Q4 2012 Earnings Call
February 23, 2012 5:00 pm ET
Derrick Nueman - Investor Relations Professional
Anna Brunelle - Chief Financial Officer, Principal Accounting Officer and Vice President
Matthew Zinn - Chief Privacy Officer, Senior Vice President and General Counsel
Naveen Chopra - Senior Vice President of Corporate Development & Strategy
Brian Patrick Fitzgerald - UBS Investment Bank, Research Division
David W. Miller - Caris & Company, Inc., Research Division
Alan S. Gould - Evercore Partners Inc., Research Division
Daniel Ernst - Hudson Square Research, Inc.
Edward S. Williams - BMO Capital Markets U.S.
James C. Goss - Barrington Research Associates, Inc., Research Division
Richard Tullo - Albert Fried & Company, LLC, Research Division
Previous Statements by TIVO
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Sir, you may begin your conference.
Thank you, and good afternoon. I'm Derrick Nueman, TiVo's Head of Investor Relations. Welcome TiVo's fourth quarter ending December 31, 2011 earnings call. 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 have just distributed a press release and 8-K detailing our fourth quarter and full year financial results. We also posted a fourth quarter key metric trend sheet on our Investor Relations website. You may access a recording of this call on our website during the next 2 weeks. Our prepared remarks today will last about 30 minutes and will be followed by a question-and-answer session.
Our discussion today includes forward-looking statements about TiVo's future business and growth strategies, including domestic and international deployment, future revenue and subscription growth and expenditures relating to research and development and litigation. We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that may cause our actual results to vary materially from forward-looking statements. Factors that may cause our actual results to differ materially are described in Risk Factors in our annual, quarterly and current reports with the SEC. Any forward-looking statements made on the call today reflect the analysis as of today, and we have no plans or duty to update them.
Additionally, some of the metrics and financial information provided on today's call are non-GAAP metrics. Please see our fourth quarter fiscal year 2012 key metric trend sheet on our Investor Relations website for a reconciliation.
With that as remarks, I'll now give it over to Tom.
Thank you, Tom, and good afternoon, everyone. This was a great quarter and fiscal year for TiVo. In the fourth quarter, our service and technology revenue grew 21% year-over-year. We exceeded adjusted EBITDA and net income guidance and our total subscription base grew approximately 11% year-over-year.
For the full year, we posted close to $150 million in adjusted EBITDA and over $100 million in net income on the heels of our intellectual property settlement.
Before getting into the financials, let me quickly walk you through the details of the AT&T settlement from an accounting standpoint. In the fourth quarter, we recognized $54.4 million related to past damages and we'll recognize at least $6 million a quarter through mid-2018 with expected upside as AT&T U-verse subscribers continue to grow. Excluding all legal-related benefits and expenses in the fourth quarter, which includes the $54.4 million in past damages we just spoke of, $2 million of licensing fees in January and the 1x settlement accruals of roughly $16 million relating to our incentive payments, mostly to our outside counsel, we would have beat our adjusted EBITDA guidance.
Now getting into the quarter. Service and technology revenues were $50 million, which included $2 million of AT&T licensing revenue and a $600,000 impact on subscription revenue as we extended product lifetime amortization from 60 months to 66 months. Our cost of service and technology revenue was $13.2 million. Our net hardware loss was $3.9 million, which was driven by typical negative hardware margin in our retail channel.
Operating expenses were $21.3 million and as discussed earlier, this included a $54.4 million benefit from litigation proceeds and $16 million of related legal settlement expenses. Additionally, in line with our expectations, both litigation and R&D spend increased slightly from the previous quarter.
Interest, taxes and other expenses were roughly $4.4 million. This led to a net income for the fourth quarter of $7.2 million or earnings per share of about 6% of both the basic and diluted basis. This used a basic share count of approximately 118 million shares and a diluted share count of about 122 million shares.
Fourth quarter adjusted EBITDA was $21 million and even excluding the 1x AT&T settlement benefit of $54.4 million and settlement-related cost of $16 million, we would have still exceeded our guidance of a loss of negative $21 million to negative $23 million.
Turning to the balance sheet. We ended the quarter with approximately $619 million of cash and short-term investments, which was up due to the AT&T settlement. Additionally, we continue to assess the opportunity to repurchase shares but did not choose to do so during the fourth quarter.
Quickly updating our tax position, we ended fiscal year '12 with $445 million in federal NOLs. Note that our NOLs offset the vast majority of tax liability related to the AT&T and DISH past damages.