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Rovi Corporation Reports First Quarter Financial Performance

Company Release - 5/6/2010 4:05 PM ET

SANTA CLARA, Calif., May 6, 2010 (GLOBE NEWSWIRE) -- Rovi Corporation (Nasdaq:ROVI) announced today, first quarter 2010 revenues of $130.1 million, compared to $111.2 million for the first quarter of 2009. First quarter 2010 GAAP net income was $68.1 million, compared to a net loss of $41.5 million for the first quarter of 2009. First quarter 2010 earnings included an income tax benefit of $108.5 million. GAAP diluted net income per common share for the quarter was $0.64, compared to a loss per common share of $0.41 for the first quarter of 2009.

On a non-GAAP Adjusted Pro Forma basis, Adjusted Pro Forma Income was $48.1 million in the first quarter of 2010, compared to $31.2 million in the first quarter of 2009. Adjusted Pro Forma Income Per Common Share for the first quarter of 2010 was $0.45, compared to $0.31 for the first quarter of 2009. Adjusted Pro Forma Income and Adjusted Pro Forma 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.

"We completed another excellent quarter, growing revenue by 17% in Q1 2010 compared to Q1 2009, and with profit measures growing even more than revenue during the same period," said Fred Amoroso, President and CEO of Rovi. "In addition, we achieved a number of important business objectives, including entering into a comprehensive agreement with Comcast, winning initial business for TotalGuide, growing advertising revenues to their highest levels ever, completing the IRS review and receiving confirmation of the $2.4 billion net operating loss and refinancing our debt. We are very pleased with the progress we have made."

"Given the strength of our first quarter performance, we are raising both our 2010 revenue and our Adjusted Pro Forma Income Per Common Share estimates to a range of $510 million to $540 million and $1.85 to $2.05, respectively," added James Budge, Chief Financial Officer.

Non-GAAP or Adjusted Pro Forma Information

Rovi Corporation provides non-GAAP or Adjusted Pro Forma information. References to Adjusted Pro Forma information are non-GAAP pro forma measures. The Company provides Adjusted Pro Forma financial 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. The Adjusted Pro Forma information does not substitute for any performance measure derived in accordance with GAAP, including, but not limited to, GAAP basis pro forma information. 

Adjusted Pro Forma Income is defined as 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 ASC 470-20 (formerly known as FSP APB 14-1), mark-to-market fair value adjustments for interest rate swaps and caps, 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 of debt, court awarded fees, loss on exiting the Guideworks Joint Venture, and expenses related to certain Gemstar pre-acquisition indemnification matters in excess of reserves established in purchase accounting. While depreciation expense is a non-cash item, it is included in Adjusted Pro Forma Income as a reasonable proxy for capital expenditures.

Management has been using Adjusted Pro Forma measures since the acquisition of Gemstar-TV Guide International ("Gemstar"). Management did so, in part, because it believes that including Gemstar's operating results only for the period since its acquisition on May 2, 2008 diminishes the comparative value of results from the prior year. Adjusted Pro Forma financial information assumes all acquisitions and divestitures prior to March 31, 2009 (including the Gemstar acquisition and the Software, Games, eMeta, TV Guide Magazine, TVG Network, TV Guide Network and TV Guide Online divestures), as well as any discontinued operations and product lines were effective on January 1, 2007. Additionally, the TVG Network, TV Guide Network and TV Guide Online businesses are assumed to have been sold for aggregate proceeds of $275 million which is assumed to have reduced the debt issued in conjunction with the acquisition of Gemstar.  

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 evaluates and makes 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, insurance settlements, losses on debt redemption, court awarded fees, the loss on exiting the Guideworks Joint Venture, expenses related to certain Gemstar pre-acquisition indemnification matters in excess of reserves established in purchase accounting and gains on sale of strategic investments for the same reason. Management excludes discontinued product lines as it believes this exclusion is as meaningful for comparability purposes as excluding the results from a business that meets the criteria to be classified as discontinued operations on a GAAP basis. 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 and caps, 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 of the interest rate swaps from other income or expense to interest expense in order for interest expense to reflect the swap rates, as these instruments were entered into to convert, from fixed to floating, the interest rate the Company pays on its convertible debt.  Management includes the benefit of the convertible debt call option, which allows the Company to purchase up to 6.6 million 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.

Management uses 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 Adjusted Pro Forma measures may have limited usefulness in comparing companies. Management believes, however, that providing this Adjusted Pro Forma financial information, in addition to the GAAP financial information, facilitates consistent comparison of the Company's financial performance over time. The Company has provided 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 pro forma and Adjusted Pro Forma results of operations are provided in the tables below.

