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TiVo (NASDAQ:TIVO)

Q4 2013 Earnings Call

February 26, 2013 5:00 pm ET

Executives

Derrick Nueman - Investor Relations Executive

Thomas S. Rogers - Chief Executive Officer, President and Director

Naveen Chopra - Chief Financial Officer and Senior Vice President

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

Analysts

Brian Patrick Fitzgerald - Jefferies & Company, Inc., Research Division

David W. Miller - B. Riley & Co., LLC, Research Division

Perry Huang - Goldman Sachs Group Inc., Research Division

Barton E. Crockett - Lazard Capital Markets LLC, Research Division

Daniel Ernst - Hudson Square Research, Inc.

Alan S. Gould - Evercore Partners Inc., Research Division

Todd T. Mitchell - Brean Capital LLC, Research Division

Edward S. Williams - BMO Capital Markets U.S.

James C. Goss - Barrington Research Associates, Inc., Research Division

Andy Hargreaves - Pacific Crest Securities, Inc., Research Division

Mark Nicholas Argento - Lake Street Capital Markets, LLC, Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the TiVo Fourth Quarter 2013 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Mr. Derrick Newman. Sir, you may begin.

Derrick Nueman

Thank you, and good afternoon. I'm Derrick Nueman, TiVo's Head of Investor Relations. Welcome to TiVo's fourth quarter and fiscal year ending January 31, 2013, earnings call. With me today are Tom Rogers, CEO; Naveen Chopra, CFO and SVP of Business Development and Corporate Strategy; and Matt Zinn, General Counsel.

We just distributed a press release and 8-K detailing our fourth quarter and fiscal year financial results. We also posted a fourth quarter key metric trend sheet on our Investor Relations website that includes, among other information, a reconciliation of non-GAAP measures discussed in today's call. You may access a recording of this call on our website during the next week.

Our prepared remarks today will last roughly 25 to 30 minutes, followed by a question-and-answer session. Our discussion today includes forward-looking statements about TiVo's future business, products and growth strategies. 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 as described in our Risk Factors in our reports filed with the SEC. Any forward-looking statements made on the call today reflect analysis as of today, and we have no plans or duty to update them.

With that, let me turn over the call to Tom Rogers. Tom?

Thomas S. Rogers

Thanks, Derrick. Good afternoon, everyone. This was a significant growth year for TiVo. Service & Technology revenue grew by 24% over fiscal year 2012; total TiVo subscriptions grew by 38%; our operator revenue grew by 48% over the prior year, with the fourth quarter growing even faster at 83% year-over-year; and we saw a material adjusted EBITDA improvement when excluding the impact of the past damages component of the litigation settlements.

At the beginning of fiscal 2013, we set out to make progress against 5 important goals for our business, and I'm pleased to say we were very successful in doing so. First, we drove expanded deployment in our current distribution deals, increasing the total number of TiVo subscriptions by almost 1 million over the course of fiscal 2013. Second, we continue to increase our operator distribution footprints, both internationally and domestically, forging important new operator deals with such players as Com Hem, Cable ONE, Midcontinent, Mediacom and GCI.

Third, we saw significant additional upside from litigation as we reached a favorable settlement with Verizon for $250 million, bringing total damages and consideration from our intellectual property actions to more than $1 billion to date. Fourth, we reduced our R&D in the second half of the year from its peak in the first quarter of fiscal 2013. And finally, we continued to define the future of television through the launch of new whole-home and multiscreen TiVo offerings. When you combine all this progress, it adds up to a stronger financial and operating model and very importantly, adjusted EBITDA profitability in the fourth quarter when excluding litigation expenses.

Let's take a more detailed look into what's put TiVo on its positive trajectory. The competitive landscape for pay-TV operators around the globe is intensifying and more than ever, operators find themselves in a situation where adopting an advanced television solution is a necessity. The significant increase in MSO revenue over last year, the year-over-year subscription growth and the 5 operator deals we signed this year alone underscore our strength in the market. Continued progress in our service provider business is a critical component to our growth. And given the upcoming launches of the deals we signed last year and the current rate of subscription additions on our currently deployed deals, we believe we remain on pace to drive significant subscription growth and before factoring in -- even before factoring in future deals. And we are progressing on the financial goals we outlined for you last quarter, including doubling the service provider revenue contribution as a percentage of total revenue and transitioning the service provider business from a negative contributor EBITDA to one that is a positive contributor, both over the next 2 years.

In the U.K., our offering is helping drive significantly improved pay-TV growth and market share gains for Virgin Media. This past year, Virgin Media added almost 900,000 TiVo subscriptions to reach a total of more than 1.3 million or 35% of their TV base. As the Virgin Media offering continues to evolve, including the delivery of live TV and video-on-demand through an IT network from the cloud to a TiVo user interface across a variety of devices, we believe even more fans of TV in the U.K. will seek our unique offering. We look forward to driving further success for Virgin in 2013 and as they become part of Liberty Global.

