulations or enforcement actions that negatively impact our distributors or content publishers could harm our business.
Upon the effective date of the FCC’s Restoring Internet Freedom Order, the FTC became the federal agency primarily responsible for regulating
broadband privacy and data security in the United States. The FTC follows an enforcement-focused approach to regulating broadband privacy and security.
Future FTC enforcement actions could cause us or our content publishers to alter advertising claims or alter or eliminate certain features or functionalities of
our products or services which may harm our business. At the FCC, many broadband internet providers provide traditional telecommunications services that
are subject to FCC and state rate regulation of intrastate telecommunications services, and are recipients of federal universal service fund payments, which
are intended to subsidize telecommunications services in areas that are expensive to serve. Changes in rate regulations or in universal service funding rules,
either at the federal or state level, could affect these broadband internet providers’ revenue and capital spending plans. In addition, various international
regulatory bodies have jurisdiction over non-United States broadband internet providers. The Nevada SPI Law and the CCPA also apply to broadband
internet providers that do business in Nevada and California, respectively. To the extent these broadband internet providers are adversely affected by laws or
regulations regarding their business, products or service offerings, our business could be harmed.
If we are found liable for content that is distributed through or advertising that is served through our platform, our business could be harmed.
As a distributor of content, we face potential liability for negligence, copyright, patent or trademark infringement, public performance royalties or
other claims based on the nature and content of materials that we distribute. The Digital Millennium Copyright Act (the “DMCA”) is intended, in part, to
limit the liability of eligible service providers for caching, hosting or linking to, user content that includes materials that infringe copyrights or other rights.
We rely on the protections provided by the DMCA in conducting our business. Similarly, Section 230 of the Communications Decency Act (“Section 230”)
protects online distribution platforms, such as ours, from actions taken under various laws that might otherwise impose liability on the platform provider for
what content creators develop or the actions they take or inspire.
However, the DMCA, Section 230, and similar statutes and doctrines that rely on or may rely on in the future, in the United States or international
jurisdiction where we may operate, are subject to uncertain judicial interpretation and regulatory and legislative amendments. For example, the FCC Chair
under President Trump said the FCC would seek comment on a petition for rulemaking filed by the National Telecommunications and Information
Administration that sought to limit the scope of protection provided to online distribution platforms under Section 230. Since then, however, the acting FCC
Chair appointed by President Biden has said the FCC will not seek comment on the NTIA petition. Regulatory or legislative changes, whether in the United
States or in international jurisdictions where we may operate, may ultimately
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require us to take a different approach towards content moderation on our platform, which could diminish the depth, breadth, and variety of content we offer
and, in so doing, reduce our advertising revenue or user base.
Moreover, the DMCA and Section 230 provide protections primarily in the United States. If the rules around these statutes and doctrines change,
if international jurisdictions refuse to apply similar protections or if a court were to disagree with our application of those rules to our business, we could
incur liability and our business could be harmed. If we become liable for these types of claims as a result of the content that is streamed over or the
advertisements that are served through our platform, then our business may suffer. Litigation to defend these claims could be costly and the expenses and
damages arising from any liability could harm our business. Our insurance may not be adequate to cover these types of claims or any liability that may be
imposed on us.
In addition, regardless of any legal protections that may limit our liability for the actions of third parties, we may be adversely impacted if
copyright holders assert claims, or commence litigation, alleging copyright infringement against the developers of channels that are distributed on our
platform. While our platform policies prohibit streaming content on our platform without distribution rights from the copyright holder, and we maintain
processes and systems for the reporting and removal of infringing content, in certain instances our platform has been misused by unaffiliated third parties to
unlawfully distribute copyrighted content. If content owners or distributors are influenced by the existence of types of claims or proceedings and are deterred
from working with us as a consequence, this could impair our ability to maintain or expand our business, including through international expansion plans.
Our involvement in any such legal matters now or in the future, could cause us to incur significant legal expenses and other costs, and be
disruptive to our business.
If we fail to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of
our financial reports and the market price of our Class A common stock may be adversely affected.
We are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of
the Sarbanes-Oxley Act of 2002 (“Section 404”) requires that we furnish a report by management on, among other things, the effectiveness of our internal
control over financial reporting. This assessment must include disclosure of any material weaknesses identified by our management in our internal control
over financial reporting. Our independent registered public accounting firm also attests to the effectiveness of our internal control over financial reporting. If
we have a material weakness in our internal control over financial reporting in the future, we may not detect errors on a timely basis and our financial
statements may be materially misstated. If we identify material weaknesses in our internal control over financial reporting, are unable to continue to comply
with the requirements of Section 404 in a timely manner, are unable to assert that our internal control over financial reporting is effective, or if our
independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors
may lose confidence in the accuracy and completeness of our financial reports, and the market price of our Class A common stock could be adversely
affected. In addition, we could become subject to investigations by the stock exchange on which our Class A common stock is listed, the SEC, or other
regulatory authorities, which could require additional financial and management resources.
Our financial results may be adversely affected by changes in accounting principles applicable to us.
U.S. GAAP are subject to interpretation by the FASB, the SEC, and other various bodies formed to promulgate and interpret appropriate
accounting principles. A change in these principles or interpretations could have a significant effect on our reported results of operations and may even affect
the reporting of transactions completed before the announcement or effectiveness of a change. For example, we adopted Accounting Standards Codification,
Revenue from Contracts with Customers (Topic 606) (“ASC 606”), using the modified retrospective method. We applied the revenue standard to all contracts
that were not completed as of January 1, 2018. We recognized the cumulative effect of initially applying the revenue standard as an adjustment to the opening
balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for the
prior periods. It is difficult to predict the impact of future changes to accounting principles or our accounting policies, any of which could harm our business.
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If we fail to comply with the laws and regulations relating to the collection of sales tax and payment of income taxes in the various
jurisdictions in which we do business, we could be exposed to unexpected costs, expenses, penalties and fees as a result of our noncompliance, which
could harm our business.
By engaging in business activities in the United States, we become subject to various jurisdiction laws and regulations, including requirements to
collect sales tax from our sales within those jurisdictions, and the payment of income taxes on revenue generated from activities in those jurisdictions. The
laws and regulations governing the collection of sales tax for sales on our website and payment of income taxes are numerous, complex, and vary by
jurisdiction. A successful assertion by one or more jurisdictions that we were required to collect sales or other taxes or to pay income taxes where we did not
could result in substantial tax liabilities, fees and expenses, including substantial interest and penalty charges, which could harm our business.
New legislation that would change U.S. or foreign taxation of international business activities or other tax-reform policies could harm our
business.
Reforming the taxation of international businesses has been a priority for U.S. politicians, and key members of the legislative and executive
branches, and a wide variety of changes has been proposed or enacted. Certain changes to U.S. tax laws could affect the tax treatment of our foreign earnings,
as well as cash and cash equivalent balances we maintain outside the United States. Additionally, any changes in the U.S. or foreign taxation of such
activities may increase our worldwide effective tax rate and the amount of taxes we pay and harm our business.
Legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (“TCJA”), as modified by legislation enacted on March 27, 2020, entitled
the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), significantly reformed the Internal Revenue Code of 1986, as amended. The TCJA,
as modified by the CARES Act, alters U.S. federal tax rates, imposes additional limitations on the deductibility of interest, allows for the expensing of certain
capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. Additionally, the TCJA, as modified by
the CARES Act, has both positive and negative changes to the utilization of future net operating loss carryforwards. For example, U.S. federal NOLs
incurred in taxable years beginning after December 31, 2017, can be carried forward indefinitely, but the deductibility of such U.S. federal NOLs in taxable
years beginning after December 31, 2020 is limited to 80% of taxable income. The U.S. Department of Treasury has broad authority to issue regulations and
interpretative guidance that may significantly impact how we will apply the law, which could affect our financial position and result of operations. It is
uncertain if and to what extent various states will conform to the TCJA and the CARES Act.
In addition, an increasing number of jurisdictions are considering or have adopted laws or administrative practices that impose new tax measures,
including revenue-based taxes targeting online commerce, digital services, streaming services and the remote selling of goods and services. These include
new obligations to collect sales, consumption, value added, or other taxes on online marketplaces and remote sellers, or other requirements that may result in
liability for third-party obligations. For example, Maryland recently passed legislation establishing a tax on certain advertising activities and in the EU,
certain member states, and other countries have adopted or proposed taxes on digital advertising and marketplace service revenue. The OECD and G-20 are
currently engaged in negotiations over an Inclusive Framework on “Base Erosion and Profit Shifting” (BEPS). The talks particularly target digital businesses,
involve 135 countries, and could significantly alter the rules on international taxation of multinational enterprises. Our results of operations and cash flows
could be adversely affected by additional taxes of this nature imposed on us prospectively or retroactively or additional taxes or penalties resulting from the
failure to comply with any collection obligations. The United States has threatened to impose retaliatory duties under Section 301 of the Trade Act of 1974 on
imports from countries that adopt DSTs, which could result in increased trade tensions and potential retaliation by foreign governments against U.S. digital
services or technologies.
We continue to examine the impact these and other tax reforms may have on our business. The impact of these and other tax reforms is uncertain
and one or more of these or similar measures could seriously harm our business.
We have been, are currently, and may in the future be subject to regulatory inquiries, investigations and proceedings, which could cause us to
incur substantial costs or require us to change our business practices in a way that could seriously harm our business.
We have been, are currently, and may in the future be subject to investigations and inquiries from government entities. These investigations and
inquiries, and our compliance with any associated regulatory orders or consent decrees, may
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require us to change our policies or practices, subject us to substantial monetary fines or other penalties or sanctions, result in increased operating costs,
divert management’s attention, harm our reputation, and require us to incur significant legal and other expenses, any of which could seriously harm our
business. For example, in the past, we responded to requests for information made by staff from the SEC.
Risks Related to Ownership of Our Class A Common Stock
The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of
concentrating voting control with those stockholders who held our stock prior to our initial public offering, including our executive officers, employees
and directors and their affiliates, and limiting your ability to influence corporate matters.
Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. Our President and Chief Executive
Officer, Anthony Wood, holds and controls the vote of a significant number of shares of our outstanding common stock, and therefore Mr. Wood will have
significant influence over our management and affairs and over all matters requiring stockholder approval, including election of directors and significant
corporate transactions, such as a merger or other sale of Roku or our assets, for the foreseeable future. If Mr. Wood’s employment with us is terminated, he
will continue to have the same influence over matters requiring stockholder approval.
In addition, the holders of Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for
approval even if their stock holdings represent less than 50% of the outstanding shares of our common stock. Because of the 10-to-1 voting ratio between our
Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power
of our common stock even when the shares of Class B common stock represent as little as 10% of all outstanding shares of our Class A and Class B common
stock. This concentrated control will limit your ability to influence corporate matters for the foreseeable future, and, as a result, the market price of our Class
A common stock could be adversely affected.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, which will have the
effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. As a result of
such transfers, as of December 31, 2020, Mr. Wood controls a majority of the combined voting power of our Class A and Class B common stock even though
he only owns 13% of the outstanding Class A and Class B common stock. As a board member, Mr. Wood owes a fiduciary duty to our stockholders and must
act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Wood
is entitled to vote his shares in his own interests, which may not always be in the interests of our stockholders generally. This concentrated control could
delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other stockholders support, or
conversely this concentrated control could result in the consummation of such a transaction that our other stockholders do not support. This concentrated
control could also discourage a potential investor from acquiring our Class A common stock, which has limited voting power relative to the Class B
common stock and might harm the trading price of our Class A common stock.
We have not elected to take advantage of the “controlled company” exemption to the corporate governance rules for companies listed on The
Nasdaq Global Select Market.
The trading price of our Class A common stock has been, and may continue to be, volatile, and the value of our Class A common stock may
decline.
The market price of our Class A common stock has been and may continue to be subject to wide fluctuations in response to numerous factors,
many of which are beyond our control, including:
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actual or anticipated fluctuations in our financial condition and operating results;
changes in projected operational and financial results;
loss by us of key content publishers;
changes in laws or regulations applicable to our devices or platform;
the commencement or conclusion of legal proceedings that involve us;
actual or anticipated changes in our growth rate relative to our competitors;
announcements of new products or services by us or our competitors;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or
capital-raising activities or commitments;
additions or departures of key personnel;
issuance of new or updated research or reports by securities analysts;
the use by investors or analysts of third-party data regarding our business that may not reflect our financial performance;
fluctuations in the valuation of companies perceived by investors to be comparable to us;
sales of our Class A common stock;
share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and
general economic and market conditions.
Furthermore, the stock markets frequently experience extreme price and volume fluctuations that affect the market prices of equity securities of
many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and
industry fluctuations, as well as general economic, political and market conditions such as recessions, elections, interest rate changes or international
currency fluctuations, may negatively impact the market price of our Class A common stock. As a result of such fluctuations, you may not realize any return
on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their
stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial costs
and divert our management’s attention from other business concerns.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage
ownership of our stockholders and could cause our stock price to decline.
We may issue additional securities in the future and from time to time. Future sales and issuances of our capital stock or rights to purchase our
capital stock could result in substantial dilution to our existing stockholders. We may sell or issue Class A common stock, convertible securities and other
equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent
transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those
of holders of our Class A common stock.
Future sales of shares by existing stockholders could cause our stock price to decline.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our Class A common stock in the public market, the
trading price of our Class A common stock could decline. All of our outstanding Class A shares are eligible for sale in the public market, other than shares
and options exercisable held by directors, executive officers and other affiliates that are subject to volume limitations under Rule 144 of the Securities Act. In
addition, we have reserved shares for future issuance under our equity incentive plan. Our employees, other service providers, and directors are subject to our
quarterly trading window, which generally opens at the start of the second full trading day after the public dissemination of our annual or quarterly financial
results and closes (i) with respect to the first, second and third quarter of each year, at the end of the fifteenth day of the last month of the such quarter and (ii)
with respect to the fourth quarter of each year, at the end of the trading day on the Wednesday before Thanksgiving. These employees, service providers and
directors may also sell shares during a closed window periods pursuant to trading plans that comply with the requirements of Rule 10b5-1(c)(1) under the
Exchange Act. When these shares are issued and subsequently sold, it would be dilutive to existing stockholders and the trading price of our Class A common
stock could decline.
If securities or industry analysts do not publish research or publish unfavorable research about our business or if they downgrade our stock,
our stock price and trading volume could decline.
A limited number of equity research analysts provide research coverage of our Class A common stock, and we cannot assure you that such equity
research analysts will adequately provide research coverage of our Class A common stock. A lack of adequate research coverage may adversely affect the
liquidity and market price of our Class A common stock. If securities or industry analysts cover our company and one or more of these analysts downgrades
our stock or issues other unfavorable commentary or research, the price of our Class A common stock could decline. If one or more equity research analysts
cease coverage of our company, or fail to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or
trading volume to decline.
49
We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the
United States, which may harm our business.
As a public company listed in the United States, we incur significant legal, accounting and other expenses. In addition, changing laws, regulations
and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and The Nasdaq Global Select Market,
may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to
varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.
We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative
expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts, we
fail to comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us, and our business may be harmed.
Failure to comply with these rules might also make it more difficult for us to obtain certain types of insurance, including director and officer
liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar
coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, on
committees of our Board of Directors or as members of senior management.
We do not intend to pay dividends in the foreseeable future.
We have never declared or paid any cash dividends on our Class A or Class B common stock and do not intend to pay any cash dividends in the
foreseeable future. We anticipate that we will retain all of our future earnings to grow our business and for general corporate purposes. Moreover, our
outstanding Credit Agreement contains prohibitions on the payment of cash dividends on our capital stock. Accordingly, investors must rely on sales of their
Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our
management or hinder efforts to acquire a controlling interest in us, and the market price of our Class A common stock may be lower as a result.
There are provisions in our certificate of incorporation and bylaws that may make it difficult for a third-party to acquire, or attempt to acquire,
control of Roku, even if a change in control was considered favorable by our stockholders.
Our charter documents also contain other provisions that could have an anti-takeover effect, such as:
establishing a classified Board of Directors so that not all members of our Board of Directors are elected at one time;
permitting the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships;
providing that directors may only be removed for cause;
prohibiting cumulative voting for directors;
requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws;
authorizing the issuance of “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan;
eliminating the ability of stockholders to call special meetings of stockholders;
prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; and
reflecting our two classes of common stock as described above.
•
•
•
•
•
•
•
•
•
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law,
which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date
of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a
prescribed manner. Any provision in our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in
control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price
that some investors are willing to pay for our Class A common stock.
50
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district
courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our
stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the
following types of actions or proceedings under Delaware statutory or common law:
•
•
•
any derivative action or proceeding brought on our behalf;
any action asserting a breach of fiduciary duty;
any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of
incorporation or our bylaws;
or any action asserting a claim against us that is governed by the internal affairs doctrine.
This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal
courts have exclusive jurisdiction. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all Securities
Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims.
•
To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other
considerations, our amended and restated certificate of incorporation provides that the federal district courts of the United States of America will be the
exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. In December 2018, the Delaware Chancery Court
issued a ruling invalidating such provision, which we appealed to the Supreme Court of the State of Delaware. In March 2020, the Supreme Court of the State
of Delaware reversed the ruling of the Delaware Chancery Court and held that the federal forum provision in our amended and restated certificate of
incorporation is facially valid.
While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a
claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and
enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs
associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other
jurisdictions.
These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for certain disputes
with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court
were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we
may incur further significant additional costs associated with resolving such action in other jurisdictions, all of which could harm our business.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters are currently located in San Jose, California under a lease that expires in September 2030. We use this space for sales,
research and development and administrative purposes. In addition, we lease various office and shared work spaces throughout the United States and
internationally. We believe that our facilities are suitable to meet our current needs.
Item 3. Legal Proceedings
Information with respect to this item may be found in Note 12 to the consolidated financial statements in Item 8 of this Report, which is incorporated
herein by reference.
Item 4. Mine Safety Disclosures
None
51
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our Class A common stock is listed on The Nasdaq Global Select Market under the ticker symbol “ROKU.” Our Class B common stock is not listed
PART II
or traded on any exchange.
Holders of Record
As of January 31, 2021, there were 62 stockholders of record of our Class A common stock. There were significantly more beneficial owners of our
Class A common stock. As of January 31, 2021, there were approximately 22 stockholders of record of our Class B common stock.
Dividend Policy
We have never declared or paid any dividends on our Class A or Class B common stock. We currently intend to retain all available funds and any
future earnings for use in our business and therefore we do not anticipate declaring or paying any cash dividends in the foreseeable future. The terms of our
Credit Agreement also restrict our ability to pay dividends, and we may also enter into credit agreements or other borrowing arrangements in the future that
will restrict our ability to declare or pay cash dividends on our capital stock.
Sale of Unregistered Securities and Use of Proceeds
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Stock Performance Graphs and Cumulative Total Return
The following graph shows the cumulative total stockholder return of an investment of $100 in cash from September 29, 2017 (the date our Class A
common stock commenced trading on The Nasdaq Global Select Market) through December 31, 2020, for (i) our Class A common stock, (ii) the Nasdaq
Composite Index and (iii) the Peer Group of companies. Because no published index of comparable player and platform companies is currently available, we
have used Peer Group of companies for the purposes of this graph in accordance with the requirements of the SEC. The Peer Group is made up of Facebook,
Inc., Alphabet, Inc., Logitech International S.A., Netflix, Inc., Snap, Inc., Twitter, Inc., Yelp, Inc. and Zillow Group, Inc. Not all of the companies included in
Peer Group participate in all the lines of business in which we are engaged, and some of the companies are engaged in lines of business in which we do not
participate. Additionally, the market capitalization of some of the companies included in the Peer Group are different from ours.
Pursuant to applicable SEC rules, all values assume reinvestment of the full amount of all dividends, however no dividends have been declared on our
Class A common stock or Class B common stock to date. The stockholder return shown on the graph below is not necessarily indicative of future
performance, and we do not make or endorse any predictions as to future stockholder returns.
52
Company / Index
Roku, Inc.
Nasdaq
Composite Index $
$
Peer Group
Sep-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20
$
100 $
727 $
956 $
222 $
219 $
461 $
370 $
522 $
190 $
304 $
625 $
647 $
832 $
Sep-20 Dec-20
1,348 $
2,371
100 $
100 $
101 $
101 $
107 $
107 $
110 $
107 $
117 $
124 $
126 $
119 $
104 $
98 $
122 $
117 $
126 $
121 $
127 $
120 $
142 $
134 $
123 $
119 $
160 $
153 $
179 $
169 $
206
193
The information under “Stock Performance Graphs and Cumulative Total Return” is not deemed to be “soliciting material” or “filed” with the SEC or
subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act and is not to be incorporated by reference in any filing of the
Company under the Securities Act, or the Exchange Act, whether made before or after the date of this Annual Report on Form 10-K and irrespective of any
general incorporation language in those filings.
53
Equity Compensation Plan Information
The following table summarizes information about our equity compensation plans as of December 31, 2020.
Plan Category
Number of securities to be
issued upon exercise of
outstanding options and awards
(a)
Weighted average
exercise price of
outstanding
options (1)
(b)
(in thousands, except per share amount)
Number of securities
remaining available
for future issuances
under equity compensation
plans (excluding securities
in column (a))
(c)
Equity compensation plans approved by security holders (2)
Equity compensation plans not approved by security holders
Total
13,088 $
—
13,088 $
26.19
—
26.19
26,509
—
26,509
(1) Restricted stock units have been excluded for purposes of computing weighted average exercise prices in column (b) as they do not have an exercise price.
(2) The number of securities remaining available for future issuance in column (c) includes 21,420 shares of Class A common stock, available for issuance under our 2017
Equity Incentive Plan (the “2017 Plan”) in column (a) and, includes 5,089 shares of Class A common stock available for issuance under our 2017 Employee Stock Purchase
Plan. The number of shares authorized for issuance under the 2017 Plan are subject to an annual increase.
54
Item 6. Selected Financial Data
The selected consolidated financial data below should be read in conjunction with the Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated financial statements and related notes included in Item 8 of this Report.
The consolidated statements of operations data for the years ended December 31, 2020, 2019 and 2018 and the consolidated balance sheets data as of
December 31, 2020 and 2019 are derived from our audited financial statements appearing in Item 8 of this Report. The consolidated statements of operations
data for the year ended December 31, 2017 and 2016 and the consolidated balance sheets data as of December 31, 2018, 2017 and 2016 are derived from
audited financial statements not included in this Report. Our historical results are not necessarily indicative of the results that may be expected in any future
period.
In 2017, the Company changed the fiscal year-end to match the calendar year-end. Prior to 2017, the Company’s fiscal year was the 52- or 53-week
period that ended on the last Saturday of December. Fiscal year 2016 ended on December 31, 2016 and spanned 53 weeks.
2020 (1) (2)
2019 (1) (2)
Years Ended December 31,
2018 (1)
(in thousands, except per share data)
2017
2016
Consolidated Statements of Operations Data:
Total net revenue
Net loss attributable to common stockholders
Net loss per share attributable to common stockholders— basic
and diluted (3)
Weighted-average shares used in computing net loss per share
attributable to common stockholders—basic and diluted
Consolidated Balance Sheets Data:
Total assets
Total long-term liabilities (4)
$
$
$
1,778,388
(17,507)
$
$
1,128,921
(59,937)
$
$
742,506
(8,857)
$
$
512,763
(63,509)
$
$
398,649
(42,758)
(0.14)
$
(0.52)
$
(0.08)
$
(2.24)
$
(9.01)
123,978
115,218
104,618
28,308
4,746
$
$
2,270,542
422,206
$
$
1,470,234
413,507
$
$
464,997
26,342
$
$
371,897
56,360
$
$
179,078
43,217
(1)
(2)
(3)
(4)
We adopted the guidance in Revenue from Contracts (Topic 606) using the modified retrospective method effective January 1, 2018. Accordingly, the
consolidated statement of operations for the years ended December 31, 2020, 2019 and 2018 reflect the impact of this adoption.
We adopted the guidance in Leases (Topic 842) using the optional transition method effective January 1, 2019. Accordingly, the consolidated
statement of operations and consolidated balance sheets for the year ended December 31, 2020 and 2019 reflects the impact of this adoption.
See Note 16 to the consolidated financial statements in Item 8 of this Report, for an explanation of the calculations of basic and diluted net loss per
common share.
Total long-term liabilities include non-current portions of debt, operating lease liabilities, deferred revenue, other long-term liabilities and preferred
stock warrant liability.
55
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated
financial statements and related notes included in Item 8 of this Report. In addition to historical financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates, beliefs, and expectations, and involve risks and uncertainties. Factors that could cause or
contribute to these differences include those discussed below and elsewhere in this Report on Form 10-K, particularly in the section titled Item 1A. Risk
Factors and the Note Regarding Forward-Looking Statements.
This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018
items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in Management's Discussion and Analysis
of Financial Condition and Results of Operations in Part II, Item 7 of the Company's Report on Form 10-K for the fiscal year ended December 31, 2019 filed
with the SEC on March 2, 2020.
Overview
We operate in two revenue segments: the platform segment and the player segment. Platform revenue is generated from the sale of digital
advertising and related services, content distribution services, subscription and transaction revenue shares, Premium Subscriptions, billing services, sale of
branded channel buttons on remote controls and licensing arrangements with service operators and TV brands.
Player revenue is generated primarily from the sale of streaming players. We expect to continue to manage the average selling prices (“ASP”) of our
streaming players to increase our active accounts. As a result, player revenues may not increase as they have historically. We expect that the tradeoff from
player gross profit to grow active accounts will result in increased platform monetization and gross profit.
COVID-19 Update
The widespread global impact from the outbreak and spread of the novel strain of coronavirus referred to as COVID-19, which was declared a
pandemic by the World Health Organization in March 2020, continued through the end of 2020. Precautionary measures to slow down the spread of the virus
that were put in place by governmental authorities had eased in many locations but were re-instated in many geographies during the fourth quarter. We
continue to have the majority of our workforce work from home to protect the health and safety of our employees and travel has been severely curtailed. The
COVID-19 pandemic, and the resulting precautionary measures, have caused, and are expected to continue to cause, economic uncertainty both in the U.S.
and globally as well as significant volatility in, and disruption to, financial markets.
During the fourth quarter of 2020, the ongoing COVID-19 pandemic continued to accelerate the shift of TV viewing away from traditional pay TV
to streaming TV resulting in a faster growth of our active accounts and an increase in streaming hours. Although the growth in streaming hours per account
moderated during the third quarter, streaming hours per account accelerated again during the fourth quarter to 17.0 billion hours. Despite advertising
slowdown during the second quarter that we experience as a result of the COVID-19 pandemic, during the fourth quarter we had strong platform revenue
growth driven by advertising spend and the expansion of content distribution partnerships. We believe advertising budgets will continue to shift from
traditional linear TV to streaming TV and that we will benefit from this shift due to our advanced advertising capabilities. Major content publishers continue
to re-organize around streaming and as a result, our content distribution business has benefited as our rapid rate of active accounts growth was accompanied
by strong consumer demand for ad-supported viewing, subscription services and premium movie rentals. While we have experienced an increase in TV
streaming during the COVID-19 pandemic and our business generally has generally, there can be no assurance that these patterns will continue into 2021.
Despite the adverse impact COVID-19 pandemic has had on global supply chains, we have largely been able to maintain inventory of our players,
audio products and accessories in stock at retailers and online stores. During the fourth quarter, player sales moderated due to the impact of ongoing COVID-
19 pandemic restrictions and ongoing economic uncertainty on holiday sales and consumer demand. While our player and Roku TV model sales have
remained strong during the COVID-19 pandemic, there can be no assurance that these patterns will continue throughout the pandemic or beyond.
56
Although the COVID-19 pandemic’s impact on our future operations and financial performance remains uncertain, we are continuing to monitor
our operating expenses and capital expenditures and are committed to investing in strategic areas to grow our business and extend our competitive
advantages.
Key Performance Metrics
The key performance metrics we use to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions are
gross profit, active accounts, streaming hours, and ARPU.
