(VZIO) 2021 Q3 法說會逐字稿

Good afternoon, everyone, and thank you for joining us for our third quarter 2021 earnings call. 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 O'Donnell, our Chief Revenue Officer for Platform Plus. Please note that in addition to our earnings release, a slide presentation for you to follow along with our remarks can be found on our Investor Relations website at investors.vizio.com.

I'll refer you to the second slide in the presentation and remind you that certain statements made on this call 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.

During the call, we also refer to non-GAAP financial measures, including adjusted EBITDA. Reconciliations with the most comparable GAAP measures for non-GAAP financial information discussed on this call can be found in our earnings release or 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 unless otherwise specified.

Now I will turn the call over to William.

Thanks, Michael, and hello, everyone. Thank you for joining us today. I'm proud of the strength of our third quarter results. As the investment we have made in our Platform Plus business continue to bear fruit. VIZIO is the design of the future of the Smart TV industry.

Because our dual revenue model delivers the entire entertainment expense for the hardware and the software to the content and ads. We're able to deliver an attractive value proposition to consumers, advertisers, and content partners alike.

I'd like to highlight a few key points, and then Adam will give more detail on our Q3 results later in this call. Smart TV has gotten smarter and people [addition a dongle] because they no longer need to purchase another stick or bot to watch their favorite entertainment. Multiple devices and remote controls are a horrible consumer experience, which is why we created a simple, easy to use, single device experience found in our VIZIO Smart TVs.

As consumers increasingly favor the simplified experience, other companies have also begun to enter the Smart TV space, as they recognize the value of our business model. At VIZIO, we are always looking forward and staying aware of our competition, old or new, big or small. We've been investing successfully in the TV and streaming business for many years, and will continue to invest more and focus on what we do the best, offer innovation and exceptional consumer experience at an affordable price.

On the device side of our business, we have worked extremely hard to replenish retail inventories ahead of the holiday season to continue to drive customer acquisition and grow market share. But being hit by the same logistical and supply chain issues affecting all companies right now. But we have been working very closely with our long-term partners to help reduce delays and have strategically invest to expedite shipping.

Although these higher freight and logistical costs have impacted our gross profit margin in the third quarter, this tactic has allowed us to mitigate supply chain disruption and be confident that our product will be on the floor shelf as we head into Black Friday.

We are gradually working with our retail partners to stimulate sales by launching saving events even earlier this holiday season across our product lines, which means that there are amazing VIZIO deals out there for everyone, with exceptional values on products like a 75-inch V-series model in Walmart for under just $750. Now that is one great holiday gift.

We're also bringing the big screen experience to the home with incredible pricing [of that pie] on both N and P series TVs and our #1 selling soundbars. Our shelf shares metrics are still on track for the year, and we have also been able to grow store space with key retailers, thanks to great products that continue to receive excellent reviews, such as our P-Series Smart TVS, which are an editor's choice award for Newsweek, Price Hike and [Reviewed].

We have also just received a special recommendation from Rolling Stone magazine for our VIZIO 2.1 V series soundbar, all of which are available for the holidays. We are creating VIZIO products to be the center of the connected home with SmartCast at the heart of our VIZIO TVs. The seamless integration of hardware and software is key to a great consumer experience, which is always our number one priority.

Our software engineers are constantly working to create new ways to make our customers' life easier. This includes easy to use search and discovery functionality on the homepage to help people find their favorite TV show and watch their favorite stars, with building voice capability.

SmartCast also gives people [tons of apps], hundreds of free streaming channels available right out of the box, including HBO Max, Fubotv, BET Plus, PBS, and Funimation, was all launched this quarter. As we mentioned on our last call, we also operated our free streaming channel offering to WatchFree Plus, which brought an enhanced user interface and even more [comfort] to the proper destination on SmartCast and we're thrilled with the viewer feedback and engagement so far.

Because of our rich glass-level data, we know what people like to watch, and we're now able to curate a series of VIZIO branded channels called VIZIO features. In just 3 months, our first 2 channels, Fork and Flight and Investigation, have already become 2 of the top 10 most watched channels in WatchFree Plus. VIZIO Features brings the audience a variety of exclusive channels that leverage our first-party viewing data and home screen targeting capability to deliver a more relevant entertainment experience.

