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Significant Accounting Policies and Basis of Presentation | 12 Months Ended
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Dec. 31, 2020
Accounting Policies [Abstract] |
Significant Accounting Policies and Basis of Presentation | 2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION Basis of Presentation and Principles of Consolidation The consolidated financial statements, which include the accounts of Roku, Inc. and its wholly-owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). All intercompany accounts and transactions have been eliminated in consolidation. Reclassification of Prior Year Presentation Certain prior period amounts within cash flow from operations in the statement of cash flows, have been reclassified to conform to current period presentation. These reclassifications had no effect on net cash provided by operating activities for any period reported. Use of Estimates The preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgements, and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses. Significant items subject to such estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, variable consideration, determining the stand-alone selling prices of performance obligations, gross versus net revenue recognition, evaluation of customer versus vendor relationships, and other obligations such as sales return reserves and sales incentive programs; the impairment of goodwill and intangible assets; useful lives of tangible and intangible assets; allowances for doubtful accounts; the valuation of deferred income tax assets; and stock-based compensation. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from the Company’s estimates and assumptions. Comprehensive Loss The comprehensive loss is equal to the net loss for the year ended December 31, 2020. Comprehensive loss includes unrealized gains on the Company’s short-term investments and foreign currency translation adjustments for the year ended December 31, 2019. Comprehensive loss includes unrealized losses on the Company’s short-term investments for the year ended December 31, 2018. Income taxes on the unrealized gains or losses are not material. Foreign Currency The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of these subsidiaries are remeasured into U.S. dollars from the local currency at rates in effect at period-end and nonmonetary assets and liabilities are remeasured at historical rates. Revenues and expenses are remeasured at average exchange rates in effect during each period. Foreign currency gains or losses from re-measurement and transaction gains or losses are recorded as other income (expense), net in the consolidated statements of operations. During the year ended December 31, 2020, the Company recorded a foreign currency gain of $1.3 million. During the years ended December 31, 2019 and 2018, the Company recorded a foreign currency loss of $0.2 million and $0.5 million, respectively. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2020, two financial institutions managed 46% and 26%, respectively, of the Company’s total cash and cash equivalents balance. As of December 31, 2019, the same two financial institutions managed 65% and 34%, respectively, of the Company’s total cash and cash equivalents balance. Accounts Receivable, net Accounts receivable are typically unsecured and are derived from revenue earned from customers. They are stated at invoice value less estimated allowances for sales returns, sales incentives and doubtful accounts. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses and doubtful accounts. The Company considers historical experience, ongoing promotional activities, historical claim rate and other factors to determine the allowances for sales returns and sales incentives. Allowance for Sales Returns: Allowance for sales returns consist of the following activities (in thousands):
|  | Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Beginning balance |  | $ | (6,550 | ) |  | $ | (7,335 | ) |  | $ | (6,907 | )
Charged to revenue |  |  | (14,594 | ) |  |  | (15,541 | ) |  |  | (17,396 | )
Utilization of sales return reserve |  |  | 15,232 |  |  |  | 16,326 |  |  |  | 16,968 |
Ending balance |  | $ | (5,912 | ) |  | $ | (6,550 | ) |  | $ | (7,335 | )
Allowance for Sales Incentives: Allowance for sales incentives consisted of the following activities (in thousands):
|  | Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Beginning balance |  | $ | (19,476 | ) |  | $ | (13,750 | ) |  | $ | (10,442 | )
Charged to revenue |  |  | (68,315 | ) |  |  | (65,676 | ) |  |  | (50,958 | )
Utilization of sales incentive reserve |  |  | 56,953 |  |  |  | 59,950 |  |  |  | 47,650 |
Ending balance |  | $ | (30,838 | ) |  | $ | (19,476 | ) |  | $ | (13,750 | )
Allowance for Doubtful Accounts: Allowance for doubtful accounts consisted of the following activities (in thousands):
|  | Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Balance, beginning of period |  | $ | (1,140 | ) |  |  | (686 | ) |  |  | (63 | )
Impact of adoption of ASU 2016-13 |  |  | (1,066 | ) |  |  | — |  |  |  | — |
Adjusted balance, beginning of period |  |  | (2,206 | ) |  |  | (686 | ) |  |  | (63 | )
Provision for doubtful accounts |  | $ | (3,801 | ) |  | $ | (704 | ) |  | $ | (876 | )
Adjustments for recovery and write-off |  |  | 1,826 |  |  |  | 250 |  |  |  | 253 |
Balance, end of period |  |  | (4,181 | ) |  |  | (1,140 | ) |  |  | (686 | )
