Press release
| < Back |
| TiVo Reports Results for the Third Quarter Ended October 31, 2010 |
ALVISO, CA, Nov 23, 2010 (MARKETWIRE via COMTEX) -- TiVo Inc. (NASDAQ: TIVO), a leader in advanced television services including digital video recorders (DVRs) for consumers and content distributors and consumer electronics manufacturers, today reported financial results for the third quarter ended October 31, 2010. Tom Rogers, President and CEO of TiVo, said, "This was an important quarter as we executed on our strategic initiatives aimed at expanding our distribution and building on our leadership in providing an advanced television solution. In the U.S., RCN deployment continues to exceed expectations. Outside the U.S., our momentum continues to build as we signed yet another European distribution deal with Canal Digital, the largest satellite operator in Scandinavia and as Virgin is nearing launch of our service. We are the only service provider solution today that combines traditional linear television, operator video-on-demand with the vast new world of broadband-on-demand content and we are seeing significant traction with operators as they increasingly recognize that we are the innovator of that approach. This is especially true as we prove that we are at the cutting edge with an increasing feature set such as integrated search and an iPad feature that is not only a command and control device for watching TV but allows users to actually interact with the content they are watching on their television screen." For the third quarter, service and technology revenues were $41.3 million, compared to our guidance of $40 million to $42 million and compared with $ 47.1 million for the same period last year and $42.1 million in the prior quarter. Adjusted EBITDA was ($12.2) million, compared to guidance of ($11) million to ($13) million, and $1.6 million in the same period a year ago. TiVo reported a net loss of ($20.6) million, compared to guidance of a net loss of ($19) million to ($21) million and a net loss of ($6.4) million in the year ago quarter. Net loss per share this quarter was ($0.18). TiVo-Owned subscription gross additions increased 7% year-over-year. Rogers continued, "We believe that the work that we are doing and the distribution deals we have in place will become apparent in our financials over time and will change the trajectory of our subscription base in a meaningful way in the relative near-term, given the operator relationships that TiVo already has in place. "On the mass distribution front, operators face an incredibly fast changing environment as over-the-top content now readily streams into homes and as they are stuck with interfaces that haven't changed much since the 1980s. We are the only currently deployed product that addresses these issues facing operators today, allowing them to remain competitive by providing a flexible platform by which to offer subscribers a full television experience with linear, video-on-demand and broadband in an integrated product. "Our deal with RCN exemplifies how an operator is embracing TiVo to gain an immediate competitive advantage and to address the growing broadband television trend. RCN deployment thus far has exceeded expectations in both subscriber volume and customer satisfaction. Suddenlink, the seventh-largest U.S. cable operator, is nearing launch in its first market. Our partnership with Suddenlink demonstrates just how efficiently a TiVo solution can be deployed by taking our retail product and provisioning it as a cable box with modifications to incorporate the operator's video-on-demand service. "Momentum on the international front continues as we are moving even closer to launch with Virgin Media in the UK. We believe the Virgin offering will be one of the best on the market and will include the seamless integration of traditional television, video-on-demand and catch-up television combined with broadband video and interactive applications. In fact Virgin sees so much value and a significant competitive advantage through its partnership with TiVo that in a recent press statement detailing the upcoming TiVo launch, Cindy Rose, the company's executive director of digital entertainment at Virgin Media, stated, 'Virgin Media's next generation connected TV service -- powered by TiVo -- and combined with our superior broadband will blow other "connected TV" products out of the water.' "Separately, in Spain, our work with ONO is progressing as we drive towards deployment next year. "Additionally, last week we announced yet another distribution deal to deploy the TiVo solution in Europe with Canal Digital, the largest satellite operator in Scandinavia. This is a very important deal, not only because it brings TiVo into a sizeable and attractive international market, but because it gives us a foundational international satellite platform which can be a basis for extending TiVo to other satellite operators -- a significant asset given that direct broadcast satellite remains the dominant medium for provision of pay television service outside the U.S. This deal will take advantage of some valuable development work we have been doing