This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good afternoon, and welcome to Vizio's Q123 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 Donnell, our Chief Revenue and Strategic Growth Officer. Please note that in addition to our earnings release in 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 second 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 will be made on a year-over-year basis, and all metrics reported on today's call will be for Q1 2023 or as of the end of Q1 2023 as applicable, unless otherwise specified. Now, I will turn the call over to William.
spk13: Thank you, Michael. And hello, everyone. Thank you for joining us today. Q1 kicked off our 21st year of selling award-winning affordable products and experiences. and we continue to see success in the execution of our combined hardware and software strategy. Last year presented a challenge on multiple fronts, and it was little surprise to many that uncertainty in the micro economy environment resulted in pressure across the broader advertising marketplace, particularly towards the end of 2022. As you can see from our results today, Our advertising business continues to show strength in Q1 of 24% year-over-year, which delivers upside against our expectations. While these results speak of some general improvement in the marketplace, they also speak to the progress we have made in raising awareness of Visio as a skilled destination for advertisers to reach viewers. By all measures, will continue to gain share within connected TV, one of the fastest growing areas of advertising marketplace. As viewership grows and ad dollars continue to shift away from linear TV, we remain confident that video will be well positioned to benefit. Last week at our third IAB New Front presentation, Between the in-person and virtual audience, we welcome close to 1,000 partners, advertisers, and content providers, where we showcase a host of new and innovative ways brands can connect with the busy audience. Since launching our advertising business in 2019, we have broadened our advertising clients beyond just the media and entertainment categories. to verticals like pharmaceuticals, travel, and quick service restaurants, all of which have recently been growing rapidly for us. We have introduced new advertising units, functionality, and sponsorship opportunities, all of which create more inventory for us to manage directly and offer advertisers attractive ad campaign returns. Our active user base of nearly 18 million continues to increase time spent on our building operating system, SmartCast, hitting a new high of 54% of total time spent on TV streaming content. By combining this deeper engagement with our robust Inkscape automatic content recognition data, we can improve the viewer experience and help partners expand beyond traditional ad buying to reach specific audiences quickly and effectively. For instance, as one example, an automotive company recently turned to visual ads to help expand its reach to connected TV viewers' most interest in buying a car. Using our ACR data, the automotive company identifies distinct audiences across different TV formats to deliver a more relevant ad experience. A couple weeks ago, I had the privilege of attending the 74th Annual Technology and Engineering Emmy Awards. On behalf of our team, I went on stage to take home an Emmy for our innovative use of ACR technology. This award is a testament to the advances that our physio team has made to deliver better entertainment experiences for millions of viewers. By doing this, We also expand monetization for our content and advertising clients. Speaking of experiences, we continue to bring consumers more of what they want with expanded content offering and an improved streaming experience. During the quarter, we made enhancements to user interface and our mobile app to help consumers easily navigate the many choices available in streaming today. We continue to expand Watch Free Plus, which remains the number two most watch free ad supported app on our platform. Vizio is in great position to reap the benefits as consumers continue to shift their streaming consumption habits and look for great value from all the great free content on servers like our own Watch Free Plus. During the quarter, We expanded our partnership with AMC Networks, bringing even more premium programming to video smart TVs. The expanded partnership includes the recent addition of the AMC Plus app, nine free streaming channels, and over 150 on-demand feature films. This quarter, we also expanded our built-in streaming apps from partners like SiriusXM, Animal Planet, Destination America, and many more. Today, we have almost 170 built-in streaming apps on our platform, providing entertainment across many genres. Turning to our device segment, we are navigating an environment that remains demand-constrained, given a challenging backdrop of a slow economy and high inflation. Despite that, will continue to deliver award-winning products to the market, and our seasoned team remains well ahead of the curve. The value consumers get when they buy our products has never been greater. A leading technology publisher recently said, when we compare the best budget TVs side by side, the picture quality emerged as the leader of the pack. Thanks to the success of our dual revenue business model, we will continue to invest in innovation to elevate our award-winning devices even further. At Vizio, we are driven by our entrepreneurial spirit and plan to continue to make strategic investments to support an affordable and better TV experience for consumers. Our company is centered around a disciplined culture that balances growth with profitability. We continue to maintain a strong and highly liquid balance sheet with no debt, which remains an essential advantage. We remain focused on the key priorities that will enable us to better serve our consumers, leveraging our dual revenue business model to increase our install base and deliver long-term sustainable growth for our shareholders. Our model of discipline and efficiency, along with the right team, will serve us well as market conditions improve. With that, I will turn the call over to Adam to review our first quarter results in more detail.