[Traditional] recently launched VIZIO feature channels include Gamer Nation, with videogame and e-sports programming. Mission, a channel for sci-if fans, Fear, with back-to-back horror movies, and Polaris, a new creator driven channel that [physically] shares hip-hop and black culture with the world.

Clearly, the content on VIZIO features delivers more of the free content that people life and delivers more engagement. Speaking of which, demonstrate, our VIZIO ad income continued to deliver successful results. As we announced previously, we closed out our 2022 upfront season with over $100 million [in commitment] agency holding company and [breadth] which was a fourfold increase over 2021.

Our Q3 advertising growth was driven by an expanding client and category base as we continue to broaden our universe of the right advertising clients. Q3 advertising revenue was 5x higher in key categories, including auto and CPG, in addition to media entertainment. Not only that, but our advertising partners are spending more with us than ever before.

Our average revenue per advertiser is more than twice what it was at this time last year. With accelerating advertising development continue to be in line with broader market shares, as consumer increasingly move from linear TV to streaming. Brands are following them on to our platform. And as our audience engagement grows, our ACR TV streaming data also grows.

With proprietary and comprehensive glass-level data is not only informing our own VIZIO content programming and monetization strategy. It is also empowering the future of media management and currency itself.

All the leading companies currently being considered with an alternative to traditional media measurement are powered by VIZIO's Inscape data, which put us in a unique position in the industry and significantly differentiate us from our competitors.

When you put all these things together, it is easy to see why Platform Plus is such a growth engine for us. Looking ahead, we are going to continue to increase customer acquisition and market share by leveraging our dual revenue business model, consistently developing and enhancing our VIZIO line of products to create greater consumer experience. And finding new ways to engage and monetize our VIZIO audience to grow ARPU.

All of the investments we've made in our products, our platform, and our people are paving the way for our continued evolution of the streaming first data-driven media company. I'm very proud of our VIZIO team for navigating this exciting and challenging time. I want to thank everyone for all their great work. We're continuing to revolutionize the Smart TV industry, and I am confident that we have the right strategy, the right mentality and the right people to drive the future of television.

With that, I will now turn the call over to Adam to speak to our third quarter results in more detail.

Thanks, William. In the third quarter, the growth in our Platform Plus business exceeded our expectations as we further ramped up our advertising execution across home screen inventory and our expanding base of video inventory, both on and off platform. We continue to invest in software and engineering resources to scale our platform operations and expand monetization opportunities.

In our device business, we remain intensely focused on navigating through the supply chain and logistical complexities impacting so many companies. After inventory bottomed out in early July, we made strategic investments to help rebuild channel inventories as much as possible in advance of the holiday season. Of course, some of these actions had an impact on our device gross margins, but they were prudent steps designed to both help improve customer acquisition in the short-term and to drive our growth strategy over the long term.

Turning to the financials for the quarter. Total company revenue grew 1% to $588 million, with Platform Plus revenue up 134% to $86 million, more than offsetting an 8% decline in revenue from our device business. The third quarter represents the fifth consecutive quarter of triple-digit revenue growth in Platform Plus, driven by advertising revenue, which grew 271% to $66 million.

Both our home screen and video advertising revenue streams continue to grow and outperform, and we are excited to highlight that the third quarter saw record-breaking direct sold video advertising revenue. While certain advertiser categories are working through their own supply chain challenges, as a relatively new player in the market, we are expanding our advertiser client base and deepening their total spend with us as they seek our growing combination of owned and operated inventory and first-party data.

For the quarter, advertising revenue represented 77% of total Platform Plus revenue. Non-advertising revenue grew 6%, driven by increased data licensing and content distribution fees. Device revenue continued to face difficult year-over-year comparisons to last year's pandemic driven surge in demand, but Q3 Smart TV shipments grew 27% sequentially to $1.4 million, even in light of increased logistical constraints, and we expect Q4 to grow from there.

