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Executives

Derrick Nueman - Investor Relations Executive

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

Naveen Chopra - Chief Financial Officer and Senior Vice President of Corporate Development & Strategy

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

Analysts

Michael J. Olson - Piper Jaffray Companies, Research Division

David W. Miller - B. Riley Caris, Research Division

Anthony Wible - Janney Montgomery Scott LLC, Research Division

Todd T. Mitchell - Brean Capital LLC, Research Division

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

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

Richard Tullo - Albert Fried & Company, LLC, Research Division

Perry Huang - Goldman Sachs Group Inc., Research Division

Daniel Ernst - Hudson Square Research, Inc.

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

Kannan Venkateshwar - Barclays Capital, Research Division

Rob Sanderson - MKM Partners LLC, Research Division

Michael Cohen

TiVo (TIVO) Q1 2014 Earnings Call May 20, 2013 5:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the TiVo First Quarter 2014 Earnings Call. [Operator Instructions] Thank you. 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, and welcome to TiVo's first quarter fiscal year ending April 30, 2014, earnings call. With me today are Tom Rogers, CEO; Naveen Chopra, CFO; and Matt Zinn, our General Counsel.

We did distribute a press release and 8-K detailing our first quarter financial results. We also posted a first 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 also access a recording of this call on our website during the next week. Our prepared remarks today shall last around 20 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 and our reports filed with the SEC. Any forward-looking statement made on this call today reflects our analysis as of today, and we have no plans or duty to update them. With that, I'll now turn over the call to Tom Rogers.

Thomas S. Rogers

Thanks, Derrick. Good afternoon, everyone. This was a very strong quarter for TiVo. We delivered adjusted EBITDA profitability even when including litigation expense exceeding guidance. MSO revenue increased by 98% year-over-year, indicating that many of our key operators around the world are successfully deploying TiVo. We increased our MSO subscription base by 277,000 subs from Q4, the strongest quarter of MSO subscription additions in over 7 years. We continue to expand our distribution, signing a deal with Atlantic broadband the 12th largest MSO and, most importantly, we believe our execution this quarter should set us on the right pathway to achieve adjusted EBITDA of profitability for the entire fiscal year even when including litigation spend.

So what's behind this success, not only this past quarter, but over the past many quarters? As I've described before, we spent significant R&D resources over the last few years to continue to differentiate our product offering and position it for fast deployment by pay-TV operators. This has enabled TiVo to offer a significant advantage to its MSO customers in the increasingly competitive pay-TV environment that they face. It has become abundantly clear to both midsized domestic operators and large international operators that they need to significantly upgrade their customer experience in order to maintain their subscriber bases. For many, however, the task of delivering a multiscreen offering, ho-hum capabilities and a way to search and discover an increasingly chaotic array of content to fully realize the value of vast VOD and over-the-type library extends beyond their technological prowess or their financial and operational resources, not to mention the continuing need to improve and innovate on these capabilities once they're deployed. So instead, many in the operator community are turning to TiVo and have found that once they did, they could clearly set themselves apart from competitors and create better overall subscriber metrics. As a matter of fact, half of the top 20 domestic operators offer a TiVo solution and many are directly attributing improved results to the TiVo experience.

To give you some more color on this, Virgin Media posted its sixth straight quarter of year-over-year improving churn. ONO is seeing a roughly 50% churn reduction driven by TiVo. Suddenlink noted in its recent earnings call that its TiVo customers churn less, watch more VOD and are more profitable. And more importantly, in a quarter where overall cable subs declined by 210,000 subs by some estimates, suddenly gained subs. For us, we believe our ability to help operators reduce their churn, increase VOD usage and substantially improve their subscriber satisfaction while bringing in new subscribers were the driving forces behind our MSO subscription gains this quarter. At this time last year, we told you that we were on pace to add a million subscriptions, which we believed at the time would lead to solid future revenue growth. We achieved that and the 277,000 MSO subscription additions this quarter surpassed even our own expectations. The resulting revenue growth trajectory has been equally impressive. We fully expect that as our existing operator relationships evolve and as we sign on more deals, this growth will continue.

Here are some additional details on our successful operator relationships this quarter. In the U.K., Virgin Media added 172,000 TiVo subscriptions in its fiscal first quarter, bringing the total to 1.5 million or 40% of its entire base. In Spain, ONO recently announced that its TiVo subvention base is now 166,000, an increase of 68% from 3 months ago. Suddenlink had another strong quarter of subscription additions where they recently reported that 80,000 TiVo devices were installed to date. In addition, we have seen significant acceleration since they began installing our whole-home solutions, including TiVo many and TiVo Stream. Midcontinent and GCI recently launched their TiVo offering. We expect Mediacom to deploy in June with Cable ONE following thereafter. In Scandinavia, Com Hem is moving closer to launching their TiVo offering with customer preregistration just underway. This new IPTV video delivery allows Com Hem to offer TiVo both in its traditional form and directly from the cloud to connected devices without the need for a set-top box. We believe this IPTV cloud implementation will further broaden the appeal of TiVo to other pay-TV operators, especially telcos across the globe. And very importantly, we signed a distribution deal with Atlantic Broadband, the 12th largest U.S. MSO who has over 250,000 subscribers in 7 states on the East Coast.

