VIZIO Holding Corp.

Good afternoon, everyone, and thank you for joining us for our first quarter 2022 earnings call. Joining me for today's discussion are William Wang, our founder and CEO, and Adam Townsend, our CFO. Also joining us for the Q&A portion of today's call is Mike O'Donnell, our Chief Revenue and Strategic Growth Officer. Please note that in addition to our earnings release and today's remarks, a slide presentation can be found on our investor relations website at investors.visio.com. I'll refer you to the second slide in the presentation and remind you that certain statements made on this call are forward-looking statements that involve risks and uncertainties. These risks and uncertainties that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC and our press release that was issued this afternoon. We undertake no obligation to revise any statements to reflect changes that occur after this call. During the call, we also refer to non-GAAP financial measures including adjusted EBITDA, Reconciliations with the most comparable GAAP measures for non-GAAP financial information discussed on this call can be found in our earnings release or on the investor section of our website. Note that all quarterly comparisons in today's remarks will be made on a year-over-year basis unless otherwise specified. Now, I will turn the call over to William.

Thank you, Michael. And hello, everyone. Thank you for joining us today. This is about 2022 off to a great start. with a high-margin platform plus revenue growing 97% year-over-year in Q1. As streaming services buy for attention and consumers navigate an ocean of content options, the promotion of and search for quality programs is happening on physical home screens. The more time consumers spend serving between apps, fast channels, and our own and operated services such as Watch Free Plus, the more central Vizio becomes to the consumer content journey. To put it another way, our platform is like the Mall of America, a one-stop shop where consumers can find the latest and hottest from brands that they love. Whether roaming through S-Bot or A-Bot, features or series, season premieres, or all episodes. The foot traffic may migrate from store to store, but the journey is brought to you by Vizio. And the Platform Plus business continues to benefit from this dynamic again in Q1. With overall advertising revenue seeing a year-over-year increase of 116%. As our visual ads platform has grown into a must-have for brand and entertainment marketers, we have seen the number of direct advertising clients grow, and the average revenue for advertising clients increase. That success is powered by the growth of fruitful client relationships across key advertising categories, including automotive, CPG, media and entertainment, insurance, and others. Our investment in innovation continues to play a critical role in Platform Plus revenue growth. A proprietary Household Connect product launched in April 2021 has driven a significant year-over-year increase in off-platform revenue. In March, we announced a new feature called JumpView. This capability bridges the gap between linear and streamed content consumption. A huge benefit for consumers as they navigate their content favorites. With JumpView, all major network partners can allow a consumer to jump from linear episode of a program straight into additional episodes in your streaming environment. For example, my wife is a big Dayline fan. Now she can jump from an episode on CNBC to a bunch more episodes on Peacock if she wants to keep enjoying Daylight. This capability is a viewing win for consumers and a promotional win for our network partners. And as I've mentioned many times before, this is just the tip of the iceberg for Blizzio's monetizable innovation on our hardware and software platforms. When you combine innovation with even more content, the consumer experience keeps getting better. Enhancing to the Visio integrated entertainment platform, including the addition of more premium apps, such as Sling TV and Amazon Music. And our watch free plus service has grown to more than 250 free channels. The expansion of our studio partnership has grown to 26, adding 1,000 new on-demand titles to our Watch Free Plus AVA catalog during Q1. In addition, our first-party data is a core component of innovation and content enhancement and is used to power better content experiences and more relevant advertising for consumers. Beyond the increased value that video data brings to our own and operator services, it is also fueling the ongoing evolution and modernization of the measurement landscape. Two weeks ago, we announced a multi-year partnership with Nielsen, the de facto currency provider in the television industry for the last half century. Nielsen has selected our Inkscape data to power their measurement capabilities and now grows our list of such partners to seven of the top eight in the US. This agreement further validates that Inkscape data is the essential fuel for the measurement market and demonstrates that the persistent investment we have made in data during the last seven years is paying off. If we build it, they will come. has been my innovation mantra for 20 years, and Inscape's momentum is positive proof of that operating philosophy. I'd like to thank