Q3 2023 Roku Inc Earnings Call

November 1, 2023

And the 2023 NFL draft is about to begin 32 teams get better in three days. Some good better than I was this will change the entire drastically once in a lifetime opportunity to get the number one.

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All good shops know this to be true great meals start with great ingredients. This season, we went short term for the very best from fresh produce and seafood.

Classic Southern flavors, we've got you covered so join me in my kitchen here inside the southern food and beverage museum for some truly memorable meals welcome back everybody Emerald Cook.

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I know youre going to love.

Welcome to my Roku original Martha Cook.

I'm, bringing you into my kitchen, and visiting some of my favorite places to try some incredible cuisine don't tell anybody delicious history. This is so good and create some wonderful dishes with friends, yes. That's the case, we might even have a little fun.

Now streaming free on the Roku channel.

Nobody had ever been in a draft.

And the 2023 NFL draft is about to begin 32 teams get better in three days. Some good better than I was this will change the entire draft. It once in a lifetime opportunity to get the number one.

A big day for response these are my sleepers my son.

Put them on that.

This is the most unpredictable drag we've ever seen it.

Unknown Attendee: The 2023 NFL draft is about to begin. 32 themes give better in three days, some give better than others. This will change the entire draft.

Yes.

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Unknown Attendee: This is once in a lifetime opportunity, get the number one pitch. This is a big aim for me. This is my sleeper's my son. Put a ball on it.

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Unknown Attendee: This is the most unpredictable draft we've ever seen. And the pitch is good.

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Good day, and thank you for standing by and welcome.

Unknown Attendee: What did you do? Your family grows, but your house stays the same.

Welcome to the Roku third quarter 2023 earnings conference call.

At this time all participants are in a listen only mode.

Unknown Attendee: I feel defeated as a working mom. A feeding door home. Can we gain massive difference?

After the presentation, there will be a question and answer session.

Can I ask a question during the session you will need to press star one one on your Touchtone telephone.

Unknown Attendee: This is going to be awesome. And if it's not, go after her. We need to bring in storage, musical space.

We'll then hear an automated message advising your hand is raised.

Unknown Attendee: Hey, so where I'm holding this out of the table over here. This is celebrated. With changing the home, you can change family.

To withdraw your question. Please press star one one again.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your host today Conrad Grodd, Vice President of Investor Relations. Please go ahead.

Unknown Attendee: All good chefs know this to be true. Great meals start with great ingredients. This season we went searching for the very best. From fresh produce and seafood to classic southern flavors. We've got you covered. So join me in my kitchen here inside the southern food and beverage museum for some truly memorable meals.

Thank you operator, good afternoon, and welcome to brokers third quarter 2023 earnings call I'm joined today by Anthony Wood, Roku is founder and CEO and Dan <unk>. Our CFO also on todays call for Q&A are Charlie Collier, President Roku media staffer Ozcan President devices.

For full details of our results and additional management commentary are available in our shareholder letter, which can be found on our investor Relations website at Roku Dot Com Port Slash investor our comments and responses to your questions on this call reflect management's views as of today only.

Unknown Attendee: Welcome back, everybody. The Emerald Cooks. I know you're going to love these.

Unknown Attendee: Welcome to my Roku original Martha Cook. I bring you into my kitchen and visiting some of my favorite places to try some incredible cuisine. Don't tell anybody delicious pastry. This is so good. And create some wonderful dishes with friends. That's the key. We might even have a little fun.

We disclaim any obligation to update this information.

On this call we will make forward looking statements, which are predictions projections or other statements about future events, such as our financial outlook, our commitment to positive adjusted EBITDA for full year 2024, and continued improvements thereafter, our investments future market conditions and macro environment.

Unknown Attendee: Now, stream me free on the Roku channel.

Unknown Attendee: Nobody had ever been in a draft front. The 2023 NFL draft is about to begin. 32 teams give better in three days.

Uncertainties. These statements are based on our current expectations forecasts and assumptions and involve risks and uncertainties. Please refer to our Cheryl litter and periodic SEC filings for risk factors that could cause our actual results to differ materially from these forward looking statements. We will also discuss certain non-GAAP.

Unknown Attendee: Some give better than others. This will change the entire draft.

Unknown Attendee: Once in a lifetime opportunity, you get the number one pick. This is the paper. This is my sleepers, my son. Put them on. This is the most unpredictable draft we've ever seen.

Measures on today's call reconciliations to the most comparable GAAP financial measures are provided in our shareholder letter finally, unless otherwise stated all comparisons on this call will be against our results for the comparable period of 2022, now I would like to hand, the call over to Anthony.

Unknown Attendee: Ben! Ben, here we go! That's the name of the bull's run! That's it now! We're going to talk about it! We're going to go on it! How much are movies now? Like 200 bucks? No, they're 40!

Thanks Scott.

We are executing well as the shift of TV streaming continues and delivered a strong quarter.

We grew our scale with net adds of $2 3 million active accounts and acceleration from the previous quarter.

Drove strong engagement with streaming hours, surpassing $100 billion for the first time on a trailing 12 month basis and the Roku channel remains a top 10 screaming at with.

With engagement comparable to Paramount plus Peacock and Max According to Nielsen.

On the monetization side platform revenue was up 18% year over year, reflecting strong contribution from content distribution and video advertising.

Unknown Attendee: I'm about to fill the tea! Here we go! Twenty-four of us won! One comes out!

Continued to tap into new AD demand sources and are now integrated with more than 30 programmatic partners.

Unknown Attendee: Find Jason Gordon!

And on the Roku platform through automated third party demand sources in Q3 grew meaningfully year over year.

And we expanded our partnerships with marquee brands this quarter with Spotify, We introduced video ads and the Spotify App on Roku devices and with the NFL, We launched the firstly Brandon zone, and the Roku sports experience.

We continue to make progress in reducing our year over year Opex growth rate in September we announced additional measures that included a reduction of our workforce and office facilities and the removal of select content.

Unknown Attendee: Good day, and thank you for standing by.

Conrad Grott: Welcome to the Roku Third Quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Unknown Attendee: After the presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star-1-1 on your touch-tone telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star-1-1 again.

These measures and other cost reductions along with our strong top line growth.

Enabled us to deliver adjusted EBITDA of $43 million in Q3.

Going forward, we will balance investment for growth with our commitment to positive adjusted EBITDA for the full year 2024.

Unknown Attendee: Please be advised that today's conference is being recorded.

And we expect continued adjusted EBITDA improvements after that.

Conrad Grott: I would now like to hand the conference over to your host today, Conrad Grott, Vice President of Investor Relations. Please go ahead. Thank you, operator.

With our growing scale and engagement relentless focus on providing the best TV streaming experience and ongoing innovation, we are well positioned at the AD market recoveries.

Conrad Grott: Good afternoon and welcome to Roku Third Quarter 2023 earnings call. I'm joined today by Anthony Wood, Roku's founder, CEO, and Dan Jetta, RCEFO. Also in today's call for Q&A, our Charlie Collier, President Roku Media, and Mustafa Ozgan, President Devices. For full details of our results in additional management commentary are available in our Cheryl Letter, which can be found on our Investor Relations website at Roku.com-Fordslash-investor. Our comments and responses to your questions on this call reflect management views as of today only, and we display any obligation to update this information.

Now I'll turn it over to Dan to discuss our results.

Thanks Anthony.

We ended the quarter with $75 8 million active accounts globally up 16% year over year.

Sequential net adds of $2 3 million accelerated quarter over quarter.

Overall smart TV unit sales in the U S were up year over year in Q3, driven by our consumer focus on value that benefited roku, which grew significantly faster than the overall industry.

Roku player unit sales remain above pre COVID-19 levels and the average roku players selling price was up 2% year over year.

Conrad Grott: On this call, we'll make four-looking statements, which are predictions, projections, or other statements about future events such as our financial outlook, our commitment to positive adjusted EBITDA for four-year 2024, and continue to improvements thereafter. Our investments, future market conditions, and macro-environment uncertainties. These statements are based on our current expectations, forecast, and assumptions, and involve risks in uncertainties. Please refer to our Cheryl Letter and Periodic SEC filing for risk factors that could cause our actual results defer materially from these four-looking statements.

Roku users streamed $26 7 billion hours in the quarter, an increase of 22% year over year, while viewing hours on traditional pay TV fell 15%.

Streaming hours per active account per day, a $3 nine was up 5% year over year.

In Q3 total net revenue increased 20% year over year to $912 million.

Platform revenue was up 18% year over year to $787 million driven by both content distribution and video advertising offset by lower media and entertainment promotional spend.

Conrad Grott: We'll also discuss their non-gap financial measures on today's... Call. Reconciliation to the most comparable gap financial measures are provided in our share of a little letter. Finally, unless otherwise stated, all comparisons on this call will be against results of the comparable period of 2022.

Content distribution activities grew faster than overall platform revenue benefited from increased subscription sign ups, along with recent price increases from <unk> partners.

Similar to Q2 2023 platform revenue and gross profit also benefited from a positive 606 adjustments from changes in forecast of our content distribution deals.

Anthony Wood: Now, I'd like to hand a call over to Anthony. Thanks, Conrad. We are excusing well as the shift the TV streaming continues and deliver the strong quarter. We grew our scale with net ads of 2.3 million active accounts and acceleration from the previous quarter. We drove strong engagement with streaming hours for passing 100 billion for the first time on its trailing 12 month basis. And the Roku channel remains a top 10 streaming app with engagement comparable to Paramount Plus, Peacock and Max, according to Nielsen.

Q3 devices revenue increased 33% year over year, driven by the launch of our Roku branded Tvs and smart home products.

In Q3, <unk> was approximately $41 on a trailing 12 month basis down 7% year over year, but up quarter over quarter for the first time since Q3 of last year.

We expect <unk> to benefit in future periods from a recovery in the AD industry.

Anthony Wood: On a monetization side, platform revenue was up 18% year over year, reflecting strong contribution from content distribution and video advertising. We continue to tap into new ad demand sources and are now integrated with more than 30 programmatic partners. Stand on the Roku platform through automated third party demand sources in Q3, through meaningfully year over year. And we expanded our partnerships with marquee brands this quarter with Spotify. We introduced video ads in the Spotify app on Roku devices. And with the NFL, we launched the first Lee brand's zone in the Roku sports experience. We continued to make progress and reducing our year over year off its growth rate.

In Q3 gross profit was $369 million up 3% year over year.

Excluding the restructuring and impairment charges gross profit was up 22% year over year.

Gross margin was 48% down five points sequentially, driven primarily by a $62 million impairment charge related to the removal of select licensed and produced content from the Roku channel.

Excluding the impairment charge platform gross margin would have been 56% a three point increase sequentially.

Devices margin was negative, 8%, which was up nearly 10 points sequentially.

