Q3 2019 Earnings Call

One of our website at <unk>, our dot Roque, who don't come.

The following discussion including responses to your questions reflect management's views as of today November six 2019, only and we do not undertake any obligation to update or revise this information.

Some of the statements made on today's call. Our forward looking and are based on our current expectations forecasts and assumptions and involve risks and uncertainties.

These statements include but are not limited to statements regarding the future performance or broker, including expected financial results for the fourth quarter and full year of 2019, and the future growth in our business.

Our actual results may differ materially from those discussed on this call for a variety of reasons.

Please refer to today's shareholder letter and the company's periodic filings with the SEC for information about factors, which could cause our actual results to differ materially from these forward looking statements.

You will find reconciliations of non-GAAP measures to the most comparable measures discussed today in our shareholder letter, which is posted on our Investor Relations website at <unk> IR dot broker dot com and I encourage you to periodically we visit our IR website for important content.

Finally, unless otherwise stated all comparisons on this call will be against our results for the comparable period of 2018.

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

Thank you Tricia and thanks, everyone for joining todays call Roki was well positioned this constant publishers and advertisers shift to screaming.

We continue to execute well against our plans and our Q3 financial results beat our expectations.

Our performance allows us to continue to reinvest in ways that extend our strategic advantages and build even greater preference for road among consumers content publishers Oems and advertisers.

I'd like to share a few highlights from the quarter.

We launched our new screaming plan lineup in North America, Latin America, and key markets in Europe early reviews in positive for example, CNN named the royalty stream is the plus the best overall screamer for a third year in a row.

Our focus on TV screening and our Lars highly engaged audience make Brooklyn essential partner for content publishers advertisers and TV manufacturers, we build big audiences for major new services and brands and when our partner succeed we succeed.

Just last Friday, Apple TV, plus launched on our platform and we expect others to follow Singh.

Rob you monetize video AD impressions more than doubled again on a year over year basis. The rupee channel contributed to this growth as AD impressions within the channel are growing faster than the AD impressions in the overall platform.

We continue to be pleased with the growth of the Roki channel.

Finally, we recently announced an agreement to acquire data zoo demand side advertising platform.

While we work with many leading Dsps and we'll continue to do so we believe the data do acquisition will accelerate our ODP advertising roadmap.

And then they will run through to provide marketers a single data driven software solution to plan by and optimize their AD spend across TV and OTI.

I'll now turn the call over to Steve to go through the financial details.

Thanks Anthony.

Before taking your questions I'll walk through financial highlights in address our outlook.

Please see our shareholder letter for more financial details from the quarter.

Q3 revenue gross profit and adjusted EBITDA exceeded our outlook driven by robust growth in our platform segment and continued strong demand for streaming players.

Both revenue of 261 million and gross profit of 118 million grew 50% year over year and gross margin of 45.4% was similar to the prior quarter as well as the same quarter in the prior year.

Adjusted EBITDA of roughly breakeven and the net loss of 25 million. We're ahead of our outlook due to better than expected revenues and lower than expected sales and marketing expenses due in part to timing of retail and merchandising costs as well as headcount costs, primarily stock based comp expenses.

Strong platform growth continued as revenue of 179 million was up 79% year over year and Roki monetize video AD impressions once again more than doubled year over year.

Clear revenue grew 11% year over year, driven by a 21% year over year increase in player units with Asps down 9% year over year as we continue our strategy of attractive player pricing in order to drive unit sales inactive accounts.

We ended the quarter with 388 million of cash cash equivalents restricted cash and short term investments.

Before turning to the outlook I'll mention the new Roko S. feature that we began rolling out in Q3.

This feature identifies when the channel has been continuously stream for an extended period of time without user interaction. It prompts the user to confirm that they are still watching and closes the channel is the user doesn't respond.

While we continue to expect robust growth in our aggregates streaming hours as we increase active accounts end user engagement. We believe our 2020 year over year streaming our growth rates are likely to be lower than 2019 growth rates.

Some of refuse leading channel partners like Netflix have already implemented similar features and we think it is positive for road to our customers partners and advertisers to have a level of consistency across our platform.

We do not expect this rollout of this feature to have a material impact on our future financial performance.

