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We caution you that the foregoing may not encompass all of the forward-looking statements made in this Annual Report. •our financial performance, including our revenue, cost of revenue, operating expenses, and our ability to •our ability to attract and retain •our ability to attract and retain advertisers; •our ability to attract and retain •our ability to •changes in consumer viewing habits •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 •our ability to develop and launch new •our ability to compete effectively with existing competitors and new market entrants; •our ability to successfully manage domestic and international expansion; •our ability to attract and retain qualified employees and key personnel; •our ability to •our ability to maintain, protect, and enhance our intellectual property; and •our ability to various U.S. and international jurisdictions. 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 OneView is the ad buying platform built for TV streaming. Advertisers use OneView to set up, make changes, and measure ad campaigns entirely on their own. In a world where all TV ads will be automated and streamed, our software and machine learning provide the best way to reach a Roku user wherever they are -- Roku, preparation for the fourth quarter holiday season, we recognize significant discounts in the average selling prices of our player sales through retailers in an effort to grow our active accounts, which typically reduce our player gross margin in the fourth quarter. In addition, the Additionally, these kinds of regulations may make operating in certain jurisdictions more expensive or restrictive. existing products and services evolve, or as other companies introduce competing products and services. 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 You should not interpret our disclosure of any of the following risks to imply that such risks have not already materialized. ARPU. services. we are seeking to expand 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 or every user 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. Since the first quarter of 2020, all Roku devices include a 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 users, 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. Roku streaming players and expanding our licensing program with TV brand partners. 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. If our content publishers do not streaming devices. While we have policies 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. Changes in how network operators manage data that travel across their networks could harm our business. 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 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 jurisdiction in which we conduct business. In particular, our actions to monitor and enforce our trademarks against third parties may not prevent counterfeit versions of our products or products bearing confusingly similar trademarks to ours from entering the marketplace, which could divert sales from us, tarnish our reputation, or reduce the demand for our products. Regulatory Risks As we develop new services and devices and improve our If we fail to comply with the laws and regulations relating to the Risks Related to Ownership of Our Class A Common Stock majority of the combined voting power of our Class A and Class B common stock even though he only owns 12.0% 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. •actual or anticipated fluctuations in our financial condition and operating results; •changes in projected operational and financial results; •our loss •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; •announcements by us or our competitors of significant acquisitions, strategic partnerships, or joint •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, including short selling of our Class A common stock; •share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; •general economic and market We do not intend to pay dividends in the foreseeable future. •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 claim against us that is governed by the internal affairs doctrine. internationally. We believe that our facilities are suitable to meet our current needs. Year Ended December 31, 2017 High Low Third Quarter (from September 29, 2017) $ 29.80 $ 15.75 Fourth Quarter 58.80 18.35 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. Affiliated Purchasers 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. Company name / Index 9/28/2017 9/30/2017 10/31/2017 11/30/2017 12/31/2017 Roku, Inc. $100.00 $189.57 $145.57 $313.57 $369.86 NASDAQ Composite Index $100.00 $100.66 $104.30 $106.74 $107.25 Peer Group $100.00 $101.01 $107.16 $106.21 $107.39 Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuances under Equity Compensation Plans (excluding securities in column (a)) (a) (b) (c) (in thousands, except per share amount) Equity compensation plans approved by security holders (1) 26,792 $ 4.59 12,202 Equity compensation plans not approved by security holders — — — Total 26,792 $ 4.59 12,202 Year Ended December 31, 2017 December 31, 2016 December 26, 2015 (in thousands, except per share data) Consolidated Statements of Operations Data: Net revenue: Player $ 287,407 $ 293,929 $ 269,977 Platform 225,356 104,720 49,880 Total net revenue 512,763 398,649 319,857 Cost of revenue: Player (1) 258,104 249,821 221,416 Platform (1) 54,826 27,783 8,663 Total cost of revenue 312,930 277,604 230,079 Gross profit: Player 29,303 44,108 48,561 Platform 170,530 76,937 41,217 Total gross profit 199,833 121,045 89,778 Operating expenses: Research and development (1) 107,945 76,177 50,469 Sales and marketing (1) 64,069 52,888 45,153 General and administrative (1) 47,435 35,341 31,708 Total operating expenses 219,449 164,406 127,330 Loss from operations (19,616 ) (43,361 ) (37,552 ) Other income (expense), net: Interest expense (1,612 ) 146 (696 ) Loss on extinguishment of debt (2,338 ) — — Change in fair value of preferred stock warrant liability (40,333 ) 888 (1,768 ) Other income (expense), net 705 (220 ) (448 ) Loss before income taxes (63,194 ) (42,547 ) (40,464 ) Income tax expense 315 211 147 Net loss attributable to common stockholders $ (63,509 ) $ (42,758 ) $ (40,611 ) Net loss per share attributable to common stockholders— basic and diluted (2) $ (2.24 ) $ (9.01 ) $ (10.08 ) Weighted-average shares used in computing net loss per share attributable to common stockholders—basic and diluted 28,308 4,746 4,030 Year Ended December 31, 2017 December 31, 2016 December 26, 2015 (in thousands) Cost of player revenue $ 145 $ 136 $ 90 Cost of platform revenue 81 224 54 Research and development 4,714 2,766 1,685 Sales and marketing 2,817 2,292 1,678 General and administrative 3,196 2,788 1,777 Total stock-based compensation $ 10,953 $ 8,206 $ 5,284 As of December 31, 2017 December 31, 2016 December 26, 2015 (in thousands) Consolidated Balance Sheet Data: Cash $ 177,250 $ 34,562 $ 75,748 Total assets 371,897 179,078 176,511 Preferred stock warrant liability — 9,990 10,878 Long-term debt, including current portion — 15,000 15,000 Total liabilities 219,618 159,722 123,067 Convertible preferred stock — 213,180 213,180 Total stockholders’ equity (deficit) 152,279 (193,824 ) (159,736 ) 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 average selling prices (“ASP”) of our streaming players to increase our active accounts. We ARPU. Substantially all of our gross profit is generated from our platform segment. 2020, respectively, reflecting an increase of 74%. advertisers. Some of our leading channel therefore revised 2017 YoY growth rates are not available. United States. In our international markets, we primarily sell our players through wholesale distributors which, in turn, re-sell to retailers. We currently distribute our players in various countries in North America, South America, and Europe. acquired developed technology. personnel. development of our platform and player products and services. business internationally. infrastructure. Year Ended December 31, 2017 December 31, 2016 December 26, 2015 Net Revenue: Player 56 % 74 % 84 % Platform 44 % 26 % 16 % Total net revenue 100 % 100 % 100 % Cost of Revenue: Player 50 % 63 % 69 % Platform 11 % 7 % 3 % Total cost of revenue 61 % 70 % 72 % Gross Profit: Player 6 % 11 % 15 % Platform 33 % 19 % 13 % Total gross profit 39 % 30 % 28 % Operating Expenses: Research and development 21 % 19 % 16 % Sales and marketing 13 % 13 % 14 % General and administrative 9 % 9 % 10 % Total operating expenses 43 % 41 % 40 % Loss from Operations (4 )% (11 )% (12 )% Other Income (Expense), Net: Interest expense (0 )% 0 % (0 )% Loss on extinguishment of debt (1 )% (— )% (— )% Change in fair value of preferred stock warrant liability (8 )% 0 % (1 )% Other income (expense), net 0 % (0 )% (0 )% Total other income (expense), net (9 )% 0 % (1 )% Loss before income taxes (13 )% (11 )% (13 )% Income tax expense 0 % 0 % 0 % Net loss attributable to common stockholders (13 )% (11 )% (13 )% 2020 Year Ended Change $ Change % December 31, December 31, 2017 2016 (in thousands, except percentages) Player $ 287,407 $ 293,929 $ (6,522 ) (2 )% Platform 225,356 104,720 120,636 115 % Total Net Revenue $ 512,763 $ 398,649 $ 114,114 29 % Year Ended Change $ Change % December 31, December 31, 2017 2016 (in thousands, except percentages) Cost of revenue: Player $ 258,104 $ 249,821 $ 8,283 3 % Platform 54,826 27,783 27,043 97 % Total Cost of Revenue $ 312,930 $ 277,604 $ 35,326 13 % Gross profit: Player $ 29,303 $ 44,108 $ (14,805 ) (34 )% Platform 170,530 76,937 93,593 122 % Total Gross Profit $ 199,833 $ 121,045 $ 78,788 65 % Year Ended Change $ Change % December 31, December 31, 2017 2016 (in thousands, except percentages) Research and development $ 107,945 $ 76,177 $ 31,768 42 % Sales and marketing 64,069 52,888 11,181 21 % General and administrative 47,435 35,341 12,094 34 % Total Operating Expenses $ 219,449 $ 164,406 $ 55,043 33 % Year Ended Change $ December 31, December 31, 2017 2016 (in thousands, except percentages) Interest expense $ (1,612 ) $ 146 $ (1,758 ) Loss on extinguishment of debt $ (2,338 ) $ — $ (2,338 ) Change in fair value of convertible preferred stock warrants (40,333 ) 888 (41,221 ) Other income (expense), net 705 (220 ) 925 Total Other Income (Expense), Net $ (43,578 ) $ 814 $ (44,392 ) Year Ended Change $ Change % December 31, December 31, 2017 2016 (in thousands, except percentages) Income Tax Expense $ 315 $ 211 $ 104 49 % Year Ended Change $ Change % December 31, December 26, 2016 2015 (in thousands, except percentages) Player $ 293,929 $ 269,977 $ 23,952 9 % Platform 104,720 49,880 54,840 110 % Total Net Revenue $ 398,649 $ 319,857 $ 78,792 25 % Year Ended Change $ Change % December 31, December 26, 2016 2015 (in thousands, except percentages) Cost of revenue: Player $ 249,821 $ 221,416 $ 28,405 13 % Platform 27,783 8,663 19,120 221 % Total Cost of Revenue $ 277,604 $ 230,079 $ 47,525 21 % Gross profit: Player $ 44,108 $ 48,561 $ (4,453 ) (9 )% Platform 76,937 41,217 35,720 87 % Total Gross Profit $ 121,045 $ 89,778 $ 31,267 35 % Year Ended Change $ Change % December 31, December 26, 2016 2015 (in thousands, except percentages) Research and development $ 76,177 $ 50,469 $ 25,708 51 % Sales and marketing 52,888 45,153 7,735 17 % General and administrative 35,341 31,708 3,633 11 % Total Operating Expenses $ 164,406 $ 127,330 $ 37,076 29 % Year Ended Change $ Change % December 31, December 26, 2016 2015 (in thousands, except percentages) Interest expense $ 146 $ (696 ) $ 842 (121 )% Change in fair value of convertible preferred stock warrants 888 (1,768 ) 2,656 (150 )% Other income, net (220 ) (448 ) 228 (51 )% Total Other Income (Expense), Net $ 814 $ (2,912 ) $ 3,726 (128 )% losses. Year Ended Change $ Change % December 31, December 26, 2016 2015 (in thousands, except percentages) Income Tax Expense $ 211 $ 147 $ 64 44 % a foreign jurisdiction. default. As of December 31, Year Ended December 31, December 31, December 26, 2017 2016 2015 (in thousands) Consolidated Statements of Cash Flows Data: Cash flows provided by (used in) operating activities $ 37,292 $ (32,463 ) $ (32,604 ) Cash flows used in investing activities (12,268 ) (8,567 ) (5,205 ) Cash flows provided by (used in) financing activities 117,664 (156 ) 58,547 Cash Payments Due by Period Total Less Than 1 Year 1 – 3 Years 3 – 5 Years More Than 5 Years (in thousands) Purchase commitments (1) $ 75,176 $ 75,176 $ — $ — $ — Operating lease obligations (2) 38,556 11,683 23,554 3,319 — Total $ 113,732 $ 86,859 $ 23,554 $ 3,319 $ — (1) Represents commitments to purchase finished goods from our contract manufacturer and other inventory related items. (2) Represents future minimum lease payments under non-cancelable operating leases. our consolidated balance sheets as of December 31, 2021. Shipping charges billed to customers are included in 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 amortization and amortize the remaining carrying value over the new shorter useful life. future taxable income which is a critical estimate. Item 7A. Quantitative and decrease, respectively, by an additional $0.9 million. 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. December 31, 2017 December 31, 2016 Assets Current Assets: Cash $ 177,250 $ 34,562 Accounts receivable, net of allowances of $17,739 and $16,213 as of December 31, 2017 and 2016, respectively 120,553 79,473 Inventories 32,740 43,568 Prepaid expenses and other current assets 11,367 4,981 Deferred cost of revenue 3,007 2,636 Total current assets 344,917 165,220 Property and equipment, net 14,736 9,528 Deferred cost of revenue, non-current portion 5,403 3,815 Intangible assets, net 2,030 — Goodwill 1,382 — Other non-current assets 3,429 515 Total Assets $ 371,897 $ 179,078 Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit) Current Liabilities: Accounts payable $ 56,413 $ 31,397 Accrued liabilities 72,344 46,156 Current portion of long-term debt — 15,000 Deferred revenue, current portion 34,501 23,952 Total current liabilities 163,258 116,505 Preferred stock warrant liability — 9,990 Deferred revenue, non-current portion 48,511 29,084 Other long-term liabilities 7,849 4,143 Total Liabilities 219,618 159,722 Commitments and Contingencies (Note 8) Convertible Preferred Stock: Convertible preferred stock, $0.0001 par value — 213,180 0 and 84,368 shares authorized as of December 31, 2017 and 2016, respectively 0 and 80,844 shares issued and outstanding as of December 31, 2017 and 2016, respectively Stockholders’ Equity (Deficit): Preferred stock, $0.0001 par value; — — 10,000 and 0 shares authorized as of December 31, 2017 and 2016, respectively no shares issued and outstanding as of December 31, 2017 and 2016, respectively Common stock, $0.0001 par value 10 3 1,150,000 (Class A - 1,000,000 and Class B - 150,000) shares and 122,000 shares authorized as of December 31, 2017 and 2016, respectively 99,157 (Class A - 19,325 and Class B - 79,832) shares and 4,819 shares issued and outstanding as of December 31, 2017 and 2016, respectively Additional paid-in capital 435,607 26,002 Accumulated deficit (283,338 ) (219,829 ) Total stockholders’ equity (deficit) 152,279 (193,824 ) Total Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit) $ 371,897 $ 179,078 Year Ended December 31, 2017 December 31, 2016 December 26, 2015 Net Revenue: Player $ 287,407 $ 293,929 $ 269,977 Platform 225,356 104,720 49,880 Total net revenue 512,763 398,649 319,857 Cost of Revenue: Player 258,104 249,821 221,416 Platform 54,826 27,783 8,663 Total cost of revenue 312,930 277,604 230,079 Gross Profit: Player 29,303 44,108 48,561 Platform 170,530 76,937 41,217 Total gross profit 199,833 121,045 89,778 Operating Expenses: Research and development 107,945 76,177 50,469 Sales and marketing 64,069 52,888 45,153 General and administrative 47,435 35,341 31,708 Total operating expenses 219,449 164,406 127,330 Loss from Operations (19,616 ) (43,361 ) (37,552 ) Other Income (Expense), Net: Interest expense (1,612 ) 146 (696 ) Loss on extinguishment of debt (2,338 ) — — Change in fair value of preferred stock warrant liability (40,333 ) 888 (1,768 ) Other income (expense), net 705 (220 ) (448 ) Total other income (expense), net (43,578 ) 814 (2,912 ) Loss Before Income Taxes (63,194 ) (42,547 ) (40,464 ) Income tax expense 315 211 147 Net Loss Attributable to Common Stockholders $ (63,509 ) $ (42,758 ) $ (40,611 ) Net loss per share attributable to common stockholders—basic and diluted $ (2.24 ) $ (9.01 ) $ (10.08 ) Weighted-average shares used in computing net loss per share attributable to common stockholders—basic and diluted 28,308 4,746 4,030 Convertible Preferred Stock Common Stock Additional Paid-in Treasury Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Stock Deficit Equity (Deficit) Balance—December 27, 2014 75,475 $ 165,099 3,747 $ — $ 11,205 $ — $ (136,460 ) $ (125,255 ) Issuance of Series D convertible preferred stock upon exercise of preferred stock warrants 409 972 — — — — — — Issuance of Series H convertible preferred stock in November at $9.17340 per share—net of issuance cost of $0.07 million 4,960 45,432 — — — — — — Reclassification of convertible preferred stock warrant liability to equity upon exercise of warrants — 1,677 — — — — — — Issuance of common stock upon exercise of stock options, net of repurchases — — 784 — 837 — — 837 Vesting of early exercised stock options — — — — 9 — — 9 Stock-based compensation expense — — — — 5,284 — 5,284 Net loss — — — — — — (40,611 ) (40,611 ) Balance—December 26, 2015 80,844 213,180 4,531 — 17,335 — (177,071 ) (159,736 ) Issuance of common stock upon exercise of warrants — — 162 — — — — — Issuance of common stock upon exercise of stock options — — 126 — 438 — — 438 Vesting of early exercised stock options — — — — 26 — — 26 Stock-based compensation expense — — — — 8,206 — — 8,206 Net loss — �� — — — — — (42,758 ) (42,758 ) Balance—December 31, 2016 80,844 213,180 4,819 — 26,005 — (219,829 ) (193,824 ) Issuance of common stock upon exercise of stock options — — 963 1 2,086 — — 2,087 Share repurchases — — (92 ) — — (671 ) — (671 ) Vesting of early exercised stock options — — — — 62 — — 62 Stock-based compensation expense — — — — 10,953 — — 10,953 Issuance of common stock pursuant to an acquisition — — 108 — — — — — Issuance of common stock upon exercise of common and preferred warrants — — 2,165 — — — — — Issuance of common stock pursuant to an initial public offering, net of issuance costs of $3.1 million — — 10,350 1 131,645 — — 131,646 Conversion of preferred stock into common stock pursuant to an initial public offering (80,844 ) (213,180 ) 80,844 8 213,172 — — 213,180 Reclassification of preferred stock warrants liability to additional paid-in-capital upon conversion to common stock warrants — — — — 52,355 — — 52,355 Net loss — — — — — — (63,509 ) (63,509 ) Balance—December 31, 2017 — $ — 99,157 $ 10 $ 436,278 $ (671 ) $ (283,338 ) $ 152,279 Year Ended December 31, 2017 December 31, 2016 December 26, 2015 Cash flows from operating activities: Net loss $ (63,509 ) $ (42,758 ) $ (40,611 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 5,336 5,302 2,555 Impairment of assets — 320 — Stock-based compensation expense 10,953 8,206 5,284 Provision for doubtful accounts 104 336 663 Change in fair value of preferred stock warrant liability 40,333 (888 ) 1,768 Noncash interest expense 784 115 354 Loss on disposals of property and equipment 54 29 137 Loss from exit of facilities 525 3,804 — Loss from extinguishment of debt 2,338 — — Write-off of deferred initial public offering costs — 594 1,609 Changes in operating assets and liabilities: Accounts receivable (41,184 ) (26,354 ) (14,118 ) Inventories 10,828 (13,256 ) (3,754 ) Prepaid expenses and other current assets (6,514 ) (544 ) (1,887 ) Deferred cost of revenue (1,959 ) (2,885 ) (3,017 ) Other noncurrent assets (2,794 ) 448 1,179 Accounts payable 24,315 (2,808 ) 4,724 Accrued liabilities 24,127 17,796 2,802 Other long-term liabilities 3,579 294 1,391 Deferred revenue 29,976 19,786 8,317 Net cash provided by (used in) operating activities 37,292 (32,463 ) (32,604 ) Cash flows from investing activities: Purchase of property and equipment (9,229 ) (8,596 ) (5,019 ) Purchase of business, net of cash acquired (2,959 ) — — Change in deposits (80 ) 29 (186 ) Net cash used in investing activities (12,268 ) (8,567 ) (5,205 ) Cash flows from financing activities: Payments of costs related to initial public offering — (594 ) (1,120 ) Proceeds from borrowings 24,691 15,000 15,000 Repayments of borrowings (40,446 ) (15,000 ) (2,576 ) Proceeds from exercise of stock options, net of repurchases 1,773 438 839 Proceeds from issuance of common stock pursuant to an initial public offering, net of issuance costs of $3.1 million 131,646 — — Proceeds from exercise of preferred stock warrants — — 972 Proceeds from issuance of convertible preferred stock — — 45,500 Issuance costs in connection with issuance of convertible preferred stock — — (68 ) Net cash provided by (used in) financing activities 117,664 (156 ) 58,547 Net Increase (Decrease) In Cash 142,688 (41,186 ) 20,738 Cash—Beginning of period 34,562 75,748 55,010 Cash—End of period $ 177,250 $ 34,562 $ 75,748 Supplemental disclosures of cash flow information: Cash paid for interest $ 1,149 $ 236 $ 273 Cash paid for income taxes $ 222 $ 121 $ 83 Supplemental disclosures of noncash investing and financing activities: Purchases of property and equipment recorded in accounts payable and accrued liabilities $ 1,250 $ 306 $ 1,608 Fair value of preferred stock warrants reclassified to additional paid in capital $ 52,355 $ — $ 1,677 Issuance of convertible preferred stock warrants in connection with debt $ 2,032 $ — $ — audio products. AND BASIS OF PRESENTATION presentation. Income (Loss) year ended December 31, 2019 includes unrealized gains on the Company’s short-term investments and foreign currency translation adjustments. Income taxes on the unrealized gains are not material. Year Ended December 31, 2017 December 31, 2016 December 26, 2015 Customer A * % 13 % 16 % Customer B 10 12 15 Customer C 20 24 23 Customer E 10 * * December 31, 2017 December 31, 2016 Customer A * % 12 % Customer B * 11 Customer C * 17 Customer D 16 17 * Less than 10% Capitalized costs are amortized using the straight-line method over Deferred Revenue publishers where performance obligations are not yet fulfilled. Deferred a non-current liability. its common stock. Company’s consolidated financial statements. Standards Not Yet Adopted fiscal 2022. The Company believes that the from Nielsen’s AVA business along with their estimated useful lives, is as follows (in thousands, except years): beginning on the date of acquisition. The Company recorded thereafter is as follows (in thousands): December 31, 2017 December 31, 2016 (in thousands) Gross accounts receivable $ 138,292 $ 95,686 Allowance for sales returns (6,907 ) (6,916 ) Allowance for sales incentives (10,442 ) (8,503 ) Other allowances (390 ) (794 ) Total allowances (17,739 ) (16,213 ) Total Accounts Receivable—net $ 120,553 $ 79,473 December 31, 2017 December 31, 2016 (in thousands) Beginning balance $ (6,916 ) $ (9,514 ) Charged to revenue (19,089 ) (20,810 ) Utilization of sales return reserve 19,098 23,408 Ending balance $ (6,907 ) $ (6,916 ) December 31, 2017 December 31, 2016 (in thousands) Beginning balance $ (8,503 ) $ (7,642 ) Charged to revenue (44,264 ) (36,626 ) Utilization of sales incentive reserve 42,325 35,765 Ending balance $ (10,442 ) $ (8,503 ) Property and Equipment, net: Property and equipment, net consisted of the December 31, 2017 December 31, 2016 (in thousands) Computers and equipment $ 11,631 $ 8,787 Leasehold improvements 8,437 4,201 Website and internal-use software 5,461 2,902 Office equipment and furniture 1,987 1,452 Total property and equipment 27,516 17,342 Accumulated depreciation and amortization (12,780 ) (7,814 ) Property and Equipment, net $ 14,736 $ 9,528 December 31, 2017 December 31, 2016 (in thousands) Accrued royalty expense $ 17,165 $ 14,940 Accrued inventory 2,382 4,274 Accrued payroll and related expenses 8,699 5,342 Accrued cost of revenue 12,210 7,264 Accrued payments to content publishers 24,037 8,554 Sales tax and tax related liabilities 751 769 Other accrued expenses 7,100 5,013 Total Accrued Liabilities $ 72,344 $ 46,156 December 31, 2017 December 31, 2016 (in thousands) Player, current $ 15,479 $ 13,611 Platform, current 19,022 10,341 Total deferred revenue, current 34,501 23,952 Player, non-current 5,837 5,215 Platform, non-current 42,674 23,869 Total deferred revenue, non-current 48,511 29,084 Total Deferred Revenue $ 83,012 $ 53,036 Level 1—Quoted prices in active markets for identical assets or liabilities. 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. Year Ended December 31, 2017 December 31, 2016 December 26, 2015 (in thousands) Convertible preferred stock warrant liability — beginning balance $ 9,990 $ 10,878 $ 10,787 Fair value of new warrants issued 2,032 — — Change in fair value* 40,333 (888 ) 1,768 Reclassification to preferred stock upon exercise — — (1,677 ) Reclassification to APIC upon conversion to common warrants (52,355 ) — — Convertible preferred stock warrant liability — ending balance $ — $ 9,990 $ 10,878 Assets and liabilities that are measured at fair value on a non-recurring basis December 31, 2016 Series Price Shares Authorized Shares Outstanding Liquidation Preference (in thousands, except price per share data) A $ 0.36312 23,020 23,020 $ 8,359 B 0.93808 6,396 6,396 6,000 C-1 0.54109 9,240 9,240 5,000 C-2 0.64931 8,950 7,700 5,000 D 2.37840 4,686 4,205 10,000 E 4.35679 11,161 11,075 48,250 F 5.43396 11,042 11,042 60,000 G 7.79730 3,206 3,206 25,000 H 9.17340 6,667 4,960 45,500 Total 84,368 80,844 $ 213,109 outstanding. Holders of Class A common stock are entitled to stock at an average selling price of $126.01 per share, for aggregate gross proceeds of $504.0 million and incurred issuance costs of $6.8 million. Common stock awards incentive Common stock awards available for Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Weighted Average Grant Date Fair Value Per Share Aggregate Intrinsic Value (in thousands, except price per share data) Balance, December 27, 2014 - outstanding 14,077 $ 2.01 7.2 — Granted 7,203 5.82 — $ 2.58 Exercised (797 ) 1.10 — — Forfeited and expired (633 ) 3.88 — — Balance, December 26, 2015 19,850 3.37 7.1 — Granted 4,039 6.35 — 2.71 Exercised (125 ) 3.49 — — Forfeited and expired (1,429 ) 4.54 — — Balance, December 31, 2016 22,335 3.66 6.6 — Granted 6,083 7.88 — 3.73 Exercised (963 ) 2.54 — — Forfeited and expired (1,119 ) 5.85 — — Balance, December 31, 2017 - outstanding 26,336 $ 4.59 6.4 — $ 1,242,901 Options exercisable at December 31, 2017 15,311 $ 3.00 4.6 — $ 746,939 2021, the Company had $67.5 million of unrecognized stock-based compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of approximately 2.0 years. The following table shows total stock-based compensation expense Year Ended December 31, 2017 December 31, 2016 December 26, 2015 (in thousands) Cost of player revenue $ 145 $ 136 $ 90 Cost of platform revenue 81 224 54 Research and development 4,714 2,766 1,685 Sales and marketing 2,817 2,292 1,678 General and administrative 3,196 2,788 1,777 Total stock-based compensation $ 10,953 $ 8,206 $ 5,284 The assumptions used to value Shares Weighted Average Grant Date Fair Value (in thousands, except price per share data) Balance, December 31, 2016 - outstanding — $ — Awarded 274 43.55 Released — — Forfeited (2 ) 43.55 Balance, December 31, 2017 - outstanding 272 $ 43.55 Series Number Outstanding IPO closing date Number Outstanding December 31, 2016 Issuance Date Exercise Price Original Term (in thousands, except price per share data) C-2 1,250 1,250 July 13, 2011 $ 0.64931 10 years D 250 250 October 17, 2011 2.37840 10 years D 168 168 March 12, 2012 2.37840 10 years D 63 63 April 27, 2012 2.37840 10 years E 86 86 April 27, 2012 3.48546 10 years H 409 — June 9, 2017 9.17340 10 years Total 2,226 1,817 Year Ending December 31, Operating Leases (in thousands) 2018 $ 11,683 2019 11,764 2020 10,678 2021 1,112 2022 1,090 Thereafter 2,229 Less: Sublease rental income (5,153 ) Total $ 33,403 Manufacturing Purchase Commitments inventory. Licensed Content December 31, 2017 December 31, 2016 (in thousands) Beginning balance $ 2,085 $ - Change in estimated loss from exit 525 3,804 Non-cash adjustment - 1,120 Amortization of liability (1,831 ) (2,839 ) Ending balance $ 779 $ 2,085 through 2030. of operations. During the year ended December 31, 2021 the Company recorded expenses of $4.8 million in Cost of revenue, player, $1.8 million in Cost of revenue, platform, and $3.4 million in General and administrative expenses for claims related to patent infringement. During the year ended December 31, 2020 the Company did not have any loss contingencies that were material. During the year ended December 31, 2019, the Company recorded expenses of $9.9 million, in Cost of revenue, player for various claims related to patent infringements. Year Ended December 31, 2017 December 31, 2016 December 26, 2015 (in thousands) United States $ (63,831 ) $ (42,977 ) $ (41,696 ) Foreign 637 430 1,232 Net loss before income taxes $ (63,194 ) $ (42,547 ) $ (40,464 ) Year Ended December 31, 2017 December 31, 2016 December 26, 2015 (in thousands) Current: Federal $ — $ — $ — State 89 50 71 Foreign 674 160 76 763 210 147 Deferred: Federal — — — State — — — Foreign (448 ) 1 — Total $ 315 $ 211 $ 147 The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate: Year Ended December 31, 2017 December 31, 2016 December 26, 2015 U.S. federal income tax at statutory rate 34.0 % 34.0 % 34.0 % U.S. state and local income taxes (0.2 ) (0.1 ) (0.2 ) Change in valuation allowance 19.0 (36.9 ) (33.7 ) Federal research and development tax credit 5.2 4.8 3.9 Convertible preferred stock warrants (21.7 ) 0.7 (1.5 ) Stock-based compensation 1.2 (2.5 ) (1.7 ) Permanent items (1.1 ) (0.2 ) (1.1 ) Foreign rate differential 0.2 — 0.4 Tax rate change (36.4 ) — — Other (0.7 ) (0.2 ) (0.5 ) Effective tax rate (0.5 )% (0.4 )% (0.4 )% December 31, 2017 December 31, 2016 (in thousands) Deferred tax assets: Net operating loss carryforwards $ 34,843 $ 46,954 Reserves and accruals 13,577 15,575 Research and development credits 15,475 10,555 Depreciation and amortization 288 1,568 Stock-based compensation 4,098 4,068 Total deferred tax assets 68,281 78,720 Valuation allowance (68,219 ) (78,695 ) Net deferred tax assets $ 62 $ 25 amortizable assets. can be carried forward indefinitely. 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 completed a recent study to assess whether any section 382 ownership change has occurred since the Company’s dates are subject to the limitation. December 31, 2017 December 31, 2016 (in thousands) Unrecognized tax benefits at beginning of year $ 4,368 $ 2,917 Gross increase for tax positions of current years 1,475 1,246 Gross increase for tax positions of prior year — 205 Gross decrease for tax positions of prior years — — Unrecognized tax benefits balance at end of year $ 5,843 $ 4,368 2019. Year Ended December 31, 2017 December 31, 2016 December 26, 2015 (in thousands, except per share data) Numerator: Net loss allocable to common stockholders $ (63,509 ) $ (42,758 ) $ (40,611 ) Denominator: Weighted-average shares used in computing net loss per share, basic and diluted 28,308 4,746 4,030 Net loss per share, basic and diluted $ (2.24 ) $ (9.01 ) $ (10.08 ) Year Ended December 31, 2017 December 31, 2016 December 26, 2015 (in thousands) Equity awards to purchase common stock 26,608 22,335 19,850 Unvested shares of common stock issued upon early exercise of stock options 57 3 12 Warrants to purchase common stock 184 375 542 Warrants to purchase convertible preferred stock - 1,817 1,817 Convertible preferred stock - 80,844 80,844 Total 26,849 105,374 103,065 The Company does not allocate property and equipment or any other assets or capital expenditures to reportable segments. Customers accounting for 10% or more of segment revenue, net, were as follows: Year Ended December 31, 2017 December 31, 2016 December 26, 2015 Player segment revenue Customer A 15 % 18 % 19 % Customer B 12 11 12 Customer C 34 32 26 Platform segment revenue Customer B * % 15 % 31 % Customer F * * 11 Customer E 13 % 10 * * Less than 10% Three Months Ended Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Oct 1, 2016 Jul 2, 2016 Apr 2, 2016 (in thousands, except per share amounts) Total Revenue $ 188,261 $ 124,782 $ 99,627 $ 100,093 $ 147,340 $ 89,053 $ 83,809 $ 78,447 Gross Profit 73,461 49,895 37,637 38,840 44,663 26,050 25,076 25,256 Net income (loss) 6,941 (46,235 ) (15,513 ) (8,702 ) 3,227 (12,743 ) (14,109 ) (19,133 ) Net income attributable to participating securities - - - - 3,227 - - - Net income (loss) attributable to common stockholders 6,941 (46,235 ) (15,513 ) (8,702 ) - (12,743 ) (14,109 ) (19,133 ) Basic net income (loss) per share attributable to common stockholders 0.07 (8.79 ) (3.18 ) (1.79 ) - (2.66 ) (2.98 ) (4.10 ) Diluted net income (loss) per share attributable to common stockholders 0.06 (8.79 ) (3.18 ) (1.79 ) - (2.66 ) (2.98 ) (4.10 ) S-1 333-220318 10.25 9/1/2017 10.16 S-1 333-220318 10.26 9/1/2017 10.17 S-1 333-220318 10.27 9/1/2017 10.18 S-1 333-220318 10.28 9/1/2017 10.19 + S-1/A 333-220318 10.30 9/18/2017 10.20 S-1 333-220318 10.14 9/1/2017 10.21 S-1 333-220318 10.15 9/1/2017 10.22 S-1 333-220318 10.16 9/1/2017 10.23 S-1 333-220318 10.17 9/1/2017 21.1 X 23.1 X 24.1 X 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.1 X 32.2 X 101.INS XBRL Instance Document. X 101.SCH XBRL Taxonomy Extension Schema Document. X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. X 101. XBRL Taxonomy Extension Definition. X 101. XBRL Taxonomy Extension Label Linkbase X 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. X President, (Principal Executive Officer) Chief Financial Officer (Principal Financial and Accounting Officer)or the (“Securities Act,Act”), and Section 21E of the Securities Exchange Act of 1934, as amended or the (“Exchange Act,Act”), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report,Annual 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 Annual Report regarding the potential future impact of the COVID-19 pandemic on our 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”“will,” “would,” “target,” or the negative of these terms or other similar expressions.available to our management.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,Annual Report, regarding, among other things:attainmaintain and sustaingrow our profitability;active accountsusers and increase hours streamed; additional TV brands and service operators to license and deploy our platform;licenseproduce or 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;orand the growth of TV streaming;developments, including with respect to developing integrations with our platform partners;streaming devicesproducts and provide ancillary services and support;mitigate the risks of harm associated withaddress potential and actual security breaches and system failures;stay in compliancecomply with laws and regulations that currently apply or may become applicable to our business both in the United States and internationally.We caution you that the foregoing list may not contain all of the forward-looking statements madeinternationally, including compliance with privacy and data protection regulations in this Annual Report on Form 10-K.reportAnnual 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.reportAnnual 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 referencereferenced in this Annual Report on Form 10-K and have filed as exhibits to this reportAnnual 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.(ir.roku.com/investor-relations)(roku.com/investor), SECU.S. Securities and Exchange Commission (“SEC”) filings, webcasts, press releases, and conference calls. We use these mediums including our website, to communicate with our membersinvestors 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 make availablepost 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.PARTRoku connects usersWe believe that someday, all TV content and all TV advertising will be streamed. The shift of the TV ecosystem to streaming is continuing 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 TV services entirely. Over the past several years, nearly every major media company has entered TV streaming and launched a streaming service. 