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Tivo Inc (NASDAQ:TIVO)
Q1 2020 Earnings Call
May 6, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Ian. I will be your conference operator today. At this time, I would like to welcome everyone to the TiVo Corporation 2020 First Quarter Results Conference Call. [Operator Instructions].

I would now like to turn the call over to Nicole Noutsios, TiVo Investor Relations.

Nicole Noutsios -- Founder

I'm Nicole Noutsios, Investor Relations at TiVo. With me today are David Shull, CEO; and Wes Gutierrez, CFO. We just distributed a press release and filed an 8-K detailing our first quarter 2020 financial results. In addition, we posted a downloadable model on our IR site showing our historical financial results and GAAP to non-GAAP reconciliations. We are simultaneously webcasting this call. After this call, a transcript of the company's prepared remarks will be available, and thereafter, you'll be able to access a recording of this call on our website at tivo.com as well.

Our discussion includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, TiVo's growth, business opportunities, operating results and strategies of each of its businesses; our future actions to achieve additional annualized cost savings and drive long-term profitable growth; demand for our product offerings and deployments and market acceptance of future offerings; future trends in viewership of entertainment content, the timing, completion, and success of the TiVo/Xperi transaction and the acceptance of the combined TiVo/Xperi offerings by the marketplace we serve.

We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from these forward-looking statements as described in our Risk Factors in our reports filed with the SEC. Any forward-looking statements made on this call reflect our analysis as of today and we have no plans or duty to update them, except as required by law.

With that, I will now turn the call over to our CEO, Dave Shull.

David Shull -- President and Chief Executive Officer

Thanks everyone for joining us today for our first quarter 2020 earnings call. We find ourselves in unchartered waters as people, a company, and a global community, everyone is having to adjust to radically different environment. With kids struggling to complete virtual schooling and many business operations being disrupted, we all are facing new challenges, including even what were once mundane tasks of purchasing groceries and supply. Most importantly, however, our dedicated essential workers are having to navigate all of this, while continuing to protect the health, safety and critical operations of our communities. The public health crisis we face is unprecedented, and our top priority remains the safety of our employees, partners, and customers. So, foremost, I hope all of you and your families are well.

Today I am able to give a big, public, and heartfelt thank you to everyone at TiVo for their dedication and hard work supporting customers and partners during these difficult times. Despite the incredible uncertainties resulting from the Coronavirus pandemic, I am pleased to report that TiVo and its employees delivered strong financial performance this past quarter. Our Q1 revenues were $160 million, consistent with our internal plans, and we exceeded expectations for adjusted EBITDA, which was $58 million in Q1, an increase of 55% year-over-year showing significant achievement with our previously stated profitability initiatives. We've made progress streamlining the business, and our non-GAAP total COGS and opex have decreased by 16% from the prior year.

From a strategic standpoint, while the Coronavirus has been disruptive on a global scale, it has validated our belief that there is a tremendous desire for the type of unified entertainment finding and watching experience provided by TiVo. The overall strategic relevance of our business model has never been greater. Many of TiVo's secular trends not only remain intact, but have accelerated.

We've continued to execute against the two key value drivers that I had highlighted in prior calls. The first is launching TiVo wholeheartedly into the streaming wars with cutting-edge streaming products that uniquely solve the emerging challenges of digital entertainment. The second is instituting a strong operating focus and excellence throughout the TiVo organization through a combination of smart investments in long-term growth, disciplined spending, cost controls, and keeping these efforts aligned with a clear strategic vision.

First, as it relates to our Product business, viewership metrics show that people are, of course, watching more content during these times. For example, starting March 23rd, the second week of shelter-in-place ordinances, we saw a 58% increase in entertainment watching across the TiVo platform. Not only was there a 600% increase in viewing a pandemic-related titles, but we also saw significant increases in cooking titles, kids programing, and news.

As people are spending more time at home, making entertainment easy to find, watch, and enjoy has never been more vital and essential. I'm proud of the TiVo team rising to support this increased volume despite all of the challenges of working from home. These viewership metrics bode well for TiVo. The pay TV operator households deploying the TiVo user experience are up from the prior year in the Americas, and we continue to transition more legacy classic guide households to TiVo Experience 4.

We are working closely with our customers to help them adapt to the new environment as well, including developing a self-install process for our cable operators so that they no longer have to go into customers' homes to set up an entertainment viewing platform. As a result, we expect our Android TV-based IPTV deployments to fuel footprint growth for 2020. We now have 11 North American operators who have entered into agreements to deploy this solution, up from nine last quarter, which includes broadband-only households. We also continue to expand internationally. In the last 90 days, TiVo has moved from the sales win stage to actual deployment of our Android TV-based IPTV platform at three major operators, Liberty Latin America, RCN, and TDS Telecom.

