VIZIO Holding Corp.

Good afternoon, and welcome to Vizio's Q2 23 earnings call. I'm Michael Marks, Director of Investor Relations. Joining me for today's discussion are William Wang, our founder and CEO, and Adam Townsend, our CFO. Also joining us for the Q&A portion of today's call is Michael Donald, our Chief Revenue and Strategic Growth Officer. Please note that in addition to our earnings release, in 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 third 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 Q2-23 or as of the end of Q2-23 as applicable, unless otherwise specified. Now, I will turn the call over to William.

Thank you, Michael. And hello, everyone. Thank you for joining us today. Our Q2 results, once again, validate the power of our integrated hardware and software business model. Our products and services continue to resonate with consumers, content partners, and advertisers alike. During the quarter, we still have four of the best-selling TV units in the U.S. market. And on some bars, continue to draw great acclaim from reviewers for their value and performance. In fact, rtings.com recently said their deals have two out of five platform bars under $500. Unlike the challenges many are facing in the advertising marketplace, our ad business is firing on all cylinders, and rtings delivered 35% growth in revenue during the quarter. This is even on the back of the 24% increase we saw in Q1. Through our growing presence with ad agencies, brands, and content services, we are creating demand for TTV to continue to gain share within the fastest growing part of the advertising marketplace. We continue to invest in delivering improved quality with new features and innovations that drive deeper user engagement. Through more users spending more time on our platform, we are increasing scale and generating greater monetization. Our key measure of platform monetization, small cash ARPU, grew 18% during the second quarter, surpassing $30 for the first time Just two years ago, this metric was under $17. So we have come a long way in a very short timeframe. And I could not be prouder of our team's exceptional performance. With the right strategy, strong execution, and disciplined investment framework, our team has transformed Vizio from a hardware company into a proven and powerful CTV player that is reshaping the TV industry. We plan to continue investing in our platform to support further smart tech output growth while equipping content and advertising partners with compelling tools to understand audiences' tastes and preferences, extend outreach for talkability, and measure efficiency. This strategy is being validated by our expanding and broadening advertising client list. While our media and entertainment partners remain a cornerstone, we have made tremendous strides in diversifying our client portfolio across major advertising categories. And big brands like General Motors, Heinz, General Mills, IKEA, Apple TV+, United Airlines, Subway, and Progressive, just to name a few. Strong user engagement is the key driver behind our successful growth in advertising revenue. Our active user base of nearly 18 million continues to spend most of their time with our building operating system, spending 56% of the total time on our TV's streaming content. Today, we have over 170 building streaming applications, including our own Watch Free Plus. Within Watch3+, we offer users over 290 free ad-supported streaming channels and thousands of on-demand titles spanning a wide range of genres. The power of our platform continues to be recognized by content and commerce companies alike. Let me give you a couple of examples. Regarding content and audience engagement, we partnered with NBC Universal to launch a Peacock preview experience through WatchV Plus. Through the partnership, we offered our users access to full episodes of premium NBC Universal content for free within WatchV Plus. Along with this, we introduced a new feature called Content Connections. which allows users to move directly between watch replay and Peacock with just one click. This is an example of how content partners can utilize our platform to promote and target content to our audience to drive engagement back to their S-Bot and T-Bot services. In terms of commerce, this past June, QVC and HSN launched their free interactive streaming shopping services on Zizio. More recently, marketers for the Barbie movie leveraged our operating system to drive awareness and ticket sales through unique T-commerce-enabled ad units on our home screen and 30-second interactive commercials within WatchV Plus. With a continued focus on consumer experience, this past June, we rolled out a reimagined design of a home screen. With the new visual home screen, discovering, navigating, personalization, and streaming content has never been easier. And we are being thrilled to see the positive feedback we are getting from users and reviewers. The new home screen also supports our latest business unit, the Brandon Content Studio, a data-driven and brand-sponsored led approach to exclusive content. We first tested our Brandon Content Studio model with a premiere of Three Pointers, a successful short-form series sponsored by FAT MGM. And I'm pleased to announce that our second series, Clean Break, is now available. This new series into the world of organization tips and tricks and is sponsored by SC Johnson. Turning to our device, we are thrilled to see consumers expand the physical presence in their living room through our larger and more monetizable screen. For example, our 50-inch and 65-inch models were two of the top selling units in the market during the quarter. Through our data, we know that larger screen sizes tend to be the main TV in the home and show the highest engagement. Additionally, a profitable soundbar business is the best way to complete the home entertainment experience at an incredible value. As always, we picked our spots on where and when to be aggressive on pricing to support some of the best zoning units in the market. And we do not see the need to play a race to the bottom again. The industry is navigating a demand constraint environment, which has led to aggressive pricing strategies by many of our competitors. With that, we will continue to be disciplined with respect to our cost management and investments to deliver exceptional value to customers. We all understand very well that price is only one consideration for consumers. As I often say, value isn't just price. We continue to focus on bringing feature-rich, great quality, and reliable products to the market, along with affordable pricing and award-winning customer service. So I hope it's very clear that at Vizio, we are driven by a passion for improving our customers' lives and plan to continue investing in our mission to deliver the best user experience in the industry. We have come a long way, but we are just scratching the surface of what's possible. And it is exciting to see how the many years of investing in our platform is now creating so many opportunities. I want to thank our team for helping to deliver strong advertising performance in a challenging marketplace and for achieving record smart cash quarter after quarter. With that, I will turn the call over to Adam to review our second quarter results in more detail.