Shifting to the TiVo owned front, we continue to efficiently manage the business as churn remained low and subscription acquisition costs were down approximately 20%. Driving this decrease were improved hardware margins where nearly half of new sales were for our high-end 4-tuner products, which are typically hardware margin positive. Further, we're launching MLB.com tomorrow, another source of content on our TiVo own platform. From an innovation standpoint, our whole-home solutions including TiVo Stream and TiVo Mini, are helping drive strong TiVo deployment across the television landscape as I just mentioned. This quarter, we launched TiVo mini at retail, which satisfies consumer demand for a simplified whole-home viewing experience for the retail channel and is a more cost-effective solution than adding another DVR cable set-top box in another room. This is currently the only multiroom solution of its kind available at retail.

A major thrust for TiVo going forward will be increasing the personalization of the television experience. Our newest offering on this path is the just announced 'What to Watch' now feature of the TiVo iPad app, which brings together our mobile and personalization strategies. This feature personalizes the TV experience by combining TiVo recommendations and the preferences of the TiVo user into a personal dashboard, right on the tablet that frames just what the viewer wants every time they turn on the TV.

With much of the TiVo service already existing in the cloud, our mobile and personalization strategies are accelerated by drawing them together to such cloud-driven features as What to Watch Now. Looking ahead, we'll continue to focus on our vision of making consumption of television more personalized with more programming choices customized according to user-defined preferences and accessible from the cloud, enabling viewers to get those programming choices through TiVo on different devices regardless of location. Importantly, we are developing these innovative solutions while having reduced our R&D spend by 13% compared to the year-ago quarter levels.

Turning to our TiVo Research and Analytics business, our unique audience research data continues to be a valuable tool for major brands, advertisers and networks that are looking for a more granular understanding of TV viewing behavior. This quarter, we enhanced our abilities further in a couple of ways. First, we signed an agreement to ensure that Nielsen data is available alongside our single source data solution. We believe that the ease and convenience of being able to access the Nielsen information while conducting a far deeper analysis that the TiVo Research and Analytics product enables provides the simplicity that our customers have been seeking, allowing them to execute more advanced analysis and thus allocate marketing dollars more effectively. Secondly, to further foster ease and convenience for our client base, we merged the TiVo power watch rating service with the purchasing behavior insights from TRA data. By doing this, we are now able to provide marketers with unique insights to help them analyze the personal traits and attitudes of viewers while correlating this to their viewing behavior and their purchase decisions. The combination of these elements with the TRA offering provides a unique solution for our customers.

On to litigation front. Our trial with Motorola in the Eastern District of Texas starts on June 10, and we are gratified that the trial schedule is back on track. As with our past successes with EchoStar, AT&T and Verizon, we remain confident in our position.

In conclusion, it is clear from our results that our vision for the future of TV is playing out in much the way we expect it. We saw one of our best quarters ever in terms of subscription growth driven by a number of our existing operator deals in the U.S. and abroad that are now fully up and running. As a result, we delivered solid MSO revenue growth, which we expect will only continue as we roll out additional deployments. Further, we believe we can drive additional value by continuing to offer some of the most innovative products available, build our audience measurement capabilities and defend our intellectual property in upcoming trials. Consequently, we continue to believe that we should be adjusted EBITDA profitable including litigation spend for fiscal 2014. And with that, I'll turn it over to Naveen.

Naveen Chopra

Thank you, Tom, and good afternoon, everyone. The first quarter was a fantastic start to the year with strong financial performance across the board. I'd like to give you a quick rundown on the drivers behind our Q1 performance before discussing some of our expectations for Q2 and providing an update on our capital allocation strategy. Like last quarter, we continue to see strong growth in our mass distribution business in Q1. As Tom highlighted, we experienced our strongest quarter of MSO subscription growth in over 7 years gaining 277,000 new subscriptions in the quarter. And it's worth pointing out that the number of new subscribers coming from non-Virgin partners like ONO and Suddenlink increased meaningfully on both an absolute and percentage basis. Further, MSO revenues increased 98% on a year-over-year basis and, overall, Service & Technology revenues grew to $61.8, million coming in at the high end of our guidance range. We expect this growth to continue, especially as TiVo deployments by some of our recently launched partners like GCI and Midcontinent begin to hit stride and as several additional deals reached the deployment stage this summer.

