Strong Growth in Service Provider and
Consumer Electronics Verticals
Rovi Corporation (NASDAQ:ROVI) today reported financial results
for the second quarter ended June 30, 2014.
The Company reported second quarter revenue of $137.1 million,
an increase of 6.1% compared to $129.2 million in the second
quarter of 2013. The year-over-year increase in revenue was
attributable to growth of 11.5% in the Service Provider and
Consumer Electronics verticals, partially offset by expected
continued declines in the Company’s analog business. Second quarter
2014 GAAP Loss from continuing operations, net of tax, was $2.7
million, compared to $5.7 million Income from continuing
operations, net of tax, for the second quarter of 2013. Second
quarter Diluted loss per share from continuing operations was
$0.03, compared to Diluted income per share from continuing
operations of $0.06 in the second quarter of 2013. After taking
into consideration discontinued operations, the Company reported a
second quarter GAAP Net loss of $2.6 million, compared to a $74.1
million loss for the same quarter of 2013. Second quarter Diluted
loss per share was $0.03, compared to a loss of $0.75 in the second
quarter of 2013.
On a non-GAAP basis, second quarter Adjusted Pro Forma Income
was $39.5 million, compared to $41.6 million in the second quarter
of 2013, and second quarter Adjusted Pro Forma Diluted income per
share was $0.43, compared to $0.42 per share in the second quarter
of 2013.
Adjusted Pro Forma Income and Adjusted Pro Forma Diluted income
per share from continuing operations are defined below in the
section entitled “Non-GAAP or Adjusted Pro Forma Information.”
Reconciliations between GAAP and Adjusted Pro Forma results from
operations are provided in the tables below.
“We delivered solid revenue growth in the quarter as our
Passport guide product was accepted by America Movil for
deployment, we signed new licensing agreements and expanded sales
to existing customers,” said Tom Carson, President and CEO of Rovi.
“We also took a number of actions during the quarter to strengthen
our position for future product growth and licensing renewals,
including re-financing our debt, hiring expertise for our cloud
platform and acquiring a valuable Discovery-related patent
portfolio. We remain very confident in Rovi’s strategy and look
forward to continued progress during the second half of the
year.”
Business Outlook
Rovi now anticipates fiscal year 2014 revenue of between $525
million and $550 million, and fiscal year 2014 Adjusted Pro Forma
Diluted income per share of $1.52 - $1.80.
Conference Call Information
Rovi management will host a conference call today, July 30,
2014, at 2:00 p.m. PT/5:00 p.m. ET to discuss the financial
results. Investors and analysts interested in participating in the
conference are welcome to call 1-866-621-1214 (or international
+1-706-643-4013 and reference the conference ID 73718222. 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 telephonic replay of the conference call will be available
through August 1, 2014 and can be accessed by calling
1-800-585-8367 (or international +1-404-537-3406) and entering
access code 73718222#. A replay of the audio webcast will be
available on Rovi Corporation's website.
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 Income and Adjusted
Pro Forma Diluted income per 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.
Adjusted Pro Forma Income is defined as GAAP 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, gains from the release
of Sonic payroll tax withholding liabilities related to a stock
option review, 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 Diluted income per share is calculated using
Adjusted Pro Forma Income. The Company's management has evaluated
and made operating decisions about its business operations
primarily based upon Adjusted Pro Forma Income and Adjusted Pro
Forma Diluted income per share. Management uses Adjusted Pro Forma
Income and Adjusted Pro Forma Diluted income per 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 debt.
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 and Adjusted Pro Forma results
of operations are provided in the tables below.
About Rovi Corporation
Rovi is leading the way to a more personalized entertainment
experience. The Company’s pioneering guides, data, and
recommendations continue to drive program search and navigation on
millions of devices on a global basis. With a new generation of
cloud-based discovery capabilities and emerging solutions for
interactive advertising and audience analytics, Rovi is enabling
premier brands worldwide to increase their reach, drive consumer
satisfaction and create a better entertainment experience across
multiple screens. Rovi holds over 5,000 issued or pending patents
worldwide and is headquartered in Santa Clara, California. Discover
more about Rovi at Rovicorp.com.