With that let's turn to our outlook for the full year.

Reflecting our Q3 performance in the inclusion of data do for part of Q4, we are increasing our revenue and gross profit outlook for the full year 2019.

Our raised revenue outlook midpoint of 1.106 billion represents roughly 49% year over year growth up from 46% year over year growth and our prior outlook.

We expect platform revenue to represent roughly two thirds of total revenue, including approximately $13 million in revenue from data do.

We are raising our total gross profit outlook for 2019 to roughly 492 million at the midpoint up from roughly 485 million previously.

For modeling purposes, we continue to expect full year platform gross margins in the low sixtys percent driven primarily by continued mix shift to video advertising.

For players, we expect player gross margin to be in the low single digits for 2019, and we expect player gross margin to be roughly zero in Q4.

As a reminder, Q4 is seasonally our strongest quarter and is backend loaded with a significant portion of our revenues related to black Friday through the ended the year.

So Q4 is still heavily dependent on how the holiday second given a highly competitive retail environment.

Similar to last year, given a seasonally higher mix of player revenues in Q4. The overall company gross margin is expected to be sequentially lower in Q4 between the upper Thirtys and 40%.

We've updated our 2019 adjusted EBITDA outlook midpoint to 30 million from 35 million previously reflecting continued investment in the business as well as roughly 5 million negative impact to adjusted EBITDA in Q4 related to data do operations and data do acquisition relate.

It expenses.

We plan to publish historical pro forma financials related to the David do acquisition prior to our next earnings call, which will provide some additional detail.

Given the relative size of data do and our integration plans, we do not expect to break out data do going forward, but rather it will be included in our platform segment.

As we have done previously we plan to provide outlook for next year on our Q4 call.

In Q4, we anticipate a greater sequential increase in operating expenses from our continued investments in talent sales and marketing efforts the impact of increase facility costs as well as the inclusion of data to the stock based comp estimate for 2019 has decreased to roughly 84 million from now.

$90 million in the prior outlook.

Depreciation and amortization and net other income of $10 million are reflected in our outlook for roughly 64 million of net income loss in 2019.

I will summarize by saying how pleased we are with the performance of the business in the quarter.

With that let's turn the call over for questions operator.

Thank you as a reminder to ask a question you any tapas style one on your telephone.

Which I have question first upon key in the interest. This time, we ask that you. Please limit yourself to one question and one follow up please standby, we compile becoming day last day.

First question comes from Ralph Schackart with William Blair. Your line is now open.

Good afternoon. Thanks for taking my question too if I could.

Just first on the EBITDA guide Steven some like perhaps there was some more expenses in Q4 is there anything specific in Q4 that you'd call out for expenses because it looks like the guide even with the be contemplating data zoo is maybe a decreased relative to prior outlook. First question second question just on ARPU, another could bounce around but.

Looks like at Legg account growth from the quarter any color you could add to that and then take from six to six you'd call out.

So thanks a lot.

Yeah, Hey, Ralph it's Steve I'll take the first of all on EBITDA. So.

Yeah as I mentioned in my remarks.

Part of the.

Q3 over performance on Opex relative to.

Our prior expectations related to timing of certain costs than so.

Similarly, Q4 reflect some.

Lower export some expectations in Q4 related to timing of certain costs that are shifting in Q4.

As well as the expect SBC.

Difference.

In terms of in terms of the ARPU you know the ARPU growth rate on a trailing 12 month basis has been growing in a similar range in the high terminals in 30%. So there's there's not anything in particular I would say in that it's been on a fairly consistent.

ARPU year over year growth trajectory.

As of the last couple of quarters.

This is Anthony this ad that.

At the beginning of the year, we set a goal to upgrade the business at roughly EBITDA breakeven.

For the year and the where we're on track for that.

Great. Thanks, gentlemen, thanks to.

Thank you.

Next question comes from the city cash was Cannonball Research. Your line is now open.

Thank you good morning, I wanted to have sort of good afternoon I wanted to ask your question about about your expectations in terms of relative growth of AD supported versus esports viewership given that you have Disney plus you have Apple TV applies.

Are you not wanted there should not be awarded that they will take share or viewing on ROE cool and then that would impact your ability to.

