Executives
Matthew Zinn - Chief Privacy Officer, Senior Vice President, Corporate Secretary and General Counsel
Thomas Rogers - Chief Executive Officer, President and Director
Naveen Chopra - Senior Vice President of Corporate Development & Strategy
Derrick Nueman -
Anna Brunelle - Chief Financial Officer, Principal Accounting Officer and Vice President
Analysts
Anthony Wible - Janney Montgomery Scott LLC
Mark Argento - Craig-Hallum Capital Group LLC
Barton Crockett - Lazard Capital Markets LLC
Alan Gould - Evercore Partners Inc.
David Miller - Caris & Company
Michael Cohen - Sinova Capital
Richard Tullo - Albert Fried & Company, LLC
TiVo (TIVO) Q4 2011 Earnings Call March 1, 2011 5:00 PM ET
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the TiVo Fourth Quarter Fiscal Year 2011 Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Derrick Nueman, Head of TiVo Investor Relations. Sir, you may begin your conference.
Derrick Nueman
Thank you, and good afternoon. I'm Derrick Nueman, TiVo's Head of Investor Relations. With me today are Tom Rogers, CEO; Anna Brunelle, CFO; Naveen Chopra, SVP of Business Development and Corporate Strategy; and Matt Zinn, our General Counsel.
We are here today to discuss TiVo's financial results for its fourth quarter fiscal year ending January 31, 2011. We have just issued a press release and 8-K detailing our financial results. We have also released a financial and key metric summary, which is posted on our Investor Relations website. And we will post a recording of this call later today on the Investor Relations website. Today's remarks should take about 25 to 30 minutes and will be followed by a question-and-answer session.
Our discussion today includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things: TiVo's future business and growth strategies, including the timing of additional mass distribution deals; profitability; financial guidance; scope and timing of distribution of TiVo's service domestically with RCN, Suddenlink, Charter and other operators and internationally with Virgin Media in the U.K., Spain with ONO and Scandinavia with Canal Digital and other regions; expectations regarding the strength of TiVo's intellectual property and the future results of TiVo's litigation with EchoStar, AT&T, Verizon and Motorola; TiVo's intent to protect and defend its intellectual property; future TiVo products and services, including multi-room and non-DVR devices; future hardware subscription pricing; subscription growth in both our direct and retail channel and our television distribution channel, both in the U.S. and abroad; TiVo's ability to deploy customized advanced television solutions for television distributors in a timely and efficient manner; the expected future impact of TiVo's new subsidized hardware pricing and increased subscription fee pricing and expected lifetime value of these new subscriptions; and the expected future increases in research and development and legal-related costs.
You can identify these statements by the use of terminology such as guidance, believe, expect, will or forward-looking terms. 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 our forward-looking statements. Factors that may cause actual results to differ materially include delays in development, competitive service offerings and lack of market acceptance, as well as other factors under Risk Factors in our public reports filed with the SEC, including our latest 10-K and 10-Q.
Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them. Additionally, some of the metrics and financial information provided in today's call include non-GAAP measures. Please see our fourth quarter fiscal year 2011 key metric trend sheet for a reconciliation of these items.
With that long intro, I'll now hand it over to Tom.
Thomas Rogers
Thanks, Derrick. Good afternoon, everyone. Last year was significant in the evolution of TiVo. We made great progress on a number of fronts, which I'll summarize in a minute. But let me start by sharing some thoughts on TiVo's role in the evolving world of television.
The days of basic cable are long gone. For operators, consumer electronics companies and the majority of industry participants now playing in these television industries, it's been very difficult to keep up with a landscape that is changing every day. The reality is that in this new age of content consumption, all television is going on-demand. TiVo's invention as a DVR catalyzed this critical evolution by turning traditional TV into an extremely compelling on-demand experience.
Cable added an element of video-on-demand choice, now broadband has made it possible to access an almost infinite amount of content whenever the viewer wants.
In this world being able to get whatever content you want, whenever you want it, regardless of where its coming from, there's three critical components we see as being required in solutions that aspire to broad adoption. First, it's about taking all elements of on-demand program and providing them in one environment for interface.
Second, it's not just about connected devices, it's the user experience that makes searching for, navigating and watching this world of on-demand content truly compelling. What has been fundamentally lost in the advanced television conversations and what escapes the approaches of most others is the idea of going beyond simple connectivity. Connectivity is the easy part. Simply placing some form of video or content from the web onto the television screen does not comprise a fully integrated user experience. The right solution is one that provides a first-class user experience that makes elegant work of navigating an increasingly complex sea of content and device choices.