Forward Looking Statements
All statements contained herein, including the quotations
attributed to Mr. Carson, that are not statements of
historical fact, including statements that use the words “will,”
“believes,” “anticipates,” “estimates,” “expects,” “intends” 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, anticipated contract signings, and stock
repurchases.
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, 2014 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 BUSINESS AND OPERATING
HIGHLIGHTS:
Discovery:
- Approximately 178 million licensed
households worldwide; 128 million excluding pre-paid licensees
- Renewed set-top box guide product
agreements for 26 cable operators in North and South America
- Renewed and expanded territories
included in Samsung IP Licensing agreement
- Renewed Shaw Communications agreement
covering both cable and satellite
- Reached a key project acceptance
milestone with America Movil for implementation of Passport.
Passport guides are now being deployed, or beginning deployment
shortly, in Colombia, Ecuador, El Salvador and Guatemala
- Entered into multi-year licensing
agreement with TP Vision for its retail TV brands in Europe
- Acquired approximately 500
highly-relevant issued patents and pending applications worldwide
from a widely recognized technology company
- Signed first European advanced search
agreement with Canal Digital Kabel in Norway
Data and Analytics:
- Added data coverage for two more
countries; now providing metadata for 62 countries
- Signed first analytics contract with an
advertising exchange and began the sixth analytics pilot program
which is the first with a cable operator
Other:
- Replaced existing $864 million credit
agreement with a new credit agreement consisting of $825 million in
term loans and a $175 million undrawn revolving credit facility on
July 2, 2014
ROVI CORPORATION GAAP
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT
PER SHARE DATA) (UNAUDITED) Three Months
Ended Six Months Ended June 30, June 30,
2014 2013 2014
2013 Revenues $ 137,062 $ 129,151 $ 279,512 $ 261,920 Costs
and expenses: Cost of revenues 24,769 19,754 55,955 48,325 Research
and development 28,933 29,555 54,490 57,199 Selling, general and
administrative 38,765 38,175 74,985 75,842 Depreciation 4,550 4,045
8,951 8,276 Amortization of intangible assets 19,330 18,781 38,020
37,436 Restructuring and asset impairment charges 3,505
1,319 5,682 1,933 Total costs and expenses
119,852 111,629 238,083 229,011
Operating income from continuing operations 17,210 17,522 41,429
32,909 Interest expense (13,196 ) (15,023 ) (26,759 ) (31,184 )
Interest income and other, net 1,597 1,059 1,835 1,688 Debt
modification expense — (1,047 ) — (1,351 ) (Loss) income on
interest rate swaps and caps, net (4,701 ) 7,489 (7,336 ) 6,445
Loss on debt redemption — (2,761 ) — (2,761 ) Income
from continuing operations before income taxes 910 7,239 9,169
5,746 Income tax expense 3,624 1,553 10,200
992 (Loss) income from continuing operations, net of tax
(2,714 ) 5,686 (1,031 ) 4,754 Discontinued operations, net of tax
74 (79,760 ) (55,874 ) (104,561 ) Net loss $ (2,640 ) $
(74,074 ) $ (56,905 ) $ (99,807 ) Basic earnings per share: Basic
(loss) income per share from continuing operations $ (0.03 ) $ 0.06
$ (0.01 ) $ 0.05 Basic loss per share from discontinued operations
0.00 (0.81 ) (0.61 ) (1.05 ) Basic net earnings per
share $ (0.03 ) $ (0.75 ) $ (0.62 ) $ (1.00 ) Shares used in
computing basic net earnings per share 91,019 98,256
92,246 99,404 Diluted earnings per share: Diluted
(loss) income per share from continuing operations $ (0.03 ) $ 0.06
$ (0.01 ) $ 0.05
Diluted loss per share from discontinued
operations
0.00 (0.81 ) (0.61 ) (1.05 )
Diluted net earnings per share
$ (0.03 ) $ (0.75 ) $ (0.62 ) $ (1.00 ) Shares used in computing
diluted net earnings per share 91,019 99,334 92,246
100,098
See notes to the GAAP Consolidated
Financial Statements in our Form 10-Q.
