roku-8k_20180221.htm

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 21, 2018

 

ROKU, INC.

(Exact name of Registrant as Specified in Its Charter)

 

 

 

 

 

 

Delaware

 

001-38211

 

26-2087865

(State or Other Jurisdiction

of Incorporation)

 

(Commission File Number)

 

(IRS Employer

Identification No.)

 

 

 

150 Winchester Circle

Los Gatos, California

 

 

 

95032

(Address of Principal Executive Offices)

 

 

 

(Zip Code)

(408) 556-9040

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 


Item 2.02Results of Operations and Financial Condition.

On February 21, 2018 Roku, Inc. (the “Company”) announced its financial results for the fourth quarter and year ended December 31, 2017. The Company’s Letter to Shareholders, which is attached hereto as Exhibit 99.1, is incorporated herein by reference.

The information in this report shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, except as expressly stated by specific reference in such filing.

 

Item 9.01Financial Statement and Exhibits.

 

(d)

Exhibit

 

99.1* Letter to Shareholders dated: February 21, 2018

 

*

This exhibit is intended to be furnished and shall not be deemed “filed” for purposes of the Securities and Exchange Act of 1934.

 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

 

 

 

 

 

 

 

Roku, Inc.

 

 

 

Dated: February 21, 2018

 

 

 

 

 

 

 

 

By:

 

/s/ Steve Louden

 

 

 

 

 

 

Steve Louden

 

 

 

 

 

 

Chief Financial Officer

 

roku-ex991_6.htm

Exhibit 99.1

 

February 21, 2018

Fellow Shareholders,

Roku capped off a milestone year with a fantastic fourth quarter in 2017, and we are very excited about our plans for 2018. Our focus on providing the best TV streaming experience for consumers, a leading streaming advertising platform for brands and ad agencies, and a highly efficient streaming content distribution platform for our partners is propelling our growth. Full year 2017 revenues of $513 million, grew 29% year-over-year (‘YoY’) driven by accelerating platform revenue growth of 115% YoY to $225 million with advertising as a key component. We also generated positive full-year operating cash flow for the first time. We continued to see a shift in account growth to our Roku TV licensing program with more than half of new accounts coming from licensed sources in the fourth quarter.  One of our Roku TV partners, TCL, achieved the #3 spot for U.S. smart TV sales in 2017, up from #19 in 2014. In 2018 we plan to continue to enhance the TV streaming experience and to expand our presence in the home.  

A few Q4 2017 summary highlights:

 

Total net revenue grew 28% YoY to $188.3 million driven by platform growth of 129% YoY to $85.4 million;

 

Gross profit grew 64% YoY to $73.5 million;

 

Active Accounts increased 44% YoY to 19.3 million at quarter end;

 

Streaming Hours grew 55% YoY to 4.3 billion hours;

 

Average Revenue Per User (ARPU) grew 48% YoY to $13.78 (trailing twelve-month basis).

 

Key Operating Metrics

 

Q4 16

 

 

Q1 17

 

 

Q2 17

 

 

Q3 17

 

 

Q4 17

 

 

YoY $

 

 

YoY %

 

Active Accounts (millions)

 

 

13.4

 

 

 

14.2

 

 

 

15.1

 

 

 

16.7

 

 

 

19.3

 

 

 

5.9

 

 

 

44

%

Streaming Hours (billions)

 

 

2.8

 

 

 

3.3

 

 

 

3.5

 

 

 

3.8

 

 

 

4.3

 

 

 

1.5

 

 

 

55

%

ARPU ($)

 

$

9.28

 

 

$

10.04

 

 

$

11.22

 

 

$

12.68

 

 

$

13.78

 

 

$

4.50

 

 

 

48

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summary Financials ($ in thousands)

 

Q4 16

 

 

Q1 17

 

 

Q2 17

 

 

Q3 17

 

 

Q4 17

 

 

YoY $

 

 

YoY %

 

Player

 

$

110,024

 

 

$

63,678

 

 

$

53,651

 

 

$

67,254

 

 

$

102,824

 

 

$

(7,200

)

 

 

-7

%

Platform

 

 

37,316

 

 

 

36,415

 

 

 

45,976

 

 

 

57,528

 

 

 

85,437

 

 

 

48,121

 

 

 

129

%

Total net revenue

 

