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Rovi Corporation Reports Second Quarter Financial Performance

Company Release - 8/2/2012 4:05 PM ET

SANTA CLARA, Calif., Aug. 2, 2012 (GLOBE NEWSWIRE) -- Rovi Corporation (Nasdaq:ROVI) today reported financial results for the second quarter ended June 30, 2012. The Company reported GAAP revenues of $158.3 million, compared to $179.0 million for the second quarter of 2011. GAAP net loss was $18.5 million, compared to $10.7 million for the second quarter of 2011.

On a non-GAAP Adjusted Pro Forma basis, revenue for the second quarter 2012 was $158.3 million, compared to $179.0 million for the second quarter of 2011. Adjusted Pro Forma Income was $39.8 million in the second quarter of 2012 compared to $69.0 million in the second quarter of 2011. Adjusted Pro Forma Income Per Common Share for the second quarter of 2012 was $0.37, compared to $0.60 for the second quarter of 2011. Adjusted Pro Forma Revenue, Income and Income Per Common Share are defined below, in the section entitled Non-GAAP or Adjusted Pro Forma Information.  Reconciliations between GAAP pro forma and Adjusted Pro Forma results from operations are provided in the tables below.

The financial results reported today by Rovi Corporation, both on a GAAP and non-GAAP Adjusted Pro Forma basis, were in line with the preliminary second quarter financial results provided in the Company's press release on July 17, 2012.

Rovi also reported that it repurchased approximately 2.1 million shares of its common stock during the second quarter for approximately $50 million. The Company anticipates remaining active in executing against its repurchase authorization.

The Company will host a conference call today, August 2, 2012, at 5:00 p.m. ET to discuss the financial results. Investors and analysts interested in participating in the conference are welcome to call 877-941-0843 (or international +1 480-629-9866) and reference the Rovi call.  The conference call can also be accessed via live webcast in the Investor Relations section of Rovi's website at http://www.rovicorp.com/.

A replay of the conference call will be available through November 2, 2012 and can be accessed by calling 800-406-7325 (or international +1 303-590-3030) and entering passcode 4550842#.  A replay of the audio webcast will be available on Rovi Corporation's website approximately 1-2 hours after the live webcast ends and will remain on Rovi Corporation's website until our next quarterly earnings call.

Non-GAAP or Adjusted Pro Forma Information

Rovi Corporation provides non-GAAP Adjusted Pro Forma information. References to Adjusted Pro Forma information are references to non-GAAP pro forma measures. The Company provides Adjusted Pro Forma information to assist investors in assessing its current and future operations in the way that its management evaluates those operations. Adjusted Pro Forma Revenue, Adjusted Pro Forma Income and Adjusted Pro Forma Income Per Common Share are supplemental measures of the Company's performance that are not required by, and are not presented in accordance with GAAP. Adjusted Pro Forma information is not a substitute for any performance measure derived in accordance with GAAP, including, but not limited to, GAAP pro forma information prepared in accordance with ASC 805, Business Combinations.

Adjusted Pro Forma and GAAP pro forma measures assume the Sonic Solutions business combination and the Roxio software business disposition both occurred on January 1, 2010. Adjusted Pro Forma Income is defined as GAAP pro forma income (loss) from continuing operations, net of tax, adding back non-cash items such as equity-based compensation, amortization of intangibles, amortization or write-off of note issuance costs, non-cash interest expense recorded on convertible debt under Accounting Standards Codification ("ASC") 470-20 (formerly known as FSP APB 14-1), mark-to-market fair value adjustments for interest rate swaps, caps and foreign currency collars and the reversals of discrete tax items including reserves; as well as items which impact comparability that are required to be recorded under GAAP, but that the Company believes are not indicative of its core operating results such as transaction, transition and integration costs, restructuring and asset impairment charges, payments to note holders and for expenses in connection with the early redemption or modification of debt and gains on sale of strategic investments. While depreciation expense is a non-cash item, it is included in Adjusted Pro Forma Income as a reasonable proxy for capital expenditures.

Adjusted Pro Forma Income Per Common Share is calculated using Adjusted Pro Forma Income and taking into account the benefit of the convertible debt call option when it allows the Company to purchase shares of its own stock at a price below what those shares could be purchased for in the open market.