ROVI CORPORATION GAAP CONSOLIDATED BALANCE
SHEETS (IN THOUSANDS) (UNAUDITED)
June 30, 2014 December 31, 2013
ASSETS Current assets: Cash and cash equivalents $ 266,113 $
156,487 Short-term investments 175,837 365,976 Trade accounts
receivable, net 85,082 104,386 Taxes receivable 511 1,907 Deferred
tax assets, net 11,146 18,621 Prepaid expenses and other current
assets 16,554 14,936 Assets held for sale — 106,688
Total current assets 555,243 769,001 Long-term marketable
investment securities 137,643 118,658 Property and equipment, net
32,681 33,350 Finite-lived intangible assets, net 470,154 478,229
Other assets 15,597 16,907 Goodwill 1,337,435 1,298,448
Total assets $ 2,548,753 $ 2,714,593
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued expenses $ 93,491 $ 94,560 Deferred
revenue 20,514 9,848 Current portion of long-term debt 282,015 —
Liabilities held for sale — 5,513 Total current
liabilities 396,020 109,921 Taxes payable, less current portion
10,060 44,038 Long-term debt, less current portion 861,798
1,186,564 Deferred revenue, less current portion 19,841 4,641
Long-term deferred tax liabilities, net 69,114 41,379 Other non
current liabilities 23,480 14,834 Total liabilities
1,380,313 1,401,377 Stockholders’ equity: Common stock 130 128
Treasury stock (939,833 ) (816,694 ) Additional paid-in capital
2,313,770 2,279,196 Accumulated other comprehensive loss (3,307 )
(3,999 ) Retained deficit (202,320 ) (145,415 ) Total stockholders’
equity 1,168,440 1,313,216 Total liabilities and
stockholders’ equity $ 2,548,753 $ 2,714,593
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, 2014
June 30, 2013 Adjusted
Adjusted GAAP
Adjustments Pro Forma GAAP Adjustments
Pro Forma Revenues: Service providers $ 102,695 $ — $
102,695 $ 92,845 $ — $ 92,845 CE 29,839 — 29,839 26,058 — 26,058
Other 4,528 — 4,528 10,248 —
10,248 Total revenues 137,062 — 137,062 129,151 —
129,151 Costs and expenses: Cost of revenues (1) 24,769
(1,161 ) 23,608 19,754 (982 ) 18,772 Research and development (2)
28,933 (3,766 ) 25,167 29,555 (5,592 ) 23,963 Selling, general and
administrative (3) 38,765 (8,263 ) 30,502 38,175 (9,812 ) 28,363
Depreciation (4) 4,550 — 4,550 4,045 — 4,045 Amortization of
intangible assets 19,330 (19,330 ) — 18,781 (18,781 ) —
Restructuring and asset impairment charges 3,505 (3,505 ) —
1,319 (1,319 ) — Total costs and
expenses 119,852 (36,025 ) 83,827 111,629
(36,486 ) 75,143 Operating income from continuing operations
17,210 36,025 53,235 17,522 36,486 54,008 Interest expense (5)
(13,196 ) 3,683 (9,513 ) (15,023 ) 5,704 (9,319 ) Interest income
and other, net (6) 1,597 (1,182 ) 415 1,059 — 1,059 Debt
modification expense — — — (1,047 ) 1,047 — (Loss) gain on interest
rate swaps and caps, net (7) (4,701 ) 4,701 — 7,489 (7,489 ) — Loss
on debt redemption — — — (2,761 ) 2,761
— Income from continuing operations before income
taxes 910 43,227 44,137 7,239 38,509 45,748 Income tax expense (8)
3,624 1,010 4,634 1,553 2,564
4,117 (Loss) income from continuing operations, net
of tax $ (2,714 ) $ 42,217 $ 39,503 $ 5,686 $
35,945 $ 41,631 Diluted (loss) income per
share from continuing operations $ (0.03 ) $ 0.43 $ 0.06
$ 0.42 Shares used in computing diluted net earnings
per share (9) 91,019 582 91,601 99,334
99,334 (1) Adjustments to cost of revenues consist of
the following: June 30, 2014 June 30, 2013 Equity based
compensation $ 1,161 $ 926 Transition and integration costs —
56 Total adjustment $ 1,161 $ 982 (2)
Adjustments to research and development consist of the following:
June 30, 2014 June 30, 2013 Equity based compensation $ 3,601 $
5,546 Transition and integration costs 165 46 Total
adjustment $ 3,766 $ 5,592 (3) Adjustments to
selling, general and administrative consist of the following: June
30, 2014 June 30, 2013 Equity based compensation $ 7,218 $ 9,193
Transition and integration costs 1,045 619 Total
adjustment $ 8,263 $ 9,812 (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 reclassifies the current period benefit from
the interest rate swap to interest expense. (6) Adjustment
eliminates $1.2 million in other income for the release of Sonic
payroll tax withholding liabilities related to stock option review.
