SEC Info - Roku, Inc - ‘8-K’ for 11/6/19

We continue to execute well against our long-term strategic plan as the TV market shifts to streaming. In Q3, we beat our outlook for revenue, gross profit, and adjusted EBITDA. Our business momentum and competitive differentiation make Roku an essential partner for content publishers and advertisers. This is evident in the launch of major new streaming services on our platform and by the growth in the number of advertisers who work with Roku. We believe the dataxu acquisition will accelerate our platform’s advertising technology roadmap, strengthen our already industry-leading TV streaming platform and give us the opportunity to create an even more appealing offering for advertisers.

Key Operating Metrics	Q3 18			Q4 18			Q1 19			Q2 19			Q3 19			YoY %
Active Accounts (millions)		23.8			27.1			29.1			30.5			32.3			36	%
Streaming Hours (billions)		6.2			7.3			8.9			9.4			10.3			68	%
ARPU ($)	$	17.34		$	17.95		$	19.06		$	21.06		$	22.58			30	%

Summary Financials ($ in millions)	Q3 18			Q4 18			Q1 19			Q2 19			Q3 19			YoY %
Platform revenue	$	100.1		$	151.4		$	134.2		$	167.7		$	179.3			79	%
Player revenue		73.3			124.3			72.5			82.4			81.6			11	%
Total net revenue		173.4			275.7			206.7			250.1			260.9			50	%
Platform gross profit		70.5			109.4			93.8			109.7			112.2			59	%
Player gross profit		8.4			2.9			7.1			4.5			6.2			-26	%
Total gross profit		79.0			112.3			100.9			114.2			118.5			50	%
Platform gross margin %		70.5	%		72.2	%		69.9	%		65.4	%		62.6	%		-791	bps
Player gross margin %		11.5	%		2.4	%		9.8	%		5.5	%		7.6	%		-388	bps
Total gross margin %		45.6	%		40.7	%		48.8	%		45.7	%		45.4	%		-15	bps
R&D		45.4			51.0			55.7			62.0			68.5			51	%
Sales and marketing		25.6			34.6			33.8			36.6			46.7			82	%
G&A		19.8			21.2			22.1			26.0			29.9			51	%
Total operating expenses		90.7			106.8			111.6			124.6			145.0			60	%
Income (loss) from operations		(11.7	)		5.5			(10.7	)		(10.4	)		(26.5	)	nm
Adjusted EBITDA ¹		2.0			24.5			10.0			11.1			(0.4	)	nm
Adjusted EBITDA margin %		1.1	%		8.9	%		4.8	%		4.4	%		-0.2	%		-130	bps

Outlook ($ in millions)	Q4 2019E			Full Year 2019E
Total net revenue	$380 - $396			$1,098 - $1,113
Total gross profit	$156 - $161			$489 - $494
Net income (loss)	($22)-($17)			($66) - ($61)
Adjusted EBITDA ^{2, 3}	$7 - $12			$28 - $33
¹ Refer to the reconciliation of net loss to adjusted EBITDA in the non-GAAP information in the tables accompanying this letter.
²Full Year 2019E reconciling items between net loss and non-GAAP adjusted EBITDA consist of stock-based compensation of $84 million, and depreciation and amortization and other income of $10 million.
³ Q4 2019E reconciling items between net loss and non-GAAP adjusted EBITDA consist of stock-based compensation of approximately $25 million, and depreciation and amortization and other income of $4 million.

According to eMarketer, around 56 million households in total will have canceled cable or satellite TV subscriptions by 2023. Approximately 1.7 million consumers cut the cord in Q3 alone. Our own research indicates that roughly 50% of U.S. cord cutters are Roku customers, and cord cutters who choose Roku products are highly satisfied with the decision and extremely unlikely to consider returning to a traditional pay TV subscription.

The growing number of major streaming services, increasing investment in original programming and related high-profile marketing campaigns are likely to reinforce consumer interest in moving from traditional pay TV to streaming – and to the Roku platform. Just last week Apple TV+ launched on our platform adding a desirable option for millions of Apple and Roku customers around the world. Disney+ and several new free ad-supported video on demand (AVOD) services coming to market are also expected to launch soon on our platform. Such new services will generate revenue for Roku when we promote their content to our customers, when customers sign up on our platform and when our customers view ads.