We also exceeded expectations on the bottom line, both in terms of adjusted EBITDA and net income. These results reflected the fact that we successfully managed R&D expenses and continued to benefit from higher than expected sales of hardware to service providers, where we were able to utilize the remainder of previously impaired hardware inventory. Specifically with respect to R&D, our annualized run rate was about $15 million lower than the year-ago quarter. We're obviously very pleased by this outcome. I'll remind you that as we explained last quarter, R&D expenses can be lumpy so we try not to get too focused on quarterly results. We do, however, see strong evidence that we're moving in the right direction with respect to our full year R&D goals. In addition, we experienced slightly lower-than-anticipated litigation spend as delays in the date of the Motorola trial moved some trial-related expenses to Q2. Together, these factors led us to positive adjusted EBITDA of $0.8 million. If you exclude the $10.9 million we spent on litigation, adjusted EBITDA would have been close to $12 million.

Now looking forward, we expect to benefit from the progress we made this past quarter, as well as the positive trends we see in the business which continue to take us toward our goal of adjusted EBITDA profitability for full fiscal year 2014, including litigation spend. In terms of specific guidance, for Q2, we expect Service & Technology revenues of $68 million to $70 million, which is roughly a $6 million to $8 million improvement over the first quarter. Driving this increase is continued growth in our MSO business and higher technology revenue as we're now able to recognize the material development work relating to our international deployments. Additionally, we expect adjusted EBITDA to be in the range of negative $2 million to positive $1 million, and our net loss is anticipated to be in the range of negative $16 million to negative $13 million. These numbers include the impact of $9 million to $11 million in litigation spend in support of the upcoming trial with Motorola and the ongoing fiscal action. Relative to Q1, we expect modestly higher R&D as we have several deployments launching soon and we're working toward launching incremental multiscreen and whole-home products. However, consistent with our prior views, we continue to expect R&D to be lower for full year fiscal '14 versus last year. Additionally, our Q2 adjusted EBITDA at net income guidance reflects the fact that we expect MSO hardware margins to return to more typical levels in Q2 and beyond as we won't benefit as much from sales of previously impaired hardware inventory.

Before wrapping up, I wanted to provide an update on capital allocation and our share repurchase activities. During Q1, we were able to take advantage of litigation driven stock price volatility to repurchase 31 million of stock or almost 2.6 million shares through both open-market repurchases under our 10b5-1 plan and tax withholdings on vesting of restricted stock granted to employees. Since the time our board authorized the $100 million repurchase plan, the combined open-market and employee stock repurchase activity has retired a total of almost $57 million worth of our equity. Our 10b5-1 plan remains in place, and we are prepared to make additional repurchases in Q2 if our stock price experiences similar volatility. In addition, our $100 million buyback authorization is expiring in August and we'll provide an update on our plans to extend and potentially increase the size of the authorization on our next earnings call in August. We believe this timing makes sense as we expect further clarity on litigation matters in this period. We ended the quarter with $571 million of cash and short-term investments, down from the prior quarter, largely as result of the repurchase activity described previously and the timing of licensing payments from Dish and Verizon. As we look forward, we expect our cash balance to increase next quarter before factoring in stock repurchases or litigation settlements due to receipt of our yearly licensing payment from Dish. Our cash position remains a significant asset in driving long-term shareholder value, and we're continuing to pursue a variety of ways to use that cash to drive returns for shareholders with particular continued focus on our buyback program. Lastly, on the capital allocation front, we're also working to modify the settlement mechanics of our convertible debt instrument to give us the flexibility to pay both the principal and any premium owed upon maturity in cash or stock rather than just stock. We believe this would be a smart way for us to maintain flexibility in long-term capital structure given our significant and evolving cash resources.

To wrap up, we had a tremendous quarter which has set us up for a strong fiscal 2014 in which we continue to expect revenue and subscription growth and, more importantly, as a result should see full year adjusted EBITDA profitability including litigation expense. All in all, this past quarter was a strong indication of our ability to drive sustained long-term growth. With that, let's now take questions.

Question-and-Answer Session

Operator

[Operator Instructions] You have a question from Mike Olson of Piper Jaffray.

Michael J. Olson - Piper Jaffray Companies, Research Division

I just had a question about ARPU and why it was down sequentially in Q1 and just what are your expectations for ARPU for both TiVo owned and MSO subs in the coming quarters?

Naveen Chopra

It's Naveen. So on ARPU, let me hit both pieces of that separately. So on the retail side, as I think you noted, there's a slight decrease there sequentially. Couple of factors there, probably the most important was simply the fact that there were 3 fewer days in Q1 than Q4 so that affects the ARPU calculation. There's also some seasonally in the advertising audience research components of the business which also get captured in that retail ARPU number. On the MSO side, the service provider part of the business also slight sequential decline. Drivers on that side were primarily the DIRECTV flush in Q4, which you may remember there's fair amount of revenue that we're not able to recognize until the end of the year on DirecTV, and we also continue to have the situation on the MSO ARPU where we've got a lot of Virgin subs showing up in the denominator, that number where the revenue was still going into technology revenue. So that tends to dilute that number somewhat.

Michael J. Olson - Piper Jaffray Companies, Research Division

Okay. And then as far as going forward, is there anything you can say about ARPU in the next few quarters?

