TiVo Q1 2011 Earnings Call Transcript

TiVo Q1 2011 Earnings Call Transcript
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TiVo (TIVO)

Q1 2011 Earnings Call

May 25, 2010 5:00 pm ET

Executives

Anna Brunelle - Chief Financial Officer, Principal Accounting Officer and Vice President

Tom Rogers - Chief Executive Officer, President and Director

Derrick Nueman -

Matthew Zinn - Chief Privacy Officer, Senior Vice President, Corporate Secretary and General Counsel

Analysts

Bridget Weishaar - JP Morgan Chase & Co

Edward Williams - BMO Capital Markets U.S.

Tony Wible - Janney Montgomery Scott LLC

Barton Crockett - Lazard Capital Markets LLC

David Miller - Caris & Company

Tuna Amobi - S&P Equity Research

Daniel Ernst - Soleil-Hudson Square Research

Presentation

Operator

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Ladies and gentlemen, thank you for standing by. And welcome to the TiVo First Quarter 2011 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Mr. Derrick Nueman, Head of Investor Relations. Sir, you may begin your conference.

Derrick Nueman

Thank you, and good afternoon. With me today are Tom Rogers, CEO; Anna Brunelle, CFO; Naveen Chopra, SVP of Business Development, Corporate Strategy; and Matt Zinn, General Counsel. We are here today to discuss TiVo's financial results for the first quarter ending April 30, 2010. We have just distributed a press release and 8-K detailing our financial results. We have also released a financial and key metrics summary, which is posted on the Investor Relations section of our website.

Additionally, we will post a recording of this call later today on the Investor Relations section of our website. The prepared remarks today will last about 30 minutes and then be followed by a question-and-answer session.

Our discussion today 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 future Subscription, Advertising and Research businesses; profitability, operations and financial performance and guidance, including future marketing, R&D and other operating expenditures; distribution of TiVo service domestically with DIRECTV, RCN, Comcast, Cox; internationally with Virgin Media, Seven HTS in Australia and New Zealand, TiVo's current and future features and product releases, partner initiatives, such as our upcoming TiVo-enabled Best Buy Insignia-branded television and our integrated advanced television solution with Conax and Technicolor, formerly known as Thomson; and TiVo's ongoing litigation with EchoStar, AT&T, Verizon and Microsoft.

You can identify these statements by the use of terminologies such as guidance, believe, expect, will or other forward-looking terms. 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 the forward-looking statements. Factors that may cause actual results to differ materially include delays in development, competitive service offerings and the lack of market acceptance, as well as other factors described in Risk Factors in our public filings filed with the SEC, including our latest 10-K and 10-Q. Any forward-looking statements made on this call reflect analysis as of today, and we have no plans or duties to update them.

Additionally, some of the metrics and financial information provided in today's call include non-GAAP metrics. Please see our first quarter fiscal year 2011 key metric trend sheet for a reconciliation of these items. With that, I will now turn over the call to Tom Rogers.

Tom Rogers

Thanks, Derrick. Good afternoon, everyone. Before getting into detail from our quarter, let me quickly touch on the EchoStar litigation. As you know, EchoStar was granted an en banc review, which means that all the judges at the Federal appeals court will now review the case. This is a bit disappointing, of course, because the en banc process will take many more months to complete. But it's very important to note that the court's order granting en banc review does not raise issues relating directly to the fact of our case against EchoStar. Instead, it identifies some general questions of patent law and policy that the Court evidently decided to consider and clarify on the back of our case. Those questions mainly involve what legal standards should apply where, as in our case, a patent holder has procured an infringement verdict and an injunction, but then the infringer claim to have modified its product in some way that avoids the patent.

The issue is when the district court that heard the first case can address the infringer's design-around claim in a rapid, shortened hearing process in order to decide whether the infringer has violated the original injunction. As opposed to acquiring the patent holder to file a whole new lawsuit about the supposedly modified product.

Of course, TiVo's position has been and continues to be that district court has to have the ability to do that in the case like ours, because otherwise, deep-pocketed defendants, like EchoStar, would be able to avoid an injunction and run out the clock on a patent just by making minor changes to a product that was already found to infringe, making the patent holder file another new infringement case and show on until the patent expires. The result was substantially weakened patent since harm innovation by stripping away the benefits of enforceability of patent, while imposing all of the transaction costs on the patent holder in the court.

We can understand why the full Court of Appeals wants to think through the rules in this important area in a systematic way, although we're sorry that they picked our case to do it. But the district court in this case carefully considered the evidence about EchoStar's reported software modification and issued a very well-reasoned decision, explaining why they were insignificant and why EchoStar was in contempt of the original injunction on two independent ground. We believe the facts of our case present an enormously compelling case as to why it would completely undermine the patent system, to easily allow defendant to get a new trial, when only very slight or trivial changes have been made.

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