Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) May 28, 2008

TIVO INC.

(Exact name of registrant as specified in its charter)

 

Delaware   000-27141   77-0463167
(State or other jurisdiction
of incorporation)
  (Commission
File Number)
  (IRS Employer
Identification No.)

 

2160 Gold Street, Alviso, California   95002
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (408)519-9100

 

 

 

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


ITEM 8.01 OTHER EVENTS.

On May 28, 2008, we announced financial results for our first quarter ended April 30, 2008. Net service revenues for the quarter were $48.4 million in the first quarter of fiscal year 2009, a decrease from the $54.2 million in the same prior year period. Net technology revenues were $6.4 million, which included recognition of Comcast development revenues of $4.0 million. This was an increase of 63%, compared with $3.9 million in the first quarter of fiscal year 2008. The net income for the quarter was $3.6 million or $0.04 per basic and diluted share, compared to a net income of $835,000 or $0.01 per share, for the three months ended April 30, 2007.

As of April 30, 2008 our total subscriptions were approximately 3.8 million. TiVo-Owned subscription gross additions were 48,000 for the quarter, compared to 57,000 in the first quarter fiscal year 2008. TiVo-Owned net subscription losses were 17,000 compared to additions of 1,000 in the first quarter of fiscal year 2008. Our monthly churn rate increased to 1.3% for the quarter ended April 30, 2008 as compared to 1.1% in the year ago period. The installed base of MSO/Broadcasters’ TiVo subscriptions has declined to approximately 2.1 million from 2.6 million a year ago.

TIVO INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share and share amounts)

(unaudited)

 

     Three Months Ended
April 30,
 
     2008     2007  

Revenues

    

Service revenues

   $ 48,443     $ 54,155  

Technology revenues

     6,407       3,932  

Hardware revenues

     5,945       2,293  
                

Net revenues

     60,795       60,380  

Cost of revenues

    

Cost of service revenues (1)

     11,194       10,155  

Cost of technology revenues (1)

     3,920       3,507  

Cost of hardware revenues

     10,344       10,648  
                

Total cost of revenues

     25,458       24,310  
                

Gross margin

     35,337       36,070  
                

Research and development (1)

     14,748       14,245  

Sales and marketing (1)

     5,936       5,303  

Sales and marketing, subscription acquisition costs

     1,159       5,790  

General and administrative (1)

     10,336       11,222  
                

Total operating expenses

     32,179       36,560  
                

Income (loss) from operations

     3,158       (490 )

Interest income

     579       1,416  

Interest expense and other

     (87 )     (83 )
                

Income before income taxes

     3,650       843  

Provision for income taxes

     (13 )     (8 )
                

Net income

   $ 3,637     $ 835  
                

Net income per common share - basic

   $ 0.04     $ 0.01  
                

Net income per common share - diluted

   $ 0.04     $ 0.01  
                

Weighted average common shares used to calculate basic net income per share

     99,386,826       96,829,128  
                

Weighted average common shares used to calculate diluted net income per share

     102,709,583       98,046,685  
                

(1) Includes stock-based compensation expense as follows :

    

Cost of service revenues

   $ 191     $ 157  

Cost of technology revenues

     606       463  

Research and development

     1,982       1,628  

Sales and marketing

     540       476  

General and administrative

     2,158       1,916  

 

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TIVO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(unaudited)

 

     April 30,
2008
    January 31,
2008
 
ASSETS     

CURRENT ASSETS

    

Cash and cash equivalents

   $ 92,800     $ 78,812  

Short-term investments

     1,798       20,294  

Accounts receivable, net of allowance for doubtful accounts of $1,219 and $1,194

     10,427       20,019  

Inventories

     13,889       17,748  

Prepaid expenses and other, current

     3,446       3,792  
                

Total current assets

     122,360       140,665  

LONG-TERM ASSETS

    

Property and equipment, net

     11,330       11,349  

Purchased technology, capitalized software, and intangible assets, net

     12,718       13,522  

Prepaid expenses and other, long-term

     1,793       1,513  

Long-term investments

     4,296       —    
                

Total long-term assets

     30,137       26,384  
                

Total assets

   $ 152,497     $ 167,049  
                
LIABILITIES AND STOCKHOLDERS’ EQUITY     

LIABILITIES

    

CURRENT LIABILITIES

    

Accounts payable

   $ 8,066     $ 23,615  

Accrued liabilities (1)

     23,256       28,834  

Deferred revenue, current

     58,163       59,341  
                

Total current liabilities

     89,485       111,790  

LONG-TERM LIABILITIES

    