Dial-in Information

Rovi Corporation will hold an investor conference call at 4:30 p.m. Eastern time on May 6, 2010. Investors and analysts interested in participating in the conference are welcome to call 877-941-2333 (or international +1 480-629-9723) and reference the Rovi call.

The conference call can also be accessed via live webcast at www.rovicorp.com on May 6, 2010 at 4:30 p.m. Eastern time. The on-demand audio webcast of the earnings conference call will be made available as soon as practicable after the live webcast ends.

A replay of the conference call will be available through May 10, 2010 and can be accessed by calling 800-406-7325 (or international +1 303-590-3030) and entering passcode 4280079#. 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.

About Rovi Corporation

Rovi Corporation is focused on revolutionizing the digital entertainment landscape by delivering solutions that enable consumers to intuitively discover 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 a leading collection of entertainment data, create the connections between people and technology, and enable them to discover and manage entertainment in an enjoyable form.

Rovi Corporation holds over 4,400 issued or pending patents and patent applications worldwide. It is headquartered in Santa Clara, California, with numerous offices across the United States and around the world including Japan, Hong Kong, Luxembourg, and the United Kingdom. More information about Rovi Corporation 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, including the quotations attributed to Mr. Amoroso and Mr. Budge, 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 March 31, 2010 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
  March 31,
  2010 2009
     
Revenues  $130,053  $111,158
     
Costs and expenses:    
Cost of revenues  41,644  15,170
Research and development  25,929  23,024
Selling, general and administrative  34,125  32,131
Depreciation  4,791  4,549
Amortization  20,582  20,259
Restructuring and asset impairment charges  --   7,971
Total costs and expenses  127,071  103,104
     
Operating income from continuing operations  2,982  8,054
Interest expense  (10,887)  (17,578)
Interest income and other, net  (6,773)  1,455
Loss on debt redemption  (14,313)  -- 
Loss from continuing operations before income taxes  (28,991)  (8,069)
Income tax benefit  (108,520)  (2,724)
Income (loss) from continuing operations, net of tax  79,529  (5,345)
Discontinued operations, net of tax  (11,434)  (36,170)
Net income (loss)  $ 68,095  $ (41,515)
     
Basic income (loss) per share:    
Basic income (loss) per share from continuing operations  $ 0.77  $ (0.05)
Basic loss per share from discontinued operations  $ (0.11)  $ (0.36)
Basic net income (loss) per share  $ 0.66  $ (0.41)
     
Shares used in computing basic net earnings per share  102,560  100,124
     
Diluted income (loss) per share:    
Diluted income (loss) per share from continuing operations  $ 0.74  $ (0.05)
Diluted loss per share from discontinued operations  $ (0.10)  $ (0.36)
Diluted net income (loss) per share  $ 0.64  $ (0.41)
     
Shares used in computing diluted net earnings per share  106,403  100,124
     
See notes to the unaudited GAAP Condensed Consolidated Financial Statements in our Form 10-Q.
 
ROVI CORPORATION
GAAP CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
     
ASSETS
  March 31, December 31,
  2010 2009
Current assets:    
Cash and cash equivalents  $ 243,635  $ 165,410
Short-term investments  111,716  107,362
Restricted cash  36,841  36,838
Trade accounts receivable, net  74,258  71,875
Taxes receivable  136,559  6,363
Deferred tax assets, net  16,913  7,844
Prepaid expenses and other current assets  11,562  10,661
Total current assets  631,484  406,353
Long-term marketable securities  26,161  26,674
Property and equipment, net  39,929  43,124
Finite-lived intangible assets, net  761,524  779,371
Long-term deferred tax assets, net  --  13,691
Other assets  19,495  27,861
Goodwill  856,511  854,065
   $ 2,335,104  $ 2,151,139
     
LIABILITIES AND STOCKHOLDERS' EQUITY
     
Current liabilities:    
Accounts payable and accrued expenses  $ 57,185  $ 81,369
Deferred revenue  15,328  16,536
Current portion of debt  --  18,486
Total current liabilities  72,513  116,391
Taxes payable, less current portion  82,714  80,675
Long-term debt, less current portion  552,648  411,551
Deferred revenue, less current portion  3,972  4,919
Long-term, deferred tax liabilities, net  45,472  --
Other non current liabilities  20,161  17,334
   777,480  630,870
Stockholders' equity:    
Common stock  107  106
Treasury stock  (125,068)  (25,068)
Additional paid-in capital  1,728,272  1,657,888
Accumulated other comprehensive loss  (3,203)  (2,078)
Accumulated deficit  (42,484)  (110,579)
Total stockholders' equity  1,557,624  1,520,269
   $ 2,335,104  $ 2,151,139
     
See notes to the unaudited GAAP Condensed Consolidated Financial Statements in our Form 10-Q.
 