In Spain, our deployment with ONO continues to gain momentum, and the fourth quarter was ONO's strongest quarter to date in terms of TiVo subscription additions. Our work with Com Hem in Scandinavia is progressing as our offering there is in the early testing stages, with initial commercial deployment expected in Q2. Com Hem is a perfect example of how operators are beginning to embrace new IPTV video delivery options across their networks and how TiVo can take them beyond the set-top box to provide a best-in-class experience to virtually any type of video delivery and on any type of device. The full IPTV multiscreen experience we are developing for Com Hem is one we expect more operators will be extremely interested in deploying as their infrastructures are upgraded to handle more robust IPTV offering.

We also continue to expand and build relationships in the U.S. with small and midsized operators. Similar to what we are seeing abroad, the strategic benefit of getting TiVo in front of subscribers has motivated many of our operator partners to look for ways to distribute TiVo beyond a single advanced-DVR experience. For example, Suddenlink, which had its strongest quarter to date in terms of subscription additions, is now distributing our TiVo Premiere DVR, our TiVo Mini thin client and our TiVo Stream. We believe TiVo Stream is one of the most exciting television products in years as it allows customers to stream their favorite shows, which by definition, are the ones they have recorded from a TiVo Premiere series DVR simultaneously to tablets and mobile devices.

Additionally, GCI, one of the top 20 largest cable companies in the country, recently began its initial deployment of TiVo approximately 4 months after the deal was announced, showing the fast pace of our domestic deployments. And the other U.S. operators we signed last year are expected to launch in the first part of the year as well.

On the TiVo-Owned front, we were pleased with our progress this quarter as gross subscription additions were up roughly 10% year-over-year, while churn remained relatively low. Additionally, our marketing efforts, which included some modest TV advertising, have been successful in driving increased brand awareness of TiVo, something we hope will help drive results going forward. We also saw the lowest level of subscription losses in a little more than 4 years.

Underpinning our distribution success is a progress that we continue to make toward our vision of a seamless, in-home, out-of-home video experience. Today, many parts of this holistic vision have been realized, putting us at the forefront of delivering these solutions to operators. We are getting more content from more devices. In addition to this TiVo Stream product I spoke about earlier, we will be releasing our thin client IT set-top box, TiVo Mini, in retail in the very near future, which follows a successful launch of this product in our operator channel. This offering enables consumers to watch live TV or stream recorded content from their host TiVo box to another TV in the house, allowing a whole-home solution without the need to purchase multiple TiVo Premiere DVRs.

If you step back, TiVo has gone from providing DVRs, albeit the best DVR in the world, to also now providing the gateway for operators and consumers to enjoy a whole-home multi-device experience. TiVo Stream and TiVo Mini are the latest steps in our vision of enabling our subscribers, both retail and MSO, to have all the content they want on all devices any time. In the year ahead, we will continue to deliver on our vision and broaden the TiVo experience to a 6-tuner cased gateway set-top box similar to what we've done on Cisco and Samsung boxes. We will launch a TV Everywhere web portal powered by TiVo with our first MSO partner this year, which will allow subscribers the opportunity to consume video content on a variety of devices, including laptops and tablets.

Moving to the content side, the very popular music service, Spotify, and the social TV app product, Flingo, which are now available on the TiVo user interface are examples of our efforts to deliver a complete entertainment experience from television to movies, to music, all in one box. Soon, we'll also we launching MLB.com on our platform to go along with the millions of content choices on TiVo already. In the next year, there will be many more innovations. We will add more content services but also, we will deliver a full IPTV implementation, more personalization and social media features and much more we can't talk about yet.

In addition to our distribution gains and product innovations, we continue to provide more solutions for advertisers that are increasingly searching for ways to better understand the viewing habits of their target audiences. As a result, our data analytics business continues to gain traction. We recently announced the launch of our new measurement solution, TRA Crossmedia measurement, which combines Internet data, including display, online video and social media with our television viewing and purchase behavior data to create a single cross-media data measurement source that is both large and unique. Advertisers are increasingly demanding cross-platform measurement. And given the immense benefit a total view of household activities can bring, we believe this product will be a valuable addition to our unique insight capabilities. We continue to be excited about the potential of this business and are positioning it to be one of the elements that drives TiVo growth in the coming years.

Briefly touching on our litigation, we are continuing our efforts to protect our innovation beyond the successful actions we have had to date, which have yielded, as I've said, more than $1 billion in damages and consideration. Our Motorola litigation is nearing trial, and we believe our prior successes and favorable claims construction position us well for success there. Additionally, we continue to move forward on our pending case with Cisco and Time Warner Cable.

In conclusion, this was an important year for TiVo as we were able to execute on our 5 key goals. Looking ahead to the next fiscal year, we expect continued growth in revenue related to our current distribution, further subscription growth and continued focus on efficient management of overall R&D spend. In addition, we are highly focused on smart capital allocations to make sure cash is used to drive shareholder value. We also anticipate that our research analytics business will become a larger contributor to our growth. We believe that all of this, without even factoring in the potential upside from pending litigation, should help us achieve adjusted EBITDA profitability in fiscal year 2014 and sustained growth in the years beyond.

Now before I turn it over to Naveen, I wanted to first take a moment to acknowledge and again congratulate him on his new role as TiVo's CFO. Most of you have come to know Naveen well and have witnessed firsthand his numerous contributions to our company. His time at TiVo, Naveen has been an invaluable asset and a key strategist in securing our operator deals and making many of our recent successes possible. As we look to drive long-term operational growth and focus on smart capital allocation, there is no doubt Naveen is the right choice as our CFO. Naveen?