Monetize advertising inventory and that would somehow impact.

Advertising revenue growth, how do think about what's going to happen in the next 12 to 24 months with viewing onto your platform and what will be the puts and takes some between B S wards and are able with.

Apps, thank you very much.

Sure. This is Anthony.

Overall, we're excited about the launch of all the new services coming to the industry and through our platform is we think they're good for OCA in a bunch of ways, there obviously going to drive.

Viewing overall on their platform or engagement, which is good.

We can discuss why but engagement on our platform is very good for us they're going to increase the interest in viewership moving from traditional TV to streaming.

We think that eventually LTV is going to be streams and that this will be a you know the rise of all these new services will help encourage that transition.

So.

We have customers that want to watch paid premium services, we have customers that want to watch free content, we have customers that want to watch both and so we think all all those business models are supported by our platform. We monetize all those business model and we see advertising is growing the fastest but they're all generally good for our business.

So I don't know Scott if you have anything yet so I'd, just like that add to Anthony's comments that.

We think our biggest competition is attracting linear TV AD spending out of linear endo TT that that's the competition today. According to Magna only 3% a TV budgets are spent in no t., but 29% of audiences are already there that the that's the big opportunity. That's what we're focused on over the next 12 24 month and there.

Can be lots of winners on their platform, including these new services.

So in other words your thing that the conglomerates that behind those a broad perhaps there would be pushing advertisers to ship budgets and thats how your benefit.

In the long term.

I do think that in the aggregate, yes, the more attention in energy that put into OTI advertising the better for everybody think roku, especially is uniquely situated to serve TV advertisers as they move their budgets, though TT because we can prove incremental reach we've got the tools to prove the measurement and effectiveness of.

That spending we've got to first party relationship with our consumers.

Thank you very much.

Thank you. Our next question comes from Jason How soon with Oppenheimer. Your line is now open.

Thanks to suppose.

Can you say the guidance assume is any impact from Disney plus Apple plus in the fourth quarter and then there's been a lot of so still blows question a lot of questions just around the accounting treatment in particularly kind of in assay take so sick. So we can does need for example becomes a very large customer over a period of time.

I'm kind of how that flows into the numbers on a quarterly basis, so any help or commentary there I think it'd be helpful. And then can you just say what the impact what you're assuming the impact of data do is on gross profit in the fourth quarter. Thanks.

Yeah, Jason This is Steve I'll I'll take those.

Yeah, and certainly in terms of guidance you know our outlook does does anticipate.

Apple plus is obviously just launching we anticipate others other services to launch soon so they are included you noted the accounting sequel, six impact I think you know a reminder, that the in six to six these.

Multiple element arrangements are valued for the totality of the arrangement, which could be a couple of years and there's different elements in different performance obligations and so there isn't necessarily a direct one to one in immediate.

Revenue recognition when.

These services launch or when we sign up people its more complicated than that and the timing can be can be lumpy as we've talked about in different indifferent calls in terms of the impact the data do we mentioned that the inclusion includes roughly 13 million of revenue for us.

Stub period in Q4 based on anticipated close date here soon as well as a 5 million negative.

Impact to the EBITDA will be published seen some pro forma.

Financials related to the data do acquisition.

Between now and the next call until you have more detail on the shape of the PML there.

Hey.

Thank you. Our next question comes from Laura Martin with Needham. Your line is now open.

Hi, there can you hear me I told you guys.

Yep.

Great. Thank you Jason was asking my final question.

Hi, Thank you Anthony on track to actually earned $40 million.

Okay.

So I want to go back to David you Anthony So I'm interested are you going into competition with trade. So we pivoted into business a little bit. So the data do isn't going to be kept its vocal and instead, we're going to be a demand side platform. You can keep an open internet I'm very interested in how you see data supergrass.

Three to five years, let's start with that one of that I'll give my follow up.

Okay sure.

So we haven't closed the deal would they did the other begun the integration, but with that sort of disclaimer side, you know the very strategic acquisitions Roque, who is in line with our strategy of how we expect the market play out over the next several years.

Today, our ads.

We sell or mostly sold direct.

But we think the AD buying going to become more automated over time and this acquisition primary goal is to accelerate our roadmap.

