Q4 2019 Earnings Call
Good afternoon My name is just.
Conference operator today.
As Tom.
The Tivo Corporation fourth quarter in fiscal year 2019 results conference call all once in place.
Any background noise.
Turn the call over to Nicole.
Investor Relations.
I'm not going it's yes, investor relations at Ti Vo with me today, our game show CEO and what did Terrell CFO.
Just distributed a press release filed an 8-K detailing our fourth quarter full year 2019 financial result.
In addition, we posted a downloadable model and our IR site, showing our historical financial results GAAP to non-GAAP reconciliation.
Simultaneously webcasting this call.
After this call a transcript of the company's prepared remark will be available and thereafter, you'll be able to access the recording of this call on our website at <unk> dot 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 he does future product business.
Operating result, its strategy to drive long term profitable growth.
Future actions to achieve additional annualized cost savings.
Our future product offering and deployment and market acceptance of these offering.
The beat your growth business opportunities and operating results at each of the product in IP businesses.
The timing and completion of that Tivo X breed combination.
The achievement of anticipated cost and revenue synergies from the Ti Vo expert combination growth of the combined business.
The success of the combined she about expiry offering by the market places we serve.
The timing completion and expects that the planned future separation of the combined companies product and IP businesses.
And the realization of stock holder value, resulting from these transactions.
We caution you not to put undue reliance on these forward looking statement. 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 FTC.
Any forward looking statements made on this call responder analysis as of today, we have no plans or duty to update them, except as required by law.
Got it will now turn the call over to our CEO, Dave Shull.
Thank you for joining us for our fourth quarter 2019 earnings call. When I joined people just eight months ago I had a clear vision of how we would succeed as a business and involve two key ideas.
The first with genuinely understanding how people are going to consume entertainment content over the next five to 10 years.
Entertainment content options are simultaneously expanding and fragment team for everyone.
This expansion and fragmentation is accelerating and the lines and now completely blurred between those who produce content and those who distribute it.
To date, Netflix is making movies and Disney is a streaming service.
Further it seems that every day, there's a new participant using new channels and programming in the rushed to deliver digital content to whoever wants to.
Because of this what was once a positive endless options for content across many devices has become a growing challenge for people in terms of the ease with which they can find watch and enjoy entertainment content.
Why is that there's no Moore's law for consumer attention, everyone has only 24 hours in a day attention to content and the time any one person can devote would have limits on how they scale.
But I knew Tivo had a unique advantage here.
Rather than trying to optimize the consumer for the entertainment market, we're trying to optimize the market for the consumer.
We put the consumers and their experience at the center of what we do our products and technologies do that in a way that is unique and I'll talk about that a little more in a moment.
The second key idea that would drive our success operational excellence, we needed to make key decisions some of them very hard and make them far more quickly we've talked a lot in the past few quarters about steps I have taken to collapse legacy business groups and to focus on significant growth initiatives over those that looked.
Promising, but distract us from the reality and the opportunities represented by the streaming wars.
This not only allowed the company to rally around the recent announcement of the Tivo stream for K product, but also enabled substantial cost reductions.
As we will discuss shortly our financial results are beginning to show the clear benefits of this much more precise operating focus.
However, operational excellence also applies to bringing the successful conclusion to our strategic process.
When I joined the board had determined to pursue the strategy of splitting the company separating is products business from the IP licensing business.
The team had begun that process, but there was a tremendous amount of work required to make it a reality.
We had refinanced our debt.
I find many key members of the separate management teams completed most of the legal and financial work required and we're on a path to separate the businesses as of April 2020.
At the same time as we have stated in prior quarters, we were continuing to evaluate various strategic options for each business.
As you all know from our December announcement, we found such an option than the merger with experience, which we believe represents an excellent strategic fit between complementary businesses a complementary vision for the future for the marketplaces, we serve.
And importantly, a chance for us to go to market with broader reach in terms of technologies product sets and customer bases.
Both companies saw the same broad trends and opportunities ahead, and believe that combining our respective crowded in IP business to operate a separate business units.
The sent a stronger operating and competitive position.
