UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_____________________________________

FORM 10-Q

_____________________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-40271

VIZIO HOLDING CORP.

(Exact Name of Registrant as Specified in its Charter)

_____________________________________

Delaware	3651	85-4185335
( State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)
39 Tesla Irvine, California	(949) 428-2525	92618
(Address of principal executive offices)	(Registrants telephone number, including area code)	(Zip Code)

_____________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.0001 per share	VZIO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  ☒

As of May 6, 2022 there were 115,805,280 shares of the registrant’s Class A common stock outstanding, 76,814,638 shares of the registrant’s Class B outstanding, and no shares of the registrant’s Class C common stock outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and March 31, 2021	2
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended March 31, 2022 and March 31, 2021	3
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and March 31, 2021	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and March 31, 2021	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
PART II.	OTHER INFORMATION	33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
	Signatures	74

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terminology such as “anticipates,” “believes,” “continue,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “could,” “would,” “will” or the negative of these terms or other comparable terminology. In particular, statements regarding our plans, strategies, prospects and expectations regarding our business are forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following:

•our ability to keep pace with technological advances in our industry and successfully compete in highly competitive markets;

•our expectations regarding future financial and operating performance, including our Device business, and the growth of our Platform+ business;

•our ability to continue to sell our Smart TVs;

•our ability to attract and maintain SmartCast Active Accounts;

•our ability to increase SmartCast Hours, including to attract and maintain popular content on our platform;

•our ability to attract and maintain relationships with advertisers;

•our ability to adapt to changing market conditions and technological developments, including with respect to our platform’s compatibility with applications developed by content providers;

•the impact of the COVID-19 pandemic and related supply chain delays on our business, operations and results of operations;

•our anticipated capital expenditures and our estimates regarding our capital requirements;

•our anticipated investments into our technologies and capabilities;

•our ability to plan and execute our sales strategy during seasonal fluctuations in supply and demand;

•the size of our addressable markets, market share, category positions and market trends;

•our ability to identify, recruit and retain skilled personnel, including key members of senior management;

•our ability to promote our brand and maintain our reputation;

•our ability to maintain, protect and enhance our intellectual property rights;

•our ability to introduce new devices and offerings and enhance existing devices and offerings;

•our ability to successfully defend litigation brought against us;

•our ability to comply with existing, modified or new laws and regulations applying to our business, including with respect to data privacy, environmental requirements, taxation and security laws;

•our ability to implement, maintain and improve effective internal controls; and

•our ability to maintain the security and functionality of our information systems or to defend against or otherwise prevent a cybersecurity attack or breach and to prevent system failures.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

ii

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

iii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

VIZIO HOLDING CORP.

Condensed Consolidated Balance Sheets

(Unaudited, in millions except per share amounts)

	March 31, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	309.7	$	331.6
Accounts receivable, net	321.0		375.1
Other receivables due from related parties	2.1		5.1
Inventories	12.2		11.9
Income tax receivable	29.2		26.2
Other current assets	84.6		84.8
Total current assets	758.8		834.7
Property, equipment and software, net	13.6		10.3
Goodwill, net	44.8		44.8
Deferred income taxes	30.4		30.4
Other assets	19.2		15.6
Total assets	$	866.8	$	935.8
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable due to related parties	$	153.8	$	224.8
Accounts payable	144.9		118.9
Accrued expenses	169.7		185.8
Accrued royalties	47.2		56.8
Other current liabilities	5.4		4.8
Total current liabilities	521.0		591.1
Other long-term liabilities	16.4		14.1
Total liabilities	537.4		605.2
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 100.0 shares authorized and no shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	—		—
Common stock, $0.0001 par value; 1,350.0 shares authorized as of March 31, 2022 and December 31, 2021, respectively with the following issued and outstanding by class: •Class A, 119.6 and 116.4 shares issued and 115.8 and 113.2 outstanding as of March 31, 2022 and December 31, 2021, respectively; •Class B, 76.8 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively; and •Class C, no shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively.	—		—
Additional paid-in capital	333.1		323.3
Accumulated other comprehensive loss	(0.2)		(0.2)
Retained earnings (accumulated deficit)	(3.5)		7.5
Total stockholders’ equity	329.4		330.6
Total liabilities and stockholders' equity	$	866.8	$	935.8

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1

VIZIO HOLDING CORP.

Condensed Consolidated Statements of Operations

(Unaudited, in millions except per share amounts)

	Three Months Ended March 31,
	2022		2021
Net revenue:
Device	$	382.9	$	453.5
Platform+	102.6		52.2
Total net revenue	485.5		505.7
Cost of goods sold:
Device	375.0		405.2
Platform+	37.7		13.8
Total cost of goods sold	412.7		419.0
Gross profit:
Device	7.9		48.3
Platform+	64.9		38.4
Total gross profit	72.8		86.7
Operating expenses:
Selling, general and administrative	62.4		58.1
Marketing	13.3		4.4
Research and development	9.2		9.8
Depreciation and amortization	0.8		0.6
Total operating expenses	85.7		72.9
Income (loss) from operations	(12.9)		13.8
Interest income, net	—		0.1
Other income (expense), net	—		(0.2)
Total non-operating income (expense), net	—		(0.1)
Income (loss) before income taxes	(12.9)		13.7
Provision for (benefit from) income taxes	(1.9)		10.3
Net (loss) income	$	(11.0)	$	3.4
Net (loss) income attributable to Class A and Class B stockholders:
Basic	$	(0.06)	$	0.02
Diluted	$	(0.06)	$	0.02
Weighted-average Class A and Class B common shares outstanding:
Basic	191.2		145.7
Diluted	191.2		157.2

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

VIZIO HOLDING CORP.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Unaudited, in millions)

	Three Months Ended March 31,
	2022		2021
Other comprehensive (loss) income
Net (loss) income	$	(11.0)	$	3.4
Foreign currency translation adjustments	—		(1.0)
Comprehensive (loss) income	$	(11.0)	$	2.4

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

VIZIO HOLDING CORP.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, in millions)

	Three Months Ended March 31, 2022
	Preferred Stock(1)			Common Stock(2)(3)		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings (Accumulated Deficit)		Total
	Shares	Amount		Class A	Class B
Balance at December 31, 2021	—	—		113.2	76.8	$	323.3	$	(0.2)	$	7.5	$	330.6
Share-based compensation expense	—	—		—	—	16.5		—		—		16.5
Shares issued pursuant to incentive award plans, net of withholding taxes	—	—		2.6	—	(6.7)		—		—		(6.7)
Net loss	—	—		—	—	—		—		(11.0)		(11.0)
Balance at March 31, 2022	—	—		115.8	76.8	$	333.1	$	(0.2)	$	(3.5)	$	329.4
	Three Months Ended March 31, 2021
	Series A Convertible Preferred Stock (1)			Common Stock(2)(3)		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings (Accumulated Deficit)		Total
	Shares	Amount		Class A	Class B
Balance at December 31, 2020	0.1	$	2.6	150.8	—	$	98.9	$	0.9	$	46.8	$	149.2
Share-based compensation expense	—	—		—	—	26.0		—		—		26.0
Shares issued pursuant to incentive award plans, net of withholding taxes	—	—		—	—	(9.1)		—		—		(9.1)
Payment of accumulated preferred stock dividends	—	(0.6)		—	—	—		—		—		(0.6)
Conversion of Series A preferred stock upon IPO	(0.1)	(2.0)		30.3	—	2.0		—		—		—
Exchange of Class A shares for Class B	—	—		(98.3)	98.3	—		—		—		—
Sale of common stock in IPO, net of $13.7 of underwriting fees and other offering costs	—	—		7.6	—	145.0		—		—		145.0
Forfeiture of RSA awards upon IPO	—	—		(5.0)	—	—		—		—		—
Foreign currency translation	—	—		—	—	—		(1.0)		—		(1.0)
Net income	—	—		—	—	—		—		3.4		3.4
Balance at March 31, 2021	—	$	—	85.4	98.3	$	262.8	$	(0.1)	$	50.2	$	312.9

(1) There were no shares of Preferred Stock outstanding as of March 31, 2022 and December 31, 2021.