 

147,340

 

 

 

100,093

 

 

 

99,627

 

 

 

124,782

 

 

 

188,261

 

 

 

40,921

 

 

 

28

%

Player cost of revenue

 

 

94,290

 

 

 

52,910

 

 

 

50,212

 

 

 

61,925

 

 

 

93,057

 

 

 

(1,233

)

 

 

-1

%

Platform cost of revenue

 

 

8,387

 

 

 

8,343

 

 

 

11,778

 

 

 

12,962

 

 

 

21,743

 

 

 

13,356

 

 

 

159

%

Total cost of revenue

 

 

102,677

 

 

 

61,253

 

 

 

61,990

 

 

 

74,887

 

 

 

114,800

 

 

 

12,123

 

 

 

12

%

Player gross profit

 

 

15,734

 

 

 

10,768

 

 

 

3,439

 

 

 

5,329

 

 

 

9,767

 

 

 

(5,967

)

 

 

-38

%

Platform gross profit

 

 

28,929

 

 

 

28,072

 

 

 

34,198

 

 

 

44,566

 

 

 

63,694

 

 

 

34,765

 

 

 

120

%

Total gross profit

 

 

44,663

 

 

 

38,840

 

 

 

37,637

 

 

 

49,895

 

 

 

73,461

 

 

 

28,798

 

 

 

64

%

Player gross margin %

 

 

14.3

%

 

 

16.9

%

 

 

6.4

%

 

 

7.9

%

 

 

9.5

%

 

 

 

 

 

 

-480

bps

Platform gross margin %

 

 

77.5

%

 

 

77.1

%

 

 

74.4

%

 

 

77.5

%

 

 

74.6

%

 

 

 

 

 

 

-297

bps

Total gross margin %

 

 

30

%

 

 

39

%

 

 

38

%

 

 

40

%

 

 

39

%

 

 

 

 

 

 

871

bps

R&D

 

 

19,477

 

 

 

22,342

 

 

 

25,776

 

 

 

28,532

 

 

 

31,295

 

 

 

11,818

 

 

 

61

%

Sales and marketing

 

 

13,799

 

 

 

14,055

 

 

 

14,667

 

 

 

16,216

 

 

 

19,131

 

 

 

5,332

 

 

 

39

%

G&A

 

 

8,008

 

 

 

10,278

 

 

 

10,577

 

 

 

13,039

 

 

 

13,541

 

 

 

5,533

 

 

 

69

%

Total operating expenses

 

 

41,284

 

 

 

46,675

 

 

 

51,020

 

 

 

57,787

 

 

 

63,967

 

 

 

22,683

 

 

 

55

%

Income (loss) from operations

 

$

3,379

 

 

$

(7,835

)

 

$

(13,383

)

 

$

(7,892

)

 

$

9,494

 

 

$

6,115

 

 

 

181

%

Adjusted EBITDA 1

 

$

6,670

 

 

$

(4,413

)

 

$

(9,632

)

 

$

(3,665

)

 

$

14,383

 

 

$

7,713

 

 

 

116

%

Adjusted EBITDA margin %

 

 

4.5

%

 

 

-4.4

%

 

 

-9.7

%

 

 

-2.9

%

 

 

7.6

%

 

 

 

 

 

 

311

bps

1  Refer to the reconciliation of net income (loss) to adjusted EBITDA in the non-gaap information.

 

 

Roku Q4 2017 Shareholder Letter

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2017 full year and Q4 financial highlights

Total net revenue and gross profit

2017 was a milestone year on many fronts with net revenue growth accelerating to 29% year-over-year, up from 25% in 2016, to $513 million. Importantly, platform revenues were up 115% year-over-year to a record $225 million helping accelerate gross profit growth, up 65% to $200 million, and deliver nearly 9 percentage points of gross margin expansion to 39% as a percentage of revenues.

In Q4 2017, total net revenue increased 28% year-over-year to $188.3 million. Q4 2017 gross profit grew materially faster than revenues, up 64% year-over-year to $73.5 million driven by an increasing mix of higher-margin platform revenue which represented 87% of total gross profit in the fourth quarter of 2017, up from 65% in fourth quarter of 2016.  This was a key driver of gross margin expansion of 9 percentage points to 39% in the fourth quarter of 2017.

