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spk04: Good afternoon, and welcome to Vizio's Q3 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 Work 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, including certain statements about our expected fourth quarter results, upcoming product rollouts and functionality, and future customer demand for our products 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 finalings 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 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.
spk15: Thank you, Michael. And hello, everyone. Thank you for joining us today. The important model for Vizio has always been growth meets discipline. Our third quarter results are continuing the reflection of this as we grew our platform plus net revenue by 49% and growth profit by 38%. And our total company adjusted EBITDA came in at $17 million, all of which surprised the high end of our guidance ranges. And even the most highly unpredictable market conditions will continue to maintain a strong and liquid balance sheet with no debt. Since our IPO in early 2021, I am proud that we have continued to successfully execute our dual business model and deliver consistent performance against our targets and goals. Our experience and discipline management team has a track record of successfully navigating through economic cycles in the past. Through the discipline investment we are making today in our people, our products, and our platform, we will be in a great position to reap the benefits as market conditions improve. A few weeks ago, we celebrated 20 years of delivering great products. at affordable prices.
spk14: We continue this tradition with the recent launch of a new collection of smart TVs and smartphones.
spk15: For our TVs, we have invested in a whole range of upgrades and improvements to the consumer experience. We enhanced connectivity through Wi-Fi 6E compatibility, improved the speed and performance of our operating system. Extended AMD FreeSync certification for gamers across the fleet, and now includes our Vizio Voyager mode and Bluetooth headphone support to all of our products. Unlike many of our competitors, we extend most of these quality features all the way down to our entry-level models. That's a strong differentiator, especially for the price. and the critics and reviewers are noticing. We are receiving great accolades, with many indicating that our new collection delivers a powerful punch of great picture quality and high-quality extras, all at a great price. With these glowing reviews, there's no surprise that we maintain our position as the number two best-selling TV in the U.S. for another quarter. On the audio side, our new AM Series Elevator and all-in-one soundbars complete the home entertainment experience at an incredible value. Critics here are also raving, particularly about Dolby Atmos products, with many highlighting that one would be hard-pressed to find a sleeker and more powerful accounting system for the money. We continue to benefit from the success of our dual business model, which gives us the opportunity to invest in these award-winning devices while also delivering continued growth in platform monetization with enhanced viewing experiences to our users. with instant access to over 135 streaming services, including fan favors like Starz, Apple TV+, BET+, Discovery+, Disney+, HBO Max, Hulu, Netflix, Peacock, and Prime Video. It is no surprise consumers spend the majority of their time on our TV streaming. We also know a growing wave of consumers are interested in consuming free ad-supported content, and it comes as little surprise that our Watch Free Plus offering remains the number two most watched free ad-supported app on our platform. During the quarter, we expanded Watch Free Plus with the recent addition of Core TV, Home TV, ION, and many more. We also expanded our Watch Free Plus on-demand service to include access to over 6,000 movies, TV show titles from partners like Disney, Warner Brothers, Sony Pictures, and Mindstate. This quarter, we'll continue to grow our small-cap asset accounts base and expand our relevance in the advertising marketplace. Our advertising revenue grew substantially, driven by expansion in both our ad, client, remunerative, and broader presence across multiple categories. During the quarter, we funded our direct client relationship at 65% versus a year ago, adding 158 net new advertisers. The continued growth is coming from big brands in the largest ad categories such as automotive, media entertainment, PPG, quick service restaurants, and retail. We also recently announced that we concluded our 2023 upfront negotiations with more than $200 million in direct advertising commitments from agency holding companies, brands, and studios. More than double the commitments we achieved last year. With better targeting, measurement, advertising opportunities on Watch 3 Plus, as well as buyer demand for data-informed advertising and home screen engagement, there is a runway of opportunities for our Visio X business. All of the discipline investment we continue to make in our product, our platform, and our people are built around creating true long-term value for our consumers. The benefits are only both hardware and software allow us to continuously push new features and backwards integrate capabilities into our TVs. As a result, We like to say that the longer a consumer has a video in their home, the better it gets. To further support this push of always making a TV better, we recently unveiled a dedicated developer program created to optimize and accelerate the onboarding process for new features and content partners. This program is available nationwide and helps connect certified developers and content distributors, big and small, to build apps and experiences for Vizio smart TVs. We are excited to bring this opportunity to the developer market. At Vizio, we have created disciplines and measured roadmaps for new innovations that bring together a great experience for users and our partners alike. The multi-consumer spend-working podcast unlocks tremendous growth opportunities, and our team is continuously working on a pipeline of new features and innovations that further the video ownership experience. As an example, just a few weeks ago, we rolled out a new feature called My Watchlist. This feature allows viewers to add their favorite TV shows and movies from different streaming services. into one central location on our platform. My Watchlist makes it easier for viewers to find and access the content they intend to watch quickly and efficiently, while at the same time adding value for our content partners in their customer acquisition and retention efforts. And due to the backward compatibility of integrated hardware and software structures, we are able to launch this across the fleet with a simple software update. Bringing this new feature to our broadcast TVs that are several years old. We look forward to sharing even more with you in the quarters ahead as we continue investing in our users and our partners. With that, I will now turn the call over to Adam to review our third quarter results in more detail.