Naveen Chopra

I think on the MSO side and, I guess, probably generally also true on the retail side, I think we're expecting things to be pretty much in the range that you've seen of late you'll continue to see some seasonality on the add-on stuff. And as we said last quarter, we do expect by the end of the year Virgin revenue to be showing up on the service lines, so that should help things on the ARPU side as well.

Operator

Your next question comes from David Miller of B. Riley & Co.

David W. Miller - B. Riley Caris, Research Division

Matt Zinn, if you're on the call, I just have a couple of questions for you. Congratulations on the rule you got from the judge in the Eastern District Court basically stating that Cisco is going to be forbidden to add counterclaims against you guys. I just want to confirm 2 things about this and please by all means correct me if I'm wrong. Doesn't this eliminate a possibility that, that case would be heard in the Superior Court, Northern California district? It's all Eastern District Court of Texas correct?

Matthew Zinn

That's correct.

David W. Miller - B. Riley Caris, Research Division

Okay. And then, correct -- again, correct me if I'm wrong, but this would -- and, Naveen, if you want to chime in, too, it would be great but -- I mean, doesn't this cut your litigation cost a lot? I mean, in terms of what's earmarked for sort of the bottom half of fiscal '14 and into '15? I know you're not really couching fiscal '15, but, I mean, all you really have to do now is kind of prepare for trial with sort of the same team of attorneys that are trying the current Motorola Time Warner Cable case. Again, I mean, if Cisco had been allowed to file counterclaims, you would have had to hire a lot more additional legal talent to kind of prosecute and invalidate these patents, is that correct?

Matthew Zinn

Well, counterclaims, David, would have added meaningful cost to our defense. I wouldn't say it cuts down on our legal expense. It certainly doesn't add to it. We still haven't gotten into discovery with Cisco, so they're going to claim their products work a certain way and you have to have experts and just go through the whole discovery rigmarole which is very expensive, depositions and what not. But certainly, on the offensive side, we know what the discovery is there and we have our experts and claim construction, everything like that. So, yes, it's a bit more streamlined, but I wish I could say that there's a ton of efficiency from one case to the next, but these things always seem to eat up a lot of money.

Naveen Chopra

David, the short answer is, we're obviously happy that is the -- has been the outcome on getting those patents in, in terms of the expense. I don't think it changes our view of litigation expense this year and for next year, we'll assess that as we get closer to trial.

Thomas S. Rogers

We have indicated that we expect post-Moto that litigation will come down some and our overall litigation expense, obviously, is included in our view of being able to hit the -- hopefully hit adjusted EBITDA profitability for the full year and the main thing is strategically from a litigation point of view, very good news.

Operator

Your next question comes from Tony Wible of Janney Capital Markets.

Anthony Wible - Janney Montgomery Scott LLC, Research Division

Two questions. First, I hope you can comment on the cloud-based interface you guys are implementing at Com Hem, and when you might be able to scale that to other global operators? And what region do you think that may be more popular than others? And the second question is, if you could just update us on the settlement amount that you still have remaining from the Dish, AT&T and Verizon, just the remaining balance on cash that's yet to be received?

Thomas S. Rogers

On the first issue, Tony, the Com Hem implementation of IPTV based TiVo service is a very important development in terms of what we're offering operators. It's something that Com Hem is taking pre-registration on getting close to launching. Later in the summer, we expect them to begin to put some marketing muscle behind it. And different operators are at different stages, as you know, of their IPTV transition. One of the key things that operators are considering is how heavy a CapEx lift going to advance television involve, and one of the great virtues of an IPTV implementation is that it does not involve having to implement through a set-top box. It involves being able to use other devices quite readily and increasingly IPTV, what it does involve a set-top box we think it will be a much thinner client that will enable people to reduce CapEx expense as they look at how to more broadly distribute IPTV, and that will have appeal both in Europe and North America hopefully over time, and we think Com Hem will be a key showcase for us as others consider their own transition, and we will have different examples for people around the world to look at, globally Com based implementations, full IPTV implementations and hybrid implementations of both Com and IPTV for all kinds of operators to look at. As to your second issue, we can give you a broad sense of that.

Naveen Chopra

On the settlement question, I think you're asking about the cash, so rough numbers. We can get back to you with specifics. We think on Dish, we've got about a hundred -- a little less than $170 million remaining cash owed. Remember on both Verizon and AT&T, there's both a fixed component and a variable component. So with respect to the fixed component on Verizon, I think it's a little less than $150 million and on AT&T, they're probably around $125 million.

Operator

Your next question comes from Todd Mitchell of Brean Capital.

Todd T. Mitchell - Brean Capital LLC, Research Division

I would like to go back to the Com Hem implementation as well. So can you talk to me about -- a little bit -- I know it's not gated in these IPTV implementations by kind of CapEx, but speed-to-market, what can you do to drive any sorts of implementations to drive sub-adoption both in sort of an organic sub-adoption like you would have at Com Hem when they're building out their pay-TV platform and maybe in a rework of another plant? Could you actually go down and into pieces like a few hardware?