I know that you all appreciate that because we are in the midst of this process, we won't be holding the queuing. They session today, but John Kirschner will be on the Experie call and he is happy to answer questions about the pending merger.
For detailed information about the transaction the financial models.
And any other questions you should either referred to the presentation. We made during the original announcement or we view our form S. Four which was filed with the Securities Exchange Commission earlier today.
However, what I will address here's the question we've been asked in various forms since the announcement of the Expiries transaction, which is how well the combined company work together and how will it grow.
When put together are probably businesses will benefit from new sales channels and customer relationships.
People's Entertainment discovery products for the streaming wars inexperienced high quality IMAX enhanced and Dts exit video and audio products provide free unique and compelling products said for both our cable partners and for consumers.
Of course, we also each have multiple IP portfolios, which we believe will enable us to diversify revenue opportunities for the IP licensing business. We believed that the combination brings critical Brett.
And reach for both the products and IP licensing businesses and will enable expansion of the market opportunities for the business at this important juncture in the rapidly evolving world of entertainment content.
From a financial standpoint, if you look at the numbers presented in the form S. Four we filed today, we believed that the combined company top line before we factor in any long term revenue synergies will be greater the 1 billion.
And that combined adjusted EBITDA is well in excess of $400 million.
In addition, we expect to preserve the tax benefit from the in a wells currently on our balance sheet.
In the longer term, we're confident that as our combined product in IP companies pursue their own past. The success there will be on a stronger position to compete in their respective markets.
As mentioned above we've already done a significant amount of work to prepare our two businesses to operate independently.
Overall, it's clear to us to the combination with experience presents a unique strategic fit for both the product and I P side of our respective businesses.
A set of complementary products and technologies as it relates to delivering the best possible entertainment experience to the consumer and broader and deeper portfolios of intellectual property.
As Tivo stands today I'm proud of the company our people and everything we've done to get here and I'm, even more excited about what the future holds for us as the larger and more diverse participant in a market that is transforming everyday.
Now, let me pick it back to a discussion of People's It performance this past quarter and highlight the benefits of both our operational excellence and our new focus on the streaming wars.
Our financial performance was strong.
For 2019, we announced revenue of $668 million above the top end of our guidance of $665 million. We also made progress with our profitability and as a reflection of our cost reduction efforts adjusted EBITDA for 2019 was $211 million.
And our Q4 adjusted EBITDA was 61 million an increase of 45% from Q4 of 2018 as we drill operational efficiencies throughout the organization.
Wes will cover this later on the call, but in the past six months, we took actions that will produce $20 million in annualized cost savings and then the first half a 2020, we anticipate taken actions old produced an additional $16 million in annualized savings.
We are continuing to drive operating efficiencies, even as we drive into new growth products.
Wes will highlight later on the call the impact of these cost savings on our guidance for 2020 ended in our upcoming proxy will provide more details on what underlies our standalone revenue and adjusted EBITDA for 2020.
On the product side of the business our strategy of providing products and technologies that allows consumers to do simply what they want discover and watch entertainment content anywhere anyway has taken a huge step forward.
In January or the consumer electronics show, we announced the upcoming release of our new product Tivo stream for K, a streaming solution with the launch price of 40 999 that allows consumers to discover and watched what they want from a single platform without having to stumble from app to app to App.
The press response was phenomenal would the device recognized for best of CES consideration from six publications, including the Wall Street Journal in Gadget in cord cutters news and just a couple of days during CES. The stream for can't announcement generated more than 75 positive articles in Tech business, Inc.
Consumer outlets reinforcing just how hungry the market is what precisely this kinda platform.
Forbes magazine wrote a stream for Kate it just might be the last streaming device you ever need to purchase.
We also announced the C. S that the company has secured a collection of new content partners Ford's video network T. Rowe plus.
An additional 23, new channels will join the current lineup of 26 free streaming channels currently available, bringing the total to 49.
Available exclusively to Tivo customers Tivo, plus delivers free live streaming channels and thousands of movies and TV shows to viewers in an app free environment.
Further tivo launched Amazon's Prime video App to as pay TV operator customers nationwide.
No millions of households can access Amazon originals hit TV shows and popular movies via the Prime video App on the Tivo platform.