Customer H accounted for 11% of the accounts receivable, net balance as of December 31, 2020. The Company did not have any customer that accounted for more than 10% of its accounts receivable, net balance as of December 31, 2019. Business Combinations The Company determines whether a transaction meets the definition of a business combination before applying the acquisition method of accounting to that transaction. The Company allocates the fair value of the purchase consideration of its acquisitions to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill. The operating results of acquired business is included in the Company’s consolidated statement of operations beginning on their effective acquisition date. Acquisition-related expenses and certain acquisition restructuring and other related charges are recognized separately from the business combination and are expensed as incurred. Contingent consideration arrangements are recognized at fair value as of the acquisition date with subsequent fair value adjustments recorded in operations. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations. Intangible Assets Intangible assets acquired through business combinations are recorded at their fair values upon acquisition close. Intangible assets are amortized using the straight-line method over their estimated useful lives. The Company evaluates the estimated remaining useful lives of its intangible assets annually and when events or changes in circumstances warrant a revision to the remaining periods of amortization. Impairment Assessments The Company evaluates goodwill for possible impairment at least annually during the fourth quarter of each fiscal year or more often, if and when circumstances indicate that goodwill may be impaired. This includes but is not limited to significant adverse changes in the business climate, market conditions, or other events that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. In performing its annual assessment, the Company can opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or it can directly perform a quantitative assessment. Based on the Company’s qualitative assessment, if it is determined that the fair value of our reporting unit is, more likely than not, less than its carrying amount, then the quantitative assessment is performed. Any excess of the reporting unit's carrying amount over its fair value is be recorded as an impairment loss. The Company reviews long-lived assets, intangible assets and capitalized licensed content assets with finite lives for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of those assets are no longer appropriate. The Company assesses these assets for impairment based on their estimated undiscounted future cash flows. If the carrying value of the asset group exceeds the estimated future undiscounted cash flows, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the asset group. The Company did not recognize any impairment for goodwill, intangible assets or capitalized licensed content assets in any periods reported. The impairments of operating right-of-use assets during the years ended December 31, 2020 and 2019 were not material. Revenue Recognition Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company’s contracts include various product or services or a combination of both, which are generally capable of being distinct and are accounted for as separate performance obligations. The Company’s contracts often contain multiple distinct performance obligations. The Company estimates the transaction price of a contract based on the expected value for which a significant reversal of revenue is not expected to occur. The estimate of the variable consideration is based on the assessment of historical, current, and forecasted performance noted and expected from the performance obligation. In arrangements with multiple performance obligations, the estimated transaction price of each contract is allocated to each distinct performance obligation based on relative stand-alone selling price (“SSP”). For performance obligations routinely sold separately, the SSP is determined by evaluating such stand-alone sales. For those performance obligations that are not routinely sold separately, the Company determines SSP based on market conditions and other observable inputs. When the Company sells third-party goods and services, it evaluates whether the Company is the principal, and reports revenues on a gross basis, or an agent, and reports revenues on a net basis. In this assessment, the Company considers if it obtains control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price. Revenue is recorded net of taxes collected from customers which are subsequently remitted to the relevant government authority. The Company does not capitalize any cost associated with contract acquisition because it applies a practical expedient and expenses commissions when incurred as most direct contract acquisition costs relate to contracts that are recognized over a period of one year or less. Sales commissions are included in Sales and marketing expenses in the consolidated statements of operations. As-invoiced practical expedient is applied when the amount of consideration the Company has a right to invoice corresponds directly with the value to the customer of the entity’s performance completed to date. Nature of Products and Services Platform segment: The Company generates platform revenue from the sale of digital advertising and related services, content distribution services, subscription and transaction revenue shares, Premium Subscriptions, billing services, sale of branded channel buttons on remote controls and licensing arrangements with service operators and TV brands. The Company sells digital advertising directly to marketers or through advertising agencies. Revenue from advertising is mostly generated through video and display advertising delivered through advertising impressions. Advertising is typically sold on a cost-per-thousand (“CPM”) basis and is evidenced by an Insertion Order (“IO”). Revenue is recognized as the number of impressions are delivered. IOs may include multiple performance obligations as they contain distinct advertising products or services. For such arrangements, the Company allocates revenue to each distinct performance obligation based on their relative SSP. The Company also generates revenue from customers using its platform. For that it charges a platform fee, which is a percentage of a customer’s advertising inventory spend during the month, along with data and any add-on features purchased through the platform. The Company recognizes revenue on either a gross or net basis for