Q1 2023 Vizio Holding Corp Earnings Call
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Good afternoon, and welcome to Vizio is Q1 dollars 23 earnings call 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 Donal, our chief revenue and strategic growth officer.
Please note that in addition to our earnings release and todays remarks, a slide presentation can be found on our Investor Relations website at investors Dot Vizio Dot com I'll refer you to the third slide in our 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 <unk>.
<unk> and future customer demand for our products are forward looking statements that involve risks and uncertainties.
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 include.
<unk>, 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 investors 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.
Thank you Michael.
Hello, everyone. Thank you for joining us today Q1 kicked off our 21st year of building, a winning affordable product experiences.
And we continue to see success in the execution of our combined.
And software strategy.
Last year, there has been a challenge.
Out of our pump.
Little surprised through menu that uncertainty the micro economy.
<unk> with other in pressure across the broader advertising marketplace.
Particularly toward the end point on it too.
As you can see if our results today, our advertising business continued to show strength in Q1.
Up 24% year over year.
Which delivered against our expectations.
While these results speak.
General improvement in the marketplace. They also speak to the progress.
We have made in raising awareness of the deal of the skilled destination for advertisers to reach viewers.
By all measures will continue to gain share.
Within connected TV.
One of the fastest growing area.
Of advertising marketplace.
Those viewership growth.
AD dollars continue to shift away from linear TV.
We remain confident.
That Brazil will be well positioned to benefit.
Last week at our.
Iab, New Bronx presentation.
Kona in person and virtual audience, we will come close to 1000 partners.
Advertisers.
Hi.
Well we have showcased.
Our wholesale new and innovative ways.
Brian can connect with a.
The audience.
Since launching our advertising business in 2019 will have broaden our advertising clients beyond just the media entertainment and category two verticals like pharmaceuticals travel and quick service restaurants.
All of US had 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 offer advertisers attracted AD campaign with returns.
The user base of nearly 18 million continues to increase.
It's been building operating system.
Yes.
Hitting a new high of 54% of total time spend.
TV streaming content.
By combining the deeper engagement with our robust escape, although added counter recognition data, we can improve the viewer experience and help.
<unk> partners expand beyond traditional AD buy to reach specific audiences quickly and effectively.
For instance.
As one example.
Automotive company recently turned to video ads to help expand <unk> reach to connected TV viewers most interest.
In buying a car.
Using our ACR data the automotive company identifies this thing audiences across different television format to deliver more relevant ads.
Great.
A couple of weeks ago.
I had the privilege of attending the 74th annual Technology and Engineering Emmy Awards.
On behalf of our team.
<unk> face a take home Ami.
While innovative use of ACR technology.
This award is a testament to.
So the vessels that are <unk> team has made to deliver a better entertainment and experiences while millions of viewers.
By doing this.
We also expand monetization.
Our content advertising clients.
Speaking of experiences will.
We'll continue to bring consumers more of what they want with expanded content offering and improve streaming Smith.
During the quarter remained asbestos.
Through user interface.
Our mobile app to help consumers easily navigate.
Many choices available in streaming today.
We'll continue to expand the wash REIT plus.
Which remains the number two most watched.
As the quarter App.
Platform.
Brazil is in great position to reap the benefit.
As consumers continue to shift their streaming consumption habits.
Look for great value.
All the great content.
On service like our own <unk>.
During the quarter.
We expanded our partnership with AMC networks.
We even more premium programming to smart Tvs.
The expanded partnership includes the reason the addition of the E&C plus app.
93 streaming channel.
Over 150 hour demand feature film.
This quarter.
Also expanded our built in streaming apps from partners like Sirius XM.
Paul.
Animal planet.
Destination America.
And many more.
Today, we have almost 170 built in streaming apps on our platform.
Providing entertainment across many general.
Turning to our device segment, we are navigating the environment that remains demand constrained.
Given the challenging backdrop of a slow economy on heightened please.
Despite that we will continue to deliver a winning product to the market.
And our seasoned team remains well ahead of the curve.
The value consumer good when they buy our product.
But we're being greater.
Our leading technology popular share recently.
When we compare the best budget Tvs side by side.
Picture quality emerge.
The leader of the pack.
Thanks to the success of our dual revenue business model.
We will continue to invest in the basin to elevate our award winning devices even further.
