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?

Thank you. If you would like to ask a question, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind and would like to be removed from the queue, please press star and then two. We ask that you please limit yourself to one question and one follow-up.

Operator, we will take the first question.

Thank you. Your first question comes from the line of Laura Martin with Needham. Laura, please go ahead. Your line is now open.

Hi. I wanted to drill down into the homepage KPIs for success. You said the click-through rate went up. Are you seeing higher, got really nice CPM increases here? Is that because of the home screen do-over, do you think? and other metrics that prove their success or failure of the new home screen redo in June.

Hey, Laura. Let me answer a question. So we've been working on a new home screen experience for over a year. First of all, I want to thank our amazing team for putting this together flawlessly, from design to product, from engineering team to partnership development. So everyone at the deal had a big part to it. I want to thank you all. The new home screen is awesome. I wish I can show that to you in person. It is more immersive, and it's a lot easier to search, easier to discover new content, and a lot easier to personalize and navigate. Now, the preliminary response from the consumer was super encouraging, like you mentioned. We see an engagement increase of over 20%, and our advertisers loved it. Mike, do you care to add a little bit more to that?

Yeah, I think you covered in terms of the experience, I think ties directly into kind of future CPM growth. That should be contemplated. I think, Laura, in terms of the timing, we rolled this out towards the end of the quarter, just coming into the start of Q3. So that shouldn't be contemplated into the Q2 numbers. That said, with this experience, as William pointed out, it's more immersive, it's more intuitive, better personalized opportunities, larger ad units, more video. We are already seeing increased demand as well as increase in CPMs for the units that we have there. So it was very good, both from a consumer experience perspective, definitely a better, well-received consumer experience, but also we believe will have a good impact on the business. And I think just a 20% increase in engagement, I think the number Adam shared in his opening remarks, is a good indicator of our ability to drive better performance for the partners that do advertise on the platform.

Awesome. And then my second and final question has to do with the 290 channels of fast you have now. You guys run an integrated hardware software platform. So can you talk about discovery and whether there's just too much choice at some point where consumers can't find what they want to watch because there's just overwhelming choice of these free channels?

So I think there's kind of two parts to that, Laura. There's one, how do we get the consumers in? There's a lot of choice on the platform. And that's great. We have a lot of different content opportunities within Vizio itself on the SmartCast platform. So how do we get consumers into Watch Free Plus? And then how do we get them to find the right content they're looking for within the EPG we have within Watch Free Plus? So on the first part, I think this ties into your first question. We know the home screen is critical for search and discovery, right? We saw in terms of time spent from last year to this year, a 68% increase in time spent on the home screen just in search and discovery. So our ability to leverage the data we have as well as create engaging ad units for Watch Free Plus that we can use from what we call an editorial perspective, we can help identify what viewers like to watch and help them find that within the Watch Free Plus environment. So if you're interested in sports, we can recommend sports channels within Watch Free Plus that give you the opportunity to click and drive directly into that. Once within Watch Free Plus, we've invested a lot in continuing to enhance the user experience and the user interface within there. We have a lot of different categories and different types of mini guides that help our consumers navigate through the EPG. Once they've got there to look for the content they most like to watch or we've recommended for them, We make it pretty seamless and easy for them to find other additional channels, but more importantly, other categories that they can search for throughout.

And then, Laura, this is Adam. Just let me add a concept here. So as we think about Watch Free Plus being a cable replacement, you think about the models is different. This is a rev share structure model. So as we source content and bring it in, if people watch it and we're able to drive engagement, we make money and the partners make money. And so it's a different dynamic than running a cable service where you're going out and paying affiliate fees to bring content into your service and then hope that people watch it and you have an opportunity to monetize it. It's actually the reverse of that in a much more economically beneficial structure.

Thank you.

Thanks, Laura. Thanks, Laura. Operator, we'll take the next question.

Our next question comes from Cameron McVeigh with Morgan Stanley. Cameron, please go ahead. Your line is open.