our measurement partners for their continuous faith, and most importantly, my teammates for their relentless effort toward building best-in-class ACR technology. Thanks to our dual-revenue business model, Q1 saw a 23% increase in TV shipments versus pre-pandemic Q1 2019 levels. Our device business also achieved multiple Q1 wins. You will recall that during our last call, we referenced the implementation of an aggressive pricing strategy across selected models. I'm pleased to report that this strategy has paid off in Q1. With our 50-inch V-Series being the number one selling 4K TV in America. With this success in hand, we have more to come and intend to implement additional efforts to deliver great value to consumers and grow our TV market share. In addition, shipments for our heavily engaged 43- to 58-inch models increased 40% and Vizio was the number one TV brand in shop space at Walmart and Target. I'm also proud to say that Vizio was the number two best-selling smart TV brand in the U.S. during March. On the heels of our market share momentum, we're excited to launch a new collection of TVs and soundbars in the coming months. With a handful of CES awards already in hand, our 2022 collection will feature robust technology and design enhancements that will make the entertainment experience more enjoyable. With Vizio devices being the entertainment centerpiece in millions of American homes, we also have a history of outstanding customer service. That tradition continues in Q1, with Vizio being the recipient of five Stevie Awards. recognize excellence in customer service, and Vizio has been a perennial leader in the space. These five awards bring our CV awards total to 111 over the last decade. Vizio takes great pride in our focus on the consumer. I want to thank our customer service team based in South Dakota, the heartland of America, for this accomplishment. We were also honored with the 2021 Sustainable Material Management Gold Tier Distinction from the U.S. Environmental Protection Agency. The sixth straight year that our sustainable practices have been honored. The EPA's Gold Tier Award is presented to organizations with exemplary electronic collection and recycling programs. I'm very proud that Vizio is a leader in sustainability and applaud the team for this recognition. As consumers continue to seek out value in both their consumer electronics and content purchases, we believe that Vizio is prime to leverage not only our dual revenue model, but our history of quality, affordability, and innovation to own a preferred place in the hearts and homes of consumers. In our 20th year of delivering incredible value with affordable quality devices, we also bring the entirety of the entertainment experience to millions of homes. Six years ago, we foresaw the strategic value in owning and operating the combined hardware and software experience. It seems that the market has taken notice. While we might view new interests as competition, it is also a validation of our strategic vision, and consumers benefit from our approach on a daily basis. As viewers navigate an ocean of content options, we are proud to note that millions will be utilizing video screens and innovations to do it. With that, I will now turn it over to Adam to speak to Q1 results in more detail.

Thanks, William. Before opening the call to questions, I'll take you through our quarterly financial highlights and discuss our outlook for Q2. Starting with the first quarter, total company revenue came in at $485 million. Platform Plus revenue was up 97% to $103 million. Platform Plus growth was driven by advertising revenue, which grew 116% to $76 million. Our direct advertising client relationships grew by 80%, and the average revenue per advertising client rose by 65% during the quarter. We were incredibly pleased to see an acceleration in the advertising growth rate over the fourth quarter growth rate, particularly considering typical seasonal trends. In addition, this first quarter marked our ninth consecutive quarter of triple digit ad revenue growth. We continue to see strength in our advertising business as we further expand our client relationships across multiple categories and increase their average spend on our platform. We're also making great strides in growing our off-device monetization, led by our Household Connect product. Off-device advertising revenue grew by over 200% year-over-year, driven by strength in Household Connect, and it represents a significant long-term opportunity to generate additional advertising monetization beyond our TV install base. Our non-advertising revenue, which includes data licensing, branded buttons, and content distribution fees, also performed well during the quarter, up 57% year-over-year. As we indicated on our last call, we expect to see a resurgence in non-advertising revenue growth in 2022 led by our highly valuable viewership data. This data has become the backbone of TV viewership measurement across both linear and CTV and is in high demand from TV measurement companies, ad tech firms, ad agencies, and networks. Contract renewals, new deals, and expanded deals such as our recently announced agreement with Nielsen will continue to fuel steady growth in our overall non-advertising revenue growth going forward. Turning to our device