Naveen Chopra

Thank you, Tom, and good afternoon, everyone. Let me start by saying that I think it's a great time to step into the CFO role at TiVo. We're at a very interesting point in the company's evolution. In fact, many of the initiatives I have personally been involved with over the past several years are now starting to contribute to the company's operating results in significant ways. And the combination of that momentum, along with all of TiVo's other assets, positions us well to continue our current growth initiatives while also establishing entirely new ways of creating value for shareholders.

I'll share some thoughts about how we expect this to play out in both the short and long term in a few minutes. But before doing so, I did want to provide some color around the financial results included in today's release. Overall, we're pleased with our fourth quarter results. It was a strong end to the year on both the top and bottom line. In fact, our Service & Technology revenue grew 31% year-over-year and exceeded Q4 guidance. This revenue growth was driven by subscription additions which grew 38% year-over-year, increasing our total TiVo subscriptions to more than 3 million. And it's worth noting that the component of subscription growth that came from operators other than Virgin Media continues to grow healthily, though this was tempered by higher DirectTV churn than the previous quarter. Service & Technology revenue growth was also aided by the first full quarter of Verizon licensing revenue.

With respect to the bottom line, we achieved our goal of adjusted EBITDA profitability excluding litigation for the quarter. This reflects a reduction of approximately $5 million in our second half R&D spend which was in line with our prior guidance. Our fourth quarter adjusted EBITDA and net income results were achieved despite the fact that we were negatively impacted by higher-than-expected litigation expenses associated with the Motorola suit where we saw an opportunity to further strengthen our case through additional legal investment. Had litigation expense has been consistent with our assumptions at the time we provided guidance last quarter, we would have exceeded guidance on both net income and adjusted EBITDA.

Now looking forward, we expect to benefit from the progress we've made this past quarter, as well as the positive trends we see in the business overall. As we said last quarter, we should achieve adjusted EBITDA profitability for fiscal year 2014, including our litigation spend, even though the litigation spend will continue to be heavy by virtue of the cases we are currently engaged in. Therefore, our adjusted EBITDA profitability milestone is based on continued growth in service provider revenue, increased licensing revenue from currently signed litigation settlements, lower annual research and development spend and lower overall subscription acquisition expenses in the TiVo-Owned business.

I should point out that much of our adjusted EBITDA improvement is expected to come in the back part of the year as MSO revenue continues to build through further penetration with current customers and the launch of 5 new customers starting with GCI this month. Similarly, on the expense side, the upcoming trial with Motorola and R&D expenses associated with several key product deliverable and MSO deployments in the first half of the year means expense reductions will also be weighted toward the back half of the fiscal year.

So in terms of specific guidance, for Q1, we expect Service & Technology revenues of $60 million to $62 million, a sequential decline from Q4 because revenue from key MSO projects is expected to be recognized in Q2 versus Q1. Again, the sequential decline is not being driven by subscription revenue, but rather timing of payments for specific development projects that probably can't be recognized until Q2. Similar to last quarter, we expect to post positive adjusted EBITDA excluding the anticipated litigation spend of $11 million to $12 million. Including litigation spend, adjusted EBITDA is expected to be in the range of negative $5 million to negative $8 million, and our net loss is anticipated to be in the range of negative $16 million to negative $19 million.

Relative to Q4, the key factors affecting earnings in Q1 will be elevated litigation spend as we near the Motorola trial, modest increases in R&D relating to near-term products and deliverables and lower aggregate hardware contribution. And in Q4, we benefited from higher shipments to our MSO partners and abnormally high margins on previously written down hardware. In addition, in Q1, we will bear the typical hit from the payroll tax in the first part of the year, which, in our case, is expected to be approximately $1 million in the quarter.

Before wrapping up, I wanted to speak briefly about our capital allocation plans. Today, we have approximately $627 million in cash and cash equivalents, which was up slightly from Q3. As many of you know, we entered into a 10b5-1 plan to opportunistically repurchase shares under our current 100 million authorization. That plan triggers both at specific price targets and when our stock dips modestly below our 50-day moving average. Given the upward trajectory of our stock in the fourth quarter, neither criteria was met. Though our plan did not kick-in yet, I still believe we put something in place that gives us the better opportunity to repurchase stock that we've had in the past.

In addition to the 10b5-1 plan, we do expect to continue to repurchase the taxable portion of restricted stock granted to employees as we did last week when vesting occurs over the course of the year. What we've done to date with our stock repurchase plan is just a part of our broader capital allocation focus. We also continue to spend a great deal of time weighing different options for further optimizing the value shareholders derived from the cash on TiVo's balance sheet. Those considerations include more aggressive return of capital to shareholders and smart acquisitions that combine growth with strategic value.

The key takeaway is that we are intensely focused on driving shareholder value, as both the management team and board want to ensure we remain thoughtful and deliberate in our approach. And while we spend a lot of time considering opportunities, the last couple of years illustrate our cautious approach which I don't expect to change.

To wrap up, we had a good quarter, which we believe has set us up for a strong fiscal 2014, where despite some volatility from quarter-to-quarter, we continue to expect revenue and subscription growth and more importantly, as a result, should see full year adjusted EBITDA profitability, including litigation expenses.

