Verizon Settlement Pushes TiVo Into the Black

DVR Company Touts Cable Op Wins With Fifth Straight Quarter of Subscriber Gains

TiVo swung to a net profit of $59 million for the quarter ended Oct. 31 thanks to the patent-infringement settlement it reached in the period with Verizon Communications, while the DVR company said it anticipates a turning in a net loss for the current quarter.

In September, TiVo announced a deal with Verizon settling their patent litigation for at least $250 million through July 2018. That brought TiVo’s total take from its lawsuits including those against Dish Network and AT&T to more than $1 billion.

TiVo has pending patent litigation against Cisco Systems, Google’s Motorola Mobility and Time Warner Cable. TiVo’s litigation expenses for the third quarter were $9.5 million, compared with $8.2 million in the year-earlier period.

“We remain confident that the successes we've had defending our innovation positions TiVo favorably in our ongoing enforcement actions, and believe the settlement with Verizon only further strengthens our hand," TiVo president and CEO Tom Rogers noted in announcing earnings.

In after-hours trading Wednesday, TiVo's share price was trading down 3.3%, at $10.49 per share. It had closed up 6.3%, to $10.85 per share.

Thanks to TiVo’s deal with U.K.-based Virgin Media, the DVR company posted its fifth consecutive quarter of total subscriber gains. Virgin Media had 1.14 million TiVo subscribers as of Sept. 30, representing 30% of the MSO’s TV base, after launching the DVR offering in December 2010.

TiVo gained 225,000 net subscribers (240,000 from operators with a net decline of 15,000 TiVo-owned subs), to stand at 1.898 million operator subs and 1.042 million TiVo-owned subs.

Rogers touted TiVo’s continued success in landing midsize cable operator customers, citing recent deals with Mediacom Communications, Midcontinent Communications and Cable One.

"In terms of our existing deployments, we are continuing to see impressive subscription growth,” Rogers said. “In fact, several of our partners beyond Virgin Media have achieved a double-digit percentage TiVo penetration of their subscriber base as our product has become a key differentiator for their offering.”

TiVo’s MSO-related service revenue for the most recent quarter was $7.5 million, up 84% from $4.1 million a year ago.

In addition, Comcast has expanded its ability to provide VOD to retail TiVo DVRs from two to 12 markets, according to Rogers: San Francisco, Boston, Philadelphia, Pittsburgh, Indianapolis, Miami, Minneapolis, Northern New Jersey, Portland, Seattle, Sacramento and Denver.

TiVo lost a net 15,000 “TiVo-owned” subscribers in the third quarter, which was its best net subscription performance in almost four years, according to Rogers, and the company’s lowest absolute churn rate in approximately six years. TiVo also signed a deal with NFL quarterback Tim Tebow to be its spokesman in marketing campaigns and expanded retail distribution to Wal-Mart, “which provides opportunity to drive incremental sales,” he added.

Overall, TiVo posted revenue of $82.0 million for its fiscal third quarter of 2012, up 27% from the year-earlier period. Service and technology revenue (which excludes hardware sales) increased 18% to $61.0 million. The company’s net income of $59.0 million included $78.4 million of litigation proceeds relating to past damages from the Verizon settlement, plus $2.4 million in ongoing license fees from the telco; TiVo had projected a net loss of $27 million to $29 million.

For the fourth quarter of fiscal 2013, TiVo anticipates service and technology revenues in the range of $63 million to $65 million and a net loss of $15 million to $17 million. TiVo said it expects to be profitable on an adjusted EBITDA basis excluding litigation costs in the current quarter.