TiVo Inc. (TIVO) reported earnings (including stock bases compensation expenses) of 8 cents per share in the second quarter of fiscal 2015 and beat the Zacks Consensus Estimate by a penny.
Quarter Details
TiVo’s second-quarter revenues not only increased 11.8% year over year to $111.9 million but also came ahead of the Zacks Consensus Estimate of $106.0 million.
The strong year-over-year growth was primarily driven by higher service and technology revenues (77% of revenues), which rose 12.5% to $86.6 million and were within management’s guided range of $86.0 to $88.0 million. Hardware revenues (23% of revenues) increased 9.2% year over year to $25.2 million in the reported quarter.
Total subscriptions grew 33% year over year and now stand at approximately 4.8 million primarily aided by MSO subscription additions.
In the U.S., customers (including Atlantic Broadband, Cable One, Grande Communications, Suddenlink Communications and RCN and Midcontinent Communications) can connect to Netflix (NFLX) with TiVo set top boxes.
Gross margin expanded 770 basis points (bps) to 62.5% on a year-over-year basis. Operating expenses declined 13.7% year over year to $52.3 million primarily due to a year-over-year decrease in subscriber acquisition costs (down 39.3%), general and administrative expenses (down 32.1%) and research and development expenses (down 4.8%) which more than offset the 13.4% increase in sales and marketing expenses.
Moreover, as percentage of revenues, operating expenses were down from 60.5% to 46.8% on a year-over-year basis. TiVo’s operating income came in at $17.6 million compared to $102.4 million reported in the year-ago quarter. It is worth noting that a litigation proceed of $108.1 million had positively impacted TiVo’s operating results in the year-ago quarter. Net income came in at $9.3 million or 8 cents during the reported quarter.
TiVo exited the quarter with cash, cash equivalents and short-term investments of $782.6 million compared with $742.1 million in the previous quarter. The company provided $14.1 million cash in operations during the six months ended Jul 31, 2014. During the quarter, TiVo announced to repurchase shares worth $350 million.
Guidance
For the third quarter of fiscal 2015, TiVo expects Service and Technology revenues in the range of $86.0–$89.0 million. TiVo anticipates net income in the range of $6.0–$9.0 million and an adjusted EBITDA of $25.0–$28.0 million.
Management expects the Digitalsmiths acquisition to aid its top line while rationalization of cost structure is expected to support TiVo’s bottom line.
Our Take
TiVo reported better-than-expected second-quarter results. Revenues increased year over year, primarily driven by higher service and technology revenues and Hardware revenues. Also, TiVo continues to innovate and its strong product pipeline is a major positive, going forward.
The higher number of distribution deals with cable companies will support the company’s expansionary initiatives and strengthen its customer base, which in turn will boost revenues.
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 programs, thereby boosting near-term growth.
However, increasing competition from the likes of Dish Network (DISH) and Cablevision Systems Corporation (CVC) seems to be the primary headwind in the near term.
Currently, TiVo has a Zacks Rank #3 (Hold).
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