And thirdly, it's not just about the consumer pacing element, but recognizing that much of this world will be enabled by video and broadband service providers, it's critical that the technology can be molded to work with the unique infrastructure needs of each such operator. Many technology and even media companies have sought to capitalize on the whole Internet-to-the-television trend, but few of them understand the complex plumbing of the operator infrastructure.
TiVo understands this plumbing and provides an answer whether in the form of a retail box slightly customized for the operator or a software solution running on a third-party's hardware. In fact, our approach has developed in such a way that we use the same R&D, the same software, and in many cases, the same hardware so that we are serving the retail market and solving for the operators at the same time.
At the end of the day, you have to excel at all three of those combined to have a full solution. And we believe TiVo does that. It's hard to replicate what we're doing, which has resulted in TiVo winning several key distribution deals over the last year, most recently with Charter Communications, a top-tier U.S. cable operator. Over the next couple of years, we believe we can achieve substantial new subscriber growth due to combination of deals with numerous operators like Charter, including Virgin Media, ONO, Canal Digital, RCN, Suddenlink and DIRECTV.
One final point on the operator front. Both multi-room and multi-device strategies are critical. We expect to deploy our multi-room solution with Suddenlink soon, and we've launched innovative products such as an iPad app that interacts with the set-top box and we are working on additional products that will make the multi-room and multi-device experience even more seamless through advanced new hardware and software capabilities. We'll provide more specifics on these activities in the future.
Now let's take a closer look at some of our key accomplishments over the past quarter. As I mentioned earlier, our most recent win is with Charter Communications, the fourth largest cable operator in the United States. As was the case with RCN domestically and with Virgin Media in Europe, our ability to deploy a proven solution gave us a unique advantage in winning the business.
Equally important, Charter understood that the pace of innovation from traditional cable suppliers has not been fast enough to keep up with the rapidly changing demands of the television consumer. As a result, Charter made a significant commitment to partner with TiVo in order to quickly deploy an advanced platform to its large subscriber base. The initial phase of our work with Charter will utilize the TiVo Premiere set-top box as well as upcoming multi-room and non-DVR platforms over time. As part of our long-term agreement, we expect Charter to be a major driver of the next generation work I mentioned previously.
An article on a recent issue of CableFAX, a cable industry trade publication, said this about the Charter deal and I'm quoting here, "The TiVo deal suggests that distributors can embrace a third-party box maker without surrendering to it. In fact, these deals really marry the best of both worlds: A superior navigation system coupled with seamless integration between linear, VOD and Internet video.
And whether or not the Internet content is technically over the top, these kind of deals keep the navigation sequestered within the cable-branded universe. That's a much better situation for operators than one in which random content comes in through an Xbox, PlayStation3, Roku, Boxee, Apple TV et cetera, all of which override the cable set top rather than integrate with it. This is a company that knows something about a great customer experience."
Also this quarter, we launched two initial markets in Texas with Suddenlink, the seventh largest cable operator in the United States. Importantly, the TiVo distribution in these two initial Suddenlink markets took only five months from signed agreements and rollouts recently began in three more markets across Texas.
While we believe our efforts have been setting the stage for market share gains domestically, we continue to show significant traction beyond the United States. This past quarter, Virgin Media began soft deployment of TiVo and this is expected to accelerate in the coming months, as Virgin Media launches TiVo more broadly to their marketplace in the second quarter, which will ultimately provide their 4 million customers across the United Kingdom with the ability to access the TiVo experience.
We're pleased with the strong feedback from Virgin subscribers, thus far, and reviews from the media have been equally strong. A recent review of a popular U.K. magazine embodied our efforts noting that Virgin Media's TiVo-powered offering is "a truly next generation DVR that should have Sky shaking in its boots."
In keeping with our desire to continue increasing the ways consumers can interact with the Internet in an easy-to-use interface in their living rooms, Virgin Media has utilized our Adobe Flash architecture to launch a marketplace.
Apps from Twitter to eBay to YouTube are now available to Virgin Media subscribers, and we expect Virgin Media to launch many more over time. We're very enthusiastic about what lies ahead with Virgin, as it represents the beginning of a major international growth opportunity for TiVo. In fact, the combination of deals we've signed with Virgin, ONO and Canal Digital will potentially give us access to 7 million subscribers across six countries in Europe over time. So it's great to see things starting out so well with Virgin.
