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Edited Transcript of TIVO earnings conference call or presentation 10-May-18 9:00pm GMT

Q1 2018 TiVo Corp Earnings Call

SAN CARLOS May 12, 2018 (Thomson StreetEvents) -- Edited Transcript of TiVo Corp earnings conference call or presentation Thursday, May 10, 2018 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Enrique Rodriguez

TiVo Corporation - President, CEO & Director

* Nicole Noutsios

* Peter C. Halt

TiVo Corporation - CFO

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Conference Call Participants

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* Eric Christian Wold

B. Riley FBR, Inc., Research Division - Senior Equity Analyst

* Michael Joseph Olson

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* Robert Warren Stone

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Sterling Auty

JP Morgan Chase & Co, Research Division - Senior Analyst

* Vahid Khorsand

BWS Financial Inc. - Research Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the TiVo 2018 First Quarter Results Conference Call. (Operator Instructions)

It is now my pleasure to introduce your speaker, Ms. Nicole Noutsios, TiVo Investor Relations. Ms. Noutsios, you may begin your conference.

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Nicole Noutsios, [2]

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I'm Nicole Noutsios, Investor Relations at TiVo. With me today are Enrique Rodriguez, CEO; and Peter Halt, CFO.

We just distributed a press release and filed an 8-K detailing our first quarter 2018 financial results. In addition, we posted a downloadable model on our IR site showing our historical financial results and GAAP to non-GAAP reconciliations. After this call, you'll be able to access a recording of this call on our website at tivo.com as well as a transcript of the company's prepared remarks.

For purposes of this call, when we refer to TiVo Inc., we're referring to the legacy TiVo Inc. entity and its business that was renamed TiVo Solutions Inc. after the acquisition by Rovi. Otherwise, references to TiVo mean the combined companies operations at TiVo Corporation.

Our discussion includes forward-looking statements about TiVo's future business, licensing, product 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 these forward-looking statements as described in our risk factors and our reports filed with the SEC.

Any forward-looking statements made on this call reflect our analysis as of today and we have no plans or duty to update them, except as required by law.

With that, I'll now turn the call over to our CEO, Enrique Rodriguez.

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [3]

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Thank you for joining us today for TiVo's earnings call.

On our last earnings call, I mentioned that we are focused on driving our team to improve execution, drive growth in key market areas as well as expanding our capabilities in content discovery.

I am pleased with the progress that we have made since then. We completed a solid Q1 and made progress on the strategic objectives laid out in our last earnings call. I believe the company is well positioned to deliver long-term growth. We have a valuable suite of technology and intellectual properties that are key to succeeding in this evolving landscape.

Specifically, we are well positioned with our cloud-based, device-agnostic solution that allows viewers to seamlessly navigate between traditional and streaming media on any device, whenever they want. Our strong suite of technologies and intellectual property, combined with a renewed focus on execution, provide us the opportunity to expand our presence into new and existing global markets while improving the performance of each of our businesses.

As we discussed on our year-end call, TiVo operates and has relationships with customers in both traditional and emerging markets. Our traditional markets consist of consumer electronics, or CE manufacturers, and pay-TV service providers. The emerging markets for us are virtual service providers, content and new media companies as well as advertisers. These are the areas that we believe will drive TiVo's future growth.

First, I would like to provide an update on the CE manufacturer's market, which includes manufacturers of digital televisions, game consoles and other connected video devices. For TiVo, IP Licensing is the major focus in this area. During the quarter, we renewed our agreements with 2 customers, VIZIO and Argos. These renewals indicate our continuing strengths in the CE manufacturer market.

Pay-TV service providers include cable, telecom and satellite network operators, and we are proud to announce that Mediacom Communications renewed their product and IP Licensing agreement with us this quarter. This market remains a strong core segment for TiVo.

I would also like to provide an update on our TiVo Experience 4, which was released in Q4 to the retail market and becomes broadly available for MSO customers this quarter. We believe that TiVo Experience 4 is the best video discovery solution in the market and will be the catalyst for conversions from legacy Rovi Guides to the higher functionality and feature-rich TiVo experience.

I'm excited to share that TiVo Experience 4 is already resonating positively with customers. As announced on the year-end call, Service Electric selected TiVo's next-generation platform to power their IPTV solutions, with plans to convert legacy Rovi Guides in their footprint to the richer feature set and higher ARPU TiVo Experience 4.

