TiVo Corporation Reports Second Quarter Financial Results
Aug. 08, 2018
SAN JOSE, Calif.--(BUSINESS WIRE)--Aug 8, 2018--TiVo Corporation (NASDAQ: TIVO) today reported financial results for the second quarter ended June 30, 2018.
“We delivered a solid second quarter and we continue to stay ahead of our internal plan, including optimizing our costs. Additionally, the CEO transition has gone smoothly and we continue to make progress in our strategic review and have narrowed our focus in terms of the strategic alternatives we are evaluating,” said Raghu Rau, Interim President and Chief Executive Officer. “The company has a strong foundation to deliver profitable growth and stockholder value and we remain focused on execution and meeting our customers' needs.”
Mr. Rau added, “I am committed to remain as CEO as long as it takes to drive the strategic process to a logical, successful conclusion that maximizes stockholder value.”
UPDATE ON STRATEGIC ALTERNATIVES TO MAXIMIZE VALUE FOR SHAREHOLDERS
As announced in our Q4 2017 earnings release and its related earnings call, TiVo is exploring a range of strategic alternatives to maximize the value of the Company and best deliver value to shareholders. While this review remains in process, progress has been made and the Company’s focus has begun to narrow. An update on the process is as follows:
First, while always open to strategic acquisitions that can deliver stockholder value, TiVo does not believe, at this time, that utilizing capital for a significant acquisition would be the best way to deliver value for shareholders.
Second, the strategic review process has reaffirmed that TiVo has valuable assets and strong market positions in both the product and IP licensing businesses. TiVo remains committed to developing compelling and relevant solutions that can deliver customer value. The Company will continue to invest in offerings aligned with current and emerging market needs.
Third, the Company has learned that potential parties also recognize the strategic value of the product and IP businesses individually. It appears clear that there is a real opportunity in the marketplace for a well scaled, next generation video products business, with good growth potential that revolutionizes how we watch TV and effectively enables monetization of the experience. TiVo’s installed base of 22 million subscribers serves as a strategic asset as we bring a great brand and platform to power the next generation of entertainment experiences and advanced, targeted advertising solutions. Further, with one of the leading portfolios of intellectual property in the linear TV and OTT markets, TiVo also believes there are strategic opportunities for the IP business that will enable the business to continue growing profitably in both existing and adjacent markets.
In the meantime, TiVo continues to develop compelling and relevant solutions aligned with our current customer needs and emerging market opportunities. Additionally, in connection with TiVo’s continued focus on optimizing the business, the Company's previously identified $10 million in additional current year cost improvements are almost all implemented. The Company now expects to produce annualized savings of $25 million by the end of 2018 from these actions.
TiVo’s management and board are still conducting an in-depth review of its businesses, cost structure and strategic options to maximize shareholder value. Due to the broad range of potential outcomes, the Company is not currently providing financial estimates for fiscal 2018.
CURRENT PERIOD FINANCIAL RESULTS
Informed by the strategic alternatives review process, TiVo is providing detail on the results of operations for its two business segments - Products and Intellectual Property Licensing (“IP Licensing”) - in the body of this earnings release and in its prepared remarks on today’s earnings call.
Additionally, as discussed in detail last quarter, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which superseded the previous revenue recognition requirements on January 1, 2018 using the modified retrospective transition approach. The Company’s results for 2017 are reported under the prior standard and results for 2018 are reported under the new standard. While there is no change in either the nature of our business operations or our cash flows, revenue recognition in 2018 is considerably different than in 2017. For instance, in the second quarter of 2018, TiVo recognized approximately $14.0 million less in revenue than it would have under the previous requirements.
The $10.8 million decrease in Platform Solutions revenue was largely attributable to a $6.3 million decrease Hardware revenue due to a planned transition away from the hardware business and a $3.8 million decrease in revenue, primarily from two international MSO software customers, as a result of adopting the amended revenue recognition guidance on January 1, 2018. Hardware revenue is expected to continue to decline due to the planned transition away from the business and as MSO partners continue to shift to deploying the TiVo service on third-party hardware resulting in a decrease in the number of TiVo set-top boxes sold to MSO partners. The reduction in revenue from these two international MSO customers is expected to continue for the remainder of 2018.