Key operating metrics

Active Accounts up 44% YoY to 19.3 million

As of December 31, 2017, active accounts totaled 19.3 million, up 44% year-over-year. Importantly, for the second quarter in a row more than half of new accounts in the quarter came from licensed sources with the largest and fastest-growing portion coming from Roku TVs.

Streaming hours up 59% YoY to 14.8 billion

Consumers win with TV streaming – they get more content, a better user experience, and more control over what they spend for content. In 2017, Roku users streamed 14.8 billion hours, up 59% year-over-year. Q4 2017 streaming hours increased 55% year-over-year to 4.3 billion hours. We continue to see increasing engagement on the platform which is a key driver of monetization.

ARPU up 48% YoY to $13.78

Trailing twelve-month ARPU in the fourth quarter was a record $13.78, up 48% year-over-year. ARPU has more than doubled in the last two years as our platform monetization efforts, primarily advertising, continue to take hold. The majority of our advertising revenue comes from video ads we serve on ad-supported channels, but we continue to see very strong audience development and brand sponsorship ad growth as well.

Segment highlights

Platform segment

2017 was another year of accelerating growth in our Platform segment, which more than doubled, driven by broad based strength across our advertising and content distribution services. In the fourth quarter, Platform revenue grew 129% year-over-year to $85.4 million, and was 45% of total revenue, up from 25% in the prior year. Advertising was particularly strong representing approximately three quarters of our platform revenues, up from less than two thirds in the prior year. Platform gross profit for the fourth quarter of 2017 increased 120% year-over-year to $63.7 million, or 75% gross margin. As expected, mix shift to video advertising, which has lower average gross margin, resulted in roughly 3 percentage points of platform gross margin decline year-over-year.

Player segment

Our strategy to build scale is focused on driving account growth through multiple sources, including selling streaming players at retail. Our primary focus in selling players is to increase active accounts; we are not focused on maximizing hardware revenue and hardware gross profit.  This means we often use tools like lowering suggested retail prices or running pricing promotions. For example, we

Roku Q4 2017 Shareholder Letter

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introduced a low-cost Roku Express model priced at $29.99 in the fourth quarter of 2016 and we have seen tremendous success. In Q4 2017, player units grew 8% year-over-year and the mix shift to a lower-priced product along with price reductions on our high-end Ultra model resulted in a 14% year-over-year decline in average selling price and a 7% year-over-year decline in player revenue to $102.8 million. Our deliberate strategy to drive account growth through our Roku TV licensing program, emphasizing sales of lower-cost players and building up our player licensing program continues to prove effective, as demonstrated by 44% active account growth in the fourth quarter of 2017.

Operating expenses, adjusted EBITDA and net income

Gross profit for the fourth quarter was $73.5 million, exceeding total operating expenses for the period, which increased 55% year-over-year to $64.0 million resulting in a positive $9.5 million of operating profit, our second profitable 4th quarter. Research and development expenses increased 61% to $31.3 million, sales and marketing increased 39% to $19.1 million and G&A increased 69% to $13.5 million, on a year-over-year basis. Excluding stock based compensation of $3.4 million and depreciation and amortization of $1.5 million, adjusted EBITDA improved to a positive $14.4 million in Q4 2017, or 8% adjusted EBITDA margin as a percent of revenue, compared to $6.7 million adjusted EBITDA profit, or 5% adjusted EBITDA margin, in the prior year period.  

Fourth quarter net income of $6.9 million, or $0.06 per fully diluted share,  was impacted by a $2.3 million charge included in other expenses related to the extinguishment of debt.

Operating Cash Flow and Balance Sheet

Roku generated positive operating cash flow of $37 million in 2017 largely driven by favorable working capital benefit and deferred revenue increase, compared to $32 million negative operating cash flow in 2016, and ended the year with $177 million of cash and marketable securities and no debt.  

Roku Q4 2017 Shareholder Letter

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2018 Opportunities

In 2018 we plan to continue our strategy of driving long term shareholder value through investments we believe will continue to grow ARPU, drive engagement, and make the Roku experience even better for our users and partners.

1.

