TiVo Announces Significant Revenue Growth for Quarter Ending January 31, 2006;
Annual Service and Technology Revenues up 48 Percent Compared to Last Year
•
Total subscription base grows to approximately 4.4 million, which represents 45 percent annual growth
•
Annual net loss improvement of 57 percent compared to last year
•
First fiscal year of positive cash flow from operations
•
TiVo announces new pricing initiative, partnership with Verizon Wireless for mobile programming and TiVo
®
KidZone, a new programming tool
•
TiVo announces distribution agreement with RadioShack
ALVISO,
Calif. – March 8, 2006
–
TiVo Inc. (NASDAQ: TIVO), the creator of and a leader in television services for digital video recorders (DVRs), today reported financial results for the fourth quarter and fiscal year ended
January 31, 2006.
Total subscriptions as of January 31, 2006, were approximately 4.4 million, which represents 45% growth in the
subscription base during the past year. Service and technology revenues for the year increased 48% to $170.9 million, compared to $115.5 million last year. Service and technology revenues for the quarter increased 37% to $47.0 million, compared to
$34.2 million for the same period last year.
TiVo achieved its first positive cash flow from operations in fiscal 2006. For the year, TiVo reported a net
loss of ($34.4) million and net loss per share of ($0.41), a 57% and 59% improvement respectively, compared to a net loss of ($79.8) million, or ($0.99) per share in fiscal 2005. For the fourth quarter, TiVo reported a net loss of ($19.5) million
and net loss per share of ($0.23), a 42% and 45% improvement respectively, compared to a net loss of ($33.7) million, or ($0.42) per share, for the fourth quarter of last year.
TiVo-Owned subscription gross additions were 221,000 for the quarter, compared to 276,000 in the fourth quarter of last year. This fiscal fourth quarter was the second best quarter in TiVo’s history in terms of
TiVo-Owned subscription net additions. TiVo-Owned subscription net additions were 183,000 compared to 251,000 in the fourth quarter of last year. These numbers represent a decline compared to last year, reflective of the more challenging competitive
environment. However, the fourth quarter results also suggest an improvement in year-over-year trends. In terms of sequential quarter-over-quarter percentage growth, this year represented a significant improvement over last year, showing early
traction from TiVo’s new marketing programs. Separately, as expected, TiVo added 173,000 DIRECTV subscriptions in the quarter, compared to 379,000 in the third quarter of fiscal 2006.
-1-
Tom Rogers, CEO of TiVo, said “This was a steady quarter for TiVo as our subscription base continued to grow, even
in this more competitive environment. During the last six months, we have implemented a number of marketing programs designed to support our long-term goal of driving increased scale in our subscription base. We are starting to see the results of
these programs as the fourth quarter was our best on-line quarter ever through TiVo.com. In addition, virtually all new subscriptions during the quarter signed on for a minimum 1-year period, helping to further reduce our already comparatively low
churn rate.”
“One of the key ways to drive our subscription base is to continue to differentiate TiVo’s service features from those of
generic DVRs, which is an important driving force for us in 2006. Along those lines, we have just introduced a groundbreaking way for parents to supervise television in the home with all the simplicity that the TiVo service has come to be known for.
TiVo has stepped in to solve an age old problem in the children’s television arena with the support of the largest children’s television groups in the country, Common Sense Media and The Parents Television Council.”
“As the pioneer in the DVR market, we continue to blaze the trail by providing our subscribers with unique content and programming features like TiVo
®
KidZone, TiVoToGo, Advertising Search and the Yahoo!
partnerships for TV scheduling, traffic, and photo distribution, which will continue to separate the TiVo service as a best of breed product.”
“In addition, as demonstrated by the Verizon Wireless announcement earlier this week, and a number of device integration initiatives made in the fourth quarter including the updated capability in our TiVoToGo feature to transfer TV
shows to portable devices including the Sony PSP and our work with Intel to seamlessly integrate content from TiVo units with Intel’s Viiv platform. TiVo is demonstrating that it is a central point of integration in the home with other digital
devices and services,” concluded Rogers.
Fourth Quarter Highlights
TiVo announces pricing change
Concurrent with this earnings release, TiVo announced new, simplified pricing
structures that make it easier for consumers to add TiVo to their home entertainment options. TiVo developed the new pricing structure after completing several months of market research among new and existing TiVo subscriptions and extensively
testing the pricing options in the marketplace.