spk04: Thanks, William. Before opening the call to questions, I will take you through our first quarter results and discuss our outlook for Q2. Our first quarter results highlight a key advantage of our dual revenue model. While the device market remains challenged, Our expanding presence in the advertising market drove upside to our high margin platform revenue to result in overall gross profit growth for the quarter. Taken together, total company revenue came in at $357 million, down 27%, while total gross profit grew 4% to $75 million. Platform Plus represented a new high 35% of total revenue and 98% of consolidated gross profit. To provide some additional segment level context, I will start with Platform Plus. Total platform plus revenue grew 22% to $126 million. Advertising revenue rose 24% to $94 million. Throughout the quarter, we saw strong growth in video revenue, which benefited from a combination of deeper user engagement and a steady improvement in advertising demand. Our users continue to increase time spent with our streaming environment as measured by SmartCast hours as a percent of total Vizio hours, which reached a new high of 54% during the quarter. Said differently, Our users are spending most of their time on our TV streaming content within our SmartCast platform. They spend more time on SmartCast than cable TV, game consoles, or attached media players combined. This behavior is directly increasing our monetization opportunities in multiple ways, including our home screen advertising, video impressions, data, and content distribution. Among these, advertising is by far the largest component of our Platform Plus revenue, representing 75% of the total for the quarter. And in Q1, we delivered another quarter of strong ad growth of 24%. During the quarter, we also expanded the number of brands we have worked with by 77%, adding 148 net new advertisers. And other returning advertisers, they grew their spend with us by 53% versus the prior year period. So through a powerful combination of more users spending more time streaming, more new advertisers coming to our platform, and existing advertisers spending more money with us once they are here, we believe we once again gained share of advertising among CTV platforms with our 24% growth in the first quarter. Our non-advertising revenue within Platform Plus also showed healthy growth, up 19% to $32 million. Data and content distribution revenue growth was partially offset by a decline in button revenue due to fewer TV shipments. Turning to our device segment, total revenue was $231 million. Given continued consumer demand challenges and relatively full retail supply, TV shipments declined 32% to just over $900,000 for the quarter. Total company adjusted EBITDA for the quarter was $7 million, up 52% over the year-ago period. As we have stated previously, we remain vigilant in managing our SG&A expenses while continuing to invest in new features and capabilities to drive future growth. 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 deeper user engagement. Now turning to our key performance metrics, our Q1 results highlight the growing success of our efforts to drive overall monetization across our platform. SmartCast ARPU grew to just over $29, up 23% over the year-ago period, and a new record. Total time spent streaming also outpaced all other time spent by our users, as measured by a 19% increase in SmartCast hours against a 10% increase in total Visio hours. SmartCast hours per active account grew for the fourth consecutive quarter and was the highest in the first quarter since 2021, just before we started to lap the COVID-related lockdowns of 2020. With enhanced personalization and data-driven content that helps support continued user engagement, our ability to grow time spent in monetizable content continues to increase. Our SmartCast active account base grew a little over 1.8 million year-over-year to a new record 17.5 million. So with that, let me now turn to what we expect for the second quarter. We are encouraged by the resurgence in advertising activity, particularly by large categories such as pharma, travel, and quick service restaurants. We remain cautious regarding growth from the media entertainment category, and that is reflected in our outlook. While we do expect to deliver overall growth in home screen revenue in Q2, as we have expanded sponsorship opportunities for a wider range of brands, we expect the overall rate of growth will still be heavily weighted to activity from M&E clients. So for Q2, we expect platform plus revenue to come in between $133 and $137 million, representing 22% growth at the midpoint. This also implies an accelerated growth rate in our advertising business versus the first quarter. We expect platform plus gross profit to be $78 to $83 million, representing a margin of 60% at the midpoint. The expected sequential margin improvement includes the net of an anticipated higher mix of video ad revenue and greater scale against certain fixed operating costs that reduced our margin in Q1. And finally, we expect total company adjusted EBITDA in the range of $6 to $11 million, as we expect to continue to strategically support competitive pricing activities to increase customer acquisition. In closing, we see the accelerated adoption of CTV as a major tailwind to our business. At the same time, with our platform business only being a few years old, we remain in the early innings of this opportunity and are encouraged by its considerable momentum. We look forward to continuing to support our consumers with a seamless and relevant TV viewing experience and our ad clients with vast possibilities to deliver impactful advertising campaigns. With a commitment to efficiency, productivity, and discipline, we are excited about the opportunities that lie ahead. With that, let's open the call to questions. Operator?
spk07: Thank you. As a reminder, if you'd like to ask a question, you can press Start, followed by 1 on the telephone keypad. If you'd like to withdraw your question, you may press star followed by two. Please ensure you're unmuted locally when asking your question. Please limit yourself to one question and one follow-up question only. Thank you.
spk03: Operator, we will take the first question.
spk07: Our first question for today comes from Laura Martin of Needham. Laura, your line is now open. Please go ahead.