Brazil, we are driven by our entrepreneurial spirit and plan to continue to make strategic investments to support the affordable a better TV experience for consumers.
Our company the center around disciplined culture.
This growth was profitability.
We continue to maintain a strong highly liquid balance sheet with no debt.
Which remains.
Bill.
We remain focused on our key priorities.
That will enable us to better serve our consumers.
Leveraging our dual revenue business model to increase our installed 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'll turn the call over to Adam to review, our first quarter results in more detail.
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 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 of 35% of total revenue and 98% of consolidated gross profit.
To provide some additional segment level context, I'll start with platform plus <unk>.
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 smart cast 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 smart cast platform. They spend more time on smart cast in cable TV game consoles.
<unk> or task 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 up 24%.
During the quarter. We also expanded the number of brands, we have worked with by 77%, adding 148 net new advertisers.
In other returning to 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 in relatively full retail supply TV shipments declined 32% to just over 900000 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 smart cast ARPA grew to just over $29 up 23% over the year ago period, and a new record.
Total time spent streaming also outpaced all other times spent by our users as measured by a 19% increase in smart cast hours against a 10% increase in total vizio hours.
It's mark Hirst 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-19 related lockdowns of 2020.
With enhanced personalization and data driven content that helps support continued user engagement our ability to grow time spent and monetize content continues to increase.
Our smart cast 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 in the media and entertainment category and that is reflected in our outlook.
We do expect to deliver overall growth and homescreen 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&A clients.
So for Q2, we expect platform plus revenue to come in between 133 and $137 million representing.
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 million 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.
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 accelerating 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 AG clients with <unk>.
Vas 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 up to questions operator.
As a reminder, <unk> asked a question you can press star followed by one on the telephone keypad.
Lots of Petroleum question, you May press Star followed by two please.
Please ensure your unmeet Luckily when asking your question. Please.
Please limit yourself to one question and one follow up question I really thank you.
Operator, we will take the first question.
Our first question for state comes from Laura Martin of Needham Laura Your line is now open. Please go ahead.
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 do you see any or the price war is 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 are willing to take like lower prices do we still have positive lifetime value with.
Pricing on these devices today, that's my first question.
Alright, Thanks, a lot.
Sure.
Here.
We're obviously in the auto space in the advertising market.
Everyone wants to be in the CTV space.
CTV will be the future and we're so glad or part of that.
<unk>.
Okay.
And we are happening in that business as you know for a long time now and we're being seen this cycle many times throughout our history.
What are the nature of this business and especially when there are new entrants.
How we thought out of our previous price war history will be extremely disciplined and I will take will boundless of course to be strategic about price points. So we can maximize returns to our shareholders and deliver incredible value to welcome Lewis.
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 I experienced team.
Adam.
Yes sure Lawrence for your question absolutely. If you look at the device business. The gross profit in the quarter was up modestly right, but you can't look at that in the absence of <unk>. So the point being if that is R.
Our customer acquisition costs are kind of at that breakeven level, but we're now generating RP, that's approaching $30 and that goes over the lifetime of the TV the usage of that unit and so when you think about the customer lifetime value and discounted back.
Even with these aggressive pricing that are out in the market and the competition, we're seeing still 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 are 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 executions there it's paying off and we're going to continue to really drive growth in households, overall and have a competitive product.
Thanks, Laura operator, we will take our next question.
Thank you. Our next question comes from Ben Swinburne of Morgan Stanley . Your line is now open. Please go ahead.
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 you I'm sure you remember back in January February So long if you could talk a little about what youre seeing in programmatic versus direct.
And then I'm wondering on watch free plus if theres 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.
Yes, I'll take the first 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.
About that trajectory heading into Q2, but seeing really good signs of rebound not only in the programmatic space, but also 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.
With our advertiser community.
The other 20% open marketplace are open exchange is a real time bidding with SSP DSP. 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 in.
And we've seen growth across all key verticals for us.
Yes, Ben in terms of luxury plus I mean, we don't specifically break out the metrics yet on what should be plus but we're very pleased with the continued growth and that is a key contributor to the growth in our advertising. It is the as we know it is the second largest destination on our platform that's free AD supported and Thats, where we directly monetize and so the fact that <unk> plus has continued to outpace.
Streaming activity across other offerings on the platform is a core component of our ability to drive that growth.
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 taste made home and.
