Form 8-K TIVO INC For: Nov 25
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 8-K
_______________________
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 25, 2014
_______________________
TIVO INC.
(Exact name of registrant as specified in its charter)
_______________________
Delaware������ | 000-27141����� | 77-0463167 |
(State or other jurisdiction | (Commission | (IRS Employer |
of incorporation) | File Number) | Identification No.) |
2160 Gold Street, | |
San Jose, California | 95002 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code (408)519-9100
(Former name or former address, if changed since last report.) |
_______________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
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On November 25, 2014, TiVo Inc. issued a press release announcing its financial results for the third quarter ended October 31, 2014 and a related presentation entitled Q315 Financial Highlights & Capital Deployment Update. �A copy of the press release is furnished as Exhibit 99.1 and a copy of the presentation is attached as Exhibit 99.2 to this Current Report.
This information and the information contained in the press release for TiVo Inc. (and attached reconciliations and related notes) shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report is not incorporated by reference into any filings of the Company made under the Securities Act of 1933, as amended, whether made before or after the date of this Current Report, regardless of any general incorporation language in the filing unless specifically stated so therein.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits
Exhibit Number | Description |
99.1 | Press Release of TiVo Inc. dated November 25, 2014 |
99.2 | Q315 Financial Highlights & Capital Deployment Update |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
TIVO INC.
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Date: November 25, 2014 | By: | _/s/ Naveen Chopra__________ | |
Naveen Chopra | |||
Chief Financial Officer | |||
(Principal Financial Officer) | |||
��������
EXHIBIT INDEX
Exhibit Number | Description |
99.1 | Press Release of TiVo Inc. dated November 25, 2014 |
99.2 | Q315 Financial Highlights & Capital Deployment Update |
Exhibit 99.1
Contacts: | Investor Relations | Media Relations | ||
Derrick Nueman | Joe McGurk - Sloane & Company | |||
408-519-9677 | 212-446-1874 | |||
TIVO REPORTS RESULTS FOR THE THIRD QUARTER ENDED OCTOBER 31, 2014
Total TiVo Subscriptions Jump Past 5 Million; up 32%
" | Service & Technology revenue of $88.1 million |
" | Net revenue of $118.4 million; a record for the Company |
" | Adjusted EBITDA of $27.7 million, up 16% year-over-year |
" | Net income of $6.3 million, which included $0.8 million of after-tax incremental interest expense associated with the Companys recent convertible debt offering |
" | MSO service revenue grew 37% year-over-year; on track to almost double Fiscal 2013 |
" | Added 328,000 TiVo subscriptions, bringing total subscriptions to over 5.1 million, a 32% year-over-year increase |
" | Cogeco launched a TiVo platform in Canada in a little over three months after a partnership announced |
" | TiVo-Owned gross additions were up 9% year-over-year in third quarter and net additions were positive in October |
" | Broadening TiVos retail product line, introduced TiVo� Roamio OTA as an Over-the-Air (OTA) solution and TiVo Mega for the high end home installation market |
" | Launched Amazon Instant Video, including Prime Instant Video, Vudu, and Home Shopping Network applications on our TiVo Roamio platform |
" | Repurchased $128 million or 9.9 million shares in the quarter; over $400 million worth of stock remaining to be repurchased under current authorization |
SAN JOSE, CA - November 25, 2014 -- TiVo Inc. (NASDAQ: TIVO), a leader in the advanced television entertainment market, today reported financial results for the third quarter ended October 31, 2014.
Tom Rogers, President and CEO of TiVo, said, This was a strong quarter for TiVo, highlighted by continued organic growth as well as significant progress establishing a more efficient capital structure. Adjusted EBITDA increased 16% over last year, and our growing relationships with operator partners led to the net addition of 328,000 total TiVo subscriptions, bringing total subscriptions to over 5.1 million, and 37% year-over-year growth in MSO revenue. Further, we repurchased $128 million or 9.9 million shares in the quarter and issued a new convertible debt offering with the intention to use the proceeds to repurchase the shares underlying our existing convertible security in order to reduce the dilution related to our existing convertible debt. We believe that our operational progress and our improving capital structure should translate into increased shareholder value.
For the third quarter, service and technology revenues were $88.1 million. This compared to guidance in the range of $86 million to $89 million, and $81.7 million for the same quarter last year. TiVo reported Adjusted EBITDA of $27.7 million, compared to Adjusted EBITDA guidance of $25 million to $28 million, and compared to Adjusted EBITDA of $23.8 million in the same quarter last year. Net income was $6.3 million, compared to guidance of $6 million to $9 million. Impacting net income was $ 0.8 million of incremental interest expense associated with the Companys recent convertible debt offering and a slightly higher than anticipated tax expense during the quarter. Year-ago net income was $12.5 million and included a GAAP tax benefit of $2 million versus a tax expense of $7.1 million this past quarter.
Rogers continued, The 337,000 MSO subscription additions in the quarter are on top of the approximately 624,000 we added during the first two quarters of the fiscal year. We have now reached over four million total MSO subscriptions, proof that our operator relationships are thriving. The 37% increase in MSO revenue in the third quarter sets us on a course to almost double our MSO service revenue in Fiscal 2015 compared to where we were just two years ago. We expect that this positive momentum will continue as existing relationships scale, many of which are still in the early phases of deployment, and as we anticipate forming new distribution relationships.
In terms of existing distribution relationships, this quarter we showed how quickly TiVo can be deployed to an operators customer base. In just a little more than three months after announcing our agreement, Cogeco Cable Canada began the rollout of TiVo to its customers in Canada. This is in addition to Wave and Blue Ridge which both launched TiVo during the third quarter.
