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TiVo Inc. (NASDAQ:TIVO)

Q4 2014 Results Earnings Conference Call

February 26, 2014 5:00 PM ET

Executives

Derrick Nueman - Head, Investor Relations

Tom Rogers - Chief Executive Officer

Naveen Chopra - Senior Vice President, Business Development and CFO

Matt Zinn - General Counsel

Analysts

Edward Williams - BMO Capital

Tom Eagan - Northland Securities

Todd Mitchell - Brean Capital

David Miller - Topeka Capital Markets

Tim O'Shea - Jefferies

Barton Crockett - SBR Capital Markets

James Goss - Barrington Research

Richard Tullo - Albert Fried

Mike Olson - Piper Jaffray

Alan Gould - Evercore

Justin Kwok - Goldman Sachs

Daniel Ernst - Hudson Square

Danielle Coker - Stephens Inc.

Operator

Good afternoon. My name is [Kim], and I’ll be your conference operator today. At this time, I would like to welcome everyone to the TiVo Fourth Quarter Fiscal Yeah 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Derrick Nueman, Head of Investor Relations. You may begin your conference.

Derrick Nueman

Thank you, and good afternoon. I'm Derrick Nueman, TiVo's Head of Investor Relations. Welcome to TiVo's fourth quarter fiscal year ending January 31, 2014 earnings Call. With me today are Tom Rogers, CEO; Naveen Chopra, our CFO and SVP of Business Development; and Matt Zinn, our General Counsel.

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

Today’s remarks will last 25 to 30 minutes and this will be 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 the call 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.

Tom Rogers

Thanks, Derrick. Good afternoon, everyone. The fourth quarter marked a successful and what was a very strong fiscal 2014. Service and technology revenues were $84 million, an increase of 28% year-over-year. Adjusted EBITDA was $19.6 million exceeding guidance.

Total subscriptions grew by 34% year-over-year and now stand at approximately 4.2 million. We delivered a record 313,000 cable MSOs subscription additions in the fourth quarter. We saw positive TiVo-Owned net additions for the first time in six years, driven by a 41% year-over-year growth in gross additions and a lowest absolute churn in almost eight years.

We believe that our business is performing well and with the number of strategic growth initiatives now playing out we have set the stage for what we believe will be another great year in fiscal 2015.

Before I get into the details of the quarter and some commentary on how we are looking at our business going forward, I think it’s worth spending some time on our recent acquisition of Digitalsmiths.

As you know, over the last year, we have taken the deliberate and thoughtful approach to use of our capital, especially around potential M&A activity. Our focus has been on finding a business that is well-positioned to capitalize on the transition to the cloud-based delivery service, has significant growth potential, complements our own go-to-market strategy and at the end of the day exceeds the stringent internal financial and strategic parameters we have put in place. We are confident that Digitalsmiths meets these criteria.

For those of you who are new to the Digitalsmiths business, it is the Pay-TV industry’s most broadly adopted cloud-based content discovery and recommendation service, offering personalized video search, recommendations in browsing, printing life support, social trending and mood-based discovery which can be used to instantly connect consumers to the most relevant movies, TV shows and live events available at anytime, on any screen, including set-top boxes, tablets, smartphones, computers and gaming consoles.

Why is it so valuable to TiVo? Well, first, this acquisition expands TiVo’s role with Tier 1 U.S. service providers as Digitalsmiths currently work with seven of the top 10 U.S. Pay-TV operators, including Time Warner Cable, DIRECTV and DISH.

Its customers also include content providers and consumer electronic manufacturers and in the U.S. Digitalsmiths customers footprint reached 64% of the country’s Pay-TV household.

This will allow us to offer our products and services to both operators who want our user interface, as well as those that are looking to build their own user interfaces but need a strong content and discovery service powering it. It is also worth mentioning that not only do we plan to support the Digitalsmiths product going forward but intend to help accelerate the Digitalsmiths’ product roadmap as well.

Second and very importantly, it advances our cloud-based capabilities. As you know, we have been putting more of our service and intelligence in the cloud and Digitalsmiths fits well into this strategy with its software as a service cloud-based approach. Yet Digitalsmiths’ offering continues to be successful and well-received to date because of the ease with which it is integrated in Pay-TV operators existing architecture.

And finally, from a financial standpoint, we expect double-digit revenue growth rates for Digitalsmiths for the next several years, primarily from increase penetration within its current customer base, as well as with the new customers that brings on board.

The highly efficient nature of Digitalsmiths software as a service offering to drive strong margins and material contribution to TiVo’s overall adjusted EBITDA in fiscal 2016. We expect Digitalsmiths to be adjusted EBITDA positive in fiscal 2015.

With that, let’s talk about some of the highlights from the quarter. As I mentioned, we saw impressive subscription improvement at both the operator and TiVo-Owned levels in the fourth quarter.

Our record 313,000 MSO cable subscription additions exceeded last quarter’s strong results and underscore that TiVo offering continues to be deployed aggressively by operators globally.

More specifically in Spain, we have seen significant success with partner ONO, which recently announced that the TiVo product has now reached more than 323,000 active users, a growth of 65,000 subscribers in just the last quarter.

