TiVo Q1 Earnings Beat Estimates - Analyst Blog

TiVo Inc. TIVO reported earnings of 7 cents per share in the first quarter of fiscal 2015, which beat the Zacks Consensus Estimate by a penny. Reported earnings improved from 9 cents loss reported in the year-ago quarter.

Quarter Details

TiVo's first-quarter revenues jumped 29.7% year over year to $107.1 million but marginally missed the Zacks Consensus Estimate of $108.0 million.

The strong year-over-year growth was primarily driven by higher service and technology revenues (80.0% of revenues), which rose 39.2% to $86.0 million and were within management's guided range of $85.0 to $87.0 million. Hardware revenues (20.0% of revenues) increased 1.3% year over year to $21.1 million in the reported quarter.

Total subscriptions grew 33.4% year over year and now stand at approximately $4.5 million primarily aided by MSO subscription additions.

In Europe and North America, customers can connect to Netflix NFLX with TiVo set top boxes. The company also added Moviefone, Sharp and Charter as customers.

Operating Results

Gross margin expanded 440 basis points (bps) to 64.4% on a year-over-year basis. Operating expenses declined 8.7% year over year to $53.5 million primarily due to year-over-year declines in subscriber acquisition costs (down 19%), general and administrative expenses (down 29.5%) and research and development expenses (down 0.4%) which more than offset the 21.3% increase in sales and marketing expenses.

Moreover, as percentage of revenues, operating expenses were down from 71% to 50.0% on a year-over-year basis. This resulted in the company's positive operating performance. TiVo reported operating income of $15.4 million compared to an operating loss of $9.1 million reported in the year-ago quarter. Net income was $9.4 million or 7 cents compared to a net loss of $10.3 million or 9 cents.

TiVo exited the quarter with cash, cash equivalents and short-term investments of $742.1 million compared with $1.00 billion in the previous quarter. During the quarter, the company used $23.1 million cash in operations. The company repurchased stocks worth $110.5 million during the quarter.

Guidance

For the second quarter of fiscal 2015, TiVo expects Service and Technology revenues in the range of $86.0–$88.0 million, up sequentially. TiVo anticipates net income in the range of $6.0–$9.0 million and an adjusted EBITDA of $27.0–$30.0 million.

Management expects the Digitalsmiths acquisition to aid its top line, and operating expenses to be down for the quarter.

Our Take

TiVo continues to innovate and its strong product pipeline is a major positive, going forward. The company's focus on forging deals with mid-tier operators (who will not build their own offering) is a prudent move in our view.

We believe that TiVo has significant growth opportunities in Western Europe and Latin America, given its partnerships with local providers. TiVo's strong balance sheet will also enable it to pursue strategic acquisitions and aggressive share buyback program will boost growth in the near term.

However, increasing competition from the likes of Dish Network DISH and Cablevision Systems Corp. CVC seems to be the primary headwind in the near term.

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

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