Roku, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial statements are unaudited. Roku reports Platform and Player segments; amounts below are in U.S. dollars unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Platform revenue | $646.9 million | $466.5 million | +39% |
| Player revenue | $86.8 million | $107.7 million | -19% |
| Total revenue | $733.7 million | $574.2 million | +28% |
| Gross profit | $364.8 million | $326.8 million | +12% |
| Gross margin | 49.7% | 56.9% | -7.2 percentage points |
| Operating income (loss) | -$23.5 million | $75.8 million | Declined $99.3 million |
| Net income (loss) | -$26.3 million | $76.3 million | Declined $102.6 million |
| Diluted EPS | -$0.19 | $0.54 | — |
| Cash from operations | $101.8 million | $95.8 million | +$6.0 million |
| Cash used in investing | $14.8 million | $106.5 million | Lower outflow |
| Cash from financing | $2.1 million | $995.1 million | Prior period included $989.6 million ATM proceeds |
- Segment margins: Platform gross profit was $379.9 million, or 58.7% of Platform revenue, versus $311.9 million, or 66.9%, a year earlier. Player gross loss was $15.1 million, or -17.4% of Player revenue, versus gross profit of $14.8 million, or 13.8%.
- Operating expenses: $388.3 million, up 55%; research and development rose 61%, sales and marketing 65%, and general and administrative 29%. Stock-based compensation was $69.6 million, compared with $40.5 million.
- Cash and liquidity: Cash and cash equivalents were $2.235 billion at March 31, 2022. Current assets were $3.103 billion and current liabilities $855.5 million. Cash, cash equivalents and restricted cash totaled $2.237 billion.
- Debt: Term Loan A carrying amount was $88.6 million, with $88.8 million principal outstanding and a 3.4% effective rate. It matures in February 2023. The $100 million revolving facility had $38 million of letters of credit outstanding; the filing says Roku was covenant-compliant.
- Operating metrics: Active accounts increased 14% to 61.3 million; streaming hours increased 14% to 20.9 billion; trailing-four-quarter ARPU rose 34% to $42.91.
Material changes versus Q1 2021
- Platform revenue growth, led by advertising and content distribution services, more than offset falling Player revenue. Platform revenue reached 88% of total revenue, compared with 81%.
- Platform cost of revenue increased 73%, faster than Platform revenue, reflecting higher content and advertising inventory costs, including $95.5 million of increased content-related and advertising inventory costs, plus higher cloud and personnel costs.
- Player revenue fell as units sold declined 12% and average selling prices fell 9%. Component, freight, and inventory reserve costs contributed to the segment’s shift to a gross loss.
- Operating expenses increased $137.3 million, driven primarily by increased headcount, related compensation, facilities, and brand marketing. The company moved from operating and net income to losses.
- Operating cash flow rose modestly despite the net loss, supported in part by non-cash expenses, including $69.6 million of stock compensation and $44.5 million of content amortization. Investing outflows were much lower because Q1 2021 included a $102.8 million business acquisition.
Outlook, commentary, risks and contingencies
- Management expects Player gross margin to remain negative in the near term due to supply-chain constraints and elevated component and shipping costs. It does not provide a numerical revenue or earnings forecast in the supplied filing text.
- Roku expects research and development, sales and marketing, and general and administrative expenses to rise in absolute dollars as it invests in product development, growth, and infrastructure.
- Management says existing cash, operating cash flow, and available credit are expected to cover working capital, capital expenditures, and known material cash requirements for the next 12 months and beyond. The credit facility expires in February 2023.
- Key pressures include supply-chain disruption, inflation, component shortages, shipping costs, partner TV inventory constraints, and reduced advertiser spending in affected verticals. Roku cautions that pandemic-related and broader macroeconomic effects are difficult to isolate and may persist.
- Contractual commitments include $189.1 million of non-cancelable inventory purchase commitments and $444.7 million of licensed-content obligations. Of the content obligations, $282.0 million was not yet recognized on the balance sheet. Operating leases not yet commenced represented a further $192.6 million commitment.
- The filing reports no material loss contingencies for the quarter and says the outcomes of ongoing legal matters are not currently believed reasonably likely to have a material adverse effect. It identifies broad risks including competition, content and advertising monetization, supply-chain and retail dependence, cybersecurity and privacy regulation, and international and geopolitical uncertainty.
Important facts for investors to verify
- Whether Platform growth and monetization can sustain gross-profit growth as Platform costs rise faster than revenue.
- How long negative Player gross margins persist, and whether component, freight, and inventory costs ease.
- Whether expense growth and elevated stock-based compensation can be supported by gross-profit growth without prolonged operating losses.
- Liquidity and refinancing plans around the February 2023 debt maturity, including the availability and terms of replacement credit.
- The timing and cash impact of the $444.7 million content obligations, $189.1 million inventory commitments, and future lease commitments.
- Reliance on concentrated relationships: the top three streaming services represented over 50% of streaming hours, and Amazon, Best Buy, and Walmart accounted for 69% of Player revenue.