spk04: Thanks, William. Before opening the call to questions, I'll take you through our quarterly financial highlights and discuss our outlook for Q4. Starting with the third quarter, total company revenue came in at $435 million. Platform Plus revenue grew 49% to a quarterly record of $128 million and represented a new high of 29% of total company revenue in the quarter. This strong growth was driven by advertising revenue, which rose 47% to $97 million and a step up in data licensing revenue over the year-ago period. During the quarter, as William mentioned, we expanded our direct advertising client relationships by 65% versus a year ago, adding more than 158 net new advertisers to our platform. We continue to show growth in our advertiser relationships with a strong repeat customer base. Those relationships continue to broaden, driven by our combination of unique ad experiences and powerful first party data. Our best in class ACR data drives a complete campaign cycle, helping advertisers to plan, target and measure their advertising spend more effectively. Pair that with the expanding reach of our ad-supported service, Watch Street Plus, and we continue to see rapid growth of monetizable video ad inventory. On top of this, our home screen continues to represent a highly compelling destination for content partners to reach viewers right at the moment they are deciding what to watch. We believe that CTV advertising continues to grow faster than the overall ad market, and our advertising business continues to outpace the growth within CTV. Platform Plus non-advertising revenue grew 55% to $31 million versus the year-ago period, again led by growth in data licensing. As viewing trends shift and audiences fragment across different services, our first-party ACR data has been at the forefront of powering products that deliver a better consumer experience and bring greater transparency and scale to CCD measurement. Today, we work with some of the leading measurement companies such as iSpot, Comscore, VideoAmp, and Nielsen, who utilize our data to fuel their ad currency products. Turning to our device segment, total revenue was $317 million. The year-over-year decline in device revenue reduced the combination of lower smart TV shipments and lower average selling prices due to more promotion pricing. While these pricing strategies have impacted our average selling price versus the year-ago period, they have also had the intended consequence of increasing our competitiveness in the market to improve sell-through volumes, which in turn helped drive growth in our base of smart cash-active accounts for platform-plus monetization opportunities. To that end, we continue to see healthy market share trends where we remain the number two best-selling TV brand in the U.S. during the quarter and on a year-to-date basis. Turning out of gross profit, total company gross profit was $80 million for the quarter. Platform Plus gross profit was a record $79 million, up 38% year-over-year, representing about 99% of the total company's gross profit dollars. Platform Plus gross profit margin was a strong 62%. Total company adjusted EBITDA for the quarter was $17 million. This better than expected result was attributable to more managed growth in SG&A expenses and strong platform plus gross profit contribution. We are closely managing operating costs, including prioritizing hiring to specific areas that help drive top line growth and overall operating efficiency. We are also looking at offshore and near shore opportunities in order to provide incremental engineering support for various growth initiatives in a cost efficient manner. We remain focused on maintaining our strong balance sheet, which remains highly liquid with no debt. With more attractive interest rates available in the market, we have increased our investments specifically through short-term treasuries in order to improve return on our cash. At quarter end, total cash and equivalent along with short-term investments total $325 million. Now turning to our key performance metrics, our Q3 results continue to highlight the growing success of our efforts to drive overall monetization across our platform. SmartCast R field reached a record $27.69, up 39% over the year-ago period. Our platform monetization continues to benefit from strong demand for home screen advertising inventory and growth in video advertising revenue, particularly within our Watch Street 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 17% increase in SmartCast hours against an 11% increase in total Vizio hours. User adoption of streaming on our platform continued its upward trajectory demonstrated by further growth in streaming time spent on a per active account basis. SmartCast active accounts grew 500,000 sequentially and 2.2 million year over year to a new record 16.6 million. So let me now turn to what we expect for the fourth quarter. The fourth quarter represents our seasonally largest quarter in terms of both device sales and advertising as content consumption rises during this time. We are working closely with our retail partners to ensure we have competitive and compelling campaigns in the market to move as many units as possible throughout the holidays. We expect platforms plus net revenue to be between $138 and $142 million, with continued growth in home screen and video advertising, as well as growth in data licensing. At the midpoint of the range, Platform Plus net revenue of $140 million for the quarter implies growth of 33% year-over-year and a seven-fold increase since we launched our internal sales group just under three years ago. We expect Q4 Platform Plus gross profit to be between $84 and $87 million, implying continued margins of around 60% at the midpoint of the ranges. And lastly, for total company adjusted EBITDA, we expect to be in the range of $15 to $19 million. So overall, our Q3 results demonstrate our ongoing focus on steadily growing the business while maintaining our long-time commitment to efficiency, productivity, and discipline. And the growth in our Platform Plus business continues to provide financial and strategic flexibility, which allows us to enhance our market competitiveness on TV sales, particularly during macroeconomic environments like we are currently experiencing. With that, let's open the call to questions. Operator?