Gross Profit
We use gross profit as the primary metric to measure the performance of our business because we have two revenue segments that have different
margin profiles, and we aim to maximize our higher margin platform revenue from our active accounts as they stream content on our platform. The majority
of our gross profit is generated from our platform segment.
Our gross profit was $808.2 million and $495.2 million for the years ended December 31, 2020 and 2019, respectively.
Active Accounts
We believe that the number of active accounts is a relevant measure to gauge the size of our user base. We define active accounts as the number of
distinct user accounts that have streamed content on our platform within the last 30 days of the period. Users who streamed content from The Roku Channel
only on non-Roku platforms are not included in this metric. The number of active accounts also does not correspond to the number of unique individuals who
actively utilize our platform, or the number of devices associated with an account. For example, a single account may be used by more than one individual,
such as a family, and one account may be used on multiple streaming devices.
We had 51.2 million and 36.9 million active accounts as of December 31, 2020 and 2019, respectively. During 2020, the fastest growing source of
new accounts was licensing arrangements with our Roku TV brand partners and other service operators, which collectively accounted for 62% of new
accounts, up from 56% in 2019.
Hours Streamed
We believe the number of streaming hours on our platform is an effective measure of user engagement and that the growth in the number of hours of
content streamed across our platform reflects our success in addressing the growing user demand for TV streaming. We define streaming hours as the
aggregate amount of time streaming devices stream content on our platform in a given period. Hours streamed on non-Roku platforms are not included in this
metric. We report streaming hours on a calendar basis.
Additionally, we believe that over time, increasing user engagement on our streaming platform increases our platform monetization because we earn
platform revenue from various forms of user engagement, including advertising, revenue shares from subscriptions and transactional video on-demand.
However, our revenue from content publishers is not tied to the hours streamed on their streaming channels, and the number of streaming hours does not
correlate to revenue earned from such content publishers or ARPU on a period-by-period basis. Moreover, streaming hours on our platform are measured
whenever a Roku player or a Roku TV is streaming content, whether a viewer is actively watching or not. For example, if a Roku player is connected to a TV,
and the viewer turns off the TV, steps away or falls asleep and does not stop or pause the player, then the particular streaming channel may auto-play
subsequent content for a period of time determined by the streaming channel. We believe that this also occurs across a wide variety of non-Roku streaming
devices and other set-top boxes.
During the first quarter of 2020, we completed the deployment across all of our devices of a new Roku OS feature that is designed to identify when
content has been continuously streaming on a channel for an extended period of time without user interaction. This feature, which we refer to as “Are you
still watching,” periodically prompts the user to confirm that they are still watching the selected channel and closes the channel if the user does not respond
affirmatively. We believe that the implementation of this feature across the Roku platform benefits us, our customers, channel partners and advertisers. Some
of our leading channel partners, including Netflix, also have implemented similar features within
57
their channels. This Roku OS feature supplements these channel features. This feature has not had and is not expected to have a material impact on our future
financial performance.
We streamed 58.7 billion and 37.8 billion hours during the years ended December 31, 2020 and 2019, respectively.
Note About Our Streaming Hours Adjustments
To calculate and report our streaming hours, we utilize data from event logs generated by the firmware running on the Roku devices that are
recorded in a central database. The event information (play, pause, stop, time counts, etc.) is generated by the firmware running on the Roku streaming
devices, and event data is transmitted to our central database at regular intervals when a device is connected to the internet. Pause time is not intended to be
included in streaming hours.
During the second quarter of 2020 we discovered that some pause time was inadvertently included in the streaming hours information recorded in
our central database. Upon discovering these errors in the log data, we promptly reviewed and analyzed the issue utilizing our firmware, data engineering and
core analytics teams. We concluded that certain past Roku OS releases inadvertently caused the logging errors. The error rates varied over time and across
different types of devices and firmware versions. As a result, we reported higher streaming hours and streaming hours growth rates for the affected periods
than we would have if all pause time had been excluded from streaming hours as we had intended. Neither these logging errors, nor the resulting adjustments
that we made to our streaming hours calculations, has had any impact on our financial results, and do not require us to revise any of our previously reported
key operating metrics other than streaming hours.
The affected log data was for the periods from February 2016 to August 2020. After adjusting for logging errors, we estimate that our streaming
hours were, on average, approximately 0.5% lower than previously reported for the period January 2017 through September 2018, and approximately 5.8%
lower for the period October 2018 through March 2020.
By the end of August 2020, we fully deployed a software update that addressed the root cause of the pause time logging errors and prevented them
from continuing.
The roll out of the “Are you still watching” feature had no impact on the adjustments we made to our streaming hours calculations. While our
revenue from content publishers is not based on the hours streamed on their streaming channels, and the number of streaming hours does not directly
correlate to revenue earned from such content publishers or ARPU on a period-by-period basis; we believe that the growth in the number of hours of content
streamed across our platform reflects our success in addressing the growing user demand for TV streaming. After adjusting our streaming hours as discussed
above, our estimated year-over-year streaming hour growth rates for fiscal year 2018 versus fiscal year 2017, fiscal year 2019 versus fiscal year 2018 and the
first quarter of 2020 versus the first quarter of 2019 were 60.5%, 59.3% and 46.8%, respectively. The estimated year-over-year streaming hour growth rate for
the second quarter of 2020 versus the second quarter of 2019 was 65%.
The following table presents the estimated impacts on streaming hours (in billions) for periods from January 1, 2017 through March 31, 2020 and
streaming hours growth rates on a year-over-year (“YoY”) basis by quarter for periods from January 1, 2018 through March 31, 2020 and annually for fiscal
year 2018 and 2019. Revised streaming hours for 2016 are not estimated and therefore revised 2017 YoY growth rates are not available.
58
Quarter
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2019 Q3
2019 Q4
2020 Q1
Year
2017
2018
2019
Published SHs
3.3B
3.5B
3.8B
4.3B
5.1B
5.5B
6.2B
7.3B
8.9B
9.4B
10.3B
11.7B
13.2B
Published SHs
14.8B
24.0B
40.3B
Average Revenue per User
Revised SHs
3.2B
3.5B
3.8B
4.3B
5.1B
5.4B
6.1B
7.1B
8.4B
8.8B
9.6B
10.9B
12.3B
Revised SHs
14.8B
23.7B
37.8B
SHs % Delta
-0.5%
-0.4%
-0.4%
-0.2%
-0.5%
-0.5%
-0.7%
-2.2%
-5.4%
-6.0%
-6.5%
-6.3%
-7.0%
SHs % Delta
-0.4%
-1.1%
-6.1%
Published YoY
63.4%
60.0%
57.8%
55.3%
56.0%
57.2%
62.7%
68.6%
74.1%
72.1%
67.6%
60.2%
49.3%
Published YoY
58.8%
61.7%
67.8%
Revised YoY
NA
NA
NA
NA
56.1%
57.0%
62.1%
65.2%
65.5%
62.6%
57.9%
53.7%
46.8%
Revised YoY
NA
60.5%
59.3%
We measure our platform monetization progress with ARPU, which we believe represents the inherent value of our business. We define ARPU as our
platform revenue for the trailing four quarters divided by the average of the number of active accounts at the end of the current period and the end of the
corresponding period in the prior year. ARPU measures the rate at which we are monetizing our active account base and the progress of our platform
business.
ARPU was $28.76 as of December 31, 2020 as compared to $23.14 as of December 31, 2019.
Factors Affecting Our Performance
Rate of TV streaming and advertising shift to OTT
Consumers have significantly shifted their TV viewing behavior, and we believe that someday all TV content will be streamed. We also believe this
presents a large market opportunity for digital advertising. This shift in viewing behavior is a critical component of our business model because our platform
revenue and player revenue, as well as our overall expense structure, is dependent on this shift. In addition, the number of hours streamed on our platform is a
critical element of our business because user engagement with our platform generates our advertising inventory and determines our advertising sell through.
User acquisition strategy
We acquire users through three primary ways: our TV brand partners sell Roku TVs through our Roku TV licensing program, we sell streaming
players, and we have licensing relationships with service operators. We monetize our user base through platform revenue. Player revenue and player gross
profit have decreased, and may continue to decrease, over time as we strategically aim to acquire new users through the sale of lower priced streaming
players.
Ability to monetize users and streaming hours
Our business model is to increase both active accounts and streaming hours while growing revenue and gross profit through the monetization of our
streaming platform. We believe we have a significant opportunity to grow platform revenue as we further monetize our users’ engagement. Our platform
makes it easy for content publishers to distribute and monetize their streaming content through three primary business models: transaction video on demand
(“TVOD”) that includes channels that offer a la carte movie purchases or rentals, subscription video on demand (“SVOD”) that includes subscriptions to
individual video on demand channels and so-called virtual multichannel video programming distribution services, and advertising supported video on
demand (“AVOD”) that includes channels that do not charge a subscription
59
fee to users. We generate revenue from TVOD and SVOD channels from various forms of revenue sharing arrangements. Our revenue sharing arrangements
generally apply to new subscriptions for accounts that sign up for new services and to movie rentals or purchases for TVOD. Through our platform we also
are able to offer content partners with billing services which support in-channel purchases including movie purchases, rentals, and subscriptions.
Revenue from the distribution of AVOD channels is generated through the sale of advertising within the channel. We are increasing the
monetization of these streaming hours by expanding our advertising capabilities both on and off our platform. We intend to continue to leverage our data and
analytics to deliver relevant advertising and improve the ability of our advertisers to optimize their campaigns and measure their results. We also plan to
continue to expand our direct sales teams to increase the number of advertisers who use our services. The Roku Channel offers free, ad-supported access for
users to a selection of films, television series and other content. The Roku Channel is a source of digital advertising inventory under our control and is
another way that we connect content publishers with users. The Roku Channel provides customers with free access to over 50,000 titles, including hit
Hollywood movies, TV episodes, news channels and more and is rapidly becoming one of our leading sources of advertising inventory. In January 2019, we
launched Premium Subscriptions within The Roku Channel, through which we resell ad-free premium content subscription services from providers such as
Showtime, Starz, and Epix.
Continued investment in growth
We believe that our future performance will depend on the success of the investments in our business that we have made, and will continue to make,
to improve the value for users, content publishers and advertisers on our platform. We must regularly update and enrich our platform to meet evolving
consumer behavior and deliver a superior experience for our users, content publishers and advertisers. Further, it is important that we remain a platform for
content delivery and invest to provide content publishers with best-in-class publishing tools and actionable audience insights. We must continue to innovate
and invest in our advertising capabilities and technology so that we attract and encourage incremental advertising spend on our platform. Accordingly, we
plan to continue investing in our business to enhance our competitive differentiation and seed future growth. In particular, these investments will include:
Research and Development initiatives to bring new features, technology, and content to our platform; Sales and Marketing efforts to drive increased scale and
engagement of our user base; and building out our General and Administrative infrastructure to support a global scale business.
Seasonality
In the fourth quarter of each calendar year, we generally generate significantly higher levels of revenue and gross profit from platform segment
revenue and significantly higher levels of player segment revenue. For the years ended December 31, 2020 and 2019, fourth quarter revenue comprised 37%
and 36% of our total net revenue, respectively, and fourth quarter gross profit comprised 38% and 33% of our total gross profit, respectively.
Components of Results of Operations
Revenue
Platform Revenue
We generate platform revenue from advertising sales and related services, subscription and transaction revenue sharing arrangements with partners,
the sale of Premium Subscription services, sales of branded channel buttons on remote controls and licensing arrangements with service operators. Our first-
party video ad inventory includes The Roku Channel, native display ads on our home screen and screen saver as well as ad inventory we obtain through our
content distribution agreements with publishers. To supplement supply, we re-sell video inventory that we purchase from content publishers and, to a lesser
extent, directly sell third-party inventory on a revenue share basis. To date, we have generated most of our platform revenue in the United States.
Player Revenue
We generate player revenue primarily from the sale of streaming players through consumer retail distribution channels, including major brick
and mortar retailers, such as Best Buy and Walmart, and online retailers, including Amazon. We generate most of our player revenue in the United States. In
our international markets, we primarily sell our
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players through wholesale distributors which, in turn, re-sell to retailers. We currently distribute our players in Canada, the United Kingdom, France, the
Republic of Ireland, Mexico, Brazil and several other Latin American countries.
Player revenue also includes the sale of our audio products, including wireless speakers, smart soundbars and wireless subwoofers.
Cost of Revenue
Cost of Platform Revenue
Cost of platform revenue consists of costs associated with arrangements with content partners and publishers including advertising inventory and
content or programming licensing fees. Cost of platform revenue also includes payment processing fees, allocated expenses associated with the delivery of
our services including salaries, benefits and stock-based compensation for our operations and support teams, third-party cloud services and amortization of
acquired technology.
Cost of Player Revenue
Cost of player revenue is comprised mostly of player manufacturing costs payable to our third-party contract manufacturer and technology licenses or
royalty fees. Cost of player revenue also includes inbound and outbound freight, duty and logistics costs, third-party packaging and allocated overhead costs
related to facilities and customer support, and salaries, benefits and stock-based compensation for operations personnel.
Operating and Other Expenses
Research and Development
Research and development expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation for our
development teams as well as outsourced development fees. In addition, research and development expenses include allocated facilities and overhead
costs. We expect research and development expenses to increase in absolute dollars as we continue to invest in the development of our platform, player and
TV products, advertising products and other platform services.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related costs, including salaries, benefits, commissions and stock-based compensation
expense for our employees engaged in sales and sales support, marketing, communications, data science and analytics, business development, product
management and partner and customer support functions. Sales and marketing expenses also include marketing, retail and merchandising costs and allocated
facilities and overhead expenses. We expect sales and marketing expenses to increase in absolute dollars in future periods as we focus on growing active
accounts, platform and player revenues, and expanding our business internationally.
General and Administrative
General and administrative expenses consist primarily of salaries, benefits and stock-based compensation for our executive, finance, legal,
information technology, human resources and other administrative personnel. General and administrative expenses also include outside legal, accounting and
other professional service fees as well as allocated facility expenses. We expect our general and administrative expenses to increase due to the expansion of
our business and related infrastructure.
Other Income (Expense), Net
For the year ended December 31, 2020, other income (expense), net consists of interest income on cash and cash equivalents, interest expense that
primarily includes interest on our Credit Facility (as defined in ‘Liquidity and Capital Resources’ below) and amortization of deferred debt costs, foreign
currency re-measurement and transaction gains and losses. For the years ended December 31, 2019 and 2018, other income (expense), net consists of interest
income on short-term investments and cash balances, interest expense that primarily includes amortization of deferred debt costs, foreign currency re-
measurement and transaction gains and losses.
61
Income Tax (Benefit) Expense
Our income tax (benefit) expense consists primarily of income taxes in certain foreign jurisdictions where we conduct business and state income
taxes in the United States. We have a valuation allowance for U.S. deferred tax assets, including net operating loss carryforwards and tax credits related
primarily to research and development. We expect to maintain this valuation allowance for the foreseeable future.
Results of Operations
The following table sets forth selected consolidated statements of operations data as a percentage of total revenue for each of the periods indicated.
Net Revenue:
Platform
Player
Total net revenue
Cost of Revenue:
Platform
Player
Total cost of revenue
Gross Profit:
Platform
Player
Total gross profit
Operating Expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from Operations
Other Income, Net:
Other income, net
Total other income, net
Loss before income taxes
Income tax (benefit) expense
Net loss attributable to common stockholders
Comparison of Years Ended December 31, 2020 and 2019
Net Revenue
(in thousands, except percentages)
Platform
Player
Total Net Revenue
Platform
2020
Years Ended December 31,
2019
2018
71%
29%
100%
66%
34%
100%
56%
44%
100%
28%
27%
55%
43%
2%
45%
20%
17%
10%
47%
(2)%
—%
—%
(2)%
—%
(2)%
23%
33%
56%
43%
1%
44%
24%
16%
10%
50%
(6)%
1%
1%
(5)%
—%
(5)%
16%
39%
55%
40%
5%
45%
23%
14%
10%
47%
(2)%
1%
1%
(1)%
—%
(1)%
Years Ended December 31,
2019
2020
Change $
Change %
$
$
1,267,744 $
510,644
1,778,388 $
740,776 $
388,145
1,128,921 $
526,968
122,499
649,467
71%
32%
58%
Platform revenue increased by $527.0 million, or 71%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019.
The increase is mostly attributable to higher advertising revenues, including revenue from
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our demand-side platform, which we acquired from dataxu in November 2019. In 2020, we re-branded our demand-side platform as the OneView Ad
Platform and integrated it with Roku-native identity, data and attribution tools. Platform revenues also increased due to higher content distribution and related
transactional revenues, including from Premium Subscriptions.
Player
Player revenue increased by $122.5 million, or 32%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019,
primarily due to an increase in the volume of streaming players sold in addition to increased revenues from the sale of audio products and accessories. During
the year ended December 31, 2020, the volume of streaming players sold increased 28% as compared to the year ended December 31, 2019 offset by a 3%
decrease in the average selling price of players. The increase in the volume of players sold was due to an increase in demand for lower priced models, namely
the Roku Express player and the Roku Premiere player, and in part to consumers spending more time at home due to the COVID-19 pandemic.
Cost of Revenue
(in thousands, except percentages)
Cost of revenue:
Platform
Player
Total Cost of Revenue
Gross profit:
Platform
Player
Total Gross Profit
Platform
Years Ended December 31,
2019
2020
Change $
Change %
$
$
$
$
503,177 $
466,992
970,169 $
262,655 $
371,042
633,697 $
240,522
95,950
336,472
764,567 $
43,652
808,219 $
478,121 $
17,103
495,224 $
286,446
26,549
312,995
92%
26%
53%
60%
155%
63%
The cost of platform revenue increased by $240.5 million, or 92%, for the year ended December 31, 2020 as compared to the year ended December
31, 2019. This increase is a result of higher advertising related costs including inventory acquisition costs, in addition to higher content licensing fees,
programming fees and credit card processing fees totaling $215.3 million. Platform costs increased an additional $25.3 million due to increases in allocated
personnel and operational overhead costs and amortization of acquired intangibles.
Gross profit for platform revenue increased by $286.4 million, or 60%, for the year ended December 31, 2020 as compared to the year ended
December 31, 2019, primarily driven by the overall growth in our platform revenues.
Player
The cost of player revenue increased by $96.0 million, or 26%, for the year ended December 31, 2020 as compared to the year ended December 31,
2019. The cost of player revenue increased approximately $73.1 million due to an increase in the volume of players sold. Freight expenses increased by $14.2
million as a result of an increase in the volume of units sold as well as an increase in the overall cost of transportation. Packaging and other overhead costs
increased by $8.7 million.
Gross profit for player revenue increased by $26.5 million, or 155%, for the year ended December 31, 2020 as compared to the year ended December
31, 2019, driven by higher sales volumes of player products and accessories and lower direct manufacturing costs.
63
Operating Expenses
(in thousands, except percentages)
Research and development
Sales and marketing
General and administrative
Total Operating Expenses
Research and development
Years Ended December 31,
2019
2020
Change $
Change %
$
$
355,784 $
299,457
173,231
828,472 $
265,011 $
178,855
116,417
560,283 $
90,773
120,602
56,814
268,189
34%
67%
49%
48%
Research and development expenses increased by $90.8 million, or 34%, for the year ended December 31, 2020 as compared to the year ended
December 31, 2019. The increase was primarily due to increases in personnel-related costs of $65.5 million as a result of increased engineering headcount of
14% and related stock-based compensation, higher professional service and consulting fees of $27.8 million, and higher allocated facilities costs of $11.7
million offset by allocations of overheads to cost of platform and player revenue of $14.2 million.
Sales and marketing
Sales and marketing expenses increased by $120.6 million, or 67%, for the year ended December 31, 2020 as compared to the year ended December
31, 2019. The increase was primarily due to increases in personnel-related costs of $61.9 million related to increased headcount of 15% and related stock-
based compensation in sales and sales support, product management, marketing and business analytics to support efforts to grow our business. Other sales
and marketing expenses include an increase of $42.2 million mainly due to increase in marketing, retail and merchandising costs, an increase of $10.6 million
in higher facilities costs, an increase of $5.6 million in outside consulting expenses, and an increase of $3.7 million in other expenses primarily related to
higher amortization of acquired intangible assets offset by a decrease of $3.4 million in travel expenses due to the COVID-19 pandemic.
General and administrative
General and administrative expenses increased by $56.8 million, or 49%, for the year ended December 31, 2020 as compared to the year ended
December 31, 2019. The increase was primarily due to increases in personnel-related costs of $29.2 million related to increased headcount of 27% and
related stock-based compensation, an increase of $16.1 million related to higher legal, consulting and professional service fees, an increase of $5.1 million
related to higher facilities costs, an increase of $3.1 million in allowance for doubtful accounts primarily from adoption of accounting standard for credit
losses, and a net increase of $3.3 million that includes various corporate expenses and overheads partly offset by a decrease in travel expenses due to the
COVID-19 pandemic.
Other Income (Expenses), Net
(in thousands, except percentages)
Interest expense
Other income (expense), net
Total Other Income (Expense), Net
Years Ended December 31,
2019
2020
Change $
Change %
(3,432) $
5,233
1,801 $
(2,366) $
6,506
4,140
$
(1,066)
(1,273)
(2,339)
45%
(20)%
(56)%
$
$
64
Other income (expenses), net
Total other income (expense), net, decreased by $2.3 million during the year ended December 31, 2020 as compared to the year ended December 31,
2019. Interest expense, including amortization of deferred debt costs, was higher for the year ended December 31, 2020 due to higher level of borrowings
under our Credit Facility as compared to the prior year. Other income, net was $1.3 million lower in the year ended December 31, 2020. Interest income
declined $2.7 million for the year ended December 31, 2020 due to a significant drop in interest rates early in the year in reaction to the COVID-19
pandemic, which impacted our investment yields. This was offset by favorable foreign exchange totaling $1.4 million primarily related to the British Pound.
Income Tax (Benefit) Expenses
(in thousands, except percentages)
Income tax (benefit) expense
Income tax benefit
Years Ended December 31,
2019
2020
Change $
Change %
$
(945) $
(982) $
37
(4)%
Income tax benefit arises from foreign income taxes and state income taxes in the United States.
Liquidity and Capital Resources
As of December 31, 2020, we had cash and cash equivalents of $1,092.8 million. Approximately 1.2% of our cash was held outside the United States
in accounts held by our foreign subsidiaries which are used to fund foreign operations.
Our primary sources of cash are receipts from platform and player revenue and proceeds from equity sales including equity issued pursuant to our
employee stock option plans. The primary uses of cash are costs of revenue including third party manufacturing costs, costs to acquire advertising inventory,
and content and programming license fees as well as operating expenses including payroll-related expenses, consulting and professional service fees, and
facility and marketing expenses. Other uses of cash include purchases of property and equipment.
We have multi-year lease agreements for office space and incurred material expenses in 2020. We expect to continue to incur material expenses for
facility and building related costs for our campus headquarters in San Jose, California as well as at other office locations in the U.S. and internationally. As
our business and workforce continue to expand, we further expect ongoing purchases of computer systems and other investments in property and equipment.
In addition, we may pursue merger and acquisition activities, including the acquisition of rights to programming and content assets that could materially
impact our liquidity and capital resources.
We believe our existing cash and cash equivalents, cash flow from operations, and our undrawn available balance under our Credit Facility will be
sufficient to meet our working capital requirements for at least the next twelve months. Our future capital requirements, the adequacy of available funds, and
cash flows from operations could be affected by various risks and uncertainties, including, but not limited to, those detailed in Part I, Item 1A, Risk Factors
and the effects of the COVD-19 pandemic. While the pandemic has not severely impacted our liquidity and capital resources to date, it has contributed to
disruption and volatility in local economies and in capital and credit markets which could adversely affect our liquidity and capital resources in the future.
We may attempt to raise additional capital through the sale of equity securities or other financing arrangements. If we raise additional funds by
issuing equity, the ownership of our existing stockholders will be diluted. Our Credit Agreement expires in February 2023. If we raise additional financing by
the incurrence of additional indebtedness, we may be subject to fixed payment obligations and also to restrictive covenants.
65
At-the-Market Offering
On May 13, 2020, we entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC and Citigroup Global Markets Inc., as our
sales agents, pursuant to which we sold an aggregate of 4.0 million shares of our Class A common stock and received gross proceeds of $504.0 million at an
average selling price of $126.01 per share and incurred issuance costs of $6.8 million.
Senior Secured Term Loan A and Revolving Credit Facilities
On February 19, 2019 (the “Original Closing Date”), we entered into a Credit Agreement (the “Existing Credit Agreement”) with Morgan Stanley
Senior Funding, Inc. On May 3, 2019, (the “Closing Date”), the Existing Credit Agreement was amended pursuant to an Incremental Assumption and
Amendment No. 1 (the “Amendment” and the Existing Credit Agreement as amended by the Amendment, the “Credit Agreement”).
The Credit Agreement provides for (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million (the “Revolving
Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $100.0 million (the “Term Loan A Facility”)
and (iii) an uncommitted incremental facility, subject to the satisfaction of certain financial and other conditions, in the amount of up to (v) $50.0 million,
plus (w) 1.0x of our consolidated EBITDA for the most recently completed four fiscal quarter period, plus (x) an additional amount at our discretion, so long
as, on a pro forma basis at the time of incurrence, our secured leverage ratio does not exceed 1.50 to 1.00, plus (y) voluntary prepayments of the Revolving
Credit Facility and Term Loan A Facility to the extent accompanied by concurrent reductions to the applicable Credit Facility (together with the Revolving
Credit Facility and the Term Loan A Facility, collectively, the “Credit Facility”).
For our current borrowings, we have elected a Eurodollar borrowing with interest at a rate equal to the adjusted one-month LIBOR rate plus an
applicable margin of 1.75% based on our secured leverage ratio. The borrowings under the facility mature or have to repaid in full by February 2023. Our
obligations under the Credit Agreement are secured by substantially all of our assets. The Credit Agreement contains customary representations and
warranties, customary affirmative and negative covenants, a financial covenant that is tested quarterly and requires us to maintain a certain adjusted quick
ratio of at least 1.00 to 1.00, and customary events of default. As of December 31, 2020, we were in compliance with all of the covenants of the Credit
Agreement. See Note 10 to the consolidated financial statements in Item 8 of this Report, for additional details regarding the Credit Agreement.
We had outstanding letters of credit of $30.8 million and $30.7 million as of December 31, 2020 and December 31, 2019, respectively, against the
Revolving Credit Facility.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Consolidated Statements of Cash Flows Data:
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows provided by financing activities
Cash Flows from Operating Activities
Years Ended December 31,
2020
2019
$
$
148,192
(81,324)
509,048
13,707
(110,295)
458,328
Our operating activities provided cash of $148.2 million for the year ended December 31, 2020. Our net loss of $17.5 million for the year ended
December 31, 2020 was adjusted by non-cash charges of $225.7 million comprising mainly of $134.1 million of stock-based compensation, $36.2 million of
depreciation and amortization primarily on property and equipment and acquired intangible assets, $28.7 million of amortization of operating lease right-of-
use assets, $22.4 million of amortization of capitalized licensed content assets and $3.8 million of provision for doubtful accounts. The changes in our
operating assets and liabilities used cash of $60.0 million comprised of outflows of $196.0 million from an increase in accounts receivable primarily driven
by higher sales volume in the last quarter, $4.2 million from increased inventory levels
66
at the end of the year, $3.5 million from an increase in prepaid and other current assets due to an increase in contract assets, prepaid taxes and other general
expenses, and $1.1 million from an increase in other long term assets. These outflows were offset by cash inflows by an increase of $103.2 million from an
increase in accrued liabilities related to content publisher payables, marketing, retail and merchandising costs, advertising inventory costs and overall growth
in the volume of business, $21.5 million from an increase in deferred revenue due to overall growth in the volume of business, $13.0 million from an increase
in operating lease liabilities for new leases added during the year, $6.4 million from an increase in accounts payable, and $0.6 million from an increase in
other long-term liabilities.