Roku TV – A Better TV

We expect most smart TV companies to license an operating system – just like in other large markets – such as computers and smartphones.  Content publishers won’t want to support a fragmented TV ecosystem, and TV hardware companies rarely have the needed software expertise to develop proprietary operating systems. This consolidation trend is evident in Roku's growth in the U.S. over the last three years. Having grown from zero in 2014, Roku TVs represented approximately one in five smart TV sales in the U.S. in 2017. In Q4, we added Funai Electric to our Roku TV™ licensing program, extending the program to the Philips and Magnavox brands. We are focused on maintaining our position as the largest licensor of a smart TV OS.

There is tremendous room for innovation in a TV OS.  TV companies focus their R&D on picture quality and panel technology, but there has been little innovation in the software that runs on TVs. Roku designs a modern, connected, easy-to-use software platform for smart TVs.

Roku’s OEM partners are not just building great streaming TVs — Roku TV is a better TV. This means we are working with TV OEMs to produce TVs that cost less to manufacture, have a very large selection of content, are incredibly easy to use, get regular software updates with new features and functionality, and connect to your home entertainment network and lifestyle.

2.

Home Entertainment Network

Home entertainment devices are becoming connected to each other and the Internet, making it easy to enjoy content streamed to these devices. Roku calls this new way of experiencing entertainment in a home the "Home Entertainment Network," and we believe homes all around the world will have one.

The transition to Home Entertainment Networks is a big opportunity for Roku. Already the primary source of audio in the living room, we believe that the TV will be the center of this network. We recently announced smart sound bar and smart speaker reference designs to expand the products that our Roku OS licensees (and potential new partners) can build and sell – and more importantly that connect to a Roku TV. We are also very excited by the opportunity for our voice assistant, Roku Entertainment Assistant that we are planning to launch this fall and our Roku Connect software that will enable more devices to integrate with the Roku ecosystem. We intend to make it super simple for consumers to improve the quality of audio from the TV within the Roku ecosystem. For example, a stereo sound bar would be easy to set up or a surround sound system would seamlessly connect to the TV via Wi-Fi. Extending audio and control of the TV beyond the living-room will also be simplified.

We expect these enhancements to the Roku platform to increase user engagement and touch points across our large base of active accounts. This in turn should attract more consumers to purchase and use Roku devices.

3.

Platform Segment

We saw continued strong acceleration of our platform segment in 2017, driven by large secular forces that are reshaping the TV industry overall, and prior investments that are beginning to bear fruit. The traditional cable industry is experiencing accelerated cord cutting, losing 2.6 million consumers in just the first nine months of 2017 compared to 1.7 million in all of 2016, according to a study by MoffetNathanson. Linear prime-time TV impressions in December 2017 also declined 10% year-over-year, according to Pivotal Research. In contrast, to this linear TV decline, our active accounts increased and streaming hours increased 44% and 55% year-over-year in Q4 2017, respectively.

Roku Q4 2017 Shareholder Letter

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At over 19 million active accounts globally, Roku has built one of the biggest, most advanced content distribution platforms of any U.S. company. If we were a traditional MVPD, we'd be a top 3 distributor in the U.S. after Comcast, AT&T, and just ahead of Charter. Scale is helping drive our continued success. We have become an increasingly vital part of our content partners' OTT distribution plans. We balance new service launch timing with achieving a superior streaming experience for our users and fair economics with our content distribution partners.

We believe there is still plenty of opportunity for innovation in our platform segment, to grow competitive differentiation, engagement, monetization, and reach.

4.

The Roku OTT Advertising Platform

As more consumers shift their TV viewing to OTT, advertisers are increasingly following them. Our ad strategy is premised on three simple goals: providing advertisers with the ability to continue reaching TV viewers as viewers migrate out of the traditional linear TV ecosystem; significantly advancing the state of TV advertising by enabling the measurement, targeting and interactivity that advertisers have come to expect from modern digital media; and by continued innovation in the streaming advertising experience.

We made great strides against these goals in 2017. In H1, we began offering TV advertisers guaranteed delivery against their target age and gender ("demographic guarantees"), leveraging our Nielsen DAR implementation and growing data science capabilities. We expect addressable and demographic-guaranteed advertising to continue growing quickly as a share of our overall 2018 ad revenues.

In Q4 of 2017, we began using our recently launched ACR capabilities to demonstrate to TV advertisers the incremental (non-duplicated) TV viewers they could reach on the Roku platform relative to a linear-only ad campaign. Giving traditional TV ad buying teams the ability to quantify incremental TV reach using the same currency that drives all TV buying led to a significant acceleration in the revenues we derive from TV ad budgets, a trend we expect to continue in 2018.