Additionally, RCN has agreed to deploy the TiVo Experience 4 to their customers and they would also be TiVo's first-ever deployment of an IPTV solution on the Android TV platform.

Additionally, in terms of our software and service component offerings for pay-TV providers, we are seeing increased success with our best-in-class voice solutions for natural language understanding of entertainment search queries.

Quarterly, unique voice users grew 21% from Q4 of last year. In Q1 this year, we had 1.1 million unique users versus 922,000 in Q4. Additionally, our quarterly queries grew by 62% going from 47.1 million queries in Q4 to 76.3 million in Q1. So we not only have strong quarterly growth in users, but more importantly, a substantial increase in usage among this user base.

We are very excited about this product, both as a feature in the TiVo Experience 4 as well as a stand-alone feature deployed by Tier 1 service providers such as DISH and BSkyB.

Moving on to virtual service providers. They deliver both linear and on-demand video via the Internet and comprise a fast-growing segment of our market. We continue to make strong progress in this emerging market.

As announced on the year-end call, we expanded our patent agreement with Google in Q1 to include YouTube TV. Additionally, KDDI renewed their OTT service agreement with us in Japan.

We also made significant progress with content and new media companies, a category which includes creators and owners of video content for OTT distribution, search, social networking and online retail. As we have previously stated, we believe having a variable component of the economics for this category of licensees is very important as it allows our revenue to grow with the expansion of their customer base.

In Q1, we added STARZ Entertainment as a licensee for TiVo's patent portfolios. Furthermore, Scripps Networks became our second customer using our targeted audience delivery service.

Lastly, for the advertiser's market, we anticipate launching a new advertising product this next quarter, combining our technology platform and household reach. We will provide sponsored in-Guide recommendation results for relevant programming with a mid-tier MSO located across multiple large DMAs on the set-top boxes, mobile and desktop platforms.

Sponsored Discovery a new advertising product deployed within our Personalized Content Discovery product suite. Entertainment marketers can promote their shows and films to a targeted audience through a recommendations carousel. We are also able to help advertisers reach their target audiences and better understand consumers through a process that allows TiVo's anonymized viewership data to be anonymously matched with other first and third-party information such as behavioral demographic and purchase data.

Finally, I would like to discuss our progress in international markets, which are also a key growth opportunity for TiVo. This quarter, I am pleased to share a few proof points about this opportunity.

We added new service provider licensees in Asia and Europe. Both were stand-alone IP deals demonstrating the value of our IP internationally. In Asia, we added Telstra Corporation as a licensee in Australia and renewed our IP license deal with Alticast in Korea.

In Europe, we added the #2 service provider in a major European country is a customer under a 6-year license arrangement. This comes on top of renewing 8 service providers in Europe last year.

In Western Europe, we are almost 40% penetrated in countries where we have a commercial license. This shows why we consider this market an exciting growth opportunity for product and IP business. These deals demonstrate that our IP Licensing business and patent portfolios

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commercially licensed IP to companies to enable them to use our innovations to make their products better for the consumers. However, like any other company with strong IP, it is necessary from time to time for TiVo to take legal action to protect it.

We have ongoing patent litigation with Comcast and getting them licensed remains one of our top priorities.

As a reminder, every other major operator has continued to license our innovations, many of which have signed long-term license arrangements. I am confident that Comcast will ultimately be licensed to use our intellectual property for the benefit of their business and their consumers.

Our management team continues to focus TiVo on driving profitable growth by accelerating execution and optimizing our cost structure. We have completed our transition to be out of MSO hardware business. This quarter saw the last MSO hardware revenue as we completed fulfillment of orders made last year.

In addition, we have signed on a major device manufacturer as our direct-to-consumer box partner. This partner will take over retail sales outside of tivo.com, namely through Amazon and Best Buy. Once we complete this transaction, we will still have direct consumer hardware sales through tivo.com, which we will be fulfilling through this box manufacturer.

On the TiVo-Rovi integration front, we have now acted upon synergies in excess of $100 million of our committed $110 million in synergies. The remainder of our synergy actions will be completed before our Q2 call, and as such, I don't anticipate discussing these integrations in the future. That said, we are always looking for opportunities to become more efficient. In fact, we have identified and started working on eliminating

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this brings me to an update on our strategic alternatives review. On our last earnings call, we announced that we are exploring a broad range of strategic alternatives to maximize the value of the company and best deliver value to our shareholders. On that front, we continue our strategic process and are thoughtfully exploring our options. We do not have any more details to share at this point, but I expect to provide an update on this process by our second quarter earnings call.

