For Immediate Release
Chicago, IL – May 27, 2010 – Zacks.com Analyst Blog features: TiVo Inc. (TIVO), Comcast (CMCSA), Dish Network Corp. (DISH), Best Buy (BBY) and EchoStar Communications Corp. (SATS).
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Here are highlights from Wednesday’s Analyst Blog:
TiVo Reports First Quarter Loss
TiVo Inc. (TIVO) reported a net loss of 13 cents per share for the first quarter of fiscal 2011, 3 cents above the Zacks Consensus Estimate of a loss of 16 cents per share, but down from the prior-year quarter. The company had reported a loss of 4 cents per share in the first quarter of 2010.
Although higher hardware-driven sales led to encouraging revenue growth in the quarter, growing costs and reduced subscriber additions led to lower profitability. TiVo is not immune to the current challenging economic environment, and is seeing erosion in its subscriber base. Moreover, intense competition from cable companies such as Comcast (CMCSA) and Cox Communications 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.
Results Analysis
TiVo reported a net loss of $14.2 million in the first quarter of fiscal 2011, better than its guided range of a net loss of $19.0 million to $21.0 million. However, the first quarter loss exceeded the $3.9 million net loss in the year-ago period due to higher R&D and litigation expenses.
Net revenue for the reported quarter increased 11.4% year over year to $61.4 million, compared to $55.1 million reported in the prior-year quarter. Services (the company’s largest segment) witnessed a year-over-year decline of 14.0%, offset by a 9.2% increase in Technology revenue and a 175.0% increase in Hardware revenue.
Service and Technology revenue together declined 10.9% year over year to $43.2 million, which was roughly in line with the higher end of the company’s guidance of $41.0 – $43.0 million.
Gross margin dropped to 43.5% from 45.7% in the year-ago period. Operating expenses rose 21.5% year over year, leading to a higher loss from operations. Both R&D expenses and sales and marketing expenses rose in the quarter.
Adjusted EBITDA of a negative $6.7 million was better than management’s guidance of ($9.0) million to ($11.0) million. However, this was down from a positive adjusted EDITDA of $5.3 million reported in the year-ago quarter. The decline in adjusted EBITDA was driven by higher legal expenses, increased research & development spending relating to new products and higher distribution cost. TiVo incurred higher legal expenses as part of its lawsuit against Dish Network Corp. (DISH), a recurring cost that the company expects will impact the second quarter as well.
TiVo-owned subscription gross additions for the quarter were 33,000, compared to 37,000 gross additions in the year-ago quarter. Churn increased to 2.0% in the quarter. On a net basis, TiVo-owned subscriptions decreased by 51,000 in the first quarter and the TiVo-owned subscriber base ended the quarter at approximately 1.4 million. Subscription acquisition costs rose 25.6% year over year to $167.
TiVo exited the quarter with $255.5 million in cash, cash equivalents and short-term investments. The company does not have any debt.
Other Initiatives
In the quarter, TiVo inked a deal with Best Buy (BBY) to integrate TiVo’s software and advanced television services into broadband-connected Insignia televisions. Insignia is an exclusive brand of Best Buy, providing high quality and dependable technology products at affordable rates.
TiVo also announced a deal with Technicolor, a leading provider of production, postproduction and distribution services to content creators and distributors, to develop a high-definition PVR set-top box for operators.
Guidance
The company provided conservative guidance for the second quarter of fiscal 2011. The guidance reflects increased litigation expense, higher research & development 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 $17.0 million to $19.0 million in the second quarter. Adjusted EBITDA is expected to be between ($9.0) million and ($11.0) million.
Update on EchoStar Lawsuit
Recently, a federal appeals court announced that it allowed EchoStar to appeal against the ruling of infringing TiVo’s DVR technology patents. The Federal appeals court judges granted an en banc review to EchoStar. While TiVo is confident about a favorable outcome based on the merits of the case, the delayed decision will continue to tell on results (in the form of higher litigation expenses) and at the same time defer receipt of compensation previously granted by the court.
Two months back, TiVo announced a favorable ruling for the third time in a long running patent infringement dispute (since 2004) against EchoStar Communications Corp. (SATS), the parent company of DISH.
The U.S. Court of Appeals for the Federal Circuit in the Eastern District of Texas upheld the lower court ruling in TiVo’s favor to grant the company $300 million ($100 million in damages and $200 million in contempt sanctions). To date, TiVo has been awarded approximately $400 million in sanctions.
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