with Conax under the deal we announced with them last year and is a perfect example of how we can leverage relationships with conditional access and third party hardware vendors, to secure additional distribution deals. "All told, these two exclusive deals with Virgin and Ono, along with Canal Digital, are expected to make the TiVo experience available to up to seven million households in Europe over the next several years and will help bolster our position as the clear leader in the fastest growing segment of pay TV -- the integration of linear and broadband content. "Moving to the TiVo-Owned side of the business, we're highly focused on finding ways to drive incremental subscription volumes, while maintaining or even enhancing the financial model associated with new subscriptions. As we looked ahead to what we could accomplish for the upcoming holiday season, we tested in our direct channel possible new pricing options. The results of our testing showed that lower upfront pricing combined with higher monthly fees drove significant increases in volume, and with expected increases in ARPU and revenues, while also lifting subscription profitability. As a result, we made the decision to more widely deploy these pricing options for the holiday season. However, while the lower upfront cost leads to a near-term impact on earnings, we do expect that it will have a long-term positive impact on our financial results and strengthen the TiVo-Owned business. "Our efforts to drive more leverage from our TiVo-Owned business are only enhanced as we continue to improve the capabilities and innovation of our product in meaningful ways. As an example we will be launching our iPad app in a few weeks. While many others have announced an iPad app that is just a glorified remote control, the TiVo iPad app will be an experience that uniquely works in tandem with what you are watching on the television screen. This highlights a key point of distinction from other iPad apps being developed and shows our true leadership in advanced television solutions for both the main television screen and second screen devices. "We also continue to add content to the millions and millions of pieces of content already available on TiVo. We recently announced that TiVo Premiere subscribers will gain access to the full array of Hulu Plus content streamed instantly to their TVs. Additionally, for music fans, we've expanded our audio offering with Pandora now available on all broadband-connected TiVo Premiere boxes. The additions of Hulu Plus and Pandora to TiVo's broadband content offerings are yet more examples of how TiVo is delivering on its promise to bring the best of all entertainment options to the living room in one easy-to-use and elegant device. "Additionally on the TiVo-Owned front, we are also encouraged by a recent Federal Communications Commission action updating its rules to, among other things, ensure that retail CableCARD devices have access to all linear cable channels delivered using switched digital video techniques, providing discounts on cable bundles to subscribers who bring their own retail box, and providing a CableCARD self-installation option so that retail customers do not need to wait around for a cable installer. The FCC expressed its intention to strictly enforce its CableCARD rules and we believe these updates will help make our TiVo-Owned products more attractive to consumers. We also believe that this will make it easier for our CableCARD customers to deal with issues at the point of sale. "This quarter we also continued to enhance TiVo's audience research and measurement capabilities, broadening our ability to play a vital role to advertisers, brands and networks as they try to navigate the maze of an increasingly fragmented TV audience landscape. To that end, we are increasing the size of our Power||Watch opt-in panel from 25,000 to 100,000 TiVo households, making it the largest second by second demographic, psychographic, and segmentation characteristics sample derived from set-top-box data. "Touching on our ongoing litigation with EchoStar, we argued our case against EchoStar before all of the Federal Circuit judges in an en banc review and expect a decision from the Court in the next several months. We remain confident in our position and the outcome. Separately, the United States Patent and Trademark Office affirmed the validity of all claims of our Time Warp Patent at issue for the third time, making our patent even stronger." Rogers concluded, "As we move toward the end of the year, we believe momentum is building around the elements of our business that will drive future growth. We have showcased to the pay TV world that we have a unique advanced television solution that is ready to be deployed today. As a result, the number of signed domestic and international distribution deals continues to grow. We have also continued to successfully protect our intellectual property and believe that we are steps closer to a final decision in our litigation with EchoStar. We believe that all of these catalysts will help to improve the distribution and financial trajectory for the Company." Management