spk08: Thank you. As a reminder, if you'd like to register an audio question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. Please ensure you're unmuted when speaking. We'd ask all participants to limit themselves to one question with an additional follow up.
spk04: Operator, we will take the first question.
spk08: Our first question comes from Laura Martin of Needham. Laura, please go ahead.
spk01: Thank you so much. I'll do both of mine at the same time. So, William, can you talk about the developer program? Very interesting. Is your business model there taking a share of all revenue earned through that? Is that how it affects the Visio profitability or revenue line, or is it some other strategic benefit I'm not thinking about? And then, Adam, for you, you're right. Your cost control in the quarter was outstanding, and therefore you over-delivered our EBITDA benefit. by about 6 million, like 60% in the third quarter. But the guidance for Q4 for EBITDA is quite a bit lower than we had hoped. So I'm curious, if your costs are under such good control, what is it that's bringing the EBITDA guidance down in Q4? Are you just being conservative because of the uncertainty in the environment? Thanks, guys.
spk03: Hey, Laura. This is William.
spk15: Good question. For many years, we've been building the fundamental building block for the developers. And this is certainly an exciting time for us. And we'll build our Visio account, Bluetooth voice remote, interactivity, overlay, and Visio mobile. And we believe we're ready now. Along with our 16 million 30-day active audience, I strongly believe that this is a good time for us to help the certified developers to make some money. And again, we'll be working so hard to make that happen. As far as the monetization is concerned, Mike, do you want to add to that?
spk02: Yeah, look, thanks, William. I think as a distribution platform, we've been investing in laying this foundation or these foundational components to get closer to the app developer community so that we can encourage them to build new apps for the future of TV and engage with our 16.6 million active users. I think we've touched on those foundational components before, but That's better communication to the TV through voice rolled out on every size and model of TV moving forward. Continued improvements to our mobile app, notifications and interactivity tools, payment and subscriptions through Vizio account, which is truly important, and additional ad monetization tools for them. We had a great turnout at the developer conference. We expect to keep engaging with them as we invest in the future, and we expect the business model to run similar to how the business model works today, a cut or a share off of the dollars generated on our platform.
spk04: Yeah, and more on the EBITDA question, you're right. The beat in the quarter was really a function of both general expense moderation as well as including a more measured hiring pace, and we would expect those dynamics to continue into the fourth quarter. That said, fourth quarter contains some dynamics and characteristics that are a little bit different than the third quarter. For example, it's the holiday period, and we've got a number of promotion activities going on out in the market to drive sell-through of televisions during the holiday period, which we think will be a benefit to help feed the Platform Plus business. So we've got to be thinking about that. On top of that, the growth mix in the revenue on the platform side is skewing more towards video in the fourth quarter, given that consumption trends and demand for our video ad inventory, and that has a little bit of a difference in terms of margin profile. So we wanted to factor those into the guidance considerations. An overlay to that is a general conservatism. There are certainly areas in our business where we have great visibility, and we want to factor that into the guidance, but there's also pockets of uncertainty out there, and we don't want to ignore those. So I think we've tried to find a balance of all those factors as we thought about the fourth quarter.
spk01: Thank you very much. Very helpful, guys. Thanks.
spk04: Great. Thank you. Thanks, Laura. Operator, we will take the next question.
spk08: Our next question comes from Nick Zangler of Stevens. Nick, the line is yours.
spk12: Yeah. Congrats on the quarter, guys. You know, recently we came across a report that was suggesting you are not a significant seller at Costco. Just hoping you can address the claim of that report.
