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Q1 2012 Earnings Call

May 24, 2011 5:00 pm ET


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

Thomas Rogers - Chief Executive Officer, President and Director

Naveen Chopra - Senior Vice President of Corporate Development & Strategy

Derrick Nueman -

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


Anthony Wible - Janney Montgomery Scott LLC

Edward Williams - BMO Capital Markets U.S.

Alan Gould - Evercore Partners Inc.

Barton Crockett - Lazard Capital Markets LLC

David Miller - Caris & Company

Richard Tullo - Albert Fried & Company, LLC



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Ladies and gentlemen, thank you for standing by, and welcome to the TiVo First Quarter 2012 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.

Derrick Nueman

Thank you, and good afternoon. I'm Derrick Nueman, TiVo's Head of Investor Relations. With me today are Tom Rogers, CEO; Anna Brunelle, CFO; Naveen Chopra, SVP of Business Development and Corporate Strategy; and Matt Zinn, our General Counsel. We are here today to discuss TiVo's financial results for the first quarter ending April 30 this year. We have distributed a press release and 8-K detailing our financial results. We have also released a financial and key metric summary which is posted on our Investor Relations website. Additionally, we will post a recording of this call later today. The prepared remarks today should take 25 to 30 minutes and will be followed by a question-and-answer session.

Our discussion today includes forward-looking statements which relate to, among other things, TiVo's future, business and growth strategies; profitability and financial guidance; scope, timing of distribution of TiVo services domestically with DIRECTV, Charter and other operators and internationally, in the U.K. with Virgin Media and another reason; the financial value and strength of our intellectual property portfolio; and the future results of TiVo's litigation involving AT&T, Verizon and Microsoft; TiVo's intent to protect and defend its intellectual property; future TiVo products and services including multi-room and non-DVR devices; consistent growth in both our direct and retail consumer channels and our television division distributor channels both in the U.S. and abroad; and the expected future increases in research and development costs and legal-related costs. You can identify these statements by the use of terminology such as guidance, believe, expect, will or similar 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 our 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 other factors described under Risk Factors in our public reports filed with the SEC, including our latest 10-K and 10-Q. Any forward-looking statements made on the call today reflect analysis as of today, and we have no plan or duty to update them. Additionally, some of the metrics on today's call are non-GAAP measures. Please see our reconciliation sheet which is posted on our Investor Relations website.

With that, I will now turn over the call to Tom.

Thomas Rogers

Thanks, Derrick. Good afternoon, everyone. This has been a memorable quarter for TiVo. First, we clearly demonstrated the value of our intellectual property. And second, we clearly demonstrated leadership in providing advanced television solutions to operators with the recent Comcast announcement being our latest example of our leadership in this area.

As to our intellectual property, we finally reached the highly successful resolution in the DISH litigation, which we believe has established the strong value of our patent portfolio. Additionally, our growing number of operator deals continues to demonstrate the value of the investments we have made in these areas. In so doing, we have also further distinguished the TiVo experience as the most comprehensive way to enjoy the rapidly evolving world of consumer entertainment options.

Let me provide some perspective on these important milestones, starting of course with the historic $0.5 billion settlement with DISH Network. In combination with previously collected damages of over $100 million, the total monetary compensation paid to us for use of our DVR Time Warp patent by DISH exceeds $600 million, putting it in line with the well-publicized Blackberry RIM NTP settlement. It goes without saying that reaching a settlement of this magnitude with one of the industry's toughest defendants underscores the fundamental nature of our intellectual property and sets a precedent regarding the strength and enforceability of our intellectual property to others in the industry while also proving the significant monetary value that can flow from aggressive enforcement of our IP assets.

More immediately, the settlement yields some highly attractive economic benefits in addition to establishing a recurring stream of high-margin licensing revenue. We expect the dismissal of the DISH litigation to result in a reduction of roughly 20% to our FY '12 legal expenses. The combination of licensing revenue and expense reductions will significantly enhance our adjusted EBITDA in the current fiscal year and beyond.

Also on the litigation front, we scored a victory several weeks ago when a Microsoft retaliatory action in the Northern District of California was stayed, pending a Patent and Trademark Office review of the patents asserted by Microsoft. We believe that it's likely the PTO review will lead to the invalidation or narrowing of claims of one or more Microsoft patents.

Recall that we are also granted a stay of the AT&T case against TiVo in the Northern District of California earlier this past quarter. These 2 stays allow there to be greater focus where it should be, on the upcoming claim construction hearings against AT&T, Microsoft and Verizon in the Eastern District of Texas, where we believe we are in a strong position as AT&T and Verizon have uniquely focused on building their respective television services off of the DVR and our critical Time Warp technology.

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