TIVO TiVo Corporation

Rovi Corporation (NASDAQ:ROVI) today reported financial results for the third quarter ended September 30, 2015.

The Company reported third quarter revenue of $114.9 million, a decrease of 11% compared to $128.6 million in the third quarter of 2014. Third quarter 2015 Loss from continuing operations, net of tax, was $18.5 million, compared to $6.6 million Loss from continuing operations, net of tax, for the third quarter of 2014. Third quarter Diluted loss per share from continuing operations was $0.22, compared to $0.07 Diluted loss per share from continuing operations in the third quarter of 2014. After taking into consideration discontinued operations, the Company reported third quarter Net loss of $18.5 million, compared to a Net loss of $7.0 million for the same quarter of 2014. Third quarter Diluted loss per share was $0.22, compared to $0.08 Diluted loss per share in the third quarter of 2014.

On a Non-GAAP basis, third quarter Non-GAAP Net Income was $23.9 million, compared to $38.6 million in the third quarter of 2014, and third quarter Non-GAAP Diluted Income Per Share was $0.29, compared to $0.42 in the third quarter of 2014.

Non-GAAP Net Income and Non-GAAP Diluted Income Per Share are defined below in the section entitled “Non-GAAP Information.” Reconciliations between GAAP and Non-GAAP results from operations are provided in the tables below.

“During the third quarter, Rovi continued to advance its IP license renewal negotiations with the major North American service providers, including signing an extension to our longstanding license agreement with Time Warner Cable. We also recently renewed our relationship with Sky, a leading European entertainment company serving 21 million customers. Both deals are significant accomplishments for our IP licensing business. We are focused on closing the remaining large IP licensing agreements and are committed to resolving negotiations in a manner that will provide the greatest value for Rovi stockholders,” said Tom Carson, President and CEO of Rovi.

Business Outlook

Rovi continues to anticipate fiscal year 2015 revenue of $500 million to $530 million and non-GAAP diluted income per share of $1.35 to $1.60. The low-end of the range assumes no new customer revenues are recognized in the fourth quarter of 2015.

Conference Call Information

Rovi management will host a conference call today, October 28, 2015, 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 (866) 621-1214 (or international +1-706-643-4013) and reference conference ID 32240816. 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 November 3, 2015 and can be accessed by calling 1-800-585-8367 (or international +1-404-537-3406) and entering conference ID 32240816. A replay of the audio webcast will be available on Rovi Corporation's website shortly after the live call ends and will remain on Rovi Corporation's website until its next quarterly earnings call.

Non-GAAP Information

Rovi Corporation provides Non-GAAP information to assist investors in assessing its current and future operations in the way that its management evaluates those operations. Non-GAAP Net Income, Non-GAAP Diluted Income Per Share, Non-GAAP COGS, Non-GAAP Research and Development Expenses, Non-GAAP Selling, General and Administrative Expenses, Non-GAAP Total OpEx and Non-GAAP Total COGS and OpEx are supplemental measures of the Company's performance that are not required by, and are not presented in accordance with GAAP. Non-GAAP information is not a substitute for any performance measure derived in accordance with GAAP.

Non-GAAP Net 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 and 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 changes in the fair value of contingent consideration, gains from the release of Sonic payroll tax withholding liabilities related to a stock option review, transaction, transition and integration costs, contested proxy election costs, restructuring and asset impairment (benefit) 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 Non-GAAP Net Income as a reasonable proxy for capital expenditures.

Non-GAAP Diluted Income Per Share is calculated using Non-GAAP Net Income.

Non-GAAP COGS is defined as GAAP cost of revenues excluding equity-based compensation and transition and integration expenses.

Non-GAAP Research and Development Expenses is defined as GAAP research and development expenses excluding equity-based compensation and transition and integration expenses.

Non-GAAP Selling, General and Administrative Expenses is defined as GAAP selling, general and administrative expenses excluding equity-based compensation, contested proxy election costs, changes in the fair value of contingent consideration, and transaction, transition and integration expenses.

Non-GAAP Total OpEx is defined as the sum of GAAP research and development and selling, general and administrative expenses, depreciation and gain on sale of patents excluding equity-based compensation, contested proxy election costs, changes in the fair value of contingent consideration, and transaction, transition and integration expenses.

Non-GAAP Total COGS and OpEx is defined as GAAP Total Operating costs and expenses, excluding equity-based compensation, contested proxy election costs, changes in the fair value of contingent consideration, amortization of intangible assets, restructuring and asset impairment (benefit) charges, and transaction, transition and integration expenses.