During Q3, we saw strong unit sales for both Roku TV and players. We continue to lead in smart TV operating system (OS) licensing as the #1 licensed TV OS in North America. We believe that Roku TV represented more than one in three smart TVs sold in the U.S. during the first nine months of the year.

In September, we introduced a new line up of streaming players for North America, Latin America and markets in Europe. These new players make streaming affordable with an entry price point of $29.99 MSRP for the redesigned Roku Express. Our goal is to drive scale and reach of the platform and we will do so by offering consumers exceptional devices and appealing prices rather than optimizing for hardware gross profit. We are pleased that our popular Roku Streaming Stick+ recently won the CNET Editor’s Choice Award for the third consecutive year and was once again deemed their favorite streamer overall.

As we continue to lay the foundation for further international expansion, the key advantages that set us apart in the U.S. are expected to play an important role in new markets. Our purpose-built OS, engineering expertise, OEM partnerships, and free TV capabilities are among the many factors that we expect to contribute to our ability to attract content providers and consumers, and quickly build scale in new markets.

At IFA, the European consumer electronics show held in Germany, we announced plans to bring Roku TV to Europe beginning with the UK market. Our Roku TV launch partner Hisense is expected to ship the first Roku TV models in the UK before the end of this year. Roku TVs in the UK will include FreeView Play as well as a strong lineup of local streaming content publishers and global brands.

We look forward to bringing Roku TV to more international markets as well as deepening our selection in the UK. We plan to share more of our plans in early 2020.

Q3 was another quarter of strong progress for the Platform segment led by advertising. According to eMarketer, in the U.S., advertisers today spend more than $70 billion dollars on traditional linear TV and these dollars are still in the early stages of shifting to streaming. According to Magna Global, OTT accounts for 29 percent of U.S. TV viewing, but so far has only captured three percent of TV ad budgets. That gap is starting to close. For example, Magna Global forecasted $5 billion OTT ad spend for 2020. We believe that we are well positioned to benefit from this trend.

Roku monetized video ad impressions more than doubled again year-over-year. The Roku Channel contributed to this growth as impressions within the channel are growing faster than our impressions within the overall platform. While we continue to work with the majority of the Ad Age 200, our ad clientele continues to diversify and now also includes a wider range of small- and medium-sized businesses as well as local, direct-to-consumer, mid-market, performance, programmatic and direct-response advertisers. Average annual advertiser spend is increasing on our platform and we are bringing in new advertisers. This includes strong interest in increasing ad effectiveness with anonymized first-party data and audience guarantees. Our sponsorships business – an ad product within the consumer user experience, such as a home screen takeover – is also growing faster than the overall business.

We recently announced our agreement to acquire dataxu – a demand-side platform (DSP) that enables marketers to plan and buy video ad campaigns. This acquisition is expected to reinforce our leadership in several ways. dataxu’s advanced DSP, device graph, and data science will enhance our existing advanced advertising platform whose advantages include first-party consumer relationship, technology, data, publisher relationships and scale. We are committed to being an open platform and continuing our work with leading DSPs and ad tech providers across the ecosystem. At the same time, the acquisition of dataxu will help accelerate our advertising product roadmap and our strategy of providing marketers with an integrated, data-driven solution to plan, buy, and optimize their ad spend across TV and OTT. Automated media buying solutions like Roku’s new DSP are expected to unlock more advertising investment into OTT. In addition to a step forward in our ad stack roadmap, dataxu will accelerate our ability to place advanced tools in the hands of buyers. We will gain an experienced team that complements our industry leading OTT ad tech talent. This includes expertise in DSP software engineering, data science and analytics. We will work with new and existing advertisers as the TV advertising community moves to streaming.