In our Digitalsmiths business, we drove 21% sequential quarter-over-quarter revenue growth as we continued to roll out our industry leading video discovery platform to current operator partners. We expect this growth to continue as we drive further penetration within existing distribution partners, sign additional distribution deals in the future, both in emerging lower ARPU international markets and with consumer electronics manufacturers, and through new Digitalsmiths' products which we expect to launch over the course of the next year.
On the TiVo-Owned front, TiVo Roamio continues to receive strong critical acclaim from both consumers and industry experts. In the quarter, we delivered a 9% year-over-year increase in TiVo-Owned gross additions and were net positive in October, the first time in seven years, which we believe is an indication of the improving dynamics in our retail business. Further, our focus on addressing additional market segments such as the 15 million home Over-the-Air (OTA) market through TiVo Roamio OTA, and the high end home installation market through TiVo Mega, should help drive incremental
improvements in our TiVo-Owned business. To this point, were seeing positive initial interest for the TiVo OTA offering and are hopeful that this will meaningfully contribute to our fourth quarter gross subscription additions.
Additionally, we recently announced the new Amazon Instant Video app to give subscribers access to Amazons entire Prime Instant Video library. That was in addition to the launch of Vudu, Walmarts subscription-free, video-on-demand movie service, which is now available on TiVo devices. And we announced that TiVo subscribers can now use the Home Shopping Network: Shop by Remote application to purchase products using their TiVo remotes.
In addition to the improving trends in our operating business, were highly focused on driving value through capital allocation. In August, we announced our intention to repurchase $350 million of stock over a two and half year timeframe. Following that announcement, in September, we issued $230 million of new convertible debt, which included the use of convertible note hedge and warrant transactions. The strike price on the warrant transaction related to the notes is initially $24.00 per share, which is 75% above the closing price of TiVos stock on September 16, 2014. We intend to use these proceeds to repurchase the shares underlying our existing convertible security at prices much lower than the effective conversion premium connected with our new convertible debt issuance. Between the previously announced share repurchase plan and the new repurchases related to the convertible debt, we have committed to repurchase $550 million of stock, which equates to approximately a third of our current weighted average common diluted shares outstanding based on our current stock price. Further, we repurchased $128 million or 9.9 million shares during the quarter.
Rogers concluded, This was a solid quarter with improving financial results, strong operator growth, and continued innovation. We are pleased with where the business currently stands, and believe strongly in the prospects for growth in the coming quarters through incremental MSO distribution deals, continued improvements in our retail business supported by our best-in-class retail product offerings, and continued strategic allocations of capital to drive further meaningful value for shareholders.
Management Provides Financial Guidance
For the fourth quarter of Fiscal Year 2015, TiVo anticipates service and technology revenues in the range of $87 million to $90 million.
TiVo expects Adjusted EBITDA to be in the range of $21 million to $24 million and net income to be in the range of $2 million to $5 million.
Included in the fourth quarter financial guidance is an expected increase in TiVo-Owned acquisition/marketing expenditure compared to the third quarter, relating to the typical seasonal efforts to drive subscriptions during the holiday season. This increased expenditure is expected to yield additional gross subscription additions. Additionally, TiVo anticipates lower hardware revenue and absolute margin compared to the third quarter due to the continuing trend of MSO partners opting for the TiVo Service on third-party hardware.
Management's guidance includes Adjusted EBITDA, a non-GAAP financial measure as defined in Regulation G. TiVo has provided a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) in the attached schedules solely for the purpose of complying with Regulation G and not as an indication that EBITDA or Adjusted EBITDA is a substitute measure for net income (loss).
Conference Call and Webcast
TiVo will host a conference call and Webcast to discuss the third quarter ended October 31, 2014 financial and operating results as well as guidance outlook for the fourth quarter at 2:00 pm PT (5:00 pm ET), today, November 25, 2014. To listen to the discussion, please visit http://www.tivo.com/ir and click on the link provided for the Webcast or dial (877) 618-4505 (conference ID number is 34313303). The Webcast will be archived and available through December 10, 2014 at http://www.tivo.com/ir or by calling (404) 537-3406; and entering the conference ID number 34313303.
About TiVo Inc.
TiVo Inc. (NASDAQ: TIVO) is a global leader in next-generation television services. TiVo's innovative cloud-based Software-as-a-Service solutions enable viewers to consume content across all screens in and out-of-the home, providing an all-in-one approach for navigating the 'content chaos' by seamlessly combining live, recorded, on-demand and over-the-top television into one intuitive user interface. The TiVo experience provides TV viewers with simple universal search, discovery, viewing and recording from any device, creating the ultimate viewing experience. TiVo products and services are available at retail or through a growing number of Pay TV operators world-wide. TiVo's multiple subsidiary companies provide the broader television industry and consumer electronics manufacturers, cloud-based video discovery and recommendation options, interactive advertising solutions and audience research and measurement services. More information at: www.TiVo.com.
TiVo, the TiVo logo, WishList, Season Pass, Roamio, Media TRAnalytics and The Right Audience are trademarks or registered trademarks of TiVo Inc. or its subsidiaries. All other trademarks are the property of their respective owners.
