VIZIO Holding Corp.

Good afternoon, and welcome to Vizio's Q2 2022 earnings call. I'm Michael Marks, Director of Investor Relations. 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 Michael Donald, 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.vizio.com. I'll refer you to the third 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, except as required by law. 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. Sylvio has always been focused on great design, great user experiences, but just as importantly, a culture of discipline and efficiency. This focus serves us well, particularly in environments like we're in now, which is filled with uncertainty and challenges. I'm very proud of our strong and seasoned management team that has endured many business cycles over our 20-year history and proven to be resilient. Our second quarter results show the power of our leadership team and the success of the dual revenue model we have built. Despite broader marketplace pressures, our total revenue grew by 2% to $409 million, led by our platform business, which grew 69% to a record $111 million. We continue to focus on delivering exceptional value to consumers, which comes through a combination of great technology features and ease of use, all at affordable prices. We can continue to deliver great products at superior value because of our deep focus on discipline and operational efficiency. I'm also proud of the fact that we continue to maintain a strong and highly liquid balance sheet. with no depth and significant flexibilities. Last quarter, we announced some strategic pricing moves around selected SKUs, like our 15-inch V-Series model. That TV quickly became the number one selling TV in the country at that time, and it continues to be in the second quarter as well. Building on this momentum, we expanded our competitive pricing strategy to include additional highly performing skills, such as our 40-inch D-Series model. And that TV became the number two-selling TV in the country. So during the second quarter, Thursday had the number one and number two best-selling TVs in the market, which helped propel us into the number two market share position in the U.S. for the quarter. An outstanding achievement in a tough market. Looking ahead, our new collection of TVs and soundbars just started to hit stores last month, and the feedback has been tremendous. Many of our new TV models include Wi-Fi 6 compatibility, an updated and more responsive operating system, and our Visual Voice Remote with support for Bluetooth headphones. On the audio side, our new AM Series Elevate and all-in-one thumb bars pack the serious punch at a compelling price. Our technology and design enhancements continue to make the living room experience even more enjoyable, and we are already receiving accolades from publications like Newsweek's Tech Reviewers, touting the performance and value of our new lineup. Three of our platform clusters We'll continue to build on our integrated offering by bringing more content and enhanced viewing experiences to our users. We recently announced that TikTok, one of the fastest growing entertainment platforms, joins Vizio. Now you can enjoy your favorable dance video on a much larger screen. We also expanded our Spanish language content offering this quarter. with a new app partnership with Estrella Media and broadened our content offering across a range of categories, including kids, lifestyle, classic reality TV, and talk shows. In addition to all of the great built-in third-party apps we offer, our own app, Watch Free Plus, continues to deliver a strong growth. The growth we are seeing in Watch Free Plus showcases users' increasing move to free ad-supported content, as well as the power of our on-screen promotion capabilities. Once again this quarter, Watch Free Plus was the second most watched ad-supported app on our platform. During the quarter, we expanded the Watch Free Plus content with the addition of Vivo Music Channels. the Jimmy Oliver Channel, LOL Network, and many more. We also expanded our Watch 3 Plus on-demand library with titles from Disney, Sony, and Warner Brothers. We have created a content offering that truly has something for everyone, from gamers to kids and families, for multicultural audiences, sports fans, and many more. This quarter, we grew our SmartCast active account base to over 16 million, up 15% over this time last year. Through the strong engagement on our platform, SmartCast hours where users spend their time streaming grew 22%. We are seeing streaming once again outpace all other time spent on our TVs. To align ourselves with the growth in streaming, particularly in ad-supported content, we have continued to invest in building our ad sales team. That investment has led to greater growth and coverage across ad categories, as well as growth across new advertiser market segments. In a mere two years, we have successfully developed repeat customers with largest ad agencies and big brands, like Apple, Disney, Progressive, Microsoft, and Pfizer. Our advertising business is growing rapidly, up 71% in the second quarter, thanks to growth in large ad categories, such as financial services, retail, and CPG. And across those categories, we have continued to develop new religionships, SanDuo, Georgia Pacific, HP, Little Caesars, Lowe's, and Nationwide, to name a few. Within the media and entertainment category, our content partners and advertisers frequently tell us we have the best platform for search and discovery in CTV, and we have to agree. Every day, millions of consumers turn on their Vizio and experience the power of a home screen to learn about what's on, what's new, and what's available. That's why the biggest studios and streaming services rely on our ad products to promote great content across our platform. As the streaming wars continue to intensify, StudioHill remains a powerful tool for our content partners to acquire and retain their valuable viewers. We also have a great opportunity to provide our users with a simple way to aggregate and manage their subscription services. And this quarter, we launched VisiAccount, our payment platform. Outside of our popular new collection, we are currently rolling out this capability across our existing fleet. And the vast majority of our devices will have this capability by the end of August. It will take some time to get all the major partners up and running, and we're excited to bring Starz and Discovery Plus to our platform as early launching partners. We see Vizio account as a foundational layer needed to bring new interactions and commerce to our smart TVs down the road. We are very encouraged by the early subscriber activation results for Starz. More to come in the quarters ahead from the VR account. So while our team continues to make great progress in our journey, I believe we are still in the very early innings of what a smart TV can become. We remain focused on investing in the people, the software, and the hardware to bring new possibilities to the largest screen in your home. And as we always done, We will invest with discipline and a continued focus on efficiency. As you can see from our second quarter results, the benefits of our dual revenue model are really paying off and providing us with a strong hand to play as we work to expand our monetization flywheel. From more smart cash active accounts to more engagements, to more content and more advertisers. We are driving higher overall value from our growing install base. I'm very excited for what the future holds for Vizio. And with a strong and seasoned team leading us, there's so much more to come. With that, I will now turn the call over to Adam to review our second quarter results in more detail.

