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Digital home entertainment services and solutions provider, TiVo Corporation (TIVO - Free Report) reported strong results for second-quarter 2017, wherein both the top and bottom lines came ahead of our expectations.

The company posted adjusted earnings (excluding all one-time items but including stock-based compensation) of 30 cents per share, which fared better than the Zacks Consensus Estimate of 10 cents.

On a GAAP basis, TiVo reported loss of 4 cents per share from continuing operations compared with loss of 11 cents posted in the year-ago quarter. The year-over-year improvement was mainly due to robust top-line growth resulting from the acquisition of TiVo.

TiVo Corporation Price, Consensus and EPS Surprise

 

TiVo Corporation Price, Consensus and EPS Surprise | TiVo Corporation Quote

It should be noted that TiVo Corporation was formerly known as Rovi Corporation. Upon successfully completing the acquisition of TiVo Inc. in early Sep 2016, Rovi adopted the iconic TiVo brand name.

Thus, it is the fourth quarterly result of the combined company. Let’s discuss the quarter in detail –

Quarter in Detail

TiVo’s revenues surged 66.5% year over year to $208.6 million, mainly backed by the acquisition of TiVo Inc.’s business, new licensing agreements and launch of innovative products. Notably, increasing demand for Pay-TVs prompted various Pay-TV service providers, TV manufacturers, mobile device makers and OTT companies to make licensing deals with TiVo.

The company’s revenues from the Licensing, services and software division jumped 59.8% year over year to $199 million, contributing 95% to total revenue. The Hardware division’s revenues grew to $9.6 million from a mere $0.8 million recorded in the year-ago quarter and contributed 5% to total revenue.

In terms of business segments, IP Licensing revenues rose 53.9% year over year to $104.2 million and contributed 50% to total revenue. Under the IP Licensing segment, revenues of the U.S. Pay TV Providers soared a whopping 57.8% to $68.7 million, while Other revenues jumped 46.8% year over year to $35.5 million.

Product revenues surged 81.4% to $104.4 million, contributing 50% to total revenue. Under this segment, Platform Solutions revenues increased about 126.7% year over year to $83 million, and Software and Services sales increased 1.4% to $19.8 million. Other vertical’s revenues grew 13.2% to $1.6 million.

The company’s total cost and expenses flared up 73.7% to $199.8 million from $115.1 million incurred in the year-ago quarter. TiVo’s operating income declined 14.2% year over year to $8.7 million primarily due to elevated operating expenses which more than offset the benefit from increased revenues.

TiVo’s net loss from continuing operations narrowed to $4.8 million from the year-ago quarter’s loss of $9.4 million, mainly due to higher interest income and lesser loss from interest rate swaps.

TiVo exited the quarter with cash, cash equivalents and short-term investments of $213.5 million compared with $290.9 million at the end of the previous quarter.

Outlook

TiVo updated its outlook for 2017 which is better than its earlier expectation. The company narrowed its revenue guidance range to $810–$830 million (mid-point $820 million) from $800–$835 million (mid-point $817.5 million). The updated guidance range at mid-point is higher than the previous projection, however, lower than the Zacks Consensus Estimate of $822.76 million.

The company provided adjusted EBITDA guidance for the first time and expects to come between $276 million and $290 million. Non-GAAP pre-tax income is now estimated to be in the range of $218–$232 million, up from $200–$225 million projected earlier.

GAAP operating loss is anticipated to come between $16 million and $11 million. GAAP loss before taxes projection has been revised which results an increase from the previous guidance at mid-point. The company now expects to report GAAP loss in the range of $70–$80 million (mid-point $75 million), compared with previous range of $68–$83 million (mid-point $73 million).

Our Take

We are encouraged by the company’s robust top-line growth, which was mainly driven by the inclusion of the recently merged TiVo Inc.’s business, new licensing agreements, as well as the introduction of innovative products.

Prior to the acquisition, Rovi provided a set of solutions that allowed businesses to protect, enable and distribute digital goods to consumers, helping them discover and manage digital media across multiple channels. On the other hand, TiVo Inc. pioneered a brand new category of products by developing the first commercially available digital video recorder. However, over the years, the company expanded its capabilities beyond hardware sales and patent licensing to online subscription services.

The merger has brought together two leading players in the media entertainment industry, with complementary products and services, as well as a number of patented technologies. The new TiVo Corporation is the global leader in entertainment technology and audience insights. The company has a diverse product portfolio that ranges from interactive program guide to DVR. The combined company has emerged as the world’s leading media and entertainment provider to deliver the ultimate entertainment experience.

Apart from this, the combined company has over 6,000 issued and pending patents, which offer it a competitive advantage over other media and tech giants.

Nonetheless, the actual synergies from the merger will take some time to reflect in the company’s performance and much depends on how successfully it integrates the legacy business of TiVo.

Notably, TiVo has lost 11% of its value year to date versus the 19.5% growth of its industry.

 Currently, TiVo carries a Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks in the same industry space are Facebook Inc. (FB - Free Report) , Blucora, Inc. (BCOR - Free Report) and Autohome Inc. (ATHM - Free Report) , all carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Expected long-term EPS growth rates for Facebook, Blucora and Autohome are 26.95%, 20% and 15.94%, respectively.

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