For the first-time ever, through TiVo’s direct sales channel, customers will be able to bundle
together the purchase of their TiVo 80-hour Series2 box and TiVo service at an all-in-one price, based on a one-, two- or three year commitment at $19.95 a month or $224 prepaid, $18.95 a month or $369 prepaid, and $16.95 a month or $469 prepaid,
respectively. The changes to the pricing structure will launch next week and will not affect TiVo’s current subscription base.
As part of the
announcement, TiVo is also announcing an update to its service-only options, providing consumers that purchase a TiVo unit at a retail outlet with the option to purchase their TiVo service based on one-, two- or three-year commitments upfront. The
lifetime service agreement option will be eliminated.
TiVo announces distribution agreement with RadioShack
TiVo is pleased to announce RadioShack as a new distribution partner. RadioShack’s track record in selling service related products and solutions make them an ideal
partner for TiVo. Their appeal to the family oriented consumer creates a compelling partner to promote TiVo
®
KidZone this year. In addition, TiVo
®
KidZone was an important factor in RadioShack’s decision to distribute TiVo units.
-2-
TiVo and Verizon Wireless partner to take TiVo to mobile phones
TiVo and Verizon Wireless announced earlier this week an agreement that will allow Verizon to debut the new TiVo Mobile, a new downloadable application that lets TiVo
service subscribers schedule recordings on their TiVo device directly from their Get It Now equipped Verizon mobile handset.
TiVo Mobile is a new
innovation that allows TiVo subscribers to schedule DVR recordings and access related entertainment information from the convenience of their mobile handset. Viewers can schedule recordings on the go via a similar user interface that makes TiVo the
best-in-class DVR experience. This service will be launched later this year.
The new TiVo
®
KidZone gives parents powerful combination of expert guidance with unprecedented
control
Last week, TiVo announced plans to enable parents to more easily find and display quality programming for their children that reflects their
family’s values and interests by tackling this problem head-on with the introduction of TiVo
®
KidZone, a groundbreaking solution for the children’s television dilemma.
TiVo KidZone
offers a first-of-its-kind solution, provides parents expert guidance and easy set-up to help them find and choose the television programming that is most appropriate for their family based on the individual needs and values of their household. As
part of this initiative, TiVo is partnering with leading parenting and family groups including Common Sense Media and the Parents Television Council, the two largest grass roots organizations, with 4 million members between them, to create
entire menus of recommended programming automatically provided right to the television set. Moreover, a child is able to use the television set to enjoy these selections and other parent-approved programming, while parents can still use the TiVo
service to automatically record their viewing selections and enjoy their favorites when they are ready to watch. In doing so, TiVo is offering the first real answer to the 50 year-old question of how to create the ideal television environment for
children in their own homes.
TiVo KidZone will be included as part of the standard TiVo
®
service and is scheduled to begin rolling out by mid-year to all new and existing
subscribers with a TiVo
®
Series2™ box.
Management Provides Financial Guidance
For the first
quarter of fiscal 2007, TiVo anticipates service and technology revenues in the range of $48 million to $50 million and a net loss of $(19) million to $(22) million. This expected loss includes the anticipated effects of expensing options, increased
costs resulting from TiVo’s on-going patent litigation, the higher marketing spending driven by the impact of new pricing models announced today, and a potential expense for a change in accounting policy associated with the rollout of these new
pricing models.
This financial guidance is based on information available to management as of March 8, 2006. TiVo expressly disclaims any duty to
update this guidance.
Conference Call, Slide Presentation and Webcast
TiVo will host a conference call and webcast to discuss fourth quarter and fiscal year 2006 financial and operating results and guidance outlook at 2:00 pm PT (5:00 pm ET), today, March 8, 2006. To listen to the
discussion and view the accompanying slides, please visit www.tivo.com/ir and click on the link provided for the webcast or dial 913-981-4910 no password required. The webcast will be archived and available through April 7, 2006 at
www.tivo.com/ir or by calling 719-457-0820 and entering the conference ID number 4914733. The accompanying slides are also available as an exhibit to TiVo’s Current Report on Form 8-K,
Item 2.02, filed March 8, 2006.
About TiVo Inc.