spk00: Thank you very much. My first question is on devices. So William, this is the eighth quarter where device revenue has been negative year over year, and it's the worst negative, down 40%. So my question is, are the price wars just getting worse, and do you see any end in sight of devices being a headwind to growth? And part B, Adam, on this specific device point, are we still in a positive lifetime value? Because I know that was one of the reasons we were willing to take lower prices. Do we still have positive lifetime value with pricing on these devices today? That's my first question.
spk13: Hey, Laura, William here. We're obviously in the hottest space in the advertising market, and everyone wants to be in the CTV space. CTV will be the future, and we're so glad we're part of that future. Thank you. And we have been in that business, as you know, for a long time now, and we've been seeing this cycle many times throughout our history. Price wars are the nature of this business, and especially when there are new entrants. Just like how we fought off our previous price war in our history, we will be extremely disciplined and take a well-balanced approach to be strategic about our price points so we can maximize return to our shareholders and deliver incredible value to our consumers. Using Q1 as an example, under the extremely challenging environment, we outperformed our internal expectations. And thanks to our dual business revenue model and our disciplined and experienced team. Adam?
spk04: Yeah, sure. Laura, to your question. Absolutely, if you look at the device business, the gross profit in the quarter was, you know, modestly, right? But you can't look at that in the absence of ARPU. So the point being, if that is our, you know, if our customer acquisition costs are kind of at that break-even level, but we're now generating ARPU that's approaching $30, and that goes over the lifetime of the television, the usage of that unit. And so when you think about the customer lifetime value and discount it back, you know, even with these aggressive pricings that are out in the market and the competition we're seeing, still a very positive NPV on acquiring a customer. So We're pleased with our positioning. We're pleased with the monetization progress we've made. You're seeing it in our outperformance. We grew advertising 24% in the quarter. I think some of our peers were closer to flat or different. So we're pretty pleased with the team. The execution's there. It's paying off, and we want to continue to really drive growth in households overall and have a competitive product.
spk02: Thanks, Laura. Operator, we will take the next question.
spk07: Thank you. Our next question comes from Ben Swinburne of Morgan Stanley. Ben, your line is now open. Please go ahead.
spk08: Thank you. Good afternoon, guys. I wanted to ask about the advertising trends, obviously healthy Q1, acceleration in Q2. There was a lot of discussion around weakness in programmatic, as I'm sure you remember back in January, February. So I'm wondering if you could talk a little bit about what you're seeing in programmatic versus direct And then I'm wondering on Watch Free Plus if there's any engagement statistics you can share with us or anything on sort of you mentioned, Adam, deeper engagement across the platform. But how is that product performing and driving advertising growth as you look at the first half of the year sitting here today? Thank you.
spk16: Yeah, I'll take the advertising question. I think based on the numbers, we definitely saw a rebound in Q1. I think Q4 was a challenging market, especially in the programmatic space. January started out a little soft. We saw that ramp up in February and March. March was a very good month for us. We're kind of cautiously optimistic about that trajectory heading into Q2, but seeing really good signs of rebound, not only in the programmatic space, but also in the direct space. And I think when you look at our kind of makeup of direct versus programmatic, I think the way we think about it is direct versus open marketplace. And I think we've said in the past about 80% of our business is direct sold, one-to-one relationships with our advertiser community. And the other 20% open marketplace or open exchange is real-time bidding with SSPs and DSPs. So we've seen both rebound very well. I think, as Adam pointed out in the comments, we added another 148 new advertisers to the mix, and we've seen growth across all key verticals for us.
spk04: Yeah, Ben, in terms of Watch Free Plus, we don't specifically break out the metrics yet on Watch Free Plus, but we're very pleased with the continued growth, and that is a key contributor to the growth in our advertising. As we know, it's the second largest destination on our platform that's free ad supported, and that's where we directly monetize. And so the fact that Watch Free Plus has continued to outpace streaming activity across other offerings on the platform is a core component of our ability to drive that growth. And when you think about what we've done, we've continued to enhance the functionality of it, make it a better user experience. Just in this quarter alone, we added 23 additional channels, including names like Tastemade Home and you know, Portlandia and MSG Sports Zone. So there's a lot of variety in what we're bringing to consumers. We've also bolstered our AVOD capabilities. And so when you combine that overall user experience, it certainly suggests and shows why it continues to grow. We use our home screen data. We use that as a promotion platform to drive people into that content and make sure they're aware of what's available for them. So overall, it's really a key component to our growth in advertising, and we'll continue to make enhancements and refinements as we go forward.
spk08: Great. Thank you, guys.
spk03: Thanks, Ben. Operator, we will take the next question.
spk07: Our next question comes from Vasily Karasiov from Cannonball Research. Your line is now open. Please go ahead.