Rosalia Portela, CEO of ONO, recently said, the company is positioning TiVo as the Pay-TV market benchmark and the record numbers shown in the last quarter show customers recognize that it's an easy-to-use, highly advanced service that is superior to traditional offerings.

In Sweden, Com Hem reported 38,000 TiVo subs, with the service already reaching 6% of their customers in just three months, which was faster than the time it took Virgin or ONO to reach those same penetration levels.

Andrew Barron, Executive Chairman of Com Hem recently said, “TiVo is important to Com Hem as it is the key to restoring growth in our DTV business. The combination of the powerful TiVo platform and our broad content offers provide the strongest TV product available in our market.”

In the U.K., the two millionth Virgin Media TiVo customer has been connected since the service launched in December 2010. Commenting on the milestone, Scott Kewley, Virgin Media's Director of Digital Entertainment, said, “Virgin Media TiVo started a revolution in the way people watch and discover great TV and it's clear from our growth that our customers agree.

By offering different ways to watch, with subscription and pay-per-view options, all integrated into a straightforward, intuitive experience, there's an unrivaled world of great entertainment at our customers' fingertips.”

Additionally, we continue to add distribution partners, announcing this week that we have been selected by Vyve Broadband, a new MSO run by former Bresnan Communications executives through the acquisition of systems from Mediastream and Allegiance Telecom. Vyve now captures over 300,000 households and have 70,000 subscribers. This deal represents a new strategic initiative for TiVo, focused on bringing the key parts of the TiVo experience to low cost devices, beginning with digital terminal adapters also known as DTAs.

DTAs are deployed in large volumes by many operators who aim to provide digital services with limited investment in customer premise equipment. Historically, DTAs have been dumb devices with limited feature sets and user interfaces.

We’ve been able to greatly improve the user experience of five DTA products by connecting our TiVo cloud service feeds with third-party software to implement elements of the TiVo user experience. Under the terms of this deal, Vyve will be exclusively deploying TiVo-enabled DTAs going forward. And we believe this could become an attractive product for other operators as well.

On the TiVo-Owned front, TiVo Roamio continues to be well received by consumers where a 41% year-over-year increase in gross additions and our lowest absolute churn in almost eight years with the fourth quarter positive net subscription additions for the first time in six years. In region, where we advertised, we saw gross additions increase at a meaningfully higher rate in the markets where we did not.

Roamio also continues to see -- receive rave critical acclaim, including from David Pogue, the former tech columnist for the New York Times, who in one of his first posts in January on Yahoo Tech, said, ‘TiVo's design is filled with smart, elegant grace notes that most cable-company boxes just don't have. TiVo cultists like me should prepare to rejoice.’

He further added that with Roamio, 'you wind up with a single box that gracefully serves the functions of a cable box, Apple TV or Roku, and Slingbox -- and a single remote control at that. You wind up being able to search and watch cable shows and Internet shows identically. You wind up being able to watch its recordings anywhere in the house -- on another TiVo, on your iPhone/iPad or over the Internet.'

Further, we are finding that TiVo Roamio's value proposition is being increasingly understood by our customer base with 78% of streaming-capable TiVo subs using the in-home or out-of-home streaming features each month. Additionally, the average number of monthly streaming sessions grew over 50% in the second half of 2013 to about 16 sessions a month and the time spent on streaming sessions grew 20% per user on a monthly basis. This significant usage highlights the fact that Roamio is changing the way viewers consume television by helping deliver on the promise of any content, anywhere and on any device.

In addition, we recently announced the partnership with Control4 Corporation, a leading provider of automation and control solutions for the connected home, to make TiVo the first cable set-top box with DVR, streaming services, and multi-screen capability, capable of being seamlessly integrated with comprehensive home automation solutions for lighting, home audio, climate control, or security. We believe that this integration will help further enhance TiVo Roamio's attractiveness in the home professional install channel, where there are significant opportunities for us.

On the innovation front, at CES, we again demonstrated our Network DVR prototype for operators and revealed further plans to bring the TiVo DVR experience to the cloud for operators. In addition to moving the TiVo DVR experience to the cloud, unique aspects of the TiVo nDVR capability involve enabling operators to manage complex content rights, achieve far easier distribution and drive new and increased revenue streams, in addition to developing new consumer viewing features and capabilities.

This dovetails very well with Digitalsmiths' cloud-based service that enables easy implementation of personalized metadata-related content search, browse, and discovery. Further along nDVR and Digitalsmiths, our innovation priorities were focused on personalization even better content integration, bringing TiVo to more devices including thinner iPTV set top boxes as well as many other initiatives.

In terms of our audience research and measurement business, TRA delivered improved revenues in the fourth quarter compared to the prior quarter, underscoring our recent efforts to secure and expand customer relationships such as with P&G. However, the pace of the transition from antiquated TV measurement to something more in line with online measurement has been slower than what we expected at the time we purchased TRA, resulting in the intangibles impairment we took this quarter. We continue to believe in the long-term potential of this business as the television landscape continues to evolve.

In conclusion, this quarter marked the close of an important year for TiVo. We are seeing encouraging financial and operational results, significant subscription growth, and we continue to be a leader in innovation in the advanced television industry. In addition to our strategic acquisition that advances our cloud-based capabilities and places us front and center with a number of key operators, we are now putting our significant cash resources to use through share repurchases which Naveen will speak will about in more detail.

