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TiVo Inc. (NASDAQ:TIVO) is scheduled to announce its second quarter 2012 results on August 24, 2011 after the closing bell. We do not see any major variation in analysts’ estimates in the run-up to the earnings release.

Prior-Quarter Recap

TiVo reported earnings per share (NYSEARCA:EPS) of $1.04 per share in the first quarter of 2012, comprehensively beating the Zacks Consensus Estimate of a loss of 31 cents. Results were a significant improvement over the loss of 13 cents per share in the prior-year quarter.

The better-than expected results were primarily driven by litigation proceeds of $175.7 million in the quarter that TiVo received with regard to the patent settlement with DISH Network (NASDAQ:DISH).

However, revenues decreased 25.4% year over year to $45.8 million in the first quarter and were also below the Zacks Consensus Estimate of $54.0 million. The weakness in the year-over-year comparison was primarily due to an 8.0% decline in Service revenue, 21.0% decline in Technology revenue and 62.0% decline in Hardware revenue during the quarter.

Second Quarter and 2012 Expectations

TiVo expects Service and Technology revenues to range between $46.0 million and $48.0 million. The Zacks Consensus Estimate is pegged at $54.0 million.

Management expects a net loss in the range of $25.0 million to $27.0 million in the second quarter. Adjusted EBITDA is expected to be between ($14.0) million and ($16.0) million for the second quarter of 2012.

For fiscal 2012, TiVo expects the patent settlement with DISH to reduce legal expenses by approximately 20.0%. TiVo believes that the recurring stream of high-margin licensing revenue from DISH and declining expenses will boost adjusted EBITDA for fiscal 2012 and beyond.

Estimate Revision Trend

None of the seven analysts covering the stock revised their estimates in the last 30 days. Hence, the EPS estimate for the second quarter of 2012 remained at a loss of 20 cents.

Also, for fiscal 2012 no change in estimates was noticed in the last 30 days. Hence, the EPS estimate remained at 54 cents.

Analysts covering the stock continue to believe that new partnerships with leading companies coupled with new customer wins, product launches and international expansion will drive top-line growth.

Additionally, the settlement of the patent suite against DISH and EchoStar Corp. (NASDAQ:SATS) will not only reduce legal expenses but also provide a recurring revenue stream for TiVo over the long term.

Conclusion

TiVo remains committed to developing new technologies and is spending handsomely on research and development (R&D), which is expected to increase in the range of $25.0 million to $30.0 million for fiscal year 2012 ($81.6 million in 2011).

The increased expenses will no doubt impact earnings, unless there is a corresponding pickup in sales. We therefore prefer to take a wait-and-see approach.

Moreover, we believe that this settlement has enhanced TiVo’s reputation, justifying the aggression with which it has been defending its intellectual property.

However, the company continues to see patent litigation issues against Microsoft Corp. (NASDAQ:MSFT), AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ). Going forward, these litigation issues will remain an overhang.

Moreover, increasing competition from cable and satellite providers will act as a headwind going forward.

We have a Neutral recommendation on TiVo over the long term (6-12 months). Currently, TiVo has a Zacks #3 Rank, which implies a Hold rating in the short-term (1-3 months).

Source: TiVo: Earnings Preview