Tivo 10Q - 4/30/2015
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
_________________________
FORM 10-Q
  _________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2015
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 000-27141
 _________________________
TIVO INC.
(Exact name of registrant as specified in its charter)
_________________________
Delaware
 
77-0463167
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
2160 Gold Street, P.O. Box 2160, San Jose, CA 95002
(Address of principal executive offices including zip code)
(408) 519-9100
(Registrant's telephone number, including area code) 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  o.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    YES  x    NO  o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act) (Check One)
Large Accelerated Filer  x     Accelerated Filer   o     Non-Accelerated Filer   o     Smaller Reporting Company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  o    NO  x.
The number of shares outstanding of the registrant's common stock, $0.001 par value, was 97,295,357 as of May 29, 2015.
 



TIVO INC.
FORM 10-Q
For the Fiscal Quarter Ended April 30, 2015

TABLE OF CONTENTS
 
 
 
PART I.
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
© 2014 TiVo Inc. All Rights Reserved.
Except as the context otherwise requires, the terms “TiVo,” “Registrant,” “Company,” “we,” “us,” or “our” as used herein are references to TiVo Inc. and its consolidated subsidiaries.




CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to, among other things: 
•
our financial results, including our expectations of future revenues, and profitability;
•
our intention and ability to protect our intellectual property in the future and the strength and future value of our intellectual property;
•
our TiVo-Owned retail subscriptions, our future investments in subscription acquisition activities, future advertising expenditures, hardware costs and associated hardware subsidies, and other sales and marketing activities, including our sales and marketing, subscription acquisition costs (SAC), average revenue per subscription (ARPU), and subscription churn;
•
our TiVo-Owned retail subscriptions, our estimates of the useful life of TiVo-enabled digital video recorders (DVRs) and Minis in connection with the recognition of revenue received from product lifetime subscriptions and the expected future increase in the number of fully-amortized TiVo-Owned product lifetime subscriptions, and our estimates of the effects of product lifetime subscriptions on churn;
•
our expectations regarding the seasonality of our business and subscription additions to the TiVo service;
•
our expectations regarding future growth in subscriptions to the TiVo service and TiVo-Owned ARPUs, including future increases in the number of television service operator (MSO) Subscriptions and households through international expansion and the possibility of future decreases in the TiVo-Owned Subscription base as well as future changes in our TiVo-Owned ARPU or fees paid by MSOs, including decreases in TiVo-Owned ARPUs as a result of increased sales of non-DVR devices such as TiVo Mini which have lower product lifetime service fee than for DVRs;
•
our expectations regarding the success of our recently launched TiVo OTA (Over-the-Air) retail product;
•
our expectations regarding future media services and other revenues;
•
our expectations regarding future advertising and audience research and measurement revenues, growth in the future programmatic ad spending for television and our ability to develop data products to integrate into the emerging programmatic ad spending marketplaces;
•
our future service and hardware revenues from TiVo-Owned Subscriptions and future service, technology, and hardware revenues from MSOs;
•
our expectations regarding growth in the future advanced television services market for our services, software, and technology for both our hardware and in-home and outside-of-the-home cloud-based solutions, which will be impacted by alternatives to and competitors with our products, such as broadband content delivered by MSOs to their customers' computers and mobile devices (TV Everywhere), video delivered on demand to an MSO customers' set-top box (VOD), and network DVRs;
•
our expectations regarding continued regulatory required access to and installation and operational issues surrounding cable-operator provided CableCARDs™ and switched digital devices essential for TiVo consumer devices in cable homes;
•
our expectations that in the future we may also offer services for additional non-DVR products beyond TiVo Mini, for example, that may or may not incorporate the TiVo user interface and non-DVR software including a network DVR service;
•
our expectations of the future decrease in hardware revenues and hardware margin as our U.S. MSO customers transition their hardware purchases to third-party hardware manufacturers such as Pace or Arris and our belief that this will enable us to gain additional MSO Subscriptions;
•
our expectations of the growth of the TiVo service and technology revenues outside the United States;
•
our expectations regarding a future decrease in the amount of our research and development spending and our associated ability to remain a competitive technology innovator and invest significant resources in advanced television solutions beyond the DVR;

3

•
our expectation that annual research and development spending in fiscal year 2015 will continue to be significant but to be at lower levels than the fiscal year ended January 31, 2015;
•
our expectations regarding future increases in the amount of deferred expenses in costs of technology revenues related to development work for our television distribution partners and our ability to receive revenues equal to or greater than such deferred expenses from such television distribution partners;
•
our expectations regarding future changes in our operating expenses, including changes in general and administrative expenses, litigation expenses, sales and marketing, and subscription acquisition costs;
•
our expectations regarding our ability to oversee outsourcing of our manufacturing processes and engineering work and our ability to support the hardware, inventory, and hardware customization needs of our MSO customers;
•
our expectations regarding the usability of our finished goods inventory of DVRs and non-DVR products and the risks that hardware forecasts of our MSO customers may be reduced or delayed after we have committed manufacturing resources due to long lead times, which may require us to record write-downs if such inventory exceeds forecasted demand;
•
our expectations regarding our ability to perform or comply with laws, regulations, and requirements different than those in the United States;
•
our expectations regarding future capital allocation activities including share buy-backs, mergers and acquisitions, issuance of debt, and other alternative capital distribution activities;
•
our expectations and estimates related to long-term investments and their associated carrying value; and
•
our expectations of growth from our acquisition of Digitalsmiths Corporation ("Digitalsmiths").
Forward-looking statements generally can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “intend,” “estimate,” “continue,” “ongoing,” “predict,” “potential,” and “anticipate” or similar expressions or the negative of those terms or expressions. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements. Such factors include, among others, the information contained under the caption Part I, Item 1A. “Risk Factors” in our most recent annual report on Form 10-K and our subsequent current reports on Form 8-K. The reader is cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date of this quarterly report and we undertake no obligation to publicly update or revise any forward-looking statements in this quarterly report. The reader is strongly urged to read the information set forth under the caption Part I, Item 2 “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and Part II, Item 1A, “Risk Factors” for a more detailed description of these significant risks and uncertainties.

4
Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
TIVO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
(unaudited)

5
Table of Contents

 
April 30, 2015
January 31, 2015
ASSETS
 
 
CURRENT ASSETS
 
 
Cash and cash equivalents
$
145,888

$
178,217

Short-term investments
540,411

564,744

Accounts receivable, net of allowance for doubtful accounts of $593 and $647, respectively
39,144

40,184

Inventories
22,417

20,341

Deferred cost of technology revenues, current
5,799

5,076

Deferred tax asset, current
49,463

55,787

Prepaid expenses and other, current
11,746

13,851

Total current assets
814,868

878,200

LONG-TERM ASSETS


Property and equipment, net of accumulated depreciation of $53,615 and $52,021, respectively
11,674

11,854

Intangible assets, net of accumulated amortization of $33,419 and $31,277, respectively
50,668

51,810

Deferred cost of technology revenues, long-term
14,145

15,016

Deferred tax asset, long-term
114,486

114,486

Goodwill
99,364

99,364

Prepaid expenses and other, long-term
10,567

6,791

Total long-term assets
300,904

299,321

Total assets
$
1,115,772

$
1,177,521

LIABILITIES AND STOCKHOLDERS’ EQUITY


LIABILITIES


CURRENT LIABILITIES


Accounts payable
$
24,026

$
29,359

Accrued liabilities
39,267

54,431

Deferred revenue, current
168,844

175,503

Convertible senior notes, current 
172,500

—

Total current liabilities
404,637

259,293

LONG-TERM LIABILITIES


Deferred revenue, long-term
228,047

255,816

Convertible senior notes, long-term 
181,601

352,562

Other long-term liabilities
521

537

Total long-term liabilities
410,169

608,915

Total liabilities
814,806

868,208

COMMITMENTS AND CONTINGENCIES (see Note 6)




STOCKHOLDERS’ EQUITY


Preferred stock, par value $0.001: Authorized shares are 10,000,000; Issued and outstanding shares - none
—

—

Common stock, par value $0.001: Authorized shares are 275,000,000; Issued shares are 142,041,432 and 138,577,153, respectively, and outstanding shares are 97,090,545 and 96,221,867, respectively
141

138

Treasury stock, at cost: 44,950,887 and 42,355,286 shares, respectively
(542,764
)
(514,853
)
Additional paid-in capital
1,215,389

1,203,722

Accumulated deficit
(371,801
)
(379,680
)
Accumulated other comprehensive income (loss)
1

(14
)
Total stockholders’ equity
300,966

309,313

Total liabilities and stockholders’ equity
$
1,115,772

$
1,177,521

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6
Table of Contents

TIVO INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share and share amounts)
(unaudited)
 
Three Months Ended April 30,
 
2015
2014
Revenues
 
 
Service revenues
$
39,849

$
35,895

Technology revenues
52,571

50,106

Hardware revenues
22,314

21,058

Net revenues
114,734

107,059

Cost of revenues


Cost of service revenues
15,439

13,850

Cost of technology revenues
6,136

4,544

Cost of hardware revenues
22,571

19,764

Total cost of revenues
44,146

38,158

Gross margin
70,588

68,901

Research and development
25,014

26,347

Sales and marketing
10,941

10,315

Sales and marketing, subscription acquisition costs
1,691

1,505

General and administrative
14,822

15,354

Total operating expenses
52,468

53,521

Income from operations
18,120

15,380

Interest income
885

1,144

Interest expense and other expense, net
(4,834
)
(1,976
)
Income before income taxes
14,171

14,548

Provision for income taxes
(6,292
)
(6,424
)
Net income
$
7,879

$
8,124

 


Net income per common share


Basic
$
0.09

$
0.07

Diluted
$
0.08

$
0.07

 


Income for purposes of computing net income per share:


Basic
$
7,879

$
8,124

Diluted
$
9,130

$
9,375

 




Weighted average common and common equivalent shares:


Basic
91,454,492

113,381,677

Diluted
110,544,699

133,204,128



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7
Table of Contents

TIVO INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(unaudited)
 
Three Months Ended April 30,
 
2015
2014
 
 
Net income
$
7,879

$
8,124

Other comprehensive income (loss):


Available-for-sale securities:




Unrealized gain (loss) on marketable securities, net of tax
15

(277
)
Total comprehensive income, net of tax
$
7,894

$
7,847

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8
Table of Contents

TIVO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 
Three Months Ended April 30,
 
2015
2014
CASH FLOWS FROM OPERATING ACTIVITIES


Net income
$
7,879

$
8,124

Adjustments to reconcile net income to net cash used in operating activities:


Depreciation and amortization of property and equipment and intangibles
3,758

3,228

Stock-based compensation expense
7,125

8,309

Amortization of discounts and premiums on investments
1,478

3,002

Deferred income taxes
5,834

(971
)
Amortization of debt issuance costs and debt discount
1,955

240

Excess tax benefits from employee stock-based compensation
—

(3,691
)
Allowance for doubtful accounts
54

110

Changes in assets and liabilities:


Accounts receivable
986

5,960

Inventories
(2,076
)
(576
)
Deferred cost of technology revenues
109

2,280

Prepaid expenses and other
2,150

(1,591
)
Accounts payable
(5,243
)
(3,150
)
Accrued liabilities
(15,124
)
(16,340
)
Deferred revenue
(34,428
)
(27,982
)
Other long-term liabilities
(17
)
(61
)
Net cash used in operating activities
$
(25,560
)
$
(23,109
)
CASH FLOWS FROM INVESTING ACTIVITIES


Purchases of short-term investments
(112,552
)
(97,373
)
Sales or maturities of short-term investments
135,038

198,494

Purchase of long-term investment
(2,420
)
—

Acquisition of business, net of cash acquired
—

(128,387
)
Acquisition of property and equipment and other long-term assets
(3,000
)
(629
)
Acquisition of intangible assets
(1,000
)
—