Anthony Wood: In September, we announced additional measures that included a reduction of our workforce and office facilities and the removal of select content. These measures and other cost reductions, along with our strong top line growth, enabled us to deliver adjusted EBITDA of 43 million in Q3. Knowing forward, we will balance investment for growth with our commitment to positive adjusted EBITDA for the full year 2024. And we continue to adjust the EBITDA improvements after that. With our growing scale and engagement, relentless focus on providing the best TV streaming experience and ongoing innovation, we are well positioned as the ad market recovery.

Q3, adjusted EBITDA was positive $43 million to better than expected performance was driven by strong topline growth along with cost reductions and measures we announced in September to further reduce our year over year opex growth rate.

Free cash flow for Q3 was positive $239 million and we ended the quarter with over $2 billion in cash and restricted cash.

Looking to the fourth quarter, we anticipate total net revenue of $955 million up 10% year over year.

Gross profit of 405 million with gross margin of 42%.

And positive adjusted EBITDA of $10 million.

Dan Jedda: Now I'll turn it over to Dan to discuss our results. Thanks, Anthony. We ended the quarter with 75.8 million active accounts globally, up 16% year over year.

Within the platform segment, we had a solid rebound in video ads in Q3, and we expect year over year growth rate of video ads in Q4 to be similar.

We remain cautious and uncertain macro environment, and an uneven ad market recovery.

Dan Jedda: Sequential net ads of 2.3 million accelerated quarter over quarter. Overall, Smart TV unit sales in the US were up year over year in Q3, driven by a consumer focus on value that benefited Roku, which grew significantly faster than the overall industry. Roku player unit sales were made above pre-COVID level and the average Roku player selling price was up 2% year over year. Roku users streamed 26.7 billion hours in the quarter and increased a 22% year over year while viewing hours on traditional pay TV fell 15%. Training hours per active account per day of 3.9 was up 5% year over year.

AD verticals like CPG, and health and wellness continued to improve while vertical by financial services and M&A remained challenged.

Additionally, we will face difficult year over year growth rate comparisons and content distribution, and M&A, which will challenge the year over year growth rate of platform revenue in Q4.

Within devices segment, we expect device margins to be down sequentially in line with historical seasonal trends, but up year over year.

We anticipate both the sequential point decrease and the year over year increase to be in the low teens.

As a reminder, Q4 is traditionally a heavier promotional period in the retail calendar, resulting in lower device margins in the quarter relative to other quarters.

Dan Jedda: In Q3, total net revenue increased 20% year over year to 912 million. Platform revenue was up 18% year over year to 787 million driven by both content distribution and video advertising, offset by lower media and entertainment promotion. He's a professional spend. Content distribution activities grew faster than overall platform revenue, benefited from increased subscription signups along with recent price increases from S-BOD partners. Similar to Q2 2023, platform revenue and gross profit also benefited from a positive 606 adjustment from changes in forecasts of our content distribution deals.

Turning to Opex, we anticipate Q4 year over year growth and a negative <unk> a significant improvement from opex year over year growth of approximately 70% in Q4 of last year.

We will continue to operate our business with discipline to defend margins with a focus on driving positive free cash flow over time.

Additionally, we remain committed to achieving positive adjusted EBITDA for full year 2024 with continued improvement after that.

We will balance this commitment with investments to further expand our scale engagement and monetization.

With that let's take questions operator.

As a reminder to ask a question. Please press star one one on your Touchtone telephone and wait for your name to be announced.

To withdraw your question. Please press star one one again please.

Dan Jedda: We expect our food to benefit in future periods from a recovery in the ad industry. In Q3, gross profit was 369 million of 3% in your year. Excluding restructuring and impairment charges, gross profit was up 22% year over year. Platform gross margin was 48% down 5.2%, driven primarily by a $62 million impairment charge related to the removal of select license and produce content from the Roku channel. Excluding the impairment charge, platform gross margin would have been 56% a 3.8% increase sequentially. Advice as margin was negative 8%, which was up nearly 10 points sequentially.

Please standby, while we compile the Q&A roster.

Our first question will come from the line of Cory Carpenter with Jpmorgan.

Hey, Thanks for the question.

Hoping you could go a bit deeper into the different trends, you're seeing across many upfront and the scatter markets generally maybe specifically for you anything that you would call out an impact from geopolitical events in <unk> and then Dan maybe if you could just tie it all together to have them.

Can the various crosscurrents Gotcha <unk> guide thank you.

Hey, Cory. Thanks. This is Anthony so that Charlie will take that first part of that question and then the second part okay. Thanks, Anthony and Hey, Corey I hope it will.

Dan Jedda: Q3 adjusted EBITDA with positive 43 million. The better than expected performance was driven by strong top line growth along with cost reductions and measures we announced in September to further reduce our year-over-year off-ex growth rate. Great cash flow for Q3 was positive 239 million and we ended the quarter with over 2 billion in cash and restrictive cash.

Sure.

I'll start in second quarter, we saw a continued rebound in video advertising from second quarter into third quarter and in third quarter year on year growth of video advertising on Roku actually outperform the overall AD market and the linear AD market in the U S. So while we're optimistic about the ongoing rebound in.

Video advertising on our platform.

Dan Jedda: Looking to the fourth quarter, we anticipate total net revenue of 955 million of 10% year over year. It was profit of 405 million with gross margin of 42%. And positive adjusted EBITDA of 10 million. Within the platform segment, we had a solid rebound in video ads in Q3 and we expect your year-over-year growth rate of video ads in Q4 to be similar. However, we remain cautious amid an uncertain macro-environment and an uneven ad mark of the recovery.

We remain cautious about the uncertain macro environment and the uneven AD market recovery by category actually Cory for instance.

CPG and health and wellness are growing and doing quite well, but there are still categories like financial services and insurance that are not recovering as quickly and you mentioned M&A.

I expect M&A to be further pressured fourth quarter by of course, the limited fall release schedules because of labor strikes and there are some challenging comps last year. If you remember included the World Cup and a healthy seasonal and full theatrical schedule.

Dan Jedda: Ad verticals like CPG and health and wellness continue to improve while verticals like financial services and M&E remain challenged. Additionally, we will face difficult year-over-year growth rate comparisons and content distribution and M&E, which will challenge the year-over-year growth rate of platform revenue in Q4. Within devices segment, we expect device margins to be down sufficiently in line with historical seasonal trends, but up year-over-year. We anticipate both the sequential point decrease and the year-over-year point increase to be in the low teens. As a reminder, Q4 is traditionally a heavier promotional period in the retail calendar, resulting in lower device margins in the quarter relative to other quarters.

And more so I would say sort of trend wise, we had a solid really solid.

Rebound and video ads in third quarter, and though there are the ups and downs I mentioned, we're executing well and I fully expect the year on year growth rate of video ads in fourth quarter to be similar to the third.

Dan you want to yes, Hi, Hi, Cory Thanks for the question I'll, Let me just tie that with Charlie just said into how it impacts Q4 guide.

Yes, we did have a very solid video ads rebound in Q3, we do expect as Charlie said the year over year growth rate in video ads to be similar in Q4 and you also.

Dan Jedda: Turning to FX, we anticipate Q4 year-over-year growth in the negative and the deep, a significant improvement from FX year-over-year growth of approximately 70% in Q4 glass. And we will continue to operate our business with discipline to defend margins with a focus on driving positive free cash flow over time. Additionally, we are made committed to achieving positive adjusted EBITDA for a full year 2024 with continued improvements after that. We will balance this commitment with investments to further expand our scale engagement and monetization.

We said that we remain cautious and uncertain for the macro environment, the uneven AD market recovery.

I do want to add we also do face a difficult year over year growth rate comparison in content distribution and M&A and that does challenge a sequential growth rate change from Q3 to Q4, we had a very strong Q3 in our economy.

Content distribution activities that comp gets harder in Q4, and that's factored into our guide.

And so from a sequential basis. When you look at Q4 2023 growing slower than Q3 2023 some of that.

Unknown Attendee: With that, let's take questions. Operator? As a reminder to ask a question, please press star-1-1 on your touchtone telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. Please stand by when we compile the Q&A roster.

Uh huh.

Order comp and some of it is timing as you look at our H two compared to each one of this year relative to our H two compared to <unk> of last year Youll see a nine point sequential change in the second half of 2023 relative to 2022.

So thats also playing into the guide and I'll just end by saying, we expect to demonstrate further leverage in our business.

Cory Carpenter: Our first question will come from the line of Cory Carpenter with JP Morgan. Thanks for the question. I hope you go a bit deeper just into the different trends you're seeing across in the many upfronts in the scatter markets.

While our outlook with an outlook that calls for double digit increase year on year and gross profit and a double digit decrease year over year in Opex and that's what's driving the positive adjusted EBITDA for Q4.

Hey, Corey this is Andy I'll just.

Cory Carpenter: Charlie may be specifically for you, anything that you would call out on impacts from geopolitical events in 4Q, and then Dan may be to get us tied all together and to have those various cross-currents got you to year 4Q guys. Thank you. Cory, thanks. This is Anthony. So, yep. Charlie will take that first part of that question and Dan the second part. Thanks, Anthony. Hey, Cory. I hope, well, you know, I'll start in second quarter.

If I could just wrap and I'll just add that.

Feel good about our commitment to achieving positive adjusted EBITDA.

For the full year 2024, and obviously with continued improvements after that.

So feel good about continuing to invest in our business. While also meeting those targets. So.

Things are looking good for us right now.

Thank you thanks.

Our next question comes from the line of Michael Nathanson with Moffett Nathanson.

Cory Carpenter: You know, we saw a continued rebound in video advertising from second quarter into third quarter and in third quarter, you're on your growth of video advertising on Roku actually outperformed the overall ad market and the linear ad market. Right in the US. So, while we're optimistic about the ongoing rebound in video advertising on our platform, we remain cautious about the uncertain macro environment and the uneven ad market recovery by category. Actually, Cory, for instance, CPG and health and wellness are growing and doing quite well, but they're still categories like financial services and insurance that are not recovering as quickly.

Thanks.

Hey, Charlie I have two here one is as you noted in the press release Roku channel is up 50% year over year.

You talk a bit about what's changed on your watch in terms of how your program. It versus previously and then secondly, where I'll focus on Amazon entering the market.

Prime video as where you think it means for more broadly the ecosystem and then any competition that you think you'll hit.

They enter.

Prime video advertising.

Hey, Michael This is Anthony why.

Well, let me start with the.

Cory Carpenter: And you mentioned M&E, you know, expect M&E to be further pressured in fourth quarter by, of course, the limited fall release schedules because of labor strikes. And, you know, there are some challenging comps last year, if you remember, included the World Cup and a healthy seasonal and full theatrical schedule and more. So, I'd say sort of trend wise, we had a solid, really solid rebound in video ads in third quarter and though there are the ups and downs I mentioned, we're executing well and I fully expect the year on your growth rate of video ads in fourth quarter to be similar to third.

