Roku (ROKU) 7 Nov 182018 Q3 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the Third Quarter of 2018 Roku Earnings Conference Call. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be provided at that time [Operator Instructions]. And as a reminder, this conference is being recorded. I would now like to hand the conference over to James Samford, Head of Investor Relations. ahead go Please

with will management's more cover to sure afternoon. our letter, the call details review do Good XXXX. The to than to any financial who much discussion, CFO; XX, your we available call of not the Roku's pleased Q&A. CEO; be responses Please be obligation Founder we Thank November Louden, update will following in of Steve the which And our third shareholder only remarks. conference our views today introductory the on to for be contains Scott revise and XX, Wood, quarter or today, information. undertake results XXXX including questions, Roku's as to and Rosenberg, reflects this you. and joined welcome Anthony GM ended for I'm Business, September Platform

of growth Some our including call expected forward-looking to, not Roku, the limited and on and future XXXX for made performance business. based risks but involve are uncertainties. are forecasts and of today's the and future statements fourth financial full-year statements our regarding quarter assumptions, include, and the statements These expectations, of are current on results and

results for this SEC may information from results filings letter about differ shareholder differ Please which from Our to actual refer today's materially statements. the a those factors, call cause discussed materially variety on for to reasons. these Company's actual our of and with forward-looking could the

Investor at and non-GAAP our to content. letter, is measures today IR you shareholder discussed for reconciliations Website periodically which of comparable ir.roku.com important our Company's on Website in You'll to measures encourage visit most the find I posted our Relations

results comparisons will on XXXX. otherwise for this unless our call Finally, comparable period the in against stated, be all

call Anthony. the to I'd over turn to like Now,

Thank opportunities quarter for streaming Roku. creating outstanding We and great huge is thanks joining for transition with another James The everyone call. had today's results. to you,

a accelerate our traditional of large Pay choice level companies advertisers. cutting value video customer number shrink, and the more our grow subscribe, are rivals understand bundle streaming. the will to We to executing alter from US the of landscape. are of million business more traditional fundamentals TV cable that and for now while continues will our Cord of scale by the quickly are is shareholder We OTT The they base move engagement out as TV high well as satellite active continue solution trend consumers and I'm and strong. letter, a offers the streaming content we and encouraged ways superior nearly set losing we In and our accounts. XX to that believe

our the unique it's is our now the a has well industry a great business. to and execute in The growth engagement position to meaningful a made large is around reach quarter XXX of For example, top celebrated Roku measurement we to thirds and a its channel first and demonstrate ago have advertisers larger effectiveness larger two partner ability time be it's part huge us strategy. unlocking we before Age continue of growing this progress is budgets. launched in only announced it our year Already marketplace. quarter. with the We advertising Ad the we opportunity worked and this and Roku competitive program; The anniversary Roku. and in streaming

on for results our I'll outlook. it to over brief Now comments and turn Steve

Thanks Anthony.

up for XX% quarter, our items from the details provide have few growth results year-over-year track of and and more financial record XX% are platform than milestone put shareholder quarter year-over-year I'd of this several our of revenue XX% streaming third increased another revenue full business I'll for doubled that representing Active of of strong QX color see quarter. revenue. million highlight on Our QX some and $XXX outlook. to Total to quarter ad above another platform part with our components XX% highlight deliver outlook. the year-over-year video There the largest to help again a key growth platform account our the but on year. year-over-year Please XX% us and million total $XXX.X letter sales, a

of of year-over-year growth slightly strongest We down with retail revenue backend advantage and also our we and bulk business partners loaded is Plus, business, ahead the from from outlook Premiere strong attract between as and audiences were players, with reminder, up QX of strong to X% tightened $XX outlook at a occurring but an see saw Player is at were the linked seasonally our results of end our Xk to ASPs content particularly XX% QX provided development our Black Friday many retail. very the we marketing the demand strong to to their our take services. which our new quarter closely continue Player was We X% since very channels. our $XX.XX another as year. distribution is quarter for priced revenue which of tools revenues audience incredible content the is sub units of