Net cash provided by (used in) investing activities
$
16,066

$
(27,895
)
CASH FLOWS FROM FINANCING ACTIVITIES


Proceeds from issuance of common stock related to exercise of common stock options
5,076

2,080

Excess tax benefits from employee stock-based compensation
—

3,691

Treasury stock - repurchase of stock
(27,911
)
(110,576
)
Net cash used in financing activities
$
(22,835
)
$
(104,805
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
$
(32,329
)
$
(155,809
)
CASH AND CASH EQUIVALENTS:


Balance at beginning of period
178,217

253,713

Balance at end of period
$
145,888

$
97,904

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

9


TIVO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. NATURE OF OPERATIONS
TiVo Inc. (together with its subsidiaries the "Company" or "TiVo") was incorporated in August 1997 as a Delaware corporation and is located in San Jose, California. The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The Company conducts its operations through one reportable segment.
The Company is subject to a number of risks, including delays in product and service developments; competitive product and service offerings; lack of market acceptance; the dependence on third-parties for manufacturing, marketing, and sales support, as well as third-party rollout schedules, software development issues for third-party products which contain its technology; intellectual property claims by and against the Company; access to television programming including digital cable signals in connection with CableCARD and switched digital Internet Protocol, downloadable conditional access, and other new signal delivery and encryption technologies; dependence on its relationships with third-party service providers for subscription growth; and the Company’s ability to sustain and grow both its TiVo-Owned and MSO subscription base. The Company anticipates that its retail business will continue to be seasonal and expects to generate a significant portion of its new subscriptions during and immediately after the holiday shopping season.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited interim condensed consolidated financial statements do not contain all of the information and footnotes required by generally accepted accounting principles for complete audited annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of April 30, 2015 and January 31, 2015 and the results of operations and the statement of other comprehensive income for the three months ended April 30, 2015 and 2014 and condensed consolidated statements of cash flows for the three months ended April 30, 2015 and 2014. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, including the notes thereto, included in the Company’s annual report on Form 10-K for the fiscal year ended January 31, 2015. Operating results for the three months ended April 30, 2015 are not necessarily indicative of results that may be expected for this fiscal year ending January 31, 2016 or any other periods.
Recent Accounting Pronouncements
In May, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In April 2015, the FASB proposed a one year deferral to the effective date of ASU 2014-09 for all entities so that the new standard would be effective for the Company on February 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015‑03, Interest-Imputation of Interest, to simplify the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts. The new standard is effective for the Company on February 1, 2016. While permitted, the Company has elected not to early adopt this ASU. Upon adoption, the new standard will result in a

10

total decrease of prepaid expenses and other, current and long-term assets and a decrease in the carrying amount of the Company's current and long-term convertible senior notes of approximately $5.3 million as of April 30, 2015 and $6.1 million as of January 31, 2015.
3. CASH AND INVESTMENTS
Cash, cash equivalents, and short-term investments, consisted of the following:
 
As of
 
April 30, 2015
January 31, 2015
 
(in thousands)
Cash and cash equivalents:
 
 
Cash
$
7,647

$
29,135

Cash equivalents:


Commercial paper
109,948

48,210

Money market funds
19,370

100,872

Corporate debt securities
8,923

—

Total cash and cash equivalents
$
145,888

$
178,217

Marketable securities:


Certificates of deposit
$
24,400

$
27,400

Commercial paper
86,429

85,062

Corporate debt securities
399,984

416,333

Foreign government securities
10,842

10,849

Variable-rate demand notes
285

285

Asset and mortgage-backed securities
9,691

18,861

Municipal bonds
8,780

5,954

Current marketable debt securities
$
540,411

$
564,744

Other investment securities:



                   Other investment securities - cost method
$
2,670

$
250

                               Total other investment securities
$
2,670

$
250

Total cash, cash equivalents, marketable securities, and other investment securities
$
688,969

$
743,211

Marketable Securities
The Company’s investment securities portfolio consists of various debt instruments, including commercial paper, corporate bonds, asset and mortgage-backed securities, foreign government securities, variable-rate demand notes, and municipal bonds, all of which are classified as available-for-sale.
Other investment securities
TiVo has investments in private companies where the Company’s ownership is less than 20% and TiVo does not have significant influence. The investments are accounted for under the cost method and are periodically assessed for other-than-temporary impairment. Refer to Note 4 "Fair Value" for additional information on the impairment assessment of the investments.
Contractual Maturity Date
The following table summarizes the estimated fair value of the Company’s debt investments, designated as available-for-sale, classified by the contractual maturity date of the security:

11
Table of Contents

 
As of
 
April 30, 2015
January 31, 2015
 
(in thousands)
Due within 1 year
$
466,922

$
451,571

Due within 1 year through 5 years
73,204

112,888

Due after 10 years
285

285

Total
$
540,411

$
564,744

Unrealized Gains (Losses) on Marketable Investment Securities
The following tables summarize unrealized gains and losses related to the Company’s investments in marketable securities designated as cash equivalents or available-for-sale:
 
As of April 30, 2015
 
Adjusted
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 
(in thousands)
Cash
$
7,647

$
—

$
—

$
7,647

Cash equivalents:






$
—

Commercial paper
$
109,930

$
18

$
—

$
109,948

Money market funds
$
19,370

$
—

$
—

$
19,370

Corporate debt securities
$
8,928

$
—

$
(5
)
$
8,923

Total cash and cash equivalents
$
145,875

$
18

$
(5
)
$
145,888

Marketable securities:








Certificates of deposit
$
24,400

$
—

$
—

$
24,400

Commercial paper
86,406

23

—

86,429

Corporate debt securities
400,026

91

(133
)
399,984

Foreign government securities
10,844

—

(2
)
10,842

Variable-rate demand notes
285

—

—

285

Asset and mortgage-backed securities
9,693

—

(2
)
9,691

Municipal bonds
8,776

4

—

8,780

Current marketable debt securities
$
540,430

$
118

$
(137
)
$
540,411

Total cash, cash equivalents, and marketable debt securities
686,305

136

(142
)
686,299

 
 
 
 
 
 
As of January 31, 2015
 
Adjusted
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 
(in thousands)

12
Table of Contents

Cash
$
29,135

$
—

$
—

$
29,135

Cash equivalents:






$
—

Commercial paper
$
48,207

$
3

$
—

$
48,210

Money market funds
$
100,872

$
—

$
—

$
100,872

Total cash and cash equivalents
$
178,214

$
3

$
—

$
178,217

Marketable securities:








Certificates of deposit
$
27,400

$
—

$
—

$
27,400

Commercial paper
85,031

31

—

85,062

Corporate debt securities
416,391

112

(170
)
416,333

Foreign government securities
10,851

—

(2
)
10,849

Variable-rate demand notes
285

—

—

285

Asset and mortgage-backed securities
18,864

—

(3
)
18,861

Municipal bonds
5,948

6

—

5,954

Total
$
564,770

$
149

$
(175
)
$
564,744

Total cash, cash equivalents, and marketable debt securities
$
742,984

$
152

$
(175
)
$
742,961

None of these investments were in a loss position for greater than twelve months as of April 30, 2015 and January 31, 2015.
4. FAIR VALUE
Inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect TiVo's market assumptions. These two types of inputs have created the following fair-value hierarchy:
Level 1 - Quoted prices for identical instruments in active markets;
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
This hierarchy requires TiVo to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. TiVo recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred.
Cash equivalents and available-for-sale marketable securities (including asset- and mortgage-backed securities) are reported at their fair value. Additionally, carrying amounts of certain of the Company’s financial instruments including accounts receivable, accounts payable, and accrued expenses approximate their fair value because of their short maturities. The Company has financial liabilities for which it is obligated to repay the carrying value, unless the holder agrees to a lesser amount. These financial liabilities include TiVo's convertible senior notes which mature in March 2016 (the "4.0% Notes due 2016") and October 2021 (the "2.0% Notes due 2021"). The fair values of TiVo's convertible senior notes are influenced by interest rates, TiVo's stock price and stock price volatility and are determined by Level 2 inputs. The carrying value of the 4.0% Notes due 2016 at April 30, 2015 and January 31, 2015 was $172.5 million (for both periods) and the fair value was $193.2 million and $193.7 million, based on the note's quoted market price as of April 30, 2015 and January 31, 2015, respectively. The carrying value of the 2.0% Notes due 2021 at April 30, 2015 and January 31, 2015 was $181.6 million and $180.1 million and the fair value was $222.0 million and $211.1 million, based on the note's quoted market price as of April 30, 2015 and January 31, 2015, respectively.
On a quarterly basis, TiVo measures at fair value certain financial assets and liabilities. The fair value of those financial assets and liabilities was determined using the following levels of inputs as of April 30, 2015 and January 31, 2015:

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As of April 30, 2015
 
Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
 
(in thousands)
Assets:
 
 
 
 
Cash equivalents:
 
 
 
 
Commercial paper
$
109,948

$
—

$
109,948

$
—

Money market funds
19,370

19,370

—

—

Corporate debt securities
8,923

—

8,923

—

Short-term investments:




Certificates of deposit
24,400

—

24,400

—

Commercial paper
86,429

—

86,429

—

Corporate debt securities
399,984

—

399,984

—

Foreign government securities
10,842

—

10,842

—

Variable-rate demand notes
285

—

285

—

Asset- and mortgage-backed securities
9,691

—

9,691

—

Municipal bonds
8,780

—

8,780

—

     Total
$
678,652

$
19,370

$
659,282

$
—

 
As of January 31, 2015
 
Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
 
(in thousands)
Assets:
 
 
 
 
Cash equivalents:
 
 
 
 
Commercial paper
$
48,210

$
—

$
48,210

$
—

Money market funds
100,872

100,872

—

—

Short-term investments:




Certificates of deposit
27,400

—

27,400

—

Commercial paper
85,062

—

85,062

—

Corporate debt securities
416,333

—

416,333

—

Foreign government securities
10,849

—

10,849

—

Variable-rate demand notes
285

—

285

—

Asset- and mortgage-backed securities
18,861

—

18,861

—

Municipal bonds
5,954

—

5,954

—

     Total
$
713,826

$
100,872

$
612,954

$
—

    
Level 1 Measurements
TiVo's cash equivalents held in money market funds are measured at fair value using Level 1 inputs.
Level 2 Measurements
The Company uses inputs such as broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods p

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resented, any material adjustments to such inputs. The Company is ultimately responsible for the financial statements and underlying estimates.
Level 3 Measurements
As of April 30, 2015, TiVo had no Level 3 instruments.
The Company did not have any transfers between Level 1, Level 2, and Level 3 fair value measurements during the periods presented as there were no changes in the composition of Level 1, 2, or 3 securities.
TiVo also has two direct investments in privately-held companies accounted for under the cost method, which is periodically assessed for other-than-temporary impairment. If the Company determines that an other-than-temporary impairment has occurred, TiVo will write-down the investment to its fair value. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if such a significant adverse events were identified, the Company would estimate the fair value of its cost method investments considering available information at the time of the event, such as pricing in recent rounds of financing, current cash position, earnings and cash flow forecasts, recent operational performance, and any other readily available data. The carrying amount of the Company's cost method investments was $2.7 million as of April 30, 2015 and $250,000 as of January 31, 2015. No events or circumstances indicating a potential impairment were identified as of as of April 30, 2015.
5. INVENTORY
Inventory was as follows:

As of

April 30, 2015
January 31, 2015
 
( in thousands)
Raw Materials
$
2,237

$
1,473

Finished Goods
20,180

18,868

Total Inventory
$
22,417

$
20,341

6. COMMITMENTS AND CONTINGENCIES
Product Warranties
The Company’s standard manufacturer's warranty period to consumers for TiVo-enabled DVRs is 90 days for parts and labor from the date of consumer purchase, and from 91-365 days for parts only. Within the limited warranty period, consumers are offered a no-charge exchange for TiVo-enabled DVRs returned due to product defect, within 90 days from the date of consumer purchase. Thereafter, consumers may exchange a TiVo-enabled DVR with a product defect for a variable charge. The one year warranty for parts is extended beyond one year for customers on monthly service plans who also use our latest Roamio DVRs for as long as such customers remain active. As of April 30, 2015 and January 31, 2015, the accrued warranty reserve was $330,000 and $471,000, respectively. The Company’s accrued warranty reserve is included in accrued liabilities in the accompanying condensed consolidated balance sheets.
The Company also offers its TiVo-Owned customers separately priced optional 2-year and 3-year extended warranties. The Company defers and amortizes cost and revenue associated with the sales of these extended warranties over the warranty period or until a warranty is redeemed. Additionally, the Company offers its MSO customers separately priced optional 3-year extended warranties. The Company recognizes the revenues associated with the sale of these MSO extended warranties over the second and third year of the warranty period. The extended warranty for MSOs applies through the end of the period of warranty. As of April 30, 2015, the extended warranty deferred revenue and cost was $2.0 million and $240,000, respectively. As of January 31, 2015, the extended warranty deferred revenue and cost was $2.1 million and $263,000, respectively.
Indemnification Arrangements
The Company undertakes indemnification obligations in its ordinary course of business. For instance, the Company has undertaken to indemnify its underwriters and certain investors in connection with the issuance and sale of its securities and the Company provides indemnification for its directors and officers in accordance with

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Delaware law. The Company has also undertaken to indemnify certain customers and business partners for, among other things, the licensing of its products, the sale of its DVRs, and the provision of engineering and consulting services. Pursuant to these agreements, the Company may indemnify the other party for certain losses suffered or incurred by the indemnified party in connection with various types of claims, which may include, without limitation, intellectual property infringement, advertising and consumer disclosure laws, certain tax liabilities, negligence and intentional acts in the performance of services and violations of laws, including certain violations of securities laws with respect to underwriters and investors. The term of these indemnification obligations is generally perpetual. The Company’s obligation to provide indemnification under its agreements with customer and business partners would arise in the event that a third party filed a claim against one of the parties that was covered by the Company’s indemnification obligation. As an example, if a third party sued a customer for intellectual property infringement and the Company agreed to indemnify that customer against such claims, its obligation would be triggered.
The Company is unable to estimate with any reasonable accuracy the liability that may be incurred pursuant to its indemnification obligations, if any. Variables affecting any such assessment include but are not limited to: the nature of the claim asserted; the relative merits of the claim; the financial ability of the party suing the indemnified party to engage in protracted litigation; the number of parties seeking indemnification; the nature and amount of damages claimed by the party suing the indemnified party; and the willingness of such party to engage in settlement negotiations. Due to the nature of the Company’s potential indemnity liability, its indemnification obligations could range from immaterial to having a material adverse impact on its financial position and its ability to continue operation in the ordinary course of business.
Under certain circumstances, the Company may have recourse through its insurance policies that would enable it to recover from its insurance company some or all amounts paid pursuant to its indemnification obligations. The Company does not have any assets held either as collateral or by third parties that, upon the occurrence of an event requiring it to indemnify a customer, the Company could obtain and liquidate to recover all or a portion of the amounts paid pursuant to its indemnification obligations.
Legal Matters
From time to time, the Company is involved in numerous lawsuits as well as subject to various legal proceedings, claims, threats of litigation, and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employment and other matters. The Company assesses potential liabilities in connection with each lawsuit and threatened lawsuits and accrues an estimated loss for these loss contingencies if both of the following conditions are met: information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. While certain matters to which the Company is a party specify the damages claimed, such claims may not represent reasonably possible losses. Given the inherent uncertainties of the litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if any, be reasonably estimated.
On June 15, 2011, TNS Media Research, LLC (d/b/a Kantar Media Audiences, or Kantar) brought a claim for declaratory judgment against TRA Global Inc. (which was acquired by TiVo in July 2012) in the United States District Court for the Southern District of New York alleging non-infringement of United States Patent No. 7,729,940 entitled “Analyzing Return on Investment of Advertising Campaigns by Matching Multiple Data Sources” (the “940 Patent”) and its affiliate Cavendish Square Holding B.V. brought a claim for breach of contract of a Voting Agreement. On June 6, 2012 TiVo Research filed an amended answer and counterclaims alleging affirmative defenses and counterclaims alleging infringement by Kantar of the 940 Patent as well as United States Patent No. 8,000,993 entitled “Using Consumer Purchase Behavior For Television Targeting” (the “993 Patent”) and United States Patent No. 8,112,301 with the same title at the 993 Patent. TiVo Research also asserted counterclaims for aiding and abetting breach of fiduciary duty, misappropriation of trade secrets, and breach of contract. On October 3, 2013, the court granted summary judgment to Kantar on all patent and trade secret issues but denied summary judgment on TiVo Research’s claims for breach of contract and aiding and abetting breach of fiduciary duties. The Company is currently appealing this grant of summary judgment to Kantar.
On November 4, 2014, the District Court granted Kantar’s motion for attorneys fees and expenses directly related to certain arguments advanced by TiVo Research that the Court identified in its order. On December 4, 2014, the parties reached agreement on a stipulation that $1.5 million would be the amount of the fees and costs that the Company would have to pay in the event that the Company did not prevail on appeal. On January 5, 2015, the Company filed a notice of appeal of the Court’s order awarding Kantar attorneys’ fees and costs and believes it

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has strong arguments for reversal. However, in the case of adverse outcome, the Company believes the probable loss is $1.5 million and in accordance with Accounting Standards Codification 450-20, Loss Contingencies, the Company accrued $1.5 million relating to this matter.
7. CONVERTIBLE SENIOR NOTES
The following table reflects the carrying value of the Company's convertible senior notes:
 
As of
 
April 30, 2015
January 31, 2015
 
( in thousands)
4.0% Notes due 2016
$
172,500

$
172,500

2.0% Notes due 2021
230,000

230,000

Less: Unamortized debt discount
(48,399
)
(49,938
)
Net carrying amount of 2.0% Notes due 2021
181,601

180,062

Total convertible debt
354,101

352,562

Less: Convertible short-term debt
172,500

—

Convertible long-term debt
$
181,601

$
352,562

4.0% Convertible Notes Due 2016: In March 2011, the Company issued $172.5 million aggregate principal amount of 4.0% Convertible Senior Notes due March 15, 2016 at par. The 4.0% Notes due 2016 may be converted under certain circumstances described below, based on an initial conversion rate of 89.6359 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $11.16 per share). The net proceeds to the Company from the sale of the 4.0% Notes due 2016 were approximately $166.1 million. The notes do not have cash settlement provisions.
The following table presents the amount of interest cost recognized relating to the contractual interest coupon and amortization of issuance costs of the 4.0% Notes due 2016 (in thousands):
 
Three Months Ended April 30,
 
2015
2014
 
(In Thousands)
Contractual interest coupon
$
1,725

$
1,725

Amortization of debt issuance costs
240

240

Total interest cost recognized
$
1,965

$
1,965

Holders of the 4.0% Notes due 2016 may convert the notes at their option on any day through maturity. The notes may not be redeemed by the Company prior to their maturity date. The conversion rate will be adjusted for certain dilutive events and will be increased in the case of corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the indenture governing the notes). The holders of the notes will have the ability to require the Company to repurchase the notes in whole or in part upon the occurrence of an event that constitutes a “Fundamental Change” (as defined in the indenture governing the notes including such events as a "change in control" or "termination of trading"). In such case, the repurchase price would be 100% of the principal amount of the notes plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.
The Company pays cash interest at an annual rate of 4.00%, payable semi-annually on March 15 and September 15 of each year through maturity. Debt issuance costs were approximately $6.4 million and are amortized to interest expense over the term of the 4.0% Notes due 2016. As of April 30, 2015, unamortized deferred issuance cost was $836,000.
The 4.0% Notes due 2016 are unsecured senior obligations of the Company.
2.0% Convertible Notes Due 2021. In September 2014, the Company issued $230.0 million in aggregate principal amount of 2.0% Convertible Senior Notes due October 1, 2021 at par. The 2.0% Notes due 2021 may be

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converted under certain circumstances described below, based on an initial conversion rate of 56.1073 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $17.82 per share). The net proceeds to the Company from the sale of the 2.0% Notes due 2021 were approximately $223.6 million. The Company can settle the notes in cash, shares of common stock, or any combination thereof.
The Company separately accounts for the liability and equity components of the 2.0% Notes due 2021. The principal amount of the liability component of $177.9 million as of the date of issuance was recognized at fair value based on the present value of its cash flows using a discount rate of 6.0%; the Company’s borrowing rate at the date of the issuance for a similar debt instrument without the conversion feature. The residual $52.1 million was allocated to the equity component and accounted for as a discount on the notes. As of April 30, 2015, the carrying value of the equity component was unchanged from the date of issuance. The Company initially reduced stockholders' equity by $19.3 million due to the deferred tax liability related to the equity component of the notes.
The following table presents the amount of interest cost recognized relating to the contractual interest coupon, amortization of issuance costs and amortization of the discount on the liability component of the 2.0% Notes due 2021 (in thousands):
 
Three Months Ended April 30,
 
2015
2014
 
(In Thousands)
Contractual interest coupon
$
1,150

$
—

Amortization of debt issuance cost
176

—

Amortization of debt discount
1,540

—

Total interest cost recognized
$
2,866

$
—

The effective interest rate on the liability component of the 2.0% Notes due 2021 was 6.0%. The remaining unamortized debt discount of $48.4 million as of April 30, 2015 will be amortized over the remaining life of the 2.0% Notes due 2021, which is approximately 6.4 years.
Holders of the 2.0% Notes due 2021 may convert the notes at their option on any day prior to the close of business on the business day immediately preceding July 1, 2021 only under the following circumstances: (1) during the five business day period after any 10 consecutive trading day period (the “Measurement Period”) in which the trading price per Note for each day of that Measurement Period was less than 98% of the product of the closing sale price of our common stock and the conversion rate on each such day; (2) during any calendar quarter after the calendar quarter ending December 31, 2014, if the last reported sale price of our common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on each such trading day; or (3) upon the occurrence of specified corporate events. The Notes will be convertible, regardless of the foregoing circumstances, at any time from, and including, July 1, 2021 until the close of business on the second scheduled trading day immediately preceding the applicable maturity date. The notes may not be redeemed by the Company prior to their maturity date.
Upon conversion the Company will pay cash and, if applicable, deliver shares of its common stock, based on a “Daily Conversion Value” calculated on a proportionate basis for each “VWAP Trading Day” (each as defined in the Indenture) of the relevant 20 VWAP Trading Day observation period. The Company intends to settle the principal amount owed with respect to any 2% Notes due 2021 in cash and to settle the remaining amount in shares of the Company’s common stock. The initial conversion rate for the Notes is 56.1073 shares of common stock per $1,000 in principal amount of Notes, equivalent to a conversion price of approximately $17.82 per share of common stock. The conversion rate is subject to customary anti-dilution adjustments. Upon the occurrence of a “make-whole fundamental change” (as defined in the Indenture), the Company will in certain circumstances increase the conversion rate for a holder who elects to convert its 2.0% Notes due 2021 in connection with such a make-whole fundamental change.
The Company will pay cash interest on the 2.0% Notes due 2021 at an annual rate of 2.00%, payable semi-annually in arrears on April 1 and October 1 of each year beginning April 2015. Debt issuance costs were approximately $6.4 million, of which $1.4 million was allocated to additional paid-in capital and $5.0 million was allocated to deferred issuance costs and is amortized to interest expense over the term of the 2% Notes due 2021. As of April 30, 2015, unamortized deferred issuance cost was $4.5 million.