Provides Financial Guidance For the fourth quarter of fiscal 2011, TiVo anticipates service and technology revenues in the range of $40 million to $42 million, a net loss in the range of ($32) million to ($34) million, and an Adjusted EBITDA loss in the range of ($24) million to ($26) million. The fourth quarter is being impacted by up to $10 million due to our current holiday hardware pricing. Also, we currently expect our fiscal year 2012 Adjusted EBITDA to be well below our fourth quarter run rate. This financial guidance is based on information available to management as of November 23, 2010. TiVo expressly disclaims any duty to update this guidance. Management's guidance includes Adjusted EBITDA, a non-GAAP financial measure as defined in Regulation G. TiVo has provided a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) in the attached schedules solely for the purpose of complying with Regulation G and not as an indication that EBITDA or Adjusted EBITDA is a substitute measure for net income (loss). Conference Call and Webcast TiVo will host a conference call and Webcast to discuss the third quarter financial and operating results and guidance outlook at 2:00 pm PT (5:00 pm ET) today, November 23, 2010. To listen to the discussion, please visit http://www.tivo.com/ir and click on the link provided for the Webcast or dial (877) 618-4505 (conference ID number is 22585259). The Webcast will be archived and available through November 30, 2010 at http://www.tivo.com/ir or by calling (706) 645-9291; and entering the conference ID number 22585259. About TiVo Inc. Founded in 1997, TiVo Inc. (NASDAQ: TIVO) developed the first commercially available digital video recorder (DVR). TiVo offers the TiVo service and TiVo DVRs directly to consumers online at www.tivo.com and through third-party retailers. TiVo also distributes its technology and services through solutions tailored for cable, satellite, and broadcasting companies. Since its founding, TiVo has evolved into the ultimate single solution media center by combining its patented DVR technologies and universal cable box capabilities with the ability to aggregate, search, and deliver millions of pieces of broadband, cable, and broadcast content directly to the television. An economical, one-stop-shop for in-home entertainment, TiVo's intuitive functionality and ease of use puts viewers in control by enabling them to effortlessly navigate the best digital entertainment content available through one box, with one remote, and one user interface, delivering the most dynamic user experience on the market today. TiVo also continues to weave itself into the fabric of the media industry by providing interactive advertising solutions and audience research and measurement ratings services to the television industry. TiVo and the TiVo Logo are trademarks or registered trademarks of TiVo Inc. or its subsidiaries worldwide. Copyright 2010 TiVo Inc. All rights reserved. All other trademarks are the property of their respective owners. This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, TiVo's future business and growth strategies including TiVo's mass distribution strategy and the timing of additional mass distribution deals, profitability and financial guidance, scope and timing of distribution of the TiVo service domestically with RCN, Suddenlink and other operators, and internationally in the UK (with Virgin Media), in Spain (with ONO), in Scandanavia (with Canal Digital) and other regions, our relationship with Conax and Technicolor and our expectations regarding future operator distribution deals in connection with this integrated solution, the expectations regarding future results of TiVo's litigation with EchoStar, TiVo's intent to protect and defend its intellectual property, future TiVo products and services including iPad application from TiVo and launch of Hulu Plus on the TiVo service, future standalone subscription growth and the expected financial impact of TiVo's new holiday pricing, future new avenues for growth in TiVo's audience research business and financial performance. Forward-looking statements generally can be identified by the use of forward-looking terminology such as, "believe," "expect," "may," "will," "intend," "estimate," "continue," or similar expressions or the negative of those terms or expressions. Such statements involve risks and uncertainties, which could cause actual results to vary materially from those expressed in or indicated by the forward-looking statements. Factors that may cause actual results to differ materially include delays in development, competitive service offerings and lack of market acceptance, as well as the other potential factors described under "Risk Factors" in the Company's public reports filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2010, Quarterly Reports on Form 10-Q for periods ended April 30, 2010 and July 31, 2010, and Current Reports on Form 8-K. The Company cautions you not to place undue reliance on forward-looking statements, which reflect an analysis only and speak only as of the date hereof. TiVo disclaims any obligation to update these forward-looking statements.
