NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
On
April 28, 2016
, Rovi Corporation ("
Rovi
") and
TiVo Inc.
(renamed
TiVo Solutions Inc.
("
TiVo Solutions
")) entered into an Agreement and Plan of Merger (the “Merger Agreement”) for
Rovi
to acquire
TiVo Solutions
in a cash and stock transaction (the "
TiVo Acquisition
"). Following consummation of the
TiVo Acquisition
on
September 7, 2016
(the "
TiVo Acquisition Date
"),
TiVo Corporation
(the "Company"), a Delaware corporation founded in April 2016 as Titan Technologies Corporation and then a wholly-owned subsidiary of
Rovi
, owns both
Rovi
and
TiVo Solutions
.
The Company is a global leader in media and entertainment products that power consumer entertainment experiences and enable its customers to deepen and further monetize their audience relationships. The Company provides a broad set of intellectual property, cloud-based services and set-top box ("STB") solutions that enable people to find and enjoy online video, television ("TV"), movies and music entertainment, including content discovery through device-embedded and cloud-based user experience ("UX"), including interactive program guides (“IPGs”), digital video recorders ("DVRs"), natural language voice and text search, cloud-based recommendations services and the Company's extensive entertainment metadata (i.e., descriptive information, promotional images or other content that describes or relates to television shows, videos, movies, sports, music, books, games or other entertainment content). The Company's integrated platform includes software and cloud-based services that provide an all-in-one approach for navigating a fragmented universe of content by seamlessly combining live, recorded, video-on-demand ("VOD") and over-the-top ("OTT") content into one intuitive user interface with simple universal search, discovery, viewing and recording, to create a unified viewing experience. The Company distributes its products through service provider relationships, integrated into third-party devices and directly to retail consumers. The Company also offers data analytics solutions which enable advanced audience targeting and measurement in linear and OTT TV advertising. Solutions are sold globally to cable, satellite, consumer electronics ("CE"), entertainment, media and online distribution companies, and, in the United States, the Company sells a suite of DVR and whole home media products and services directly to retail consumers.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited
Condensed Consolidated Financial Statements
have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted in accordance with such rules and regulations. However, the Company believes the disclosures made are adequate to make the information not misleading. In the opinion of management, the accompanying unaudited
Condensed Consolidated Financial Statements
reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are considered necessary to present fairly the results for the periods presented.
The information contained in this
Quarterly Report on Form 10-Q
should be read in conjunction with the audited financial statements and notes thereto and other disclosures contained in the Company’s
Annual Report on Form 10-K
for the year ended
December 31, 2017
. The
Condensed Consolidated Statements of Operations
, Condensed Consolidated Statements of Comprehensive Loss and the Condensed Consolidated Statements of Cash Flows for the interim periods presented are not necessarily indicative of the results to be expected for the year ending
December 31, 2018
, for any future year, or for any other future interim period.
The accompanying
Condensed Consolidated Financial Statements
include the accounts of TiVo Corporation and subsidiaries and affiliates in which the Company has a controlling financial interest after the elimination of intercompany accounts and transactions.
Use of Estimates
The preparation of the
Condensed Consolidated Financial Statements
in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and related disclosures as of the date of the financial statements and the results of operations for the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, long-lived asset impairment, including goodwill and intangible assets, equity-based compensation and income taxes. Actual results may differ from those estimates.
Concentrations of Risk
The TiVo service is enabled using a DVR manufactured by a third-party. The Company also relies on third parties with whom it outsources supply-chain activities related to inventory warehousing, order fulfillment, distribution and other direct sales logistics. The Company cannot be sure that these parties will perform their obligations as expected or that any revenue, cost savings or other benefits will be derived from the efforts of these parties. If any of these parties breaches or terminates their agreement with the Company or otherwise fails to perform their obligations in a timely manner, the Company may be delayed or prevented from commercializing its products and services.
Accounts Receivable
The timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a receivable when revenue is recognized prior to cash collection. A receivable related to revenue recognized for multi-year licenses is recognized when the Company has an unconditional right to invoice and receive payment in the future related to those licenses.