(2) As of March 31, 2022 and December 31, 2021, the value on common stock outstanding was $19 thousand and $19 thousand, respectively, and are not shown.

(3) There were no shares of Class C common stock issued or outstanding in any of the periods presented.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

VIZIO HOLDING CORP.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in millions)

	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net (loss) income	$	(11.0)	$	3.4
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	0.8		0.6
Deferred income taxes	—		1.2
Share-based compensation expense	16.5		26.0
Change in allowance for doubtful accounts	3.1		—
Changes in operating assets and liabilities:
Accounts receivable	51.0		157.1
Other receivables due from related parties	3.0		0.2
Inventories	(0.3)		0.8
Income taxes receivable	(3.0)		1.3
Other current assets	0.1		(1.3)
Other assets	(2.8)		0.6
Accounts payable due to related parties	(71.0)		(49.7)
Accounts payable	26.0		(38.2)
Accrued expenses	(16.1)		(19.7)
Accrued royalties	(9.6)		(3.9)
Income taxes payable	—		6.8
Other current liabilities	0.5		—
Other long-term liabilities	2.3		(0.4)
Net cash (used in) provided by operating activities	(10.5)		84.8
Cash flows from investing activities:
Purchase of property and equipment	(4.0)		(2.3)
Purchase of investments	(0.7)		—
Net cash used in investing activities	(4.7)		(2.3)
Cash flows from financing activities:
Proceeds from the exercise of stock options	5.2		—
Payment of dividends on Series A convertible preferred stock	—		(0.6)
Proceeds from IPO, net of $10.7 in direct offering costs	—		148.0
Payments of other offering costs	—		(1.4)
Withholding taxes paid on behalf of employees on net settled share-based awards	(11.9)		—
Net cash (used in) provided by financing activities	(6.7)		146.0
Effects of exchange rate changes on cash and cash equivalents	—		(1.1)
Net (decrease) increase in cash and cash equivalents	(21.9)		227.4
Cash and cash equivalents at beginning of period	331.6		207.7
Cash and cash equivalents at end of period	$	309.7	$	435.1
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	0.9	$	0.1
Cash paid for interest	$	0.1	$	0.1
Supplemental disclosure of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities	$	3.5	$	—
Cash paid for amounts included in the measurement of operating lease liabilities	$	0.8	$	0.7
Payment to taxing authority in connection with shares directly withheld from employees not yet made	$	—	$	9.1
IPO costs not yet paid	$	—	$	1.7

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

VIZIO HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

Note 1. Organization and Nature of Business

Founded and headquartered in Orange County, California, the Company’s mission at VIZIO Holding Corp. (NYSE: VZIO), a Delaware corporation, is to deliver immersive entertainment and compelling lifestyle enhancements that make its products the center of the connected home. The Company is driving the future of televisions through its integrated platform of cutting-edge Smart TVs and powerful operating system. The Company also offers a portfolio of innovative sound bars that deliver consumers an elevated audio experience. The Company’s platform gives content providers more ways to distribute their content and advertisers more tools to connect with the right audience.

These products are sold to retailers and through online channels throughout the United States. In 2020 VIZIO launched Platform+, which is comprised of SmartCast, the Company’s award-winning Smart TV operating system, which enables a fully integrated entertainment solution, and Inscape, which powers its data intelligence and services. SmartCast delivers content and applications through an easy-to-use interface. It supports leading streaming apps and hosts the Company’s own free ad-supported video app, WatchFree+. The Company provides broad support for third-party voice platforms and second screen experiences to offer additional interactive features and experiences.

VIZIO purchases all of its products from manufacturers based in Asia. Since inception, the Company had purchased a portion of its televisions from one manufacturer who holds a noncontrolling interest in the Company through its ownership of Class A common stock; however, recently the Company has not made any material purchases from this manufacturer. Since 2012, VIZIO has purchased a portion of its televisions from three manufacturers who are affiliates of an investor who holds a noncontrolling interest in the Company through its ownership of Class A common stock. These manufacturers do not have any significant voting privileges, nor sufficient seats on the Board of Directors that would enable them to significantly influence any of the Company’s strategic or operating decisions. All transactions executed with the aforementioned manufacturers are presented as related party transactions.

Impact of COVID-19

On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The challenges posed by the COVID-19 pandemic on the global economy increased significantly as the year progressed. In response to COVID-19, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing.

Since the first quarter of 2020, the COVID-19 pandemic, and the responses to it have impacted the Company. During much of 2020 and early 2021 the Company experienced increased demand for its products due to the combined impact of stay at home orders and fiscal stimulus. Due to the surge in demand and supply chain and logistical partners operating at limited capacity the Company encountered reduced channel inventory levels at several retailers during 2021. By the end of 2021 and early 2022, the Company replenished most of its channel inventory.

Note 2. Summary of Significant Accounting Policies

Basis of Consolidation

The Company has prepared these accompanying unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). These unaudited condensed consolidated financial statements include the accounts of VIZIO and all subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The functional currency of most of the foreign subsidiaries is the U.S. dollar. The accounts of these remaining foreign subsidiaries have been translated using the U.S. dollar as the functional currency. Gains or losses resulting from remeasurement of these accounts from local currencies into U.S. dollars are recorded in other comprehensive income in these unaudited condensed consolidated financial statements. Financial statements of the Company’s foreign subsidiaries for which the functional currency is the local currency are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the transaction date.

The condensed consolidated balance sheet as of December 31, 2021 and included herein was derived from the audited financial statements as of the same date. The Company has condensed or omitted certain information and notes normally included in complete financial statements prepared in accordance with GAAP. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year

6

ended December 31, 2021 included in the Company’s Annual Report on Form 10-K. In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but they are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2022.

Reclassifications

The Company has reclassified Research and development costs from Selling, general and administrative amounts for the three months ended March 31, 2021, to conform to the current year presentation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates and assumptions. Significant items subject to such estimates and assumptions include the allowances for doubtful accounts and sales returns, reserves for excess and obsolete inventory, accrued price protection and rebates, accrued royalties, share-based compensation, valuation of deferred tax assets and other contingencies. Supplier and customer concentrations also increase the degree of uncertainty inherent in these estimates and assumptions.

Significant Accounting Policies

There have been no material changes to the Company's significant accounting policies from its Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Note 3. Net Revenue

The Company derives revenue primarily from the sale of televisions and sound bars, advertising and data services. Revenue is recognized when control of the promised goods or services is transferred to the Company’s retailers, in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The Company applies a five-step approach as defined in Financial Accounting Standards Board (“FASB”) ASC 606, Revenue from Contracts with Customers (Topic 606), in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied. The Company disaggregates net revenue by (i) Device Revenue, and (ii) Platform+ Revenue, as it believes it best depicts how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors.

The Company sells products to certain retailers under terms that allow them to receive price protection on future sell-through price reductions and may provide for limited rights of return, discounts and advertising credits.

The revenue recognized from the contract liabilities consisted of the Company satisfying performance obligations during the normal course of business. The Company did not identify nor record any material contract assets as of March 31, 2022 and December 31, 2021. Additionally, no costs associated with obtaining contracts with customers were capitalized, nor any costs associated with fulfilling its contracts. All costs to obtain contracts were expensed as incurred as a practical expedient.

7

Significant Customers

VIZIO is a wholesale distributor of televisions and other home entertainment products, which are sold to the largest retailers and wholesale clubs in North America, primarily in the United States. The Company’s sales can be impacted by consumer spending and the cyclical nature of the retail industry.

The following customers account for more than 10% of net revenue:

	Three Months Ended March 31,
	2022		2021
Net revenue:
Customer A	40	%	41	%
Customer B	7		15
Customer C	13		12
Customer D	10		9

Note 4. Accounts Receivable

Accounts receivable consists of the following:

	March 31, 2022		December 31, 2021
	(In millions)
Accounts receivable	$	324.1	$	375.2
Allowance for doubtful accounts	(3.1)		(0.1)
Total accounts receivable, net of allowances	$	321.0	$	375.1

VIZIO maintains credit insurance on certain accounts receivable balances to mitigate collection risk for these customers. The Company evaluates all accounts receivable for the allowance for doubtful accounts. During the three months ended March 31, 2022, the Company recorded a $3.1 million allowance for doubtful accounts.