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.enablesenabling content publishers to build and monetize large audiences, and providesproviding advertisers with unique capabilities to engage consumers. We do this at scale. AsCentral 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 December 31, 2017, we had 19.3content by connecting their Roku device to our streaming platform via a home broadband network.1 and during 2017utilize our users streamed 14.8 billion hours 2onbilling 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 online and in stores. We continue to invest significant resources to advance the Roku platform. TV streaming’s disruptive content distribution model is shifting billions of dollars of economic value. Roku is capitalizing on this large economic opportunity as a leading TV streamingOS; to provide an industry-leading platform for users,our consumers, content publishers, and advertisers.Consumers win withadvertisers; to obtain content for our platform that attracts users, including our own original content; and to extend Roku’s advantage as the streaming decade continues.streaming—they getstreaming ecosystem: consumers, content publishers, advertisers, TV brand partners, other device licensees, and retailers.more entertainment optionson the platform. We have been able to significantly scale our active account base over a multi-year period. In 2021, we added over 8.9 million active accounts, ending the year with 60.1 million active accounts.more control over what they spendeasy-to-use user interface drives increased user engagement by delivering a better overall streaming experience. Streaming hours on content. Whenour platform have grown from 58.7 billion hours in 2020 to 73.2 billion hours in 2021, as our active accounts have grown through the distribution of Roku streaming players and our partners’ Roku TV models.want to enjoywatch their favorite TV shows and movies, as well as listen to streaming entertainment, they start ataudio. 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, where we put users first by helping them find the content they want to watch. From our home screen, users can easily search, discoverfind and access over 500,000the 500,000+ free and paid movies and TV episodes, as well as 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 are 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.well as live sports, music, news and more. Users can also compare the priceRoku Originals, which is original content exclusive to The Roku Channel. Our first Roku Originals consisted of content from variousthe Quibi library, which we acquired in January 2021. We have since greenlit second seasons of some of these shows and added original content that was not part of that acquisition. We also acquired the This Old House franchise in March 2021, and launched advertising-supported video on demand (“AVOD”), ad-supported linear, and Premium Subscription channels availablefor This Old House content on The Roku Channel. In 2021, we also launched the Roku Brand Studio that evolves the advertising product and enhances the streaming experience for our users. Through Roku Brand Studio, Roku helps marketers go beyond the traditional 30-second TV ad spot and offer more innovative ad experiences, such as sponsored ads in our user interface, interactive video ads, branded content series, and more. Roku Originals will continue to play an important part of The Roku Channel’s programming in 2022 and beyond with content investments in original programming planned to be commensurate with the channel’s overall growth.choose from ad-supported,capabilities, including sales of subscription and transactional video on-demand content. The Roku platform delivers a significant expansion in consumer choice. Consumers can personalize their content selection with cable TV replacement offeringsservices and other streamingcommerce transactions, brand sponsorship and promotions, billing services, that suit their budget and needs. Ad-supported channels available on the Roku platform include YouTube, CBS News, Crackle, The CW and Vice; subscription channels include HBO Now, Hulu and Netflix as well as traditional pay TV replacement services like DirecTV Now, Sling TV, Spectrum TV and Sony PlayStation Vue; and transactional channels include Amazon Video, Google Play and Vudu. Consumers are increasingly streaming ad-supported content.Roku operates the number one TV streaming platformvideo advertising in the United States as measured by total hours streamed, according to a survey that we commissioned, conducted in the fourth quarter of 2017, by Kantar Millward Brown. Content publishers and advertisers win with Roku because our large and growingad supported channels. Each user base simplifies their access to the fragmented and complex over the top, or OTT, market and we provide them with direct to consumer engagement and monetization opportunities. We provide our content publishers with access to the most engaged OTT audience, as measured by average hours streamed, and the ability to monetize their content with advertising, subscription or transactional business models. Furthermore, as a pure play, neutral TV streaming platform, we are better able to serve content publishers compared to other platforms that have diversified business operations and competitive content offerings. Advertisers on our platform can reach our desirable OTT audience with ads thatcreates multiple revenue opportunities for Roku, whether they are more relevant, interactivepurchasing content, enjoying ad-supported content, opening the Roku home page and measurable than advertising delivered on traditional linear TV. As traditional TV audiences shrink, OTT audiences have become increasingly important to advertisers who must continue to reach large audiences. Our growth in active accounts and hours streamed has attracted more content publishers and advertisers to our TV streaming platform creatingseeing a better user experience.While we currently generate a majoritybranded takeover of our revenue from saleshome screen, or using a Roku remote. We measure monetization of our streaming players, we generate a majority of our gross profit from our platform revenue. Our business model is to grow gross profit by increasingcalculating the number of active accounts and growing average revenue per user or ARPU(“ARPU”), which we believe represents the inherent value of our business.business model, and growth in gross profit. In 2021, ARPU (which we measure on a trailing twelve-month basis) increased from $28.76 as of December 31, 2020 to $41.03 as of December 31, 2021 and gross profit for the full year grew from $808.2 million as of December 31, 2020 to $1,408.6 million as of December 31, 2021.define ARPU as our platform revenue during the preceding four quarters divided by the average of the number of active accounts at the end of that periodmake it easy for content publishers to distribute and the end of the prior four quarters. We grow new accountsmonetize their streaming content through three primary channels:business models: transaction video on demand (“TVOD”) that includes channels that offer a la carte movie purchases or rentals, subscription video on demand that includes subscriptions to individual video on demand channels and so-called virtual multichannel video programming distribution services, and ad-supported, which includes AVOD channels with on demand content that do not charge a subscription fee to users, as well as free ad-supported streaming TV (“FAST”), which we selldefine as free, ad-supported linear streaming players,TV. Through Roku Pay, our platform billing solution, we partnerare also able to assist content partners with billing services, including billing users for in-channel purchases like movie rentals, managing subscriptions, and customer invoices. We believe Roku Pay is a key platform capability that simplifies user subscription signups and drives purchase and retention for our content publishers.brands through ourshow consumption. We also derive revenue from the sale of branded channel buttons on streaming player and Roku TV licensing program,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 we have licensing relationships with service operators. The fastest growing source of new accounts comes from our licensing partner relationships which accounted for 48% of new accounts in 2017, up from 42% in 2016. We believe we have a significant opportunity to grow platform revenue and as we further monetize TV streaming hours we will increase ARPU, which was $13.78 per active user during the year ended December 31, 2017 up by 48% as compared to $9.28 per active user for the year ended December 31, 2016. Our success in growing ARPU will depend on our ability to increasingly generate platform revenue fromreporting 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.we increase the number of active accounts.1Active accounts represent distinct user accounts that have streamed content onwell as our platform in the last 30 days of the period.2Streaming hours streamed as the aggregate amount of time users streamed content on our platform in a given period.AdvertisingOur advertising products enable advertiserscapabilities and user data and insights, to serve relevant, ads totargeted advertisements. Roku’s first-party data is a result of our direct relationship with users and measure return on investment. We collect a variety of information on the Roku streaming platform, including user registration data, as well as anonymized information like audience engagement with channelsis exclusively available in our Oneview ad platform. Advertisers on our platform use of features like search and interactions with advertisements. With Roku TVs, we havealso can measure both the ability to use automatic content recognition (ACR) and other technology to collect information about what users watch via antennae and devices connected to Roku TVs, and we collect data about the useeffectiveness of the Roku TV’s on-screen programming guide.We gather this informationads served and then create user segments, develop look-a-like audience and predictive models, and activate segments for use in a variety of business operations including recommendations for users and analytics for content publishers and advertisers. Our platform also provides a mechanism to match and ingest third party data sets from our advertisers and data vendors who may have demographic or other attributes that would enhance our analytics, products or advertising efforts.We continue to refine measurement capabilitiestheir return on our advertising platform. Through our own measurement tools and third parties including Nielsen, Acxiom, Oracle Data Cloud, Nielsen Catalina Solutions, Experian, Placed and Kantar Millward Brown, we provide advertisers the capability to measure audience demographics, validate ad effectiveness, and quantify sales lift from advertising on Roku.investment. We offer engagement analytics such as ad impressions served, click-through rates, and video completion rates. We also 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 serve. We have also recently established relationships with third partythird-party providers that focus on transactional or point of sale data, which enables our advertisers to compare the effectiveness of Roku ads.Our primary advertising products include:Video ads. Our ad-supported content publishers use video ads to monetize our audiences and we also use video ads to monetize our platform. Video ads are sold as 15-second or 30-second spots inserted before a program starts or during a program break, within channels on the Roku platform where we have video inventory access. One of the ways we secure video ad insertion rights from content publishers is via our distribution deals with those publishers. In addition, many publishers also authorize us to fill their own unsold inventory. Except for a minority of video ads that are passed unmodified in a traditional linear broadcast, all video ads are selected and delivered to a user in real-time, as the user is engagingserved on our platform. Digital advertisers have raised concerns about brand safety, viewability and fraud after certain issues arose between various video ad networks and major online video distributors. OTT is an attractive alternative. On the Roku platform our video ads play full screen, are not skippable in most channels and are delivered into a curated channel list.Interactive video ads. We offer advertisers the ability to make their TV advertising interactive with customized clickable overlays that invite viewers to engage more intimately with brands, by watching additional videos, obtaining offer details, getting a coupon code via text or finding the nearest retailer to buy a product.Audience development promotions. We utilize a variety of ad placements, particularly native display ads, on the Roku home screen and screen saver, to promote content publishers and their services to our users. We help them to drive channel downloads and traffic to their channels, and to drive subscriptions or movie and TV show consumption. Given our strategic role as a user’s TV streaming home screen, we are increasingly able to predict a user’s likelihood of taking action in response to an ad we serve. We also sell branded channel buttons on player and TV remote controls. The branded buttons are reserved for content publishers who want to reduce friction and drive incremental usage by allowing users to launch straight into the channel.Brand sponsorships. We support a variety oflegacy TV. Additional promotional advertising opportunities for advertisers, such as sponsored themes to take over our home screen andinclude content sponsorships to give users the opportunity to experience a free movie or show (e.g. “Family movie night brought to you by…”).and sponsored themes on our home screen. We also sell branded content rows inwithin The Roku Channel.TVsTVs are manufactured and sold by our TV brand licensees, integrate our Roku Operating System, or Roku OS, and leverage our smart TV hardware reference design. Current licensee brands consist of Element, Hisense, Hitachi, Insignia, RCA, Philips, Sharp and TCL, with a ninth brand, Magnavox, joining in spring 2018. Roku TVs are available in sizes ranging from 24” to 75” at leading retailers in the United States and Canada. In 2017 we had over 150 models available to consumers in North America, up from 100 in 2016, featuring a wide range of prices as well as picture and display capabilities. Consumers are able to choose from very affordable HD and 4K UHD models to TVs with picture quality boosted by 4K, Dolby Vision HDR and local dimming. Approximately one in five smart TVs sold in the United States in 2017 were Roku TVs.Streaming PlayersWe offer a line of streaming players for sale under the Roku brand in the United States, Canada, the United Kingdom, France, the Republic of Ireland and several Latin American countries, that allow users to access ourother TV streaming platform. All players rundevices, desktop, mobile, and more. Advertisers choose OneView because it is the only ad buying platform with Roku data, with ad space from The Roku Channel, and with new Roku ad experiences that go beyond the legacy TV spot.Roku OS,success of the investments in our business that we have made, and stream content via built-in Ethernet or Wi-Fi capability, depending onwill continue to make, to improve the model. Our current product line for the U.S. market includes several models at a range of manufacturers’ suggested retail prices to meet the needs of different users starting at $29.99.Our StrategyWe are capitalizing on the large economic opportunity for a leading TV streaming platformvalue for users, content publishers, and advertisers. Our key growth strategies include:Grow active accounts. We intend to increase user adoption of the Roku platform by continuing to improve our user experience, to increase the depth and breadth of our content offering, and to enhance our TV streaming platform. We plan to continue to attract more users with a highly compelling TV streaming value proposition that allows users to access the largest collection of channels, pay only for the channels that they want, utilize the best search and discovery tools, and navigate a simple and easy to use user interface. We also plan to increase active accounts by continuing to expand our retail presence and grow our Roku OS licensing program for TV brands and service operators. Further, we believe international expansion represents a large opportunity to grow our active accounts. We plan to continue to invest in our international strategy over time and become a global business in the long term.Grow hours streamed. We intend to increase user engagement and hours streamed by offering more content that is easier to find and discoveradvertisers on our platform. By increasing the available content onWe must regularly update and enrich our platform to meet evolving consumer behavior and making it easily accessible, we have diversified the type of content streamed. When we launched the first Netflix player in 2008, Netflix accounteddeliver a superior experience for 100% of our streaming hours, but now with thousands of channels available in the U.S and internationally, our reliance on any particular channel partner has continued to decline.Grow ARPU. We expect to continue to grow ARPU by growing hours streamed and our monetization capabilities. Advertising-based content is our fastest growing segment, and we are increasing the monetization of these hours by expanding our advertising capabilities both on and off the Roku 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.TechnologyWe believe that the core technology supporting the Roku OS is a critical competitive advantage and therefore we continue to make substantial investments in our research and development efforts to enhance our platform for 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 have investedmust continuedelivering broad searchour advertising capabilities and discovery capabilities for our users in order to organizetechnology so that we attract and manage the vast amounts of content and pricing informationencourage incremental advertising spend on our platform. Our cloud-based searchAccordingly, we plan to continue investing in our business to enhance our competitive differentiation and discoveryseed future growth. In particular, these investments will include research and development initiatives to bring new features and technology to our platform; sales and marketing efforts to drive increased scale and engagement of our user base; continuing to invest in both licensed and original content to drive incremental usage of The Roku Channel; and building out our general and administrative infrastructure to support a global scale business.users are powered by state-of-the-art serversSMBs to access the OneView ad platform. In 2021, we announced a new tool that will allow Shopify merchants to easily build, buy, and databases that are purpose-built and support large scale audiences. We have also introduced user experience technology such as private listening and voice search for certainmeasure TV streaming devices.For content publishers, we offer our open Channel Developer Program to create streaming channels. The Channel Developer Program is basedadvertising campaigns on our Software Development Kit, or SDK, and proprietary implementation of the Brightscript scripting language, which is optimized to provide robust performance and a consistent user experience on any device with the Roku platform. Channel Developers may also take advantage ofAlso, in 2021, we acquired Nielsen’s video automatic content recognition and dynamic ad insertion technologies. Roku can now enable TV programmers to replace legacy TV ads with targeted ads in real-time. This means marketers can improve the consumer experience by no longer running the same ad too many times to the same linear TV viewer and content owners can increase ad revenue by bringing Roku data and attribution into legacy TV advertising.feed-based Roku Direct Publisher program, which does not requirebusiness delivers to consumers, content publishers, to write a single line of code to publish a channel onadvertisers, TV brand partners, other device licensees, and retailers is as compelling in international markets as it is in the United States. Today our platform.For advertisers,products are available in 20+ countries while the Roku Ad Framework, or RAF, technologyOS is integrated intoavailable in six countries. We are now the Roku OS. RAF provides a variety of critical and advanced advertising capabilities, including IAB VAST ad processing, interactive rich media features, demographic measurement, device IDs, user privacy controls and compatibility with all major video ad servers, SSPs and DSPs.Our proprietary systems leverage our feature extraction, information retrieval and matching systems to provide the most relevant ads. The Roku OS also includes our core data platform that manages and analyzes billions of technical and user events and terabytes of uncompressed data that is processed through our platform each day. We use leading big data analytic technologies to identify rich insights to improve user, content publisher and advertiser value from Roku.In early 2018, we also announced plans to work with manufacturers of smart speakers and sound bars in a whole home entertainment licensing program. The new whole home entertainment licensing program will enable OEM brands to build sound bars and smart speakers, surround sound and multi-room audio systems that use Roku software to work together as a home entertainment network. Devices in this whole home entertainment network will be able to connect wirelessly and be controlled by voice commands and a single remote. In addition, OEM brands will be able to license smart sound bar and smart speaker hardware reference designs along with the Roku OS.Sales and MarketingWe drive growth in our#1 TV streaming platform in the United States, Mexico, and Canada by hours streamed. We continue to build our foundation for international expansion by establishing teams and offices around the world and investing in systems and processes that will support international expansion going forward. In 2021, we expanded into Germany with our player business and launched new Roku TV models in the United Kingdom, Brazil, Mexico, Chile, and Peru. In international territories, we will continue to focus on building scale first, increasing customer engagement, and ultimately driving monetization.operators. operators, and driving sales of our streaming players and audio products and Roku TV models to consumers through retail distribution channels.Roku.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. We sell advertising with two direct sales teams, one focused on content publishers, the other focused on traditional advertisers. 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 through access to programmatic ad exchanges in OneView to 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 OTTstreaming audience across many channels at once. once using our own data. 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.the major ad agencies and holding companies including Dentsu, Havas, Horizon, IPG, Publicis and WPP. We also offer smaller content publishers a self-serve platform to buy promotions, and are increasingly incorporating programmatic capabilities into our advertising sales. We work withRoku TV brandsbrand partners to assist in all phases of the development of Roku TVs,TV models, including development, planning, manufacturing, and marketing, and similarlymarketing. Similarly, we work with service operators on the planning and development of their Roku Poweredco-branded players.We grow our users by providing consumers with low cost, widely available players and TVs and we promote them using a wide range of marketing techniques. the fall of 2017, we refreshed our entire product line of five different streaming players, with prices ranging from our most popular Roku Express at $29.99 to our most powerful Roku Ultra at $99.99. Our players and TVs are available at over 16,000 retail locations in the United States, Canada, the United Kingdom, France, the Republic of Ireland and several Latin American countries. The majority of our streaming players, audio products and Roku players and TVsTV models are sold in the United States through traditional brick and mortar retailers, such as Best Buy, Target, and Walmart, including their online sales platforms, and online retailers such as Amazon.com. We also sell players in the United States directly throughAmazon, and to a lesser extent our website. In addition, in some cases, we sell our streaming players to service operators or channel partners who bundle such players with services that they sell to their customers. We also sell products internationally through distributors and to retailers such as Currys in the United Kingdom andretailers. Amazon, in France. In 2017 and 2016, Amazon.com, Best Buy, and Walmart each accounted for more than 10% ofour player revenue. These three retailers collectively accounted for 61%69% of our player revenue for both20172021 and 2016. These retailers also sell products offered by our competitors.2020. 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, leading usforecasting. We intend to becontinue to invest significant resources in our sales and marketing efforts.category captainhigh percentage of the total net revenue for such fiscal year due to higher consumer purchases and increased advertising during holiday seasons. Furthermore, in many major retail locations.uponon a combination of in-house staff and offshoreout-sourced design and manufacturing partners to cost-effectively improve and enhance our platform, and to develop new players, audio products, TVs, partner licenses, 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.expandenhance our platform and capabilities.playersproducts to our contract manufacturer,manufacturers, using our design specifications. All of our playersproducts are manufactured by Foxconn at its facilitiesour contract manufacturers in the People’s Republic of China.China, Southeast Asia, and Brazil. Our contract with Foxconn doescontracts do not obligate them to supply playersproducts to us in any specific quantity or at any specific price. Our manufacturing partnerscontract manufacturers procure components and assemble our playersproducts to demand forecastsforecast we establish based upon historical trends and analysis from our sales, operations, and product management functions. Foxconn currently ships playersThe contract manufacturers ship our products to our third-party warehouses in California, the United Kingdom, Germany, and EnglandBrazil where theywe ship playersour products directly to retailers, wholesale distributors and to end users.domesticU.S. federal, U.S. state, 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-deliveredinternet-delivered streaming services and internet-connected devices. New lawsregulations in these areas may have an adverse effect on our business. The costs of compliance with these laws and regulations are high and are likely to increase inabroad, the future. If we fail to comply with these laws 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 international jurisdictions vary widely as to how, or whether, existing laws governing areas such as personalregulatory framework for privacy and data security issues is rapidly evolving. U.S. federal and state consumer protection payment processingregulators generally exercise oversight of consumer privacy protections and the security of online services. And an increasing number of states have passed, or sales and other taxes and intellectual property applyare considering legislation 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.We are also subject to both general and e-commerce specific privacy laws and regulations that may require us to provide users with our policies on sharing information with third parties and advance notice of any changes to these policies. Related laws may govern the mannerconsumer privacy. Likewise, foreign jurisdictions in which we store or transfer sensitive information or impose obligations on us in the event of a security breach or inadvertent disclosure of such information. International jurisdictionsoperate impose different, and sometimes more stringent, consumer and privacy protections, includingcompared to the EU’s newly enacted General Data Protection Regulations. Such consumerUnited States. Consumer privacy laws are constantly changing and may become more diverse and restrictive over time, challenging our ability to fully complyincreasing the challenges and costs associated with complying 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 intendedto 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. Further, we could be subject to fines or other payments for any past failures to comply with these requirements. 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.Internetinternet 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 relyhistorically have relied on the historical openness and accessibility of the Internetinternet to conduct our business, and government regulations that impede or fail to preservethe preservation of the open Internetinternet could harm our business. Regulators in the United States and abroad continue to evaluate policy changes that could affect the openness of the internet. To the extent regulatory agencies adopt rules thatregulators allow network operators to restrict the flow of content over the Internet,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.Ourpublishers also arebusiness is subject to a wide range of government regulations that may vary by jurisdiction. Some nations highly regulate media, including TV streaming. Others have (or may consider) regulations that mandateInternet,internet, increased regulation of our content publishersTV streaming or changes in laws or regulations governing Internet retransmissioninternet transmission of third-party content could increase our expenses and adversely affect our business and the attractiveness of our platform.WeTo establish and protect our proprietary rights, we rely on a combination of intellectual property rights, including patents, trademarks, copyrights, trade secrets, copyrights, trademarks, patentssecret laws, license agreements, confidentiality procedures, employee disclosure and domain names to protect our intellectual property. Our trademarks, including “Roku”invention assignment agreements, and the Roku logo and design, are an important part of our branding and the value of our business. other contractual rights.2017,2021, we owned 52had approximately 750 issued U.S. patents (of which 15 are design patents) and 10 issued European Community design patents.The claims for which we have sought patent protection apply to both our devices and software. Our patent and patent600 pending applications generally apply to the features and functions of our Roku OS and the applications associated with our platform.We also incorporate generally available third-party software, including open source software, in our Roku OS and our platform, pursuant to licenses with such third parties. The termination of these software licenses would require redesign of parts of the Roku OS and our platform, which could delay or impair our ability to offer our devices and platform.We enter into confidentiality agreements with employees, consultants and business partners, and generally control access and use of our proprietary and other confidential information through the use of internal and external controls. These steps may not be adequate, however, and may not be effective to protect our intellectual property in the United States and foreign countries. We also license technology from third parties when we believe it will facilitate our product offerings or other international markets in which we do business. Third parties may infringe or misappropriate ourFor information about the intellectual property rightsrisks applicable to our business, see Item 1A, Risk Factors, elsewhere in this Annual Report.may challenge our issued patents. If we fail to adequately protect our intellectual property rights, our competitors could offer similardevelop new products and services, which would harmas our business.Employees2017,2021, we had 817employed approximately 3,000 full-time employees of which 459 werelocated in research and development, 212 were13 countries. Only our employees in sales and marketing, and 146 were in general and administrative and operations. None of our employeesBrazil are represented by a labor union with respect to his or hertheir employment. The majority of our employees currently are working from home as a result of the COVID-19 pandemic but we expect that most employees will adopt a hybrid work schedule (consisting of both in-person work and working from home) in 2022.have not experienced any work stoppages and we consider our relations withwant our employees to be good.Information about Segmentproud to work at Roku. Our entrepreneurial, execution-focused culture emphasizes recruiting talented individuals, encouraging teamwork, and Geographic AreasThe segmentexpecting 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 geographic information required hereinencouraged to make decisions, our leadership communicates plans, milestones, and strategic context broadly, and our 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.contained in Note 13 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.Corporate InformationWe originally formed in October 2002 asensure that Roku LLC under the lawscontinues to be a great place to work and thrive. In 2021, we launched our first company-wide employee engagement survey to better understand employee sentiment regarding our strategy, culture, compensation and benefits, leadership, and other dimensions of the Stateemployee experience.Delaware. On February 1, 2008,Global Talent Management and Inclusion leads 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.LLC was converted intoin volunteerism, charitable activities, and youth engagement.Inc.platform that highlight and celebrate diverse stories from various content providers.Delaware corporation.comprehensive New Hire Onboarding experience covering our culture, business, and the resources employees need to increase their speed to productivity. In addition to mandatory training covering Anti-Harassment, Anti-Discrimination, and Privacy, we offer employees a highly encouraged suite of training offerings such as High-Performance Feedback, Effective Meetings, and Communication and Presentation Skills. Managers are provided with development on Expectations for Managers, Interviewing and Hiring, and Performance Management to support new and newly promoted leaders in managing and leading effectively. In addition, all employees have access to on-demand technical and non-technical skill developmentcompletedintend to continue to review, refresh, purchase, and custom-build additional training materials to support our initial publicglobal employees’ performance and development needs.(the “IPO”)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.October 2017their professional and our Class A common stock is listed on The NASDAQ Global Select Market underpersonal lives. In support of this, we offer a variety of benefits and wellness offerings to employees around the symbol of “ROKU”. Our principal executive offices are located at 150 Winchester Circle, Los Gatos, California 95032, and our telephone number is (408) 556-9040. world.Information contained on or accessible through our website is not a part of this report and the inclusion of our website address in this report is an inactive textual reference only. 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.Available InformationSecurities 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”).TheSEC. readbedeemed to be material information. We therefore encourage investors, the media, and copy any materialsothers interested in our company to review the information we file with the SEC at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549. The public may obtain informationpost on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. our investor relations website.(http://www.sec.gov)(www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 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 seriously 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.We have incurred operating lossespast, expect to incur operating losses in the future and may never achieve or maintain profitability.We began operations in 2002 and for allmanufacturing of our players and Roku TV models;we have experienced net losses and negative cash flows from operations. As of December 31, 2017, we had an accumulated deficitoperating losses;$283.3 million and for the year ended December 31, 2017, we experienced a net loss of $63.5 million. We expect our quarterly operating expensesresults that could cause our stock price to increase in the future as wedecline;operations. Ifinternational operations;profit do not grow atprofit;greater rate thandegradation of our operating expenses, we will not be ableplatform;achieve and maintain profitability. We expect to incur significant lossesIntellectual Propertynumberdecline in our stock price caused by future sales or issuance of reasons, including without limitation our capital stock or rights to purchase capital stock;other risks and uncertainties described herein. Additionally, we may encounter unforeseen operating orsignificant legal, expenses, difficulties, complications, delaysaccounting, and other factors that may resultexpenses associated with being a publicly traded company;losses in future periods. If our expenses exceedcharter and bylaws; andrevenue, we may never achieve or maintain profitabilityselection of the Delaware Court of Chancery and the U.S. federal district courts as the exclusive forums for substantially all disputes between us and our business may be harmed.stockholders.