Our operating activities provided cash of $13.7 million for the year ended December 31, 2019. Our net loss of $59.9 million for the year ended
December 31, 2019 was adjusted by non-cash charges of $127.9 million comprising mainly of $85.2 million of stock-based compensation and $15.7 million
of depreciation and amortization primarily on property and equipment and acquired intangible assets, $22.3 million of amortization of operating right-of-use
assets and $2.9 million of amortization of capitalized licensed content assets. The changes in our operating assets and liabilities used cash of $54.2 million
comprised of outflows of $110.2 million from an increase in accounts receivable due to increased seasonal revenues in the fourth quarter, $14.1 million from
increasing inventory levels, $10.6 million from a decrease in deferred revenue, $9.9 million from an increase in prepaid and other current assets due to an
increase in prepaid contracts, marketing expenses and prepaid capital expenditure for new facilities, $3.0 million from a decrease in other long-term
liabilities, and $3.0 million from an increase in other long-term assets. These outflows were offset by cash inflows of $74.5 million from an increase in
accrued liabilities due to timing of payments, increased content publishers payables, and overall growth in the volume of business, $11.7 million from an
increase in operating lease liabilities, $9.4 million from an increase in accounts payable, and $1.1 million from a decrease in deferred cost of revenue.
Cash Flow from Investing Activities
Our investing activities used cash of $81.3 million for the year ended December 31, 2020. The cash used comprised of $82.4 million for the purchase
of property and equipment, which primarily related to expenditures on leasehold improvements related to expanding our facilities and other capital
investments, partially offset by $1.1 million of cash received from proceeds from the resolution of purchase acquisition contingencies.
Our investing activities used cash of $110.3 million for the year ended December 31, 2019. The cash used comprised of $77.2 million for the
purchase of property and equipment, which primarily related to expenditures on leasehold improvements related to expanding our facilities and other capital
investments, $68.1 million related to the acquisition of dataxu, Inc., $12.4 million spent on the purchase of short-term investments, and $7.4 million related to
the purchases of other intangible assets, partially offset by $54.8 million received from sales/maturities of short-term investments.
Cash Flow from Financing Activities
Our financing activities provided cash of $509.0 million for the year ended December 31, 2020. The cash was received mainly from net proceeds
from the issuance of common stock through our at-the-market offering amounting to $497.2 million, net of offering costs and proceeds from the exercise of
employee stock options of $16.8 million. We borrowed and repaid $69.3 million of our Revolving Credit Facility in addition to the repayments of $5.0
million on our Term Loan A during the year.
Our financing activities provided cash of $458.3 million for the year ended December 31, 2019. The cash was received mainly from net proceeds
from the issuance of Class A common stock through our at-the-market offerings amounting to $330.5 million, net of offering costs, proceeds from
borrowings amounting to $99.6 million, net of issuance costs, and proceeds from the exercise of employee stock options of $28.2 million.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements during the years ended December 31, 2020 and 2019, as defined by applicable SEC rules and
regulations.
67
Contractual Obligations
Our future minimum payments under our non-cancelable contractual obligations were as follows as of December 31, 2020 (in thousands):
Term Loan A Facility (1)
Purchase commitments (2)
Operating lease obligations (3)
Other obligations (4)
Total
$
$
Total
95,000 $
185,945
440,645
70,990
792,580 $
Less Than
1 Year
Payments Due by Period
1 – 3
Years
3 – 5
Years
More Than
5 Years
5,000 $
185,945
50,889
42,574
284,408 $
90,000 $
—
94,974
26,376
211,350 $
— $
—
92,930
2,040
94,970 $
—
—
201,852
—
201,852
(1)
(2)
(3)
(4)
Represents the principal amount of Term Loan A Facility. For additional information regarding the terms of the debt and interest payable, see Note 10
to the consolidated financial statements in Item 8 of this Report.
Represents commitments to purchase finished goods from our contract manufacturer and other inventory related items.
Represents future minimum lease payments under operating leases.
Represents commitments included in other non-cancelable arrangements like licensed content assets, advertising inventory costs and other platform
services.
We rely on an outsourced supplier to manufacture, assemble and test our players and audio devices. Consistent with industry practices, we enter into
firm, noncancelable, and unconditional purchase commitments to acquire products through a combination of purchase orders, supplier contracts, and open
orders based on projected demand information. Our contract manufacturer sources components and builds our products based on these demand forecasts.
Changes to projected demand or in the subsequent sales mix of our products, may result in us being committed to purchase excess inventory to satisfy these
commitments.
The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under
contracts that we can cancel without a significant penalty are not included in the table above.
As we are unable to reasonably predict the timing of settlement of liabilities related to unrecognized tax benefits, net, the table does not include $29.2
million of such non-current liabilities not included in our consolidated balance sheets as of December 31, 2020.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these
financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related
disclosures. These estimates and assumptions are affected by management’s application of accounting policies, as well as uncertainty in the current economic
environment due to the ongoing COVID-19 pandemic. We evaluate our estimates and assumptions on an ongoing basis.
The critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our financial
statements are described below.
Revenue Recognition
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and
services are considered distinct performance obligations may require significant judgment.
Judgment is required to determine the stand-alone selling price (“SSP") for each distinct performance obligation. For performance obligations
routinely sold separately, the SSP is determined by evaluating such stand-alone sales. For those
68
performance obligations that are not routinely sold separately, we determine SSP using information that may include market conditions and other observable
inputs.
To the extent platform services are part of multiple element arrangement, revenue recognition of each performance obligation in the estimated
transaction price of a contract is based on the expected value for which a significant reversal of revenue is not expected to occur. The estimate of the variable
consideration is based on the assessment of historical, current, and forecasted performance noted and expected from the performance obligation.
For the sale of third-party goods and services, we evaluate whether we are the principal, and report revenues on a gross basis, or an agent, and report
revenues on a net basis. In this assessment, we consider if we obtain control of the specified goods or services before they are transferred to the customer, as
well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price.
Our player revenue includes allowances for returns and sales incentives in the estimated transaction price. The estimates for returns and sales
incentives are based on historical experience and anticipated performance. We provide unspecified upgrades and updates to our player end users. We record
the allocated value of these as deferred revenue and recognize it ratably on a time elapsed basis over the estimated economic life of the associated players.
Shipping charges billed to customers are included in revenue and the related shipping costs are included in cost of revenue.
Business Combinations
We recognize, separately from goodwill, identifiable assets and liabilities acquired in a business combination at fair value on the date of acquisition.
We use our best estimates and assumptions to accurately assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at
the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets and
goodwill we have acquired include, but are not limited to, future expected cash inflows and outflows, expected technology life cycle, attrition rates of
customers, and discount rates. We estimate the useful lives of the intangible assets based on the expected period over which we anticipate generating
economic benefit from the asset. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates
or actual results.
While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets and liabilities acquired,
these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the
acquisition date, we record adjustments to the assets and liabilities acquired, with the corresponding offset to goodwill to the extent we identify adjustments
to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets and liabilities
assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Goodwill and Intangible Assets
We test goodwill for impairment on an annual basis during the fourth quarter of each fiscal year or when specific circumstances dictate, between
annual tests. We measure recoverability of goodwill at the reporting unit level. The process of determining the fair value of a reporting unit is highly
subjective and involves the use of significant estimates and assumptions. In performing our annual assessment, we can opt to perform a qualitative
assessment to test a reporting unit’s goodwill for impairment or we can directly perform a quantitative assessment. Based on our qualitative assessment, if we
determine that the fair value of our reporting unit is, more likely than not, less than its carrying amount, then the quantitative assessment is performed. Any
excess of the reporting unit's carrying amount over its fair value will be recorded as an impairment loss.
We identify intangible assets acquired in a business combination and determine their fair value. The determination involves certain judgments and
estimates. These judgments include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate discount
weighted-average cost of capital. We amortize purchased-intangible assets on a straight-line basis over the estimated useful life of the assets. We review
purchased-intangible assets whenever events or changes in circumstances indicate that the useful life is shorter than we had originally estimated or that the
carrying amount of assets may not be recoverable. If such facts and circumstances indicate an asset’s carrying amount may not be recoverable, we assess the
recoverability of purchased-intangible assets by comparing the projected
69
undiscounted net cash flows associated with the asset group against their respective carrying amounts. Impairment, if any, is based on the excess of the
carrying amount over the fair value of these asset groups. If the useful life of the asset is shorter than originally estimated, we accelerate the rate of
amortization and amortize the remaining carrying value over the new shorter useful life.
Allowances for Sales Returns, Sales Incentives and Doubtful Accounts
Accounts receivable are stated at invoice value less estimated allowances for sales returns, sales incentives and doubtful accounts which is our best
estimate of the amount of probable credit losses in our existing accounts receivable. We perform an ongoing analysis of various factors including our
historical experience, promotional programs, claims to date and other business factors to determine the allowances for sales returns and sales incentives.
We assess collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we
identify specific customers with collectability issues and determine the allowance for doubtful accounts. We regularly review the allowance by considering
historical collectability based on past due status, credit quality, and make judgments about the creditworthiness of customers based on ongoing credit
evaluations. We consider customer-specific information and current economic conditions that may affect a customer’s ability to pay.
If our estimates regarding accounts receivable allowances differ from the actual results, the losses or gains, could be material.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line
basis over the requisite service period, which is generally the vesting period of the respective award. Determining the fair value of stock-based awards at the
grant date requires judgment.
We account for the fair value of restricted stock units using the closing market price of our Class A common stock on the date of the grant.
We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of stock
options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and
subjective variables. These variables include our expected stock price volatility over the expected term of the options, stock option exercise and cancellation
behaviors, risk-free interest rates and expected dividends, which are estimated as follows:
•
Fair Value of Our Common Stock. We use the closing market price for our Class A common stock as reported on The Nasdaq Global Select
Market on the date of grant.
•
•
•
Expected Term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to
remain outstanding. To determine the expected term, we generally apply the simplified approach in which the expected term of an award is
presumed to be the mid-point between the vesting date and the expiration date of the award as we do not have sufficient historical exercise
data to provide a reasonable basis for an estimate of expected term.
Volatility. As we do not have sufficient trading history for our Class A common stock, the expected volatility for our Class A common stock is
estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the
expected term of the stock option awards. Industry peers consist of several public companies in our industry which are either similar in size,
stage of life cycle or financial leverage. We intend to consistently apply this process until a sufficient amount of historical information
regarding the volatility of our own Class A common stock share price becomes available or unless circumstances change such that the
identified peer companies are no longer similar to us, in which case, more suitable companies whose share prices are available would be
utilized in the calculation.
Risk-free Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term for
each of our stock options.
70
•
Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.
Consequently, we use an expected dividend yield of zero.
We account for forfeitures as they occur. If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation
for future awards may differ materially compared with the awards granted previously.
We will continue to use judgement in evaluating assumptions related to our stock-based compensation cost. As we continue to accumulate additional
data related to our Class A common stock and our business evolves, we may have refinements to our assumptions and estimates which could impact our
future stock-based compensation cost.
Provision for Income Taxes
We account for income taxes in accordance with authoritative guidance, which requires the use of the asset and liability method. Under this method,
deferred income tax assets and liabilities are determined based upon the difference between the consolidated financial statement carrying amounts and the tax
basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are
expected to be reversed.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance is provided when it is more likely than not that the deferred tax assets will not
be realized. We have established a full valuation allowance to offset domestic net deferred tax assets due to the uncertainty of realizing future tax benefits
from our net operating loss carry-forwards and other deferred tax assets. Our valuation allowance is attributable to the uncertainty of realizing future tax
benefits from U.S. net operating losses and other deferred tax assets.
Recent Accounting Pronouncements
The recent accounting pronouncements adopted during the year ended December 31, 2020 and those not yet adopted are discussed and included in
Note 2 to the consolidated financial statements in Item 8 of this Report. They are incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Fluctuation Risk
Our exposure to interest rate risk relates to the interest income generated by cash, cash equivalents and interest expense on the Credit Facility. The
primary objective of our investment policy is to preserve principal while maximizing income without significantly increasing risk. We do not believe that an
increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition. As of December 31,
2020, borrowings under the Term Loan A Facility totaled $95.0 million with an effective interest rate of 2.03%. If the amount outstanding under our Term
Loan A Facility remains at this level for an entire year and interest rates increased or decreased by 100 basis points, our annual interest expense would
increase or decrease, respectively, by an additional $1.0 million.
Foreign Currency Exchange Rate Risk
Most of our revenue is generated within the United States and we have minimal foreign currency risk related to our revenue. In addition, most of our
operating expenses are denominated in the U.S. dollar, resulting in minimal foreign currency risks. In the future, if our international revenues increase or
more of our expenses are denominated in currencies other than the U.S. dollar, our exposure to foreign currency risk will likely be more significant. For any
of the periods presented, we did not enter into any foreign exchange contracts. However, in the future, we may enter into derivatives or other financial
instruments in an attempt to hedge our foreign currency exchange risk.
71
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
72
Page
73
75
76
77
78
79
81
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Roku, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Roku, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the
related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows for each of the three years in the period
ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Changes in Accounting Principles
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases in fiscal year 2019 due to the adoption of
Accounting Standards Update No. 2016-02, Leases (Topic 842), using the optional transition method.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MatterThe critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any
way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion
on the critical audit matter or on the accounts or disclosures to which it relates.
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required
to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on
the accounts or disclosures to which it relates.
73
Revenue Recognition - Variable Consideration Determination of Content Distribution Services and Branded Channel Buttons – Refer to Note 3 to
the financial statements
Critical Audit Matter Description
As part of the Company’s revenue recognition for its arrangements with content publishers, management is required to estimate variable consideration
primarily related to content distribution services from transactional revenue sharing, and the sale of branded channel buttons on remote controls.
Variable consideration related to content distribution services with content publishers is included in the estimated transaction price based on the expected
value for which a significant reversal of revenue is not expected to occur. For transactional revenue sharing arrangements, the estimate of the variable
consideration is based on management’s assessment of historical, current, and forecasted performance of the publisher’s content application(s). For the sale of
branded channel buttons on remote controls, the estimate of the variable consideration is based on management’s assessment of historical, current, and
forecasted player and Roku TV sales volumes.
We identified the revenue forecasts relating to content publisher arrangements as a critical audit matter due to the significant judgment necessary to estimate
variable consideration and transaction prices. Such estimates required a high degree of auditor judgment and an increased extent of effort relative to
evaluating the reasonableness of management’s estimates and assumptions related to the forecasts of variable consideration.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s forecast used in the determination of future variable consideration included the following, among others:
•
•
We tested the effectiveness of controls over management’s forecasting process related to content distribution services and branded channel
buttons.
We selected a sample of revenue arrangements with variable consideration and performed the following:
o
o
o
o
o
o
o
Obtained contractual documents for each selection, including master agreements and other related documents.
Analyzed the contractual documents to determine if all arrangement terms that may have an impact on revenue recognition were
identified and properly considered in the evaluation of the accounting for the contract, including terms and conditions for revenue
sharing.
Performed inquiries with applicable individuals in the Company’s finance and sales departments regarding the estimates for sales of
branded channel buttons.
Evaluated management’s accuracy of forecasting by comparing the historical forecasts of consideration to actual consideration
received.
Evaluated changes from prior period forecasts to current period forecasts, when applicable.
Compared management’s forecasts of variable consideration to historical data, other information within the Company, and certain
publicly available historical and forecasted industry information, when applicable.
Tested the mathematical accuracy of the compilation of the forecast.The critical audit matter communicated below is a matter arising
from the current-period audit of the financial statements that was communicated or required to be communicated to the audit
committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 25, 2021
We have served as the Company's auditor since 2008.
74
ROKU, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
Assets
Current Assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowances of $41,236 and $27,521 as of
December 31, 2020 and 2019, respectively
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Intangible assets, net
Goodwill
Other non-current assets
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable
Accrued liabilities
Current portion of long-term debt
Deferred revenue, current portion
Total current liabilities
Long-term debt, non-current portion
Deferred revenue, non-current portion
Operating lease liability, non-current portion
Other long-term liabilities
Total Liabilities
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Common stock, $0.0001 par value;
1,150,000 (Class A - 1,000,000 and Class B - 150,000) shares authorized
as of December 31, 2020 and 2019;
128,004 (Class A - 110,645 and Class B - 17,359) shares and
119,897 (Class A - 93,574 and Class B - 26,323) shares
issued and outstanding as of December 31, 2020 and 2019, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
As of December 31,
2020
2019
$
1,092,815 $
434
523,852
53,895
26,644
1,697,640
155,197
266,197
62,181
73,058
16,269
2,270,542 $
112,314 $
347,668
4,874
55,465
520,321
89,868
21,283
307,936
3,119
942,527
$
$
515,479
1,854
332,673
49,714
25,943
925,663
103,262
283,291
76,668
74,116
7,234
1,470,234
115,227
198,347
4,866
39,861
358,301
94,742
15,370
301,694
1,701
771,808
13
12
1,660,379
29
(332,406)
1,328,015
2,270,542 $
1,012,218
29
(313,833)
698,426
1,470,234
$
See accompanying Notes to Consolidated Financial Statements.
75
Net Revenue:
Platform
Player
Total net revenue
Cost of Revenue:
Platform
Player
Total cost of revenue
Gross Profit:
Platform
Player
Total gross profit
Operating Expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from Operations
Other Income (Expense), Net:
Interest expense
Other income (expense), net
ROKU, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
2020
Years Ended December 31,
2019
2018
$
1,267,744 $
510,644
1,778,388
740,776 $
388,145
1,128,921
503,177
466,992
970,169
764,567
43,652
808,219
355,784
299,457
173,231
828,472
(20,253)
(3,432)
5,233
1,801
(18,452)
(945)
(17,507) $
(0.14) $
262,655
371,042
633,697
478,121
17,103
495,224
265,011
178,855
116,417
560,283
(65,059)
(2,366)
6,506
4,140
(60,919)
(982)
(59,937) $
(0.52) $
416,863
325,643
742,506
120,543
289,815
410,358
296,320
35,828
332,148
170,692
102,780
71,972
345,444
(13,296)
(346)
4,309
3,963
(9,333)
(476)
(8,857)
(0.08)
Total other income (expense), net
Loss Before Income Taxes
Income tax (benefit) expense
Net Loss Attributable to Common Stockholders
$
Net loss per share attributable to common stockholders—basic and diluted
Weighted-average shares used in computing net loss per share attributable to common
stockholders—basic and diluted
123,978
115,218
104,618
See accompanying Notes to Consolidated Financial Statements.
76
ROKU, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Net Loss Attributable to Common Stockholders
Other comprehensive gain (loss), net of tax:
Unrealized gain (loss) on short-term investments, net of tax
Foreign currency translation adjustment
Other comprehensive gain (loss), net of tax
Comprehensive Net Loss
$
—
—
—
(17,507) $
17
29
46
(59,891) $
2020
Years Ended December 31,
2019
2018
$
(17,507) $
(59,937) $
(8,857)
(17)
—
(17)
(8,874)
See accompanying Notes to Consolidated Financial Statements
77
ROKU, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands)
Common Stock
Additional Paid-in
Shares
Amount
Capital
Accumulated Other
Comprehensive Loss
Accumulated
Deficit
Total Stockholders’
Equity
Balance—December 31, 2017
Vesting of early exercised stock options
Issuance of common stock pursuant to equity
incentive plans, net of taxes
Issuance of common stock pursuant to exercise
of common stock warrants, net
Stock-based compensation expense
Share repurchases
Adoption of ASU 2016-16
Adoption of ASU 2014-09
Unrealized loss on short-term investments
Net loss
Balance—December 31, 2018
Vesting of early exercised stock options
Share repurchases
Issuance of common stock pursuant to equity
incentive plans
Issuance of common stock pursuant in
connection with at-the-market offerings, net of
issuance costs of $6.4 million
Issuance of common stock in connection with
acquisition
Stock-based compensation expense
Unrealized gain on short-term investments
Foreign currency translation adjustment
Net loss
Balance—December 31, 2019
Vesting of early exercised stock options
Issuance of common stock pursuant to equity
incentive plans
Issuance of common stock pursuant in
connection with at-the-market offering, net of
issuance costs of $6.8 million
Stock-based compensation expense
Adoption of ASU 2016-13
Net loss
Balance—December 31, 2020
99,157 $
—
10 $
—
435,607 $
239
— $
—
10,481
141
—
(9)
—
—
—
—
109,770
—
(2)
6,169
3,389
571
—
—
—
—
119,897
—
4,107
1
—
—
—
—
—
—
—
11
—
—
1
—
—
—
—
—
—
12
—
1
25,033
-
37,674
—
—
—
—
—
498,553
86
—
28,181
330,539
69,684
85,175
—
—
—
1,012,218
38
16,805
—
—
—
—
—
—
(17)
—
(17)
—
—
—
—
—
—
17
29
—
29
—
—
(283,338) $
—
—
—
—
—
(40)
38,339
—
(8,857)
(253,896)
—
—
—
—
—
—
—
—
(59,937)
(313,833)
—
—
152,279
239
25,034
—
37,674
—
(40)
38,339
(17)
(8,857)
244,651
86
—
28,182
330,539
69,684
85,175
17
29
(59,937)
698,426
38
16,806
4,000
—
—
—
128,004 $
—
—
—
—
13 $
497,242
134,076
—
—
1,660,379 $
—
—
—
—
29 $
—
—
(1,066)
(17,507)
(332,406) $
497,242
134,076
(1,066)
(17,507)
1,328,015
See accompanying Notes to Consolidated Financial Statements.
78
ROKU, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
2020
Years Ended December 31,
2019
2018
$
(17,507) $
(59,937) $
Depreciation and amortization
Stock-based compensation expense
Amortization of right-of-use assets
Amortization of content assets
Provision for doubtful accounts
Other items net
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Deferred cost of revenue
Other noncurrent assets
Accounts payable
Accrued liabilities
Operating lease liabilities
Other long-term liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
Purchase of business, net of cash acquired
Proceeds from escrows associated with acquisition
Purchase of intangible assets
Purchases of short-term investments
Sales/maturities of short-term investments
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowings, net of issuance costs
Repayments of borrowings
Holdback payment for a prior business acquisition
Proceeds from equity issued under incentive plans, net of repurchases
Proceeds from equity issued under at-the-market offerings, net of offering costs
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash —Beginning of period
Cash, cash equivalents and restricted cash —End of period
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents
Restricted cash
Cash, cash equivalents and restricted cash —End of period
36,206
134,076
28,743
22,392
3,801
524
(196,046)
(4,181)
(3,450)
—
(1,128)
6,410
103,218
12,999
618
21,517
148,192
(82,382)
—
1,058
—
—
—
(81,324)
69,325
(74,325)
—
16,806
497,242
509,048
575,916
—
517,333
1,093,249 $
1,092,815
434
$
$
1,093,249 $
79
15,669
85,175
22,328
2,914
704
1,101
(110,225)
(14,129)
(9,934)
1,143
(3,060)
9,409
74,512
11,658
(3,024)
(10,597)
13,707
(77,180)
(68,132)
—
(7,428)
(12,365)
54,810
(110,295)
99,608
—
—
28,181
330,539
458,328
361,740
29
155,564
517,333
$
515,479
1,854
517,333
$
(8,857)
8,389
37,674
—
—
876
1,465
(50,673)
(2,953)
(306)
2,261
(732)
(98)
17,914
—
(1,101)
10,063
13,922
(18,327)
—
—
—
(53,806)
12,000
(60,133)
—
—
(500)
25,025
—
24,525
(21,686)
—
177,250
155,564
155,564
—
155,564
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes
Supplemental disclosures of noncash investing and financing activities:
Issuance of common stock for business combinations
Unpaid portion of property and equipment purchases
Unpaid portion of acquisition related expenses
Unpaid portion of purchased intangibles
Unpaid portion of at-the-market offering costs
2020
Years Ended December 31,
2019
2018
$
$
$
$
$
$
$
3,470 $
1,014 $
— $
1,242 $
— $
— $
— $
3,095
759
69,684
10,762
2,190
400
144
$
$
$
$
$
$
$
493
564
—
1,617
—
—
—
See accompanying Notes to Consolidated Financial Statements.
80
ROKU, INC.
NOTES TO 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, billing services and licensing activities and player revenue from the sale of streaming
players and audio products.
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of Presentation and 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 accounting principles generally accepted in the United States (“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.
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, 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.
Comprehensive Loss
The comprehensive loss is equal to the net loss for the year ended December 31, 2020. Comprehensive loss includes unrealized gains on the
Company’s short-term investments and foreign currency translation adjustments for the year ended December 31, 2019. Comprehensive loss includes
unrealized losses on the Company’s short-term investments for the year ended December 31, 2018. Income taxes on the unrealized gains or losses are not
material.
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Foreign Currency
The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of these subsidiaries are remeasured
into U.S. dollars from the local currency at rates in effect at period-end and nonmonetary assets and liabilities are remeasured at historical rates. Revenues
and expenses are remeasured at average exchange rates in effect during each period. Foreign currency gains or losses from re-measurement and transaction
gains or losses are recorded as other income (expense), net in the consolidated statements of operations. During the year ended December 31, 2020, the
Company recorded a foreign currency gain of $1.3 million. During the years ended December 31, 2019 and 2018, the Company recorded a foreign currency
loss of $0.2 million and $0.5 million, respectively.
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
December 31, 2020, two financial institutions managed 46% and 26%, respectively, of the Company’s total cash and cash equivalents balance. As of
December 31, 2019, the same two financial institutions managed 65% and 34%, respectively, of the Company’s total 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 consist of the following activities (in thousands):
Beginning balance
Charged to revenue
Utilization of sales return reserve
Ending balance
2020
Years Ended December 31,
2019
2018
$
$
(6,550) $
(14,594)
15,232
(5,912) $
(7,335) $
(15,541)
16,326
(6,550) $
(6,907)
(17,396)
16,968
(7,335)
Allowance for Sales Incentives: Allowance for sales incentives consisted of the following activities (in thousands):
Beginning balance
Charged to revenue
Utilization of sales incentive reserve
Ending balance
2020
Years Ended December 31,
2019
2018
$
$
(19,476) $
(68,315)
56,953
(30,838) $
(13,750) $
(65,676)
59,950
(19,476) $
(10,442)
(50,958)
47,650
(13,750)
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Allowance for Doubtful Accounts: Allowance for doubtful accounts consisted of the following activities (in thousands):
Balance, beginning of period
Impact of adoption of ASU 2016-13
Adjusted balance, beginning of period
Provision for doubtful accounts
Adjustments for recovery and write-off
Balance, end of period
Years Ended December 31,
2020
2019
2018
$
$
(1,140)
(1,066)
(2,206)
(3,801) $
1,826
(4,181)
(686)
—
(686)
(704) $
250
(1,140)
(63)
—
(63)
(876)
253
(686)
Customer H accounted for 11% of the accounts receivable, net balance as of December 31, 2020. The Company did not have any customer that
accounted for more than 10% of its accounts receivable, net balance as of December 31, 2019.
Business Combinations
The Company determines whether a transaction meets the definition of a business combination before applying the acquisition method of accounting
to that transaction. The Company allocates the fair value of the purchase consideration of its acquisitions to the tangible and intangible assets acquired and
liabilities assumed, based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of identifiable assets and
liabilities is recorded as goodwill. The operating results of acquired business is included in the Company’s consolidated statement of operations beginning on
their effective acquisition date. Acquisition-related expenses and certain acquisition restructuring and other related charges are recognized separately from the
business combination and are expensed as incurred. Contingent consideration arrangements are recognized at fair value as of the acquisition date with
subsequent fair value adjustments recorded in operations.
While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date,
estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition
date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. In addition, uncertain tax
positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. The Company
continues to collect information and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary
estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of
the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of
operations.
Intangible Assets
Intangible assets acquired through business combinations are recorded at their fair values upon acquisition close. Intangible assets are amortized
using the straight-line method over their estimated useful lives. The Company evaluates the estimated remaining useful lives of its intangible assets annually
and when events or changes in circumstances warrant a revision to the remaining periods of amortization.