Hi. Thanks for taking my question. I'm curious if you could discuss the categories of strength or weakness in ad spend that you're seeing, or really if it's all strength at the moment. 35% growth in ad spend is quite impressive in this environment. And just how your visibility is in the back half of the year. Thanks.

Yeah, I think I'll take that one. You know, for the first half of this year, you know, we saw Q1 start pretty slow, but ramped as the quarter went on. Q2, we saw that momentum at the end of Q1 carry through to the end of the quarter, right? So we saw 24% growth in advertising in Q1, 35% growth in Q2. And we remain very enthusiastic about our opportunity heading into the second half. We do expect some challenges on the media and entertainment side with the writer's strike. as it remains somewhat unclear as to when that will end. And we think those delays, or we're confident those delays will impact fall premieres. But when you look at that 35% advertising growth in Q2, a majority of that growth came from categories outside of media and entertainment. So we've strategically focused on expanding and diversifying the advertising clients we have. so we can continue to become less reliant on a single vertical. So we did see this past quarter verticals like automotive, QSR, pharma, they all had triple digit growth in the quarter for us. CPG was up 80%. I think we talked about adding 80 new advertisers again this quarter. Nearly all of those were from categories outside of M&E. So team's done a great job of executing on this and I think we're We're fairly confident about the back half of this year across all verticals outside of M&E, which, you know, we're just cautious about right now.

Great. Thank you, guys.

Thanks, Cameron. Operator, we will take the next question.

Our next question comes from Jason Crea with Gray Callum. Jason, please go ahead. Your line is open.

Great, thank you. First one for William. I just want to get your thoughts on the longer-term evolution for hardware pricing. Curious if you think there's a point in the macro cycle where that pressure starts to abate, or if we're just seeing more competition in the market right now that's keeping pricing tighter and profitability more challenged.

Yeah, great question. Well, like I mentioned many times, a great value for consumer isn't just price. During the quarter, We faced many challenges on irrational price moves that was motivated by many different factors. I think some because newcomer coming, fighting for the incremental CTV market share, and some because of the excess physical inventory. And as you know, the global demand on TV dropped dramatically, and there was a lot of inventory out there looking for a home. So by video, we believe price is not the only value we can invest in the long-term success for our shareholders and our consumers. We stay extremely disciplined and focused on investment on different TVs, on the bigger TV sizes where it means the most engagement for us, and also maintaining the investment in critical areas such as customer satisfaction, software development, and healthy margin profile for our retail partners. All those matter. in the long term success as we are increasing ARP and we do see the pricing gap decreasing most recently as we see the pricing on the TV creeping out in the last few weeks. Adam, you want to add a little bit to that?

Yeah, so I think it's something we're going to watch pretty closely because it's going to drive how we think about some of our pricing strategies towards the back half of the year. And it depends on what our competitors are doing. As William said earlier in their prepared remarks, we don't feel the need to chase deep into a race to the bottom kind of dynamic. So we're going to be pretty disciplined. We're going to sit back. There are places where we have continued to gain share in screen sizes even without being the price leader. So I think that speaks to the strength of the brand. It speaks to the strength of the value prop we're bringing to consumers. And we're going to use that as a part of our overall pricing as we think about strategies and what device margins should look like going forward.

Perfect. Thank you. Adam, sticking with you, just in your guide, you talked about that being impacted by the labor strike. Can you just maybe expand on how you would be impacted by that?

Yeah, it really goes back to the media entertainment category being a key advertiser, particularly as we go into the fall premiere launches, specifically on our home screen. That's a place where they tend to spend nicely with us to promote their new shows. If we don't have new shows due to the labor stoppage, then that money, I think, just gets pushed out. So to me, it's more of a timing dynamic than an if. Our home screen is an incredibly powerful place to promote content. It's right in the living room where people have the highest intent to view. And our partners know that. And so we think the money comes back to us as soon as those shows are available and ready to be launched. Those are also high-margin dollars. So as I think about the guide, yes, we're making great progress in expanding and diversifying our client base. Media Entertainment continues to be a core partner, particularly on the home screen, and so we wanted to be thoughtful about the timing of those dollars and when they'll come in. If they come in sooner, great, then we'll look forward to that. If they come in and get shipped out later, we'll have to see the timing of when that will actually come into the model.