Risks Related to Our Business and Industryincreasinglyhighly competitive and global. Our success depends in part on attracting users to and retaining users on, and the effective monetization of, our TV streaming platform. To attract and retain users, we need to be able to respond efficiently to changes in consumer tastes and preferences and continue to increaseoffer our users access to the type and number of content offerings.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 also effectively support the most popular sources of streaming content that are available on our platform, such as Amazon Prime Video, Disney+, Discovery+, HBO Max, Hulu, Paramount+, Peacock, Netflix, Amazon.com, Inc., Hulu and YouTubeYouTube. And we must respond rapidly to actual and anticipated market trends in the U.S. TV streaming industry.CompaniesAmazon.com,Amazon, Apple, Inc. and Google Inc. offer TV streaming productsdevices that compete with our streaming players and Roku TV.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 and service provider set top boxes.sells Amazon-branded smart TVs. These companies have thegreater financial resources tothan we do and can subsidize the cost of their streaming devices or licensing arrangements in order to promote their other products and services, makingwhich could make it harder for us to acquire new users, retain existing users, and increase hours streamed.streaming hours. These companies could also implement standards or technology that are not compatible with our products or that provide a better streaming experience on competitive products.experience. These companies also have greater resources to promote their brands through traditional forms of advertising such as TV commercials, as well as Internet advertising or website product placement, and have greater resources than us to devote to such efforts. such as LG, Samsung Electronics Co., Ltd. and VIZIO, Inc., offer their own TV streaming solutions within their TVs. Other devices, such as Microsoft’s Xbox and Sony’s PlayStation game consoles, and many DVD and Blu-ray players, also incorporate TV streaming functionality. Similarly, some service operators, such as Comcast, and Cablevision, offer TV streaming applications and devices 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 usersconsumers of TV streaming content prefer these alternative products to Rokuour streaming players and our partners’ Roku TVs,TV models, we may not be able to achieve our expected growth in playeractive accounts, streaming hours, revenue, gross profit or gross profit.andmodels, or our platform to gain or maintain broad market acceptance. To remain competitive and maintain our position as a leading TV streaming providerplatform, 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 4K, HDR8K 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 salesdistribution of their products or the distribution of 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 market share,sales volume, revenue, and operating margins, increase our operating costs, harm our competitive position, and otherwise harm our business.alsooperate in a highly competitive advertising industry and compete for video viewing hoursrevenue from advertising with mobileother streaming platforms (phones and tablets)services, including digital and social media platforms, 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, increasing our advertising inventory, and expanding 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 would harm our business.userssocial media platforms to win business from advertisers and agencies who have traditionally advertised on these platforms, such as direct-to-consumer and small or medium-sized businesses, our ability to grow our business may prefer to view streaming content on such devices. Increased usebe limited. If advertisers, or their agency relationships, do not perceive meaningful benefits of mobile platforms for video streamingOTT advertising, the market may develop more slowly than we expect, which could adversely impact the growthour operating results and our ability to grow our business.streaming hours, harm our competitive position and otherwise harm our business.publishers and advertisers.publishers. We generate platform revenue primarily from the sale of digital advertising campaigns and on a transactional basis from new subscription purchases and content transactions that occur on our platform.distribution services. As such,our user basethe 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. The total number of hours streamed, however, does not correlate with platform revenue on a period-by-period basis, because we do not monetize every hour streamed on our platform. 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.channelchannels by allowing themusers to purchase additional content and streaming services within their channels. In addition,channels, for which we do not currently monetize content providedmay earn less revenue than activations on non-certified channels onor through our 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 our users opt out from our ability to collect data for use in providing more relevant advertisements, then 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.To date, the majority of the hours streamed on our platform have consisted of subscription video on demand content; however, inadvertising-supported video advertising, we will need our users to stream significantly more ad-supported content. Furthermore, ourOur efforts to monetize our streaming platform through ad-supported content isare still developing and may not continue to 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 ad-supported 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.advertising-supported video.harmed, even though the revenues received, directly or indirectly, from streaming on certain of these channels has not been significant to our overall revenue.contenthours streamed acrosson our platform and the terms and conditions of our relationships with content publishers vary. Forplatform. In the year ended December 31, 2017, content streamed from our2021, the top fivethree streaming channels accounted for a significant portion of the total hours of content streamed across our platform, with Netflix alone accounting for approximately one-thirdservices represented over 50% of all hours streamed in eachthe period. However, although Netflix isIf, for any reason, we cease distributing channels that have historically streamed a large percentage of the largest provider of content acrossaggregate streaming hours on our platform, revenue generated from Netflix was not material to our overall revenue during the year ended December 31, 2017,streaming hours, active accounts, or streaming device sales may be adversely affected, and weour business may be harmed.expect revenue from Netflixpublish content on our platform, we may fail to retain existing users and attract new users.materialharmed. Our ability to successfully help content publishers maintain and expand their channel offerings on a cost-effective basis largely depends on our operating results for the foreseeable future. ability to:a termterms 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 publisher’spublishers’ security or other platform certification requirements. Further,Upon expiration of these agreements, we do not receive material revenueare required to re-negotiate and renew them in order to continue providing content from YouTube, the most viewed ad-supported channel by hours streamedthese 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.year ended December 31, 2017. Ifany period of time may harm our business. More broadly, if we fail to maintain our relationships with the content publishers that account for a significant amount of the content streamed by our userson 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.We operate in an evolving industry, which makes it difficult to evaluate our business and prospects. If TV streaming develops more slowly than we expect, our operating results and growth prospects could be harmed. In addition, our future growth depends on the growth of TV streaming advertising.TV streaming is relatively new and 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 TV 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. These technologies, products and content offerings continue to emerge and evolve. Users, content publishers or advertisers may find TV streaming platforms to be less attractive than traditional TV, which would harm our business. In addition, many advertisers continue to devote a substantial portion of theiradvertising budgets to traditional advertising, such as TV, radio and print. The future growth of our business depends on the growth of TV streaming advertising, and on advertisers increasing spend on such advertising. We cannot be certain that they will do so. If advertisers do not perceive meaningful benefits of TV streaming advertising, then this market may develop more slowly than we expect, which could adversely impact our operating results and our ability to grow our business.We may fail to attract content publishers that generate sufficient quantity or quality of ad-supported content hours on our platform and continue to grow supply of quality video ad inventory. We growWhile The Roku Channel has historically served as a valuable source of video ad inventory by addingfor us to sell, there is no guarantee that it will continue to do so in the future. If The Roku Channel is unable to secure content that is appealing to our users and retainingadvertisers, or is unable to do so on terms that provide a sufficient supply of ad inventory at reasonable cost, our supply of video ad inventory will be negatively impacted. 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 with ad-supported channels that we can monetize. In addition,varies greatly among channels. Accordingly, we do not have access to alla significant portion of the video ad inventory on our platform,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 advertisingad inventory at reasonable costs to keep up with demand, our business may be harmed.We operate in a highly competitive industry and we compete for advertising revenue with other Internet 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 TV 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 advertising revenue by, among other things, continuing to improve our platform’s data 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.Our players and Roku TVs must operate with various offerings, technologies and systems from our content publishers that we do not control. If Roku devices do not operate effectively with those offerings, technologies and systems, our business may be harmed.Our Roku OS is designed for performance using relatively low cost hardware, which enables us to drive user growth with our players and Roku TVs offered at a low cost to consumers. However, our hardware must be interoperable with all channels and other offerings, technologies and systems from our content publishers, including virtual multi-channel video programming distributors such as Sling TV. We have no control over these offerings, technologies and systems beyond our channel certification requirements, and if our players 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, we may be unable to increase user growth and content hours streamed, 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 new products. These 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. To continue to grow our active accounts and user engagement, we will need to prioritize development of our products to work better with new offerings, technologies and systems. If we are unable to maintain consistent operability of Roku 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 products, which issues are likely to occur in the future from time to time. We may not successfully develop products 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.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 video content, including popular streaming channels like Netflix and YouTube, 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 entertainment 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.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, and we may not be able to increase or maintain our market share and revenue.If we fail to obtain or maintain popular content, we may fail to retain existing users and attract new users.We have invested a significant amount of time to cultivate relationships with our content publishers; however, such relationships may not continue to grow or yield further financial results. We must continuously maintain existing relationships and identify and establish new relationships with content publishers to provide 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 or 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 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 market new streaming channels and enhancements to our existing streaming channels;minimize launch delays of new and updated streaming channels; andminimize platform downtime and other technical difficulties.If we fail to help our content publishers maintain and expand their channel offerings our business may be harmed.If the advertisements on our platform are not relevant or not engaging to our users, our growth in active accounts and hours streamed may be adversely impacted.We have made, and are continuing to make, investments to enable advertisers to deliver relevant advertising content to users on our platform. Existing and prospective Roku advertisers may not be successful in serving ads that lead to and maintain user engagement. Those ads may seem irrelevant, repetitive or overly targeted and intrusive. We are continuously seeking to balance the objectives of our users and advertisers 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 and advertisers. If we do not introduce relevant advertisements or such advertisements are overly intrusive and impede the use of our TV streaming platform, our users may stop using our platform which will harm our business.The Roku Channel may not generate sufficient advertising revenues.In September 2017, we launched “The Roku Channel,” an ad-supported streaming channel on the Roku platform that gives our users free access to a collection of films and other content, and this channel has become a top 20 channel on our platform by hours streamed. We will not receive subscriptions or other fees from users that access content on The Roku Channel. We have incurred, and will continue to incur, costs and expenses in connection with the launch and operation of The Roku Channel, which we plan to monetize through advertising. If our users do not continue to stream the content we make available on The Roku Channel, we will not have the opportunity to monetize The Roku Channel through advertising. 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 content we make available, our users may not stream content and view advertisements on The Roku Channel, and The Roku Channel may not generate sufficient advertising revenues to be cost effective for us to operate.Our growth will depend in part upon our ability to develop relationships with TV brands and, to a lesser extent, service operators.We developed, and intend to continue to develop, relationships with TV brands and service operators in both the United States and international markets. Our licensing arrangements are complex and time-consuming to negotiate and complete. Our potential partners include TV brands, cable and satellite companies and telecommunication providers. 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 devices, our business may be harmed.We license our Roku OS to certain TV brands to manufacture co-branded smart TVs, or Roku TVs. 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 and increasing hours streamed. We have not received, nor do we expect to receive significant license revenue from these arrangements in the near term, but we expect to incur expenses in connection with these commercial agreements. If these arrangements do not result in increased users, hours streamed or we are unable to increase the revenue under these arrangements, 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. We have also recently announced a whole home entertainment licensing program to license the Roku OS to manufacturers of smart speakers and sound bars. 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.If our users sign up for offerings and services outside of our platform or though 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 revenues we earn from these transactions are generally not equivalent to the revenues we earn from activations on or through our platform that we receive full attribution credit for. Accordingly, if users activate their subscriptions for content or services through other channels on our platform, our business may be harmed.If we were to lose the services of our Chief Executive Officer or other members of our senior management team, we may not be able to execute our business strategy.Our success depends in a large part upon the continued service of key members of our senior management team. 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 the Roku platform, our culture and our strategic direction. All of our executive officers are at will employees, and we do not maintain any key person life insurance policies. The loss of any member of our senior management team could harm our business.If we are unable to attract and retain highly qualified employees, we may not be able to continue to grow 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. As competition with other companies’ increases, we may incur significant expenses in attracting and retaining high quality engineers and other employees. The loss of employees or the inability to hire additional skilled employees as necessary to support the rapid growth of our business and the scale of our operations could result in significant disruptions to our business, and the integration of replacement personnel could be time-consuming and expensive and cause additional disruptions to our business.We believe a critical component to our success and our ability to retain our best people is our culture. As we continue to grow and develop a public company infrastructure, 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.Most of our agreements with content publishers are not long term. Any disruption in the renewal of such agreements may result in the removal of certain content from our platform and may harm our active account growth and engagement.We enter into agreements with all our content publishers, which have varying expiration dates; typically over one to three years. Upon expiration of these agreements, we are required to re-negotiate and renew these agreements in order to continue providing offerings from these content publishers on our platform. We may not be able to reach a satisfactory agreement before our existing agreements have expired. If we are unable to renew such agreements on a timely basis, we may be required to temporarily or permanently remove certain content from our platform. The loss of such content from our platform for any period of time may harm our business. continue to develop channels for our platform and participate in new features that we may introduce from time to time, our business may be harmed.cross-channel search feature, our integrated advertising framework known as RAF, 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 ourcertain content publisher’spublishers’ 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 key 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.Our quarterly operating resultsvolatileadversely impacted.difficultcontinuing to predict,make, investments to enable advertisers and content publishers to deliver relevant advertising and media and entertainment promotional spending campaigns to our users. Existing and prospectivestock pricebusiness may decline ifbe harmed.fail to meet the expectations of securities analysts or investors.Our revenue, gross profitare producing content for distribution on The Roku Channel and other operating results could vary significantlyplatforms. We have limited experience producing content, and we may not be successful in doing so in a cost-effective manner that is appealing to our users and advertisers and furthers the growth of The Roku Channel. We also take on risks associated with content production, such as completion and key talent risk. 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 quarter-to-quarteradvertising to be cost effective for us to operate. In addition, we distribute The Roku Channel on platforms other than our own streaming platform, and year-to-yearthere can be no assurance that we will be successful in attracting a large number of users or generating significant revenue from advertising through the distribution of The Roku Channel on such other streaming platforms.failbe harmed.matchpay for content from various content publishers. If users reduce the degree to which they use our past performance dueplatform for these purchases or subscriptions for any reason, and instead increase the degree to which they pay for services directly with content publishers or by other means for which we do not receive attribution, our business may be harmed.varietystand-alone basis through our platform. If users increase their spending on such in-channel transactions at the expense of factors, includingstand-alone purchases through our platform, our business may be harmed.control. Factorscontrol, which makes it difficult to evaluate our business and prospects.may contributethe continued growth of streaming as an entertainment alternative will depend on the availability and growth of cost-effective broadband internet access (including mobile broadband internet access), the quality and reliability of broadband content delivery, broadband service providers’ ability to control the variabilitydelivery speed of our operating resultsdifferent content traveling on their networks, the quality and cause the market price of our Class A common stock to fluctuate include:the entrancereliability of new competitors or competitive products in our market, whether by established or new companies;•our ability to retain and grow our active account base and increase engagement among new and existing users;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 product taxes;our revenue mix, which drives gross profit;seasonal or other shifts in advertising revenue or player sales;the timing of the launch of new or updated products, streaming channels or features;the addition or loss of popular content;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 TVs; andan 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 profit margins vary across our devices and platform offerings. Player revenue has a lower gross margin comparedtechnology, the cost for users relative to platform revenue derived through our arrangements with advertising,other sources of 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 resultthe quality and breadth of a shift in device, geographic or sales channel mix, component cost increases, price competition, or the introduction of new players, including thosecontent that have higher cost structures with flat or reduced pricing. We have in the past and may inis delivered across streaming platforms. Accordingly, the future strategically reduce our player gross margin inevolution of TV streaming as an effort to increase our active accounts and grow our gross profit. As a result, our player revenue may not increase as rapidly as it has historically, or at all, and, unless we are able to adequately increase our platform revenue and grow our 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 and gross profit, our financial results may suffer and our business may be harmed.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 due to higher consumer purchases and increased advertising during holiday periods. Fourth quarter revenue comprised 37% of total net revenue for the years ended December 31, 2017 and 2016, respectively, and fourth quarter gross profit comprised 37% of our total gross profit for the years ended December 31, 2017 and 2016, respectively. Furthermore, a significant percentage of our player sales through retailers in the fourth quarter are pursuant to committed sales agreements with retailers forindustry, 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 our player 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 macroeconomic conditions, a decline inimpact our success, is dependent on many of the effectivenessfactors that are outside of our promotional activities, actions by our competitors or disruptions in our supply or distribution chain, 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 licensees’ ability to timely deliver players and co-branded Roku TVs to retailers during the holiday season. A substantial portion of our expenses are personnel related and include salaries, stock-based compensation and benefits that are not seasonal in nature. Accordingly, in the event of a revenue shortfall, we would be unable to mitigate the negative impact on margins, at least in the short term,control.business would be harmed.We and ourRoku TV brand partners depend on our retail sales channels to effectively market and sell our players and Roku TVs,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.acquire newincrease our active accounts, we must maintain and expand our retail sales channels. The majority of our players and our TV brand partners’ Roku TVsTV 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.com. To a lesser extent, weAmazon. We also sell players directly through our website and internationally through distributors. In 2016distributors and 2017, Amazon.com,retailers such as Coppel in Mexico, Magazine Luiza in Brazil, and MediaMarkt in Germany. As we have only recently expanded to certain international markets, we may not have established a strong reputation or relationships with global retailers as compared to our domestic operations or our competitors in international markets. Amazon, Best Buy, and Walmart eachin total accounted for more than 10% of our player revenue and are expected to each account for more than 10% of our player revenue in fiscal 2018. These three retailers collectively accounted for 61%69% of our player revenue for both of the yearyears ended December 31, 20172021 and 2016. These2020. Our 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 TVs, orTV 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 due to COVID-19 restrictions or other concerns, the volume of our streaming devices or our TV brand partners’ Roku devicesTV models sold could decrease, which would harm our business. If any of our existing TV brand partners 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 and greater marketing resources, such as AppleAmazon or Google, possesses greater bargaining power with retailers. In addition, one of our online retailers, Amazon.com,Amazon, sells its own competitive TV streaming productsdevices and smart TVs, is able to market and promote these products more prominently on its website, and could refuse to offer or promote our devices.devices on its website. Any reduction in our ability to place and promote our devices, or increased competition for available shelf or website placement, wouldcould require us to increase our marketing expenditures simply 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.time consumingtime-consuming and comprehensive endeavor and can be positively and negatively impacted by any number of factors. Some of theseCertain 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 TVsTV 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 promotemay have greater resources to devote to the promotion of 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 Internetdigital advertising or website product placement more effectively than we can.placement. 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.customersusers to choose from thousands of channels, representing a variety of content from a wide range of content publishers. Our customersusers can choose and control which channels they download and watch, and they can use parental controlcertain settings to prevent channels from being downloaded to ourof the channels that we distribute have resulted in, and could in the future result in, negative publicity, cause harm to our reputation and brand, or subject us to claims and may harm our business.We must successfully manage device introductions and transitions in order to remain competitive.We must continually develop new and improved devices that meet changing consumer demands. Moreover, the introduction of a new device is a complex task, involving significant expenditures in research and development, promotion and sales channel development. For example, in 2017 we participated in the introduction of dozens of new models of Roku TVs with TCL that incorporate new technologies and larger screen sizes and we updated our entire streaming player product line for higher performance and new features. Whether users will broadly adopt new devices is not certain. Our future success will depend on our ability to develop new and competitively priced devices and add new desirable content and features to our platform. Moreover, we must introduce new players in a timely and cost-effective manner, and we must secure production orders for those players from our contract manufacturer and component suppliers. The development of new devices 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 devices depends on a number of factors, including the following: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 manufacturer to cost-effectively manufacture our new players;the availability of materials and key components used in manufacturing; andour ability to attract and retain world-class research and development personnel.If any of these or other factors becomes problematic, we may not be able to develop and introduce new devices in a timely or cost-effective manner, and our business may be harmed.We do not have manufacturing capabilities and primarily depend upon a single contract manufacturer, and our operations could be disrupted if we encounter problems with the contract manufacturer.We do not have any internal manufacturing capabilities and primarily rely upon one contract manufacturer, Hon Hai Precision Industry Co. Ltd., or Foxconn, to build our players. Our contract manufacturer is vulnerable to capacity constraints and reduced component availability, and our control over delivery schedules, manufacturing yields and costs, particularly when components are in short supply or when we introduce a new player or feature, is limited. In addition, we have limited control over Foxconn’s quality systems and controls, and therefore must rely on Foxconn to manufacture our players 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 ultimately our brand. Furthermore, any adverse change in our contract manufacturer’s financial or business condition could disrupt our ability to supply players to our retailers and distributors.Our contract with Foxconn does not obligate them to supply our players in any specific quantity or at any specific price. In the event Foxconn is unable to fulfill our production requirements in a timely manner or 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 or to our quality and performance standards. Any significant interruption in manufacturing at Foxconn would require us to reduce our supply of players to our retailers and distributors, which in turn would reduce our revenue. In addition, the Foxconn facilities are located in the People’s Republic of China and may be subject to political, economic, social and legal uncertainties that may harm our relationships with these parties. We believe that theinternational location of these facilities increases supply risk, including the risk of supply interruptions. Furthermore, any manufacturing issues affecting the quality of our products, including Roku TVs or players, could harm our business.If Foxconn fails for any reason to continue manufacturing our players 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 may not be in a position to satisfy our production requirements at commercially reasonable prices or to our quality and performance standards. Any significant interruption in manufacturing at Foxconn would require us to reduce our supply of players to our retailers and distributors, which in turn would reduce our revenue and user growth.If we fail to accurately forecast our manufacturing requirements and manage our inventory with our contract manufacturer, we could incur additional costs, experience manufacturing delays and lose revenue.We bear supply risk under our contract manufacturing arrangement with Foxconn. Lead times for the materials and components that Foxconn orders 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 are currently lengthy, requiring our contract manufacturer to order materials and components several months in advance. If we overestimate our production requirements, our contract manufacturer may purchase excess components and build excess inventory. If our contract manufacturer, at our request, purchase excess components that are unique to our players or build excess players, we could be required to pay for these excess components or players. In the past, we have agreed to reimburse our contract manufacturer for purchased components that were not used as a result of our decision to discontinue players 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 requirements, our contract manufacturer may have inadequate component inventory, which could interrupt the manufacturing of our players 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 manufacturer is 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, WiFi silicon products and WiFi 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, stop producing such components, cease operations or be acquired by, or enter into exclusive arrangements with, our competitors or other companies. Neither we nor our contract manufacturer has long-term supply agreements with these suppliers. Instead, our contract manufacturer typically purchases the components required to manufacture our players on a purchase order basis. As a result, most of these suppliers can stop selling to us at any time, requiring us to find another source, or can raise their prices, which could impact our gross margins. 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, or 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; anddelays in, or the inability to execute on, a supplier roadmap for components and technologies.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.If we have difficulty managing our growth in operating expenses, our business could be harmed.We have experienced significant growth in research and development, sales and marketing, support services and operations in recent years and expect to continue to expand these activities. For example, our research and development expenses increased to $107.9 million for the year ended December 31, 2017 from $76.2 million for the year ended December 31, 2016. 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:manage a larger organization;hire more employees, including engineers with relevant skills and experience;expand our manufacturing and distribution capacity;increase our sales and marketing efforts;broaden our customer support capabilities;support a larger number of TV brand and service operators;implement appropriate operational and financial systems;expand internationally; andmaintain 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, including our recent expansion into Latin America. In addition, our international expansion plans, if implemented, will subject us to a variety of risks that may harm our business.We currently generate almost all of our revenue in the United States and have limited experience marketing, selling and supporting our players and monetizing our platform outside the United States. In addition, we have limited experience managing the administrative aspects of a global organization. We currently sell our players in Canada, the United Kingdom, the Republic of Ireland and France and several Latin American countries. While we intend to continue to explore opportunities to expand our business in international markets in which we see compelling opportunities to build relationships with users, advertisers and retail distributors, TV brands and service operators, we may not be able to create or maintain international market demand for our players and TV streaming platform. In addition, as we expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training and documentation in languages other than English. We may also be subject to new statutory restrictions and risks. For example, there may be no foreign equivalents to the Digital Millennium Copyright Act to shield us from liability in connection with infringing materials that content publishers may make available on our platform. In addition, we may be required in international jurisdictions to offer longer warranty periods than we currently offer in the United States. 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.In the course of expanding our international operations and operating overseas, we will be subject to a variety of risks, including:differing regulatory requirements, including tax laws, trade laws, labor regulations, tariffs, export quotas, custom duties or other trade restrictions;greater difficulty supporting and localizing our players and platform;our ability to deliver or provide access to popular streaming channels 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;challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, compensation and benefits and compliance programs;differing legal and court systems, including limited or unfavorable intellectual property protection;risk of change in international political or economic conditions;restrictions on the repatriation of earnings; andworking capital constraints.If ongoing litigation in Mexico continues to prevent our products from entering the marketplace, our international expansion plans will be impacted and our operating results may suffer.We are involved in litigation in Mexico that was commenced by a large Mexican pay TV and Internet access provider. Roku was not named as a defendant in this case, and the case principally targeted entities that are alleged to sell unlicensed content to consumers using our platform, among other means. At the commencement of this case, however, a court issued a temporary ban on the importation and sale of Roku devices in Mexico, which remains in effect. In response to this ban, the Company commenced a separate proceeding in a federal District Court in Mexico City challenging the constitutionality of the ban, which proceeding is ongoing. Involvement in these legal proceedings has been complicated and has drawn management time and company resources. In addition to reducing revenue for products sold in Mexico, our involvement in this litigation has caused us to incur legal expenses and other costs, and to the extent these legal and other expenses grow, our involvement in this litigation, or similar legal matters in the future, could be disruptive to our business.If we experience higher player returns than we expect and are unable to resell such returned players as refurbished players our business could be harmed.We offer customers who purchase players through our website 30 days to return such players. We also generally honor the return policies of our retail and distribution partners, who typically allow customers to return players, even with open packaging within certain time periods that may exceed 30 days. We generally resell any returned players as refurbished players. In the event we decide to permanently reduce the retail prices of our players, we provide price protection to certain distribution partners for the players they hold in inventory at the time of the price drop. To the extent we experience a greater number of returns than we expect, are unable to resell returned players as refurbished players or are required to provide price protection in amounts greater than we expect, our business could be harmed. or the terms of our agreements.agreements or our billings for purchases made by them through our streaming platform or through our DSP. If we are unable to collect or make adjustments to bills, we could incur write-offs for bad debt,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.ourthe 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.users or otherwise disrupt our business. We utilize computer systems located either in our facilities or those of third-party server hosting providers and third-party Internet-basedinternet-based or cloud computing services. Although weandor 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, wars, foreign invasions, terrorist activity, 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, products, or services 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.make significant investmentsinvest 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 providers do not effectively address capacity constraints, upgrade ouror patch systems as needed, and continually develop our 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.Our servers may be vulnerable to computer viruses, cyberattacks, break-ins or other security issues, which could lead to the loss, misuse or alteration of personal data or confidential information, and cause harm to our reputation and business and subject us to liability.Our servers and those of the third parties we use in our operations may be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions and delays in platform availability and operations, as well as the loss, misuse or theft of personal and identifying information of our users. We also rely on third-party contractors to collect, process, transmit and store personal information of our users, including our users’ credit card data. While we have implemented administrative, physical and electronic security measures to protect against reasonably foreseeable loss, misuse and alteration of personal data and confidential information (e.g., protected content or intellectual property), viruses, social engineering attacks, general hacking and cyberattacks on companies have increased in frequency and potential impact in recent years. We have faced these issues in the past, and will occur on our systems in the future and if any of these cyberattacks against us are successful, these may harm our reputation and business and subject us to potential liability despite reasonable precautions.We maintain limited insurance policies to cover losses relating to our systems. 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 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 hackers. 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 hackers to disrupt our platform, our devices, website, computer systems or our mobile apps, if successful, could harm our business, be expensive to remedy and damage our reputation. Efforts to prevent hackers 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 users’ data could damage our reputation and our business and could expose us of the risk to contractual damages, litigation and regulatory fines and penalties that could harm our business.consumersour users to access high-quality streaming content through the Internet.internet. As a result, the growth of our business depends on our users’ ability to obtain low-cost,and maintain high-speed access to the Internet,internet at reasonable cost, which relies in part on theinternet service network operators’ continuing willingness to upgrade and maintain their equipment as needed to sustain a robust Internetinternet infrastructure as well as their continued willingness to preserve the open and interconnected nature of the Internet.internet. We exercise no control over network operators, which makes us vulnerable to any errors, interruptionsdisruptions, or delays in their operations.operations, as well as any decision they may make to prioritize the delivery of certain network traffic at the expense of other traffic. Any material disruption or degradation in Internetinternet services could harm our business.Internetinternet users continues to increase, network congestion could adversely affect the reliability of our streaming platform. We may also face increased costs of doing business, or decreased demand for our services, if network operators engage in discriminatory practices with respect to streamed video content in an effort to monetize access to their networks or customers by data providers.past, ISPs have attempted touncertainty around these laws and the rules that implement them, including changing interpretations, amendments, or repeal, coupled with potentially significant political and economic power of network operators, we could experience discriminatory or anti-competitive practices, such as 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 prohibitthrottling, that could impede our content offerings from being available on some or all of these tiers,growth, result in a decline in our quality of service, could decline, our operating expenses could increase andcause us to incur additional expense, or otherwise impair our ability to attract and retain customers could be impaired, eachusers, all of which wouldcould harm our business.Internetinternet also provide theseoffer consumers with multichannel video programming.programming, and some network operators also own streaming services. These network operators have an incentive to use their network 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.litigationIntellectual Propertythat could be costly, 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.Internet,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 growtoto: 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 solutions;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. For example, we have in the past elected to develop and implement specific design changes to address potential risks that certain products could otherwise become subject to exclusion or cease and desist orders arising from patent infringement and other intellectual property claims brought in the U.S. International Trade Commission. 