TIVO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and share amounts)
(unaudited)
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------ ------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Revenues
Service revenues $ 34,298 $ 37,701 $ 106,196 $ 121,330
Technology revenues 7,024 9,351 20,412 23,086
Hardware revenues 9,532 10,030 37,182 25,398
----------- ----------- ----------- -----------
Net revenues 50,854 57,082 163,790 169,814
Cost of revenues
Cost of service
revenues (1) 9,878 10,021 30,168 30,002
Cost of technology
revenues (1) 4,172 5,924 13,404 16,269
Cost of hardware
revenues 13,566 14,436 44,331 37,947
----------- ----------- ----------- -----------
Total cost of revenues 27,616 30,381 87,903 84,218
----------- ----------- ----------- -----------
Gross margin 23,238 26,701 75,887 85,596
----------- ----------- ----------- -----------
Research and
development (1) 20,446 15,370 58,400 44,794
Sales and
marketing (1) 6,157 5,727 20,539 16,885
Sales and
marketing, subscription
acquisition costs 1,398 1,206 5,955 3,026
General and
administrative (1) 16,162 11,165 41,962 34,634
----------- ----------- ----------- -----------
Total operating
expenses 44,163 33,468 126,856 99,339
----------- ----------- ----------- -----------
Loss from
operations (20,925) (6,767) (50,969) (13,743)
Interest income 348 287 1,098 613
Interest expense
and other 0 9 (147) 87
----------- ----------- ----------- -----------
Loss before
income taxes (20,577) (6,471) (50,018) (13,043)
Provision for
income taxes (43) 24 (106) (11)
----------- ----------- ----------- -----------
Net loss $ (20,620) $ (6,447) $ (50,124) $ (13,054)
=========== =========== =========== ===========
Net loss per
common share -
basic and diluted $ (0.18) $ (0.06) $ (0.44) $ (0.12)
=========== =========== =========== ===========
Weighted average
common shares used
to calculate basic
and diluted net
loss per share 114,179,608 107,822,339 113,171,074 105,333,594
=========== =========== =========== ===========
(1) Includes stock-based
compensation expense as
follows:
Cost of service
revenues $ 209 $ 280 $ 573 $ 832
Cost of technology
revenues 777 636 1,877 1,807
Research and
development 1,935 2,001 6,250 6,452
Sales and marketing 987 664 2,670 1,899
General and
administrative 2,534 2,568 7,446 8,213
TIVO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
(unaudited)
October 31, January 31,
2010 2010
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 77,281 $ 70,891
Short-term investments 150,209 173,691
Accounts receivable, net of allowance for
doubtful accounts of $500 and $409 17,272 16,996
Inventories 23,032 12,110
Deferred cost of technology revenues, current 10,547 441
Prepaid expenses and other, current 8,782 8,245
------------ ------------
Total current assets 287,123 282,374
LONG-TERM ASSETS
Property and equipment, net of accumulated
depreciation of $43,093 and $40,934,
respectively 10,453 10,098
Purchased technology, capitalized software,
and intangible assets, net of accumulated
amortization of $14,473 and $12,501,
respectively 7,593 9,565
Deferred cost of technology revenues,
long-term 628 0
Prepaid expenses and other, long-term 1,222 1,263
Long-term investments 7,581 7,512
------------ ------------
Total long-term assets 27,477 28,438
------------ ------------
Total assets $ 314,600 $ 310,812
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 26,370 $ 20,712
Accrued liabilities 27,824 24,786
Deferred revenue, current 32,891 38,952
------------ ------------
Total current liabilities 87,085 84,450
LONG-TERM LIABILITIES
Deferred revenue, long-term 32,877 28,990
Deferred rent and other long-term
liabilities 249 231
------------ ------------
Total long-term liabilities 33,126 29,221
------------ ------------
Total liabilities 120,211 113,671
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.001:
Authorized shares are 10,000,000; Issued
and outstanding shares - none 0 0
Common stock, par value $0.001: Authorized
shares are 275,000,000; Issued shares are
116,973,320 and 110,434,022, respectively
and outstanding shares are 116,083,047 and
109,869,062, respectively 117 110
Additional paid-in capital 947,947 896,695
Treasury stock, at cost - 890,273 shares
and 564,960 shares, respectively (8,183) (4,325)
Accumulated deficit (744,837) (694,713)
Accumulated other comprehensive loss (655) (626)
------------ ------------
Total stockholders' equity 194,389 197,141
------------ ------------
Total liabilities and stockholders'
equity $ 314,600 $ 310,812
============ ============
TIVO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
---------------------------
Nine Months Ended October 31,
---------------------------
2010 2009
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (50,124) $ (13,054)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization of
property and equipment and intangibles 6,824 6,859
Loss on disposal of fixed assets 42 0
Stock-based compensation expense 18,816 19,203
Amortization of discounts and premiums
on investments 1,473 0
Utilization of trade credits 93 23
Allowance for doubtful accounts 323 147
Changes in assets and liabilities:
Accounts receivable (599) (1,115)
Inventories (10,922) 6,220
Deferred cost of technology revenues (10,734) 270
Prepaid expenses and other (589) (7,612)
Accounts payable 5,689 10,081
Accrued liabilities 3,038 (36)
Deferred revenue (2,174) (8,710)
Deferred rent and other long-term
liabilities 18 0
------------ ------------
Net cash provided by (used in)
operating activities $ (38,826) $ 12,276
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (133,264) (268,852)
Sales or maturities of short-term
investments 155,175 152,931
Purchase of long-term investment 0 (3,400)
Acquisition of property and equipment (5,280) (5,629)
Acquisition of capitalized software and
intangibles 0 (1,532)
------------ ------------
Net cash provided by (used in)
investing activities $ 16,631 $ (126,482)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock
related to exercise of common stock
options 30,036 36,204
Proceeds from issuance of common stock
related to employee stock purchase plan 2,407 2,320
Treasury Stock - repurchase of stock for
tax withholding (3,858) (2,592)
Payment under capital lease obligation 0 (48)
------------ ------------
Net cash provided by financing
activities $ 28,585 $ 35,884
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 6,390 $ (78,322)
------------ ------------
CASH AND CASH EQUIVALENTS:
Balance at beginning of period 70,891 162,337
------------ ------------
Balance at end of period $ 77,281 $ 84,015
============ ============
TIVO INC.