Naveen Chopra

Can you say the last part of that again?

Todd T. Mitchell - Brean Capital LLC, Research Division

If you were to go with sort of a cloud-based guide on, basically, on a more mature platform, was there anything you could do to kind of drive your UI down into their legacy hardware?

Naveen Chopra

Yes. So first part in terms of speeding up the adoption in kind of, as you said, the more traditional approach with a next-gen IP box. I think one of the things that we and many others in the industry are probably most focused on there is the extent to which we can accelerate the reduction in the cost of CapEx that is required for a next-gen solution. Today, even those deploying IP-based implementations are still doing so with relatively expensive in-home investments, and I think the faster we can evolve to next-generation chipsets, next-generation software, et cetera, we will be able to make a dent in that and lower the hurdle for a lot of these operators. And that's a big part for where our R&D focus lies. In terms of the legacy platforms, also an area where there are some interesting approaches being tried by operators, both domestically, as well as internationally, to use cloud-based guides to do a lot of the rendering of the UI that is then displayed through a legacy set-top. We are actively involved in some of those evaluations. And as you said, I think it's a good way of getting an upgraded experience out much more quickly, but we believe there are still a number of reasons why at the end of the day there will still be an important role for a true next-gen solution.

Todd T. Mitchell - Brean Capital LLC, Research Division

And if you could do a sort of a very broad implementation on a fairly large platform with a lot of subs and do it in sort of a TV Everywhere cloud-based [ph] guide, how do we sort of think about the economics to TiVo? Do we sort of move it, the ARPU question, back to household? Or would you still be looking at total devices? How should we think about that?

Naveen Chopra

Yes. While there's certainly some variability in our deals, most of our deals for quite some time now have been kind of subscriber or household-based such that our revenue is largely independent of the device through which somebody is accessing our user experience. So whether that's a set-top box or a browser or a tablet, we're largely independent of that in terms of our revenue structure.

Todd T. Mitchell - Brean Capital LLC, Research Division

And so as you move into these cloud-based -- I mean, I'm sure you think of it sort of as a return on invested capital of your own, is a broader and faster deployment on a less expensive hardware base, and basically allow you to generate a higher ROI with basically the same household economics?

Naveen Chopra

Yes. I think, Todd, it's probably tough to make generic statements about something like that because as you well know, it's highly dependent on who the operator is, where in the world the operator sits and a number of other commercial elements to the deal. I will say that, obviously, the faster we can get out to market and beyond the upfront development, the better those deals typically look for us.

Thomas S. Rogers

Obviously, where we have implemented with Tier 2 operators in the United States, we've been able to do so very quickly and very cheaply because we've leveraged the R&D activity very broadly with similar implementations across that class of MSOs. And to the extent the IPTV-type cloud-based work developed with that degree of leveragability, and the hope certainly is that we provide the kind of solution that will allow operators to leverage that with less dependence on hardware that you can see over time, that same degree of R&D leverage and the margins it provides.

Operator

Your next question comes from Brian Fitzgerald of Jefferies.

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

Following along the same line of questioning on the IPTV solution, we suppose demand is robust and it's easy and cheaper to extend the multi-room, to what extent can you package the Mini interface on some much more rudimentary technology, USB, dongle, game consoles or any other type of hardware? And then, I guess, would you say there's balanced interest across both Stream and Mini? And then one follow-on after that.

Thomas S. Rogers

Well, the multi-room, multi-device elements of our offering have gained us a lot of traction in the operator community. And some operators put more emphasis on one and another. Certainly, there's an interest on the part of operators to look at non-operator supply devices, game consoles or other pieces of equipment as a way to provide second-set whole-home implementation for them. That's obviously something where they can continue to look to be the key service provider, and the key provider of the user experience within the home without having to think about providing any kind of equipment at all. The Mini allows them to do it cheaper. Certainly, operators are looking to do it even more cheaply than that, meaning not having to have any investment in additional equipment in the house to providing multi-stat experience, and operators are looking for our software and cloud-based services to accommodate that. And certainly, we want to accommodate operators' strategies in doing so. So that's very much a part of our evolution, some of which we're in a position to be able to do today, some of it with additional devices will come in the future. Naveen, any other thought on that?

Naveen Chopra

I think just specifically, with respect to the kind of extension of the strategy on Mini, I think we are certainly conscious of the fact that with an IP box that really needs very little other than an IP connection, there are a variety of hardware platforms out there, some which will be, as Tom said, some which the operator will provide, some that the consumer will provide, and that may also allow us to enable a variety of different services depending on how those boxes are provided or required.

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

Great. And then quickly, I want to tread home on in Cisco. You mentioned cost moderation kind of, and the rejected counterclaims kind of plays into that. But to what extent does the lack of counterclaims really represent a weaker Cisco case to begin with?