Higher average unit prices for both TVs and soundbars during Q3 helped to somewhat offset the lower unit volumes. TV A&P was up 42%, while audio was up 8%. The total company gross profit was $83 million, with Platform Plus gross profit of $57 million or about 69% of the total and device gross profit of $26 million. Platform Plus gross profit grew 88% year-over-year due to rapid growth in advertising revenue, which is increasingly becoming a mix of both on and off-platform impressions.

While we see tremendous headroom for continued growth on platform monetization, we are also gaining traction in off-platform advertising capabilities, which allows us to expand our market and tap in opportunities across the broader connected ecosystem. This broader capability offers strategic planning benefits to our advertising partners. Of course, these off-platform ad revenue sources won't carry the same margin profile that we achieve on platform, but they expand our overall TAM and create advertising growth potential beyond our TV installed base.

During the quarter, Platform Plus gross profit margin was 67%. Device gross profit fell 56% as we are lapping last year's COVID related surge in sales and working through the higher component and freight costs as well as more promotion pricing versus the year ago period.

As we have been anticipating for several quarters, device gross profit margin came in at just over 5%, which is back in line with pre-pandemic averages. Panel and component costs peaked in July and have come down significantly in recent months, while freight and container costs remain elevated.

Total company adjusted EBITDA for the quarter was $23 million, in line with our previous expectations. As a reminder, adjusted EBITDA is only adjusted for share-based compensation expense, which remains elevated this year due to a 1-year vesting for grants issued to certain executives in connection with our IPO earlier this year. The higher amortization expense from these grants will roll off beginning in February of next year, resulting in considerably lower run rate comp expense going forward.

And finally, net income was a loss of $19 million or $0.10 per share. In terms of our key metrics, our Q3 results highlight the growing success we are experiencing in driving overall monetization. ARPU growth this quarter accelerated to a record $19.89, up 91% over the year ago period, primarily benefiting from our improved monetization of watch Free Plus.

In terms of our engagement measures, as we anticipated, both total time spent on device and time on SmartCast return to sequential growth after the dip we saw in Q2 as the country began to open back up. On a year-over-year basis, total VIZIO hours grew 24% to $7.3 billion and SmartCast hours grew 16% to $3.6 billion. With our ever-expanding content lineup, which as of the third quarter now includes household name apps such as HBOMax and BET Plus as well as more channels to our WatchFree offering, we are seeing continued growth in streaming activity ahead. SmartCast monthly active accounts grew 35% over the year ago period, ending the quarter at $14.4 million. While all growth is good, we do believe active account growth during the quarter was somewhat impacted by low channel inventory at the start of the quarter, followed by the previously mentioned freight related delays, which pushed shipments out towards the end of the quarter.

For example, 40% of the 1.4 million units shipped during the quarter were shipped in September, leaving less time than usual for units to get into stores, be purchased and converted to new active accounts within the quarterly time frame. Now let me turn to what we expect for the fourth quarter.

Starting with Platform Plus. Our monetization initiatives are paying off, and we are continuing to expand our reach and identify new opportunities. Our expanded relationships with media networks and ad agencies following in this year's upfront process, are driving growth and creating inventory scarcity in Q4 across both video and home screen. This will continue to be favorable for pricing and sellout levels.

We are seeing increased demand for data licensing, which is contributing growth to our non-advertising revenue and also strong competition for our remote control button sponsorships, which is driving increased pricing power. Based on the current trends, we expect Q4 Platform Plus revenue in the range of $100 million to $110 million. We expect Platform Plus gross profit in the range of $65 million to $70 million, implying a mid-60% gross margin for the quarter at the midpoint of the range.

For device, we expect to see sequential growth in TV and soundbar unit shipments as we continue to replenish channel inventories and benefit from the holiday season. In terms of our device gross margins, given our increased confidence in our ability to grow our platform business, we see a strategic opportunity to trade lower device margins to support greater retail shelf share to acquire active accounts and to accelerate the growth drivers of our Platform Plus business. We would anticipate low single-digit gross profit margin over the coming quarters in order to feed our wide array of platform monetization, all leading to significantly higher ARPU over time.