As we move through the first fiscal quarter of 2015, we believe that we are on track to exceed adjusted EBITDA of $100 million on an annual basis, especially as we benefit from additional subscription gains. We are very excited about what the future holds for TiVo.

I will now turn it over to Naveen.

Naveen Chopra

Thank you, Tom and good afternoon everyone. I’m going to provide some additional color on the Q4 results, the Digitalsmiths acquisition, progress on capital allocation and then ramp up with some comments on our expectations for future quarters.

Q4 was a strong end to fiscal 2014. We grew our service and technology revenues by 28% year-over-year to $84 million, including a 39% year-over-year increase and a 36% sequential increase in MSO service revenue, our key indicator of growth. Our adjusted EBITDA was $19.6 million above the high end of our guidance range.

These numbers reflect the fact that we had a strong quarter for subscription additions in both the MSO and retail business. However, $4.8 million non-cash charge relating to TRA intangibles led to net income coming in at $700,000 which was below our expectations. Excluding this item, net income would have exceeded the top end of the guidance range.

Some other important notes regarding this quarter’s financial. First as expected we saw higher sales and marketing spend which was aimed at providing stronger Roamio sales during the holiday season.

We’re pleased with the increased subscription additions and we’ll continue to access the most efficient ways to drive TiVo-Owned sales while balancing acquisition cost with subscription growth. Second, as we indicated in our prior call, the transition to paid hardware from TiVo hardware for several of our U.S. operator partners led to lower MSO, hardware revenue and margin in the quarter as we don’t recognize hardware revenue nor cost when an operator uses a set top. While this transition reduces hardware, revenue and margin, it was an important driver of the 20% sequential growth in Q4 U.S. MSO subscription addition, including accelerated deployments from key partners like Mediacom.

Third, it’s worth highlighting that we were able to reduce our full year fiscal 2014 R&D spend by 7% versus fiscal 2013 while also successfully delivering on a variety of product initiatives including the launch of TiVo Roamio, out-of-home streaming and a Network DVR prototype among other projects.

We expect this trend to continue with fiscal ‘15. We were again cautioned against looking at quarterly results rather than long-term trends. And finally the $4.8 million TRA impairment drove a non-recurring increase of $3.3 million to cost of service, $1.5 million to sales and marketing expense during the fourth quarter. Excluding these impairments, our service gross margin was roughly consistent with the prior quarter.

Shifting to subscription metric, as Tom mentioned we had our strongest quarter of cable distribution to date which included a significant contribution from launch of TiVo at Com Hem continued aggressive deployments from both Virgin and ONO and strong domestic net cable additions.

The domestic MSO additions grew 20% as compared to Q3 and over 120% prior to the year ago quarter. Across all our cable partners, we’re now at about 30% penetration of potential subscriber base on the contract, which indicates the strength of deployment across multiple customers.

Additionally, ARPU and the MSO business increased sequentially to a $1.26 due to a partial quarter of Virgin revenue recognition and service revenue and from unused DIRECTV development credits, where we can recognize service fees in Q4 that would defer for the finite period to cover development work.

I also wanted to provide some commentary around Digitalsmiths. The transaction closed on February 14th and Digitalsmiths ended calendar year 2013 on a very strong note, with growing 78% year-over-year. We expect this rapid growth to continue as Digitalsmiths’ customers like DIRECTV, Time Warner and DISH launched the service on new platforms and continue to expand the number of households using Digitalsmiths-enabled applications.

More specifically, most of the Digitalsmiths customers began by integrating the service on a second screen application and then, extend the integration service to their set-top boxes platform. This platform expansion is one of the key factors that should drive deployment of Digitalsmiths from current levels that represent about 10% of subscribers under contract to 50% in the next few years. We continue to expect Digitalsmiths to be positive to adjusted EBITDA in our current fiscal year, and materially contribute to adjusted EBITDA in the following fiscal year.

Moving to the balance sheet, we repurchased 20 million of stocks under our existing 10b5-1 plan during the fourth quarter, which slightly reduced our cash and short-term investments to approximately $1 billion at the end of the period. It is worth pointing out that the cash associated with the Digitalsmiths transactions, and our intended $100 million incremental stock repurchase is not reflected in this number.

Once those transactions are reflected, we expect our cash position to be slightly under a compelling. Consistent with our previously articulated strategy, we will continue to focus on opportunities to deploy our cash resources and drive shareholder value through further M&A and/or share repurchases.

We believe the acquisition of Digitalsmith and asset with significant customer momentum and growth potentials highlights our thorough and cautious approach to M&A, where as an asset that has both strategic merits and the ability to generate better returns in other capital deployment functions.

Last, I would like to touch on our guidance for next quarter. For first quarter of fiscal ‘15, we expect service and technology revenues of $85 to $87 million. From this point of which, is a 39% year-over-year increase from the $61.8 million we reported in last year's first quarter.

We expect adjusted EBITDA to be in a range of $22 million to $25 million and net income to be in the range of $5 million to $8 million. Driving the sequential improvement will be improvements in overall gross margin as well as lower operating expenses.