So stack QX on dependent holidays how is retail still up given heavily highly environment. the competitive the

audience year-over-year points profit, XXX due a expectations, slightly is in was margin basis XX% to metric $XX players performance from margins ad QX year-over-year, was financial Gross of quarter ahead platform development solid shift record key strong gross for more pulls video mix to the this which to million. levels. up is and XX.X% gross promotional the Our down generally up player quarter. and upside QX profit

pattern We platform dipping to expect modestly, profit this down gross player again low to sequentially gross margins and see margins. mid-single-digit quarter with that to

in and range of beyond. growth for investing XXXX wide a are opportunities We

Adjusted the positive pursue in exercises. EBITDA $XX.X turn positive option of quarter million and on well QX and our our at million adjusted to account we and from today a comp With So invest headcount continue EBITDA in and our continued top rapid of in to result QX, we the ever about our full-year first in combination came growth are a significantly talent by monetization higher to let and taxes to and attracting strong grew XX% raising growth, engagement driven a them. of again brief of outlook outlook payroll stock-based revenue as as higher stock OpEx year-to-date what performance year. ahead Based full me trends, know overview, we gross for profit. that our $X outlook.

when Our the XX% updated August. from outlook growth the profit increases growth of respectively at XX% provided outlook and rates midpoint, revenue full-year in growth XX% gross XX% we and up prior to

and upside continued growth of fuel roughly we innovation, marketing R&D during back a to period this plan managing As sales reminder and gross to expansion. reinvest business and to the profit EBITDA market into breakeven

three from XXXX, estimate to based $XX million we quarters on expect our year, and between million of adjusted in full $XX of the deliver million first $XX to prior However, the strength up EBITDA $XX of the million. for

for and QX, outlook growth platform revenue our QX levels. with XX% in revenue For of growth midpoint roughly is with line year-over-year player at the

midpoint. Continued of our at seasonality total margins roughly in mix advertising and video growth in to shift the XX% player outlook profit year-over-year is gross for reflected

more QX, roughly see impact EBITDA While of we grants stock-based report we in positive vest. the increase they RSU issued as to full the $XX are full on in results We new we margins are in and expect to to they providing is XXXX roughly forward existing comp and to February. report quarter as XXXX in in the X% of look QX color expected that employees, granted expensed quarter to which our million when

our we leadership of the of turn call business fundamentals strength reinvest position, operator? growth long-term with to opportunity the of our to And questions, our the achieve that, continue over business and for potential. see plenty Given to let's our

RBC Mahaney Thank from you. Markets. [Operator first comes Capital Instructions] Our question Mark with

open. now is line Your

ad traction questions. strategy, maybe the -- couple Roku Everywhere two? on quarters, this far, a talk do that, course think and load comments materiality the the on in near-term on the then seen should the forward Channel of about we about the year lot. Roku just improvements Roku talk for the so Great. growth not Roku One pricing next over Channel Two next or about the how of versus how the the we you've last but think Thanks. forward and outlook Thanks just Everywhere one channel on strategy, of about on any and Roku or

Great the fertile letter, it's very Roku shareholder night of a of and and more us with recently. the growth terms the engagement proposition platform. growth on the new of we content last drive how that We a general to area in Hey continue in events We channels to Roku channel Mark, say been don't wood that do plans demonstrated in a platform faster more so bunch of channel We proven a but news the to channel. it. We than the Rosenberg we've platform powerful of continues of has great well. example fire channel. to We here. of a continues lot had Scott midterms, got hit at We terms that, more drive have for into of do strong investment top and we the value think the point, mentioned question. think think put for that news free our on as of night Roku be off putting any by with behind pre-proposition in the extends five history in it's on the proposition anything is that cylinders. grown this all about of channel Roku engagement, of channel Roku Roku off the

Thank you.

comes Citi. Mark question from next the with May of Our line

Your line is now open.

