VIZIO Holding Corp.

Good afternoon and welcome to Vizio's Q4 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 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 third slide in the presentation and remind you that certain statements made on this call, including certain statements about our expected first quarter results, advertising relationships and partners, 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 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 and certain operational and financial metrics. Reconciliations to the most comparable GAAP measures for non-GAAP financial information discussed on this call, as well as further information related to guidance, definitions, and metrics, can be found in our earnings release, which is on the investor section of our website. Note that all quarterly comparisons in today's remarks were 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. 2022 marked our 20th anniversary as a company that has always been focused on delivering great products and experiences at affordable prices. There's no doubt that this last year presented numerous challenges, but despite them, our team did a great job executing on our dual revenue model. In just the third year since its launch, our Platform Plus business grew revenue by 55%. and gross profit by 41% in 2022. The growth and now greater scale we have achieved in our platform plus business provides a new level of financial strength and strategic flexibility. This, combined with our focus on cost management, delivered 15% growth in the adjusted EBITDA in the fourth quarter. Further demonstrating the beneficial transformation in our business model. We also continue to maintain a strong and highly liquid balance sheet with no debt, which remains an important advantage in a highly competitive environment. As we continue to invest in features and innovation that would redefine the Smart TV, we will do so while remaining focused and disciplined on overhead and resource management. Today, I'm also pleased to share that Vizio was recently honored with an Emmy Award for Technology and Engineering around our innovative use of ACR technology. It is extremely rewarding to see our engineering excellence and creativity recognized by dozens of industry experts and peers. and continues to benefit our partners across advertising, measurement, and content, as well as our millions of users who turn to Vizio every day for a better TV experience. When a customer brings home a Vizio TV, they are bringing home the combined power of hardware and software. We've been operating a business that's built on that combined power and the impact it has on Vizio users. It is clear others in the marketplace have recognized this. The ability to seamlessly integrate new features and functionality across our fleet is key to a great consumer experience. This past year, we also dramatically enhanced the user experience and expanded our content offering. Building on the successful growth of our Watch Free Plus app, we unveiled an upgraded design, and improved user interface. The latest update brings a new look and feel, intuitive electronic programming guide, faster and easier navigation, and personalization features as well. With all of these new enhancements, it is no surprise that Watch Free Plus remains the number two most watched free ad-supported app on our platform. In addition to some of these new enhancements, we've spent it on building streaming apps from partners like Starz, ANC+, Fox Sports, TikTok, Sling, Amazon Music, and many more. During the fourth quarter, we grew our smart cap access by campaign by 15% to over 17 million, and these users remain highly engaged with time spent on our platform, growing 24% year over year. With such a seamless out-of-the-box experience, it is no surprise that consumers spend most of their time on our TVs streaming our best content offering. With more user engagement and greater skills, we are in a strong position to support our advertising partners with more efficient and measurable marketing experiences. Our advertiser relationship continues to expand as brands recognize the value of direct-to-device with our own inventory and ACR data gives them on-screen validation and proof of campaign outcomes. During the quarter, we expanded our advertising client relationship with almost 400 advertising partners across verticals like automotive, media entertainment, CPG, quick service restaurants, and retail. Our advertising business is growing rapidly, with revenue up 55% in 2022. We also recently announced that we concluded our 2023 upfront negotiations with more than $200 million in direct advertising commitments from agency holding companies. Turning to our device segment, 2022 was a challenging year on our front. but our team was well ahead of the curve. Our team navigated a difficult environment that was supply and then demand constrained. But despite all that, we continue to deliver award-winning products to the market. Our passion for innovation is supported on the hardware side with our new TV collection being recognized with 16 editorial awards in 2022. More recently, we will name Wirecorder's Budget Pick for Best LED TV for our N-Series Quantum X Smart TV. Incredible value also trickles down to our Dolby Atmos products. And we will award Secrets of Home Theater Soundbar of the Year for the N-Series Elevate. Thanks to the success of our dual business model, we have the opportunity to continue investing in innovation to elevate our award-winning devices even further. I'm very excited for what the future holds for business. And with a strong, dedicated, and disciplined team that is focused on innovating for the future to create a better consumer experience, there will be lots more to share in 2023. The overall business environment remains dynamic, but as always, we are focused on what we can control. And while advertising spending growth started strong in 2022, it was a softer ad market to close the year. But we are cautiously optimistic for a stronger 2023. With the right team in place, we know we're in a great position to reap the benefits of operating a powerful dual business model as market conditions improve. With that, I will now send the call over to Adam to review our fourth quarter results in more detail.