A question about video ads and competitors.

And then Charlie can it okay great.

Expand on.

The rest of your question. So just I would just I would say.

No.

Okay.

First of all we are the leading TV streaming platform, it's a great position to be in we get asked about market dynamics a lot. We've founded roku on the belief that all television, including advertising is going to be streamed and we're obviously seeing that seeing that happen, we're willing to that transition, but there is still a long way to go traditional TV ads in the U S as <unk>.

<unk>, probably knows as a $60 billion of your business, it's all going to move to streaming and theres going to be multiple winners.

Dan Jedda: Yeah, hi, Cory. Thanks for the question. Let me just tie that with Charlie just said into how it impacts the Q4 guide. Yes, we did have a very solid video ads rebound in Q3. We do expect as Charlie said, the year of your growth rate in video ads to be similar in Q4 and he also said that we remain cautious and uncertain for the macro environment, the uneven ad market. Recover, I do want to add that we also do face a difficult year-over-year growth rate comparison and content distribution and M&E, and that does challenge the sequential growth rate change from Q3 to Q4. We had a very strong Q3 in our content distribution activities. That comp gets harder in Q4 and that's factored into our guide.

Our platform, obviously has significant scale engagement first party data unique ad products.

And like we said before in the US our scale is approaching half of broadband households.

That makes us a tremendous an important platform to begin and be involved in for everyone. In the ecosystem are streaming hours.

The 100 billion hours, great milestone for us.

The Roku channel.

As Charlie will talk more about it but it is a top 10 streaming app.

On our platform and represents nearly 3% of all TV streaming in September not just on roku lid across everywhere.

Is comparable to the engagement of Aflac, Paramount plus Peacock and Mac. So.

We're in a great position.

There are strong.

Anthony Wood: And so from a sequential basis, when you look at Q4 2023 growing slower than Q3 2023, some of that is this harder comp and some of it is timing. If you look at our H2 compared to H1 of this year relative to our H2 compared to H1 of last year, you'll see a 9-point sequential change in the second half of 2023 relative to 2022. So that's also playing into the guide and I understand by saying we expect to demonstrate further leverage in our business while our outlook with an outlook that calls for double digit increase year on year and growth profit and a double digit decrease year-over-year in op-x.

Part of the ecosystem, we're executing well.

If I think about.

A couple of factors impacting our the growth of our video AD business specifically.

The most important one which we've mentioned before and continues to be the most important is just the macro as well as the macro environment, which is.

This is impacting everyone right now and then the second one is just how fast advertisers move from traditional TV to streaming.

There's still a lot of dollars that are in the traditional pay TV ecosystem that are all going to move to streaming.

That's a big factor in terms of our growth and I think.

As.

Services like.

Anthony Wood: And that's what's driving the positive adjusted EBITDA for Q4. Hey Cory, this is Andy. I'll just, if I can just wrap it, I'll just add that I, you know, I feel good about our commitment to achieving positive adjusted EBITDA for the full year 2024. And obviously we've continued improvements after that. I also feel good about continuing to invest in our business while also meeting those targets. So, you know, things are looking good for us right now. Thank you.

Services that were traditionally.

AD free.

<unk> start to add as it does have the benefit of.

Creating more interest in <unk>.

Advertisers are moving their ads to streaming so that's a positive benefit for us.

And then I think.

Another thought I have maybe most people don't think about is if you think about.

The Roku channel.

Yeah.

Popular streaming services make the tradeoff to add adds it levels, the playing field and viewers minds with services like the Roku channel, which are already AD supported.

Michael Nathanson: Our next question comes from a line of Michael Nathanson with Moffit Nathanson. Thanks.

In other words, the streamer and streaming services that don't traditionally have ads as they enter the advertising business.

Michael Nathanson: Hey Charlie, I have two of you. One is, as you noted in the press release, Roku channel is up 50% year of a year. You talk a bit about what's changed on your watch in terms of how you program it versus previously.

There is going to increase engagement on the Roku channel.

So those are a few high level thoughts.

And then Charlie you want to sure up your thoughts yes. Thanks for the question Michael Thanks Anthony.

Anthony Wood: And then secondly, we're focused on Amazon entering the market for prime video ads. What do you think it means for more broadly the ecosystem and then any competition that you think you'll hit as they enter for prime video advertising? Thanks.

Look we've done a lot of.

Curation on the Roku channel and we feel really good about.

<unk>.

Our opportunities there Michael to continue to grow.

Anthony Wood: Hey Michael, this is Anthony. Well, we won't start with the question about video ads and competitors and then Charlie can expand on the rest of your questions. So, you know, just I just, I would say, you know, first of all, we're the leading TV streaming platform.

Really our focus is on bringing the right mix of content to the Roku channel content that our customers love and watch across what is really that curated mix of licensed.

Content, the fast channels and original content and.

To sort of summarize our prioritized for your original are a key part of our strategy and I'm proud of the team and our efficient and impact driving efforts, but the foundation of Roku as content spend is third party licensed content that we surface for viewers through Roku is unique UI advantages our position.

Charlie Collier: It's a great position to be in. We get asked about market dynamics a lot. You know, we've found Roku on the belief that all TV, including advertising, is going to be streamed. And where I was seeing that, seeing that happen will willing to that transition, but there's still a long way to go. So, traditional TV ads in the US, as everyone probably knows, is a 60 billion dollar Europe business. It's all going to move to streaming.

As the platform is extremely powerful probably I would say more powerful than I anticipated even coming in when we first spoke and we have great program overall and the numbers and the engagement growth proved that our content mix is is working well.

Charlie Collier: And there's going to be multiple winners. Our platform obviously has significant scale engagement first party data unique ad products, you know, and like we said before in the US, our scale is approaching half a broadband household, you know, that makes us tremendously important platforms to be involved in for everyone, and the ecosystem. Our streaming hours passed 100 billion hours, a great milestone for us. The Roku channel, which Charlie will talk more about, but it's a top 10 streaming app on our platform, and represents nearly 3% of all TV streaming in September, not just on Roku, but across everywhere, which is comparable to the engagement of Half Light Paramount Plus Peacock and Mac.

<unk> channel has grown streaming hours, 50% year on year, and so just like I did at AMC and other places I've led we're very serious about managing our library and we frequently tweak it in fact.

We review the Roku channel is content and the content performance often simply to ensure that viewers have the best possible experiences. That's the job to adjust the mix of offerings and do so to the benefit of audiences and that process has helped us grow and the engagement is growing consistently and we.

Charlie Collier: So, you know, we're in a great position. We're a strong part of the ecosystem, we're executing well. And if I think about, you know, a couple of factors that would be impacting the growth of our video ad business, specifically, the most important one, which we've mentioned before and continues to be the most important, it's just a macro, is, well, one is the macro environment, which, you know, is impacting everyone right now, and then the, but the second one is just how fast advertisers move from traditional TV to streaming.

See continued growth ahead across all key content categories, starting with that direct license as I mentioned, including the fast channels.

And even sports and focused in budget originals.

We have 400, plus fast channels linear fast channels and they're gaining in traction fans noticed that our NFL partnership continue to grow and the NFL zoned launch within our sports one in September and Roku original mirrored that and Premier the NFL draft pick Zane I think you just saw clip if you were waiting on the call.

Charlie Collier: You know, there's still a lot of dollars that are in the traditional pay TV ecosystems that are all going to move the streaming, and that's a big factor in terms of our growth. And I think as services like, you know, services that were traditionally ad-free start to add ads, it does have the benefit of creating more interest in, have advertisers than moving their ads to streaming, so that's the positive benefit for us.

Applebee's sponsored that and that provided insider access to the NFL draft in partnership with the NFL sitting side by side with our expanded NFL partnership and then we did innovative stuff like we launched the Mr. Beast fast channel working with one of the most popular Youtube creators I think he has something like 176 million Youtube.

Scriber and that was both strategic and accretive and it is an exclusive launch that our audiences loved and it performed really well. So we're on strategy Michael and see growth ahead, we will continue to release, new content and new partnerships on the Roku channel and I am pleased with the team and our process.

Charlie Collier: And then I think, you know, another thought I have that maybe most people won't think about is if you think about the Roku channel, you know, as popular streaming services make the trade-off to add ads, it levels the playing field, and viewers' minds, the services like the Roku channel, which are already ad-supported. In other words, the streaming services that don't traditionally have ads as they enter the advertising business, you know, I believe it's going to increase engagement on the Roku channel.

And our progress.

This is Anthony again.

I will just point out an important component of our Roku channel business model, which I think people understand but maybe not everyone, which is that roku big strategic advantages.

With the platform that a large number of people used to watch TV, so approaching half the broadband households in the United States when they turn on their TV do you why do they see as the Roku user interface.

Charlie Collier: So those are a few high-level thoughts. And then, Charles, you want to have your thoughts? Yeah, thanks for the question, Michael. Thanks, Anthony. Look, you know, we've done a lot of curation on the Roku channel, and we feel really good about, you know, our opportunities there, Michael, to continue to grow. Really our focus is on bringing the right mix of content to the Roku channel, content that our customers love and watch across what is really that curated mix of license, content, the fast channels, and original content.

And so one way we use that is to help recommend content to our user to recommend content. That's in the Roku channel to viewers, obviously uses rickman all kinds of content, but we also insert.

I'll make sure that we promote content within the Roku channel and our user interface. When they are deciding what what to watch and so that position in the viewer journey is a big competitive advantage that allows us to grow the scale and engagement in the Roku channel.

With much smaller content budgets and other other companies that have similar scale have to spend in order to reach that sort of in order to achieve that kind of reach and so it's a big competitive advantage in our business model.

Charlie Collier: And to sort of summarize or prioritize for you, originals are a key part of our strategy and I'm proud of the team and our efficient and impact-driving efforts. But the foundation of Roku's content is third-party license content that we surface reviewers through Roku's unique UI advantages. You know, our position as the platform is extremely powerful. Probably I would say more powerful than I anticipated even coming in when we first spoke. And you know, we have great programming, well overall, and the numbers and the engagement growth prove that our content mix is working well.

Thank you both.

Okay.

Our next question comes from the line of Jason <unk> with Oppenheimer.

Okay two questions.

Sorry, there was an echo.

How much further does the company plan to go with DSP integrations I think you called out 30 over 30 in the letter.

Are you fully deployed with the major DSP and agency trading desk, just maybe help us understand what inning and then second question. Dan can you give us your philosophy for guidance like what's a reasonable kind of upside downside range.

Charlie Collier: You know, the Roku channel has grown streaming hours 50% year on year. And so just like, you know, I did a day AMC in other places, I've led. We're very serious about managing the library and we frequently tweak it. In fact, we review the Roku channel's content and the content performance, often simply to ensure that viewers of the best possible experiences. That's the job to adjust the mix of offerings and do so to the benefit of audiences.