Additionally, our net income now reflects a full GAAP tax rate and we expect to pay significantly lower cash taxes for the foreseeable future. Our net income also includes approximately $1 million to $2 million of amortization relating to the Digitalsmiths acquisition.

As highlighted earlier, we believe we were on track to drive adjusted EBITDA in excess of $100 million for the full fiscal year 2015, primarily through the continued growth of our MSO service revenue, further operational improvements in areas like R&D, and a full year of Cisco, Motorola license to us.

So to wrap up, we had a strong quarter which was highlighted by record subscription growth and strategic deployment of capital, the combination of which has a potential to drive significant shareholder value in the industry.

With that, let’s now take some questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Edward Williams with BMO Capital.

Edward Williams - BMO Capital

Hi. Good afternoon. Couple of quick questions looking at TiVo, the TiVo subs business, can you give us a sense as to what’s your trends we should see from that in the short term and then as a derivative of that, what should we be looking for subscriber acquisition cost in early part of the year?

Tom Rogers

Thanks. Well, the quarter showed some nice progress on the retail front as you saw, our retail went up, subs were up over 40% year-over-year and that was with lower per unit SAC cost. So we were happy to see that as well as the fact that it was the first time in six years we had net positive additions in terms of absolute churn coming out of the standalone base. It was the lowest absolute number we had seen in about eight years, all of which was directionally good to see.

We didn't do a major national campaign. We probably spent couple million dollars of additional SAC marketing relative to the previous year concentrated in our handful of markets to kind of assess better the efficiency issues of how we can drive higher retail sales at SAC levels that we are comfortable with. I would say we are not going to project out what our SAC might be going forward.

But we are certainly trying to continue to move the dials in a way that we are getting more efficient than we were this quarter and we are certainly going to continue to refine some of our marketing mix. I hope that we can do that, but no specific number there on the SAC front that I pointed you that was really one quarter of data relative to no real marketing in this way and to premature to assess that going forward. Next question?

Operator

Your next question comes from the line of Tom Eagan with Northland Securities.

Tom Eagan - Northland Securities

Great. Thank you. With Europe undergoing some consolidation, could you share with us what conversations you might be having with operators in other markets? Thanks.

Tom Rogers

Well, we're having a number of conversations with a number of operators in a number of continents and in some of those places, consolidation is moving forward and in another markets, consolidation is not that much of a factor. I would say that our product line is increasingly geared towards being able to have conversations will operators of all sizes. Obviously, we have engaged internationally with some good size operators and domestically, we have sold our entirety of our user experience, largely mid size the smaller operators.

But with the acquisition of Digitalsmiths, which really provides the service elements of power somebody else’s user experience, bigger guys, some of whom are maybe folks who emerge from some consolidation trends, have an ability to relate to us, even if they do decide they want to create their own user experience, Digitalsmiths is very much a service that provides the ability for operators who want to create their own user experience with the tools to do so.

And with that acquisition, we now in the United States are in business with about 18 of the top 25 satellite and cable operators in the U.S. And there is real opportunity we believe to drive out same kind of relationships beyond the kinds of discussions that we already have going with multiple players at overseas as well.

Tom Eagan - Northland Securities

Tom, you mentioned earlier that you are going to be working with one small operator here with adapters. I know that Charter is going to be shipping DTAs to its subs as it goes all digital, is it possible that you could work with them on that front? Thanks.

Tom Rogers

Well, we continue to be in conversations with Charter. As you know, they are more focused in terms of their immediate effort on their embedded base of set-top boxes and we like, most MSOs have been focusing on new equipment as the basis for how we are driving our business and their business forward.

But the DTA announcement that we made showing that we could power a lightweight cheaper end box with key elements of the TiVo service that brings them enhance value to that kind of equipment being rolled out and used by operators for certain purposes, certainly opens up a breadth of discussions for us with other operators who are using DTA products. So we certainly do believe it opens up a whole new product line discussion with various operators for us.

Tom Eagan - Northland Securities

Great. Thank you.

Operator

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

Todd Mitchell - Brean Capital

Yeah. In regards to these new DTA deals, can you talk about how we should think about the economics to TiVo? Do they compare with sort of your more additional for submodels, or is there sort of another metric we should be thinking about?

Naveen Chopra

Hey, Todd, it’s Naveen. As Tom mentioned, we got a broader portfolio of products now including the DTAs as well as Digitalsmiths service. The economics are obviously a little different depending on the product. For the most part, they are all things where it still is a monthly recurring fee type model. The pricing will be a little different depending on who we’re selling it to, where we’re selling it and what the nature of the product is.

It’s fair to say that the full TiVo experience is still the thing that maximizes revenue on a per unit basis, but some of these other things have a much larger volume opportunity in two ways, one, they give us access to markets that we have not historically been able to sell our full TiVo solution into. And in any given customer, particularly something like Digitalsmiths or DTA can be deployed very rapidly to large numbers of people. So in terms of absolute dollars, the potential of those things is quite attractive.

Todd Mitchell - Brean Capital

So should we be thinking of it kind of like an a la carte menu where there is 16 or 17 functionality that MSOs can choose from at different sort of value adds to them and then there is a volume de-escalator or something like that and as a -- yeah, I just have -- that’s good for right now?

