TiVo Inc. TIVO reported fourth-quarter fiscal 2016 non-GAAP earnings of 5 cents per share against the Zacks Consensus Estimate of a loss of 6 cents per share.
On a GAAP basis, reported earnings stood at a break-even as compared with earnings per share of 7 cents reported in the year-ago quarter.
Quarter Details
TiVo’s revenues increased 7.9% year over year to $123.1 million but missed the Zacks Consensus Estimate of $125 million.
The year-over-year upside was primarily driven by higher Service and software and technology revenues (about 83% of revenues), which rose 11% to $101.7 million and was within management’s guidance range of $101–$104 million. Hardware revenues (17%), on the other hand, registered a year-over-year decline of 4.9% to $21.4 million.
The strong performance by the service and technology segments was mainly driven by growth in multiple system operators (MSO) and Digitalsmiths' service revenues coupled with a higher subscriber base. Also, the inclusion of Cubiware boosted revenues.
During the quarter, the company’s subscriptions totaled to about 7 million, reflecting 24% year-over-year growth. Furthermore, MSO subscriptions increased by 318,000 in the quarter.
The company’s non-GAAP gross profit increased 11.5% year over year to $73.8 million. Moreover, gross margin expanded 190 basis points (bps) to 59.9%. Operating expenses increased nearly 37.3% year over year to $73.7 million primarily on the back of increased sales & marketing (6.9%) as well as research & development (12.4%) expenses.
However, as a percentage of revenues, operating expenses were 59.9% as compared to 47.1% reported in the year-ago quarter. TiVo’s non-GAAP operating income came in at $54K as against $12.4 million in the year-ago quarter.
Operating margin contracted on a year-over-year basis, primarily due to higher operating expenses as a percentage of revenues.
Balance Sheet
TiVo exited the quarter with cash, cash equivalents and short-term investments of $646.1 million. In the first fourth quarters of fiscal 2016, the company generated approximately $288 million of cash from operational activities. TiVo repurchased common stock for $30.9 million during the twelve months ended Jan 31, 2016.
Guidance
For fiscal 2017, TiVo expects Service and software and Technology revenues in the range of $400–$420 million. The company expects its MSO business to gather momentum in the upcoming quarter.
Further, TiVo expects adjusted EBITDA in the range of $145 million to $155 million for fiscal 2017, the mid-point of which represents growth of 29% year over year. Net income is projected in the range of $40 million to $50 million, representing an improvement of 107% year over year at mid-point.
Our Take
TiVo reported mixed results in the fourth quarter of fiscal 2016, with its bottom line surpassing the Zacks Consensus Estimate and the top line missing the same. Year-over-year revenue comparisons were also favorable. We are optimistic about its prospects owing to its sustained focus on product innovation and subscriber addition. Further, the increased number of distribution deals with cable companies will support TiVo’s expansion plans and strengthen the 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 allow 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 #2 (Buy). Another stock in the technology space worth considering is MeetMe Inc. MEET with a Zacks Rank #1 (Strong Buy).
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