Even if no number just philosophically I think just that would help investors kind of better set expectations. Thank you.

Hey, Jason this is Anthony.

We're making great progress with third party dst's, but it's still early in our journey there.

Charlie Collier: And that process has helped us grow. And the engagement is growing consistently. We see continued growth ahead across all key content categories, starting with that direct license. As I mentioned, including the fast channels and even sports and focused in budget originals, you know. We have 400 plus fast channels, linear fast channels, and they're gaining interaction. Fans noticed that our NFL partnership continued to grow. And the NFL zone launched within our sports zone in September and Roku originals mirrored that and premiered the NFL draft to pick is in.

Tapping into that demand source, but.

I'll, let Charlie talk about it more.

Thanks, Jason.

Are seeing meaningful success with our early efforts to scale third party DSP as we broaden our relationships with the full spectrum of not just third party DSP, but also third party supply and demand partners.

As you noted.

We're there with over 30 programmatic partners, both big and small to answer your question.

Spending.

We're seeing them spend on the Roku platform through automated third party demand sources and also obviously directly with us and that grew meaningfully year over year in the third quarter.

Charlie Collier: I think you just saw a clip if you were waiting on the call. Apple V sponsored that and that provided insider access to the NFL draft in partnership with the NFL sitting side by side with our expanded NFL partnership. And then we did innovative stuff like we launched the Mr. B fast channel working with one of the most popular YouTube creators. I think he has something like 176 million YouTube subscribers. And that was both strategic and creative and it was an exclusive launch that our audiences loved and it performed real well.

A lot of it has to do with a concerted effort to meet markers, where they wish to transact and thats been successful it allows us to diversify demand and to demonstrate the full power and breath of roku capabilities really no matter, how an investment in Roku has transacted and it also has allowed us to be a really flexible.

We'll partner.

In multiple ways across the markets. We serve so the initial results prove the benefits of the strategy and beyond just growing revenue the feedback has been terrific.

Charlie Collier: So we're on strategy Michael and see growth ahead. We will continue to release new content and new partnerships on the Roku channel. And I'm pleased with the team and our process and our progress. And this is and again, I'll maybe I'll just point out an important component of our Roku channel business model, which I think a lot of people understand that maybe not everyone, which is that Roku's big strategic advantage is that with a platform that a large number of people use to watch television.

Often called our partners most productive supplier of CTV impressions and as Anthony said the good news is these are still early days.

I would say there is no silver bullet the programmatic market faces the same overall macro challenges as other marketplaces, including categories like insurance that are not back as robustly as several other categories.

Overall, though our embrace of third party partners of all kinds continues and the results should continue to be positive we work sort of client by client to set up the best ways to build their businesses and to prove the unique value of roku.

Charlie Collier: So, you know, approaching half the broadband households in the United States when they turn on their TV, do you why did they see is the Roku user interface. And so one way we use that is to help recommend content to our we use it to recommend content is in the Roku channel to viewers, obviously we use it to recommend all kinds of content. But we also insert and make sure that we promote content is in the Roku channel in our user interface when they're deciding what what to watch.

I do want to note.

So to say this every quarter, but it's important.

Much of our unique first party in ACR data, along with our specialized AD products, our original programming and many of the unique elements of the Roku UI, which deliver it at scale that few others can offer. These features will continue to remain accessible only through roku and.

Charlie Collier: And so, you know, that position in the viewer journey is a big competitive advantage and allows us to grow the scale and engagement in the Roku channel with much smaller content budgets than other other companies that have similar scale have to spend in order to reach that sort of in order to achieve that kind of reach. And so it's a big competitive advantage in our business model.

Diversity of market facing options that allows us to manage both demand diversification in the one hand, and then product and pricing distinction on the other.

Unknown Attendee: Thank you both.

Hi, Jason I'll take the second part of that question on guidance.

Jason Helfstein: Our next question comes from a line of Jason Helstein with Oppenheimer. Thanks. Two questions.

Obviously, we performed far better than what we said.

When we issued our 8-K in early September and the reason for that was we did have a 606 adjustments that we talked about in the letter.

Jason Helfstein: Sorry, it was an echo. How much further does the company plan to go with DSP integration? I think you called out 30 over 30 in the letter. Are you fully deployed with the major DSPs in agency trading desk, which is maybe help us understand what ining?

Talked about earlier.

Had a great September and Q3 on video ads revenue, we had a very strong content distribution.

Jason Helfstein: And then second question, Dan, can you give us your philosophy for guidance? Like what's a reasonable kind of upside down side range? Even if no numbers is philosophically, I think just that what help investors is kind of better set expectations.

Quarter, as well and we saw the opportunity to go even a little deeper in our.

Our operating cost savings and so a lot of that played in to what resulted in Q3 and going forward the ad market.

Anthony Wood: Thanks. Thank you. Hey Jason, this is Anthony. You know, we're making great progress with third party DSP, but it's still early in sort of our journey there and tapping into that demand source, but I'll let Charlie talk about it more.

It's variable it's challenging a lot of ads are running closer to air date that does create some variability within a quarter, it's a very uneven ad market recovery.

Our best forecast that we think we've got a good handle on that content distribution activities is less seasonal and slightly more predictable, but the guidance is to give the best view that we have.

Charlie Collier: Thanks. Thanks Jason. We are seeing the full success with our early efforts to scale third party DSPs. We broaden our relationships with a full spectrum of not just third party DSPs, but also third party[inaudible] and that's been successful. It allows us to diversify demand, and to demonstrate the full power and breadth of Roku's capabilities, really no matter how an investment in Roku is transacted. And it also has allowed us to be a really flexible partner in multiple ways across the markets we serve.

At the start of the quarter.

When we give the guidance so it's not I wouldn't say, it's like overly conservative is better with progressive we don't give a range for a reason we give what we believe is our best view at the time that we give this call.

Thank you.

Our next question comes from the line of Schwinn Tokar, Julia with Evercore ISI.

Thank you for taking my questions.

Please.

Provide some color on what drove the net adds acceleration specifically pointed to a couple of things in your letter, but anything that you can point to if it was specific to this quarter something that was one time or just the trends that you saw and my next question is anything you want to call out on macro there are couple of other advertising platforms.

Charlie Collier: So the initial results prove the benefits of the strategy. And beyond just growing revenue, the feedback has been terrific. And we're often called our partners most productive supplier. They're of CTV impressions, and as Anthony said, the good news is these are still early days. I should say, there's no silver bullet, you know, the programmatic market faces the same overall macro challenges as other marketplaces, including categories like insurance that are not back as robustly as several other categories, overall though our embrace of third party partners of all kinds continues, and the results should continue to be positive. You know, we work sort of client by client to set up the best ways to build their businesses and to prove the unique value of Roku.

Callout impact from the Israeli war or anything that you saw or just the overall brand sentiment right now and in Q3. Thank you.

This is Anthony.

Alaska was thought to see if he has any color on.

No what drove our net adds in the quarter and then take your second part of your question was up political ads.

Sure.

And we're on it.

Charlie Charlie can take.

Hi, Thank you for the question in terms of the drivers have been.

Or are there.

It's a combination of strong growth in international markets as well as in the U S market.

Charlie Collier: I do want to note, I sort of say this every quarter, but it's important. You know, much of our unique first party and ACR data along with our specialized ad products, our original programming, and many of the unique elements of the Roku UI, which deliver it a scale that few others can offer. I mean, these features will continue to remain accessible only through Roku, and it's this diversity of market facing options that allows us to manage both demand diversification in the one hand, and then product and pricing distinction on the other.

Although we are approaching half of the broadband households in the U S. We still continue to grow and we still see growth opportunities.

As the shift to streaming.

It's happening in the U S.

Followed by the international markets.

Overall, both the.

Keeping devices in the play and devices are contributing to the growth in general Tvs are slightly higher than the players because of the international markets and we have a strong.

Sure.

Players have.

The mix of the devices used by the consumers in those markets.

Dan Jedda: Hi Jason, I'll take the second part of that question on guidance. You know, obviously, we performed far better than what we said when we issued RAK in early September, and the reason for that was we did have a 606 adjustment that we talked about in the letter that talked about earlier. We had a great September and NQ-3 on video ads revenue. We had a very strong content distribution quarter as well, and we saw the opportunity to go even a little deeper in our operating cost savings.

Overall.

Just looking at international event, we are doing really well in Latin America.

In Mexico, we are the number one selling TV OS.

Launch the Roku channel, which continues to grow.

Reach and engagement.

And we are beginning to monetize in Mexico.

And again the impairment that we are doing engagement.

We're doing within distribution with our television partners and without player devices, we see continue to grow in Mexico.

Yes, we have more than 10.

Dan Jedda: And so a lot of that played in to what resulted in Q-3, and going forward, the ad market is variable. It's challenging a lot of ad they're running closer to air date that does create some variability within a quarter. It's a very uneven ad market recovery. We're doing our best to forecast that. We think we've got a good handle on that content distribution activities. It's less seasonal and slightly more predictable. But the guidance is to give the best view that we have at the start of the quarter when we give the guidance.

TV partners in Mexico, and they are all growing their market share and that's helping us to get to get the number one.

Selling TV OS in Mexico equally we're growing in other markets like Brazil, we have a strong growth in Brazil and Mexico.

Mexico is a large country in terms of number of households, so that's helping us to drive our net.

<unk>.

I'll, just add really quick to that.

On the international it's definitely.

<unk>.

Tailwind for us, but on the RPC side.

It takes the actives into account.

Dan Jedda: So it's not, I wouldn't say it's like overly conservative, it's not overly aggressive. We don't give a range for a reason. We give what we believe is our best view at the time that we give this call.

We were down 7% at 41% to three year on year, we did see a sequential change that's on a 12 month trial basis, we did see a sequential growth.

Dan Jedda: Thank you.

Yes.

In our <unk>, which is a big positive despite a very solid net active adds quarter and then we also look at it on a quarterly we don't.

Shweta Khajuria: Our next question comes from a line of Shweta Khajuria with Evercore ISI. Thank you for taking my questions. Could you please provide some color on what drove the Net ads? Acceleration specifically pointed to a couple of things in your letter, but anything that you can point to if it was specific to this quota or something. That was one time or just the transit you saw. And my next question is anything you want to call out on Macro, there are a couple of other advertising platforms that did call out impact from the Israel War, anything that you saw or just the overall brand sentiment right now and in Q3.

Sure it out but the quarterly.

<unk> also had a year on year change positive change so really good <unk>. In addition to a very strong net adds for the quarter.

This is Anthony again, I'll add just a couple other observations about net adds one is.

We are shifting.

A shift.

In consumers' minds to select and value oriented products and we excel in the value segment of television.

This was helped that helped us and then.

It's also I think we also continue to see consumers selecting larger screen size Roku Tvs, which is which is also beneficial because they tend to.