Thanks, William. Before opening the call to questions, I'd like to take you through our quarterly financial highlights and discuss our outlook for Q3. Starting with the second quarter, total company revenue came in at $409 million of 2%. Platform Plus grew 69% to a quarterly record of $111 million and represented 27% of total company revenue in the quarter. The strong growth was driven by advertising revenue, which rose 71% to $81 million. We continue to expand our presence in the overall ad market And despite some softness emerging in the macro environment, we believe we continue to be a share gainer within a secularly growing part of the market. To that point, we expanded our direct advertising client relationships during the quarter by 74% versus a year ago, adding more than 200 net new advertisers. Our growth in direct client relationships is key as we saw repeat customers increase their spend by double digit percentages. The sustained growth is coming from big brands in the largest ad category such as financial services, retail, and CPG. Our advertiser relationships continue to expand and are built on trust and transparency. Brands recognize the value of direct-to-device as our own inventory and ACR data give them on-screen validation and proof of campaign outcomes. Speaking of data, Platform Plus non-advertising revenue led by our data licensing grew 65% to $30 million versus the year-ago period. This was the strongest year-over-year growth in three years, as we benefited from an acceleration in data licensing revenue on the back of our previously announced deal with Nielsen, as well as strong pricing trends for brand placement on our remote control buttons. Today, our first-party data helps improve user experience while enhancing advertising campaign effectiveness through better planning and targeting capabilities. For these reasons, our data is also becoming the cornerstone of the CTV measurement market through some of our licensing partners, such as iSpot, Comscore, VideoAmp, 605, TV Squared, and Nielsen, who all rely on our data to fuel their ad currency products. Turning to our device segment, total revenue was $298 million, down 11%. Growth in TV unit shipments of 5% to 1.1 million was offset by lower average selling price, driven by sales of our popular value SKUs and strategic pricing promotions deployed on certain models during the quarter. With this, our market share of Smart TV sales in the U.S. improved to the number two position for the quarter. Turning now to gross profit, total company gross profit was $74 million for the quarter. Platform Plus gross profit was a record $70 million, up 47% year over year with a 63% margin. For the quarter, Platform Plus gross profit represented 95% of the total. Device gross profit came in at $4 million with a 1.3% margin. Given the high contribution margin of our platform business, we remain focused on a strategy of building great products at competitive pricing to continue to deliver exceptional value to our consumers and expand our household install base. Total company adjusted EBITDA for the quarter was $11 million, well ahead of our expectations and down from $26 million a year ago. The improvement relative to our expectations was attributable to more managed growth in SG&A expenses, slightly lower marketing, and stronger platform plus gross profit. We continue to maintain a highly liquid balance sheet with no debt. Cash and equivalents ended the quarter at $336 million, which was up quarter over quarter. Now turning to our key performance metrics, our Q2 results continue to highlight the growing success of our efforts to drive overall monetization across our platform. ARPU grew to a record $25.87, up 54% over the year-ago period. Our platform monetization continues to benefit from strong demand from home screen ads or promotion placement. Growth in video advertising revenue, particularly within our Watch Free Plus app, where growth in viewing hours again outpaced overall streaming growth across the platform. Total time spent streaming also outpaced all other time spent by our users, as measured by a 22% increase in SmartCast hours versus a 14% increase in total Vizio hours. This growth also translated into a return to growth in SmartCast hours per SmartCast active account, which grew 6% as we have now lapped the sharp spike in streaming we saw due to the pandemic lockdowns and subsequent content disruptions. Looking forward, we expect to see streaming return to share gains versus linear as viewing trends normalize. SmartCast active accounts grew 500,000 sequentially and 2.1 million year over year to a new record level of 16.1 million. So let me now turn to what we expect for the third quarter. Like all companies, we are managing the business through heightened uncertainty and market challenges. Against this backdrop, we are focused on balancing cost discipline and resource support and investment for growth and opportunities that we see ahead. Given there is significant opportunity for growth in our high margin platform plus business, we intend to prudently invest resources there while being extremely disciplined about cost and other areas of the company. Our focus will be on identifying efficiencies and driving productivity to support profitability and operating leverage. For Q3, we expect Platform Plus revenue to be between $120 and $125 million, with continued growth in home screen and video advertising, as well as data licensing. Political advertising remains a wild card for the quarter, with timing and pacing hard to predict. While we believe we are well positioned to bring in significant political dollars, we remain conservative within our outlook given its lower predictability. We expect Platform Plus growth profit to be between $75 and $78 million, implying continued margins of over 60% at the midpoint of the ranges. From a total company perspective, we expect Q3 adjusted EBITDA to be in the range of $8 to $13 million. We continue to expect second half adjusted EBITDA to exceed first half as we benefit from greater operating leverage in our seasonally strong fourth quarter period. So overall, we are pleased with the commitment and determination of our team in Q2, which delivered solid results. And we remain disciplined and focused on continuing to generate near-term profitability while investing for long-term growth. With that, let's turn the call over to questions. Operator?