While we complete this process, rest assured that we remain focused on driving profitable growth, a commitment that I feel we have demonstrated this past quarter.

This will be a transformational year for TiVo. We have a lot of hard and very rewarding work to do, and we are focused on meeting our commitments and driving our teams to move quickly and efficiently. It is also a time of tremendous change in how consumers discover and consume entertainment, and this represents a great opportunity for TiVo. We have an excellent foundation to take advantage of this opportunity, and I look forward to sharing our progress with you on upcoming calls.

With that, I will turn the call over to Peter Halt, CFO, to provide an overview of our financial results.

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Peter C. Halt, TiVo Corporation - CFO [4]

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Thank you, Enrique.

We had a solid Q1, in addition to making progress on numerous ongoing business initiatives. We began the next step in optimizing our business model.

On the revenue front, first quarter revenues were $189.8 million. In Q1, our core business generated $174.8 million in revenue, while our noncore revenues included legacy TiVo Time Warp IP deals for $8.9 million; sales of hardware for $3.7 million; and our legacy analog products, classified as other product, for $2.4 million.

The legacy TiVo Time Warp deals expire this year and we are actively transitioning away from hardware and analog products. For comparison purposes, 1 year ago, our core business generated $165.1 million in revenue, while our noncore legacy TiVo Time Warp IP deals, sales of hardware and legacy analog products generated $23.9 million, $15.2 million and $1.6 million in revenue, respectively. So year-on-year, core revenues were up $9.7 million or 5.9%, while noncore revenues declined $25.7 million.

This quarter's results are the first we have reported under ASC 606. As discussed on our year-end call, we adopted the amended revenue and cost recognition guidance on January 1, 2018, using the modified retrospective transition approach. This means that our results for 2017 are reported under the prior standard and only 2018 is reported under the new standard. While there is no change in either the nature of our business operations or our cash flows, revenue recognition in 2018 is considerably different than in 2017.

As part of adopting the new standard, using the modified retrospective transition approach, we recorded a $27.9 million cumulative effect adjustment, which reduced the accumulated deficit in our stockholders' equity statement. This amount largely would have been revenue in 2018 under the prior standard.

As to the specifics of the new revenue standard's impact on Q1, product revenues were $116.9 million, up 2% year-on-year as the current quarter benefited from an $18.1 million net increase in revenue from our European MSO customers due to adopting ASC 606. This increase was driven by one of our MSO customers exercising a contractual option, which, under the prior industry-specific software revenue recognition guidance, would have been recognized over the remaining license period. The impact for how that election was accounted for was $22.7 million of additional revenue this quarter. This increase was partially offset by not being able to recognize $4.6 million in revenue under ASC 606 from our other 2 European MSO software customers.

Under ASC 606, while we still will collect the same amount of cash, we anticipate reduced recognition of revenues when compared to the prior standard from all 3 of our European MSO customers for the remainder of 2018.

The ASC 606 benefit in Q1 product revenues was partially offset by a $9.1 million decrease in hardware revenues due to the strategic decision to exit hardware manufacturing and a $6.8 million decrease in our software and services revenues, which was partially the result of Comcast no longer being a metadata customer. Software and services revenues in the prior year also benefited from a onetime positive revenue share adjustment in advertising and more NRE work for our PCD products.

As to the specifics of the new revenue standard's impact on the IP Licensing business in Q1, IP revenues were $73 million under ASC 606, down 20% year-on-year as the current quarter was negatively impacted by $14.4 million due to adopting the new revenue recognition standard. Of this, $12.9 million relates to the legacy TiVo Time Warp deals. As a comparison, Time Warp revenue in Q1 last year was $23.9 million, while this year in Q1, we recognized only $8.9 million of Time Warp revenue. Under ASC 606, there is only $11.2 million in Time Warp revenues left to be recognized over the next 4 months.

IP Licensing revenues from CE manufacturers declined by $1.9 million this year, primarily attributable to a customer, with whom we are still in negotiations, license is expiring. Additionally, the benefit in new media, international pay-TV providers and other revenue of new licenses with parties such as Google's YouTube TV and STARZ was masked by a drop off in catch-up revenues from a year ago.