This is on from Zach Mark.

expectations? on Channel should announced initiatives secondly, Roku you free favorable ruling provide you should resume international think we quarter, update us expansion Roku announced about as of be and how sales the web just on to thinking head opportunities First opportunity tracking last and kind so taking Mexico some thanks? picture, month broader are then [indiscernible] then question, about new to more there, the you relative that we into just those could of an XXXX, last featured your we how in how that of And the

Mexico. and and Mexico force take a question We Hey this can bit we a TRC. in little the for is just international on full won, recap, Yeah, won back while. Feature been court cuffed Anthony. Scott We're about I'll talk hand case and maybe a in that. we've then in Free to Mexico

business. about happy that will that help and Mexico our we're So

active accounts an area it's are of that is us for is accounts. fact a focused market believe domestic In terms we traditionally launched Canada; in in that Canada. the just We business, about other Roku in also of TRC streaming countries, way it the it's we is internationally, international global US active we and most we're launched but on. large opportunity. there that a market TCL a opportunity our The international, is big TVs think but haven't

but there We it, starting anything yet. new to are to focus on announce don't we have

should is our thing research item measurement in Nielsen, for measurement announced about sort partnerships a their much who placed a with of partnership awareness consumers. effective I'll that quite our question that's with how our in ad was Mark is confidence a It's consumer more to all another Placed. featured to of things just part relative in across new free OTT. comScore, ad way, budgets traditional a how on in mention These One the allow to of the to is is popular a is is XX which you different regards television. desktop, us the are of celebrating been means the across your These launched. as we ad last companies, to on we cut Oracle, about who's important shifting transparency supported great, drive the free that theses conjunction us feature sales Kantar, a they content another for brands we signal new yet in quarter from which as linear web, on are quarter improving in Samsung. space as This mentioned programming to of an free platform. prove launched that the free that partner It's TRC Roku launching across borne available our out program on year platform, on broader just our other was be

Thank you.

Our next Needham. Martin with question Laura comes from

Your now line is open.

Great guys. quarter. numbers for nice Hi and thanks very another

am - much do and reasons and estimates better that an by the -- shoot in being Best its than going my put into towards the like this said really our where was I the did and bigger two on sort just a revenue is Buy. foot one ROI give Buy now of on basically intrigued, investment Best over-delivering harder or Costco hardware to you're what we which number I like I which end really over there if examples you had aligning effectiveness player -- you delivered see I'd ads. us just so you is in hardware how competitively return and you of of could measure itself then could liner this insignia you're you because in ads, one Amazon has a grail holy really like this your of intrigued, don't really that. Thank your any combining points was is the I That's I been you. player is [indiscernible] itself and of Amazon questions. the on couldn't brand by get only are Those the and I where visual Walmart you Grail shift mix section, to data pivot for is advertising go end, revenue, Holy with wondering Anthony that and So number

me let before couple ad some get effectiveness you into just about question stats and examples. tackle of share with Laura, I'll your I a

thirds XXX top two of six spent So the brands. national the the brands, of XX seven brands, of auto the top eight of XX four with top top have wireless advertisers

and with convincing of the progress we made our in or spending table. every their KPI we brand ways that investment ROI basis, last an ran Roku. research of measured we can penetrating that value OTT the the which be to by serve on on every in out the cares showing the and associated best ad is in them advertiser have a In was back add exposure these proposition because And of on bringing mid to we of that half of quarter, accounts, study that do research bottom with Roku can ad the We an of about. sort impression individualized almost funnel platform tie were some in incredible to one

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[ph], we a most helps of attractive Panera, solution. of reach studies they and win can the a us. basis, by like given TV is reach incremental So we're with estimate an Depot, the spending product with post for Dell, campaign incremental on providing us and superior basis, we've advertising. Ultimately We types is TV with the think Home [Amica] pre-campaign viewers are of investing they selling this team on what then Roku dozens one a done when brands aspects advertising of space Duracell, prove TV we we've it think of that the ad it’s in future a TV ad those

Laura, Hey is Anthony. this

measurements really, Roku of viewers advertising for buying Buy advertising hardware or ad at the go moved of a there way XX-year-olds Roku along just and on to analysis, it's the and yet, on just of to spending the But I reach by budgets is of on new using target yet Best and that you're XX% over you to and and question streaming get works ads, is XX% television pattern this place the the advertiser advertiser to so to way traditional but want budgets I a -- so move time. XX% an that haven't and just to watch you biggest demographic, so discuss Before them. them, to and can but we and want the have just their in to they that obstacle advertisers Roku the by help will before I showing is XX not the add if second, their the and video question. are Roku really of used measurement moved ROI have

we it's So in Why your Buy, is of a factors. to One and sales products. build terms question yes, Best great Well I on of hardware think continue well. player that? is do combination

the award Roku Choice Our value, Stick Plus. content we focus won on the pays off example, ease-of-use, for really for Editor’s Streaming CNET recently

one reason. that's So

TV cutting whereas a alone QX. in cord active pay the The quarter, a with year-to-date streaming X.X and added quarter other really in is the subscribers Traditional million accounts two lost in million million is happening. operators Roku million

cord great So great more a and make happening, is streaming people cutting are we products at value.