spk15: Yeah. So, you know, we have a great history with Costco. As a matter of fact, I think 17, 18 years ago, we took the industry by storm together with the support from Costco where we launched our first studio-branded flat-screen TV. Costco gave us the opportunity to become a household brand, and I'm super grateful, super grateful for that partnership. We are, at this time, the number two flat-screen TV in the brand. in the TV brand in the USA. We have many strong retail partners, and also we earn our way to some of the best shelf placement in the industry. Our team is working very hard with support from Costco to gain additional momentum at Costco. We also work closely with other retail partners to maintain a strong position in this self-demand environment. A good example was a $499 75-inch offering over the summer, a fantastic value for Costco shoppers, a 75-inch TV for $499. And we see that as a great opportunity for us to work even closer with Costco to gain more momentum for video years to come.
spk04: And Nick, it's Adam. I just want to add one other comment there and echo William. Obviously, we very deeply value the relationship with Costco and expect to help to do more with them down the road. But we've got to do it in the context of a financial model that works well for both companies. And so our team is working on ways to achieve that. And so as we sit here today, we're optimistic that as we look into next year, we would hope to do more business with Costco as we look forward. So it's really an opportunity to grow off this base.
spk12: Got it. Very helpful. I did want to ask about the upfront. So last year, Vizio generated $100 million at the upfronts. And if you do the math, obviously, it ended up representing about 30% of your advertising revenue over those next 12 months. This year, you doubled that upfront to $200 million. I'm curious how we should think about the upfront dollars as a proportion of your total advertising revenues over this next year. Is there any reason to believe that we should see a material shift in that mix over the next 12 months?
spk03: Now, hey, Nick, it's Mike.
spk02: Look, I'll start with just the upfront, some comments around the upfront. I think we're pretty happy with where we landed this year. As you know, our growth trajectory, this is really our third year in the business, right? So the first year was really a test and learn phase of advertisers. Last year, we were... very happy with us closing nine figures in upfront commitments. And this year, we're able to double that again. So not only that, but we're able to add new brands across multiple categories and not only increase spend, but increase CPMs across those deals, which is great for us. But much like this year, I think the upfront was a good foundational component to building the advertising business. but it's not the only source of advertising dollars. This past year we showed we've been able to leverage our first-party viewing data to tap into a lot of digital budgets as more and more dollars become available and flowing, or digital dollars become available and are flowing into CTV. So I assume heading into next year, we assume a similar mix, but we're happy with the foundation we have and still think there's even more opportunities to grow on the digital side.
spk12: Awesome. I'm going to squeeze one more quick one in here if you don't mind, but just curious if there's been any more incremental wins with the JumpView product. I know you launched it with Fox earlier this year, but just any update on that front. Thanks so much.
spk02: Yeah. Yeah. JumpView has been a good product for us. I think for those, just as a reminder to those on the call, JumpView is, you know, we believe a great benefit of the hardware software model or the integrated model. It allows us to recognize when a viewer is watching a program and then target and serve them an overlay to that viewer in real time. This allows our viewers to seamlessly jump between HDMI inputs or, for example, as you said, you're watching NBC on linear TV. We can send you a notification to catch up on past episodes or watch trailers within Peacock within one click. A great tool for consumers and also a huge benefit to our content partners. So we've seen material growth in terms of the content partners utilizing it. It's another tool in the bag for us on the media and entertainment side to continue to grow spends and relationships with those advertisers. And we've seen great success in terms of engagement with the product.
spk12: Awesome. Thanks a lot, guys. Good luck going forward. Thanks, Nick. Thanks, Nick. Operator, we will take the next question.
spk08: Our next question comes from Jason Crea of Craig Hallam. Jason, please go ahead.
spk10: Hey, Cal, I'm here for Jason. First, I just wanted to ask, can you just talk a little bit about, and you kind of touched on this earlier, but how you're balancing growth and profitability here in the more choppy environment We've seen some others implement some cost reduction plans, so just curious if there are any more details about what you're doing here to preserve profitability.
spk03: Yeah, hey, thanks, Cal.
spk04: This is Adam. Look, I think you used the right word, which is balance. We obviously see tremendous growth opportunity ahead for where we are and the opportunities that are going to be presenting themselves. We want to make sure we're continuing to invest and create new functions and capabilities that will help us monetize down the road. But at the same time, particularly in this environment, we want to be very mindful of preserving profitability, growing profitability, and being able to execute on the overall plan. I think if you look at the quarter results, OpEx excluding stock-based comp was up about 7% year-on-year. And the bulk of that increase is really in R&D and marketing, which are two areas I would view as in that investment camp. which implies that we kept other costs really in check. To that point, SG&A was only up about 1%, pretty flat. And in an environment where you're seeing high single-digit inflation, I think that reflects the discipline and the focus that we've described for you. So we're going to continue to remain focused on that. We think we can find this right balance. A lot of excitement to come down the road. We think we've got a great team in place based on the investments we've made in the last year and a half or two years to build up teams across the enterprise in engineering, advertising, sales, ad tech, corporate support as a public company in particular. So there's a lot we've done to put us in this position, and now it's a matter of just executing and seeing how we can progress.