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, TiVo's future business and growth strategies including future distribution agreements as well as revenue and subscription growth from MSO customers (both domestically and internationally), financial guidance for TiVo's fourth quarter and full fiscal year ending January 31, 2015, future growth in TiVo's overall subscription base including both TiVo-Owned and MSO subscriptions, future improvements in TiVos retail business from TiVo Roamio and TiVo Roamio OTA products, future revenues, products, and distribution deals from Digitalsmiths, and future capital allocation initiatives including the amount, timing and sufficient availability of shares in the marketplace for future share repurchases. Forward-looking statements generally can be identified by the use of forward-looking terminology such as, "believe," "expect," "may," "will," "intend," "estimate," "continue," or similar expressions or the negative of those terms or expressions. Such statements involve risks and uncertainties, which could cause actual results to vary materially from those expressed in or indicated by the forward-looking statements. Factors that may cause actual results to differ materially include delays in development, competitive service offerings and lack of market acceptance, as well as the other potential factors described under "Risk Factors" in the Company's public reports filed with the Securities and Exchange, including the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2014, our Quarterly Reports on Form 10-Q for the periods ended April 30, 2014 and July 31, 2014, and Current Reports on Form 8-K. The Company cautions you not to place undue reliance on forward-looking statements, which reflect an analysis only and speak only as of the date hereof. TiVo disclaims any obligation to update these forward-looking statements.
TIVO INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share and share amounts)
(unaudited)
� | Three Months Ended October 31, | Nine Months Ended October 31, | ||||||||||
� | 2014 | 2013 | 2014 | 2013 | ||||||||
Revenues | ||||||||||||
Service revenues | 36,705 | 33,526 | 109,509 | 102,518 | ||||||||
Technology revenues | 51,359 | 48,133 | 151,182 | 117,914 | ||||||||
Hardware revenues | 30,366 | 35,597 | 76,656 | 79,487 | ||||||||
Net revenues | 118,430 | 117,256 | 337,347 | 299,919 | ||||||||
Cost of revenues | ||||||||||||
Cost of service revenues | 14,970 | 11,233 | 42,570 | 33,446 | ||||||||
Cost of technology revenues | 6,567 | 5,612 | 16,780 | 21,190 | ||||||||
Cost of hardware revenues | 28,176 | 33,017 | 70,464 | 73,470 | ||||||||
Total cost of revenues | 49,713 | 49,862 | 129,814 | 128,106 | ||||||||
Gross margin | 68,717 | 67,394 | 207,533 | 171,813 | ||||||||
Research and development | 25,546 | 27,242 | 76,944 | 80,009 | ||||||||
Sales and marketing | 10,544 | 10,189 | 31,143 | 27,765 | ||||||||
Sales and marketing, subscription acquisition costs | 2,734 | 2,628 | 5,451 | 6,483 | ||||||||
General and administrative | 14,292 | 15,839 | 45,406 | 60,850 | ||||||||
Litigation proceeds | (108,102 | ) | ||||||||||
Total operating expenses | 53,116 | 55,898 | 158,944 | 67,005 | ||||||||
Income from operations | 15,601 | 11,496 | 48,589 | 104,808 | ||||||||
Interest income | 1,070 | 1,133 | 3,178 | 3,455 | ||||||||
Interest expense and other expense, net | (3,197 | ) | (2,165 | ) | (7,139 | ) | (6,104 | ) | ||||
Income before income taxes | 13,474 | 10,464 | 44,628 | 102,159 | ||||||||
Benefit (provision) for income taxes | (7,129 | ) | 2,023 | (20,852 | ) | 168,947 | ||||||
Net income | $ | 6,345 | $ | 12,487 | $ | 23,776 | $ | 271,106 | ||||
Net income per common share | ||||||||||||
Basic | $ | 0.06 | $ | 0.11 | $ | 0.22 | $ | 2.28 | ||||
Diluted | $ | 0.06 | $ | 0.10 | $ | 0.21 | $ | 1.98 | ||||
Income for purposes of computing net income per share: | ||||||||||||
Basic | $ | 6,345 | $ | 12,487 | $ | 23,776 | $ | 271,106 | ||||
Diluted | $ | 6,345 | $ | 13,739 | $ | 27,530 | $ | 274,863 | ||||
Weighted average common and common equivalent shares: | ||||||||||||
Basic | 107,497,734 | 116,760,061 | 110,303,789 | 118,913,986 | ||||||||
Diluted | 111,870,407 | 136,736,001 | 130,278,425 | 139,124,386 | ||||||||
TIVO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
(unaudited)
October�31, 2014 | January�31, 2014 | |||||
ASSETS | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | $ | 148,208 | $ | 253,713 | ||
Short-term investments | 707,166 | 748,759 | ||||
Accounts receivable, net of allowance for doubtful accounts of $464 and $429, respectively | 42,339 | 35,151 | ||||
Inventories | 16,878 | 22,316 | ||||
Deferred cost of technology revenues, current | 4,777 | 9,103 | ||||
Deferred tax asset, current | 122,993 | 113,621 | ||||
Prepaid expenses and other, current | 14,698 | 10,922 | ||||
Total current assets | 1,057,059 | 1,193,585 | ||||
LONG-TERM ASSETS | ||||||
Property and equipment, net of accumulated depreciation of $50,547 and $52,819, respectively | 11,116 | 10,687 | ||||
Developed technology and intangible assets, net of accumulated amortization of $29,166 and $23,059, respectively | 53,921 | 7,328 | ||||
Deferred cost of technology revenues, long-term | 16,144 | 18,108 | ||||
Deferred tax asset, long-term | 48,189 | 57,492 | ||||
Goodwill | 99,364 | 12,266 | ||||
Prepaid expenses and other, long-term | 7,837 | 2,325 | ||||
Total long-term assets | 236,571 | 108,206 | ||||
Total assets | $ | 1,293,630 | $ | 1,301,791 | ||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||
LIABILITIES | ||||||
CURRENT LIABILITIES | ||||||
Accounts payable | $ | 27,804 | $ | 22,918 | ||
Accrued liabilities | 46,935 | 50,204 | ||||
Deferred revenue, current | 173,845 | 174,739 | ||||
Total current liabilities | 248,584 | 247,861 | ||||
LONG-TERM LIABILITIES | ||||||
Deferred revenue, long-term | 282,484 | 331,534 | ||||
Convertible senior notes | 351,035 | 172,500 | ||||
Other long-term liabilities | 4,994 | 811 | ||||
Total long-term liabilities | 638,513 | 504,845 | ||||
Total liabilities | 887,097 | 752,706 | ||||
COMMITMENTS AND CONTINGENCIES | ||||||
STOCKHOLDERS EQUITY | ||||||
Preferred stock, par value $0.001: Authorized shares are 10,000,000; Issued and outstanding shares - none | ||||||