Payment terms and conditions vary by contract type, location of customer and the products or services offered, although terms generally require payment from a customer within
30
to
60 days
. When the timing of revenue recognition differs from the timing of cash collection, an evaluation is performed to determine whether the contract includes a significant financing component. As the primary purpose of the Company's invoicing terms is to provide customers with simplified and predictable ways of purchasing products and services, significant financing components are generally not identified in the Company’s contracts with customers.
The Company performs ongoing credit evaluations of its customers. The Company reviews its accounts receivable to identify potential collection issues. A specific allowance for doubtful accounts is recorded when warranted by specific customer circumstances, such as in the case of a bankruptcy filing, a deterioration in the customer's operating results or financial position or the past due status of a receivable based on its contractual payment terms. For customers for which a specific allowance for doubtful accounts was recorded, adjustments to recoverability estimates are recorded when there are subsequent changes in the specific customer's circumstances. For accounts receivable not specifically reserved, an allowance for doubtful accounts is recorded based on historical loss experience and other currently available evidence. Accounts receivable deemed uncollectible are charged off when collection efforts have been exhausted.
Contract Assets
Contract assets primarily consist of revenue recognized in excess of the amount billed to the customer, limited to net realizable value and deferred engineering costs for significant software customization or modification and set-up services to the extent deemed recoverable. Contract assets for unbilled receivables are reclassified to
Accounts receivable, net
when the right to payment becomes unconditional.
Contract assets also include the incremental costs of obtaining a contract with a customer, principally sales commissions when the renewal commission is not commensurate with the initial commission. The incremental costs of obtaining a contract with a customer are recognized as an asset when the expected period of benefit is greater than
one year
. The incremental costs of obtaining a contract with a customer are amortized on a straight-line basis over a period of time commensurate with the period of benefit, generally
three
to
five
years, which considers the transfer of goods or services to which the assets relate, technological developments during the period of benefit, customer history and other factors. The period of benefit is generally the estimated life of the customer relationship if renewals are expected, and may exceed the contract term. Amortization of the capitalized incremental costs of obtaining a contract with a customer is included in
Selling, general and administrative
expenses in the
Condensed Consolidated Statements of Operations
.
Contract assets are classified as current or noncurrent in the
Condensed Consolidated Balance Sheets
based on when the asset is expected to be realized. Contract assets are subject to periodic impairment reviews.
Contract Liabilities, including Unearned Revenue
Contract liabilities are mainly comprised of unearned revenue related to consumer lifetime subscriptions to the TiVo service and multi-period licensing or cloud-based services and other offerings for which the Company is paid in advance of when control of the good or service is transferred to the customer. Unearned revenue also includes amounts related to professional services to be performed in the future. Unearned revenue arises when cash payments are received or due, including amounts which are refundable, in advance of performance. Contract liabilities exclude amounts expected to be refunded. Payment terms and conditions vary by contract type, location of customer and the products or services offered. For certain products or services and customer types, payment before the products or services are delivered to the customer is required.
Revenue Recognition
General
Revenue is recognized when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services, which may include various combinations of goods and services which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of taxes collected from customers which are subsequently remitted to governmental authorities.
Depending on the terms of the contract, a portion of the consideration received may be deferred because of a requirement to satisfy a future obligation. Stand-alone selling price for separate performance obligations is based on observable prices charged to customers for goods or services sold separately or the cost-plus-a-margin approach when observable prices are not available, considering overall pricing objectives.
Arrangements with Multiple Performance Obligations
Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the individual performance obligations are separately accounted for if they are distinct. In an arrangement with multiple performance obligations, the transaction price is allocated among the separate performance obligations on a relative stand-alone selling price basis. The determination of stand-alone selling price considers market conditions, the size and scope of the contract, customer and geographic information, and other factors. The allocation of transaction price among performance obligations in a contract may impact the amount and timing of revenue recognized in the
Condensed Consolidated Statements of Operations
during a given period.
Contract Modifications
Contracts may be modified due to changes in contract specifications or customer requirements. Contract modifications occur when the change in terms either creates new enforceable rights and obligations or changes existing enforceable rights and obligations. The effect of a contract modification for goods and services that are not distinct in the context of the contract on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis. Contract modifications that result in goods or services that are distinct from the previously existing contract are accounted for prospectively.