Thank you, guys.

Thanks, Jason. Operator, we will take the next question.

The next question comes from Michael Morris with Guggenheim. Michael, please go ahead. Your line is open.

Thank you, guys. Good afternoon. I wanted to ask about pricing and the topic of CPM that came up earlier. You're obviously growing your active accounts and your hours as well, but as you're growing your revenue faster, as you see in the ARPU, I know that you've been, you've kind of referenced being supply constrained in the past. So I guess my question is, is all of the difference in that stronger growth above, you know, the hours viewed coming from pricing, or are you creating more, you know, inventory or supply even within those hours when you have a number of these new initiatives on the home screen and things like that. So, if you could help us bridge how much pricing is driving the strength versus how much incremental engagement and incremental supply can be helping there, that'd be my first question.

Yeah, thanks. I'll take that. I think there's a couple different factors that build in. First, we have been able to generate more supply within the platform. We talked about on the home screen alone, there's 68% growth year over year in terms of time spent in search and discovery. That's led to a lot more impressions, not only in terms of for the home screen ad units, but also our ability to drive consumers into more monetizable places, like our own Watch Free Plus. So with 18% increase in engagement, year over year, or usage of SmartCast itself, we've been able to increase the time spent in those monetizable environments. So supply has helped. We've also invested heavily on the ad tech infrastructure side to improve our fill rates. So we've invested both in the technology itself as well as in people, continuing to increase headcount around product and engineering on this front. That's helped us not only execute better on our direct sales, but also increase and fill more through programmatic channels. And then the last piece is the CPM growth. We do have best-in-class data in the marketplace through our first-party viewing data. As more dollars shift out of linear into connected TV budgets, there is more of an appetite for a digital-like buy. that has helped us increase our CPMs, whether that be for that TV viewing data or for identifying things like incremental reach or leveraging the data to identify incremental reach. So that's helped our CPM growth. So I think there's a couple different factors that have helped increase the advertising revenue.

That's really helpful, Michael. I appreciate that insight. One other question I wanted to ask is about the upfront You shared some good information about the new fund on the prior call, but we haven't really heard anything, I don't believe, about sort of dollar commitments. And it's been a slower marketplace overall this year. So I'm curious, your take on upfront dollars, how it impacts your business this year, given some of the maybe unusual dynamics in the market this year.

Yeah. So the new fronts were very successful for us. I think we talked about it last quarter. Great show, well-received by both advertising agencies and brands themselves, and I think set us up very well heading into these upfront conversations. They are a little slower than they have been, but I'm pretty confident they will get closed in time to launch during the Q4 time period, which is the typical seasonality for upfronts. And in terms of the discussions on our side, I mean, we're not ready to share a dollar value. But as you know, we've really been just over three years in this business. So two years ago in our first upfront, we did $100 million. This past year, we did $200 million. And we expect to grow that once again based on the conversations we're having heading into next year.

Great. Thank you very much. Appreciate the answers.

Thanks, Mike. Operator, we will take the next question.

The next question comes from Stephen K. Holwood, Wells Fargo. Stephen, please go ahead. Your line is open.

Thanks. Maybe first, can you talk about how different ARPU is on accounts that have younger devices versus older devices? You know, we only see the net ads on your active accounts, but just wondering what you're seeing in gross ads and if you're able to drive You know, an installed base that has a better setup for trying to drive ARPU and if that's one of the key drivers of some of the ARPU strength or the ad strength that you've talked about and which appears to be strong versus the peer group. And similarly, I'm wondering if you can roll out the home screen to the entire installed base or a percentage of it or if it's only available to customers with new devices.