Courtland and MSG sports zones, with a lot of variety and what we're bringing to consumers. We've also bolstered our <unk> capabilities and so when you combine that overall user experience.
<unk> 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 will continue to make enhancements and refinements as we go forward.
Great. Thank you guys.
Thanks, Brent operator, we will take the next question.
Our next question comes from Vasily <unk> from Cannonball research.
Line is now open. Please go ahead.
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 yourselves directly what kind yourself quite dramatically.
Maybe give us a little more understanding of.
20% of our inventory is sold programmatically evolved over time and where it's going.
That's a topic of interest right now now coming in India at least.
And also Permian knowledge.
Confusing for us sometimes looking from the outside what you referred to as open programmatic would that be correct to describe that's what's described base decision on programmatic I E.
Programmatic auctions.
Sold through private marketplaces, so would appreciate it.
<unk> us on the on your thought process on the sales process yet thank you.
Yes definitely.
So I think I need a whiteboard to answer this question.
I'll do my best to simplify it so so as we look at our revenue streams on the advertising side, we have to we have whole screen display and video.
Home screen itself is.
<unk> percent.
Direct sold via managed service.
Nothing programmatic today.
With our homescreen 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.
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.
Day direct sold business is clearing at.
Much higher CPM than the open marketplace part of that is too.
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.
<unk> differentiated data or differentiated first party viewing data our home screen unique audience. They could deliver within watch free plus has helped us drive today higher CPM than we're seeing at the open exchange or if you are seeing in the open marketplace.
Interesting on basketball comparable inventory right.
The right way to look at it yes, yes, that's against the supply we have which is a mix of wall Street, plus as well as inventory of revenue shares we have across partner apps on the platform.
So it's the same supply and really what it comes down to your failures prioritization. So we.
We continue to not only evangelize the key value prop, but also prioritize the direct sales campaigns and Thats one of the factors that that helps us drive higher seat counts.
Got it thank you.
Thanks with Sealy operator, we will take the next question.
Our next question comes from Stephen <unk> of Wells Fargo. Stephen Your line is now open. Please go ahead.
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 are getting with smart cast within the vizio hours and then it sounds like vizio hours within the household hours.
So maybe first is you talked about the.
AD trends in terms of just monetize able 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 cpm's, where may be down around 20% in Q4 and Q1 it doesn't sound like Youre 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 Adequation as well so kind of a pricing volume question. Thank you.
Yeah, sure, Steve and no problem.
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% and smart cast versus 10% of 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 ARPA, which was up 23%.
In the quarter.
So when we look across time spent per user where they are 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 installed 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 <unk> against that so we are growing our base that base becomes more valuable as it becomes more scaled and more engaged as we're showing from these other.
Fix that attracts advertisers it becomes self fulfilling and Thats why <unk>.
<unk> growth and our ability to monetize is outpacing just the pure growth of our installed base. So we're pleased with the metrics. We're seeing we're going to continue to enhance the offering and thats 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 because ultimately at the end of the.
Day, Youre, playing a probability game youre 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 that those are sort of the building blocks and we're on a great trajectory here and we're really pleased with engagement trends.
I wont talk about CPM, yes, I can speak to CPM, yeah, we've been able to hold pretty consistent with quality CPM is in the marketplace I think a lot of thats driven around our ability to leverage our first party data right. Our first party data or viewing data as best in class not only from a targeting perspective, but also in helping our.
<unk>, our advertisers understand incrementally, but do we know.
Small number of television households, soak up a mass majority of the linear TV impressions. 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 Thats helped us or enabled us to help maintain.
Pretty strong CPM in the marketplace.
Thanks, Steve Operator, we will take the next question.
Our next question comes from Michael Morris of Guggenheim. Michael Your line is now open. Please go ahead.
Great. Thank you good afternoon guys.
William you referenced.
Your new front presentation in your prepared remarks talked about close to 1000 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 maybe.
Maybe what kind of growth you anticipate or you don't want to be that specific just what kind of engagement you got what type of products and how we should think about how that could drive growth.
Then Adam.
Guys are moving pretty close to GAAP profitability this quarter, which is great I'd love to hear your thought about moving toward positive cash flow generation and how youre thinking about that balanced with.
Ongoing.
Investment ambitions thanks, guys.
Yes, Michael.
Yes.
Our new from a week ago.
Very exciting I was actually my first new front and unless the last two years, the first year in 2020, one we did like $100 million.