With that, let's now take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Brian Fitzgerald of Jefferies.

Brian Patrick Fitzgerald - Jefferies & Company, Inc., Research Division

Wondering in terms of the sales funnel for additional partnerships and the 4-month kind of rollout, is that a trend we should continue to expect, i.e., quicker ramps for new partners? And then any color on up-sell of products into existing partners?

Thomas S. Rogers

Thanks. Well, we continue to be in discussion with all kinds of MSOs, both domestically and internationally. We are seeing more intense focus on the part of MSOs for having to figure out their advanced television plans and how they're going to accomplish them. The initial deployments that we -- once we've secured a new partnership distribution agreement domestically continues to be a relatively short period of time. Most recently, we're able to go from deal to deployment within about 4 months. Our international efforts tend to involve more complex integrations, and so we are at that kind of speed internationally. But we would continue to expect, with the small and medium operators domestically, to be able to implement with that kind of speed. We, overall, are finding that the additional rollouts we are getting from our current partners is accelerating. ONO and Suddenlink have their strongest quarters to date with TiVo deployments, and we find that the more experience that an MSO has with our product over time, the greater the acceleration in terms of sub-deployment by them.

Operator

Your next question comes from the line of David Miller of B. Riley Caris.

David W. Miller - B. Riley & Co., LLC, Research Division

I just have one question for Tom. Tom, when I look at your partnerships with the landscape out there having to do with the cable MSOs, whether it's domestically or internationally, the way I kind of compartmentalize it in my head is there's kind of 2 kinds of deals, there's the deals like Grande and RCN and even Virgin Media where you are sort of the exclusive go-to provider of all sort of 389 capability is I guess the way I'd like to put it. And then you got these funky deals or these deals where you kind of made these deals when your financial position was a lot worse than it is now, and those were the sort of the Comcast deals, the Cox deals, where the household within that particular cable system has the choice as to whether or not to have a generic DVR or to go to TiVo as sort of a downloadable software option. With regard to that latter compartment, are there any -- could you talk about any sort of optionality you have to renegotiate the terms of those deals, when do those deals run out? I assume now that the wind is at you're back with regard to patent protection and the U.S. Patent and Trademark Office where they stand and so on and so forth that you have the option -- or you have the capability, you have the juice, if you will, to renegotiate those deals at some point. I'm wondering if you're willing to comment.

Thomas S. Rogers

Well, the distinction that you're drawing there really is where we largely focus our firepower today in terms of deals which are operators who are going to exclusively or primarily rollout TiVo in terms of their advanced television option and earlier deals where we tend to be an option relative to the choice that the subscribers or an operator can make. And that latter group is a small group of Tier 1 operators. And as we've said repeatedly, in the United States, we are focused on the Tier 2, Tier 3 operators where they've -- there's a very small number of Tier 1 operators in the country and the world, really, and those are the handful of players that have the internal engineering capability to be able to drive a homegrown solution or a combined solution that they've put together, including homegrown engineering resources. And quite frankly, those are not the kind of player we are focused on because they have the capability to be able to do this through other means. In terms of deals that have some term of years to them, Comcast and DirecTV are the ones that continue to go on. We have quality product in front of both of those subscribers. And when it comes to other Tier 1 operators, we really aren't focusing that heavily on it. We are continuing to work with Cox and as they move to an IP implementation, and they're looking for potential ways to work closer there. But for the most part, that is not our focus.

David W. Miller - B. Riley & Co., LLC, Research Division

Okay. And then just one final question for Naveen. On the convertible debt, can you just refresh my memory, is that currently not callable still or is that callable at this time?

Naveen Chopra

It's not callable, so it'll mature in 2016.

Operator

Your next question comes from the line of Perry Huang of Goldman Sachs.

Perry Huang - Goldman Sachs Group Inc., Research Division

First, I wanted to ask a question about ARPU. It looks like it ticked up nicely sequentially for both the TiVo-Owned and MSO business. Could you provide any more color here, for example, for TiVo owned, was it due to an increasing contribution from research revenue? And also, how should we think about these sort of levels trending over the coming year?

Naveen Chopra

This is Naveen. On the TiVo-Owned, as you said, there was a healthy increase year-over-year on ARPU. Number of factors going on there, perhaps the most influential ones, new subs that are coming on, as we said before, are coming on at higher price points, typically around anywhere from $12 to $15 a month. So that helps drive ARPU up. You also have seen and probably will continue to see some volatility in that number because it does include revenue that we get through the advertising and audience research components of revenue stream as well. And over the last year, those things have contributed nicely to ARPU. On the MSO revenue side, year-over-year, it's basically flat with some minor decline. Keep in mind that in that segment, we're not counting the Virgin revenue, which is still rolling up into tech revenue where there are a lot of Virgin subs. So that tends to depress that revenue a little bit.

Operator

Your next question comes from the line of Barton Crockett of Lazard.

Barton E. Crockett - Lazard Capital Markets LLC, Research Division

A couple of little things about the numbers here. Your MSO third-party subscriber net additions, a little bit less this quarter than last quarter. I know Virgin had a little bit less. You cited the uptick in DirecTV churn. As we look ahead, any thoughts about -- I know you've got some more deals coming on. I mean, does this recent rate -- the last couple of quarters seem like a reasonably sustainable rate as you look over the next few quarters in terms of growth and MSO third-party subs? Is there any reason for it to change a lot from what we've just seen recently?

