The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and with our audited consolidated financial statements included in our Annual Report for the year endedDecember 31, 2021 , filed onFebruary 18, 2022 , with theSEC . Overview We operate in two reportable segments: the platform segment and the player segment. Platform revenue is generated from the sale of digital advertising and related services, including ourOneView 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. Player revenue is generated primarily from the sale of streaming players and audio products. We expect to continue to manage the average selling prices ("ASP") of our streaming players to increase our active accounts. We expect that the trade off from player gross profit or loss to grow active accounts will result in increased platform revenue and platform gross profit.
COVID-19 and Other Macroeconomic Factors
The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial markets. The Russian invasion ofUkraine inFebruary 2022 has led to further economic disruptions. Mounting inflationary cost pressures and recessionary fears have negatively impacted the global economy. TheU.S. Federal Reserve increased interest rates starting inMarch 2022 and additional increases are expected throughout the year. The ongoing effects of the COVID-19 pandemic and associated economic factors remain difficult to predict due to numerous uncertainties, including the severity, duration, and resurgence of the outbreak, new variants and the contagiousness of these new variants, the effectiveness of health and safety measures including vaccines, and managing the different pace of return-to-office in different locations. We continue to monitor the effects of the pandemic and take appropriate steps to mitigate the impact on our business. Most of our employees have a hybrid work schedule (consisting of both in-person work and working from home) in 2022. Global supply chain disruptions have resulted in shipping delays, increased shipping costs, component shortages, and increases in component prices. Though we do not believe that the cost constraints and supply chain issues are permanent, they may continue to impact us and we expect our player gross margin to be negative in the near term as we choose to prioritize account acquisition and insulate consumers from higher costs caused by supply chain disruptions and inflationary pressures. In addition, some of our TV brand partners have faced inventory challenges that have negatively impacted their unit sales. Some of our advertising verticals experienced supply chain disruptions that negatively impacted their product availability, which, together with inflation and other macroeconomic factors, have resulted in advertisers in a variety of industries reducing their overall advertising spend. We believe rising inflation and recessionary fears also have led to a reduction in consumer discretionary spending, which has driven a decrease in our player revenue. We believe that as the COVID-19 pandemic evolves, the direct and indirect impacts of the pandemic on global macroeconomic conditions, as well as conditions specific to us, are becoming more difficult to isolate or quantify. In addition, these direct and indirect factors can make it difficult to isolate and quantify the portion of our costs that are a direct result of the pandemic and costs arising from factors that may have been influenced by the pandemic, such as supply chain constraints, changes in the spending patterns of advertisers and consumers, rising inflation, and recessionary fears. We expect these factors and their effects on our operations may persist for a longer period, even after the COVID-19 pandemic has subsided.
Key Performance Metrics
The key performance metrics we use to evaluate our business, measure our
performance, develop financial forecasts and make strategic decisions are gross
profit, active accounts, streaming hours, and average revenue per user (“ARPU”).
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Gross Profit
We use gross profit as the primary metric to measure the performance of our business because we have two revenue segments that have different margin profiles, and we aim to maximize our higher margin platform revenue from our active accounts as they stream content on our platform. Substantially all of our gross profit is generated from our platform segment.
Our gross profit was
Active Accounts
We believe that the number of active accounts is a relevant measure to gauge the size of our user base. We define active accounts as the number of distinct user accounts that have streamed content on our platform within the last 30 days of the period. Users who streamed content from The Roku Channel only on non-Roku platforms are not included in this metric. The number of active accounts also does not correspond to the number of unique individuals who actively utilize our platform, or the number of devices associated with an account. For example, a single account may be used by more than one individual, such as a family, and one account may be used on multiple streaming devices.
We had 63.1 million and 55.1 million active accounts as of
2021, respectively, reflecting an increase of 14%.