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.Under our agreements with many of our content publishers, licensees, 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, manufacturing partners and suppliers. We could incur significant expenses defending these partners if they are sued for patent infringement based on allegations related to our technology. In addition, if a partner were to lose a lawsuit and in turn seek indemnification from us, we could be subject to significant monetary liabilities. In addition, because the devices sold by our licensing partners and 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 player in question, even if the claim does not pertain to our technology.protect proprietary rights toprovide the same extent or in the same mannerlevel 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 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 bothabroad. 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 United Statesintellectual property that we develop, which could have a material adverse effect on our business, financial condition, and abroad. Ifresults 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.PatentU.S. patent laws, and the 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 resultor USPTO,(“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. 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.location.We and our third -party contractors 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 our users’ device usage patterns, and rely on third-party contractors to collect, process, transmit and store personal information of our users, including our users’ credit card data. Further, we and third parties 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 streaming channels and deliver relevant advertising for ourselves and on behalf of our partners on our devices.We collect information about the interaction of users with our devices, our advertisements, and our partners’ streaming channels. To deliver relevant advertisements effectively, we must successfully leverage this data as well as data provided by third parties. ability to collect and use such data could be restricted by a number of factors, including consumers choosing to opt out from our collection of this data or the ability of our advertisers to use such data to provide more relevant advertisements, restrictions imposed by advertisers, content publishers and service providers, changes in technology, and new developments in laws, regulations and industry standards. For example, our privacy policy outlines the type of data we collect and discloses to users how to disable or restrict such data collection and the use of such data in providing more relevant advertisements. Any restrictionsopen source software could impose limitations on our ability to collect datacommercialize our devices and our streaming platform or could result in public disclosure of competitively sensitive trade secrets.abilitybusiness.growprovide indemnification in the event our revenue, particularlytechnology is alleged to infringe upon the intellectual property rights of third parties.advertising revenue which dependsagreements 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 engagingallegations 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 relevant recipients of advertising campaigns.Various federaldevices sold by our licensing partners and state laws and regulations governRoku TV brand partners often involve the collection, use, retention, sharing and security of the data we receive from and about our users. The regulatory environment for the collection and use of consumer data bythird-party technology, this increases our exposure to litigation in circumstances where there is a claim of infringement asserted against the streaming device manufacturers, online service providers, content distributors, advertisersin question, even if the claim does not pertain to our technology. Liability under our indemnification commitments may not be contractually limited.publisherscontinues to pose risks to our business, the nature and extent of which are highly uncertain and unpredictable.very unsettled in the United States and internationally. Privacy groups and government bodies, including the Federal Trade Commission, have increasingly scrutinized privacy issues with respect to devices that link personal identities or user and device data, with data collected through the Internet, and we expect such scrutinyexpected to continue to increase.be, impacted by the ongoing COVID-19 pandemic and resulting economic consequences. The United Statesspread of COVID-19 has caused us to take precautionary measures intended to help minimize the risk of the virus to our employees, including work from home policies, suspending certain business travel, and foreign governmentslimiting 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 vendors, and supply chain. There is no certainty that such measures will be sufficient to mitigate the risks posed by the COVID-19 pandemic.enacteda mixed impact on our business in 2021. When staying-at-home restrictions were first issued in the first quarter of 2020, we saw an acceleration in both streaming hours and are considering regulationsaccount activations, which have both since moderated as restrictions have lifted and we believe consumers have increasingly pursued out-of-home entertainment activities. Although we believe the COVID-19 pandemic has accelerated the shift of advertising from legacy TV to streaming TV, certain advertisers with businesses affected by the current global supply chain disruptions have reduced and may continue to reduce their spending on advertising. We also have encountered supply chain disruptions related to our players that have resulted in an increase in component prices and elevated air freight costs to replenish inventory and meet increased demand, and some of our TV brand partners have faced inventory challenges that have negatively impacted their unit sales, which we believe has affected and could significantly restrict industry participants’ abilitycontinue to collect,affect our streaming hours and active account growth. Additionally, at times during the pandemic 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.share personal informationeffectiveness of vaccines, vaccine boosters, and pseudonymous data, such as by regulatingtreatments; the levelimposition of consumer noticeprotective public safety measures; the resolution of global supply chain disruptions; and consent required before a company can place cookies or other tracking technologies. Some countries are considering or have enacted 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. In addition, the General Data Protection Regulation, which has been finalized and will be implemented by the member statesimpact of the European Union in May 2018, includes operationalpandemic on the global economy and compliancerequirements thatdemand for consumer products. Additional future impacts on our business may include, but are different than those currently in placenot limited to, material adverse effects on demand for our products and that also includes significant penalties for non-compliance. 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 harmservices, our business.We have incurred,supply chain and will continue to incur, expenses to comply with privacysales 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, limitdistribution channels, our ability to growexecute our strategic plans, and our profitability and cost structure.otherwise harmother catastrophic events could disrupt and impact our business.service operators refuseour streaming platform was to authenticatefail or be negatively impacted as a result of a natural disaster or other event, our ability to deliver streaming channels on our platform,content, including advertising, to our users maywould be restricted from accessing certain content onimpaired. Disruptions in the operations of our platformcontract manufacturers, suppliers, or TV brand partners as a result of a disaster or other catastrophic event could delay the manufacture and shipment of our business may be harmed.Certain service operators, including payproducts or Roku TV providers, have from time to time refused to grantmodels, which could impact our users access to streaming content through “TV Everywhere” channels and have made that content available only on certain devices favored by such service operators, including devices offered by that service operator or its partners. If major service operators do not authenticate popular TV Everywhere channels on our platform, we may be unable to offer a broad selection of popular streaming channels and consumers may not purchase or use our streaming players.business. If we are unable to develop adequate plans to ensure that our business functions continue to provide access to popular streaming channels on our platform, our business may be harmed.United Statesoperate during and after a disaster 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.On February 26, 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. The FCC’s 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. 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. On June 14, 2016, the U.S. Court of Appeals for the District of Columbia Circuit upheld the Open Internet Order against a challenge by twelve parties. Several parties, including AT&T Inc., the American Cable Association, CenturyLink, CTIA, the National Cable & Telecommunications Association and the United States Telecom Association, petitioned the United States Supreme Court for certiorari on September 28, 2017. The Supreme Court has not resolved these petitions as of this date.On June 14, 2016, the U.S. Court of Appeals for the District of Columbia Circuit upheld the Open Internet Order against a challenge by twelve parties, including AT&T Inc., the United States Telecom Association and the National Cable & Telecommunications Association. On May 1, 2017, the U.S. Court of Appeals for the District of Columbia Circuit denied rehearing en banc. Multiple parties subsequently petitioned for certiorari asking the Supreme Court of the United States to further review the Open Internet Order. In the interim, the FCC issued a notice of proposed rulemaking on May 18, 2017 that proposes to limit or reverse some of the provisions of the Open Internet Order, including its prohibitions against blocking, throttling and paid prioritization. It is not clear whetherother catastrophic event and to what extent the Supreme Court will grant certiorari in light of the proposed rulemaking. To the extent the Supreme Court or the FCC do not uphold or adopt sufficient safeguards to protect against discriminatory conduct orexecute successfully on those plans in the event that any existingof a disaster or future rules fail to offer protections against such conduct, network operators may seek to extract fees from us or our content publishers to deliver our traffic or otherwise engage in blocking, throttling or other discriminatory practices, andcatastrophic event, our business couldwould be harmed.On January 4, 2018, the FCC released an order (“Restoring Internet Freedom Order”) that repeals most of the rules adopted in the Open Internet Order. The Restoring Internet Freedom Order reclassifies broadband Internet access service as a non-common carrier “information service”repeals rules that had 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. The Restoring Internet Freedom Order continues to require Internet service providers to be transparent about their policies and network management practices, and subjects discriminatory practices to case-by-case assessment under antitrust and consumer protection laws. The Restoring Internet Freedom Order has not gone into effect as of this date, and it is expected to be subject to additional judicial and executive branch review. To the extent the courts or the agencies do not uphold or adopt sufficient safeguards to protect against discriminatory conduct, network operators may seek to extract fees from us or our content publishers to deliver our traffic or otherwise engage in blocking, throttling or other discriminatory practices, and our business could be harmed.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 changes in current or future laws or regulations that negatively impact our content publishers could harm our business.The FCC exercises jurisdiction over many broadband Internet providers in the United States. The FCC could promulgate new regulations or interpret existing regulations in a manner that would cause us or our content publishers to incur significant compliance costs or force us to alter or eliminate certain features or functionality of our products or services which may harm our business. Future FCC regulation affecting providers of broadband Internet access services could impede the penetration of broadband Internet access into certain markets or affect the prices they may charge in such markets. Furthermore, many broadband Internet providers provide traditional telecommunications services that are subject to FCC and state rate regulation of interstate 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 adversely 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. 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.Internet,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.Internetinternet and online services, which may includeincluding 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, trade, intellectual property, competition, electronic contracts, Internetinternet 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 federal, state, and foreign laws and regulations governing issues such as data privacy and security, payment processing, taxation, net neutrality, liability of providers of online services, video, telecommunications, e-commerce tariffs, and consumer protection related to the Internetinternet 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. Moreover, as Internetinternet commerce and advertising continuescontinue to evolve, increasing regulation by federal, state, and foreign regulatory authorities becomes more likely. TV 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 licenseesTV brand partners may be unable to sell Roku TVsTV models at all, which wouldcould harm our business and our ability to grow our user base.littlelimited 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 European UnionCCPA also imposes requirements on certain tracking activity. The EU has already enacted laws requiring advertisers or companies like ours to, for example, obtain informedunambiguous, affirmative consent from users for the placement of cookies or other tracking technologies and the delivery of relevant advertisements. In addition, EU institutions continue to negotiate the draft of the proposed Digital Services Act, legislation intended to update the liability and safety rules for digital platforms, products, and services. 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.or VPPA.(“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 CommissionIn addition, the FTC has also revisedinitiated a review of its rules implementing the Children’s Online Privacy Protection Act or COPPA Rules,(“COPPA”), which limits the collection by operators of online services of personal information from children under the age of 13. The review could result in broadening the applicability of the COPPA, Rules, including the types of information that are subject to these regulations, andregulations. Changes to the COPPA rules could limit the information that we or our content publishers and advertisers may collect and use through certain content publishers,and the content of advertisements and in relation to certain channel partner content. The CCPA also imposes certain opt in and opt out requirements before certain information about minors can be collected. 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.actualbusiness is subject to risks generally associated with doing business abroad, such as U.S. and foreign governmental regulation in the countries in which we operate and the countries in which our contract manufacturers, component suppliers, and other business partners are located. Our operations and performance depend significantly on global, regional, and U.S. economic and geopolitical conditions.perceived failureentities, as well as other business restrictions. These and other trade disputes can disrupt supply chains and increase the cost of our products and the components required to adequately protect personalmanufacture our products, as well as costs for our Roku TV brand partners. Thisconfidential informationsupply chain and limit our ability to offer our products and services as intended. These kinds of restrictions could be adopted with little to no advanced notice, and we may not be able to effectively mitigate the adverse impacts from such measures. Political uncertainty surrounding trade or other international disputes also could have a negative impact on consumer confidence and willingness to spend money, which could impair our future growth. In particular, given the general deterioration in U.S.-China relations and ongoing tensions on trade, security. and human rights, additional U.S. sanctions, tariffs. and export or import restrictions, as well as Chinese sanctions or retaliatory measures, remain a serious risk.A variety Although we attempt to ensure that we, our retailers, and partners comply with the applicable import, export, and sanctions laws, we cannot guarantee full compliance by all. Actions of state, national, foreign,our retailers and partners are not within our complete control, and our devices could be re-exported to sanctioned persons or countries, or provided by our retailers to third persons in contravention of our requirements or instructions or the laws. Any such potential violation could have negative consequences, including government investigations or penalties, and our reputation, brand, and revenue may be harmed.applyas the United Kingdom determines which EU laws to replace or replicate. Although the collection,EU-UK Trade and Cooperation Agreement on the EU-UK post-Brexit economic relationship took effect on January 1, 2021, it is incomplete, and 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.retention, protection, disclosure, security, transferof the internet, including decisions that undermine open and other processingneutrally administered internet access, or that disincentivize internet access network operators’ willingness to invest in upgrades and maintenance of personal data. These privacytheir equipment, 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. Some jurisdictions have adopted regulations governing the provision of internet access service. Substantial uncertainty exists in the United States and elsewhere regarding such provisions. For example, in 2015, the FCC adopted open internet rules to prevent internet access network operators from unreasonably restricting, blocking, degrading, or charging for access to certain products and services offered by us and our content partners. In 2018, the FCC repealed most of those rules. More recently, the Biden Administration signed an executive order encouraging the FCC to readopt comprehensive open internet rules. The FCC therefore could consider adopting additional or modified rules to prevent internet access network operators from unreasonably restricting, blocking, degrading, or charging for data protection-relatedand services. If network operators were to engage in restricting, blocking, degrading, or charging for access, it could impede our growth, result in a decline in our quality of service, cause us to incur additional expense, or otherwise impair our ability to attract and retain users, any of which could harm our business. Several states and foreign countries in which we operate also have adopted or are considering rules governing the provision of internet access.are evolving, with new(or their existing interpretations or modified lawsapplications) could also hinder our operational flexibility, raise compliance costs, and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. In addition, some state and national governments have passed laws requiring notification of users when there has been a security breach involving personal data. Compliance with these laws and regulations can be costly and could delay or impede the development of new products.We historically have relied upon adherence to the U.S. Department of Commerce’s Safe Harbor Privacy Principles and compliance with the U.S.-EU Safe Harbor Framework under Directive 95/46/EC, commonly referred to as the Data Protection Directive, agreed to by the U.S. Department of Commerce and the EU. The U.S.-EU Safe Harbor Framework,result in additional liabilities for us, which established means for legitimizing the transfer of personal data by U.S. companies from the European Economic Area, or EEA, to the United States, recently was invalidated by a decision of the European Court of Justice, or the ECJ.On July 12, 2016, the European Commission adopted the EU-U.S. Privacy Shield, which provides a framework for the transfer of personal data of EU data subjects, and on May 4, 2016, the EU General Data Protection Regulation, or GDPR, which will replace Directive 95/46/EC, was formally published. The GDPR will go into effect on May 25, 2018 and as a regulation as opposed to a directive will be directly applicable in EU member states. Among other things, the GDPR applies to data controllers and processors outside of the EU whose processing activities relate to the offering of goods or services to, or monitoring the behavior within the EU of, EU data subjects.In light of these developments, we are reviewing our business practices and may find it necessary or desirable to make changes to our personal data handling to cause our transfer and receipt of EEA residents’ personal data to be legitimized under 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.While we have implemented administrative, physical and electronic security measures to protect against reasonably foreseeable loss, misuse and alteration of personal data and confidential information (e.g., protected content or intellectual property), cyberattacks on companies have increased in frequency and potential impact in recent years and, if successful against us, may harm our reputation and business and subject us to potential liability despite reasonable precautions.Our actual or alleged failure to comply with applicable laws and regulations or to protect personal data could result in enforcement actions and significant penalties against us, which could result in negative publicity, increase our operating costs, subject us to claims or other remedies and may harm our business.we distributeis distributed through or advertising that is served through our players,platform, our business could be harmed.TheWe rely on the statutory safe harbors, as set forth in the Digital Millennium Copyright Act or(the “DMCA”) and Section 230 of the DMCA, is intended,Communications Decency Act in part, to limit the United States, and the E-Commerce Directive in Europe, for protection against liability of eligible service providers for various caching, hosting, orand linking to, user content that includes materials that infringe copyrights or other rights. We rely on the protections provided by theactivities. The DMCA, in conducting our business. However, the DMCASection 230, and similar statutes and doctrines thaton which we rely or may rely on in the future isare subject to uncertain judicial interpretation and regulatory and legislative amendments. Any legislation or court rulings that limit the applicability of these safe harbors could require us to take a different approach toward content moderation on our platform, which could diminish the depth, breadth, and variety of content that we offer, inhibit our ability to generate advertising, or otherwise adversely affect our business.the DMCA only provides protection primarily in the United States. Ifif 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 liabilityliabilities 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.For example, weIf content owners or distributors are involved in litigation in Mexico that was commenced by a large Mexican pay TV and Internet access provider. The Company was not nameddeterred from working with us as a defendant in this case, and the case principally targeted entities that are alleged to sell unlicensed content to consumers using our platform, among other means. Involvement in these legal proceedings has been complicated and has drawn management time and company resources. Our involvement in any such legal matters now or in the future,consequence, it could cause us to incur significant legal expenses and other costs, and be disruptive to our business.Our devices are highly technical and may contain undetected hardware errors or software bugs, which could manifest themselves in ways that could harm our reputation and our business.Our devices and those of our licensees are highly technical 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 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 update our software on a regular basis and, despite our quality assurance processes, we could introduce bugs in the process of updating our software. 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 players 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 informationliability, tort or breach of warranty. In addition, our player contracts with users contain provisions 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 devices. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business could be harmed.Components used in our devices 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 devices. Any errors or defects in such third-party technology could result in errors in our devices that could harm our business. If these components have a manufacturing, design or other defect, they can cause our devices to fail and render them permanently inoperable. For example, the typical means by which our users connect their home networks to our devices is by way of a Wi-Fi access point in the home network router. If the Wi-Fi receiver in our device fails, then our device cannot detect a home network’s Wi-Fi access point, and our device will not be able to display or deliver any content to the TV screen. As a result, we may have to replace these devices 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 devices would harm our business.If we are unable to obtain necessary or desirable third-party technology licenses,impair our ability to develop new devicesmaintain or platform enhancements may be impaired.We utilize commercially available off-the-shelf technology in the development ofexpand our devices and platform. As we continue to introduce new features or improvements to our devices and the Roku 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 devices, platform and our business.Our use of open source software could impose limitations on our ability to commercialize our devices and our TV streaming platform.We incorporate open source software in our TV streaming platform. From time to time, companies that incorporate open source software into their products 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,business, 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.The quality of our customer support is important to our users and licensees, and ifthrough international expansion plans. 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 devices. A high level of support is critical for the successful marketing and sale of 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 will need to improve our operational and financial systems to support our expected growth, increasingly complex business arrangements, and rules governing revenue and expense recognition and any inability to do so could adversely affect our billing services and financial reporting.We have increasingly complex business arrangements with our content publishers and licensees, and the rules that govern revenue and expense recognition in our business are increasingly complex. To manage the expected growth of our operations and increasing complexity, we will need to improve our operational and financial systems, procedures and controls and continue to increase systems automation to reduce reliance on manual operations. Any inability to do so will negatively affect our billing services and financial reporting. 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 or licensees; cause harm to our reputation and brand; and could also result in errors in our financial and other reporting.If we are unable to implement and 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.reporting beginning with the year ending December 31, 2018.reporting. This assessment will need tomust include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting firm will not be required to attestalso attests to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the Securities and Exchange Commission, or SEC, following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Securities Exchange Act of 1934, as amended, or the date we are no longer an “emerging growth company,” as defined in the JOBS Act.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. We are in the process of designing and implementing the internal control over financial reporting required to comply with this obligation, which process will be time-consuming, costly and complicated. 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, The Nasdaq Global Select Market, or other regulatory authorities, which could require additional financial and management resources.Wepursue acquisitions,be adversely affected by changes in accounting principles applicable to us. involve a number of risks, and if we are unable to address and resolve these risks successfully, such acquisitions could harm our business.We 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. In addition, the process of integrating acquired businesses, products or technologies may create unforeseen operating difficulties and expenditures. Acquisitions 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 a credit facility that 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 an amended and restated loan and security agreement with Silicon Valley Bank in November 2014, which was amended in May 2015 and June 2017, providing for a $30.0 million revolving line of credit. Our loan agreement with Silicon Valley Bank contains a number of restrictive covenants, and the terms may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry, or take future actions. Pursuant to this agreement, we granted Silicon Valley Bank 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—Silicon Valley Bank Loan and Security Agreement.”If we fail to comply with the covenants or payments specified in our credit facility, Silicon Valley Bank could declare an event of default, which would give it the right to terminate its commitment to provide additional loans and declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, Silicon Valley Bank would have the right to proceed against the assets we provided as collateral pursuant to the credit facility. If the debt under this credit facility was accelerated, we may not have sufficient cash or be able to sell sufficient assets to repay this debt, which would harm our business and financial condition.collection of sales tax and payment of income taxes inand the various states in which we do business,collection of indirect taxes, 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 becomevarious state laws and regulations, including requirements to collect sales tax from our sales within those states, and the payment ofdeduct or withhold income taxes on revenue generatedsourced in various jurisdictions, pay income taxes on profits earned by any permanent establishment (or similar enterprise) of ours that carries on business in various jurisdictions, and collect indirect taxes from activitiesour sales in those states.various jurisdictions. The laws and regulations governing the collection of sales tax for sales on our websitewithholding and payment of income taxes and the collection of indirect taxes are numerous, complex, and vary from state to state.by jurisdiction. A successful assertion by one or more statesjurisdictions that we were required to collect saleswithhold or otherpay income taxes or to pay incomecollect indirect 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.a priority for U.S. politicians,are currently, and key members of the legislative and executive branches have proposed a wide variety of potential changes. Certain changes to U.S. tax laws, including limitations on the ability to defer U.S. taxation on earnings outside of the United States until those earnings are repatriated to the United States, 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 changesmay in the U.S.future be subject to investigations and inquiries from government entities. These investigations and inquiries, and our compliance with any associated regulatory orders or foreign taxationconsent decrees, may 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 such activities may increase our worldwide effective tax rate and the amount of taxes we pay andwhich could seriously harm our business.For example, the Tax Cut and Jobs Act (“TCJA”) was enacted on December 22, 2017 and significantly reforms the Code. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes additional limitations on the deductibility of interest, has both positive and negative changes to the utilization of future net operating loss carryforwards, allows for the expensing of certain capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. Our net deferred tax assets and liabilities and valuation allowance will be revalued at the newly enacted U.S. corporate rate. We continue to examine the impact this tax reform legislation may have on our business. The impact of this tax reform on us and on holders of our common stock is uncertain and could be adverse and our business could be seriously harmed.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 the Roku platform, maintain adequate levels of inventory to support our retail partners’ demand requirements, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, 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 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 the 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.Our facilities are located near known earthquake fault zones, and the occurrence of an earthquake or other natural disaster could cause damage to our facilities and computer systems, which could require us to curtail or cease operations.Our principal offices and a network operations center are located in the San Francisco Bay Area, an area known for earthquakes, and are thus vulnerable to damage. We are also vulnerable to damage from other types of disasters, including power loss, fire, floods, communications failures and similar events. If any disaster were to occur, our ability to operate our business at our facilities could be impaired.as contained in our amended and restated certificate of incorporation has the effect of concentratingconcentrates voting control with those stockholders who held our stock prior to our IPO,initial public offering, including our executive officers, employees, and directors and their affiliates, and limiting yourlimits the ability of holders of our Class A common stock to influence corporate matters.50%a majority 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 the combined voting power of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit yourthe ability of holders of our Class A common stock 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.If, for example,As a result of such transfers, as of December 31, 2021, Mr. Wood retainscontrols a significant portion of his holdings of Class B common stock for an extended period of time, he could, in the future, control aOur 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.couldhas been and may continue to be subject to wide fluctuations in response to numerous factors, many risk factors listed in this section, and othersof which are beyond our control, including: by us of key content publishers;ventures or ventures;the expiration of contractual lock-up agreements; andconditions.We may be the targetFor example, a stockholder has filed a derivative lawsuit, purportedly on our behalf, against certain members of this typeour Board of litigationDirectors and management in the future. SecuritiesDelaware Court of Chancery. Such litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.
Future sales of shares by existing stockholders could cause our stock price to decline.ToIf 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 extent we obtain equity research analyst coverage, we will not have any control of the analysts or the content and opinions included in their reports. The price of our Class A common stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research.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. additional 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 NASDAQNasdaq Global Select Market regulations, 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.We are an “emerging growth company,” and we intend to comply only with reduced disclosure requirements applicable to emerging growth companies. As a result, our Class A common stock could be less attractive to investors.We are an “emerging growth company,” as defined in the JOBS Act and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of the IPO, (b) in which we have total annual gross revenue of over $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on these exemptions. If some investors find our Class A common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.loan and security agreements containCredit Agreement contains prohibitions on the payment of cash dividends on our capital stock. Any determination to pay dividends in the future will be at the discretion of our Board of Directors. 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.inof 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.third-partythird party to acquire, or attempt to acquire, control of Roku, even if a change in control was considered favorable by our stockholders.
•reflecting our two classes of common stock as described above.•reflecting our two classes of common stock as described above.the provisions of Section 203 of the Delaware General Corporation Law, which prohibitprohibits 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. amended and restated certificate of incorporation will provideprovides that the Delaware Court of Chancery ofand the State of Delaware and theU.S. 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. amended and restated certificate of incorporation provides that the Delaware 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:amended and restated certificate of incorporation, or our bylaws; or and Our amendedrestatedstate courts over all Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims.further provides that the U.S. 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. Thesesuch lawsuits against us and our directors, officers, and other employees. In December 2017, a plaintiff filed a complaint in the Court of Chancery in Delaware seeking a declaration that these choice of forum provisions are invalid and unenforceable. If a court were to find either choice ofexclusive forum provision contained 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.NoneLos Gatos,San Jose, California where we lease approximately 156,000 square feet of commercial space under a lease that expires in 2020.September 2030. We use this space for sales, research and development, and administrative purposes. We also hold a lease for approximately 78,000 square feet of commercial office space in Saratoga, California through 2020. We have sublet a portion of this space and we are working to sublet the remainder prior to lease expiration. In addition, we maintain offices in Austin, Texas; Cambridge,lease various office and shared work spaces throughout the United Kingdom; Santa Monica, California; Chicago, Illinois; Shanghai, China; Tilst, DenmarkStates and New York, New York. We intend to expand our existing facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth. However, we expect to incur additional expenses in connection with such new or expanded facilities.812 to the Consolidated Financial Statementsconsolidated financial statements in Item 8 of this Annual Report, which is incorporated herein by reference.None
None.began trading publiclyis listed on The NASDAQNasdaq Global Select Market under the ticker symbol “ROKU” on September 28, 2017. Prior to that time, there was no public market for our Class A common stock. The following table sets forth, for the periods indicated, the high and low sale prices of our Class A common stock as reported on The NASDAQ Global Select Market since our IPO.On February 14, 2018, the last reported sales price of our Class A common stock on The NASDAQ Global Select Market was $44.85 per share.“ROKU.” Our Class B common stock is not listed or traded on any exchange.February 14, 2018,January 31, 2022, there were 461 stockholders of record of our Class A common stock. This figure does not include a substantially greater number ofThere were significantly more beneficial holdersowners of our Class A common stock whose shares are held of record by banks, brokers and other financial institutions.stock. As of February 14, 2018,January 31, 2022, there were approximately 22516 stockholders of record of our Class B common stock.(a)Unregistered SaleNone.The following sets forth information regarding all unregistered securities sold from January 1, 2017 through December 31, 2017 (share and per share amounts give effect to a 1-for-6 reverse stock split of our common stock and preferred stock effected on September 15, 2017):2.Prior to filing our registration statement on Form S-8 in September 2017, we issued and sold an aggregate of 267,813 shares of Class B common stock upon the exercise of options under our 2008 Plan at exercise prices ranging from $0.16 to $6.12, per share, for an aggregate exercise price of $868,055;3.In July 2017, we issued 357,283 shares of our Class B common stock upon the automatic net exercise of a warrant to purchase 375,000 shares of our Class B common stock; and4.In September 2017, we issued 108,332 shares of Class B common stock in connection with an acquisition;The offers, sales and issuances of the securities described in paragraphs (1) through (4) above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act or Regulation D promulgated thereunder or Rule 701 promulgated under the Securities Act as transactions by an issuer not involving a public offering or under benefit plans and contracts relating to compensation as provided under Rule701. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us.(b)Use of ProceedsOn September 27, 2017, our registration statement on Form S-1 (No. 333-220318) was declared effective by the SEC for our IPO of Class A common stock, pursuant to which, we issuedIssuer and sold 9.0 million shares of our Class A common stock on October 2, 2017, and on the same day we issued and sold an aggregate of 1.4 million shares of our Class A common stock pursuant to the underwriters’ exercise of their option to purchase additional shares, in each case at a public offering price of $14.00 per share. Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. acted as joint book-running managers for the offering and Allen & Company LLC, RBC Capital Markets, Needham & Company, Oppenheimer & Co. and William Blair acted as co-managers for the offering. Following the sale of the shares in connection with the closing of the IPO, the offering terminated. As a result of the offering, we received total net proceeds of approximately $131.6 million, after deducting underwriting discounts and commissions of $10.1 million and offering-related expenses of approximately $3.1 million. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates.There has been no material change in the planned use of proceeds from our IPO from that described in the final prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the SEC on September 28, 2017.This performance graph shall not be deemed “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or incorporated by reference into any filing of Roku, Inc., under the Securities Act of 1933, as amended, or the Exchange Act.the NASDAQ)The Nasdaq Global Select Market) through December 31, 2017,2021, for (i) our Class A common stock, (ii) the NASDAQNasdaq 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 the 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., Meta Platforms, Inc., Netflix, Inc., Snap, Inc., Twitter, Inc., Yelp, Inc., and Zillow Group, Inc. Not all of the companies included in the 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.
Company / Index Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Roku, Inc. $370 $219 $956 $2,371 $1,630 Nasdaq Composite Index $107 $104 $142 $206 $252 Peer Group $107 $98 $134 $193 $270 2017. All outstanding awards relate to our2021.Plan Category Number of securities to be
issued upon exercise of
outstanding options and awardsWeighted-average
exercise price of
outstanding
options (1)Number of securities
remaining available
for future issuances
under equity compensation
plans (excluding securities
in column (a))(a) (b) (c) (in thousands, except per share amount) Equity compensation plans approved by security holders (2) 9,460 $ 51.87 32,100 Equity compensation plans not approved by security holders — — — Total 9,460 $ 51.87 32,100 stock.
stock available for issuance under our 2017 Equity Incentive Plan (the “2017 Plan”) and 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 is subject to an annual increase.(1)The number of securities remaining available for future issuance in column (c) includes 12,202 shares of Class A common stock authorized and available for issuance under our 2017 Equity Incentive Plan (“2017 Plan”). The number of shares authorized for issuance under the 2017 Plan are subject to an annual increase. Restricted stock units and warrants have been excluded for purposes of computing weighted average exercise prices in column (b).Selected Financial DataThe selected consolidated financial data below should be read in conjunction with the [Reserved]7, “Management’s7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.The consolidated statements of operations data for the years ended December 31, 2017, 2016 and December 26, 2015, and the consolidated balance sheet data as of December 31, 2017 and 2016 are derived from our audited financial statements appearing in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K. The consolidated balance sheet data as of December 26, 2015 is derived from audited financial statements not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected in any future period.