Naveen Chopra

I am not sure it’s 16 or 17, but there are between the DTA, our exiting non-DVR box there is the full whole home solution, integration of Digitalsmiths into their own software, there is a few different permutations there. I think you will also see operators undertaking more than one of those things from us. You can imagine an operator is deploying an advanced solution with the full TiVo experience, maybe integrating Digitalsmiths into some of their legacy platforms and using the DTA for analog to digital transition.

Todd Mitchell - Brean Capital

And then just as a -- just last question to follow on to that. So if Digitalsmiths has got the huge footprint and basically a backdoor into some larger MSOs that offers you the opportunity to sort of sell some of the functionalities into these MSOs. How should we think about it in kind of? So obviously search and recommendation is the leading product, but where should we think about as just kind of among the other features that you offer where the main initiatives will be to try to sort of upsell, get Digitalsmiths customers off of their offerings?

Naveen Chopra

I mean, it’s less about upselling as much as expanding the value of and the scope of the Digitalsmiths product. We all view it as a backdoor. We really view it as -- Digitalsmiths has established some great relationships with key operators and we’re going to do everything we can to continue to revolve that product. Search and recommendations are obviously where it begins. There is a lot of enhancements that can be made to those capabilities. We are also both between TiVo and Digitalsmiths big believers in how that technology can be leveraged to support more personalization-oriented features and also a lot in the realm of data analytics. So those are places that I think you will see us evolve.

Tom Rogers

I think the key point Todd is that the more of the TiVo service being cloud based gives us enormous flexibility to be able to work with operators who may have a view that some component of this they can bring to the table through their own efforts. And it allows us to be able to support people and provide key elements of driving their advanced television experience without necessarily having to provide this higher bundle. And as you move to other elements of the cloud beyond the existing TiVo service, beyond what we do on a multi-screen basis, beyond what Digitalsmiths represents to DVR and other potential capabilities, it really gives us a broad arsenal to be able to relate operators largely with small and that’s an important focal point in terms of just how much engaged we can be with operators on a variety of discussions.

Todd Mitchell - Brean Capital

Great. Thank you very much.

Operator

Your next question comes from the line of David Miller with Topeka Capital Markets.

David Miller - Topeka Capital Markets

The questions Tom on -- and congratulations on the sequential growth in standalone subs, it’s been quite a while since we’ve seen that. I would think that’s a very big deal. If you had to kind of pin it down, what do you attribute that to, is it mostly kind of the extra marketing dollars you put into the quarter or are retailers now cooperating with you guys a little bit more with on the floor with just sales manager just being a little more interesting on the product? Or, I mean, Roamio has been out for a while, why is it that it’s just taking this long too for people to get the message? And then I just have a follow-up? Thank you.

Tom Rogers

Well, probably more than anything else, it’s just a great product, that has been reviewed by a large number of player, some of which we quoted in the release, but there have been a large number of players, as just doing what no other solution on the marketplace does. And I think there finally is real consumer focus on, I want my linear programming and on-demand programming and streaming programming and non-streaming web content programming, I wanted all in one place easily accessible that gives me the ability to take it with me or watch it on the remote location and the combination of functionality there is unique and has been extremely well reviewed and that is the base from which I think our increased numbers come from.

Yes, we spend a little more on marketing. And yes, we saw some promising indications of how that can be driven in a way that hopefully continues to give us some change in trajectory on the retail business. But I think that it is a unique product and we think it will continue to be unique product and our mission now is to educate consumers about why TiVo is truly different. Once people recognize it, understand it, know that TiVo doesn’t stand for the DVR capabilities that they have known about for a long time, we see people responding to it. And so now we have to broaden the understanding of that message.

David Miller - Topeka Capital Markets

Got it. And then Naveen on ONO, if you look at the time sequence of how long TiVo has been able in ONO system, I have got it actually outpacing the same type of sequence as measured vis-à-vis Virgin some years ago by roughly 10%. Could you confirm that number? It just seems like the penetration of the TiVo technologies in the ONO is outpacing that of Virgin as measured under the same time sequences. Is that correct?

Naveen Chopra

I actually haven’t done that exact math David, so I can’t confirm your calculation, but conceptually it doesn’t surprise me in the sense that ONO probably got off to a slightly slower start than Virgin. But if you can see on the numbers, they have been very aggressive over the last few quarters. And obviously the broader economic environment in Spain has picked up in the last year, so that’s probably given them a little bit of a tailwind, but they have been very aggressive and we are obviously very excited about some of the things we hope to do with them in the future as well.

David Miller - Topeka Capital Markets

Hey, great. Thanks a lot.

Operator

(Operator Instructions) Your next question comes from the line of Brian Fitzgerald with Jefferies.

Tim O'Shea - Jefferies

Hi, this is Tim O'Shea for Brian. Thanks for taking my question. Tom, just wondering if you can help us quantify the opportunity as Comcast brings the XFINITY On Demand product to the entire footprint? And I mean just overall how are you thinking about the potential impact here? Thanks.