Hours Streamed
We believe the number of streaming hours on our platform is an effective measure of user engagement and that the growth in the number of hours of content streamed across our platform reflects our success in addressing the growing user demand for TV streaming. We define streaming hours as the aggregate amount of time streaming devices stream content on our platform in a given period. Hours streamed from The Roku Channel on non-Roku platforms are not included in this metric. We report streaming hours on a calendar basis.
We believe that over time, increasing user engagement on our streaming platform
increases our platform monetization because we earn platform revenue from
various forms of user engagement, including advertising, as well as revenue
shares from subscriptions and transactional video on-demand. However, our
revenue from content publishers is not tied to the hours streamed on their
streaming channels, and the number of streaming hours does not correlate to
revenue earned from such content publishers or ARPU on a period-by-period basis.
Furthermore, 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. However, since the first quarter of 2020, all of our 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 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. Some of our leading channel partners, including Netflix, also have implemented similar features within their channels. This Roku OS feature supplements these channel features, and we believe that it benefits us, our customers, channel partners, and advertisers. This feature has not had and is not expected to have a material impact on our future financial performance.
We streamed 20.7 billion and 17.4 billion hours during the three months ended
Average Revenue per User
We measure our platform monetization progress with ARPU, which we believe represents the inherent value of our business. We define ARPU as our platform revenue for the trailing four quarters divided by the average of the number of active accounts at the end of the current period and the end of the corresponding period in the prior year. ARPU measures the rate at which we are monetizing our active account base and the progress of our platform business.
ARPU was
reflecting an increase of 21%.
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Components of Results of Operations
Revenue
Platform Revenue
We generate platform revenue from digital advertising sales and related services including ourOneView ad platform, content distribution services (such as subscription and transaction revenue sharing arrangements, 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. Our ad inventory includes video ad inventory from AVOD content in The Roku Channel, native display ads on our home screen and screen saver, as well as ad inventory we obtain through our content distribution agreements with publishers. To supplement supply, we re-sell video inventory that we purchase from content publishers and, to a lesser extent, directly sell third-party inventory on a revenue share basis. To date, we have generated most of our platform revenue inthe United States .
Player Revenue
We generate player revenue primarily from the sale of streaming players through consumer retail distribution channels, including major brick and mortar retailers, such as Best Buy and Walmart, and online retailers, including Amazon. We generate most of our player revenue inthe 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 inNorth America ,South America , andEurope .
Player revenue also includes the sale of our audio products, including wireless
speakers, smart soundbars and wireless subwoofers.
Cost of Revenue
Cost of Platform Revenue
Cost of platform revenue primarily consists of costs associated with acquiring advertising inventory, amortization costs of content, both licensed and produced, and revenue share with content publishers. Cost of platform revenue also includes other costs such as payment processing fees, allocated expenses associated with the delivery of our services that primarily include costs of third-party cloud services and salaries, benefits, and stock-based compensation for our customer support and platform operations personnel, and amortization of acquired developed technology.
Cost of Player Revenue
Cost of player revenue is comprised mostly of manufacturing costs for streaming players and audio products payable to our third-party contract manufacturers and technology licenses or royalty fees. Cost of player revenue also includes inbound and outbound freight, duties and logistics costs, third-party packaging, inventory provision, and allocated overhead costs related to facilities and customer support, and salaries, benefits, and stock-based compensation for operations personnel. Operating and Other Expenses Research and Development Research and development expenses consist primarily of personnel-related costs, including salaries, benefits, and stock-based compensation for our development teams as well as outsourced development fees. In addition, research and development expenses include allocated facilities and overhead costs. We expect research and development expenses to increase in absolute dollars as we continue to invest in the development of our platform and player products and services.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related costs, including salaries, benefits, commissions, and stock-based compensation for our employees engaged in sales and sales support, marketing, communications, data science and analytics, business development, product management, and partner support functions. Sales and marketing expenses also include marketing, retail and merchandising costs, and allocated facilities and overhead expenses. We expect sales and marketing expenses to increase in absolute dollars in future periods as we focus on growing active accounts, platform and player revenue, and expanding our business internationally.
