Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
TIVO > SEC Filings for TIVO > Form 10-K on 15-Mar-2013All Recent SEC Filings

Show all filings for TIVO INC | Request a Trial to NEW EDGAR Online Pro

Form 10-K for TIVO INC


15-Mar-2013

Annual Report


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 accompanying notes included in this annual report and the section entitled "Risk Factors" in Item 1A, as well as other cautionary statements and risks described elsewhere in this report before deciding to purchase, sell or hold our common stock. Company Overview
We are a leading provider of software and service technology that enables distribution of video content on DVRs, non-DVR set-top boxes ("STBs") and an increasing variety of consumer electronic applications and devices, such as smartphones and tablets. The TiVo service redefines home entertainment by providing consumers with an easy intuitive way to record, watch, and control television. We offer a full whole-home solution that includes 4-Tuner DVRs/gateways, IP STBs, and streaming to mobile and tablet devices with features such as Season Pass® recordings, integrated search (including content from both traditional linear television, cable VOD, and broadband sources in one user interface), the ability to transfer content between our STBs and to other consumer electronics devices, access to broadband video content, TiVo Online/Mobile Scheduling and applications on third-party devices such as tablet computers and smartphones (such as iPads, iPhones, and Android phones and tablets). As of January 31, 2013, there were approximately 3.1 million subscriptions to the TiVo service through our TiVo-Owned and MSO businesses. In our TiVo-Owned business, we distribute the TiVo DVR through consumer electronics retailers and through our on-line store at TiVo.com. Additionally, in our MSO business, we generate service and/or hardware revenues by providing the TiVo service on MSO provisioned STBs through agreements with leading satellite and cable television service providers and broadcasters. We also generate technology revenues through engineering professional services in connection with the development and deployment of the TiVo service to our MSO customers. Additionally, we generate advertising and audience research and measurement revenues by providing innovative advertising and audience measurement solutions for the television industry. We acquired a data analytics company, TRA Global, Inc. on July 18, 2012, which we have renamed TiVo Research and Analytics, Inc. ("TRA"). We believe this acquisition is strategic for our data analytics business, establishes new revenue enhancing opportunities, and bolsters our ability to provide unique insights to an industry increasingly seeking alternative ways to measure audience viewing behavior across a variety of platforms.
We have engaged and continue to engage 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 totaling over $1 billion from intellectual property litigation, including a lawsuit we settled with Verizon Communications, Inc. for at least $250.4 million, during the fiscal year ended January 31, 2013. We have recorded the portion allocated to past infringement as litigation proceeds in the quarter in which the settlements occurred, and the amounts allocated to future use are recognized by us as technology revenues from the licensing of our technology over the remaining term of the license. We currently have additional intellectual property litigation pending against Motorola, Cisco, and Time Warner Cable. Executive Overview
Fiscal year 2014