active Our our business Roku by to TV also and grow account platform model licensing players. is to our selling companies TV

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is a number Buy. Best to In Amazon, versus this signed at deal the to TV Roku of increase Buy you we Best with year mentioned expect actually Buy Best last TVs year. be sold terms but of

to Buy. there, So lot We and not a important partner to is of is sell us. allowed for Best we Buy dealer can, of course of is just an our TVs seller member at growing Best TVs anywhere, sell

far that's States then far, in one that so are this TVs result in United great year So smart TVs and four in so the TVs. Roku of four even one the the all is sold

working is well business the So for us.

Thank you.

Morgan Swinburne comes from with next Stanley. question Our Ben

now is line open. Your

quarter, next that doing lots factor you guys. afternoon, of that the of what's at demand business of to for things differentiated. obviously or hours? Is if think because is advertisers platform guys is the the for faster? growth expected Thanks. this growth inventory to for you drive Good for access the that quarter are and Maybe look advertiser XX% for sort Scott of inventory? I limiting curious the factor just it levers are growth, if we what Is it am it is about unique limiting

overall bit Steve, top that. me talk this on Hey you little then can just about platform Ben, of Scott a let color some is and to add trends

So business that to growth milestone are quarter lumpy the so has licensing ad year the the year-to-date. the The the And throughout year-over-year. be there growth trajectory is important $XXX it Had business at in that side itself, majority happened. vary the bit for strong note a great and first hit and licensing licensing overall in quarter the of very in depending the shown in distribution is a that's of most distribution where platform for distribution platform. strong million QX which more quarters side the each think can content Important the XX% we've I a three is was of platform, and strong can revenue and a takeaway consistent into quarters which of is and each the content so content and ads, seen quarter strong that. major on QX, time components; in those quarter there in looking QX particularly great growth

trajectory So ad overall business. a great think especially I platform and it's the for

opportunity a grew limiters, regards with ad business don't Ben, our on growth question to we near-term the your ceiling year-over-year. XXX% over about video see

dollar base move them to constantly reach their to deliver dollar if think really effective they TV spending math Roku. ROI. put linear to Roku the that more they coaching at that much Anthony pattern it's We've smaller that traditional competition, going smaller of the and spending traditional been advertisers, and it's to then a TV as is we last mentioned, move reaching client and and its in basically I ROI our showing the have very

reason all engaged from work. data with and be that It's us our as consumer out can largest more about is We've thinking that Just flows ad ad the to most ultimately that the it's platform, user base. the broadly advantages platform an got it only the backing in relationships a advertisers Roku. audience unique ad direct place on we're in an first that reached come and scale

on call to advertisers this effect much our with of our themes in and spending that how the money. their us their prove investment letters research for we're options to doing of front more other their that One delivers work than

well Anthony. is just business me this is that It's strong. let -- And well. our I'll platform positioned and fundamentally executing say we're just

think year billion it a just advertising. spent you there on If $XX about picture, TV big is

$XXX the proud a business very Our in -- lot million. platform lot quarter there's of a There's to room we're that of there. was but grow

Thank you.

with Karasyov Vasily from Cannonball comes question next Research. Our

Your open. now line is

I could if you. Thank you wondering provide color Scott. some was

the I you do of how is think is rate whatever with metric advertisers. question is right for much or what this retention the repeat you business the

resolve hurdles structural impressive bottlenecks? but what You've you very buyers over that clients And those the is are cited buy. there. lend media and have spend You to get more you unwilling there them the are major how list clients issue, of to to mentioned with data, do their

you So give that. some could if color would on appreciate that,

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as started So both account our our and tapping business. I as new not yet renewal talk video is as the on into work with All both that of to driving is in XXX% growth ad current all would expansion as that to accounts accounts say acquisition expansion importantly focus renewal well and us. well have

TV MVPD any that And Do right. with. in see people were Sling subscriber All ads virtual how reported you follow-up a disappointed platform? performing your divergence is quick on

growing contents MVPDs to all way their for example is ESPN to platform. MVPD a Hey, for this They access category a on us certain are great virtual are get great Anthony. us. for is

we So the business it's are their and They carry in but we offer help audience we and I good of particular, expand anyone we engagement. us. about them sell all that them to can't believe product a tools for talk the and actively build using

you. Okay Thank

Thank you.

comes Oppenheimer. Our Jason next from question with Helfstein

is line now Your open.

