TiVo Inc. (TIVO) hit Wall-Street paydirt today. Its announcement that it would expand a service that brings Web video to regular televisions sent its stock up nearly 5 percent as we approached mid-day. Perhaps this might be what the company needs to distinguish itself from the proliferating digital cable-boxes that include TiVo-like programming features. But it not not be enough to be right; it may have to be right quickly. Just as real estate is about location, location and location, emerging technology may depend on cash burn, cash burn and cash burn.
Table A shows trends in major cash-flow categories since the fiscal year that ended Jan. 31, 2001.
Table A Key cash flow trends ($ mill.)
| cash flow from . . . | net change in cash |
|||
| operations | investing | financing | ||
| 6 mo. ending 7/31/06 | -32.8 | 0.5 | 7.5 | -24.8 |
| 12 mo. ending . . . | ||||
| 1/31/06 | 3.4 | -10.8 | 5.4 | -1.9 |
| 1/31/05 | -37.2 | -18.1 | 4.3 | -51.0 |
| 1/31/04 | -7.7 | -3.7 | 109.1 | 97.8 |
| 1/31/03 | -33.2 | -1.4 | 26.4 | -8.1 |
| 1/31/02 | -120.8 | -3.3 | 52.0 | -72.1 |
| 1/31/01 | -23.6 | -0.8 | 42.8 | 18.4 |
Note: First three columns may not add to net change in cash due to decimal rounding.
Through Jan. 31, 2006, we saw a general, albeit imperfect, trend of improvement in operating cash burn with external financing helping to keep overall liquidity manageable. But there appears to be a substantial reversal in the first half of the current year. Table B sheds more light on that by showing trends in key components of operating cash flow.
Table B Key operating cash flow trends ($ mill.)
| net inc. + depr. | deferred revenue | accrued liabilities | Total | |
| 6 mo. ending 7/31/06 | -13.6 | -12.6 | -14.1 | -32.8 |
| 12 mo. ending . . . | ||||
| 1/31/06 | -28.1 | 20.3 | 4.3 | 3.4 |
| 1/31/05 | -74.9 | 26.7 | 18.2 | -37.2 |
| 1/31/04 | -26.5 | 22.1 | 1.3 | -7.7 |
| 1/31/03 | -73.8 | 20.0 | 5.4 | -33.2 |
| 1/31/02 | -150.9 | 18.0 | -7.2 | -120.8 |
| 1/31/01 | -18.1 | 2.0 | -0.1 | -23.6 |
Note: Deferred revenue column also includes LT deferred revenue.
From the table, it looks as if the annual “run rate” for the most basic components of operating cash flow, net income plus depreciation, has shown little improvement. Indeed, it has deteriorated. This year’s first-half tally, -13.6, compares with +1.2 in the six-month period that ended July 31, 2005.
We also see, this year, significant downward turns in deferred liabilities and deferred revenues.
The latter is a generally erratic figure that represents liabilities accrued but for which the company has not yet been billed. That’s probably just a matter of timing; through July 31, 2005, accrued liabilities were similar, at -13.0.
The decrease in deferred revenue, which generally encompasses subscription revenue received from customers in advance of future periods and, hence, not yet recognized on the income statement, is an eye-opener. This year’s -12.6 tally compares with a positive 3.2 million year-ago result.
With $60.5 million in cash at July 31, 2006, TiVo’s back is not presently against the wall. But risk may rise if today’s announcement doesn’t translate soon to a boost in subscription, something that should manifest itself initially as a boost in deferred revenue.
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3 comments so far
TiVo raised additional cash via a offering following the July period. Their cash position was over $100mil last I ran the numbers. The change in accrued liabilities is related to dropping the lifetime service offering. Dropping lifetime increases their burn rate today, but slows it tomorrow.
One thing that no one has keyed in on yet in published information: The cash burn is related to hardware subsidies. Presumably, the HD product is now turning from a cash drain to a cash infusion. While they are now giving away low-end boxes which may dilute this effect to some extent, my expectation is that the cashflow (and indeed earnings) numbers for next quarter are going to be…, well, much better than expected.
- Posted by Hoosier(reposted due to error in the email address)
Oh my God, TiVos stock went up yesterday. Reuters needs to publish something negative, fast.
Its kind of funny how little the author knows about the company. Comparing full-year cash flow to 6-month cash flow is ridiculous TiVos biggest sales come in Q4, usually totalling more than the rest of the year combined, and with those sales comes substantial positive cash flow from deferred revenue. TiVos new upfront payment options, plus the cash from offering the one-time $199 transfer of lifetime service to the new Series 3 will generate plenty of cash in Q3 and Q4.
2005s net from operations benefitted from a substantial reversal of accrued rebates from Q3 and Q4 of the previous year, plus a commitment by then-CEO Ramsay to cut expenses and bring the company to profitability (at the expense of growth). The new CEO has targeted growth, and so YoY comparisons for the first half dont mean much.
Hoosier points out some other significant flaws in the authors story. There is no cash shortage at TiVo, and there wont be any time soon, if ever.
- Posted by isthatajoke23It seems strange that Gerstein would take the time to do such a detailed analysis on TiVo’s financial condition, yet makes no mention of their market cap or the more recent developments for the company. Even with TiVo’s pop yesterday, it still prices the company at $550 million and with $750 million in tax losses on the books, very little debt and high margins deals with Comcast, Cablevision and Cox being deployed early next year, even if TiVo ran out of cash, I wonder how bad it would really be for investors if they were forced to remove their poison pill and sell the company?
Add to this, no mention of their recent stock underwriting or the recent cash infusion from TiVo series 3 subscriber who have transfered their lifetime subscriptions to the new box and I question how good this reporting really is.
I’m glad that Reuters took the time to dig deeper then the most of the press in their coverage of TiVo and would encourage them to publish more articles focusing on the fundamentals of companies, instead of the typical press spin, but if their reporters are going to take the time to do financial analysis, they should look at the complete picture instead of ignoring anything that’s happened after July 31st of this year. Given what the author is alleging in this article, it seems a bit inappropriate to ingnore some of the more recent developments for TiVo, particularly in how they relate to their cashflow.
- Posted by Davis Freeberg