TiVo Swings to Profit on Google, Cisco Settlement

TiVo Inc. (TIVO) swung to a fiscal second-quarter profit, as the maker of TV set-top boxes benefited from a large settlement agreement and posted higher subscriber rolls.

For its third quarter, TiVo projected net income of $6 million to $8 million, aided by significantly lower litigation spending, and service-and-technology revenue of $80 million to $82 million. Analysts polled by Thomson Reuters most recently forecast $73 million in comparable revenue.

TiVo, which has mostly posted losses since the second half of 2009, has seen intellectual-property battles and heavy litigation costs affect its bottom-line results in recent periods.

The Alviso, Calif., company has posted good returns for its legal spending, reaching settlements with companies including AT&T Inc. (T), EchoStar Corp. (SATS), Dish Network Corp. (DISH) and Verizon Communications Inc. (VZ). In June, TiVo said it would receive $490 million from Google Inc. (GOOG) and Cisco Systems Inc. (CSCO) to settle patent litigation with both companies, though TiVo's stock tumbled soon after as the deal looked to be well below market expectations.

Chief Executive Tom Rogers said the latest litigation settlement "will produce significantly increased licensing revenue well into the future and which have substantially increased our cash resources."

For the period ended July 31, TiVo reported a profit of $268.9 million, or $1.96 a share, compared with a year-earlier loss of $27.7 million, or 23 cents a share. Excluding the Cisco and Google settlement, the company said it posted a loss of $13.1 million.

Net revenue rose 53%, to $100.1 million, while service-and-technology revenue grew 42% to $77 million.

In May, TiVo predicted a net loss of $13 million to $16 million and service-and-technology revenue of $68 million to $70 million.

Gross margin narrowed to 54.8% from 58.5%, as input costs jumped 67%.

TiVo has been placing less emphasis on the set-top boxes it sells at retail and more on distributing its offerings through operators' set-top boxes or through TVs alone. The company has also continued to build technology that allows its software to run in other devices.

The company has now posted subscriber increases for eight straight quarters, following a four-year streak of declining subscriber numbers. In the latest period, TiVo added a net 212,000 subscribers, compared with the 230,000 subscribers it gained a year earlier.

TiVo-owned subscription acquisition costs were down 20%. Monthly churn, or the customer cancellation rate, was 1.5% for TiVo-owned subscriptions, compared with 1.6% a year earlier.

Shares rose 1.6% after hours to $11.15, after closing at $10.97. As of Tuesday's close, the stock was down 11% so far this year.

Write to Ben Fox Rubin at [e-mail]

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