TiVo 2013 Annual Report Download - page 53

Table of Contents
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  
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Cost of service revenues 49,042 40,107 35,865
Change from same prior year period 22%12%(11)%
Percentage of service revenues 35%30%27 %
Service gross margin 89,793 93,618 95,476
Service gross margin as a percentage of service revenues 65%70%73 %
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. Cost of service revenues increased by $8.9 million during the
fiscal year ended January 31, 2014 as compared to the same prior year period. This increase in cost of service revenues is largely related to
the costs associated with audience measurement research following the acquisition of TRA and includes $3.3 million in expenses related to
an impairment charge.
Cost of service revenues increased by $4.2 million for the fiscal year ended January 31, 2013, as compared to the same prior year
period. This increase in cost of service revenues was largely related to the costs associated with our higher audience measurement research
costs following the acquisitions of TRA.
Cost of technology revenues.
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  
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Cost of technology revenues 25,673 23,175 23,056
Change from same prior year period 11%1%23%
Percentage of technology revenues 16%23%39%
Technology gross margin 139,957 78,417 35,889
Technology gross margin as a percentage of technology revenues 84%77%61%
Cost of technology revenues includes costs associated with our development work primarily for Com Hem, Charter, Virgin, ONO and
our other international and domestic projects. This increase in cost of technology revenues for the fiscal year ended January 31, 2014 was
related primarily to the number of ongoing technology projects and the timing of recognition of revenues for those projects during the period.
During the fiscal year ended January 31, 2014 we recognized $9.8 million in technology costs associated with completion of our ONO
development work.
Cost of technology revenue for the fiscal year ended January 31, 2013 remained relatively flat as compared to the same prior year period.
The increase in technology gross margin for the fiscal years ended January 31, 2014 and 2013 as compared to the fiscal year ended January
31, 2012 is primarily due to the revenue recognized from our Motorola/Cisco, DISH, AT&T, and Verizon agreements as there are very little
costs associated with these arrangements. Most of our newer deployment arrangements are accounted for under a zero margin method
during the development period and also during the post-launch period until all deferred development costs are recovered.
In certain of our distribution deals, we are not being paid in full for the upfront development cost. However, in exchange, we are 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 will be used to recover the initial development costs and
therefore will be classified as technology revenues and timing of recognition of these costs and revenues may differ from when these costs
are actually incurred and thus these revenues and costs might not be recognized evenly throughout the year.
Thus, in accordance with our revenue recognition policies, we have deferred costs of approximately $27.2 million related to development
work, largely related to Com Hem, ONO, and Charter and these costs are recorded on our consolidated balance sheets under deferred cost of
technology revenues, current and deferred cost of
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