Deferred revenue, long-term

     33,950       38,128  

Deferred rent and other

     227       309  
                

Total long-term liabilities

     34,177       38,437  
                

Total liabilities

     123,662       150,227  

COMMITMENTS AND CONTINGENCIES

    

STOCKHOLDERS’ EQUITY

    

Preferred stock, par value $0.001:

    

Authorized shares are 10,000,000;

    

Issued and outstanding shares - none

     —         —    

Common stock, par value $0.001:

    

Authorized shares are 275,000,000;

    

Issued shares are 102,034,090 and 100,098,426, respectively, and outstanding shares are 101,854,510 and 99,970,947, respectively

     102       100  

Additional paid-in capital

     802,186       792,654  

Accumulated deficit (1)

     (771,449 )     (775,086 )

Less: Treasury stock, at cost - 179,580 and 127,479, respectively

     (1,300 )     (846 )

Unrealized gain/loss of marketable securities

     (704 )     —    
                

Total stockholders’ equity

     28,835       16,822  
                

Total liabilities and stockholders’ equity

   $ 152,497     $ 167,049  
                

 

(1)

The consolidated balance sheet as of January 31, 2008 has been revised to reflect the increase of $1,784,000 in accrued liabilities with a corresponding increase in accumulated deficit to correct immaterial errors related to an under accrual of non-income based taxes for fiscal year 2007 and fiscal year 2006.

 

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TIVO INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 

     Three Months Ended
April 30,
 
     2008     2007  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 3,637     $ 835  

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization of property and equipment and intangibles

     2,572       2,620  

Stock-based compensation expense

     5,477       4,640  

Inventory write-down

     1,349       —    

Allowance for doubtful accounts

     25       —    

Changes in assets and liabilities:

    

Accounts receivable

     9,567       2,483  

Inventories

     2,510       19  

Prepaid expenses and other

     66       621  

Accounts payable

     (15,649 )     (22,009 )

Accrued liabilities

     (5,578 )     (6,745 )

Deferred revenue

     (5,356 )     (8,530 )

Deferred rent and other long-term liabilities

     (82 )     (147 )
                

Net cash used in operating activities

   $ (1,462 )   $ (26,213 )
                

CASH FLOWS FROM INVESTING ACTIVITIES

    

Purchases of short-term and long-term investments

     (4 )     (3,037 )

Sales of short-term investments

     13,500       —    

Acquisition of property and equipment

     (1,649 )     (1,160 )

Acquisition of capitalized software and intangibles

     —         (375 )
                

Net cash provided by (used in) investing activities

   $ 11,847     $ (4,572 )
                

CASH FLOWS FROM FINANCING ACTIVITIES

    

Proceeds from issuance of common stock related to exercise of common stock options

     4,057       852  

Treasury Stock - repurchase of stock for tax withholding

     (454 )     (85 )
                

Net cash provided by financing activities

   $ 3,603     $ 767  
                

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

   $ 13,988     $ (30,018 )
                

CASH AND CASH EQUIVALENTS:

    

Balance at beginning of period

     78,812       89,079  
                

Balance at end of period

   $ 92,800     $ 59,061  
                

 

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TIVO INC.

OTHER DATA

Subscriptions

 

      Three Months Ended
April 30,
 

(Subscriptions in thousands)

   2008     2007  

TiVo-Owned Subscription Gross Additions

   48     57  

Subscription Net Additions/(Losses):

    

TiVo-Owned

   (17 )   1  

MSOs/Broadcasters

   (128 )   (103 )
            

Total Subscription Net Additions/(Losses)

   (145 )   (102 )

Cumulative Subscriptions:

    

TiVo-Owned

   1,728     1,727  

MSOs/Broadcasters

   2,073     2,615  
            

Total Cumulative Subscriptions

   3,801     4,342  

% of TiVo-Owned Cumulative Subscriptions paying recurring fees

   61 %   59 %

Included in the 3,801,000 subscriptions are approximately 163,000 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, and Comcast 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, 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, under which consumers may purchase a subscription that is valid for the lifetime of a particular DVR, 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. During the quarter ended April 30, 2006, we discontinued general sale of the product lifetime service option. During the quarter ended January 31, 2008, we began offering product lifetime service subscriptions only to existing customers and during the quarter ended April 30, 2008 we began offerning product lifetime subscriptions to new customers. Effective November 1, 2007, we have extended the period we use to recognize product lifetime subscription revenues from 48 months to 54 months for product lifetime subscriptions acquired on or before October 31, 2007. Additionally, we also increased the amortization period to 60 months for new product lifetime subscriptions acquired on or after November 1, 2007. 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 MSO/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.