OTHER DATA
Guidance
Three Months Ended Reconciliation
Three Months
October 31, Ending
--------------------------------- --------------
January 31,
2010 2009 2011
--------------- --------------- --------------
(In thousands) (In millions)
Net loss $ (20,620) $ (6,447) $(34) - $(32)
Add back:
Depreciation &
amortization 2,264 2,249 $2-$3
Interest income &
expense (348) (287) $0-$(1)
Provision for income
tax 43 (24) $0
--------------- --------------- --------------
EBITDA (18,661) (4,509) $(32) - $(30)
Stock-based
compensation 6,442 6,149 $6
--------------- --------------- --------------
Adjusted EBITDA $ (12,219) $ 1,640 $(26) - $(24)
=============== =============== ==============
EBITDA and Adjusted EBITDA Results. TiVo's "EBITDA" means income before interest income and expense, provision for income taxes and depreciation and amortization. TiVo's "Adjusted EBITDA" is EBITDA less expense for stock-based compensation. EBITDA and Adjusted EBITDA are not measures of financial performance under generally accepted accounting principles, which we refer to as GAAP. We have presented EBITDA and Adjusted EBITDA solely as supplemental disclosure because we believe they allow for a more complete analysis of our results of operations and we believe that EBITDA and Adjusted EBITDA are useful to investors because EBITDA and Adjusted EBITDA are commonly used to analyze companies on the basis of operating performance. In addition, because of the variety of equity awards used by companies, the varying methodologies for determining stock-based compensation expense, and the subjective assumptions involved in those determinations, we believe excluding stock-based compensation enhances the ability of management and investors evaluate our operating performance over multiple periods. Management does not use EBITDA or Adjusted EBITDA as a measure of liquidity because, among other things, they do not exclude the impact of deferred revenues associated with the amortization of product lifetime subscriptions. We do not use stock-based compensation expense in our internal measures. A limitation associated with these non-GAAP measures is that they do not include any stock-based compensation expense related to hiring, retaining, and incentivizing the Company's workforce. EBITDA and Adjusted EBITDA are not intended to represent, and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.
TIVO INC.
OTHER DATA
Subscriptions Three Months Ended
October 31,
--------------------------
(Subscriptions in thousands) 2010 2009
----------- -----------
TiVo-Owned Subscription Gross Additions: 35 34
Subscription Net Additions/(Losses):
TiVo-Owned (45) (45)
*MSOs/Broadcasters (67) (269)
----------- -----------
Total Subscription Net Additions/(Losses) (112) (314)
Cumulative Subscriptions:
TiVo-Owned 1,321 1,537
MSOs/Broadcasters 951 1,199
----------- -----------
Total Cumulative Subscriptions 2,272 2,736
% of TiVo-Owned Cumulative Subscriptions paying
recurring fees 56% 58%
* MSOs/Broadcasters Subscription Net Additions/(Losses) in the third
quarter ended October 31, 2009 would have been a loss of (123,000)
subscriptions, excluding a one time reduction of (146,000) subscriptions
associated with a subscription over-reporting error by DIRECTV.
Included in the 1,321,000 TiVo-Owned subscriptions are approximately
282,000 lifetime subscriptions that have reached the end of the period
TiVo uses to recognize lifetime subscription revenue. These lifetime
subscriptions no longer generate subscription revenue.