Thomas S. Rogers

Well, we're not going to characterize the case other than to say that we believe, obviously, we have a very strong position in these cases, and then we'll pursue them full force and rulings along the way that are helpful. We certainly applaud. Obviously, there are always interim rulings in cases, and some go your way and some don't, but we keep ourselves focused on the guts of these cases where we believe we have a very strong position.

Operator

Your next question comes from Barton Crockett of Lazard Capital Markets.

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

I wanted to just pull a little bit more on the third-party sub-growth, the 277,000 that you put up this quarter versus the 222,000 in the last quarter. I was wondering if you could break down a little bit more what drove that because your biggest customer, Sudden -- Virgin, added fewer -- a little bit fewer, 172,000, I think, versus 187,000 or so in the last quarter. So what picked up the slack and what drove it to this much bigger number?

Naveen Chopra

Barton, it's Naveen. So the -- you're identifying, I think, a very important trend which we referenced in some of our comments, a situation obviously where we've got overall sub-growth, but Virgin as a percentage of that, as well as on an absolute basis is smaller than it has been historically. A lot of the growth is coming from both sides of the pond, if you will. ONO has exceeded our expectations with their deployments, as have a number of our domestic operators like Suddenlink and RCN. I think a lot of that has been driven by the availability of our whole home solutions, which is, I think, viewed as a real competitive answer for a lot of these operators, and we're seeing them step up their level of aggressiveness in terms of the marketing and deployment of the TiVo solution now that they have that full portfolio in their hands. So we think it's a great sign of what the future opportunity is that we're able to drive significant sub-growth from a number of these operators, and remember that we have several of these that are yet to be deployed in meaningful numbers. And we think that will contribute down the road as well.

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

Okay. And just a follow-up, given that you've got some more deployments ramping up, do you have any particular statement you could make on your confidence that this 277,000 number is something that you can sustain over the next few quarters or expand upon?

Naveen Chopra

Well, as you know, we don't guide to specific numbers, but we think that a lot of the trends that drove the Q1 performance remain in place. And we'll have to see how the exact numbers play out.

Thomas S. Rogers

As Naveen said, there are a number of deals that we signed within the last year where operators have yet begun deployment than when we begin to get contributions from the full load of relationships that we've entered into, you're going to see ongoing momentum behind those numbers.

Operator

Your next question comes from Rich Tullo of Albert Fried.

Richard Tullo - Albert Fried & Company, LLC, Research Division

One clarifying point on the Com Hem, is TiVo providing total solutions such as the solution with Virgin or is the relationship a little bit more different -- a little more that you're you kind of providing the operating system behind the Com Hem interface? Or are you just providing the -- not just, but are you providing the DVR service independent of the Com Hem solution?

Naveen Chopra

It's very similar to Virgin in the sense that it's a third party -- where a set-top box is involved, it's a third-party set-top box. Obviously, all the other devices, PCs, tablets, et cetera, are provided by the consumer. And in all cases, TiVo provides really the vast majority of the software from the middleware on, as well as all the software that goes in the cloud to drive a service.

Thomas S. Rogers

And likely, then we are the primary provider of their overall advanced television experience that they intend to roll out broadly.

Richard Tullo - Albert Fried & Company, LLC, Research Division

And so I want to just wanted to make sure, and also, when we are looking at this, is there anything which remain to the United States, particular to the United States, that would prevent a cloud rollout such as that Derrick [ph] said, a small operating system in the United States?

Naveen Chopra

I don't think there's anything technically that precludes that. I think you've got operators in a lot of different parts of the spectrum in terms of how far down the road they are in adopting a full IP implementation. There is, obviously, some work they have to do on the network and their content agreements to support that.

Richard Tullo - Albert Fried & Company, LLC, Research Division

Okay. And one last question, when we were talking about subscriber adds, I thought the number was pretty good. We estimated a long time ago that when you get to these kind of numbers that you're posting now. And you've done so without Charter, which I think is pretty impressive. Is Charter one of those things that we think are in the pipeline coming up? Or are we talking about more momentum behind, let's say, Comcast or some of the others? Or you're just not going to comment?

Thomas S. Rogers

Well, we continue to work through Charter's strategy for advanced television, which they're still in the process of formulating and continue to work with them. We have a number of other operators coming on board so we're looking broadly for contribution for those sub-numbers coming -- going forward.

Richard Tullo - Albert Fried & Company, LLC, Research Division

And one last question, if I may. And I'm sorry, I didn't want to ask too many questions. But with this relationship that you have with Nielsen, can you please provide a little color on that because it seems to me, to make TV Everywhere to work, there needs to be an aggressive and bold ratings element to it. Otherwise, the company is not going to get credit, the content -- it's not going to get credit, so the views are over-the-top for TV Everywhere. And what you're doing with Nielsen sounds like it's pretty vital along those lines.

Thomas S. Rogers

Well, just very quickly because we have a number of people who want to ask questions before we run out of time. We're very focused on our software, providing the ability to capture data as there are more and more viewing sources, both linear and over-the-top. The agreement with Nielsen is really one we entered into for the convenience of our subscribers, so they have the ability to access Nielsen data within the same frame as the data they're using from us that give them a much more granular and deep view of viewing analytics and purchase behavior, so it's a convenience mechanism that are -- enhances the usability of our product.