For our AD Tech and I'll, let Scott talk a little bit more about that I Laura.

I'll make a couple of points here first is this is a natural progression of our of our strategy more generally to provide advertisers with better planning and buying tools. Our goal ultimately is to present, a holistic TV and no t. planning and buying solution for TV advertisers and help support them as they migrate their spending.

Out of traditional linear TV into LTT.

Our real goal in this deal is to both expands the business we deal with current clients given them new data measurement products prove more efficacy across a broader portion of their media and it also helps us work with a broader spectrum of clients, who may want to participate more you know TT then they can today and would value.

Programatic Apiay self serve.

Type access to L. T T.

We are combining the unique advantages of rupees first party consumer relationship.

Our scale, our proprietary data in inventory together with some great talent device graph technology data science capabilities from data and we do think that will present, some unique opportunities to our buyers, but I do want to emphasize that being open ecosystem is essential to how we operate here.

Both are good for the ecosystem and good business and so we don't anticipate any slowing down as the work that we do with folks like Adobe the trade desk et cetera.

Okay. That's super helpful. Scott, Let's go to your gross margin. Your gross margins were a little light this quarter and also next quarter. There were a little light I. Just told me. There's a couple of good reasons, the gross margins might be down the broker channel have 50% margins anything you guys, you're probably do and on the subscription revenue side, which is a diversified revenue sources.

Lower gross margin tell me, what's going on within gross margin line. Please why is that under pressure but.

Hey, Lord Steve Yeah in terms of gross margins in our prior outlook and we mentioned that them for Q4 that the platform margins would be in the low 60% range. So it actually was in that same range that we that we assumed it would be.

The primary driver is and we've talked about this phenomena is the continued mix shift over to the video AD business, which tends to operated at 50 plus percent gross margin versus some of the other components within platform that that are significantly higher margin.

Because there is little cost in our you I have some of these things like sponsorships or Rev shares.

Okay, Okay, good and Scott I guess broker channel continues to any isn't any higher in the ranking in Seth.

Hi continues to be a fifth and in terms of reaching and growing much faster than the platform as a whole itself a growing as a contributor.

AD inventory into our overall sale, we just launched kids and family. This quarter that was a great new addendum to our overall content offering and our goal here is that is to keep feeding this virtuous cycle, bringing more users in that enables us to invest more in a broader array of content, which then of course brings yet more.

Users and then we're executing on that strategy.

Very well and it's an exciting growth story.

Scott This ARPU up 30% is like blowing everybody else away in TV. So you guys are doing great work on the FCC outside so congratulations guys. Thank you.

Thanks.

Thank you. Our next question comes from Ben Swinburne with Morgan Stanley . Your line is now open.

Thank you good afternoon, just staying on the data just topic can you guys give us a sense for how fast that business is growing and whether you expect the integration of the asset into ROE could to accelerate that.

Growth rate and I'll just ask my follow up on on the international side. As you noted that you've you announced a new partnership heading into the UK can you just help us think about sort of the international opportunity in the context of what do you guys had been doing in the U.S. as the business model broadly the same what.

How quickly you might you start monetizing they have to build audience scale, just any help on thinking about that ramp would be great.

Hey, Ben it's Steve I'll take the first one on on day to do.

Anthony mentioned the deal has been quite close yet and we haven't started the integration.

So in terms of kind of overall.

Aspects on integration and growth rates, you know, we'll talk more about that in the next call where we'll also be providing overall 2020 guidance.

And then I I as I mentioned before we will be publishing pro forma financial so you have a lot more information soon regarding you know the historical growth rates of data do.

Fair enough thought I'd try.

Yeah. This is Anthony I mean, just to add to the I mean, the primary reason that we acquired data do was for for the talent and that the technology to accelerate our technology roadmap. So.

So that's that's how it's really I mean, we have we already have a very strong AD platform, but this makes it even stronger.

The in terms of international there's obviously a lot of potential international a billion TV households.

Around the world.

The Greenfield with a lot of potential. These these big new services that are coming into the market like Disney plus an apple and already Netflix or have global ambition.

So we're making progress now we said in the past that you know the first thing we're going to focus on international is building our scale and then monetization will will follow the same the same trend that we saw indeed, the U.S. building out the U.S. market.