We were early to recognize the appeal that streaming free content has for consumers. AVOD is growing in quality and usage. It delivers value to consumers, especially to “cord-cutters.” Consumers are willing to watch ads in exchange for free TV content. In a survey we conducted, 73% of respondents said they watch AVOD, while 45% watch AVOD the most out of all streaming video options.

In August, we launched Kids & Family within The Roku Channel making it easy for families to find a wide selection of free and Premium Subscription content in one, easy-to-access destination. The Roku Channel’s Parental Control features give parents control

over what their kids can playback within the channel. At launch we partnered with LEGO SYSTEMS as a sponsor on The Roku Channel Kids & Family home screen allowing the iconic kids brand to gain visibility while offering our viewers free access to a collection of movies. We believe these sponsorships are successful in driving engagement with our viewers.

We are increasing our revenue and gross profit outlook for 2019 reflecting our strong Q3 performance and the inclusion of dataxu for part of Q4. Our raised revenue outlook midpoint of $1.106 billion represents roughly 49% year-over-year growth, up from 46% year-over-year in our prior outlook. We expect Platform revenue to represent roughly two-thirds of total revenue including approximately $13 million in revenue from dataxu. We are raising our total gross profit outlook for 2019 to roughly $492 million at the midpoint, up from roughly $485 million previously. We have updated our 2019 adjusted EBITDA outlook midpoint to $30 million from $35 million previously reflecting continued investment in the business as well as an approximately $5 million headwind to adjusted EBITDA in Q4 related to dataxu operations and dataxu acquisition related expenses.

Consumers are reaping the benefits as the biggest and best names in TV programming embrace the transition to streaming. Investment in content is soaring and free options are proliferating. Just as advertisers are hungry to reach consumers who no longer watch linear TV, they want to measure campaigns and have access to tools that automate them. Roku is well positioned as a neutral party that helps the whole ecosystem build value in OTT. We make it easy for our large and highly engaged TV audience to find the content they love. We are taking the strengths that have made us the leading TV streaming platform in the U.S. and laying the groundwork for enlarging our international footprint.

The Company will host a webcast of its conference call to discuss the Q3 2019 results at 2 p.m. Pacific Time / 5 p.m. Eastern Time on November 6, 2019. Participants may access the live webcast in listen-only mode on the Roku investor relations website at ir.roku.com. An archived webcast of the conference call will also be available at ir.roku.com following the call.

Roku pioneered streaming 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. Roku streaming players and Roku TV^TM models are available around the world through direct retail sales and licensing arrangements with TV OEMs and service operators. Roku audio products are available through direct retails sales in the U.S.A. Roku is headquartered in Los Gatos, Calif. U.S.A.

Roku, the Roku logo and other trade names, trademarks or service marks of Roku appearing in this shareholder letter are the property of Roku. Trade names, trademarks and service marks of other companies appearing in this shareholder letter are the property of their respective holders.

In addition to financial information prepared in accordance with generally accepted accounting principles in the United States (GAAP), this shareholder letter includes certain non-GAAP financial measures. These non-GAAP measures include Adjusted EBITDA. In order for our investors to be better able to compare its current results with those of previous periods, we have included a reconciliation of GAAP to non-GAAP financial measures in the tables at the end of this letter. The Adjusted EBITDA reconciliation adjusts the related GAAP financial measures to exclude other income (expense), net, stock-based compensation expense, depreciation and amortization, and income tax (benefit)/expense where applicable. We believe these non-GAAP financial measures are useful as a supplement in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance. However, these non-GAAP financial measures have limitations, and should not be considered in isolation or as a substitute for our GAAP financial information.