Lastly, we expect total company adjusted EBITDA to be in the range of $7 million to $12 million. So overall, 2021 has been a transformative year for VIZIO, and we are very excited about the opportunities we see ahead.

With that, let's open up the call to questions. Operator?

(Operator Instructions) We take our first question from Laura Martin from Needham.

I'm going to interpret the 1 per person, and I get one for William and one for Adam. So sorry. William, for you, inventory channel backlog, where are you today in terms of how many weeks of channel inventory do you have? And do you feel that, that's going to creep up or creep down as we head into the Christmas selling season in Q4? And then, Adam, these platform numbers are excellent, up 134%. My question is, you actually specifically called out data licensing and remote controls, which are 2 of the line items. Would you be willing to give us any more granularity in Q3 about ad growth versus buttons versus data by chance?

This is William. The channel inventories is getting a lot healthier in Q3. The team has spent a lot of effort and try to expedite the shipments. And the overall supply situation from Asia on components are getting a lot better. So we do see a pretty healthy inventory for us going into the holidays. And we're very aggressive coming on for promotional price. Hopefully, we see a lot of TV Thanksgiving, Black Friday. Adam?

Thanks, Laura. Yes, I specifically called out data licensing and the remote budget. I want to give a little bit of context of the non-advertising piece. We did indicate that non-advertising grew 270% year-over-year. And that's being driven by really strong activity, both on the home screen as well as in the video inventory.

The video piece, as I've commented, is getting more complex and more dynamic with a larger TAM for us as we monetize inventory both on platform and off platform. So the combination of those 2 is growing that pie, and that's a strategic move that we're making to make sure that we aren't constrained by our installed base footprint. We want to be able to monetize against the entire connected ecosystem.

So that's a really important initiative. We've rolled out a few ways we're doing that with something we called Household Connect, which is leveraging the relationship with the Verizon media arrangement that we put out in the market last quarter. And then we're doing other programs that allow us to tap into inventory off device as well. But seeing the strong demand and growth in categories, we're seeing growth in demand from insurance, financial services, auto. I mean, these are really big advertisers in the marketplace that are creeping into and now coming into our overall ecosystem.

Of the non-advertising piece, data licensing is our largest component of that. The remote buttons will tie partly to shipment volumes because it's related to the volume of remote controls that go out. People do buy independent remote controls aside from the TV as an add-on as well. So we monetize there.

But what's changing is the competition. There are so many streaming services and content partners now in the marketplace, they're getting access to that button availability on our remote is getting more and more competitive, and that benefits us from a pricing standpoint.

Our next question comes from Michael Morris from Guggenheim.

I'll ask 2 if I could. First, on the Platform Plus revenue growth guide or the revenue guide, another quarter of good sequential growth. I'm hoping you can break down a little bit of the drivers, especially on the advertising side, between video inventory, display, where the strength is coming in. I think this is a little bit of the gross margin contraction on this side of the business reflects some of that owned inventory, but I would love to hear your take on those components. And also the seasonal component, right, fourth quarter is usually stronger. So just try to get a little more insight into that.

My second question is on the kind of conversion of devices to active accounts, units shipped. Adam, you clarified that a bit in terms of the late deliveries or later in the quarter deliveries. But as we look forward, should we think that, that reverses? Or just given some of the supply chain dynamics that you're working through? Is there going to be sort of a sustained kind of depressed conversion? I'm curious if you could share anything there.

Mike, do you want to hit the advertising drivers?

Yes. I can talk about the drivers of advertising. So Mike, I would say for us, we're accelerating in a couple of key areas. First is on our own WatchFree Plus. So our owned and operated app. We're really excited about the direction that's heading.

We know we did the redesign last Q3 -- or I should say, last quarter, which has been very well received by our audience. We've added a lot of new content into the fold with 6 new VIZIO Features channels. All of that has driven higher time spent driven in new users and ultimately added more revenue per hour.