In terms of building out active account.

We announced the.

The real continues with high since coming to the UK.

And you know, we just launched in last quarter, our new lineup of streaming players. The first time. This was the first time that we launched.

I wrote to express with a global launch in multiple countries around the world. The same time. So we are so that's an example of how we're getting more serious about expanding our reach with in the international market.

Thank you guys.

Thank you. Our next question comes from Elliot I'll start with D.A. Davidson. Your line is now open.

Great. Thanks, I wanted to ask if you guys. It anymore plans on launching more apt outside of the broker channel as doesn't mean content like the broker channel, but maybe interactive after platforms on your platform that could drive more traffic and having three.

Hi. This is Anthony so you know the way, we think about broker channel as well the way I think about the rupee platform. Overall. The primary purpose is to distribute content you know two viewers and that there's multiple ways, if you're a constant public or there's multiple ways to distribute that content. One way is the right screaming channel and companies are still.

During that obviously another way is become increasingly popular is the publisher content in the Roki channel and so we're continuing to add more and more content to the broker channel and more and more content categories. So for example, we just haven't kids and family.

Which was a great launch for us.

You know the rookie channel, we continue to expand multiple dimensions. There's a at this point over 80000 free and paid movies and TV shows.

Got it live linear services like NBC news is over 40 live linear services now.

Premium subscriptions, we added a recent lease of over 40 million 40 different premium subscriptions now lucky to be on Showtime.

Nearly 30 kids and family content partners. So.

We think that you'll well we thing you will be more and more content coming to the wrote the channel different categories and you'll see it.

Integrated into different points in the you I. So that's really our approach.

Fruit you know in terms of being a one stop distribution channel.

I appreciate it.

Thank you Hi next question comes from Mark Mahaney with RBC capital. Your line is now open.

Let me try to please first just on.

Ben Who's asking about the way to think about the duration or the timing related to international and and I guess, a revenue contribution or profit contribution from international you want to set out any help us with any expectations. There and then just back to the streaming launches and when I asked the question. This way if you think about the revenue you get from Disney plus an Apple plus and everything.

He also just launching that seems like a slew of or you think that's going to be showing up in your for you more as customer acquisition AD revenue.

Subscription AD revenue shares or advertising.

HM revenue share like those three buckets, where do you think the impact you from the streaming worse is going to be most likely.

So thank you.

So I'll take international I think that'll take your second question you know, we don't have much more to the talked about in terms of our plans for international than Weve already disclosed obviously, we have a lot of work going on under the covers but we haven't announced any specific.

Timing related revenue for international.

On these new service launches Mark Disney plus Apple et cetera. We're excited did for US. This is ultimately about giving consumers even more options in L.T. and were partnering very deeply with these companies to help launch their services acquire subs drive engagement and I will.

I'll comment on the economics of any specific partner, except to say that are our relationships are multifaceted wittwer mutually incented.

To drive the success of the services through the ROE ecosystem.

[noise], maybe then one follow up question for Anthony if they do you think it's possible that this could lead to a scenario whereby you could actually start seeing material revenue shares from Netflix or if the farming comes a lot more competitive which is clearly doing that may increase their incentive to actually start sharing economics with you.

Any thought on that.

Well, we have we have business terms terms with almost all of our partners, but something but I want to comment about any specific deal or any specific partner I will say that.

That one of the benefits of.

Just in our platform for these content partners that are launching these new service with their launching is that we have built into the platform a lot of tools for them to be able to promote their services and sign up subscribers. So no and they're taking advantage of those tools right. So it's kinda like when you go into retail you pay you pay a percentage of your.

Revenue to the retailer for placement on the shelf and then there's a lot of other options that they have you know if you want to be into circular you want to my end caps and so for us.

Subscription services the same model, there's a rev share for customers that we sign up and no that's going to continue to grow but there's also a lot of marketing opportunities in ways for them to build their subscribers and they're very effective more effective than probably any of the way they spend their marketing dollars and so.

The big way that we.

Make money for new constant partner.

Got it thank you Anthony.

Thank you. Our next question comes from Matthew Thornton with Suntrust. Your line is now open.