Tom Rogers

I probably can’t help you quantify that. I will say that we did see in the fourth quarter the continued outperformance of Comcast markets from a retail point of view and where we marketed in some of those markets that was particularly true. There is no doubt that Comcast has made a major investment in there, XFINITY On Demand product and the ability to get your full on demand lineup with your linear channels and the streaming web content altogether in a single place just makes for a first class experience. And we are seeing word of mouth on that drive better results in those markets. We were in about 60% or so of the markets and now rolling out to the full footprint, including some very important markets like Chicago we think will continue to support our positive trends there.

We sill have the broader mission in those markets that we had everywhere which is getting a better understanding of just how distinctive Roamio is, but the fact that you can hang on to some great stuff that Comcast provides but embellish it and enhance it significantly with the TiVo experience and the additional content we bring to the table. We think of the story that seems to be resonating with Comcast subs a we think we’ll continue to push that hard in those markets.

Tim O'Shea - Jefferies

Great. And just a quick follow-up. Can you just remind us does that revenue flows through the service line or will that flow through the tech revenue line? Thanks.

Tom Rogers

Yeah. The Comcast revenue is actually flows through TiVo-Owned service. That’s a product where we own the customer and we did our pretty typical retail fleet.

Tim O'Shea - Jefferies

Got it. Thanks.

Operator

Your next question comes from the line of Barton Crockett with SBR Capital Markets.

Barton Crockett - SBR Capital Markets

Hey. Thanks for taking the question. I guess, due to the rushes, I limit myself to one, the share repurchase, you had a very big step-up here to $100 million from $20 million, a lot of volatility in how much you’re spending? How should we think about the future? I mean, are you at a place where you want to spend $100 million a quarter for next several quarters or just kind of a one-time step-up, catch-up and its should probably moderate from here?

Tom Rogers

I think, we can say that, we’ve been very cautious on capital allocation. But have indicated all long that if we saw the right M&A opportunities, we would look to bring them in the way if they met our strict financial and strategic guidelines, Digitalsmiths we felt very much did that, used a relatively small percentage of our cash but very important acquisition.

And we indicated that we would continue to look at ways to enhance shareholder value through potential share buybacks and we’ve done that in the past and we indicated when we made that Digitalsmiths acquisition that we would look to put $100 million to work in the quarter toward additional buyback.

We’re not giving any specific direction on either M&A or buybacks other than obviously deployment of capital here is a very, very important task for us in terms of driving the future share price.

And I think we will tend to continue to be more focused on the best possible combination of opportunities we see between possible ways to return money to shareholders and possible M&A that can accelerate growth even -- on even greater basis than that.

Barton Crockett - SBR Capital Markets

Okay. Thanks.

Operator

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

James Goss - Barrington Research

Thanks. I was wondering if you could expand a little on your comments about the DVR to the cloud notion. You mentioned the issue of content rights? Were there anything, any issues that were specific and unusual to this? And also maybe comment on the quality of usage experience and functionality of that versus (inaudible) and DVD?

Tom Rogers

Well, the Network DVR is real opportunity for the cable industry because it allows for much lower CapEx expenditure in the home in the form of set-top, obviously storage in the home and the DVR in the home is an expense proposition and to the extent that storage and DVR functionality can be built into the cloud.

We -- cable operators are certainly interested in moving in that direction and at the same time, it allows for a coordinated content strategy, where you can manage your various approaches to content right in a way that provides real flexibility as to what kind of product is offered to individual subscribers.

But also requires a vast amount of knowledge on the part of the capital operator each piece of content and what the rules of the road are relative to how they can be used in NDVR context and what are the key things that we have seen in terms of operators liking the approach we’re taking as we’re really focused on building a content management dashboard within the NDVR offering that give them an easy ability to assessed content right at any given moment to be able to make sure that the NDVR is as responsive as possible to both their obligations to programmers and what they want to present to consumers.

And the focus that we have on that we just commensurate with the kind of navigation in anyway we do with consumers is one other things that I think operators are believing, we can bring some real enhanced capability for them too as NDVR has moved forward.

I think most recognized that the storage itself is more or less the commodity, the issue is what do -- what tools do you put in the hands of the operator as they manage across the various content offerings.

Now NDVR, when it comes to how it will differ from the -- for those subscriber from subscription VOD or other on-demand opportunities, really is the function of where the content is coming from, what rights the operator may have to be able to get to the consumer and that’s part of the whole content navigation dashboard that we want to be able to provide. So that consumer knows at any given content, what they can do with content and then operators in the position to maximize those opportunities.

James Goss - Barrington Research

All right. Thanks Tom.

Operator

Your next question comes from the line of Richard Tullo with Albert Fried.

Richard Tullo - Albert Fried

Richard Tullo, Albert Fried. Yeah. That’s okay. Close enough. [MTBDs] have been resistant to subsidize equipment to the home. Mobile is now becoming more resistant to subsidize equipment to the home and defining that it’s not such a good place. As we get in a court telling that we call it court splicing environment, where there is maybe one DVR and streaming devices in the home. They’re seems to work Romeo’s favor. It also seems to work in favor of the deal like you have with Comcast, especially for the larger MSOs. Are you getting in interest to spend that time of relationship though with other MSOs and specifically is the Time Warner deals its approved, is that provide LA and New York to TiVo as well?