Founded in 1997, TiVo (NASDAQ: TIVO) pioneered a brand new category of products with the development of the first commercially available digital video recorder (DVR). Sold through leading consumer electronic
retailers, TiVo has developed a brand which resonates boldly with consumers as providing a superior television experience. Through agreements with leading satellite and cable providers, TiVo also integrates its full set of DVR service features into
the set-top boxes of mass distributors. TiVo’s DVR functionality and ease of use, with such features as Season Pass™ recordings and WishList
®
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searches, has elevated its popularity among consumers and has created a whole new way for viewers to watch television. With a continued investment in its
patented technologies, TiVo is revolutionizing the way consumers watch and access home entertainment. Rapidly becoming the focal point of the digital living room, TiVo’s DVR is at the center of experiencing new forms of content on the TV, such
as broadband delivered video, music and photos. With innovative features, such as TiVoToGo™ and online scheduling, TiVo is expanding the notion of consumers experiencing “TiVo, TV your way.
®
” The TiVo
®
service is also at the forefront of providing innovative marketing solutions for the television industry, including a
unique platform for advertisers and audience measurement research. The Company is based in Alviso, California.
This release
contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, TiVo’s business, services, financial statements, and future product
strategy. 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 “Factors
That May Affect Future Operating Results” 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, 2005, and the
Quarterly Reports on Form 10-Q for the quarters ended April 30, 2005, July 31, 2005 and October 31, 2005. 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.
-4-
TIVO INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three Months Ended January 31,
Twelve Months Ended January 31,
2006
2005
2006
2005
Service revenues
$
46,305
$
32,996
$
167,194
$
107,166
Technology revenues
663
1,169
3,665
8,310
Service and Technology revenues
46,968
34,165
170,859
115,476
Hardware revenues
32,266
50,452
72,093
111,275
Rebates, revenue share, and other payments to channel
(19,167
)
(25,188
)
(47,027
)
(54,696
)
Net revenues
60,067
59,429
195,925
172,055
Cost of service revenues
10,250
10,426
34,179
29,360
Cost of technology revenues
(121
)
440
782
6,575
Cost of hardware revenues
37,267
52,267
84,216
120,323
Gross margin
12,671
(3,704
)
76,748
15,797
Research and development
10,693
11,206
41,087
37,634
Sales and marketing
10,637
11,529
35,047
37,367
General and administrative
11,769
4,194
38,018
16,593
Loss from operations
(20,428
)
(30,633
)
(37,404
)
(75,797
)
Interest and other income (expense), net
899
(3,006
)
3,070
(3,911
)
Provision for taxes
(13
)
(26
)
(64
)
(134
)
Net loss attributable to common stockholders
$
(19,542
)
$
(33,665
)
$
(34,398
)
$
(79,842
)
Net loss per common share - basic and diluted
$
(0.23
)
$
(0.42
)
$
(0.41
)
$
(0.99
)
Weighted average common shares used to calculate basic and diluted net loss per share
84,643,094
80,792,542
83,682,575
80,263,980
-5-
TIVO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(unaudited)
January 31, 2006
January 31, 2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents, and short-term investments
$
104,213
$
106,345
Accounts receivable
20,111
25,879
Finished goods inventories
10,939
12,103
Prepaid expenses and other, current
11,069
4,476
Total current assets
146,332
148,803
LONG-TERM ASSETS
Property and equipment, net
$
9,448
$
7,780
Capitalized software and intangible assets, net
5,206
2,231
Prepaid expenses and other, long-term
623
1,238
Total long-term assets
15,277
11,249
Total assets
$
161,609
$
160,052
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES
CURRENT LIABILITIES
Bank line of credit
$
—
$
4,500
Accounts payable
24,050
18,736
Accrued liabilities
37,449
33,173
Deferred revenue, current
57,902
42,017
Total current liabilities
119,401
98,426
LONG-TERM LIABILITIES
Deferred revenue, long-term
67,575
63,131
Deferred rent and other
1,404
1,187
Total long-term liabilities
