TiVo (TIVO) has issued $200 million of 2% Convertible Senior Notes which are due to mature in 2021. Interest for the Notes will be paid semi-annually. Holders of the Convertible Notes have the option to convert every $1,000 worth of Senior Notes into 56.1073 shares of the company putting the conversion price at around $17.82 per share, a 30% premium to the Sep 16, 2014 closing share price.
TiVo expects to use the net proceeds for share repurchase that will offset the dilutive effect of the conversion of the Senior Notes. Notably, in the last reported quarter (second-quarter 2015), TiVo announced a new $350 million share repurchase plan concurrent to which it is scheduled to repurchase $100 million worth of shares in fiscal 2015.
Also, a portion of the proceeds are expected to be used for general corporate purposes and fund certain convertible note hedge transactions.
Nonetheless, the current issuance of the Senior Notes will increase interest expense. The company’s interest expense and other expense for the last reported quarter was $1.96 million (2 cents per share), which remained relatively flat on a year-over-year basis.
The current issue will further leverage TiVo’s balance sheet. As such, the company had cash, cash equivalents and restricted cash of $113.6 million and Convertible Senior Notes of $172.5 million as of Jul 31, 2014. However, the company’s cash flow generating ability enables it to effectively service its long-term liabilities.
Additionally, the company reported better-than-expected second-quarter results on Aug 26. Revenues increased year over year, primarily driven by higher service and technology revenues and Hardware revenues. Moreover, 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 TiVo’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. Its 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). Investors can also consider Micron (MU) in the technology sector which has a Zacks Rank #1 (Strong Buy).
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