Common stock, par value $0.001: Authorized shares are 275,000,000; Issued shares are 138,010,253 and 134,588,456, respectively, and outstanding shares are 105,410,103 and 120,617,939, respectively | 138 | 134 | ||||
Treasury stock, at cost: 32,600,150 and 13,970,517 shares, respectively | (397,311 | ) | (154,071 | ) | ||
Additional paid-in capital | 1,190,483 | 1,112,957 | ||||
Accumulated deficit | (386,736 | ) | (410,512 | ) | ||
Accumulated other comprehensive income (loss) | (41 | ) | 577 | |||
Total stockholders equity | 406,533 | 549,085 | ||||
Total liabilities and stockholders equity | $ | 1,293,630 | $ | 1,301,791 | ||
TIVO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
� | Nine Months Ended October 31, | |||||
� | 2014 | 2013 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net income | $ | 23,776 | $ | 271,106 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation and amortization of property and equipment and intangibles | 10,270 | 7,778 | ||||
Stock-based compensation expense | 25,577 | 27,453 | ||||
Amortization of discounts and premiums on investments | 8,204 | 5,591 | ||||
Deferred income taxes | (2,131 | ) | (171,764 | ) | ||
Amortization of debt issuance costs and debt discount | 1,439 | 721 | ||||
Excess tax benefits from employee stock-based compensation | (12,289 | ) | (515 | ) | ||
Allowance for doubtful accounts | 183 | 199 | ||||
Changes in assets and liabilities: | ||||||
Accounts receivable | (4,128 | ) | 1,965 | |||
Inventories | 5,438 | (4,014 | ) | |||
Deferred cost of technology revenues | 5,975 | 1,499 | ||||
Prepaid expenses and other | (761 | ) | (3,049 | ) | ||
Accounts payable | 3,604 | 8,961 | ||||
Accrued liabilities | 2,994 | (2,307 | ) | |||
Deferred revenue | (50,914 | ) | 354,577 | |||
Other long-term liabilities | (239 | ) | (121 | ) | ||
Net cash provided by operating activities | $ | 16,998 | $ | 498,080 | ||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Purchases of short-term investments | (608,052 | ) | (747,404 | ) | ||
Sales or maturities of short-term investments | 639,635 | 378,095 | ||||
Acquisition of business, net of cash acquired | (128,387 | ) | ||||
Acquisition of property and equipment | (4,668 | ) | (5,406 | ) | ||
Net cash used in investing activities | $ | (101,472 | ) | $ | (374,715 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Proceeds from issuance of common stock related to exercise of common stock options | 4,886 | 6,783 | ||||
Proceeds from issuance of common stock related to employee stock purchase plan | 3,649 | 3,791 | ||||
Excess tax benefits from employee stock-based compensation | 12,289 | 515 | ||||
Proceeds from issuance of convertible senior notes, net of issuance costs | 224,537 | |||||
Proceeds from issuance of common stock warrants | 30,167 | |||||
Purchase of convertible note hedges | (54,018 | ) | ||||
Treasury stock - repurchase of stock | (242,541 | ) | (95,299 | ) | ||
Net cash used in financing activities | $ | (21,031 | ) | $ | (84,210 | ) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | $ | (105,505 | ) | $ | 39,155 | |
CASH AND CASH EQUIVALENTS: | ||||||
Balance at beginning of period | 253,713 | 157,104 | ||||
Balance at end of period | $ | 148,208 | $ | 196,259 | ||
TIVO INC. | ||||||||
OTHER DATA | ||||||||
Three Months Ended | Guidance Reconciliation | |||||||
Oct 31, | Three Months Ending | |||||||
2014 | 2013 | January 31, 2015 | ||||||
�(In thousands) | �(In millions) | |||||||
Net Income | $ | 6,345 | $ | 12,487 | $2 - $5 | |||
Add back: | ||||||||
Depreciation & amortization | 3,532 | 2,459 | $4 - $5 | |||||
Interest income & expense, other | 2,113 | 1,032 | $4 | |||||
Provision (Benefit) for income tax | 7,129 | (2,023 | ) | $2 - $3 | ||||
��EBITDA | 19,119 | 13,955 | $12 - $17 | |||||
Stock-based compensation | 8,549 | 9,843 | $8 - $9 | |||||
��Adjusted EBITDA | $ | 27,668 | $ | 23,798 | $21 - $24 | |||
Litigation expenses | 1,247 | 1,408 | $1 - $2 | |||||
Litigation proceeds (past damage awards) | ||||||||
Adjusted EBITDA excluding litigation expense and litigation proceeds (past damage awards) | $ | 28,915 | $ | 25,206 | $22 - $26 | |||
EBITDA and Adjusted EBITDA Results. TiVo's "EBITDA" means income before interest income and expense, provision for income taxes and depreciation and amortization. TiVo's "Adjusted EBITDA" is EBITDA less expense for stock-based compensation and TiVos Adjusted EBITDA excluding litigation expenses and proceeds (past damage awards) is Adjusted EBITDA less litigation related expenses and litigation proceeds attributable to past damage awards, but includes litigation proceeds recognized as technology licensing revenue. EBITDA and Adjusted EBITDA are not measures of financial performance under generally accepted accounting principles, which we refer to as GAAP. We have presented EBITDA and Adjusted EBITDA solely as supplemental disclosure because we believe they allow for a more complete analysis of our results of operations and we believe that EBITDA and Adjusted EBITDA are useful to investors because EBITDA and Adjusted EBITDA are commonly used to analyze companies on the basis of operating performance. In addition, because of the variety of equity awards used by companies, the varying methodologies for determining stock-based compensation expense, and the subjective assumptions involved in those determinations, we believe excluding stock-based compensation enhances the ability of management and investors to evaluate our operating performance over multiple periods. Management does not use EBITDA or Adjusted EBITDA as a measure of liquidity because, among other things, they do not exclude the impact of deferred revenue from IP settlements nor the impact of deferred revenues associated with the amortization of product lifetime subscriptions. We do not use stock-based compensation expense in our internal measures. A limitation associated with these non-GAAP measures is that they do not include any stock-based compensation expense related to hiring, retaining, and incentivizing the Company's workforce. EBITDA and Adjusted EBITDA are not intended to represent, and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.