Now before we move on to other parts of our business, I'd like to share some insights on how we see the longer-term opportunity presented by our Mass Distribution business. As you know, the last 18 months have been prolific in terms of deal activity with six influential cable and satellite operators selecting TiVo as their next generation user experience.
Combined, these operators serve over 10 million subscribers and as part of our agreement, TiVo will be offered either on an exclusive basis to those subscribers or in some cases, the operator has made a significant contractual commitment in connection with their deployment of TiVo's advanced television solution.
Additionally, we believe that the factors that brought operators like Charter, Virgin and Canal Digital to select TiVo, may also compel our other operators to do so as evidenced by the number of operators that are showing interest in TiVo. Given this potential we're convinced that significant increases in R&D investments that support and catalyze these efforts by expanding our capacity to take on new deals and providing the resources necessary to extend our lead in product innovation is one of the best ways to drive growth for our shareholders. In a few minutes we'll provide some guidance and commentary on upcoming financials, and I think you'll see that we've already started to take the steps necessary to ensure we can fully pursue this opportunity.
On the TiVo-owned side of the business, we had a strong holiday season with gross additions up 30% year-over-year during the fourth quarter. We believe this was driven by both our new pricing option and the fact that consumers are now beginning to understand TiVo's differentiated product offering. Additionally as expected, these new subs came in at a higher average ARPU, leading to an expected higher lifetime value.
While we believe our pricing change was successful for the holiday season, we intend to continue to evaluate the incremental volume it can drive outside the holidays relative to the financial impact of the pricing, as we allocate our resources to various initiatives. As such, we continue to consider various pricing options, including those which may rely less this discounting hardware going forward.
Moving to our Audience Research and Measurement business, we've been evangelizing that there are better ways of measuring television audience viewing behavior and marketers have started to listen. The recent Nielsen IPO has only led to increasing focus on the existing methods of measuring television advertising and the fact that many of the current methods are antiquated and broken.
We continue to educate the media world that there are alternatives and a better, more efficient, effective and granular way to measure their ads in ways that provide Internet levels of accountability. As example, we recently launched the new free interactive website we've called, the Ad Scorecard, designed to show the media industry how well their ads are doing at retaining audiences, with an exceptional level of granular, anonymous viewership data that is not currently measured by the industry currency. This website has been successful in driving broader awareness and interest throughout the media industry for our subscription-based suite of audience research and measurement tools.
Another good example of the value TiVo continues to bring marketers is our recent deal with Turner Broadcasting, whereby their ad sales team will begin selling TiVo's interactive advertising inventory as part of their broader advertising packages. This deal will enable the many brands that advertise on Turner's popular networks, such as TBS and TNT to reach viewers who would otherwise fast forward through a 30-second spot. We look forward to showcasing our ability to aid networks and content owners to get the most out of their inventory in an on-demand world.
Moving to litigation, this year, we expect to see significant activity with a decision expected at any time in our en banc proceeding versus EchoStar. Currently scheduled trials in our cases against AT&T and Verizon, and our ongoing defense of counterclaims and retaliatory suits from AT&T, EchoStar, Microsoft, Verizon and Motorola. Naturally, there is always the potential for additional litigation and counterclaims as we move to protect our intellectual property.
Microsoft and now Motorola, each have justified their suits based on the need to defend their customers, AT&T and Verizon, respectively, who've been sued by TiVo. We believe we're getting hit especially hard on countersuits and counterclaims, as it becomes clear to these parties, how significant the implications would be of violating our intellectual property. The intensity of the legal actions against us speak to this point. For example, last month, we accused Vista and Windows 7 of infringing one of our fundamental DVR patents. As a counterclaim, the Microsoft sued against TiVo in the northern district of California. Shortly thereafter, Microsoft filed a suit against us in the ITC and Washington State District Court. It goes without saying that there is no change in our view of our intellectual property and the value that it could yield for shareholders, but we do expect to incur very significantly increased litigation expenses in order to enforce it, which Anna will provide more detail on.
One last point on litigation. Let me reiterate that our litigation activity is largely independent of the progress we've made securing deals with major operators. We're winning distribution not because of our patents but because operators believe we have the best products to help them win in a rapidly changing television landscape as evidenced by our recent deal with Charter, a strong deployment by RCN and early positive results from our Virgin Media and Suddenlink rollouts.