The Company's management has evaluated and made operating decisions about its business operations primarily based upon Adjusted Pro Forma Revenue, Adjusted Pro Forma Income and Adjusted Pro Forma Income Per Common Share. Management uses Adjusted Pro Forma Income and Adjusted Pro Forma Income Per Common Share as measures as they exclude items management does not consider to be "core costs" or "core proceeds" when making business decisions. Therefore, management presents these Adjusted Pro Forma financial measures along with GAAP measures.  For each such Adjusted Pro Forma financial measure, the adjustment provides management with information about the Company's underlying operating performance that enables a more meaningful comparison of its financial results in different reporting periods. For example, since Rovi Corporation does not acquire businesses on a predictable cycle, management excludes amortization of intangibles from acquisitions, transaction costs and transition and integration costs in order to make more consistent and meaningful evaluations of the Company's operating expenses. Management also excludes the effect of restructuring and asset impairment charges, expenses in connection with the early redemption or modification of debt and gains on sale of strategic investments.  Management excludes the impact of equity-based compensation to help it compare current period operating expenses against the operating expenses for prior periods and to eliminate the effects of this non-cash item, which, because it is based upon estimates on the grant dates, may bear little resemblance to the actual values realized upon the future exercise, expiration, termination or forfeiture of the equity-based compensation, and which, as it relates to stock options and stock purchase plan shares, is required for GAAP purposes to be estimated under valuation models, including the Black-Scholes model used by Rovi Corporation.  Management excludes non-cash interest expense recorded on convertible debt under ASC 470-20, mark-to-market fair value adjustments for interest rate swaps, caps, foreign currency collars, and the reversals of discrete tax items including reserves as they are non-cash items and not considered "core costs" or meaningful when management evaluates the Company's operating expenses.  Management reclassifies the current period benefit or cost of the interest rate swaps from gain or loss on interest rate swaps and caps, net to interest expense in order for interest expense to reflect the swap rates, as these instruments were entered into to control the interest rate the Company effectively pays on its convertible debt.  Management includes the benefit of the convertible debt call option, which allows the Company to purchase shares of its own stock at approximately $28.28, and is excluded from GAAP EPS calculation as it is anti-dilutive, because the pragmatic reality is management would exercise this option rather than allow this dilution to occur.  This convertible debt call option was exercised in August 2011.

Management is using these Adjusted Pro Forma measures to help it make budgeting decisions, including decisions that affect operating expenses and operating margin.  Further, Adjusted Pro Forma financial information helps management track actual performance relative to financial targets.  Making Adjusted Pro Forma financial information available to investors, in addition to GAAP financial information, may also help investors compare the Company's performance with the performance of other companies in our industry, which may use similar financial measures to supplement their GAAP financial information.

Management recognizes that the use of Adjusted Pro Forma measures has limitations, including the fact that management must exercise judgment in determining which types of charges should be excluded from the Adjusted Pro Forma financial information.  Because other companies, including companies similar to Rovi Corporation, may calculate their non-GAAP financial measures differently than the Company calculates its Adjusted Pro Forma measures, these Non-GAAP measures may have limited usefulness in comparing companies.  Management believes, however, that providing Adjusted Pro Forma financial information, in addition to GAAP financial information, facilitates consistent comparison of the Company's financial performance over time. The Company provides Adjusted Pro Forma financial information to the investment community, not as an alternative, but as an important supplement to GAAP financial information; to enable investors to evaluate the Company's core operating performance in the same way that management does. Reconciliations between historical pro forma and Adjusted Pro Forma results of operations are provided in the tables below.

About Rovi Corporation

Rovi Corporation is focused on revolutionizing the digital entertainment landscape by delivering solutions that enable consumers to intuitively connect to new entertainment from many sources and locations. The company also provides extensive entertainment discovery solutions for television, movies, music and photos to its customers in the consumer electronics, cable and satellite, entertainment and online distribution markets. These solutions, complemented by industry leading entertainment data, create the connections between people and technology, and enable them to discover and manage entertainment in an enjoyable form.

Rovi holds over 5,200 issued or pending patents worldwide and is headquartered in Santa Clara, California, with numerous offices across the United States and around the world including Japan, China, Luxembourg, and the United Kingdom. More information about Rovi can be found at www.rovicorp.com.

The Rovi Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6482

All statements contained herein that are not statements of historical fact, including statements that use the words "will," "believes," "anticipates," "estimates," "expects," "intends" or "looking to the future" or similar words that describe the Company's or its management's future plans, objectives, or goals, are "forward-looking statements" and are made pursuant to the Safe-Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, the Company's estimates of future revenues and earnings, business strategies, and future opportunities for product, market or customer expansion.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to be materially different from the historical results and/or from any future results or outcomes expressed or implied by such forward-looking statements. Such factors include, among others, the Company's ability to successfully execute on its strategic plan and customer demand for and industry acceptance of the Company's technologies and integrated solutions. Such factors are further addressed in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2012 and such other documents as are filed with the Securities and Exchange Commission from time to time (available at www.sec.gov). The Company assumes no obligation, except as required by law, to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.