Table of Contents

In the fiscal year ending January 31, 2014, 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 TiVo-Owned direct and retail sales with the roll out of our new products, as well as our mass distribution partnerships both in the U.S. and internationally. We expect the growth trend in our MSO subscription base to continue in fiscal year 2014 with the continued contributions from current deployments and the expected future deployment of additional distribution deals. However, this growth in our installed base of MSO subscriptions will likely be slightly offset by further declines in our TiVo-Owned subscription base.
•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 2014 to continue to be significant but to be at lower levels than compared to the fiscal year ended January 31, 2013 as we continue to launch and pursue new product developments such as the continued development of whole-home and multi-screen offerings which include IP-delivery to thin-client STBs and solutions that extend the TiVo experience to personal computers, tablets, and mobile devices, increasing our operational capacity to handle more operator deployments.
•We will continue our efforts to protect our technological innovations and intellectual property. As a result, we expect to continue to incur litigation expenses for our ongoing patent infringement lawsuits, which includes litigation with Motorola Mobility.
•We expect to continue our development efforts under our existing MSO deployment agreements. As part of these arrangements, we typically receive some payments upfront and a portion over time that is a recoupment of costs to develop. As such, to the extent that our development costs exceed upfront development fees from such arrangements, but such development costs are recoverable through future guaranteed service fees from these MSOs, we will defer such development costs and start expensing them in our Statement of Operations later upon deployment with the MSO. As of January 31, 2013 we have deferred costs of approximately $30.7 million related to development work, largely related to Virgin Media ("Virgin"), Cableuropa S.A.U. ("ONO")., and Charter. 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, 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. This recognition of such associated service fees as technology revenues also negatively impacts the average revenue per subscription ("ARPU") for MSOs' metric until such service fees are later recognized as service revenues, as further discussed below under Key Business Metrics. As a result, we face the risk of unexpected losses if we were 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. Management reviews this metric, and believes it 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 lines refer to subscriptions sold directly or indirectly by TiVo to consumers who have TiVo-enabled devices and for which TiVo incurs acquisition costs. The MSO lines refer to subscriptions sold to consumers by MSOs such as DIRECTV, Virgin, ONO, RCN, Grande, and Suddenlink, among others, and for which TiVo expects to incur little or no acquisition costs. Additionally, we provide a breakdown of the percent of TiVo-Owned subscriptions for which consumers pay recurring fees as opposed to a one-time prepaid product lifetime fee.


Table of Contents

                                                             Fiscal Year Ended January 31,
(Subscriptions in thousands)                                 2013         2012        2011
TiVo-Owned Subscription Gross Additions:                       117          114          160
Subscription Net Additions/(Losses):
TiVo-Owned                                                     (80 )       (157 )       (199 )
MSOs                                                           950          387         (357 )
Total Subscription Net Additions/(Losses)                      870          230         (556 )
Cumulative Subscriptions:
TiVo-Owned                                                   1,029        1,109        1,266
MSOs                                                         2,120        1,170          783
Total Cumulative Subscriptions                               3,149        2,279        2,049
Fully Amortized Active Lifetime Subscriptions                  194          253          310
% of TiVo-Owned Cumulative subscriptions paying
recurring fees                                                  53 %         55 %         56 %

We define a "subscription" as a contract referencing a TiVo-enabled device for which (i) a consumer has committed to pay for the TiVo service and (ii) service is not canceled. 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. Prior to November 1, 2011 we amortized all product lifetime subscriptions over a 60 month period. Effective November 1, 2011, we have extended the period we use to recognize product lifetime subscription revenues from 60 months to 66 months for product lifetime subscriptions where we have not recognized all of the related deferred revenue as of the reassessment date. 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. Additionally, the subscription fees that our MSOs pay us are typically based upon a specific contractual definition of a subscriber or subscription which may not be consistent with how we define a subscription for our reporting purposes nor be representative of how such subscription fees are calculated and paid to us by our MSOs. Our MSOs subscription data is based in part on reporting from our third-party MSO partners.
TiVo-Owned subscriptions declined by 80,000 subscriptions during the fiscal year ended January 31, 2013, as compared to a decrease of 157,000 in the same prior year period. This improvement was primarily driven by decreased churn. TiVo-Owned installed subscription base is approximately 1.0 million subscriptions as of January 31, 2013, as compared to approximately 1.1 million as of January 31, 2012. We believe this decrease in total TiVo-Owned subscriptions was largely due to continued pressure on subscription gross additions resulting from increased competition from DVRs distributed by cable, telco, and satellite companies as we continued to have fewer TiVo-Owned subscription gross additions than we had TiVo-Owned subscription cancellations. For the fiscal year ended January 31, 2013 our MSO installed subscription base increased by 950,000 subscriptions to approximately 2.1 million subscriptions. This increase in subscriptions is due to subscription growth from partners such as Virgin, RCN, Suddenlink, ONO, Grande, and others. We expect this growth to continue.
During the fiscal year ended January 31, 2012 TiVo-Owned subscriptions declined by 157,000 subscriptions, as compared to a decrease of 199,000 in the same prior year period. This improvement was driven by decreased churn. TiVo-Owned installed subscription base was approximately 1.1 million subscriptions as of January 31, 2012 as compared to approximately 1.3 million as of January 31, 2011. We believe this decrease in total TiVo-Owned subscriptions was largely due to continued pressure on subscription gross additions resulting from increased competition from DVRs distributed by cable and satellite companies as we continued to have fewer TiVo-Owned subscription gross additions than we had TiVo-Owned subscription cancellations.
Our MSO installed subscription base increased by 387,000 subscriptions to 1.2 million subscriptions as of January 31, 2012 as compared to 783,000 as of January 31, 2011. The increase in subscriptions is due to subscription growth from partners such as Virgin, RCN, Suddenlink, ONO, Grande, and others. We expect continued MSO installed base subscription growth during fiscal year 2014 as we anticipate increased penetration within current distribution deals. TiVo-Owned Churn Rate per Month.