� | Three Months Ended | |||
(Subscriptions and Households in thousands) | Oct�31, 2014 | Oct�31, 2013 | ||
TiVo-Owned Gross Additions: | 36 | 33 | ||
Net Additions/(Losses): | ||||
TiVo-Owned | (9 | ) | (21 | ) |
MSOs | 337 | 295 | ||
Total Net Additions/(Losses) | 328 | 274 | ||
Cumulative Subscriptions: | ||||
TiVo-Owned | 928 | 960 | ||
MSOs | 4,204 | 2,930 | ||
Total Cumulative Subscriptions | 5,132 | 3,890 | ||
Average Subscriptions: | ||||
TiVo-Owned Average Subscriptions | 930 | 974 | ||
MSO Average Subscriptions | 4,035 | 2,775 | ||
Total Average Subscriptions: | 4,965 | 3,749 | ||
Total MSO Households | 3,651 | 2,664 | ||
MSO Average Households | 3,521 | 2,535 | ||
TiVo-Owned Fully Amortized Active Product Lifetime Subscriptions | 152 | 169 | ||
% of TiVo-Owned Cumulative Subscriptions paying recurring fees | 48 | % | 51 | % |
Subscriptions and Households. Management reviews these metrics, and believes they may be useful to investors, in order to evaluate our relative position in the marketplace and to forecast future potential service revenues. Above is a table that details the change in our TiVo-Owned and MSO Subscription and MSO Household bases as of October 31, 2014 compared to October 31, 2013. The TiVo-Owned Subscription lines refer to subscriptions sold directly or indirectly by TiVo to consumers who have TiVo-enabled devices (such as a DVR or TiVo Mini) and for which TiVo incurs acquisition costs. The MSO Subscription lines refer to subscriptions sold to consumers by MSOs such as Virgin, ONO, RCN, Com Hem, and Suddenlink, among others, and for which TiVo expects to incur little or no acquisition costs. Additionally, we provide a breakdown of the average monthly subscriptions for the quarter, the total MSO households and the MSO average households for the quarter, the number of fully amortized active product lifetime subscriptions, and percent of TiVo-Owned Subscriptions for which consumers pay recurring fees as opposed to a one-time prepaid product lifetime fee.
We define a subscription as a contract referencing a TiVo-enabled device such as a DVR or TiVo Mini for which (i) a consumer has paid or committed to pay for the TiVo service and (ii) service is not canceled. Each TiVo-Owned Subscription represents a single TiVo-enabled device (as defined above) and therefore one or more TiVo-Owned subscriptions may be present in a single household. MSO Subscriptions are a count of the number of devices that connect to the TiVo service and one or more devices may be present in a single MSO Household. TiVo-Owned subscriptions currently pay for the TiVo service on a recurring payment plan (such as a monthly or annual payment plan) or on a one-time basis for the life of TiVo-enabled device (product lifetime subscriptions). Beginning in October 2014, each TiVo Mini sale includes a product lifetime subscription for that TiVo Mini device. Subscriptions do not include soft-clients (i.e. iPad application or web portal) or digital tuning adapter users. We count product lifetime subscriptions in our subscription base until both of the following conditions are met: (i) the period we use to recognize product lifetime subscription revenues ends; and (ii) the related TiVo-enabled device has not made contact to the TiVo service within the prior six month period. Product lifetime subscriptions past this period which have not called into the TiVo service for six months are not counted in this total.
We define a "household" as one or more devices associated with the same contract or customer number. We currently do not report TiVo-Owned households as we currently receive incremental revenue for each new TiVo-Owned Subscription in the TiVo-Owned business whereas, in some cases, our MSO customers pay us on a per household basis.
We calculate average subscriptions for the period by adding the average subscriptions for each month and dividing by the number of months in the period. We calculate the average subscriptions for each month by adding the beginning and ending subscriptions for the month and dividing by two. We calculate Average MSO Households for the period by adding the average households for each month and dividing by the number of months in the period. We calculate the average households for each month by adding the beginning and ending households for the month and dividing by two. We are not aware of any uniform standards for defining subscriptions or households and caution that our presentation may not be consistent with that of other companies. Additionally, the subscription fees
that our MSOs pay us are typically based upon a specific contractual definition of a subscriber, subscription, household or a TiVo-enabled device which may not be consistent with how we define a subscription or household for our reporting purposes nor be representative of how such subscription fees are calculated and paid to us by our MSOs. Our MSO Subscription and MSO Household data is dependent in part on reporting from our third-party MSO partners.