We think many more operators will make similar decisions as they look to the future. However, there may be operators similar to EchoStar or AT&T that believe they can capitalize on TiVo's innovations, without regard to our intellectual property rights. And in those cases, we believe our shareholders benefit when we make the investments necessary to enforce our intellectual property.
Let me conclude by simply saying that fiscal 2011 was a year in which we made progress evolving our products and distribution relationships that capitalize on a rapidly changing television environment. And I'm especially proud of the number and quality of the significant new distribution deals we have put in place that set the stage for TiVo to be made available in more homes across the globe than ever before.
And with that, I'll turn it over to Anna.
Anna Brunelle
Thank you, Tom, and good afternoon, everyone. As Tom mentioned, we're making progress toward getting TiVo into more homes and protecting our intellectual property. And we believe our efforts this past year and in Q4 will begin to impact our subscription metrics and financial results in the next year. I'm going to quickly cover the quarter and direct you to our press release and trend sheets that are on our Investor Relations website for more detail.
Now getting into the quarter. Service and technology revenues was $41.4 million, which came in at the higher end of our guidance range. Our cost of service and technology revenue was $15.8 million. Our hardware loss was approximately $10.3 million, which was impacted by a net hardware sales loss of $8.6 million from our holiday pricing and $1.7 million of costs related to our retail channel. Additionally, we booked an unanticipated inventory reserve of approximately $500,000 related to refurbished units.
Operating expenses were approximately $50 million, as expected. This increase was due to higher litigation expenses and a 27% year-over-year increase in R&D spend. This led to a net loss for the fourth quarter of $34.4 million. Additionally, adjusted EBITDA loss for the fourth quarter was $25.8 million. Again, the year-over-year change in net loss and adjusted EBITDA was primarily driven by operating expense increases in legal and R&D, as well as by the increased hardware loss related to our holiday pricing. Finally, we ended the quarter with $209 million of cash and short-term investments.
Now turning to our fourth quarter subscription metrics. As expected, our holiday pricing impacted TiVo-owned metrics. TiVo-owned gross subscription additions were up 30% year-over-year in the fourth quarter, which is the highest year-over-year increase in four years. We saw roughly a 50% increase in ARPU for new subscribers once the new pricing launched, leading to an expected higher lifetime value per subscriber even when factoring in the higher acquisition costs driven by the increased hardware losses. We expect to see our overall ARPU increase in Q1 as new subscribers from Q4 will have contributed for a full quarter.
TiVo-owned churn, on an absolute basis, was roughly flat with the prior year and again, it is worth noting that the vast majority of our churn comes from older, standard definition boxes with a smaller amount coming from high definition churn.
Our MSO/Broadcasters' subscription base declined by 168,000 from the prior quarter driven by a downward adjustment in subscriptions from DIRECTV related to further refinement in how they report subscriptions to us, as well as by the ongoing churn of prior generation DIRECTV platform. This adjustment by DIRECTV had no impact on our MSO revenue. And excluding the adjustment, our MSO churn would have been consistent with the prior quarter. However, we expect to see a substantial change in our subscription trends once we launch or scale up our new products with DIRECTV, Virgin, Charter, ONO, Canal Digital and others.
Before I get into the specific guidance for the first quarter, let me walk you through some significant changes since we last spoke in November. First, as Tom mentioned, given our recent success in winning distribution deals, we have decided to increase our investment in R&D to innovate even faster, grow our capacity to take on more deals and to make sure we execute on current opportunity.
Given this, we recently put together a final fiscal 2012 budget that calls for R&D spend to increase by $25 million to $30 million compared to the prior year. We expect R&D to moderate as we complete several of this year's R&D initiatives, so there's always the potential for significant new distribution opportunities to justify higher R&D levels than fiscal 2011.
Second, our expectations for fiscal 2012's legal expenses have materially increased due to recent increases in litigation activity, including the newly filed ITC action and our pending offensive and defensive cases versus AT&T, Microsoft, EchoStar and now, Motorola. Based on these current cases, we're expecting our total legal spend to more than double from the approximately $23 million we spent in the last fiscal year.
With that, let me get to our first quarter guidance. We expect service and technology revenues of $36 million to $38 million. This sequential decrease is being driven by technology revenue, where we expect a $4 million to $5 million decline when compared to the prior quarter. As we stated before, technology revenue can be lumpy from quarter-to-quarter, and we would not recommend using the first quarter as a run rate for fiscal 2012. We expect adjusted EBITDA to be in the range of negative $25 million to negative $27 million and our net loss in the range of negative $35 million to negative $37 million.