This shareholder letter contains “forward-looking” statements that are based on our beliefs and assumptions and on information currently available to us. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “may,” “seek,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking

statements. Forward-looking statements represent our beliefs and assumptions only as of the date of this letter. These statements include the benefits of the acquisition of dataxu, including the acceleration of our ad platform, gaining an experienced ad tech workforce, and the benefits and features of future product or service offerings of the combined entity, such as unlocking more advertising investment into OTT, the benefits, impact, features and availability of streaming services launching on our platform, the benefits, impact, features and availability of our new line of streaming players, our new audio devices and the new Roku TV models, our international expansion, the capabilities expected to help us build scale and contribute to our international expansion, the timing, benefits and features of the Roku TV models launching in the UK, the shift of advertising spend from linear TV to OTT, diversification of our ad clientele, increases in advertiser spend per campaign, our strategic plan, the strength of the Roku brand, OS and platform, the growth and monetization of The Roku Channel, the importance of our direct customer relationship and data, the importance of our partners and sponsorships, our financial outlook for the fourth quarter of 2019 and for the full 2019 fiscal year, our investments, and our overall business trajectory. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future. Further information on factors that could cause actual results to differ materially from the results anticipated by our forward-looking statements is included in the reports we have filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2018 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. Additional information will also be available in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. All information provided in this shareholder letter and in the tables attached hereto is as of November 6, 2019, and we undertake no duty to update this information unless required by law.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net Revenue:
Platform	$	179,322		$	100,050		$	481,157		$	265,468
Player		81,606			73,331			236,534			201,299
Total net revenue		260,928			173,381			717,691			466,767
Cost of Revenue:
Platform (1)		67,075			29,504			165,419			78,498
Player (1)		75,376			64,884			218,695			168,412
Total cost of revenue		142,451			94,388			384,114			246,910
Gross Profit:
Platform		112,247			70,546			315,738			186,970
Player		6,230			8,447			17,839			32,887
Total gross profit		118,477			78,993			333,577			219,857
Operating Expenses:
Research and development (1)		68,487			45,370			186,219			119,692
Sales and marketing (1)		46,666			25,603			117,041			68,180
General and administrative (1)		29,873			19,769			77,992			50,768
Total operating expenses		145,026			90,742			381,252			238,640
Loss from Operations		(26,549	)		(11,749	)		(47,675	)		(18,783	)
Other Income, Net:
Interest expense		(767	)		(112	)		(1,436	)		(220	)
Other income, net		2,065			2,162			4,272			2,971
Total other income, net		1,298			2,050			2,836			2,751
Loss Before Income Taxes		(25,251	)		(9,699	)		(44,839	)		(16,032	)
Income tax benefit		(96	)		(172	)		(619	)		(397	)
Net Loss	$	(25,155	)	$	(9,527	)	$	(44,220	)	$	(15,635	)
Net loss per share —basic and diluted	$	(0.22	)	$	(0.09	)	$	(0.39	)	$	(0.15	)
Weighted-average shares used in computing net loss per share —basic and diluted		116,681			106,884			114,064			103,035

	Three Months Ended				Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Cost of platform revenue	$	120	$	29	$	238	$	67
Cost of player revenue		287		136		776		247
Research and development		10,230		5,561		28,020		10,658
Sales and marketing		6,415		3,277		16,555		5,673
General and administrative		5,566		2,496		13,564		4,592
Total stock-based compensation	$	22,618	$	11,499	$	59,153	$	21,237

	As of
	September 30, 2019			December 31, 2018
Assets
Current Assets:
Cash and cash equivalents	$	385,999		$	155,564
Short-term investments		1,496			42,146
Restricted cash		868			—
Accounts receivable, net of allowances		196,044			183,078
Inventories		73,531			35,585
Prepaid expenses and other current assets		28,908			15,374
Deferred cost of revenue, current		45			1,188
Total current assets		686,891			432,935
Property and equipment, net		61,878			25,264
Operating lease right-of-use assets		142,110			—
Intangible assets, net		1,061			1,477
Goodwill		1,382			1,382
Other non-current assets		3,983			3,939
Total Assets	$	897,305		$	464,997
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued liabilities	$	241,519		$	148,562
Deferred revenue, current		35,912			45,442
Total current liabilities		277,431			194,004
Deferred revenue, non-current		12,932			19,594
Operating lease liability, non-current		142,134			—
Other long-term liabilities		1,031			6,748
Total Liabilities		433,528			220,346
Stockholders’ Equity:
Common stock, $0.0001 par value		12			11
Additional paid-in capital		761,883			498,553
Accumulated other comprehensive loss		(2	)		(17	)
Accumulated deficit		(298,116	)		(253,896	)
Total stockholders’ equity		463,777			244,651
Total Liabilities and Stockholders’ Equity	$	897,305		$	464,997