spk10: Perfect. And then my last one here, how are you kind of looking at the promotional environment ahead of the holiday season? Are you expecting to get more aggressive here than we saw last year in terms of prices?
spk04: Yeah, great question. Yeah, look, we fully expect that it's going to be a very competitive environment. It has been for the last several months and quarters, and probably even more so into this holiday season. One of the fundamental differences we have going into this holiday season versus last is that we have good supply in the channels. So we've got products out there ready to go. We've launched a number of promotion programs already with Sam's and Target and Walmart. We're going to do more as we go through the holiday cycle. And I think that feeds into the overall model that we've been describing for some time that We have this great benefit of a growing platform business that allows us that flexibility to be more aggressive and more competitive on pricing on the hardware side. It's really an important element of our model today, and we think it's working really well in delivering a good customer lifetime value and a good ROI on this investment. So we're going to be out there in the market. We're going to have some great, great, great products out there at a great price, and hopefully everyone can take advantage of those. Thank you very much. Thanks, Cal. Operator, we will take the next question.
spk08: Our next question comes from Michael Morris of Guggenheim. Michael, please go ahead.
spk11: Thank you. Good afternoon, guys. Two questions. First, I wanted to ask you about the partnership or expanded partnership that was announced with Fox earlier this month. Specifically, part of the press release mentioned having access to Fox's premium inventory. which seems like a very good thing when we're talking about having tier one inventory. So I'd love to hear anything you can share about that agreement and what it sort of means for your progress with other tier one publishers. That's my first question. And second, just on Vizio account, I'm not sure you referenced it, but I know it launched kind of officially during the quarter. Love to hear anything you can share about early learning there, uptake, how it's being received. Thanks.
spk03: All right.
spk02: Yeah, I'll start with from Fox perspective. Yeah, we're pretty excited about the relationship. We've had a great relationship with Fox for a few years now. So we've continued to expand that across, you know, not only Fox News, Fox Nation, but also Tubi. We're starting to add more channels across Fox Sports and Fox Weather into Watch Free Plus. So we're excited about that growing relationship. Like all content deals that we enter into, we try to find a balance in terms of making sure there's value for both parties. And I think not just with Fox, but with all our deals, we continue to look for ways in which we can help them grow and build on their footprint within our platform, grow their engagement. but also find monetization opportunities for both parties.
spk04: Yeah, hey, Mike, it's Adam. And on the VisioCounts side, yeah, we're thrilled to have that launch now in the market. We had a successful launch and success with some key launch partners, in particular, Starz as a premium cable coming onto the platform as a result of the fact that we had that billing capability and the ability for consumers to manage that subscription right on our platform. So, so far, so good. We're pleased with where it's going. We're approaching about 30% of the SVOD apps in the platform that are now enabled within Vizio Accounts, and we'll expect more to be coming on over time. Fundamentally, I think we really view Vizio Account as sort of a foundational capability on the platform that will help us not only in SVOD, but other potential use cases that come down the road in terms of other transactions or other elements. We're going to be looking at ways that we can get people to engage more and ramp up the adoption of Visio Account. And William talked a little bit about innovation coming. That's going to include features that will be a catalyst for people to engage with Visio Account. So, so far, so good. We think it really helps with the stickiness of the customer base. We're excited about what it can do for us down the road, and stay tuned.
spk11: Thank you for that. Could I just ask one quick follow-up to Mike on the Fox partnership? where you stand now with the announcement earlier with them, would you consider this agreement with Fox sort of typical of your agreements with other, you know, again, I kind of refer to them as tier one, I think you guys do as well, publishers, or is this kind of advancing, you know, the sort of depth or breadth of your relationships with not just Fox, but sort of peer publishers?
spk02: You know, look, I think There's variations in all the deals we have, but I think for the most part, this is pretty typical of the types of agreements we have. Fox, like I mentioned before, they've been a great partner for a while. We've had a good relationship in terms of helping both parties grow from a monetization perspective, and it's the same way we look at most of our partnerships, including Tier 1 partners.
spk11: Great. Thank you both. Appreciate it.