68,979
64,318
Total liabilities
188,380
162,744
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ DEFICIT
Preferred stock, par value $0.001:
—
—
Authorized shares are 10,000,000
—
—
Issued and outstanding shares - none
—
—
Common stock, par value $0.001:
85
82
Authorized shares are 150,000,000
—
—
Issued and outstanding shares are 85,376,191 and 82,280,876, respectively
—
—
Additional paid-in capital
667,055
654,746
Deferred compensation
(2,421
)
(428
)
Accumulated deficit
(691,490
)
(657,092
)
Total stockholders’ deficit
(26,771
)
(2,692
)
Total liabilities and stockholders’ deficit
$
161,609
$
160,052
-6-
TIVO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended
January 31,
Twelve Months Ended
January 31,
2006
2005
2006
2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$
(19,542
)
$
(33,665
)
$
(34,398
)
$
(79,842
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment and intangibles
1,756
1,242
6,345
4,896
Loss on disposal of fixed assets
—
3
2
13
Non-cash interest expense
—
3,438
—
4,854
Recognition of stock-based compensation expense
338
253
386
1,056
Changes in assets and liabilities:
Accounts receivable, net (change includes $1,500 from related parties for the year ended January 31, 2005)
9,481
(721
)
5,768
(13,748
)
Finished goods inventories
10,243
24,331
1,164
(3,537
)
Prepaid expenses and other, current (change includes $2,832 to related parties for the year ended January 31, 2005)
(3,050
)
267
(6,593
)
157
Prepaid expenses and other, long-term (change includes $3,268 to related parties for the year ended January 31, 2005)
129
476
615
2,641
Accounts payable
(10,797
)
(6,407
)
5,314
3,708
Accrued liabilities (change includes $(880) to related parties for the year ended January 31, 2005)
6,903
8,419
4,276
17,354
Deferred revenue, current (change includes $(1,814) from related parties for the year ended January 31, 2005)
10,536
6,732
15,885
7,765
Deferred revenue, long-term
9,180
12,958
4,444
17,096
Deferred rent and other long-term liabilities
510
461
217
373
Net cash used in operating activities
$
15,687
$
17,787
$
3,425
$
(37,214
)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments
(10,127
)
(3,400
)
(15,502
)
(23,150
)
Sales of short-term investments
5,062
2,025
15,687
9,075
Acquisition of property and equipment
(3,178
)
(423
)
(7,075
)
(3,924
)
Acquisition of capitalized software and intangibles
—
(100
)
(3,915
)
(100
)
Net cash used in investing activities
$
(8,243
)
$
(1,898
)
$
(10,805
)
$
(18,099
)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under bank line of credit
—
4,500
3,500
4,500
Payments to bank line of credit
—
—
(8,000
)
—
Payment of redemption of convertible notes payable
—
(4,250
)
—
(4,250
)
Proceeds from issuance of common stock related to employee stock purchase plan
680
—
2,922
2,409
Proceeds from issuance of common stock related to exercise of common stock options
568
299
7,011
1,689
Net cash provided by financing activities
$
1,248
$
549
$
5,433
$
4,348
NET DECREASE IN CASH AND CASH EQUIVALENTS
$
8,692
$
16,438
$
(1,947
)
$
(50,965
)
-7-
TIVO INC.
OTHER DATA
Subscriptions
Three Months Ended
January 31,
Twelve Months Ended
January 31,
(Subscriptions in thousands)
2006
2005
2006
2005
TiVo-Owned Subscription Gross Additions
221
276
494
555
Subscription Net Additions:
TiVo-Owned
183
251
350
485
DIRECTV
173
447
1,013
1,184
Total Subscription Net Additions
356
698
1,363
1,669
Cumulative Subscriptions:
TiVo-Owned
1,491
1,141
1,491
1,141
DIRECTV
2,873
1,860
2,873
1,860
Total Cumulative Subscriptions
4,364
3,001
4,364
3,001
% of TiVo-Owned Cumulative Subscriptions paying recurring fees
51
%
50
%
51
%
50
%
Included in the 4,364,000 subscriptions are approximately 100,000 lifetime subscriptions that have reached the end
of the 48-month period TiVo uses to recognize lifetime subscription revenue. These lifetime subscriptions no longer generate subscription revenue.
TIVO INC.
OTHER DATA - KEY BUSINESS METRICS
Three Months Ended
January 31,
Twelve Months Ended
January 31,
TiVo-Owned Churn Rate
2006
2005
2006
2005
(In thousands)
Average TiVo-Owned subscriptions
1,388
995
1,269
819
TiVo-Owned subscription cancellations
(38
)
(25
)
(144
)
(69
)
Number of Months
3
3
12
12
TiVo-Owned Churn Rate per month
-0.9
%
-0.8
%
-0.9
%
-0.7
%
TiVo-Owned Churn Rate
.