Impairment Assessments
The Company evaluates goodwill for possible impairment at least annually during the fourth quarter of each fiscal year or more often, if and when
circumstances indicate that goodwill may be impaired. This includes but is not limited to significant adverse changes in the business climate, market
conditions, or other events that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. In performing its
annual assessment, the Company can opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or it can directly perform a
quantitative assessment. Based on the Company’s qualitative assessment, if
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it is determined that the fair value of our reporting unit is, more likely than not, less than its carrying amount, then the quantitative assessment is performed.
Any excess of the reporting unit's carrying amount over its fair value is be recorded as an impairment loss.
The Company reviews long-lived assets, intangible assets and capitalized licensed content assets with finite lives for impairment when events or
changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of those assets are no
longer appropriate. The Company assesses these assets for impairment based on their estimated undiscounted future cash flows. If the carrying value of the
asset group exceeds the estimated future undiscounted cash flows, the Company recognizes an impairment loss based on the excess of the carrying amount
over the fair value of the asset group.
The Company did not recognize any impairment for goodwill, intangible assets or capitalized licensed content assets in any periods reported. The
impairments of operating right-of-use assets during the years ended December 31, 2020 and 2019 were not material.
Revenue Recognition
Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration the
Company expects to receive in exchange for those goods or services. The Company’s contracts include various product or services or a combination of both,
which are generally capable of being distinct and are accounted for as separate performance obligations. The Company’s contracts often contain multiple
distinct performance obligations.
The Company estimates the transaction price of a contract based on the expected value for which a significant reversal of revenue is not expected
to occur. The estimate of the variable consideration is based on the assessment of historical, current, and forecasted performance noted and expected from the
performance obligation.
In arrangements with multiple performance obligations, the estimated transaction price of each contract is allocated to each distinct performance
obligation based on relative stand-alone selling price (“SSP”). For performance obligations routinely sold separately, the SSP is determined by evaluating
such stand-alone sales. For those performance obligations that are not routinely sold separately, the Company determines SSP based on market conditions and
other observable inputs.
When the Company sells third-party goods and services, it evaluates whether the Company is the principal, and reports revenues on a gross basis,
or an agent, and reports revenues on a net basis. In this assessment, the Company considers if it obtains control of the specified goods or services before they
are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing
price.
Revenue is recorded net of taxes collected from customers which are subsequently remitted to the relevant government authority. The Company
does not capitalize any cost associated with contract acquisition because it applies a practical expedient and expenses commissions when incurred as most
direct contract acquisition costs relate to contracts that are recognized over a period of one year or less. Sales commissions are included in Sales and
marketing expenses in the consolidated statements of operations. As-invoiced practical expedient is applied when the amount of consideration the Company
has a right to invoice corresponds directly with the value to the customer of the entity’s performance completed to date.
Nature of Products and Services
Platform segment:
The Company generates platform revenue from the sale of digital advertising and related services, content distribution services, subscription and
transaction revenue shares, Premium Subscriptions, billing services, sale of branded channel buttons on remote controls and licensing arrangements with
service operators and TV brands.
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The Company sells digital advertising directly to marketers or through advertising agencies. Revenue from advertising is mostly generated through
video and display advertising delivered through advertising impressions. Advertising is typically sold on a cost-per-thousand (“CPM”) basis and is evidenced
by an Insertion Order (“IO”). Revenue is recognized as the number of impressions are delivered. IOs may include multiple performance obligations as they
contain distinct advertising products or services. For such arrangements, the Company allocates revenue to each distinct performance obligation based on
their relative SSP. The Company also generates revenue from customers using its platform. For that it charges a platform fee, which is a percentage of a
customer’s advertising inventory spend during the month, along with data and any add-on features purchased through the platform. The Company recognizes
revenue on either a gross or net basis for digital advertising based on its determination as to whether it is acting as the principal in the revenue generation
process or as an agent. Where the Company is the principal, it controls the advertising inventory before it is transferred to its customers. This is further
supported by the Company being primarily responsible to its customers and having a level of discretion in establishing pricing. Advertising arrangements
comprised of multiple performance obligations are recognized either at a point in time or over time depending on the nature of the distinct performance
obligation.
The Company’s content distribution revenue sharing arrangements include cash or non-cash consideration. The revenue sharing arrangements
generally apply to new subscriptions for accounts that sign up for new services and at the time of a movie rental or purchase. Revenue is recognized on a net
basis as the Company is deemed to be the agent between content publishers and end users. Revenue is recognized on a time elapsed basis, by day, as the
services are delivered over the contractual distribution term. Non-cash consideration is usually in the form of advertising inventory, the fair value of which is
determined based on relevant internal and third-party data.
The Company sells monthly subscriptions for premium content on The Roku Channel for varying fees for different content. Revenue from such
premium subscription fees is recognized on a gross basis over the service period as the Company is deemed to be the principal in the relationship with the end
user. The Company obtains control of the content before transferring to the end user and has latitude in establishing pricing. The Company pays fixed fees to
the providers of premium content on The Roku Channel based on the contractual arrangement and recognizes that in Cost of revenue, platform.
The Company sells branded channel buttons on remote controls of streaming devices that provide one-touch access to a publisher’s content. The
Company typically receives a fixed fee per button for each unit sold over a defined distribution period. Revenue is recognized on a time elapsed basis, by day,
over the distribution term.
The Company licenses the Roku OS, including updates and upgrades, to TV brands and service operators. The licensing revenue is recognized at a
point in time, when the Company makes the intellectual property available and the control transfers to the customer. The revenue allocated to unspecified
upgrades is recognized on a time elapsed basis, by day, over the service period. Professional services revenue is recognized as services are provided or
accepted. Hosting fees are recognized on a time elapsed basis, by day, over the service period.
Player segment:
The Company sells the majority of its players and audio products to retail distribution channels in the U.S., including brick and mortar and online
retailers, as well as through the Company’s website. Player revenue primarily consists of hardware, embedded software and unspecified upgrades on a when
and if-available basis. The hardware and embedded software are considered as one performance obligation and revenue is recognized at a point in time when
the control transfers to the customer. Unspecified upgrades or enhancements are available to customers on a when-and-if available basis. The Company
records the allocated value of the unspecified upgrades as deferred revenue and recognizes it as player revenue ratably on a time elapsed basis over the
estimated economic life of the associated players.
The Company’s player revenue includes allowances for sales returns and sales incentives in the estimated transaction price. These estimates are
based on historical experience and anticipated performance. Shipping charges billed to customers are included in Revenue and the related shipping costs are
included in Cost of revenue.
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Leases
On January 1, 2019, the Company adopted the guidance in Leases (Topic 842), using the optional transition method and recorded operating right-
of-use (“ROU”) assets and operating lease liabilities on its consolidated balance sheets. The Company determines if an arrangement contains a lease at its
inception. Operating leases are included in operating lease right-of-use assets, accrued liabilities, and operating lease liability in our consolidated balance
sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease
payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease
term. As the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the
commencement date in determining the present value of future lease payments. The Company takes into consideration its credit rating and the length of the
lease when calculating the incremental borrowing rate. The Company considers the options to extend or terminate the lease in determining the lease term,
when it is reasonably certain to exercise one of the options. The Company combines lease and non-lease components into a single lease component for its
real estate and equipment leases.
Fair Value of Financial Instruments
The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Company applies fair value accounting for all assets and liabilities that are recognized or disclosed
at fair value in the consolidated financial statements. The carrying amounts reported in the consolidated financial statements for cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their short-term nature. The carrying amount of debt
approximates fair value due to its variable interest rates.
Inventories
The Company’s inventories consist primarily of finished goods and are stated at the lower of cost or net realizable value with cost determined on a
first-in, first-out basis. Provisions are made if the cost of the inventories exceeds their net realizable value. The Company evaluates inventory levels and
purchase commitments for excess and obsolete products, based on management’s assessment of future demand and market conditions.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of the assets, generally
ranging between eighteen months and five years. Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives,
which range from five to ten years.
The Company capitalizes costs to develop its internal-use software. Costs that relate to the planning and post-implementation phases of
development are expensed as incurred. Costs are capitalized when preliminary efforts are successfully completed, management has authorized and committed
to funding the project, and it is probable that the project will be completed and will be used as intended. Costs incurred for enhancements that are expected to
result in additional material functionality are capitalized. During the years ended December 31, 2020, 2019 and 2018, the Company capitalized internal-use
software development costs of $2.2 million, $0.1 million and $1.0 million, respectively. Capitalized costs are amortized using the straight-line method over
the estimated useful life of the asset, which is generally two to three years, beginning when the asset is ready for its intended use. During the years ended
December 31, 2020, 2019 and 2018, the Company amortized expenses of $0.5 million, $1.6 million and $2.0 million, respectively.
Deferred Revenue
The Company’s deferred revenue reflects fees received from licensing and service arrangements, including advertising, that will be recognized as
revenue over time or as services are rendered. Deferred revenue balances consist of the amount of player sales allocated to unspecified upgrades or
enhancements on a when-and-if available
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basis, licensing and services fees from service operators and TV brands, and payments from advertisers and content publishers. Deferred revenue expected to
be realized within one year is classified as current liabilities and the remaining is recorded as noncurrent liabilities.
Advertising Costs
Advertising costs are expensed when incurred and are included in Sales and marketing expense in the consolidated statements of operations. The
Company incurred advertising costs of $7.1 million, $7.3 million and $3.0 million for the years December 31, 2020, 2019 and 2018, respectively.
Stock-Based Compensation
The Company measures compensation expense for all stock-based awards, including restricted stock units and stock options granted to employees,
based on the estimated fair value of the award on the date of grant. For restricted stock units, the grant date fair value is based on the closing market price of
the Company’s Class A common stock on the date of grant. The fair value of each stock option is estimated using the Black-Scholes option-pricing model.
The Company accounts for forfeitures as they occur. Stock-based compensation is recognized on a straight-line basis over the requisite vesting period.
Income Taxes
The Company accounts for income taxes using an asset and liability approach. Deferred tax assets and liabilities are determined based on the
difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are
more likely than not to be realized.
Net Loss per Share
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods
as the inclusion of all potential common shares outstanding and potentially dilutive securities would have been anti-dilutive.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 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.
In March 2019, the FASB issued ASU 2019-02, Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—
Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program
Materials, in order to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing
the content distinction for capitalization. ASU 2019-02 also requires that an entity reassess estimates of the use of a film in a film group and account for any
changes prospectively. In addition, ASU 2019-02 requires that an entity test films and license agreements for program material for impairment at a film group
level when the film
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or license agreements are predominantly monetized with other films and license agreements. On January 1, 2020, the Company adopted the guidance in ASU
2019-02. There was no material impact to the Company’s consolidated financial statements.
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 operations.
ASU
ASU 2018-15
ASU 2018-13
ASU 2017-04
ASU2019-04
ASU2020-02
Description
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
Fair Value Measurements (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value
Measurement
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and
Topic 825, Financial Instruments
Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)—Amendments to SEC Paragraphs Pursuant to
SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards
Update No. 2016-02, Leases (Topic 842)
ASU2020-03
Codification Improvements to Financial Instruments
In March 2020, 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 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 when LIBOR is discontinued. It is still uncertain when the transition from LIBOR to another reference rate will occur or which
reference rate will become the accepted market alternative to LIBOR.
Recent Accounting Standards 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 believes that
the adoption of this guidance will not have a material impact on the financial statements.
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3. REVENUE
The Company’s disaggregated revenues are represented by the two reportable segments discussed in Note 17.
The contract balances include the following (in thousands):
Accounts receivable, net
Contract assets (included in Prepaid expenses and other current assets)
Deferred revenue, current portion
Deferred revenue, non-current portion
Total deferred revenue
$
$
2020
523,852
7,431
$
55,465
21,283
76,748
$
As of December 31,
2019
2018
332,673
3,588
$
39,861
15,370
55,231
$
183,078
753
45,442
19,594
65,036
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 $3.8 million during
the year ended December 31, 2020 and by $2.8 million during the year ended December 31, 2019 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 increased by approximately $21.5 million during the year ended December 31, 2020 due to the increase in estimated values of
content publisher and licensing partner arrangements and change in the timing of fulfillment of performance obligations of approximately $12.4 million, and
higher growth in the player segment, resulting in a net increase in deferred revenue related to unspecified upgrades of approximately $8.4 million. Deferred
revenue decreased by approximately $9.8 million during the year ended December 31, 2019 primarily due to revenue recognized of $5.0 million pursuant to
customer acceptance of a milestone, and the remaining revenue recognized primarily relates to the timing of fulfillment of performance obligations.
Revenue recognized during the year ended December 31, 2020 from amounts included in deferred revenue as of December 31, 2019 was $42.9
million. Revenue recognized during the year ended December 31, 2019 from amounts included in deferred revenue as of December 31, 2018 was $52.5
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 $513.7 million as of
December 31, 2020 of which the Company expects to recognize approximately 55% over the next 12 months and the remainder thereafter.
The Company recognized $14.4 million and $10.9 million during the years ended December 31, 2020 and 2019, respectively, from performance
obligations that were satisfied in previous periods due to the changes in transaction price of its revenue contracts.
Customer C accounted for 12%, 14% and 18% of the total net revenue during the years ended December 31, 2020, 2019 and 2018, respectively.
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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 $69.7 million for the fair value of the
Company’s 571,459 shares of Class A common stock. Pursuant to the Merger Agreement, the Company had deposited $18.8 million into an escrow account
to secure certain indemnifications and other potential obligations. As of the year ended December 31, 2020, a balance of $13.6 million is unreleased and
remains in the escrow account.
The allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed on acquisition date is based on
estimated fair values and is as follows (in thousands):
Assets acquired
Current assets
Restricted cash
Property and equipment, net
Intangible assets:
Developed Technology
Customer relationships
Tradename
Goodwill
Operating lease right-of-use assets
Other long-term assets
Total assets acquired
Liabilities assumed
Current liabilities
Operating lease liabilities
Total liabilities assumed
Total purchase consideration
Fair Values
Estimated Useful Lives
(in years)
$
$
50,829
1,303
4,503
56,400
13,400
400
71,676
24,658
235
223,404
(51,428)
(24,658)
(76,086)
147,318
6.0
4.0
0.5
The fair value estimates of the net assets acquired are based upon calculations and valuations, and those estimates and assumptions regarding
certain tangible assets acquired and liabilities assumed. 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 and cross-selling
opportunities.
The goodwill recorded is not deductible for tax purposes. In connection with the acquisition, a deferred tax liability is established for the book/tax
differences related to non-goodwill intangible assets. The deferred tax liability is not reflected as the Company also acquired deferred tax assets, including
significant net operating losses, that offset the deferred tax liability. Additionally, both companies have full valuation allowances recorded against their
respective deferred tax assets, resulting in a net zero adjustment to deferred taxes on the consolidated balance sheets.
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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.
The following table reflects the carrying value of goodwill (in thousands):
Balance as of December 31, 2018
Addition: dataxu acquisition
Balance as of December 31, 2019
Adjustment: dataxu working capital adjustments
Balance as of December 31, 2020
$
$
Carrying Value
1,382
72,734
74,116
(1,058)
73,058
Goodwill is evaluated for impairment annually. No impairment was recognized during the years ended December 31, 2020, 2019 and 2018.
Intangible Assets
The following table is the summary of Company’s intangible assets (in thousands):
Developed technology
Customer relationships
Tradename
Patents
Intangible assets
Developed technology
Customer relationships
Tradename
Patents
Intangible assets
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Weighted-Average Useful
Lives
(in years)
As of December 31, 2020
62,367 $
13,400
400
4,076
80,243 $
(13,439) $
(3,908)
(400)
(315)
(18,062) $
48,928
9,492
—
3,761
62,181
5.9
4.0
0.5
14.0
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Weighted-Average Useful
Lives
(in years)
As of December 31, 2019
62,367 $
13,400
400
4,076
80,243 $
(2,860) $
(558)
(133)
(24)
(3,575) $
59,507
12,842
267
4,052
76,668
5.9
4.0
0.5
14.0
$
$
$
$
The Company recorded expenses of $14.5 million, $2.8 million and $0.6 million for amortization of intangible assets during the years ended
December 31, 2020, 2019 and 2018, respectively. In the years ended December 31, 2020 and 2019, the Company recorded amortization of developed
technology in Cost of revenue, platform, Cost of revenue, player, Research and development, and General and administrative expenses and recorded
amortization of customer relationships and tradename in Sales and marketing expenses in the consolidated statements of operations. In the year ended
December 31, 2018, the Company recorded amortization of developed technology in Research and development expenses in the consolidated statements of
operations.
91
The estimated future amortization expense for intangible asset for the next five years and thereafter is as follows (in thousands):
Year Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total
$
$
14,036
13,666
13,108
10,316
8,750
2,305
62,181
6. BALANCE SHEET COMPONENTS
Accounts Receivable, net: Accounts receivable, net consisted of the following (in thousands):
Gross accounts receivable
Allowance for sales returns
Allowance for sales incentives
Allowance for doubtful accounts
Other allowances
Total allowances
Total Accounts Receivable, net of allowances
As of December 31,
2020
2019
565,088 $
(5,912)
(30,838)
(4,181)
(305)
(41,236)
523,852 $
360,194
(6,550)
(19,476)
(1,140)
(355)
(27,521)
332,673
$
$
Property and Equipment, net: Property and equipment, net consisted of the following (in thousands):
Computers and equipment
Leasehold improvements
Website and internal-use software
Office equipment and furniture
Total property and equipment
Accumulated depreciation and amortization
Property and Equipment, net
As of December 31,
2020
2019
30,859 $
144,013
6,744
19,661
201,277
(46,080)
155,197 $
23,834
93,239
6,510
12,091
135,674
(32,412)
103,262
$
$
Depreciation and amortization expense, for property and equipment assets, for the years ended December 31, 2020, 2019 and 2018 was $21.7 million,
$12.8 million and $7.8 million, respectively.
Accrued Liabilities: Accrued liabilities consisted of the following (in thousands):
Payments due to content publishers
Accrued cost of revenue
Marketing, retail and merchandising costs
Operating lease liability, current
Accrued royalty expense
Licensed content liability, current
Other accrued expenses
Total Accrued Liabilities
92
As of December 31,
2020
2019
$
$
106,576 $
98,285
43,645
35,647
15,713
6,165
41,637
347,668 $
57,376
58,149
7,624
17,896
18,040
1,679
37,583
198,347
Deferred Revenue: Deferred revenue consisted of the following (in thousands):
Platform, current
Player, current
Total deferred revenue, current
Platform, non-current
Player, non-current
Total deferred revenue, non-current
Total Deferred Revenue
As of December 31,
2020
2019
27,587 $
27,878
55,465
9,909
11,374
21,283
76,748 $
18,234
21,627
39,861
6,135
9,235
15,370
55,231
$
$
7. LICENSED CONTENT ASSETS
The Company licenses content for streaming on The Roku Channel. The licensing arrangements can be for a fixed fee or variable fee. The licensing
arrangements specify the period when the content is available for streaming. The Company capitalizes the fixed content fees and its corresponding liability
when the license period begins, the cost of the content is known, and the content is accepted and available for streaming. If the licensing fee is not
determinable or reasonably estimable, no asset or liability is recorded, and licensing costs are expenses as incurred. The Company amortizes licensed content
assets into Cost of Revenue, Platform, using the straight-line method over the contractual period of availability. The liability is paid in accordance with the
contractual terms of the arrangement. On January 1, 2020, the Company adopted the guidance in ASU 2019-02, Entertainment—Films—Other Assets—Film
Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of
Films and License Agreements for Program Materials, on a prospective basis. The adoption did not have material impact on its financial statements.
As of December 31, 2020, licensed content assets that met these requirements were $7.9 million and are recorded in “Other non-current assets.” As of
December 31, 2019, licensed content assets that met these requirements were $1.7 million and are recorded in Prepaid expenses and other current assets.
Payments for content, including additions to content assets and the changes in related liabilities, are classified within Net cash provided by operating
activities on the consolidated statements of cash flows. The increase in the content asset is due to a change in the mix of content licensed and the period over
which such content is available for streaming. The corresponding liability is included in Accrued liabilities and Other long-term liabilities and is discussed in
Note 12.
The Company recorded amortization expense of $22.4 million and $2.9 million for the years ended December 31, 2020 and 2019, respectively, in
Cost of revenue, platform in the consolidated statements of operations, related to capitalized licensed content assets. The following table reflects the
amortization expense for the next three years for capitalized licensed content assets as of December 31, 2020 (in thousands):
Year Ending December 31,
2021
2022
2023
$
6,527
1,338
42
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Licensed content assets are primarily monetized together as a unit, referred to as a film group. The film group is evaluated for impairment whenever
an event occurs or circumstances change indicating the fair value is less than the carrying value. The Company reviews various qualitative factors and
indicators to assess whether the group asset is impaired. As of December 31, 2020, the Company did not recognize any impairment for capitalized licensed
content assets.
8. FAIR VALUE DISCLOSURE
The Company’s financial assets measured at fair value are as follows (in thousands):
Assets:
Cash and cash equivalents:
Cash
Money market funds
Restricted cash
$
1,021,022 $
71,793
434
Total assets measured and recorded at fair value
$
1,093,249 $
1,021,022 $
71,793
434
1,093,249 $
463,820 $
51,659
1,854
517,333 $
463,820
51,659
1,854
517,333
As of December 31, 2020
As of December 31, 2019
Fair Value
Level 1
Fair Value
Level 1
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous
market, in the absence of a principal market) for the asset or liability in an orderly transaction between market participants at the measurement date. Further,
the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs in measuring fair value, and to utilize a three-level fair
value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Financial assets and liabilities measured using Level 1 inputs include cash equivalents, restricted cash, accounts receivable, prepaid expenses and
other current assets, accounts payable and accrued liabilities.
The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase
to be cash equivalents. The Company measured money market funds of $71.8 million and $51.7 million as cash equivalents as of December 31, 2020 and
2019, respectively, using Level 1 inputs.
Level 2—Observable inputs other than quoted prices included within Level 1, including quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices that are observable or are
derived principally from, or corroborated by, observable market data by correlation or other means.
The Company did not have any Level 2 instruments as of December 31, 2020 and 2019.
Level 3—Unobservable inputs that are supported by little or no market activity, are significant to the fair value of the assets or liabilities and reflect
the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best
information available in the circumstances.
The Company did not have Level 3 instruments at December 31, 2020 and 2019.
Assets and liabilities that are measured at fair value on a non-recurring basis
Non-financial assets such as goodwill, intangible assets, property, plant, and equipment, operating lease right-of-use assets and licensed content assets
are evaluated for impairment and adjusted to fair value using Level 3 inputs, only when impairment is recognized. The impairments for operating ROU assets
recorded by the Company for the years ended December 31, 2020 and 2019 were not material.
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9. LEASES
The Company has entered into operating leases primarily for office real estate. The leases have remaining terms ranging from one year to 10 years
and may include options to extend or terminate the lease. The depreciable life of ROU assets is limited by the expected lease term.
The components of lease expense are as follows (in thousands):
Operating lease cost (1)
Sublease income
Net operating lease cost
Years Ended December 31,
2020
2019
$
$
56,348 $
(2,105)
54,243 $
35,146
(2,622)
32,524
(1) For the years ended December 31, 2020 and 2019, variable lease costs were $12.1 million and $4.9 million, respectively. Variable lease costs
primarily include common area maintenance charges.
Supplemental cash flow information related to leases is as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Years Ended December 31,
2020
2019
$
$
30,664 $
17,721
12,031 $
267,048
Supplemental balance sheet information related to leases was as follows (in thousands, except lease term and discount rate):
Operating lease right-of-use assets
Included in accounts payable and accrued liabilities:
Operating lease liability, current
Operating lease liability, non-current
Total operating lease liability
Weighted Average Remaining Lease Term:
Operating leases (in years)
Weighted Average Discount Rate:
Operating leases
As of December 31,
2020
2019
$
266,197
$
283,291
35,647
307,936
343,583
$
17,896
301,694
319,590
$
9.05
4.60%
9.98
4.65%
95
Future lease payments under operating leases as of December 31, 2020 were as follows (in thousands):
Year Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total future lease payments
Less: imputed interest
Less: expected tenant improvement allowance
Total
$
$
Operating Leases
50,889
47,377
47,597
46,635
46,295
201,852
440,645
(81,076)
(15,986)
343,583
As of December 31, 2020, the Company’s commitment relating to the operating lease that has not yet commenced is $2.7 million. This operating
lease commences in fiscal year 2025 and has a lease term of two years.
10. DEBT
The Company’s outstanding debt as of December 31, 2020 and 2019 is as follows (in thousands):
Term Loan A Facility
Less: Debt issuance costs
Net carrying amount of debt
As of December 31,
2020
2019
Amount
Effective
Interest Rate
Amount
$
$
95,000
(258)
94,742
2.03% $
$
100,000
(392)
99,608
Effective
Interest Rate
3.48%
The carrying amount of debt approximates fair value due to its variable interest rates. The interest expense for the years ended December 31, 2020
and 2019 relating to the Credit Agreement is $2.6 million and $0.4 million, respectively.
Senior Secured Term Loan A and Revolving Credit Facilities
On February 19, 2019 (the “Original Closing Date”), the Company entered into a Credit Agreement (the “Existing Credit Agreement”) with Morgan
Stanley Senior Funding, Inc. On May 3, 2019, (the “Closing Date”), the Existing Credit Agreement was amended pursuant to an Incremental Assumption and
Amendment No. 1 (the “Amendment” and the Existing Credit Agreement as amended by the Amendment, the “Credit Agreement”). On the Original Closing
Date, the Company terminated the Amended and Restated Loan and Security Agreement that it entered into with Silicon Valley Bank in November 2014 (the
“Restated 2014 LSA”).
The Credit Agreement provides for (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million (the
“Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $100.0 million (the “Term Loan A
Facility”) and (iii) an uncommitted incremental facility, subject to the satisfaction of certain financial and other conditions, in the amount of up to (v)
$50.0 million, plus (w) 1.0x of the Company’s EBITDA for the most recently completed four fiscal quarter period, plus (x) an additional amount at the
Company’s discretion, so long as, on a pro forma basis at the time of incurrence, the Company’s secured leverage ratio does not exceed 1.50 to 1.00, plus (y)
voluntary prepayments of the Revolving Credit Facility and Term Loan A Facility to the extent accompanied by concurrent reductions to the applicable
Credit Facility (together with the Revolving Credit Facility and the Term Loan A Facility, collectively, the “Credit Facility”).
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On November 18, 2019, the Company borrowed the Term Loan A facility in the aggregate principal amount of $100.0 million. In March 2020, the
Company borrowed the available balance of $69.3 million from the Revolving Credit Facility. For both borrowings, the Company elected an interest rate
equal to the adjusted one-month LIBOR rate plus an applicable margin of 1.75% based on the Company’s secured leverage ratio. In May 2020, the Company
repaid the outstanding balance on the Revolving Credit Facility.
Loans under the Term Loan A Facility amortize in equal quarterly installments beginning on March 31, 2020, in an aggregate annual amount equal
to (i) on or prior to December 31, 2021, 1.25% of the drawn principal amount of the Term Loan Facility or $1.25 million and (ii) thereafter, 2.50% of the
drawn principal amount of the Term Loan Facility or $2.5 million, with the remaining balance payable on the maturity date of the Term Loan A Facility
in February 2023. The Revolving Credit Facility may be borrowed, repaid and reborrowed until the fourth anniversary of the Closing Date in February 2023,
at which time all outstanding balances of the Revolving Credit Facility are due to be repaid.
The Company had outstanding letters of credit against the Revolving Credit Facility of $30.8 million and $30.7 million as of December 31, 2020
and December 31, 2019, respectively.