Shweta Khajuria: Thank you. This is Anthony. I'll ask Mustafa to see if he has any color on the work of our Net ads in the quarter, and then think your secondary question is up political ads. We're on it. Charlie, Charlie. Thank you for the question. In terms of the drivers of the net ad in the order, you know, it's a combination of strong growth in international markets, as well as in the US market.

The consumers that the larger screen sizes tend to be in the main room in the house and so it's a great spot to be in.

And then Charlie you want to talk about.

Thanks.

Sure. Thanks for the question about the conflict thus far we are not seeing.

The direct impact to AD spend from the conflict.

We would of course like most companies.

<unk> impact from it to the extent that it affects the macro environment, but again.

We're not seeing a direct impact has been from it yet.

Okay. Thank you very much.

Shweta Khajuria: You know, although we're approaching half of the broadband households in the US, we still can see the growth opportunities as the shipping streaming is happening in the US and followed by the international markets. Overall, both the TV devices and the player devices that we're contributing to the growth in general, TVs are slightly higher than the players because of the international markets. And we have a strong share of TVs and players because of the mix of the devices used by the consumers in those markets.

Thanks.

Our next question comes from the line of <unk> Bhattacharya with Bank of America.

Hi, Thanks for taking my questions and congrats on the quarter. My first question is on the upfront.

Can you give some more details like how did upfront pricing compared to last year.

Sure. You said you had 1 billion pleasant commitments I mean did you continue to gain share. So any details on specifically on the pricing because in the scatter market as you open up.

ASP to working with a third party DSP is are you open to price discovery below that level of the upfront and so how do you trade off the fill rate versus CPM on margins.

Shweta Khajuria: Overall, you know, just looking at the international, but we are doing really well in Latin America. In Mexico, we are the number one selling TV OS launched the Roku channel where you can use to grow in recent engagement. And we are beginning to monetize in Mexico. And again, the improvements that we're doing, the engagement and the improvements we're doing with the distribution with our TV partners and with our player devices, we see continue to grow in Mexico.

This is Anthony Charlie obviously can take that question I was hoping you can take it.

Alright. Thanks.

Look I'm not going to break out the upfronts, except to say youll be pleased with our numbers overall, whether they come in the broadcast upfront.

Cylinder upfront scatter as the blend you just described I'll start by saying look I'm pleased to report.

Shweta Khajuria: Again, we have more than 10 TV partners in Mexico and they are all growing their market share and that's helping us to get to get the number one selling TV OS in Mexico. Equally, we're growing in other markets like Brazil. You know, we have a strong growth in Brazil. And just like Mexico, Brazil is a large country and there's a number of households and that's helping us to drive our net ads.

That we did do well in terms of total upfront dollars to the platform.

It's interesting as I said in last quarter's earnings call. This year with a very different one for everyone.

The industry because it proceeded as such a slower pace than usual and despite the pace of closed on time as we knew it would and we're pleased with the outcome. It was interesting to me because the sales team pretty much pivoted from closing the upfront right into focusing on scatter and one trend you see is.

Shweta Khajuria: I'm just adding really quick to that. The international is definitely a big tail in for us, but on the Roku side, which of course takes the actors into account. Well, we were down 7% at 41 over three years and we just used sequential change. That's on a 12-month trail basis. We did see a sequential growth in Roku, which is a big positive, despite a very solid net active ads quarter. And then, you know, we also look at it on quarterly.

<unk> is still spending closer to air dates.

Think that will continue and we certainly saw evidence of that in the third quarter. So when I look at total dollars. We did well we continue to take share from the overall TV market because the combination of our unique scale the data, we offer and compelling roku only offerings.

Again business tends to keep coming in late and we keep highlighting but the agriculture itself is uneven as Dan mentioned across categories. So that's just making forecasting particularly challenging.

Shweta Khajuria: We don't want to share it out, but the quarterly RPU also had a year on your change, positive change. So really good RPU in addition to a very strong net active ads for the quarter. This is Anthony again, I'll add just a couple other observations about NetApp. One is in consumer's mind to selecting value-oriented products, and we excel in the value segment of PV. That helps us. And then, I think we also continue to see consumers selecting larger screen size Roku TVs, which is also beneficial because they tend to be consumers.

As broadcast and linear entertainment impressions continue to decline.

As a reminder, by the way global hours on Roku grew 22% year over year, while linear hours in the U S declined 15%. So the gap is significant so and as this continues I believe CTV in general and Roku, specifically, we will continue to be planned and bought earlier in the process. So.

Overall advertisers engage with roku on the upfront I talked a little bit about our third party DSP, we're seeing great engagement, there too and we're seeing again later than usual, but we're seeing that engagement in scatter as well.

Shweta Khajuria: The larger screen sizes tend to be in the main room of the house, and so it's the great spot to be in. And then, Charlie, you want to talk about that? Thanks for the question about the conflict. You know, thus far we are not seeing a direct impact to add spend from the conflict. Wood of course, like most companies experience impact from it to the extent that it affects the macro environment, but again, we're not seeing a direct impact has been from it yet. Okay, thank you very much.

We've talked a lot about having nearly half the broadband households in the U S and the unique advantages of that scale and our data and our AD products like Roku City, where shopper will ads or some of the powerful tools, we use to attract engage and retain audiences. I think all of that is what <unk> seen us drive that success.

Got it and just a quick follow up if and many spend remains weak are there things you can do to monetize the home screen and screen saver differently.

Oversupply to other end markets. So any thoughts there. Thank you so much and congrats on the quarter.

Anthony Wood: Our next question comes from a line of Ruplu Bhattacharya with Bank of America. Hi, thanks for taking my questions and congrats on the quarter. My first question is on the upfronts. Can you give some more details like how did upfront pricing compared to last year? I mean, I think last year you said you had 1 billion pleasant commitments. I mean, did you continue to gain share? So any details on specifically on the pricing?

Thank you and thanks for the question.

Let me let me.

Let me start on <unk>.

Sure Charlie has.

Things to say on that topic as well so.

I think well first of all.

I'll just say that.

Anthony Wood: Because in the scatter market, as you open up your DSP to working with third-party DSPs, are you open to price discovery below that level of the upfronts? And so how do you trade off the fill rate versus CPMs and margins? Ruplu, this is Anthony Charlie. Obviously, you can take that question. Thanks, Ruplu.

As I said before we're the number one TV streaming platform, we distribute lots of streaming services and apps and content.

Often.

Not usually their number ones distribution platform on television.

This relationship.

<unk> of our relationship with viewers and with content apps generates a lot of different revenue streams for us beyond just M&A.

And you can see this in our Q3 results and Q3 <unk> was pressured but we still do the platform revenue 18%.

Anthony Wood: Look, I'm not going to break out the upfronts except to say you'll be pleased with our numbers overall, whether they come in the broadcast upfront calendar, upfront scatter at the blend. And you just described, I'll start by saying, look, I'm pleased to report that we did do well in terms of total upfront dollars to the platform. You know, it's interesting as I said in last quarter's earnings call, this year was a very different one for everyone across the industry because it proceeded such a slower pace than usual.

And so those are sort of.

That implies obviously these other revenue streams are doing well.

And then when it comes to M&A promotions specifically.

So everyone doesn't know what that is.

As we expose the television viewing UI to our viewers.

Browse around we integrate promotions for different types of content into the user experience.

We do it in ways that are effective in driving engagement.

Anthony Wood: And despite the pace, it closed on time as we knew it would, and we're pleased with the outcome. It was interesting to me because the sales team pretty much pivoted from closing the upfront right into focusing on scatter. And one trend you see is advertisers are still spending closer to air dates. I think that'll continue. And we certainly saw evidence of that in the third quarter. So when I look at total dollars, we did well.

Built subscriptions, but also ways that are super viewer friendly so it's.

Something we're good at we put a lot of effort into it it's a win win for everyone.

Good for our business that Leverages, the fact that.

One of our key assets is the user interface for selecting content.

So it's an area that we continue to invest in.

I think we're best in class in.

The area that we're going to.

And continue to invest in.

<unk>.

Anthony Wood: We continue to take share from the overall TV market because of a combination of our unique scale, the data we offer, and compelling Roku only offerings. Again, business tends to keep coming in late as we keep highlighting. But the advert coverage itself is uneven as Dan mentioned across categories. So that's just making forecasting particular, was particularly challenging. But as broadcast and linear entertainment impressions continue to decline, Ruplu, as a reminder by the way, global hours on Roku grew 22% year over year, while linear hours in the US declined 15%.

Anthony is down right now because of the current state of the economy in the AD cycle, but it's an area that I think has long term potential.

I don't know Charles do you want to add your thoughts on M&A sure. Thanks, Anthony and thanks for the congratulations we talked a lot about diversifying demand and Anthony talked about integrating all sorts of different advertisers and <unk>.

Promotion into the UI beyond M&A, and that's right and maybe I'll just add that stepping back I think it is good to think about how versatile a partner Roku is.

Both to M&A and two other advertisers who need to prove that their marketing is working we are top of the funnel and bottom of the bottom of the funnel impact and were building upon it. So just on M&A look we are a business builder for our media and entertainment partners not just a place for them to invest in that because we make their services and content we use the word.

Anthony Wood: So the gap is significant. So as this continues, I believe CTV in general and Roku specifically will continue to be planned and bought earlier in the process. So overall, advertising is engaged with Roku on the way up front. I talked a little bit about our third-party DSPs. We're seeing great engagement there too. And we're seeing, again, later than usual, but we're seeing that engagement scatter as well. You know, we've talked a lot about having nearly half the broadband households in the US and the unique advantages of that scale and our data and our ad products like Roku City or shoppable ads or some of the powerful tools we use to attract and engage and retain audiences. I think all of that is what's seeing us drive that success. Got it.

Unmissable lot unmissable across the full funnel from broad reach acquisition right through to engagement.

In the case of M&A partners on Roku that literally means right youll see their ads on our platform and the integration as Anthony talked about.

Click here and watch the video here too so that that is the ultimate endemic advertiser for us and we're starting to see that impact beyond M&A.

So were effective and accountable and what's interesting is we're finding each of our partners has individual ways of seeing the power of the roku platform to help them build their business and so simultaneously we can benefit the customers really.

Anthony Wood: And just for a quick follow-up, if M&E spend remains weak, are there things you can do to monetize the home screen and screensaver differently at its diverse fight to other end markets? So any thoughts there? Thank you so much and congrats on the corner. Thank you. And thanks for the question. Let me start on Avenue. I'm sure Charlie has things to say on that topic as well. I think, well, first of all, I'll just say that, as I said before, we're the number one TV streaming platform.

The consumers the advertisers and our M&A channel partners, and we sort of relish all three opportunities Anthony you talked about the short term pain.

The <unk> category is facing because of the difficult AD sales market limited fall release schedules and the general uncertainty.

And as I mentioned earlier that last fourth quarter, there was some pretty big promotional moments from the World Cup.