ROVI CORPORATION
GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
         
  Three Months Ended Six Months Ended
  June 30, June 30,
  2012 2011 2012 2011
Revenues  $ 158,317  $ 178,976  $ 333,308  $ 331,717
Costs and expenses:        
Cost of revenues 31,436 26,482 61,223 49,218
Research and development 42,275 41,810 86,726 72,992
Selling, general and administrative 43,195 49,865 86,755 94,122
Depreciation 5,728 5,074 11,126 9,733
Amortization of intangible assets 27,878 28,754 55,477 52,778
Restructuring and asset impairment charges 14,838 1,372 16,920
Total costs and expenses 150,512 166,823 302,679 295,763
Operating income from continuing operations 7,805 12,153 30,629 35,954
Interest expense  (16,405)  (14,178)  (28,553)  (27,164)
Interest income and other, net 187 1,122 1,797 3,106
Debt modification expense  (32)  (4,496)
Loss on interest rate swaps and caps, net  (6,308)  (697)  (6,412)  (612)
Loss on debt redemption  (348)  (1,758)  (9,418)
(Loss) income from continuing operations before income taxes  (14,753)  (1,948)  (8,793) 1,866
Income tax expense (benefit) 1,863 4,991 6,435  (9,401)
(Loss) income from continuing operations, net of tax  (16,616)  (6,939)  (15,228) 11,267
Discontinued operations, net of tax  (1,933)  (3,789)  (7,930)  (4,960)
Net (loss) income  $ (18,549)  $ (10,728)  $ (23,158)  $ 6,307
         
Basic earnings per share:        
Basic (loss) income per share from continuing operations  $ (0.16)  $ (0.06)  $ (0.14)  $ 0.10
Basic loss per share from discontinued operations  (0.01)  (0.04)  (0.08)  (0.04)
Basic net (loss) income per share  $ (0.17)  $ (0.10)  $ (0.22) $ 0.06
Shares used in computing basic net earnings per share 107,035 110,992 107,284 109,673
         
Diluted earnings per share:        
Diluted (loss) income per share from continuing operations  $ (0.16)  $ (0.06)  $ (0.14)  $ 0.09
Diluted loss per share from discontinued operations  (0.01)  (0.04)  (0.08)  (0.04)
Diluted net (loss) income per share  $ (0.17)  $ (0.10)  $ (0.22)  $ 0.05
Shares used in computing diluted net earnings per share 107,035 110,992 107,284 116,133
         
See notes to the GAAP Consolidated Financial Statements in our Form 10-Q.
 
ROVI CORPORATION
GAAP CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
     
  June 30, 2012 December 31, 2011
Current assets:    
Cash and cash equivalents  $ 414,201  $ 136,780
Short-term investments 458,967 283,433
Trade accounts receivable, net 125,307 126,752
Taxes receivable 7,779 2,976
Deferred tax assets, net 17,467 32,152
Prepaid expenses and other current assets 39,538 15,056
Assets held for sale 20,344
Total current assets 1,063,259 617,493
Long-term marketable investment securities 78,450 65,267
Property and equipment, net 42,846 43,203
Finite-lived intangible assets, net 766,900 815,049
Other assets 30,643 41,610
Goodwill 1,377,849 1,364,145
Total assets  $ 3,359,947  $ 2,946,767
     
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:    
Accounts payable and accrued expenses  $ 90,836  $ 107,037
Deferred revenue 17,042 16,460
Current portion of long-term debt 39,100 25,500
Liabilities held for sale 5,445
Total current liabilities 146,978 154,442
Taxes payable, less current portion 66,663 63,980
Long-term debt, less current portion 1,437,343 969,598
Deferred revenue, less current portion 2,631 4,041
Long-term deferred tax liabilities, net 27,395 36,267
Other non current liabilities 23,337 25,687
Total liabilities 1,704,347 1,254,015
Stockholders' equity:    
Common stock 124 123
Treasury stock  (544,550)  (482,479)
Additional paid-in capital 2,163,088 2,114,402
Accumulated other comprehensive loss  (923)  (313)
Retained earnings 37,861 61,019
Total stockholders' equity 1,655,600 1,692,752
Total liabilities and stockholders' equity  $ 3,359,947  $ 2,946,767
     
See notes to the GAAP Consolidated Financial Statements in our Form 10-Q.
 