spk04: Thanks, Mike. Operator, we will take the next question.
spk08: Our next question comes from Vasily Karasiov of Cannonball Research. Vasily, please go ahead.
spk09: Thank you. Good afternoon. I wanted to ask you to comment on how the tone of your conversations with the advertisers changed in recent months. Booking windows, what are they indicating to you in terms of their conviction in the The holiday season, what ad units are more popular? Has that changed or not? So anything you're picking up on the change in the tone of the ad market would be appreciated. Thank you.
spk03: Yeah, look, Sui, I think there's no doubt it's a tough market out there.
spk02: But if you look at where our ramp's coming from, I keep going back to the fact that we're still relatively new in the marketplace. So we've been able to weather the storm pretty well and continue to grow based on expanding our relationships. I think last quarter we added 246 new ad partners. This quarter we said we announced another 158 new ad partners. So for us, while it's definitely a tough ad market out there, we've been able to continue to break new advertisers. And we know and we've proven over the past three years, once we get them in, we've had great opportunities across all categories to continue to grow those partners. We're focused. Like I said, it's tough out there, but we do have great opportunities, especially around our first-party viewing data. And that first-party viewing data, as I mentioned earlier, there's still a lot of digital dollars available and flowing into TV, and we've long been the leader in targeting and measurement. So the ability for our sales team to utilize our first-party viewing data has continued to open up a lot of doors for us in the face of a tough ad market.
spk09: What about the booking window? Is it short now, like representative of a tough macro?
spk02: In terms of the booking windows, I don't know if it's necessarily shorter. I think it depends on what budgets you're tapping into. I think from a digital perspective, it's typically a shorter window on that front. So as we continue to tap into those dollars, I think we'll continue to be successful.
spk04: Thank you. Thanks, Vasili. Operator, we will take the next question.
spk08: Our next question comes from Wamsi Mohan of Bank of America. Wamsi, please go ahead.
spk13: Yes, thank you. William, we've had two tough years for TV units, declining quite significantly over 2021 and 2022. Any early thoughts on how you expect TV units to progress here in 2023? And I will follow up.
spk15: Well, 2022 has been tough. We've seen a tough demand since the beginning of this year. And I do believe 2023 is going to be a little bit better, but we don't believe it's going to be significantly better like last year or the year before. But we'll see how they go this holiday season. And we'll hope the markets get better, but we're not extremely optimistic at this particular time. Evan, you want to add to that?
spk04: Yeah, I can add a little bit. I think we've pointed often back to our brand as a strong value brand, certainly in these kinds of environments. We do, on a relative basis, do quite well in these environments We've gained a share, moved up from three to the number two selling brand in the country as the year has progressed. And so from that standpoint, I think we can differentiate ourselves out there, be a great product for the consumer. And we've been encouraged, actually, by the response we've seen to some of our promotions this year. When we've gotten aggressive on pricing, consumers have really reacted, and that's stimulated demand, and that's increased sell-through, of our products in the marketplace. So those tactics are things we're going to be looking at in a challenging environment, and we would hope to be able to see similar response and hopefully expand our market share capabilities as the year progresses next year. Yeah.
spk15: We've been in a bad event for all these years, and I believe this is a good time for us to capture additional market share. And with our dual revenue business model, I think even give us more of that advantage next year. So we're pretty optimistic regarding cash transition market share, even though the economy is still soft.
spk13: Okay, thanks, William. And Adam, if I could follow up. You obviously have very strong ARPU trends in the quarter. Can you talk about the sustainability of your ARPU and maybe in the context of sort of some of the initiatives you have taken on the Watch Free Plus side?
spk04: Yeah, look, I think we believe there's significant continued headroom for ARPU growth. ARPU growth for us comes across a variety of factors, right? It starts with having a great user experience, and we've invested in engineering capabilities to improve our home screen, the user experience, the speed. of the operating system. And that all just gives a better user experience, which drives more engagement. And more engagement means more opportunities to monetize. On top of that, we spend a lot of time bringing in and sourcing content that we think our viewers want to increase the probability that they're going to stay engaged on the platform. Again, driving opportunities for monetization. We use our data to help inform us around that to increase that probability. And so when you bring all of these efforts together in areas that we've really been investing in and growing our capabilities and getting more sophisticated over the last couple of years. It's coming together now and really sort of materializing into a good growth trajectory in ARPU. So it is a key focus of the company. It's a key target goal that we have to grow ARPU, and all the resources in the organization are really focused on that. So we're optimistic. There's plenty of room in the market for us. Okay, great. Thank you. Thanks, Ramzi. Operator, we will take the next question.