General and Administrative
General and administrative expenses consist primarily of salaries, benefits, and
stock-based compensation for our finance, legal, information technology, human
resources, and other administrative personnel. General and administrative
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expenses also include outside legal, accounting, and other professional service fees as well as allocated facility expenses. We expect our general and administrative expenses to increase due to the expansion of our business and related infrastructure. Other Income (Expense), Net For the three and six months endedJune 30, 2022 , and 2021, other income (expense), net consists of interest income on cash and cash equivalents, income recognized related to non-cash consideration associated with the delivery of services as part of a strategic commercial arrangement, interest expense that includes interest on our debt and amortization of deferred debt costs, foreign currency re-measurement, and transaction gains and losses.
Income Tax Expense (Benefit)
Our income tax expense (benefit) consists primarily of income taxes in certain foreign jurisdictions where we conduct business and income taxes inthe United States . We have a valuation allowance for deferred tax assets, including net operating losses primarily forU.S. and any jurisdiction where we do not expect to realize their benefits in the future. We expect to maintain this valuation allowance for the foreseeable future.
Results of Operations
The following table sets forth selected condensed consolidated statements of
operations data as a percentage of total revenue for each of the periods
indicated.
Three Months Ended Six Months Ended
June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021
Net Revenue:
Platform 88 % 83 % 88 % 82 %
Player 12 % 17 % 12 % 18 %
Total net revenue 100 % 100 % 100 % 100 %
Cost of Revenue:
Platform 39 % 29 % 37 % 28 %
Player 15 % 19 % 14 % 17 %
Total cost of revenue 54 % 48 % 52 % 45 %
Gross Profit (Loss):
Platform 49 % 54 % 51 % 54 %
Player (3) % (2) % (2) % 1 %
Total gross profit 46 % 52 % 48 % 55 %
Operating Expenses:
Research and development 25 % 18 % 24 % 18 %
Sales and marketing 24 % 14 % 22 % 15 %
General and administrative 11 % 10 % 11 % 10 %
Total operating expenses 60 % 42 % 57 % 43 %
Income (Loss) from Operations (14) % 10 % (9) % 12 %
Other Income (Expense), Net:
Interest expense - % - % - % - %
Other income (expense), net - % - % - % - %
Total other income (expense), net - % - % - % - %
Income (Loss) Before Income Taxes (14) % 10 % (9) % 12 %
Income tax expense (benefit) - % (1) % - % - %
Net Income (Loss) (14) % 9 % (9) % 12 %
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Comparison of Three and Six Months Ended
Net Revenue
Three Months Ended Six Months Ended
June 30, 2022 June 30, 2021 Change $ Change % June 30, 2022 June 30, 2021 Change $ Change %
(in thousands, except percentages)
Platform $ 673,163 $ 532,303 $ 140,860 26 % $ 1,320,067 $ 998,829 $ 321,238 32 %
Player 91,243 112,816 (21,573) (19) % 178,038 220,473 (42,435) (19) %
Total net revenue $ 764,406 $ 645,119 $ 119,287 18 % $ 1,498,105 $ 1,219,302 $ 278,803 23 %
Platform
Platform revenue increased by $140.9 million , or 26%, and $321.2 million , or
32%, during the three and six months ended June 30, 2022 as compared to the
three and six months ended June 30, 2021 , respectively, primarily from higher
revenue from advertising and content distribution services, such as media and
entertainment promotional revenue and distribution of Premium Subscriptions
through The Roku Channel. The increase in the variety of content, both licensed
and original productions, have significantly increased the advertising
opportunities available on the platform.