Thanks, William. Before opening the call to questions, I'll take you through our fourth quarter results and discuss our outlook for Q1. Starting with the fourth quarter, total company revenue came in at $533 million. Breaking this down into our segments, total Platform Plus revenue grew 30% to a new quarterly record $137 million. This represented 26% of total company revenue in the quarter, up from 17% a year ago. Growth in Platform Plus revenue was driven by advertising, which rose 25% to $103 million. This marks our first single quarter where advertising revenue surpassed $100 million, a great milestone for the team. Within our advertising business, we continue to expand our direct ad client relationships. Over the past year, we have expanded the number of brands we have worked with by 66% to over 1,400. Advertisers across categories continue to place value on our premium streaming ad inventory and cross-platform offering. In addition, the number of brands spending in our managed service offering, which provides an opportunity to access our real-time ACR targeting and analytics suite, grew by 37%. The tools we provide advertisers are well-recognized, from our owned and operated inventory to our unique data targeting and measurement capabilities. These assets create a great opportunity to gain wallet share for Vizio amongst top advertisers' investment plans. Overall, we are highly encouraged by the 25% growth in our advertising revenue during the fourth quarter, despite the highly publicized downturn in the ad market late in the quarter, which led to revenue coming in just under our expected range. Our advertising growth rate relative to many of our peers showed tremendous strength in a tough environment. Non-advertising revenue grew 46% to $33 million. Within our non-advertising revenue, data licensing was again the largest contributor to growth. with additional strength from healthy demand for brand placement on our remote control buttons. Data licensing was up 55% year over year. Our currency-grade viewership data is highly valuable in the marketplace and relied on by measurement companies, agencies, and networks alike. While we anticipate the demand for this valuable data will drive continued growth, we expect the growth rate to begin to moderate in Q1 as we start to lap the step up from the Nielsen deal which commenced around this time last year. Turning to our device segment, total revenue was $397 million. The year-over-year decline in device revenue was due to the combination of lower average selling price on more aggressive promotion campaigns than a year ago and fewer smart TV shipments. TV unit sell-through volumes grew year-over-year as consumers responded favorably to the promotion offers. As our mix of business continues to shift toward a larger contribution from our higher margin platform plus business, total company gross profit grew 11% for the quarter to $86 million. Platform Plus gross profit was a record $83 million, up 23% over the year-ago period, representing around 97% of the total company's gross profit. This, too, came in just under our expected range for the quarter as the high margin advertising revenue slowed late in the quarter. Platform Plus gross profit margin was still a solid 61%. Total company adjusted EBITDA for the quarter was $20 million, up 15% over the year-ago period. As we've stated previously, we remain vigilant in managing our SG&A expenses while continuing to invest in new features and capabilities. We plan to remain focused on operational efficiencies and expense management to allow us to reinvest back into the business to support competitiveness and drive future growth opportunities. Now, turning to our key performance metrics, as William mentioned, our Q4 results highlight the growing success of our efforts to drive overall monetization across the platform. SmartCast ARPU grew to a record $28.30, up 31% over the year-ago period. Total time spent streaming also outpaced all other time spent by our users, as measured by a 24% increase in SmartCast hours against a 13% increase in total Vizio hours. User adoption of streaming on our platform continued its upward trajectory, demonstrated by further growth in streaming time spent per active account. SmartCast active accounts grew by almost 800,000 sequentially and 2.3 million year-over-year to a new record 17.4 million. So with that, let me now turn to what we expect for the first quarter. We are encouraged by the resurgence in advertising activity thus far in the quarter, particularly with respect to demand for video inventory. In this area, key categories for us include auto, insurance, pharma, and telco, which are all showing a pickup in activity so far in the first quarter. We do expect the media and entertainment category to lag as the industry works through their own priorities. That said, our data continues to support a compelling argument for advertising on our home screen as it is a highly visible and engaging placement right in the living room where intent to view couldn't be higher. On device, we expect the TV market to remain highly competitive. Our first party viewership data informs our pricing strategies And we will continue to remain aggressive and seek to gain share, particularly on units that support our business model best. For Q1, we expect Platform Plus revenue to come in between $114 million and $119 million, representing 14% growth at the midpoint. Keep in mind that within Platform Plus revenue, we are expecting video advertising to outpace home screen. And as I mentioned, We will begin to lap last year's data license and deal with Nielsen, so the non-advertising growth rate should start to moderate from last year's accelerated pace. In addition, we are making investments in critical ad infrastructure to support our Platform Plus business and AI solutions to create efficiencies in engineering, support, and logistics. We expect Platform Plus gross profit of between $66 million and $70 million for the quarter. And finally, we expect total company-adjusted EBITDA in the range of flat to positive $5 million. In closing, advertising spending and user adoption of connected TV continues to be where the growth is across the industry. We know smart TV households continue to expand. Cord cutting is accelerating, and the age of AVOD is here. Vizio is incredibly well aligned to benefit from these tailwinds. Since the launch of our Platform Plus business only three years ago, we have successfully increased our active user base by 2.3x and grown ARPU by almost 4x. Looking forward, we now have greater scale and a stronger presence in the marketplace, which puts us in a great position to continue to execute on our strategy, and we are excited about the opportunities that lie ahead. With that, let's open up the call to questions. Operator?