2017 was also a breakout year for Roku's advertising business with our ability to offer targeted advertising beyond simply age and gender, or what many in the TV industry would call "1-to-1" or "addressable" advertising. Most of the video inventory we sell now flows through the Roku Ad Framework, ensuring we have all the targeting and interactivity capabilities we've built into the Roku OS. We also significantly enhanced our ad serving, programmatic ad sales, data management, and ad inventory management capabilities.

Our investments in advertising technology and staffing are paying off. Ad revenues more than doubled and more than half of Ad Age’s top 200 national advertisers are now Roku clients.

Looking forward to 2018, we are excited about this momentum, and the opportunity to create more advanced new ad products, like the ACR-based ad products that we began beta-testing with clients in Q4 and Q1, as well as the new suite of measurement products called Roku Ad Insights announced in January.

5.

The Roku Channel – High Demand for Free, Ad Supported Content

In September we launched The Roku Channel, an important step in the evolution of the Roku platform:

 

For many content publishers and owners building, promoting and maintaining their own bespoke, branded app will not be the most efficient way to win OTT audiences.

Roku Q4 2017 Shareholder Letter

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We see an opportunity to significantly improve how consumers discover content through better UIs, and by leveraging our rich data to personalize it.

 

We fully control the ad experience, which we believe can be improved through innovation.

The Roku Channel has grown quickly to a top 20 channel overall on Roku devices based on hours streamed, and is now the #3 ad supported channel on the Roku platform. Currently featuring free, ad-supported movies and TV shows, The Roku Channel addresses a top request from our customers - free content - while also providing a strong growth path for Roku advertising sales, the fastest growing and largest part of our Platform segment revenues.

2018 Full Year and Q1 Outlook

We enter 2018 with strong momentum and are very encouraged by the trends we are seeing in our Platform segment which we expect to contribute the majority of our total net revenue in 2018, and the vast majority of our total gross profit.  Given the trajectory of the Platform segment, we expect rapid revenue growth and gross margin expansion to continue in 2018.  We plan to remain focused on driving active account growth, overall gross profit dollar growth, and increasing customer value.  Our profitability goal for the year is to operate our business at, or near, break-even on an operating cash flow basis while we reinvest gross profit into strategic areas that can drive continued long-term growth.  

Please note that outlook figures take into account the impact of the new revenue recognition standard ASC 606 adoption.  Overall, the impact of ASC 606 is not expected to be material for the full year of 2018 revenue but we do anticipate that the new revenue recognition standards will add quarterly variability based on size and timing of signing of new agreements with content partners and Roku Powered licenses. As it relates to gross profit and adjusted EBITDA, we estimate ASC 606 adoption is expected to reduce gross profit and adjusted EBITDA by roughly $10 million. Based on information available as of February 21, 2018, we are providing the following full year 2018 and Q1 2018 outlook:

Full Year 2018 outlook

 

Total Net Revenue: $660 million to $690 million;

 

Total Gross Profit: $275 million to $295 million;

 

Net Income Loss: ($55) million to ($40) million;

 

Adjusted EBITDA: ($25) million loss to ($10) million.

Reconciling Items between net loss and non-GAAP adjusted EBITDA consist of stock based compensation of approximately $24 million, depreciation and amortization and other net adjustments of approximately $8 million partially offset by interest and other income of approximately $2 million.

Q1 2018 Outlook

 

Total Net Revenue: $120 million to $130 million;

 

Total Gross Profit: $52 million to $58 million;

 

Net Income Loss: ($21) million to ($15) million;

 

Adjusted EBITDA Loss: ($16) million to ($10) million.

Reconciling Items between net loss and non-GAAP adjusted EBITDA consist of stock based compensation of approximately $4 million, depreciation and amortization and other net adjustments of approximately $1.5 million, partially offset by interest and other income of approximately $0.5 million.

Roku Q4 2017 Shareholder Letter

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Summary

The tectonic shifts we are seeing in the media and entertainment industries continue to strengthen our streaming opportunity, creating new paths for Roku to pursue and deliver rapid revenue and gross profit growth. The fourth quarter of 2017 was a fantastic quarter for Roku, reinforcing our leading position in smart TVs, streaming players, OTT advertising and content distribution. We have never been more excited about the future of our business.