Player
Player revenue decreased by$21.6 million , or 19%, during the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 , primarily due to a decrease in both the volume of streaming players sold and the average selling prices. The volume of streaming players sold decreased by 16% and the average selling price of players decreased by 5% mainly due to the slowdown in growth in the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 driven by reductions in consumer discretionary spending, which we believe is a result of rising inflation and recessionary fears. Revenue from the sale of audio products and accessories was also impacted by the same factors resulting in lower revenue during the period. Player revenue decreased by$42.4 million , or 19%, during the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 , primarily due to a decrease in both the volume of streaming players sold and the average selling prices. The volume of streaming players sold decreased by 14% and the average selling price of players decreased by 7% mainly due to the slowdown in growth in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 driven by reductions in consumer discretionary spending, which we believe is a result of rising inflation and recessionary fears. Revenue from the sale of audio products and accessories was also impacted by the same factors resulting in lower revenue during the period.
Cost of Revenue and Gross Profit
Three Months Ended Six Months Ended
June 30, 2022 June 30, 2021 Change $ Change % June 30, 2022 June 30, 2021 Change $ Change %
(in thousands, except
percentages)
Cost of Revenue:
Platform $ 296,054 $ 187,328 $ 108,726 58 % $ 563,039 $ 341,918 $ 221,121 65 %
Player 113,203 119,525 (6,322) (5) % 215,110 212,347 2,763 1 %
Total cost of revenue
33 %$ 778,149 $ 554,265 $ 223,884 40 % Gross Profit (Loss): Platform$ 377,109 $ 344,975 $ 32,134 9 %$ 757,028 $ 656,911 $ 100,117 15 % Player (21,960) (6,709) (15,251) 227 % (37,072) 8,126 (45,198) (556) %
Total gross profit$ 355,149 $ 338,266 $ 16,883 5 %$ 719,956 $ 665,037 $ 54,919 8 % Platform The cost of platform revenue increased by$108.7 million , or 58%, during the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 . This increase is primarily driven by higher cost of acquiring content 28
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that includes content amortization costs, Premium Subscription costs, content publisher revenue share and credit card processing fees, and higher cost of acquiring advertising inventory totaling$89.3 million . Platform costs also increased an additional$19.6 million due to increases in cloud services costs for supporting the platform and higher personnel costs. The cost of platform revenue increased by$221.1 million , or 65%, during the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . This increase is primarily driven by higher cost of acquiring content that includes content amortization costs, Premium Subscription costs, content publisher revenue share and credit card processing fees, and higher cost of acquiring advertising inventory totaling$184.8 million . Platform costs also increased an additional$36.0 million due to increases in cloud services costs for supporting the platform and higher personnel costs. Gross profit for platform revenue increased by$32.1 million , or 9%, and$100.1 million , or 15%, during the three and six months endedJune 30, 2022 as compared to the three and six months endedJune 30, 2021 , primarily driven by the overall growth in our platform revenue.