Hey, good afternoon, guys. Thanks for taking the question I wanted to come back to you know and maybe this is maybe this is Steve if we think what the fourth quarter. Obviously, we've got a lot of your new services coming you can certainly see how they would contribute to your content distribution revenue certainly audience development revenue makes makes a ton of sense, but you could also see because.

Is there kind of the shiny new objects day could pull some engagement away from other channels, including the broker channel. So you could actually see some headway into a it's it's a video AD revenues for the my question is is that something that's kinda contemplated in the forecast and then secondly, given the AOCI six so six accounting would what would we even see that would that even.

Matter in the in the short term in any any color there be or would be helpful. Thanks.

Yeah, Hey, Matthew a steep so.

Yeah, as I mentioned before I mean, because of the six so six in because these are multiple multiple element arrangements and there are performance obligations.

There is not an immediate necessarily immediate indirect.

Correlation between sort of the underline actions like signing up subscribers or spend from these services into you know that quarters revenue. So it's more complicated on that and that's why we we often talk about the.

The results of these six so sick models in the treatment that the especially the content distribution revenue can be lumpy and so I would just I would just make sure that people are aware of that fact, because you know there are some some big new services that are are launching or will launch soon.

But that won't necessarily.

Connect into.

This quarter's revenue we have we have factored those in into the outlook.

We the outlook is strong we did increase the outlook for the full year for revenue and gross profit on you know the revenue at the midpoint is now 1.1 billion at 49% revenue growth at the midpoint.

And so so we feel pretty good about the business.

But you know certainly we want to make sure that people people understand the accounting that underpins.

He services in the deals that we have this and this is Anthony let me just add a couple of points. These served these new services as well existing services that have come onto the platform over the years there in no way negative broke through their all just very positive. We're in the central partner for these services they'll drive more people to adopting screaming with where the.

Countries, most popular screening platform that will drive broker recruits viewers.

There's lots of room to grow engagement on the platform and our primary competitor is not other services on the platform the primary competitors linear TV.

Most TV in the country is still regular linear TV and people are moving to streaming and cutting the cord and this will help drive that.

So you know, they're all very for our business, they're all very very positive.

Maybe I'll just one one quick follow up and if I could Abu <unk>, but on the broker channel number one I guess, just any change there and just kind of what you're observing maybe other Avon services across the platform are you seeing any trend stable up in any color you could could provide there thanks guys.

Matthew Scott here.

Our goal is a broker channel and its AD load has not changed we still believe it the that about half the linear TV AD load is the right recipe for monetization and consumer experience in general we think that that's going to be proven to be the case broadly across though T. T that adds got have got to get smarter.

And fewer in order to hit that balance right, but but every provider on the platform has a different mixes program to add time.

Thank you. Our next question comes from Cheyenne Patel with Susquehanna. Your line is open.

Hi, guys its Ryan on for from.

So first how do you feel about your AD tech after the Dezhou deal and do you think it might make sense to add some further technology on the supply side.

And then secondly, how do you see the acquisition impacting data sues fire TV partnership.

Thanks.

Hey, Brian Scott here I'll take that.

Dezhou is a natural progression an actual step in the road map. We've been pursuing we had already started to provide planning and buying tools to advertisers to help proactively help them proactively plan their spending across TV NFC tea, we launched a broker reach insights going into the.

Upfront to help advertisers basically simulate plan their spending across TV, you know T in order to optimize for reach and frequency. We wrote a partnership with ended this quarter to help measure reach and frequency in audience across a multiple video platforms. So we look at data do as another important.

SAP in that progression that will help us not only activator data and aid buyers in.

Allocating their spend more aggressively to OTI t., but also prove the prove the effect through better data science and attribution, which we think ultimately is a long term goal.

For Ti as TV advertising dollars move into the tea.

I will comment on the Amazon fire TV partnership except to say that dated who's an omni channel DSP and Oh, you know our focus with it.

With the data do asset and the people the capabilities is really to enable our advertisers to spend.

Smartly in no t. and to better measure the the effect in terms of reach in terms of ROI as they move TV AD spending you know TT.

Thank you Sir our next question comes from Michael I Gotta likes the Rosenblatt Securities. Your line is open.

Thank you.

Maybe just a follow up on data zoo.