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The 4.0% Notes due 2016 and the 2.0% Notes due 2021 are equal in rank.
Concurrently with the issuance of the 2.0% Notes due 2021, the Company purchased convertible note hedges and sold warrants. The convertible note hedge and warrant transactions are structured to reduce the potential future economic dilution associated with the conversion of the 2.0% Notes due 2021. The strike price on the warrant transactions related to the 2% Notes is initially $24.00 per share, which is 75% above the closing price of TiVo's common stock on September 16, 2014.
Convertible Note Hedge Transactions. Counterparties entered into convertible note hedge transactions with the Company covering approximately 12.9 million shares of the Company’s common stock, which is the number of shares initially underlying the 2.0% Notes due 2021. The convertible note hedge transactions, which have an initial strike price of $17.82 (corresponding to the initial conversion price of the 2.0% Notes due 2021) may be settled through net share settlement (in which case the Company will receive shares of common stock based on the amount by which the market price of the Company’s common stock, as measured under the convertible note hedge transactions, exceeds the strike price of the convertible note hedge transactions), cash settlement (in which case the Company will receive cash in lieu of the shares deliverable upon net share settlement), or a combination thereof, which settlement method will generally correspond to the settlement method elected with respect to the 2.0% Notes due 2021. The convertible note hedge transactions are only exercisable upon conversions of the 2.0% Notes due 2021 and will expire upon the earlier of the maturity date of the 2.0% Notes due 2021 or the date on which the 2.0% Notes due 2021 cease to be outstanding. Settlement of the convertible note hedge transactions through net share settlement is expected to result in the Company receiving a number of shares equal to the number of shares issuable by the Company upon net share settlement of the 2.0% Notes due 2021. The convertible note hedge transactions cost of $54.0 million has been accounted for as an equity transaction. The Company initially recorded approximately $20.0 million in stockholders’ equity from the deferred tax asset related to the convertible note hedges at inception of the transactions. As of April 30, 2015 the Company had not received any shares under these convertible note hedge transactions.
Warrants. Concurrently with the purchase of the convertible note hedge transactions, the Company received $30.2 million from the sale to the counterparties to the convertible note hedge transactions of warrants to purchase up to approximately 12.9 million shares of the Company’s common stock at an initial strike price of $24.00 per share. The warrants expire on various dates between January 1, 2022 and March 29, 2022 and are exercisable on their expiration dates. The warrants may be settled through net share settlement (in which case the Company will be required to deliver to the counterparties a number of shares based on the amount by which the market price of the Company’s common stock, as measured under the warrants, exceeds the strike price of the warrants) or, at the Company’s option, subject to certain conditions, through cash settlement (in which case the Company will owe the counterparties cash in lieu of the shares deliverable upon net share settlement). As of April 30, 2015, the warrants had not been exercised and remained outstanding. The value of the warrants was initially recorded in equity and continues to be classified as equity.
8. NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, excluding unvested restricted stock.
Diluted net income per common share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period. Dilutive potential common shares include outstanding stock options, stock awards, and performance stock awards and are calculated using the treasury stock method. Also included in the weighted average effect of dilutive securities for the three months ended April 30, 2015 is the diluted effect of the 4.0% Notes due 2016 which is calculated using the if-converted method.
The following table sets forth the computation of basic and diluted earnings per common share:

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Three Months Ended April 30,
 
2015
2014
 
(income in thousands)
Numerator:
 
 
Net income
$
7,879

$
8,124

 Interest on dilutive notes, net of tax
1,251

1,251

Net income for purpose of computing net income per diluted share
9,130

9,375

Denominator:


Weighted average shares outstanding, excluding unvested restricted stock
91,454,492

113,381,677

Weighted average effect of dilutive securities:


Stock options, restricted stock, and employee stock purchase plan
3,628,014

4,360,258

4.0% Notes due 2016
15,462,193

15,462,193

Denominator for diluted net income per common share
110,544,699

133,204,128

Basic net income per common share
$
0.09

$
0.07

Diluted net income per common share
$
0.08

$
0.07

The weighted average number of shares outstanding used in the computation of diluted net income per share in the three months ended April 30, 2015 and 2014 do not include the effect of the following potentially outstanding common stock because the effect would have been anti-dilutive:
 
Three Months Ended April 30,
 
2015
2014
Unvested restricted stock
153,529

30,143

Options to purchase common stock
358,502

449,577

2.0% Notes due to 2021
12,904,679

—

Common stock warrants
12,904,679

—

Total
26,321,389

479,720

Effect of conversion on net income per share. The 2.0% Notes due 2021 have no impact on diluted net income per share until the average quarterly price of our common stock exceeds the conversion price of $17.82 per share. Prior to conversion, we will include the effect of the additional shares that may be issued if our common stock price exceeds $17.82 per share using the treasury stock method. If the average price of our common stock exceeds $24.00 per share for a quarterly period, we will also include the effect of the additional potential shares that may be issued related to the Warrants using the treasury stock method. Prior to conversion, the convertible note hedges are not considered for purposes of the calculation of net income (loss) per share, as their effect would be anti-dilutive. Upon conversion, the convertible note hedges are expected to offset the dilutive effect of the 2.0% Notes due 2021 when the stock price is above $17.82 per share.
9. STOCK-BASED COMPENSATION
Total stock-based compensation for the three months ended April 30, 2015 and 2014 is as follows:

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Three Months Ended April 30,
 
2015
2014
 
(In thousands)
Cost of service revenues
$
497

$
426

Cost of technology revenues
256

305

Cost of hardware revenues
40

81

Research and development
2,018

2,988

Sales and marketing
1,104

1,314

General and administrative
3,210

3,195

Stock-based compensation before income taxes
$
7,125

$
8,309

Income tax benefit
(1,467
)
(1,923
)
Stock-based compensation, net of tax
$
5,658

$
6,386

10. INCOME TAX
The Company recorded income tax expense for the three months ended April 30, 2015 and 2014 of $6.3 million and $6.4 million, respectively. The effective tax rate for the three months ended April 30, 2015 and 2014 was 44% and 44%, respectively.
The provision for income taxes for the three and nine months ended October 31, 2014 differs from the U.S. statutory tax rate of 35% primarily due to the tax impact of non-deductible executive compensation, stock based compensation, and state taxes.
As of April 30, 2015, the Company believes that its deferred tax assets are more likely than not to be realized, with the exception of California deferred tax assets. The Company continues to maintain a valuation allowance on its California deferred tax assets as it is not more likely than not that these deferred tax assets will be realized.
11. SUBSEQUENT EVENTS
On May 21, 2015, the Company acquired all outstanding shares of Cubiware Sp. Z.o.o., a privately-held company based in Warsaw, Poland that is a middleware, UI software, and back-office solutions provider of software solutions for set-top boxes to enable interactive television applications, pursuant to a Share Purchase Agreement dated May 21, 2015. The purchase consideration issued includes an initial cash payment of $16.0 million subject to customary working capital adjustments, guaranteed payments of $11.5 million to be paid over three years contingent on continued employment of certain key individuals, and additional cash earn-outs (not to exceed $20.5 million in aggregate) payable over three years contingent upon achieving certain revenue and EBITDA targets for each of the twelve month periods following the date of the Company’s acquisition.
The initial purchase accounting for this transaction has not yet been completed given the short period of time between the acquisition date and the issuance of these financial statements.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the condensed consolidated financial statements and the accompanying notes included in this report and our most recent annual report on Form 10-K filed on March 19, 2015, the sections entitled “Risk Factors” in Item 1A of our most recent annual report on Form 10-K and Part II, Item 1A of this quarterly report, as well as other cautionary statements and risks described elsewhere in this report and our most recent annual report on Form 10-K filed on March 19, 2015 before deciding to purchase, sell or hold our common stock.
Company Overview
We are a global leader in next-generation television software services and innovative cloud-based software-as-a-service solutions that enable viewers to consume content across all screens in and out of the home. The TiVo experience provides an all-in-one approach for navigating the ‘content chaos’ by seamlessly combining live, recorded, video on demand or VOD, and over-the-top (e.g. Netflix, Amazon, Hulu Plus, Vudu, and YouTube, among others) television into one intuitive user interface with simple universal search, discovery, viewing and recording, creating the ultimate viewing experience. We distribute our software, technology, and services through an increasing variety of consumer electronic applications and devices, such as television set-top boxes with and

21
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without DVR functionality, smartphones, and tablets. We offer a full whole-home solution that includes 4-Tuner and 6-Tuner DVRs/gateways, non-DVR IP set-top boxes (STBs), and software to enable streaming to application on third-party devices such as iOS and Android mobile phones and tablets through features such as What to Watch Now, OnePass, integrated search (including content from both traditional linear television, cable VOD, and broadband sources in one user interface), access to broadband video content, TiVo Online/Mobile Scheduling. As of April 30, 2015, there were approximately 5.8 million subscriptions to the TiVo service through our TiVo-Owned and MSO businesses. In our TiVo-Owned business, we distribute TiVo devices through third-party retailers and through our on-line store at TiVo.com. Additionally, in our MSO business we generate service and, in some cases, hardware revenues by providing the TiVo service through agreements with leading satellite and cable television service providers and broadcasters on MSO provisioned STBs (both through TiVo supplied and third-party supplied STBs) and other devices. We also generate technology revenues through engineering professional services in connection with the development and deployment of the TiVo service to our MSO customers. Further, our Digitalsmiths' products enable television service providers to offer cloud-based search and discovery capabilities independent of the TiVo brand and particular software on the set-top box or mobile device.
 
During the three past fiscal years ending January 31, 2015, we purchased a total of 37,588,207 shares of our common stock for an aggregate purchase price of $460 million. On September 5, 2014, our board of directors authorized the current discretionary share repurchase program that allows for total new repurchases of $550 million. This plan will expire on January 31, 2017. Under the current discretionary share repurchase program and as of April 30, 2015, we had purchased 21,538,339 shares of common stock at a weighted average price of $12.36 per share for an aggregate purchase price of $266.1 million and the remaining authorized amount for stock repurchases under this program was $283.9 million. Shares repurchased are included in issued common shares, but are excluded from outstanding common shares.
We have engaged in significant intellectual property litigation with certain television service and technology providers in the United States to protect our technology from infringement. To date, we have received cash and future technology revenue payment commitments of approximately $1.6 billion from intellectual property litigation.
Executive Overview
Fiscal year 2016
In the fiscal year ending January 31, 2016, we plan to continue to be focused on our efforts to build leading advanced television products, enter into new distribution agreements, engage in development work for existing distribution customers, and continue deployment activities for our existing distribution customers. Additionally, we have been and plan to continue to actively protect our intellectual property. We will continue to focus on the following priorities: 
•We expect to continue our efforts to increase our subscription base by adding new subscriptions through our mass distribution relationships both in the U.S. and internationally.
•We also expect to continue our efforts to drive growth in our TiVo-Owned subscriptions. These efforts include initiatives to offer products into growing segments such as OTA and product enhancements focused on streaming, content, mobile, and personalization to improve the viewing experience. To the extent these efforts are successful at growing our subscription base, we may invest incremental capital in subscription acquisition activities and/or further product enhancements.
•We believe giving operators a choice of hardware platforms is critical to attracting new MSO customers, and driving increased penetration in current MSO customers to increase our MSO service revenues in the long term. As a result, we expect MSO hardware revenues and margins to likely decline in the future as U.S. MSO customers transition to third-party hardware such as Pace, Arris and other products which can support our TiVo service. Although we lose hardware margin in the short term from decreased hardware sales, we believe we gain additional subscribers through MSOs that would not otherwise be willing to sell the TiVo service.
•We expect to see revenue growth from our acquisition of Digitalsmiths. Digitalsmiths currently has business relationships with seven of the top ten U.S. Pay TV operators as well as various consumer electronics manufacturers and content providers. Most of these relationships are at the early stages of deployment and we expect increased penetration will drive further growth. Additionally, we are focused on signing additional distribution customers for Digitalsmiths both in the U.S. and internationally as well as launching new Digitalsmiths' products and services, such as the recently launched analytics product Seamless Insights.