Operations(2)See Note 12 to the Consolidated Financial Statements in Item 8 for an explanation of the calculations of basic and diluted net loss per common share.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operationselsewhere in Item 8 of this document. ThisAnnual 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. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to suchthese differences include but are not limited to, those identifieddiscussed below and those discussed aboveelsewhere in this Annual Report, particularly in the section entitled “Risk Factors.”Prior to 2017, ourtitled Item 1A. Risk Factors and the Note Regarding Forward-Looking Statements.was the 52- or 53-week period that ended on the last Saturday of December. Our2019 and year-to-year comparisons between fiscal years 20152020 and 20162019 that are not included in this Annual Report can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report for the fiscal year ended on December 26, 2015 and December 31, 2016, respectively. In 2017, we changed2020 filed with the SEC on February 26, 2021.fiscal year-endOneView ad platform, content distribution services (such as subscription and transaction revenue shares, media and entertainment promotional spending, the sale of Premium Subscriptions, and the sale of branded channel buttons on remote controls), and licensing arrangements with service operators and TV brands.matchcontinue to manage the calendar year-end. Fiscal year 2015 spanned 52 weeks and fiscal year 2016 spanned 53 weeks.Overviewpioneered streamingexpect that the trade off from player gross profit or loss to the TV. We connect users to the streaming content they love, enable content publishers to build and monetize large audiences, and provide advertisers with unique capabilities to engage consumers. We do this at scale today. As of December 31, 2017, we had 19.3 milliongrow active accounts will result in increased platform revenue and duringplatform gross profit.2017, our users streamed 14.8 billion hours on the Roku platform. TV streaming’s disruptive content distribution model is shifting billions of dollars of economic value. We are capitalizing on this large economic opportunity as a leading TV streaming platform for users, content publishers and advertisers.Consumers win with TV streaming—they get a better user experience, more entertainment options and more control over what they spend on content. When users want2021, we continued to enjoy streaming entertainment, they start at the Roku home screen where we put users first by helping them find the content they want to watch. From our home screen, users can easily search, discover and access over 500,000 movies and TV episodessee an increase in the United States, as well as live sports, music, news and more. Users can also compare the price of content from various channels available on our platform and choose from ad-supported, subscription, and transactional video on-demand content. The Roku platform delivers a significant expansion in consumer choice. Consumers can personalize their content selection with cable TV replacement offerings and streaming services that suit their budget and needs.We operate the number one TV streaming platform in the United States as measured by total hours streamed, according to a survey that we commissioned, conducted in the fourth quarter of 2017, by Kantar Millward Brown. Content publishers and advertisers win with Roku because our large and growing user base simplifies their access to the fragmented and complex over the top, or OTT, market and we provide them with direct to consumer engagement and monetization opportunities. We provide our content publishers with access to the most engaged OTT audience, as measured by average hours streamed and the ability to monetize their content with advertising, subscription or transactional business models. Advertisers on our platform can reach our desirable OTT audience with ads that are more relevant, interactive and measurable than advertising delivered on traditional linear TV. Our growth in active accounts and hours streamed attracts more content publishers and advertisers to our TV streaming platform, creating a better user experience, which in turn attracts more users. As our platform improves for users, content publishers and advertisers, we grow average revenue per user, or ARPU, which we define as our platform revenue during the preceding four quarters divided by the average of the number of at, but the end of that period and the end ofgrowth rate was slower than in the prior four quarters.While we currently generate a majorityyearour revenue from sales of our streaming players, our business model is to grow gross profit by increasing the number of active accounts andDecember 31, 2021, growing ARPU, which we believe represents the inherent value of our business model. We grow new accounts through three primary channels: we sell streaming players, we partner with TV brands through our Roku TV licensing program, and we have licensing relationships with service operators. The fastest growing source of new accounts comes from our licensing partner relationships which accounted for 48% of new accounts in 2017, up from 42% in 2016. We believe we have a significant opportunity to grow platform revenue and as we further monetize TV streaming17% year-over-year. Streaming hours we will increase ARPU. ARPU was $13.78 for the year ended December 31, 2017 as compared2021 increased to $9.2873.2 billion, growing 25% year-over-year.2016,2021. Though we do not believe that the cost constraints and supply chain issues are permanent, they may continue to impact us in the near future, and we expect player gross margin to be negative until such conditions normalize.of 48%. Our success in growing ARPUTV streaming during the COVID-19 pandemic and our business generally has benefited, there can be no assurance that these patterns will depend on our ability to increase platform revenue from content publishers and advertisers as we grow the number of active accounts.We generate player revenue from the sale of streaming players. As users engage with our platform, we earn platform revenue from the sale of advertising, content distribution fees, billing services and licensing activities. We use the followingdecisions. Our key performance metricsdecisions are gross profit, active accounts, streaming hours, streamed and average revenue per user.measure the performance of our business usinguse gross profit and we are focused on increasing gross profit. We currently generate positive gross profit on player revenue, however, the majority of our gross profit is generated from platform revenue. We believe gross profit isas the primary metric to measure the performance of our business because we have two revenue segments withthat have different margin profiles, and we aim to maximize our highhigher margin platform revenue from our active accounts as they stream content on our platform.$199.8 million, $121.0$1,408.6 million and $89.8$808.2 million for the years ended December 31, 2017, 20162021 and December 26, 2015, respectively.usebe used on multiple streaming devices. that the number of active accounts is a relevant measure to gauge the size of our user base and the opportunity to increase our platform revenue and gross profit.We had 19.3 million, 13.4 million and 9.2 million active accounts at the end of December 31, 2017, 2016 and December 26, 2015, respectively.Hours StreamedWe definestreaming hours streamed as the aggregate amount of time users streamed content on our platform in a given period. We report hours streamed on a calendar basis. We believe the usage of 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 from The Roku Channel on non-Roku platforms are not included in this metric. We report streaming hours on a calendar basis.revenuesrevenue from content providers arepublishers is not tied to the hours streamed on their streaming channels, and the number of streaming hours streamed does not correlate to revenue earned from such content providerspublishers or ARPU on a period-by-period basis. Additionally, we believe increasing user engagementMoreover, 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 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.increasesbenefits us, our gross profit because we earn platform revenue from advertising as well as from revenue shares from subscriptioncustomers, channel partners, and transactional video on-demand.14.8 billion, 9.473.2 billion and 5.558.7 billion hourshours during the years ended December 31, 2021 and 2020, respectively reflecting an increase of 25%.December 26, 2015, respectively. Quarter Published SHs Revised SHs SHs % Delta Published YoY Revised YoY 2017 Q1 3.3B 3.2B (0.5)% 63.4% NA 2017 Q2 3.5B 3.5B (0.4)% 60.0% NA 2017 Q3 3.8B 3.8B (0.4)% 57.8% NA 2017 Q4 4.3B 4.3B (0.2)% 55.3% NA 2018 Q1 5.1B 5.1B (0.5)% 56.0% 56.1% 2018 Q2 5.5B 5.4B (0.5)% 57.2% 57.0% 2018 Q3 6.2B 6.1B (0.7)% 62.7% 62.1% 2018 Q4 7.3B 7.1B (2.2)% 68.6% 65.2% 2019 Q1 8.9B 8.4B (5.4)% 74.1% 65.5% 2019 Q2 9.4B 8.8B (6.0)% 72.1% 62.6% 2019 Q3 10.3B 9.6B (6.5)% 67.6% 57.9% 2019 Q4 11.7B 10.9B (6.3)% 60.2% 53.7% 2020 Q1 13.2B 12.3B (7.0)% 49.3% 46.8% Year Published SHs Revised SHs SHs % Delta Published YoY Revised YoY 2017 14.8B 14.8B (0.4)% 58.8% NA 2018 24.0B 23.7B (1.1)% 61.7% 60.5% 2019 40.3B 37.8B (6.1)% 67.8% 59.3% duringfor the precedingtrailing four quarters divided by the average of the number of active accounts at the end of thatthe current period and the end of the corresponding period in the prior four quarters. We measure progress in our platform business usingyear. ARPU because it helps us understandmeasures the rate at which we are monetizing our active account base.Our base and the progress of our platform business.$13.78, $9.28 and $6.48 at the end$41.03 as of December 31, 2017, 20162021 as compared to $28.76 as of December 31, 2020.December 26, 2015, respectively.Factors Affecting Our PerformanceRate of TV streamingrelated services including our OneView ad platform, content distribution services (such as subscription and advertising shift to OTTConsumers have significantly shifted their TV viewing behavior,transaction revenue sharing arrangements,we believe all TV content will be available through streaming. Therefore, we also believe this presents a large market opportunity for streaming TV advertising. This is a critical component of our business model because our platform 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 hours determine our advertising inventory and sell through.User acquisition strategyConsumers become our users through three primary channels: Roku players, Roku TVs, or through licensing relationship with service operators. We monetize our user base through platform revenue. Player revenue and player gross profit may decrease over time as we strategically aim to acquire new customers through low cost player solutions. Even though the gross profit earned fromentertainment promotional spending, the sale of our players is low, we currently earn a positive gross profit which is similar to a “negative” user acquisition cost.Ability to growPremium Subscriptions, and retain streaming hoursGrowththe sale of branded channel buttons on remote controls), and licensing arrangements with service operators and TV brands. Our ad inventory includes video ad inventory from AVOD content in platform revenue, gross profit and ARPU will depend on growth in streaming hours. We intend to increase user engagement and hours streamed by offering more content that is easier to find and discover. By increasing the available content on our platform and making it easily accessible, we have diversified the type of content streamed. When we launched the first Netflix player in 2008, Netflix accounted for 100% of our streaming hours, and with the proliferation of different channels on our platform, our reliance on any particular channel partner has continued to decline.Ability to monetize users and streaming hoursOur business model depends on our ability to monetize user engagement with our platform. Content publishers distribute streaming content through subscription video on demand, or SVOD, advertising video on demand, or AVOD, and transactional video on demand, or TVOD models. Some content publishers utilize a combination of models. The majority of our streaming hours to date have been SVOD hours, in line with the current OTT market, where we can earn revenue from subscription revenue share or fromRoku Channel, native display ads on our home screen orand screen saver, but we do not monetize hours streamed. The fastest growing content monetization is AVOD, where we can monetize hours with video ads delivered to users as they stream content. We believe Roku is an important platform for advertising dollars that will be redeployed from traditional TV. Our ability to leverage our data to provide users with relevant ads and measure the effectiveness of these advertisements on our platform is also a key factor to an increased wallet share of advertising budgets spent on our platform. We evaluate the effectiveness of our AVOD offerings using a wide variety of metrics, including exposure (e.g., reach, frequency and video completion rates); demographics (e.g., what types of users we believe were exposed, including age, gender and income); top-funnel brand impact (e.g., aided/unaided recall, brand perception and purchase intent); and bottom-funnel brand impact (e.g., website visitation, store visitation and actual purchase). We conduct this evaluation through a combination of internal data and data collected through partnerships with outside research firms, all leveraging our knowledge of individual users and the fact that we serve ads on a 1:1 basis. When promoting content, such as through audience development, our typical metrics are ad impressions and clicks, channel downloads, visits, subscription trials, time spent in the channel and retention. While we have experienced, and expect to continue to experience, growth in our advertising revenue as we have expanded our user base and streaming hours, our efforts to monetize our platform through AVOD content are still developing and our revenue from AVOD offerings may not grow as we expect. This means of monetization will require us to continue to attract advertising dollars to our platform as well as deliver AVODad inventory we obtain through our content distribution agreements with publishers. To supplement supply, we re-sell video inventory that appeals to users.Continued investment in growthWe believe that our future performance will depend on the success of the investments we have made, and will continue to make, to improve the value for users,purchase from content publishers and, advertisersto a lesser extent, directly sell third-party inventory on a revenue share basis. To date, we have generated most of our platform. We must regularly update and enrich the Roku platform to meet evolving consumer behavior and deliver a superior userexperience. Further, it is important that we remain a frictionless 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.CompetitionThe market for streaming media is continuing to grow and evolve. We face substantial competition from large technology and consumer electronics companies, including Amazon, Apple and Google. These competitors have increased consumer awareness of TV streaming and contributed to the growth of the overall market, but their resources and brand recognition pose significant competitive challenges. Our success in capitalizing on the expanding opportunitiesrevenue in the streaming market will depend on our ability to continue to deliver high quality devices at competitive prices, in the face of this competition.SeasonalityWe generate significantly higher levels of revenue and gross profit in the fourth quarter of the year. While both platform and player revenue experience seasonality, player revenue has historically been more seasonal than platform revenue, driven by the holiday shopping season. Fourth quarter revenue comprised 37% of our total net revenue for the years ended December 31, 2017 and 2016, respectively, and fourth quarter gross profit comprised 37% of our total gross profit for the years ended December 31, 2017 and 2016, respectively.Components of Results of OperationsRevenueprimarily Amazon.com. In our international markets, we sell our players through wholesale distributors which, in turn, sell to retailers. We currently distribute our players in Canada, the United Kingdom, France, the Republic of Ireland and several Latin American countries.including Amazon. We generate most of our player revenue in the United States.We generatefromprimarily consists of costs associated with acquiring advertising sales, subscriptioninventory and transactionamortization costs of content, both licensed and produced. Cost of platform revenue share, sales of branded channel buttons on remote controls and licensing arrangementsalso includes other costs such as payment processing fees, allocated expenses associated with TV brands and service operators. We generate mostthe delivery of our services that primarily include costs of third-party cloud services and salaries, benefits, and stock-based compensation for our platform revenue in the United States. Our first-party video ad inventory includes native display ads on our home screenoperations personnel, and screen saver, as well as ad inventory made available to us through our content publisher agreements. To satisfy existing demand, we can sell video advertising that we purchase from content publishers to supplement our first-party video ad inventory, and to a lesser extent, third-party video advertising on a revenue share basis from content publishers in our Roku Direct Publisher program.Costamortization of Revenue player manufacturing costs for streaming players and audio products payable to our third-party contract manufacturer,manufacturers and technology licenses or royalty fees,fees. Cost of player revenue also includes inbound and outbound freight, duty and logistics costs, third-party packaging, inventory reserves, and assembly costs, warranty costs, write-down for excess and obsolete inventory, allocated overhead costs related to facilities and customer support, and salary, benefit and stock-based compensation costs for operations personnel.Cost of platform revenue consists of advertising inventory acquisition costs, payment processing fees, third-party cloud service fees and allocated personnel-related costs, including salaries, benefits, and stock-based compensation for Roku personnel that support platform services, including advertising and billing operations customer service, and our TV brands and our service operator licensees. We anticipate that cost of platform revenue will increase in absolute dollars.employee salaries, benefits, and stock-based compensation for our engineers and other employees engaged in the development of our products including new technologies and features and functionality.teams as well as outsourced development fees. In addition, research and development expenses include allocated facilities and overhead costs. We believe continued investment is important to attaining our strategic objectives and expect research and development expenses to increase in absolute dollars foras we continue to invest in the foreseeable future.expense for our employees engaged in sales and sales support, marketing, communications, data science and analytics, business development, product management, marketing, communications, and partner and customer support functions. Sales and marketing expenses also include costs for marketing, retail and public relations, channel merchandising including point of purchase and in-store displays, trade shows and other events, professional services,costs, and allocated facilities and other overhead.overhead expenses. We expect our sales and marketing expenses to increase in absolute dollars in future periods as we continue to growfocus on growing active accounts, platform and player revenue, and expanding our business.personnel-related costs, including 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 anticipated growthexpansion of our business and related infrastructure as well as accounting, legal, insurance, investor relations and other costs associated with being a public company.Ourprimarily of changes ininterest income on cash and cash equivalents, income recognized related to non-cash consideration associated with the fair valuedelivery of our convertible preferred stock warrant liability,services as part of a strategic commercial arrangement, interest expense that includes interest expense on our debt and amortization of deferred debt costs, foreign currency re-measurement, and transaction gains and losses. Prior to our IPO, the underlying shares of our convertible preferred stock warrants were contingently redeemable and we accounted for these warrants as a liability at fair value and re-measured the fair value at each balance sheet date. Any change in the fair value was recognized as other income (expense), net in our consolidated statement of operations, until the earlier of the exercise of the warrants, or the completion of a deemed liquidation event, including an IPO. At the closing of our IPO, the convertible preferred stock warrant liability was reclassified to stockholders’ equity and the re-measurement was no longer required.minimum income taxes in the United States. We have a valuation allowance for U.S. and Netherlands deferred tax assets, including net operating loss carryforwards andcarryforwards. U.S. deferred tax assets include tax credits related primarily to research and development. We expect to maintain this valuation allowance for the foreseeable future. Years Ended December 31, 2021 2020 2019 Net Revenue: Platform 83 % 71 % 66 % Player 17 % 29 % 34 % Total net revenue 100 % 100 % 100 % Cost of Revenue: Platform 30 % 28 % 23 % Player 19 % 27 % 33 % Total cost of revenue 49 % 55 % 56 % Gross Profit (Loss): Platform 53 % 43 % 43 % Player (2) % 2 % 1 % Total gross profit 51 % 45 % 44 % Operating Expenses: Research and development 17 % 20 % 24 % Sales and marketing 16 % 17 % 16 % General and administrative 9 % 10 % 10 % Total operating expenses 42 % 47 % 50 % Income (Loss) from Operations 9 % (2) % (6) % Other Income (Expense), Net: Interest expense — % — % — % Other income (expense), net — % — % 1 % Total other income (expense), net — % — % 1 % Income (Loss) Before Income Taxes 9 % (2) % (5) % Income tax benefit — % — % — % Net Income (Loss) 9 % (2) % (5) % 20172021 and 2016Years Ended December 31, 2021 2020 Change $ Change % (in thousands, except percentages) (in thousands, except percentages) Platform Platform $ 2,284,925 $ 1,267,744 $ 1,017,181 80 % Player 479,659 510,644 (30,985) (6) % Total net revenue Total net revenue $ 2,764,584 $ 1,778,388 $ 986,196 55 %
PlatformPlayerdecreasedincreased by $6.5$1,017.2 million, or 2% for80%, during the year ended December 31, 20172021 as compared to the year ended December 31, 2016. The decrease was a result of a 22% decrease in the average selling prices while the volume of players sold increased2020, primarily attributable to higher content distribution services, including higher revenue from media and entertainment promotional spending and Premium Subscriptions, we well as higher advertising revenue which includes revenue from our OneView ad platform.25%. The increase in the volume of players and the reduction of average selling prices was mainly driven by the sale of our lower priced Roku Express which was introduced in the fall of 2016 and saw a full year of market share. An increase in various sales incentives also contributed to the lower average selling prices in$31.0 million, or 6%, during the year ended December 31, 2017.PlatformPlatform revenue increased by $120.6 million or 115% for the year ended December 31, 20172021 as compared to the year ended December 31, 2016. The majority2020, primarily due to a decrease in both the volume of the increase was drivenstreaming players sold and average selling prices, offset by our advertising and content and distribution services including subscription and transaction revenue totaling $119.3 million. This was achieved through expansion of our advertising inventory anda slight increase in numberrevenue from the sale of paid subscriptions. In addition, there was a $1.3 million increase in revenues from licensing arrangements.Cost of RevenuePlayerThe cost of player revenue increased by $8.3 million or 3% foraudio products and accessories. During the year ended December 31, 20172021, the volume of streaming players sold decreased by 4% and the average selling price of players decreased by 7% as compared to the year ended December 31, 2016.2020. The increase was mainly due to an increase of 25%decrease in the volume of players sold partially offset by a reductionis due to the slowdown in direct manufacturing costs and an increase of $7.9 milliongrowth in mostly air freight costs incurred to expedite inbound supply to minimize the effect of component supply disruptions.Gross profit for player revenue decreased by $14.8 million or 34% for the year ended December 31, 20172021 as compared to the year ended December 31, 2016.2020 when the growth was aided by the COVID-19 pandemic. The decrease in the average selling price is due to lower average selling prices resulting from a combination of the increase in the sales mix of lower priced Roku Express and increases in sales incentiveshigher promotions during the year. Gross profit also decreased due to the increase of inbound air freight incurred to expedite inventory supply.PlatformThe cost of platform revenue increased by $27.0 million or 97% for the year ended December 31, 20172021 as compared to the year ended December 31, 2016. 2020 where the volume was aided by the COVID-19 pandemic and required fewer promotions.Years Ended December 31, 2021 2020 Change $ Change % (in thousands, except percentages) Cost of Revenue: Platform $ 823,924 $ 503,177 $ 320,747 64 % Player 532,060 466,992 65,068 14 % Total cost of revenue $ 1,355,984 $ 970,169 $ 385,815 40 % Gross Profit (Loss): Platform $ 1,461,001 $ 764,567 $ 696,434 91 % Player (52,401) 43,652 (96,053) (220) % Total gross profit $ 1,408,600 $ 808,219 $ 600,381 74 % increase was due to higher inventory acquisition costs, advertisement serving costs and credit card processing fees totaling $18.5 million, increase in allocated overheadcost of $3.5 million and increase in licensing costs of $0.4 million due to growth in installed base.Gross profit for platform revenue increased by $93.6$320.7 million, or 122% for64%, during the year ended December 31, 20172021 as compared to the year ended December 31, 20162020. This increase is primarily driven by higher advertising inventory costs, higher content amortization costs, Premium Subscription costs, and credit card processing fees totaling $303.1 million. Platform costs increased an additional $15.3 million due to significant growthincreases in advertising demandcloud services costs for supporting the platform and lower associatedhigher personnel costs.Operating ExpensesResearch and developmentResearch and development expensesGross profit for platform revenue increased by $31.8$696.4 million, or 42% for91%, during the year ended December 31, 20172021 as compared to the year ended December 31, 2016. We incurred higher personnel costs of $28.0 million as a result of a 42% increase2020, primarily driven by the overall growth in headcount, higherour platform revenue.consulting and outside services of $3.2 million offset by a decrease in facilities expenses of $0.5 million.Sales and marketingSales and marketing expensesplayer revenue increased by $11.2$65.1 million, or 21% for14%, during the year ended December 31, 20172021 as compared to the year ended December 31, 2016.2020. The increase is primarily due to higher personnel costproduct costs of $11.6$35.6 million, as a result of a 54%an increase in headcount,freight costs of $15.0 million, an increase in overhead costs such as cloud services, outsourced consulting services, and personnel costs totaling to $9.4 million, higher travel and entertainmentroyalty expenses of $0.9$5.7 million, and an increase in inventory reserves of $2.8 million offset by decreasea reduction in allocated overheadother manufacturing related costs of $3.3 million.$2.1 million.General and administrativeGeneral and administrative expenses increased by $12.1$96.1 million, or 34% for220%, during the year ended December 31, 20172021 as compared to the year ended December 31, 2016.2020, resulting in a gross loss for fiscal year 2021. The increase is due toin costs was driven primarily by higher personnel cost of $5.3 milliondirect manufacturing costs for player products and accessories as a result of a 33% increasedisruptions in headcount,the global supply chain driving component prices higher, combined with reduced player revenue in 2021 as compared to 2020. We believe that the cost of consultingincreases and outside services of $4.0supply chain issues will continue in the near future, and we expect to incur negative gross margin in the player segment until such conditions normalize.Years Ended December 31, 2021 2020 Change $ Change % (in thousands, except percentages) Research and development $ 461,602 $ 355,784 $ 105,818 30 % Sales and marketing 455,601 299,457 156,144 52 % General and administrative 256,297 173,231 83,066 48 % Total operating expenses $ 1,173,500 $ 828,472 $ 345,028 42 % and higher travel and entertainment expenses of $2.9 million.Other Income (Expenses)or 30%, NetOther income (expenses), netOther income (expenses), net increased forduring the year ended December 31, 20172021 as compared to the year ended December 31, 2016 mainly due to the increase in the fair value of preferred stock warrants of $41.2 million. During the year ended December 31, 2017, interest expense increased by $1.8 million due to a higher amount of debt that was outstanding during the year and $2.3 million of loss on extinguishment and early payment of debt.Income tax expenseIncome tax expense is comprised of foreign income tax and state minimum income taxes in the United States.Comparison of years ended December 31, 2016 and December 26, 2015Net RevenuePlayerPlayer revenue increased by 9% to $293.9 million for the year ended December 31, 2016 as compared to $270.0 million for the year ended December 26, 2015.2020. The increase was driven primarily by an 18% increase in the volume of players sold, offset by a 10% decrease in average selling prices driven primarily by sales of our lower priced players.PlatformPlatform revenue increased by 110% to $104.7 million for the year ended December 31, 2016 as compared to $49.9 million for the year ended December 26, 2015. The increase wasis primarily due to higher advertising and subscription revenue share of $48.9 million, as we expanded our advertising sales operations and an increased revenue share from an increase of subscriptions through our platform. In addition, we generated an additional $4.6 millionincreases in fees earned from license arrangements with service operators.Cost of RevenueCost of player revenue increased by 13% to $249.8 million for the year ended December 31, 2016 as compared to $221.4 million for the year ended December 26, 2015. Cost of player revenue increased on an absolute dollar basis primarily due to the 18% increase in the volume of players sold and, to a lesser extent, to increased provisions for inventory reserves and excess component liabilities, resulting from product transitions and to increased royalty costs arising from the execution of a patent and technology license agreement with a patent owner that included a release of potential claims for past liabilities. The increase in cost of player revenue was partially offset by a reduction in direct manufacturing costs for most players.Gross profit on player sales decreased by 9% to $44.1 million for the year ended December 31, 2016 as compared to $48.6 million for the year ended December 26, 2015. The decrease was primarily due to higher volume mix of lower margin players in addition to the items noted above.PlatformCost of platform revenue increased by 221% to $27.8 million for the year ended December 31, 2016 as compared to $8.7 million for the year ended December 26, 2015. The increase was primarily due to higher costs incurred to acquire advertising inventory, an increase in credit card processing and other fees related to the growth of our platform billing services, and higher allocated overhead primarily in advertising operations, customer support, service operator support and third-party cloud service fees.Gross profit on platform revenue increased by 87% to $76.9 million for the year ended December 31, 2016 as compared to $41.2 million for the year ended December 26, 2015.Operating ExpensesResearch and developmentResearch and development expenses increased by 51% to $76.2 million for the year ended December 31, 2016 as compared to $50.5 million for the year ended December 26, 2015. The increase was primarily due to higher personnel-related costs of $19.3$84.3 million, as a result of the hiring of additionalincreased engineering headcount and platform development personnel, higher facility expenses of $5.3 million from our expanded engineering facilities in the United States, United Kingdom and China,related stock-based compensation, and higher consulting, expensesprofessional services, and cloud services costs of $1.1$17.4 million.17% to $52.9$156.1 million, foror 52%, during the year ended December 31, 20162021 as compared to $45.2 million for the year ended December 26, 2015.31, 2020. The increase wasis primarily due to higherincreases in personnel-related costs of $8.5$91.4 million related to increased headcount and related stock-based compensation in sales and sales support, product management, marketing, and business analytics to support efforts to grow our business. Sales and marketing expenses also include an increase of $44.7 million mainly due to increases in advertising expenses to promote the Roku brand, marketing, retail and merchandising costs, and general sales promotions, an increase of $9.5 million in professional services and consulting fees, and an increase in facilities costs of $8.3 million due to an increase in headcount in connection with the expansion of our platform business and marketing, as well as $2.4 million of higher facilities expenses. These increases were partially offset by a decrease in product marketing spending.office spaces.11% to $35.3$83.1 million, in foror 48%, during the year ended December 31, 20162021 as compared to $31.7 million for the year ended December 26, 2015. The increase was primarily due to higher personnel-related costs of $5.3 million as a result of increased headcount in finance, legal and human resources, in addition to other professional and outside service expenses of $1.3 million. These increases were largely incurred to support the growth in our business. These increases were partially offset by the recovery of a bad debt originally written off in the year ended December 26, 2015.Other Income (Expenses), NetOther income (expense), net changed to a $0.8 million net credit for the year ended December 31, 2016 as compared to a $2.9 million net charge for the year ended December 26, 2015.2020. The change wasincrease is primarily due to lower expensesincreases in personnel-related costs of $50.0 million related to changes in fair valueincreased headcount and related stock-based compensation, an increase of warrants$28.3 million related to purchase convertible preferred stockhigher legal expenses, consulting, and professional services fees, and a decrease in interest expense duenet increase of $4.8 million related to lower balances on borrowings under ourhigher general overhead, business taxes, and similar costs offset by recoveries of credit facilities.Tax Expense(Expense), Net Years Ended December 31, 2021 2020 Change $ Change % (in thousands, except percentages) Interest expense $ (2,980) $ (3,432) $ 452 (13) % Other income (expense), net 4,467 5,233 (766) (15) % Total other income (expense), net $ 1,487 $ 1,801 $ (314) (17) % The increase intax expense for(expense), net20162021 as compared to the year ended December 31, 2020. The decrease was primarily duedriven by foreign exchange losses of $2.5 million and lower interest income of $1.4 million from a decline in interest rates, which impacted our investment yields. This was offset by $3.1 million of other income recognized related to non-cash consideration associated with the delivery of services for a strategic commercial arrangement and decreased interest expense of $0.5 million.Years Ended December 31, 2021 2020 Change $ Change % (in thousands, except percentages) Income tax benefit $ (5,798) $ (945) $ (4,853) 514 % income taxesjurisdiction with no valuation allowance, and higher state minimum income taxesa tax rate change in the United States.2017,2021, we had cash balances totaling $177.3and cash equivalents of $2,146.0 million.Prior to our IPO, we financed our operations primarily through cash generated from operations, private sales of equity and debt securities and borrowings under our credit facilities. In October 2017, as a result of our IPO, we received cash proceeds of $134.8 million net of underwriting discounts and commissions but before deducting other offering expenses. Our primary source of liquidity is cash generated through operating and financing activities. 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 players, advertising platform and other platform services, headcount, the timing and extent of spending to support development efforts, the introduction of new players and platform features, the expansion of sales and marketing activities, as well as overall economic conditions.We may contemplate and engage in additional merger and acquisition activity that could materially impact our liquidity and capital resource position. We believe that our existing cash balance together with amounts available under our credit facility will be sufficient to fund our working capital and meet our anticipated cash needs for the foreseeable future.As of December 31, 2017, less Less than 1% of our cash was held outside the United States. These amounts were primarilyStates in accounts held in Europe and are utilized to fund our foreign operations. The amount of unremitted earnings related toby our foreign subsidiaries, iswhich are used to fund foreign operations.material.Silicon Valley Bank Loanlimited to, those detailed in Part I, Item 1A, Risk Factors in this Annual Report and Security AgreementsIn May 2015,the effects of the COVID-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.amendedraise additional funds by issuing equity, the ownership of our Restated 2014 loanexisting 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 security agreement (“Restated LSA”)also to restrictive covenants.Silicon Valley Bank (“Bank’)Morgan Stanley & Co. LLC, Citigroup Global Markets Inc., extending the agreementand Evercore Group L.L.C., as our sales agents, pursuant to June 30, 2017. The amended Restated LSA provides advances under a revolving linewhich we could offer and sell from time-to-time shares of creditour Class A common stock for aggregate gross proceeds of up to $30.0$1,000.0 million. In March 2021, we sold approximately 2.6 million shares of Class A common stock at an average selling price of $379.26 per share, for aggregate gross proceeds of $1,000.0 million and incurred issuance costs of $10.4 million.letters(i) a four-year revolving credit facility in the aggregate principal amount of credit to be issued up to $100.0 million (the “Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the lessoraggregate principal amount of up to $100.0 million (the “Term Loan A Facility”), and (iii) an uncommitted incremental facility subject to certain conditions (together with the available line of credit, reduced by outstanding advancesRevolving Credit Facility and drawn but unreimbursed letters of credit, or $5.0 million. The advances under the first amendment toTerm Loan A Facility, collectively, the Restated LSA carry“Credit Facility”).floating per annumEurodollar borrowing with interest at a rate equal to the prime rate or the primeadjusted one-month LIBOR rate plus 2.5% dependingan applicable margin of 1.75% based on certain ratiosour secured leverage ratio. The borrowings under the facility mature or have to be 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 currentcertain adjusted quick ratio (calculated as current assets, divided by current liabilities less deferred revenue), greater than or equalof at least 1.00 to 1:1.In June 2017, we entered into a second amendment to the Restated LSA. The advances under the second amendment carry a floating per annum interest rate equal to, at our option, (1) the prime rate or (2) LIBOR plus 2.75%, or the prime rate plus 1% depending on certain ratios. This amendment further changed the financial covenant to maintain a current ratio (calculated as current assets, divided by current liabilities less deferred revenue) greater than or equal to 1.25. The revolving line1.00, and customary events of credit terminates on June 30, 2019 at which time the principal amount of all outstanding advances becomes due and payable.2017, no borrowings under the revolving line of credit were outstanding and letters of credit in the amount of $1.5 million were outstanding. As of December 31, 2017,2021, 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 Annual Report for additional details regarding the amended Restated LSA and the rate of interest on the lineCredit Agreement.was 4.31%.In June 2017, we entered into a subordinated loan agreement (“2017 Agreement”) withof $38.0 million and $30.8 million as of December 31, 2021 and 2020, respectively, against the Bank. The 2017 Agreement provides for a term loan borrowing of $40.0 million with a minimum of $25.0 million to be initially drawn at the close of the agreement and the remaining amount available for a 24 month period, to be drawn in no less than $5.0 million increments. Advances under the term loan incur a facility fee equal to 1% of the drawn borrowings, in addition to interest payments at an interest rate equal to, at our option, (1) the prime rate plus 3.5% or (2) LIBOR plus 6.5%, subject to a 1% LIBOR floor. Additionally, the borrowings incur payment in kind interest fees equal to 2.5%, accruing to the unpaid borrowings balance, compounded monthly. Payment in kind interest may be settled in cash, at our election, during the term or at maturity. We are also obligated to pay final payment fees ranging from 1% to 4% depending on the timing of the payment. The 2017 Agreement terminates on October 9, 2020. On October 31, 2017, we repaid the entire amount outstanding, and subsequently terminated the 2017 Agreement.In connection with the 2017 Agreement we issued 0.4 million warrants to purchase shares of Series H convertible preferred stock, with an exercise price of $9.17340. The warrants are exercisable up to ten years from the date of issuance. Upon the repayment of the amounts borrowed and the subsequent termination of the 2017 Agreement, we cancelled 0.1 million warrants to purchase Class B common stock that were contingent on future borrowings.presented:presented (in thousands):Years Ended December 31, 2021 2020 Consolidated Statements of Cash Flows Data: Cash flows provided by operating activities Cash flows provided by operating activities $ 228,081 $ 148,192 Cash flows used in investing activities $ (176,819) $ (81,324) Cash flows provided by financing activities Cash flows provided by financing activities $ 1,003,147 $ 509,048 During2017, operating activities generated $37.32021. Our net income of $242.4 million in cash as a result of net loss of $63.5 million,for the year ended December 31, 2021 was adjusted by non-cash charges of $60.4$355.7 million and increase of $39.5 million in our net operating assets and liabilities. The non-cash charges comprisecomprised mainly of $40.3 million of change in fair value of preferred stock warrants, $11.0 million of stock-based compensation, $5.3 millionamortization of content assets, depreciation and amortization $2.3 millionon property and equipment and intangible assets, and amortization of loss from extinguishment of debt and $0.5 million of loss relating to exit fromoperating right-of-use assets. The changes in our prior headquarter facilities. The increase in operating assets and liabilities is the resultused cash of $370.0 million mainly from an increase in accounts receivable primarily driven by an increase in revenue, an increase in content assets, an increase in contract assets from revenue recognized from customers, payments made for operating lease liabilities, and a decrease in deferred revenue offset by inflows from an increase in accounts payable and accrued liabilities of $48.4 millionand a decrease in inventory balances. These changes are mainly due to both theoverall growth in the business andcombined with the timing of receipts from customers and payments increase in deferred revenue balances of $30.0 million, decrease in inventories of $10.8 million, and increase in other long-term liabilities by $3.6 million. These increases were offset by increases in accounts receivable of $41.2 million as a result of growth in our business, increase in prepaid and other current assets of $6.5 million, increase in other non-current assets of $2.8 million.Duringto vendors.2016, operating activities used $32.52021 included cash outflows of $176.8 million in cash as a result of a net loss of $42.8 million, adjusted by non-cash charges of $17.8 million and a decrease of $7.5 million in our net operating assets and liabilities. The non-cash charges of $17.8 million were primarily comprised of $8.2$136.8 million for the acquisition of stock-based compensation expenses, $5.3 million of depreciation and amortization expense and a $3.8 million loss provision related tobusinesses, mainly the exit from our prior headquarter facilities. The decrease from our net operating assets and liabilities was primarily the result of a $13.3 million increase in inventory for anticipated sales of players, a $26.4 million increase in accounts receivable as a result of increases in sales of our players and platform arrangements and a $2.9 million increase in deferred cost of revenue. The decrease in our net operating assets and liabilities was partially offset by a $15.0 million increase in accounts payable and accrued liabilities due to the timing of payments and a $19.8 million increase in deferred revenue as a result of the growth in our business.During the year ended December 26, 2015, operating activities used $32.6 million in cash as a result of a net loss of $40.6 million, adjusted by non-cash charges of $12.4 million and a decrease of $4.4 million in our net operating assets and liabilities. The non-cash charges of $12.4 million were primarily comprised of $5.3 million of stock-based compensation expenses, a $1.8 million fair value re-measurement charge related to preferred stock warrant liability, $2.6 million of depreciation and amortization expense and a $1.6 million write-off of deferred IPO costs. The decrease from our net operating assets and liabilities was primarily the result of a $3.8 million increase in inventory for anticipated sales of players, a $14.1 million increase in accounts receivable as a result of increases in sales of our players and platform arrangements, a $3.0 million increase in deferred cost of revenue and a $1.9 million increase in prepaid assets due to the growth in our business. The decrease in our net operating assets and liabilities was partially offset by a $7.5 million increase in accounts payable and accrued liabilities due to the timing of payments, an $8.3 million increase in deferred revenue as a result of the growth in ourNielsen AVA business and a $1.4This Old House, and $40.0 million increase in non-current liabilities primarily due to the deferred rentfor purchases of property and equipment and expenditures on our new headquarter lease.FlowFlows from InvestingFinancing ActivitiesDuring2017, investing activities used $12.32021. The cash was received mainly from proceeds from an at-the-market offering of $989.6 million, in cash mainly on capital expenditures related to purchase of property, equipment and leasehold improvements of $9.2 million and acquisition of a business of $3.0 million.During the year ended December 31, 2016, and December 26, 2015 investing activities used $8.6 million and $5.2 million in cash, respectively, primarily on capital expenditures to purchase property and equipment and leasehold improvements related to expanding our facilities.Cash Flow from Financing ActivitiesDuring the year ended December 31, 2017, financing activities provided $117.7 million in cash primarily from the sale of shares in our IPO net of issuance cost of $131.6 million,costs, and proceeds from the exercise of employee stock options of $1.8 million$18.5 million. These inflows were offset by net repayment$5.0 million of debt of $15.8 million.During the year ended December 31, 2016, financing activities used $0.2 million inrepayments made on borrowings.