The Company's management has evaluated and made operating decisions about its business operations primarily based upon Non-GAAP Net Income and Non-GAAP Diluted Income Per Share. Management uses Non-GAAP Income and Non-GAAP 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 Non-GAAP financial measures along with GAAP measures. For each such Non-GAAP 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 (benefit) 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 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 Non-GAAP measures to help it make budgeting decisions, including decisions that affect operating expenses and operating margin. Further, Non-GAAP financial information helps management track actual performance relative to financial targets. Making Non-GAAP 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 Non-GAAP measures has limitations, including the fact that management must exercise judgment in determining which types of charges should be excluded from the Non-GAAP financial information. Because other companies, including companies similar to Rovi Corporation, may calculate their non-GAAP financial measures differently than the Company calculates its Non-GAAP measures, these Non-GAAP measures may have limited usefulness in comparing companies. Management believes, however, that providing Non-GAAP financial information, in addition to GAAP financial information, facilitates consistent comparison of the Company's financial performance over time. The Company provides Non-GAAP 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 Non-GAAP 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. The Company 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, earnings and expenses, 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 risks associated with the Company’s ongoing sales reorganization, adverse rulings in litigations such as Netflix, 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 September 30, 2015 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:

IP Licensing:

• Worldwide, approximately 181 million subscription Pay-TV households either use a Rovi guide or use a guide under a license from Rovi. Excluding pre-paid Pay-TV licensees, total Rovi Pay-TV subscribers were approximately 131 million.
• Rovi entered into a short-term extension of its existing Interactive Program Guide License and Distribution Agreement and Patent License Agreement with Time Warner Cable Inc.
• In October, Sky, which serves 21 million customers across Italy, Germany, Austria, Ireland, and the UK, signed an agreement that extended its longstanding IP license with Rovi.
• LG Uplus Corporation (LG U+), a South Korean cellular carrier owned by the LG Group, Korea's fourth largest conglomerate and parent company of the consumer electronics giant, entered into an entertainment discovery patent license agreement with Rovi.

Discovery:

• Approximately 19 million subscription Pay-TV households use Rovi’s cable television set-top box and digital terminal adapter (DTA) guide products.
• Rovi and Nuance Communications, Inc. entered into a joint initiative to deliver an end-to-end solution for conversational entertainment discovery.
• Rovi launched Rovi Conversation Services support for Spanish, making Rovi Conversation Services the first natural language conversational search solution available for the world’s second most spoken language.
• CÜR Media, a streaming music service provider, plans to launch with Rovi Search, Recommendation and Conversation Services.
• Rovi’s Fan TV mobile app launched on Android and is available in the Google Play store.
• In October, Rovi’s Personalized Discovery Solution earned the Content Innovation Award for TV Technology in the category of Content Discovery.

Metadata:

• Panasonic Avionics Corporation licensed Rovi’s metadata to manage an advanced programming guide for its global inflight television service, eXTV.
• A leading Internet search provider will use Rovi Video for Russia and also took the option to license up to 11 additional countries.
• Launched Rovi Consume in Europe to provide links to streaming content for 18 popular over-the-top (OTT) catalogs. Rovi Consume now supports more than 85 popular OTT catalogs worldwide.

Analytics:

• Signed agreement to incorporate viewing data from a major service provider into Rovi’s Ad Optimizer for a leading cable network family, enabling the networks to sell their television advertising inventory as data-driven audiences.
• Continuing commercial deployments and trials of our Rovi Ad Optimizer and Promo Optimizer solutions with service providers and major broadcast and network families.

Other:

• Eddy W. Hartenstein was elected to Rovi’s Board of Directors.
• Michael Hawkey joined Rovi as senior vice president and general manager of the Discovery business group.