Curious how it will work alongside your network sales team. So if you could be if we think about sort of non direct.

Business will this Ron will you have sort of immediate take rates are the standard DSP model and sort of run that.

Through the agencies that sort of immediate take rate on sort of lower end longer tail effect inventory.

That's one day to do and then.

Maybe just a follow up on gross margin.

Look at for Q and potentially into 2020, I'm just curious if theres any.

Changes in the pieces there.

Obviously the pieces our content distribution artist film and video maybe specific the content distribution are you seeing.

The broker channel that content distribution distribution business ramp faster, which essentially putting.

A little bit of downward pressure on gross margins, just maybe some puts and takes.

There thanks.

Mark I'll take your question on data do you are right that data, who is ultimately a faster platform or tools play and so there's a different model generally then a media sale. The power. We think though is we're already in a position where where something of a category captain with our advertisers advising them not just on their spending with Roque who.

For Roque media, but on ROE, because more broadly with our publishers and across O T. T. Generally at the dealers who is a new tool in our toolbox that will help us help advertisers better plan and spend their money in LTT.

As Steve you want to take the yes sure anymore to Steve just in terms of the GP. So.

In terms of 2020, we'll be providing.

Guidance on that and next call, but we you did mention for Q4, you know we expect platform gross profit to be.

In the similar range of the low sixtys sequentially.

And then we talked about the guidance around player gross profit operating around zero for Q4, just given the promotional environment.

Which is similar to prior years, where that's been kind of the lowest.

Quarter, usually now.

No. The biggest thing to think about in terms of the gross margin trend to just been within platform has been the you know the increase mix of the video AD business as the video AD business continues to grow fast that tends to be at that 50 plus percent gross margin level versus some of the higher ones as I mentioned earlier and then within.

GRC as Scott mentioned earlier, you know Trc in terms of a source of Roque you monetize video AD impressions is growing faster.

Then the network as a whole.

But but really the margin difference is more around video ads versus other parts of platform versus a specific trc non trc mix.

Okay, great. Thank you.

Thank you as a reminder to ask a question you want me to press Star one on your telephone.

Our next question comes from said is out with Merrill Lynch. Your line is now open.

Thanks for taking my questions. So maybe first on on gross margins.

How much of the year over year, a decrease in platform margins is due to a higher mix of premium subscriptions. If at all and then you mentioned the investments driving selling the change to your adjusted EBITDA Guide what areas are those investments and.

Any any color there would be helpful.

A quick follow up.

Yes, Hi, David It's Steve just on your first question with with gross margin. Yeah. We Didnt. We have mentioned previously that the premium subscription business because that as that is on a gross.

Revenue streaming that's good for revenue and gross profit dollars, but what does show up as a lower margin in terms of this quarter. We mentioned you know in the prepared remarks that the the primary driver of the sequential gross margin change.

It was around the mix shift in the video AD business.

So that that's the key driver there.

In terms of investing in the adjusted EBITDA.

You know as bad as Anthony mentioned earlier, we had a goal that we set out at the start of the year that we were going to operate around EBITDA breakeven just given our strategic positioning that it's early days with the big opportunity you know the foreign investment areas. We talked about you know our around the AD business Roki TV the Roque huge.

Channel.

And then international and in terms of Q4, specifically, it's really in the form of.

More talent sales and marketing as well as you know some of the other.

Options, we optik on a secure our position going forward.

Yeah. This is answer let me just add in terms of investments <unk> I'll give you. Some examples of of products and services that we shipped in Q3 that you know, we're investing we weren't talking about necessarily before but where it investments that we've made prior to Q3. So for example, we launched group you Tvs in the UK with high since in the quarter, we do there.

First global launch of players around the world, we refreshed our entire player lineup.

We launched kids and family and you can't content category in the Roki channel, we launched down smart sound bars on new product category and new way for us to build active accounts and you know we did a lot more than that so we are pushing our business forward on multiple fronts and these are all areas that are going to pay off in the future.

Okay. Thanks Thats helpful. On just quickly on on that as long as you grow and programmatic kind of becomes a bigger percentage of sales how do you see that impacting the overall profitability was it sounds from settlement is the effect.