Thanks, William. Before opening the call to questions, I will take you through our second quarter results and discuss our outlook for Q3. Our second quarter results once again demonstrated the strength of our integrated model, which allows us to compete on device sales while expanding profit margin through our rapidly growing platform businesses, despite a challenging macro environment. Taken together, total company revenue came in at $394 million, down 4%. This was through a combination of lower device revenue of 15% on fewer unit volumes and lower average unit price, partially offset by higher Platform Plus revenue, which grew 28% on strong advertising. Again, benefiting from the strong growth of our high margin Platform Plus revenue, total company gross profit grew 17% to $86 million. Total company gross profit margin improved by 376 basis points to a new record 21.8%. Platform Plus represented a new high 36% of total revenue and 100% of consolidated gross profit dollars. Total adjusted EBITDA came in at $18 million, well ahead of our expectations, thanks to an acceleration in high margin advertising revenue, more judicious price promotions on device, and lower operating expenses. To provide some additional segment level context, I will start with Platform Plus. Our strong Platform Plus revenue growth of 28% was driven by a 35% increase in advertising revenue. As William said, Our advertising businesses fired on all folders during the quarter, accelerating from an already strong growth rate of 24% during the first quarter. We are most pleased by the fact that we are achieving this growth despite a less than ideal advertising environment. It's due to our expanded presence in the marketplace where we continue to take share of the advertising dollars within CTV, the fastest growing segment of the market. During the quarter, we expanded our direct advertising client relationships by 25%, adding 80 net new advertisers. And as the returning advertisers, they increased their spend with us by 48% versus the year ago period. While the media and entertainment category continues to be a key advertising category for us, particularly for our home screen revenue, we remain strategically focused on expanding and diversifying our advertising clients across our video inventory. Verticals like auto, QSR, CPG, and pharmaceuticals were all up significantly during the quarter. With strong demand for our advertising inventory, Driving user engagement, specifically within our ad-supported content, such as our own Watch Free Plus app, remains a key lever in our growth opportunity. During the quarter, we expanded our content offering with the addition of more local broadcast channels in Watch Free Plus, along with an exclusive premium preview channel from Peacock. We also added apps to our platform, including the Weather Channel, Power Nation, and Wild Earth. We continue to invest in new features, functionality, and user interface enhancements to drive content discovery and engagement. An example of this is our investment in our reimagined home screen, which is already paying off. Since rolling out the reimagined home screen in June, we've already seen an increase of over 20% in click-through rates on our hero banner and trending now row, which are the premium home screen ad units. And as we bring more content to our viewers and enhance the user experience, it translates into deeper engagement. Time spent streaming by our users increased during the quarter as measured by the outpace growth of SmartCast hours versus total Vizio hours. SmartCast hours grew 16% to 5 billion compared to a 9% increase in total Vizio hours. This means the shift to streaming continues and is the primary way our viewers are using their TVs. Time spent on SmartCast hours as a percent of total Vizio hours reached an all-time new high of 56% during the quarter. Said differently, Our users are spending more time streaming than on cable TV, broadcast, game consoles, or attached media players combined. Our non-advertising revenue within Platform Plus also showed healthy growth of 10% to $33 million. Data and content distribution revenue growth was partially offset by a decline in button revenue due to fewer TV shipments. In Q2, our SmartCast ARPU grew 18% to a new record $30.55, surpassing $30 for the first time. With the strength of our team, our product offering, and the improving quality of our user base, as seen by our engagement and monetization measures, we believe SmartCast ARPU will continue to grow. Our SmartCast active account base grew 1.5 million year-over-year to a new record 17.6 million. Turning to our device segment, total revenue was $252 million. TV shipments declined 11% to just over $1 million in the quarter, with an average unit price down 4%. The market remains highly competitive, and we are committed to our disciplined approach to our pricing strategies and focused on growing our install base of highly engaged users. So with that, let me now turn to what we expect for the third quarter. For Q3, we expect Platform Plus revenue to come in between $153 and $157 million, representing 21% growth at the midpoint. This range contemplates expected delays in ad spend from content partners due to the ongoing labor strikes and our outlook for continued strong trends from other ad categories. We expect Platform Plus gross profit of $93 to $96 million, representing a margin of 61% at the midpoint. And finally, we expect total company adjusted EBITDA in the range of $10 to $15 million. In closing, Through our significant and thoughtful investments in technology, software, and people, we have positioned Vizio to capitalize on a number of powerful trends now playing out across the industry. With that, let's open the call up to questions. Operator?