Thomas S. Rogers

I think our overall sub trajectory will be quite positive. The issue with Virgin, like with a lot of cable operators, ended the year with holiday seasonality tends to be a period where sub additions are less. We did see very nice sub additions, as I've said, from ONO and Suddenlink. We do have a number of cable operators coming on board. We do think the longer the period that operators are on board, the greater the likelihood of their acceleration of their sub rollouts as they go. So overall, we think the continued growth will be quite positive and wouldn't take much away from the Virgin seasonality.

Barton E. Crockett - Lazard Capital Markets LLC, Research Division

Okay. If I could switch gears just a little bit. I was wondering if you could update us on where you are on the Comcast rollout. They've been expanding their support for the box bought at retail, to comment on how that's impacting your retail business. And also charter, if there's any update there in terms of any changes and the potential for a rollout there.

Thomas S. Rogers

Comcast continues to roll us out to markets so that the retail product integrated with their XFINITY product is available to more and more of their subbases. We do see the Comcast markets generally outperforming in terms of retail sales, our general retail number, so the fact that it is the only offering that you can get linear plus VOD plus Netflix, Hulu, et cetera, the uniqueness of that, we do believe, is resounding. And it's something we continue to talk to Comcast about is how we can strengthen it as an alternative in their overall mix. We continue to work with Charter both with respect to their plans for how to deal with legacy boxes and for their future plans on cloud-based future implementations. And we find that those discussions are ones we're quite comfortable with within the context of our overall agreement and their decision time line for their rollout of advanced television.

Operator

Your next question comes from the line of Daniel Ernst with Hudson Square Research.

Daniel Ernst - Hudson Square Research, Inc.

Three questions, if I might, 2 for Tom and 1 for Naveen. Tom, I'm wondering if you could comment on the overall modern video landscape. We had some things happening recently. Netflix has been growing very fast as an $8 a month service. Arrow has launched outside of New York City now with an $8 a month broadcast plus DVR service and it seems that these are very attractive price points that continues like to -- or to speak to -- that serve the value part of the market and how that fits in with TiVo. And then second question, with regard to Liberty's acquisition of Virgin. How should be think about that as it relates to TiVo, and I'm thinking back to the time when News Corp. acquired DIRECTV and they at that time also had an internal DVR solution that ended up being competitive with TiVo, and how we should think about that with Liberty taking over Virgin? And then Naveen, in your capital allocation discussion, I don't believe you heard -- I heard you say that dividends were under discussion. I wonder if that's accurate and if so, why?

Thomas S. Rogers

In terms of the overall landscape whether you're talking about increases in availability of streaming content or you're talking about cloud-based solutions like Areo [ph], there are a lot of thoughts and themes that run together in looking at that. I think for purposes of our primary thrust which is to be the leading provider of advanced television to the cable industry, all of those developments are putting more and more pressure on operators to figure this out and to figure it out more quickly, both here and around the world that having an offering which forces consumers to look elsewhere for a broadband-based streaming content, allowing consumers to go elsewhere to find what might be more conveniently delivered, cloud-based implementations of recorded or on-demand television are, clearly, those are elements that are putting pressure on operators and that pressure is what gives us the ability to drive people across the finish line and come up with decisions where there are only a very few number of companies that do what we do. So we view all that as positive relative to our core thrust, obviously, on the retail side. We incorporate Netflix on the retail side. We have a much broader offering than a company like Areo [ph]. We obviously do accommodate the ability to both get over the air signals and over-the-top and if someone decides that they don't want cable content as part of that mix, that's an option where we uniquely provide a DVR to that kind of subscriber, so a different set of dynamics relative to those data points you mentioned on the retail side. But all of that is the environment that we're comfortable with and that's the environment that we navigate and position ourselves with competitively all the time. With respect to Liberty and Virgin, we've -- Liberty, as I've made clear, is well aware of the success that Virgin has had with TiVo, well aware of the value creation of TiVo with Virgin, well aware of the momentum in the marketplace relative to the competition that TiVo has created. I think they feel comfortable with that and they've indicated so, and we look forward to continuing to work with Liberty to drive further Virgin's success. We also look at it as a way to have developing relationship with Liberty Global, that we will look for opportunities where we may be able to work with them more broadly beyond Virgin. But certainly in terms of the focus that they're looking to bring to Virgin, we consider that all very quite positive.

Naveen Chopra

And with respect to your question on capital allocation and specifically dividends. I wouldn't take the lack of explicit mention of it to suggest that we have eliminated anything. We continue to look at a lot of different options. That said, the primary lens we use to evaluate those options is the generation of long-term shareholder value and, I guess, through that lens, I would say we're probably not huge fans of one-time dividends in terms of supporting that goal, doing something longer-term is obviously one that we have to include as part of our thinking, particularly as we get more clarity about long-term plans.

Operator

Your next question comes from the line of Alan Gould of Evercore Partners.