  ROVI CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)     Three Months Ended September 30,   Nine Months Ended September 30, 2015   2014 2015   2014 Revenues $ 114,882 $ 128,582 $ 376,727 $ 408,094 Costs and expenses: Cost of revenues, excluding amortization of intangible assets 24,608 23,437 78,407 81,973 Research and development 23,945 25,369 79,087 79,859 Selling, general and administrative 32,148 33,172 110,002 105,576 Depreciation 4,280 4,256 13,098 13,207 Amortization of intangible assets 19,189 20,158 57,789 58,178 Restructuring and asset impairment charges 218 2,722 1,757 8,404 Gain on sale of patents —   (500 ) —   (500 ) Total costs and expenses 104,388   108,614   340,140   346,697   Operating income from continuing operations 10,494 19,968 36,587 61,397 Interest expense (11,348 ) (13,962 ) (35,421 ) (40,721 ) Interest income and other, net 586 — 1,089 1,835 Loss on interest rate swaps (11,787 ) (229 ) (17,106 ) (7,565 ) Loss on debt extinguishment (2,695 ) (5,159 ) (2,815 ) (5,159 ) Loss on debt modification —   (3,775 ) —   (3,775 ) (Loss) income from continuing operations before income taxes (14,750 ) (3,157 ) (17,666 ) 6,012 Income tax expense 3,708   3,458   12,924   13,658   Loss from continuing operations, net of tax (18,458 ) (6,615 ) (30,590 ) (7,646 ) Loss from discontinued operations, net of tax —   (417 ) —   (56,291 ) Net loss $ (18,458 ) $ (7,032 ) $ (30,590 ) $ (63,937 ) Basic loss per share: Continuing operations $ (0.22 ) $ (0.07 ) $ (0.36 ) $ (0.08 ) Discontinued operations —   (0.01 ) —   (0.62 ) Basic loss per share $ (0.22 ) $ (0.08 ) $ (0.36 ) $ (0.70 ) Weighted average shares used in computing basic loss per share 82,404   91,468   85,297   91,975   Diluted loss per share:

Continuing operations

$ (0.22 ) $ (0.07 ) $ (0.36 ) $ (0.08 ) Discontinued operations —   (0.01 ) —   (0.62 ) Diluted loss per share $ (0.22 ) $ (0.08 ) $ (0.36 ) $ (0.70 ) Weighted average shares used in computing diluted loss per share 82,404   91,468   85,297   91,975    

See notes to the Condensed Consolidated Financial Statements in our Quarterly Report on Form 10-Q.

  ROVI CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)     September 30, 2015   December 31, 2014 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 65,177 $ 154,568 Short-term marketable securities 82,608 183,074 Accounts receivable, net 66,398 83,514 Deferred tax assets, net 10,435 18,553 Prepaid expenses and other current assets 16,004   12,851   Total current assets 240,622 452,560 Long-term marketable securities 141,706 131,378 Property and equipment, net 32,726 37,227 Intangible assets, net 405,817 463,348 Goodwill 1,343,706 1,343,652 Other long-term assets 19,254   17,225   Total assets $ 2,183,831   $ 2,445,390     LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 59,882 $ 83,208 Deferred revenue 18,927 18,399 Current portion of long-term debt 7,000   302,375   Total current liabilities 85,809 403,982 Taxes payable, less current portion 8,757 10,100 Deferred revenue, less current portion 12,001 15,722 Long-term debt, less current portion 969,180 804,557 Long-term deferred tax liabilities, net 75,816 80,751 Other long-term liabilities 38,563   24,014   Total liabilities 1,190,126 1,339,126 Stockholders' equity: Preferred stock — — Common stock 131 131 Treasury stock (1,163,386 ) (1,013,218 ) Additional paid-in capital 2,408,312 2,339,817 Accumulated other comprehensive loss (5,603 ) (5,307 ) Accumulated deficit (245,749 ) (215,159 ) Total stockholders’ equity 993,705   1,106,264   Total liabilities and stockholders’ equity $ 2,183,831   $ 2,445,390    

See notes to the Condensed Consolidated Financial Statements in our Quarterly Report on Form 10-Q.