In terms of GAAP costs and results for Q1. GAAP total operating costs of $198.9 million in Q1 were down $12.2 million from last year. In Q1, GAAP operating costs included $46.6 million of depreciation and amortization; $12 million in stock-based compensation; and $9.4 million of other costs excluded from our calculation of adjusted EBITDA, primarily related our restructuring, transition and integration efforts.

We also reduced our GAAP net loss before taxes from continuing operations in Q1 by almost 50% to $14.8 million when compared to the same period 1 year ago.

On a non-GAAP basis, non-GAAP total COGS and operating expenses were $130.9 million, down $6.7 million or 5% year-on-year. This quarter's COGS and operating expenses benefited from our ongoing synergy efforts as well as reduced hardware sales.

As Enrique mentioned earlier, we have now taken all the actions needed to realize our original target of $100 million in synergies from the TiVo acquisition. We also anticipate completing all the actions to reach our expanded target of $110 million by the end of Q2. In addition, as part of our ongoing efficiency efforts, we started work this quarter on eliminating an additional $10 million in COGS and operating costs this year.

We remain very focused on optimizing our business' cost structure.

Adjusted EBITDA on Q1 was $59.0 million, and non-GAAP pretax income was $46.3 million. These are down $9.3 million and $7.7 million, respectively, due to the year-on-year decrease in revenues, partially offset by our cost-reduction efforts.

Estimated cash taxes for the quarter were approximately $7.7 million. GAAP shares outstanding were 122.1 million, and non-GAAP diluted weighted average shares outstanding for the quarter were 122.6 million shares.

For those interested in calculating our non-GAAP EPS, which we don't provide in the accordance with the SEC's guidance, take our non-GAAP pretax income, subtract our cash taxes, and divide by non-GAAP weighted average shares outstanding.

Finally, we have a very strong balance sheet and cash and investments at the end of the quarter increased to $361.6 million. We also have $1 billion in federal NOLs, and a remaining stock repurchase program authorization of $150 million.

Additionally, our board once again declared a dividend of $0.18 per share, which will be paid on June 20 to shareholders of record on June 6.

In terms of our expectations for 2018, as Enrique mentioned, we're still conducting an in-depth review of our businesses, cost structure and strategic options to maximize shareholder value. Due to the broad range of potential outcomes for the company, we are not providing financial estimates for fiscal 2018 at this time. That said, I do want to comment on 3 items, which impact 2018.

First, the net impact to revenue for Q1 2018 from adopting ASC 606 was a $3.7 million benefit. However, we expect the full year 2018 impact will be a reduction of approximately $30 million in revenue from what we would recognize under the previous standard. Again, we remind folks that there is no change in the nature of our business nor its underlying cash flows.

Second, legacy TiVo's Time Warp deals expire this year and we are actively transitioning away from selling hardware and analog products. Therefore, these revenues will decline in fiscal 2018. In fact, as I mentioned earlier, under ASC 606, there is only $11.2 million in Time Warp revenues left to be recognized over the next 4 months.

Finally, the new tax law. While we have not completed the accounting for its impact, including the new alternative minimum taxes on foreign earnings, we do not expect it will materially impact our cash taxes due to our large federal NOLs.

In conclusion, we had a solid quarter and reported our results in line with our internal expectations. We continue to make progress on driving growth in our core businesses and look forward to sharing our progress in future calls.

I will now turn the call over to the operator to open up the line for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Mike Olson with Piper Jaffray.

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Michael Joseph Olson, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [2]

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Just confirming the Q1 adjusted EPS using the non-GAAP pretax income of $46.3 million, less the cash taxes of $7.7 million and then divided by the non-GAAP shares is $0.31 for the quarter. Does that sound right?

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Peter C. Halt, TiVo Corporation - CFO [3]

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That is the correct calculation, Mike.

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Michael Joseph Olson, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [4]

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All right. And then regarding international IP Licensing, I've always thought that Europe is really the only opportunity of significance that could be material. It sounds like you're having some success in Asia. Is there maybe a more significant opportunity in Asia in the near future?

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [5]

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Well, we've historically had success with CE manufacturers in Asia. There's no fundamental change to that trend.

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Peter C. Halt, TiVo Corporation - CFO [6]

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Mike, I'd say that we have greater

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We're less penetrated in Europe than we are in Asia.

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continues to be a larger opportunity for us, but don't rule out Asia as being an opportunity. As we've said in the past, there's an opportunity in Canada, too.