Thanks. questions. Two

now. ads you in impacted in about And how First quarter then distribution the business can ARPU right and you in can content between event, then demand talk supply mix third impact then, outstripping new how about your you and about likely that strategically ad is participation how will supply this thank particularly you and quarter fourth talk of the upfront i.e. said versus demand the secondly, and in XXXX, kind that given year you? use last factors

the Jason, hey Steve. I'll that. part take Yeah it's first of

in on trajectory. up a are of up ARPU XX% ARPU metrics great all key basis ARPU, a $XX other year-over-year. on terms with along the was TTM So operating over

within business video to In letter with again the earlier, mentioned the growth terms more and of kind notably consistent year ad strong Scott throughout of the continues as than basis. year-over-year that, advertising have in mix yet mentioned as the doubling we

mix in So to of there. the continues mix terms grow that

mentioned to all the on answer down this growth a of over distribution but around depending growing are those in where a it the business the that quarters earlier note As can and platform side I is of important content one the quarter bounce parts on on call, basis, time. relative bounced

So we're there. with very happy trajectory the

our focused the ad about screen supply growth we're are on both and of to most business. times business. in in what But on There question constrained promoting depends audience activity platform. time that of brand because partners demand, task when on possible home supply optimizing of outcome. the of the is order your advertising to in we're our year our going and I'll user highest the It the with about the and general the development from the content regards and the talk a on to Jason interest drive

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Thank you.

from Our comes Evan with Capital next Markets. question Wingren KeyBanc

line now Your open. is

I bit And Thanks. late. joined a

just any to Canada? wanted expand this to the is duplicative then to about the pass just that what extending live if side And apologies you understand factors adding internationally, wanted content all, around at are as on but if seems this gating that at it a that side, of it is So all at like on lot channel Roku point ask news. globally you're content the continue incremental the

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Anthony. is This

different channel geography amount So continue anything of our announce is content that's We don't we large add is of category. the new to to expand to and repeating have in opportunity. of the the available there. continue international I'm to strategy there available international channel in think the to to terms expand a that's just Roku content

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more add partners. to news continue We

on we partners proud services very strategy focus customers. We're up our from us. broadcast quality we for for midterms, which to news that news was So beating for set delivered of a great offering, successful free live our the a

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Instructions] [Operator DA you. from Our Davidson. question Thank McConnell with Scott next comes

open. line Your is now

Great. Thanks question. my taking for

tariff. on you question round risk the could of of event moving out on is next the manufacture possibly the of a everything as your In China out thanks. maybe manufacturing China negotiating such to So tariffs what or mitigate and do

This is Anthony.

televisions we tariffs with have our haven't announced we streaming there far applied, been haven't seen any so that business So any far, seen the in on or players. impact so

to than other Our carefully, we monitoring the say. situation have don't but anything that

so TV shared thanks? how in to markets US follow-up, are TV market on you your any market smart shares one market if smart share the And going with impressive Okay. can gains I gains comments Roku get TV international

TVs which is U.S. purpose like we countries the will so, we Roku TV also the purpose system our say focus on internationally, operating a for built sorry, those than expanding as said I There's we've will obviously Mexico. and keep have system, the well for same operating lot but They're more cost all strategy plans. we TVs launched U.S., past has they're that in will use just to mobile to far the a in user in less think that the work the versus a a some build, Yeah, a in that system TV operating optimize three result Canada that billed in TVs don't is and porting letter goal interface market. those TVs. and that I so world in event any more is have Roku specifically doing internationally, fundamental

effective we but so will any we have be that don't yet. plans And think strategy internationally,

you. Thank

from William Our next question Blair. Schackart Ralph comes with

open. now line is Your

Good afternoon.