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•We expect to continue to develop the research and data products of our subsidiary, TiVo Research, with a focus on taking advantage of the future growth of programmatic ad spending for television by integrating our unique data feeds into the emerging programmatic marketplaces. We believe that these efforts could drive future revenue growth for TiVo Research as we look to further integrate our data into the programmatic ad sales ecosystem.
•We believe that our investment in research and development is critical to remaining competitive and being a leader in advanced television solutions. Therefore, we expect our annual research and development spending in fiscal year 2016 to continue to be significant although at lower levels than the fiscal year ended January 31, 2015 as we continue to launch and pursue new product developments including enhanced cloud-based services such as network DVR, a more personalized user experience, expanded mobile applications, out-of-home streaming capabilities, data analytics, and a variety of back-office enhancements which increase our operational capacity to handle more operator deployments.
•We expect to continue our development efforts under our existing MSO deployment arrangements. As part of these arrangements, we typically receive some payments upfront and a portion over time that is a recoupment of costs to develop or implement. As such, to the extent that our development costs exceed upfront development or implementation fees from such arrangements, but the recovery of such development costs through future service fees from these MSOs is reasonably assured, we will defer such development costs and start expensing them in our Statement of Operations later upon deployment with the MSO. As of April 30, 2015 we had deferred costs of approximately $19.9 million related to development work, largely related to Com Hem, Charter Communications Operating, LLC (Charter) and Cogeco. However, despite the deferral of these development costs, we do incur cash outflows associated with these development efforts resulting in potentially higher cash usage in the near term. Also for international MSOs outside of North America, when related revenues from service fees are received, they are first recognized as technology revenues until the previously deferred costs of development of such arrangements are expensed. Based on the contractual commitments or recent MSO activities, full recovery of the deferred costs is reasonably assured. However, we face the risk of unexpected losses if we are forced to recognize these deferred costs early if we don't successfully complete the developments and deployments with the MSO partners or these partners default on future guaranteed service fees or are otherwise able to terminate their contracts with us.
Key Business Metrics
Management periodically reviews certain key business metrics in order to evaluate our operations, allocate resources, and drive financial performance in our business. Management monitors these metrics together and not individually as it does not make business decisions based upon any single metric.
Subscriptions and Households. Management reviews these metrics, and believes they may be useful to investors, in order to evaluate our relative position in the marketplace and to forecast future potential service revenues. Below is a table that details the change in our subscription base during the last eight quarters. The TiVo-Owned Subscription lines refer to subscriptions sold directly or indirectly by TiVo to consumers who have TiVo-enabled devices (such as a DVR or TiVo Mini) and for which TiVo incurs acquisition costs. The MSO Subscription lines refer to subscriptions sold to consumers by MSOs such as Com Hem, ONO, RCN, Suddenlink, and Virgin, among others, and for which TiVo expects to incur little or no acquisition costs. Additionally, we provide a breakdown of the average subscriptions for the quarter, the total MSO households and the MSO average households for the quarter, the number of fully amortized active product lifetime subscriptions, and percent of TiVo-Owned Subscriptions for which consumers pay recurring fees as opposed to a one-time prepaid product lifetime fee.

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Three Months Ended
(Subscriptions and Households in thousands)
Apr 30,
2015
Jan 31,
2015
Oct 31,
2014
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
TiVo-Owned Gross Additions:
39

59

36

27

32

49

33

20

Net Additions/(Losses):


 
 
 
 
 
 
TiVo-Owned
—

16

(9
)
(20
)
(9
)
6

(21
)
(26
)
MSOs
285

324

337

283

341

313

295

238

Total Net Additions/(Losses)
285

340

328

263

332

319

274

212

Cumulative Subscriptions:


 
 
 
 
 
 
TiVo-Owned
944

944

928

937

957

966

960

981

MSOs
4,813

4,528

4,204

3,867

3,584

3,243

2,930

2,635

Total Cumulative Subscriptions
5,757

5,472

5,132

4,804

4,541

4,209

3,890

3,616

Average Subscriptions:


 
 
 
 
 
 
TiVo-Owned Average Subscriptions
944

935

930

946

961

962

974

994

MSO Average Subscriptions
4,669

4,368

4,035

3,727

3,420

3,072

2,775

2,514

Total Average Subscriptions:
5,613

5,303

4,965

4,673

4,381

4,034

3,749

3,508

Total MSO Households
4,082

3,889

3,651

3,391

3,172

2,912

2,664

2,410

MSO Average Households
3,985

3,774

3,521

3,283

3,036

2,785

2,535

2,318

TiVo-Owned Fully Amortized Active Product Lifetime Subscriptions
147

149

152

159

161

171

169

176

% of TiVo-Owned Cumulative Subscriptions paying recurring fees
45
%
46
%
48
%
49
%
50
%
50
%
51
%
52
%
We define a “subscription” as a contract referencing a TiVo-enabled device such as a DVR or a non-DVR device such as a TiVo Mini for which (i) a consumer has paid or committed to pay for the TiVo service and (ii) service is not canceled. Each TiVo-Owned Subscription represents a single TiVo-enabled device (as defined above) and therefore one or more TiVo-Owned Subscriptions may be present in a single household. TiVo-Owned Subscriptions currently pay for the TiVo service on a recurring payment plan (such as a monthly or annual payment plan) or on a one-time basis for the life of TiVo-enabled device (product lifetime subscriptions). Beginning in October 2014, each TiVo Mini sale has included a product lifetime subscription for that TiVo Mini device, which have much lower average revenues than DVRs. Sales of the TiVo Mini device began in March 2013. TiVo Mini represented 10% and 3% of cumulative TiVo-Owned subscriptions as of April 30, 2015 and 2014, respectively. Increasing sales of TiVo Minis have helped slow, and in some quarters, reverse declines in our cumulative TiVo-Owned subscriptions and increased the number of subscriptions (devices) per TiVo-Owned household. This trend has resulted in a slower rate of decline in the total number of TiVo-Owned households. The increase in TiVo-Owned Subscriptions in the quarter and the decrease in the net loss of TiVo-Owned Subscriptions in quarter were based primarily on changes in our whole home pricing, including the bundling of product lifetime subscriptions with each TiVo Mini device, and the continued launch of our TiVo OTA (over-the-air) product. Subscriptions do not include soft-clients (i.e. iPad application or web portal) or digital tuning adapter users. We count product lifetime subscriptions in our subscription base until both of the following conditions are met: (i) the period we use to recognize product lifetime subscription revenues ends; and (ii) the related TiVo-enabled device has not made contact to the TiVo service within the prior six month period. Product lifetime subscriptions past this period which have not called into the TiVo service for six months are not counted in this total.
We define a "household" as one or more devices associated with the same contract or customer number. We currently do not report TiVo-Owned households as we currently receive incremental revenue for each new TiVo-Owned Subscription in the TiVo-Owned business whereas, in some cases, our MSO customers pay us on a per household basis. MSO Subscriptions are a count of the number of devices that connect to the TiVo service and one or more devices may be present in a single MSO Household.
We calculate average subscriptions for the period by adding the average subscriptions for each month and dividing by the number of months in the period. We calculate the average subscriptions for each month by adding the beginning and ending subscriptions for the month and dividing by two. We calculate Average MSO Households

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for the period by adding the average households for each month and dividing by the number of months in the period. We calculate the average households for each month by adding the beginning and ending households for the month and dividing by two. We are not aware of any uniform standards for defining subscriptions or households and caution that our presentation may not be consistent with that of other companies. Additionally, the fees that our MSOs pay us are typically based upon a specific contractual definition of a subscriber, subscription, household or a TiVo-enabled device which may not be consistent with how we define a subscription or household for our reporting purposes nor be representative of how such fees are calculated and paid to us by our MSOs. Our MSOs Subscription and MSO Household data is dependent in part on reporting from our third-party MSO partners.
TiVo-Owned Subscriptions remained flat during the three months ended April 30, 2015, as compared to a decrease of 9,000 in the same prior year period. The improvement in net TiVo-Owned Subscription losses of 9,000 subscriptions was largely related to increased gross subscription additions that were primarily related to increased sales of TiVo Minis as well as TiVo OTA. The TiVo-Owned installed subscription base decreased slightly to 944,000 subscriptions as of April 30, 2015 as compared to 957,000 as of April 30, 2014. We believe the year over year decrease in total TiVo-Owned Subscriptions was largely due to continued competition from DVRs distributed by cable and satellite companies and the increased number of devices that deliver streaming video over the internet to consumers as we continued to have fewer TiVo-Owned Subscription gross additions than TiVo-Owned Subscription cancellations.
Our MSO installed subscription base increased by 285,000 subscriptions during the three months ended April 30, 2015, to 4.8 million subscriptions as of April 30, 2015. The increase in cumulative MSO Subscriptions of approximately 1.2 million subscriptions from April 30, 2014 is due to subscription growth from a variety of partners including Cogeco, Com Hem, ONO, RCN, Suddenlink, Virgin, and others. This subscription growth is largely related to international MSO subscriptions though domestic MSO subscription growth has increased as a contributer. We expect continued growth in our MSO installed subscription base through continued growth from existing distribution and as additional MSO distribution deals launch.
TiVo-Owned Churn Rate per Month. Management reviews this metric, and believes it may be useful to investors, in order to evaluate our ability to retain existing TiVo-Owned Subscriptions (including both monthly and product lifetime subscriptions) by providing services that are competitive in the market. Management believes factors such as service enhancements, service commitments, higher customer satisfaction, and improved customer support may improve this metric. Conversely, management believes factors such as increased competition, lack of competitive service features such as high definition television recording capabilities in our older model DVRs or access to certain digital television channels or MSO Video On Demand services, as well as increased price sensitivity, CableCARDTM installation issues, and CableCARDTM technology limitations, may cause our TiVo-Owned Churn Rate per month to increase.
We define the TiVo-Owned Churn Rate per month as the total TiVo-Owned Subscription cancellations in the period divided by the Average TiVo-Owned Subscriptions for the period (including both monthly and product lifetime subscriptions), which then is divided by the number of months in the period. We calculate Average TiVo-Owned Subscriptions for the period by adding the average TiVo-Owned Subscriptions for each month and dividing by the number of months in the period. We calculate the average TiVo-Owned Subscriptions for each month by adding the beginning and ending subscriptions for the month and dividing by two. We are not aware of any uniform standards for calculating churn and caution that our presentation may not be consistent with that of other companies.
The following table presents our TiVo-Owned Churn Rate per month information:
 
Three Months Ended
(Subscriptions in thousands)
Apr 30,
2015
Jan 31,
2015
Oct 31,
2014
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
Average TiVo-Owned subscriptions
944

935

930

946

961

962

974

994

TiVo-Owned subscription cancellations
(39
)
(43
)
(45
)
(47
)
(41
)
(43
)
(54
)
(46
)
TiVo-Owned Churn Rate per month
(1.4
)%
(1.5
)%
(1.6
)%
(1.6
)%
(1.4
)%
(1.5
)%
(1.8
)%
(1.5
)%
TiVo-Owned Churn Rate per month was (1.4)% and (1.4)% for the quarters ended April 30, 2015 and 2014, respectively. Included in our TiVo-Owned Churn Rate per month are those product lifetime subscriptions that have both reached the end of the revenue recognition period and whose DVRs have not contacted the TiVo service within the prior six months. Conversely, we do not count as churn product lifetime subscriptions that have not

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reached the end of the revenue recognition period, regardless of whether such subscriptions continue to contact the TiVo service.
Subscription Acquisition Cost or SAC. Management reviews this metric, and believes it may be useful to investors, in order to evaluate trends in the efficiency of our marketing programs and subscription acquisition strategies. We define SAC as our total TiVo-Owned acquisition costs for a given period divided by TiVo-Owned Subscription gross additions for the same period. We define total acquisition costs as sales and marketing, subscription acquisition costs less net TiVo-Owned related hardware revenues (defined as TiVo-Owned related gross hardware revenues less rebates, revenue share and market development funds paid to retailers) plus TiVo-Owned related cost of hardware revenues. The sales and marketing, subscription acquisition costs line item includes advertising expenses and promotion-related expenses directly related to subscription acquisition activities, but does not include expenses related to advertising sales. We do not include third-parties’ subscription gross additions, such as MSOs' gross additions with TiVo subscriptions, in our calculation of SAC because we typically incur limited or no acquisition costs for these new subscriptions, and so we also do not include MSOs’ sales and marketing, subscription acquisition costs, hardware revenues, or cost of hardware revenues in our calculation of TiVo-Owned SAC. We are not aware of any uniform standards for calculating total acquisition costs or SAC and caution that our presentation may not be consistent with that of other companies.
 