(7) Adjustment eliminates non-cash mark-to-market gain or loss
related to interest rate swaps and caps and reclassifies the
current period benefit or cost from the interest rate swap to
interest expense. (8) Adjusts tax expense to the adjusted pro forma
cash tax rate. (9) For the 2014 period, 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, 2014 June 30, 2013
Adjusted
Adjusted GAAP Adjustments Pro Forma
GAAP Adjustments Pro Forma Revenues: Service
providers $ 200,730 $ — $ 200,730 $ 180,443 $ — $ 180,443 CE 59,379
— 59,379 64,524 — 64,524 Other 19,403 — 19,403
16,953 — 16,953 Total revenues 279,512 —
279,512 261,920 — 261,920 Costs and expenses: Cost of
revenues (1) 55,955 (2,485 ) 53,470 48,325 (2,294 ) 46,031 Research
and development (2) 54,490 (5,989 ) 48,501 57,199 (10,861 ) 46,338
Selling, general and administrative (3) 74,985 (15,525 ) 59,460
75,842 (18,685 ) 57,157 Depreciation (4) 8,951 — 8,951 8,276 —
8,276 Amortization of intangible assets 38,020 (38,020 ) — 37,436
(37,436 ) — Restructuring and asset impairment charges 5,682
(5,682 ) — 1,933 (1,933 ) — Total costs and
expenses 238,083 (67,701 ) 170,382 229,011
(71,209 ) 157,802 Operating income from continuing
operations 41,429 67,701 109,130 32,909 71,209 104,118 Interest
expense (5) (26,759 ) 7,915 (18,844 ) (31,184 ) 11,688 (19,496 )
Interest income and other, net (6) 1,835 (1,182 ) 653 1,688 — 1,688
Debt modification expense — — — (1,351 ) 1,351 — (Loss) gain on
interest rate swaps and caps, net (7) (7,336 ) 7,336 — 6,445 (6,445
) — Loss on debt redemption — — — (2,761 )
2,761 — Income from continuing operations before
income taxes 9,169 81,770 90,939 5,746 80,564 86,310 Income tax
expense (8) 10,200 (839 ) 9,361 992 6,777
7,769 (Loss) income from continuing operations, net
of tax $ (1,031 ) $ 82,609 $ 81,578 $ 4,754 $
73,787 $ 78,541 Diluted (loss) income per
share from continuing operations $ (0.01 ) $ 0.88 $ 0.05
$ 0.78 Shares used in computing diluted net earnings
per share (9) 92,246 765 93,011 100,098
100,098 (1) Adjustments to cost of revenues consist
of the following: June 30, 2014 June 30, 2013 Equity based
compensation $ 2,485 $ 1,943 Transition and integration costs —
351 Total adjustment $ 2,485 $ 2,294
(2) Adjustments to research and development consist of the
following: June 30, 2014 June 30, 2013 Equity based compensation $
5,814 $ 10,082 Transition and integration costs 175 779
Total adjustment $ 5,989 $ 10,861 (3)
Adjustments to selling, general and administrative consist of the
following: June 30, 2014 June 30, 2013 Equity based compensation $
13,856 $ 17,655 Transaction, transition and integration costs 1,669
1,030 Total adjustment $ 15,525 $ 18,685
(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 reclassifies the
current period benefit from the interest rate swap to interest
expense. (6) Adjustment eliminates $1.2 million in other income for
the release of Sonic payroll tax withholding liabilities related to
stock option review. (7) Adjustment eliminates non-cash
mark-to-market gain or loss related to interest rate swaps and caps
and reclassifies the current period benefit or cost from the
interest rate swap to interest expense. (8) Adjusts tax expense to
the adjusted pro forma cash tax rate. (9) For the 2014 period,
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.
Investor ContactRovi
CorporationPeter Halt, +1 818-295-6800
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