On the new product front, the Stream 4K products that we previewed in January at the Consumer Electronics Show to an incredibly positive reception from media and the wider industry was launched this morning on tivo.com. With an introductory price of $49.99, including a free seven-day trial of Sling TV. For new Sling TV customers, Stream 4K will provide a new way to integrate video streaming services of Netflix, Prime Video, and Google Play with live TV streaming provided by Sling TV and our own TiVo Plus content.

During the COVID-19 pandemic, viewers are struggling to find their favorite streaming shows. They are overwhelmed by an overflowing sea of streaming apps. TiVo Stream 4K integrates all of that content with recommendation and search features to make it easier to find, watch, and enjoy the best entertainment, news, and sports from today's most popular services. TiVo Stream 4K users can also access TiVo Plus, our growing video network, which delivers live streaming channels and thousands of movies and TV shows to viewers in an app-free environment, alongside the TV and subscription services they already use [Indecipherable].

This week we announced a new content deal with Pluto TV, which will add over 70 new channels to the current TiVo Plus lineup of popular channels, such as Traveler, SportsWire, Bon Appetit, Cheddar, Tastemade, USA Today, Wired, and Filmrise Movies, among others. This agreement will be a major expansion to TiVo Plus as it will be able to distribute exclusive Viacom and CBS programming, movies, news, sports, Latinx, and African American programming from Pluto TV's catalog.

Moving on to our IP licensing business. Our first quarter revenues were up 10% year-over-year. We continue to add to our OTT licensing program with a new long-term IP license with another major content provider network this quarter. We also had IP licensing success internationally in Q1 by renewing multi-year agreements with NTT Docomo, Japan's leading mobile provider, and with Funai, a world leader in the design and manufacturing of innovative consumer electronics and OEM products including TVs and Blu-Ray players. We are pleased with the progress of our IP licensing business as it continues to build and secure a strong, diverse base of customers. This progress has continued despite our ongoing dispute with Comcast.

Turning now to Comcast. I am pleased we achieved an important victory in the Federal Circuit, which in March affirmed Rovi's win against Comcast in our first International Trade Commission case. In addition, the ITC's final determination in our second ITC case in April affirmed the administrative law judge's initial determination finding that Comcast infringed on another one of Rovi's patents. Our two victories against Comcast at the ITC are significant because they reaffirmed that Comcast is subject to ITC jurisdiction and confirmed that the ITC will continue to be a venue where we can seek to protect our valuable intellectual property against Comcast's ongoing unauthorized use. We are one of the few leading technology companies that has been able to secure multiple exclusion orders and successive ITC actions over the past few years, underscoring the relevance and strength of our intellectual property.

As a result of these rulings and our other ongoing efforts to protect our valuable intellectual property, Comcast has been forced to remove important features and functionality from their X1 offering. These are features and functions that all of our other licensees, including Comcast competition, can't continue to offer to their subscribers. As we look to the future, we will continue to take the necessary steps to protect our IP against unauthorized use by Comcast.

For example, as reported last quarter, we completed the trial in the third ITC case against Comcast in January. The administrative law judge's initial determination for the third ITC case is currently due by June 29, 2020, and the Commission's final determination is due by October 29, 2020.

Before I turn things over to Wes, so he can walk through the specifics of our financial performance, I said earlier that we have been fortunate in that our business model and end markets have proven to be extremely durable, despite the overall macroeconomic conditions. The overall strategic relevance of our business remains vital as entertainment content is a critical outlet for people during this challenging time. With the frustrations of daily life, none of us want to waste time struggling to find entertainment. Whether they'd be comedies, the uplifting stories, the cautionary tales, the distractions of a good drama or reality docuseries, or the current news of our world, we believe TiVo solutions are perfectly targeted to this challenging new world.

Once again, I would especially like to thank the entire TiVo team for their dedication and support during this time. We have been laying the groundwork over the last year to streamline the business, and I'm so proud of the way this team has stepped up, regardless of the external challenges to not only maintain our strong financial results but also to remain innovative by launching new products like TiVo Stream and adapting other offerings such as our self-installed IPTV solution.

Finally, I would like to provide you with an update on TiVo's merger with Xperi. We have filed definitive proxy materials with the SEC and have mailed these materials to our stockholders for our special meeting of stockholders to vote on the Xperi transaction. The stockholder meeting, which will be held virtually, is scheduled for May 29th.

Our teams have been working diligently on integration planning, and we expect to complete the merger in the current quarter. We are genuinely excited by this transformative merger with Xperi, and we believe that challenges of our current environment have highlighted the importance of the strategic value of being able to successfully bring together the Xperi and TiVo technology, products, and teams.

With that, I'd like to turn to Wes to talk a little more about TiVo's Q1 performance.