Management reviews this metric, and believes it may be useful to investors,
in order to evaluate our ability to retain existing subscribers by providing compelling services that are competitive in the market. We define the TiVo-Owned Churn Rate as the TiVo-Owned subscription (including both monthly and product lifetime
subscriptions) cancellations per month in the period divided by the average TiVo-Owned subscriptions for the period. We calculate average subscriptions by adding the average subscriptions for each month and dividing by the number of months in the
period. We calculate average 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.
-8-
Three Months Ended
January 31,
Twelve Months Ended
January 31,
Subscription Acquisition Costs
2006
2005
2006
2005
(In thousands, except SAC)
Sales and marketing expenses
$
10,637
$
11,529
$
35,047
$
37,367
Rebates, revenue share, and other payments to channel
19,167
25,188
47,027
54,696
Hardware revenues
(32,266
)
(50,452
)
(72,093
)
(111,275
)
Cost of hardware revenues
37,267
52,267
84,216
120,323
Total Acquisition Costs
34,805
38,532
94,197
101,111
TiVo-Owned Subscription Gross Additions
221
276
494
555
Subscription Acquisition Costs (SAC)
$
157
$
140
$
191
$
182
Subscription Acquisition Cost (“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 acquisition costs divided by TiVo-Owned subscription gross additions.
We define total acquisition costs as the sum of sales and marketing expenses, rebates, revenue share, and other payments to channel, minus hardware gross margin (defined as hardware revenues less cost of hardware revenues). As a result of the
seasonal nature of our subscription growth, our SAC varies significantly during the year. Management primarily reviews this metric on an annual basis due to the timing difference between our recognition of promotional program expense and the
subsequent addition of the related subscription acquisition. Accordingly, we are presenting SAC on a trailing twelve months basis as well in order to show SAC over the longer-term. We do not include DIRECTV subscription gross additions in our
calculation of SAC because we incur limited or no acquisition costs for new DIRECTV subscriptions. 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
January 31,
Twelve Months Ended
January 31,
TiVo-Owned Average Revenue per Subscription
2006
2005
2006
2005
(In thousands, except ARPU)
Service and Technology revenues
$
46,968
$
34,165
$
170,859
$
115,476
Less: Technology revenues
(663
)
(1,169
)
(3,665
)
(8,310
)
Total Service revenues
46,305
32,996
167,194
107,166
Less: DIRECTV-related service revenues
(9,602
)
(6,762
)
(32,788
)
(21,071
)
TiVo-Owned-related service revenues
36,703
26,234
134,406
86,095
Average TiVo-Owned revenues per month
12,234
8,745
11,201
7,175
Average TiVo-Owned per month subscriptions
1,388
995
1,269
819
TiVo-Owned ARPU per month
$
8.82
$
8.79
$
8.83
$
8.76
Three Months Ended
January 31,
Twelve Months Ended
January 31
DIRECTV Average Revenue per Subscription
2006
2005
2006
2005
(In thousands, except ARPU)
Service and Technology revenues
$
46,968
$
34,165
$
170,859
$
115,476
Less: Technology revenues
(663
)
(1,169
)
(3,665
)
(8,310
)
Total Service revenues
46,305
32,996
167,194
107,166
Less: TiVo-Owned-related service revenues
(36,703
)
(26,234
)
(134,406
)
(86,095
)
DIRECTV-related service revenues
9,602
6,762
32,788
21,071
Average DIRECTV revenues per month
3,201
2,254
2,732
1,756
Average DIRECTV per month subscriptions
2,818
1,622
2,376
1,154
DIRECTV ARPU per month
$
1.14
$
1.39
$
1.15
$
1.52
-9-
Average Revenue Per Subscription (“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 measurement research. ARPU does not include
rebates, revenue share and other payments to channel that reduce our GAAP revenues, and, as a result, 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 nature of these expenses and because management believes these expenses 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 DIRECTV-related service revenues (which includes DIRECTV subscription service revenues and DIRECTV-related advertising revenues) from our total
reported service revenues and dividing 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 decrease in ARPU per month for DIRECTV is the result of the large addition of new DIRECTV subscriptions. While these more recent DIRECTV subscription
additions offer lower recurring revenues than subscriptions added during earlier phases of our DIRECTV relationship, they result in more attractive percent margins in our financial results because they generally involve limited or no acquisition
costs and lower recurring expenses.
We calculate ARPU per month for DIRECTV 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 DIRECTV-related service revenues by average
subscriptions for the period.
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