And in 2022 will be over a couple of hundred million dollars.
We do expect we will have a phenomenal growth again this year and.
Like I mentioned earlier.
Close to 300 people in person and over 700 people during.
During the lifestream.
It was extremely exciting for me and.
I'm really optimistic.
How are we going on quarters.
Our new Fox this year.
I thought you are adding to that.
I think it was there was a very positive news for US as you guys know this.
It's a big event for US right, 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 of things one of our first party data again, our ability to drive incremental reach we talked about.
Enhancements, we had to the home screen.
Some new formats or bringing out to improve search and discovery. Some in an innovative AD formats for our AD partners, which I think is <unk>.
<unk> 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.
Opportunity for us to expand not only to two great original content for our consumers, but also bring new opportunities for advertisers. So I think as we had mentioned we are we went from a $100 million in 2021 $201 million a little over $200 million in 2020, we're expecting significant growth you've already started to have those conversations but.
But our third new front was the best one yet.
I think we've established we've had a lot of growth over the past three years and I think we've established ourselves firmly of the key player in the connected TV space.
Yeah, Mike and then in terms of your question to me.
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 whereas our best place to put our next dollar.
Mmm.
Next question comes from coal recap into of J P. Morgan Your lines now open. Please go ahead.
Hey, Thanks for the questions I wanted to ask about in the east and it sounds like it certainly still challenging just hoping you could expand a bit on what you're seeing any signs that the market could be closer to stabilizing or turning for <unk>.
Secondly, just as your AD business continues to scale, how 'bout informing the real easy for exclusive programming and even potentially original was on watch request. Thank you.
Alright, so I'll I'll start with you of any category. So Q1, Ebony 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 to that and a lot of other key vertical for us I think we saw farm up over 400%.
Year over year, telco up 113%, <unk>, 98% food and beverage up 79% in the list goes on so as as media and entertainment, which is our largest category and 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 and other key vertical is out there in the market.
We do expect M&A for us to be up slightly this year, but we will not grow.
At the pace that has over the past few years.
Yeah, Hey, Corey it's Adam just on the on the content side exclusive programming something we think a lot about how it fits in our overall model as you saw I think last week or so we announced that branded content studio launch, but I want to be clear that that is really a structure, where we think that fits to our model, we manage the financial costs and discipline around that.
So in other words, meaning we could launch some of this exclusive content on <unk> 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.
Either either producing or buying or trying to trying to develop big multi million dollar per episode type content. This is this is content that fits with what we have we use data that performance around what's likely to be used and consumed and then it is built around giving us financial discipline that has an effective built in margin to it.
I could probably get some more color on the recent launches yes. I think this is part of us rolling out to our brand new content studio.
At the new fronts.
We launched where we showcase one of our first original 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 were going to bring great content to those consumers leveraging the data we have the.
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. Our food is 75 per cent of our sports enthusiast. So three pointers was a show created with K P. Web for members 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 their full experience. So not only through promotion so integrating them into the homescreen sponsorships to that we're pushing promotion towards three pointers, but also integrate them, but we have them throughout the show so pretty painless experience for for the.
Advertisers and we thank great contact for the consumer.
Okay, great. Thank you.
Thanks, Corie operator, we will take the next question.
Next question comes from Ah, Jason <unk> of Craig Hallum, Jason and lifestyle open. Please go ahead.
Great. Thank you guys first 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 second question at the new front to U T dealt with some updates that are coming to the home screen. Just curious if you can elaborate on that and how how that could influence.
<unk>. Thanks.
Alright so.
I'll take that so on the home screen, sorry household connect we'll start with that.
Before household connect is a great way for us to increase the time for our advertising partners.
Unique way for for advertisers to leverage.
V viewing data within the home and extend that outside of the home either into mobile tablet or.
Or desktop right 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's 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 similar device scrap perspective, we had been working with Verizon and trade Union that we've added experience into the mix. So we will continue to make investments and continue to expand household connect so we can so we can increasing grow that overall tab for advertising base.
Yeah.
In terms of the operating system, we we rolled out some some pretty good enhancements, we think during the new fronts.
For us the whole thing 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 up 53% increase in time spent just on our homescreen. 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.
<unk> R U y to make that easier and more engaging for them.
So as consumers spent more time, we're also rolling out a lot of new advertising opportunities. So one of the things we showcased with 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 display but there'll be interactive.