Three Months Ended
  
Apr 30,
2015
Jan 31,
2015
Oct 31,
2014
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
 
(In thousands, except SAC)
Subscription Acquisition Costs








Sales and marketing, subscription acquisition costs
$
1,691

$
3,455

$
2,734

$
1,212

$
1,505

$
6,038

$
2,628

$
1,996

Hardware revenues
(22,314
)
(22,463
)
(30,366
)
(25,232
)
(21,058
)
(22,301
)
(35,597
)
(23,104
)
Less: MSOs'-related hardware revenues
17,298

15,467

23,997

20,234

15,896

12,634

25,759

20,103

Cost of hardware revenues
22,571

25,040

28,176

22,524

19,764

23,163

33,017

21,957

Less: MSOs'-related cost of hardware revenues
(13,712
)
(12,475
)
(18,973
)
(14,805
)
(11,961
)
(9,650
)
(20,530
)
(15,384
)
Total Acquisition Costs
$
5,534

$
9,024

$
5,568

$
3,933

$
4,146

$
9,884

$
5,277

$
5,568

TiVo-Owned Subscription Gross Additions
39

59

36

27

32

49

33

20

Subscription Acquisition Costs (SAC)
$
142

$
153

$
155

$
146

$
130

$
202

$
160

$
278



 
Twelve Months Ended
ROLLING 12 MONTHS
Apr 30,
2015
Jan 31,
2015
Oct 31,
2014
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
 
(In thousands, except SAC)
Subscription Acquisition Costs
 
 






Sales and marketing, subscription acquisition costs
$
9,092

$
8,906

$
11,489

$
11,383

$
12,167

$
12,521

$
9,954

$
8,886

Hardware revenues
(100,375
)
(99,119
)
(98,957
)
(104,188
)
(102,060
)
(101,788
)
(102,616
)
(88,091
)
Less: MSOs'-related hardware revenues
76,996

75,594

72,761

74,523

74,392

74,498

78,698

65,990

Cost of hardware revenues
98,311

95,504

93,627

98,468

97,901

96,633

95,317

85,734

Less: MSOs'-related cost of hardware revenues
(59,965
)
(58,214
)
(55,389
)
(56,946
)
(57,525
)
(56,643
)
(58,029
)
(49,340
)
Total Acquisition Costs
$
24,059

$
22,671

$
23,531

$
23,240

$
24,875

$
25,221

$
23,324

$
23,179

TiVo-Owned Subscription Gross Additions
161

154

144

141

134

126

112

109

Subscription Acquisition Costs (SAC)
$
149

$
147

$
163

$
165

$
186

$
200

$
208

$
213

As a result of the seasonal nature of our subscription growth in the past, total acquisition costs have varied significantly during the year. Management primarily reviews the SAC metric on an annual basis due to the timing difference between our recognition of promotional program expense and the subsequent addition of the related subscriptions. For example, we have historically experienced increased TiVo-Owned Subscription gross additions during the fourth quarter; however, sales and marketing, subscription acquisition activities occur throughout the year.
During the three months ended April 30, 2015, our total acquisition costs were $5.5 million, an increase of $1.4 million, as compared to the same prior year period. This increase was primarily related to $1.1 million charge for excess and obsolete inventory relating to non-MSO units as well as increased sales and marketing subscription acquisition costs of $186,000, partially offset by the lower SAC associated with the TiVo Mini.

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During the twelve months ended April 30, 2015 our total acquisition costs were $24.1 million, a decrease of $816,000 compared to the same prior year period. This decrease was related to decreased sales and marketing subscription acquisition costs of $3.1 million . That decrease was partially offset by a decrease in the hardware gross margin of $2.3 million, as compared to the same prior year period. The lower hardware gross margin was largely driven by a $1.1 million charge for excess and obsolete inventory relating to non-MSO units and which is a result of changes in pricing of our TiVo Mini product and introduction of our TiVo Roamio OTA product.
The decrease in SAC of $37 for the twelve months ended April 30, 2015 as compared to the same prior year period was largely a result of an increase in the number of TiVo-Owned Subscription gross additions.
TiVo-Owned Average Revenue Per Subscription or ARPU. Management reviews this metric, and believes it may be useful to investors in order to evaluate the potential of our subscription base to generate service revenues. Investors should not use ARPU as a substitute for measures of financial performance calculated in accordance with GAAP. Management believes it is useful to consider this metric excluding the costs associated with rebates, revenue share, and other payments to channel because of the discretionary and varying nature of these expenses and because management believes these expenses, which are included in hardware revenues, net, are more appropriately monitored as part of SAC. We are not aware of any uniform standards for calculating ARPU and caution that our presentation may not be consistent with that of other companies.
We calculate TiVo-Owned service revenues by subtracting MSOs'-related service revenues and Media services and other service revenues (includes Advertising, Research, and Digitalsmiths revenues), from our total reported net Service revenues. The table below provides a more detailed breakdown of our Service revenues, and reconciles to our total Service revenues in our Statement of Operations as reported:
 
Three Months Ended
Service Revenues
Apr 30,
2015
Jan 31,
2015
Oct 31,
2014
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
 
(In thousands)
TiVo-Owned-related service revenues
$
21,047

$21,541
$21,810
$22,388
$22,510
$22,975
$23,462
$24,120
MSOs'-related service revenues
14,078

13,675

10,563

10,328

9,950

10,498

7,734

7,555

Media services and other service revenues
4,724

5,282

4,332

4,193

3,435

2,844

2,330

3,255

Total Service Revenues
$39,849
$40,498
$36,705
$36,909
$35,895
$36,317
$33,526
$34,930
We calculate ARPU per month for TiVo-Owned Subscriptions by taking total reported net TiVo-Owned service revenues and dividing the result by the number of months in the period. We then divide the resulting average service revenue by Average TiVo-Owned Subscriptions for the period, calculated as described above for churn rate. The following table shows this calculation:
 
Three Months Ended
TiVo-Owned Average Revenue per Subscription
Apr 30,
2015
Jan 31,
2015
Oct 31,
2014
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
 
(In thousands, except ARPU)
TiVo-Owned-related service revenues
$
21,047

$
21,541

$
21,810

$
22,388

$
22,510

$
22,975

$
23,462

$
24,120

Average TiVo-Owned revenues per month
7,016

7,180

7,270

7,463

7,503

7,658

7,821

8,040

Average TiVo-Owned subscriptions per month
944

935

930

946

961

962

974

994

TiVo-Owned ARPU per month
$
7.43

$
7.68

$
7.82

$
7.89

$
7.81

$
7.96

$
8.03

$
8.09

The decrease in TiVo-Owned ARPU per month for the three months ended April 30, 2015 as compared to the same prior year period was due primarily to an increase in sales of service for TiVo Mini, which have much lower average revenues than DVRs.

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Critical Accounting Estimates
In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income (loss) and net income (loss), as well as on the value of certain assets and liabilities on our condensed consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates and make changes accordingly. Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results. Other than the critical accounting estimates noted below there have been no other changes to our critical accounting estimates from our Form 10-K for the fiscal year ended January 31, 2015.
Recent Accounting Pronouncements
In May, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In April 2015, the FASB proposed a one year deferral to the effective date of ASU 2014-09 for all entities so that the new standard would be effective for the Company on February 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015‑03, Interest-Imputation of Interest, to simplify the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts. The new standard is effective for the Company on February 1, 2016. While permitted, the Company has elected not to early adopt this ASU. Upon adoption, the new standard will result in a total decrease of prepaid expenses and other, current and long-term assets and a decrease in the carrying amount of the Company's current and long-term convertible senior notes of approximately $5.3 million as of April 30, 2015 and $6.1 million as of January 31, 2015.
Results of Operations
Net Revenues.
Our net revenues for the three months ended April 30, 2015 and 2014 as a percentage of total net revenues were as follows:
 
Three Months Ended April 30,
 
2015
2014
 
(In thousands, except percentages)
Service revenues
$
39,849

35
%
$
35,895

33
%
Technology revenues
52,571

46
%
$
50,106

47
%
Hardware revenues
22,314

19
%
$
21,058

20
%
Net revenues
$
114,734

100
%
$
107,059

100
%
Change from same prior year period
7
%

30
%

Service Revenues. The increase in Service revenues of $4.0 million for the three months ended April 30, 2015, as compared to the same prior year period was related to an increase in MSO-related service revenues of $4.1 million due to an increased subscription base and recognition of ONO service revenues which began during the three months ended January 31, 2015. This increase was combined with an increase in Media service and other revenues of $1.3 million related to increased revenue from Digitalsmiths products and services. These increases were partially offset by a decrease in TiVo-Owned subscription revenues of $1.5 million. This decrease in TiVo-Owned subscription revenues is primarily due to the lower revenue associated with our TiVo Mini product, partially offset by an increase in our subscription base.
Technology Revenues. Technology revenues for the three months ended April 30, 2015 increased by $2.5 million as compared to the same prior year periods primarily due to the an increase in licensing revenue from

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Verizon and AT&T and to a lesser extent the timing of revenue recognition related to various technology related projects.
Revenue and cash from the contractual minimums (i.e. the following amounts do not include any additional revenues from our AT&T agreement) under our licensing agreements with EchoStar, AT&T, Verizon, and Cisco and Google/Motorola Mobility through April 30, 2015 have been:
 
Technology Revenues
Cash Receipts
Fiscal Year Ended January 31,
(In thousands)
2012
$
35,275

$
117,679

2013
76,841

86,356

2014
136,532

464,725

2015
169,641

83,579

Three month period from February 1, 2015 to April 30, 2015
42,858

6,545

Total
$
461,147

$
758,884

Based on current GAAP, revenue and cash from the contractual minimums under all our licensing agreements with EchoStar, AT&T, Verizon, and Cisco and Google/Motorola Mobility is expected to be recognized (revenues) and received (cash) for the remainder of the fiscal year 2016 and on an annual basis for the fiscal years thereafter as follows:
 
Technology Revenues
Cash Receipts
 
(In thousands)
Nine month period from May 1, 2015 to January 31, 2016
$
128,705

$
77,034

Fiscal Year Ending January 31,
 
 
2017
173,129

83,579

2018
174,411

83,579

2019
88,629

31,139

2020
1,855

—

2021-2024
6,388

—

Total
$
573,117

$
275,331

Hardware Revenues. Hardware revenues, net of allowance for sales returns and net of revenue share and marketing development fund payments for the three months ended April 30, 2015 increased by $1.3 million as compared to the same prior year period. This increase was primarily driven by a larger amount of hardware sales to MSO operator partners. We expect hardware revenue related to our MSO business to decrease in the future as many of operator partners choose to deploy the TiVo service on third-party hardware.
Cost of service revenues.