spk11: Thank you. Good afternoon. Michael, I wanted to ask you to go into a little more detail how you... how you manage your sales process in terms of what kind of inventory you sell directly, what kind you sell programmatically, and maybe give us a little more of a understanding of how the 20% of inventory sold programmatically evolved over time and where it's going. As you know, that's a topic of interest right now in our community, at least. And also terminology, you know, it's confusing for us sometimes looking from the outside. What you refer to as open programmatic, would that be correct to describe this? What some describe as decision programmatics, i.e. fully programmatic auctions sold through private marketplaces. So we'd appreciate you educating us on your thought process, on your sales process here. Thank you.
spk16: Yeah, definitely. I think I need a whiteboard to answer this question, but I'll do my best to simplify it. So if you look at our revenue streams on the advertising side, we have two. We have home screen display and video. Home screen itself is 100% direct sold via managed service. So nothing programmatic today with our home screen relationships. For video, as I just explained, it's 80-20 in terms of direct sold one-to-one relationships with the advertisers versus 20% open marketplace. Now, within that 80%, about 50% of that spend comes in through a DSP. So we have as with transacted through a DSP. So as we've said from the beginning, we've maintained flexibility. We want to give our advertisers the opportunity to work through any DSP or ad server that they'd like. So we will transact in a programmatic direct or a private marketplace capacity as part of those direct relationships. And if you look at the overall business from a strategy perspective, today direct sold business is clearing at – much higher CPMs than the open marketplace. Part of that is to new growth, I think, in the CTV space. I think there's still a lot of education. I think getting the direct sales team out to evangelize kind of core products we have, the differentiated data or differentiated first-party viewing data, our home screen, the unique audience they can deliver within Watch Free Plus has helped us drive today higher CPMs than we're seeing at the open exchanges. or if you're seeing in the open marketplace.
spk11: Interesting. And that's for comparable inventory. Is that the right way to look at it?
spk16: Yeah. Yeah. That's against the supply we have, which is a mix of watch free plus as well as, uh, inventory or revenue shares we have across partner apps on the platform. So it's the same supply. And really what it comes down to is prioritization. So we continue to not only evangelize the key value prop, but also prioritize the direct sold campaigns. And that's one of the factors that helps us drive higher CPMs.
spk11: Got it. Thank you.
spk03: Thanks, Vasili. Operator, we will take the next question.
spk07: Our next question comes from Stephen Cahal of Wells Fargo. Stephen, your line is now open. Please go ahead.
spk01: Yeah, thanks. Just to dig in into advertising a little further and understand some of those building blocks. So Adam, you talked about the increase in share that you're getting with SmartCast within the Visio hours, and then it sounds like Visio hours within the household hours. So maybe first is if you talked about the ad trends in terms of just monetizable hours within the account base, could you give us a sense of how much you feel like that's growing on a per account basis, kind of the volume of component? And then the second is that we're seeing Roku CPMs were maybe down around 20% in Q4 and Q1. It doesn't sound like you're seeing really much CPM pressure. You might even be seeing CPM growth. So I was wondering if you could talk about the CPM side of the ad equation as well. So kind of a price and volume question. Thank you.
spk04: Yeah, sure, Stephen, no problem. Look, we're really pleased with the engagement trends we're seeing across the platform. It shows up in a variety of ways, right? The comment I already made about streaming time spent up 19% in SmartCast versus 10% in the platform in general, that's telling us that people are spending more time in our streaming environment. So that's sort of building block number one. Then it shows up in monetization by way of, obviously, the advertising growth and ultimately ARPU, which was up 23%. in the quarter. So when we look across time spent per user, where they're spending time, what they're engaging with in terms of our content, I would say all of our engagement metrics are really moving in the right direction, and that's what's showing up in our overall financials. When you think about our account growth in the larger context, if you look back over two years, we've grown our install base by 29%. We're now at 17.5 million monthly active users. But in that same time period, we've more than doubled our ARPU against that. So we're growing our base. That base becomes more valuable as it becomes more scaled and more engaged, as we're showing from these other metrics. That attracts advertisers. It becomes self-fulfilling. And that's why our ARPU growth and our ability to monetize is outpacing just the pure growth of our install base. So we're pleased with the metrics we're seeing. We're going to continue to enhance the offering. That's why we use, like I said earlier, we use a lot of the data to inform us about what content to bring on the platform. how to use it for search and discovery, how to do personalization on the home screen, how do we drive engagement. Ultimately, at the end of the day, you're playing a probability game. You're trying to increase the probability that someone spends time in content where we can monetize and they have a good user experience around that. So fundamentally, those are sort of the building blocks, and we're on a great trajectory here, and we're really pleased with the engagement trends. Mike, do you want to talk about CPM?