Higher Lewis of panel them for the amount of versus the more on the rest relationship type of business.

Well, we look at it primarily as a vehicle to continue bringing significant new demand into the ecosystem from TV I think that that's the main and first cut of or of the strategy behind it is it we do anticipate that programmatic as well as other forms of automation Epi base.

Fine self serve will become a growing part of a bow T. T. It's still a minority of total spend.

Magna Magna global as commented that there will be about $5 billion, you know to T. Spending in 2020 majority that will not yet be programmatic, but over time, we we see that growing very significantly. We also look at these technologies as a way to onboard a broader class of advertisers who would have invest.

Tested in TV bought for difficulty in accessing it or the inability to prove ROI. That's really the power here for us. So I wouldn't characterize data do in terms of pressure on margins are pricing as much as a broader array of clients an acceleration of spending into old TT.

Okay Thats helpful. Thanks.

Thank you.

Next question comes from Michael Morris with Guggenheim. Your line is now open.

Thank you good afternoon, a couple from me.

Can you share how streaming hours that you guys are able to monetize with advertising how those hours are pacing relative relative to that growth in overall, our stream does it is a growing faster more slowly.

Can you share how much of your available inventory that you have access to that you're delivering at a premium CPM you're talking about this gap between.

Sort of dollars any industry and streaming in the industry overall does that said look a lot like.

How much you monetize relative to what you have access to.

Then on the international side, you guys just mentioned the global player launching refresh again.

Were there any new markets, there or were there expanded sort of retail partnerships more inventory anything you can help us with specifically on how that means you forward.

Based on those comments you made Anthony thanks.

Hey, Michael I'll take your first two questions.

First I described this as a funnel AD supported dealing is growing faster than underlying then the total platform viewing and then our monetization of of advertising on the platform is growing faster than that so we are growing at some sense our share of the of or.

Our participation in advertising on the platform significantly as we've commented before in prior earnings calls were generally we generally would not characterize the business as a as supply constrained as much as demand constrained where we're in the process of bringing over significant new demand from TV advertisers.

Thing.

And so we view, our our task as a as primarily drive primarily driving that demand function.

We have in the case of the Roka channel as well as are our AD supported channel distribution agreements access to sufficient inventory to support that very aggressive growth.

Anthony you want to take the question on international.

Yeah, I'll up into that monetize Adam video AD impressions more than doubled in the quarter. The AD business is doing really well and yet most of that TV AD dollars has not started to move over to streaming yet so still it's still a big opportunity for us.

In terms of international I think we've covered most of the point there I mean, we launched.

The Street, our newsfeed extreme player lineup in the United States, Obviously, but also Canada, Mexico Latin America.

The UK and a few other countries as well so.

No I was I would guess I would say our our are the main way I think about our international expansion is not about adding more countries. Because we were already in most of those countries. It's about more bringing more focused and more dedicated resources to international being more competitive international accelerating the active account acquisition international markets, that's really over.

Okay.

So does that mean hiring.

People on the ground in those markets are what what kind of resources.

Are you speaking speaking of yeah. The that that involves hiring more people in market that involves writing more partnership deals that involved.

More many manufacturers that are a focus and specific regions that involve content partners for specific you know in region.

In Baltimore engineering, and and talent inside Brochu focused on international we think our our strategy that's worked for us.

In the U.S., which is Tvs players works and it internationally as well and that the technology. We've built also works internationally, we just need to take the formula and apply it more aggressively international markets and that's what we're that's what we're starting to do.

Is the runway for players outside the U.S. longer it early on the lifecycle then.

Then you know operating systems and the TV broker branded Tvs.

I think both players and Tvs or are great opportunities for international.

Okay. Thank you.

Thank you I'm not showing any further questions at this time I'd now like to turn the call back over to Anthony will that Fannie further remarks.

Thanks, we had another good quarter and we're pleased with our outlook for the full year.

Broke who is getting stronger in fundamental ways, we're executing well our streaming devices continue to stand apart.

We are attracting impressive content publishers and advertisers that drive our platform segment.

The world It is transitioning to streaming faster than ever and we are well positioned to capture the benefits.

We look forward to the holiday season, ensuring more with you in the new year. Thank you unhappy stream.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.