Yeah, thanks, Steve. Yeah, thanks for the question, because you're touching on a really important point about the improvements we're making in the quality of our user base. I think you're seeing that in the growth in ARPU. You're seeing it in the outpaced Smartcast hours, so streaming hours versus total time spent using the TV. So our user base is not only growing, but it's growing in the areas that's most valuable to us, meaning highly engaged around streaming. As we mentioned in the prepared remarks, you know, 56% of time spent using our TVs is now in our streaming environment. That's a new record for us. If you look at SmartCast hours per active account, this quarter was the highest since going back to Q1 of 2021. So we're back on that upward trajectory in terms of the adoption and move into streaming. That's a really powerful opportunity for us to continue to drive monetization. There's absolutely a high positive correlation between screen size and engagement. It makes sense, right? The larger the screen, it tends to be the main TV in the home. That's where you're going to be doing most of your entertainment time spent, and that's going to be really valuable for us. So we do want to be able to be competitive in those larger screens. We want to have strategies that make sure we're continuing to grow and gain share in the units that work well for our model and drive our monetization opportunities. So I think it's all coming together. You're seeing it for sure in the engagement numbers and our metrics. That sets us up from a quality standpoint to keep driving ARPU higher from here.

And then just a follow-up on device, you know, in a kind of competitive environment, how willing are you to step into a little bit more lower margin or negative margin and maybe what's implied in the EBITDA guide for device margins for Q3? Thank you.

Yeah, so we're going to treat the back half of the year, which tends to be a seasonally stronger period for consumers to be purchasing new TVs. So it is an area that makes sense where we want to be competitive. We're still going to maintain our same discipline that we have around the right pricing strategies on the right units that we think we can really make an impact. We've seen great success in consumers responding to our offers around particular screen sizes and being able to move product. That's why even in this quarter, the competitive environment, maybe our overall shipments didn't grow year over year, but we did gain share. And then we had top five, sorry, four of the top-selling units in the market in the quarter. So it speaks to the strength of the brand even when we're not the price leader on a screen size by screen size basis. So I think that's helpful to us. As we go into the back half the year, we obviously want to accelerate active account growth. A key way to do that is to increase sell-through, which means pushing more products off of shelves and out into homes. So we will deploy pricing strategies that we think give us the best opportunity to achieve exactly that. And we'll lean into that where it makes the most sense. Steve, I just realized I forgot to tie back to your home screen question on the first question. We're able to do the backwards compatibility to all of our SmartCast enabled units in the field. So coming up with a new home screen like that and be able to deploy that out across the fleet is really great. So here's a user experience. Someone's had a TV for multiple years, and they just got a brand new experience brought into their unit. It's a great user experience. It's great for us as well because we can deploy new features that will include engagement, monetization opportunities. All of that comes together, and to be able to do that on a backward compatibility basis is really a great attribution to our software team and our overall architecture.

Thank you.

Yep. Thanks, Steve. Operator, we will take the next question.

The next question comes from Nick Zangler with Stevens. Nick, please go ahead. Your line is now open.

Hey, guys. Grads on the quarter. I still want to buy pizza through my TV, but in the meantime, Looking to drill down into some of these announcements made in the quarter. First, can you just talk about the recent partnership with Intuit, which seems to have built a retail media network here? Just what incremental opportunity on the advertising front does the Vizio and Intuit partnership represent? And is this just one of many potential retail media-like partnerships that are to come?

Yeah, thanks, Nick. Look, I think we're excited about the Intuit partnership. What that is, is Intuit's launching a small business-focused retail media network called SMB Media Labs. It allows advertisers to target customers of QuickBooks across various media properties. Vizio is the exclusive connected TV partner. It's a very valuable data set for reaching small business and small business owners. And we think there's a high value prop being able to augment our best-in-class TV data into its high-fidelity data sets. We think from an opportunity perspective, obviously this can help us expand our partnerships with categories we already are growing like telco and travel. But we also think it helps us expand into some newer categories like fintech and workplace services. And yeah, retail marketing is a rapidly growing portion of the ad market. We're excited about this partnership and think there are some good opportunities for us in this space in the future.