The Company’s obligations under the Credit Agreement are secured by substantially all of its assets. In the future, certain of its direct and indirect
subsidiaries may be required to guarantee the Credit Agreement. The Company may prepay, and in certain circumstances would be required to prepay, loans
under the Credit Agreement without payment of a premium. The Credit Agreement contains customary representations and warranties, customary affirmative
and negative covenants, a financial covenant that is tested quarterly and requires the Company to maintain a certain adjusted quick ratio of at least 1.00 to
1.00, and customary events of default.
As of December 31, 2020, the Company was in compliance with all of the covenants of the Credit Agreement.
11. STOCKHOLDERS’ EQUITY
Preferred Stock
The Company has 10 million shares of undesignated preferred stock authorized but not issued with rights and preferences determined by the
Company’s Board of Directors at the time of issuance of such shares. As of December 31, 2020 and 2019, there were no shares of preferred stock issued and
outstanding.
Common Stock
The Company has two classes of authorized common stock, Class A common stock and Class B common stock. Holders of Class A common stock
are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders and holders of Class B common stock
are entitled to ten votes for each share of Class B common stock held on all matters submitted to a vote of stockholders. Except with respect to voting, the
rights of the holders of Class A and Class B common stock are identical. Shares of Class B common stock are voluntarily convertible into shares of Class A
common stock at the option of the holder and are generally automatically converted into shares of the Company's Class A common stock upon sale or
transfer. Shares issued in connection with exercises of stock options, vesting of restricted stock units, or shares purchased under the employee stock purchase
plan are generally automatically converted into shares of the Company’s Class A common stock.
At-the-Market Offering
On May 13, 2020, the Company entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC and Citigroup Global Markets Inc.,
as its sales agents, pursuant to which the Company sold an aggregate of 4.0 million shares of the Company’s Class A common stock and received gross
proceeds of $504.0 million at an average selling price of $126.01 per share and incurred issuance costs of $6.8 million.
97
Common Stock Reserved For Issuance
At December 31, 2020, the Company had reserved shares of common stock for issuance as follows (in thousands):
Common stock awards granted under equity incentive plans
Common stock awards available for issuance under the 2017 Employee Stock Purchase Plan *
Common stock awards available for issuance under the 2017 Equity Incentive Plan
Total reserved shares of common stock
* The Company has not issued any common stock pursuant to the 2017 Employee Stock Purchase Plan.
As of December 31, 2020
13,088
5,089
21,420
39,597
Equity Incentive Plans
The Company has two equity incentive plans, the 2008 Equity Incentive Plan (the “2008 Plan”) and the 2017 Equity Incentive Plan (the “2017
Plan”). The 2017 Plan became effective September 2017 in connection with the IPO. No further shares have been issued under the 2008 Plan. The 2017 Plan
provides for the grant of incentive stock options to the Company’s employees and for the grant of non-statutory stock options, stock appreciation rights,
restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of equity compensation to the
Company’s employees, directors and consultants.
Restricted stock units granted under the plan are subject to continuous service. Options granted under the plans are granted at a price per share
equivalent to the fair market value on the date of grant. Recipients of option grants who possess more than 10% of the combined voting power of the
Company (a “10% Shareholder”) are subject to certain limitations, and incentive stock options granted to such recipients are at a price no less than 110% of
the fair market value at the date of grant.
Restricted Stock Units
Restricted stock unit activity for the year ended December 31, 2020 is as follows (in thousands, except per share data):
Balance, December 31, 2019
Awarded
Released
Forfeited
Balance, December 31, 2020 - outstanding
Number of
Shares
Weighted Average
Grant Date Fair
Value Per Share
4,544 $
1,425
(1,253)
(361)
4,355 $
67.30
147.46
66.79
76.55
92.91
The grant-date fair value of restricted stock units granted during the years ended December 31, 2020, 2019 and 2018 was $210.1 million, $195.2
million and $184.7 million, respectively. The fair value of restricted stock units that vested during the years ended December 31, 2020, 2019 and 2018 was
$83.7 million, $40.5 million and $11.4 million, respectively.
Total unrecognized compensation cost related to restricted stock units awarded to employees as of December 31, 2020 was $336.4 million, which
the Company expects to recognize over 2.26 years.
98
Stock options
The following table summarizes the Company’s stock option activities under the 2008 Plan and 2017 Plan (in thousands, except per share data):
Balance, December 31, 2019
Granted
Exercised
Forfeited and expired
Balance, December 31, 2020 - outstanding
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic
Value
11,124 $
599
(2,854)
(136)
8,733 $
14.84
145.17
5.89
48.04
26.19
6.2
— $
—
—
5.7
—
54.39
—
—
— $ 2,670,743
Options exercisable at December 31, 2020
6,144 $
8.00
4.8
— $ 1,990,694
The weighted average grant-date fair value of options granted during the years ended December 31, 2020, 2019 and 2018 was $54.39, $39.23 and
$22.96, respectively. The intrinsic value for options exercised in the years ended December 31, 2020, 2019 and 2018 was $470.8 million, $474.2 million and
$445.9 million, respectively. Intrinsic value represents the difference between the fair values of the Company’s common stock and the options’ exercise price
on the date of grant.
As of December 31, 2020, the Company had $50.8 million of unrecognized stock compensation expense related to unvested stock options that is
expected to be recognized over a weighted-average period of approximately 1.78 years.
Stock-based Compensation
The Company measures the cost of employee services received in exchange for an equity award based on the grant date fair value of the award.
Generally, stock options granted to employees vest 25% after one year and then 1/48th monthly thereafter and have a term of ten years. Restricted stock units
generally vest over 4 years. For the years ended December 31, 2020, 2019, and 2018, the amount of stock-based compensation capitalized as part of internal
use software was not material.
The following table shows total stock-based compensation expense for the years ended December 31, 2020, 2019 and 2018 (in thousands):
Cost of platform revenue
Cost of player revenue
Research and development
Sales and marketing
General and administrative
Total stock-based compensation
2020
Years Ended December 31,
2019
2018
$
$
847
1,407
58,412
42,846
30,564
134,076
$
$
342
1,072
40,036
24,179
19,546
85,175
$
$
97
469
18,538
10,459
8,111
37,674
The fair value of options granted under the 2008 Plan and 2017 Plan is estimated on the grant date using the Black-Scholes option-valuation model.
This valuation model for stock-based compensation expense requires the Company to make certain assumptions and judgments about the variables used in
the calculation, including the expected term, the expected volatility of the Company’s common stock, an assumed risk-free interest rate, and expected
dividends. The Company uses the straight-line method for expense recognition. The Company recognizes forfeitures as they occur.
99
Fair Value of Common Stock: The Company uses the market closing price for the Class A common stock as reported on The Nasdaq Global Select
Market on the date of grant.
Expected Term: The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is
determined based on the simplified method as described in ASC Topic 718-10-S99-1, SEC Materials SAB Topic 14, Share-Based Payment.
Expected Volatility: The Company’s volatility factor is estimated using several comparable public company volatilities for similar option terms.
Expected Dividends: The Company has never paid cash dividends and has no present intention to pay cash dividends in the future, and as a result, the
expected dividends are $0.
Risk-Free Interest Rate: The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero coupon issues
with a remaining term equivalent to the estimated life of the stock options. Where the expected term of the Company’s stock options does not correspond
with the term for which an interest rate is quoted, the Company performs a straight-line interpolation to determine the rate from the available term maturities.
The assumptions used to value stock options granted during the years ended December 31, 2020, 2019 and 2018 are as follows:
Expected term (in years)
Risk-free interest rate
Expected volatility
Dividend rate
12. COMMITMENTS AND CONTINGENCIES
Manufacturing Purchase Commitments
2020
5.0 - 6.7
0.22 - 1.67%
36 - 39%
—
Years Ended December 31,
2019
5.0 - 6.7
1.35 - 2.56%
35 - 36%
—
2018
5.3 - 6.8
2.32 - 2.88%
38 - 40%
—
The Company has various manufacturing contracts with vendors in the conduct of the normal course of its business. In order to manage future
demand for its products, the Company enters into agreements with manufacturers and suppliers to procure inventory based upon certain criteria and timing.
Some of these commitments are non-cancelable. As of December 31, 2020, the Company had $185.9 million purchase commitments for inventory.
The Company records a liability for non-cancelable purchase commitments in excess of projected demand forecasts. The Company recorded $1.2
million and $0.3 million for these purchase commitments in “Accrued liabilities” as of December 31, 2020 and 2019, respectively.
License Content Commitments
As of December 31, 2020, the Company recognized a liability of $6.2 million in Accrued liabilities and $1.4 million in Other long-term liabilities for
licensed content that is available for streaming. As of December 31, 2019, the Company recorded $1.7 million as obligations in Accrued liabilities for
licensed content that is available for streaming. The increase in content liability is due to change in the mix of content licensed and the period over which this
content is available for streaming.
The Company also enters into contracts with content publishers to acquire content or to buy ad inventory in the future. As of December 31, 2020,
the Company had $71.0 million in commitments with content publishers for content or to buy ad inventory that are non-cancellable. These commitments
include both content that is available
100
for streaming and is recognized as liabilities as well as content that is not yet available for streaming or ad inventories not yet purchased.
Letters of Credit
As of December 31, 2020 and 2019, the Company had irrevocable letters of credit outstanding in the amount of $30.9 million and $31.8 million,
respectively, related to facilities leases. The letters of credit have various expiration dates through 2030.
Contingencies
The Company accrues for loss contingencies, including liabilities for intellectual property licensing claims, when it believes such losses are probable
and reasonably estimable. These contingencies are reviewed at least quarterly and adjusted to reflect the impact of negotiations, estimated settlements, legal
rulings, advice of legal counsel and other information and events. The resolution of these contingencies and of other legal proceedings can be, however,
inherently unpredictable and subject to significant uncertainties.
As of December 31, 2020, the Company does not have any loss contingencies that are material. During the year ended December 31, 2019, the
Company recorded expenses of $9.9 million, in total cost of revenue, for various claims related to patent infringements. During the year ended December 31,
2018, the Company changed its estimate of certain liabilities previously recorded for intellectual property licensing and released $8.9 million as a result of its
assessment that the likelihood of payment is now remote. The reversal of $8.9 million is recorded within cost of revenue, player during the year ended
December 31, 2018, in the consolidated statements of operations.
From time to time, the Company is subject to legal proceedings, claims, and investigations in the ordinary course of business, including claims
relating to employee relations, business practices and patent infringement. The Company is involved in litigation matters not listed herein. Although the
results of these proceedings, claims, and investigations cannot be predicted with certainty, the Company does not believe that the final outcome of any
matters that it is currently involved in are reasonably likely to have a material adverse effect on its business, financial condition, or results of operations.
Indemnification
In the ordinary course of business, the Company has entered into contractual arrangements which provide indemnification provisions of varying
scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach
of such agreements and out of intellectual property infringement claims made by third parties. The Company’s obligations under these agreements may be
limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the
Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service as directors or officers.
It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior
indemnification claims and the unique facts and circumstances involved in each agreement. To date, the Company has not incurred any material costs as a
result of such obligations and have not accrued any liabilities related to such obligations in the consolidated financial statements.
13. INCOME TAXES
The components of loss before income taxes consist of the following (in thousands):
United States
Foreign
Net loss before income taxes
2020
Years Ended December 31,
2019
2018
$
$
(21,107) $
2,655
(18,452) $
(63,453) $
2,534
(60,919) $
(11,128)
1,795
(9,333)
101
The income tax (benefit) expense consisted of the following (in thousands):
Current:
Federal
State
Foreign
Deferred:
Foreign
Total
2020
Years Ended December 31,
2019
2018
$
$
(219) $
620
743
1,144
(47) $
244
108
305
(2,089)
(945) $
(1,287)
(982) $
—
114
184
298
(774)
(476)
The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:
U.S. federal income tax at statutory rate
U.S. state and local income taxes
Change in valuation allowance
Federal research and development tax credit
Stock-based compensation
Meals and Entertainment
Permanent items
Foreign rate differential
Acquisition costs
Section 162(m) limitation
State apportionment change
Tax rate change
Provision to return true-up
Other
Effective tax rate
2020
Years Ended December 31,
2019
2018
21.0%
(3.2)
(698.4)
102.9
577.8
(1.6)
—
—
—
(7.2)
4.4
—
9.4
0.1
5.2%
21.0%
(0.4)
(213.4)
30.8
158.0
(1.4)
—
(0.6)
(1.3)
(1.4)
1.3
(0.4)
9.9
(0.5)
1.6%
21.0%
(1.3)
(1,039.4)
166.2
859.4
(6.6)
(1.1)
(1.5)
—
—
—
2.4
5.9
0.1
5.1%
Significant components of the Company’s deferred income tax assets and liabilities consist of the following (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Reserves and accruals
Research and development credits
Lease Obligation
Stock-based compensation
Total deferred tax assets
Deferred tax liabilities:
Right-of-use asset
Depreciation and amortization
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
102
As of December 31,
2020
2019
$
$
379,613 $
14,131
104,110
91,373
28,318
617,545
(70,755)
(11,707)
(82,462)
(530,887)
4,196 $
263,512
10,425
73,442
81,639
17,494
446,512
(72,243)
(10,916)
(83,159)
(361,233)
2,120
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized through future
operations. As a result of the Company’s analysis of all available objective evidence, both positive and negative, as of December 31, 2020, management
believes it is more likely than not that the U.S. deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation
allowance against its U.S. deferred tax assets.
The Company's valuation allowance increased by $169.7 million and $178.9 million during the years ended December 31, 2020 and 2019,
respectively, primarily due to U.S. federal and state tax losses and credits incurred during the period.
For federal and state income tax reporting purposes, respective net operating loss carryforwards of $1,423.1 million and $1,273.9 million are
available to reduce future taxable income, if any. These net operating loss carryforwards will begin to expire in 2028 for federal and certain state net
operating losses have expired in 2020. The federal net operating loss generated subsequent to 2017 can be carried forward indefinitely.
For U.K. and Denmark income tax reporting purposes, the net operating loss carryforward of $17.6 million and $0.8 million, respectively, is
available to reduce the future taxable income, if any. U.K. and Denmark net operating loss can be carried forward indefinitely. The Company also has U.K.
research and development tax credit carryforwards of $0.3 million. The credit can be carried forward indefinitely.
As of December 31, 2020, the Company has research and development tax credit carryforwards of $82.6 million and $59.4 million for federal and
state income tax purposes, respectively. If not utilized, the federal and state carryforwards will begin to expire in 2028 and 2035, respectively.
The Internal Revenue Code of 1986, as amended (the “Code”), contains provisions that may limit the net operating loss and credit carryforwards
available for use in any given period upon the occurrence of certain events, including a statutorily defined significant change in ownership. Utilization of the
net operating loss and tax credit carryforwards is subject to an annual limitation due to an ownership change, as defined by section 382 of the Code. The
Company has assessed whether any section 382 ownership change has occurred since its formation and determined that a section 382 ownership change
occurred on December 18, 2009 and tax attributes generated by the Company through the ownership change date are subject to the limitation.
A section 382 study was completed for dataxu covering the period from inception beginning May 1, 2008 through acquisition date of November 8,
2019. Based on the study, the Company identified four ownership changes for Section 382 purposes. As such, tax attributes generated by dataxu through the
ownership change dates are subject to the limitation.
The total amount of unrecognized tax benefits as of December 31, 2020 is $29.2 million, of which $28.3 million is composed of research and
development credits and $0.9 million is related international activities. A reconciliation of the beginning and ending amount of unrecognized tax benefits is
as follows (in thousands):
Unrecognized tax benefits at beginning of year
Gross increase for tax positions of current year
Gross decrease due to statue expiration
Gross decrease for tax positions of prior years
Unrecognized tax benefits balance at end of year
As of December 31,
2020
2019
19,487 $
9,959
(75)
(196)
29,175 $
14,541
10,378
(88)
(5,344)
19,487
$
$
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of its income tax expense. As of December 31,
2020, the Company recorded $0.2 million of accrued interest and penalties related to uncertain tax positions.
103
Change in the Company’s unrecognized tax benefits, if any, would have an immaterial impact on its effective tax rate. The Company does not expect
its gross unrecognized tax benefits to change significantly within the next 12 months.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is currently under examination by
Texas Comptroller for calendar tax years 2015, 2016, and 2017. All tax years remain subject to examination by federal and state authorities. These audits
include questioning the timing and amount of deductions; the nexus of income among various tax jurisdictions; and compliance with federal, state, and local
tax laws.
The Company will continue to indefinitely reinvest earnings from its foreign subsidiaries, which are not significant. While federal income tax
expense has been recognized as a result of the Tax Cuts and Jobs Act of 2017, the Company has not provided any additional deferred taxes with respect to
items such as foreign withholding taxes, state income tax or foreign exchange gain or loss. It is not practicable for the Company to determine the amount of
unrecognized tax expense on these reinvested international earnings.
14. RELATED-PARTY TRANSACTIONS
The Company did not engage in any material related party transactions for the year ended December 31, 2020. There were no material amounts
payable to or receivable from related parties as of December 31, 2020.
In prior years, the Company engaged in transactions with one of its strategic investors. With respect to this investor, the Company recorded revenue
of $8.5 million and $4.1 million for the years ended December 31, 2019 and 2018, respectively. The Company had an accounts receivable balance of $2.4
million as of December 31, 2019 related to transactions with this investor. The Company incurred expenses of $1.3 million and $1.3 million with this investor
for the years ended December 31, 2019 and 2018, respectively. The Company had a payable of $0.4 million to this investor as of December 31, 2019.
In addition, the Company had engaged in transactions with another company in which the Company’s Chief Executive Officer holds a majority
voting interest and is a member of such company’s board of directors, and another member of the Company’s Board of Directors is such company’s Chief
Executive Officer. With respect to transactions with this other company, the Company incurred expenses of $1.2 million for the year ended December 31,
2019. There were no outstanding amounts payable to this other company as of December 31, 2019. The Company did not consummate any transactions with
the other company for the year ended December 31, 2018.
15. RETIREMENT PLANS
The Company maintains a 401(k) tax deferred saving plan (the “Savings Plan”) for the benefit of qualified employees. Qualified employees may
elect to make contributions to the Savings Plan on a biweekly basis, subject to certain limitations. The Company may make contributions to the Savings Plan
at the discretion of the Board of Directors. No contributions were made for the years ended December 31, 2020, 2019 and 2018.
In 2014, the Company established a defined contribution plan in the U.K. for its U.K.-based employees. The Company contributed $0.7 million, $0.5
million and $0.4 million to the plan for the years ended December 31, 2020, 2019 and 2018, respectively.
16. NET LOSS PER SHARE
The Company’s basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock
outstanding for the period. For purposes of the calculation of diluted net loss per share options to purchase common stock, restricted stock units and unvested
shares of common stock issued upon the early exercise of stock options and business acquisitions are considered common stock equivalents, but have been
excluded from the calculation of diluted net loss per share as their effect is antidilutive. Because the Company has reported a net loss for the years ended
December 31, 2020, 2019 and 2018, diluted net loss per common share is the same as the basic net loss per share for those years.
104
The table presents the calculation of basic and diluted net loss per share as follows (in thousands, except per share data):
Numerator:
Net loss attributable to common stockholders
$
(17,507) $
(59,937)
$
(8,857)
Denominator:
Weighted-average shares used in computing net loss per share, basic and
diluted
Net loss per share, basic and diluted
$
123,978
(0.14) $
115,218
(0.52) $
104,618
(0.08)
2020
Years Ended December 31,
2019
2018
The potential common shares that were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive
for the periods presented are as follows (in thousands):
Equity awards to purchase common stock
Unvested shares of common stock issued upon early exercise of stock options
and business acquisition
Total
13,088
1
13,089
15,668
31
15,699
20,057
70
20,127
2020
Years Ended December 31,
2019
2018
17. SEGMENT INFORMATION
An operating segment is defined as a component of an entity for which discrete financial information is available that is evaluated regularly 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, and the CODM evaluates performance and makes decisions about allocating resources to its operating segments based on financial
information presented on a consolidated basis and on revenue and gross profit for each operating segment. The Company uses the management approach to
determine the segment financial information that should be disaggregated and presented separately in the Company’s notes to its consolidated financial
statements. The management approach is based on the manner by which management has organized the segments within the Company for making operating
decisions, allocating resources, and assessing performance.
The Company reports its financial results consistent with the manner in which financial information is viewed by management for decision-making
purposes. The Company does not manage operating expenses such as research and development, sales and marketing and general and administrative
expenses at the segment level.
The Company is organized into two reportable segments as follows:
Platform
Consists of revenue generated from sale of digital advertising, content distribution services, subscription and transaction revenue share including
Premium Subscriptions, sale of branded buttons on remote controls and licensing arrangements with service operators and TV brands.
Player
Consists of revenue generated from sale of streaming players, audio products and accessories through retailers and distributors, as well as directly to
customers through the Company’s website.
The Company does not allocate property and equipment or any other assets or capital expenditures to reportable segments. Operating expenses are
not managed at the segment level.
105
The Company evaluates the performance of its reportable segments based on the financial measures, including segment gross profit, which are
regularly reviewed by the CODM and provide insight into the individual segments and their ability to contribute to Company’s operating results.
Customers accounting for 10% or more of segment revenue, net, were as follows:
Platform segment revenue
Customer H
Player segment revenue
Customer A
Customer B
Customer C
2020
Years Ended December 31,
2019
2018
13%
10%
18%
40%
*
16%
17%
39%
*
15%
15%
38%
Revenue in international markets was less than 10% in each of the periods presented. Substantially all Company assets were held in the United States
and were attributable to the operations in the United States as of December 31, 2020 and 2019.
18. QUARTERLY FINANCIAL DATA (Unaudited)
The following table summarizes the Company’s information on total revenue, gross profit, net income (loss) and earnings per share by quarter for the
years ended December 31, 2020 and 2019. This data was derived from the Company’s unaudited consolidated financial statements (in thousands, except per
share data):
Total Revenue
Gross Profit
Net income (loss) attributable to common stockholders
Basic net income (loss) per share attributable to common stockholders
Diluted net income (loss) per share attributable to common
stockholders
$
Three Months Ended
Dec 31,
2020
Sep 30,
2020
Jun 30,
2020
Mar 31,
2020
649,886 $
305,458
67,306
0.53
451,663 $
214,824
12,947
0.10
356,073 $
146,836
(43,148)
(0.35)
320,766
141,101
(54,612)
(0.45)
0.49
0.09
(0.35)
(0.45)
Total Revenue
Gross Profit
Net loss attributable to common stockholders
Basic and diluted net loss per share attributable to common
stockholders
Three Months Ended
Dec 31,
2019
Sep 30,
2019
Jun 30,
2019
Mar 31,
2019
$
411,230 $
161,647
(15,717)
260,928 $
118,477
(25,155)
250,101 $
114,209
(9,333)
206,662
100,891
(9,732)
(0.13)
(0.22)
(0.08)
(0.09)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
106
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended, or the
Exchange Act) prior to the filing of this Annual Report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were, in design and
operation, effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-
15(d) of the Exchange Act that occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework set forth in
Internal Control — Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December
31, 2020.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in its report which is included below.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or
our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Our disclosure controls and procedures and our internal controls over
financial reporting have been designed to provide reasonable assurance of achieving their objectives. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
107
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Roku, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Roku, Inc. and subsidiaries (the “Company”) as of December 31, 2020, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based
on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 25, 2021, expressed an unqualified
opinion on those financial statements and included an explanatory paragraph related to the Company’s change in method of accounting for leases in fiscal
year 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842).
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 25, 2021
108
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item is incorporated by reference to our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our year ended December 31, 2020.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our year ended December 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our year ended December 31, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our year ended December 31, 2020.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference to our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our year ended December 31, 2020.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
See Index to Financial Statements in Item 8 of this Report.
(a)(2) Financial Statement Schedule
All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable or because
the information required is already included in the financial statements or the notes to those financial statements.
109
Number
2.1
3.1
3.2
4.1
4.2
4.3
10.7 +
10.8 +
10.9 +
(a)(3) Exhibits
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.
Exhibit Title
Agreement and Plan of Merger, dated October 22, 2019, by and among Roku, Inc., Delaware
Acquisition Company, Inc., dataxu, Inc. and Shareholder Representative Services LLC, as
Stockholder Representative and Amendment No. 1 to Agreement and Plan of Merger, dated
November 8, 2019, by and among Roku, Inc., Delaware Acquisition Company, Inc., dataxu, Inc. and
Shareholder Representative Services LLC, as Stockholder Representative.
Incorporated by Reference
Form
File No.
Exhibit
Filing
Date
Filed
Herewith
8-K
001-38211
2.1
11/14/2019
Amended and Restated Certificate of Incorporation.
Amended and Restated Bylaws.
Reference is made to Exhibit 3.1.
Form of Class A Common Stock Certificate.
Description of Securities.
8-K
001-38211
S-1/A
333-220318
S-1/A
333-220318
10-K
001-38211
10.1 +
Roku, Inc. 2008 Equity Incentive Plan.
10.2 +
Forms of Option Agreement and Option Grant Notice under 2008 Equity Incentive Plan.
10.3 +
Roku, Inc. 2017 Equity Incentive Plan.
10.4 +
Forms of Option Agreement and Option Grant Notice under 2017 Equity Incentive Plan.
10.5 +
Forms of Restricted Stock Unit Grant Notice and Award Agreement under 2017 Equity Incentive
Plan.
10.6 +
Forms of Option Agreement and Option Grant Notice under 2017 Equity Incentive Plan.
Forms of Restricted Stock Unit Grant Notice and Award Agreement under 2017 Equity Incentive
Plan (Non-Employee Directors).
S-1
S-1
S-1/A
S-1/A
S-1/A
10-Q
10-Q
333-220318
333-220318
333-220318
333-220318
333-220318
001-38211
001-38211
10.24
10.7
3.1
3.4
4.1
4.3
10.3
10.4
10.5
10.6
10.7
10/3/2017
9/18/2017
9/18/2017
3/2/2020
9/1/2017
9/1/2017
9/18/2017
9/18/2017
9/18/2017
8/10/2018
8/9/2019
Forms of Option Grant Notice and Option Agreement under 2017 Equity Incentive Plan (Non-
Employee Directors).
10-Q
001-38211
10.8
8/9/2019
Forms of Restricted Stock Unit Grant Notice and Award Agreement under 2017 Equity Incentive
Plan (Employees).
10-K
001-38211
10.7
3/2/2020
10.10 +
Forms of Restricted Stock Unit Grant Notice and Award Agreement under 2017 Equity Incentive
Plan.
10-Q
001-38211
10.5
11/6/2020
10.11 +
Forms of Option Grant Notice and Award Agreement under 2017 Equity Incentive Plan.
10-Q
001-38211
10.6
11/6/2020
10.12 +
10.13 +
10.14 +
Forms of Stock Option Grant Notice and Option Agreement Under 2017 Equity Incentive Plan (Non-
Employee Directors Initial Award).
Forms of Stock Option Grant Notice and Option Agreement Under 2017 Equity Incentive Plan (Non-
Employee Directors Annual Award).
Forms of Restricted Stock Unit Grant Notice and Award Agreement Under 2017 Equity Incentive
Plan (Non-Employee Directors).
110
X
X
X
10.15 +
Executive Supplemental Stock Option Program 2021 Enrollment Form.
10.16 +
Forms of Option Grant Notice and Executive Supplemental Stock Option Agreement and Option
Grant Notice under 2017 Equity Incentive Plan.
10.17 +
Roku, Inc. 2017 Employee Stock Purchase Plan.
Form of Indemnification Agreement, by and between Roku, Inc. and each of its directors and
executive officers.
8-K
8-K
001-38211
001-38211
S-1/A
333-220318
S-1A
333-220318
10.1
10.2
10.8
10.9
10/6/2020
12/7/2018
9/18/2017
9/18/2017
Employment Terms Agreement, by and between Roku, Inc. and Stephen Kay, dated November 15,
2013.
S-1
333-220318
10.9
9/1/2017
10.20 +
Employment Terms Agreement, by and between Roku, Inc. and Steve Louden, dated June 11, 2015.