TIVO INC. | ||||
OTHER DATA - KEY BUSINESS METRICS | ||||
Three Months Ended October 31, | ||||
TiVo-Owned Churn Rate | 2014 | 2013 | ||
(In thousands, except churn rate per month) | ||||
Average TiVo-Owned subscriptions | 930 | 974 | ||
TiVo-Owned subscription cancellations | (45 | ) | (54 | ) |
TiVo-Owned Churn Rate per month | (1.6 | )% | (1.8 | )% |
TiVo-Owned Churn Rate per Month. Management reviews this metric, and believes it may be useful to investors, in order to evaluate our ability to retain existing TiVo-Owned Subscriptions (including both monthly and product lifetime subscriptions) by providing services that are competitive in the market. Management believes factors such as service enhancements, service commitments, higher customer satisfaction, and improved customer support may improve this metric. Conversely, management believes factors such as increased competition, lack of competitive service features such as high definition television recording capabilities in our older model DVRs or access to certain digital television channels or MSO Video On Demand services, as well as increased price sensitivity, CableCARDTM installation issues, and CableCARDTM technology limitations, may cause our TiVo-Owned Churn Rate per month to increase.
We define the TiVo-Owned Churn Rate per month as the total TiVo-Owned Subscription cancellations in the period divided by the Average TiVo-Owned Subscriptions for the period (including both monthly and product lifetime subscriptions), which then is divided by the number of months in the period. We calculate Average TiVo-Owned Subscriptions for the period by adding the average TiVo-Owned Subscriptions for each month and dividing by the number of months in the period. We calculate the average TiVo-Owned Subscriptions for each month by adding the beginning and ending subscriptions for the month and dividing by two. We are not aware of any uniform standards for calculating churn and caution that our presentation may not be consistent with that of other companies.
Three Months Ended Oct 31, | Twelve Months Ended Oct 31, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Subscription Acquisition Costs | (In thousands, except SAC) | |||||||||||
Sales and marketing, subscription acquisition costs | $ | 2,734 | $ | 2,628 | $ | 11,489 | $ | 9,954 | ||||
Hardware revenues | (30,366 | ) | (35,597 | ) | (98,957 | ) | (102,616 | ) | ||||
Less: MSOs'-related hardware revenues | 23,997 | 25,759 | 72,761 | 78,698 | ||||||||
Cost of hardware revenues | 28,176 | 33,017 | 93,627 | 95,317 | ||||||||
Less: MSOs'-related cost of hardware revenues | (18,973 | ) | (20,530 | ) | (55,389 | ) | (58,029 | ) | ||||
Total Acquisition Costs | 5,568 | 5,277 | 23,531 | 23,324 | ||||||||
TiVo-Owned Subscription Gross Additions | 36 | 33 | 144 | 112 | ||||||||
Subscription Acquisition Costs (SAC) | $ | 155 | $ | 160 | $ | 163 | $ | 208 | ||||
Subscription Acquisition Cost or SAC. Management reviews this metric, and believes it may be useful to investors, in order to evaluate trends in the efficiency of our marketing programs and subscription acquisition strategies. We define SAC as our total TiVo-Owned acquisition costs for a given period divided by TiVo-Owned Subscription gross additions for the same period. We define total acquisition costs as sales and marketing, subscription acquisition costs less net TiVo-Owned related hardware revenues (defined as TiVo-Owned related gross hardware revenues less rebates, revenue share and market development funds paid to retailers) plus TiVo-Owned related cost of hardware revenues. The sales and marketing, subscription acquisition costs line item includes advertising expenses and promotion-related expenses directly related to subscription acquisition activities,
but does not include expenses related to advertising sales. We do not include third-parties subscription gross additions, such as MSOs' gross additions with TiVo subscriptions, in our calculation of SAC because we typically incur limited or no acquisition costs for these new subscriptions, and so we also do not include MSOs sales and marketing, subscription acquisition costs, hardware revenues, or cost of hardware revenues in our calculation of TiVo-Owned SAC. We are not aware of any uniform standards for calculating total acquisition costs or SAC and caution that our presentation may not be consistent with that of other companies.
TiVo-Owned Average Revenue Per Subscription or ARPU. Management reviews this metric, and believes it may be useful to investors in order to evaluate the potential of our subscription base to generate revenues. Investors should not use ARPU as a substitute for measures of financial performance calculated in accordance with GAAP. Management believes it is useful to consider this metric excluding the costs associated with rebates, revenue share, and other payments to channel because of the discretionary and varying nature of these expenses and because management believes these expenses, which are included in hardware revenues, net, are more appropriately monitored as part of SAC. We are not aware of any uniform standards for calculating ARPU and caution that our presentation may not be consistent with that of other companies.