Three Months Ended April 30,
 
2015
2014
 
(In thousands, except percentages)
Cost of service revenues
$
15,439

$
13,850

Change from same prior year period
11
%
28
%
Percentage of service revenues
39
%
39
%
Service gross margin
$
24,410

$
22,045

Service gross margin as a percentage of service revenues
61
%
61
%
Cost of service revenues consists primarily of telecommunication and network expenses, employee salaries, service center, credit card processing fees, and other expenses related to providing the TiVo service and amortization of acquired developed technology associated with our acquisitions. Cost of service revenues increased

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by $1.6 million for the three months ended April 30, 2015, as compared to the same prior year period. The increase was driven by increased service revenues from Digitalsmiths products and services. Service gross margins remained flat at 61% for the three months ended April 30, 2015 as compared to the same prior year period.
Cost of technology revenues.
 
Three Months Ended April 30,
 
2015
2014
 
(In thousands, except percentages)
Cost of technology revenues
$
6,136

$
4,544

Change from same prior year period
35
%
22
%
Percentage of technology revenues
12
%
9
%
Technology gross margin
$
46,435

$
45,562

Technology gross margin as a percentage of technology revenues
88
%
91
%
Cost of technology revenues includes costs associated with our development work primarily for Virgin, Com Hem, ONO, and our other international and domestic projects. Cost of technology revenues increased by $1.6 million for the three months ended April 30, 2015, as compared to the same prior year period. This increase was related primarily to increased volume of development work for certain MSO partners.
In certain of our distribution deals, TiVo is not being paid in full for the upfront development cost. However, in exchange, TiVo is receiving guaranteed financial commitments over the duration of the distribution deal. If we are reasonably assured that these arrangements as a whole will be profitable (assuming successful completion of development), we do not expense the development costs that exceed cash payable for the development work as incurred but rather we defer those costs and recognize these costs later when we receive service fees. However, despite the deferral of these development costs, we do incur cash outflows associated with these development efforts resulting in potentially higher cash usage in the near term. As a result, a portion of service fees used to recover the initial development costs would be classified as technology revenues and timing of recognition of these costs and revenues may differ from when these costs are actually incurred.
In accordance with our revenue recognition policies, we have deferred costs of approximately $19.9 million related to development work, largely related to Com Hem, Charter and Cogeco and these costs are recorded on our Condensed Consolidated Balance Sheets under deferred cost of technology revenues, current and deferred cost of technology revenues, long-term at April 30, 2015. In instances where TiVo does not host the TiVo service, these costs (up to the amount billed) will be recognized when related revenues are recognized upon billing our customers, as specified in the agreement. In instances where TiVo hosts the TiVo service, starting upon deployment, these costs will be amortized to cost of revenues over the longer of the contractual or customer relationship period.
Cost of hardware revenues.
 
Three Months Ended April 30,
 
2015
2014
 
(In thousands, except percentages)
Cost of hardware revenues
$
22,571

$
19,764

Change from same prior year period
14
 %
7
%
Percentage of hardware revenues
101
 %
94
%
Hardware gross margin
$
(257
)
$
1,294

Hardware gross margin as a percentage of hardware revenue
(1
)%
6
%
Cost of hardware revenues include all product costs associated with the TiVo-enabled DVRs and non-DVRs we distribute and sell, including manufacturing-related overhead and personnel, warranty, certain licensing, order fulfillment, and freight costs. We sell this hardware primarily as a means to grow our service revenues and, as a result, generating positive gross margins from hardware sales that are linked with the sale of TiVo-Owned service is not the primary goal of the consumer business. Cost of hardware revenues for the three months ended April 30, 2015 increased by $2.8 million as compared to the same prior year period. The increase was largely due to a $1.2 million charge for excess and obsolete inventory. Additionally, while we saw some decreases in the number of

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hardware units sold during the three months ended April 30, 2015 as compared to the same prior year period, these decreases were offset by a higher average cost of units sold to our MSO operator partners.
Hardware gross margin for the three months ended April 30, 2015 decreased by $1.6 million as compared to the same prior year period largely due a $1.2 million charge for excess and obsolete inventory and to a change in the mix of units sold and the channel in which they were sold during the period as compared to the same prior year period.
Our MSO partner absolute margins are likely to decline in future quarters as MSO partners continue to transition to third-party hardware such as the Pace and, in the future, Arris DVR and non-DVR product.
Research and development expenses.
 
Three Months Ended April 30,
 
2015
2014
 
(In thousands, except percentages)
Research and development expenses
$
25,014

$
26,347

Change from same prior year period
(5
)%
—
%
Percentage of net revenues
22
 %
25
%
Our research and development expenses consist primarily of employee salaries, related expenses, and consulting expenses related to our development of new technologies and products, such as whole home DVR technology and new features and functionality as well as investments in creating an integrated software code base across our product lines to increase the efficiency of our product development efforts in the future. Our research and development expenses decreased by $1.3 million for the three months ended April 30, 2015 as compared to the same prior year period. The decrease was largely related to decreased headcount and headcount related costs. We expect our annual research and development spending in fiscal year 2016 to continue to be significant but to be at lower levels than the fiscal year 2015.
Sales and marketing expenses.
 
Three Months Ended April 30,
 
2015
2014
 
(In thousands, except percentages)
Sales and marketing expenses
$
10,941

$
10,315

Change from same prior year period
6
%
21
%
Percentage of net revenues
10
%
10
%
Sales and marketing expenses consist primarily of employee salaries related expenses, consulting expenses and amortization of acquired intangibles. Sales and marketing expenses for the three months ended April 30, 2015 increased by $626,000 as compared to the same prior year period which is principally related to increased compensation related expenses largely due to increased headcount. As a percentage of revenue, sales and marketing expenses has remained flat at 10%.
Sales and marketing, subscription acquisition costs.
 
Three Months Ended April 30,
 
2015
2014
 
(In thousands, except percentages)
Sales and marketing, subscription acquisition costs
$
1,691

$
1,505

Change from same prior year period
12
%
(19
)%
Percentage of net revenues
1
%
1
 %
Sales and marketing, subscription acquisition costs include advertising expenses and promotional expenses directly related to our efforts to acquire new TiVo-Owned subscriptions to the TiVo service. Sales and marketing, subscription acquisition expenses for the three months ended April 30, 2015 increased by $186,000 as compared to the same prior year period due to changes in advertising spending during the current periods.
General and administrative expenses.

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Three Months Ended April 30,
 
2015
2014
 
(In thousands, except percentages)
General and administrative
$
14,822

$
15,354

Change from same prior year period
(3
)%
(30
)%
Percentage of net revenues
13
 %
14
 %
Litigation expense (included in total general and administrative costs above)
$
890

$
1,076

Change from same prior year period
(17
)%
(90
)%
Percentage of net revenues
1
 %
1
 %
General and administrative, net of litigation expense
$
13,932

$
14,278

Change from same prior year period
(2
)%
31
 %
Percentage of net revenues
12
 %
13
 %
General and administrative expenses consist primarily of employee salaries and related expenses for executive, administrative, accounting, and legal and professional fees. During the three months ended April 30, 2015, general and administrative expenses decreased by $0.5 million as compared to the same prior year period. The decrease was primarily related to decreased headcount related expenses.
Interest income. Interest income for the three months ended April 30, 2015 decreased by $259,000 as compared to the same prior year period. The average cash and short-term investment balance held during the three months ended April 30, 2015 was lower as compared to the same prior year period causing interest income to decrease over the respective periods.
Interest expense and other. Interest expense and other income for the three and three months ended April 30, 2015 increased by $2.9 million compared to the same prior year period due to amortization of the debt issuance costs and debt discount on 2.0% Notes due 2021 which were issued in September 2014.
Provision for income taxes.
 
Three Months Ended April 30,
 
2015
2014
 
(In thousands, except percentages)
Provision for income taxes
(6,292
)
(6,424
)
Effective tax rate
44
%
44
%
The provision for income taxes for the three months ended April 30, 2015 and 2014 differs from the U.S. statutory tax rate of 35% primarily due to the tax impact of non-deductible executive based compensation, stock based compensation and state taxes.

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Liquidity and Capital Resources
We have financed our operations and met our capital expenditure requirements primarily from the proceeds from the sale of equity securities, issuance of convertible senior notes, litigation proceeds, and cash flows from operations. Our cash resources are subject, in part, to the amount and timing of cash received from our license agreements, subscriptions, deployment agreements, and hardware customers. As of April 30, 2015, we had over $686.3 million of cash, cash equivalents, and short-term investments. We have $172.5 million in outstanding convertible senior subordinated notes, which are due on March 15, 2016 (the "4.0% Notes due 2016"). The 4.0% Notes due 2016 are unsecured senior obligations of TiVo and we may not redeem these notes prior to their maturity date although investors may convert the notes into TiVo common stock at any time until March 14, 2016 at their option at a conversion price of $11.16 per share. We also have $230.0 million in outstanding convertible senior notes, which are due on October 1, 2021 (the "2.0% Notes due 2021"). The 2.0% Notes due 2021 are unsecured senior obligations of TiVo. We intend to settle the principal of 2.0% Notes due 2021 in cash upon maturity. We may not redeem these notes prior to their maturity date, although investors may convert the notes at any time until July 1, 2021 at their option at a conversion price of $17.82 per share, under certain circumstances. Concurrently with the issuance of the 2.0% Notes due 2021, we purchased convertible note hedges and sold warrants. In purchasing the convertible note hedges for $54.0 million, counterparties agreed to sell to us up to approximately 12.9 million shares of our common stock, which is the number of shares initially issuable upon conversion of the 2.0% Notes due 2021 in full, at a price of $17.82 per share. TiVo received $30.2 million from the same counterparties from the sale of warrants to purchase up to approximately 12.9 million shares of our common stock at a strike price of $24.00 per share.
We believe our cash, cash equivalents and short-term investments, provide sufficient resources to fund operations, capital expenditures, future repurchases of TiVo shares in connection with our previously announced share repurchase authorization, payment of principal on 4.0% Notes due 2016 unless converted, and working capital needs through the next twelve months. 
Statement of Cash Flows Discussion
The following table summarizes our cash flow activities: 
 
Three Months Ended April 30,
 
2015
2014
 
(in thousands)
Net cash used in operating activities
$
(25,560
)
(23,109
)
Net cash provided by (used in) investing activities
$
16,066

$
(27,895
)
Net cash used in financing activities
$
(22,835
)
$
(104,805
)
Net Cash Provided by Operating Activities
During the three months ended April 30, 2015, our net cash used in operating activities increased by $2.5 million from $25.6 million as compared to $23.1 million during the same prior year period. This is principally due to the quarterly Verizon payment of $6 million being received after the quarter ended as well as to a $2.4 million interest payment made on the 2.0% Notes due 2021 which were issued in September 2014.
Net Cash Used in Investing Activities
Net cash provided by investing activities for the three months ended April 30, 2015 was approximately $16.1 million and was largely related to a net cash inflow of $22.5 million related to our cash management process, and the purchase and sales of short-term investments. This inflow was partially offset by the purchase of property and equipment and other long-term assets of $3.0 million which is used to support our business, an investment of $2.4 million, and intangibles assets of $1.0 million.
Net cash used in investing activities for the three months ended April 30, 2014 was approximately $27.9 million and was largely related to usage of $128.4 million for our acquisition of Digitalsmiths and was partially offset by a net cash inflow of $101.1 million related to our cash management process, and the purchase and sales of short-term investments. Additionally we acquired property and equipment of $629,000 which is used to support our business.
Net Cash Used in Financing Activities

