Logo of jester cap with thought bubble. Image source: The Motley Fool. Roku, Inc (NASDAQ: ROKU) Q1 2019 Earnings Call May. 08, 2019, 5:00 p.m. ET Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks: Operator Good day, ladies and gentlemen, and welcome to the Roku first-quarter 2019 earnings conference call. [Operator instructions] As a reminder, this conference may be recorded. I would now like to turn the conference over to James Samford, head of investor relations. You may begin. James Samford -- Head of Investor Relations Thank you. And good afternoon, and welcome to Roku's financial results conference call for the first quarter ended March 31, 2019. I'm pleased to be joined on the call today with Anthony Wood, Roku's founder and CEO; Steve Louden, our CFO; and Scott Rosenberg, the GM of our platform business, who will be available for Q&A. Please be sure to review our shareholder letter, which contains much more detail than we will cover in the introductory remarks. The following discussion, including responses to your questions, reflects management's views as of today, May 8, 2019, only. And we do not undertake any obligation to update or revise this information. Some of the statements made on today's call are forward-looking and are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include but are not limited to statements regarding the future performance of Roku, including expected financial results for the second quarter and the full year of 2019 and the future growth of our business. Our actual results may differ materially from those discussed in this call for a variety of reasons. Please refer to today's shareholder letter and the company's filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements. You'll find reconciliations of non-GAAP measures to the most comparable measures discussed today in our shareholder letter, which is posted on the company's investor relations website at ir.roku.com. And I encourage you to visit our IR website periodically for important content. Finally, unless otherwise stated, all comparisons of this call will be against results of the comparable period of 2018. Now I'd like to turn it over to Anthony. Story continues More From The Motley Fool Anthony Wood -- Founder and Chief Executive Officer Thank you, James, and thanks, everyone, for joining today's call. Roku is off to a great start to the year. Q1 results beat our outlook across the board, and we are raising our outlook for the full year. Our growth continues to be driven by our singular focus. As consumers, content publishers, and advertisers embrace streaming, Roku is winning. We have an exceptional platform, an unmatched team, and we deliver compelling value for viewers and partners alike. In recent weeks, some of the world's largest media publishers have announced massive new investments in streaming. New services and customer acquisition campaigns from Disney, Apple, and others will help fuel Roku's growth for years to come. One of the themes of this quarter's shareholder letter is the scope and scale of our platform business, which connects the entire streaming ecosystem. Our large and growing platform business supports content distribution, audience development, and advertising. The Roku OS is uniquely purpose-built for TV streaming and is a key enabler of our platform business. Before handing the call over to Steve Louden, I'd like to highlight a milestone that I'm particularly proud of. In less than five years, Roku TV has gone from a disruptive idea to the market leader. We estimate that more than one in three smart TVs sold in the U.S. in the first quarter were Roku TVs. We have taken the lead from Samsung and are now the No. 1 smart TV OS in the country. I'll now turn it over to Steve. Steve Louden -- Chief Financial Officer Thanks, Anthony. We executed well on the first quarter and delivered particularly strong results. Before taking your questions, I'll walk through operational and financial highlights and address our outlook. Strong Roku TV demand and continued strength in player sales delivered an incremental 2 million active accounts in the first quarter to 29.1 million active accounts. Our scale and per-user engagement drove 1.6 billion incremental streaming hours sequentially to 8.9 billion hours in the quarter. Roku users streamed more content on our platform in the last six months than they did in all of 2017. ARPU increased another $1.11 sequentially to $19.06 driven by broad-based growth in content distribution, monetized video ad impression, and audience development spend by our content partners. Total Q1 revenue increased 51% year over year to $206.7 million, with platform revenue up 79% to $134.2 million to a record 65% of total revenue. Player revenue growth of 18% year over year again came in ahead of expectations driven by strong core-retail channel sales