spk08: Our next question comes from Stephen Cahal of Wells Fargo. Stephen, please go ahead.
spk06: Thanks. Maybe first, could you just speak a little bit to what the opportunity looks like as Netflix and Disney Plus introduce advertising? Netflix has certainly been one that we've historically thought of as not sharing much with the connected TV world. I think Disney and Hulu have been a bit more sort of standard within your Tier 1 providers. So as we do start to see a lot more maybe ad flow going into those, what is, you know, without getting into specific terms, what does that mean for Vizio? And then I have a quick follow-up on the upfronts.
spk02: Hey, Steve. It's Mike. Yeah, look, we're not going to comment specifically on Netflix or Disney, but what we can say is, I think we're pretty excited about them coming into the market on the ad-supported side. If you look at our platform, we have a consumer base that has an appetite for ad-supported content. So from our perspective, as a distribution platform, anything that's going to accelerate or drive more engagement to the platform is ultimately going to lead to more monetization tools or monetization opportunities for us. in the future. I think also from an overall market perspective, I think it's going to help lift the overall connected TV ad market. I mean, today, more than 50% of the time we see on our own platform is spent streaming, but what is it only about a little over 20% of the ad dollars are flowing in. We think this is going to be a huge benefit and ultimately help as more eyeballs come in, ultimately help more ad dollars drive into the fold, and we'll be a huge beneficiary of that.
spk06: Great. And then, maybe just a bit more on the upfront. So, you know, when Roku recently reported, they talked about their upfront commitments as well, but when we kind of look at the numbers, it just seems like that those don't necessarily protect at least their advertising revenue from downside when the market is weaker or pricing is weaker. And that's maybe in contrast to the linear TV network upfronts where the dollars tend to be very firm. The commitments are usually on a quarterly basis or even tighter. So when we think about your $200 million in commitments from agencies and marketers, I guess, can you comment at all about kind of how locked in that is and what those commitments really represent? Thank you.
spk02: Yeah, I think for us, at least we've seen in the past year, we've been able to hold pretty firm with the relationships we have. I think a lot of it ties into our ability, even with the upfront commitments at agencies and some of these brands, we've brought a lot of new brands in across multiple categories. And I think when we look at the overall agencies, there's still a lot more brands for us to bring into the fold for them to deliver against the upfront commitments they have. There's always risk in upfront commitments, especially as the market tightens. But as I mentioned earlier, I think we saw it this year, and I think we're expecting it next year. We've had a lot of opportunities to expand our advertising business, specifically on the video side, beyond just the upfronts. We're continuing to tap into more and more digital budgets, leveraging our first-party viewing data. And our ability to continue to find audiences, target audiences, measure them, and ultimately deliver incrementality for our advertising partners, I think we're well-positioned heading into next year.
spk06: Great. Thank you.
spk04: Thanks, Steve. Operator, we will take the next question.
spk08: Our next question comes from Tom Champion of Piper Sandler. Tom, the line is yours.
spk07: Great. Thanks very much and good afternoon. Adam, I'm wondering if you could just elaborate a little bit on the comments around offshore and nearshore opportunities to expand engineering. And then Mike O'Donnell, maybe a question for you. Hopefully this isn't too duplicative, but as you think about the total ad market heading into 23 and maybe looking beyond, say, the next 90 days and what's kind of right in front of us. I'm just kind of curious what your thought is on the market next year in totality based on what you see today. And more relevantly, I guess, does that market rate of growth matter for Vizio? Historically, you've been at a scale where you could just grow consistently and grow right through any headwinds in the market. Are you at a size now where the market rate of growth really matters? Any thoughts on that would be really helpful. Thank you.
spk04: Sure, Tom. I'll take the first one. Look, if you look at the ramp up we've done over the last couple of years in our engineering team, it's almost entirely been domestic hiring, which has served us well. We've executed all the way. You've seen what we've brought to market. And so we're pleased with our domestic engineering team. But as we look forward, we want to make sure we're getting the right efficiencies and the right scale out of potential partners that could be offshore solution providers. So there's areas where we're going to be expanding and developing particular capabilities for the TV where we might be able to just leverage partners' efficiency much better than ourselves. So it's really a combination, finding that right mix and right balance between how large should the team be domestically and then how much do we put into an offshore or nearshore solution for ourselves. So it all feeds back into speed, time, efficiency, and quality, balancing those factors together.
