For Immediate Release
Chicago, IL – August 27, 2010 – Zacks.com Analyst Blog features: TiVo Inc. (TIVO), EchoStar Communications Corp. (SATS), Comcast Corp. (CMCSA), Microsoft Corp. (MSFT) and Sony Corp. (SNE ).
Here are highlights from Thursday’s Analyst Blog:
TiVo Beats But Loss Widens
A leading provider of advanced television services, TiVo Inc. (TIVO) reported better-than-expected second quarter of fiscal 2011 results. A loss per share of 13 cents beat the Zacks Consensus Estimate of 15 cents, but decreased from year-ago quarter’s loss of 3 cents per share.
The year-over-year decline was mainly due to weak revenue growth, lower subscriber additions and increasing operating expenses based on higher litigation expense.
Net loss for the quarter came in at $15.3 million compared with a net loss of $2.7 million in the year-ago quarter. This was better than management’s guidance of a loss of $17.0 million to $19.0 million.
Revenue
Net revenues decreased 10.4% year over year to $51.6 million and was well below Zacks Consensus Estimate of $56.0 million. The decline was primarily to lower revenues from service and technology, partially offset by strong hardware revenues.
Service revenues decreased 14.0% year over year to $35.7 million. Technology revenues fell 12.3% year over year to $6.4 million. On a combined basis, Service and Technology revenue slashed 13.7% year over year to $42.1 million as compared with $48.8 million in the prior year quarter. Hardware revenue increased 8.0% year over year to $9.5 million.
Gross margin slightly dropped to 50.2% from 50.3% in the year-ago quarter. Operating expenses increased 29.8% year over year, leading to a higher loss from operations.
Adjusted EBITDA of a negative $6.5 million was better than management’s guidance of negative $9.0 million to $11.0 million. However, this was down from a positive adjusted EDITDA of $5.5 million reported in the year-ago quarter. The decline in adjusted EBITDA was driven by higher legal expenses, increased research & development (R&D) spending related to new products and higher distribution cost.
TiVo-owned subscription gross additions for the quarter were 32,000, compared with 31,000 gross additions in the year-ago quarter. Churn decreased to 1.9% in the quarter. On a net basis, TiVo-owned subscriptions decreased by 48,000 in the first quarter and the TiVo-owned subscriber base ended the quarter at approximately 1.4 million. Subscription acquisition costs plummeted 27.7% year over year to $119,000.
At the end of the second quarter, cash, cash equivalents and short-term investments were $242.7 million versus $255.5 million at the end of first quarter 2011. The company had no debt at quarter end.
Guidance
The company provided conservative guidance for the third quarter of fiscal 2011. The guidance reflects increased litigation expense, higher R&D costs due to increased product development and distribution efforts. TiVo anticipates service and technology revenues to be between $40.0 million and $42.0 million. Management expects a higher net loss in the range of $19.0 million to $21.0 million in the third quarter. Adjusted EBITDA is expected to be between ($11.0) million and ($13.0) million.
Other Initiatives During the quarter, TiVo inked a partnership with Suddenlink Communications, the seventh largest U.S. operator, currently with 1.3 million subscribers. Suddenlink will offer its customers TiVo Premiere DVRs. Suddenlink will also provide non-DVR set-top boxes with TiVo software to its customers.
TiVo signed a major partnership with Cox Communications in the second quarter, under which Cox will promote TiVo Premiere to its customers and integrate its on-demand service into TiVo Premiere.
TiVo also signed a deal with ONO, the largest cable operator in Spain. Under the terms of the agreement, TiVo will be the exclusive software provider for all DVR and non-DVR set-top boxes deployed by ONO.
Update on EchoStar Lawsuit
As previously granted by the Federal appeals court, the en banc process continues in the TiVo EchoStar Communications Corp. (SATS) lawsuit. Recently, EchoStar and neutral amicus have filed their briefs with the court. TiVo is scheduled to file just after Labor Day.
We believe the patent infringement case against EchoStar remains an overhang on TiVo’s results, and any negative outcome from the ongoing review may impede TiVo’s prospects considerably.
Currently, TiVo has a Zacks #4 Rank, which implies Sell rating on a short-term basis as intense competition from Comcast Corp. (CMCSA), Microsoft Corp. (MSFT) and Sony Corp. (SNE ) is posing a threat to its DVR business. As a result, TiVo has been increasing its R&D spending to stay ahead of the competition, which is hurting its profitability.
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