Tom Rogers

Well, I’m not going to comment on the Time Warner deal because there is obviously a long way to go before all that comes together. I think, but you’re right in your observation that what Romeo does allow Comcast subscriber do or for that matter other operators who may want to take on that particular approach is to, say, look you buy your own equipment and bring it to the party as people do with mobile phones.

And when you do that, there is good case to be made that you can save yourself money overtime, that the charges that some cable operators have where the combination of your DVR service fees and multiple boxes in the home that monthly charge overtime is an access of what it cost buy box and bring it to the party, not to mention of course that we install Roamio.

It’s a vastly better experience than you’ll otherwise get with the traditional cable set top. So there is a good economic argument there to make for consumers. It’s also consistent with, what I was just saying a minute ago with where the cloud DVR takes operators, meaning TiVo CapEx in the home. And this another approach to achieve our CapEx in the home for the operator. And so both of those are very consistent with an operator being able to look at their future with improved experience but lower subsidy hardware for them.

Richard Tullo - Albert Fried

Now, in regards to tiering, it seems to me as conflict for allowing MSO to actually distribute in over the top service. AMC would not want somebody distributing Breaking Bad through another channel. However, the consumer as I know it, has a right to get Netflix on his Roamio box in the Comcast footprint. Is that something on the going-forward basis that maybe a catalyst to that type of extension of Roamio type of installation deal such as you have with Comcast?

Tom Rogers

Well, today if you want to have your cable channels integrated with streaming over the top services, the only set top that you can get and do that with would be TiVo. The issue of whether domestic cable operators will have rights to distribute Netflix or other streaming services through their set tops that are not bought by the consumer but are provided by the MSO himself is the question that many of working hard on.

I think many MSOs would like to distribute Netflix as part of their service offering. And those who are TiVo partners, many of them would like to bring Netflix into their offering because they know how elegantly we can integrate that and they can see the kind of thing that we’ve done with Virgin and know that that’s a real positive for their overall offering.

But there are many reasons in terms of operators who don’t offer TiVo so that getting that full integration with the user interface in getting the streaming services that an operator may not offer. The retail option is the only one available that provides that degree of functionality.

Richard Tullo - Albert Fried

And so if tiering really expand, do you think that’s an opportunity for TiVo?

Tom Rogers

The more streaming content there is, the more content that people want to get into their home. The more they understand the benefits of having all your contents sources integrated, not needing a separate box, a separate remote patching into a separate input having to search across multiple things, the more integration of everything out there, the more there is appeals to consumers. And we think the more that they understand that, the more appealing that concept comes. That is clearly a better opportunity for us.

Operator

Your next question comes from the line of Mike Olson with Piper Jaffray.

Mike Olson - Piper Jaffray

Hey, good afternoon. I just have one question. I wanted to follow someone’s earlier question on international, domestic. And are you able to break out what the percent of MSO stocks that are coming now from domestic versus international? And I guess, why do you think it’s been more challenging to get domestic operators on board compared to international where your offering seem to be, I guess more willingly accepted our international MSO just moving through next-gen operating faster? Thanks.

Naveen Chopra

This is Naveen. We don't break out specifically the international versus domestic, but I think it's worth pointing out that in terms of the some add this quarter which 315,000 obviously very, very strong quarter for us. More than half of that came from non-Virgin sources. So some of the other international operators are major contributors, but also it's a very nice contribution from various domestic customers.

I'm not sure that I would characterize with the customer base in quite the same way you did in the sense that, we have more domestic customers than we have international customers. Most of the -- or I should say many of the mid-tier operators are now deploying TiVo, the market in the U.S. has been challenging are the handful of large operators that are very committed to developing our own solutions and that will likely continue to be the case with respect to the traditional TiVo product, but as you heard us discussed a few times today that's a critical part of strategy in terms of broadening the portfolio include things like Digitalsmiths, which does have relationships with many of those providers.

And so if you look at this through the combination of both TiVo product line and Digitalsmiths product line, we have a lot of the operators, big, small and in between covered in the U.S. and obviously a nice set of operators in Europe. And we're heavily focused on expanding both other market internationally and more in Europe and U.S. as well.

Mike Olson - Piper Jaffray

Okay. Thank you.

Operator

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

Alan Gould - Evercore

Thank you. Tom, a big picture question, how do you think the Comcast Time Warner Cable, as opposed to a charter Time Warner Cable merger will impact TiVo?

Tom Rogers

Well, I'm not going to comment on the specifics of the merger outcome there. But I would say that Comcast is company that we've obviously had a good relationship with in terms of the kind of retail plus MSO retail deals that we've done. And as we're announcing in today's release they're rolling us out to the rest of the footprint that's certainly a positive.

And I think you can look at the broader policy ramifications of those deals and raise all kinds of issues, but I think we'll think about those at another time. And for the time being I think we feel very good about what Comcast has been able to do with us.

Alan Gould - Evercore

Okay. Thank you.

Operator

Your next question comes from the line of Heather Bellini with Goldman Sachs.