 

Happy Streaming!

Sincerely,

Anthony Wood, Founder & CEO

Steve Louden, CFO

 

Roku Q4 2017 Shareholder Letter

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Conference Call Webcast – 2pm PST February 21st, 2018

The Company will host a webcast of its conference call to discuss the Q4 2017 results at 2p.m. Pacific Time / 5p.m. Eastern Time. 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.

About Roku, Inc.

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 TVTM models are available around the world through direct retail sales and licensing arrangements with TV OEMs and service operators. Roku is headquartered in Los Gatos, Calif. U.S.A.

Roku Inc.

Investor Relations

James Samford

ir@roku.com

 

or

 

Media

Tricia Mifsud

tmifsud@roku.com

 

Use of Non-GAAP Measures

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 and pro forma basic and diluted net income (loss) per share.  In order for Roku’s investors to be better able to compare its current results with those of previous periods, Roku has shown a reconciliation of GAAP to non-GAAP financial measures as an appendix to 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 expense where applicable. The pro forma basic and diluted net income (loss) per share reconciliation gives effect to the conversion of outstanding convertible preferred stock using the as-if converted method into common shares as though the conversion had occurred as of the beginning of the period. Also, the numerator has been adjusted to reverse the fair value adjustments related to the convertible preferred stock warrants as they will become warrants to purchase common stock and at such time will no longer required periodic revaluation. 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 you should not consider them in isolation or as a substitute for our GAAP financial information.

Forward-Looking​ ​Statements

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,” “could,” “seek,” “estimate,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “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

Roku Q4 2017 Shareholder Letter

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the forward-looking statements. Forward-looking statements represent our beliefs and assumptions only as of the date of this letter. These statements include our financial outlook for the first quarter of 2018 and for the full fiscal year, the momentum in our Roku TV program, the establishment of a home entertainment network program and sale of related products, the growth of our platform segment, the evolution of the TV streaming ecosystem and continued development of our advertising business and the content we make available to consumers on our platform, the growth in ARPU and active accounts 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.

Roku Q4 2017 Shareholder Letter

9

 


 

 

 

ROKU, INC.

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

(unaudited)

 

 

 

Three Months ended

 

 

Year Ended

 

 

 

December 31,

2017

 

 

December 31,

2016

 

 

December 31,

2017

 

 

December 31,

2016

 

 

 

(in thousands, except per share data)

 

Net Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Player

 

$

102,824

 

 

$

110,024

 

 

$

287,407

 

 

$

293,929

 

Platform

 

 

85,437

 

 

 

37,316

 

 

 

225,356

 

 

 

104,720

 

Total net revenue

 

 

188,261

 

 

 

147,340

 

 

 

512,763

 

 

 

398,649

 

Cost of Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Player

 

 

93,057

 

 

 

94,290

 

 

 

258,104

 

 

 

249,821

 

Platform

 

 

21,743

 

 

 

8,387

 

 

 

54,826

 

 

 

27,783

 

Total cost of revenue

 

 

114,800

 

 

 

102,677

 

 

 

312,930

 

 

 

277,604

 

Gross Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Player

 

 

9,767

 

 

 

15,734

 

 

 

29,303

 

 

 

44,108

 

Platform

 

 

63,694

 

 

 

28,929

 

 

 

170,530

 

 

 

76,937

 

Total gross profit

 

 

73,461

 

 

 

44,663

 

 

 

199,833

 

 

 

121,045

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development (1)

 

 

31,295

 

 

 

19,477

 

 

 

107,945

 

 

 

76,177

 

Sales and marketing (1)

 

 

19,131

 

 

 

13,799

 

 

 

64,069

 

 

 

52,888

 

General and administrative (1)

 

 

13,541

 

 

 

8,008

 

 

 

47,435

 

 

 

35,341

 

Total operating expenses

 

 

63,967

 

 

 

41,284

 

 

 

219,449

 

 

 

164,406

 

Income (Loss) from Operations

 

 

9,494

 

 

 

3,379

 

 

 

(19,616

)

 

 

(43,361

)

Other Income (Expense), Net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(326

)

 

 

309

 

 

 

(1,612

)

 

 

146

 