On top of that, we're getting smarter, right? We're still early days building the business. So we're getting smarter about optimizations. We're getting smarter about fill rates. Those have increased as well. So good momentum on the WatchFree Plus side.

The second biggest driver for us is home screen. We continue to be able to monetize what I would consider is the best UI for search and discovery in the marketplace. I mean we got 10 monetizable impressions directly on the home screen. So that's been very well received by the media and entertainment community. And as we continue to build those out, we continue to expect significant growth on the home screen.

And then the last, I think, as Adam has touched on, is our off-platform. We continue to build out or educate the marketplace around our audience extension products and our ability to leverage our first-party data to drive video solutions based on what your viewing habits are on the screen into a mobile and desktop environment. And that's been really well received.

And when you talk about Q4, as we look ahead, as inventory across the entire marketplace starts to tighten, audience extension products give us a good opportunity to continue to drive value with our advertisers.

Yes. On the active account conversion, I think you're asking that, Mike. It's certainly an interesting dynamic that we look at very, very closely because it's a combination of both, what I'll call, sort of top of the bucket, so newly converted accounts and then managing the base, which is the fleet that goes all the way back to when we started shipping SmartCast TVs back in 2016.

So when we look at newly sold TVs, we have a pretty consistent conversion of north of 90% of newly sold TVs converted to an active account. And that's great. So that's feeding the top of the bucket. But then you have a multiyear fleet that has dynamics to it. There may be a wide range of reasons why someone might in any given period, fall out of that activity level.

To be active, you have to engage with the TV, have to turn it on, has to be connected to the Internet. So to qualify for that, you have to achieve those attributes. And if you don't, for whatever reason that might be, you'll become what I'll call churn or attrition. And so we look very closely at why that happens, what can we do about it? We want to pick that up in terms of reengagement. And we think there's room for opportunity to improve. I mean that's -- there's definitely places to go there.

But we are seeing right now in the short term, to your part of your question, yes, the latency and the supply chain dynamics certainly played a role. When we were low in stock back in July and a lot of the shipments that went out were just initially to kind of get product back on the shelves, to have it turn into sell-through and then a conversion to an active account, we're definitely seeing some latency around that given the supply situation that we're going through.

I think that normalizes over time as these things work out through the system. But we're going to attack both kind of the top of the bucket acquisition level and the bottom of the bucket in terms of churn or reengagement opportunities. We have multiple millions of units that are in the marketplace that we know are not old enough to have been discarded or replaced at this point that are not in our active account number, and that's an opportunity for us as we look forward.

Next, we have a question from Steve Cahall from Wells Fargo.

One on TV sales and then one on Platform Plus. So on the TV sales side, I think you said you expect sales to be up sequentially. I'm just wondering if they're also up year-on-year. And the 48%, I think you said ARPU growth was pretty strong. Do you think that that's more about price? Or do you think that's more about mix as you appear or a little bit of both?

Let me take the first one, I may have you restate the second one. Yes, on the first of, look, we're going into a strong seasonal period of the year. We have worked very hard with our logistics partners and our retail partners to get inventories up as we head into it and be ready to meet that demand. So we feel like we're in a really good position there.

Whether it ultimately ends up being more or less than last year, I think it's kind of hard to comp against that number. I think that shouldn't be a surprise for you, but it will be sequentially up nicely. And I wanted to point that out because we know that we look at the cadence of the year, Q2 was strong. Q1 was the trough quarter. We indicated that at the time that we thought that would be the lowest quarter of the year. Q3 up from there and Q4, up again. So we're in an upward trajectory now as we come out of and into the holiday season.

And could you just reframe the Platform Plus question, I think I missed that.

Yes. Well, so the second part of the first question was just whether or not the pricing growth that you saw was more mix or just price growth because of supply constraints. And then I had a quick follow-up on Platform Plus.

Yes. Sorry about that. Yes. Actually both, Steven, we saw a premium up increase. We shipped twice as much premium line product in Q3 as we did in Q2. So we saw an increase in our premiums to our M-Series and our P-series. We saw a sizing up as well. So demand for larger screens, that's contributing as well. And early in the quarter when there was some scarcity of inventories in the marketplace, there wasn't a need to discount heavily. And so prices could remain where they were. So I think all those factors played into the 42% increase in AUP that we highlighted year-over-year.

