Tivo Executive Insights: Distribution Deals, Hardware vs. Cable

On Wednesday, Tivo, Inc. (NASDAQ:TIVO) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with analysts and investors.

Distribution Deals

Edward Williams – BMO Capital: A couple of quick questions for you. Can you talk a little bit about Anna the difference in the expenses for legal relative to marketing in the current quarter? How much of that delta and the adjusted EBITDA different from second quarter versus first quarter is attributable to marketing?

A Closer Look: TiVo Earnings Cheat Sheet>>

Anna Brunelle – VP and CFO: Yeah, sure, I think that we don’t generally give that much of a level of a detail on guidance but I think you can see historically that we’ve been cautious and the amount of money that we are willing to spend on marketing and so it will be a very measured increase there and I hope that gives you enough color that you can begin to move forward.

Thomas S. Rogers – President and CEO: Let me just add on that point the SAC and sales number for this last quarter Q1 was very low probably lowest it’s been in the few years relative to SAC and sales spend. So, the next quarter, Q2 quarter spend there certainly will be higher.

Edward Williams – BMO Capital: Then another question with regards to new distribution deals, given the success that you’ve had with Virgin Media what’s the holdup that you’re running into with regards to additional partners working with you in a similar style arrangement?

Thomas S. Rogers – President and CEO: Well I wouldn’t say it’s a holdup, we would obviously like deal announcements and quarterly earnings calls to perfectly align, but we can’t control that and so we feel we’re making a lot of progress in our discussions with operators and look forward to being able to make further announcements. I look at that – you got to look at the broader landscape and we made a number of announcements, I have been working hard on the implementations of those previous announcements. You can look at our competitors out there and look at their general lack of traction and I think that also frames for you that operators are being quite cautious in terms of the decisions they’ve made. What we’ve done with Virgin as well as others has been looked at very closely and I think we have favorably impressed an awful lot of operators that are in the midst of making these decisions. We recognize these are complex issues, they are not quick decisions. They know that it’s going to govern the entirety of their consumer offering for a number of years and I think recently operators have gotten much more focused on their future roadmaps and wanted to see that TiVo was not just about the DVR and framing the broader broadband linear experience, but also that we had the full ability to drive a whole home multi-device world, I think with the announcements that we’ve made at the Cable Show of things like TiVo Stream. The integration with a manufacturer like Pace toward a whole home approach. The announcement we made today on TV Everywhere with RCN, all demonstrate that those things that cable operators have been assessing that ability to push forward into the broader realm beyond what we were initially engaged for is very much a part of our repertoire and with that I think you’ll see more operators coming forward. So overall, I think it’s anything, but a stuck or stall situation, it’s just that the deals and the earnings calls don’t always so well align.

Hardware vs. Cable

David Miller – Caris & Company: Hey guys, I have two, one for Tom and one for Anna. Tom, on the cost of hardware revenues line, $18.5 million versus last year’s number $8.8 million quite a bump higher, you know, that was sort of the difference between actuals and sort of estimating in terms of what we are caring in our internal models. I mean given that you are about to announce other cable deals as you sort of alluded to in your prepared remarks why be in this business at all? Why not just get out of the standalone basis completely and rely, obviously a little bit more on higher margin revenue from the cable MSO business? And then on your comments about breakeven – adjusted EBITDA breakeven for the year ex the litigation expense, if you expect breakeven for the full year doesn’t that mean you’re going to be positive by the fourth quarter ex- the litigation expense?

Thomas S. Rogers – President and CEO: On the cost of hardware, I wouldn’t look at that as solely a function by any means of what’s going on in our standalone retail area. We’ve become a much more significant provider of hardware to cable operators. That is something that causes us to take on more inventory. I would say this is coupled with the trend where other operators are looking for us to build into third-party hardware more and more. So we have some operators who fit one mold, other operators that fit in other. But that is support for our operator business. At the same time our retail product SKUs, have changed as of late. We have made some substantial improvement to our retail product offerings, which include one unit that has four tuners, a unit that has memory capacity that’s about seven times what the original TiVo Premiere was. And so there is some shipping into the channel of hardware costs that are captured there and we are also beginning to manufacture non-DVR elements that support both the retail and the operator side, which need to be taken into account as well. I think the overall cost on the retail side of the equation; I think we’ve managed very well in that, as I said, the SAC and sales cost related to that were as low as they’ve been in any quarter for a few years. Anna?

Anna Brunelle – VP and CFO: David, could you repeat your question for me; I’m sorry, I missed it?

Edward Williams – BMO Capital: Oh, basically just you’re saying that you’re going to breakeven on an adjusted EBITDA basis for all of fiscal ’13 ex-litigation, doesn’t that mean that you’re going to be adjusted EBITDA-positive in the fourth quarter ex-litigation?

Anna Brunelle – VP and CFO: Well, we certainly haven’t given any guidance on that. I think what we do, well, not for just the fourth quarter alone, but let me clarify. I think what we spoke to was that we plan to, as we said; take out about $5 million to $10 million in R&D in the back half of the year. We expect to see meaningful sequential quarterly growth in our MSO revenues throughout the rest of the year, and I think when you combine those two things together, it equals a significant EBITDA improvement, and so we’re hoping that that gives you enough color to complete your model.