Operator

Your next question comes from Perry Huang of Goldman Sachs.

Perry Huang - Goldman Sachs Group Inc., Research Division

Just want to ask a question about the revenue outlook for July. For the $68 million to $70 million revenue range, was just wondering roughly how much from the technology line was pushed from the first quarter, just trying to think about normalized revenue trends. And then also the outlook assumes that both service and tech revenue increases sequentially. For services revenue, it looks like, historically, it's been sort of flattish from April to July. Just to confirm, we should think about the sequential revenue increase for services, driven by sub adds sort of based on Naveen's commentary about ARPU trends from January to April.

Naveen Chopra

Yes. So on the first question, with respect to how much of the Q2 revenue guidance is coming from the push of tech revenue from Q1, I don't want to get into exact numbers, but there's a few million in there that is a reflection of that. There is also revenue coming from a number of other sources unrelated to the specific milestone that we were unable to recognize in Q1. So that's not the single driver, if you will. In terms of overall service revenue trends, I think general formulation you described there is accurate, look at current ARPU trends against current sub-growth trends and I think you should be in the ballpark on the service side.

Operator

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

Daniel Ernst - Hudson Square Research, Inc.

I have 3 questions, if I might. First, Naveen, just a quick housekeeping. You mentioned that the cash flow's impact in the quarter by the timing of Verizon and Dish summer payments and I thought those were on calendar quarterly, correct me if I'm wrong. And then, 2, bigger picture, Tom. What does the pipeline look like for sort of the near million and above sub-addressable MSOs? So you've had a great growth from Suddenlink and ONO this quarter in the near million and of course, Virgin continues to add their extra $4 million or so. So what does that pipeline look for the sort of good-sized, midsized operators? And then 3, for Matt, can you -- not talk just about the case, but can you educate us a little bit about the dynamics of the Motorola case, given that you're the defendant and how that will sort of play out and how we read news flow as the trial goes on and given again that, again, you're the defendant and it's a little bit different dynamic than your prior court case?

Naveen Chopra

So Dan, on the first one, Dish is an annual payment on the cash, so that's what's driving that dynamic, so we get the payment in Q2. And then Verizon is, yes, a quarterly payment, but was actually I think a day or 2 late this year, so we were not able to recognize it in Q1, so you'll see 2 Verizon payments in Q2.

Thomas S. Rogers

Meaning it was part of our revenue. We just didn't see it as part of our cash.

Naveen Chopra

Yes, on cash, sorry.

Thomas S. Rogers

On the pipeline question, we were in deep discussions with a number of operators of all sizes, obviously in the operators we've targeted in the United States, while there's some that are in the million-type range that have not yet come on board. Most of that opportunity in terms of operators that size and larger lies outside the United States where we have a number of conversations going, and we continue to see the kind of interest that in what we do from all-size operators, all of whom have these transition needs, so that the nature of the discussions are really across the full-size spectrum. Matt, on the Moto case?

Matthew Zinn

Yes, so good question, Dan. In terms of dynamics, you're correct. We are the defendant in the case, so that means that Motorola gets to present its case first, which is beneficial. It's always beneficial to go first in any case because you are kind of characterizing things the way you want to and then the defendant has to go and kind of reorient the jury and the judge as to their version of things. So it's a little different than we've had to face in the past. But at the end of the day, the facts are the facts and we're confident in our counsel's ability to present the facts the way that the jury's going to understand and we'll have a good result.

Thomas S. Rogers

Regardless of which side we are designated, our counsel is extremely experienced in front of an Eastern District jury. So speaking to the jury clearly about what's going on is really what we focus on most on our counsel there, both local and patent counsel are extremely practiced in that.

Operator

Your next question comes from Alan Gould of Evercore Partners.

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

Your last 5 deals, including Atlantic Broadband, to all announced in the last 9 months have all been domestic, yet it seems that the companies that that have accredited the TiVo service the most have been through the European ones, Virgin and ONO. Can you give us a little more update of what's happening in Europe and if there's any progress also going on in Latin America?

Thomas S. Rogers

Well, we have conversations going both in Latin America and Europe. And you're right, we have gotten great testimonials out of both Virgin and ONO, not that we haven't gotten great testimonials out of U.S. operators. And I do think there's a bit of an international focus on the Com Hem IPTV development and people being able to see the full range of implementation strategies available and wanting to see how the Com Hem piece plays out. I think that, as I said before, the ability to implement in the pure qualm environment through a hybrid opportunity that some may find attractive, we're having people wanting to touch and feel just as they did the Virgin experience, and I think that has something to do with it.

Operator

Your next question comes from Kannan Venkateshwar of Barclays.