$0.4 million in proceeds from stock option exercises, less $0.6 million in IPO costs paid during the period.During the year ended December 26, 2015, financing activities provided $58.5 million in cash, resulting primarily from $45.5 million in proceeds from issuance of Series H convertible preferred stock, $15.0 million in borrowings on the line of credit, offset in part by $2.6 million in principal payments on term debt and $1.1 million in IPO costs paid during the period.Off-Balance Sheet ArrangementsWe did not have any off-balance sheet arrangements in during the years ended December 31, 2017, 2016 and December 26, 2015.Contractual ObligationsOur future minimum payments under our non-cancelableknown contractual obligations were as follows as of December 31, 2017:We do not have any internal manufacturing capabilities•Principal payments related to our Term Loan A Facility that are included in our consolidated balance sheets and primarily rely upon onethe related periodic interest payments. 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 Annual Report.manufacturer, Hon Hai Precision Industry Co. Ltd., or Foxconn, to manufacture our players. We rely on Foxconn to manufacture, assemble and test our products. Foxconn acquires components and builds products based on demand forecastmanufacturers and other information supplied by us.inventory related items. Consistent with industry practice,practices, we acquire products by issuing purchase orders supported by supplier contracts. If there are unexpected changes to anticipated demand for our products or in the sales mix of our products, some of theenter into firm, non-cancelable, and unconditional purchase commitments with our contract manufacturers to acquire products through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. Our contract manufacturers source components and build our products based on these demand forecasts. Changes to projected demand or in the subsequent sales mix of our products may result in ourus being committed to purchase excess inventory.inventory to satisfycommitment amounts in the tablecommitments discussed 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 above.the table above. Our estimates are based on historical experience, current trends and other factors that we believe to be reasonable at the time our consolidated financial statements are prepared. Our actual results could differ from these estimates.OverviewWe derive revenue primarily from sales of our playersplatform services. Revenueservices to a customer. Determining whether products and services are considered distinct performance obligations requires significant judgment.recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.We have multiple-element arrangements. In such arrangements, we combine arrangement deliverables into units of accounting and allocate the total arrangement consideration to the different units of accounting based on a relative selling price hierarchy. To determine the relative selling price of each element, we use vendor-specific objective evidence, or VSOE, if available, third party evidence, or TPE, if VSOE is not available, or best estimated selling price, or BESP, if neither VSOE nor TPE are available. The objective of BESP isrequired to determine the stand-alone selling price at(“SSP”) for each distinct performance obligation. 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, we determine SSP using information that may include market conditions and other observable inputs.would transact a sale ifevaluate whether we are the product or service were availableprincipal, and report revenue on a standalone basis. We establish BESP considering multiple factors including, but not limited to, historical prices of products soldgross basis, or an agent, and report revenue on a stand-alone basis, cost and gross margin objectives, competitive pricing practices and customer and market specific considerations. Revenue is recognized for each unitnet basis. In this assessment, we consider if we obtain control of accounting in accordance with our revenue recognition policy, provided that all revenue recognition criteria have been met.PlayersWe sell the majority of our players through consumer retail distribution channels, including major brick and mortar and online retailers and through our website. For sales through consumer retail distribution channels, revenue recognition occurs when title and risk of loss havespecified goods or services before they are transferred to the customer, which usually occurs upon shipment toas well as other indicators such as the customers or receipt of the products by the customer depending on shipping terms. We establishedparty primarily responsible for fulfillment, inventory risk, and discretion in establishing price.expected product returns and these allowances are recorded as a direct reduction to revenue. Return allowancessales incentives in the estimated transaction price. The estimates for returns and sales incentives are based on our historical experience. Certain payments to retailersexperience and distributors such as market development funds, store promotions and price protection are recorded as a reduction of revenue.anticipated performance. We reduce revenue at the later of the date at which the related player revenue is recognized or the date on which the program is offered. On occasion, these allowances cannot be reasonably and reliably estimated. Player revenue is then recognized at the time the players sell through to the end customer.Our player sales include two units of accounting: hardware, which includes embedded software, andprovide unspecified upgrades or enhancements on a when-and-if-available basis.and updates to our player end users. We have determined that our hardware and the embedded software are considered a single unit of accounting, because the hardware and software individually do not have standalone value and are not sold separately. We initially record the relative selling priceallocated value of the unspecified upgrades or enhancements on a when-and-if-available basisthese as deferred revenue and then recognize the deferred revenue into revenueit ratably on a straight-linetime elapsed basis over the estimated economic life of the associated players. player revenue and the related shipping costs are included in cost of player revenue. Revenue is recorded nettaxes collected or accrued. Sales taxes are recorded as current liabilities until remittedacquisition. We use our best estimates and assumptions to accurately assign fair value to the relevant government authority.Platformearn platform revenue from fees received from advertisers and content publishers and from licensing our technology and proprietary operating system to service operators and TV brands. Platform revenue primarily includes fees earned or derived fromestimate the saleuseful lives of digital advertising, revenue sharing with content publishers for new or recurring user subscriptions activated through our platform and revenue share from user purchases of content publishers’ media through our platform. We also earn revenue from the sale of branded channel buttons on player and TV remote controls. Licensing revenue from service operators are mostly generated from unit activation or flat fees and ongoing maintenance fees. Licensing revenue from TV brands are generated on a flat fee basis or from per unit licensing fees earned.Digital advertising includes video and display ads that are served on our TV streaming platform. Digital advertising revenue primarily consists of video and display advertising commonly sold on a cost per thousand impression basis. Advertising revenue arrangements are evidenced by a fully executed insertion order. Revenue is recognized in the period the impressions and promotional media are delivered. There is significant judgment in accounting for advertising arrangements related to whether we should report revenueintangible assets based on the gross amountexpected 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.charge the advertiser or net of acquisition costs paid to content publishers. To determine if we should report revenue on a gross or net basis, we assess whether we are actinguse our best estimates and assumptions as the principal or agent in the transaction. If we are acting as the principal, we record revenue on a gross basis. If we are acting as the agent, we record revenue on a net basis. We evaluate allpart of the indicators inpurchase price allocation process to accurately value assets and liabilities acquired, these estimates are inherently uncertain and subject to refinement. During the guidancemeasurement period, which may be up to make this determination. While no one indicator is determinative, we placeyear from the most weight on the analysis of whether we are the primary obligor. We mostly report advertising revenue on a gross basis predominantly because we are the primary obligor responsible for fulfilling the advertisement delivery and maintaining the relationship with the advertiser, including the acceptability of the services delivered. We also establish pricing with the advertiser and have discretion in supplier selection given we can choose where to place the advertisement on available inventory across our platform.Fees derived from our revenue share from new or recurring user subscriptions activated on our platform and from purchases of content publishers’ media are recognized as transacted at the net amount retained by us, generally equal to a fixed percentage of the price charged by the content publisher or a contractual flat fee. When the content publisher is responsible for user billing, we recognize revenue from our share of the fees on an as reported basis, in arrears, on a monthly or quarterly basis.We also earn fees through the sale of branded channel buttons on player and TV remote controls. These branded buttons provide one-touch, direct access to the providers’ content on our platform. We typically receive a fixed fee per button unit, and revenue is recognized as player remote controls are shipped by us or reported as shipped by TV brands.Revenue earned from service operators and TV brands in the licensing of our technology and proprietary operating system are accounted for under software revenue recognition guidance. We have been unable to establish VSOE for any component of these licensing arrangements and therefore these arrangements are accounted for as a single unit of accounting and all revenue related to the licensing arrangements is recognized over the term of the relationship. Arrangements with service operators are generally comprised of a license for the technology and proprietary operating system, unspecified upgrades or enhancements, hosting of a branded channel store, and engineering and support services. Arrangements with TV brands commonly include a license to the technology and proprietary operating system over a specified term including updates and upgrades.Valuation of InventoryWe value inventory at the lower of cost or market with cost determined on a first-in, first-out basis. We base write-downs of inventories upon current facts and circumstances. We perform a detailed assessment of excess and obsolete inventory at each balance sheetacquisition date, which includes a review of, among other factors, demand requirements and market conditions. Based on this analysis, we record adjustments whento consideration transferred, and 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 consideration transferred, and assets and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.reflectinventorywhich it relates may not be recoverable. If such facts and circumstances indicate an asset group’s carrying amount may not be recoverable, we assess the recoverability of finished products, materials on hand and purchase commitments at lower of cost or market whichpurchased-intangible assets by comparing the projected undiscounted net cash flows associated with the asset group against their respective carrying amounts. Impairment, if any, is based on net realizable value. We establish a reserve for players or materials which are not forecasted to be consumed. Although we try to ensure the accuracyexcess of our forecasts of player demand and pricing assumptions, any significant unanticipated changes in demand, pricing or technological developments could significantly impact the carrying amount over the fair value of our inventory and our reported operating results.these asset groups. If we find that our supply estimates exceed our inventory demands, our inventory is written-down and charged to cost of revenue at the time of such determination. Conversely, if assumptions or circumstances beyond our control change and we subsequently sell players that have previously been written-down, our gross margin in the period of sale will be favorably impacted. The inventory provisions recorded are netuseful life of the reversalsasset is shorter than originally estimated, we accelerate the rate of provisions for sales of previously written-down inventory for each period presented. and Doubtful Accountscustomer incentives and doubtful accounts. To determine the allowances for returns, sales incentives and doubtful accounts, weincentives. We perform an ongoing analysis of various factors including our historical experience, recent write-offspromotional programs, claims to date, and specific analysis of significant receivables that are past due.other business factors to determine the allowances for sales returns and sales incentives. If our estimates regarding accounts receivable allowances differ from the actual results, the losses or gains could be material.Stock-Based CompensationStock-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 use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of 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. Prior to our IPO, the fair value of the common stock underlying our stock options was determined by our Board of Directors. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our Board of Directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date, including but not limited to the prices, rights, preferences and privileges of our preferred stock relative to the common stock, our operating and financial performance, current business conditions and projections, our stage of development, likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an IPO or sale of our company, given prevailing market conditions, any adjustment necessary to recognize a lack of marketability of the common stock underlying the granted options, the market performance of comparable publicly-traded companies, the U.S. and global capital market conditions.Subsequent to our IPO, we use the market closing 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.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 option awards.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.In addition to the assumptions used in the Black-Scholes option pricing model, we also estimated a forfeiture rate to calculate the stock-based compensation expense for our awards prior to January 1, 2017. Beginning January 1, 2017, we recognize 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.For stock options issued to non-employees, including consultants, we record an expense equal to the fair value of the options calculated using the Black-Scholes model over the service performance period. The fair value of options granted to non-employees is remeasured throughout the vesting period, and the resulting value is recognized as an expense over the period in which the services are received.We account for the fair value of the restricted stock units using the closing market price of our Class A common stock on the date of the grant.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 common stock and our business evolves, we may have refinements to our assumptions and estimates which could impact our future stock-based compensation cost.Deferred Tax AssetsWe account for income taxes using an asset and liability approach. Deferred tax assets and liabilities are determined based on the difference between the 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 expected to be realized. 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.We utilize a two-step approach to evaluate tax positions. Recognition, step one, requires evaluation of the tax position to determine if based solely on technical merits it is more likely than not, or MLTN, to be sustained upon examination. The MLTN threshold is met when the likelihood of occurrence is greater than 50%. Measurement, step two, is addressed only if step one is satisfied. In step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is MLTN to be realized upon ultimate settlement with tax authorities. If a position does not meet the MLTN threshold for recognition in step one, no benefit is recorded until the first subsequent period in with the MLTN threshold is met, the issue is resolved with the tax authority, or the statute of limitations expires. Positions previously recognized are derecognized when we subsequently determine that the position is no longer MLTN to be sustained.domesticU.S. and Netherlands 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. and Netherlands net operating losses and other deferred tax assets.JOBS Act Accounting ElectionWe are an “emerging growth company,” as defined in In order to assess the JOBS Act. Underlikelihood that we will recover our deferred tax assets against future sources of taxable income, we review the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactmentlevel of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselvespositive and negative evidence of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.In January 2017,FASB issued ASU 2017-04, Intangibles—Goodwillyear ended December 31, 2021 and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Stepthose not yet adopted are discussed and included in Note 2 from the goodwill impairment test which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, and should recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the loss not exceeding the total amount of goodwill allocated to that reporting unit. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, with early adoption permitted. The guidance should be applied prospectively. We are evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities should be accounted for as an acquisition of a business or group of assets. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, with early adoption permitted. The guidance should be applied prospectively to any transactions occurring on or after the adoption date. We are evaluating the impactItem 8 of this new guidance on the consolidated financial statements and the related disclosures.In October 2016, the FASB issued ASU 2016-16 Income Taxes, (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which simplifies certain aspects of the income tax accounting for Intra-Entity Transfers of Assets. Under current GAAP, the tax effects of intra-entity asset transfers (intercompany sales)Annual Report. They are deferred until the transferred asset is sold to a third party or otherwise recovered through use. This is an exception to the principle in ASC 740, Income Taxes, that generally requires comprehensive recognition of current and deferred income taxes. The new guidance allows a reporting entity to recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those years, with early adoption permitted. We are currently in the process of evaluating the effect of this guidance on its consolidated financial statements and the related disclosures.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), which addresses classification of certain cash receipts and cash payments related to the statement of cash flows. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, with early adoption permitted. We are evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), related to new accounting and reporting guidelines for leasing arrangements. The guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations createdincorporated herein by those leases, regardless of whether they are classified as finance or operating leases. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, with early adoption permitted. The new standard is to be applied using a modified retrospective approach. We are evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, related to the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, with early adoption permitted. We are evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), related to the recognition and reporting of revenue that establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In August 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017. In 2016 the FASB issued amendments on this guidance with the same effective date and transition guidance. We plan to adopt the new revenue standard in the first quarter of 2018 using the modified retrospective approach, which requires the cumulative impact of initially applying the guidance to be recognized as an adjustment to our accumulated deficit as of January 1, 2018, the date of adoption. Prior periods will not be retroactively adjusted.We are currently in the process of finalizing the impact of the new standard on our accounting policies, processes and system requirements. Furthermore, we have made and will continue to make investments in systems to enable timely and accurate reporting under the new standard. We expect that the adjustment from the adoption will result in a decrease to the accumulated deficit in the range of $32.0 million to $42.0 million.We believe that the new standard will impact accounting for revenue arrangements as follows:Revenue from the licensing of our technology and proprietary operating system to service operators and TV brands, will be recognized earlier and could result in greater variability in revenue recognition;Revenue resulting from the variable consideration (e.g. revenue share from user subscriptions and media purchases through the platform or sale of branded channel buttons on its remote controls) outlined in content publisher arrangements is estimated and allocated for the entire contract period and then recognized based on the percentage of completion across various performance obligations; andExpanded disclosures.We expect revenue recognition related to players and advertising to remain relatively unchanged under the new guidance.QualitativeQualitative Disclosures About Market Risk primarily relates to the interest income generated by cash, held at Silicon Valley Bank, which is relatively insensitive tocash equivalents, and interest rate changes.expense on the Credit Facility. The primary objective of our investment activitiespolicy is to preserve principal while maximizingOur As of December 31, 2021, borrowings under the Term Loan A Facility totaled $90.0 million with an effective interest rate of 2.0%. If the amount outstanding under our credit facility with Silicon Valley Bank areTerm Loan A Facility remains at variable interest rates. However, a hypothetical 100-basis point change inthis level for an entire year and interest rates increased or decreased by 100 basis points, our annual interest expense would not have a material impact on our borrowingsincrease or results of operations.sales are currentlyrevenue 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 sales increaserevenue increases 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.PagePage 676869707172REGISTEREDREGISTERED PUBLIC ACCOUNTING FIRM20172021 and 2016,2020, the related consolidated statements of operations, convertible preferred stock andcomprehensive income (loss), stockholders' equity, (deficit), and cash flows for each of the three years in the period ended December 31, 2017,2021, and the related notes (collectively referred to as the “financial statements”"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172021 and 2016,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2021, in conformity with accounting principles generally accepted in the United States of America.Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)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.The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.March 1, 2018 As of December 31, 2021 2020 Assets Current Assets: Cash and cash equivalents $ 2,146,043 $ 1,092,815 Accounts receivable, net of allowances of $56,827 and $41,236 as of 752,393 523,852 December 31, 2021 and 2020, respectively Inventories 50,276 53,895 Prepaid expenses and other current assets 105,795 27,078 Total current assets 3,054,507 1,697,640 Property and equipment, net 177,567 155,197 Operating lease right-of-use assets 345,660 266,197 Intangible assets, net 84,126 62,181 Goodwill 161,519 73,058 Other non-current assets 258,766 16,269 Total Assets $ 4,082,145 $ 2,270,542 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable $ 124,921 $ 112,314 Accrued liabilities 549,055 347,668 Current portion of long-term debt 9,883 4,874 Deferred revenue, current portion 45,760 55,465 Total current liabilities 729,619 520,321 Long-term debt, non-current portion 79,985 89,868 Deferred revenue, non-current portion 28,726 21,283 Operating lease liability, non-current portion 394,724 307,936 Other long-term liabilities 82,485 3,119 Total Liabilities 1,315,539 942,527 Commitments and contingencies (Note 12) 0 0 Stockholders’ Equity: Common stock, $0.0001 par value; 14 13 1,150,000 (Class A - 1,000,000 and Class B - 150,000) shares authorized as of December 31, 2021 and 2020; 135,137 (Class A - 118,767 and Class B - 16,370) shares and 128,004 (Class A - 110,645 and Class B - 17,359) shares issued and outstanding as of December 31, 2021 and 2020, respectively Additional paid-in capital 2,856,572 1,660,379 Accumulated other comprehensive income 41 29 Accumulated deficit (90,021) (332,406) Total stockholders’ equity 2,766,606 1,328,015 Total Liabilities and Stockholders’ Equity $ 4,082,145 $ 2,270,542 Years Ended December 31, 2021 2020 2019 Net Revenue: Platform $ 2,284,925 $ 1,267,744 $ 740,776 Player 479,659 510,644 388,145 Total net revenue 2,764,584 1,778,388 1,128,921 Cost of Revenue: Platform 823,924 503,177 262,655 Player 532,060 466,992 371,042 Total cost of revenue 1,355,984 970,169 633,697 Gross Profit (Loss): Platform 1,461,001 764,567 478,121 Player (52,401) 43,652 17,103 Total gross profit 1,408,600 808,219 495,224 Operating Expenses: Research and development 461,602 355,784 265,011 Sales and marketing 455,601 299,457 178,855 General and administrative 256,297 173,231 116,417 Total operating expenses 1,173,500 828,472 560,283 Income (Loss) from Operations 235,100 (20,253) (65,059) Other Income (Expense), Net: Interest expense (2,980) (3,432) (2,366) Other income (expense), net 4,467 5,233 6,506 Total other income (expense), net 1,487 1,801 4,140 Income (Loss) Before Income Taxes 236,587 (18,452) (60,919) Income tax benefit (5,798) (945) (982) Net Income (Loss) $ 242,385 $ (17,507) $ (59,937) Net income (loss) per share — basic $ 1.83 $ (0.14) $ (0.52) Net income (loss) per share — diluted $ 1.71 $ (0.14) $ (0.52) Weighted-average common shares outstanding — basic 132,710 123,978 115,218 Weighted-average common shares outstanding — diluted 141,668 123,978 115,218 CONVERTIBLE PREFERRED STOCK ANDCOMPREHENSIVE INCOME (LOSS) Years Ended December 31, 2021 2020 2019 Net Income (Loss) $ 242,385 $ (17,507) $ (59,937) Other comprehensive gain, net of tax: Unrealized gain on short-term investments, net of tax — — 17 Foreign currency translation adjustment 12 — 29 Other comprehensive gain, net of tax 12 — 46 Comprehensive Net Income (Loss) $ 242,397 $ (17,507) $ (59,891) (DEFICIT)(in thousands, except per share data)Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Shares Amount Balance-December 31, 2018 109,770 $ 11 $ 498,553 $ (17) $ (253,896) $ 244,651 Vesting of early exercised stock options — — 86 — — 86 Share repurchases (2) — — — — — Issuance of common stock pursuant to equity incentive plans 6,169 1 28,181 — — 28,182 Issuance of common stock in connection with at-the-market offerings, net of issuance costs of $6,400 3,389 — 330,539 — — 330,539 Issuance of common stock in connection with acquisition 571 — 69,684 — — 69,684 Stock-based compensation expense — — 85,175 — — 85,175 Unrealized gain on short-term investments — — — 17 — 17 Foreign currency translation adjustment — — — 29 — 29 Net loss — — — — (59,937) (59,937) Balance-December 31, 2019 119,897 12 1,012,218 29 (313,833) 698,426 Vesting of early exercised stock options — — 38 — — 38 Issuance of common stock pursuant to equity incentive plans 4,107 1 16,805 — — 16,806 Issuance of common stock in connection with at-the-market offering, net of issuance costs of $6,800 4,000 — 497,242 — — 497,242 Stock-based compensation expense — — 134,076 — — 134,076 Adoption of ASU 2016-13 — — — — (1,066) (1,066) Net loss — — — — (17,507) (17,507) Balance-December 31, 2020 128,004 13 1,660,379 29 (332,406) 1,328,015 Vesting of early exercised stock options — — 4 — — 4 Issuance of common stock pursuant to equity incentive plans 4,496 1 18,531 — — 18,532 Issuance of common stock in connection with at-the-market offering, net of issuance costs of $10,400 2,637 — 989,615 — — 989,615 Stock-based compensation expense — — 188,043 — — 188,043 Foreign currency translation adjustment — — — 12 — 12 Net income — — — — 242,385 242,385 Balance-December 31, 2021 135,137 $ 14 $ 2,856,572 $ 41 $ (90,021) $ 2,766,606 Years Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net income (loss) $ 242,385 $ (17,507) $ (59,937) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 42,621 36,206 15,669 Stock-based compensation expense 187,532 134,076 85,175 Amortization of right-of-use assets 31,024 28,743 22,328 Amortization of content assets 95,570 22,392 2,914 Provision for (recoveries of) doubtful accounts (904) 3,801 704 Other items, net (101) 524 1,101 Changes in operating assets and liabilities: Accounts receivable (221,768) (196,046) (110,225) Inventories 3,619 (4,181) (14,129) Prepaid expenses and other current assets (67,240) (3,450) (9,934) Deferred cost of revenue — — 1,143 Other non-current assets (102,957) (1,128) (3,060) Accounts payable 8,428 6,410 9,409 Accrued liabilities 38,279 103,218 74,512 Operating lease liabilities (20,083) 12,999 11,658 Other long-term liabilities (1,100) 618 (3,024) Deferred revenue (7,224) 21,517 (10,597) Net cash provided by operating activities 228,081 148,192 13,707 Cash flows from investing activities: Purchase of property and equipment (40,041) (82,382) (77,180) Purchase of business, net of cash acquired (136,778) — (68,132) Proceeds from escrows associated with acquisition — 1,058 — Purchase of intangible assets — — (7,428) Purchases of short-term investments — — (12,365) Sales/maturities of short-term investments — — 54,810 Net cash used in investing activities (176,819) (81,324) (110,295) Cash flows from financing activities: Proceeds from borrowings, net of issuance costs — 69,325 99,608 Repayments of borrowings (5,000) (74,325) — Proceeds from equity issued under incentive plans 18,532 16,806 28,181 Proceeds from equity issued under at-the-market offerings, net of offering costs 989,615 497,242 330,539 Net cash provided by financing activities 1,003,147 509,048 458,328 Net increase in cash, cash equivalents and restricted cash 1,054,409 575,916 361,740 Effect of exchange rate changes on cash, cash equivalents and restricted cash 12 — 29 Cash, cash equivalents and restricted cash —Beginning of period 1,093,249 517,333 155,564 Cash, cash equivalents and restricted cash —End of period $ 2,147,670 $ 1,093,249 $ 517,333 Cash, cash equivalents and restricted cash at end of period: Cash and cash equivalents 2,146,043 1,092,815 515,479 Restricted cash, current — 434 1,854 Restricted cash, non-current 1,627 — — Cash, cash equivalents and restricted cash —End of period $ 2,147,670 $ 1,093,249 $ 517,333 Years Ended December 31, 2021 2020 2019 Supplemental disclosures of cash flow information: Cash paid for interest $ 2,578 $ 3,470 $ 3,095 Cash paid for income taxes $ 1,363 $ 1,014 $ 759 Supplemental disclosures of non-cash investing and financing activities: Non-cash consideration for business combination $ 21,400 $ — $ — Services to be received as part of a business combination $ 6,500 $ — $ — Issuance of common stock for business combinations $ — $ — $ 69,684 Unpaid portion of property and equipment purchases $ 3,073 $ 1,242 $ 10,762 Unpaid portion of acquisition related expenses $ — $ — $ 2,190 Unpaid portion of purchased intangibles $ — $ — $ 400 Unpaid portion of at-the-market offering costs $ — $ — $ 144 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 two2 reportable segments and generates platform revenue throughfrom the sale of digital advertising and related services including the OneView ad platform, content distribution services (such as subscription and transaction revenue shares, media and entertainment promotional spending, the sale of Premium Subscriptions, and the sale of branded channel buttons on remote controls), and licensing arrangements with service operators and TV brands and player revenue from the sale of streaming players advertising, subscription and transaction revenue sharing, as well as through licensing arrangements with TV brands and cable, satellite, and telecommunication service operators (“service operators”).Initial Public OfferingOn October 2, 2017, the Company completed its initial public offering (“IPO”) of Class A common stock, in which it sold 10.4 million shares, including 1.4 million shares pursuant to the underwriters’ over-allotment option. The shares were sold at an IPO price of $14.00 per share for net proceeds of $134.8 million, after deducting underwriting discounts and commissions of $10.1 million. Additionally, offering costs incurred by the Company were $3.1 million. Upon the closing of the Company’s IPO, all outstanding shares of its convertible preferred stock automatically converted into 80.8 million shares of Class B common stock and all outstanding convertible preferred stock warrants automatically converted to Class B common stock warrants on a one-for-one basis. Following the IPO, we have two classes of authorized common stock – Class A common stock and Class B common stock. Class A common stock entitles holders to one vote per share, and Class B common stock entitles holders to 10 votes per share. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESFiscalPrior Presentation2017, the Company’s fiscal year was the 52- or 53-weekconsolidated financial statements have been reclassified to conform to current period that ended on the last Saturday of December. The fiscal years 2015 and 2016 ended on December 26, 2015 and December 31, 2016, respectively. In 2017, the Company changed the fiscal year-end to match the calendar year-end. Fiscal year 2015 spanned 52 weeks and fiscal year 2016 spanned 53 weeks.and liabilities, and related disclosures at the date of the financial statements, as well as the reported amounts ofnet revenue, and expenses during the periods presented.expenses. Significant items subject to such estimates includeand assumptions include:multiple element arrangements, determination of revenue reporting as net versus gross, sales return reserves, customer incentive programs, inventory valuation, returns and sales incentives; andassets, the recognition and disclosure of contingent liabilities, stock-based compensation and the fair value of assets and liabilities acquired in business combinations. assets.estimates.estimates and assumptions.all periods presented. Therefore, the consolidated statements of comprehensiveyear ended December 31, 2020. Comprehensive loss have been omitted fromfor the consolidated financial statements.the Company’sits foreign subsidiaries is the U.S. dollar.subsidiaries. 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 nonmonetarynon-monetary assets and liabilities are remeasured at historical rates. RevenuesRevenue 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 otherOther income (expense), net in the consolidated statements of operations. DuringThe Company recorded a foreign currency loss of $1.2 million, gain of $1.3 million, and loss of $0.2 million during the years ended December 31, 20172021, 2020, and 2016,2019, respectively.recorded foreign currency gainrecords translation of $0.1 milliontheir assets and foreign currency lossliabilities into U.S. dollars at the balance sheet dates as translation adjustments and includes them as a component of $0.4 million, respectively.ConcentrationsFinancial instruments, which potentially subjectAccumulated other comprehensive income (loss).Companydate of purchase to concentrations of credit risk, consist principallybe cash equivalents. NaN financial institutions managed 30% and 27% of cash and accounts receivable. Ascash equivalents as of December 31, 20172021 and 2016, 95%46% and 94%26% as of the Company’s cash balances were managed by one financial institution. December 31, 2020.customersales incentives, doubtful accounts, and doubtful accounts.other miscellaneous allowances. The Company performs ongoing credit evaluations of its customers and maintainsto determine allowances for potential credit losses.Customers accountinglosses and doubtful accounts. The Company considers historical experience, ongoing promotional activities, historical claim rates, and other factors to determine the allowances for 10% or moresales returns and sales incentives.Company’s net revenue were as followsfollowing activities (in thousands): Years Ended December 31, 2021 2020 2019 Beginning balance $ 5,912 $ 6,550 $ 7,335 Add: Charged to revenue 16,181 14,594 15,541 Less: Utilization of sales return reserve (16,078) (15,232) (16,326) Ending balance $ 6,015 $ 5,912 $ 6,550 Customers accounting10% or moreSales Incentives: Allowance for sales incentives consisted of the Company’sfollowing activities (in thousands): Years Ended December 31, 2021 2020 2019 Beginning balance $ 30,838 $ 19,476 $ 13,750 Add: Charged to revenue 90,530 68,315 65,676 Less: Utilization of sales incentive reserve (72,957) (56,953) (59,950) Ending balance $ 48,411 $ 30,838 $ 19,476 Years Ended December 31, 2021 2020 2019 Beginning balance $ 4,181 $ 1,140 $ 686 Impact of adoption of ASU 2016-13 — 1,066 — Adjusted beginning balance $ 4,181 $ 2,206 $ 686 Provision for (recoveries of) doubtful accounts (904) 3,801 704 Adjustments for recovery and write-off (1,119) (1,826) (250) Ending balance $ 2,158 $ 4,181 $ 1,140 werenet balance as follows:of December 31, 2021. Customer H accounted for 11% of the accounts receivable, net balance as of December 31, 2020.We determineacquisition. Goodwill is measuredoperations.as the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. Significant estimates and assumptions are made by management to value such assets and liabilities. Although the Company believes that those estimates and assumptions are reasonable and appropriate, they are inherently uncertain and subject to refinement. Additional information related to the acquisition date fair value of acquired assets and assumed liabilities obtainedAs a result, during the measurement period, notwhich may be up to exceed one year from the acquisition date, the Company may result in changesrecord adjustments to consideration transferred, and the recorded values of such assets acquired and liabilities resulting in an offsetting adjustment to any goodwill associatedassumed with the business acquired. Uncertaincorresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially establishedrecorded in connection with a business combination as of the acquisition date. The Company will continuecontinues to collect information and reevaluatereevaluates these estimates and assumptions throughoutand records any adjustments to the Company’s preliminary estimates with a corresponding offset to goodwill during the measurement period.Any contingent Upon the conclusion of the measurement period or final determination of the values of consideration payable is recognizedtransferred, and assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.value atvalues as of the acquisition date. Liability-classified contingent consideration is remeasured each reporting period withIntangible 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.recognized in earnings untilof a reporting unit is less than its carrying value. In performing its annual assessment, the contingent consideration is settled. When we issue paymentsCompany can opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or grants of equity to selling shareholders in connection with an acquisition, we evaluate whether the payments or awards are compensatory. This evaluation includes whether cash payments or stock award vesting is contingentit can directly perform a quantitative assessment. Based on the continued employmentCompany’s qualitative assessment, if it is determined that the fair value of the selling stockholder beyondreporting unit is, more likely than not, less than its carrying amount, then the acquisition date.quantitative assessment is performed. Any excess of the reporting unit’s carrying amount over its fair value is recorded as an impairment loss, limited to the total amount of goodwill allocated to the reporting unit.continued employment is required for the carrying value of the asset or asset group exceeds the estimated future undiscounted cash to be paid or stock awards to vest,flows, the award is treated as compensation for post-acquisition services and is recognized as compensation expense.Acquisition related costs incurred in connection with a business combination, other than those associated with the issuance of debt or equity securities, are expensed as incurred.Goodwill, Purchased Intangible Assets and Impairment AssessmentGoodwill representsCompany recognizes an impairment loss based on the excess of the purchase pricecarrying amount over the fair value of the asset group.acquiredin any periods reported. The impairments of operating right-of-use assets during the years ended December 31, 2021, 2020, and liabilities assumed, if any, in2019 were not material.business combination.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 lessits goodwill for impairment annually, as ofvarious qualitative factors and indicators to assess whether the beginning of the fourth quarter, and whenever events or changes in circumstances indicate that impairment may exist.film group is impaired. The Company did not recognize any impairment of goodwillcontent assets in any periods reported.year ended December 31, 2017.Purchased intangible assets consistconsolidated statements of operations. The 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.developed technology. Purchased intangible assetsdiscretion in establishing pricing. Advertising arrangements comprised of multiple performance obligations are recordedrecognized either at a point in time or over time depending on the nature of the distinct performance obligation.datecontractual arrangement and recognizes that in Cost of acquisitionrevenue, platform.amortizedupgrades, 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 and updates is recognized on a time elapsed basis, by day, over their estimated useful lives following the patternservice 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.which the economic benefitsU.S. including brick and mortar and online retailers, as well as through the Company’s website. Player revenue primarily consists of the assets will be consumed, generally straight-line.hardware, embedded software, and unspecified upgrades and updates on a when and if-available basis. The carrying amounts of our purchased intangible assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated.Impairment of Long-Lived AssetsThe Company’s long-lived assets include propertyhardware and equipment and other noncurrent assets and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recovered. Recoverability of assets is measured first by comparing their carrying amounts to their future undiscounted net cash flows. If such assetsembedded software are considered as one performance obligation and revenue is recognized at a point in time when the control transfers to be impaired, the impairmentcustomer. Unspecified upgrades and updates are available to be recognized equalscustomers on a when-and-if available basis. The Company records the amount by which the carryingallocated value of the asset exceeds its fair market value. No impairment was recorded duringunspecified upgrades and updates as deferred revenue and recognizes it as player revenue ratably on a time elapsed basis over the year ended December 31, 2017. estimated economic life of the associated players products.recordeddetermines if an impairmentarrangement contains a lease at its inception. Operating leases are included in operating lease right-of-use (“ROU”) 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 $0.3 millionlease 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 obsolete internal-use software during the year ended December 31, 2016.statements on a recurring basis.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.