  ROVI CORPORATION AND SUBSIDIARIES REVENUE BY SEGMENT (In thousands) (Unaudited)     Three Months Ended September 30, Nine Months Ended September 30, 2015   2014 2015   2014 Intellectual Property Licensing Revenues: Service Provider $ 45,890 $ 48,671 $ 144,344 $ 148,513 Consumer Electronics 11,630   19,203   47,927   64,971 Total Intellectual Property Licensing Revenues 57,520 67,874 192,271 213,484   Product Revenues: Service Provider 48,117 49,226 149,440 152,038 Consumer Electronics 5,825 5,755 16,586 17,442 Other 3,420   5,727   18,430   25,130 Total Product Revenues 57,362 60,708 184,456 194,610         Total Revenues $ 114,882   $ 128,582   $ 376,727   $ 408,094     ROVI CORPORATION AND SUBSIDIARIES REVENUE BY SALES VERTICAL (In thousands) (Unaudited)   Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Service Provider $ 94,007 $ 97,897 $ 293,784 $ 300,551 Consumer Electronics 17,455 24,958 64,513 82,413 Other 3,420   5,727   18,430   25,130 Total Revenues $ 114,882   $ 128,582   $ 376,727   $ 408,094   ROVI CORPORATION AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION (In thousands, except per share amounts) (Unaudited)     Three Months Ended September 30, Nine Months Ended September 30, 2015   2014 2015   2014 GAAP Loss from continuing operations, net of tax $ (18,458 ) $ (6,615 ) $ (30,590 ) $ (7,646 ) Amortization of intangible assets 19,189 20,158 57,789 58,178 Restructuring and asset impairment charges 218 2,722 1,757 8,404 Equity-based compensation 8,328 9,658 31,044 31,818 Contested proxy election costs — — 4,346 — Transaction, transition and integration expenses — 1,099 — 2,938 Reduction of contingent consideration liability for Veveo acquisition (860 ) — (860 ) — Amortization of note issuance costs 579 725 1,889 2,627 Amortization of convertible note discount 2,897 3,521 8,573 10,364 Mark-to-market (gain) loss related to interest rate swaps 10,592 (485 ) 14,039 6,020 Loss on debt extinguishment 2,695 5,159 2,815 5,159 Loss on debt modification — 3,775 — 3,775 Release of Sonic payroll tax withholding liabilities related to stock option review — — — (1,182 ) Income tax (benefit) expense (1) (1,255 ) (1,075 ) 477   (236 ) Non-GAAP Net Income $ 23,925   $ 38,642   $ 91,279   $ 120,219     GAAP Diluted loss per share from continuing operations $ (0.22 ) $ (0.07 ) $ (0.36 ) $ (0.08 )   Non-GAAP Diluted Income Per Share (2) $ 0.29   $ 0.42   $ 1.06   $ 1.30     Weighted average shares used in computing Non-GAAP Diluted Income Per Share 82,598   92,097   85,729   92,695     (1) Adjusts tax expense to the Non-GAAP cash tax rate.   (2) Where adjustments resulted in Non-GAAP Net Income, shares used in computing diluted net income per share were adjusted to include dilutive common equivalent shares outstanding.     Three Months Ended September 30,   Nine Months Ended September 30, 2015   2014 2015   2014 GAAP Total Operating costs and expenses $ 104,388 $ 108,614 $ 340,140 $ 346,697 Amortization of intangible assets (19,189 ) (20,158 ) (57,789 ) (58,178 ) Restructuring and asset impairment charges (218 ) (2,722 ) (1,757 ) (8,404 ) Equity-based compensation (8,328 ) (9,658 ) (31,044 ) (31,818 ) Contested proxy election costs — — (4,346 ) — Transaction, transition and integration expenses — (1,099 ) — (2,938 ) Reduction of contingent consideration liability for Veveo acquisition 860   —   860   —   Non-GAAP Total COGS and OpEx $ 77,513   $ 74,977   $ 246,064   $ 245,359       Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 GAAP Cost of revenues, excluding amortization of intangible assets $ 24,608 $ 23,437 $ 78,407 $ 81,973 Equity-based compensation (1,074 ) (1,520 ) (3,909 ) (4,294 ) Transition and integration expenses —   (96 ) —   (96 ) Non-GAAP COGS $ 23,534   $ 21,821   $ 74,498   $ 77,583       Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 GAAP Research and development expenses $ 23,945 $ 25,369 $ 79,087 $ 79,859 Equity-based compensation (1,928 ) (1,719 ) (6,932 ) (7,533 ) Transition and integration expenses —   (282 ) —   (457 ) Non-GAAP Research and Development Expenses $ 22,017   $ 23,368   $ 72,155   $ 71,869       Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 GAAP Selling, general and administrative expenses $ 32,148 $ 33,172 $ 110,002 $ 105,576 Equity-based compensation (5,326 ) (6,419 ) (20,203 ) (19,991 ) Contested proxy election costs — — (4,346 ) — Transaction, transition and integration expenses — (721 ) — (2,385 ) Reduction of contingent consideration liability for Veveo acquisition 860   —   860   —   Non-GAAP Selling, General and Administrative Expenses $ 27,682   $ 26,032   $ 86,313   $ 83,200  

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Investor ContactsRovi CorporationPeter Halt, +1 818-295-6800CFOorRovi CorporationPeter Ausnit, +1 818-565-5200VP IRPeter.Ausnit@RoviCorp.com