Kannan Venkateshwar - Barclays Capital, Research Division

Just one question, which is on the convert. I wanted to -- now that you have the option to pay that in cash or in stock, is that a likely scenario that the convert, because it's not callable, gets paid out in 2 years? Or just given the issuance environment right now, there's an opportunity for you to maybe go out and term that maturity out and get better terms?

Naveen Chopra

Yes. So in terms of likelihood of what happens, obviously, we don't want to speak around specifics there. My comments earlier were intended to make clear that we believe having that flexibility could be valuable to us depending on what the balance sheet looks like as we get closer to maturity. Obviously, we got a lot of things in our future here that could significantly enhance the cash assets for the company. In terms of other transactions, with respect to the convert, it is an environment that we keep our eye on, obviously, pretty attractive markets for converts right now. And one of the tricks we have with our existing convert is that it's significantly in the money. And so the cost of why we can't call it, obviously, there are other transactions there that as far as we look at them right now look pretty expensive, but something we'll continue to look at and perhaps makes most sense to evaluate as we get through some of the upcoming litigation.

Operator

Your next question comes from Rob Sanderson of MKM Partners.

Rob Sanderson - MKM Partners LLC, Research Division

Made it under the wire here. A couple of, I guess, quick questions. Just with respect to the pipeline, do you think the new deal pipeline -- is this a year where you expect to see deal momentum a lot like last year? And are the incremental opportunities, are you more bullish on the telco IPTV prospects or new potential cable operators? And then a second, more housekeeping, you talked MSO hardware margins normalizing now that you've exhausted a lot of the benefits from reclaimed hardware, what's normal? Just looking back over the past 4 years, it's been as low as 5% as high as 25% or something like that range. Or what should we be thinking about what a normalized MSO hardware margin looks like?

Thomas S. Rogers

We, generally, as you know, don't seek to drive significant margin off of our hardware product either at the retail or in the operator business prospects on both, as you know, have been somewhat beneficial to us and laid on the retail side as a result of the higher-end SKUs, which are profitable to us from a hardware sales point of view. That's increased also. But generally, we don't look to drive significant margin off the hardware side of our business. And the first part of the question again?

Rob Sanderson - MKM Partners LLC, Research Division

Just a question on your enthusiasm for the MSO pipeline, and is it a deal momentum? Do you expect it to look a lot like last year? And finally, are you more bullish on the telco or the cable prospect?

Thomas S. Rogers

On the pipeline front, look, we certainly have enthusiasm coming from cable operators and we've become the leaders, I think, it's fair to say, in terms of providing advanced television to the cable industry, and we certainly hope to win on more adherents to our approach and we are not guiding or predicting there. But certainly, we have a strong level of enthusiasm. Obviously, the IPTV implementations that we're pursuing do open up possibilities with another class of operator that would be interesting for us to have relationships with going forward, and we certainly see the possibility of pursuing deals more fully there as well. Overall, I'd say that we know that there's these transitions to advanced television to cloud-based services, to IPTV, to less hardware, more software focus. All these things are trends which move things in our directions. The more implementations we have, the more variety of the implementations we have, the more credibility we have to be able to take on an operator's particular configuration or architecture and show that we have the expertise to do it. So all those trends are moving in our direction. The issue is the speed with which the operators are going to make those transitions and we do believe that, that will begin to accelerate also and have a natural inclination to hopefully accelerate our deal flow as well, but we like all the trends we see there.

Operator

Your final question comes from Michael Cohen of MDC Financial Research.

Michael Cohen

This question, I guess, would be for Tom or Matt. To date, we've only been given hints regarding your damages claim in the upcoming trial against Motorola and Time Warner, and we've seen in one court filing that your damages claim is in the multi-billions of dollars. Just wondering if you could give us a little bit more color in terms of what you're going to be seeking in that trial. And if you can't give us a specific number, maybe a definition of multi as more than $2 billion or $3 billion.

Thomas S. Rogers

Well, we're not going to speak to our damages claims at this point going into trial. We're focused toward making sure that we are successful in what we put forward. I think we have a very clear case and one that has significant damages attached to it, as well as the pursuit of injunctive relief, which is a very important part of the case, and we will be playing that out fully for judge and jury in the not-too-distant future.

Operator

This concludes today's question-and-answer session. I would now like to turn the floor back over to Mr. Tom Rogers for any additional or closing remarks.

Thomas S. Rogers

Well, appreciate everybody joining us today. I think the MSO thrust and the continued success we're having on that front speaks for itself. We're gratified to see that the MSO revenue, the MSO subs and the overall financial metrics coming together in a way that certainly underscore that. We're very proud of the ongoing development we have in the areas of organizing content and user experience, mobilizing it, putting it across multiple devices in whole-home, personalizing it as indicated by our recent announcement on what's on now and what that does to help people be able to get just what they want when they turn on their television set and of course, the IP litigation, which we're very gratified to be pushing forward with in the kind of schedule that we're looking to see. So appreciate the support and we'll continue to keep you posted as developments occur. Thanks again.

Operator

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

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