ROVI CORPORATION
ADJUSTED PRO FORMA RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
  Three Months Ended Three Months Ended
  June 30, 2012 June 30, 2011
  GAAP   Adjusted GAAP   Adjusted
  Pro Forma (1) Adjustments Pro Forma Pro Forma (1) Adjustments Pro Forma
Revenues:            
Service providers  $ 77,607 $ —  $ 77,607  $ 74,449 $ —  $ 74,449
CE manufacturers 64,841 64,841 85,607 85,607
Other 15,869 15,869 18,920 18,920
Total revenues 158,317 158,317 178,976 178,976
Costs and expenses:            
Cost of revenues (2) 31,436  (1,364) 30,072 26,482  (1,343) 25,139
Research and development (3) 42,275  (7,223) 35,052 41,810  (8,099) 33,711
Selling, general and administrative (4) 43,195  (9,470) 33,725 49,865  (14,937) 34,928
Depreciation (5) 5,728 5,728 5,074 5,074
Amortization of intangible assets 27,878  (27,878) 28,804  (28,804)
Restructuring and asset impairment charges 14,838  (14,838)
Total costs and expenses 150,512  (45,935) 104,577 166,873 (68,021) 98,852
Operating income from continuing operations 7,805 45,935 53,740 12,103  68,021 80,124
Interest expense (6)  (16,405) 6,241  (10,164)  (14,178) 7,933 (6,245)
Interest income and other, net 187 187 1,122 1,122
Debt modification expense  (32) 32
Loss on interest rate swaps and caps, net (7)  (6,308) 6,308  (697) 697
Loss on debt redemption  (348) 348
(Loss) income from continuing operations before income taxes  (14,753) 58,516 43,763  (1,998) 76,999 75,001
Income tax expense (8) 1,863 2,076 3,939 4,990 1,010 6,000
(Loss) income from continuing operations, net of tax  $ (16,616)  $ 56,440  $ 39,824  $ (6,988)  $ 75,989  $ 69,001
Diluted (loss) income per share from continuing operations  $ (0.16)    $ 0.37  $ (0.06)    $ 0.60
Shares used in computing diluted net earnings per share (9) 107,035 433 107,468 110,992 4,031 115,023
             
(1) GAAP Pro Forma financial information for the 2012 period is the same as our GAAP results; no adjustments have been made to the GAAP results since they are comparative with prior quarter's pro forma results. GAAP Pro Forma financial information for the 2011 period has been prepared in accordance with ASC 805, Business Combinations, and assumes the acquisition of Sonic and sale of Roxio Consumer Software business had occurred on January 1, 2010.
(2) Adjustments to cost of revenues consist of the following:            
    June 30, 2012 June 30, 2011      
Equity based compensation    $ (1,364)  $ (870)      
Transition and integration costs     (473)      
Total adjustment    $ (1,364)  $ (1,343)      
(3) Adjustments to research and development consist of the following:            
    June 30, 2012 June 30, 2011      
Equity based compensation    $ (7,223)  $ (5,453)      
Transition and integration costs     (2,646)      
Total adjustment    $ (7,223)  $ (8,099)      
(4) Adjustments to selling, general and administrative consist of the following:            
    June 30, 2012 June 30, 2011      
Equity based compensation    $ (9,470)  $ (9,286)      
Transition and integration costs     (5,651)      
Total adjustment    $ (9,470)  $ (14,937)      
(5) While depreciation is a non-cash item, it is included in Adjusted Pro Forma Income From Continuing Operations as management considers it a proxy for capital expenditures.
(6) Adjustments eliminate non-cash interest expense such as amortization of note issuance costs and the convertible note discount recorded under ASC 470-20 (formerly known as FSP APB 14-1) and reclass to include the impact of interest rate swaps on interest expense.
(7) Adjustment eliminates non-cash mark-to-market gain or loss related to interest rate swaps and caps and reclassifies the current period benefit from the interest rate swap to interest expense.
(8) Adjusts tax expense to the adjusted pro forma cash tax rate.
(9) Since the adjustments resulted in Adjusted Pro Forma Net Income, shares used in computing diluted net earnings per share were adjusted to include dilutive common equivalent shares outstanding.
 