Employment Terms Agreement, by and between Roku, Inc. and Scott Rosenberg, dated October 30,
2012.
S-1
S-1
333-220318
333-220318
10.11
10.13
9/1/2017
9/1/2017
Employment Terms Agreement, by and between Roku, Inc. and Mustafa Ozgen, dated January 17,
2019.
10-K
001-38211
10.18
3/2/2020
Independent Contractor Services Agreement by and between Roku, Inc. and Neil Hunt, dated
September 10, 2017.
S-1/A
333-220318
10.30
9/18/2017
10.24 +
Roku, Inc. Amended and Restated Severance Benefit Plan.
Coleman Highline Office Lease by and between Roku, Inc. and Cap Phase 1, LLC dated August 1,
2018 (1155 Coleman Ave).
8-K
10-Q
001-38211
001-38211
99.1
10.26
7/16/2019
8/10/2018
Coleman Highline Office Lease by and between Roku, Inc. and Cap Oz 34, LLC dated August 1,
2018 (1173/1167/1161 Coleman Ave).
10-Q
001-38211
10.27
8/10/2018
First Amendment to Coleman Highline Office Lease by and between Roku, Inc. and Cap Phase 1,
LLC dated November 12, 2018 (1155 Coleman Ave).
10-K
001-38211
10.30
3/1/2019
First Amendment to Coleman Highline Office Lease by and between Roku, Inc. and Cap Oz 34, LLC
dated November 18, 2018 (1173/1167/1161 Coleman Ave).
10-K
001-38211
10.31
3/1/2019
Credit Agreement, dated as of February 19, 2019, by and among Roku, Inc., Morgan Stanley Senior
Funding, Inc., as lender, issuing bank, administrative agent and collateral agent, and the other issuing
banks and lenders party thereto from time to time.
10-K
001-38211
10.32
3/1/2019
Assignment and Assumption of Lease, Landlord’s Consent and First Amendment of Lease, dated as
of April 30, 2019, by and among Roku, Inc., 8x8, Inc. and CAP Phase I, LLC.
10-Q
001-38211
10.1
8/9/2019
Second Amendment to Coleman Highline Office Lease by and between Roku, Inc. and Cap Phase 1,
LLC dated April 30, 2019 (1155 Coleman Ave).
10-Q
001-38211
10.2
8/9/2019
Second Amendment to Coleman Highline Office Lease by and between Roku, Inc. and Cap Oz 34,
LLC dated April 30, 2019 (1173/1167/1161 Coleman Ave).
10-Q
001-38211
10.3
8/9/2019
Incremental Assumption and Amendment No. 1 to Credit Agreement, dated as of May 3, 2019, by
and among Roku, Inc., Morgan Stanley Senior Funding, Inc., as administrative agent and issuing
bank, and the other issuing banks and lenders party thereto from time to time.
10-Q
001-38211
10.4
8/9/2019
10.18 +
10.19 +
10.21 +
10.22 +
10.23 +
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
Equity Distribution Agreement, dated May 13, 2020, by and among Roku, Inc., Morgan Stanley &
Co. LLC and Citigroup Global Markets Inc.
10-Q
001-38211
1.1
5/13/2020
21.1
List of Subsidiaries of Roku, Inc.
X
111
23.1
24.1
31.1
31.2
32.1
32.2
Consent of Independent Registered Public Accounting Firm.
Power of Attorney
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. *
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS
Inline XBRL Instance Document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
X
X
X
X
X
X
X
X
X
X
X
X
* These exhibits are furnished with this Annual Report on Form 10-K and are not deemed filed with the Securities and Exchange Commission and are not
incorporated by reference in any filing of Roku, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
whether made before or after the date hereof and irrespective of any general incorporation language contained in such filings.
+ Indicates a management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
None.
112
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on this 25th day of February 2021.
SIGNATURES
Roku, Inc.
By:
/s/ Anthony Wood
Anthony Wood
President and Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Steve Louden
Steve Louden
Chief Financial Officer
(Principal Financial Officer)
113
ROKU, INC.
STOCK OPTION GRANT NOTICE
(2017 EQUITY INCENTIVE PLAN)
Exhibit 10.12
Roku, Inc. (the “Company”), pursuant to its 2017 Equity Incentive Plan (the “Plan”), hereby grants to Optionholder an option to purchase the
number of shares of the Company’s Common Stock set forth below. This option is subject to all of the terms and conditions as set forth in this
stock option grant notice (this “Stock Option Grant Notice”), in the Option Agreement (the “Agreement”), the Plan and the Notice of Exercise,
all of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined herein but defined in the Plan
or the Agreement will have the same definitions as in the Plan or the Agreement. If there is any conflict between the terms in this Stock Option
Grant Notice, the Agreement and/or the Plan, the terms of the Plan will control.
Optionholder:
Date of Grant:
Vesting Commencement Date:
Number of Shares Subject to Option:
Exercise Price (Per Share):
Total Exercise Price:
Expiration Date:
«Optionee»
«GrantDate»
«VestingCommenceDate»
«Shares»
«Price»
«TotalExercisePrice»
«ExpirDate»
Type of Grant:
☐ Incentive Stock Option
☒ Nonstatutory Stock Option
Exercise Schedule:
Same as Vesting Schedule
Vesting Schedule:
1/[___]of the total Number of Shares Subject to Option will vest on each monthly anniversary of the Vesting
Commencement Date, subject to Optionholder’s Continuous Service as a Non-Employee Director through the
applicable vesting date, provided that, to the extent the Option is not vested on the date of the first annual meeting
of the Company’s stockholders following the Vesting Commencement Date, the Option will vest in full on the date
of such annual meeting, subject to Optionholder’s Continuous Service as a Non-Employee Director through such
vesting date.
Notwithstanding the foregoing, the vesting of this option shall accelerate in full effective immediately prior to the
consummation of a Change in Control, subject to Optionholder’s Continuous Service as a Non-Employee Director
through such time.
Payment:
By one or a combination of the following items (described in the Agreement):
☐
☐
☐
☐ Subject to the Company’s consent at the time of exercise, by a “net exercise” arrangement
By cash, check, bank draft, wire transfer or money order payable to the Company
Pursuant to a Regulation T Program if the shares are publicly traded
By delivery of already-owned shares if the shares are publicly traded
Additional Terms/Acknowledgements: Optionholder acknowledges receipt of, and understands and agrees to all of the terms and conditions
set forth in, this Stock Option Grant Notice, the Agreement and
the Plan. Optionholder acknowledges and agrees that this Stock Option Grant Notice and the Agreement may not be modified, amended or
revised except as provided in the Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Stock Option
Grant Notice, the Agreement, and the Plan set forth the entire understanding between Optionholder and the Company regarding this option
award and supersede all prior oral and written agreements, promises and/or representations on that subject with the exception of (i) options
previously granted and delivered to Optionholder and (ii) any compensation recovery policy that is adopted by the Company or is otherwise
required by applicable law.
By accepting this option, Optionholder consents to receive such documents by electronic delivery and to participate in the Plan through an on-
line or electronic system established and maintained by the Company or a third party designated by the Company.
ROKU, INC.
OPTIONHOLDER:
By:____________________________________
_______________________________________
Signature
Signature
Title:___________________________________
Date:___________________________________
Date:___________________________________
By providing an additional signature below or by electronically accepting this Agreement pursuant to the Company’s instructions to
Optionholder (including through an online acceptance process), Optionholder declares that he or she expressly agrees with the data
processing practices described in Section 12 of the Agreement and consents to the collection, processing and use of Data (as defined in
Section 12 of the Agreement) by the Company and the transfer of Data to the recipients mentioned in Section 12 of the Agreement,
including recipients located in countries which do not provide an adequate level of protection from a European (or other non-U.S.) data
protection law perspective, for the purposes described in Section 12 of the Agreement. Optionee understands that, as a condition of
receiving the option, Optionholder must provide his or her signature below or electronically accept this option, otherwise the Company
may forfeit the option. Optionholder understands that he or she may withdraw consent at any time with future effect for any or no
reason as described in Section 12 of the Agreement.
OPTIONHOLDER:
________________________________________
Signature
ATTACHMENTS: Agreement, 2017 Equity Incentive Plan, and Notice of Exercise
2
ATTACHMENT I
ROKU, INC.
2017 EQUITY INCENTIVE PLAN
OPTION AGREEMENT
(NONSTATUTORY STOCK OPTION)
Pursuant to your Stock Option Grant Notice (“Stock Option Grant Notice”) and this Option Agreement (this “Agreement”), Roku,
Inc. (the “Company”) has granted you an option under its 2017 Equity Incentive Plan (the “Plan”) to purchase the number of shares of the
Company’s Common Stock indicated in your Stock Option Grant Notice at the exercise price indicated in your Stock Option Grant
Notice. The option is granted to you effective as of the date of grant set forth in the Stock Option Grant Notice (the “Date of Grant”). If there
is any conflict between the terms in this Agreement and the Plan, the terms of the Plan will control. Capitalized terms not explicitly defined in
this Agreement or in the Stock Option Grant Notice but defined in the Plan will have the same definitions as in the Plan.
The details of your option, in addition to those set forth in the Stock Option Grant Notice and the Plan, are as follows:
1.
VESTING. Your option will vest as provided in your Stock Option Grant Notice. Vesting will cease upon the termination of
your Continuous Service as a Non-Employee Director, as described in Section 6 below.
2.
NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your
exercise price per share in your Stock Option Grant Notice will be adjusted for Capitalization Adjustments.
3.
METHOD OF PAYMENT. You must pay the full amount of the exercise price for the shares you wish to exercise. You may
pay the exercise price in cash or by check, bank draft, wire transfer or money order payable to the Company or in any other manner permitted
by your Stock Option Grant Notice, which may include one or more of the following:
(a)
Provided that at the time of exercise the Common Stock is publicly traded, pursuant to a program developed
under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales
proceeds. This manner of payment is also known as a “broker-assisted exercise”, “same day sale”, or “sell to cover,”
(b)
Provided that at the time of exercise the Common Stock is publicly traded, by delivery to the Company (either
by actual delivery or attestation) of already-owned shares of Common Stock that are owned free and clear of any liens, claims, encumbrances
or security interests, and whose Fair Market Value is equal to the aggregate exercise price on the date of exercise. “Delivery” for these
purposes, in the sole discretion of the Company at the time you exercise your option, will include delivery to the Company of your attestation
of ownership of such shares of Common Stock in a form approved by the Company. You may not exercise your option by delivery to the
Company of Common Stock if doing so would violate the provisions of any law, regulation or agreement restricting the redemption of the
Company’s stock.
4.
WHOLE SHARES. You may exercise your option only for whole shares of Common Stock.
5.
COMPLIANCE. In no event may you exercise your option unless the shares of Common Stock issuable upon exercise are
then registered under the Securities Act or, if not registered, the Company has determined that your exercise and the issuance of the shares
would be exempt from the registration
1
requirements of the Securities Act. The exercise of your option also must comply with all other applicable laws and regulations governing
your option, including any U.S. and non-U.S. state, federal and local laws, and you may not exercise your option if the Company determines
that such exercise would not be in material compliance with such laws and regulations (including any restrictions on exercise required for
compliance with Treas. Reg. 1.401(k)-1(d)(3), if applicable).
6.
TERM. You may not exercise your option before the Date of Grant or after the expiration of the option’s term. The term of
your option expires, subject to the provisions of Section 5(h) of the Plan, upon the earliest of the following:
(a)
(b)
(c)
immediately upon the termination of your Continuous Service for Cause;
the Expiration Date indicated in your Stock Option Grant Notice; and
the day before the tenth (10th) anniversary of the Date of Grant.
For purposes of your option, your Continuous Service will be considered terminated (regardless of the reason of termination,
whether or not later found to be invalid or in breach of employment or other laws or rules in the jurisdiction where you are providing services
or the terms of your employment or service agreement, if any) effective as of the date that you cease to actively provide services to the
Company as a Non-Employee Director and will not be extended by any notice period (e.g., employment or service would not include any
contractual notice period or any period of “garden leave” or similar period mandated under employment or other laws in the jurisdiction where
you are employed or providing services or the terms of your employment or service agreement, if any). The Board shall have exclusive
discretion to determine when you are no longer actively employed or providing services for purposes of the Plan (including whether you still
may be considered to be providing services while on a leave of absence).
7.
EXERCISE.
(a)
You may exercise the vested portion of your option during its term by (i) delivering a Notice of Exercise (in a
form designated by the Company) or completing such other documents and/or procedures designated by the Company for exercise and (ii)
paying the exercise price and any applicable Tax-Related Items (as defined in Section 9 below) to the Company’s Secretary, stock plan
administrator, or such other person as the Company may designate, together with such additional documents as the Company may then require.
require you to enter into an arrangement providing for the payment by you to the Company of any Tax-Related Items.
(b)
By exercising your option you agree that, as a condition to any exercise of your option, the Company may
8.
TRANSFERABILITY. Except as otherwise provided in this Section 8, your option is not transferable, except by will or by the
laws of descent and distribution, and is exercisable during your life only by you.
(a)
Certain Trusts. Upon receiving written permission from the Board or its duly authorized designee, you may
transfer your option to a trust if you are considered to be the sole beneficial owner (determined under Section 671 of the Code and applicable
U.S. state law, or comparable non-U.S. laws) while the option is held in the trust. You and the trustee must enter into transfer and other
agreements required by the Company.
Domestic Relations Orders. Upon receiving written permission from the Board or its duly authorized
designee, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may
transfer your option pursuant to the terms of a domestic
(b)
2
relations order, official marital settlement agreement or other divorce or separation instrument as permitted by Treasury Regulation 1.421-1(b)
(2), or comparable non-U.S. law, that contains the information required by the Company to effectuate the transfer. You are encouraged to
discuss the proposed terms of any division of this option with the Company prior to finalizing the domestic relations order or marital settlement
agreement to help ensure the required information is contained within the domestic relations order or marital settlement agreement.
(c)
Beneficiary Designation. Upon receiving written permission from the Board or its duly authorized designee,
you may, by delivering written notice to the Company, in a form approved by the Company and any broker designated by the Company to
handle option exercises, designate a third party who, on your death, will thereafter be entitled to exercise this option and receive the Common
Stock or other consideration resulting from such exercise. In the absence of such a designation, your executor or administrator of your estate or
your legal heirs will be entitled to exercise this option and receive, on behalf of your estate, the Common Stock or other consideration resulting
from such exercise.
9.
RESPONSIBILITY FOR TAXES.
(a)
You acknowledge that, regardless of any action the Company or, if different, your employer (the “Employer”)
takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit tax, payment on account or other tax related items
related to your participation in the Plan and legally applicable to you (“Tax-Related Items”), the ultimate liability for all Tax-Related Items is
and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer, if any. You further
acknowledge that the Company and the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related
Items in connection with any aspect of your option, including, but not limited to, the grant, vesting or exercise of your option, the subsequent
sale of shares of Common Stock acquired pursuant to such exercise and the issuance of any dividends; and (ii) do not commit to and are under
no obligation to structure the terms of the grant or any aspect of your option to reduce or eliminate your liability for Tax-Related Items or
achieve any particular tax result. You acknowledge and agree that you will not make any claim against the Company, or any of its Officers,
Directors, Employees or Affiliates for Tax-Related Items arising from your option. In particular, you acknowledge that this option is exempt
from Section 409A of the Code only if the exercise price per share specified in the Grant Notice is at least equal to the “fair market value” per
share of the Common Stock on the Date of Grant and there is no other impermissible deferral of compensation associated with the
option. Further, if you are subject to Tax-Related Items in more than one jurisdiction, you acknowledge that the Company and/or the Employer
(or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b)
Prior to the relevant taxable or tax withholding event, as applicable, you agree to make adequate arrangements
satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, you authorize the Company and/or the
Employer, or their respective agents, at their discretion, to satisfy their withholding obligations with regard to all Tax-Related Items by: (i)
withholding from your wages or other cash compensation paid to you by the Company and/or the Employer, (ii) withholding from the proceeds
of the sale of shares of Common Stock acquired at exercise of your option and sold either through a voluntary sale or through a mandatory sale
arranged by the Company (on your behalf pursuant to this authorization without further consent); and/or (iii) withholding a number of shares of
Common Stock that are otherwise deliverable to you upon exercise.
(c)
Depending on the withholding method, the Company or the Employer may withhold or account for Tax-
Related Items by considering applicable statutory withholding amounts or other applicable withholding rates, including maximum applicable
rates, in which case you may receive a refund of any over-withheld amount in cash and will have no entitlement to the Common Stock
equivalent. If the obligation for Tax-Related Items is satisfied by withholding a number of shares of Common Stock, for tax
3
purposes, you are deemed to have been issued the full number of shares of Common Stock, notwithstanding that a number of the shares of
Common Stock is held back solely for the purpose of paying the Tax-Related Items.
(d)
You agree to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the
Employer may be required to withhold or account for as a result of your participation in the Plan that cannot be satisfied by the means
previously described. You acknowledge and agree that the Company may refuse to honor the exercise and refuse to issue or deliver the shares
of Common Stock, or the proceeds of the sale of the shares of Common Stock, if you fail to comply with your obligations in connection with
the Tax-Related Items.
10.
NATURE OF GRANT. In accepting your option, you acknowledge, understand and agree that:
amended, suspended or terminated by the Company at any time, to the extent permitted under the Plan;
(a)
the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified,
the grant of this option is exceptional, voluntary and occasional and does not create any contractual or other
right to receive future grants of options (whether on the same or different terms), or benefits in lieu of options, even if options have been
granted in the past;
(b)
Company;
(c)
(d)
(e)
all decisions with respect to future options or other grants, if any, will be at the sole discretion of the
you are voluntarily participating in the Plan;
this option and the shares of Common Stock subject to this option, and the income and value of same, are not
intended to replace any pension rights or compensation;
(f)
the future value of the shares of Common Stock underlying the option is unknown, indeterminable, and cannot
be predicted with certainty;
(g)
(h)
if the underlying shares of Common Stock do not increase in value, the option will have no value;
if you exercise the option and acquire shares of Common Stock, the value of such shares of Common Stock
may increase or decrease in value, even below the exercise price;
no claim or entitlement to compensation or damages shall arise from forfeiture of this option resulting from
the termination of your Continuous Service (for any reason whatsoever, whether or not later found to be invalid or in breach of employment
laws in the jurisdiction where you are employed or rendering services or the terms of your employment or service agreement, if any);
(i)
(j)
unless otherwise provided in the Plan or by the Company in its discretion, the option and the benefits
evidenced by this Agreement do not create any entitlement to have the option or any such benefits transferred to, or assumed by, another
company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of Common
Stock;
the option and the shares of Common Stock subject to the option, and the income from and value of same, are
not part of normal or expected compensation for purposes of, including, without limitation, calculating any severance, resignation, termination,
redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(k)
4
unless otherwise agreed with the Company, this option and any shares of Common Stock acquired under the
Plan, and the income from and value of same, are not granted as consideration for, or in connection with, the service you may provide as a
director of an Affiliate; and
(l)
(m)
The following provisions apply only if you are employed or rendering services outside the United States:
same, are not part of normal or expected compensation for any purpose; and
(i)
the option and the shares of Common Stock subject to the option, and the income from and value of
neither the Company, the Employer nor any other Affiliate shall be liable for any foreign exchange
rate fluctuation between your local currency and the United States Dollar that may affect the value of the option or of any amounts due to you
pursuant to the vesting or exercise of the option or the subsequent sale of any shares of Common Stock acquired upon exercise of the option.
(ii)
11.
NO ADVICE REGARDING GRANT. The Company is not providing any tax, legal or financial advice, nor is the Company
making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying shares of Common
Stock. You are hereby advised to consult with your own personal tax, legal and financial advisors regarding your participation in the Plan
before taking any action related to the Plan.
12.
DATA PRIVACY. As per standard Human Resources practices in the United States, the Company and the Employer
process certain personal information about you for a number of purposes in connection with your services, including the implementing,
administering and managing of the Plan. The personal information that we process in connection with the Plan typically includes your
name, home address and telephone number, email address, date of birth, social insurance, passport or other identification number,
compensation, nationality, job title, any shares of Common Stock or directorships held in the Company, details of all options or any other
entitlement to shares of Common Stock or equivalent benefits awarded, canceled, exercised, vested, unvested or outstanding in your favor
(“Data”). The Company will process the Data only as long as is necessary to implement, administer and manage your participation in the
Plan, or as required to comply with legal or regulatory obligations, including under tax, exchange control, labor and securities laws.
Stock Plan Administration Service Providers. The Company will disclose Data to E*TRADE Financial Corporate Services, Inc.
(including its affiliated companies) (collectively, the “Designated Broker”), which is assisting the Company with the implementation,
administration and management of the Plan. The Company may select different or additional service providers in the future and share
Data with such other provider(s) serving in a similar manner. The Designated Broker may require you to enter into additional terms or
provide you with additional notice about their handling of your personal information, or both. For more information about the Designated
Broker's data privacy practices https://us.etrade.com/l/f/privacy-statement.
For more information about the Company and Employer’s processing of your personal information, including information
about your rights over the Data, please refer to Roku Human Resources.
13.
RIGHT OF REPURCHASE. The Company will have the right to repurchase all of the shares of Common Stock you acquire
pursuant to the exercise of your option upon termination of your Continuous Service for Cause. Such repurchase will be at the exercise price
you paid to acquire the shares and will be effected pursuant to such other terms and conditions, and at such time, as the Company will
determine.
14.
OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your option will
be deemed to create in any way whatsoever any obligation on your
5
part to continue in the service of the Company, or of the Company to continue your service. In addition, nothing in your option will obligate
the Company or an Affiliate, their respective stockholders, boards of directors, officers or employees to continue any relationship that you
might have as a Director or Consultant for the Company or an Affiliate. Finally, the grant of the option shall not be interpreted as forming an
employment or service contract with the Company.
15.
NOTICES. Any notice or request required or permitted hereunder will be given in writing to each of the other parties
hereto and will be deemed effectively given on the earlier of (i) the date of personal delivery, (ii) delivery via electronic means, or (ii) for
deliveries within the U.S., the date that is five (5) days after deposit in the United States Post Office (whether or not actually received by the
addressee), by registered or certified mail with postage and fees prepaid, addressed to the Company at its primary executive offices, attention:
Stock Plan Administrator, and addressed to you at your address as on file with the Company at the time notice is given, (iv) for deliveries
outside the United States, the date that is seven (7) days after deposit with the applicable jurisdiction’s official mail service, with postage and
fees prepaid, or (v) the date that is one (1) day after deposit with a reputable overnight courier, with shipping charges prepaid.
16.
GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the Plan, the provisions of which are hereby
made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be
promulgated and adopted pursuant to the Plan. If there is any conflict between the provisions of your option and those of the Plan, the
provisions of the Plan will control. In addition, your option (and any compensation paid or shares issued under your option) is subject to
recoupment in accordance with The U.S. Dodd–Frank Wall Street Reform and Consumer Protection Act and any implementing regulations
thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. No
recovery of compensation under such a clawback policy will be an event giving rise to a right to voluntarily terminate employment upon a
resignation for “good reason,” or for a “constructive termination” or any similar term under any plan of or agreement with the Company.
17.
OTHER DOCUMENTS. You hereby acknowledge receipt of and the right to receive a document providing the information
required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you acknowledge receipt of
the Company’s policy permitting certain individuals to sell shares only during certain “window” periods and the Company’s insider trading
policy, in effect from time to time.
18.
VOTING RIGHTS. You will not have voting or any other rights as a shareholder of the Company with respect to the shares
to be issued pursuant to this option until such shares are issued to you. Upon such issuance, you will obtain full voting and other rights as a
shareholder of the Company. Nothing contained in this option, and no action taken pursuant to its provisions, will create or be construed to
create a trust of any kind or a fiduciary relationship between you and the Company or any other person.
19.
SEVERABILITY. If all or any part of this Agreement or the Plan is declared by any court or governmental authority to be
unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Agreement or the Plan not declared to be unlawful or
invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a
manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
20.
LANGUAGE. If you have received this Agreement, or any other document related to this option and/or the Plan translated
into a language other than English and if the meaning of the translated version is different than the English version, the English version will
control. You acknowledge that you are sufficiently proficient in English, or have consulted with an advisor who is sufficiently proficient in
English, so as to allow you to understand the terms and conditions of this Agreement.
6
21.
INSIDER TRADING RESTRICTIONS/MARKET ABUSE LAWS. You may be subject to insider trading restrictions and/or market
abuse laws based on the exchange on which the shares of Common Stock are listed and in applicable jurisdictions, including the U.S. and your
country or your broker’s country, if different, which may affect your ability to accept, acquire, sell or otherwise dispose of shares of Common
Stock, rights to shares of Common Stock (e.g., options) or rights linked to the value of shares of Common Stock during such times as you are
considered to have “inside information” regarding the Company (as defined by the laws in applicable jurisdictions). Local insider trading laws
and regulations may prohibit the cancellation or amendment of orders you placed before you possessed inside information. Furthermore, you
could be prohibited from (i) disclosing the inside information to any third party, which may include Company employees, and (ii) “tipping”
third parties or causing them otherwise to buy or sell securities. Any restrictions under these laws or regulations are separate from and in
addition to any restrictions that may be imposed under any applicable insider trading policy of the Company. You acknowledge that it is your
responsibility to comply with any applicable restrictions and you should speak with your personal legal advisor on this matter.
22.
FOREIGN ASSET/ACCOUNT AND TAX REPORTING, EXCHANGE CONTROLS. Your country may have certain foreign asset,
account and/or tax reporting requirements and exchange controls which may affect your ability to acquire or hold shares of Common Stock
under the Plan or cash received from participating in the Plan (including from any dividends received or sale proceeds arising from the sale of
shares of Common Stock) in a brokerage or bank account outside your country. You understand that you may be required to report such
accounts, assets or transactions to the tax or other authorities in your country. You also may be required to repatriate sale proceeds or other
funds received as a result of participation in the Plan to your country through a designated bank or broker and/or within a certain time after
receipt. In addition, you may be subject to tax payment and/or reporting obligations in connection with any income realized under the Plan
and/or from the sale of shares of Common Stock. You acknowledge that you are responsible for complying with all such requirements, and
that you should consult personal legal and tax advisors, as applicable, to ensure compliance.
23.
IMPOSITION OF OTHER REQUIREMENTS. The Company reserves the right to impose other requirements on your
participation in the Plan, and on any shares of Common Stock acquired under the Plan, to the extent the Company determines it is necessary or
advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to
accomplish the foregoing.
24.
GOVERNING LAW/VENUE. The interpretation, performance and enforcement of this Agreement will be governed by the law
of the State of Delaware without regard to that state’s conflicts of laws rules. For purposes of any action, lawsuit or other proceedings brought
to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the
courts within Santa Clara County, State of California, and no other courts, where this grant is made and/or to be performed.
25.
MISCELLANEOUS.
The rights and obligations of the Company under your option will be transferable to any one or more persons
or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by the Company’s successors and
assigns.
(a)
determination of the Company to carry out the purposes or intent of your option.
(b)
You agree upon request to execute any further documents or instruments necessary or desirable in the sole
obtain the advice of counsel prior to executing and accepting your option, and fully understand all provisions of your option.
(c)
You acknowledge and agree that you have reviewed your option in its entirety, have had an opportunity to
7
All obligations of the Company under the Plan and this Agreement will be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.
(d)
This Agreement will be deemed to be signed by you upon the signing by you or otherwise by your acceptance of the
Grant Notice to which it is attached.
***
8
ROKU, INC.
STOCK OPTION GRANT NOTICE
(2017 EQUITY INCENTIVE PLAN)
Exhibit 10.13
Roku, Inc. (the “Company”), pursuant to its 2017 Equity Incentive Plan (the “Plan”), hereby grants to Optionholder an option to purchase the
number of shares of the Company’s Common Stock set forth below. This option is subject to all of the terms and conditions as set forth in this
stock option grant notice (this “Stock Option Grant Notice”), in the Option Agreement (the “Agreement”), the Plan and the Notice of Exercise,
all of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined herein but defined in the Plan
or the Agreement will have the same definitions as in the Plan or the Agreement. If there is any conflict between the terms in this Stock Option
Grant Notice, the Agreement and/or the Plan, the terms of the Plan will control.