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Michael Joseph Olson, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [7]

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Okay. Got it. And then you mentioned having all operators, except Comcast, sign for IP deals. And I was just wondering if you could share, not necessarily by name, if there is any major IP operator renewals coming up in 2018.

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [8]

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Yes. I'm sorry, but we can't -- we really can't comment on some of those terms. I mean, whenever we've had terms that we can publicly disclose, we've disclosed those, but we can't talk about specific renewals coming up. Sorry about that, Mike.

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Operator [9]

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Your next question comes from the line of Sterling Auty with JPMorgan.

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [10]

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I got a few questions here. Let's start with -- there is a large number of renewals that you talked about or announced throughout the last quarter or so on the IP side. Can you give us a general sense of what are the revenue run rates on the renewals compared to before? So in other words, are you getting a 5% uplift or a 5% contraction? And also, what's the average contract length that you're seeing in these renewals?

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [11]

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So first of all, from a rate perspective, we really are not seeing any material change. The trend of the latest agreements are pretty consistent with what we've seen before. I think I mentioned in our Q1-- sorry, Q4 earnings call that we were actively trying to basically put more of the revenue in the future as opposed upfront type of payments. We continue on that side. We think that's healthier for the company and, ultimately, better value for our shareholders. So really, no material change. In terms of an average length, there really isn't what I would call any sort of standard there. Just to remind you as a particular example, even though AT&T had signed originally a 7-year agreement, they, at some point in time soon after, saw an opportunity to extend it to 10. So it's really hard to talk about any sort of typical range.

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Peter C. Halt, TiVo Corporation - CFO [12]

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But if you wanted to categorize it, I'll remind you

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as we've said in the past. In the service provider side, the pay-TV operators are looking at significant investments to get them one of the world's

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their longer-term ones. We talked about deals being 3 to 5

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having here some recent deals since we've gone public, 6 to 10. On the CE side, we said they were shorter durations, 1 to 2 years because they're still trying to figure out what they can do

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space. And then as Enrique mentioned in the last call,

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the content

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we're excited to be adding on for shorter-term deals

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them, just so that we can renegotiate with them as their economics improve.

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [13]

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Got it. That makes sense. And then on the $10 million of incremental cost savings that you're looking at, Enrique, can you give us a general idea of where the source of those additional savings?

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [14]

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It's really a pretty wide range. I mean, I'm very proud that the company has embraced this culture of continuous efficiency. It's kind of nice -- not only to be able to announce that we met the synergy targets, if you recall, we increased it by $10 million last call. We increased it again for $10 million this call. It's no longer synergy. It's just now -- let's call it normal business cost improvements. Comes from a few places. We do have improved efficiency in certain parts of our R&D, which, again, we're very happy with. In other places, we're fine-tuning the product roadmap to make sure that we're investing in areas that our customers tend to find value and being very cautious about investing in areas that could be more speculative from an R&D perspective as well. And then just general G&A. I mean, I think one comment I made in our last call is that I felt, coming into the company, that there was a great opportunity to improve the cost basis. And now, we're seeing those materialize and be something that we feel comfortable enough to talk about. Last comments on this because probably by the length of my answer, you can tell I love this subject. This will be continuous for us, okay. I don't believe a company ever really reaches an ideal situation from an efficiency point of view. So we will continuously look for better places to -- better ways to conduct our business and improve our efficiency that way.

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [15]

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No, that sounds good. One more area, and then jump back in the queue. In the prepared remarks, I didn't quite catch -- it sounded like there was -- was there revenue missing because of someone that fell out of a contract. Can you just go back through that and give us a little bit more color there? And not sure if it's the same situation, but what's the latest with Hulu in terms of -- I thought you were in contract negotiations. Did that ever come to fruition, or where does that stand?

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Peter C. Halt, TiVo Corporation - CFO [16]

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So on the Consumer Electronics side, I'm talking about the IP Licensing, we said that it was

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from a year ago because the licensee with whom we're still negotiating, their license expired. So if you go back and you look at 2016, 2015, '14

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they got out of license for a quarter or 2, and then come back in. No different situation here

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working in getting the terms right.

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Operator [17]

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Your next question comes from the line of Eric Wold with B. Riley.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [18]

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Couple of questions. I guess, obviously, a lot has changed between last year and this year with 606 implementation. Maybe kind of -- I know you're not giving guidance. Maybe kind of take a crack at a different route. So if we look at Q1, your core revenue, the $175 million of core revenues, excluding legacy TiVo, the hardware and the other -- the analog and other revenue flowing in, just the $175 million. Maybe -- is there anything major in that, puts or takes, that should change in the coming quarters? I mean, what's -- what would really deviate from that as a run rate for the remainder of the year we can make our own assumptions around the other kind of noncore revenues?