ROVI CORPORATION
ADJUSTED PRO FORMA RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
  Six Months Ended Six Months Ended
  June 30, 2012 June 30, 2011
  GAAP   Adjusted GAAP   Adjusted
  Pro Forma (1) Adjustments Pro Forma Pro Forma (1) Adjustments Pro Forma
Revenues:            
Service providers  $ 156,961 $ —  $ 156,961  $ 147,292 $ —  $ 147,292
CE manufacturers 140,510 140,510 168,487 168,487
Other 35,837 35,837 40,827 40,827
Total revenues 333,308 333,308 356,606 356,606
Costs and expenses:            
Cost of revenues (2) 61,223  (2,696) 58,527 52,232  (2,015) 50,217
Research and development (3) 86,726  (13,841) 72,885 78,635  (13,487) 65,148
Selling, general and administrative (4) 86,755  (19,694) 67,061 102,114  (27,558) 74,556
Depreciation (5) 11,126 11,126 9,974 9,974
Amortization of intangible assets 55,477  (55,477) 56,721  (56,721)
Restructuring and asset impairment charges 1,372  (1,372) 16,920  (16,920)
Total costs and expenses 302,679  (93,080) 209,599 316,596  (116,701) 199,895
Operating income from continuing operations 30,629 93,080 123,709 40,010 116,701 156,711
Interest expense (6)  (28,553) 12,430 (16,123)  (27,156) 16,865  (10,291)
Interest income and other, net 1,797 1,797 2,920 2,920
Debt modification expense  (4,496) 4,496
Loss on interest rate swaps and caps, net (7)  (6,412) 6,412  (612) 612
Loss on debt redemption  (1,758) 1,758  (9,418) 9,418
(Loss) income from continuing operations before income taxes  (8,793) 118,176 109,383 5,744 143,596 149,340
Income tax expense (8) 6,435 2,097 8,532 14,500  (2,553) 11,947
(Loss) income from continuing operations, net of tax  $ (15,228)  $ 116,079  $ 100,851  $ (8,756)  $ 146,149  $ 137,393
Diluted (loss) income per share from continuing operations  $ (0.14)    $ 0.93  $ (0.08)    $ 1.18
Shares used in computing diluted net earnings per share (9) 107,284 585 107,869 111,204 4,824 116,028
             
(1) GAAP Pro Forma financial information for the 2012 period is the same as our GAAP results; no adjustments have been made to the GAAP results since they are comparative with prior quarter's pro forma results. GAAP Pro Forma financial information for the 2011 period has been prepared in accordance with ASC 805, Business Combinations, and assumes the acquisition of Sonic and sale of Roxio Consumer Software business had occurred on January 1, 2010.
(2) Adjustments to cost of revenues consist of the following:            
    June 30, 2012 June 30, 2011      
Equity based compensation    $ (2,696)  $ (1,511)      
Transition and integration costs    (504)      
Total adjustment    $ (2,696)  $ (2,015)      
(3) Adjustments to research and development consist of the following:            
    June 30, 2012 June 30, 2011      
Equity based compensation    $ (13,841)  $ (9,694)      
Transition and integration costs    (3,793)      
Total adjustment    $ (13,841)  $ (13,487)      
(4) Adjustments to selling, general and administrative consist of the following:            
    June 30, 2012 June 30, 2011      
Equity based compensation    $ (19,694)  $ (17,705)      
Transition and integration costs    (9,853)      
Total adjustment    $ (19,694)  $ (27,558)      
(5) While depreciation is a non-cash item, it is included in Adjusted Pro Forma Income From Continuing Operations as management considers it a proxy for capital expenditures.
(6) Adjustments eliminate non-cash interest expense such as amortization of note issuance costs and the convertible note discount recorded under ASC 470-20 (formerly known as FSP APB 14-1) and reclass to include the impact of interest rate swaps on interest expense.
(7) Adjustment eliminates non-cash mark-to-market gain or loss related to interest rate swaps and caps and reclassifies the current period benefit from the interest rate swap to interest expense.
(8) Adjusts tax expense to the adjusted pro forma cash tax rate.
(9) Since the adjustments resulted in Adjusted Pro Forma Net Income, shares used in computing diluted net earnings per share were adjusted to include dilutive common equivalent shares outstanding.
CONTACT: Investor Contact:

         Peter Halt
         Rovi Corporation
         +1 (818) 295-6800

         Chris Keller
         Rovi Corporation
         +1 (408) 562-8400

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Source: Rovi Corporation