Optionholder:
Date of Grant:
Vesting Commencement Date:
Number of Shares Subject to Option:
Exercise Price (Per Share):
Total Exercise Price:
Expiration Date:
«Optionee»
«GrantDate»
«VestingCommenceDate»
«Shares»
«Price»
«TotalExercisePrice»
«ExpirDate»
Type of Grant:
☐ Incentive Stock Option
☒ Nonstatutory Stock Option
Exercise Schedule:
Same as Vesting Schedule
Vesting Schedule:
1/12th of the total Number of Shares Subject to Option will vest on each monthly anniversary of the Vesting
Commencement Date, subject to Optionholder’s Continuous Service as a Non-Employee Director through the
applicable vesting date, provided that, to the extent the Option is not vested on the date of the first annual meeting
of the Company’s stockholders following the Vesting Commencement Date, the Option will vest in full on the date
of such annual meeting, subject to Optionholder’s Continuous Service as a Non-Employee Director through such
vesting date.
Notwithstanding the foregoing, the vesting of this option shall accelerate in full effective immediately prior to the
consummation of a Change in Control, subject to Optionholder’s Continuous Service as a Non-Employee Director
through such time.
Payment:
By one or a combination of the following items (described in the Agreement):
☐
☐
☐
☐ Subject to the Company’s consent at the time of exercise, by a “net exercise” arrangement
By cash, check, bank draft, wire transfer or money order payable to the Company
Pursuant to a Regulation T Program if the shares are publicly traded
By delivery of already-owned shares if the shares are publicly traded
Additional Terms/Acknowledgements: Optionholder acknowledges receipt of, and understands and agrees to all of the terms and conditions
set forth in, this Stock Option Grant Notice, the Agreement and
the Plan. Optionholder acknowledges and agrees that this Stock Option Grant Notice and the Agreement may not be modified, amended or
revised except as provided in the Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Stock Option
Grant Notice, the Agreement, and the Plan set forth the entire understanding between Optionholder and the Company regarding this option
award and supersede all prior oral and written agreements, promises and/or representations on that subject with the exception of (i) options
previously granted and delivered to Optionholder and (ii) any compensation recovery policy that is adopted by the Company or is otherwise
required by applicable law.
By accepting this option, Optionholder consents to receive such documents by electronic delivery and to participate in the Plan through an on-
line or electronic system established and maintained by the Company or a third party designated by the Company.
ROKU, INC.
OPTIONHOLDER:
By:____________________________________
_______________________________________
Signature
Signature
Title:___________________________________
Date:___________________________________
Date:___________________________________
By providing an additional signature below or by electronically accepting this Agreement pursuant to the Company’s instructions to
Optionholder (including through an online acceptance process), Optionholder declares that he or she expressly agrees with the data
processing practices described in Section 12 of the Agreement and consents to the collection, processing and use of Data (as defined in
Section 12 of the Agreement) by the Company and the transfer of Data to the recipients mentioned in Section 12 of the Agreement,
including recipients located in countries which do not provide an adequate level of protection from a European (or other non-U.S.) data
protection law perspective, for the purposes described in Section 12 of the Agreement. Optionee understands that, as a condition of
receiving the option, Optionholder must provide his or her signature below or electronically accept this option, otherwise the Company
may forfeit the option. Optionholder understands that he or she may withdraw consent at any time with future effect for any or no
reason as described in Section 12 of the Agreement.
OPTIONHOLDER:
________________________________________
Signature
ATTACHMENTS: Agreement, 2017 Equity Incentive Plan, and Notice of Exercise
2
ATTACHMENT I
ROKU, INC.
2017 EQUITY INCENTIVE PLAN
OPTION AGREEMENT
(NONSTATUTORY STOCK OPTION)
Pursuant to your Stock Option Grant Notice (“Stock Option Grant Notice”) and this Option Agreement (this
“Agreement”), Roku, Inc. (the “Company”) has granted you an option under its 2017 Equity Incentive Plan (the “Plan”) to
purchase the number of shares of the Company’s Common Stock indicated in your Stock Option Grant Notice at the exercise price
indicated in your Stock Option Grant Notice. The option is granted to you effective as of the date of grant set forth in the Stock
Option Grant Notice (the “Date of Grant”). If there is any conflict between the terms in this Agreement and the Plan, the terms of
the Plan will control. Capitalized terms not explicitly defined in this Agreement or in the Stock Option Grant Notice but defined in
the Plan will have the same definitions as in the Plan.
The details of your option, in addition to those set forth in the Stock Option Grant Notice and the Plan, are as follows:
1.
VESTING. Your option will vest as provided in your Stock Option Grant Notice. Vesting will cease upon the
termination of your Continuous Service as a Non-Employee Director, as described in Section 6 below.
2.
NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and
your exercise price per share in your Stock Option Grant Notice will be adjusted for Capitalization Adjustments.
3.
METHOD OF PAYMENT. You must pay the full amount of the exercise price for the shares you wish to
exercise. You may pay the exercise price in cash or by check, bank draft, wire transfer or money order payable to the Company or
in any other manner permitted by your Stock Option Grant Notice, which may include one or more of the following:
(a)
Provided that at the time of exercise the Common Stock is publicly traded, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results
in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price
to the Company from the sales proceeds. This manner of payment is also known as a “broker-assisted exercise”, “same day sale”,
or “sell to cover,”
(b)
Provided that at the time of exercise the Common Stock is publicly traded, by delivery to the
Company (either by actual delivery or attestation) of already-owned shares of Common Stock that are owned free and clear of any
liens, claims, encumbrances or security interests, and whose Fair Market Value is equal to the aggregate exercise price on the date
of exercise. “Delivery” for these purposes, in the sole discretion of the Company at the time you exercise your option, will include
delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the
Company. You may not exercise your option
1
by delivery to the Company of Common Stock if doing so would violate the provisions of any law, regulation or agreement
restricting the redemption of the Company’s stock.
4.
WHOLE SHARES. You may exercise your option only for whole shares of Common Stock.
5.
COMPLIANCE. In no event may you exercise your option unless the shares of Common Stock issuable upon
exercise are then registered under the Securities Act or, if not registered, the Company has determined that your exercise and the
issuance of the shares would be exempt from the registration requirements of the Securities Act. The exercise of your option also
must comply with all other applicable laws and regulations governing your option, including any U.S. and non-U.S. state, federal
and local laws, and you may not exercise your option if the Company determines that such exercise would not be in material
compliance with such laws and regulations (including any restrictions on exercise required for compliance with Treas. Reg.
1.401(k)-1(d)(3), if applicable).
6.
TERM. You may not exercise your option before the Date of Grant or after the expiration of the option’s
term. The term of your option expires, subject to the provisions of Section 5(h) of the Plan, upon the earliest of the following:
(a)
(b)
(c)
immediately upon the termination of your Continuous Service for Cause;
the Expiration Date indicated in your Stock Option Grant Notice; and
the day before the tenth (10th) anniversary of the Date of Grant.
For purposes of your option, your Continuous Service will be considered terminated (regardless of the reason of
termination, whether or not later found to be invalid or in breach of employment or other laws or rules in the jurisdiction where you
are providing services or the terms of your employment or service agreement, if any) effective as of the date that you cease to
actively provide services to the Company as a Non-Employee Director and will not be extended by any notice period (e.g.,
employment or service would not include any contractual notice period or any period of “garden leave” or similar period mandated
under employment or other laws in the jurisdiction where you are employed or providing services or the terms of your employment
or service agreement, if any). The Board shall have exclusive discretion to determine when you are no longer actively employed or
providing services for purposes of the Plan (including whether you still may be considered to be providing services while on a
leave of absence).
7.
EXERCISE.
(a)
You may exercise the vested portion of your option during its term by (i) delivering a Notice of
Exercise (in a form designated by the Company) or completing such other documents and/or procedures designated by the
Company for exercise and (ii) paying the exercise price and any applicable Tax-Related Items (as defined in Section 9 below) to
the Company’s Secretary, stock plan administrator, or such other person as the Company may designate, together with such
additional documents as the Company may then require.
2
may require you to enter into an arrangement providing for the payment by you to the Company of any Tax-Related Items.
(b)
By exercising your option you agree that, as a condition to any exercise of your option, the Company
8.
TRANSFERABILITY. Except as otherwise provided in this Section 8, your option is not transferable, except by will
or by the laws of descent and distribution, and is exercisable during your life only by you.
(a)
Certain Trusts. Upon receiving written permission from the Board or its duly authorized designee,
you may transfer your option to a trust if you are considered to be the sole beneficial owner (determined under Section 671 of the
Code and applicable U.S. state law, or comparable non-U.S. laws) while the option is held in the trust. You and the trustee must
enter into transfer and other agreements required by the Company.
(b)
Domestic Relations Orders. Upon receiving written permission from the Board or its duly
authorized designee, and provided that you and the designated transferee enter into transfer and other agreements required by the
Company, you may transfer your option pursuant to the terms of a domestic relations order, official marital settlement agreement or
other divorce or separation instrument as permitted by Treasury Regulation 1.421-1(b)(2), or comparable non-U.S. law, that
contains the information required by the Company to effectuate the transfer. You are encouraged to discuss the proposed terms of
any division of this option with the Company prior to finalizing the domestic relations order or marital settlement agreement to
help ensure the required information is contained within the domestic relations order or marital settlement agreement.
(c)
Beneficiary Designation. Upon receiving written permission from the Board or its duly authorized
designee, you may, by delivering written notice to the Company, in a form approved by the Company and any broker designated by
the Company to handle option exercises, designate a third party who, on your death, will thereafter be entitled to exercise this
option and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation,
your executor or administrator of your estate or your legal heirs will be entitled to exercise this option and receive, on behalf of
your estate, the Common Stock or other consideration resulting from such exercise.
9.
RESPONSIBILITY FOR TAXES.
(a)
You acknowledge that, regardless of any action the Company or, if different, your employer (the
“Employer”) takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit tax, payment on account or
other tax related items related to your participation in the Plan and legally applicable to you (“Tax-Related Items”), the ultimate
liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company
or the Employer, if any. You further acknowledge that the Company and the Employer (i) make no representations or undertakings
regarding the treatment of any Tax-Related Items in connection with any aspect of your option, including, but not limited to, the
grant, vesting or exercise of your option, the subsequent sale of shares of Common Stock acquired pursuant to such exercise and
the issuance of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect
of your option to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax result. You acknowledge
and
3
agree that you will not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates for Tax-
Related Items arising from your option. In particular, you acknowledge that this option is exempt from Section 409A of the Code
only if the exercise price per share specified in the Grant Notice is at least equal to the “fair market value” per share of the
Common Stock on the Date of Grant and there is no other impermissible deferral of compensation associated with the
option. Further, if you are subject to Tax-Related Items in more than one jurisdiction, you acknowledge that the Company and/or
the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one
jurisdiction.
(b)
Prior to the relevant taxable or tax withholding event, as applicable, you agree to make adequate
arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, you authorize the
Company and/or the Employer, or their respective agents, at their discretion, to satisfy their withholding obligations with regard to
all Tax-Related Items by: (i) withholding from your wages or other cash compensation paid to you by the Company and/or the
Employer, (ii) withholding from the proceeds of the sale of shares of Common Stock acquired at exercise of your option and sold
either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization
without further consent); and/or (iii) withholding a number of shares of Common Stock that are otherwise deliverable to you upon
exercise.
(c)
Depending on the withholding method, the Company or the Employer may withhold or account for
Tax-Related Items by considering applicable statutory withholding amounts or other applicable withholding rates, including
maximum applicable rates, in which case you may receive a refund of any over-withheld amount in cash and will have no
entitlement to the Common Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding a number of
shares of Common Stock, for tax purposes, you are deemed to have been issued the full number of shares of Common Stock,
notwithstanding that a number of the shares of Common Stock is held back solely for the purpose of paying the Tax-Related Items.
(d)
You agree to pay to the Company or the Employer any amount of Tax-Related Items that the
Company or the Employer may be required to withhold or account for as a result of your participation in the Plan that cannot be
satisfied by the means previously described. You acknowledge and agree that the Company may refuse to honor the exercise and
refuse to issue or deliver the shares of Common Stock, or the proceeds of the sale of the shares of Common Stock, if you fail to
comply with your obligations in connection with the Tax-Related Items.
10.
NATURE OF GRANT. In accepting your option, you acknowledge, understand and agree that:
modified, amended, suspended or terminated by the Company at any time, to the extent permitted under the Plan;
(a)
the Plan is established voluntarily by the Company, it is discretionary in nature and it may be
the grant of this option is exceptional, voluntary and occasional and does not create any contractual
or other right to receive future grants of options (whether on the same or different terms), or benefits in lieu of options, even if
options have been granted in the past;
(b)
4
Company;
(c)
(d)
(e)
all decisions with respect to future options or other grants, if any, will be at the sole discretion of the
you are voluntarily participating in the Plan;
this option and the shares of Common Stock subject to this option, and the income and value of
same, are not intended to replace any pension rights or compensation;
and cannot be predicted with certainty;
(f)
the future value of the shares of Common Stock underlying the option is unknown, indeterminable,
(g)
(h)
if the underlying shares of Common Stock do not increase in value, the option will have no value;
if you exercise the option and acquire shares of Common Stock, the value of such shares of
Common Stock may increase or decrease in value, even below the exercise price;
(i)
no claim or entitlement to compensation or damages shall arise from forfeiture of this option
resulting from the termination of your Continuous Service (for any reason whatsoever, whether or not later found to be invalid or in
breach of employment laws in the jurisdiction where you are employed or rendering services or the terms of your employment or
service agreement, if any);
(j)
unless otherwise provided in the Plan or by the Company in its discretion, the option and the benefits
evidenced by this Agreement do not create any entitlement to have the option or any such benefits transferred to, or assumed by,
another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the
shares of Common Stock;
(k)
the option and the shares of Common Stock subject to the option, and the income from and value of
same, are not part of normal or expected compensation for purposes of, including, without limitation, calculating any severance,
resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or
welfare benefits or similar payments;
unless otherwise agreed with the Company, this option and any shares of Common Stock acquired
under the Plan, and the income from and value of same, are not granted as consideration for, or in connection with, the service you
may provide as a director of an Affiliate; and
(l)
States:
(m)
The following provisions apply only if you are employed or rendering services outside the United
value of same, are not part of normal or expected compensation for any purpose; and
(i)
the option and the shares of Common Stock subject to the option, and the income from and
5
neither the Company, the Employer nor any other Affiliate shall be liable for any foreign
exchange rate fluctuation between your local currency and the United States Dollar that may affect the value of the option or of any
amounts due to you pursuant to the vesting or exercise of the option or the subsequent sale of any shares of Common Stock
acquired upon exercise of the option.
(ii)
11.
NO ADVICE REGARDING GRANT. The Company is not providing any tax, legal or financial advice, nor is the
Company making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying
shares of Common Stock. You are hereby advised to consult with your own personal tax, legal and financial advisors regarding
your participation in the Plan before taking any action related to the Plan.
12.
DATA PRIVACY. As per standard Human Resources practices in the United States, the Company and the
Employer process certain personal information about you for a number of purposes in connection with your services, including
the implementing, administering and managing of the Plan. The personal information that we process in connection with the
Plan typically includes your name, home address and telephone number, email address, date of birth, social insurance, passport
or other identification number, compensation, nationality, job title, any shares of Common Stock or directorships held in the
Company, details of all options or any other entitlement to shares of Common Stock or equivalent benefits awarded, canceled,
exercised, vested, unvested or outstanding in your favor (“Data”). The Company will process the Data only as long as is
necessary to implement, administer and manage your participation in the Plan, or as required to comply with legal or
regulatory obligations, including under tax, exchange control, labor and securities laws.
Stock Plan Administration Service Providers. The Company will disclose Data to E*TRADE Financial Corporate
Services, Inc. (including its affiliated companies) (collectively, the “Designated Broker”), which is assisting the Company with
the implementation, administration and management of the Plan. The Company may select different or additional service
providers in the future and share Data with such other provider(s) serving in a similar manner. The Designated Broker may
require you to enter into additional terms or provide you with additional notice about their handling of your personal
practices
about
both. For more
information,
https://us.etrade.com/l/f/privacy-statement.
the Designated Broker's
information
privacy
data
or
For more information about the Company and Employer’s processing of your personal information, including
information about your rights over the Data, please refer to Roku Human Resources.
13.
RIGHT OF REPURCHASE. The Company will have the right to repurchase all of the shares of Common Stock you
acquire pursuant to the exercise of your option upon termination of your Continuous Service for Cause. Such repurchase will be at
the exercise price you paid to acquire the shares and will be effected pursuant to such other terms and conditions, and at such time,
as the Company will determine.
14.
OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your
option will be deemed to create in any way whatsoever any obligation
6
on your part to continue in the service of the Company, or of the Company to continue your service. In addition, nothing in your
option will obligate the Company or an Affiliate, their respective stockholders, boards of directors, officers or employees to
continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate. Finally, the grant of the
option shall not be interpreted as forming an employment or service contract with the Company.
15.
NOTICES. Any notice or request required or permitted hereunder will be given in writing to each of the other
parties hereto and will be deemed effectively given on the earlier of (i) the date of personal delivery, (ii) delivery via electronic
means, or (ii) for deliveries within the U.S., the date that is five (5) days after deposit in the United States Post Office (whether or
not actually received by the addressee), by registered or certified mail with postage and fees prepaid, addressed to the Company at
its primary executive offices, attention: Stock Plan Administrator, and addressed to you at your address as on file with the
Company at the time notice is given, (iv) for deliveries outside the United States, the date that is seven (7) days after deposit with
the applicable jurisdiction’s official mail service, with postage and fees prepaid, or (v) the date that is one (1) day after deposit with
a reputable overnight courier, with shipping charges prepaid.
16.
GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the Plan, the provisions of which
are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may
from time to time be promulgated and adopted pursuant to the Plan. If there is any conflict between the provisions of your option
and those of the Plan, the provisions of the Plan will control. In addition, your option (and any compensation paid or shares issued
under your option) is subject to recoupment in accordance with The U.S. Dodd–Frank Wall Street Reform and Consumer
Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation
recovery policy otherwise required by applicable law. No recovery of compensation under such a clawback policy will be an event
giving rise to a right to voluntarily terminate employment upon a resignation for “good reason,” or for a “constructive termination”
or any similar term under any plan of or agreement with the Company.
17.
OTHER DOCUMENTS. You hereby acknowledge receipt of and the right to receive a document providing the
information required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you
acknowledge receipt of the Company’s policy permitting certain individuals to sell shares only during certain “window” periods
and the Company’s insider trading policy, in effect from time to time.
18.
VOTING RIGHTS. You will not have voting or any other rights as a shareholder of the Company with respect to
the shares to be issued pursuant to this option until such shares are issued to you. Upon such issuance, you will obtain full voting
and other rights as a shareholder of the Company. Nothing contained in this option, and no action taken pursuant to its provisions,
will create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other
person.
19.
SEVERABILITY. If all or any part of this Agreement or the Plan is declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Agreement or the Plan
not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or
invalid shall, if
7
possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent
possible while remaining lawful and valid.
20.
LANGUAGE. If you have received this Agreement, or any other document related to this option and/or the Plan
translated into a language other than English and if the meaning of the translated version is different than the English version, the
English version will control. You acknowledge that you are sufficiently proficient in English, or have consulted with an advisor
who is sufficiently proficient in English, so as to allow you to understand the terms and conditions of this Agreement.
21.
INSIDER TRADING RESTRICTIONS/MARKET ABUSE LAWS. You may be subject to insider trading restrictions and/or
market abuse laws based on the exchange on which the shares of Common Stock are listed and in applicable jurisdictions,
including the U.S. and your country or your broker’s country, if different, which may affect your ability to accept, acquire, sell or
otherwise dispose of shares of Common Stock, rights to shares of Common Stock (e.g., options) or rights linked to the value of
shares of Common Stock during such times as you are considered to have “inside information” regarding the Company (as defined
by the laws in applicable jurisdictions). Local insider trading laws and regulations may prohibit the cancellation or amendment of
orders you placed before you possessed inside information. Furthermore, you could be prohibited from (i) disclosing the inside
information to any third party, which may include Company employees, and (ii) “tipping” third parties or causing them otherwise
to buy or sell securities. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that
may be imposed under any applicable insider trading policy of the Company. You acknowledge that it is your responsibility to
comply with any applicable restrictions and you should speak with your personal legal advisor on this matter.
22.
FOREIGN ASSET/ACCOUNT AND TAX REPORTING, EXCHANGE CONTROLS. Your country may have certain foreign
asset, account and/or tax reporting requirements and exchange controls which may affect your ability to acquire or hold shares of
Common Stock under the Plan or cash received from participating in the Plan (including from any dividends received or sale
proceeds arising from the sale of shares of Common Stock) in a brokerage or bank account outside your country. You understand
that you may be required to report such accounts, assets or transactions to the tax or other authorities in your country. You also
may be required to repatriate sale proceeds or other funds received as a result of participation in the Plan to your country through a
designated bank or broker and/or within a certain time after receipt. In addition, you may be subject to tax payment and/or
reporting obligations in connection with any income realized under the Plan and/or from the sale of shares of Common Stock. You
acknowledge that you are responsible for complying with all such requirements, and that you should consult personal legal and tax
advisors, as applicable, to ensure compliance.
23.
IMPOSITION OF OTHER REQUIREMENTS. The Company reserves the right to impose other requirements on your
participation in the Plan, and on any shares of Common Stock acquired under the Plan, to the extent the Company determines it is
necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that
may be necessary to accomplish the foregoing.
8
24.
GOVERNING LAW/VENUE. The interpretation, performance and enforcement of this Agreement will be governed
by the law of the State of Delaware without regard to that state’s conflicts of laws rules. For purposes of any action, lawsuit or
other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to
the sole and exclusive jurisdiction of the courts within Santa Clara County, State of California, and no other courts, where this
grant is made and/or to be performed.
25.
MISCELLANEOUS.
The rights and obligations of the Company under your option will be transferable to any one or more persons
or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by the Company’s successors and
assigns.
(a)
determination of the Company to carry out the purposes or intent of your option.
(b)
You agree upon request to execute any further documents or instruments necessary or desirable in the sole
obtain the advice of counsel prior to executing and accepting your option, and fully understand all provisions of your option.
(c)
You acknowledge and agree that you have reviewed your option in its entirety, have had an opportunity to
All obligations of the Company under the Plan and this Agreement will be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.
(d)
***
This Agreement will be deemed to be signed by you upon the signing by you or otherwise by your acceptance of the
Grant Notice to which it is attached.
9
ROKU, INC.
RESTRICTED STOCK UNIT GRANT NOTICE
(2017 EQUITY INCENTIVE PLAN)
Exhibit 10.14
Roku, Inc. (the “Company”), pursuant to its 2017 Equity Incentive Plan (the “Plan”), hereby awards to Participant a Restricted Stock Unit
Award for the number of shares of the Company’s Common Stock (“Restricted Stock Units”) set forth below (the “Award”). The Award is
subject to all of the terms and conditions as set forth in this notice of grant (this “Restricted Stock Unit Grant Notice”) and the Restricted Stock
Unit Award Agreement (the “Award Agreement”), and in the Plan, all of which are attached hereto and incorporated herein in their entirety.
Capitalized terms not otherwise defined herein will have the meanings set forth in the Plan or the Award Agreement. In the event of any
conflict between the terms in this Restricted Stock Unit Grant Notice, the Award Agreement and/or the Plan, the terms of the Plan will control.
Participant:
Date of Grant:
_____________________________________
_____________________________________
Vesting Commencement Date:
_____________________________________
Number of Restricted Stock Units/Shares:
_____________________________________
Vesting Schedule:
[Initial Grant:] [100% of the Number of Restricted Stock Unit/Shares shall vest in full on the date of the first
annual meeting of the Company’s stockholders following the Vesting Commencement Date, subject to
Participant’s Continuous Service as a Non-Employee Director through such vesting date.] [Annual Grant:]
[100% of the Number of Restricted Stock Unit/Shares shall vest in full on the earlier of the next annual
meeting of the Company’s stockholders following the Vesting Commencement Date or the first anniversary of
the Vesting Commencement Date, subject to Participant’s Continuous Service as a Non-Employee Director
through such vesting date.]
Notwithstanding the foregoing, the vesting of the Restricted Stock Units shall accelerate in full effective
immediately prior to the consummation of a Change in Control, subject to Participant’s Continuous Service as
a Non-Employee Director through such time.
Issuance Schedule:
The shares of Common Stock to be issued in respect of the Award will be issued in accordance with the
issuance schedule set forth in Section 6 of the Award Agreement.
Additional Terms/Acknowledgements: Participant acknowledges receipt of, and understands and agrees to all of the terms and conditions set
forth in this Restricted Stock Unit Grant Notice, the Award Agreement and the Plan. Participant acknowledges and agrees that this Restricted
Stock Unit Grant Notice and the Award Agreement may not be modified, amended or revised except as provided in the Award Agreement and
the Plan. Participant further acknowledges that as of the Date of Grant, this Restricted Stock Unit Grant Notice, the Award Agreement and the
Plan set forth the entire understanding between Participant and the Company regarding the acquisition of Common Stock pursuant to the
Award and supersede all prior oral and written agreements on that subject with the exception, if applicable, of (i) equity awards previously
granted and delivered to Participant and (ii) any compensation recovery policy that is adopted by the Company or is otherwise required by
applicable law.
By accepting this Award, Participant consents to receive such documents by electronic delivery and to participate in the Plan through an on-line
or electronic system established and maintained by the Company or a third party designated by the Company.
ROKU, INC.
PARTICIPANT
By:____________________________________
_______________________________________
Signature
Signature
Title:___________________________________
Date:___________________________________
Date:___________________________________
By providing an additional signature below or by electronically accepting this Award Agreement pursuant to the Company’s instructions
to Participant (including through an online acceptance process), Participant declares that he or she expressly agrees with the data
processing practices described in Section 14 of the Award Agreement and consents to the collection, processing and use of Data (as
defined in Section 14 of the Award Agreement) by the Company and the transfer of Data to the recipients mentioned in Section 14 of the
Award Agreement, including recipients located in countries which do not provide an adequate level of protection from a European (or
other non-U.S.) data protection law perspective, for the purposes described in Section 14 of the Award Agreement. Participant
understands that, as a condition of receiving the Award, Participant must provide his or her signature below or electronically accept this
Award, otherwise the Company may forfeit the Restricted Stock Units. Participant understands that he or she may withdraw consent at
any time with future effect for any or no reason as described in Section 14 of the Award Agreement.
PARTICIPANT:
________________________________________
Signature
ATTACHMENTS:
Award Agreement and 2017 Equity Incentive Plan
ATTACHMENT I
ROKU, INC.
2017 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to the Restricted Stock Unit Grant Notice (the “Grant Notice”) and this Restricted Stock Unit Agreement (the “Award
Agreement”) Roku, Inc. (the “Company”) has awarded you a Restricted Stock Unit Award (the “Award”) pursuant to Section 6 of the
Company’s 2017 Equity Incentive Plan (the “Plan”) for the number of Restricted Stock Units/shares indicated in the Grant Notice. Capitalized
terms not explicitly defined in this Award Agreement or the Grant Notice will have the same meanings given to them in the Plan. The terms of
your Award, in addition to those set forth in the Grant Notice and the Plan, are as follows.
1.