Alan S. Gould - Evercore Partners Inc., Research Division

I've got a few questions. First for Naveen. I see the stock was below $10 a share in November. Now I don't know if you're in a quiet period at that point in time, but could you be too conservative on this 10b5-1 plan? Second one would go to Matt. Matt, can you give us timing or some data as to what we should be looking forward to on this -- on the Motorola trial, when is jury selection, when does the trial start? And I noticed there's been a lot of motions back and forth, are any of these key to -- before the jury starts -- before the trial starts. And lastly, for Tom, Liberty Global is now rolling out their Horizon platform, have you seen any competitive response from -- any response from Liberty's competitors in those markets now they have an inferior software platform?

Naveen Chopra

Alan, so on your first question on the stock price in November and whether we've been too conservative with the 10b5-1 plan, a couple of thoughts. So first, for a tactical answer, we put the 10b5-1 plan in place later in the year so it was not in effect during the November period. I won't comment specifically on any of the reasons why we may or may not have been active in the marketplace at that time as I think you know there's a lot of factors there. I would point out that over the course of fiscal 2013, we did end up repurchasing around 2.5 million shares, deploying about $25 million of cash through a combination of open-market purchases, as well as the repurchase of employee stock. So we did manage to bring their share count down somewhat and obviously our goal would be the 10b5 plan, now having in place is that we can take advantage of dips or changes in the stock price over time.

Matthew Zinn

Alan, this is Matt. With respect to the Motorola case, the deadline -- the days you should be thinking about are towards the end of April, we'll have jury selection with a trial scheduled in early May. I wouldn't focus on any particular date because those dates tend to change a little bit. And when the -- we're in the kind of summary judgment motion stage heading into pretrial, so there are a bunch of motions flying around, there will continue to be a bunch of motions flying around, and you can see from our litigation spend that we're heavily into this now and we're looking towards to taking this up to completion.

Alan S. Gould - Evercore Partners Inc., Research Division

Matt, when will be hear from the judges so whether Google has to provide these documents, whether Mr. Yang has to testify and all that? That all comes out, I assume, pretrial?

Matthew Zinn

It should come out pretrial, the judge doesn't have to rule. Judges rule on their own schedule and different judges manage their docket differently. This particular judge hasn't been on the bench that long so there's not a lot of data in terms of how and when he's going to rule.

Thomas S. Rogers

As to Liberty Global and their rollout of Horizon, there hasn't been a lot of competitive information in terms of impact available yet since those rollouts are fairly new. But, yes, we certainly see from competitors in those markets, a real interest in getting clarity on what their options are in terms of their own advanced television rollout and obviously we come to the top of the list when it comes to those evaluations.

Operator

Your next question comes from the line of Todd Mitchell of Brean Capital.

Todd T. Mitchell - Brean Capital LLC, Research Division

Just a couple of questions here. First of all, in regards to your comments about Grande, you mentioned several others. Can we assume that you've aggregated some smaller, unannounced U.S. MSOs?

Thomas S. Rogers

Well, we announce them as we have them, but you can assume we are in discussions with several.

Derrick Nueman

But, Todd, I mean, some of the deals we were talking about are the ones we announced at the end of last year, Midcontinent, Cable ONE, Mediacom and Com Hem, which will be rolling out at different times this year.

Naveen Chopra

And I would also point out, Todd, one thing that we probably don't talk about a lot but for some of the Tier 3 MSOs, we actually work with a partner who, for the lack of a better term, kind of wholesales to those MSOs for us and we don't announce those deals deal by deal, but there's probably at least a dozen or so customers buying through that channel.

Todd T. Mitchell - Brean Capital LLC, Research Division

Okay. And then also, if we were to -- assuming no new wins, if we were to hold Virgin steady, just looking at kind of the run rate of customers you brought on, customers brining you on, would you're net adds go up next fiscal year?

Thomas S. Rogers

I don't think we do calculations like that, but we are accelerating the amount of non-Virgin additions that we get to our overall sub count that was an increase from last quarter to this quarter and we believe that the non-Virgin component of our sub-adds will continue to grow relative to our overall additions.

Todd T. Mitchell - Brean Capital LLC, Research Division

Okay. And then my last question is a little bit more, even more esoteric. Okay, so you seem to be pitching now pretty much a end-to-end turnkey solution for TV Everywhere. And it seems to be, as you rollout different components of that, whether it be cloud-based guides or CE devices or portals for MSOs, is there any point would you consider, perhaps, disaggregating that offer so that you could go to someone like a Cox and say, "Let me support CE devices that are connected to your network or let me support your portal, but you may not have to take my main hardware offering."

Thomas S. Rogers

Well, we are increasingly doing deals with operators where our hardware is not part of the deployment activity at all, it's somebody else's hardware that we may be integrating into. So clearly, we've already, well-crossed that line. Beyond that, though, the IPTV implementation that we are pursuing that we will be rolling out for the first time with Com Hem later this year is all about giving operators the ability to take content through our service, rapid NR [ph] customer experience and allow them to decide what kind of device it would be displayed on without a set-top box needing to be in the equation at all, be it our hardware or somebody else's set-top hardware. So both of those thoughts are very much a part of our overall strategy.

Naveen Chopra

Todd, I would add to that, that to the extent that the question is could you guys service an operator are all the platforms other than the set-top box, I think that's really more a question of where the operators mindset is. I think we've generally been open to that approach. I would say until quite recently, operators were highly focused on comprehensive solution addressing all platforms. But I think that may change and as it does, I think the good thing is we have so much of our value in the cloud and service components of it that it would be pretty easy for us to accommodate that approach.