spk02: Yeah, Tom, and I'll jump in. I think heading into next year, there's obviously a lot of uncertainty in the ad market in 2023, and I think it's going to be tough to predict or give you a prediction from our standpoint on the overall market. But in terms of Vizio itself, I think we've still got a lot of room to grow. I think we've shown that, and I think that growth trajectory is still well-positioned for next year. We continue to expand Watch Free+. It's the number two free ad-supported app on our platform. We continue to grow the viewership there. That's driven more monetization opportunities as we get deeper with brands and agencies on the owned and operated side. We've already touched on more addressable and digital opportunities for us. We think that'll continue to expand heading into next year. And again, as I touched on, I think there's still a lot of opportunities for us to continue to add to the advertiser base. We have room to grow, and I believe there will be more dollars pushed into connected TV or the growth trajectory in connected TV will continue to be there heading into 2023. Got it.
spk04: Thanks a lot, guys. Thanks, Tom. Operator, we have time for one more question.
spk08: Our final question comes from Jim Goss of Barrington Research. Jim, please go ahead.
spk05: Okay, thank you very much. Adam, you started talking about some of the contributors to the ARPU gains. I was wondering if you could further unpack the latest quarter more specifically. It was up 39%. I think one of the contributors was the 17% increase in the SmartCast hours, but perhaps there are other things you may identify as the key contributors. And then the other question I'd have is... Reminding me of the, if the total Visio sets are your TAM, what share of sets are you currently monetizing? And are there any trends you can identify between the various home screen elements, between the couple of types of banners and the third-party apps and the SmartCast bus that are trends in those relative to one another in terms of the key contributors.
spk04: Yeah, sure, Jim. Look, for the first part of your question, in terms of ARPU, I would highlight two particular areas that are key contributors to our continued success there. And the first is Watch Free Plus. We're continuing to see great growth and engagement in Watch Free Plus. Watch Free Plus usage is outpacing all other streaming platforms. growth on our platform, and that is the destination on the platform where we monetize the most effectively. That's where we have the biggest control of the ad inventory. That's where we can use all the resources we have, including our data, to maximize and optimize monetization of that time spent. So the flywheel of getting more users on the platform having them spend more time streaming, and not only more time streaming, but streaming in the right places, particularly in Watch Street Plus, as I just mentioned. So that is really a key contributor to this, and we're going to continue to source more content, bring more onto that platform, use our home screen as a promotion vehicle to drive user engagement into Watch Street Plus. All that feeds into it and lets us grow our pool more. The other piece that I highlight for this quarter is our growth in our data. We did a great deal with Nielsen earlier in the year. We've got some other renewals that have come into the mix. We're growing our data business. Our data is becoming more valuable in the marketplace, and I point to that as a non-advertising source of additional ARPU that people shouldn't forget. There's multiple contributors to our total ARPU, and so data is a really important part of that as well. So I think those two together are really helping the ARPU in the quarter and into next year. Mike, did you want to talk about the... Oh, did you have another question on... Oh, yeah, Jim, I forgot. You said, you know, I want to highlight that when we talk about our active accounts, we're only talking about those on units that qualify for that active definition, which is they're connected to the Internet and they're turned on in the month. The user does that. So when we talk about our monetization, it's really against that install base. There could be units out in the market that are being used for other use cases. They may not meet our definition in a particular period as an active account. And so therefore, obviously, the monetization is very different for those units. So when you look at our economics and what we're putting up and the results we're showing, it is tied to that base of active accounts, which we disclose, you know, quarterly. And the $16.5 million is where we are today growing off this base.
spk02: Yeah, and I could add, just in terms of additional trends in growth, sorry, did you have a... No, no, no, I was trying to...
spk05: distinguish between them. Yeah.
spk02: Okay. Yeah, just in terms of additional trends and growth, I think from a category standpoint, we're still seeing media and entertainment as the largest category in terms of growth opportunity for us, or in terms of today, in terms of which we're generating revenue off of. But we see significant growth opportunities in what we consider the general market side of the business. And we've continued to add more and more advertisers in this fold. And we've done that through not only, you know, as I mentioned before, not only through additional video solutions. Video is our fastest growing product on the advertising side. But not only through video, through Watch Free Plus, but also through leveraging our first party data. and driving more opportunities on our home screen. I think this quarter, again, we saw more of what we consider non-endemic or non-media entertainment partners take advantage of our home screen in terms of sponsorships and promotional opportunities to drive more advertising dollars, but also engage with our customers more by providing them with content that they may want to view. So as we expand kind of the product set in which we're engaging the general market side of the business with uh we'll continue to see growth not only in video but also i believe on the home screen side all right thanks much thanks jim and thanks everyone for joining this concludes today's call have a great evening
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