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Net cash used in financing activities for the three months ended April 30, 2015 was approximately $22.8 million as compared to net used in financing activities of $104.8 million for the same prior year period.
For the three months ended April 30, 2015 the principal uses of cash for financing activities were repurchases of TiVo stock pursuant to a 10b5-1 plan and repurchase of restricted stock to satisfy employee tax withholdings on vesting of stock-based awards of a combined $27.9 million which was partially offset by proceeds from the issuance of common stock upon exercise of stock options which generated $5.1 million.
For the three months ended April 30, 2014 the principal uses of cash for financing activities were repurchases of TiVo stock pursuant to a 10b5-1 plan and repurchase of restricted stock to satisfy employee tax withholdings on stock-based awards of $110.6 million offset by proceeds from the issuance of common stock upon exercise of stock options which generated $2.1 million.
Financing Agreements
Share Repurchases. During the three past fiscal years ending January 31, 2015, we purchased a total of 37,588,207 shares of our common stock for an aggregate purchase price of $460 million. On September 5, 2014, our board of directors authorized the current discretionary share repurchase program that allows for total new repurchases of $550 million. This plan will expire on January 31, 2017. Under the current discretionary share repurchase program and as of April 30, 2015, we had purchased 21,538,339 shares of common stock at a weighted average price of $12.36 per share for an aggregate purchase price of $266.1 million and the remaining authorized amount for stock repurchases under this program was $283.9 million. Shares repurchased are included in issued common shares, but are excluded from outstanding common shares.
Universal Shelf Registration Statement. We are a well-known seasoned issuer and are eligible to file a registration statement on Form S-3 which would be immediately effective upon filing with the SEC under which we may issue an unlimited amount of securities, including debt securities, common stock, preferred stock, and warrants. Depending on market conditions, we may issue securities under future registration statements or in private offerings exempt from registration requirements.
Contractual Obligations
 
Payments due by Period
Contractual Obligations
Total
Less
than 1
year
1-3 years
3-5 years
More than 5
years
 
(In thousands)
Long-Term Debt Obligations maturing in 2016
$
172,500

$
172,500

$
—

$
—

$
—

Interest on Long-Term Debt Obligations maturing in 2016
6,804

6,804

—

—

—

Long-Term Debt Obligations maturing in 2021
230,000

—

—

—

230,000

Interest on Long-Term Debt Obligations maturing in 2021
29,900

4,600

9,200

9,200

6,900

Operating leases
5,680

3,432

2,248

—

—

Purchase obligations
16,437

16,437

—

—

—

Total contractual cash obligations
$
461,321

$
203,773

$
11,448

$
9,200

$
236,900

Purchase Commitments with Contract Manufacturers and Suppliers. We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help assure adequate component supply, we enter into agreements with contract manufacturers and suppliers that either allow them to procure inventory based upon criteria as defined by us or to establish the parameters defining our requirements. The table above displays that portion of our purchase commitments arising from these agreements that is firm, non-cancelable, and unconditional. If there are unexpected changes to anticipated demand for our products or in the sales mix of our products, some of the firm, non-cancelable, and unconditional purchase commitments may result in TiVo being committed to purchase excess inventory.
Off-Balance Sheet Arrangements

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As part of our ongoing business, we generally do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. Accordingly, our operating results, financial condition, and cash flows are not generally subject to off-balance sheet risks associated with these types of arrangements. We did not have any material off-balance sheet arrangements as of April 30, 2015.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We currently invest the majority of our cash in money market funds, investment-grade government and corporate debt, and investment-grade foreign corporate and government securities, all denominated in U.S. dollars. We maintain our investments with two financial institutions with high credit ratings. As part of our cash management process, we perform periodic evaluations of the relative credit ratings of issuers of these securities. We have not experienced any credit losses on our cash, cash equivalents, or short and long-term investments. Our investment portfolio only includes instruments with original maturities of less than two years held for investment purposes, not trading purposes. Due to the short-term nature of our cash equivalents and short-term investments we do not anticipate any material effect on our portfolio due to fluctuations in interest rates. Our convertible senior debt has a fixed interest rate and therefore we are not exposed to fluctuations in interest rates on this debt.
ITEM 4.
CONTROLS AND PROCEDURES
We are committed to maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures and implementing controls and procedures based on the application of management's judgment.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act.
Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures, as defined above, were effective in reaching a reasonable level of assurance as of April 30, 2015 (the end of the period covered by this quarterly report).
There have been no changes in our internal control over financial reporting during the three months ended April 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented or over-ridden by the individual acts of some persons, by the collusion of two or more people, or by management. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements or omissions due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION

35
Table of Contents

ITEM 1.
LEGAL PROCEEDINGS
The information under the heading “Legal Matters” set forth under Note 6 of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report, is incorporated herein by reference.
ITEM 1A.
RISK FACTORS
Before deciding to purchase, hold or sell our common stock, you should carefully consider the risk factors described in our annual report on Form 10-K for the year ended January 31, 2015 in the section entitled “Risk Factors”, in addition to the other cautionary statements and risks described elsewhere, and the other information contained in this report and in our other filings with the SEC, including our annual report on Form 10-K for the year ended January 31, 2015, and subsequent reports on Form 8-K.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
As previously reported on Current Report on Form 8-K filed on September 23, 2014, TiVo issued convertible senior notes with the aggregate principal amount of $230.0 million and received approximately $223.6 million in proceeds after deducting the initial purchasers’ discount and estimated offering expenses. Barclays Capital Inc. and Deutsche Bank Securities Inc. acted as representatives of the initial purchasers. Of the $230.0 million aggregate principal amount, $30 million was received pursuant to the exercise of the initial purchasers' overallotment option. The notes will pay interest semi-annually at a rate of 2.00% per year and mature on October 1, 2021. The notes were sold to the initial purchasers at 97.625% of par value.
The Company may not redeem the 2.0% Notes due 2021 prior to their maturity date although investors may convert the notes into cash or TiVo common stock at any time after July 1, 2021 at their option through maturity. The notes have an initial conversion rate of 56.1073 shares per $1,000 principal amount of notes. At the initial conversion rate, the initial conversion price will be approximately $17.82 per share. The conversion rate will be adjusted for certain dilutive events and will be increased in the case of corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the indenture governing the notes).
TiVo offered and sold the 2.0% Notes due 2021 to the initial purchasers in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. The initial purchasers then sold the notes to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A under the Securities Act.
Concurrently with the issuance of the 2.0% Notes due 2021, we purchased convertible note hedges and sold warrants. In purchasing the convertible note hedges for $54.0 million, Counterparties agreed to sell to the Company up to approximately 12.9 million shares of the Company’s common stock, which is the number of shares initially issuable upon conversion of the 2.0% Notes due 2021 in full, at a price of $17.82 per share. The Company received $30.2 million from the same counterparties from the sale of warrants to purchase up to approximately 12.9 million shares of the Company’s common stock at a strike price of $24.00 per share.
Purchases of Equity Securities
We have reacquired shares of stock from employees upon the vesting of restricted stock that was granted under our Amended & Restated 1999 Employee Incentive Plan and our Amended & Restated 2008 Equity Incentive Award Plan. These shares were surrendered by the employees, and reacquired by us, to satisfy the employees’ minimum statutory tax withholding which is required on restricted stock once they become vested and are shown in the following table: 


36
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Period
(a) Total Number of
Shares Purchased
 
(b) Average Price
Paid per share
(c) Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (4)
(d) Maximum
Number (or
Approximate Dollar
Value) of Shares
that May Yet be
Purchased Under
the Plans or
Programs (4)
February 1, 2015 through February 28, 2015
39,722

(1)
$
10.78

738,626

$
296,245,746

March 1, 2015 through March 31, 2015
328,630

(2)
$
10.67

806,392

$
287,634,708

April 1, 2015 through April 30, 2015
337,973

(3)
$
10.78

344,208

$
283,875,183

(1) During the month of February 2015 TiVo acquired 39,722 shares at a weighted average price of $10.78 from employees upon the vesting of restricted stock.
(2) During the month of March 2015 TiVo acquired 328,630 shares at a weighted average price of $10.67 from employees upon the vesting of restricted stock.
(3) During the month of April 2015 TiVo acquired 337,973 shares at a weighted average price of $10.78 from employees upon the vesting of restricted stock.
(4) During the three past fiscal years ending January 31, 2015, we purchased a total of 37,588,207 shares of our common stock for an aggregate purchase price of $460 million. On September 5, 2014, our board of directors authorized the current discretionary share repurchase program that allows for total new repurchases of $550 million. This plan will expire on January 31, 2017. Under the current discretionary share repurchase program and as of April 30, 2015, we had purchased 21,538,339 shares of common stock at a weighted average price of $12.36 per share for an aggregate purchase price of $266.1 million and the remaining authorized amount for stock repurchases under this program was $283.9 million. Shares repurchased are included in issued common shares, but are excluded from outstanding common shares.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
None.
ITEM 5.
OTHER INFORMATION
None.

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ITEM 6.
EXHIBITS
 
EXHIBIT
NUMBER
DESCRIPTION
3.1
Amended and Restated Certification of Incorporation (filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on September 10, 2007).
3.2
Amended and Restated Bylaws, dated as of February 21, 2012 (filed as Exhibit 3.1 to the Current Report Form 8-K filed on February 24, 2012).
4.1
Certificate of Designations of the Series B Junior Participating Preferred Stock of TiVo (filed as Exhibit 4.1 to the Current Report on Form 8-K/A filed on January 19, 2011).
4.2
Certificate of Correction to the Certificate of Designations of the Series B Junior Participating Preferred Stock of TiVo (filed as Exhibit 4.2 to the Current Report on Form 8-K/A filed on January 19, 2011).
4.3
Indenture, dated September 22, 2014 between TiVo Inc. and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.1 to the Current Report on Form 8-K filed on September 23, 2014).
4.4
Global Note, dated September 22, 2014 between TiVo Inc. and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.2 to the Current Report on Form 8-K filed on September 23, 2014).
10.1**
Fourth Amended & Restated Employment Agreement between TiVo Inc. and Thomas Rogers, effective September 13, 2012 (filed herewith).
10.2**
Summary of TiVo Inc. Fiscal Year 2016 Bonus Plan for Executive Officers (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on April 20, 2015).
31.1
Certification of Thomas S. Rogers, President and Chief Executive Officer of TiVo Inc. dated December 3, 2014 pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification of Naveen Chopra, Chief Financial Officer of TiVo Inc. dated December 3, 2014 pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1*
Certification of Thomas S. Rogers, President and Chief Executive Officer of TiVo Inc. dated December 3, 2014 in accordance with 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2*
Certification of Naveen Chopra, Chief Financial Officer of TiVo Inc. dated December 3, 2014 in accordance with 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
             

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+
Confidential treatment has been requested as to portions of this exhibit.
*
The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of TiVo Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.
**
Management contract or compensatory plan or arrangement.


 


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SIGNATURES AND OFFICER CERTIFICATIONS
Pursuant to the requirements the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
 
 
 
 
 
 
 
 
TIVO INC.
 
 
 
 
Date:
6/2/2015
 
 
By:
 
/S/    THOMAS S. ROGERS        
 
 
 
 
 
 
Thomas S. Rogers
 
 
 
 
 
 
President and Chief Executive
(Principal Executive Officer)
 
 
 
 
Date:
6/2/2015
 
 
By:
 
/S/    NAVEEN CHOPRA   
 
 
 
 
 
 
Naveen Chopra
 
 
 
 
 
 
Chief Financial Officer
(Principal Financial Officer)
 
 
 
 
Date:
6/2/2015
 
 
By:
 
/S/    PAVEL KOVAR
 
 
 
 
 
 
Pavel Kovar
 
 
 
 
 
 
Chief Accounting Officer
(Principal Accounting Officer)


40