Todd T. Mitchell - Brean Capital LLC, Research Division

And as you look at and see that approach changing, do you see that -- where it's coming from is sort of a different type of operator than kind of your traditional U.S. MSO, who's got very heavy pay-TV penetration and a DVR strategy already and maybe for a newer operator, who's probably got a more robust plant but fewer subscribers on it? Is that kind of the way that they are looking at it?

Naveen Chopra

If I were to characterize the guys that we have had discussions about, kind of starting away from the set-top box, they run the gamut. There are guys that, frankly, as you said have more advanced set-top solutions and, therefore, they're not quite as focused on addressing that. There are guys, who don't have particularly advanced set-top solutions, but just don't have the capital to invest in, deploying new set-tops and therefore, want to focus on other platforms. There are guys, who are not cable operators, who focus on distribution to non-set-top devices as kind of the core premise of their video service. So there's a lot of different reasons why people may come to us on that basis.

Thomas S. Rogers

But the cusp of your question, do we have the flexibility to be able to provide what operators need independent of a particular hardware implementation? Absolutely.

Todd T. Mitchell - Brean Capital LLC, Research Division

And my last question is, you just said that you had a -- you're operating a portal for one of your customers, basically a TV Everywhere portal, I'm assuming. When -- can you just briefly flush out, is that something you built for them and they operate? Or is that something you operate out of sort of your NOC and you could just duplicate it and rebadge it for somebody else, or I would have to build another custom one for somebody else?

Naveen Chopra

It's definitely not custom for each operator. There is some ability for the operator to tailor the branding. In the U.S., we host most of that stuff. Internationally, it would be a little different.

Operator

Your next question comes from the line of Edward Williams of BMO Capital Markets.

Edward S. Williams - BMO Capital Markets U.S.

Naveen, just a quick question for you looking at R&D. You had indicated that R&D should trend up a little bit in the first quarter. I'm wondering if, a, you can just elaborate a little bit more as to what's driving that. And then, secondly, if you can talk a little bit about how that line should evolve throughout the year.

Naveen Chopra

Sure. So in terms of Q1, as you said, we are expecting some moderate increase there. A significant piece of that increase is given by the payroll tax that tends to hit us primarily in Q1. Other increases are really more related to keeping resources in place that are actively involved in a number of the deployment activities that we have going on over the next few months. As Tom mentioned, we're launching 5 customers this year and there's some operational activity that goes into making sure that we can do that quickly and successfully. So we certainly envision bringing that expense down over the course of the year, but want to make sure that we get past those deployments, and I think we'll get a lot of the benefit of that in the back half of the year.

Edward S. Williams - BMO Capital Markets U.S.

Okay, great. And then another question I was looking for some clarity on is when Virgin begin the switch on being kind of recognized as the technology revenue towards subscription related revenue?

Naveen Chopra

We are not providing highly specific guidance on that. I'm fairly confident that will happen toward the end of this year.

Operator

Your next question comes from the line of James Goss of Barrington Research.

James C. Goss - Barrington Research Associates, Inc., Research Division

One aside from the discussion you were having a little bit ago about software solutions. Is there still a branded solution so that you're pretty insistent on having the TiVo name involved or does some of it wind up getting into a white-label area?

Thomas S. Rogers

Well, we really haven't had to be insisted about that. The brand has been something operators have wanted to embrace because they're able to stamp on their offering clearability to tell consumers that something new and innovative and captures that next-generation look and feel that they want to differentiate from their previous offering, and we found even in markets where the TiVo brand has not existed before is in embrace of the brand just for those reasons.

James C. Goss - Barrington Research Associates, Inc., Research Division

Okay. And one other aspect of it, you had discussed a fair amount, but the Virgin Media issue. The Liberty Global deal sort of takes stab into -- that combination is certainly in a Tier 1 category, which is an anomaly relative to what you've generally done. Does that -- it sounds like you're thinking there's no risk to your presence because of how you've become embedded in providing Virgin with quality. On the flip side, does it wind up giving you some capability of saying, "Look, we've done it there, other Tier 1 operators. Maybe we can do some of that for you." Or is it -- is that still not an issue?

Thomas S. Rogers

Well, we think the Virgin success is a great calling card generally. And as I've said earlier, if it's a basis upon which we can look to build some opportunities with Liberty Global beyond Virgin, we'll certainly be mindful of trying to develop those possibilities, either it be we have a clear contract with Virgin and success speaks for itself. And in the last 12 months, we have driven a substantial multiple of net adds for Virgin in the video realm relative to what their key competitor BSkyB has done and all of that I think it will -- is recognized by Liberty, recognized by the marketplace and increasingly recognized by other operators so we'll look to continue to use that success to drive opportunities everywhere.

James C. Goss - Barrington Research Associates, Inc., Research Division

All right. And the other thing I was wondering about is, you made a comment that advertisers are demanding a cross-platform measurement and you thought that could drive some growth in the coming years. Well, that's small right now. I'm just wondering how you would think it might fit into the mix over time, and what do you think the inner mix and ultimate mix would look like on an operational basis and perhaps, also on a geographic basis?