Got it. Helpful. And then just on the Peacock preview experience, delving a little bit deeper there, obviously new this quarter, I think generally it just demonstrates yet another way the streaming services are willing to engage with you as an operating system. I guess the question is, how should we think about like monetization of these incremental relationships? And then just whether you see additional products like these being adopted by other various streaming services, just again, as yet another means of attracting viewership.

Yeah. So look, I think the Peacock preview was another exciting, we call it another exciting partnership for us. And we actually think it could be a great model for the future. So just to give an update on what that was, we partnered with NBCU Peacock to offer episodes of their original content within our Watch Free Plus app for free to our customers. So episodes of Bel Air for instance was available for free to our consumers and programmed in a fast channel by us. Great for Peacock because it generated exposure to a new audience, added promotion off the home screen, got customers to engage and see their new content. Great for us because it got additional premium content into the Watch Free Plus environment. All around great for them, great for us, great for consumers or viewers of Watch Free Plus. But what made it really cool, I believe, is that we added an interactive overlay to this that enabled viewers to jump or with one click directly head into Peacock to watch more episodes, subscribe. and catch up on past episodes. So we added an interactive component that made it very seamless to jump between Watch Free Plus and the Peacock app. We saw, I believe, a 14% engagement rate on that overlay itself, which was great. But to me, this is a great example of how partners can kind of utilize our platform to promote their content in new ways and drive back to their subscription services. So from a monetization standpoint, obviously there's great opportunities for us to continue to partner with these apps that we have core relationships with. and have been working with on the media and entertainment side to build out new features that can help them not only grow engagement, but grow subscribers, reduce churn. And in that, it'll lead to increased home screen promotion, obviously opportunities for us to capture some of that subscription revenue, and also new ways to monetize through the interactive overlay.

Awesome, Collar. Thanks. Appreciate it, guys.

Thanks, Nick. Operator, we will take the next question.

Our next question comes from Tom Champion with Piper Sandler. Tom, please go ahead. Your line is now open.

Hi, this is Jim on for Tom. Thanks for taking the question. I guess for first one for William, it seems like you're having a lot of success with selling some of the larger size TVs. Is it possible these customers are either more likely to convert to SmartCast or potentially just higher value customers? I guess, how should we think about that?

Yeah, the larger screen has the tendency to being people's main living room versus a secondary bedroom. So people use that and engage for streaming and everyday usage. So the engagement hour is significantly longer than the smaller sizes. Adam, you want to add some data to it?

Yeah, I think as I mentioned earlier, that strong correlation to the growth. What it does is it shows us what the lifetime value of that TV is. So we look very closely at how long the TV stays engaged in the home and what the streaming time spent is. We analyze this across our entire unit lineup. And so we know that those units are very valuable. Once you get a 65-inch on your wall at home, you're probably sticking with that unit for a while. And to your question, these are sophisticated consumers who are adopting and moving into streaming more and more. And so as we continue to bring more content to the platform, more ways to engage with them, more information on the home screen that allows them to interact with content and search and discover, as Mike pointed out, Absolutely. These are very quality households to have, and we see a lot of opportunities to drive monetization over time with them.

Yeah, and during Q2, our 65 years was one of the best-selling TV in the U.S. It was, yep. It's a very valuable TV for us.

Okay, great. And then I guess just follow-up on the SmartCastNet ads results. Is there any seasonality we should keep in mind with 2Q, or I guess how should we think about the cadence of that going forward? Thank you.