The following customers account for more than 10% of accounts receivable:

	March 31, 2022		December 31, 2021
Net receivables:
Customer A	41	%	44	%
Customer B	7		10
Customer C	16		10

Customer A and Customer C, and certain other customers not separately identified in the table above, are affiliates under common control with one another. Collectively, they comprised 53% and 53% of VIZIO’s net revenue for the three months ended March 31, 2022 and 2021, respectively. Their collective accounts receivable balance as of March 31, 2022 and December 31, 2021 was 57% and 54% of our total net receivables, respectively. However, throughout VIZIO’s history and presently, the Company has dealt with separate purchasing departments at Customer A and Customer C, and have at times sold products to Customer C without selling products to Customer A.

8

Note 5. Inventories

Inventories consist of the following:

	March 31, 2022		December 31, 2021
	(In millions)
Inventory on hand	$	6.4	$	5.3
Inventory in transit	5.8		6.6
Total inventory	$	12.2	$	11.9

Significant Manufacturers

VIZIO purchases a significant amount of its product inventory from certain manufacturers. The inventory is purchased under standard product supply agreements that outline the terms of the product delivery. Once all aspects of the product are agreed upon, the manufacturers are then responsible for transporting the product to their warehouses located in the United States. The manufacturers are considered the importers of record and are required to insure the product as it is shipped to the warehouses. The title and risk of loss of the product passes to VIZIO upon shipment from the manufacturer’s warehouse in the United States to the customer. The product supply agreement stipulates that the manufacturer will (i) generally reimburse VIZIO for at least a portion of the price protection or sales concessions negotiated between the Company and customers on product purchased, and (ii) indemnify VIZIO against all liability resulting from valid and enforceable patent infringement with regard to product purchased under the agreement except if such infringement arises out of the Company’s modification or misuse of the product.

The Company has the following significant concentrations related to suppliers:

	Three Months Ended March 31,
	2022		2021
Inventory purchases:
Supplier A — related party	44	%	43	%
Supplier B	23		31
Supplier C	15		10
Supplier D — related party	7		13

The Company is currently reliant upon these manufacturers for products. Although VIZIO can obtain products from other sources, the loss of a significant manufacturer could have a material impact on the Company’s financial condition and results of operations as the products that are being purchased may not be available on the same terms from another manufacturer.

The Company has also recorded other receivables of $4.6 million and $5.6 million due from the manufacturers as of March 31, 2022 and December 31, 2021, respectively. The other receivable balances are attributable to price protection and customer allowances as well as accrued royalties due in connection with the settlement of certain patent infringement cases for units shipped, which are indemnified by the Company’s manufacturers and are recognized at the time the aforementioned liabilities are incurred. The net effect is recorded in the condensed consolidated statements of operations as a reduction to cost of goods sold.

Recycling costs

The Company incurs recycling costs in order to comply with electronic waste recycling programs within certain states. These fees are assessed by the states using current market share and actual costs incurred on administration of such programs and are expensed as incurred. Recycling costs were $2.1 million and $2.6 million for the three months ended March 31, 2022 and 2021, respectively, and are recorded in cost of goods sold in the accompanying condensed consolidated statements of operations.

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Note 6. Property, Equipment and Software, Net

Property, equipment and software, net consist of the following:

	March 31, 2022		December 31, 2021
	( In millions)
Building	$	10.1	$	10.1
Machinery and equipment	1.7		1.6
Leasehold improvements	3.7		3.6
Furniture and fixtures	3.8		3.2
Computer and software	25.9		22.7
Total property, equipment and software	45.2		41.2
Less accumulated depreciation and amortization	(31.6)		(30.9)
Total property, equipment and software, net	$	13.6	$	10.3

During the three months ended March 31, 2022 and 2021, the Company capitalized software development costs of $2.3 million and $0.6 million, respectively. During the three months ended March 31, 2022 and 2021 amortization of capitalized software development costs was $0.7 million and $0.7 million, respectively, and are recorded in costs of goods sold in the accompanying condensed consolidated statements of operations.

Depreciation expense was $0.7 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively. The Company’s long-lived assets of $13.6 million and $10.3 million as of March 31, 2022 and December 31, 2021, respectively, are located entirely within the United States.

Note 7. Accrued Expenses

The Company’s accrued expenses consisted of the following:

	March 31, 2022		December 31, 2021
	(In millions)
Accrued price protection	$	56.0	$	67.2
Accrued other customer related expenses	46.2		48.4
Accrued supplier/partner related expenses	36.7		39.2
Accrued payroll expenses	20.1		21.6
Accrued other expenses	10.7		9.4
Total accrued expenses	$	169.7	$	185.8

The Company periodically grants certain sales discounts and incentives to customers, such as rebates and price protection, which are treated as variable consideration for purposes of determining the transaction price. In certain instances, the Company will, in turn, negotiate with its manufacturers for reimbursement of a portion of the incentives so that the manufacturers are responsible for absorbing some of the rebates and price protection. The Company’s procedures for estimating customer allowances recorded as a reduction of revenue are based upon historical experience, as adjusted for the current environment, and management judgment. Customer allowances are accrued for when the related product sale is recognized. The accrued customer allowances are presented on the condensed consolidated balance sheets in accrued expenses and recorded in the condensed consolidated statements of operations as a reduction of net revenue.

Note 8. Stockholders’ Equity

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Preferred Stock

As of March 31, 2022, the Company had 100.0 million shares of undesignated preferred stock authorized but not issued with rights and preferences determined by the Company’s Board of Directors at the time of issuance of such shares.

Common Stock

The Company had three classes of authorized common stock, Class A common stock, Class B common stock and Class C common stock.

Equity Incentive Plans

The Company has two equity incentive plans, the 2017 Incentive Award Plan (as amended, the “2017 Plan”) and the 2007 Incentive Award Plan (the “2007 Plan”). The 2017 Plan replaced the 2007 and prohibits new grants under the 2007 Plan. Under the 2017 plan, the Company is permitted to grant stock options, restricted stock units (“RSUs”) and restricted stock. The primary purpose of the 2017 Plan is to enhance the Company’s ability to attract, motivate, and retain the services of qualified employees, officers, and directors. There were no material stock options granted or modified during the three months ended March 31, 2022.

Stock Option Awards

A summary of the status of the Company’s stock option plans as of March 31, 2022, is presented below:

	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
	(In millions, except years and per share amounts)
Outstanding at December 31, 2021	14.4	$	6.80	6.8	$	181.4
Granted	0.3	13.51
Exercised	(1.9)	2.94
Forfeited and expired	(0.5)	10.84
Outstanding at March 31, 2022	12.3	$	7.40	6.8	$	18.4
Options vested and exercisable at March 31, 2022	7.5	$	4.07	5.7	$	36.2

	March 31, 2022		March 31, 2021
Weighted average grant date fair value of stock options granted during the period	$	5.59	$	9.95

RSUs

A summary of the status of the Company’s RSUs as of March 31, 2022 is presented below:

	Number of Shares	Weighted Average Grant Date Fair Value
	(in millions)
Outstanding at December 31, 2021	4.1	$	20.45
Granted	0.4	16.49
Vested	(1.3)	19.47
Forfeited	(0.3)	21.08
Outstanding at March 31, 2022	2.9	$	20.25

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Share-based Compensation Expense

Total share-based compensation expense was $16.5 million and $26.0 million for the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022, $0.4 million is included in Cost of sales, $0.3 million is included in Research and development expense and the remaining amount is included in Selling, general and administrative expense in the condensed consolidated statements of operations. For the three months ended March 31, 2021, all share-based compensation expense was included in Selling, general and administrative expense.

As of March 31, 2022, the Company had $73.7 million of unrecognized compensation costs related to share-based payments, which is expected to be recognized over a weighted average vesting period of approximately 2.0 years.

Note 9. Net (Loss) Income Per Share

The Company computes earnings per share (“EPS”) of Class A and Class B common stock using the two-class method for participating securities.

Basic earnings per share is computed by dividing the net (loss) income attributable to common stockholders by the weighted-average number of Class A and Class B common shares outstanding during the period. Participating securities are excluded from basic weighted-average common shares outstanding.