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Peter C. Halt, TiVo Corporation - CFO [19]

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Yes. I'd point you, Eric, to Page 41 in our

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we discussed the segment result

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product. And it'll

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you can see some detail we talk about

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European MSO licensees for the TiVo software.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [20]

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I apologize to you. You're cutting in and out a fair amount. Not sure...

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Peter C. Halt, TiVo Corporation - CFO [21]

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Eric, I'd refer you to Page 41 in our 10-Q, where we go into a little bit more detail. But as I mentioned in the prepared remarks, in terms of our European MSO customers for the TiVo software solution, we had a customer where we recognized a significant amount of money in the quarter just because of the new

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that would have, otherwise, been recognized

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not only over the rest of the year but for the next couple of years. Basically,

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prepaid or -- their license, and that recognized -- that was recognized in the quarter. So you do have a lump in (technical difficulty)

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [22]

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Okay. So nothing really besides that European issue?

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Peter C. Halt, TiVo Corporation - CFO [23]

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Yes. And again, just the accounting being different under 606 than 605.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [24]

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Okay. And then you previously -- I know at the time of the combination -- the Rovi-TiVo combination, you talked about 15 million households on the legacy i-Guide that had an opportunity to kind of move up the chain. And I know you've done deals with Service Electric and RCN and talked about others. Maybe -- where are you in that progression? How many of that 15 million is a realistic target, and how far along are you now and kind of -- what's kind of the -- maybe a general range of the incremental revenue you've been able to pull out of those 15 million households?

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [25]

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Well, first of all, eventually all 15 million are our target. I mean, we try to upsell to a better experience and a better margin for us at every opportunity. I think you know the dynamics of this business. The operators have their own pace in terms of how they think about upgrading, and in many cases, that gets limited by their investment in hardware. But we are not seeing anything in this transition that would point out to it being slower or more difficult than other transitions that we're seeing. So we feel that we are on pace. Having said that, the RCN announcement is particularly important for me because it's a transition to our complete new Experience 4, and that's something that we'll keep a very close eye this year. I'm going to feel really, really, really good seeing that go out to market within 2018, and frankly, that would be a key indicator for me as to how this transition will actually go.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [26]

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Perfect. And then last question for me. Can you update us on Comcast? You updated some kind of a major catalyst/dates that are kind of outstanding in that. I guess, ones that you do know the date or time line and ones that you do not on both the ITC and district court case?

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [27]

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This is the question that makes me the most unpopular person, but we just can't comment on anything on the litigation. I'm sorry about that.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [28]

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Even if it is a known date?

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [29]

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No, we don't -- I mean, all this is in the timetable that the courts provide, which we have no control of, and I don't want to predict their reliability. There's no other timetable that we publically talk about.

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Operator [30]

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Your next question comes from the line of Rob Stone with Cowen and Company.

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Robert Warren Stone, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [31]

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I wanted to talk first about the TiVo box partner. Could you just give us a little more color on how this is going to work? Is this going to be a co-brand product? Are you going to share some subscription revenue? Or (inaudible) monetized for each of the partners. And I think you said that's launching in Q2, so that's my first question.

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [32]

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So the way this is going to work is very similar to what we have in the MSO business already. That's why we are comfortable to make this transition. And think over it this way. In the retail business, we basically are acting like the MSO in the context of hardware. What that means is that we are not going to be producing or manufacturing or contracting directly the manufacturer of these boxes. That will be done by our partners. We will be securing whatever volume we need for tivo.com. We'll be securing from the partner. In that sense, we're acting as a distribution channel, but the majority of sales to -- everything that happens, for example, on Amazon or on Best Buy will be handled directly between the partner and the distribution. We would be completely out of that transaction. From an end consumer perspective, there will be no material change. There's no significant co-branding. Of course, there's always recognition of who manufactures the device. That will continue. But basically, the consumer will continue seeing a TiVo-branded device with a TiVo Experience, a TiVo software that they know and love over the years.

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Robert Warren Stone, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [33]

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Okay. (inaudible) the potential impact on the channel relationships. In other words, is this partner helping to support the channels? There's often advertising stints, various things you do to get stuff to go through a Best Buy or someplace like that. Are they present in those channels in a way that they can influence better volumes for you?