A couple of things to note. We expect to see significantly lower TiVo-owned hardware losses compared to the prior quarter. Most notably of course, we also expect a sequential increase in R&D spend. And finally, we anticipate our total legal expense to increase from its Q4 level of approximately $7.6 million, which would be more than double the first quarter from fiscal 2011.
To summarize, we believe our opportunities to get TiVo in more households globally are picking up speed and that it is the right strategic decision to invest more in our business now to drive long-term results. We believe that we set the stage last year by winning key distribution deals, and fiscal 2012 will be about making sure those deals begin to contribute and that our streak of winning key distribution continues.
This concludes my remarks. Thank you for your time, and we will now take questions.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from Tony Wible of Janney.
Anthony Wible - Janney Montgomery Scott LLC
I know that we can kind of try and back into a little bit, but is there any way you can frame up how many DIRECTV subs you have left? The base is getting smaller and smaller. And now, you'd be bringing on new business. So it just seems like from a weighted average standpoint that, that DIRECTV base getting smaller could lead to more upward increase on the MSO ARPU over time. I was hoping you could help us frame that. And then second question is really on the standalone, if you could just touch on the churn. It was flat year-over-year, but it looks like there's a seasonal spike that we're seeing in the fourth quarter. In your guidance, are you implying that, that churn will go back down? Or do you see the gross sub addition increasing to help offset a higher churn rate with that TiVo hardware commentary that you guys made?
Thomas Rogers
On the churn front, Tony, we tend to see fourth quarter being somewhat higher mostly because we have the highest percentage of subs that come on in the fourth quarter, so contracts lapse in the fourth quarter. We saw the same trend last year. We wouldn't expect churn in subsequent quarters to be of the same level as the fourth quarter. Based on historical practices, we're not guiding to a churn number, but historically, that has been the case. In terms of DIRECTV, really not going to separate out the sources of subs. I think it is fair to say that, but for the reporting reconciliation that DIRECTV did, the quarter-over-quarter decrease would have been in line with what we saw in the previous quarter. So taking out the exceptional reporting issue, it would have been more or less consistent with the kind of decrease that we saw from DIRECTV in the previous quarter-over-quarter numbers.
Anthony Wible - Janney Montgomery Scott LLC
Is there anything in that ARPU for the MSO, which I think came in at around $1.60. Would that be a good run rate to use going forward on the remaining DIRECTV base in the MSOs that you have? Or is there reason to think that, that number has some one-time aspects to it with the adjustment?
Naveen Chopra
Tony, this is Naveen. I think we've talked about on prior calls the fact that there are certain minimum guarantees under some of these arrangements such that the ARPUs do increase as the sub base decreases. And that dynamic is happening with the DIRECTV ARPUs today and that I would expect that to continue to increase if that sub base is decreasing.
Thomas Rogers
Obviously, in terms of the retail side of the equation, the pricing change with the primary monthly plan going to $19.99 increases the ARPU of new subs substantially on that front, and the impact of that increase in retail ARPU will become more apparent in subsequent quarters.
Operator
Your next question comes from Alan Gould of Evercore Partners.
Alan Gould - Evercore Partners Inc.
First, is there any way we can take a look at the guidance you gave for the first quarter in terms of the net loss and the operating loss? And assuming no legal settlements throughout the year, would that be a good run rate for the full year? And my second question is with respect to R&D. I know you said it'd be up $25 million to $30 million. I mean, do you target R&D a little bit as a percent of sales? And I think it was about 25% of the service and tech revenue this last quarter. Is that another way to look at it as well?
Thomas Rogers
Well, we're really looking at the increased R&D effort based on the opportunity that we believe is presented by the various operators here and around the world that need to make a transition to advanced television and the upside that provides us, which is as you know, much of our MSO revenue is relatively nascent. And so I wouldn't look at sales in that sense as a basis for our making a decision on what the upside opportunities are from those deals, which is really what guides our analysis there. In terms of anything by way of guidance beyond the first quarter, we are not providing any. I will say that relative to what we looked at in November where at that point both in terms of litigation and in terms of R&D, we were looking at lower levels of investment on the opportunities that both those tracks present. We had indicated that the fourth quarter was probably not a good basis for projecting out on the first quarter and beyond. Obviously, with the substantial increase that Anna pointed to in terms of litigation likely being more than double last year's litigation number and the $20 million to $30 million increase in R&D, it does provide a very different trajectory than the one that we pointed to in November.