Diluted earnings per share represents net (loss) income divided by the weighted-average number of common shares outstanding, inclusive of the effect of potential common shares, if dilutive. For the three-months ended March 31, 2022, potentially dilutive shares were considered antidilutive given the net loss for the period. For the three months ended March 31, 2021, the potential dilutive shares relate to the dilutive effect of outstanding stock options.

Basic and diluted earnings per share and the weighted-average shares outstanding have been computed for all periods as shown below:

	Three Months Ended March 31
	2022				2021
	Class A		Class B		Class A		Class B
	(In millions)
Numerator:
Net (loss) income	$	(6.6)	$	(4.4)	$	3.3	$	0.1
Less: Accumulated dividends on preferred shares	—		—		—		—
Undistributed earnings	(6.6)		(4.4)		3.3		0.1
Less: Earnings attributable to participating securities	—		—		(0.3)		—
Net (loss) income attributable to common stockholder - basic	$	(6.6)	$	(4.4)	$	3.0	$	0.1
Reallocation of net income as a result of the conversion of Class B shares to Class A shares	—		—		0.1		—
Net (loss) income attributable to common stockholders – diluted	$	(6.6)	$	(4.4)	$	3.1	$	0.1
Denominator:
Weighted-average common shares outstanding - basic	114.4		76.8		142.4		3.3
Conversion of Class B to Class A common shares outstanding	—		—		3.3		—
Weighted-average effect of dilutive securities
Employee stock options	—		—		8.2		—
Weighted-average common shares outstanding - diluted	114.4		76.8		153.9		3.3
Net (loss) income per share attributable to Class A and Class B common stockholders:
Basic	$	(0.06)	$	(0.06)	$	0.02	$	0.02
Diluted	$	(0.06)	$	(0.06)	$	0.02	$	0.02
Anti-dilutive equity awards under share-based award plans excluded from the determination of diluted EPS	15.3		—		3.4		—

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Note 10. Income Taxes

The Company recorded a tax benefit of $(1.9) million resulting in an effective tax rate of 15% and a tax provision of $10.3 million resulting in an effective tax rate of 75% for the three months ended March 31, 2022 and March 31, 2021, respectively. The effective tax rate differs from the statutory tax rate of 21% primarily due to the approximately $3.1 million in permanent book-to-tax difference for the share-based compensation expense deduction limited on certain executive officers as a publicly held corporation for the three months ended March 31, 2022. The tax provision for the three months ended March 31, 2022, includes a net income tax benefit of $2.1 million for discrete items primarily due to excess tax benefits relating to stock-based compensation.

Note 11. Accrued Royalties

A summary of future commitments on royalty obligations as of March 31, 2022 is as follows:

	March 31, 2022
	(In millions)
2022 (nine months)	$	7.4
2023	7.1
2024	5.2
2025	3.0
2026 and thereafter	0.5
Total	$	23.2

For potential future settlements related to historical sales for which the Company does not expect to be reimbursed, a reserve of $25.3 million and $32.5 million has been recorded as of March 31, 2022 and December 31, 2021, respectively, as part of accrued royalties. Any patent infringement lawsuit in which the Company is not indemnified is expensed when management determines that it is probable that a liability has been incurred and the amount is estimable.

Refundable deposits of $21.9 million and $24.3 million have been recorded as of March 31, 2022 and December 31, 2021, respectively, which are presented within accrued royalties in the condensed consolidated balance sheets.

In the ordinary course of business, management anticipates that the Company will be party to various claims and suits including disputes arising over intellectual property rights and other matters. The Company intends to vigorously defend against such claims and suits; however, the ultimate outcome of such claims may remain unknown for some time. Based on all of the information available to date, management does not believe that there are any claims or suits that would have a material adverse effect on the Company’s financial condition, results of operations, or liquidity.

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Note 12. Leases

The Company has various non-cancelable operating leases for its corporate and satellite offices primarily in the United States. These leases expire at various times through 2027. The table below presents supplemental balance sheet information related to the Company’s operating leases as follows:

	Classification	March 31, 2022			December 31, 2021
Assets:		(In millions)
Right-of-use asset	Other assets	$	11.8		$	8.9
Liabilities:
Current portion of lease liabilities	Other current liabilities	$	3.2		$	2.4
Long term portion of lease liabilities	Other long-term liabilities	$	8.6		$	6.5
Weighted-average remaining lease term (years)		4.6			4.2
Weighted-average discount rate (percentage)		4.1		%	3.7		%

Operating lease costs were $1.3 million and $0.9 million for the three months ended March 31, 2022 and 2021, respectively.

The table below reconciles the undiscounted cash flows of the operating leases for each of the first five years, and total of the remaining years, to the operating lease liabilities recorded on the condensed consolidated balance sheets as of March 31, 2022.

	March 31, 2022
	(In millions)
2022 (nine months)	$	2.5
2023	2.8
2024	2.5
2025	2.4
2026	2.3
2027 and Thereafter	0.5
Total minimum lease payments	13.0
Less imputed interest	(1.2)
Total lease liabilities	$	11.8

Note 13. Commitments and Contingencies

Volume Commitments

Certain product supply agreements include a volume supply commitment on up to 13 weeks of inventory forecasted by the Company. Management provides periodic forecasts to manufacturers at which time they consider the first 13 weeks of supply to be committed. As of March 31, 2022, no liabilities were recorded related to this supply commitment.

Revolving Credit Facility

On April 13, 2016, VIZIO entered into a Loan and Security Agreement with Bank of America, N.A. and on April 13, 2021 the agreement was amended (“Second Amendment”) to extend the maturity date to April 13, 2024. Under the credit agreement, Bank of America, N.A. agreed to provide VIZIO with a revolving credit line of up to $50.0 million for the purposes of repurchasing certain outstanding shares of common stock held by a related party supplier and other general business requirements, including working capital. The Company’s indebtedness to Bank of America, N.A. under the credit agreement is collateralized by substantially all of the Company’s assets. The Second Amendment also included (i) an update to provide for use of a LIBOR successor rate, (ii) a change in the definition of Availability Reserve and Borrowing Base, and (iii) an

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extension of the termination date to April 13, 2024. As of March 31, 2022, there were no draws on the line of credit and the Company was in compliance with all debt covenants.

Legal Matters

Advanced Micro Devices, Inc. (“AMD”) presented the Company with a claim letter dated May 11, 2015 in which AMD claimed the Company is infringing its patents that cover graphics processing and semiconductor technologies. On January 23 and 24, 2017, respectively, AMD filed complaints in the U.S. District Court for the District of Delaware and the International Trade Center (ITC) alleging infringement of AMD’s U.S. patents. On August 22, 2018, the ITC ruled against VIZIO and recommended limited exclusion and cease and desist orders. On August 30, 2018, the parties entered into a settlement agreement including payments of $39.0 million in total, and the cases were subsequently dismissed. Of the $39.0 million settlement outlined in the agreement, $15.0 million was negotiated to apply to the release for units shipped prior to the effective date of the agreement which is indemnified by VIZIO’s suppliers. This is reflected in the first three payments due to AMD under the license, which were paid by the end of 2018. Payments beginning with the fourth payment are scheduled on an annual basis in May of each subsequent calendar year for payment of ongoing license from September 2018 and included in accrued royalties. In connection with the IPO in 2021, approximately $14.0 million in payments were accelerated and paid.

In November 2020, the Company entered into a settlement agreement with AmTRAN Technology Co., Ltd. (“AmTRAN”) and one of its subsidiaries. AmTRAN is a beneficial holder of more than 5% of the Company’s Class A common stock. Pursuant to the settlement agreement, the Company agreed, among other things, to pay AmTRAN approximately $8.2 million. In return, on November 23, 2020 AmTRAN terminated its security agreement. AmTRAN further agreed to pay outstanding fees owed by it for IP licenses related to the manufacturing of the Company’s devices. The parties further agreed that VIZIO would continue to retain a reserve of approximately $4.0 million for payment of, future claims attributable to devices manufactured by AmTRAN. On December 31, 2022 VIZIO will release to AmTRAN the lesser of (i) 50% of the remaining balance of the reserve or (ii) approximately $2.0 million, with a like amount to be retained by the Company.