 

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TIVO INC.

OTHER DATA - KEY BUSINESS METRICS

 

      Three Months Ended
April 30,
 

TiVo-Owned Churn Rate

   2008     2007  
     (In thousands, except
churn rate per month)
 

Average TiVo-Owned subscriptions

   1,737     1,729  

TiVo-Owned subscription cancellations

   (65 )   (56 )
            

TiVo-Owned Churn Rate per month

   -1.3 %   -1.1 %
            

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 for our low cost product offerings, and 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
April 30,
    Twelve Months Ended
April 30,
 

Subscription Acquisition Costs

   2008     2007     2008     2007  
     (In thousands, except SAC)  

Sales and marketing, subscription acquisition costs

   $ 1,159     $ 5,790     $ 26,419     $ 23,774  

Hardware revenues

   $ (5,945 )   $ (2,293 )   $ (45,450 )   $ (42,162 )

Cost of hardware revenues

   $ 10,344     $ 10,648     $ 91,614     $ 107,714  
                                

Total Acquisition Costs

     5,558       14,145       72,583       89,326  
                                

TiVo-Owned Subscription Gross Additions

     48       57       267       395  

Subscription Acquisition Costs (SAC)

   $ 116     $ 248     $ 272     $ 226  
                                

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 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 hardware revenues (defined as gross hardware revenues less rebates, revenue share and market development funds paid to retailers) plus cost of hardware revenues. The sales and marketing, subscription acquisition costs line item includes advertising

 

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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 incur limited or no acquisition costs for these new 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
April 30,
 

TiVo-Owned Average Revenue per Subscription

   2008     2007  
     (In thousands, except ARPU)  

Total Service revenues

   $ 48,443     $ 54,155  

Less: MSOs/Broadcasters-related service revenues

     (5,699 )     (7,160 )
                

TiVo-Owned-related service revenues

     42,744       46,995  

Average TiVo-Owned revenues per month

     14,248       15,665  

Average TiVo-Owned per month subscriptions

     1,737       1,729  
                

TiVo-Owned ARPU per month

   $ 8.20     $ 9.06  
                
      Three Months Ended
April 30,
 

MSOs/Broadcasters Average Revenue per Subscription

   2008     2007  
     (In thousands, except ARPU)  

Total Service revenues

   $ 48,443     $ 54,155  

Less: TiVo-Owned-related service revenues

     (42,744 )     (46,995 )
                

MSOs/Broadcasters-related service revenues

     5,699       7,160  

Average MSOs/Broadcasters revenues per month

     1,900       2,387  

Average MSOs/Broadcasters per month subscriptions

     2,136       2,668  
                

MSOs/Broadcasters ARPU per month

   $ 0.89     $ 0.89  
                

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. ARPU does not include rebates, revenue share and other payments to channel that reduce our GAAP revenues. 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 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.

 

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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. The decrease in ARPU per month for TiVo-Owned subscriptions during the first quarter ended April 30, 2008 as compared to the prior year period was the result of the recent change in amortization period for product lifetime subscriptions.

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.

Beginning in February 2006, pursuant to the most recent amendment of our agreement with DIRECTV, TiVo began deferring a portion of the DIRECTV subscription fees equal to the fair value of the undelivered development services. Additionally, beginning in February 2007, DIRECTV began paying us a monthly fee for all DIRECTV households with DIRECTV receivers with TiVo service similar to the lower amount paid by DIRECTV for households with DIRECTV receivers with TiVo service deployed since March 15, 2002, subject to a monthly minimum payment by DIRECTV.

Forward-Looking Statements

This report 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 future business and growth strategies, profitability and financial guidance, distribution of the TiVo service domestically with Comcast and Cox and internationally in Australia, Mexico, Canada and Taiwan, growth and innovation in TiVo’s advertising and audience research measurement business, TiVo’s software development for the cable industry, the results of TiVo’s litigation with EchoStar, how TiVo intends to expand its intellectual property, TiVo’s future marketing spend and related activities, 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, the outcome of legal proceedings and claims, 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, 2008 and all subsequent filings. We caution 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.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    TIVO INC.
Date: May 28, 2008     By:   /s/ Cal Hoagland
        Cal Hoagland
        Interim Chief Financial Officer
        (Principal Financial and Accounting Officer)

 

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