The decrease in Adjusted Operating Expenses primarily relates to a $6.8 million decrease in the Cost of hardware revenues and benefits from cost savings initiatives.
The increase in Adjusted EBITDA Margin primarily relates to a shift in the Product business mix toward higher margin products as hardware becomes a smaller portion of the Product business as a result of the planned transition away from the hardware business and benefits from cost savings initiatives, partially offset by the effects of adopting the amended revenue recognition standard.
Product Segment Operating Highlights:Approximately 22 million subscriber households around the world use TiVo's advanced television experiences. TDS Telecommunications, the seventh largest local exchange telephone company in the U.S., chose TiVo’s Next-Gen Platform, to bring innovative entertainment solutions to its customers. RCN Telecom Services, Atlantic Broadband and Service Electric have begun deploying TiVo’s Next-Gen TiVo Experience 4. TiVo Experience 4 won the award for “Most Innovative Design or User Interface” at Interactive TV Today’s 15th Annual Awards for Leadership in Interactive and Multiplatform Television. K-Opticom will be the first Fiber-To-The-Home (FTTH) service provider to utilize TiVo’s G-Guide xD mobile application, available on iOS and Android, for the delivery of advanced search functions and enhanced user experiences in Japan. Launched voice integration with Amazon’s virtual assistant, Alexa, to TiVo’s retail products. Astro, the leading content and consumer company in Malaysia, selected TiVo for its video metadata enrichment services. A pan European Service Provider selected TiVo Metadata to power their new OTT video service launching in multiple European countries. CBS renewed its TiVo’s Video and Music Metadata agreement and expanded it to include Showtime properties. Sirius XM Radio deployed TiVo’s Music Metadata across its entire installed base. A well-known automotive manufacturer selected TiVo Music metadata to power the new media experience in its connected car lineup. TiVo Personalized Content Discovery Conversation solution is now available in German, Italian and Portuguese. A leading pharmaceutical company selected TiVo’s Audience Discovery (“TAD”) analytics to improve the audience reach and targeting of its advertising campaigns. Deep Root, a media analytics company, chose viewership data from TAD, to improve targeting of advertising campaigns. Influential, a social data technology company, selected TAD segments and analytics to target and measure the impact of social media advertising campaigns.
Intellectual Property Licensing revenue decreased 23% in the second quarter. The $19.5 million decline in revenue from US Pay TV Providers is primarily due to a $15.2 million decrease in revenue from TiVo Solutions agreements entered into prior to the TiVo Acquisition Date as a result of adopting the amended revenue recognition guidance on January 1, 2018 and contract expirations, and a $4.3 million decrease in revenue from catch-up payments intended to make us whole for the pre-license period of use. The decrease in revenue from CE Manufacturers was primarily attributable to a customer being out-of-license. We anticipate this customer will eventually execute a new license.
The increase in Adjusted Operating Expenses relates to a $5.6 million increase in patent litigation costs, which primarily relates to the ongoing Comcast litigation, partially offset by benefits from cost savings initiatives.
The decrease in Adjusted EBITDA Margin for the second quarter is primarily the result of a decrease in Intellectual Property Licensing revenue and a $5.6 million increase in patent litigation costs, partially offset by benefits from cost savings initiatives.
Intellectual Property Licensing Segment Operating Highlights:Altice Portugal renewed its IP license with TiVo to deliver advanced entertainment products across its brands in Portugal. Fnac Darty Group, a European retailer of entertainment and leisure products, consumer electronics and household appliances, signed a multi-year patent license agreement covering its consumer electronics brands. CBS renewed its patent license agreement. Strong International, a set-top box manufacturer in Europe, renewed its patent license agreement.
