TiVo 2004 Annual Report Download - page 22

Table of Contents
Index to Financial Statements
Operating Expenses. Our operating expenses, including our research and development, sales and marketing, and general and administrative expenses,
increased $34.2 million or 60% during the year ended January 31, 2005 compared to the prior fiscal year. The increase in operating expenses for fiscal year
2005 was primarily attributable to increases in our investments in research and development and subscription acquisition activities.
Cash Flows from Operating Activities. Our cash flows from operating activities decreased by $29.6 million or by nearly four times as much as
compared to the same prior-year period.
Key Business Metrics
Management periodically reviews certain key business metrics discussed below in order to evaluate our operational strategies, allocate resources, and
maximize the financial performance of our business. Management believes it is useful to monitor these metrics together and not individually as it does not
make business decisions based upon any single metric.
Subscriptions. Management reviews this metric, and believes it might be useful to investors, in order to evaluate TiVo's relative position in the
marketplace and to forecast future potential service revenues. Below is a table that details the growth in our subscription base during the past eight quarters.
The TiVo-Owned lines refer to subscriptions sold directly by TiVo to customers who have TiVo-enabled DVRs and products, including those manufactured
currently by TiVo, Humax, Pioneer, and Toshiba. The DIRECTV lines refer to subscriptions sold by DIRECTV to customers who have integrated DIRECTV
satellite receivers with TiVo service. DIRECTV reports a cumulative subscription number to us on a monthly basis. Additionally, we provide a breakdown of
the percent of TiVo-Owned subscriptions for which consumers pay a recurring fee, as opposed to a one-time product lifetime fee. We offer our customers the
opportunity to purchase service for the lifetime of an individual TiVo-enabled DVR. We recognize revenue from product lifetime subscriptions over four
years.
Three Months Ended
(Subscriptions in thousands)
Jan 31,
2005
Oct 31,
2004
Jul 31,
2004
Apr 30,
2004
Jan 31,
2004
Oct 31,
2003
Jul 31,
2003
Apr 30,
2003
Subscription Net Additions:
TiVo-Owned 251 103 63 68 130 59 34 37
DIRECTV 447 316 225 196 200 150 56 42
Total Subscription Net Additions 698 419 288 264 330 209 90 79
Cumulative Subscriptions:
TiVo-Owned 1,141 890 787 724 656 526 467 433
DIRECTV 1,860 1,413 1,097 872 676 476 326 270
Total Cumulative Subscriptions 3,001 2,303 1,884 1,596 1,332 1,002 793 703
% of TiVo-Owned Cumulative Subscriptions paying recurring fees 50% 46% 43% 42% 40% 36% 34% 34%
We define a "subscription" as a contract referencing a TiVo-enabled DVR for which (i) a customer has paid for the TiVo service and (ii) service is not
canceled. We offer a product lifetime subscription, under which consumers can purchase a subscription that is valid for the lifetime of a particular DVR. We
count these as subscriptions until both of the following conditions are met: (i) we reach the end of the four-year period we use to recognize lifetime
subscription revenues, and (ii) the related DVR has not made contact to the TiVo service within the prior six-month period. We are not aware of any uniform
standards for defining subscriptions and caution that our presentation may not be consistent with that of other companies.
As of January 31, 2005, we had 65,000 product lifetime subscriptions, or approximately 2.2% of our total installed subscription base, that had exceeded
the four-year period we use to recognize product lifetime subscription revenues. This represents an increase of 0.5% from the prior quarter. We continue to
incur costs of services for these subscriptions without corresponding revenue.
We have also offered to some of our consumer electronics partners, on a limited basis, a reduced functionality version of the TiVo service called TiVo
Basic that does not involve a fee to consumers. DVRs with the TiVo Basic service that have not upgraded to the TiVo service are not included in our
subscription totals.
TiVo-Owned Churn Rate. Management reviews this metric, and believes it might be useful to investors, in order to evaluate our ability to retain
existing subscribers by providing compelling services that are competitive in the market. Management believes factors such as service enhancements, higher
customer satisfaction, and improved customer support, may lower this metric. Conversely, management believes factors such as increased competition,
increased price sensitivity, and the impact of our product lifetime subscription offering, may cause our TiVo-Owned churn rate to increase.
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