Operator
Your next question comes from Michael Cohen of MDC Financial Research.
Michael Cohen - Sinova Capital
Tom, as a clarification on long-term strategy, I was just wondering, are you making sort of a strategic emphasis to become more and more hardware-agnostic over time? And if so, do you ever see a point at which you might actually get out of the hardware business completely?
Thomas Rogers
Well, it's an interesting question. I think we are hardware-agnostic in the sense that when we do work with cable operators, we are prepared to provide our software to a hardware that is different than TiVo's hardware as is the case currently with Virgin or ONO in Europe, where our software is being built into Cisco hardware. We have announced arrangements with other hardware companies, notably Technicolor Thomson, where we have other activity going involving our software and third party hardware. And we're quite comfortable with that approach and quite frankly, the flexibility that, that provides operators, we think is one more reason that we've established the leadership in terms of the number of operators that have provided our -- have chosen TiVo for their advanced television solution. On the other hand, one of the real benefits of how we've been able to manage the company more recently is that our retail software/hardware solution has become a basis for operators taking the software/hardware combination and morphing it into a cable solution that they can deploy as such. And in cases where cable operators are looking to make more rapid deployments, the fact that we do have a hardware solution and one that they can see and touch and feel and see how it works in consumers' homes as a retail offering, has been a real benefit to operators that want to get out there more quickly. So right now, we actually see the fact that we can drive business off of providing a hardware solution and a software solution or a software-only solution, nice optionality for the cable operator and an efficient way for us to currently drive the business.
Michael Cohen - Sinova Capital
Seeing that hardware also offers an opportunity for people to countersue you, it seems like maybe that might be the business [ph] that might be worth partnering and as opposed to providing your own software. How do you think in regards to that?
Thomas Rogers
Well, we look at our ability to serve as operators with good solutions, separate and apart from the intellectual property issues. And we're perfectly prepared to both defend our intellectual property and to pursue intellectual property opportunities that we think exist. But as I said, we view the hardware/software combination as very valuable to operators that want to embrace a more rapid solution.
Michael Cohen - Sinova Capital
Okay. And my last question, I was wondering if you could provide us with some sort of update, what's going on with Comcast currently?
Thomas Rogers
Well, Comcast has invested a lot of money in TiVo, both on the first track of an implementation that proceeded in Boston and then investment in a tru2way solution that was their next generation of software that they intend to roll out to additional markets as their technology evolution continued. We are talking to a number of operators, including Comcast, about approaches that we think involve potential faster deployment for the industry and provide opportunities for the industry that what is obviously has been a very slow path for us with Comcast has not presented. So that's probably my best assessment of that situation right now. On the -- pause between questions, but on the patent litigation front, for those of you who did not see this in the last half hour or so, AT&T's suit against us in federal court in California has just been stayed by the judge there, pending re-examination of their patent that they sued us on by the patent office. This has nothing to do with our suit against them in Texas, which is proceeding. But I thought it was worth pointing out since that's a late breaking newsflash that AT&T's suit against us in federal court in California has just been stayed.
Operator
Your next question comes from Barton Crockett of Lazard Capital Markets.
Barton Crockett - Lazard Capital Markets LLC
First, I was wondering when we look at the Retail business, this was, I think a quarter where it seems like you had a lot of things lined up for sub growth, you have a new box, Premiere, which looks good, you have a new promotion, you have some marketing supports, some press coverage, yet you still lost subs in the quarter. I mean, is this a business that's going to grow again? I mean, is there anything you can see on the horizon that would argue for growth in standalone retail subs?
Thomas Rogers
Well, gross subs did grow. New retail subs did grow quite considerably, 30%, and it was the best growth in terms of subs we had year-over-year in four years, I believe. And yes, that was a function of a combination of a product that we think is differentiated in the marketplace and pricing that we thought was attractive for the holidays. The sub losses on the retail side really are a function of standard definition, in most cases, single-tuner, older TiVos that are churned out. So they're really apples and oranges in terms of the issues of what's going on there. I think it's fair to say that we get a lot of value out of the Retail side of the business and the Cable Operator side of the business, having more and more in common in terms of the hardware/software combination I was talking about, which we now have a way to morph into a cable product off of that retail premier offering. And going forward, the R&D investment we're making is largely investment that is usable for both sides of the equation, and that provides a substantial amount of efficiency in terms of how we think about the value of the Retail business. I think the key challenge for us on the Retail side is that TiVo's proposition in terms of being the only solution that takes the cable channel offering and over-the-top content and puts it together in a single box with a single remote, involving a single user interface across all that content, just the reasons that cable operators are deciding it is the right solution for them. That distinctive consumer proposition among a sea of new information about over-the-top content is not necessarily as widely spread and as widely understood as we would like it. And we clearly have some work to do there. But overall, it was the best sub growth quarter for us based on retail product that we've had in four years.