Yeah, there is some seasonality. We see some seasonality around June typically. We see some seasonality even in February that can impact the first quarter. So first half definitely has some dynamics to it. That's why as we think about the back half now, we do expect to see improvement in that metric The growth rate of active accounts should pick up along with, as I mentioned earlier, some of our initiatives to drive more sell-through and volume around the seasonally strong period of the year for TVs. So I think we'll see that pick up. We've already seen an acceleration here in Q3. I know it's early. It's only got a month of data behind us, but we definitely saw better trends in July than we saw through most of – So that's encouraging so far, but we do think it'll be a seasonally stronger period for overall growth in the back half of the year versus the first half.

Great. Thank you. Thanks, Jim. Operator, we will take the next question.

The next question comes from Wamsi Mohan with Bank of America. Wamsi, please go ahead. Your line is now open.

Thanks for taking the question. Thank you for taking the questions. It's Rupalu filling in for Wamsi today. Adam, I had two questions, one on the advertising revenue and one on the non-advertising. Let me start with the non-advertising. So that grew 10% year-on-year, which was a little bit less than the 19% that you saw last quarter. When you think about these three buckets, data licensing, content distribution, and the buttons, Can you help us understand how these three fared between quarters? Which of the three was stronger than the first quarter? Which was weaker than the first quarter?

Sure. Yeah. So 10% growth. Still good double-digit growth there, I would say. But I want to remind you that it's not just the three components that you pointed out. I'll certainly dig into each of those. But also, this is the first full quarter of comping against the Nielsen deal that we did in the middle of Q1 last year. So 19% growth in Q1 was only a partial quarter comp against that deal from a year ago period. Q2 now we have the full quarter comparison. So we've been indicating for a couple quarters that we would eventually lap on that deal and we would expect the growth rate of non-advertising to moderate a bit. We're still very bullish on the growth in our data licensing business. We know we have the most valuable data in the marketplace. Our ACR data is really valuable to all of our partners that subscribe to that data, and we think that that continues to have value, and we'll have renewals that allow us to price that higher as we go forward. So there'll be a steady growth contribution there from the data business. The content distribution side is really in ramp-up mode. It's still pretty early for us there. A lot of that is tied to our growth in Vizio accounts and consumers adding that feature and then being able to subscribe to content through that mechanism. I think we're in the building phase there, and so I think there's certainly runway for growth for that to continue to contribute over time. So it's another component of our overall growth. The button revenue is a nice revenue source, but it is definitely tied to our shipment volumes. So as you've seen, shipment volumes come down a little bit. I think we're down about 11% in Q2. There's going to be a direct correlation to that because that's just a per-unit pricing dynamic. So in periods where there's lower shipments, that is going to be a headwind to the growth for non-advertising revenue.

Got it. Thanks for the details there. For my follow-up, let me ask you on advertising revenue, so strong growth at 35% year-on-year. I think traditionally, most of your sales have come from direct sales versus open marketplace. As programmatic becomes more, as it becomes a higher percent of overall CTV spend, do you think that makes changes, or do you think as you gain more traction with advertisers and continue to gain market share, most of the sales will still be through direct sales. So just your thoughts on that mix of programmatic versus direct sales.

Yeah, I think generally given where we are in the phase of building up clients and relationships and broadening with big TV brands, like some of the categories that we mentioned already, we think that the value in building those relationships through the ad agencies and with those brands directly in many cases is leans us towards more managed services or direct sales as a percent of the total. We've been trending around kind of 80-20 in terms of direct versus open marketplace programmatic. We certainly have opportunities to adjust that mix. That's one of the beauties of our model, that we're pretty agile around this topic. But as we want to do deeper, bigger campaigns with big ad buyers that are looking for reach in some cases, targetability in some cases using our first-party data, Some might want to leverage our off-platform capabilities with Household Connect. A lot of different dynamics that we can bring to them that help them achieve their goals around their campaigns, and that requires more of a higher touch, you know, managed services approach. But, Mike, do you want to add anything there?