Player
The cost of player revenue decreased by$6.3 million , or 5%, during the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 . The decrease is driven by lower manufacturing costs and lower freight costs of$4.9 million due to lower player revenue and a lower number of units sold during the period and lower inventory provision of$1.6 million during this period. The cost of player revenue increased by$2.8 million , or 1%, during the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . The increase is driven by higher inventory provision of$3.4 million offset by lower manufacturing costs and lower freight costs of$1.4 million due to lower player revenue and a lower number of units sold during the period. Gross profit for player revenue decreased by$15.3 million and$45.2 million , during the three and six months endedJune 30, 2022 as compared to the three and six months endedJune 30, 2021 , resulting in a gross loss for the three and six months endedJune 30, 2022 . The loss was mainly driven by reduced player revenue during the period. Operating Expenses Three Months Ended Six Months Ended June 30, 2022 June 30, 2021 Change $ Change % June 30, 2022 June 30,
2021 Change $ Change % (in thousands, except percentages) Research and development$ 196,637 $ 113,276 $ 83,361 74 %$ 360,635 $ 214,857 $ 145,778 68 % Sales and marketing 184,971 93,678 91,293 97 % 331,493 182,551 148,942 82 % General and administrative 84,054 62,228 21,826 35 % 161,831 122,739 39,092 32 % Total operating expenses$ 465,662 $ 269,182 $ 196,480 73 %$ 853,959 $ 520,147 $ 333,812 64 % Research and development Research and development expenses increased by$83.4 million , or 74%, during the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 . The increase is primarily due to increases in personnel-related costs of$67.6 million , as a result of increased engineering headcount and related stock-based compensation, higher facilities and information technology costs of$14.3 million from expansion of office facilities, computer equipment, and infrastructure to support growth and higher headcount, and higher consulting, professional services, and cloud services costs of$1.6 million . Research and development expenses increased by$145.8 million , or 68%, during the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . The increase is primarily due to increases in personnel-related costs of$114.0 million , as a result of increased engineering headcount and related stock-based compensation, higher facilities and information technology costs of$26.6 million from expansion of office facilities, computer equipment, and infrastructure to support growth and higher headcount, and higher consulting, professional services, and cloud services costs of$5.5 million .
Sales and marketing
Sales and marketing expenses increased by
three months ended
2021
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$44.7 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$33.8 million mainly due to increases in marketing, retail and merchandising costs, and other advertising expenses to promote the Roku brand, an increase of$3.6 million in professional services and consulting fees, and an increase in facilities and information technology costs of$6.6 million to support expansion of office facilities and higher headcount. Sales and marketing expenses increased by$148.9 million , or 82%, during the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . The increase is primarily due to increases in personnel-related costs of$84.2 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$43.2 million mainly due to increases in marketing, retail and merchandising costs, and other advertising expenses to promote the Roku brand, an increase of$6.9 million in professional services and consulting fees, and an increase in facilities and information technology costs of$11.0 million to support expansion of office facilities and higher headcount.
General and administrative
General and administrative expenses increased by$21.8 million , or 35%, during the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 . The increase is primarily due to increases in personnel-related costs of$21.6 million related to increased headcount and related stock-based compensation, and an increase in facilities and information technology costs of$4.4 million to support expansion of office facilities and higher headcount. General and administrative expenses increased by$39.1 million , or 32%, during the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . The increase is primarily due to increases in personnel-related costs of$33.9 million related to increased headcount and related stock-based compensation and an increase in facilities and information technology costs of$8.3 million to support expansion of office facilities and higher headcount.
Other Income (Expense), Net
Three Months Ended Six Months Ended
June 30,
June 30, 2022 2021 Change $ Change % June 30, 2022 June 30, 2021 Change $ Change %
(in thousands, except
percentages)
Interest expense $ (1,059) $ (746) $ (313) 42 % $ (2,116) $ (1,488) $ (628) 42 %
Other income (expense), net 1,829 1,520 309 20 % 2,238 1,961 277 14 %
Total other income (expense),
net $ 770 $ 774 $ (4) (1) % $ 122 $ 473 $ (351) (74) %
Total other income (expense), net, decreased 1%, during the three months ended
June 30, 2022 as compared to the three months ended June 30, 2021 . The reduction
was due to increased interest expense of $0.3 million due to higher interest
rates on the outstanding debt, foreign exchange losses of $1.5 million , and
lower other income of $0.6 million , offset by higher interest income of $2.4
million from improved interest rates on our cash balance.
Total other income (expense), net, decreased by $0.4 million , or 74%, during the
six months ended June 30, 2022 as compared to the six months ended June 30,
2021 . The reduction was due to increased interest expense of $0.6 million due to
higher interest rates on the outstanding debt, foreign exchange losses of $2.2
million , and lower other income of $0.3 million , offset by higher interest
income of $2.8 million from improved interest rates on our cash balance.