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [34]

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Yes, in fact, that's a positive impact because they have better presence in those channels than we do today. And then, it's a partner that we have a great relationship with. We're very confident of their ability to succeed there. But we'll continuously work with them in some cases when we decide to jointly try to promote something or jointly try to accelerate something. But that's just a normal relationship that we will have with them.

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Robert Warren Stone, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [35]

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Okay. With respect to TiVo Experience 4, great to finally see the ghost of TotalGuide finally appearing in the market. How should we think about the revenue impact of that? And not for RCN, specifically. I know you don't want to delve into that 1 customer, but the full impact of Experience 4 versus prior iterations of TiVo Guides or legacy Rovi Guides?

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Peter C. Halt, TiVo Corporation - CFO [36]

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Well, I won't -- we don't get into specific pricing, Rob.

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we have

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feature sets, we do get higher ARPU. So we've said in the past publicly is that is we look at this being an IPTV solution available and meeting needs. We're looking at this TiVo Experience 4 as kind of being the driver for beginning

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the legacy Rovi Guide. As we've said before, we certainly stubble our ARPU in that regards.

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Robert Warren Stone, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [37]

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Okay. A question for you, Peter. Could you walk us through (inaudible). It seems like that may be confused a little bit by the change in accounting standard and various other things. There wasn't anything in the release about cash flow.

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Peter C. Halt, TiVo Corporation - CFO [38]

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Sorry, Rob, the beginning of your question broke up. Can you just repeat the beginning?

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Robert Warren Stone, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [39]

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If you could walk us through cash flow items in the quarter, cash from operations, what did invest in CapEx, that sort of thing?

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Peter C. Halt, TiVo Corporation - CFO [40]

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In terms of cash flow, as we've tried to reiterate a couple of times, not only in this call, but last call, there is no impact on our cash flow from the ASC 606 adoption. We did have a cumulative effect adjustment, where about 27 million went to attain deficit. It's primarily revenue that

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in the year. But there's no impact at all on cash flow. If you look, Rob, we have in both our earnings release and in our Q a cash flow statement. The one thing I'd say in terms of CapEx, as we've talked about before, they're running slightly higher this year than they do as our historical norm, and that's because of some of the CapEx around

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between TiVo and Rovi and a little bit of the other work we're (technical difficulty).

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Operator [41]

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Your next question comes from the line of Hamed Khorsand with BWS Financial.

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Vahid Khorsand, BWS Financial Inc. - Research Analyst [42]

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It's actually Vahid calling in for Hamed. The first question, in terms of signing new contracts, are they purely based on location? Are you seeing traction with specific types of international providers -- service providers?

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [43]

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As Peter mentioned earlier is, we see more momentum internationally. We see more momentum in Europe than in other places. But traditionally, we have a good presence in Latin America. We expect that we will continue having a very good presence in Latin America. I think that when you look at the complete product range that we offer, we have the capability to address markets with lower ARPU. So fundamentally, we're seeing the momentum in Europe and Latin America continue to strong, which is really a continuation of the way that we've been doing business and the way that we expect our international footprint continue to look like.

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Peter C. Halt, TiVo Corporation - CFO [44]

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And as Enrique also mentioned in addition to adding the 2

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in Europe and 1 in Australia. We also

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to CE manufacturers and we renewed an OTT provider in Japan. So it's not

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in different geos, but also again, across different types of industries.

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Vahid Khorsand, BWS Financial Inc. - Research Analyst [45]

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Okay. And then what kind of feedback are you seeing from your licensees on Experience 4 so far?

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [46]

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The early feedback is very strong. And it's early. We'll continue updating the product. One of the beautiful things about Experience 4 is it's done completely in our Agile system from a development perspective. So you would see an innovation pace that is faster than you've seen in the past from us, which is great because it means that we can react quick -- more quickly to data from MSOs or from our retail channel to continue improving that experience. Just to give you an example, we've been talking about our voice product -- and to be clear, voice product is not just on Experience 4, but Experience 4 is part of that, and we're seeing just tremendous success when it comes to the voice product. I think that our number of queries for Q1 was in the order of 74 million. I'm sure that Q2 number is going to be even stronger than that. So we're seeing very, very positive reaction. We'll introduce as well what we call our sponsored content. Basically, it's the ability to utilize search and recommendations, specifically recommendations to promote content that we know would be very relevant to that specific consumer, but also important for the content provider as a promotional opportunity. So we're pretty happy with Experience 4. But once again, you should expect Experience 4 will be a continuous improvement, much more like what you see on a traditional mobile phone app.

