TiVo 2005 Annual Report Download - page 42

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Table of Contents
Company Overview
We are a leading provider of technology and services for digital video recorders. The subscription-based TiVo service improves home entertainment by
providing consumers with an easy way to record, watch, and control television with such features as Season Pass recordings, WishList® searches, TiVoToGo
transfers, and online scheduling. As of January 31,2006, there were approximately 4.4 million subscriptions to the TiVo service. We distribute the TiVo
service through agreements with leading television service providers such as currently DIRECTV and in the future, Comcast, as well as through consumer
electronics retailers. We also provide innovative marketing solutions for the television industry, including a unique platform for advertisers and audience
research.
Executive Overview and Outlook of Financial Results
During the fiscal year ended January 31, 2006, we experienced growth in our overall subscription base and subscription revenues. Through our
continued investment in marketing and research and development, we increased our subscription base, with the majority of our new subscriptions coming
from DIRECTV. Additionally, we elected to invest in subscription acquisition activities during the second half of fiscal year 2006 to expand our subscription
base and promote the TiVo brand for future partnerships. TiVo-Owned subscriptions gross additions in the fourth quarter of fiscal year 2006 were 221,000,
which was down 20% from the quarter ended January 31, 2005. For the fiscal year ending January 31, 2007, we expect our subscription acquisition costs to
increase due at least in part to the new multi-tiered pricing structure we have announced which will include a TiVo DVR for no upfront payment in exchange
for customer commitment to either a one, two, or three year service plan. We expect to continue achieving growth in our TiVo-Owned subscription base in
fiscal 2007; however, we expect this growth to be offset by losses in our DIRECTV subscription base as DIRECTV supports a competing DVR technology.
The following table sets forth selected information as of our fiscal year ended January 31, 2006, 2005, and 2004:
Fiscal Year Ended January 31,
2006 2005 2004
(In thousands)
Service and technology revenues $ 170,859 $ 115,476 $ 77,357
Net revenues $ 195,925 $ 172,055 $ 141,080
Cost of revenues (119,177) (156,258) (106,150)
Operating expenses (114,152) (91,594) (57,410)
Loss from operations $ (37,404) $ (75,797) $ (22,480)
Cash flows from operating activities $ 3,425 $ (37,214) $ (7,659)
Service and Technology Revenues. Our service and technology revenues increased $55.4 million or 48% during the fiscal year ended January 31, 2006
compared to the prior fiscal year. This increase was primarily due to an increase in our total subscription base of approximately 1.4 million new subscriptions
during the fiscal year ended January 31, 2006.
Net Revenues. In addition to service and technology revenues, our net revenues include our hardware revenues as well as any offsetting effects of
contra-revenue such as rebates, revenue shares, and other payments to channel. Net revenues increased by $23.9 million or 14% during the fiscal year ended
January 31, 2006 compared to the prior fiscal year. While service revenues increased significantly, those benefits were largely offset by lower hardware and
technology revenues.
Cost of Revenues. Our total costs of revenues, which include cost of service revenues, cost of technology revenues, and cost of hardware revenues,
decreased by $37.1 million or 24% during the fiscal year ended January 31, 2006. The cost of service and technology revenues for the fiscal year ended
January 31, 2006 decreased by $1.0 million, or 3%, compared to the prior fiscal year primarily as a result of substantial completion of existing engineering
services contracts. The cost of hardware revenues for the fiscal year ended January 31, 2006 decreased by $36.1 million, or 30%, compared to the prior fiscal
year, primarily due to decreased hardware sales volume arising from increased competition.
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