growth. Player units were up 21% year over year, and ASPs were down 4% as we continued to see strong demand for sub-$50 players. Our key financial performance metric is gross profit, which was up 60% year over year this quarter to $100.9 million, marking our second consecutive quarter above $100 million despite this being our seasonally lowest quarter. Gross margin was 48.8%, up 260 basis points year over year, with continued mix shift to the higher-margin platform business partially offset by declining player margin that helped drive rapid unit and active-account growth. Opex in the quarter grew 59% to $111.6 million, driven by 33% growth in headcount and higher stock-based compensation. Excluding stock-based comp, opex was up 43% year over year, which was below our revenue and gross profit growth. Opex came in below expectations primarily due to the timing of new hires coming in later than planned, which, when combined with gross profit upside, delivered positive adjusted EBITDA of $10 million in Q1. With that, let's turn over to our outlook for the full year. Based on strong Q1 results and momentum into Q2, we are raising our 2019 outlook to $1.04 billion in revenue and $470 million in gross profit at the midpoint, up 40% and 41% year over year, respectively, compared to roughly 36% year over year in our prior outlook. Included in our outlook, platform revenue mix is expected to be roughly two-thirds of total revenue, up from 56% in 2018. For modeling purposes, you should continue to model full-year platform gross margin in the low 60s as a percent of revenue driven by continued mix shift to video advertising and the introduction of premium subscriptions. For players, we expect player gross margin to be in the low single digits in 2019. We remind you that we are not optimizing for player gross profit as our strategy of trading player margin for account growth and platform revenue growth continues to work well. We plan to manage the business to roughly EBITDA breakeven in 2019, so some of the Q1 upside is expected to flow through to the full year. Stock comp of roughly $75 million and depreciation and amortization and net other income of $10 million are reflected in our outlook for roughly $70 million of net income/loss in 2019. For Q2, our outlook is for year-over-year revenue growth of 42% at the midpoint, with platform revenue representing roughly two-thirds of total revenue. Continued mix shift to video advertising is expected to remain a drag on platform gross margin. And when combined with mid-single-digit player gross margin, our combined outlook for Q2 is for roughly 45% gross margins. As a reminder, in Q2 of 2018, player gross profit benefited from a release of accruals of $8.9 million related to potential IP licensing liabilities that did not materialize and are not expected to be realized. Excluding these accrual releases in Q2 of 2018, gross margin would have been 44% versus 50% as reported. Q2 opex is expected to be roughly 15% higher than in Q1 as we recognize the full-quarter impact of the hiring that took place in Q1 and new hires in Q2. We also recently signed a new lease agreement that was not in our prior outlook and adds an incremental $2 million to $3 million per quarter. As a result, we expect to report an adjusted EBITDA loss of roughly $7.5 million at the midpoint and a net income/loss of roughly $27.5 million, which includes stock-based comp of $18 million and $2 million of depreciation and amortization and net other income in the quarter. We ended the quarter with $290 million of cash equivalents and short-term investments, which included net proceeds of $98 million from the sale of Class A common stock. Subsequent to the quarter-end, we up-sized our credit facility by $50 million to $200 million, consisting of $100 million revolver and $100 million of available term debt, but neither has been drawn. I'll summarize by saying how pleased we are with the performance of the business and the strong momentum we are seeing across the broader streaming landscape that benefits Roku. With that, let's turn over the call for questions. Operator? Questions & Answers: Operator [Operator instructions] Our first question comes from the line of Evan Wingren with KeyBanc. Your line is now open. Evan Wingren -- KeyBanc Capital Markets -- Analyst Thank you. I wanted to ask about the platform in the first quarter, what you saw the key drivers as. It looked like we saw some acceleration sequentially, and I think we're facing a tough comparison in the licensing side there year over year, so I just wanted to understand the drivers. And then the outlook for the rest of year does seem to imply a decel. Just trying to understand why that might be. And then just finally, what -- of the share gains, that Anthony mentioned, the one in three smart TVs, just trying to understand the drivers there