digital advertising based on its determination as to whether it is acting as the principal in the revenue generation process or as an agent. Where the Company is the principal, it controls the advertising inventory before it is transferred to its customers. This is further supported by the Company being primarily responsible to its customers and having a level of discretion in establishing pricing. Advertising arrangements comprised of multiple performance obligations are recognized either at a point in time or over time depending on the nature of the distinct performance obligation. The Company’s content distribution revenue sharing arrangements include cash or non-cash consideration. The revenue sharing arrangements generally apply to new subscriptions for accounts that sign up for new services and at the time of a movie rental or purchase. Revenue is recognized on a net basis as the Company is deemed to be the agent between content publishers and end users. Revenue is recognized on a time elapsed basis, by day, as the services are delivered over the contractual distribution term. Non-cash consideration is usually in the form of advertising inventory, the fair value of which is determined based on relevant internal and third-party data. The Company sells monthly subscriptions for premium content on The Roku Channel for varying fees for different content. Revenue from such premium subscription fees is recognized on a gross basis over the service period as the Company is deemed to be the principal in the relationship with the end user. The Company obtains control of the content before transferring to the end user and has latitude in establishing pricing. The Company pays fixed fees to the providers of premium content on The Roku Channel based on the contractual arrangement and recognizes that in Cost of revenue, platform. The Company sells branded channel buttons on remote controls of streaming devices that provide one-touch access to a publisher’s content. The Company typically receives a fixed fee per button for each unit sold over a defined distribution period. Revenue is recognized on a time elapsed basis, by day, over the distribution term. The Company licenses the Roku OS, including updates and upgrades, to TV brands and service operators. The licensing revenue is recognized at a point in time, when the Company makes the intellectual property available and the control transfers to the customer. The revenue allocated to unspecified upgrades is recognized on a time elapsed basis, by day, over the service period. Professional services revenue is recognized as services are provided or accepted. Hosting fees are recognized on a time elapsed basis, by day, over the service period. Player segment: The Company sells the majority of its players and audio products to retail distribution channels in the U.S., including brick and mortar and online retailers, as well as through the Company’s website. Player revenue primarily consists of hardware, embedded software and unspecified upgrades on a when and if-available basis. The hardware and embedded software are considered as one performance obligation and revenue is recognized at a point in time when the control transfers to the customer. Unspecified upgrades or enhancements are available to customers on a when-and-if available basis. The Company records the allocated value of the unspecified upgrades as deferred revenue and recognizes it as player revenue ratably on a time elapsed basis over the estimated economic life of the associated players. The Company’s player revenue includes allowances for sales returns and sales incentives in the estimated transaction price. These estimates are based on historical experience and anticipated performance. Shipping charges billed to customers are included in Revenue and the related shipping costs are included in Cost of revenue. Leases On January 1, 2019, the Company adopted the guidance in Leases (Topic 842), using the optional transition method and recorded operating right-of-use (“ROU”) assets and operating lease liabilities on its consolidated balance sheets. The Company determines if an arrangement contains a lease at its inception. Operating leases are included in operating lease right-of-use assets, accrued liabilities, and operating lease liability in our consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future lease payments. The Company takes into consideration its credit rating and the length of the lease when calculating the incremental borrowing rate. The Company considers the options to extend or terminate the lease in determining the lease term, when it is reasonably certain to exercise one of the options. The Company combines lease and non-lease components into a single lease component for its real estate and equipment leases. Fair Value of Financial Instruments The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies fair value accounting for all assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements. The carrying amounts reported in the consolidated financial statements for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their short-term nature. The carrying amount of debt approximates fair value due to its variable interest rates. Inventories The Company’s inventories consist primarily of finished goods and are stated at the lower of cost or net realizable value with cost determined on a first-in, first-out basis. Provisions are made if the cost of the inventories exceeds their net realizable value. The Company evaluates inventory levels and purchase commitments for excess and obsolete products, based on management’s assessment of future demand and market conditions. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of the assets, generally ranging between eighteen months and five years. Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives, which range from five to ten years. The Company capitalizes costs to develop its internal-use software. Costs that relate to the planning and post-implementation phases of development are expensed as incurred. Costs are capitalized when preliminary efforts are successfully completed, management has authorized and committed to funding the project, and it is probable that the project will be completed and will be used as intended. Costs incurred for enhancements that are expected to result in additional material functionality are capitalized. During the years ended December 31, 2020, 2019 and 2018, the Company capitalized internal-use software development costs of $2.2 million, $0.1 million and $1.0 million, respectively. Capitalized costs are amortized using the straight-line method over the estimated useful life of the asset, which is generally two to three years, beginning when the asset is ready for its intended use. During the years ended December 31, 2020, 2019 and 2018, the Company amortized expenses of $0.5 million, $1.6 million and $2.0 million, respectively. Deferred Revenue The Company’s deferred revenue reflects fees received from licensing and service arrangements, including advertising, that will be recognized as revenue over time or as services are rendered. Deferred revenue balances consist of the amount of player sales allocated to unspecified upgrades or enhancements on a when-and-if available basis, licensing and services fees from service operators and TV brands, and payments from advertisers and content publishers. Deferred revenue expected to be realized within one year is classified as current liabilities and the remaining is recorded as noncurrent liabilities. Advertising Costs Advertising costs are expensed when incurred and are included in Sales and marketing expense in the consolidated statements of operations. The Company incurred advertising costs of $7.1 million, $7.3 million and $3.0 million for the years December 31, 2020, 2019 and 2018, respectively. Stock-Based Compensation The Company measures compensation expense for all stock-based awards, including restricted stock units and stock options granted to employees, based on the estimated fair value of the award on the date of grant. For restricted stock units, the grant date fair value is based on the closing market price of the Company’s Class A common stock on the date of grant. The fair value of each stock option is estimated using the Black-Scholes option-pricing model. The Company accounts for forfeitures as they occur. Stock-based compensation is recognized on a straight-line basis over the requisite vesting period. Income Taxes The Company accounts for income taxes using an asset and liability approach. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not to be realized. Net Loss per Share Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding and potentially dilutive securities would have been anti-dilutive. Recently Adopted Accounting Standards In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance amended reporting of credit losses for assets held at amortized cost basis and available-for-sale debt securities to require that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. On January 1, 2020, the Company adopted this guidance using the modified retrospective adoption method and recorded a cumulative-effect adjustment to the beginning balance of accumulated deficit of approximately $1.1 million. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statements of operations. This impact mainly relates to credit losses recognized on the Company’s doubtful accounts. As the Company did not have any available-for-sale debt securities as of the adoption date, there was no additional impact to accumulated deficit. In March 2019, the FASB issued ASU 2019-02, Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials, in order to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization. ASU 2019-02 also requires that an entity reassess estimates of the use of a film in a film group and account for any changes prospectively. In addition, ASU 2019-02 requires that an entity test films and license agreements for program material for impairment at a film group level when the film or license agreements are predominantly monetized with other films and license agreements. On January 1, 2020, the Company adopted the guidance in ASU 2019-02. There was no material impact to the Company’s consolidated financial statements. The Company also adopted the following ASUs effective January 1, 2020, none of which had a material impact on the Company’s financial position or results of operations.
ASU | Description
ASU 2018-15 | Intangibles—Goodwill and Other—Internal-Use Software (Topic 350), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
ASU 2018-13 | Fair Value Measurements (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
ASU 2017-04 | Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
ASU2019-04 | Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
ASU2020-02 | Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842)
ASU2020-03 | Codification Improvements to Financial Instruments
In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships, and other transactions that reference London Interbank Offered Rate (“LIBOR”) that is expected to be discontinued, subject to meeting certain criteria. The guidance is effective as of March 12, 2020 through December 31, 2022. The Company made a policy election in the second quarter of 2020 to elect a different reference rate for the Credit Agreement when LIBOR is discontinued. It is still uncertain when the transition from LIBOR to another reference rate will occur or which reference rate will become the accepted market alternative to LIBOR. Recent Accounting Standards Not Yet Adopted In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The guidance is effective for fiscal years beginning after December 15, 2020, including interim reporting periods within those fiscal years, with early adoption permitted. The Company believes that the adoption of this guidance will not have a material impact on the financial statements.

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- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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