Yeah, I think, Adam, you touched on all the points. I would add CPMs are also a factor. So, from our standpoint, you know, that 80-20 mix today, Connected TV is still relatively new in the marketplace. There's this big shift out of linear dollars into streaming or connected TV, but that takes a lot of education for some of the larger advertisers who have been spending for a very long time in a linear environment. So what we found is through the direct sales or through the managed service aspect, we've been able today to generate higher CPMs. So as we continue to generate higher CPMs from our direct sales efforts, We'll continue to use programmatic as somewhat of a backfill to increase fill rates and make more dollars. I think over time we should see, as expected, over time we should see programmatic CPMs continue to increase. And as they increase, I think we'll see that mix continue to change.

Okay. Thanks for all the details. Appreciate it. Yep.

Thanks, Rupaloo. Operator, we will take the next question.

Our next question comes from Vasily Karasiov with Cannonball Research. Vasily, please go ahead. Your line is now open.

Oh, thank you. Good afternoon. Mike, I have one for you. You mentioned that you're taking share of advertising dollars from other CTV players, and obviously looking at the growth rate, that makes sense. But can you explain to us Mechanically, how how you think that happens and why so you come to an advertiser and you say, you know, give us advertise with us. Did they just take budgets from other channels from other connected TV platforms or. you know, award services and just give it to you, or do they just give the incremental dollars to you? And if so, why? So can you just help us understand how this happens on the ground and what helps you achieve that?

Yeah. So I think from our perspective, I would say we focus less necessarily on trying to take share from the rest of the marketplace. I think it's been a significantly increasing pie out there. I think this year there's going to be $25 billion spent in connected TV. Next year, the expectation is that jumps up to $30 billion. So what I think our team has done really well, and we look at that 80-20 in terms of direct sales, Our direct sales team has done an incredible job getting out there and educating the marketplace, not only in the value of Vizio and Smart TV itself, but the value of our InScape data or our first-party data set. And that first-party data set solves problems for the customer, not only in terms of how to reach or target audiences based on viewing data, but we also have a really good story around incremental reach or how do you identify customers plan, target, and measure against incremental reach that may have been lost in a historically linear environment. So continuing to build new tools around our data, as I mentioned, whether it be for planning, targeting, measurement, and then the sales team doing a really good job executing around that story in the marketplace has helped us continue to ramp up and I think get a very strong position in the marketplace.

Well, let me ask you a follow-up. Thank you for that. Uh, but if you are pitching yourself as a selling incremental reach, right? So that by definition puts you in a competition in competition with the linear TV, right? So does that mean that your pricing and advertiser would be comparing your pricing to the linear TV option, right? So do you price yourself on par, um, below, above? How do you think about pricing? Is pricing something that allows you to get your foot in the door, or is it the differentiation because of the first-party data? What is it?

Yeah, I think from our perspective, differentiation is around the first-party data. which separates us from typically how someone buys linear, which is on an audience or demographic basis, right? Typically, we're adding in targeting capabilities, which is more of a digital buy that helps us get kind of increasing CPMs or typically increase CPMs in the marketplace. So we are positioning ourselves or selling ourselves on the value prop to advertisers different necessarily than broadly the linear environment. It's more of an addressable solution. So that's worked well with us. And I think the other component of that is when we look at incremental reach, I'll give you an example. We have a product we call True Incremental Reach. in which we have been able to generate higher CPMs by leveraging the data we have, which we understand what people are watching in a cable environment, in a streaming environment as well, and being able to guarantee certain levels of incremental reach. If we hit those targets, those CPMs go up, and if we don't, they go down. But we have the tools and planning tools in place to help us deliver and execute against that. Yeah, I'm just silly. It's Adam.

I just wanted to add one idea here. We don't think about this as sort of a zero-sum game. Obviously, CTV is expanding, and the advertisers are chasing where the viewers are going. So as we continue to grow and generate more scale, there's just more capacity there. We continue to be sort of supply constrained. So as we grow our base and we grow our user base in terms of where they're spending their time and more hours of streaming in ad-supported content, It's an opportunity to tell advertisers, hey, we now can take your campaigns. We can bring those dollars in because we're at a bigger scale. So I think kind of where we are in terms of our maturation is an important part to think about this in the scale of the opportunity.