Barton Crockett - Lazard Capital Markets LLC
Okay. And then maybe switching gears a little bit. When you talked about the thoughts about the new pricing plan that it's something that might not be appropriate outside of the holiday season, can you be a little bit more specific? Is that something that is expected to be in place in your first quarter guidance? And is it also expected to be in place when we approach the holiday quarter for the upcoming year?
Thomas Rogers
Well, I don't want to go beyond the current timeframe on that. It's our current pricing, and it is expected to be our pricing through the first quarter. We want some experience to assess it outside of a holiday period. Obviously, we turned to that approach hoping it would give us a volume increase. And it has significant ARPU and overall revenue and lifetime profitability benefits when it was coupled as it was with the increase in the monthly fee. But we haven't made any longer-term decision about that.
Operator
Your next question comes from David Miller of Caris & Company.
David Miller - Caris & Company
On the guidance with regard to technology revenues, you guys mentioned that technology revenues can vary significantly from quarter-to-quarter and just may not be reflective of the level of tech revenues in future quarters. Does that imply sort of rhetorically that there's this $4 million to $5 million hole in the current quarter that you'll make that up in the, maybe second, third, fourth quarter over time? Is there something that happened with one particular vendor, contractually, where you're not going to realize that revenue in the current quarter, but you may make that up over the next three quarters? And I have a follow-up.
Anna Brunelle
Yes, I'll take that one. This is Anna. Our tech revenue, we've said from time to time, are lumpy. Every once in a while, we have a quarter where they com a little bit lower than our historical run rate, and we end up covering this conversation. Those revenues are dependent on the timing of when we receive payments from our partners. And so in this particular quarter, the timing just worked out such that we weren't able to recognize some for the guidance in Q1. Again, as Tom said, we don't like to give guidance further out than that, but we didn't want you to think this was a new trend either. So I would look at our historical patterns more when you're deciding what pattern to put forward from Q2 on.
David Miller - Caris & Company
I got you. And the prognostication of R&D expenses to increase by a $25 million to $30 million in the current year, I mean, you guys must be unbelievably confident about the future. You're either incredibly confident in an en banc win, in which case cash won't be an issue or cash burn won't be an issue or you're going to go back to the capital markets, which doesn't really seem like that's really kind of your style right now. Or it just means that these new distribution deals, these new deployments that you have, all these irons in the fire are really going to start to fire in the next two to three quarters and reverse these losses that we've seen in the subscriber line for the past couple of years. So, Tom, I mean, can you give us any guidance as to when the subscriber line is going to reverse itself because you've got to be very confident about the future to devote this kind of uptick in R&D expenses in fiscal '12?
Thomas Rogers
Well, we look at the landscape out there and both operators here and around the world are going to have to make a transition to advanced television. Television is not going to continue to be framed as a user experience the way it is today by operators. And it is a very complicated thing to have the consumer-facing piece and to understand the cable operator plumbing and to be able to provide confidence of a implemented solution that can be pointed to and people can see and touch either in retail or by other operators, and be viewed as a technology innovator on top of that, that can continue to keep operators current. And we now have a pretty decent representative sampling of operators both here and in Europe that is not only valuable to help us see the opportunity as the rest of the operator world has to grapple with this very same issue of making an advanced television transition. But you hear operators talking about their desire to see somewhat of a network effect here that is more operators take a solution. They want others to take the solution because of third-party applications that can be built to it. Remember, it's an Adobe Flash-based architecture, which is intentionally designed to allow third-party applications and the richness of the operator experience that flows from that, as operators rooting that other operators will take it. And all of that really does contribute to a confidence that we should be investing heavily in the R&D opportunity that all of that presents. So I think that we've seen that with Charter coming forward and even what they said today on their call, there's a reason that we've established leadership in terms of the number of different operators that have chosen us as the solution and we want to build on that lead.
Operator
Your next question comes from Rich Tullo of Albert Fried.
Richard Tullo - Albert Fried & Company, LLC
AT&T and Verizon, when are they due to be -- when are those cases due to be heard in court this year?
Thomas Rogers
Matt?