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. The TiVo-Owned lines refer to subscriptions sold directly or indirectly by TiVo to consumers who have TiVo-enabled DVRs and for which TiVo incurs acquisition costs. The MSOs/Broadcasters lines refer to subscriptions sold to consumers by MSOs/Broadcasters such as DIRECTV, Cablevision Mexico, Seven (Australia), and Comcast 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, including on a monthly and a prepaid one, two, or three year basis, as opposed to a one-time prepaid product lifetime fee. We define a "subscription" as a contract referencing a TiVo-enabled DVR 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 DVR 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. We amortize all product lifetime subscriptions over a 60 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. Additionally, the subscription fees that some of our MSOs/Broadcasters 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.
TIVO INC.
OTHER DATA - KEY BUSINESS METRICS
Three Months Ended
October 31,
--------------------------
TiVo-Owned Churn Rate 2010 2009
----------- -----------
(In thousands, except
churn rate per month)
Average TiVo-Owned subscriptions 1,345 1,560
TiVo-Owned subscription cancellations (80) (79)
----------- -----------
TiVo-Owned Churn Rate per month (2.0)% (1.7)%
----------- -----------
TiVo-Owned Churn Rate per Month. 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 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.
Three Months Ended Twelve Months Ended
October 31, October 31,
----------------------- -----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Subscription Acquisition (In thousands, except SAC)
Costs
Sales and marketing,
subscription
acquisition costs $ 1,398 $ 1,206 $ 1 $ 4,716
Hardware revenues (9,532) (10,030) (60,571) (36,279)
Less:
MSOs/Broadcasters-
related hardware
revenues 3,416 190 23,272 2,041
Cost of hardware
revenues 13,566 14,436 72,293 53,711
Less:
MSOs/Broadcasters-
related cost of
hardware revenues (2,618) (203) (20,062) (2,027)
---------- ---------- ---------- ----------
Total Acquisition
Costs 6,230 5,599 22,909 22,162
========== ========== ========== ==========
TiVo-Owned
Subscription
Gross Additions 35 34 146 161
Subscription
Acquisition Costs
(SAC) $ 178 $ 165 $ 157 $ 138
========== ========== ========== ==========
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/Broadcasters' 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/Broadcasters' 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 or SAC and caution that our presentation may not be consistent with that of other companies.
Three Months Ended
October 31,
---------------------------
TiVo-Owned Average Revenue per Subscription 2010 2009
------------ ------------
(In thousands, except ARPU)
Total Service revenues $ 34,298 $ 37,701
Less: MSOs/Broadcasters-related service
revenues (3,670) (1,893)
------------ ------------
TiVo-Owned-related service revenues 30,628 35,808
Average TiVo-Owned revenues per month 10,209 11,936
Average TiVo-Owned per month subscriptions 1,345 1,560
------------ ------------
TiVo-Owned ARPU per month $ 7.59 $ 7.65
============ ============
Three Months Ended
October 31,
---------------------------
MSOs/Broadcasters Average Revenue per
Subscription 2010 2009
------------ ------------
(In thousands, except ARPU)
Total Service revenues $ 34,298 $ 37,701
Less: TiVo-Owned-related service revenues (30,628) (35,808)
------------ ------------
*MSOs/Broadcasters-related service revenues 3,670 1,893
Average MSOs/Broadcasters revenues per month 1,223 631
Average MSOs/Broadcasters per month subscriptions 984 1,378
------------ ------------
*MSOs/Broadcasters ARPU per month $ 1.24 $ 0.46
============ ============
* MSOs/Broadcasters-related ARPU in the third quarter ending October 31,
2009 would have been approximately $0.88, excluding the one time reduction
of $1.8 million in MSOs/Broadcasters-related service revenues related to
the one time reduction of 146,000 subscriptions associated with the
correction of subscription over-reporting error by DIRECTV.
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 subscription 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. We calculate ARPU per month for TiVo-Owned subscriptions by subtracting MSOs/Broadcaster-related service revenues (which includes MSOs/Broadcasters' subscription service revenues and MSOs/Broadcasters'-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 by Average TiVo-Owned subscriptions for the period, calculated as described above for churn rate. The above table shows this calculation. We calculate ARPU per month for MSOs/Broadcasters' 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/Broadcasters'-related service revenues by the average MSOs/Broadcasters' subscriptions for the period. The above table shows this calculation. SOURCE: TiVo |