Thank you.

Thanks, Vasili. Operator, we have time for one more question.

Thank you. Our final question today comes from Scott Searle with Roth. Scott, please go ahead. Your line is now open.

Hey, good afternoon. Thanks for taking my questions. And maybe just to go back quickly to SmartCast NetEditions, it slowed the last couple of quarters. It sounds like from your comments that there are legacy devices that are churning off. I wanted to just get clarity on that front beyond seasonality, if there's something to read into it. If it's older devices turning off, and newer devices are still sort of maintaining that higher attach rate and higher outputs that go along with it.

Yeah, Scott, absolutely. Newly sold TVs still, we see them activate after being purchased at an over 90% rate. It's never been 100%. There's reasons why people would bring it home and have different use cases for it. Someone could buy a TV to be a monitor or some other purpose, and so it's never been 100%, but it's still actually over 90%, and that really hasn't changed. Our install base is getting bigger, and as it grows, if you think about, you know, even just to use some generic numbers, like a 1% turn number in a bigger base is going to be more quarterly or monthly headwinds. You've got to be shipping more, selling more through, gaining more at the top of the funnel to offset that turn in the base. We have seen an environment where we have shipped fewer, and sell-through rates have been a little bit lower. So the top of the funnel has not been as strong to help offset what is, growth in absolute number terms in terms of the churn out of the base. Again, our definition of an active account includes someone whose unit is connected to the internet and it's turned on during the month. So if it falls off the internet for some reason or they've decided to put it in a different part of the house and not use it as frequently, that will add to the churn number. And so those factors working together is what generates out our net account growth. But we are doing a number of initiatives to help improve that engagement and re-engagement activity. We're doing some activities around marketing. We're working with our customer service agents as well. We're working with our engineering team to make sure we're deploying updates in a timely way that reduces friction or disruptions to consumers. So a lot of different ways we're looking to attack this and improve the net ads going forward. And I am, as I said earlier... very optimistic that the back half of the year will show stronger growth in our active accounts base than we saw in the first half so far.

Okay, very helpful. And last, if I could just wrap up, your SmartCast ARPU has been growing at a good clip, although it's been coming down a little bit over the past couple of quarters. But the delta between ARPU growth and SmartCast hours has been narrowing. And I assume part of that is related to capacity and fill rates and what you've been able to do on that front. I'm wondering what's the sustainability of ARPU growth in excess of SmartCast hour growth, you know, given CPMs, given things like bringing e-wallet and e-commerce capabilities in. And now with the homepage, does that drive an inflection and an expansion of the delta between those two numbers? Thanks.

Well, I think one of the factors to think about is, you know, you're drawing a correlation between time spent and ARPU. And for us, it really matters where they're spending their time. As I've said before, if someone increases their quarterly hours in streaming, but it happens to be in a non-ad supported service, that's not going to add to our ARPU. So it's incumbent upon us to make sure that we are bringing great content and great user experience into our ad supported apps and channels where we have inventory and monetization opportunity so that every hour becomes more valuable to us in that sense so that we can actually lift that monetization and have that disconnect the other direction. So it just depends on where they're spending their time. That's an important consideration. to that factor. We think there's plenty of room for upside in ARPU. We know what the marketplace is supporting. Look at some of our peers in the market. We know what those numbers are. We've had our eye on it for a long time. We've made a lot of progress in a pretty short period, as we've talked about. Plenty of headroom to go for ARPU growth from here. The U.S. marketplace supports much stronger numbers than where we even are today. So we're excited about how we can execute against that and keep driving growth.

Great. Thank you.

You bet. Thanks, Scott. And thanks, everyone, for joining. This concludes today's call. Have a great evening.

Thank you, everyone, for joining us today. You may now disconnect your lines.