spk16: Yeah, I can speak to CPM. We've been able to hold pretty consistent with quality CPMs in the marketplace. I think a lot of that's driven around our ability to leverage our first-party data, right? Our first-party data or in-state viewing data is best in class, not only from a targeting perspective, but also in helping our clients or advertisers understand incrementality, right? Small number of TV households soak up a mass majority of the linear TV impression. So as those advertisers shift into connected TV, we can help them tell that story both from a planning, targeting, and ultimately on the back end measurement perspective. And that's helped us or enabled us to help maintain, you know, I think pretty strong CPMs in the marketplace.
spk02: Thanks, Steve. Operator, we will take the next question.
spk07: Our next question comes from Michael Morris of Guggenheim. Michael, your line is now open. Please go ahead.
spk10: Great. Thank you. Good afternoon, guys. William, you referenced your new front presentation and your prepared remarks and talked about close to 1,000 partners connecting with you there. I know that over the last couple of years, you've seen the dollars committed double. I'm curious if you can talk about your ambitions for this year, um, maybe what kind of growth you anticipate, or you don't want to be that specific, just, you know, what kind of engagement you got, what type of products and how we should think about how that could drive growth. And then Adam, um, you know, you guys are moving pretty close to gap profitability this quarter, uh, which is great. I'd love to hear your thought about moving toward positive cashflow generation and how you're, you're thinking about that balanced with, um, ongoing investment ambitions. Thanks, guys.
spk13: Yeah, Michael. Yeah, I attended our new front a week ago. It was very exciting. It was actually my first new front, and I missed the last two years. The first year in 2021, we did like $100 million, and in 2022, we did over a couple hundred million. And we do expect to have a significant growth again this year. And, you know, like I mentioned earlier, we have like close to 300 people in person and over 700 people during the live stream. It was extremely exciting for me, and I'm really optimistic on how we're going to grow our new funds this year. Michael, you want to add anything to that?
spk16: I think it was a very positive new front for us. As you guys know, this is a big event for us. It's our opportunity to speak to a large group of advertisers and highlight the key product offerings that we have in market or be bringing to market. And this year, We were able to showcase, I think, a couple things. One, our first-party data, again, our ability to drive incremental reach. We talked about some enhancements we had to the home screen. Some new formats we're bringing out to improve search and discovery. Some innovative ad formats for our ad partners, which I think continues to be a big driver for us in terms of growth. And then we rolled out our new branded content studio, which was well received and a great opportunity for us to expand not only to great original content for our consumers, but also bring new opportunities for advertisers. So I think as we mentioned, we went from 100 million in 2021, 200 million or a little over 200 million in 2022. And we're expecting significant growth. We've already started to have those conversations. But our third new front was the best one yet, and I think we've had a lot of growth over the past three years, and I think we've established ourselves firmly as a key player in the connected TV space.
spk04: Yeah, Mike, and then in terms of your question to me, look, certainly I think we've proven over a number of quarters now that we're very disciplined and always looking for efficiencies within the business. But at the same time, we also identify a lot of opportunities to invest. So it comes down to a question of capital allocation and where's our best place to put our next dollar. Right now, we're really excited about the opportunities that are coming around the platform business. That's probably going to need additional investment around engineering, software development, maybe a little bit on the advertising sales and that upside to keep executing on that overall opportunity ahead for us. So it's just a balancing act between where do we lean in, where do we hold back. I think the opportunity is very large, a lot of headroom ahead for us. So it would be wise, I think in our view, to continue to invest and support the growth in the business. We're on a great trajectory. We spent the last two years really proving not only proof of concept, but that we can execute against that. And we want to be putting dollars against that. So it's close. Yeah, when you look at the gap profitability, it's sort of right there. We don't want to shortchange the opportunity ahead for us by focusing too much on that. But I think we'll do it in an overall disciplined and pretty thoughtful way. I think that's our DNA. That's our That's our sort of culture, and we'll stick to that.
spk10: Great. Thank you, guys.
spk03: Thanks, Mike. Thanks, Mike. Operator, we'll take the next question.
spk07: Our next question comes from Corey Carpenter of J.P. Morgan. Your line is now open. Please go ahead.
spk09: Hey, thanks for the questions. I wanted to ask about M&E spend. It sounds like it's certainly still challenging. I was just hoping you could expand a bit. on what you're seeing and any signs that the market could be closer to stabilizing or turning for M&E. And then secondly, just as your ad business continues to scale, how is that informing the role you see for exclusive programming and even potentially originals on Watch Free Plus? Thank you.
spk16: All right. So I'll start with the M&E category. So in Q1, M&E was roughly flat for us year over year. continues to be challenged. We were able to have a very successful quarter because we made up for that and a lot of other key verticals for us. I think we saw pharma up over 400%. Year over year, you know, telco up 113%, QSR 98%, food and beverage up 79%, and the list goes on. So as media and entertainment, which is our largest category, it remains challenged. We think we've done a good job making it up by not only expanding our advertiser base, 148 new advertisers this quarter, but also growth in other key verticals out there in the market. That said, we do expect M&E for us to be up slightly this year, but will not grow at the pace it has over the past few years.