it ultimately you think that can go to. Thank you. Anthony Wood -- Founder and Chief Executive Officer Hey, Evan, this is Anthony. Thanks for the question. Yes, we had a strong quarter, with platform revenue up 79%. And the drivers were very broad-based. The industry is increasingly adopting streaming. That's driving a lot of interest in our audience development business, for example, which is where we help partners promote their services. Advertising, monetized ad impressions more than doubled again in the quarter. And people are streaming more, and that's driving our content attribution rev shares. And in terms of outlook, I'll let Steve talk about that. Steve Louden -- Chief Financial Officer Yes. Hey, Evan. So we're very happy with the pace and trajectory of the business. So we've increased the outlook for the full year, reflecting Q1 as well as good momentum into Q2. Obviously, the closer in we have a better visibility, the outlook is -- or the viewpoint into the back half of the year is still forming in terms of the holiday season. But we've increased the outlook from kind of mid-30s sales growth, which was what it was in the prior outlook, to roughly 40%. So we feel good we're on the right track. But this reflects kind of the best thinking and the best estimates we have at this time. So we're happy where the business is at. Anthony Wood -- Founder and Chief Executive Officer Evan, this is Anthony again. In terms of smart TVs, yes, I mean it was a huge milestone for us, becoming the No. 1 smart TV OS in the country, in the United States, so that's excellent. And as a reminder, last year, it was one in four smart TVs sold were Roku TVs. Just last quarter, Q1, it was one in three. So a pretty big increase, and that share increase is coming out of homegrown TV software solutions, right, which is still most of the TVs sold are homegrown solutions built by the TV companies. And that -- we really think those -- in almost cases, those solutions are probably uncompetitive and that we'll just continue to see gains in share of licensed OS, and we're the No. 1 licensed OS. So there's a lot of room to grow. It's a big opportunity. Evan Wingren -- KeyBanc Capital Markets -- Analyst Thank you both very much. Operator<doc-sep>Roku Inc. shares were up more than 10% in premarket trading Thursday after the streaming-media company posted a sizable first-quarter revenue beat and forecast second-quarter revenue above expectations. The company’s results were powered by another big quarter for its platform business, which grew 79% to $134 million and accounted for nearly two-thirds of Roku’s ROKU, +0.95% overall revenue. A year ago, the platform business topped the halfway mark for the first time. Roku’s platform segment includes the company’s advertising and subscription businesses as well as its smart-TV licensing efforts. The company estimates that more than a third of all smart TVs sold in the U.S. during the quarter had Roku’s operating system built in, allowing Roku to beat out Samsung Electronics Co. Ltd. 005930, -0.13% as the top-selling smart-TV operating system for the first time. Roku expressed optimism about the rise of streaming in general as well as the forthcoming launches of new streaming services, including from Walt Disney Co. DIS, +0.17% , which will debut its Disney+ offering this fall. “These big commitments from players like Disney are further proof of the importance of over-the-top going forward,” Chief Financial Officer Steve Louden told MarketWatch. “When they win, we win in terms of economics.” Don’t miss: Roku stock gains after Needham calls Disney+ launch a big catalyst When users subscribe to streaming services through Roku’s platform, the company takes a cut. Roku also makes money when its users watch ad-supported programming. In its letter to shareholders, Roku said that it sees “subscription-based and ad-supported business models co-existing and attracting substantial consumer audiences, with revenue participation for Roku in both models.” Read: Disney earnings beat, but movie revenue drops ahead of ‘Endgame’ windfall The company’s overall net revenue rose to $207 million from $137 million a year earlier and came in ahead of the FactSet consensus of $190 million. Average revenue per user on a trailing 12-month basis equaled $19.06, up 27% on a year-over-year basis. Roku said its active-account base grew by 2 million users sequentially, reaching 29.1 million in the first quarter. For the second quarter, Roku expects revenue of $220 million to $225 million. Analysts were modeling $218 million in June-quarter sales. For the full year, the company projects $1.03 billion to $1.05 billion in revenue, up from a prior forecast of $1 billion to $1.025 billion issued a quarter earlier. Louden said that the raised outlook partly reflects Roku’s strong first-quarter showing, driven by “broad-based performance” in the platform business and strong retail sales of the company’s devices. Roku posted a first-quarter net loss of $9.7 million, or 9 cents a share, compared with a loss of $6.6 million, or 7 cents a share, a year earlier. Analysts surveyed by FactSet expected a 24-cent loss per share.<doc-sep>