Income Tax Expense (Benefit)
Three Months Ended Six Months Ended
June 30, 2022 June 30, 2021 Change $ Change % June 30, 2022 June 30, 2021 Change $ Change %
(in thousands, except
percentages)
Income tax expense
(benefit) $ 2,578 $ (3,609) $ 6,187 (171) % $ 4,746 $ (4,400) $ 9,146 (208) %
Income tax expense increased by $6.2 million and $9.1 million during the three
and six months ended June 30, 2022 as compared to the three and six months ended
June 30, 2021 , driven primarily by U.S. federal and state tax liability as a
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result of the adoption of new
Act, effective
benefits, and increased income in foreign jurisdictions.
Liquidity and Capital Resources
As ofJune 30, 2022 , we had cash and cash equivalents of$2,050.4 million . Less than 1% of our cash was held outsidethe United States in accounts held by our foreign subsidiaries, which are used to fund foreign operations. Our primary sources of cash are receipts from platform and player revenue and proceeds from equity sales, including equity issued pursuant to our employee equity incentive plans. The primary uses of cash are costs of revenue, including costs to acquire advertising inventory, costs to acquire content through licensing and producing, third-party manufacturing costs, as well as operating expenses including payroll-related expenses, consulting and professional service fees, and facility and marketing expenses. Other uses of cash include purchases of property and equipment and mergers and acquisitions. As our business and workforce continue to expand, we expect to continue to incur expenses for facility and building related costs for our office locations inthe United States and internationally. In addition, we expect to continue our investments in purchases of computer systems and other property and equipment. We have pursued merger and acquisition activities, such as the acquisition of the Nielsen AVA business, the This Old House business, and content rights from Quibi in fiscal year 2021, and we may pursue additional merger and acquisition activities in the future. These activities can materially impact our liquidity and capital resources. We believe our existing cash and cash equivalents balance, cash flow from operations, and our undrawn available balance under our Credit Agreement will be sufficient to meet our working capital, capital expenditures, and material cash requirements from known contractual obligations for the next twelve months and beyond. Our future capital requirements, the adequacy of available funds, and cash flows from operations could be affected by various risks and uncertainties, including, but not limited to, those detailed in Part II, Item 1A, Risk Factors, the effects of the COVID-19 pandemic and the increasing risk of a recession as well as other macroeconomic headwinds. While those factors have not severely impacted our liquidity and capital resources to date, they have contributed to disruption and volatility in local economies and in capital and credit markets, which could adversely affect our liquidity and capital resources in the future. We may attempt to raise additional capital through the sale of equity securities or other financing arrangements. If we raise additional funds by issuing equity, the ownership of our existing stockholders will be diluted. Our Credit Agreement expires inFebruary 2023 . If we raise additional financing by the incurrence of additional indebtedness, we may be subject to fixed payment obligations and also to restrictive covenants.
Senior Secured Term Loan A and Revolving Credit Facilities
OnFebruary 19, 2019 , we entered into a Credit Agreement withMorgan Stanley Senior Funding, Inc. (as amended onMay 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 certain conditions (together with the Revolving Credit Facility and the Term Loan A Facility, collectively, the "Credit Facility"). For our current borrowings, we have elected a Eurodollar borrowing with interest at a rate equal to the adjusted one-month LIBOR rate plus an applicable margin of 1.75% based on our secured leverage ratio. The borrowings under the facility mature or have to be repaid in full byFebruary 2023 . Our obligations under the Credit Agreement are secured by substantially all of our assets. The Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, a financial covenant that is tested quarterly and requires us to maintain a certain adjusted quick ratio of at least 1.00 to 1.00, and customary events of default. As ofJune 30, 2022 , we were in compliance with all of the covenants of the Credit Agreement. See Note 11 to the condensed consolidated financial statements in Item 1 of this Quarterly Report and Note 10 to the consolidated financial statements in our Annual Report for additional details regarding the Credit Agreement.
We had outstanding letters of credit of
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