TiVo 2004 Annual Report Download - page 21

Table of Contents
Index to Financial Statements
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the consolidated financial statements and the notes included elsewhere in
this Annual Report and the section "Factors That May Affect Future Operating Results" at the end of this Item 7, as well as other cautionary statements and
risks described elsewhere in this Report, before deciding to purchase, sell or hold our common stock.
Overview
We are a leading provider of technology and services for digital video recorders, or DVRs, a rapidly growing consumer electronics category. Our
subscription-based TiVo service improves home entertainment by providing consumers with an easy way to record, watch, and control television. The TiVo
service also offers the television industry a platform for advertisers, content delivery, and audience measurement research. Key elements of our strategy
revolve around continued investment in technology, research and development, and innovation; extending and protecting our intellectual property and
continuing to promote and leverage the TiVo brand; as well as working to improve profitability, market share, and financial strength. Our financial strength
and ability to adapt to the current market and economic conditions are dependent in part on our generation of cash flow, effective management of working
capital, funding commitments, and other obligations as well as the growth of our business.
Executive Overview and Outlook
During the fiscal year ended January 31, 2005, we continued to show strong growth in our overall subscription base and subscription revenues. During
this period, we experienced increased subscription growth from the retail distribution channel, with the mix of our net new TiVo service subscriptions shifting
towards DIRECTV with TiVo subscriptions. Additionally, we launched a one-year program to increase our subscription acquisition activities with a focus on
growing TiVo-Owned subscriptions. TiVo-Owned subscription additions in the fourth quarter of the fiscal year 2005 were 251,000, which were nearly double
the subscription additions from the quarter ended January 31, 2004. For the fiscal year ending January 31, 2006 we plan to lower our total subscription
acquisition costs while achieving growth in our subscription base. We expect to see progressive improvements in profitability and cash flow from operating
activities throughout the fiscal year. On March 15, 2005, we announced a new development, distribution, and licensing agreement with Comcast.
The following table sets forth selected information as of our fiscal year ended January 31, 2005, 2004, and 2003:
Fiscal Year Ended January 31,
2005
2004 2003
(In thousands)
Service and technology revenues $ 115,476 $ 77,357 $ 60,170
Net revenues $ 172,055 $ 141,080 $ 96,010
Cost of revenues (156,258) (106,150) (69,799)
Operating expenses (91,594) (57,410) (83,296)
Loss from operations $ (75,797) $ (22,480) $ (57,085)
Cash flows from operating activities $ (37,214) $ (7,659) $ (33,170)
Service and Technology Revenues. Our service and technology revenues increased $38.1 million or 49% during the fiscal year ended January 31, 2005
compared to the prior fiscal year. This increase was primarily due to the growth in our subscription base of 1.7 million subscriptions during the fiscal year
ended January 31, 2005.
Net Revenues. Our net revenues increased by $31.0 million or 22% during the fiscal year ended January 31, 2005 compared to the prior fiscal year. We
added 2.6 million net new TiVo-Owned and DIRECTV subscriptions in the last three years. Our increased investment in subscription acquisition activities,
such as consumer rebates, during the fiscal year offset the overall growth in our service, technology, and hardware revenues that resulted from the increased
volume of subscriptions added during the year.
Cost of Revenues. Our total costs of revenues, which includes cost of service revenues, cost of technology revenues, and cost of hardware revenues,
increased by $50.1 million or 47% during the fiscal year ended January 31, 2005. The cost of service and technology revenues for the fiscal year ended
January 31, 2005 increased by $4.6 million, or 15%, compared to the prior fiscal year. The cost of hardware revenues for the fiscal year ended January 31,
2005 increased by $45.5 million, or 61%, compared to the prior fiscal year.
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