	Nine Months Ended
	September 30, 2019			September 30, 2018
Cash flows from operating activities:
Net loss	$	(44,220	)	$	(15,635	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		9,170			5,824
Stock-based compensation expense		59,153			21,237
Provision for doubtful accounts		114			755
Non-cash interest expense		471			216
Loss from exit of facilities		—			450
Loss on disposals of property and equipment		—			8
Amortization of premiums on short-term investments		(280	)		(164	)
Changes in operating assets and liabilities:
Accounts receivable		(13,080	)		(1,369	)
Inventories		(37,946	)		(36,171	)
Prepaid expenses and other current assets		(15,270	)		1,357
Operating lease right-of-use assets		13,603			—
Deferred cost of revenue		1,143			1,945
Other noncurrent assets		(44	)		(1,098	)
Accounts payable and accrued liabilities		69,448			16,943
Operating lease liabilities		856			—
Other long-term liabilities		(2,639	)		(541	)
Deferred revenue		(16,192	)		(3,054	)
Net cash provided by (used in) operating activities		24,287			(9,297	)
Cash flows from investing activities:
Purchase of property and equipment		(38,054	)		(13,363	)
Purchases of short-term investments		(12,365	)		(44,900	)
Sales/maturities of short-term investments		53,310			3,000
Net cash provided by (used in) investing activities		2,891			(55,263	)
Cash flows from financing activities:
Proceeds from equity issued under at-the-market program, net of offering costs		179,360			—
Proceeds from equity issued under incentive plans		24,765			25,480
Holdback payment for a prior business acquisition		—			(500	)
Net cash provided by financing activities		204,125			24,980
Net Increase (Decrease) in cash, cash equivalents and restricted cash		231,303			(39,580	)
Cash, cash equivalents and restricted cash—Beginning of period		155,564			177,250
Cash, cash equivalents and restricted cash—End of period	$	386,867		$	137,670
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents		385,999			137,670
Restricted cash		868			—
Cash, cash equivalents and restricted cash—End of period	$	386,867		$	137,670
Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,215			455
Cash paid for income taxes	$	683		$	404
Supplemental disclosures of non-cash investing and financing activities:
Unpaid portion of property and equipment purchases	$	8,931		$	1,828

	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Reconciliation of Net Loss to Adjusted EBITDA:
Net loss	$	(25,155	)	$	(9,527	)	$	(44,220	)	$	(15,635	)
Other income, net		(1,298	)		(2,050	)		(2,836	)		(2,751	)
Stock-based compensation		22,618			11,499			59,153			21,237
Depreciation and amortization		3,493			2,218			9,170			5,824
Income tax benefit		(96	)		(172	)		(619	)		(397	)
Adjusted EBITDA	$	(438	)	$	1,968		$	20,648		$	8,278

This ‘8-K’ Filing	Date	Other Filings

Filed on / For Period end:	11/6/19
	9/30/19	10-Q
	6/30/19	10-Q
	12/31/18	10-K, 5, SD
	9/30/18	10-Q
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Roku, Inc – ‘8-K’ for 11/6/19 – ‘EX-99.1’

On: Wednesday, 11/6/19, at 4:38pm ET · For: 11/6/19 · Accession #: 1564590-19-41087 · File #: 1-38211

Previous ‘8-K’: ‘8-K’ on 10/23/19 for 10/22/19 · Next: ‘8-K’ on 11/14/19 for 11/8/19 · Latest: ‘8-K’ on / for 2/15/24

Current Report — Form 8-K — Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

‘EX-99.1’ — Miscellaneous Exhibit

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Dates Referenced Herein and Documents Incorporated by Reference


Roku Q3 2019 Shareholder Letter	5


Roku Q3 2019 Shareholder Letter	6


Roku Q3 2019 Shareholder Letter	7


Roku Q3 2019 Shareholder Letter	8