We calculate TiVo-Owned service revenues by subtracting MSOs'-related service revenues and Media services and other service revenues (includes Advertising, Research, and Digitalsmiths revenues), from our total reported net Service revenues. The table below provides a more detailed breakdown of our Service revenues, and reconciles to our total Service revenues in our Statement of Operations as reported (or previously reported):
Three Months Ended | ||||
Service Revenues | Oct 31, 2014 | Oct 31, 2013 | ||
(In thousands) | ||||
TiVo-Owned-related service revenues | $21,810 | $23,462 | ||
MSOs'-related service revenues | 10,563 | 7,734 | ||
Media services and other service revenues | 4,332 | 2,330 | ||
Total Service Revenues | $36,705 | $33,526 | ||
We calculate ARPU per month for TiVo-Owned Subscriptions by taking total reported net TiVo-Owned service revenues and dividing the result by the number of months in the period. We then divide the resulting average service revenue by Average TiVo-Owned Subscriptions for the period, calculated as described above for churn rate. The following table shows this calculation:
� | Three Months Ended | |||||
TiVo-Owned Average Revenue per Subscription | Oct 31, 2014 | Oct 31, 2013 | ||||
� | (In thousands, except ARPU) | |||||
TiVo-Owned-related service revenues | 21,810 | 23,462 | ||||
Average TiVo-Owned revenues per month | 7,270 | 7,821 | ||||
Average TiVo-Owned subscriptions per month | 930 | 974 | ||||
TiVo-Owned ARPU per month | $ | 7.82 | $ | 8.03 | ||
Technology Revenues. Revenue and cash from the contractual minimums (i.e. the following amounts do not include any additional revenues from our AT&T agreement) under our licensing agreements with EchoStar, AT&T, Verizon, and Cisco and Google/Motorola Mobility through October 31, 2014 have been:
Technology Revenues | Cash Receipts | |||||
Fiscal Year Ended January 31, | (In thousands) | |||||
2012 | $ | 35,275 | $ | 117,679 | ||
2013 | 76,841 | 86,356 | ||||
2014 | 136,532 | 464,725 | ||||
Nine month period from February 1, 2014 to October 31, 2014 | 127,109 | 71,017 | ||||
Total | $ | 375,757 | $ | 739,777 | ||
Based on current GAAP, revenue and cash from the contractual minimums under all our licensing agreements with EchoStar, AT&T, Verizon, and Cisco and Motorola is expected to be recognized (revenues) and received (cash) for the remainder of the fiscal year 2015 and on an annual basis for the fiscal years thereafter as follows:
Technology Revenues | Cash Receipts | |||||
(In thousands) | ||||||
Three month period from November 1, 2014 to January 31, 2015 | $ | 42,532 | $ | 12,562 | ||
Fiscal Year Ending January 31, | ||||||
2016 | 171,563 | 83,579 | ||||
2017 | 173,129 | 83,579 | ||||
2018 | 174,411 | 83,579 | ||||
2019 | 88,629 | 31,139 | ||||
2020 - 2024 | 8,193 | |||||
Total | $ | 658,457 | $ | 294,438 | ||
Q315 Financial Highlights & Capital Deployment Update Exhibit 99.2
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2 TiVo Inc. - Q315 Investor Call - November 25, 2014 Disclaimer Caution Regarding Forward Looking Statements. This presentation contains forward looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on current expectations and assumptions that are subject to risks and uncertainties and actual results could materially differ. These statements relate to, among other things, TiVo's future business and growth strategies, including future distribution agreements and revenue and subscription growth from MSO customers (both domestically and internationally), future growth in TiVos overall subscription base, future service, technology and audience research revenues, future growth in TiVos Adjusted EBITDA, future products and features, future value in TiVos intellectual property portfolio, and future changes in TiVos operating expenses. Forward-looking statements generally can be identified by the use of forward-looking terminology such as, "believe," "expect," "may," "will," "intend," "estimate," "continue" or similar expressions or the negative of those terms or expressions. Such statements involve risks and uncertainties, which could cause actual results to vary materially from those expressed in or indicated by the forward-looking statements. Factors that may cause actual results to differ materially include delays in development, the growth of competing service offerings and lack of market acceptance, as well as the other potential factors described under "Risk Factors in TiVos public reports filed with the Securities and Exchange Commission, including TiVos Annual Report on Form 10-K for the fiscal year ended January 31, 2014; Quarterly Reports on Form 10-Q for the quarterly periods ended April 30, 2014 and July 31, 2014 and Current Reports on Form 8-K. TiVo cautions you not to place undue reliance on forward-looking statements, which reflect an analysis only and speak only as of the date hereof. TiVo disclaims any obligation to update these forward-looking statements. Non-GAAP Measures. This presentation also references non-GAAP financial measures. Additional information on these non-GAAP financial measures can be accessed through TiVos Investor Relations website at www.tivo.com/ir. For a reconciliation of these non-GAAP financial measures to the most comparable GAAP equivalent, please see Appendix. Industry Information. Information regarding market and industry statistics contained in this presentation is based on information available to us that we believe is accurate. It is generally based on publications that are not produced for purposes of economic analysis.