ROVI CORPORATION
ADJUSTED PRO FORMA RECONCILIATION
(IN THOUSANDS)
(UNAUDITED)
  Three Months Ended Three Months Ended
  March 31, 2010 March 31, 2009
  GAAP   Adjusted GAAP   Adjusted 
Revenues: Pro
Forma (9)
Adjustments Pro
Forma
Pro
Forma
Adjustments Pro
Forma
 Service providers  $ 67,399  $ --   $ 67,399  $ 52,433  $ --   $ 52,433
 Consumer electronics
   manufacturers
 48,579  --   48,579  46,486  --   46,486
  Other  14,075  --   14,075  12,239  --   12,239
   130,053  --   130,053  111,158  --   111,158
Costs and expenses:            
 Cost of revenues (1)  41,644  (24,817)  16,827  15,170  (260)  14,910
 Research and development (2)  25,929  (2,145)  23,784  23,024  (1,029)  21,995
 Selling, general and
   administrative (3)
 34,125  (5,960)  28,165  32,131  (4,447)  27,684
 Depreciation (4)  4,791  --   4,791  4,549  --   4,549
 Amortization  20,582  (20,582)  --   20,259  (20,259)  -- 
 Restructuring and asset impairment
   charges
 --   --   --   7,971  (7,971)  -- 
 Total operating expenses  127,071  (53,504)  73,567  103,104  (33,966)  69,138
Operating income from continuing operations  2,982  53,504  56,486  8,054  33,966  42,020
Interest expense (5)  (10,887)  6,911  (3,976)  (12,075)  3,619  (8,456)
Interest income and other, net (6)  (6,773)  7,745  972  1,455  --   1,455
Loss on debt redemption  (14,313)  14,313  --   --   --   -- 
Income from continuing operations before income taxes  (28,991)  82,473  53,482  (2,566)  37,585  35,019
Income tax (benefit) expense (7)  (108,520)  113,868  5,348  (873)  4,725  3,852
Income (loss) from continuing operations, net of tax  $ 79,529  $ (31,395)  $ 48,134  $ (1,693)  $ 32,860  $ 31,167
Diluted income per common share from continuing operations  $ 0.74    $ 0.45  $ (0.02)    $ 0.31
Shares used in computing diluted net income per common share (8)  106,403  (1,101)  105,302  100,124  7  100,131
             
(1) Adjustments to cost of revenues
      consist of the following:
           
    2010 2009      
 Equity based compensation    $ (333)  $ (140)      
 Transition and integration costs    --   (120)      
 Pre-acquisition indemnification 
  expenses
   (24,484)  --       
 Total adjustment    $ (24,817)  $ (260)      
(2) Adjustments to research and
      development consist of 
      the following:
           
    2010 2009      
 Equity based compensation    $ (2,145)  $ (928)      
 Transition and integration costs    --   (101)      
 Total adjustment    $ (2,145)  $ (1,029)      
(3) Adjustments to selling, general and administrative
      consist of the following:
         
    2010 2009      
 Equity based compensation    $ (5,960)  $ (3,585)      
 Transition and integration costs    --   (533)      
 Transaction costs    --   (329)      
 Total adjustment    $ (5,960)  $ (4,447)      
             
(4) 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.
(5) 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.
(6) Adjustment eliminates non-cash mark-to-market loss of $6.8 million related to interest rate swaps and caps, reclassifies the $0.4 million current period benefit from the interest rate swap to interest expense, and eliminates $1.4 million loss related to exiting the Guideworks joint venture.
(7) For the 2010 period, the adjustments eliminate both the discrete income tax benefit due to the release of tax contingency reserves related to the net operating losses of the Company's former TV Guide Magazine business and the expense related to the valuation allowance established against the corresponding deferred tax assets, and adjusts tax expense to the adjusted pro forma cash tax rate. For 2009, adjusts tax expense to the adjusted pro forma tax rate.
(8) For the 2010 period, recognizes the benefit of convertible debt call option, which allows the Company to purchase up to 6.6 million shares of its own stock at approximately $28.28, which is excluded from GAAP EPS calculation as it is anti-dilutive. For the 2009 period, adjust to include dilutive potential common shares as adjustments to pro forma loss from continuing operations resulted in Adjusted Pro Forma Net Income.
(9) GAAP Pro Forma information for the 2010 period is the same as our GAAP results. No adjustments have been made to the GAAP results since they are comparative with prior quarters' pro forma results.
CONTACT:  Rovi Corporation
          Investor Contact:
          James Budge
          Lauren Landfield
          +1 (408) 562-8400

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