Wes Gutierrez -- Chief Financial Officer, Chief Accounting Officer and Treasurer

Thank you, Dave. As Dave just mentioned, we had a strong quarter in a challenging macroeconomic environment. For the first quarter of 2020, revenue was in line with our internal plan, and we continued to make very strong progress with our profitability initiatives.

Turning to our first quarter results. On a consolidated basis, revenues were $159.9 million, up 1% from the first quarter of 2019. This increase was primarily due to IP licensing revenues increasing by $6.5 million, or 10% year-over-year, driven by subscriber growth and new licenses executed since the year-ago period. The increase in IP licensing revenue was partially offset by a $4.8 million decline in product revenue as a result of revenue from a perpetual legacy classic guide license agreement with an international MSO customer executed in the year ago period, which was partially offset by an increase in TV viewership data revenue.

We exited Q1 with approximately $74 million in contracted quarterly product run rate revenues, a $2 million decrease from Q4 after removing the previously disclosed $4 million perpetual license in Latin America from the Q4 calculation of contracted product run rate revenue. This decrease was primarily due to a decline in consumer subscription and metadata revenue. Contracted quarterly product run rate revenues are contracted revenues, generally long-term for our core products.

Moving on to the IP licensing business. We exited Q1 with approximately $70 million in contracted quarterly IP licensing run rate revenues, which excludes catch-up revenues intended to make us whole for the pre-license period of use. This was flat with the fourth quarter after removing the $4 million reporting adjustment we discussed on our fourth quarter earnings call.

Turning to costs. GAAP total operating costs and expenses in Q1 2020 were $317.5 million. During the quarter, the company recorded a $171.6 million non-cash goodwill impairment charge, driven by a decrease in the trading price of TiVo's common stock in the fourth. Compared to Q1 2019, we reduced research and development and selling, general and administrative costs by $17.7 million, primarily as a result of benefits from our ongoing transformation and restructuring activities.

GAAP operating loss in Q1 was $157.6 million, and our GAAP loss before income taxes was $179.6 million, both driven by the goodwill impairment charge. In terms of our Q1 non-GAAP results, non-GAAP total COGS and OpEx was $101.7 million, down $19.1 million or 16% year-over-year as a result of our focused execution on cost savings, partially offset by an increase in patent litigation costs. In the last three completed quarters, we took actions that will produce $27 million in annualized cost savings, and we anticipate taking actions in the second quarter of 2020 that will produce an additional $8 million in annualized savings.

Adjusted EBITDA in Q1 was $58.2 million, up $20.8 million or 55% year-over-year and non-GAAP pre-tax income was $38.5 million, up $13.1 million or 52% year-over-year. The improvement in adjusted EBITDA and non-GAAP pre-tax income were driven by our continued efforts to optimize the business.

For the first quarter, estimated cash taxes were $6 million. GAAP diluted weighted average shares outstanding were 127.1 million and non-GAAP diluted weighted average shares outstanding were 128.1 million. For those interested in calculating a non-GAAP EPS measure, take our non-GAAP pre-tax income, subtract our cash taxes, and divide by non-GAAP weighted average shares outstanding.

We ended the first quarter with cash and cash equivalents of $108.5 million, a decrease of $316.5 million from the end of 2019, which reflects the repayment of $295 million in convertible notes during the quarter and $20.3 million of cash used in operation. As workforces around the world shifted to working from home in mid- to late-March due to the COVID-19 pandemic, we saw certain payments that were due in March shift into April.

As Dave mentioned, in 2019 we were very focused on company execution and have carried that focus into 2020. As we mentioned today, the company's Q1 2020 revenues were consistent with our internal plan. To date, we are fortunate that the COVID-19 pandemic has not had a significant impact on the company's revenue as the substantial majority of our revenue comes from agreements with pay TV operators and others in the video delivery industry. These agreements also provide us with a good degree of visibility into our 2020 revenue expectations. However, given the pending merger with Xperi Corporation, the company is not providing its stand-alone financial outlook for the remainder of the year. We expect the combined company will issue financial expectations after the second quarter.

Thank you for your time today. While we remain committed to product innovation, we have made a lot of progress on implementing our cost savings and driving profitability in the company.

Now let me turn it back to Dave for a few final comments.

David Shull -- President and Chief Executive Officer

Thank you, Wes. Before we end the call today, I would once again like to thank our employees, customers, and partners during this time. Everyone, please stay safe and healthy.

Operator

[Operator Closing Remarks]

Questions and Answers:

Duration: 20 minutes

Call participants:

Nicole Noutsios -- Founder

David Shull -- President and Chief Executive Officer

Wes Gutierrez -- Chief Financial Officer, Chief Accounting Officer and Treasurer

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