TiVo Inc
's
(
TIVO
)
fourth quarter 2012 earnings of 6 cents per share fared very well
compared with the Zacks Consensus Estimate of a loss of 25 cents as
well as the year-ago quarter loss of 30 cents. The
better-than-expected result was driven by higher revenue based on
strong subscriber growth and licensing revenue growth resulting
from the
AT&T Inc. (
T
)
settlement.
Quarter Details
Revenues increased 19.1% year over year to $66.5 million in the
fourth quarter and surpassed the Zacks Consensus Estimate of $65.0
million. Revenues for the quarter were positively impacted by
Services and technology revenue, which jumped 21% to $50.0 million
and was in line with the higher end of management's guided range of
$48 million-$50 million. Moreover, hardware revenue also jumped
13.8% year over year to $16.4 million.
Net subscription additions for the quarter were 234,000 compared
with 223,000 subscription loss in the year-ago quarter. Churn rate
was negative 1.7% in the quarter versus negative 3.0% posted
in the prior-year quarter. Subscription acquisition costs (SAC)
increased 3.1% year over year to $234.
Gross profit soared 114.1% year over year to $32.9 million and
gross margin expanded to 49.5% in the reported quarter, primarily
due to higher revenues and significantly lower technology, service
and hardware costs.
Operating expenses decreased 57.4% year over year to $21.3
million. Research & development (R&D) expense surged 28.5%
year over year, while general & administrative expense
(G&A) shot up 118% during the reported quarter. However, this
was fully offset by a 9.3% decline in sales & marketing
(S&M) expense and a 40.4% downside in sales & marketing
expense related to subscriber acquisition costs. Litigation
proceeds related to the AT&T settlement were $54.4 million.
Operating income was $11.6 million compared with a loss of $34.6
million in the year-ago quarter. Adjusted EBITDA was $21.0 million
compared favourably with a loss of $25.8 million in the year-ago
quarter. Adjusted EBITDA easily surpassed management's guided range
of ($23.0) million to ($21.0) million. TiVo reported fourth quarter
2012 net income of $7.2 million compared with a net loss of $34.4
million in the year-ago quarter.
TiVo exited the fourth quarter with cash, cash equivalents and
short-term investments of $618.8 million versus $604.3 million in
the previous quarter.
Guidance
For the first quarter of 2013, TiVo expects service and
technology revenues in the range of $53 million to $55 million.
TiVo expects net loss in the range of ($20.0) million to ($18.0)
million and an adjusted EBITDA loss in the range of ($10.0) million
to ($8.0) million.
For the first quarter, TiVo expects R&D expense to remain
flat sequentially. For the full year, R&D is expected to
decline on a year-over-year basis. TiVo expects litigation expenses
to decrease significantly for the first quarter from $12.0 million
in the fourth quarter. TiVo expects to spend much less in
litigation costs compared with fiscal 2012.
TiVo expects adjusted EBITDA to significantly benefit from
higher licensing revenue and subscriber fees. Management expects
adjusted EBITDA to breakeven for full year 2013.
Our Take
We remain optimistic about TiVo's long-term growth potential due
to new partnerships, product launches and international expansion.
We believe that TiVo will continue to witness strong subscriber
growth based on its partnerships with
Virgin Media Inc. (
VMED
),
RCN, ONO, Charter Communications, Suddenlink and DIRECTV going
forward.
TiVo is also expected to benefit from the back-to-back
settlements with
DISH Network (
DISH
)
,
EchoStar Corp.
(
SATS
) and AT&T as it will enhance the company's reputation of
aggressively defending its intellectual property.
We believe that the out-of-court settlements recognize the value
of TiVo's intellectual property and provide incentive for other
companies such as
Comcast Corp. (
CMCSA
)
to enter into commercial arrangements with TiVo. In addition to the
immediate cash payoff, the legal wins also open up major new
markets and licensing opportunities for TiVo. Moreover, the
settlements will also bring down the litigation expenses that TiVo
incurs every quarter owing to these ongoing patent disputes.
However, pending patent litigation issues, rising subscription
acquisition costs and higher R&D expenses are expected to
impact TiVo's profitability over the next few quarters. Increasing
competition from cable and satellite providers could also hurt
profitability over the long term. Thus, we have a Neutral
recommendation on TiVo over the long term (6-12 months).
We believe that TiVo remains significantly undervalued despite
its growth potential. Currently, TiVo has a Zacks #2 Rank, which
implies a Buy rating for the short term (1-3 months).
COMCAST CORP A (
CMCSA
): Free Stock Analysis Report
DISH NETWORK CP (
DISH
): Free Stock Analysis Report
ECHOSTAR CORP (
SATS
): Free Stock Analysis Report
AT&T INC (
T
): Free Stock Analysis Report
TIVO INC (
TIVO
): Free Stock Analysis Report
VIRGIN MEDIA (VMED): Free Stock Analysis Report
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