On August 20, 2021, Maxell, Ltd. and Maxell Holdings, Ltd. (collectively, “Maxell”) filed a complaint in United States District Court for the Central District of California against the Company alleging the Company's TVs infringe several of their patents related to various television-related technologies. See Maxell, Ltd., et al. v. VIZIO, Inc., Case No. 2:21-cv-6758 (C.D. Cal.). This case is in the pleadings stage. The Company disputes the claims and intends to defend the lawsuit vigorously.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors including those set forth in Part II, Item 1A “Risk Factors” and “Special Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q. The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto included in Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to the following terms have the respective meaning as defined below:

Ad-supported Video on Demand (AVOD): Over-the-Top video services supported by serving ads. These include free platforms like YouTube TV, Pluto TV or our WatchFree+ as well as those, like Hulu, that charge a subscription fee in addition to serving ads.

Automatic Content Recognition (ACR): Technology that tracks viewing data on connected TVs. Advertisers and content providers use this data, among other things, to measure viewership reach and ad effectiveness.

Connected Home: Home electronics configuration in which appliances (such as an air conditioner or refrigerator) and devices (such as a home security system) can be controlled remotely using a mobile or other device connected to the internet.

Connected TV: A television that is connected to the internet through built-in capabilities (i.e., a Smart TV) or through another device such as a Blu-ray player, game console, or set-top box (e.g., Apple TV, Google Chromecast or Roku).

Dynamic Ad Insertion (DAI): Technology that seamlessly replaces TV ads with targeted ads from the Smart TV in real time, across multiple inputs.

Linear TV: Live, scheduled television programming distributed through cable, satellite or broadcast (antennae).

Multichannel Video Programming Distributor (MVPD): A service provider that delivers multiple television channels over cable, satellite, or wireline or wireless networks (e.g., Comcast’s Xfinity cable TV and DISH satellite TV).

Over-the-Top (OTT): Any app or website that bypasses MVPD distribution and provides streaming video content directly to viewers, over the internet (e.g., Disney+, Hulu, Netflix and YouTube TV).

Premium Video on Demand (PVOD): Similar to TVOD, but lets consumers access premium on-demand content at a higher price point. Examples include feature films made available alongside, or in place of, a traditional movie theater release.

SmartCast: VIZIO’s proprietary Smart TV operating system. The software platform where consumers can access VIZIO’s WatchFree+ as well as a wide array of third-party OTT apps (e.g. Amazon Prime Video, Apple TV+, Disney+, Hulu, Netflix, Paramount+, Peacock and YouTube TV).

Smart TV: A television with built-in internet capability. Often includes an operating system.

Subscription Video on Demand (SVOD): OTT services that generate revenue through selling subscriptions to consumers (e.g., Disney+ and Netflix).

Transactional Video on Demand (TVOD): Distribution method by which consumers purchase video-on-demand content to own or on a rental basis (e.g., Amazon Prime Video rentals and Fandango Now).

Virtual Multichannel Video Programming Distributor (vMVPD): An MVPD that is delivered over the internet; interchangeable with “linear OTT” (e.g., Sling TV and YouTube TV).

WatchFree+: VIZIO’s free, ad-supported OTT app. which offers access to news, sports, movies and general entertainment TV shows on demand and in a format similar to linear TV through programmed channels.

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Overview

Founded and headquartered in Orange County, California, our mission at VIZIO Holding Corp. (NYSE: VZIO) is to deliver immersive entertainment and compelling lifestyle enhancements that make our products the center of the connected home. We are driving the future of televisions through our integrated platform of cutting-edge Smart TVs and powerful operating system. We also offer a portfolio of innovative sound bars that deliver consumers an elevated audio experience. Our platform gives content providers more ways to distribute their content and advertisers more tools to connect with the right audience.

We currently offer:

•a broad range of high-performance Smart TVs that encompass a variety of price points, technologies, features and screen sizes, each designed to address specific consumer preferences;

•a portfolio of innovative sound bars that deliver immersive audio experiences; and

•a proprietary Smart TV operating system, SmartCast, which enhances the functionality and monetization opportunities of our devices.

Financial and operating results for the three months ended March 31, 2022 as compared to the corresponding period of last year included:

•Net revenue of $485.5 million, compared to $505.7 million

•Platform+ net revenue of $102.6 million, up 97%

•Gross profit of $72.8 million, compared to $86.7 million

•Platform+ gross profit of $64.9 million, up 69%

•Net loss of $11.0 million, compared to net income of $3.4 million

•Adjusted EBITDA of $4.4 million, compared to $40.4 million

•SmartCast Active Accounts of 15.6 million, up 16%

•SmartCast Hours of 4.1 billion, up 14%

•Average Revenue Per User (ARPU) of $23.68, up 64%

Our Business Model

We generate revenue primarily from (1) selling our Smart TVs, sound bars and remote controls and (2) monetizing our digital platform. While the substantial majority of our current total net revenue comes from the sales of our devices, our Platform+ business, including our advertising services, is growing at a rapid pace. Given the growing number of use cases for Smart TVs, we expect to increase our revenue from connected TV advertising, SVOD services and other monetizable transactions made on our platform that extend beyond traditional entertainment content.

Device

We offer a range of high-performance Smart TVs designed to address specific consumer preferences, as well as a portfolio of sound bars that deliver immersive audio experiences. We generate revenue from the shipment of these devices to retailers and distributors across the United States, as well as directly to consumers through our website, VIZIO.com.

Platform+

Our state-of-the-art Smart TV operating system, SmartCast, delivers a vast amount of content and applications through an elegant and easy-to-use interface. SmartCast supports most leading streaming content apps such as Amazon Prime Video, Apple TV+, discovery+, Disney+, HBO Max, Hulu, Netflix, Paramount+, Peacock and YouTube TV, and hosts our own free, ad-supported app, WatchFree+.

Our Inscape technology is able to identify the content displayed on the screen of our Smart TVs, providing first-hand data, regardless of input source. We aggregate this data to increase transparency and enhance targeting abilities for our advertisers, while adhering to our strict consumer privacy policies. This first-hand data allows us to monetize our own ad inventory and provides the potential for a better user experience through more relevant advertisements. We also license a portion of this data to advertising agencies, networks and ad tech companies.

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We monetize these capabilities through:

•Advertising

•Video advertising: Ad inventory on services such as WatchFree+, and certain third-party AVOD services. In exchange for distributing their content, we gain a portion of the advertising inventory to sell ourselves, or in some cases we sell all of the ad inventory and share a portion of the revenue with the content providers

•Home screen: Ad placements on our SmartCast home screen by streaming services, studios and other consumer brands

•Partner marketing: Branding opportunities through our large, in-store presence where our Smart TV cartons provide a highly-visible, physical space to showcase our partners’ content images and streaming service logos

•Data licensing

•Inscape: Fees from measurement services, ad tech firms, ad agencies and networks to license data generated from our Inscape technology to measure viewership trends and advertising performance

•Content distribution, transactions and promotion

•Branded buttons on remote controls: Partners who want to place a button for their service on our VIZIO remote controls so that consumers can have quick access to their service

•SVOD and vMVPD: Revenue shared by SVOD and vMVPD services on new user subscriptions activated or reactivated through our platform

•PVOD and TVOD: Revenue shared by PVOD and TVOD services for purchases initiated on our platform

•As the Smart TV evolves to take on a more prominent role in the connected home, we believe new monetization opportunities will develop. For example, we expect:

•A growing user base will lead to higher advertising revenue, especially as our user base increasingly includes audiences no longer reachable through linear TV

•The vast amount of data obtained through our platform will improve the effectiveness of advertisement, generating higher returns for advertisers and potentially increasing ad rates for us

•That data will be used to create more personalized content recommendations and drive higher user engagement

•Additionally, interactive ads and improved subscription billing can increase the number of purchases made on our platform, including subscriptions, content rentals, ecommerce, food delivery and other micro transactions, for which we will receive a portion of the sales

Overview of our supply chain

We design our products in-house in California and we work closely with our Original Design Manufacturers (ODMs), panel suppliers and chipset suppliers for product design and technical specifications. Through this collaborative process, we leverage the manufacturing scale of these partners, as well as their research and development functions in the development of new product introductions. Our ODM partners provide shipping and logistics support to move finished products from their manufacturing facilities to the United States. The title of the finished goods transfers from the ODM to us once we ship the product to a retailer. We believe that our asset-light business model fosters efficient operations with a low fixed-cost structure; coupled with careful management of marketing, selling, general and administrative expenses, which has enabled us to manage our working capital effectively and improve operating leverage. We believe that through these efficiencies, we are able to offer consumers high quality products at affordable prices. Since the first quarter of 2020, the COVID-19 pandemic, the responsive measures that we and other parties have taken, and the resulting economic consequences have affected our business. Initially there was significant growth in Device net revenue; however, we also encountered supply chain disruptions as a result of an industry-wide increase in demand for televisions and other media entertainment devices, suppliers operating at limited capacity due to regional restrictions, shipping and logistical delays, and the temporary closing of certain retail locations. The pandemic has led to industry-wide supply chain challenges that have resulted in delayed product availability. By the end of 2021 our inventory levels returned to more normal levels.