Thomas S. Rogers

Well, we acquired TRA because we saw that broad demographic data was not going to continue to be the cusp of how advertising decisions were made but instead, granular viewing data was going to increasingly be put together with purchase data as a way to assess what the best return on the marketing dollar was, and TRA had pioneered an approach to that in a breadth of data and granularity of data that they could apply to it that make them the leaders in that realm. And pretty quickly, after acquiring TRA, it became clear that the next piece of that, that advertisers very much wanted was non-TV viewing data so that the Internet consumption experience could be provided along with the TV consumption and the purchase data all from the same home, and we see a very big research pie out there and the current players not very responsive to the combination of TV viewing granularity, Internet viewing at a -- with a very broad measurement pool of homes and purchase data and we see with that an increasing number of advertisers coming on-board to our approach, so it is still a business we are investing in and I should say, investing in even as we look to bring down our overall R&D expense and it's one we see a good deal of potential in.

Operator

The next question comes from the line of Andy Hargreaves of Pacific Crest Securities.

Andy Hargreaves - Pacific Crest Securities, Inc., Research Division

I just wondered if you could walk through the Q1 guidance a little bit more, and the piece I'm just sort of confused about it, is it seems like there's so much of service and tech revenue now that is either subscription or licensing payments. Is -- I want to understand how it can fall that much. Is there something that's actually stopping and then picking back up? Or can you maybe quantify how much revenue you're expecting to move into Q2 just to help us understand that a little bit more?

Naveen Chopra

Yes, Andy, the important thing there is that the revenue, the sequential revenue change is really dominated by the timing of recognition for tech revenue. So the answer is kind of no, there's nothing in terms of the licensing components today that is changing significantly or stopping and starting or anything like that. But as I think you know, we have several relatively large development projects going on right now. We're only able to recognize the revenue from those that is paid by the operator upon the completion of certain milestones. Just so it happens that I think those milestones are likely to fall into Q2 this -- rather than Q1 this year. Obviously, in Q4 we had some milestones from projects that we're getting done at that point so you get some volatility in the total revenue as a result of that.

Andy Hargreaves - Pacific Crest Securities, Inc., Research Division

And just along those lines, is it accurate that the recognized revenue from Verizon was just under $6 million in Q4 and will be just over $6 million in Q1?

Naveen Chopra

Sounds about right.

Andy Hargreaves - Pacific Crest Securities, Inc., Research Division

Okay. On Charter, the CFO was at a conference this morning and said that they liked you quite a bit and are working with you. We know that there's, obviously, a relationship there but can you describe at all where that relationship stands and what your guys' expectations are?

Thomas S. Rogers

Well, we think we'll let Charter speak to that. I think that we continue to work with them. We have an agreement with them. It's one where they're figuring out their strategy on a number of fronts, both legacy boxes and their future cloud-based implementations and as we have news, I'm sure Charter will share it.

Andy Hargreaves - Pacific Crest Securities, Inc., Research Division

And so they try. And then just last, really quick. The sales and marketing SAC, is that expected to continue? I mean, are you guys going to continue to put decent money into advertising?

Thomas S. Rogers

Well, we're actually -- our SAC was actually slightly down year-over-year in the quarter. We are quite mindful of managing our EBITDA improvements by not making significant additional expenditures in that regard and quite, frankly, by pricing going up, the hardware subsidy going down, we're getting a higher price SKU as a heavier part of our overall sales mix. It's actually freed up some of the overall acquisition dollars to go into marketing messaging, meaning, we can reallocate where some of the subscriber acquisition dollars were going into messaging and away from price subsidy and other elements and hopefully, drive a stronger message but not drive up higher overall total acquisition costs.

Operator

Your final question comes from Mark Argento of Lake Street Capital.

Mark Nicholas Argento - Lake Street Capital Markets, LLC, Research Division

Just quickly getting back to your IP strategy. We wonder, you guys have had a ton of success over the last few years, is your IP and your monetization strategies, just taking the time to dig deeper in your portfolio I know you got a couple of hundred plus additional patents. Any opportunity to potentially put a broader base licensing campaign there and/or also looking at acquiring more IP, which you could then monetize or license?

Thomas S. Rogers

Well, we do continue to analyze it and evaluate it, but for the time being, our effort there is going toward litigating some of our key patents where we find the opportunity for immediate yield as the highest. But you are right, we do have an extensive patent portfolio that goes well beyond the issues that we are currently litigating and the opportunities for us there, we think, are significant over time.

Operator

This concludes the allotted time for today's Q&A session. I would now like to turn the call back over to Mr. Tom Rogers for any closing remarks.

Thomas S. Rogers

Thanks, everybody. We really focused on a number of issues today, but I didn't want to leave without just highlighting for all of you that the fourth quarter really was a very significant one, not only in topping the $3 million sub level, but it was our highest net revenue quarter in TiVo's history. It was our highest service and tech revenue quarter in TiVo's history. It was even our highest gross profit quarter in TiVo's history. And we feel very good about the metrics in terms of how the quarter came out and we feel that the trajectory we're on for next year is a strong one. So thanks, everybody, for joining us, and be back with you soon.

Operator

Thank you. This concludes your conference. You may now disconnect.

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