spk04: Yeah, Corey, it's Adam. Just on the content side, exclusive programming is something we think a lot about and how it fits in our overall model. As you saw, I think last week or so, we announced a branded content studio launch. But I want to be clear that that is really a structure where we think it fits to our model and we manage the financial costs and discipline around that. So in other words, meaning we can launch some of this exclusive content on our platform by using more of a cost plus type model that you might be familiar with out there. So this is not going out and You know, either producing or buying or trying to develop big multi-million dollar per episode type content. This is content that fits with what we have. We use data to inform us around what's likely to be used and consumed. And then it's built around, again, this financial discipline that has an effective built-in margin to it. Mike can probably get some more color on the recent launches.
spk16: Yeah, I think this is part of us rolling out our branded content studio at the new fronts. We launched or we showcased one of our first originals within the branded content studio. It was a series called Three Pointers. We, as Adam pointed out, we look at a model in which not only are we going to bring great content to those consumers, leveraging the data we have or the viewership patterns we know about, but also bringing a sponsorship as well. So from a consumer perspective, we identified using data we have, I think 42% of our viewers are foodies, 75% are sports enthusiasts. So Three Pointers was a show created with Casey Webb from Man Vs. Food that helped you with your March Madness viewing party, food, drinks, games to play. Four episodes was well received, but on the advertiser side, we were able to integrate that MGM into the full experience. So not only through promotion, so integrating them into the home screen sponsorships that were pushing promotion towards three pointers, but also integrate them and weave them throughout the show. So pretty seamless experience for, for, uh, for the advertiser. And, uh, you know, we think great content for the consumer.
spk03: Okay, great. Thank you.
spk07: Thanks Corey operator. We will take the next question. Our next question comes from Jason Krayer of Craig Hallam. Jason, your line is now open. Please go ahead.
spk15: Great Thank you guys 1st, just on household connect. I know you've added some new partnerships there recently just looking for any updates on the trajectory of that business. 2nd question at the new front, you teased out some updates that are coming to the home screen. Just curious if you can elaborate on that and how how that could influence monetization trends. Thanks.
spk16: All right, so I'll take that. So on the home screen, or sorry, on Household Connect, we'll start with that. As we've said before, Household Connect is a great way for us to increase the time for our advertising partners. It's a unique way for advertisers to leverage TV viewing data within the home and extend that outside of the home, either into mobile, tablet, or desktop. Delivers incremental reach and allows us to tap into new budgets. We see it continues to be a growth driver for us on the video side, albeit it still is moving off a smaller base, but is adding incremental growth. And as you saw this past quarter, you mentioned, we continue to make investments. So we expanded the partners we have from a device graph perspective. We have been working with Verizon and TransUnion. Now, we've added Experian into the mix. So, we'll continue to make investments and continue to expand Household Connect so we can increase and grow that overall PAM for advertising base. In terms of the operating system, we rolled out some pretty good enhancements, we think, during the new fronts. For us, the home screen is obviously a critical piece in terms of it's the first thing that a consumer sees. right when they turn on the television. This past six months, I think we saw a 53% increase in time spent just on our home screen. So consumers are spending more and more time in search and discovery, trying to identify the content they want to watch. And we think it's incumbent on us to leverage our UI to make that easier and more engaging for them. So as consumers spend more time, we're also rolling out a lot of new advertising opportunities. So one of the things we showcase is some enhancements we're going to be making later on this year, preview them for advertising partners, specifically around our HERO and DISCOVER units, those first units you see directly on the television. We're making them more into a Swiss Army knife. So not only will they be displayed, but they'll be interactive. They'll have more video components. So a great opportunity for our partners, media and entertainment partners, to showcase the new content they have to help drive subscribers, reduce churn, and also, you know, a good way for us to increase CPMs as well.
spk03: Thanks, Jason.
spk07: Operator, we will take the next question. Our next question comes from Nick Zangler of Stevens. Nick, your line is now open. Please go ahead.
spk05: Hey, guys. Greg Corder here. Just a few high-level questions, actually, this time around. You know, the TV market obviously continues to evolve. I'm wondering what your research is telling you about consumer purchase intent for TVs. I mean, are they driven by price? Is it the quality, the picture, the pixels? Are we at a point where the CTV operating system is a differentiator? Just curious in your view, what are the real drivers? And will we reach a point where the CTV OS itself will be the main differentiator and primary factor for a consumer decision to purchase a TV? Because I don't know if we're there quite yet, but maybe we can get there. But just your overall thoughts there.