Bloomberg (Bloomberg) -- Hedge funds often measure their investments in minutes, not decades; but for Anchorage Capital Group, its long-held stake in Metro-Goldwyn-Mayer Studios Inc. is proving that patience can also be profitable.The New York-based money manager stands to make roughly $2 billion on its investment in the film and TV producer, one that began almost 11 years ago with MGM in bankruptcy court. Amazon.com Inc. agreed to buy the company for $8.45 billion Wednesday, a price that includes just under $2 billion in debt.The deal is in many ways a vindication for Kevin Ulrich, the former Goldman Sachs Group Inc. trader who co-founded Anchorage in 2003 and was part of a group of distressed debt investors that took control of MGM as it went through the restructuring process. In recent years the stake looked to be an albatross for the fund, one that came with significant drama in its own right.Ulrich brought in and later fired a high-profile chief executive officer, resisted efforts by activist investor Carl Icahn to take control, and held out for a bigger payday after years of considering various exit strategies. By selling now, as demand for media content from entertainment and technology companies alike is booming, he’s proving his long-held faith in the investment was justified.“There was a lot of maneuvering, a lot of financial engineering,” said Steven Azarbad, chief investment officer at New York’s Maglan Capital, an MGM investor who sold his shares four years ago. “But they’ve done great.”A representative for Anchorage declined to comment.When Ulrich first invested in MGM, he was new to Hollywood. He helped pick Gary Barber, a South African-born producer of films such as “Ace Ventura: Pet Detective” as chief executive officer of the storied but debt-laden studio. Barber brought to the table a shrewd business sense, and connections into a world Ulrich long admired from afar.Barber shepherded MGM’s development of “The Hobbit” franchise, a co-production with Warner Bros., that became a global smash hit. He helmed the release of the James Bond film, “Skyfall,” which generated over $1 billion at the box office, and he revived the studio’s work in television. Barber also brokered a deal to bring on TV super producer Mark Burnett, which gave MGM access to reality show hits like “Survivor” and “The Apprentice,” but would ultimately become personally troublesome.In 2012 the company bought back Icahn’s stock for $590 million. It also filed paperwork for a possible public offering of shares, and considered other options, such as a sale.As Barber boosted MGM’s film and TV pipeline, Ulrich was increasingly entranced by the allure of Hollywood. He became a regular at movie premieres in Los Angeles and New York, and frequented industry parties in the Hamptons and elsewhere. He became active in creative decisions after becoming chair of MGM’s board -- somewhat unusual for a non-executive lacking Hollywood experience -- even getting involved with business granularities like casting.Growing RiftBut over the following years a rift began to open up between Barber and Ulrich. When it was time to renew Barber’s contract in 2017, Ulrich conducted an extensive search for a new CEO. When it ended, he ultimately chose to sign Barber to a new five-year deal. Yet around the same time, the pair split on whether to sell the company, with Ulrich wanting to hang on to the studio and Barber saying it was time to find a buyer.The company would hold buyout talks with Apple Inc. as well as Chinese investors that would ultimately prove fruitless.Only months after renewing Barber’s deal, Ulrich fired him. The shock departure meant the company had to pay Barber for five years of salary and buy out his equity, a package totaling $260 million. In the three years since Barber left, Ulrich hasn’t replaced him, instead operating an “office of the chief executive officer,” comprised of various people that each have their personal vision for MGM.Barber declined to comment via his spokesperson.Bounce BackAfter the initial period of success following the restructuring, the gains became harder to come by, as they did in Anchorage’s overall credit-focused business. Two senior managers left the firm in January 2020, and another in November. Anchorage’s flagship strategy, with about $8.5 billion under management, returned just 0.6% in 2018, 1.5% in 2019 and 4.4% in 2020, according to people familiar with the matter.In December, MGM hired investment bankers for a potential sale.MGM only released one film in theaters in 2020.