Inventoriesmarketnet realizable value with cost determined on a first-in, first-out basis and market based on net realizable value. Ifbasis. Provisions are made if the cost of the inventories exceeds their net realizable value, provisions are made currently for the difference between the cost and the market 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.is generally range from five to ten years.Website and Internal-Use Softwarewebsite and internal-use software. The Company expenses all costsCosts that relate to the planning and post-implementation phases of development are expensed as incurred. The Company capitalizes subsequent costsCosts are capitalized when preliminary efforts are successfully completed, management has authorized and committed to funding the project, funding, 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, 2017, 20162021, 2020, and December 26, 2015,2019, the Company capitalized website and internal-use software development costs of $2.6$0.5 million, $1.8$2.2 million, and $0.7$0.1 million, respectively.anthe 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, 2017, 20162021, 2020, and December 26, 2015,2019, the Company amortized expenses of $1.1$1.0 million, $0.7$0.5 million, and $0.3$1.6 million, respectively.Streaming ContentThe Company licenses certain content for users to access through The Roku Channel. The content licenses can be for a fixed fee and/or advertising revenue share with specific windows of content availability. The Company capitalizes the content license fees and records a corresponding liability when the license period begins, the cost of the content is known and the content is accepted and available for streaming. The Company amortizes the content assets into “Cost of Revenue, Platform” over the contractual window of availability.At December 31, 2017, content license fees included in “Prepaid expenses and other current assets” are not material.Revenue RecognitionThe Company derives revenue primarily from sales of its players and platform services. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.Multiple Element Arrangements—The Company commonly enters into multiple-element arrangements. In such arrangements, the Company will combine arrangement deliverables into units of accounting and allocate the total arrangement consideration to the different units of accounting based on a relative selling price hierarchy. To determine the relative selling price of each element, the Company uses vendor-specific objective evidence of fair value (“VSOE”), if available, third party evidence (“TPE”), if VSOE is not available, or best estimated selling price (“BESP”), if neither VSOE nor TPE are available. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were available on a standalone basis. The Company establishes BESP considering multiple factors including, but not limited to, historical prices of products sold on a stand-alone basis, cost and gross margin objectives, competitive pricing practices and customer and market specific considerations. Revenue is recognized for each unit of accounting provided that all revenue recognition criteria have been met.Players—The Company sells the majority of its players through consumer retail distribution channels, including brick and mortar and online retailers, and through the Company’s website. For sales through consumer retail distribution channels, revenue recognition occurs when title and risk of loss have transferred to the customer which usually occurs upon shipment to the customers or receipt of the products by the customer depending on shipping terms. The Company establishes allowances for expected product returns and these allowances are recorded as a direct reduction to revenue. Return allowances are based on the Company’s historical experience. Certain payments to retailers and distributors such as market development funds, store promotions and price protection are recorded as a reduction of revenue. The Company reduces revenue at the later of the date at which the related player revenue is recognized or the date on which the program is offered. On occasion, these allowances cannot be reasonably and reliably estimated. Player revenue is then recognized at the time the players sell through to the end customer.The Company’s player sales include two units of accounting: hardware, which includes embedded software, and unspecified upgrades or enhancements on a when-and-if available basis. The Company has determined that its hardware and embedded software be considered as one single unit of accounting, because the hardware and software individually do not have standalone value and are not sold separately. The Company initially records the relative selling price of the unspecified upgrades or enhancements on a when-and-if-available basis as deferred revenue, and then recognizes the deferred revenue into player, net revenue ratably on a straight-line basis over the estimated economic life of the associated players.Shipping charges billed to customers are included in player revenue and the related shipping costs are included in cost of player revenue. Revenue is recorded net of taxes collected or accrued. Sales taxes are recorded as current liabilities until remitted to the relevant government authority.Platform—The Company earns platform revenue from fees received from advertisers and content publishers and licensing its technology and proprietary operating system to service operators and TV brands. Platform revenue primarily includes fees earned or derived from the sale of digital advertising, revenue sharing with content publishers for new or recurring user subscriptions activated through the Company’s platform and revenue share from user purchases of content publishers’ media through its platform. The Company also earns revenue from the sale of branded channel buttons on remote controls. Licensing revenues from service operators are mostly generated from unit activation or flat fees and ongoing maintenance fees. Licensing revenues from TV brands are generated on a flat fee basis or from per unit licensing fees earned.Digital advertising includes video and display ads that are served on the Company’s platform. Digital advertising revenue consists of video and display advertising commonly sold on a cost per thousand impression basis. Advertising revenue arrangements are evidenced by a fully executed insertion order. Revenue is recognized in the period the impressions and promotional media are delivered.Fees derived from the Company’s billing services supporting new or recurring user subscriptions activated through its platform and from purchases of content publishers’ media are recognized as transacted at the net amount retained by the Company, generally equal to a fixed percentage of the price charged by the content provider or a contractual flat fee. When the content publisher is responsible for user billing, the Company recognizes revenue from its share of the fees on an as reported basis, in arrears, on a monthly or quarterly basis.The Company also earns fees through the sale of branded channel buttons on remote controls. These branded buttons provide one-touch, direct access to the providers’ content on the Company’s platform. The Company typically receives a fixed fee per button unit, and revenue is recognized as remote controls are shipped by the Company or reported as shipped by TV brands.Revenues earned from service operators and TV brands in the licensing of the Company’s technology and proprietary operating system are accounted for under software revenue recognition guidance. The Company has been unable to establish VSOE for any component of these licensing arrangements and therefore these arrangements are accounted for as a single unit of accounting and revenue over the term of the relationship. Arrangements with service operators are generally comprised of a license for the technology and proprietary operating system, unspecified upgrades or enhancements, hosting of a branded channel store, and engineering and support services. Arrangements with TV brands commonly include a license to the technology and proprietary operating system over a specified term including updates and upgrades. and Deferred Cost of Revenuereflectreflects fees received from licensing and service arrangements, including advertising,in advance that will be recognized as revenue over time or as services are rendered. Deferred revenue balances consist of the amount of player salesrevenue allocated to unspecified upgrades or enhancementsand updates on a when-and-if available basis, licensing and services fees received from service operators and TV brands, and advance payments from advertisers and content publishers. cost of revenue consists of amounts associated with related deferred revenues and is recognized as cost of revenue in the same manner as its respective deferred revenue.Deferred revenue and the associated deferred cost of revenue expected to be realized within one year areis classified as a current liabilities and current assets, respectively,liability and the remaining areis recorded as noncurrent liabilities and noncurrent assets, respectively.Warranty CostsThe Company generally provides for the estimated cost of hardware and software warranties at the time the related revenue is recognized. The Company assesses the adequacy of its preexisting warranty liabilities and adjusts the amounts as necessary based on actual experience and changes in future estimates.salesSales and marketing expense in the consolidated statements of operations. The Company incurred advertising costs of $3.4$35.2 million, $3.9$7.1 million, and $4.1$7.3 million for the years December 31, 2017, 20162021, 2020, and December 26, 20152019, respectively.stock options and 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 granted is estimated using the Black-Scholes option-pricingoption 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. Foryears ended December 31, 2016, and December 26, 2015 the stock-based compensation was recorded netfollowing assumptions:estimated forfeitures using a forfeiture rate based on an analysis of the Company’s actual historical forfeitures.Our Common Stock. The Company adopted new guidance effective January 1, 2017 to recognize forfeitures as they occur.The Company accounts for stock options issued to nonemployees based on the fair value of the awards determined using the Black-Scholes option-pricing model. The fair value of stock options granted to nonemployees is remeasured as the stock options vest, and the resulting change in fair value, if any, is recognized in the Company’s consolidated statements of operations during the period the related services are rendered, generally four years.The Company accounts for restricted stock units issued to employees based on the grant date fair value which is determined based onuses the closing market price of theits Class A common stock as reported on The Nasdaq Global Select Market on the date of grant.expenseexpected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. The Company uses the simplified calculation of the expected term, which reflects weighted-average time to vest and the contractual life of the stock options granted, in absence of its own historical exercise data.recognizedderived from an average of the historical volatilities of several peer companies which are similar in size and operational and economic activities.Company’s consolidated statementyields of operationsU.S. Treasury securities with maturities similar to the expected term for each of our stock options.a straight-line basis over the requisite vesting period.Net Loss per ShareSinceloss positionfilm group and account for all periods presented, basic net loss per share isany changes prospectively. In addition, ASU 2019-02 required that an entity test films and license agreements for program material for impairment at a film group level when the same as diluted net loss per share for all periods asfilm or license agreements are predominantly monetized with other films and license agreements. There was no material impact to the inclusion of all potential common shares outstanding and potentially dilutive securities would have been anti-dilutive.PronouncementsJanuary 2017,October 2021, the FASB issued ASU 2017-04, Intangibles—Goodwill2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and OtherContract Liabilities from Contracts with Customers, to require companies to apply Accounting Standards Codification, Revenue from Contracts with Customers (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2606) to recognize and measure contract assets and contract liabilities from the goodwill impairment test which measurescontracts with customers acquired in a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, and should recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the loss not exceeding the total amount of goodwill allocated to that reporting unit.business combination. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, with early adoption permitted. The guidance should be applied prospectively. The Company is evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities should be accounted for as an acquisition of a business or group of assets. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, with early adoption permitted. The guidance should be applied prospectively to any transactions occurring on or after the adoption date. The Company is evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which simplifies certain aspects of the income tax accounting for Intra-Entity Transfers of Assets. Under current GAAP, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recovered through use. This is an exception to the principle in ASC 740, Income Taxes, that generally requires comprehensive recognition of current and deferred income taxes. The new guidance allows a reporting entity to recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017,2022, including interim reporting periods within those fiscal years, with early adoption permitted. The Company is currentlyexpects to adopt ASU 2021-08 in the process of evaluating the effect of this guidance on its consolidated financial statements and the related disclosures.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), which addresses classification of certain cash receipts and cash payments related to the statement of cash flows. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), related to new accounting and reporting guidelines for leasing arrangements. The guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, with early adoption permitted. The new standard is to be applied using a modified retrospective approach. The Company is evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, related to the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), related to the recognition and reporting of revenue that establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In August 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017. In 2016 the FASB issued amendments on this guidance with the same effective date and transition guidance. The Company plans to adopt the new revenue standard in its first quarter of 2018 using the modified retrospective approach, which requires the cumulative impact of initially applying the guidance to be recognized as an adjustment to our accumulated deficit as of January 1, 2018, the date of adoption. Prior periods will not be retroactively adjusted.The Company is currently in the process of finalizing the impact of the new standard on its accounting policies, processes and system requirements. Furthermore, the Company has made and will continue to make investments in systems to enable timely and accurate reporting under the new standard. The Company expects that the adjustment from the adoption will result in a decrease to the accumulated deficit in the range of $32.0 million to $42.0 million.new standardadoption of this guidance will not have a material impact accountingon the financial statements. As of December 31, 2021 2020 2019 Accounts receivable, net $ 752,393 $ 523,852 $ 332,673 Contract assets (included in Prepaid expenses and other current assets) 46,952 7,431 3,588 Deferred revenue, current portion 45,760 55,465 39,861 Deferred revenue, non-current portion 28,726 21,283 15,370 Total deferred revenue $ 74,486 $ 76,748 $ 55,231 arrangements as follows:Revenuerecognition may differ from the licensingtiming 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 technologycontract assets are current in nature and proprietary operating systemare included in Prepaid expenses and other current assets. Contract assets increased by $39.5 million during the year ended December 31, 2021 and by $3.8 million during the year ended December 31, 2020 primarily due to service operatorsan increase in the growth of platform revenue combined with the timing of billing which falls into a subsequent period.TV brands, will be recognized earlier and could resultrevenue recognition. Deferred revenue decreased by approximately $2.3 million during the year ended December 31, 2021 primarily due to the timing of fulfillment of performance obligations related to content arrangements offset by an increase in greater variabilitydeferred revenue from advertising arrangements due to growth in revenue recognition;Revenue resulting from the variable consideration (e.g. revenue share from user subscriptions and media purchases through the platform or salebusiness and an increase in the deferral period of branded channel buttons onplayer revenue for its remote controls) outlinedunspecified upgrades. 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 is estimated and allocated forchange in the entire contract periodtiming of fulfillment of performance obligations of approximately $12.4 million, and then recognized based onhigher growth in the percentage of completion across various performance obligations; andExpanded disclosures.The Company expectsplayer segment, resulting in a net increase in deferred revenue recognition related to playersunspecified upgrades and advertising to remain relatively unchanged underupdates of approximately $8.4 million.new guidance.3. business combinationOn September 6, 2017, the Company acquired all of the outstanding shares of a privately held technology company located in Denmark to enhance the Company’s player product offering, for an aggregate purchase price of $3.5 million. The Company paid $3.0 million of the aggregate purchase price at the time of acquisition with $0.5 million payable one year after acquisition date. In addition, the Company issued 0.1 million shares of its Class B common stock to two of the founders as part of a continuing services arrangement. The shares are subject to a right of repurchase which lapses over a three year period at varying prices per share. In addition, the Company incurred approximately $0.4 million of costs related to the acquisition which isended December 31, 2021 from amounts included in the generaltotal deferred revenue as of December 31, 2020 was $56.2 million. Revenue recognized during the year ended December 31, 2020 from amounts included in the total deferred revenue as of December 31, 2019 was $42.9 million.expenses.expenses in the consolidated statements of operations.The preliminaryDuring the fourth quarter of 2021, the Company obtained additional information regarding facts and circumstances in existence as of the acquisition date. As a result, the Company recorded a measurement period adjustment in the fourth quarter of 2021 consisting of a $6.0 million increase to purchase price allocation includes $1.4consideration, $4.2 million of goodwill and $2.2 million of identifiabledecrease to intangible assets which primarily consist of developed technology, with an expected useful life of approximately four years. Goodwill represents the excessacquired, $4.5 million increase to other long-term liabilities, and $14.7 million increase to goodwill.price over the fair value of the netconsideration to tangible and intangible assets acquired and liabilities assumed, reflecting measurement period adjustments through December 31, 2021, is not expected to be deductible for income tax purposes. based on estimated fair values and is as follows (in thousands):Fair Values Assets acquired Cash and cash equivalents $ 3,057 Prepaid expenses and other current assets 85 Property and equipment, net 584 Intangible assets: Developed technology 11,000 IPR&D technology 7,500 Goodwill 36,790 Operating lease right-of-use assets 1,235 Other non-current assets 1,905 Total assets acquired 62,156 Liabilities assumed Accounts payable and accrued liabilities (1,168) Operating lease liabilities, non-current portion (830) Other long-term liabilities (6,767) Total liabilities assumed (8,765) Total purchase consideration $ 53,391 goodwill in this transactionexcess of the total consideration over the tangible assets, intangible assets, and liabilities assumed is recorded as goodwill. Goodwill is primarily attributable to expected synergies in advertising offerings and cross-selling opportunities. The majority of the goodwill recorded is deductible for tax purposes.workforce and expected operating synergies.Estimated Fair Value Estimated Weighted-Average Useful Lives
(in years)Developed technology $ 11,000 5.9 IPR&D technology 7,500 0 Estimated fair value of acquired intangible assets $ 18,500 5.9 results of operations of the acquired companyNielsen’s AVA business are included in the Company’s operating results of the Company beginning on the date the acquisition was completed. Actual and pro forma results of operations have not been presented as the total amountsacquisition. The revenue, cost of revenue, and net incomegross profit recorded by the Company in its consolidated statements of operations from the acquisition date to December 31, 2021 are not materialmaterial.Company'sterms and conditions of the Equity Purchase Agreement. The Company acquired the This Old House business because the Company believes the content aligns with The Roku Channel’s ad-supported growth strategy.Fair Values Assets acquired Cash and cash equivalents $ 7 Accounts receivable 5,830 Prepaid expenses and other current assets 7,310 Property and equipment, net 307 Intangible assets: Tradename 20,000 Customer relationships 700 Goodwill 46,671 Operating lease right-of-use assets 5,498 Other non-current assets 23,487 Total assets acquired 109,810 Liabilities assumed Accounts payable and accrued liabilities (2,747) Deferred revenue, current portion (4,146) Operating lease liabilities, non-current portion (4,262) Deferred revenue, non-current portion (816) Other long-term liabilities (28) Total liabilities assumed (11,999) Total purchase consideration $ 97,811 Estimated Fair Value Estimated Weighted-Average Useful Lives
(in years)Tradename $ 20,000 10.0 Customer relationships 700 4.0 Estimated fair value of acquired intangible assets $ 20,700 9.8 for all periods presented.an expenseplatform revenue of $0.2$18.7 million, cost of revenue, platform, of $11.8 million and gross profit of $6.9 million in its consolidated statements of operations from the acquisition date to December 31, 2021.Carrying Value Balance as of December 31, 2019 $ 74,116 Adjustments: Dataxu working capital adjustment (1,058) Balance as of December 31, 2020 $ 73,058 Additions: This Old House acquisition 46,671 Nielsen AVA business acquisition 36,790 Other immaterial acquisition 5,000 Balance as of December 31, 2021 $ 161,519 As of December 31, 2021 Gross
Carrying
AmountNet
Carrying
AmountWeighted-Average Useful Lives
(in years)Developed technology $ 73,367 $ (25,350) $ 48,017 5.9 Customer relationships 14,100 (7,395) 6,705 4.0 Tradename 20,400 (1,966) 18,434 9.8 Patents 4,076 (606) 3,470 14.0 Intangible assets subject to amortization $ 111,943 $ (35,317) $ 76,626 6.7 IPR&D technology 7,500 — 7,500 Total Intangible assets $ 119,443 $ (35,317) $ 84,126 As of December 31, 2020 Developed technology $ 62,367 $ (13,439) $ 48,928 5.9 Customer relationships 13,400 (3,908) 9,492 4.0 Tradename 400 (400) — 0.5 Patents 4,076 (315) 3,761 14.0 Total Intangible assets $ 80,243 $ (18,062) $ 62,181 6.0 assetassets during the yearyears ended December 31, 2017.2021, 2020, and 2019, respectively. During the years ended December 31, 2021, 2020, and 2019, the Company recorded amortization of developed technology in Cost of revenue, platform and Research and development expenses. The Company recorded amortization of customer relationships and tradenames inexpensesexpense for intangible asset is $0.6 million, $0.6 million, $0.5 million and $0.3 millionassets for the next five years ending in December 31, 2018, 2019, 2020 and 2021, respectively.4. Balance sheet componentsBalance sheet components consisted of the following:Year Ending December 31, 2022 $ 17,745 2023 17,066 2024 14,275 2025 12,571 2026 4,074 Thereafter 10,895 Total $ 76,626 following:Allowance for Sales Returns: Allowance for sales returns consist of the following activities: As of December 31, 2021 2020 Accounts receivable, gross $ 809,220 $ 565,088 Less: Allowances Allowance for sales returns 6,015 5,912 Allowance for sales incentives 48,411 30,838 Allowance for doubtful accounts 2,158 4,181 Other allowances 243 305 Total allowances 56,827 41,236 Accounts Receivable, net $ 752,393 $ 523,852 Allowance for Sales Incentive: Allowance for sales incentive consisted of the following activities:following: As of December 31, 2021 2020 Computers and equipment $ 38,473 $ 30,859 Leasehold improvements 182,229 144,013 Internal-use software Internal-use software 7,274 6,744 Office equipment and furniture 20,829 19,661 Property and equipment, gross Property and equipment, gross 248,805 201,277 Accumulated depreciation and amortization (71,238) (46,080) Property and Equipment, net $ 177,567 $ 155,197 2017, 20162021, 2020, and December 26, 20152019 was $5.2$25.4 million, $5.3$21.7 million, and $2.6$12.8 million, respectively.following:following (in thousands): As of December 31, 2021 2020 Payments due to content publishers $ 165,894 $ 106,576 Accrued cost of revenue 142,014 98,285 Marketing, retail and merchandising costs 47,428 43,645 Operating lease liability, current 37,116 35,647 Content liability, current 70,462 6,165 Other accrued expenses 86,141 57,350 Total Accrued Liabilities $ 549,055 $ 347,668 following:following (in thousands): As of December 31, 2021 2020 Platform, current Platform, current $ 22,240 $ 27,587 Player, current 23,520 27,878 Total deferred revenue, current 45,760 55,465 Platform, non-current Platform, non-current 9,324 9,909 Player, non-current 19,402 11,374 Total deferred revenue, non-current 28,726 21,283 Total Deferred Revenue $ 74,486 $ 76,748 5.As of December 31, 2021 2020 Content liability, non-current $ 51,211 $ 1,380 Other long-term liabilities 31,274 1,739 Total Other long-term liabilities $ 82,485 $ 3,119 As of December 31, 2021 2020 Licensed content, net $ 199,290 $ 7,907 Produced content: Released, less amortization 20,030 — Completed, not released 881 — In production 3,512 — Total produced content, net 24,423 $ — Total Content Assets, net $ 223,713 $ 7,907 Years Ended December 31, 2021 2020 Licensed content $ 84,133 $ 22,392 Produced content 11,437 — Total amortization costs $ 95,570 $ 22,392 Year Ending December 31, Licensed content Produced content Total 2022 $ 86,584 $ 4,055 $ 90,639 2023 38,861 4,202 43,063 2024 23,293 3,951 27,244 Total $ 148,738 $ 12,208 $ 160,946 As of December 31, 2021 As of December 31, 2020 Fair Value Level 1 Fair Value Level 1 Assets: Cash and cash equivalents: Cash $ 1,130,172 $ 1,130,172 $ 1,021,022 $ 1,021,022 Money market funds 1,015,871 1,015,871 71,793 71,793 Restricted cash, current — — 434 434 Restricted cash, non-current 1,627 1,627 — — Total assets measured and recorded at fair value $ 2,147,670 $ 2,147,670 $ 1,093,249 $ 1,093,249 entities are required to maximizethe Company maximizes the use of observable inputs and minimizeminimizes the use of unobservable inputs in measuring fair value, and to utilizeutilizes 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:doesdid not usehave any Level 2 inputs to measure any assets or liabilities.instruments as of December 31, 2021 and 2020.The Company’s preferred stock warrant liability was measured at fair value using Level 3 inputs upon issuance and at each reporting date. Inputs used to determine the estimated fair value of the warrant liability as of the valuation date included remaining contractual term of the warrants, the risk-free interest rate, the volatility of comparable public companies over the remaining term, and the fair value of underlying shares. The significant unobservable inputs used in the fair value measurement of the preferred stock warrant liability were the fair value of the underlying stock at the valuation date and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement.an outstanding preferred warrant liabilityany Level 3 instruments as of December 31, 2017 as all preferred stock warrants were converted into common stock warrants pursuant to the IPO. A reconciliation of the preferred stock warrant liability measured2021 and recorded at fair value on a recurring basis using significant unobservable inputs is as follows:2020.*Recognized in the consolidated statements of operations within other expense—net.and property plant, and equipment, operating lease right-of-use assets, and content assets are evaluated for impairment and adjusted to fair value using Level 3 inputs, only when impairment is recognized. There were no indicatorsimpairment that required a fair value analysis duringROU assets is limited by the expected lease term. Years Ended December 31, 2021 2020 2019 Operating lease cost (1) $ 46,410 $ 42,127 $ 27,596 Variable lease cost 15,080 12,116 4,928 Net operating lease cost $ 61,490 $ 54,243 $ 32,524 20172021, 2020, and 2016.6.2019 was not material. Years Ended December 31, 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 51,657 $ 30,664 $ 17,721 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 110,845 $ 12,031 $ 267,048 As of December 31, 2021 2020 Operating lease right-of-use assets $ 345,660 $ 266,197 Included in accounts payable and accrued liabilities: Operating lease liability, current 37,116 35,647 Operating lease liability, non-current 394,724 307,936 Total operating lease liability $ 431,840 $ 343,583 Weighted-average remaining lease term: Operating leases (in years) 8.38 9.05 Weighted-average discount rate: Operating leases 3.98 % 4.60 % Year Ending December 31, Operating Leases 2022 $ 52,636 2023 63,548 2024 62,162 2025 61,649 2026 60,044 Thereafter 218,954 Total future lease payments 518,993 Less: imputed interest (79,073) Less: expected tenant improvement allowance (8,080) Total $ 431,840 Bank—Term LoanIn July 2011, As of December 31, 2021 2020 Amount Amount Term Loan A Facility $ 90,000 2.0 % $ 95,000 2.0 % Less: Debt issuance costs (132) (258) Net carrying amount of debt $ 89,868 $ 94,742 Company amended its loanyears ended December 31, 2021 and security agreement (the “LSA”) with a financial institution (the “Bank”). The LSA provided for a term loan borrowing of $5.02020 relating to the Credit Agreement is $2.2 million and a revolving line of credit of up to $7.5$2.6 million, both of which could be drawn on under certain conditions. The Company borrowed $4.5 million in July 2011. Advances under the term loan incurred a financing payment equal to 2% of the advance payable at the end of the loan, in addition to quarterly interest payments at a fixed annual rate of 10%. Borrowings on the line of credit bore interest at a premium of 1.75% over the bank’s prime rate. The length of the term loan borrowing was 48 months,respectively.the length of the revolving line of credit was 12 months. The LSA was secured by all assets of the Company and the Company repaid the loan in July 2015.The Company had previously amended the LSA at various dates and, in November 2014, replaced the LSA with an amended and restated loan and security agreement (the “Restated 2014 LSA”) providing advances under the revolving line of credit up to $30.0 million and extending the line of credit to September 30, 2016. Additionally, the Restated 2014 LSA provides for letters of credit to be issued up to the lesser of the available line of credit, reduced by outstanding advances and drawn but unreimbursed letters of credit, or $5.0 million. The Restated 2014 LSA agreement contains a financial covenant to maintain a minimum required adjusted quick ratio (calculated as the sum of cash maintained with the Bank and the Bank’s affiliates and net billed account receivable balances, divided by current liabilities plus all outstanding obligations to the Bank under the revolving line, less deferred revenue), and non-financial covenants including providing the audited annual financial statements to the bank within 180 days following the year end.In May 2015,Revolving Credit Facilitiesfirst amendmentCredit Agreement with Morgan Stanley Senior Funding, Inc. (as amended on May 3, 2019, the “Credit Agreement”), which 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 Restated 2014 LSAsatisfaction 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 Bank. The advances underRevolving Credit Facility and the first amendment toTerm Loan A Facility, collectively, the Restated LSA carry a floating per annum“Credit Facility”).prime rate or the primeadjusted one-month LIBOR rate plus 2.5% dependingan 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.ratios.of its direct and indirect subsidiaries may be required to guarantee the Credit Agreement. The first amendment further changedCompany 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 currentcertain adjusted quick ratio (calculated as current assets, divided by current liabilities less deferred revenue), greater than or equalof at least 1.00 to 1.1.In June 2017, the Company entered into a second amendment to the Restated 2014 LSA. The advances under the second amendment carry a floating per annum interest rate equal to, at the Company’s option, (1) the prime rate or (2) LIBOR plus 2.75%, or the prime rate plus 1% depending on certain ratios. The extension further changed the financial covenant to maintain a current ratio (calculated as current assets, divided by current liabilities less deferred revenue) greater than or equal to 1.25. The revolving line1.00, and customary events of credit terminates on June 30, 2019 at which time the principal amount of all outstanding advances becomes due and payable. default.2017 and 2016,2021, the Company was in compliance with all of the covenants inof the amended Restated 2014 LSA.The interest rate on the line of credit was 4.31% as of December 31, 2017 and 3.75% as of December 31, 2016. Credit Agreement.had $0 and $15.0 million outstanding under the line of credit as of December 31, 2017 and 2016, respectively. The Company had $1.5 million and $0.9 million outstanding as letters of credit as of December 31, 2017 and 2016, respectivelyIn June 2017, the Company entered into a subordinated loan agreement (“2017 Agreement”) with the Bank. The 2017 Agreement provides for a term loan borrowing of $40.0 million, with a minimum of $25.0 million to be initially drawn at the close of the agreement and the remaining amount available for a 24 month period, to be drawn in no less than $5.0 million increments. Advances under the term loan incur a facility fee equal to 1% of the drawn borrowings, in addition to interest payments at an interest rate equal to, at the Company’s option, (1) the prime rate plus 3.5% or (2) LIBOR plus 6.5%, subject to a 1% LIBOR floor. Additionally, the borrowings incur payment in kind interest fees equal to 2.5%, accruing to the unpaid borrowings balance, compounded monthly. Payment in kind interest may be settled in cash, at the Company’s election, during the term or at maturity. The Company is also obligated to pay final payment fees ranging from 1% to 4% depending on the timing of the payment. The 2017 Agreement terminates on October 9, 2020. On October 31, 2017 the Company repaid the entire amount outstanding, and subsequently terminated the 2017 Agreement. The Company recorded a loss of $2.3 million as a result of early extinguishment of debt.In connection with the 2017 Agreement the Company issued 0.4 million warrants to purchase shares of Series H convertible preferred stock, with an exercise price of $9.17340. The warrants are exercisable up to ten years from the date of issuance. Upon the repayment of the amounts borrowed and the subsequent termination of the 2017 Agreement, the Company cancelled 0.1 million warrants to purchase Class B common stock that were contingent on future borrowings.7. STOCKHOLDERS’ EQUITY (DEFICIT)Convertible Preferred StockAs of December 31, 2016 convertible preferred stock consisted of the following:Upon the closing of the Company’s IPO, all outstanding shares of its convertible preferred stock automatically converted into 80.8 million shares of Class B common stock on a one-to-one basis.On October 2, 2017, the Company filed an Amended and Restated Certificate of Incorporation, which authorized the issuancehas 10 million shares of undesignated preferred stock authorized but not issued with rights and preferences determined by the Company’s Board of Directors (the “Board”) at the time of issuance of such shares. As of December 31, 2017,2021 and 2020, there were no shares of preferred stock issued and outstandingCompany’s Amended and Restated Certificate of Incorporation filed on OctoberCompany has 2 2017, established two classes of authorized common stock, Class A common stock and Class B common stock. All shares of common stock outstanding immediately prior to the IPO, including shares of common stock issued upon the conversion of the convertible preferred stock, were converted into an equivalent number of shares of Class B common stock.one1 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 ten10 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'sCompany’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. Shares issued in connectionan exerciseMorgan Stanley & Co. LLC, Citigroup Global Markets Inc., and Evercore Group L.L.C., as its sales agents, pursuant to which the Company