The unique foundation for the Tivo stream for key product is our search and discovery technology.
We continue to win big operator customers as further endorsement for our underlying technologies.
Tivo also continues to expand its Android TV based IP TV version of Tivo user experience for we now have nine operators, who will deploy this solution up from seven last quarter.
This includes a recent win was a large tier one operator in Canada, which highlights Tivos continued focus on expanding our business both domestically and internationally.
We will continue to work closely with our strategic cable partners around the world. They are the heart of our 21 million users and I believe firmly that there's a tremendous opportunity to work with them to deploy tivo stream into their broadband only subscriber base.
We will continue to approach these relationships as strategic growth partnerships, whether it's around accelerating the deployment of our IP TV solution for their video subscribers or giving them. The best in the world streaming solution would you have stream. We believe our product strategy has the potential to drive significant revenue for tivo over there.
Long term.
So now let me turn for a minute to the intellectual property business.
During the quarter, we added a multiyear patent license agreement with a significant social media customer.
This is our second major licensee in this emerging space within the last few quarters.
This reaffirms our position that even as the video market is being disrupted by online social and video platforms, our portfolio remains highly relevant.
We also successfully renewed some key IP licenses in Q4 first we completed the long term extension with Roecker.
For their streaming platform, providing another proof point of our portfolios relevance in the new video consumption landscape.
Second we completed an early extension with Panasonic for their C E business.
Lastly, we also renewed a license agreement with a leading Korean broadcasting solution company.
Extending our coverage of the local Korean service provider market.
In addition, we made progress in our OTI T. licensing program last quarter and also entered into a long term license with a major U.S. based OTI T. service this quarter.
With regard to our ongoing Comcast litigation Tivo is fully committed to protect and its intellectual property from unauthorized use and we are committed to our litigation strategy. We expect Comcast will eventually pay us a license for our innovations just as is pay TV peer companies do and as Comcast itself has done in the past.
On that front, we are pursuing cases in the ITC and the district Court system.
We just completed the trial and the third ITC case in January 2020.
The administrative law judges initial determination for the third ITC case is due by June 29, 2020, and the Commission's final determination is due by October 29 2020.
Overall, I'm happy with our performance our tight strategic focus in a rigorous operating execution mentality has borne quick results in the eight months I had been with Tivo and there's more to come.
I want to conclude with however, as a reminder of the most important question.
It's one that underpins the work that you did in 2019, and so far this year and the value we represent both today and into future that question is how do we create real durable die for our shareholders.
As I suggested at the beginning in my remarks, we believe the answer is straightforward and all the pieces are in place to do it.
First we need to understand how to best serve the consumer in the digital content marketplace. I think we do in fact I understand is better than many and that therefore, the combination of our new products and services positions us to be a leader in streaming entertainment specifically in the short term stream for Kate and what that means fortios ability to date.
Liver on what people need second we need to deliver on operational excellence and as this quarter shows we're making good progress given positive earnings and positive improvement on cost savings and EBITDA.
Last we need to capitalize on the conclusion of our strategic process through the combination with Experie, we're going to do so with a strategic partner that delivers complimentary technologies relationships and customer channels.
Further we will significantly expand the size and diversity of our IP portfolio and with a shared vision to go to market is two independent businesses, we believe our product business and IP licensing business will each be well positioned to pursue their own path to success. He loves future is bright and I'm proud to say then.
A short period of time, we're in a position I believe we'll put our businesses and the best possible position to win and then turn delivered the best possible outcome for our shareholders.
Thank you all and now I'll turn to west.
Thank you Dave as Dave just mentioned, we continue to improve our financial results for 2019, we announced the revenue and adjusted EBITDA above the top end of our previously given estimates and we continue to progress with our profitability initiatives turning to our fourth quarter results on a consolidated basis revenues were 175.2 million.
Up 4% from 2008 you.
This increase was due to an 11.5 million dollar increase in IP licensing revenue driven by new deals signed in our new media International pay TV and other vertical and a 4 million dollar benefit from a large U.S.P.T.V. operator, revising its historical reporting.
The increase in IP licensing revenue was partially offset by $4.8 million decline in product growth.