On August 7, 2018, TiVo’s Board of Directors declared a cash dividend of $0.18 per common share, to be paid on September 20, 2018 to stockholders of record as of the close of business on September 6, 2018.
CONFERENCE CALL INFORMATION
TiVo management will host a conference call today, August 8, 2018, at 2:00 p.m. PT/5:00 p.m. ET to discuss the financial and operational results. Investors and analysts interested in participating in the conference are welcome to call (866) 621-1214 (or international +1-706-643-4013) and reference conference ID 7187675. The conference call may also be accessed via live webcast in the Investor Relations section of TiVo’s website at http://www.tivo.com.
A replay of the audio webcast will be available on TiVo’s website shortly after the live call ends, and we currently plan for it to remain on TiVo’s website until the next quarterly earnings call. Additionally, a telephonic replay of the call may be accessible shortly after the live call ends through August 15, 2018 by dialing (855) 859-2056 (or international +1-404-537-3406) and entering conference ID 7187675.
NON-GAAP FINANCIAL INFORMATION
TiVo Corporation provides Non-GAAP information to assist investors in assessing its operations in the way that its management evaluates those operations. Non-GAAP Pre-Tax Income, Non-GAAP Cost of Licensing, Services and Software Revenues, Non-GAAP Cost of Hardware Revenues, Non-GAAP Research and Development Expenses, Non-GAAP Selling, General and Administrative Expenses, Non-GAAP Depreciation, Non-GAAP Total OpEx, Non-GAAP Total COGS and OpEx, Adjusted EBITDA and Non-GAAP Interest Expense are supplemental measures of the Company's performance that are not required by, and are not determined in accordance with, GAAP. Non-GAAP financial information is not a substitute for any financial measure determined in accordance with GAAP.
Non-GAAP Pre-tax Income is defined as GAAP income (loss) from continuing operations before income taxes, as adjusted for the effects of items such as amortization of intangible assets, equity-based compensation, accretion of contingent consideration, amortization or write-off of note issuance costs and discounts on convertible debt and mark-to-market adjustments for interest rate swaps; as well as items which impact comparability that are required to be recorded under GAAP, but that the Company believes are not indicative of its core operating results such as restructuring and asset impairment charges, transaction, transition and integration costs, retention earn-outs payable to former shareholders of acquired businesses, earn-out settlements, CEO transition cash costs, remeasurement of contingent consideration, TiVo acquisition litigation, expenses in connection with the extinguishment or modification of debt, gain on settlement of acquired receivable, additional depreciation resulting from facility rationalization actions, other-than temporary impairment losses on strategic investments, gains on the sale of strategic investments and changes in franchise tax reserves.
Non-GAAP Cost of Licensing, Services and Software Revenues is defined as GAAP Cost of licensing, services and software revenues, excluding depreciation and amortization of intangible assets, excluding equity-based compensation and transaction, transition and integration expenses.
Non-GAAP Cost of Hardware Revenues is defined as GAAP Cost of hardware revenues, excluding depreciation and amortization of intangible assets, excluding transition and integration expenses.
Non-GAAP Research and Development Expenses is defined as GAAP research and development expenses excluding equity-based compensation, transition and integration expenses and retention earn-outs payable to former shareholders of acquired businesses.
Non-GAAP Selling, General and Administrative Expenses is defined as GAAP selling, general and administrative expenses excluding equity-based compensation, transaction, transition and integration expenses, retention earn-outs payable to former shareholders of acquired businesses, earn-out settlements, CEO transition cash costs, remeasurement of contingent consideration, gain on settlement of acquired receivable and changes in franchise tax reserves. Included in transition costs in the second quarter of 2018 was a $4.5 million loss associated with a legacy TiVo Solutions legal matter for which a settlement was agreed to in the third quarter of 2018.
Non-GAAP Depreciation is defined as GAAP depreciation expenses excluding the impact of additional depreciation resulting from changes in the estimated useful lives of assets involved in facility rationalization actions.
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