Justin Kwok - Goldman Sachs

Hey guys, it’s Justin on for Heather. I just had a quick question on ARPU for the cable operator segment. It ticked up nicely. It sounds like there is some flow through from Virgin Media and what not. I'm just wondering how we should think about that over, say, the next four quarters and then in conjunction with that how deals like the DTAs and Digitalsmiths should impact that from sort of dilution or appreciable perspective? Thanks.

Naveen Chopra

So, in terms of currently reported ARPU and trends going forward, this quarter's number as you identified was impacted by few factors. Virgin revenue actually is starting to show up in that calculation. There is also -- last quarter we mentioned that we had some headwinds on the advertising and the ARM revenue that also flows into ARPU and we -- as expected, we're able to recover some of that this quarter. Keep in mind that, even this quarter, we still don't have revenue from Ono or Com Hem flowing into the ARPU calculation. The subs are in there, but the revenue is still in tech revenue.

In terms of going forward, we don't provide specific guidance on ARPU. My answer to that question is probably similar to what I’ve said in the past, which is that I think if you look over where that number has kind of trended over the last few quarters, I think it's a reasonable approximation for what we see in the market to the extent that there is more growth into new international market that could put a little bit of pressure on ARPU. But that's often times offset by the fact that in the U.S, most of our deals are much higher than the reported ARPU. With respect to Digitalsmiths and DTAs and things of that nature, we haven’t made a final decision yet as to how those will be calculated in ARPU. So, probably it is premature to guide you on any numbers there.

Justin Kwok - Goldman Sachs

Great. Thanks.

Operator

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

Daniel Ernst - Hudson Square

Yes, good evening. Thanks for taking my call. Tom, given the write-down with TRA and given that advertising analytics remains a big part of the TV landscape. What do you think the prospects are, for your role in advertising analytics going forward? Is it a matter of regrouping that team, is it a matter of a number of acquisition. What's kind of your thought about your opportunity there and what might be your go-back to market strategy? Thanks.

Tom Rogers

Well, obviously when it comes to our piece of that advanced analytics for advertising business, the revenue is developing more slowly than we had hoped when we acquired the business and accounting convention requires the intangible impairment write-down that we took. Having said that, we still think this area is quite promising. We did see TRA revenue go up in the fourth quarter compared to the third quarter. We are seeing some evidence of larger deals being done with major player. We are clearly seeing more demand for cross-media multi-screen data based on large samples, tied to purchase data and it's the tied of purchase data that really creates the uniqueness of what we're able to offer.

We are seeing other companies operating set-top box data for purely ratings purposes, beginning to take hold and we think that's a good precursor for the broader issue of how advanced analytics are more likely to be used, which is how you take the broader samples that set-top box data or other multi-screen samples may have, and combined that with purchase data as an alternative to traditional demographic buying of media. And we are clearly seeing companies respond to our data saying their return on investment of their marketing dollars can be enhanced with the large samples combined with purchase data.

So, we do see promise in that still and we think we've been pretty smart about not investing too far ahead of the trends there. And we are clearly seeing TRA’s ability to partner with key players to create product without having to make substantial additional investment on its own. So, we think we can play significantly without having to make a much heavier investment in the area in terms of the current type of offerings that we have.

So, all of that points to a promising direction. It’s just developing slower than we think. It goes to the heart of what you've heard us talk about on content Metadata with Digitalsmiths, or personalization Metadata that allows us to distinguish how we offer a user experience and this is another form of the data equation for TiVo’s plan, obviously on the B2B side, not the end user side. But data enhances what we do significantly and it will continue to be a key part of our secret sauce

Daniel Ernst - Hudson Square

Got it. Thank you.

Operator

Your final question comes from the line of Danielle Coker with Stephens Inc.

Danielle Coker - Stephens Inc.

Thanks for taking my question. Given that there is always a lot of focus on your large cash balance, can you talk a little bit about your acquisition pipeline?

Tom Rogers

Well as I said before, we have been very cautious about potential acquisitions. We've look that a number of companies. There were any number of people that pushed any number of potential companies at us and Digitalsmiths was probably not one that would have been at the tip of anybody's tongue among people who talked to us about acquisitions. But I think a very deliberate cautious product process gave us the ability to find what is a unique fit within TiVo and complements both our ability to drive broader distribution as well as complement our cloud-based product approach.

And so we're going to continue to be cautious, deliberate, if the things we find which we really do believe can substantially accelerate our growth as we believe Digitalsmiths will do down the road, we will drive it. But to say that we have a specific acquisition pipeline for purposes of having to look at that particular approach to capital deployment would not be the right way to think about our thought process.

Operator

There are no further questions. I would now like to turn the floor back over to Tom for any closing remarks.

Tom Rogers

Thank you very much. I just wanted to reiterate that having had a record year when it came to net income and EBITDA and services technology revenue, having had a record quarter with respect to service an technology revenues and additions of MSO subs.

Now, having a record number of MSOs that we deal with in the domestics sphere through our own efforts in those of Digitalsmiths, having had a record retail performance in terms of what we did for the last six years, and with the ongoing march of our product enhancements and leadership, and innovation with all the cloud-based activity and particular leading the way. I think we have demonstrated that we really have built a very good foundation over the last year for what the year ahead looks like. Thanks everybody and we will continue to keep you posted.

Operator

Thank you. This does concludes today’s conference call. You may now disconnect.

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