Mid term elections.

I can tell you the temporary economic cycles do not dampen.

Anthony Wood: We distribute lots of streaming services and apps and content where, you know, often, if not usually, they're number one distribution platform on television. And, you know, this relationship, this scale of our relationship with viewers and with content apps generates a lot of different revenue streams for us beyond just M&E. And you can see this in our key to results. You know, in Q3, M&E was pressured, but we still do the platform revenue 18%.

The enormous opportunity that we see in working with our streaming partners.

We just have the reach and the scale and the powerful tools both to win ourselves, but also to help them win.

Anthony Wood: And so those are, you know, that implies obviously these other revenue streams are doing well. You know, and then when it comes to M&E promotion specifically, just in case everyone doesn't know what that is, you know, as we expose the TV viewing UI to our viewers. And if they browse around, we integrate promotions for different types of content into the user experience. And we do in ways that are effective in driving engagement, you know, ways to build subscriptions, but also ways that are super view or friendly.

Just a few examples we produce some branded content that builds viewer loyalty one of our partners actually leans on advanced Roku machine learning to optimize their creative executions for them. So they can proactively reduce churn and improve win backs and theres lots of examples like this and it's not just the large partners. This is really effective.

Media and if you're a roku user you probably noticed.

A couple of weeks ago, we had a fan experience around the new season of Apple's the morning show and this content with exclusively available on the Roku platform. It included unlocked new material free episodes exclusive interviews and three months free extended trial for Apple TV plus subscribers, so the breadth and depth.

This promotion is a perfect example of what Ive been talking about.

Anthony Wood: So it's something we're good at. We put a lot of effort into it. It's a win-win for everyone. It's good for our business. It leverages the fact that, you know, one of our key assets is the user interface for selecting content. And so it's an area that we continue to invest in an area, I think we're best in class in an area that we're going to continue to invest in. And, you know, M&E is down right now because of the current state of the economy in the ad cycle, but it's an area that I think has long term potential.

Question, but answering a couple of others, where the right place for M&A and other partners to invest to build engagement and we'll do more of it and we'll measure it uniquely for them and we will prove the impact on.

This is Anthony again, just maybe touch back on your question. The other part of your question which was.

Whats beyond that many.

The user experience I think is sort of how I interpreted that question.

It is.

Innovating ways to create.

Anthony Wood: I don't know, Charlie, do you want to add? Sure. Thanks, Anthony. And Rupert, thanks for those congratulations. You know, we talked a lot about diversifying demand and Anthony talked about integrating all sorts of different advertisements, and Promotion into the UI beyond M&E, and that's right. And maybe I'll just add that stepping back, I think it's good to think about how versatile a partner, Roku, is both to M&E and to other advertisers who need to prove that their marketing is working.

Ways for viewers to discover content and also to create experiences that they find compelling and our user interface and then integrate promotion marketing sales into those experiences is a big part of our strategy of monetizing our installed base and so.

And it's an area that we have invested in historically I think we lead in it and it's an area that we continue to invest in just some examples when we launched the sports Zone for example, which is a big pain point for viewers, how do they find which of the many streaming services their favorite games being played on currently.

Anthony Wood: We have top of the funnel and bottom of the funnel impact and we're building upon it. So just on M&E, look, we're a business builder for our media and entertainment partners, not just a place for them to invest. And that's because we make their services and content, we use the word un-missable a lot, un-missable across the full funnel from broad reach acquisition right through to engagement. And in the case of M&E partners on Roku, that literally means, right, you see their ads on our platform and the integrations Anthony talked about, and a viewer will click here and watch the video here too.

It was that sports experience when we launch it was sponsored by T. Mobile, so which is not a traditional M&A advertiser for us.

Then another example.

<unk> city become Super popular with our viewers has become a cultural phenomenon.

It used to have only.

<unk> based ads, we started adding buildings like we added the Mcdonald's building for example that was a big hit.

So these are the kinds of things that we're doing and these are things that these are promotions and advertising and viewer experiences that everyone loves advertisers loved them our viewers looking so it's a big there's certainly a huge area of focus for us.

Anthony Wood: So that is the ultimate endemic advertiser for us and we're starting to see that impact beyond M&E. So we're effective and accountable and what's interesting is we're finding each of our partners has individual ways of seeing the power of the Roku platform to help them build their business. And so simultaneously we can benefit the customers and really, you know, the consumers, the advertisers and our M&E channel partners. And we sort of relish all three opportunities.

Thanks for all the detail.

Our next question comes from the line of Steven Cahall with Wells Fargo.

Okay.

Thank you I'm, sorry, if I missed this earlier, but as we just look at the gross margin performance. It platform in the quarter is it right to think about some of the year on year and sequential weakness is being driven by the M&A market.

Anthony Wood: Anthony talked about the short term pain that the M&E category is facing because of the difficult ad sales. The sales market limited fall release schedules and the general uncertainty and, you know, I mentioned earlier that, you know, last fourth quarter, there was some pretty great promotional moments from the World Cup to midterm elections. But I got to tell you the temporary economic cycles do not dampen the enormous opportunity that we see in working with our streaming partners.

Some of the highest gross margin revenue and so as that trend into Q4 and could even be a little bit weak in Q1 should we just be thinking about a little bit of pressure. So I would love some color there.

Then Dan when you think about the Opex growth heading out sorry, heading down to mid teens in Q4, you've done a lot on cost there was something in the 8-K and I think you've continued to work on it is that a good way for us to think about some of the early part of 2024 as well I know youll hit a tough comp by the end of 2024, but can opex be down mid teens I know you've had.

Anthony Wood: We just have to reach in the scale and the powerful tools both to win ourselves, but also to help them win. Just a few examples, you know, we produce some branded content that builds viewer loyalty. One of our partners actually leans on advanced Roku machine learning to optimize their creative execution for them so they can proactively reduce churn and improve wind backs. And there's lots of examples like this and it's not just the large partners.

Investment projects in the past so just want to make sure if that's a decent run rate or if theres anything more ahead on the Opex side. Thank you.

Yes, I'll take that thanks for the question Stephen.

The gross margin side.

And gross margin of 56%.

Anthony Wood: This is really effective media. And if you're a Roku user, you probably noticed that a couple weeks ago we had a fan experience around the new season of Apple's the morning show. And this content was exclusively available on the Roku platform. It included unlock new material free episodes, exclusive interviews and a three month free extended trial for Apple TV plus subscribers. So the breadth and depth this promotion is a perfect example of what I've been talking about.

Backing out the impairment charges that we talked about for Q3 with very strong gross margin quarter for us. It was up three points sequentially as we look as you look forward and yes on the <unk>.

Year over year basis, there is an impact on the mix of M&A. It is it is our highest one of our highest margin.

But then within advertising.

And there's also different margin structures within the different.

Anthony Wood: And it's, you know, a question, but answering a couple others, we're the right place for many and other partners to invest to build engagement and we'll do more of it and we'll measure it uniquely for them and we'll prove the impact. And this is Anthony again, just maybe touch back on your question, the other part of your question, which was, you know, what's beyond M&E in the user experience, I think is sort of how I interpret that question.

Content distribution activities as well as within.

Display versus video versus M&A advertising. So when we look at margins, we look at them and we want all of them to go up into the right as we improve margins, but we're very focused on absolute gross profit dollars, which leads to absolute free cash flow, which which is obviously a north star for us but to answer your question on guidance, we did have a 606.

Adjustment in Q3 that did add 200 basis points of margin.

Anthony Wood: And you know, it's an innovating ways to create ways for viewers to discover content and also to create experiences that they find compelling in our user interface and then integrate promotion marketing sales into those experiences is a big part of and our strategy of monetizing our install base. And so, you know, it's an area that we have invested in historically. I think we lead in it and it's an area that we continue to invest in.

Platform.

We don't.

There is no guidance to give for that because of course that depends on the forecast that we have at the end of the quarter for 606 adjustments, but we do feel good about.

<unk> gross margins ex that 606 adjustments and where they are on a go forward basis, but mix will play an impact on that based on the M&A market, which does continue to remain challenged and we're expecting that.

Anthony Wood: Just some examples, you know, when we launch the sports zone, for example, which is a big pain point for viewers, how do they find which is a many streaming services their favorite game is being played on currently. You know, it was that sports experience when we launched it was sponsored by team mobile, so which is not a traditional M&E advertiser for us. And then another example, you know, Roku City become super popular with our viewers, become a cultural phenomenon.

That.

That business to be challenged going forward.

So that gives you a little bit of color on how to think about gross margins.

Your question on Opex, we guided to a gross profit of 405 for Q4 and an EBITDA of 10.

You all will do the math that puts opex in that 500 to 510.

Range.

Anthony Wood: You know, it used to have only M&E base ads, we started adding buildings like we had the McDonald's Building for example, which is a big hit. So these are the kinds of things you're doing and these are things that these are promotions and advertising and viewer experiences that everyone loves, you know, advertisers love them, our viewers looking so it's a big, it's certainly a huge area of focus for us.

Gulfport perspective, we'll give more guidance.

For 2020 for next quarter, when we do Q4 results, but I would anticipate low single digit growth rates from a run rate basis of that.

Unknown Attendee: Thanks for all the details.

Because we are focused on driving towards the positive adjusted EBITDA, but we're also going to balance that with growth and look at positive ROI initiatives and invest in those as we look to expand our scale and our monetization.

Stephen K. Hall: Our next question comes from a line of Stephen K. Hall with Wells Fargo. Thank you.

Thank you.

Dan Jedda: Sorry if I missed this earlier, but as we just look at the gross margin performance platform in the quarter, is it right to think about some of the year on year in sequential weakness is being driven by the M&E market? That that's some of the highest gross margin revenue. And so is that trends into Q4 and could even be a little bit weak in Q1? Should we just be thinking about a little bit of pressure? So I would love some color there.

Our next question comes from the line of David Joyce with Seaport Research partners.

Thank you.

Could you please discuss your thoughts on boats.

The carrier deals in the legacy world, such as charter and Disney where the streaming apps are becoming more prevalent on those cable systems, how might that impact your business model or plans.

Dan Jedda: And then when you think about the OPEX growth heading out, I started hitting down to mid teens in Q4, you've done a lot on cost. There was some in the 8K and I think you've continued to work on it. Is that a good way for us to think about some of the early part of 2024 as well? I know you'll hit a tough comp by the end of 2024, but you know, can OPEX be down mid teens?

And if you could marry that with the increase in pricing on a streaming services.

How do you think the consumers reacting to all of the streaming choice out there in the pricing versus the legacy model in terms of how that could impact you.

Dan Jedda: I know you've had investment projects in the past. I just want to make sure if that's a decent run rate or if there's anything more ahead on the OPEX side. Thank you. Yeah, I'll take that. Thanks for the questions, Stephen. On the gross margin side, the platform gross margin of 56% backing out the impairment charges that we talked about for Q3 was very strong. The gross margin quarter for us, it was up 3 points, quenchally.

