ROKU INC

8. FAIR VALUE DISCLOSURE

The Company’s financial assets measured at fair value on a recurring basis are as follows (in thousands):

The following table reflects the changes in the fair value of the Company’s Level 3 financial assets (in thousands):

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous market, in the absence of a principal market) for the asset or liability in an orderly transaction between market participants at the measurement date. Further, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs in measuring fair value and utilizes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.

The three levels of inputs used to measure fair value are as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Financial assets and liabilities measured using Level 1 inputs include cash, cash equivalents, restricted cash, accounts receivable, prepaid expenses, accounts payable and accrued liabilities.

The Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents. The Company measured money market funds of $1,406.9 million and $1,431.4 million as cash equivalents as of September 30, 2024 and December 31, 2023, respectively, using Level 1 inputs.

Level 2—Observable inputs other than quoted prices included within Level 1, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation or other means.

The Company did not have Level 2 instruments as of September 30, 2024 and December 31, 2023.

Level 3—Unobservable inputs that are supported by little or no market activity, are significant to the fair value of the assets or liabilities and reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

As of September 30, 2024, the Company measured its strategic investment in convertible promissory notes using Level 3 inputs. The fair value of the strategic investment in convertible promissory notes on the date of purchase was determined to be equal to its principal amount. The Company recorded an unrealized gain of $3.3 million and $0.6 million, in Other income, net related to the adjustment to fair value of the strategic investment in convertible promissory notes during the three months ended September 30, 2024 and September 30, 2023, respectively. The Company recorded an unrealized gain of $7.0 million and $3.7 million, in Other income, net related to the adjustment to fair value of the strategic investment in convertible promissory notes during the nine months ended September 30, 2024 and September 30, 2023, respectively.

The Company classified the strategic investment in convertible promissory notes as Level 3 due to the lack of relevant observable market data over fair value inputs. The fair value of the strategic investment in convertible promissory notes was estimated using a scenario-based probability weighted discounted cash flow model. Significant assumptions include the discount rate, and the timing and probability weighting of the various redemption scenarios that impact the settlement of the strategic investment in convertible promissory notes.

Assets and liabilities that are measured at fair value on a non-recurring basis

Non-financial assets such as goodwill, intangible assets, property 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.

During the three months ended September 30, 2024, the Company recorded impairment charges of $11.4 million related to operating lease right-of-use assets, and $6.5 million related to property and equipment, both associated with the leased office facilities that are part of its restructuring efforts. During the three months ended September 30, 2023, the Company recorded impairment charges of $101.1 million related to operating lease right-of-use assets, and $68.1 million related to property and equipment, both associated with the leased office facilities that are part of its restructuring efforts, and $61.6 million of content assets impairment that are part of its restructuring efforts.

During the nine months ended September 30, 2024, the Company recorded impairment charges of $22.6 million related to operating lease right-of-use assets, and $7.0 million related to property and equipment, both associated with the leased office facilities that are part of its restructuring efforts. During the nine months ended September 30, 2023, the Company recorded impairment charges of $104.9 million related to operating lease right-of-use assets, and $68.7 million related to property and equipment, both associated with the leased office facilities that are part of its restructuring efforts, and $61.6 million of content assets impairment that are part of its restructuring efforts. See Note 16 to the condensed consolidated financial statements for additional details.