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Our sales and marketing approach

Retailers

We have maintained long-standing relationships with many of the leading retailers. Our sales and marketing team works closely with these retailers to develop marketing and promotion plans, manage inventory, deploy go-to-market strategies, educate their salesforce and optimize the effectiveness of retail space for our devices.

Consumers

Our marketing team is focused on building our brand reputation and awareness to drive consumer demand for our products. Our marketing approach is to emphasize value, which is to deliver quality products with leading technology at affordable prices, which enhance the entertainment experience. Our products and value proposition have earned numerous awards and accolades from popular press.

Advertisers

We offer an attractive value proposition for advertisers to reach consumers who are increasingly “cutting the cord.” As we continue to build out our Platform+ advertising sales force, we intend to significantly increase our presence and recognition among advertising agencies, advertisers and content providers through the television advertising ecosystem. In addition, we expect our audience size and data capabilities to continue to resonate with ad buyers looking to increase their connected TV ad spend.

Key Business Metrics

We review the following key operational and financial metrics and non-GAAP financial measure to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.

Operational metrics

Smart TV Shipments

We define Smart TV Shipments as the number of Smart TV units shipped to retailers or direct to consumers in a given period. Smart TV Shipments drive the majority of our revenue currently and provide the foundation for increased adoption of our SmartCast operating system and the growth of our Platform+ revenue. The growth rate between Smart TV units shipped and Device net revenue is not directly correlated because our Device net revenue can be impacted by other variables, such as the series and sizes of Smart TVs sold during the period, the introduction of new products as well as the number of sound bars shipped. For the three months ended March 31, 2022, we shipped 1.4 million Smart TVs, an 11% year-over-year decrease. We expect Smart TV shipments will fluctuate from period to period in the future as consumer demand fluctuates.

SmartCast Active Accounts

We define SmartCast Active Accounts as the number of VIZIO Smart TVs where a user has activated the SmartCast operating system through an internet connection at least once in the past 30 days. We believe that the number of SmartCast Active Accounts is an important metric to measure the size of our engaged user base, the attractiveness and usability of our operating system, and subsequent monetization opportunities to increase our Platform+ net revenue. At March 31, 2022, SmartCast Active Accounts were 15.6 million, representing a 16% year-over-year increase. This metric excludes approximately 4.1 million televisions connected to the internet through our legacy operating system, VIZIO V.I.A. Plus, which we no longer ship. As we continue to improve and market our SmartCast service combined with the secular shift to OTT, we expect the number of SmartCast Active Accounts will grow as our platform becomes the place where consumers access all of the features of their Smart TV rather than connecting a cable box, satellite or other external device, though we expect the rate of growth will decline over time.

Total VIZIO Hours

We define Total VIZIO Hours as the aggregate amount of time users spend utilizing our Smart TVs in any capacity. We believe this usage metric is critical to understanding our total potential monetization opportunities. Total VIZIO Hours for the quarter ended March 31, 2022 was 8.2 billion hours, representing an 18% year-over-year increase.

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SmartCast Hours

We define SmartCast Hours as the aggregate amount of time viewers engage with our SmartCast platform to stream content or access other applications. This metric reflects the size of the audience engaged with our operating system as well as indicates the growth and awareness of our platform. It is also a measure of the success of our offerings in addressing increased user demand for OTT streaming. Greater user engagement translates into increased revenue opportunities as we earn a significant portion of our Platform+ net revenue through advertising, which is influenced by the amount of time users spend on our platform. SmartCast Hours for the three months ended March 31, 2022 was 4.1 billion, representing a 14% year-over-year increase.

SmartCast ARPU

We define SmartCast ARPU as total Platform+ net revenue, less revenue attributable to legacy VIZIO V.I.A. Plus units, during the preceding four quarters divided by the average of (i) the number of SmartCast Active Accounts at the end of the current period; and (ii) the number of SmartCast Active Accounts at the end of the corresponding prior year period. SmartCast ARPU indicates the level at which we are monetizing our SmartCast Active Account user base. Growth in SmartCast ARPU is driven significantly by our ability to add users to our platform and our ability to monetize those users. SmartCast ARPU at March 31, 2022 was $23.68, representing a 64% year-over-year increase.

The following table presents a comparison of these key operational metrics for the three months ended March 31, 2022 to the three months ended March 31, 2021:

	Three Months Ended March 31,
	2022		2021
	(In millions, except ARPU)
Smart TV Shipments	1.4		1.5
SmartCast Active Accounts (as of)	15.6		13.5
Total VIZIO Hours	8,208		6,951
SmartCast Hours	4,116		3,622
SmartCast ARPU	$	23.68	$	14.43

Financial metrics

Our key financial metrics are gross profit and Adjusted EBITDA. We bifurcate gross profit by business activity due to the differing margin profiles of the Device and Platform+ businesses. In addition, we manage each business, from a financial reporting perspective separately down to the gross profit level. Though both Device and Platform+ are meaningful contributors to gross profit today we expect Platform+ to exhibit significantly higher growth, and combined with its higher margins, drive the majority of gross profit growth in the future.

Device gross profit

We define Device gross profit as Device net revenue less Device cost of goods sold in a given period. Device gross profit is directly influenced by consumer demand, device offerings, and our ability to maintain a cost-efficient supply chain. For the three months ended March 31, 2022, our Device gross profit decreased 84% year-over-year primarily due to lower Smart TV average unit price and fewer shipments.

Platform+ gross profit

We define Platform+ gross profit as Platform+ net revenue less Platform+ cost of goods sold in a given period. As we continue to grow and scale our business, we expect Platform+ gross profit to increase over the long term. For the three months ended March 31, 2022, our Platform+ gross profit increased 69% year-over-year due to higher advertising and non-advertising revenue.

Adjusted EBITDA

We define Adjusted EBITDA, a non-GAAP financial metric, as total net (loss) income before interest income, net, other income, net provision for (benefit from) income taxes, depreciation and amortization and share-based compensation. We consider Adjusted EBITDA to be an important metric to assess our operating performance and help us to manage our working capital needs. Utilizing Adjusted EBITDA, we can identify and evaluate trends in our business as well as provide investors with consistency and comparability to facilitate period-to-period comparisons of our business. We expect Adjusted EBITDA to

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fluctuate in absolute dollars and as a percentage of net revenue in the near term and increase in the long term as we scale our business and realize greater operating leverage. For the quarter ended March 31, 2022, our net income decreased 424% year-over-year to a net loss of $11.0 million, and Adjusted EBITDA decreased 89% year-over-year. While we believe that this non-GAAP financial metric is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared in accordance with GAAP.

Non-GAAP financial measure

We use Adjusted EBITDA in conjunction with net (loss) income as part of our overall assessment of our operating performance and the management of our working capital needs. Our definition of Adjusted EBITDA may differ from the definition used by other companies and therefore comparability may be limited. In addition, other companies may not publish Adjusted EBITDA or similar metrics. Furthermore, Adjusted EBITDA has certain limitations in that it does not include the impact of certain expenses that are reflected in our condensed consolidated statement of operations that are necessary to run our business. Thus, Adjusted EBITDA should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP, including net (loss) income.

We compensate for these limitations by providing a reconciliation of Adjusted EBITDA to net (loss) income. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view Adjusted EBITDA in conjunction with net (loss) income.