Your streaming.

Trajectory.

Yes.

Hey, David This is Anthony.

Well I think.

At a high level.

Like you just highlighted.

Also highlight the importance of streaming and the current and future Tivo <unk> TV ecosystem. So.

The fact that pay TV operators are more actively trying to promote streaming offerings I think.

Dan Jedda: As we look forward, and yes, on a year over your basis, there is an impact on the mix of M&E. It is one of our highest margin products within advertising. There's also different margin structures within the different content distribution activities as well as within display versus video versus M&E advertising. When we look at margins, we look at them and we want all of them to go up into the right as we improve margins, but we're very focused on absolute gross profit dollars, which leads to absolute free cash flow, which is obviously the North Star for us.

Just shows it just makes it very clear that streaming is the future and.

We're the number one streaming platform the United States, we're in a great position to continue to benefit as the world and the country shifts to streaming.

In the U S. For example.

Our active account base is bigger than the largest III pay TV providers combined.

Which is awesome I think when we started roku people would've thought that would never happen what are the number one TV streaming platform in the country by our stream.

And these both.

Dan Jedda: But to answer your question on guidance, we did have a 606 adjustment in Q3 that did at 200 basis points of margin to platform. There's no guidance to give for that because of course that depends on the forecast that we have at the end of the quarter for 606 adjustments. But we do feel good about gross margins, X, that 606 adjustment, and where they're on a goal for basis. But mix will play an impact on that based on the M&E market, which does continue to remain challenged. And when we're expecting that, that business to be challenged going forward. So that gives you a little bit of color on how to think about gross margins.

Both of these positions, while competing with very large competitors. So.

So I think we're well positioned to continue to monetize your activity engagement.

On our platform no matter, where the viewers obtained their connection.

Meaning subscription credentials.

I just think we're in a great position and.

Uh huh.

Pay TV companies are trying to figure out.

How to.

Make the transition to streaming but.

There's going to be very sticky and very difficult for them to do that.

And if you look at the Roku platform serves not just viewers that.

Cord cutters, and just sign up for Netflix and Youtube in the Roku channel that also.

Dan Jedda: Here's a question on OPEX. We guided to a gross profit of 405, 4Q4, and an EBITDAV 10. You all will do the math that puts OPEX in that 500 to 510 range.

We do serve pay TV operators pay TV customers virtual TV services are very popular even non virtual TV services like for example, I personally live in our spectrum area.

And I use roku, obviously to watch TV that I also subscribe to the spectrum App, which is a great app on roku as well.

Dan Jedda: From a goal for perspective, we'll give more guidance for 2024 next quarter when we do Q4 results. But I would anticipate low single-digit growth rates from a run rate basis off that. But we are focused on driving towards the positive adjusted EBITDAV, but we're also going to balance that with gross and look at positive ROI initiatives and invest in those as we look at to expand our scale and our monetization.

So.

I think that.

Unknown Attendee: Thank you.

We're great at selling subscriptions.

We monetize all of your activity not just by selling subscription.

And we monetize viewers no matter, how they obtain their streaming credentials and we're extremely well positioned.

To continue to do well as the world shifts to streaming.

I think our big headline is going to be that you watch television.

Yeah.

And I have a pay TV alright.

But it's through the spectrum App on Roku.

David Joyce: Our next question comes from a line of David Joyce with Seaport Research Partners. Thank you.

Alright I appreciate it. Thank you for your question.

Yes.

Oh, yes.

The impact of increasing the price increases on screening.

Anthony Wood: Could you please discuss your thoughts about the carriage deals in the legacy of worlds such as Charter and Disney, where the streaming apps are becoming more prevalent on those cable systems? How might that impact your business model or plans? And if you could marry that thought with the increasing pricing on the streaming services, how do you think the consumers reacting to all of the streaming choice out there and the pricing versus the legacy model in terms of how that could impact your streaming trajectory?

Yeah.

Uh huh.

It's a natural evolution of the ecosystem will rise.

<unk> overall streaming revenue.

And I think we've seen so far has been good for our business.

Because they have a large business distributing content services.

We do billing we have revenue share arrangements, we have a lot of different arrangements that <unk>.

Result in that being positive for our business overall.

Okay.

Our next question comes from the line of Rich Greenfield with light shed partners.

Sure.

Hi, Thanks for taking the question.

Anthony a lot of your streaming partners your media and entertainment companies are losing billions of dollars.

Anthony Wood: David, this is Anthony. Well, I think, you know, at a high level, the agreements like you just highlighted also highlight the importance of streaming in the current and future TV ecosystem. So, you know, the fact that pay TV operators are more actively trying to promote streaming offerings, I think, just make it very clear the streaming is the future. And, you know, we're the number one streaming platform in the United States. We're in a great position to continue to benefit as the world and the country shifts the streaming.

Wall Street is putting a lot of pressure on them I'm sure you've seen their stock prices are at multiyear even multi decade lows what can roku June to help them accelerate revenue growth and reduce costs like what are the options of what types of creative things could you do to help these companies.

Really struggling and they're standing businesses. Thank you.

Well I mean as they transform their businesses to stream first companies I mean, theres a lot of ways, we can help them.

Anthony Wood: You know, in the US, for example, our active account base is bigger than the largest three paid TV providers combined, which is awesome. I think when we started Roku, people would have thought that would never happen. We're the number one TV streaming platform in the country by our stream. You know, and these both, we built both of these positions while competing with very large competitors. So, you know, so I think, you know, we're well positioned to continue to monetize your activity engagement on our platform, no matter where the viewer's paying their streaming, streaming, streaming subscription potential.

That's what we do actually is our core disconnect viewers with streaming services and advertisers and we do it in a lot of different ways. We have a lot of products that can help them build their businesses, whether they are whether they are trying to build an AD supported business, where they're trying to build a subscription business.

We spent a lot of time, putting those features into our platform thinking deeply about it.

And.

And so just in terms of effectiveness for them spending dollars to make the transition to streaming and to sign up new subscribers were by far the most efficient and effective platform to do that marketing platform.

So that's one two is.

There's different ways for those come to distributed their service they can create apps and a lot of companies are trying to do that.

Anthony Wood: So, you know, I just think we're in a great position. And, you know, these paid TV companies are trying to figure out how to, you know, make the transition to streaming. But, you know, it's going to be very tricky and very difficult for them to do that. And if you look at the Roku platform, you know, it serves not just viewers that are court cutters and that, you know, just sign it for Netflix and YouTube and the Roku channel.

But that's a heavy lift I mean, when you do your own directed direct to consumer service create your own app.

Sorry for the technical expertise it requires a lot of marketing expertise it requires a lot of.

A lot of money to acquire customers and retain customers to build user experiences and the other way it for those companies to work with Roku and integrate into our overall user user experience with what we call a premium subscriptions, which is a way for them to offer <unk> services, but without doing the heavy lifting of building their own app.

Anthony Wood: But also, you know, we do serve paid TV operas work pay TV customers virtual TV services are very popular, even non virtual TV services like, for example, I personally live in a spectrum area. And, I use Roku artistly to watch television, but I also subscribe to the spectrum app, which is a great app on Roku as well. So, you know, I think that for greatest selling subscription, we monetize all of your activity, not just by selling subscription.

Figuring how to become a data science experts in.

And how to build engagement when people might be using that customers might be in a different user experience and so those are that's another way.

Antenna partner or an app or sorry.

A studio that transfer rate sorry, a streaming company the company a media company that is transitioning to streaming.

Much more efficiently.

Anthony Wood: And we monetize viewers no matter how they obtain their streaming credentials and we're, you know, extremely well positioned to continue to do well as the world shifts to streaming. I think our B headline is going to be that you watch TV through Roku. Yeah, and I have a pay TV. But it's through the spectrum app on Roku. All right, appreciate it. Thank you.

Build their business without building a lot of new streaming and expertise and with focusing more on what they're good at which is the content in their programming.

Those are a few examples.

I don't know.

Charlie Rich.

Rich one thing we talk about a lot is roku is raw.

Really powerful engagement engine. So as people are moving from certainly.

Subscription services to now embracing AD sales, we can help them drive engagement and we're seeing that a lot. It's a really big shift even secondly, moving from trying to get people to subscribe and not churn to getting them to watch the shows and the commercials and so we're really good at driving engagement and we're having a.

Anthony Wood: Oh, and then yes, about the impact of increasing the price increases on streaming. I mean, you know it's a natural evolution of the ecosystem. It will rise. It will raise overall streaming revenue and you know I think we've seen so far. It's been good for us. Our business because we have a large business distributing content services. We do billing. You know, we have revenue share arrangements. We have a lot of different arrangements that results in that being positive for our business overall. Our next question comes from the line of Rich Greenfield with Lightshed Partners.

A lot of positive response, and seeing the impact of our media as we help our M&A partners drive engagement and then another thing we're doing is windowing differently with the studios, so youre going to see.

We're very efficient as Anthony said with respect to our programming costs and we're really good partner for the studios as well in that respect because we are.

Window that hasn't existed before and we can monetize in different ways because of the power of the UI that Anthony mentioned.

Richard Greenfield: Hi, thanks for taking the question. You know, Anthony, a lot of your streaming partners, your media and entertainment companies are losing billions of dollars and Wall Street's putting a lot of pressure on them on for you. You've seen their stock prices at multi year, even multi decade lows.

Thank you.

Our next question comes from the line of Ben Swinburne with Morgan Stanley.

Anthony Wood: What can Roku do to help them accelerate revenue growth and reduce costs? What are the options or what types of creative things can you do to help these companies that are really struggling in their streaming businesses. Thank you. Well, I mean as they transform their businesses to streaming first companies, I mean, there's a lot of ways you can help them. You know, we that's what we do actually is our core is connect viewers with streaming services and advertisers.

Thanks, guys two questions.

Oh, there's an echo.

Okay Scott.

I wanted to ask you guys about live.

Live programming you guys mentioned in the letter or quite a bit growth in live in the investments and live in.

Anthony Wood: When we do it in a lot of different ways, we have a lot of products that can help them build their businesses, whether they're whether they're trying to build an app supportive business or whether trying to build a subscription business. You know, we've spent a lot of time putting those features into our platform, thinking deeply about it. And so just in terms of effectiveness for them and spending dollars to make the transition to streaming and to sign up new subscribers, we're by far the most efficient and effective platform to do that marketing platform.

I think back two years ago people, probably thought live TV was been a die in treatment would be all on demand.

Any sense for how much of your viewing is done through by viewing and whether that's an opportunity for you guys in terms of monetization I would imagine it would have.

Later AD loads, maybe greater overall engagement levels.

