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TiVo Beats Q3 Earnings and Revenue Estimates; Guides Well

TiVo Inc.TIVO , a provider of software and technology for set-top boxes, smartphones and tablets, reported better-than-expected results for the third quarter of fiscal 2016. Moreover, both the top line and the bottom line improved year over year.

The company's non-GAAP earnings of 10 cents per share surpassed the Zacks Consensus Estimate by a couple of cents and surged 66.7% year over year from 6 cents. The increase was mainly supported by lower share count and higher revenues.

Tivo Inc. (TIVO) - Earnings Surprise | FindTheCompany

Quarter Details

TiVo's revenues increased 11.7% year over year to $132.3 million and surpassed the Zacks Consensus Estimate of $122 million.

The year-over-year growth was primarily driven by higher service and technology revenues (about 78% of revenues), which rose 16.7% to $102.8 million and came close to the higher-end of management's guidance range of $100 million to $103 million. Hardware revenues (22%), on the other hand, registered a year-over-year decline of 2.8% to $29.5 million.

Strong performance by the service and technology segments was mainly driven by growth in multiple system operators (MSO) and Digitalsmiths' service revenues coupled with higher subscriber base. Also, the inclusion of Cubiware positively impacted revenues. During the quarter, the company added 429,000 subscriptions bringing the total to about 6.5 million and reflecting 26% year-over-year growth. Furthermore, revenues from MSO services increased 60% on a year-over-year basis.

The company's non-GAAP gross profit increased 7.5% year over year to $73.9 million, however, gross margin contracted 220 basis points (bps) to 55.8%. Operating expenses increased nearly 8% year over year to $57.3 million primarily due to increase in sales & marketing (15.4%) and research & development expenses (9.7%).

However, as a percentage of revenues, operating expenses were down 160 bps from the year-ago quarter to 43.3%. TiVo's non-GAAP operating income came in at $16.6 million as against $15.6 million last year.

Operating margin contracted 70 bps to 12.5% on a year-over-year basis, as the benefit from lower operating expenses as a percentage of revenues were more than offset by reduction in gross margin. Non-GAAP net income was $9.9 million compared with the year-ago quarter figure of $7.1 million.

Balance Sheet

TiVo exited the quarter with cash, cash equivalents and short-term investments of $670.9 million. In the first three quarters of fiscal 2016, the company generated approximately $23.2 million of cash from operational activities. TiVo repurchased common stock for $30.4 million during the nine months ended Oct 31, 2015.

Guidance

For the fourth quarter, TiVo expects Service and Technology revenues in the range of $101 million-$104 million. The company expects momentum from its MSO business in the upcoming quarter. TiVo also expects lower hardware revenues.

Our Take

TiVo reported strong results for the third quarter of fiscal 2016. Year-over-year comparisons on both counts were also favorable. We remain optimistic about its prospects on the back of sustained focus on product innovation and subscriber addition. Further, higher 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 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). A better-ranked stock in the technology sector is MeetMe Inc. MEET sporting a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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