Steve update you think follow-up progressing expectation? managing the maybe how can give then partnership, on your Samsung us breakeven it's in you at sense I in the the remarks, talk provide business And an a of question, actually about First, a versus XXXX.

about 'XX you'll $XX do at in look million EBITDA. you As

some Thank to just contemplative step color comments the get it you. 'XX on more perhaps in up is trying and spend? So

of Samsung drove what here. our value write This programming partnership. that's have except supported partnership Samsung there us don't We the is to the Roku devices set of the that any Ralph. on it's do exports Hey Scott days. comment think proposition great ad beyond and I is free updates specific early

it's got an it in us relationship to relationship. still well, ad as early but it So also days for that

Hey Steve. Ralph. It's

Just our we continue talking is before, was in as to year at so this business about an more breakeven, 'XX. the some 'XX, to around on plan just yeah correct EBITDA and color mentioned goal our again that run

as have grow U.S. lot have the platform, plan is as incremental hire funneling we business. the we're for business. hire, great rapidly for mentioned TV to from a leases to of the the and call We'll building monetization is fortunate grow last we unveil drive platform side, I'll continuing over as today OTT in transition to will set set massive and then generate point great increasing based we long-term. that, and or in opportunities a our was public more if leading which talent, into streaming back -- that to of the a are we over and in roadmap is We're We're of in our the the we've you of that that continue were you investments Q mentioned we're feel the a company there improve gross shift also comp they specific our 'XX. think expense factored and new we So or to on the great profit, so more in to our XXXX 'XX to buildings over detail ROI next and trend days private you outlook stock-based phase high headquarters on mentioned but early engagement our in about that call is up in the we and since

So give those more and next the are factors we'll call. some detail you on

you. Thank

comes Our Richard with question Greenfield from BTIG. next

Your line open. now is

Greenfield. Rich it's Hi,

operators Anthony, subs, shipping Just at when a There's cord about with they're signed looking lot boxes. Apple discussion Charter boxes deal real basically cutting leasing how think you out where own talked looking, a increased lot losing versus way or I is the think of been of they're is the quick on cable accelerating they leading obviously that Apple I their a or about

in they're back a first their about box. time their third On and for instead I IP-based it them signed you of the to actually Warner parties with Time said If of ever to open do own call they you working that were the I Cable one platforms. when LT’s LT's company one go asked with deal

cable operators where for we Roku? how that -- opportunity as a wondering kind box as was the about curious just is and into than people move actually becoming 'XX share you out, of that cable could roll own box. the get hardware? how version that you a and in working companies opportunity antiquated do their sound of they with versus Where their you has fit are market an significant are rid that it's Apple I of or be of like all big how think about Just building You've as of thinking like bigger you Comcast got

Hey Rich, thanks.

operator for are our through an us. We channel operators distribute important channel today. So players

TV things other not launching thing virtual just quickly If or is consumers one watch engagement who the of operators, on out of use one figure higher or versus much the you're using device of laptop operator one first out our they mobile higher just our service, just and through streaming that MVPD's figure an retention. it access and a TV things, and services, even it but they service you're versus streaming streaming a you have to the box

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our even an player value, we experience Also So them, and well. reviews the much this streaming reviews, us is purchase in operators we as winning us deals that the our content, for. part often focus win incredibly great get use, a streaming on; those more they great to it's attractive competitive offer can is just having love customers a and from products help they ease-of-use, price are the as for situation the boxes great simple have important of world for the fundamental

Thanks very much.

that, show I with And you. Thank no further questions.

Mr. some over for remarks. back call the turn to closing like Wood to I'd So

Thanks.

and with particularly reiterating just and for in the we growing making there publishers I'm viewers Roku measurement about to brands bringing from accounts, close by pleased the ad strides holidays and are So helping results. are TV We're the engaging to and TV I'd market wireless added ways. excited more. Roku great speakers tools, we to TV enhancements how new how innovations efficient to models channel Roku quickly player in quarter's like content reach active

joining you quarter. next thank today's support I for Happy So and seeing streaming. look forward you and again your call to

Ladies conclude and gentlemen, you today's conference. for that your does participation. Thank

disconnect. all wonderful may Have You day. a