�
3 TiVo Inc. - Q315 Investor Call - November 25, 2014 Significant revenue and subscription growth � YoY sub growth +32% � S&T revenues growing +8% Continued Year-over-Year Growth 1.5 2.5 3.5 4.5 5.5 Q 3 1 0 Q 3 1 1 Q 3 1 2 Q 3 1 3 Q 3 1 4 Q 3 1 5 Total Subs (MM) $30 $50 $70 $90 Q 3 1 0 Q 3 1 1 Q 3 1 2 Q 3 1 3 Q 3 1 4 Q 3 1 5 Service and Technology Revenue (MM)
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4 TiVo Inc. - Q315 Investor Call - November 25, 2014 $0 $2 $4 $6 $8 $10 $12 Q310 Q311 Q312 Q313 Q314 Q315 MSO Service Revenue (MM) 0 1 2 3 4 5 Q310 Q311 Q312 Q313 Q314 Q315 Total MSO Subs (MM) � MSO Service revenue growth +37% YoY � Doesnt yet include ComHem and ONO service revenue � ONO expected to help drive 20% plus growth in MSO service revenue next quarter � MSO subscription growth +43% YoY � Driven by Virgin Media, ONO, RCN, Suddenlink, and US Tier 2 operators � US sub adds represented about 35% of MSO net adds in the quarter Key Driver: MSO Subscription Growth
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5 TiVo Inc. - Q315 Investor Call - November 25, 2014 ($10) ($5) $0 $5 $10 $15 $20 $25 $30 Q310 Q311 Q312 Q313 Q314 Q315 Adjusted EBITDA excl. litigation expenses and proceeds (past damage awards) (MM)(1)(2) (15%) (10%) (5%) 0% 5% 10% 15% 20% 25% Q310 Q311 Q312 Q313 Q314 Q315 Adjusted EBITDA excl. litigation expenses and proceeds (past damage awards) margin (%)(1)(2) Profitability Improvement 1. Adjusted EBITDA excl. litigation expenses and proceeds (past damage awards) means income before interest income and expense, provision for income taxes and depreciation, amortization and stock-based compensation and excludes litigation expenses and proceeds from past damage awards, but includes litigation proceeds recognized as technology licensing revenues. 2. For a reconciliation of non-GAAP measures to GAAP measures, please see the Appendix of this presentation.
�
6 TiVo Inc. - Q315 Investor Call - November 25, 2014 $350 million repurchase program over next 2.5 years (~20% of fully diluted shares outstanding)* Repurchases using proceeds of new convertible note to offset expected conversion of shares underlying the March 2016 convert - 9.6 million shares underlying new convert will effectively offset the expected conversion of the15.5 million shares underlying the old convert. Combination of repurchase program and convert repurchases will yield up to $550M in share repurchases which began in September 2014 Still leaves TiVo in strong cash position for potential M&A, further internal investment and/or additional capital returns in the future Capital Deployment Highlights *Used stock price of $13.00 to calculate potential share reduction; which equates to 26.9 million shares based on Q215 average weighted diluted shares of 129.1 million
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7 TiVo Inc. - Q315 Investor Call - November 25, 2014 Details of new convertible debt offering: - Deal Size: $230 million - Conversion price: Up 30% @ $17.82 - Strike price on warrant transaction related to notes: Up 75% @ $24 - Coupon: 2% - Term: 7 years Impact on Financials: - Increased annual GAAP interest expense of $11.6 million and cash interest expense of $4.6 million - No impact of diluted shares outstanding until stock reaches $24 (non-GAAP) Call Spread Overlay - Upfront cost of ~$24 million (net of cost of hedge offset by warrant transaction) - Most of the expense expected to be recouped over term of the debt due to tax benefit associated with the hedge transaction Convertible Debt Impact on Financials:
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8 TiVo Inc. - Q315 Investor Call - November 25, 2014 100 105 110 115 120 125 $0 $20 $40 $60 $80 $100 $120 $140 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 Increasing Share Repurchases ($MM) vs. Declining Basic Shares Outstanding (M) Significant Capital Returns � $343M of open market repurchases over past 10 quarters � $228M repurchased YTD � $100M in 1H15 � $42M in conjunction with convertible debt offering � $86M in Q3 through 10B5-1 plan � $422M remaining under new authorization
�
9 TiVo Inc. - Q315 Investor Call - November 25, 2014 Significant potential for share count reduction Notes: � Does not include future vesting of stock options, restricted shares & ESPP � Above $24 share price, 9.6M shares from new convertible would be added to share count using treasury stock method (Non-GAAP) � Q215 diluted shares outstanding include ~15.4M shares that underlie the March 2016 convertible notes � Does not reflect possible non-routine equity issuance � Reduced diluted shares outstanding by ~6% from Q213 to Q215 Pro-Forma Impact of Planned Repurchases (Based on $13 Stock Price) Combination of $350mm repurchase plan and convert-funded buyback yields up to ~$550 million of share repurchases and could reduce diluted share count by approximately 33% (based on current share price and count) by end of FY17. Q2'15 Diluted Sharecount 129,100,175 $350M Repurchase Plan (26,923,077) Convert Funded Repurchases (15,384,615) Reduction in Shares (42,307,692) Pecentage Reduction 33%
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Appendix
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11 TiVo Inc. - Q315 Investor Call - November 25, 2014 GAAP to Non-GAAP Reconciliations FY2010 FY2011 FY2012 FY2013 FY2014 Q3 Q3 Q3 Q3 Q3 Q3 Net Income ($6.4) ($20.6) ($24.5) $59.0 $12.5 $6.3 Add back: Depreciation and Amortization 2.2 2.3 2.2 2.5 2.5 3.5 Interest income & expense, other (0.3) (0.3) 1.3 0.6 1.0 2.1 Benefit (Provision) for income tax (0.0) 0.0 (0.3) 0.8 (2.0) 7.1 EBITDA ($4.5) ($18.7) ($21.3) $62.9 $14.0 $19.1 Stock-based compensation 6.1 6.4 7.4 9.0 9.8 8.5 Adjusted EBITDA $1.6 ($12.2) ($13.9) $71.9 $23.8 $27.7 Litigation expenses 2.1 6.0 8.2 9.5 1.4 1.2 Litigation proceeds (past damage awards) 0.0 0.0 0.0 (78.4) 0.0 0.0 Adjusted EBITDA ex. litigation expenses $3.8 ($6.3) ($5.7) $3.0 $25.2 $28.9 and proceeds (past damage awards) Margin % 6.6% (12.3%) (8.8%) 3.6% 21.5% 24.4% FY2015
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