could offer and sell from time-to-time shares of theits Class A common stock warrants are convertedfor aggregate gross proceeds of up to $1,000.0 million. In March 2021, the Company sold approximately 2.6 million shares of Class A common stock at an average selling price of $379.26 per share, for aggregate gross proceeds of $1,000.0 million and incurred issuance costs of $10.4 million.BA common stock.2017,2021, the Company had reserved shares ofCompany’s common stock reserved for issuance in the future is as follows:follows (in thousands):December 31,2017(in thousands)As of December 31, 2021 Conversion of outstanding warrants184issuedgranted under equityplan26,6089,460 grantissuance under equity incentive plan12,2025,089 Total27,011 Total reserved shares of common stock 38,99441,560 became effective in February 2008. The 2008 Plan allowed for the grant of incentive stock options to our employees and any of our subsidiary corporations’ employees and for the grant of non-statutory stock options and restricted stock awards to our employees, officers, directors and consultants. Options granted under the 2008 Plan were granted at a price per share equivalent to the fair market value on the date of grant. Recipients of option grants under the 2008 Plan 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 were at a price no less than 110% of the fair market value at the date of grant. Options under the 2008 Plan generally vest over four years and have a term of 10 years.Upon the closing of the Company’s IPO, the Company’s Board of Directors adopted the 2017 Equity Incentive Plan (the “2017 Plan”). No further shares would be issued under the 2008 Plan at the time the 2017 Plan became effective. The 2017 Plan became effective September 2017 in September 2017.connection with the Company’s initial public offering (“IPO”). No additional equity grants have been made pursuant to the 2008 Plan subsequent to the IPO. The 2017 Plan provides for the grant of incentive stock options to ourthe 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 ourthe Company’s employees, directors, and consultants. Optionsvestare 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 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. Balance, December 31, 2020 4,355 $ 92.91 Awarded 983 348.62 Released (1,655) 81.95 Forfeited (397) 135.44 Balance, December 31, 2021 - Outstanding 3,286 $ 169.76 four years and have a termweighted-average period of 10approximately 2.08 years.Plan:Plan (in thousands, except years and per share data): Weighted-Average Remaining Contractual Life (Years) Balance, December 31, 2020 Balance, December 31, 2020 8,733 $ 26.19 5.7 — Granted 320 356.55 — $ 139.76 Exercised (2,841) 6.51 — — Forfeited and expired (38) 104.47 — — Balance, December 31, 2021 - Outstanding Balance, December 31, 2021 - Outstanding 6,174 $ 51.87 5.8 — $ 1,129,748 Balance, December 31, 2021- Exercisable Balance, December 31, 2021- Exercisable 4,548 $ 14.73 4.9 — $ 973,186 totalweighted-average grant date fair value of options granted during the years ended December 31, 2021, 2020, and 2019 was $139.76, $54.39, and $39.23, respectively.offor stock options exercised in the years ended December 31, 2017, 20162021, 2020, and December 26, 20152019 was $20.4$997.6 million $0.4$470.8 million, and $3.9$474.2 million, respectively, andrespectively. Intrinsic value represents the difference between the fair valuevalues of the Company’s common stock at the dates of exercise and the stock options’ exercise price on the date of the options.Early Exercise of Stock OptionsThe 2008 Plan allows employees to exercise options granted prior to vesting, if approved by the Company’s Board of Directors. The unvested shares are subject to the Company’s repurchase right at the original purchase price. The proceeds from the early exercise of stock options are initially recorded as an accrued liability and reclassified to stockholders’ equity as the Company’s repurchase right lapses. The number of unvested shares subject to repurchase that were outstanding asgrant.2017, 2016 and December 26, 2015 were not material.award of equity instrumentsaward based on the grant date fair value of the award. Generally, stock options granted to employees under the 2008 Plan vest 25% after one year and then 1/48th48th monthly thereafter, and restricted stock units issued generally vest 25% after one year and then 1/16th quarterly thereafter and have a term of ten years. Restricted stock units generally vest over 4 years. For the years ended December 31, 2021, 2020, and 2019, the amount of stock-based compensation capitalized as part of internal-use software was not material.included in the accompanying Consolidated Statements of Operations for the years ended December 31, 2017, 20162021, 2020, and December 26, 2015: Years Ended December 31, 2021 2020 2019 Cost of revenue, platform Cost of revenue, platform $ 827 $ 847 $ 342 Cost of revenue, player Cost of revenue, player 2,035 1,407 1,072 Research and development 77,770 58,412 40,036 Sales and marketing 63,503 42,846 24,179 General and administrative 43,397 30,564 19,546 Total stock-based compensation $ 187,532 $ 134,076 $ 85,175 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. In addition to these assumptions, the Company also estimated a forfeiture rate of unvested stock options to calculate the stock-based compensation expense prior to January 1, 2017. Beginning January 1, 2017, the Company began recognizing forfeitures as they occur with the adoption of the new guidance related to accounting for stock-based payment award transactions. The impact of the change was not material to the financial statements.Fair Value of Common StockPrior to our IPO, the fair value of the common stock underlying our stock options was determined by our Board of Directors. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our Board of Directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date, including but not limited to the prices, rights, preferences and privileges of our preferred stock relative to the common stock, our operating and financial performance, current business conditions and projections, our stage of development, likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an IPO or sale of our company, given prevailing market conditions, any adjustment necessary to recognize a lack of marketability of the common stock underlying the granted options, the market performance of comparable publicly-traded companies, the U.S. and global capital market conditions.Subsequent to our IPO, we use the market closing price for our Class A common stock as reported on The NASDAQ Global Select Market on the date of grant. The Company uses the straight-line method for expense recognition.Expected TermThe 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 VolatilityThe Company’s volatility factor is estimated using several comparable public company volatilities for similar option terms.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 $0.Risk-Free Interest RateThe Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equivalent to the estimated life of the stock-based awards. Where the expected term of the Company’s stock-based awards does not correspond with the term for which an interest rate is quoted, the Company performs a straight-line interpolation to determine the rate from the available term maturities.stock-based awardsstock options granted during the years ended December 31, 2017, 20162021, 2020, and December 26, 20152019 are as follows:Year EndedDecember 31,2017December 31,2016December 26,2015Dividend rate——$—Expected term (in years)5.3 - 6.55.3 - 6.56.1Risk-free interest rate1.87 - 2.25%1.33 - 1.95%1.39 - 1.90%Expected volatility39 - 44%44 - 46%43 - 46%Fair value of common stock$2.56 - $18.46$5.64 - $6.60$5.64 - $7.02 Years Ended December 31, 2021 2020 2019 Expected term (in years) 5.0 - 6.8 5.0 - 6.7 5.0 - 6.7 Risk-free interest rate 0.36 - 1.20% 0.22 - 1.67% 1.35 - 2.56% Expected volatility 38 - 39% 36 - 39% 35 - 36% Dividend rate — — — As of December 31, 2017, the Company had $32.3 million of unrecognized stock compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of approximately 2.7 years.Stock Option RepricingIn November 2016, the Company’s Board of Directors approved a common stock option repricing program whereby previously granted and unexercised options held by current employees with exercise prices above $5.64 per share were repriced on a one-for-one basis to $5.64 per share which represented the fair value of the Company’s common stock as of the date of the repricing. There was no other modification to the vesting schedule of the previously issued option. As a result, 5.1 million unexercised options originally granted to purchase common stock at prices ranging from $5.70 to $7.02 per share were repriced under this program.We treated the repricing as a modification of the original awards and calculated additional compensation costs for the difference between the fair value of the modified award and the fair value of the original award on the modification date. The repricing resulted in incremental stock-based compensation of $1.0 million. Expense related to vested shares of $0.1 million was expensed on the repricing date and the remaining $0.9 million related to unvested shares is being amortized over the remaining vesting period of such options.Pursuant to the 2017 Plan, the Company issued restricted stock units to employees. Restricted stock unit activity for the year ended December 31, 2017 is as follows:The grant-date fair value of restricted stock units granted during the year ended December 31, 2017 was $11.9 million. Total unrecognized compensation cost related to restricted stock units awarded to employees was $11.6 million, which the Company expects to recognize over 3.9 years.Common Stock WarrantsIn July 2017 the Company issued 0.4 million shares of Class B common stock upon exercise of 0.4 million Class B common stock warrants issued in 2009.Convertible Preferred Stock WarrantsImmediately prior to the IPO, outstanding convertible preferred stock warrants were as follows:Upon the closing of the Company’s IPO, all outstanding convertible preferred stock warrants automatically converted to Class B common stock warrants. As a result of the conversion, the Company revalued the convertible preferred stock warrants as of the completion of the IPO and reclassified the outstanding preferred stock warrant liability balance to additional paid-in capital with no further re-measurements as the Class B common stock warrants are now deemed permanent equity.After the conversion, 1.9 million Class B common stock warrants were exercised and 0.1 million shares were cancelled during the year ended December 31, 2017. Since the contracts allowed for a net settlement for Class B common stock, the Company issued 1.8 million shares of Class B common stock upon exercise. As of December 31, 2017, 0.2 million Class B common stock warrants are outstanding.Prior to the IPO, the Company valued convertible preferred stock warrants using the following assumptions in the Black-Scholes model:Year EndedDecember 31,2016December 26,2015Dividend rate$—$—Expected term (in years)3.2 - 3.93.3 - 3.8Risk-free interest rate0.7% - 1.6%1.1% - 1.4%Expected volatility46.2% - 47.8%42.0% - 46.9%8.12. COMMITMENTS AND CONTINGENCIESCommitmentsThe Company has operating lease agreements for office, research and development and sales and marketing space in the United States, the United Kingdom (“U.K.”), Denmark, and China, with expiration dates from May 2017 to February 2021.Rent expense for the years ended December 31, 2017, 2016 and December 26, 2015 was $6.9 million, $4.6 million and $4.2 million, respectively. Future minimum lease payments under all operating leases as of December 31, 2017, are as follows:The total approximate future minimum lease payments is primarily comprised of lease payments for two office locations. The first is for the Company’s headquarters facilities in Los Gatos, California, which expires in 2020 and has future operating lease obligations of $19.2 million. The second is for the Company’s prior headquarters facility in Saratoga, California, which expires in 2020 and has future operating lease obligations of $7.5 million.In connection with its leased facilities the Company recognized a liability for asset retirement obligations in 2015 representing the present value of estimated costs to be incurred at lease expiration. The liability for asset retirement obligations was $0.5 million and $0.3 million as of December 31, 2017 and 2016, respectively.One major vendor has contracts thatIn 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 noncancelable or have varying provisions regarding cancellation.non-cancelable. As of December 31, 2017 and 2016,2021, the Company had $75.2$195.2 million and $64.3 millionof non-cancelable purchase commitments for inventory, respectively.noncancelablenon-cancelable purchase commitments in excess of its futureprojected demand forecasts. The Company recorded $0.6$0.2 million and $2.0$1.2 million for these purchase commitments in “Accrued liabilities” atAccrued liabilities as of December 31, 20172021 and 2016,2020, respectively.License Purchase Commitments Company licenses certain content for users to access through The Roku Channel. An obligation for licensing of content is incurred at the time the Company enters into contracts with content publishers to license content for streaming. When a title becomes available, the Company records an agreement to obtain future titlesasset and a liability on the costconsolidated balance sheets.is known. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which aredoes not yet determinable as of the reporting date. At December 31, 2017, the amount recorded as obligations in “Accrued liabilities” for license purchase commitments were not material. At December 31, 2017, the Company had $1.1 million of obligations that are not reflected on the financial statements as they do not yet meet the criteria for asset recognition.Year Ending December 31, 2022 $ 212,355 2023 99,848 2024 59,544 2025 36,731 2026 8,715 Thereafter 3,815 Total content liabilities $ 421,008 recognition.Loss from Exit of FacilitiesIn January 2016,$81.4 million, respectively, as of March 31, 2021. As of December 31, 2021, $77.5 million of both the Company moved its headquarters facilitiesindemnification asset and liability were released related to Los Gatos, California from Saratoga, California. The Company has entered into subleasespayments made for a portion of the former headquarters and expects to sublease theliabilities assumed. The remaining portion for the remainderindemnification balance as of the lease period. In connectionDecember 31, 2021 is $3.9 million, with the move,indemnification asset recorded as part of Prepaid expenses and other current assets and the Company recognized a facilities exit charge for the estimated loss on the sublease in its “Operating Expenses”. The estimated loss is comprisedindemnification liability recorded as part of the remaining fair value of lease obligations and related expenses for exited locations, as determined at the cease-use dates of those facilities, net of estimated sublease income that could be reasonably obtainedAccrued liabilities in the future, and will be paid out over the remaining lease terms, which end in the year ending December 31, 2020. Projected sublease income is based on management’s estimates, which are subject to change.A summary of the Company’s exit liability activity for the year ended December 31, 2017 and 2016, is as follows:The Company recorded $0.7 million of the above lease liability in “Accrued liabilities” and the remaining $0.1 million in “Other long-term liabilities” at December 31, 2017.20172021 and 2020, the Company had irrevocable letters of credit outstanding in the amount of $1.5$38.0 million for the benefit of a landlordand $30.9 million, respectively, related to noncancelable facilities leases. The letters of credit expire onhave various expiration dates in 2018.mayaccrues 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, involved in disputes or litigation matters that arisehowever, inherently unpredictable and subject to significant uncertainties.business. Managementbusiness, including claims relating to employee relations, business practices, and patent infringement. The Company is involved in litigation matters not awarelisted 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 disputematters that it believes wouldis currently involved in are reasonably likely to have a material adverse effect on its business, operatingfinancial condition, or results cash flows or financial condition.Manyinclude certain provisions for indemnifying content publishers, licensees, contract manufacturer and suppliers if the Company’s products or services infringe a third party’sout of intellectual property rights. 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.Upon issuance of a standard player warranty, the Company recognizes a liability for the obligation it assumes under the warranty. As of December 31, 2017, 2016 and December 26, 2015 the accrued warranty reserve was immaterial.The Company’s standard player warranty period ranges from 12 to 24 months from the date of player activation. Upon shipment of player to its customers, the Company estimates expenses for the cost to replace products that may be returned under warranty and accrues a liability in cost of player revenue for this amount. The determination of the Company’s warranty requirements is based on historical experience. The Company estimates and adjusts these accruals at each balance sheet date for changes in these factors.The Company offered customers separately priced optional-extended warranties through 2016. The Company defers and amortizes revenue associated with the sales of the extended warranties over the warranty period. As of December 31, 2017, 2016 and December 26, 2015, the extended warranty deferred revenue was immaterial.9.lossincome (loss) before income taxes consist of the following:following (in thousands): Years Ended December 31, 2021 2020 2019 United States $ 240,560 $ (21,107) $ (63,453) Foreign (3,973) 2,655 2,534 Net income (loss) before income taxes Net income (loss) before income taxes $ 236,587 $ (18,452) $ (60,919) following:following (in thousands): Years Ended December 31, 2021 2020 2019 Current: Federal $ — $ (219) $ (47) State 589 620 244 Foreign 490 743 108 1,079 1,144 305 Deferred: Federal 193 — — State 256 — — Foreign (7,326) (2,089) (1,287) (6,877) (2,089) (1,287) Total $ (5,798) $ (945) $ (982) Years Ended December 31, 2021 2020 2019 U.S. federal income tax at statutory rate 21.0 % 21.0 % 21.0 % U.S. state and local income taxes 0.2 (3.2) (0.4) Change in valuation allowance 140.0 (698.4) (213.4) Federal research and development tax credit (30.7) 102.9 30.8 Stock-based compensation (114.3) 577.8 158.0 Discrete tax benefit due to IP transfer Discrete tax benefit due to IP transfer (19.1) — — Meals and entertainment Meals and entertainment 0.1 (1.6) (1.4) Foreign rate differential 0.1 — (0.6) Acquisition costs Acquisition costs — — (1.3) Section 162(m) limitation Section 162(m) limitation 1.1 (7.2) (1.4) State apportionment change State apportionment change — 4.4 1.3 Tax rate change (0.7) — (0.4) Provision to return true-up Provision to return true-up (0.1) 9.4 9.9 Other (0.1) 0.1 (0.5) Effective tax rate (2.5) % 5.2 % 1.6 % following:following (in thousands): As of December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 563,173 $ 379,613 Reserves and accruals 20,969 14,131 Research and development credits 166,940 104,110 Operating lease liabilities Operating lease liabilities 107,228 91,373 Stock-based compensation Stock-based compensation 36,350 28,318 Depreciation and amortization 40,583 — Total deferred tax assets 935,243 617,545 Deferred tax liabilities: Deferred tax liabilities: Operating lease right-of-use assets Operating lease right-of-use assets (85,713) (70,755) Depreciation and amortization Depreciation and amortization — (11,707) Total deferred tax liabilities Total deferred tax liabilities (85,713) (82,462) Valuation allowance (838,949) (530,887) Net deferred tax assets $ 10,581 $ 4,196 2017,2021, management believes it is more likely than not that the U.S. and Netherlands deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its U.S. and Netherlands deferred tax assets.with the exception of deferred tax assetsthat are not realizable, related to the IP transfer completed during 2021, giving rise to foreign entities in the U.K., China and Denmark.$135.2$2,169.9 million and $104.1$1,824.3 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 2021. The federal net operating loss generated subsequent to 2017 can be carried forward indefinitely.purposes.Duringreporting purposes, the net operating loss carryforwards of $2.8 million, $2.8 million, $6.1 million, and $33.9 million, respectively, are available to reduce future taxable income, if any, in those countries. Brazil, Denmark, and U.K. net operating losses can be carried forward indefinitely. Netherlands net operating losses can be carried back one year ended December 31, 2017 theand carried forward indefinitely. The Company adopted the requirementsalso has U.K. research and development tax credit carryforwards of ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share -Based Payment Accounting, issued by the FASB that simplifies the accounting for certain aspects of stock-based payments to employees. As a result of adoption, the previously unrecognized U.S. excess tax benefits of $1.3$0.5 million, were recorded as a deferred tax asset, which was fully offset by a valuation allowance resulting in no impact to the accumulated deficit.2017,2021, the Company has research and development tax credit carryforwards of $13.4$133.8 million and $9.1$97.4 million for federal and state income tax purposes, respectively. If not utilized, the federal and state carryforwards will begin to expire in 2028. The state tax credits can be carried forward indefinitely.2028 and 2035, respectively. Thehas determined that there is no additionalacquired in November 2019, covering the period from inception beginning May 1, 2008 through the acquisition date of November 8, 2019. Based on the study, the Company identified 4 ownership changes for section 382 purposes. As such, tax attributes generated by dataxu through the ownership change since December 18, 2009.20172021 is $5.8$66.2 million, of which $48.7 million is fully composed of research and development credits.credits and $17.5 million is related to international activities. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:follows (in thousands): As of December 31, 2021 2020 Unrecognized tax benefits at beginning of year $ 29,175 $ 19,487 Gross increase for tax positions of current year 36,198 9,959 Gross decrease due to statute expiration (330) (75) Gross increase (decrease) for tax positions of prior years 1,107 (196) Unrecognized tax benefits balance at end of year $ 66,150 $ 29,175 2017, there were no2021, the Company recorded $0.4 million of accrued interest and penalties related to uncertain tax positions.None ofbenefit,benefits, if recognized,any, would affecthave an immaterial impact on its effective tax rate. The Company does not believe that the amount ofexpect its gross unrecognized tax benefits willto change significantly inwithin the next 12 months.InThe Company is currently under examination by the normal course of business, the Company isTexas Comptroller for calendar tax years 2015, 2016, and 2017. All tax years remain subject to examination by taxingfederal 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.iswill continue to indefinitely reinvest earnings from its foreign subsidiaries, which are not currently under audit by the Internal Revenue Service or other similar state and local authorities. Allsignificant. While federal income tax years remain open to examination by major taxing jurisdictions to which the Company is subject.On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred toexpense has been recognized as a result of the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act reduces the US federal corporate tax rate from 35% to 21%, imposes a one-time repatriation tax, and numerous other provisions transitioning to a territorial system.The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.Based on provisions of the Tax Act, the Company remeasured the deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The estimated amount of the re-measurement of our deferred tax balance was $23.0 million. However, as the Company recognizes a valuation allowance on deferred tax assets if it is more likely than not that the assets will not be realized in future years there is no impact to effective tax rate, as any change to deferred taxes would be offset by valuation allowances.The one-time repatriation tax is based on the Company's post-1986 earnings and profits (E&P) that were previously deferred from US income taxes. The one-time repatriation tax did not result in additional tax liability for the Company as the Company has sufficient net operating loss to offset the estimated foreign earnings.As a result of the one-time repatriation tax,2017, the Company has not provided for any foreign withholding tax for any undistributed earnings of its foreign subsidiaries as of December 31, 2017. The Company has not yet made a determination of indefinite reinvestment assertion in light of the Tax Act and considers the conclusion to be incomplete under guidance issued by the SEC. The Company expects to reach a final determination within the measurement period in accordance with SAB 118.The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries. The Securities and Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company currently anticipates finalizing and recording any resulting adjustments by the year ending December 31, 2018.The Act creates a new requirement that global intangible low-taxed income (GILTI) earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs’ U.S. shareholder. Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of itsadditional deferred taxes (the “deferred method”). Our selection of an accounting policy with respect to items such as foreign withholding taxes, state income tax or foreign exchange gain or loss. It is not practicable for the new GILTI tax rules will depend, in part, on analyzing our global incomeCompany to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. We have not yet made any adjustments related to potential GILTIamount of unrecognized tax in our financial statements and have not made a policy decision regarding whether to record deferred taxesexpense on GILTI.10.these reinvested international earnings.has agreements with one of the Company’s strategic investors. Indid not engage in any material related party transactions for the years ended December 31, 2017, 20162021 and 2020.26, 201531, 2019, the Company engaged in transactions with one of its strategic investors. With respect to this investor, the Company recorded $0.6 million, $0.7revenue of $8.5 million and $0.5expenses of $1.3 million of revenue from salesfor the year ended December 31, 2019. During the years ended December 31, 2021 and 2020, the Company did not consider this investor to be a related party, as this investor. Theinvestor did not meet the defined criteria.receivable balancesengaged in transactions with another company in which the Company’s Chief Executive Officer held a majority voting interest and was a member of $0.5 millionsuch company’s board of directors at that time, and $0.1 million related to these sales at December 31, 2017 and 2016, respectively.In addition, aanother member of the Company’s Board of Directors is a senior vice president at an operating unit of one of the strategic investors. The Company recorded expenses of $0.4 million in operating expenses frompresently such company’s Chief Executive Officer. With respect to transactions with this investorcompany, the Company incurred expenses of $1.2 million for the year ended December 31, 2017. There were no transactions with this investor for the year ended December 31, 2016.11.2019. 2017, 20162021, 2020, and December 26, 2015.$0.3$1.3 million, $0.2$0.7 million, and $0.2$0.5 million to the plan for the years ended December 31, 2017, 2016,2021, 2020, and December 26, 2015,2019, respectively.12.LOSSINCOME (LOSS) PER SHAREThe Company calculates its basic and diluted net loss per share allocable to common stockholders in conformity with the two-class method required for companies with participating securities. In computing diluted net loss allocable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities. lossincome (loss) per share allocable to common stockholders is calculated by dividing the net loss allocable to common stockholdersincome (loss) by the weighted-average number of shares of common stock outstanding for the period. The Company uses the two-class method to calculate net income (loss) per share. Except with respect to certain voting, conversion, and transfer rights and as otherwise expressly provided in the Company’s amended and restated certificate of incorporation or required by applicable law, shares of the Company’s Class A common stock and Class B common stock have the same rights and privileges and rank equally, share ratably, and are identical in all respects as to all matters. Accordingly, basic and diluted net income (loss) per share are the same for both classes.lossincome (loss) per share, allocableoptions to purchase common stockholders, convertible preferred stock, restricted stock units, and unvested shares of common stock issued upon the early exercise of stock options convertible preferred stock warrants, options to purchase common stock and common stock warrants are considered common stock equivalents but have beenequivalents. Dilutive shares of common stock are determined by applying the treasury stock method. The dilutive shares are excluded from the calculation of diluted net loss per share allocable to common stockholdersin the period of net loss, as their effect is antidilutive.Basic and diluted net loss per share of common stock allocable to common stockholders is calculated by dividing the net loss allocable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of employee stock-based awards and warrants. Because the Company has reported a net loss for the years ended December 31, 2017, 2016 and December 26, 2015, diluted net loss per common share is the same as the basic net loss per share for those years.Company considers all series of its convertible preferred stock to be participating securities as they are entitled to receive noncumulative dividends prior and in preference to any dividends on shares of common stock. Due to the Company’s net losses, there is no impact on the loss per share calculation in applying the two-class method since the participating securities have no legal obligation to share in any losses.Thefollowing table presents the calculation of basic and diluted net lossincome (loss) per share as follows:Years Ended December 31, 2021 2020 2019 Numerator: Net income (loss) $ 242,385 $ (17,507) $ (59,937) Denominator: Basic net income (loss) per share: Weighted-average common shares outstanding — basic 132,710 123,978 115,218 Net income (loss) per share — basic $ 1.83 $ (0.14) $ (0.52) Diluted net income (loss) per share: Weighted-average common shares outstanding — basic 132,710 123,978 115,218 Effect of potentially dilutive securities: Restricted stock units 2,744 — — Stock options 6,214 — — Weighted-average common shares outstanding — diluted 141,668 123,978 115,218 Net income (loss) per share — diluted $ 1.71 $ (0.14) $ (0.52) The potential common shares that werelossincome (loss) per share because of their anti-dilutive effect would have been antidilutive for the periods presented are as follows:follows (in thousands): Years Ended December 31, 2021 2020 2019 Equity awards to purchase common stock 1,128 13,088 15,668 Unvested shares of common stock issued upon early exercise of stock options and business acquisition — 1 31 Total 1,128 13,089 15,699 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. In the second quarter of 2017 the Company changed the operating segments to combine one of the previous operating segments with two existing segments to reflect how the CODM evaluates performance and allocates resources. This change did not result in a change to the reportable segments.The Company is organized into two reportable segments as follows:PlayerConsists primarily of net sales of streaming media players and accessories through retailers and distributors, as well as directly to customers through the Company’s website.PlatformConsists primarily of fees received from advertisers and content publishers, and from licensing the Company’s technology and proprietary operating system with TV brands and service operators. Platform revenue primarily includes fees earned from the sale of digital advertising and revenue share from new or recurring user subscriptions activated through the Company’s platform and revenue share from user purchases of content publishers’ media through its platform. The Company also earns revenue from the sale of branded channel buttons on player and TV remote controls. Operating expenses are not managed at the segment level.evaluates the performance of itsis organized into 2 reportable segments basedas follows: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.website. Years Ended December 31, 2021 2020 2019 Platform segment revenue Customer H 10 % 13 % * Player segment revenue Customer A * 10 % 16 % Customer B 23 % 18 % 17 % Customer C 37 % 40 % 39 % 20172021 and 2016.14. 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, 2017 and 2016. This data was derived from the Company’s unaudited consolidated financial statements.Withwith Accountants on Accounting and Financial DisclosureReport on Form 10-K.Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the on Form 10-K, our disclosure controls and procedures were, in design and operation, effective at the reasonable assurance level.20172021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.This Annual Report on Form 10-K does not include a report of management’s assessment regardingor(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.attestation reportevaluation 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. Our assessment excluded internal controls over financial reporting of This Old House and Nielsen AVA businesses which were acquired during the year and whose total assets represent 1.7% and total revenue represent 0.7% of our consolidated financial statement amounts as of and for the year ended December 31, 2021. 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, 2021.dueas stated in its report which is included below.a transition periodtheir 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.for newly public companies.Attestation Reportand the PCAOB.Registered Public Accounting FirmThis Annual ReportPCAOB. 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 Form 10-K does not include an attestation reportthe 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.our registered publicInternal Control over Financial Reportingfirm dueprinciples. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to an exemption established by the Jumpstart Our Business Startups Act, or JOBS Act, for “emerging growth companies.” due to a transition period established bymaintenance of records that, in reasonable detail, accurately and fairly reflect the rulestransactions and dispositions of the Securitiesassets 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 Exchange Commission for newly public companies.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.20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our year ended December 31, 2017.2021.20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our year ended December 31, 2017.2021.20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our year ended December 31, 2017.2021.20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our year ended December 31, 2017.2021.20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our year ended December 31, 2017.2021. Incorporated by Reference Number Exhibit Title Form File No. Exhibit 2.1 8-K 001-38211 2.1 11/14/2019 3.1 8-K 001-38211 3.1 10/3/2017 3.2 S-1/A 333-220318 3.4 9/18/2017 4.1 4.2 S-1/A 333-220318 4.1 9/18/2017 4.3 10-K 001-38211 4.3 3/2/2020 10.1 + S-1 333-220318 10.3 9/1/2017 10.2 + S-1 333-220318 10.4 9/1/2017 10.3 + S-1/A 333-220318 10.5 9/18/2017 10.4 + X 10.5 + X 10.6 + 8-K 001-38211 10.1 10/1/2021 10.7 + S-1/A 333-220318 10.8 9/18/2017 10.8 + S-1A 333-220318 10.9 9/18/2017 10.9 + S-1 333-220318 10.9 9/1/2017 10.10 + S-1 333-220318 10.11 9/1/2017 10.11 + S-1 333-220318 10.13 9/1/2017 10.12 + 10-K 001-38211 10.18 3/2/2020 10.13 + 8-K 001-38211 99.1 7/16/2019 10.14 10-Q 001-38211 10.26 8/10/2018 10.15 10-Q 001-38211 10.27 8/10/2018 10.16 10-K 001-38211 10.30 3/1/2019 10.17 10-K 001-38211 10.31 3/1/2019 10.18 10-K 001-38211 10.32 3/1/2019 10.19 10-Q 001-38211 10.1 8/9/2019 10.20 10-Q 001-38211 10.2 8/9/2019 10.21 10-Q 001-38211 10.3 8/9/2019 10.22 10-Q 001-38211 10.4 8/9/2019 21.1 X 23.1 X 24.1 X 31.1 X 31.2 X 32.1 * X 32.2 * X 101.INS Inline XBRL Instance Document X 101.SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document X 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 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.1st18th day of March 2018.Roku, Inc. 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 and Accounting Officer) Name Title Date By:ANTHONY WOOD Anthony Wood and Chief Executive OfficerFebruary 18, 2022 Anthony Wood STEVE LOUDEN Steve LoudenFebruary 18, 2022 Steve Louden /s/ RAVI AHUJA Director February 18, 2022 Ravi Ahuja /s/ MAI FYFIELD Director February 18, 2022 Mai Fyfield /s/ JEFFREY HASTINGS Director February 18, 2022 Jeffrey Hastings /s/ LAURIE SIMON HODRICK Director February 18, 2022 Laurie Simon Hodrick /s/ NEIL HUNT Director February 18, 2022 Neil Hunt /s/ GINA LUNA Director February 18, 2022 Gina Luna /s/ RAY ROTHROCK Director February 18, 2022 Ray Rothrock 103