The following table provides a reconciliation of net (loss) income to Adjusted EBITDA:

	Three Months Ended March 31,
	2022		2021
	(Unaudited, in millions)
Net (loss) income	$	(11.0)	$	3.4
Adjusted to exclude the following:
Interest income, net	—		(0.1)
Other income (expense), net	—		0.2
Provision for (benefit from) income taxes	(1.9)		10.3
Depreciation and amortization	0.8		0.6
Share-based compensation	16.5		26.0
Adjusted EBITDA	$	4.4	$	40.4

Impact of COVID-19 Pandemic

On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The challenges posed by the COVID-19 pandemic on the global economy increased significantly as the year progressed. In response to COVID-19, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing.

Since the first quarter of 2020, the COVID-19 pandemic, and the responses to it have impacted our business. During much of 2020 and early 2021 we experienced increased demand for our products due to the combined impact of stay at home orders and fiscal stimulus. Due to the surge in demand and supply chain and logistical partners operating at limited capacity we encountered reduced channel inventory levels at several retailers during 2021. By the end of 2021 and early 2022 we replenished most of our channel inventory.

Factors Affecting Performance

Device

Ability to sell more devices

Selling more devices is integral to our strategy of growing SmartCast Active Accounts, increasing engagement, and expanding advertising monetization opportunities, all of which we believe will ultimately lead to higher SmartCast ARPU. There are a

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variety of factors that drive the sales of our devices, including our sales and marketing efforts, the quality of our products, new product introductions, effective supply chain management and relationships with retailers. For example:

•We have, to date, introduced several new products that have had a favorable impact on our revenue and operating results, such as the introduction of our new line in 2021 for Smart TVs. We expect that introducing products that both stimulate demand and resonate with consumers will drive our sales growth and expand our market share.

•We actively diversify our supply chain in order to mitigate potential risks.

•With respect to our relationships with retailers, our ability to anticipate and quickly respond to consumer preferences has influenced retailers’ willingness to market and promote our products over those of our competitors. Historically, we have cultivated strong relationships with our retailers, including Amazon, Best Buy, Costco, Sam’s Club, Target and Walmart.

Seasonality

Historically, we have experienced the highest levels of our sales in the fourth quarter of the calendar year, coinciding with the holiday shopping season in the United States. Given the significant seasonality of our revenue, timely and effective product introductions and forecasting are critical to our operations, and fourth quarter sales are critical to our annual results.

Product mix

Our Device business encompasses a variety of Smart TVs and sound bars with different price points and features. Changes to our product mix may cause fluctuations in our gross profit as they reflect a range of margin profiles.

Platform+

Ability to grow SmartCast Active Accounts

The more SmartCast Active Accounts we have, the more attractive our platform will be to third-party content providers and advertisers looking to reach this audience. Our platform may suffer if we fail to secure popular apps and related content on SmartCast, which may lead users to purchase a television from a competitor.

Ability to increase engagement and monetize SmartCast Active Accounts

Our business is dependent on our continued ability to grow and sustain user engagement on SmartCast and, specifically, WatchFree+. User engagement on our platform is an essential revenue driver since it directly influences our attractiveness to advertisers, the largest near-term monetization opportunity. Therefore, our ability to attract compelling content viewers want to consume on WatchFree+ is critical to our monetization. Increasing engagement on our platform can result in greater attractiveness to advertisers and other monetization opportunities. The more time consumers spend on our platform, the more data we can collect, enabling us to create a more personalized and dynamic experience for users, while also allowing us to provide more targeted reach for advertisers.

Demand for a more connected home

The proliferation of the connected home ecosystem will power the long-term growth of our business. A Smart TV centered connected home will drive user engagement and expand our monetization opportunities into new domains. In addition to boosting demand for our hardware products, a connected home will require new interactive features that we are well-positioned to help deliver, such as personal communications, commerce, gaming, fitness and wellness, and dynamic entertainment experiences. Coupled with our passion for innovation and technical expertise, we can offer differentiated experiences for consumers. As we believe our Smart TVs will evolve to have a more pivotal role in the connected home, we must continue to find ways to monetize the use cases enabled on our platform.

Other

Ability to continue to invest

The future performance of our business will be affected by our investments in both our Device and Platform+ businesses. We intend to continue to invest in the capabilities of our products and services to deliver better value for our consumers and partners and address new market opportunities.

Competition

We believe the principal competitive factors impacting the market for our devices are brand, price, features, quality, design, consumer service, time-to-market and availability. We believe that we compete favorably in these areas. The consumer electronics market in which we operate is highly competitive and includes large, well-established companies. Many of our competitors have greater financial, distribution, marketing and other resources, longer operating histories, better brand recognition and greater economies of scale.

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Our Platform+ business competes both to be the entertainment hub of consumers’ homes and to attract advertising spend. We expect advertising spend to continue to shift from linear TV to connected TV, and as such we expect new competition to continue to intensify for viewership and for advertising spend. In this respect, we compete against other television brands with Smart TV offerings, connected devices and traditional cable operators seeking to integrate streaming media into their existing offerings. We also compete with OTT streaming services, as such services are able to monetize across a variety of devices and consumers may engage with their content through devices other than our Smart TVs. We compete with these devices and services in part on the basis of user experience and content availability, including the availability of free content. In addition, we compete to attract advertising spending on the basis of the size of our audience and our ability to effectively target advertising.

Components of Our Results of Operations and Financial Condition

Net revenue

Device net revenue

We generate Device net revenue primarily through sales of our Smart TVs and sound bars to retailers, including wholesale clubs, in the United States, as well as directly to consumers through our website. We recognize Device revenue when title of the goods is transferred to retailers or distributors, or upon the date the goods are delivered to consumers from a sale through our website. Our reported revenue is net of reserves for price protection, rebates, sales returns and other retailer allowances including some cooperative advertising arrangements. The prices charged for our Smart TVs and other devices are determined through negotiation with our retailers and are fixed or determinable upon shipment.

Platform+ net revenue

We generate Platform+ net revenue through sales of advertising and related services, data licensing, sales of branded buttons on our remote controls and content distribution. Our digital ad inventory consists of inventory on WatchFree+ and our home screen along with ad inventory we obtain through agreements with content providers and other third-party application agreements. We also re-sell video inventory that we purchase from content providers and directly sell third-party inventory on a revenue share.

Cost of goods sold

Device cost of goods sold

Device cost of goods sold primarily represents the prices for finished goods that we negotiate and pay to manufacturers and logistics providers for Smart TVs and other devices. The costs for finished goods paid to manufacturers include raw materials, manufacturing, overhead and labor costs, third-party logistics costs, shipping costs, customs and duties, license fees and royalties paid to third parties, recycling fees, insurance and other costs. Device cost of goods sold will vary with volume and is based on the cost of underlying product components and negotiated prices with the manufacturers. Shipping costs fluctuate with volume as well as with the method of shipping chosen in order to meet consumer demand. Other costs of revenue include outbound freight incurred while we take title of finished goods and employ third party logistic companies to expedite delivery to retailers, as well as after sales support.

Device cost of goods sold may be partially offset by payments we receive under certain manufacturer reimbursement and incentive arrangements in accordance with product supply agreements. These arrangements can be conditioned on the purchase of devices but are typically not a part of minimum purchase commitments with manufacturers. Accordingly, we treat these arrangements and related payments as reductions to the prices we pay to manufacturers for devices.

Platform+ cost of goods sold

Platform+ cost of goods sold includes advertising inventory costs, including revenue share as well as targeting and measurement services, third-party cloud services, allocated engineering costs and other technology expenses, content or programming licensing fees, and amortization of internally developed technology.

Gross profit

Device gross profit

Our Device gross profit represents Device net revenue less Device cost of goods sold, and Device gross margin is Device gross profit expressed as a percentage of Device net revenue. Our Device gross profit may fluctuate from period to period as Device net revenue fluctuates and has been and will continue to be influenced by several factors including supplier prices, retailer margin and device mix. We expect Device gross margin to fluctuate over time based on our ability to manage pricing through our supply chain and retailer network.

