TiVo (TIVO) turned in Q2 revenue slightly under Wall Street estimates, but it beat estimates on earnings by a wide margin due to “better than expected hardware margins and lower than anticipated operating expenses.”
Adjusted EBITDA came in at $10.6 million, compared to guidance of $3 million to $5 millon and net income was $2.9 million compared to an expected loss of $2 million to $4 million. EPS came in at 3 cents versus an average estimate of a loss of 2 cents and revenue at $53.5 million, a bit lower than the $55.35 million consensus estimate.
But the company offered weak guidance for Q3, due to the start of mass-media marketing campaigns and the costs associated with filling retail stores with TiVo boxes for the holiday shopping season. Shares dropped 44 cents or 5.5% in after-hours trading.
In the call, CEO Tom Rogers again touted the rollout of TiVo to Comcast subscribers in New England, and said he expects the $105 million EchoStar judgement to stand and that the company is considering its options on how to use the new cash to return value to shareholders.
On Cablevision’s network DVR decision, which allows the company to potentially replace the set-top box with a virtual service hosted on their own servers, Rogers sees little if any impact on TiVo. He says most cable operators don’t have the capacity.
LIVE notes from the conference call:
5:05 pm: Call begins. Boilerplate on “forward-looking statements.”
5:07 pm: CEO Tom Rogers’ overview: “We were net income positive for the second straight quarter … we only expect our financial position to improve once we recieve our award in the EchoStar case.”
On the Comcast relationship: We are pleased with the rollout so far. Comcast is broadening the footprint in New England. Intend to introduce marketing campaign in September, when Comcast will expand to new markets.
TiVo on Cox cable systems, now in trials, is slated for launch “later this year.”
Rogers talking about the roll-out of TiVo in Australia. Says closer to resolution in EchoStar case. Hearing scheduled next week to determine if EchoStar is in contempt, and will determine what if any further damages from their infringement of TiVo’s patents.
On TiVo-owned business, attempting to build the system into a “TV dream machine.” Mentions YouTube deal, other content deals. “Net result will be millions of pieces of content available to your TV and TiVo is the only system that manages all these choices.”
Working to bundle TiVo with HD TV sales. In six Best Buy markets, TiVo is the recommended set-top to be purchased with HD TVs.
5:14 pm: Brings up the Entertainment Weekly deal. TiVo automatically records recommended shows. “Partnership allows two powerful brands to work together …” ok
Rogers on churn: the rate increased in Q2. We believe getting a handle on churn is about getting in front of the HD upgrade cycle. Timing the offer before they already purchase a generic DVR. That’s why bundling with new TV sales is an important part of strategy.
Radio ads are set to begin in certain markets. Rogers reads text of ad extolling the virtues. The service will save you on your cable bills, the ad says, due to all the free content available.
Rogers on advertising: We are no longer the distruptor in the TV advertising world. We are rolling out advertising solutions for the TV industry. TV “may face a crisis in the next few years as the problem of commercial avoidance has not been recognised.” 50 million DVRs in homes in the next three years. Situation will get more dire for TV if they don’t adapt ad solutions moulded for DVR viewing.
On the Amazon deal: viewers have the ability to pause the show and then buy whatever they’ve seen on TV without missing their programs. This will open the door to new models of product placement. TiVo advertiser roles grew 50% from last quarter.
On research and measuring business: We launched our PowerWatch ratings service. Combines second by second program data with demographics from an opt-in panel of 20k TiVo households. One important teaching: all viewers are fast-forwarding ads at high rates–not just TiVo early adopters.
The company’s financial profile continues to substantially improve. We have the basis to grow our business in all areas.
5:25 pm: Rundown of the Q2 numbers; we’ll resume coverage for the Q&A.
TiVo paid $135 for each new subscriber in the quarter, up from $116 in the previous period, but a lot lower than the $758 last year. TiVo subscribers fell to 3.6 million, down from 4.2 million last year.
Guidance: TiVo is really setting the bar low, expecting $49 to $51 million in Q3 profit and a net loss of $7 to $9 million.
Does the Comcast deployment require a truck roll (to homes)?
Rogers: the work has been put in place so the TiVo solution can work in the absence of a truck roll. They are about finishing optimising that–the performance and truck roll issues. Don’t need a truck roll “in vast majority of cases.”
Does the Cablevision network DVR infringe on TiVo patents?
Rogers: There are a lot of legal issues that need to be resolved and have not been clarified. The rules of what a network DVR can and cannot do under copyright law are not clear. We don’t see this ruling having anything to do with our cable relationships. Our deals with cable are independent of where or how the content is stored or cached.
More meaningful: our view is the cable industry doesn’t have the capacity to do a network DVR. There isn’t the bandwidth for most cable operators to accommodate at high-demand times like primetime.
Can you give some colour on your new partner take rates for Comcast, Cablevision in Mexico?
Rogers: We don’t break out numbers. But our partner MSO component is up from last year. We are not at a point where they are contributing growth. But they are up from where they were a year ago.
Where are R&D dollars going?
Rogers: R&D is something we manage closely. We have been devoting more dollars to the advertising business and audience research. Those areas have continued to grow relative to overall share.
What will you do from the Dish damages that come through the door?
Rogers: We’re considering various options. There are a number of proposals that investors have shared with us on increasing shareholder value, growing the company. It’s premature. We have not committed to a course. We had a cash-positive quarter. We have no debt. $200 million of cash resources. We have the ability to ride the developmental areas of our business.
Where do you stand on rolling out Scientific Atlanta set-top software?
Rogers: We are in the development phase. Not ready to discuss it.
Can you tell us about guidance. Why do you lowball guidance?
Rogers: We had seasonal issues in the third quarter, including loading up the retail chain, increased marketing. That will put pressure on our EBITDA. Lower technology revenues. Trying to give as realistic a look as we can. We’ve been trying to figure out how to figure out our subscriber acquisition costs … we don’t see where further efficiencies will be driven. We suggest what we put in front of you is realistic.
Are you concerned that your TV watching data doesn’t match up to other sources out there?
Rogers: We’re glad that it doesn’t match. Our data is more credible. That it disagrees gives us the ability to sell our data as a true picture of DVR viewing behaviour.
5:55 pm: call ends.
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