spk13: Yeah, Nick, this is William. Well, the answer is out of the thing you mentioned. I truly believe that great software will make great hardware and vice versa. That's why we took an integrated approach by controlling both hardware and software in-house. And we will continue to invest in both hardware and software's innovation. Users want to see excellent picture quality, as well as easy to use OS. That business model works well, and our competitors are copying our model. We've been producing quality value TVs for the last 21 years, and consumers' love for Vizio is reflected in our high star ratings across our various products and in our various different channels. So, like I mentioned, over the years, we're extremely disciplined. We'll continue to focus on customer satisfaction, and we will take an extremely balanced and strategic approach to a price point in order to further acquire a bigger audience.
spk05: Super helpful. Then just another one here. You know, when you take a look at Visio's operating expenses relative to, you know, the platform revenues that you're able to generate, and maybe compare that to peers, you know, that OPEX level is well below peers, and obviously it's helping you drive adjusted EBITDA profitability as we continue to see. I'm wondering if you can sustain this level of efficiency and continually at the same time meaningfully expand ARPU, or will there come a time where Vizio needs to step up investments in headcount or R&D just to actually fund that next leg or further expand ARPU expansion. Maybe said another way, is your operating system missing any key components relative to peers that will require some sort of significant uptick in investment, again, across R&D or what have you? Thanks.
spk04: Yeah, thanks, Nick. Yeah, look, again, as I said before, I think we pride ourselves on being very focused and disciplined on these things. Obviously, we want to generate and create an opportunity to unlock operating leverage in our model. But at the same time, it's really important that we continue to invest in the resources to drive future monetization. The living room opportunity is still early and going to be very, very big. This is the future of TV, and we want to make sure we're there. So I don't think it's so much as a need for a massive step function hire, but more of an evolution and a gradual increase. So when you think about our total op-ex, Really, most of the line items are pretty well in check. I think SG&A, because that's our people costs, is a place where we do need to continue to invest. We have to attract great talent. We have to attract great engineers to fulfill this vision, this opportunity that's ahead for us. So I think you will see some increases there as they go. But again, I think the big heavy lift in terms of building out on the back of the proof of concept and really launching the company in this area. That was done a couple years ago. Now I think it is a little bit more gradual, you know, appropriate and prudent investment in engineering resources and capabilities.
spk06: Great. Thanks, guys.
spk03: Thanks, Nick. Operator, we will take the next question.
spk07: Our next question comes from Tom Champion of Piper Sammler. Tom, your line is now open. Please go ahead.
spk14: Thank you. Good afternoon. William, I understand you're still investing behind the product, but just curious what device features outside of pricing you think might drive consumption decisions here in the intermediate term. And I guess I'm partially just curious based on your experience whether or not there's room for optimism in the second half of the year, whether or not we might see a little bit stronger demand trends in the back half. just based on your experience and what you've seen in prior markets. And then maybe just a quick one for Mike O'Donnell. I'm looking at slide 11 and the SmartCast number two most watched free ad supported app and the bullets described there. And I see improved personalization and features and we're well into the hype cycle of this one, but just curious to what extent maybe ML or kind of newer personalization technologies, maybe figuring into that and driving improved content consumption and discoverability. Any comments there would be interesting to hear. Thank you.
spk13: Yeah, Tom. Yeah, we're investing in both hardware and software, just like I mentioned earlier. And we want to drive the better patient quality, like always. And we want to have a better user experience. So we're investing a lot of money into our OS. Like Michael mentioned a little earlier, we're going to have a new home screen coming up. And we're going to have a better and faster streaming experience. And we've been working on that for the past few years. And we'll continue to invest in that happily.
spk16: Let me take the next one. So thank you for reading the deck. In terms of improved personalization, I think for us, we've added a couple of new features within Watch Free Plus leveraging the data we have. So our best-in-class ACR, first-party viewing data, enables us to understand what users are watching regardless of HDMI input. So we understand what they're watching in a cable environment. in a streaming environment, what they're playing on a gaming console, or if they have a sticker dogma plugged in, right? So we understand the consumer journey once someone or user enters into Watchtree Plus. So we can help create more personalized experience in terms of curating recommendations that they may want to watch. We've brought in some of those functionalities, as well as some other user enhancements to favorite and things of that nature. In terms of kind of where that leads to for AI, I think our ACR data actually gives us a pretty good leg up because we've already got experience in this area, right? As AI continues to evolve, the models need to be trained. And when it comes to what people are watching, we have the best data set in the entire TV space to train them. So we've been leveraging machine learning now in all our recommendation engines, and I think or we believe AI will only help us enhance the consumer experience there.
spk03: Thank you, guys. Thanks, Tom. Operator, we will take the next question.
spk07: Our next question comes from Wanzee Mohan from Bank of America. Your line is now open. Please go ahead.