And then just on Platform Plus. I think your hours per day per account, they may be about 80% of Roku's and your ARPU is only about 50% of Roku. So it seems like you've got a lot of pricing headroom, but also maybe a little bit of engagement headroom. I guess, how do you think about driving both of those 2 different pieces that drive ARPU higher?

Look, I think in terms of driving the ARPU higher, we still have a lot of runway, right? If you look -- I continue to reinforce the point that we're only about 20 months into the advertising business, right? So we've made a lot of headway in terms of breaking new categories in terms of building our relationships with advertisers and brands. We did about -- we announced over $100 million in upfront commitments from our partners. We've grown the advertiser base. I think we said 50% year-over-year as well as average advertising spend over 200%.

So we've still got a lot of room to run. We've grown ARPU, nearly doubled it year-over-year from 10 to 20. But we still have a lot of room for growth and a lot of headway to make in the marketplace as we continue to evangelize our offerings.

Yes. And Steve, there's a number of things that we're investing in to help longer-term drive continued expansion and growth in ARPU. I think we talked about that over the time, our investments we're making in software development and engineering capabilities to add new use cases and features to our platform. And that will just benefit us over the long-term to be able to drive additional incremental ARPU.

But to Mike's point, a lot of headroom, a lot of levers to pull in terms of getting -- closing the gap. To your point, our activity level is pretty good. We want to push that higher, obviously, but the monetization piece of it is going to be a fast follow.

Next, we have a question from Cory Carpenter from JPMorgan.

I'm going to scare the system and try to ask 2 as well. Just on WatchFree Plus, could you talk a bit about just framing the longer-term monetization opportunity. That's certainly a big driver right now. But if we think of it as roughly 1% of time spent today. And of course, the estimate could be wrong, but what's stopping you from doubling [or explain that] over time?

And then maybe this is probably for you too, Mike, but just video features. Hoping you could talk a bit more about that and your ambitions there.

I think they actually tie together. So it might actually be one question. So when we talk about the big opportunity to grow WatchFree Plus. I think I just touched on the fact that we did a redesign. We've been enhancing the user experience, creating a better environment for our consumers to engage. That's really important because we need to continue to grow new users into the fold.

We need to increase time spent, and we're going to continue to invest in bringing in new features and new content into WatchFree Plus. And I think one great example of that is what we've done with VIZIO features, right? So VIZIO features is our data-informed programming that's created for our audience, specifically for our audience and can only be found in WatchFree Plus, right? These are distinct channels that can't be found anywhere else.

And because they're unique to us, they perform really well, as William pointed out, with Fork and Flight and VIZIO Investigation being some of the top channels within WatchFree Plus already just after being recently launched.

But for example, or I should say, another example, our data tells us that our viewers love crime driven programs, right? So we looked across the platform, looked at linear data, streaming data, and we built VIZIO Investigation. This channel, which is a cable like experience, has helped us bring in these new viewers, right, helped grow our active users within WatchFree Plus, has helped us increase time spent. And most importantly, has helped us increase the revenue per hour that we're gaining within WatchFree, which is really important to us.

It also helps us create a second monetization opportunity, right, as we can sell brand sponsorships into these channels as we promote them. So for example, we also rolled out VIZIO House, which is our DIY channel. We have Progressive as the presenting sponsor. That gives them the opportunity to advertise or integrate directly into the channel, but also gives them an opportunity to get real estate on our home screen. Which is a good opportunity for us to expand beyond just media and entertainment on the home screen, bring new advertisers into the fold and give a goods consumer experience for our viewers. So for us, it's a great opportunity to build on WatchFree Plus, but also double dip on the monetization opportunities.

We have a question from Wamsi Mohan from Bank of America.