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Platform+ gross profit

Our Platform+ gross profit represents Platform+ net revenue less Platform+ cost of goods sold, and Platform+ gross margin is Platform+ gross profit expressed as a percentage of Platform+ net revenue. Our Platform+ gross profit has been and will continue to be affected by costs and availability of advertising inventory, costs of data services associated with delivering advertising campaigns, costs to acquire content from content providers and the timing of our third-party cloud services and other technology expenses, and we expect our Platform+ gross margins to fluctuate from period to period depending on the factors discussed above.

Operating expenses

We classify our operating expenses into four categories:

Selling, general and administrative

Selling, general and administrative expenses consist primarily of personnel costs for employees, including salaries, bonuses, benefits and share-based compensation, as well as consulting expenses, fees for professional services, facilities and information technology. We expect selling, general and administrative expenses to increase in absolute dollars as our business grows. We have and expect to continue to incur additional expenses as a result of costs associated with being a public company, including expenses related to compliance with the rules and regulations of the SEC and the listing standards of the New York Stock Exchange, and increased expenses for insurance, investor relations, and fees for professional services. We expect selling, general and administrative expenses to fluctuate as a percentage of net revenue from period to period in the near term as we continue to invest in growing our business, but decline over the long term as we achieve greater scale over time.

Marketing

Marketing expenses consist primarily of advertising and marketing promotions of our brand and products, including media advertisement costs, merchandising and display costs, trade show and event costs, and sponsorship costs. We expect our marketing expense to increase in absolute dollars as we continue to promote our products and brand, particularly in the fourth quarter when we have historically experienced higher marketing expenses in connection with seasonally higher Device net revenue. We expect marketing expenses to fluctuate as a percentage of net revenue from period to period.

Research and development

Research and development expenses consist primarily of employee-related costs, including salaries and bonuses, share-based compensation expense, and employee benefits costs, third-party contractor costs, and related allocated overhead costs. In certain cases, costs are incurred to purchase materials and equipment for future use in research and development efforts. These costs are capitalized and expensed. We expect research and development expenses to continue to increase as we expand our Platform+ service.

Depreciation and amortization

Depreciation expenses cover declines in value of fixed assets such as buildings and equipment. Amortization expenses relate to our intangible assets.

Non-operating (expense) income

Non-operating (expense) income consists of interest income including interest earned on our financial institution deposits and interest expense on our credit facility and other income, net relating to activities not related to recurring operations.

Provision for (benefit from) income taxes

Our provision for (benefit from) income taxes consists of income taxes in the United States and related state jurisdictions in which we do business. Our effective tax rate will generally approximate the U.S. statutory income tax rate plus the apportionment of state income taxes based on the portion of taxable income allocable to each state. We regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the U.S. Internal Revenue Service and other tax authorities to determine the adequacy of our income tax reserves and expense.

Should actual events or results differ from our current expectations, charges or credits to our provision for (benefit from) income taxes may become necessary.

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Results of Operations

The following table sets forth the components of our condensed consolidated statements of operations for each of the periods presented:

	Three Months Ended March 31,
	2022		2021
	(Unaudited in millions)
Net revenue:
Device	$	382.9	$	453.5
Platform+	102.6		52.2
Total net revenue	485.5		505.7
Cost of goods sold:
Device	375.0		405.2
Platform+	37.7		13.8
Total cost of goods sold	412.7		419.0
Gross profit:
Device	7.9		48.3
Platform+	64.9		38.4
Total gross profit	72.8		86.7
Operating expenses:
Selling, general and administrative	62.4		58.1
Marketing	13.3		4.4
Research and development	9.2		9.8
Depreciation and amortization	0.8		0.6
Total operating expenses	85.7		72.9
Income (loss) from operations	(12.9)		13.8
Interest income, net	—		0.1
Other income (expense), net	—		(0.2)
Total non-operating income (expense), net	—		(0.1)
Income (loss) before income taxes	(12.9)		13.7
Provision for (benefit from) income taxes	(1.9)		10.3
Net (loss) income	$	(11.0)	$	3.4

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The following table sets forth the components of our unaudited condensed consolidated statements of operations as a percentage of net revenue:

	Three Months Ended March 31,
	2022		2021
	(Unaudited)
Net revenue:
Device	79	%	90	%
Platform+	21	%	10	%
Total net revenue	100	%	100	%
Cost of goods sold:
Device	77	%	80	%
Platform+	8	%	3	%
Total cost of goods sold	85	%	83	%
Gross profit:
Device	2	%	10	%
Platform+	13	%	8	%
Total gross profit	15	%	17	%
Operating expenses:
Selling, general and administrative	13	%	11	%
Marketing	3	%	1	%
Research and development	2	%	2	%
Depreciation and amortization	—	%	—	%
Total operating expenses	18	%	14	%
Income (loss) from operations	(3)	%	3	%
Interest income, net	—	%	—	%
Other income (expense), net	—	%	—	%
Total non-operating income (expense), net	—	%	—	%
Income (loss) before income taxes	(3)	%	3	%
Provision for (benefit from) income taxes	—	%	2	%
Net (loss) income	(2)	%	1	%

Comparison of the Three Months Ended March 31, 2022 and 2021

Net revenue

	Three Months Ended March 31,				Change
	2022		2021		$		%
	(Unaudited, in millions)
Net revenue
Device	$	382.9	$	453.5	$	(70.6)	(16)	%
Platform+	102.6		52.2		50.4		97	%
Total net revenue	$	485.5	$	505.7	$	(20.2)	(4)	%

Device

Device net revenue decreased $70.6 million, or 16% to $382.9 million for the three months ended March 31, 2022 as compared to $453.5 million for the same period in 2021. The decrease in Device net revenue was primarily due to an 8% decrease in total device units shipped and an 8% decrease in our total Device average unit price. Shipments of both Smart TVs and sound bars decreased during the three months ended March 31, 2022 as compared to the same period in 2021. The decline in average unit

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price was primarily driven by more competitive pricing for Smart TVs partially offset by higher average unit price for sound bars during the three months ended March 31, 2022 as compared to the same period in 2021.

Platform+

Platform+ net revenue increased $50.4 million, or 97%, to $102.6 million for the three months ended March 31, 2022 from $52.2 million for the same period in 2021. The increase in Platform+ net revenue was primarily due to an increase in advertising revenue of $40.7 million, or 116% from $35.2 million for the three months ended March 31, 2021 and an increase in non-advertising revenue of $9.7 million, or 57% from $17.0 million for the three months ended March 31, 2021 primarily due to higher data licensing revenue.

Cost of goods sold, gross profit and gross profit margin

	Three Months Ended March 31,						Change
	2022			2021			$		%
	(Unaudited, in millions)
Cost of goods sold
Device	$	375.0		$	405.2		$	(30.2)	(7)	%
Platform+	37.7			13.8			23.9		173	%
Total cost of goods sold	$	412.7		$	419.0		$	(6.3)	(2)	%
Gross profit
Device	$	7.9		$	48.3		$	(40.4)	(84)	%
Platform+	64.9			38.4			26.5		69	%
Total gross profit	$	72.8		$	86.7		$	(13.9)	(16)	%
Device gross margin	2.1		%	10.6		%
Platform+ gross margin	63.3		%	73.7		%
Total gross margin	15.0		%	17.1		%

Device

Device cost of goods sold decreased $30.2 million, or 7%, to $375.0 million for the three months ended March 31, 2022 from $405.2 million for the same period in 2021. Device gross margin decreased to 2.1% for the three months ended March 31, 2022, from 10.6% for the same period in 2021. Gross margins for both Smart TVs and sound bars decreased compared to the same period in 2021.

Platform+

Platform+ cost of goods sold increased $23.9 million, or 173%, to $37.7 million for the three months ended March 31, 2022 from $13.8 million for the same period in 2021. The increase in Platform+ cost of goods sold was primarily due to increases in advertising inventory costs, third-party cloud services, and engineering costs. Platform+ gross margin decreased to 63% for the three months ended March 31, 2022 from 74% for the same period in 2021.

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Operating expenses

	Three Months Ended March 31,				Change
	2022		2021		$		%
	(Unaudited, in millions)
Selling, general and administrative	$	62.4	$	58.1	$	4.3	7	%
Marketing	13.3		4.4		8.9		202	%
Research and development	9.2		9.8		(0.6)		(6)	%
Depreciation and amortization	0.8		0.6		0.2		33	%
Total operating expenses	$	85.7	$	72.9	$	12.8