spk12: Hi. Thanks for taking the questions. It's Rupil filling in for Wanzee. I have two. First, Adam, The non-advertising revenues grew 19% year on year. How much was that from data licensing versus content distribution? And when you look at 2023, what percent of your platform revenues do you think come from data licensing this year versus last year? Do you see year on year growth? And the second question I have is on device margins. So now that Roku has launched their TVs, How should we think about your device gross margins? Do you think you need to be more aggressive on pricing than you have in the past? Just your thoughts on the competitive landscape and how should we think about device margins going forward? Thanks.
spk04: Sure. Yeah, no problem. Yeah, so the 19% growth in non-advertising revenue, data is the majority of that market. of that line item. So it does dictate a lot of that growth. And as I mentioned last quarter, we are now lapping on the Nielsen deal from a year ago. Q1 has a partial period lap because that deal was done around mid-quarter in the last year period. So the comps were easier in the first half of the quarter than the second half of the quarter. That suggests some further moderation in the absolute growth rate of that line item. But to your question as well, The content distribution side is growing quite rapidly. It's just off a much smaller base. That's going to be a function of us continuing to build out and get more people onto Vizio account, using it to subscribe. We're doing partnerships with various SVOD partners. We've now increased on our platform the partners that are part of that where you can subscribe and we can monetize. It's about a third of the total on the platform. And so that's a good, continued good progress. We've done some great promotions with people like Starz. That's worked out well for them and us. And so we're very pleased with the progress we're making there. It's just off a smaller base. So the data part does represent a much larger component of it. So the 19% could moderate a bit from here, but still a very good growth rate. source for us, and it's pretty steady and predictable. So it doesn't have sort of the volatility that might come from other revenue sources. And then the question on the device side, look, I think we've said it a few different ways, which is we're going to be strategic about our pricing. We're going to look at where does it make sense to be more competitive and where does it make sense to kind of lean back when others want to be exceedingly competitive. And so ultimately it's about continuing to do what works for our model, having that financial discipline, Having a plan around it and a strategy. You saw what we did last year where we pinpointed two particular models where we leaned in hard on pricing on those models and consumers responded incredibly well. Those are great models that work really well for us in our model. And so that made sense. And so we'll continue to look at the marketplace and assess competitors and where they are. Again, going back to a comment I made earlier in the call, if you think about even if you lose some money on a particular unit, that's a customer acquisition cost. That's a CAC to us. But with ARPU now where it is, it gives a lot more flexibility and freedom to do that. We're generating great economics once a TV goes into a home. And so that allows us to think strategically about what the right pricing level is and what the right profitability needs to be.
spk12: Thanks for the details, Adam. Appreciate it. Sure.
spk03: Sure. Thanks, Rupal. Operator, we have time for one more question.
spk07: Thank you. Our final question for today comes from Jim Goss of Barrington Research. Jim, your line is now open. Please go ahead.
spk06: All right, thank you. Thanks for squeezing me in. I was thinking, too, about Platform Plus as a content hub that was a device that was attractive to, you know, differentiating your TVs as a selling point. I'm wondering if you're getting to a point where it might switch the argument such that it would alleviate the need to go to zero margin on some of the TVs, as you were just saying, Adam, so that maybe you get some of the margin back on the device side. And then a second thought, you talked about partnering with Amazon, Best Buy, Costco, Sam's Club, etc., I was wondering with those special deals, is there a consistency of terms or are they unique deals to each?
spk04: Yeah, sure. On the first part, Jim, look, I mean, that would be what you're describing is a nice long-term aspiration. I don't think we're there yet. I think what we need to do is keep building great products at great value, keep enhancing the operating system, bring that user experience. to consumers where they do start to build an affinity and want to specifically select us as their entertainment source, right, as their device. And so as you do that over time, as you've seen some players, you know, obviously like Apple has done that very well over the years, right, they created affinity, they created passionate users, and then there's loyalty that comes with that. And I think that long-term aspiration, you know, absolutely we'd love to see a product that could command margins back in device. For now, because we have this great dual revenue model, it allows us to kind of build towards that while still executed in a very strong way financially. And so that's where we are today. We'll see, we'll bring new features to the TV, we'll bring new experiences to it, new capabilities. That's part of the driver behind the investment in the engineering and software development I talked about earlier. So those are all building blocks towards the future that could look like what you're describing. Do you want to talk about the retail? Look, a lot of those can be fairly consistent. We value our retail relationships very deeply. We have strong relationships and long track record with many of the names you just mentioned. Some of them, some of the club stores have expectations of different... membership value and perks and things that go with that. So we have to contemplate that in terms of our overall approach. But we really value all those partners. We want to continue to make a great product for them that they can sell and generate a margin and that we benefit as well through that overall relationship. So we manage through that very effectively with those partners.
spk03: All right. Thanks. Thanks, Jim. And thanks, everyone, for joining. This concludes today's call. Have a great evening.
spk07: Thank you for joining today's call. You may now disconnect your lines.
Disclaimer