segment, total revenue was $383 million, down 16% on fewer TV unit shipments and lower average unit price compared to the year-ago period, which was still elevated by COVID dynamics. In Q1, we shipped 1.4 million TV units. And while as expected, this was down compared to the pandemic-elevated Q1 of 2021, It was 14% and 23% higher than the pre-pandemic first quarters of 2020 and 2019, respectively. Point being, we know demand was elevated by the stay-at-home orders and government stimulus programs during much of 2020 and into early 2021. But if you look at the longer-term trajectory, we have seen a nice overall growth trend. And the difficult year-over-year pandemic-related comparisons will begin to ease from this point forward as we lap the inventory constraints and the expiration of several government assistance programs last year. So given our now healthy channel inventory levels and our strong retail partnerships, we are increasingly confident in our ability to grow our TV unit shipment volumes this year over last year, even against expectations of a decline in the overall domestic TV market. Turning to gross profit, total company gross profit was $73 million for the quarter. Platform Plus gross profit was $65 million, or about 89% of the total, and up 69% year over year. Device gross profit came in at $8 million. While our strategy has been to be more competitive with certain promotion pricing, and this has resulted in slightly lower than average device margins, we continue to acquire active accounts for our Platform Plus business at a positive gross profit. Given the significant ARPU growth we have already achieved and the continued upside we see ahead, we believe our device strategy serves as an economically favorable growth driver for our Platform Plus business. Total company adjusted EBITDA for the quarter was $4 million, slightly ahead of our expectations and down from $40 million a year ago. I would like to take a minute to provide some further specifics to help put this year-over-year decline into context. The change versus Q1 2021 is the net effect of four factors. First, device margins coming down from the previously elevated levels during the pandemic period, and additional strategic investment we have made to strengthen our competitiveness in the market. Second, $9 million in higher marketing spend to help drive device sales. Third, higher SG&A due to investments in our engineering and software development teams to build future monetization features and opportunities, as well as certain corporate functions needed now that we are a public company. Finally, these three headwinds were partially offset by growth in our Platform Plus results. Looking forward, we expect to see the impact of these factors begin to moderate as we scale the business and benefit from further growth. As a result, we expect adjusted EBITDA to improve throughout the year. We continue to maintain a strong, highly liquid balance sheet with no debt and significant flexibility to invest for future growth. Now turning to our key performance metrics, our Q1 results continue to highlight the growing success we are experiencing in driving overall monetization across our platform. ARPU growth this quarter accelerated to a record $23.68, up 64% over the year-ago period, benefiting from growth in home screen monetization, growth in video advertising revenue, particularly within Watch Free Plus, and growth in data licensing revenue driven by several contract renewals at higher rates. We are pleased with the success we've achieved in monetizing our platform in a short period, and we continue to see significant upside from here as we launch new features and gain further traction in the marketplace. Total Visio hours grew 18% to 8.2 billion, and SmartCast hours grew 14% to 4.1 billion, exceeding 4 billion hours in a quarter for the very first time. While we continue to see solid overall growth in our total hours and SmartCast hours, as we have said before, where those hours are spent is particularly important to our monetization opportunities. To that point, we are pleased by a trend we have seen over the past six months where growth in time spent on WatchFree Plus has significantly outpaced overall time spent on our platform. This has helped fuel our growth in video advertising revenue. SmartCast's multi-active accounts grew just over 500,000 to 15.6 million. So now let me turn to what we expect to see for the second quarter. We expect Platform Plus revenue to be between $107 and $111 million with strong contributions for both advertising and data licensing. We expect platform plus gross profit to be between $66 and $69 million, implying continued strong margins over 60% at the midpoint of these ranges. From a total company perspective, we expect adjusted EBITDA to be in the range of $3 to $7 million. We also expect to see significant increase from this level in Q3 and Q4. So overall, Q1 was a great demonstration of the strengths and benefits of our dual revenue model. Our monetization capabilities continue to expand as we execute on existing market opportunities and tap into new opportunities through product innovations, all while delivering to consumers an exceptional user experience at a tremendous value. With that, let's open the call up to questions. Operator?