Loss on extinguishment of debt

 

 

(2,338

)

 

 

 

 

 

(2,338

)

 

 

 

Change in fair value of preferred stock warrant liability

 

 

 

 

 

(199

)

 

 

(40,333

)

 

 

888

 

Other income (expense), net

 

 

282

 

 

 

(154

)

 

 

705

 

 

 

(220

)

Total other income (expense), net

 

 

(2,382

)

 

 

(44

)

 

 

(43,578

)

 

 

814

 

Income (Loss) Before Income Taxes

 

 

7,112

 

 

 

3,335

 

 

 

(63,194

)

 

 

(42,547

)

Income tax expense

 

 

171

 

 

 

108

 

 

 

315

 

 

 

211

 

Net Income (Loss)

 

 

6,941

 

 

 

3,227

 

 

 

(63,509

)

 

 

(42,758

)

Less: Net Income attributable to participating securities

 

 

 

 

 

(3,227

)

 

 

 

 

 

 

Net Income (Loss) attributable to common stockholders

 

$

6,941

 

 

$

 

 

$

(63,509

)

 

$

(42,758

)

Net Income (Loss) per share attributable to common

   stockholders—basic

 

$

0.07

 

 

$

 

 

$

(2.24

)

 

$

(9.01

)

Net Income (Loss) per share attributable to common

   stockholders—diluted

 

$

0.06

 

 

$

 

 

$

(2.24

)

 

$

(9.01

)

Weighted-average shares used in computing net income (loss) per

   share attributable to common stockholders—basic

 

 

96,492

 

 

 

4,811

 

 

 

28,308

 

 

 

4,746

 

Weighted-average shares used in computing net income (loss) per

   share attributable to common stockholders—diluted

 

 

119,140

 

 

 

4,811

 

 

 

28,308

 

 

 

4,746

 

 

 

(1)

Stock-based compensation was allocated as follows:

 

Cost of player revenue

 

$

46

 

 

$

48

 

 

$

145

 

 

$

136

 

Cost of platform revenue

 

 

23

 

 

 

59

 

 

 

81

 

 

 

224

 

Research and development

 

 

1,636

 

 

 

842

 

 

 

4,714

 

 

 

2,766

 

Sales and marketing

 

 

718

 

 

 

555

 

 

 

2,817

 

 

 

2,292

 

General and administration

 

 

1,013

 

 

 

686

 

 

 

3,196

 

 

 

2,788

 

Total stock-based compensation

 

$

3,436

 

 

$

2,190

 

 

$

10,953

 

 

$

8,206

 

 

Roku Q4 2017 Shareholder Letter

10

 


 

 

 

ROKU, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)

(unaudited)

 

 

 

As of

 

 

 

December 31,

2017

 

 

December 31,

2016

 

 

 

(in thousands)

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash

 

$

177,250

 

 

$

34,562

 

Accounts receivable, net of allowances

 

 

120,553

 

 

 

79,473

 

Inventories

 

 

32,740

 

 

 

43,568

 

Prepaid expenses and other current assets

 

 

11,367

 

 

 

4,981

 

Deferred cost of revenue

 

 

3,007

 

 

 

2,636

 

Total current assets

 

 

344,917

 

 

 

165,220

 

Property and equipment, net

 

 

14,736

 

 

 

9,528

 

Deferred cost of revenue, non-current portion

 

 

5,403

 

 

 

3,815

 

Intangible assets, net

 

 

2,030

 

 

 

 

Goodwill

 

 

1,382

 

 

 

 

Other non-current assets

 

 

3,429

 

 

 

515

 

Total Assets

 

$

371,897

 

 

$

179,078

 

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

56,413

 

 

$

31,397

 

Accrued liabilities

 

 

72,344

 

 

 

46,156

 

Current portion of long-term debt

 

 

 

 

 

15,000

 

Deferred revenue, current portion

 

 

34,501

 

 

 

23,952

 

Total current liabilities

 

 

163,258

 

 

 

116,505

 

Preferred stock warrant liability

 

 

 

 

 

9,990

 

Deferred revenue, non-current portion

 

 

48,511

 

 

 

29,084

 

Other long-term liabilities

 

 

7,849

 

 

 

4,143

 

Total Liabilities

 

 

219,618

 

 

 

159,722

 

Convertible Preferred Stock:

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.0001 par value

 

 

 

 

 

213,180

 

Stockholders’ Equity (Deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value

 

 

 

 

 

 

Common stock, $0.0001 par value

 

 

10

 

 

 

3

 

Additional paid-in capital

 

 

435,607

 

 

 

26,002

 

Accumulated deficit

 

 

(283,338

)

 

 

(219,829

)

Total stockholders’ equity (deficit)

 

 

152,279

 

 

 

(193,824

)

Total Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

$

371,897

 

 

$

179,078

 

 

Roku Q4 2017 Shareholder Letter

11

 


 

 

 

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

(unaudited)

 

 

 

Year Ended

 

 

 

December 31,

2017

 

 

December 31,

2016

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(63,509

)

 

$

(42,758

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,336

 

 

 

5,302

 

Impairment of assets

 

 

 

 

 

320

 

Stock-based compensation expense

 

 

10,953

 

 

 

8,206

 

Provision for doubtful accounts

 

 

104

 

 

 

336

 

Change in fair value of preferred stock warrant liability

 

 

40,333

 

 

 

(888

)

Noncash interest expense

 

 

784

 

 

 

115

 

Loss on disposals of property and equipment

 

 

54

 

 

 

29

 

Loss from exit of facilities

 

 

525

 

 

 

3,804

 

Loss from extinguishment of debt

 

 

2,338

 

 

 

 

Write-off of deferred initial public offering costs

 

 

 

 

 

594

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(41,184

)

 

 

(26,354

)

Inventories

 

 

10,828

 

 

 

(13,256

)

Prepaid expenses and other current assets

 

 

(6,514

)

 

 

(544

)

Deferred cost of revenue

 

 

(1,959

)

 

 

(2,885

)

Other noncurrent assets

 

 

(2,794

)

 

 

448

 

Accounts payable

 

 

24,315

 

 

 

(2,808

)

Accrued liabilities

 

 

24,127

 

 

 

17,796

 

Other long-term liabilities

 

 

3,579

 

 

 

294

 

Deferred revenue

 

 

29,976

 

 

 

19,786

 

Net cash provided by (used in) operating activities

 

 

37,292

 

 

 

(32,463

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(9,229

)

 

 

(8,596

)

Purchase of business, net of cash acquired

 

 

(2,959

)

 

 

 

Restricted cash and deposits

 

 

(80

)

 

 

29

 

Net cash used in investing activities

 

 

(12,268

)

 

 

(8,567

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments of costs related to initial public offering

 

 

 

 

 

(594

)

Proceeds from borrowings

 

 

24,691

 

 

 

15,000

 

Repayments of borrowings

 

 

(40,446

)

 

 

(15,000

)

Proceeds from exercise of stock options, net of repurchases

 

 

1,773

 

 

 

438

 

Proceeds from issuance of common stock pursuant to an initial public

   offering, net of issuance costs

 

 

131,646

 

 

 

 

Net cash provided by (used in) financing activities

 

 

117,664

 

 

 

(156

)

Net Increase (Decrease) In Cash

 

 

142,688

 

 

 

(41,186

)

Cash—Beginning of period

 

 

34,562

 

 

 

75,748

 

Cash—End of period

 

$

177,250

 

 

$

34,562

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,149

 

 

$

236

 

Cash paid for income taxes

 

$

222

 

 

$

121

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment recorded in accounts

   payable and accrued liabilities

 

$

1,250

 

 

$

306

 

Fair value of preferred stock warrants reclassified to additional

   paid-in-capital

 

$

52,355

 

 

$

 

Issuance of convertible preferred stock warrants in connection with debt

 

$

2,032

 

 

$

 

 

Roku Q4 2017 Shareholder Letter

12

 


 

 

 

ROKU, INC.

NON-GAAP INFORMATION (in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

Year Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Reconciliation of Net Income (Loss) to Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

6,941

 

 

$

3,227

 

 

$

(63,509

)

 

$

(42,758

)

Other (income) expense, net

 

 

2,382

 

 

 

44

 

 

 

43,578

 

 

 

(814

)

Stock-based compensation

 

 

3,436

 

 

 

2,190

 

 

 

10,953

 

 

 

8,206

 

Depreciation and amortization

 

 

1,453

 

 

 

1,101

 

 

 

5,336