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Peter C. Halt, TiVo Corporation - CFO [47]

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And if you haven't seen the video that we have of Experience 4, as Enrique had mentioned last quarter, it's now posted.

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by the tivo.com

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worth looking at just the breadth of functionality offered.

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [48]

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I mean, if you want to take a little short trip to San Jose, we'd be happy to show you a full demo of the product.

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Vahid Khorsand, BWS Financial Inc. - Research Analyst [49]

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Okay. And then my last question, with regards to your patents, is there a way OTT service providers can avoid paying you those -- a patent fee?

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [50]

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We feel very strongly about the strength of our portfolio in the OTT space. As I mentioned on our last earnings call, the OTT space and content providers, we believe, represent a great opportunity for our business. By the way, that's not just a licensing statement, that's for our business across the complete portfolio, but specifically in license, which is what you're asking, we feel really strongly about the applicability of our portfolio. I use, just as an example, because this one also happens to already be public as part of our -- some of our filings, for example, we have a patent on the basic concept of starting to watch a show in one device and then continuing in a different device. That functionality is -- first of all, it's extremely valuable today, and it applies to just about anything. It applies to anything that is related to consuming entertainment. It doesn't matter if it's an MSO, a content provider, an OTT provider, a virtual MVPD. So we feel very strongly that, in general, our IP is not really dependent on the distribution mechanism, but is depending on -- is really centered around core content discovery functionality that we believe is very attractive to end consumers.

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Vahid Khorsand, BWS Financial Inc. - Research Analyst [51]

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But at the end of the day, you don't feel -- you feel comfortable that an OTT service provider can't use it without paying you a fee?

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Peter C. Halt, TiVo Corporation - CFO [52]

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The greatest proof point we can offer anyone are the deals we did. And we've just announced STARZ this quarter. Last quarter, we did a deal with Google.

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Clearly not

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other people out in the market to see the value of our intellectual property in the OTT space.

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Operator [53]

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Your last question comes from the line of Sterling Auty with JPMorgan.

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [54]

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On the mobile front, following the success that you had with Samsung, can you give us an update on what the other opportunities might look like in that space?

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Peter C. Halt, TiVo Corporation - CFO [55]

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In the mobile space? We don't comment on specific customers that we're in conversations with ahead of the deal. But all year

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companies, Korean manufacturers

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that provide [locations] on things that run on mobile devices, too. So it is an area that we see opportunity.

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [56]

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Yes. And it's probably not the granularity that you wish, but just broadly, the increase of consumption of entertainment, not just in mobile devices, but in every device that the consumer buys, is a great driver of contingencies. So in general, the trend to more and more mobile consumption, we believe, will lead to good things in our business.

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [57]

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Got it. And then on TiVo Experience 4, is there -- within the environment that's already out there in terms of the TiVo boxes that are there, is there any requirement for any hardware upgrades for them to download as well as is there any incremental revenue opportunity -- not selling the legacy i-Guides, but is there any revenue uplift that you get from Experience 4 within the existing TiVo installed base?

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Enrique Rodriguez, TiVo Corporation - President, CEO & Director [58]

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So a couple of things. I mean, the hardware in the MSO world is always a tricky question, right. So we work very closely with MSOs because we want to maximize the number of boxes that are eligible for a particular update. That helps their business because it means less CapEx they have to install, and it helps our business because it accelerates the upgrade. And so that -- but the complication in the MSO world is that many of those boxes were custom designed, so it's difficult to give kind of a blanket statement as to where it applies or not. In terms of revenue opportunities, beyond obviously the increased ARPU, when it comes to better and better experiences, we believe that our additional revenue opportunities, both for the MSOs as well as for us, and those tend to come from advertising. We think that these experiences create a great opportunity, and we've seen already some success on this to basically promote content that is relevant to the end consumer to do so on an advertising-type relationship and leads to consumer, a, being more satisfied because they get content that, again, is relevant, and obviously, our business and the business of the MSOs improve. It's early on Experience 4. I'm really talking about directionally what we see. We don't yet have material success on it to be able to speak about it more quantitatively.

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Operator [59]

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Ladies and gentlemen, thank you for joining us today. This does conclude today's conference call. You may now disconnect.