GRANT OF THE AWARD. This Award represents the right to be issued on a future date one (1) share of Common Stock for
each Restricted Stock Unit that vests on the applicable vesting date(s) (subject to any adjustment under Section 3 below) as indicated in the
Grant Notice. As of the Date of Grant, the Company will credit to a bookkeeping account maintained by the Company, or a third party
designated by the Company, for your benefit (the “Account”) the number of Restricted Stock Units/shares of Common Stock subject to the
Award. Except as otherwise provided herein, you will not be required to make any payment to the Company or an Affiliate with respect to your
receipt of the Award, the vesting of the Restricted Stock Units or the delivery of the Company’s Common Stock to be issued in respect of the
Award. Notwithstanding the foregoing, the Company reserves the right to issue you the cash equivalent of Common Stock, in part or in full
satisfaction of the delivery of Common Stock upon vesting of your Restricted Stock Units, and, to the extent applicable, references in this
Award Agreement and the Grant Notice to Common Stock issuable in connection with your Restricted Stock Units will include the potential
issuance of its cash equivalent pursuant to such right.
2.
VESTING. Subject to the limitations contained herein, your Award will vest, if at all, in accordance with the vesting
schedule provided in the Grant Notice, provided that vesting will cease upon the termination of your Continuous Service as a Non-Employee
Director. Upon such termination of your Continuous Service as a Non-Employee Director, the Restricted Stock Units/shares of Common Stock
credited to the Account that were not vested on the date of such termination will be forfeited at no cost to the Company and you will have no
further right, title or interest in or to such underlying shares of Common Stock.
For purposes of your Award, your Continuous Service will be considered terminated (regardless of the reason of termination,
whether or not later found to be invalid or in breach of employment or other laws or rules in the jurisdiction where you are providing services
or the terms of your employment or service agreement, if any) effective as of the date that you cease to actively provide services to the
Company as a Non-Employee Director will not be extended by any notice period (e.g., employment or service would not include any
contractual notice period or any period of “garden leave” or similar period mandated under employment or other laws in the jurisdiction where
you are employed or providing services or the terms of your employment or service agreement, if any). The Board shall have exclusive
discretion to determine when you are no longer providing Continuous Service as a Non-Employee Director for purposes of the Plan (including
whether you still may be considered to be providing services while on a leave of absence).
3.
NUMBER OF SHARES. The number of Restricted Stock Units/shares subject to your Award may be adjusted from time to
time for Capitalization Adjustments, as provided in the Plan. Any additional Restricted Stock Units, shares, cash or other property that become
subject to the Award pursuant to this Section 3, if any, will be subject, in a manner determined by the Board, to the same forfeiture restrictions,
restrictions on transferability, and time and manner of delivery as applicable to the other Restricted Stock Units and shares covered by your
Award. Notwithstanding the provisions of this Section 3, no fractional
1
shares or rights for fractional shares of Common Stock will be created pursuant to this Section 3. Any fraction of a share will be rounded down
to the nearest whole share.
4.
COMPLIANCE. You may not be issued any Common Stock under your Award unless the shares of Common Stock
underlying the Restricted Stock Units are either (i) then registered under the Securities Act, or (ii) the Company has determined that such
issuance would be exempt from the registration requirements of the Securities Act. Your Award must also comply with other applicable laws
and regulations governing the Award, including any U.S. and non-U.S. state, federal and local laws, and you will not receive such Common
Stock if the Company determines that such receipt would not be in material compliance with such laws and regulations.
5.
TRANSFER RESTRICTIONS. Prior to the time that shares of Common Stock have been delivered to you, you may not transfer,
pledge, sell or otherwise dispose of this Award or the shares issuable in respect of your Award, except as expressly provided in this Section 5.
For example, you may not use shares that may be issued in respect of your Restricted Stock Units as security for a loan. The restrictions on
transfer set forth herein will lapse upon delivery to you of shares in respect of your vested Restricted Stock Units. Notwithstanding the
foregoing, if permitted by the Company, by delivering written notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, will thereafter be entitled to receive any distribution of Common Stock to which you
were entitled at the time of your death pursuant to this Award Agreement. In the absence of such a designation, your legal representative will
be entitled to receive, on behalf of your estate, such Common Stock or other consideration.
Death. Your Award is transferable by will and by the laws of descent and distribution. At your death, vesting
of your Award will cease and your executor or administrator of your estate will be entitled to receive, on behalf of your estate, any Common
Stock or other consideration that vested but was not issued before your death.
(a)
(b)
Domestic Relations Orders. Upon receiving written permission from the Board or its duly authorized
designee, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may
transfer your right to receive the distribution of Common Stock or other consideration hereunder, pursuant to a domestic relations order, official
marital settlement agreement or other divorce or separation instrument that contains the information required by the Company to effectuate the
transfer. You are encouraged to discuss the proposed terms of any division of this Award with the Company General Counsel prior to finalizing
the domestic relations order or marital settlement agreement to verify that you may make such transfer, and if so, to help ensure the required
information is contained within the domestic relations order or marital settlement agreement.
6.
DATE OF ISSUANCE.
(a)
The issuance of shares in respect of the Restricted Stock Units is intended to comply with Treasury
Regulations Section 1.409A-1(b)(4) and will be construed and administered in such a manner. Subject to the satisfaction any withholding
obligation for Tax-Related Items (as defined in Section 10 below), in the event one or more Restricted Stock Units vests, the Company will
issue to you one (1) share of Common Stock for each Restricted Stock Unit that vests on the applicable vesting date(s) (subject to any
adjustment under Section 3 above, and subject to any different provisions in the Grant Notice). The issuance date determined by this paragraph
is referred to as the “Original Issuance Date”.
following business day. In addition, if:
(b)
If the Original Issuance Date falls on a date that is not a business day, delivery will instead occur on the next
as determined by the Company in accordance with the Company’s then-effective
(i)
the Original Issuance Date does not occur (1) during an “open window period” applicable to you,
2
policy on trading in Company securities, or (2) on a date when you are otherwise permitted to sell shares of Common Stock on an established
stock exchange or stock market (including but not limited to under a previously established written trading plan that meets the requirements of
Rule 10b5-1 under the Exchange Act and was entered into in compliance with the Company’s policies (a “10b5-1 Plan”)), and
(ii)
either (1) withholding obligations for Tax-Related Items (as defined in Section 10 below) do not
apply, or (2) the Company decides, prior to the Original Issuance Date, (A) not to satisfy the withholding obligation for Tax-Related Items (as
defined in Section 10 below) by withholding shares of Common Stock from the shares otherwise due, on the Original Issuance Date, to you
under this Award, and (B) not to permit you to enter into a “same day sale” commitment with a broker-dealer pursuant to Section 10 of this
Award Agreement (including but not limited to a commitment under a 10b5-1 Plan) and (C) not to permit you to pay the Tax-Related Items in
cash or from other compensation otherwise payable to you by the Company (as defined in Section 10 below), then the shares that would
otherwise be issued to you on the Original Issuance Date will not be delivered on such Original Issuance Date and will instead be delivered on
the first business day when you are not prohibited from selling shares of the Company’s Common Stock in the open public market, but in no
event later than December 31 of the calendar year in which the Original Issuance Date occurs (that is, the last day of your taxable year in which
the Original Issuance Date occurs), or, if and only if permitted in a manner that complies with Treasury Regulations Section 1.409A-1(b)(4), no
later than the date that is the 15th day of the third calendar month of the applicable year following the year in which the shares of Common
Stock under this Award are no longer subject to a “substantial risk of forfeiture” within the meaning of Treasury Regulations Section 1.409A-
1(d).
electronic entry evidencing such shares) will be determined by the Company.
(c)
The form of delivery of the shares of Common Stock in respect of your Award (e.g., a stock certificate or
7.
DIVIDENDS. You will receive no benefit or adjustment to your Award with respect to any cash dividend, stock dividend or
other distribution that does not result from a Capitalization Adjustment; provided, however, that this sentence will not apply with respect to any
shares of Common Stock that are delivered to you in connection with your Award after such shares have been delivered to you.
8.
RESTRICTIVE LEGENDS. The shares of Common Stock issued under your Award will be endorsed with appropriate legends
as determined by the Company.
9.
EXECUTION OF DOCUMENTS. You hereby acknowledge and agree that the manner selected by the Company by which you
indicate your consent to your Grant Notice is also deemed to be your execution of your Grant Notice and of this Award Agreement. You further
agree that such manner of indicating consent may be relied upon as your signature for establishing your execution of any documents to be
executed in the future in connection with your Award.
10.
RESPONSIBILITY FOR TAXES.
(a)
You acknowledge that, regardless of any action the Company or, if different, your employer (the “Employer”)
takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit tax, payment on account or other tax related items
related to your participation in the Plan and legally applicable to you (“Tax-Related Items”), the ultimate liability for all Tax-Related Items is
and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer, if any. You further
acknowledge that the Company and the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related
Items in connection with any aspect of your Restricted Stock Units, including, but not limited to, the grant of the Restricted Stock Units, the
vesting and settlement of the Restricted Stock Units, the delivery or sale of any shares of Common Stock and the issuance of any dividends,
and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of your Award to reduce or eliminate your
liability for Tax-Related Items or achieve
3
any particular tax result. You acknowledge and agree that you will not make any claim against the Company, or any of its Officers, Directors,
Employees or Affiliates for Tax-Related Items arising from your Award. Further, if you are subject to Tax-Related Items in more than one
jurisdiction, you acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or
account for Tax-Related Items in more than one jurisdiction.
(b)
Prior to the relevant taxable or tax withholding event, as applicable, you agree to make adequate arrangements
satisfactorily to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, you authorize the Company and/or the
Employer, or their respective agents, at their discretion, to satisfy their withholding obligations with regard to all Tax-Related Items by: (i)
withholding from your wages or any other cash compensation otherwise payable to you by the Company and/or the Employer; (ii) causing you
to tender a cash payment; (iii) permitting or requiring you to enter into a “same day sale” commitment, if applicable, with a broker-dealer that
is a member of the Financial Industry Regulatory Authority (a “FINRA Dealer”) (pursuant to this authorization and without further consent)
whereby you irrevocably elect to sell a portion of the shares to be delivered in connection with your Restricted Stock Units to satisfy the Tax-
Related Items and whereby the FINRA Dealer irrevocably commits to forward the proceeds necessary to satisfy the Tax-Related Items directly
to the Company and its Affiliates; or (iv) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable
to you in connection with the Award with a Fair Market Value (measured as of the date shares of Common Stock are issued to you pursuant to
Section 6) equal to the amount of such Tax-Related Items; provided, however that if you are an Officer, then the Company will withhold a
number of shares of Common Stock upon the relevant taxable or tax withholding event, as applicable, unless the use of such withholding
method is not feasible under applicable law or has materially adverse accounting consequences, in which case, the obligation for Tax-Related
Items may be satisfied by one or a combination of methods (i)-(iii) above. The Company or the Employer may withhold or account for Tax-
Related Items by considering applicable statutory withholding amounts or other applicable withholding rates, including maximum applicable
rates, in which case you may receive a refund of any over-withheld amount in cash and will have no entitlement to the Common Stock
equivalent. If the obligation for Tax-Related Items is satisfied by withholding in a number of shares of Common Stock, for tax purposes, you
will be deemed to have been issued the full number of shares of Common Stock subject to the vested Restricted Stock Units, notwithstanding
that a number of the shares of Common Stock is held back solely for the purpose of paying the Tax-Related Items. However, the Company
does not guarantee that you will be able to satisfy the Tax-Related Items through any of the methods described in the preceding provisions and
in all circumstances you remain responsible for timely and fully satisfying the Tax-Related Items.
obligation to deliver to you any Common Stock or other consideration pursuant to this Award.
(c)
Unless the Tax-Related Items of the Company and any Affiliate are satisfied, the Company will have no
(d)
In the event the Company’s obligation to withhold arises prior to the delivery to you of Common Stock or it is
determined after the delivery of Common Stock to you that the amount of the Company’s withholding obligation was greater than the amount
withheld by the Company, you agree to indemnify and hold the Company harmless from any failure by the Company to withhold the proper
amount.
4
11.
AWARD NOT A SERVICE CONTRACT.
(a)
Your Continuous Service with the Company, the Employer or any other Affiliate is not for any specified term
and may be terminated by you or by the Company, the Employer or any other Affiliate at any time, for any reason, with or without cause and
with or without notice. Nothing in this Award Agreement (including, but not limited to, the vesting of your Award or the issuance of the shares
subject to your Award), the Plan or any covenant of good faith and fair dealing that may be found implicit in this Award Agreement or the Plan
will: (i) confer upon you any right to continue in the employ of, or affiliation with the Employer; (ii) constitute any promise or commitment by
the Company, the Employer or any other Affiliate regarding the fact or nature of future positions, future work assignments, future
compensation or any other term or condition of employment or affiliation; (iii) confer any right or benefit under this Award Agreement or the
Plan unless such right or benefit has specifically accrued under the terms of this Award Agreement or Plan; or (iv) deprive the Company or the
Employer of the right to terminate you at any time and without regard to any future vesting opportunity that you may have. Finally, the grant
of the Award shall not be interpreted as forming an employment or service contract with the Company.
(b)
By accepting this Award, you acknowledge and agree that the right to continue vesting in the Award is earned
only by continuing as a Non-Employee Director and that the Company has the right to reorganize, sell, spin-out or otherwise restructure one or
more of its businesses or Affiliates at any time or from time to time, as it deems appropriate (a “reorganization”). You further acknowledge
and agree that such a reorganization could result in the termination of your Continuous Service as a Non-Employee Director, including but not
limited to, the termination of the right to continue vesting in the Award. You further acknowledge and agree that this Award Agreement, the
Plan, the transactions contemplated hereunder and the vesting schedule set forth herein or any covenant of good faith and fair dealing that may
be found implicit in any of them do not constitute an express or implied promise of continued engagement as an employee or consultant for the
term of this Award Agreement, for any period, or at all, and will not interfere in any way with your right or the right of the Company, the
Employer or any other Affiliate to terminate your Continuous Service at any time, with or without cause and with or without notice, and will
not interfere in any way with the Company’s right to conduct a reorganization.
12.
NATURE OF GRANT. In accepting your Award, you acknowledge, understand and agree that:
amended, suspended or terminated by the Company at any time, to the extent permitted under the Plan;
(a)
the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified,
receive future Awards (whether on the same or different terms), or benefits in lieu of an Award, even if an Award has been granted in the past;
(b)
the Award is exceptional, voluntary and occasional and does not create any contractual or other right to
(c)
all decisions with respect to future awards of Restricted Stock Units or other grants, if any, will be at the sole
discretion of the Company;
(d)
(e)
be predicted with certainty;
you are voluntarily participating in the Plan;
the future value of the shares of Common Stock underlying the Award is unknown, indeterminable and cannot
no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from the
termination of your Continuous Service (for any reason whatsoever whether or not later found to be invalid or in breach of employment laws in
the jurisdiction where you are employed
(f)
5
or rendering services or the terms of your employment agreement, if any);
(g)
unless otherwise provided herein, in the Plan or by the Company in its discretion, the Award and the benefits
evidenced by this Award Agreement do not create any entitlement to have the Award or any such benefits transferred to, or assumed by,
another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of
Common Stock;
(h)
the Award and the shares of Common Stock subject to the Award, and the income from and value of same, are
not part of normal or expected compensation for purposes of, including, without limitation, calculating any severance, resignation, termination,
redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
and
unless otherwise agreed with the Company, the Award and the shares of Common Stock subject to the Award,
and the income from and value of same, are not granted as consideration for, or in connection with, the service you may provide as a director of
an Affiliate.
(i)
13.
NO ADVICE REGARDING GRANT. The Company is not providing any tax, legal or financial advice, nor is the Company
making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying shares of Common
Stock. You are hereby advised to consult with your own personal tax, legal and financial advisors regarding your participation in the Plan
before taking any action related to the Plan.
14.
DATA PRIVACY.
(a)
As set out in the Roku Privacy Notice for Employees and Contingent Workers (for European employees)
and as per standard Human Resources practices in the United States, the Company and the Employer process certain personal information
about you for a number of purposes in connection with your employment, including the implementing, administering and managing of the
Plan. The personal information that we process in connection with the Plan typically includes your name, home address and telephone
number, email address, date of birth, social insurance, passport or other identification number, salary, nationality, job title, any shares of
Common Stock or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to shares of Common
Stock or equivalent benefits awarded, canceled, exercised, vested, unvested or outstanding in your favor (“Data”). The Company will
process the Data only as long as is necessary to implement, administer and manage your participation in the Plan, or as required to comply
with legal or regulatory obligations, including under tax, exchange control, labor and securities laws.
Stock Plan Administration Service Providers. The Company will disclose Data to E*TRADE Financial Corporate Services, Inc.
(including its affiliated companies) (collectively, the “Designated Broker”), which is assisting the Company with the implementation,
administration and management of the Plan. The Company may select different or additional service providers in the future and share
Data with such other provider(s) serving in a similar manner. The Designated Broker may require you to enter into additional terms or
provide you with additional notice about their handling of your personal information, or both. For more information about the Designated
Broker's data privacy practices https://us.etrade.com/l/f/privacy-statement.
For more information about the Company and Employer's processing of your personal information,
including information about your rights over the Data, please refer to the Roku Privacy Notice for Employees and Contingent Workers (for
European employees) or Roku Human Resources in the United States.
(b)
15.
UNSECURED OBLIGATION. Your Award is unfunded, and as a holder of a vested Award, you will be considered an
unsecured creditor of the Company with respect to the Company’s obligation, if
6
any, to issue shares or other property pursuant to this Award Agreement. You will not have voting or any other rights as a stockholder of the
Company with respect to the shares to be issued pursuant to this Award Agreement until such shares are issued to you pursuant to Section 6 of
this Award Agreement. Upon such issuance, you will obtain full voting and other rights as a stockholder of the Company. Nothing contained in
this Award Agreement, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind or a fiduciary
relationship between you and the Company or any other person.
16.
NOTICES. Any notice or request required or permitted hereunder will be given in writing to each of the other parties
hereto and will be deemed effectively given on the earlier of (i) the date of personal delivery, (ii) delivery via electronic means, or (ii) for
deliveries within the U.S., the date that is five (5) days after deposit in the United States Post Office (whether or not actually received by the
addressee), by registered or certified mail with postage and fees prepaid, addressed to the Company at its primary executive offices, attention:
Stock Plan Administrator, and addressed to you at your address as on file with the Company at the time notice is given, (iv) for deliveries
outside the United States, the date that is seven (7) days after deposit with the applicable jurisdiction’s official mail service, with postage and
fees prepaid, or (v) the date that is one (1) day after deposit with a reputable overnight courier, with shipping charges prepaid.
17.
HEADINGS. The headings of the Sections in this Award Agreement are inserted for convenience only and will not be
deemed to constitute a part of this Award Agreement or to affect the meaning of this Award Agreement.
18.
GOVERNING PLAN DOCUMENT. Your Award is subject to all the provisions of the Plan, the provisions of which are hereby
made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be
promulgated and adopted pursuant to the Plan. Your Award (and any compensation paid or shares issued under your Award) is subject to
recoupment in accordance with The U.S. Dodd–Frank Wall Street Reform and Consumer Protection Act and any implementing regulations
thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. No
recovery of compensation under such a clawback policy will be an event giving rise to a right to voluntarily terminate employment upon a
resignation for “good reason,” or for a “constructive termination” or any similar term under any plan of or agreement with the Company.
19.
OTHER DOCUMENTS. You hereby acknowledge receipt of and the right to receive a document providing the information
required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you acknowledge receipt of
the Company’s policy permitting certain individuals to sell shares only during certain “window” periods and the Company’s insider trading
policy, in effect from time to time.
20.
SEVERABILITY. If all or any part of this Award Agreement or the Plan is declared by any court or governmental authority
to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Award Agreement or the Plan not declared to
be unlawful or invalid. Any Section of this Award Agreement (or part of such a Section) so declared to be unlawful or invalid will, if possible,
be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining
lawful and valid.
21.
LANGUAGE. If you have received this Award Agreement, or any other document related to this Award and/or the Plan
translated into a language other than English and if the meaning of the translated version is different than the English version, the English
version will control. You acknowledge that you are sufficiently proficient in English, or have consulted with an advisor who is sufficiently
proficient in English, so as to allow you to understand the terms and conditions of this Award Agreement.
7
22.
INSIDER TRADING RESTRICTIONS/MARKET ABUSE LAWS. You may be subject to insider trading restrictions and/or market
abuse laws based on the exchange on which the shares of Common Stock are listed and in applicable jurisdictions, including the United States
and your country or your broker’s country, if different, which may affect your ability to accept, acquire, sell or otherwise dispose of shares of
Common Stock, rights to shares of Common Stock (e.g., Restricted Stock Units) or rights linked to the value of shares of Common Stock
during such times as you are considered to have “inside information” regarding the Company (as defined by the laws in applicable
jurisdictions). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders you placed before you
possessed inside information. Furthermore, you could be prohibited from (i) disclosing the inside information to any third party, which may
include Company employees, and (ii) “tipping” third parties or causing them otherwise to buy or sell securities. Any restrictions under these
laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable insider trading policy of the
Company. You acknowledge that it is your responsibility to comply with any applicable restrictions and you should speak with your personal
legal advisor on this matter.
23.
FOREIGN ASSET/ACCOUNT AND TAX REPORTING, EXCHANGE CONTROLS. Your country may have certain foreign asset,
account and/or tax reporting requirements and exchange controls which may affect your ability to acquire or hold shares of Common Stock
under the Plan or cash received from participating in the Plan (including from any dividends received or sale proceeds arising from the sale of
shares of Common Stock) in a brokerage or bank account outside your country. You understand that you may be required to report such
accounts, assets or transactions to the tax or other authorities in your country. You also may be required to repatriate sale proceeds or other
funds received as a result of participation in the Plan to your country through a designated bank or broker and/or within a certain time after
receipt. In addition, you may be subject to tax payment and/or reporting obligations in connection with any income realized under the Plan
and/or from the sale of shares of Common Stock. You acknowledge that you are responsible for complying with all such requirements, and
that you should consult personal legal and tax advisors, as applicable, to ensure compliance.
24.
IMPOSITION OF OTHER REQUIREMENTS. The Company reserves the right to impose other requirements on your
participation in the Plan, and on any shares of Common Stock acquired under the Plan, to the extent the Company determines it is necessary or
advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to
accomplish the foregoing.
25.
GOVERNING LAW/VENUE. The interpretation, performance and enforcement of this Award Agreement will be governed by
the law of the State of Delaware without regard to that state’s conflicts of laws rules. For purposes of any action, lawsuit or other proceedings
brought to enforce this Award Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive
jurisdiction of the courts within Santa Clara County, State of California, and no other courts, where this grant is made and/or to be performed.
26.
MISCELLANEOUS.
The rights and obligations of the Company under your Award will be transferable by the Company to any one
or more persons or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by, the Company’s
successors and assigns.
(a)
determination of the Company to carry out the purposes or intent of your Award.
(b)
You agree upon request to execute any further documents or instruments necessary or desirable in the sole
obtain the advice of counsel prior to executing and accepting your Award and fully understand all provisions of your Award.
(c)
You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to
8
All obligations of the Company under the Plan and this Award Agreement will be binding on any successor to
the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and assets of the Company.
(d)
27.
AMENDMENT. This Award Agreement may not be modified, amended or terminated except by an instrument in writing,
signed by you and by a duly authorized representative of the Company. Notwithstanding the foregoing, this Award Agreement may be
amended solely by the Board by a writing which specifically states that it is amending this Award Agreement, so long as a copy of such
amendment is delivered to you, and provided that, except as otherwise expressly provided in the Plan, no such amendment materially adversely
affecting your rights hereunder may be made without your written consent. Without limiting the foregoing, the Board reserves the right to
change, by written notice to you, the provisions of this Award Agreement in any way it may deem necessary or advisable to carry out the
purpose of the Award as a result of any change in applicable laws or regulations or any future law, regulation, ruling, or judicial decision,
provided that any such change will be applicable only to rights relating to that portion of the Award which is then subject to restrictions as
provided herein.
28.
COMPLIANCE WITH SECTION 409A OF THE CODE. This Award is intended to comply with the “short-term deferral” rule set
forth in Treasury Regulation Section 1.409A-1(b)(4). Notwithstanding the foregoing, if it is determined that the Award fails to satisfy the
requirements of the short-term deferral rule and is otherwise deferred compensation subject to Section 409A, and if you are a “Specified
Employee” (within the meaning set forth in Section 409A(a)(2)(B)(i) of the Code) as of the date of your “separation from service” (within the
meaning of Treasury Regulation Section 1.409A-1(h) and without regard to any alternative definition thereunder), then the issuance of any
shares that would otherwise be made upon the date of the separation from service or within the first six (6) months thereafter will not be made
on the originally scheduled date(s) and will instead be issued in a lump sum on the earlier of: (i) the fifth business day following your death, or
(ii) the date that is six (6) months and one day after the date of the separation from service, with the balance of the shares issued thereafter in
accordance with the original vesting and issuance schedule set forth above, but if and only if such delay in the issuance of the shares is
necessary to avoid the imposition of adverse taxation on you in respect of the shares under Section 409A of the Code. Each installment of
shares that vests is intended to constitute a “separate payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2).
* * * * *
This Award Agreement will be deemed to be signed by the Company and you upon your signing or otherwise by your acceptance of
the Restricted Stock Unit Grant Notice to which it is attached.
9
ATTACHMENT II
2017 EQUITY INCENTIVE PLAN
10
Exhibit 21.1
Subsidiary Name
DataXu India Private Limited
Purple Tag Enterprises, LLC
List of subsidiaries of Roku, Inc.
Jurisdiction
India
Delaware, United States
Purple Tag Media Technology (Shanghai Ltd)
China
Purple Tag Productions, LLC
Delaware, United States
Roku Brasil Servicos de Conteudo de Midia Ltda.
Roku Canada, Inc.
Roku Comericio de Produtos Electronicos Ltda.
Roku Denmark ApS
Roku DX Holdings, Inc.
Roku DX UK Ltd
Roku Europe Limited
Roku Holdings, Inc.
Roku Netherlands B.V.
Roku Technologies International Limited
Brazil
Canada
Brazil
Denmark
Delaware, United States
United Kingdom
United Kingdom
Delaware, United States
Netherlands
Ireland
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in Registration Statement Nos. 333-236830, 333-230039, 333-223379, and 333-220701 on Form S-8 and
Registration Statement No. 333-230204 on Form S-3 of our reports dated February 25, 2021, relating to the consolidated financial statements of Roku, Inc.
and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form
10-K for the year ended December 31, 2020.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 25, 2021
POWER OF ATTORNEY
Exhibit 24.1
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Anthony Wood and
Steve Louden, and each of them, as his or her true and lawful attorneys‑in‑fact and agents, with full power of substitution and resubstitution, for him or her
and in their name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10‑K, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys‑in‑fact and
agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys‑in‑fact and agents, or any
of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
/s/ ANTHONY WOOD
Anthony Wood
/s/ STEVE LOUDEN
Steve Louden
/s/ RAVI AHUJA
Ravi Ahuja
/s/ MAI FYFIELD
Mai Fyfield
/s/ JEFFREY HASTINGS
Jeffrey Hastings
/s/ ALAN HENRICKS
Alan Henricks
/s/ LAURIE SIMON HODRICK
Laurie Simon Hodrick
/s/ NEIL HUNT
Neil Hunt
/s/ GINA A. LUNA
Gina A. Luna
/s/ RAY ROTHROCK
Ray Rothrock
Title
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Date
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Anthony Wood, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Roku, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 25, 2021
/s/ Anthony Wood
Anthony Wood
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steve Louden, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Roku, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 25, 2021
/s/ Steve Louden
Steve Louden
Chief Financial Officer
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Anthony Wood, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to my knowledge:
The Annual Report on Form 10-K of Roku, Inc. for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the
“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of Roku, Inc.
Date: February 25, 2021
/s/ Anthony Wood
Anthony Wood
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Steve Louden, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,
to my knowledge:
The Annual Report on Form 10-K of Roku, Inc. for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the
“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of Roku, Inc.
Date: February 25, 2021
/s/ Steve Louden
Steve Louden
Chief Financial Officer
(Principal Financial Officer)