Yesterday TiVo Inc. (TIVO - Analyst Report), a provider of software and technology for set-top boxes, smartphones and tablets, reported better-than-expected results for the first quarter of fiscal 2016. Both the top and bottom lines surpassed the Zacks Consensus Estimate. Shares saw a 4.1% increase in after-hours trading.

The company’s earnings of 8 cents per share beat the Zacks Consensus Estimate by a penny and also increased on a year-over-year basis. The increase was mainly due to lower share count as well as higher revenues.
 

Tivo Inc. - Earnings Surprise | FindTheCompany

Quarter Details

Not only did TiVo’s revenues increase 7.2% year over year to $114.7 million, it also surpassed the Zacks Consensus Estimate of $112 million.

The year-over-year growth was primarily driven by higher service and technology revenues (81% of revenues), which rose 7.5% to $92.4 million and came ahead of management’s guided range of $90 to $92 million. Hardware revenues (19% of revenues) also registered a year-over-year increase of 6% to $22.3 million.

Strong performance by the service and technology segments was mainly driven by growth in MSO and Digitalsmiths' service revenues coupled with higher subscriber base. During the quarter, TiVo added 285,000 subscriptions, bringing the total to 5.8 million and reflecting 27% year-over-year growth. Furthermore, revenues from multiple system operators (MSO) services increased 41% on a year-over-year basis.

Gross margin contracted 290 basis points (bps) from the year-ago quarter to 61.5%. Operating expenses decreased nearly 2% year over year to $52.5 million. The decline was primarily due to a year-over-year drop in general and administrative (down 3.5%) and research and development expenses (down 5.1%).

Moreover, as a percentage of revenues, operating expenses were down from 50% in the year-ago quarter to 45.7%. TiVo’s operating income came in at $18.1 million as against $15.4 million reported in the year-ago quarter. Operating margin expanded 140 bps to 15.8% on a year-over- year basis, primarily due to lower operating expenses as a percentage of revenues. Net income was $9.1 million compared with the year-ago quarter figure of $9.4 million.

Balance Sheet

TiVo exited the quarter with cash, cash equivalents and short-term investments of $686.3 million. The company used approximately $25.6 million of cash from operations during the three months ended Apr 30, 2015. During the quarter, TiVo repurchased 21.5 million of its common stock for $266 million.

Guidance

For the second quarter of fiscal 2016, TiVo expects Service and Technology revenues in the range of $94 million–$97 million. The company anticipates net income in the range of $7 million–$10 million and adjusted EBITDA of $29 million–$32 million.

The company expects momentum from its MSO business in the upcoming quarter. TiVo further expects lower hardware revenues in the forthcoming quarter.

Our Take

TiVo reported better-than-expected results for the first quarter of fiscal 2016. Also, year-over-year comparisons on both counts were favorable. We remain optimistic about its future prospects due to sustained focus on product innovations and subscriber acquisition. Further, higher number of distribution deals with cable companies will support TiVo’s expansion plans and strengthen its 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 - Analyst Report) and Cablevision Systems Corporation (CVC - Analyst Report) 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 Cirrus Logic Inc. (CRUS - Snapshot Report), sporting a Zacks Rank #1 (Strong Buy).