Back to top

Analyst Blog

TiVo Inc. (TIVO - Analyst Report) reported loss of 13 cents per share, wider than the Zacks Consensus Estimate of a loss of 12 cents. Results declined significantly from earnings of 6 cents in the year-ago quarter and were flat on a sequential basis.

Revenues

Revenues surged 33.7% from the year-ago quarter and 8.3% from the previous quarter to $88.9 million and was ahead of the Zacks Consensus Estimate of $84.0 million.

The strong growth was primarily driven by higher service and technology revenues (74% of total revenue), which jumped 31.3% year over year and 7.8% sequentially to $65.7 million and exceeded management’s guided range of $63.0 million to $65.0 million.

Moreover, hardware revenues (26.0% of total revenue) jumped 40.8% year over year and 9.8% quarter over quarter to $23.1 million in the last quarter.

Net addition to total subscriptions during the quarter was 209K, slightly lower than 234K in the year-ago quarter and 225K in the previous quarter. Churn rate per month was a negative 1.5% compared with negative 1.7% in the year-ago quarter and negative 1.4% in the previous quarter.

TiVo’s total subscriber base jumped 38.2% from the year-ago quarter and 7.1% from the previous quarter to 3.15 million. Subscription acquisition costs (“SAC”) decreased to $228.0 from $234.0 in the year-ago quarter due to lower hardware subsidy. Sequentially, SAC increased substantially from $171.0.

Margins

Gross margin expanded 460 basis points (“bps”) from the year-ago quarter and 340 bps from the previous quarter to 54.1% in the reported quarter, primarily due to higher revenue base. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) excluding litigation expenses and proceeds were $7.76 million compared with a loss of $6.7 million in the year-ago quarter and profit of $2.97 million in the previous quarter.

Operating results were primarily driven by lower research & development (“R&D) expense and general & administrative (G&A) expense. R&D declined 10.8% year over year and 5.9% sequentially to $26.6 million. G&A plunged 37.9% year over year but increased 8.9% sequentially to $23.7 million.

Operating expenses declined 17.2% year over year but increased 5.3% sequentially to $62.7 million in the last quarter. This led TiVo to report an operating loss of $14.6 million, which was significantly better than the loss of $42.8 million in the year-ago quarter and $18.0 million in the previous quarter. TiVo reported net loss of $15.8 million in the reported quarter.

Balance Sheet

TiVo exited the reported quarter with cash, cash equivalents and short-term investments of $627.2 million versus $623.6 million in the previous quarter.

Guidance

For the first quarter of 2014, TiVo expects service and technology revenues in the range of $60 million to $62 million. TiVo expects lower technology revenues in the first quarter due to delayed revenue recognition from key multiple system operator (MSO ). This will impact the first quarter negatively but is expected to benefit second quarter technology revenues significantly.

TiVo anticipates net loss in the range of ($16) million to ($19) million and an adjusted EBITDA of ($5) million to ($8) million, which includes $11 million to $12 million of litigation spend. TiVo expects to be profitable on an adjusted EBITDA basis excluding litigation spend.

For fiscal 2014, TiVo continues to anticipate that current business trends should drive adjusted EBITDA profitability, including litigation spending.

Recommendation

We believe that pending patent litigation issues with Cisco (CSCO - Analyst Report) and Motorola Mobility remains a major headwind in the near term. Moreover, increasing competition from cable and satellite providers such as Dish Network (DISH - Analyst Report) and DIRECTV (DTV - Analyst Report) could also hurt profitability going forward.

Nevertheless, we remain optimistic on TiVo’s growth potential owing to new partnerships, product launches and international expansion opportunities. Moreover, the successful monetization of patents also ensures a recurring revenue stream for the company over the long term.

Currently, TiVo has a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.