They'll have more video components, so great opportunities for our partners median enter park entertainment partners to to showcase the new content. They have helped drive subscribers reduce churn.
And also a good way for us to increase Cpm's as well.
Thanks, Jason Operator, we will take the next question.
Our next question comes from <unk> of Stevens.
Still on this final open. Please go ahead.
Hey, guys great quarter here [noise], let's do high level questions actually this time around you.
You know the Heebie market, obviously continues to evolve I'm wondering what your research is telling you about <unk>.
Consumer purchase intent for TB I mean are they driven by price is it the quality of the picture that pixel are we had a point where.
CTV operating system is a differentiator just curious in your view what are the real drivers and will we reach a point where the C. T V. O S itself will be the main differentiator in primary factor for consumer decision to purchase the T V. Because I I don't know if we're there quite yet, but you know maybe maybe we can get there but.
Just your overall thoughts there.
Yeah make this is William.
Or the answers.
Although the other thing you mentioned.
I totally believe like waste awkward will make great Howard and vice versa.
That's why we took a.
Integrated with Bush by it comes holding both hardware and software greenhouse and we will continue to invest in both hardware and software is innovation.
Usually I wanted to see excellent picture quality as well as easy to use the less.
Proof that business model works well competitiveness are copying.
So.
Will be producing quality that M. T V's for the last 21 years and consumers love So visual reflect that.
Hi, Sal readings across all there is <unk> and you know all the fun channels.
So like I mentioned over the years.
<unk> will continue to focus on customer satisfaction, and we'll we'll take assuming balance into teaching approach to price points in order to foot or acquire.
A bigger audience.
Super Helpful. And then just another one here.
When you take a look at.
<unk> operating expensive relative to the platform revenues that you're able to generate.
Maybe compare that to peers.
Next level is well below appear.
Spears 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 our poo or will there come a time, where busy you'll need to step up investments and head count R&D just to actually fund that that next leg or further <unk> expansion.
You know maybe send another way is your operating system missing any key components realm.
Relative to appears that will require some sort of significant uptick in investment again across R&D or or what have you.
Yeah, Yeah, I think thanks, Nick yet 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 leveraged our model, but at the same time you know, it's really important that we continue to invest in the resources to drive future monetization. The the delivery of opportunity is still early and going.
Be very very big. This is this is the future of T V and we wanted to make sure. We're there. So I don't think it's so much as a need for a massive step function higher but more of a evolution in a gradual increase so when you think about our total opex really most of the line items are pretty well and check I think SG&A because that's our people cost is a place where we do need to <unk>.
Continuing the best we have to trek right down we have to attract great engineers to fulfill this 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 coupla years ago now I think it is a little bit more gradual.
Appropriate imprudent investment in engineering resources and capabilities.
Great. Thanks, guys.
Operator, we will take the next question.
Our next question comes from Tom Champion of <unk> <unk>. Please go ahead.
Thank you good afternoon William.
Understand you are 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 I'm, partially just curious based on your experience whether or not there.
Room for optimism in the second half of the year, whether or not.
We we might see a little bit stronger demand trends in the back half.
<unk> based on your experience and what you've seen in prior markets and then maybe just a quick one for for Mike O'donnell I'm looking at slide 11.
And.
Smart cast a number two most watched.
Free AD supported App and the bullets.
Describe there and I see improved personalization and features and we're.
We're well into the hype cycle of this one but just curious to what extent maybe ml or.
Kind of newer personalization technologies may be figuring into that and driving improved content consumption and discover ability any comments there would be interesting to hear thank you.
Yeah.
We're inviting.
And both hardware and software is this like a minority.
And we want to attract the a better picture quality.
Quality like always and we Wanna, we Wanna have a better use of experience. So we invest in a lotta money into into I O S.
Mike Michael Ministers are a little bit earlier, we are going to have a new home spring coming up and we're going to have a better and faster.
She may experience and will be working on that for the past few years I will continue to invest in the <unk> and.
And.
Okay.
Okay. Let me think let me think 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.
And watch re plus leveraging the data we have so.
Our best in class ECR first party viewing data enabled us to understand what what users are watching regardless of HDMI input. So we understand what they're watching and a cable environment and a streaming environment, what they're playing on a gaming console or if they have a sticker dog a plugged it but so we understand the.