Despite some decline in consumer product revenues, we still exited Q4 with approximately 80 million in contracted quarterly product run rate revenues, a 7 million dollar increase over Q3.
These are contracted revenues generally long term for our core products contracted quarterly run rate revenue in Q4 benefited from a 4 million dollar perpetual license in Latin America, and new TV viewership data deals.
Moving onto the IP licensing business, we exited Q4 with approximately 74 million in contracted quarterly IP licensing run rate revenues, which excludes catch up revenues intended to make us hole for the pre license period of use.
This represents a 6 million dollar increase over Q3 and was driven by new license agreements and the $4 million reporting adjustment I previously mentioned.
Turning to cost GAAP total operating costs and expenses in Q4 2019 were 384.7 billion.
Operating loss in Q4 was 209.5 million and our GAAP loss from continuing operations before income taxes was 219.9 million, both driven by the goodwill impairment charge.
In terms of our Q4 non-GAAP results.
Non-GAAP total Cogs and Opex was 114 million down 12.3 million or 10% year over year.
Adjusted EBITDA in Q4 was 61.2 million up 19 million or 45% year over year and non-GAAP pre tax income was 47.2 million up 17 million or 56% year over year.
The improvement in adjusted EBITDA and non-GAAP pre tax income were driven by our previously discussed cost savings initiatives as well as an increase in revenue.
On a sequential basis non-GAAP selling general and administrative expenses in the fourth quarter of 2019 increased by 3.6 million over the third quarter.
This increase was primarily due to investing in strategic IP initiatives that we believe will lead to and lead to additional IP licensing revenue in the future.
We expect non-GAAP selling general and administrative expenses to decline from these levels in the first quarter of 2020.
For the fourth quarter estimated cash taxes were 5.4 million.
GAAP diluted weighted average shares outstanding were 126.4 million and non-GAAP diluted weighted average shares outstanding were 127.4 million.
For those interested in calculating a non-GAAP EPS measure take our non-GAAP pretax income subtract, our cash taxes and divide by non-GAAP weighted average shares outstanding.
We have a strong balance sheet with cash and investments at the end of the fourth quarter of 425 million an increase of 143.4 million from the end of the third quarter.
During Q4, we entered into a new 715 million dollar term loan facility, which matures in 2024 and repaid the 621.9 million outstanding balance on our prior term loan B facility.
We also intend to pay off our existing 295 million and convertible notes with cash on hand in the next few weeks.
As Dave mentioned in 2019, we were very focused on company execution and will carry that focus into 2020.
As mentioned in our earnings release, our 2020 expectations do not include the impact of the company's previously announced combination with Experian Corporation.
Our revenue expectations for this year, our 650 million to 690 million. We expect this revenue to be weighted more towards the second half of the year with the launch of Tivo stream for K occurring in the second quarter.
We expect our GAAP income before taxes to be in the range of a loss of 18 million to income of 4 million.
Cost savings continued to be a critical focus for us and twentytwenty.
Due to the cost reductions Dave discussed as well as additional actions, we anticipate taking in the second half of 2020, we expect adjusted EBITDA to be in the range of 230 million to 260 million and non-GAAP pretax income of 150 million to 180 million.
We anticipate incurring 26 million to 27 million in cash taxes, and expect GAAP diluted weighted average shares outstanding to be 120 million and non-GAAP diluted weighted average shares outstanding to be 129 million shares.
As Dave noted earlier in the call, we're not conducting a QNX session today.
More information on our merger with exposure it will be in our form S. Four which was filed with the Securities Exchange Commission earlier today.
Thank you for your time today I'm also excited about the progress we have made in a short period of time due to very focused execution on both cost savings and new product development efforts.
Now, let me turn it back to Dave for a few final comments.
Thank you everyone for your time today as we highlighted today, we made a lot of progress on our strategic initiatives and our financial performance was strong in 2019.
As we look to fiscal 2020, we will continue to drive initiatives that will deliver long term profitable growth.
And we're making progress toward completing our combination with Experie and are excited about the prospects for the combined company.
Look forward to seen many of you this quarter.
Thank you just conclusive conference call you may now disconnect.
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