Table of Contents

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 and installation 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:

                                           Fiscal Year Ended January 31,
                                           2013          2012         2011
                                        (In thousands, except percentages)
TiVo-Owned subscription cancellations      (197 )         (271 )      (359 )
Average TiVo-Owned subscriptions          1,062          1,174       1,367
Annual Churn Rate                           (19 )%         (23 )%      (26 )%
Number of Months                             12             12          12
TiVo-Owned Churn Rate per month            (1.5 )%        (1.9 )%     (2.2 )%

TiVo-Owned Churn Rate per month improved to 1.5% for the fiscal year ended January 31, 2013 as HD box subscriptions, which have a lower churn rate as compared to SD box subscriptions, become a larger part of the TiVo-Owned subscription base. Churn Rate per month was (1.5)%, (1.9)%, and (2.2)% for the fiscal years ended January 31, 2013, 2012, and 2011, 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 TiVo-enabled devices have not contacted the TiVo service within the prior six months. Additionally, we do not count as churn product lifetime subscriptions that have not 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


Table of Contents

or SAC and caution that our presentation may not be consistent with that of other companies.

                                                               Fiscal Year Ended January 31,
Subscription Acquisition Costs                                 2013          2012         2011
                                                                 (In thousands, except SAC)
Sales and marketing, subscription acquisition costs        $    8,660    $    7,392    $  8,169
Hardware revenues                                             (68,591 )     (47,893 )   (51,618 )
Less: MSOs related hardware revenues                           45,849        31,483      14,885
Cost of hardware revenues                                      78,183        59,439      69,033
Less: MSOs related cost of hardware revenues                  (38,435 )     (23,577 )   (11,296 )
Total Acquisition Costs                                        25,666        26,844      29,173
TiVo-Owned Subscription Gross Additions                           117           114         160
Subscription Acquisition Costs (SAC)                       $      219    $      235    $    182

As a result of the seasonal nature of our subscription growth, total acquisition costs vary 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 twelve months ended January 31, 2013 our total acquisition costs were $25.7 million, a decrease of $1.2 million compared to $26.8 million during the same prior year period. Our sales and marketing, subscription acquisition costs increased by $1.3 million, as compared to the same prior year period combined with a decrease in our hardware gross margin loss of $2.0 million as compared to the same prior year period. This decrease in hardware gross margin loss is largely related to a mix shift towards hardware units sold at a higher average selling price during the last half of the year ending January 31, 2013, as compared to the same prior year period. The decrease in SAC of $16 for the twelve months ended January 31, 2013 as compared to the same prior year period was largely a result of the increase in subscription gross additions as compared to the same prior year period combined with the improvements in the hardware gross margin loss.
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 revenues from a variety of sources, including service fees, advertising, and audience research measurement. You 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. Furthermore, ARPU for our MSOs may not be directly comparable to the service fees we may receive from these partners on a per subscription basis as the fees that our MSOs pay us may be based upon a specific contractual definition of a subscriber or subscription which may not be consistent with how we define a subscription for our reporting purposes or be representative of how such subscription fees are calculated and paid to us by our MSOs. For example, an agreement that includes contractual minimums may result in a higher than expected MSOs' ARPU if such fixed minimum fee is spread over a small number of subscriptions. Additionally, ARPU for our MSO subscriptions may not be reflective of revenues received by TiVo as in certain cases the cost of development for such MSO customer may be deferred on our consolidated balance sheet until later when related revenues from service fees are received and are first recognized as Technology revenues by us until the previously deferred costs of development are fully expensed. This recognition of service fees as Technology revenues will have the effect of lowering ARPU for certain of our MSO subscriptions until such costs of development are fully expensed.
We calculate ARPU per month for TiVo-Owned subscriptions by subtracting MSOs'-related service revenues (which includes MSOs' subscription service revenues and MSOs'-related advertising revenues) from our total reported net 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:


Table of Contents

                                                Fiscal Year Ended January 31,
TiVo-Owned Average Revenue per Subscription     2013         2012        2011
                                                 (In thousands, except ARPU)
Total Service revenues                      $   133,725   $ 131,341   $ 140,649
Less: MSOs'-related service revenues            (25,694 )   (17,047 )   (15,540 )
TiVo-Owned-related service revenues             108,031     114,294     125,109
Average TiVo-Owned revenues per month             9,003       9,525      10,426
Average TiVo-Owned per month subscriptions        1,062       1,174       1,367
TiVo-Owned ARPU per month                   $      8.48   $    8.11   $    7.63

The increase in TiVo-Owned ARPU per month for the fiscal year ended January 31, 2013 as compared to the same prior year period was due to an increase in our audience research measure revenues associated with our acquisition of TRA and gross additions having higher subscription pricing than the existing subscription base.
We calculate ARPU per month for MSOs' subscriptions by first subtracting TiVo-Owned-related service revenues (which includes TiVo-Owned subscription service revenues and TiVo-Owned related advertising revenues) from our total reported service revenues. Then we divide average revenues per month for MSOs'-related service revenues by the average MSOs' subscriptions for the period. The following table shows this calculation:

                                              Fiscal Year Ended January 31,
MSOs' Average Revenue per Subscription           2013        2012        2011
                                               (In thousands, except ARPU)
Total Service revenues                    $   133,725   $ 131,341   $ 140,649
Less: TiVo-Owned-related service revenues    (108,031 )  (114,294 )  (125,109 )
MSOs'-related service revenues                 25,694      17,047      15,540
Average MSOs' revenues per month                2,141       1,421       1,295
Average MSOs' per month subscriptions           1,651         849       1,017
MSOs' ARPU per month                      $      1.30   $    1.67   $    1.27

The MSOs' related service revenues for the fiscal year ended January 31, 2013 decreased $0.37 per subscription to $1.30 per subscription, as compared $1.67 for the same prior year period. This decrease in MSOs' ARPU per month is due to the increased number of average MSO monthly subscriptions combined with the fact that subscription additions from some newly launched deployment agreements, including Virgin, which is a significant driver of our MSO subscription growth, do not necessarily correspond to an increase in service revenues as the cost of development for certain MSO customers has been deferred on our consolidated balance sheet and such MSO service fees are being first recognized as technology revenues until the previously deferred costs of development related to such MSO customers are fully expensed. This recognition of service fees as Technology revenues has the effect of lowering MSO ARPU per month until such costs of development are fully expensed. We expect that our MSO ARPU per month will continue to be negatively impacted by the recovery of these previously incurred development costs in the fiscal year 2014. Additionally, our MSO ARPU per month is impacted by the fact that DIRECTV's fixed minimum fee commitment (which extends through the term of our agreement with DIRECTV which expires on February 15, 2015, unless extended until February 15, 2018 by DIRECTV) is being spread over a declining DIRECTV subscription base. Critical Accounting Estimates
In preparing our 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 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 . . .

  Add TIVO to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for TIVO - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.