Adam, you noted willingness to take lower device gross margins to accelerate adoption of Platform Plus. You just added about 400 case SmartCast accounts. Any sense for how much of an acceleration you can see with this initiative? And how much will you flex this lever? It sounds like you're talking about maybe low single-digit device gross margins, but why not push that even lower?

And then as a follow-up, I also wanted to ask, it appears as though your SmartCast hours grew slower than total VIZIO hours. That's not been historically the case. What's driving that? And do you think that, that continues? That trend continues?

Yes. Look, what I'm excited about is that we are at a point now where we've proven over the last year that we can really monetize the platform. The team has done an extraordinary job of driving monetization. And what that allows us to do is be a little bit more strategically flexible with where our profit comes from and where our is growth coming from. And so as we think about that, and there's an opportunity in the marketplace to be aggressive on getting more units into homes, foregoing some margin in exchange for account growth is now really viable.

And so we're excited about what that looks like. We're going to tiptoe into it and be careful. I don't know that we need to go, if you're suggesting sort of loss leader type dynamic. I don't know if we have to go that far right now. But I think we are bringing the consumer a very compelling value proposition of great quality at a really amazing price.

They're getting something that's a razor thin margin to us, great product for them. And then obviously, as we bring value to them in terms of the content, the platform experience, and obviously, the partnerships we have now with the media companies and the advertisers, it becomes a win-win across the board. So we think we can certainly separate ourselves from the pack in the marketplace, and that should translate into active account growth.

In terms of SmartCast, the growth rate comparisons, I think that's really a function of the kind of odd comparisons we're looking to back to Q3 of last year when we were going through the early days of the pandemic. It was a time when people were rushing to streaming. There wasn't a lot of new network content. There weren't any live events in sports, and we're seeing some normalization of that.

It was good to see on a sequential basis that it's returned to growth trajectory after dipping last quarter. But I think long term, there's no doubt in my mind that the continued shift towards streaming, the doctrine of streaming is going to be really strong. Within our own platform, even in the context of SmartCast hours, our WatchFree Plus time spent is way up.

And that's important because those SmartCast hours, not every hour is created equally in terms of monetization. So it depends on where consumers are spending their time within that. I think you see it, even though the growth rate wasn't as strong on SmartCast hours versus VIZIO hours, look at the monetization, look at the acceleration in ARPU. That's where it's translating.

next, we have a question from Nick Zangler from Stephens.

Great results. With regard to expectations for shipments and new account additions in 4Q, can you just elaborate on the measures you've taken to get VIZIO Smart TV into the hands of retailers? It sounds like you're paying up for prioritized shipping. And then does prioritized shipping give you prioritized delivery at ports, even when there is extreme congestion?

Look, there's a number of dynamics that come throughout the supply chain and logistics process. On one hand, the inbound freights are coming from our suppliers. We are partnered with many of the largest suppliers in this product in the world, and we use their scale and leverage and influence to make sure that things are prioritized.

They certainly use their scale and capabilities on that front to benefit themselves as well. And so that partnership really sort of pays off when we go to squeezes like this. When you get it on land, then it becomes a very different dynamic, right? You're dealing with making decisions around rail versus truck versus warehousing. We worked with many of our 3PL partners to help them hire and get workers into warehouses and truck drivers to try to mitigate some of the challenges that have emerged in the marketplace.

It's still very challenging. I don't want to pretend that it's not, but we have certainly used our team and their expertise. Our group has been around for a long time. They have really great relationships and a lot of experience in this area. And so they've been able to get involved and mitigate these challenges as much as possible.

So I think we're in a better position than we would otherwise have been in. It wasn't perfect. It hasn't been perfect for anybody. So still room to improve, and we're looking forward to some of these bottlenecks easing up with some time.

And then I'd love just to get some general thoughts on all the incremental competition that's come to, particularly in the last quarter, really from some sizable players, VIZIO has held market share really across TV sales over the years. That's even -- it's Walmart's on brand has seen a lot of success taking share. So just as more competitors come to market, maybe you could just frame up your specific value proposition for consumers relative to some of the new entrants that you're seeing?