The consumer journey once someone or user enters into watch re 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 use ear enhancements favorite and things of that nature.
In terms of kind of where that leads to for AI.
I think or are ACR data actually gives us a pretty good leg up Ah cause we've already got experience in this area right as 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 and the entire television space to train them.
So we've been leveraging machine learning now and all our recommendation engines and I think we believe AI AI will only only help us enhance the consumer experience there.
Thank you guys.
Thanks, Tom Operator, we will take the next question.
Our next question comes from while I'm, saying Biohazard from Bank of America.
Line is now open. Please go ahead.
Hi, Thanks for taking the question to <unk> I had 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 licensing.
Licensing this year versus last year do you see you on your growth and the second question I have is on device margins. So now that Roku has launched their T. V's 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 it.
Device margins going forward. Thanks.
Sure Yeah, no problem, yeah. So the 19 per cent growth in non advertising revenue data is the majority of that 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, as a partial period lap because that deal is done around mid quarter and the last year period. So the cops were easier in the first half of the quarter. The second half of the quarter that suggests some more 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 talking about smaller base, that's gonna be a function of us continuing to build out and get more people on just mark <unk> account using it to subscribe we're doing partnerships with various escalade partners. We've now increased on our platform. The partners that are part of that that way you can subscribe and we can <unk>.
Monetize it's about a third of the total on the platform and so that's a good continued good progress you've done some great promotions with people like stars that's worked out well for them and us and so we're very pleased with the progress we're making their it's just off the smaller base. So the data part doesn't represent a much larger component of it so the 19% <unk>.
Right a bit from here, but still a very good growth source for us and it's pretty steady and predictable. So if that 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 have set up a few different ways, which is that we're gonna be strategic about our pricing and we're going to we're going to look at where does.
It makes sense to be more competitive and where does it make sense to kind of lean back when others wanted to be.
Suddenly competitive and so ultimately it's about continuing to do what works for a model having that financial discipline, having a plan around and the strategies you thought we did last year, we pinpointed two particular models, where we landed hard on prices 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 early on the call. If you think about even if you lose some money on a particular unit that's a customer acquisition costs, that's a cat to us, but with <unk> now where it is it gives us a lot more flexibility and freedom to do that we're generating great economics wants a T V goes into at home.
<unk> and so that allows us to think strategically about what the right pricing level is and what the right profitability needs to be.
Thanks for the details that I appreciate it.
Sure.
We are both operator, we have time for one more question.
Thank you final question for Tonight comes from Jim at Golf of Barrington Research, Jim Yolanda, It's not open. Please go ahead.
Alright. Thank you thanks for thanks for <unk>.
I was thinking too about the platform plus as a.
Content, there was a device that was attractive too.
Yeah.
Differentiating R T V's as a selling point and I'm wondering if we're if you're getting to a point where it might switch the arguments such that it would alleviate the need to.
Go to the zero March and then some of the Tv's as you were just saying and.
Too so that maybe you got some of them are back on the device side.
And then a second thought you talk about partnering with Amazon Bestbuy, Costco Sam's club et cetera, I was wondering with those special deals as it is there consistency of terms or the unique deals two weeks.
Yeah sure the first part Jim.
That would be <unk>, what you describe it as a nice long term aspiration [laughter] I don't think we're there yet like I think what we need to do is keep building great products are 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 there as they are entertainment source right as as they are <unk>.
And so as you do that over time as you've seen some players obviously like Apple has done that very well over the years with it created affinity they create a passionate.
Users and then there's loyalty that comes with that and I think that long term aspiration, absolutely we'd love to see a.
A product that could command.
Margins back in device for now because we had this great dual revenue model. It allows us to kind of build towards that while still executed in a very strong way financially.
So that's where we are today, we'll see what brand new features of the T V will bring your experiences to it new capabilities as part of the driver behind the investment in engineering and software development I talked about earlier. So those are all building blocks towards a future that could look like what you're describing.
Doing some of the retailer.
Look look a lot of those 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 clubs stores have expectations of different.
Membership value and perks and things to 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 then and then we'd benefit as well so that overall relationship so uhm.
We managed we manage through that very effectively with those partners.
Alright. Thanks.
Thanks, Jim and thanks, everyone for joining this concludes today's call have a great evening.
Thank you for joining <unk>.
Now disconnect your lines.
Mmm.
Uh-huh.
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