Matthew Zinn
Those cases are currently scheduled for trial in October of this year.
Richard Tullo - Albert Fried & Company, LLC
And is there any point in time where an out-of-court settlement will not be possible prior to the court cases?
Matthew Zinn
Settlements are always possible. There's no time in which they are or aren't. I mean, cases settle right up until the time of the decision.
Richard Tullo - Albert Fried & Company, LLC
And should we look into anything that you didn't mention Verizon, but you mentioned AT&T on the call?
Thomas Rogers
I only mentioned AT&T because of that fast-breaking news involving the staying of the AT&T case against us. We continue to pursue our actions against Verizon.
Richard Tullo - Albert Fried & Company, LLC
And is the increase in R&D spending related to any specific client? Or is this for new product offerings that are going to be, I guess, for fiscal 2013?
Thomas Rogers
Well, it involves a number of activities. It certainly involves being able to have the capacity to take on some additional deals beyond the ones we're working on. It involves developing the code base in a way that we will look to make it more universally implementable, meaning that getting the code to a point that regardless of the environment and the operator that we're implementing it for, doing so, in any given case, becomes more efficient and less resource-intensive. Getting the code so that each incremental assignment we take on has greater efficiencies does involve an investment in the code base of some significance in and of itself. There are a number of unannounced innovations that we are pursuing involving next generation experiences that we think are important investments. There's the whole non-DVR piece of the equation that we are currently engaged with, with operators, operators who have entered into a partnership with us not solely for the rollout of DVR technology, but for the entire framing of the set-top experience, which involves non-DVR set-tops and the whole home or multi-room solutions that flow from that. So there are a lot of pieces of the equation here that involve fulfilling the needs of operators, putting the code in a position to roll out to additional deals, continuing to drive cutting-edge innovation. And as a whole, we believe that R&D investment is very worthwhile our making.
Operator
Your next question comes from Mark Argentino(sic)[Mark Argento] of Craig-Hallum Capital.
Mark Argento - Craig-Hallum Capital Group LLC
Just digging -- kind of drilling down a little bit further on increased R&D and legal expenses. From what I understand, the way you guys talk about R&D, you have kind of the innovative piece of R&D. But then you also have the money you're spending to prepare to launch with your MSO partners. And maybe if you could kind of parse out that incremental spend a little bit between kind of -- you guys in the lab working on new applications, new technologies and you guys actually preparing to go to launch with a new customer, that would be helpful, and then I have a follow-up.
Thomas Rogers
Well, we don't break out the specific buckets of our R&D like that. I can generally tell you that we have a very -- because of the volume of deals we've taken on in the last year, most of which are still very much in significant development stages with teams working on them, that obviously, a major component of the increase has been the specific implementation for operators that needs to be done. There are many different types of integration that we need to accomplish for each operator. They have different VOD integrators. They have different set-top box environments. Each of those present some unique engineering work. And the first time through of any one of those combinations requires more work than we believe will be the case as we have subsequent implementations by other deals we hope to bring on where operators are dealing with similar the VOD or box environment. So there is a heavy load now of operator-specific implementation R&D work. You're right, there is separate work that is next generation work, as I indicated, separate work that is broadly devoted to the code base to put it in a position so that future implementations are more efficient. There is work for specific operators, but also as a general matter on the multi-room and whole home front, so there is substantial R&D activity in both buckets you point to, but we don't break that out specifically.
Mark Argento - Craig-Hallum Capital Group LLC
And then just shifting over to legal, when you think about your legal budget, does that -- of course, all the publicly stated lawsuits that have been out there and you suing Verizon and the countersuits, does your budget contemplate any additional legal action? Or is that kind of the bucket for kind of what you have kind of out there to-date?
Thomas Rogers
Well, our view is that we will take the opportunities to defend our intellectual property and we will pursue intellectual property litigation when we believe it enhances the value for shareholders. We're not going to provide any insight into litigation strategy by answering that question specifically. But certainly, we contemplate the need for both defending our intellectual property and pursuing opportunities where we think it's in the best interest of shareholders.
Operator
This concludes the allowed time for today's Q&A session. I will now turn the conference back over to Mr. Tom Rogers for any closing remarks.
Thomas Rogers
Thanks, everybody, for joining us. I appreciate the questions, very good in hitting the right issues and hope we've been able to explore them for you fully. I look forward to talking to you again soon. Thanks, again.
Operator
Thank you. This concludes today's conference. You may now disconnect.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!