Yes. We have this deal revenue model, which everybody envy. And obviously, the competitors saw what we did in the last few years, and they get jump into it. And we've been doing this for many, many years. I mean some of the big companies think the future for their own companies is to have their own TV. And we'll welcome that challenge, and we'll be working very hard to keep on investing and keep on hiring some of the best talent in the world to help us navigate through this competition.

And I do see more competitors coming in, but we have been a company which competes with some of the biggest giant in this industry for many, many years, we'll work on that challenge, and we look forward to compete.

We have a question from Vasily Karasyov from Cannonball Research.

Quick clarification. I think you said that not every tower is created equal in terms of monetization. So if you could explain in a little more detail what you meant. And then my question is about Platform Plus revenue. If you look at the quarterly progression in this fiscal year. Is that pretty much how you think the normalized seasonality will play out? And if not, how -- what drivers -- what would drive the difference between this year and future years?

In terms of SmartCast hours, what I was trying to describe was that there are different monetization opportunities, depends on what content you're engaging with, right? So if you want to start at the highest level, WatchFree Plus is our highest. We control all the ad inventory in that. We monetize it. We control the full waterfall. We can do really interesting campaigns for ad buyers. And so that's our kind of best monetization destination on the platform.

As you move over into other content offerings around the AVOD services, there's a mix there of hybrid of how much inventory we have in any one of those deals. All the way to, for example, time spent in Netflix, which is not ad-supported. Obviously, we're not going to monetize those hours. And as you can imagine, they're a pretty big hour contributor to the totals. YouTube as well. Time spent in YouTube, good time spent. It adds to our hours, but it doesn't -- we're not monetizing that directly.

So it really matters to me where people are spending time, and that's why we're so focused on using our home screen, our search and discovery, our platform, the first-party data we have to drive people into the content where we have the best opportunity to monetize and also give them a great user experience. Content that we know they want to watch, they're interested in. They've shown that before. They have an affinity for it. Let's make a great value proposition where we can drive them into that and increase economics.

So even if total hours were to stay flat, let's say, hypothetically, but we drove an increase 10%, 20%, 30% of the time spent in WatchFree Plus, you're going to see that show up in our revenue. And then in terms of the cadence, a fair question. Hard to say. I mean, we're still -- we're pretty new with this and far from mature.

I know pretty well the mature cadence cycles of media companies and content consumption, and we are still in building mode. So we might see different cadences because of that newness. But generally speaking, obviously, there's more behavior and time spent in the fall around content, rolls into Q1. Summer tends to be a little bit lower consumption, but I think we're still in a place where we're growing through those normal mature cycles because of just the expansion of the platform.

Operator, we have time for one more question.

We take our last question from Tom Champion from Piper Sandler.

I'm curious if there's an update on the payments opportunity. I think we were looking for an announcement in the second half of the year. And then maybe for Adam, just a clarification on the 4Q EBITDA guide of $7 million to $12 million for 4Q. That's a little bit lower than what we were expecting, a little bit lower sequentially. Just curious if you can walk us through in broad strokes what might be driving that? Any comments would be helpful.

Yes. So I can give an update on VIZIO Home or our payment structure. We're currently on track. We recently released what we call our Partner Portal, which is the tools that we provide to the app partners so that they can build and integrate the payment system into their apps.

So we have content partners that have started to work on that. We'll continue to build. We'll continue to add partners to that, and we expect to roll out to consumers next year.

And then in terms of the EBITDA guidance, look, what we want to do is make sure we reflect the commentary and expectation around device gross profit margin that flows through to that, as you can imagine, given up those dollars. But for all the strategic reasons that we highlighted, I think it makes a ton of sense. We also know we're investing in building out capabilities to fund future growth as well. So we're adding heads. We've hired over 270 people this year, largely on the software development side, the engineering side. That's going to help suit us and set us up for future growth.

So it's a combination of ticking our SG&A expectations higher, while the device gross profit margin comes down a little bit. Net-net, all translating into a strong position for growth as we see a real opportunity on the horizon here.

Thanks, Tom, and thanks, everyone, for joining. This concludes today's call. Have a great evening.