I think a lot of the investments you guys have made in content and products are around driving SaaS channels and a lot of the Roku channel is built particularly sports around lives. So I'd love to hear some thoughts on on whether that's something we should be thinking about as a tailwind to the business and then I just wanted to ask Dan on the Northstar comment on free cash flow.

Anthony Wood: So that's one, two is there's different ways for those coming to distribute their service. They can create apps. A lot of companies are trying to do that. But that's a heavy lift. I mean, when you do your own direct direct to consumer service, create your own app, you know, requires a lot of technical expertise. It requires a lot of marketing expertise. It requires a lot of money to acquire customers and retain customers and build user experiences.

You guys generated about $150 million year to date.

Any expectations you can share this for the year or the fourth quarter just to get a sense for what you think free cash flow might shake out for 2023. Thanks, so much.

Thanks, Ben This is Anthony I'll take the first part on live and then Dan Obviously will take the second part so yes, I mean, well first of all let me just define lives. So live in the streaming world or at least on our platform.

Anthony Wood: And the other way is for those companies to work with Roku and integrate into our overall user experience with what we call premium descriptions, which is a way for them to offer as far as services without doing heavy lifting of building their own app and figuring out how to become data science experts and, you know, how to build engagement when people might be using customers might be in a different user experience. And so those are, that's another way that a content partner or an app or sorry, a studio that's trans or a company, a company, a media company that's transitioning to streaming, you know, can much more efficiently build their business without building a lot of new streaming expertise than with folks and see more on what they're good at, which is the content and their programming.

Means content that is truly live like a sports game.

The words, so that also means content that is just program linearly because it's hard.

Calling out calling it a linear display.

Explain to us where other listeners.

When you call it a linear channels.

Viewers don't respond to that so we call the whole category of linear viewing live and live is something we've been focused on for at least a couple of years now and we built out a lot of great experiences to promote live content.

Alive menu and our.

Left hand, NAV on a home screen.

Built on <unk>.

Electronic program guide, which is sort of like a traditional cable box UI for live programming. That's also very popular.

Charlie Collier: So those are a few examples. I don't know if they want to start with you. You know, Rich, one thing we talk about a lot is Roku is a really powerful engagement engine. So as people are moving from certainly, and the subscription services to now, you know, embracing ad sales, we can help them drive engagement. And we're seeing that a lot, you know, it's a really big shift even psychically moving from trying to get people to subscribe and not churn to getting them to watch the shows and the commercials.

And we continue to put a lot of effort into things like our machine learning algorithms drive healing of lives.

In this business.

Very popular surprise me actually how popular it is.

One notable thought maybe it would fade away, but it's that's not true it turns out that lots of people that.

Don't want don't want to pick a show they just want to flip through a few channels and find something that catches your attention. So it's a big growth area for us it'll probably continue to be a big growth areas, especially.

Charlie Collier: And so we're really good at driving engagement and we're having a lot of positive response and seeing the impact of our media as we help our M&E partners drive engagement. And then another thing we're doing is windowing differently with the studios. So you're going to see a lie. We're very efficient, as Anthony said, with respect to our programming costs. And we're a really good partner for the studios as well in that respect because we're a window that hasn't existed before and we can monetize it in different ways because of the power of the UI that Anthony mentioned.

This is especially important internationally, where linear is still super big.

So.

There's a lot of different categories or different types of content, whether it's live or bought Avon or as fodder keyboard.

And we put a lot of effort into all of those types of content live live as the most popular and growing fast.

We're also actually airing some live events, we have formula E coming up and we've done some great work.

Miss Universe pageant and and so there are opportunities there, but also live is confusing often to the viewer or the way. So many of the sports packages are being split up so Anthony mentioned it earlier, but our sports zone is an incredible tool for.

Ben Swinburne: Our next question comes from the line of Ben Swingburn with Morgan Stanley. Thanks, guys. Two questions. Oh, there's an echo. Okay, it's gone. I want to ask you guys about live, live programming. You guys mentioned in the letter quite a bit, growth in live and the investments in live. And I think back to years ago, people probably thought live TV was going to die and streaming would be all on demand. What is any sense for how much of your viewing is done through live viewing and whether that's an opportunity for you guys in terms of monetization?

<unk> to figure out how to navigate and actually the consumer experience team does an amazing job, helping viewers navigate to the live events that they'd like to find so that's another platform advantage as well they come through our front door, we make it delightful and simple for them to find what they want to watch and get where they want to go.

Ben Swinburne: I would imagine it would have greater ad loads, maybe greater overall engagement levels. I think a lot of the investments you guys have made in content and product are around driving fast channels and a lot of the Roku channels built, particularly sports around live. So I'd love to hear some thoughts on whether that's something we should be thinking about as a tail into the business.

We're always looking for ways to help our viewers. So for example, we have something called tuna, and reminders, which is a way for viewers to like be reminded went alive. Then it's about the air they can click on an AD for an event.

And then can schedule, a teen and reminder, for them, where they'll get a notice so.

It's definitely an area. We're also innovating in as well.

Yeah.

On free cash flow. Thanks for the question on that and yes, you are right.

Through three quarters, we're at about $161 million of positive free cash flow of $239 million. In this most recent quarter. We are very focused on free cash flow.

Anthony Wood: And then I just wanted to ask Dan on the North Star Common and Free Cash Flow. You guys generated to think about 150 million year to date. Any expectations, you can share this for the year or the fourth quarter just to get a sense for what you think free cash will might shake out for 2023. Thanks so much. Thanks, Ben. This is Anthony. I'll take the first part on live and then Dan obviously will take the second part.

And with respect to Q4.

We will have some restructuring charges that get paid out in Q4.

I need to wait and see the timing of that relative to our working capital. Obviously Q4 is a big.

Advertising quarter for us, but a lot of that collection doesn't come until Q1, and then Q1 also is a big.

Payment for us through some of our sales and marketing channels, but that said I think that EBITDA is a very good proxy for free cash flow. We after several quarters of being capital intense we are now capital light.

Anthony Wood: So, yeah, I mean, you know, well, first of all, let me just define live. So live in the streaming world, at least on our platform, means content is truly live. Like a sports game, you know, or a no word show. It also means content that is just programmed linearly, you know, because it's hard to do. Yeah, it's calling it a linear channel. I'm just explaining this for other listeners. So, when you call it a linear channel, that doesn't, you know, that viewers don't respond to that.

So EBITDA is going to be a pretty good proxy of free cash flow with some fluctuations in working capital from quarter to quarter.

Thanks, everyone.

That concludes our question and answer session I would like to turn the call back to Anthony Wood for closing remarks.

Anthony Wood: So, we call the whole category of linear viewing live and then live is something we've been focused on for at least a couple of years now. And we built out a lot of great experiences to promote live content. You know, there's a live menu in our left hand app on our home screen. We built an EPG, the electronic program guy, which is sort of like a traditional cable box UI for live programming.

Thanks, everyone for joining thanks to our employees customers content partners and advertisers. Thanks for thanks for attending our call today.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Zero.

Anthony Wood: That's also very popular. And we continue to put a lot of effort into things like our machine learning algorithms, dry doing a lot of... And it's very popular. It surprised me actually how popular it is. I was one of the people thought maybe it was fade away but it's not true. It turns out there's lots of people that don't want to have to, don't want to pick a show. They just want to flip through a few channels and find something that catches their attention.

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When I talked about we're going to go higher.

Anthony Wood: So it's a big growth area for us. It'll probably continue to be a big growth area, especially, especially important internationally where linear is still super big. So, you know, there's a lot of different categories, different types of content, whether it's live or Vod A Vod or S Vod or T Vod, and we put a lot of effort into all those types of content. But live, yeah, live is popular and growing fast.

Okay.

We'd now like to children go back that far.

Great.

Yes.

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Tony.

I can come back.

Shakil Lakhani.

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Anthony Wood: We're also actually airing some live events. You know, we have formulae coming up and we've done some great work with Miss Universe pageant and so there are opportunities there, but also live is confusing often to the viewer the way so many of these sports packages are being split up. So Anthony mentioned it earlier, but our sports zone is an incredible tool for, you know, viewers to figure out how to navigate and actually the consumer experience team does an amazing job helping viewers navigate to the live events that they'd like to find.

Okay.

Your family growth, what's your house basis, I feel the thing that is working.

Our home.

It is different this is going to be.

If it's not go after her.

Need to bring and thorough overhaul.

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Yes.

Okay.

Yes.

We're taking a call with the whole family.

Anthony Wood: So it's another platform advantage as well. They come through our front door. We make it delightful and simple for them to find what they want to watch and get where they want to go. You know, we're always looking for ways to help our viewers. So, for example, we have something called tune in reminders, which is a way for a viewer to like be reminded when a life event is about to air and they can click on an ad for an event, you know, and it can schedule a tune in reminder for them where they'll get a notice. So it's definitely an area we're also innovating in as well.

Yes.

Okay.

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<unk> Southern flavors, we've got you covered so join me in my kitchen here inside the southern food and beverage museum for some truly memorable meal.

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Dan Jedda: I'm free cash flow. Thanks for the question on that. And yes, you're right. Three three quarters. We're at about 161 million of positive free cash flow. 239 million in this most recent quarter. We're focused on free cash flow. And with respect to Q4, we will have some restructuring charges that get paid out in Q4. So I need to wait and see like the timing of that relative to our working capital. Obviously Q4 is a big advertising quarter for us, but a lot of that collection doesn't come until Q1.

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Now streaming free the Roku channel.

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Dan Jedda: And then Q1 also is a big payment for us through some of our sales and marketing channels. So that said, you know, I think that EBITDA is a very good proxy for free cash flow. We after several quarters of being capital intense, we are now capital light. And so EBITDA is going to be a pretty good proxy of free cash flow with some fluctuations in working capital from quarter to quarter.

And the 2023 NFL trapped because about so big at 32 teams get better in three days some good better than August this will change the entire drastically once in a lifetime opportunity to get the number one.

Unknown Attendee: Thanks everyone.

Anthony Wood: That concludes our question and answer session.

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Anthony Wood: I'd like to turn the call back to Anthony Wood for closing remarks. Thanks everyone for joining thanks to our employees customers, content partners and advertisers. Thanks for thanks for sending our call today.

Unknown Attendee: This concludes today's conference call. Thank you for participating.

Unknown Attendee: You may now disconnect.

Okay.

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Unknown Attendee: What did you do to yourself? Your family grows, but your house stays the same.

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Unknown Attendee: So join me in my kitchen here inside the Southern Food and Beverage Museum for some truly memorable meals. Welcome back, everybody.

Unknown Attendee: The Emerald Cooks. I know you're going to love these.

Unknown Attendee: Welcome to my Roku original Monte Cook. I'm bringing you into my kitchen and visiting some of my favorite places. To try some incredible cuisine, don't tell anybody. Delicious pastry. This is so good. And create some wonderful dishes with friends. That's the key. We might even have a little fun.

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Q3 2023 Roku Inc Earnings Call

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