Variable Consideration
When a contract with a customer includes a variable transaction price, an estimate of the consideration to which the Company expects to be entitled to for transferring the promised goods or services is made at contract inception. Depending on the terms of the contract, variable consideration is estimated using either the expected value approach or the most likely value approach. Under either approach to estimating variable consideration, the estimate considers all information (historical, current and forecast) that is reasonably available at contract inception. The amount of variable consideration is estimated at contract inception and updated as additional information becomes available. The estimate of variable consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Subsequent changes in the transaction price resulting from changes in the estimate of variable consideration are allocated to the performance obligations in the contract on the same basis as at contract inception.
Certain payments to retailers and distributors, such as market development funds and revenue shares, are treated as a reduction of the transaction price, and therefore revenue, rather than
Selling, general and administrative
expense. The reduction of revenue is recognized at the later of when revenue is recognized for the transfer of the related goods or services to the customer or when the Company pays or promises to pay the consideration.
When variable consideration is in the form of a sales-based or usage-based royalty in exchange for a license of intellectual property, or when a license of intellectual property is the predominant item to which the variable consideration relates, revenue is recognized at the later of when the subsequent sale or usage occurs or the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied.
Significant Judgments
Determining whether promises to transfer multiple goods and services in contracts with customers are considered distinct performance obligations that should be accounted for separately requires significant judgment, including related to the level of integration and interdependency between the performance obligations. In addition, judgment is necessary to allocate the transaction price to the distinct performance obligations, including whether there is a discount or significant financing component to be allocated based on the relative stand-alone selling price of the various performance obligations.
Significant judgment is required to determine the stand-alone selling price for each distinct performance obligation when an observable price is not available. In instances where stand-alone selling price is not directly observable, such as when the Company does not sell the good or service separately, the stand-alone selling price is determined using a range of inputs that includes market conditions and other observable inputs. More than one stand-alone selling price may exist for individual goods and services due to the stratification of those goods and services, considering attributes such as the size of the customer and geographic region.
Due to the nature of the work required to be performed on some performance obligations, significant judgment may be required to determine the transaction price. It is common for the Company's license agreements to contain provisions that can either increase or decrease the transaction price. These variable amounts are generally estimated based on usage or the achievement of performance metrics. In addition to estimating variable consideration, significant judgment is necessary to identify forms of variable consideration, determine whether the variable consideration relates to a sales-based or usage-based royalty of intellectual property and the determination of whether and when to include estimates of variable consideration in the transaction price.
Some hardware products are sold with a right of return and in other circumstances, other credits or incentives may be provided such as consideration (sales incentives) given to customers or resellers, which are accounted for as variable consideration and recognized as a reduction to the revenue recognized. Estimates of returns, credits and incentives are made at contract inception and updated each reporting period.
In contracts where the Company does not host the TiVo service and that include engineering services that are essential to the functionality of the licensed technology or involve significant customization or modification of software, the Company recognizes revenue as progress toward completion occurs using an input method based on the ratio of costs incurred to date to total estimated costs of the project. Significant judgment is required to estimate the remaining effort to complete the project. These estimates are reassessed throughout the term of the arrangement.
On an ongoing basis, management evaluates its estimates, inputs and assumptions related to revenue recognition. Using different estimates, inputs or assumptions may materially affect the reported amounts of assets and liabilities as of the date of the financial statements and the results of operations for the reporting period.
Nature of goods and services
The following is a discussion of the principal activities from which the Company generates its revenue.
Patent Licensing Agreements
The Company licenses its discovery patent portfolio to traditional pay TV providers, virtual service providers, OTT video providers, CE manufacturers and others. The Company licenses its patented technology portfolio under two revenue models: (i) fixed-fee licenses and (ii) per-unit royalty licenses.
The Company's long-term fixed-fee license agreements provide rights to future patented technologies over the term of the agreement that are highly interdependent or highly interrelated to the patented technologies provided at the inception of the agreement. The Company treats these rights as a single performance obligation with revenue recognized on a straight-line basis over the term of the fixed-fee license agreement.
At times, the Company enters into license agreements in which a licensee is released from past patent infringement claims and is granted a license to ship an unlimited number of units over a future period for a fixed fee. In these arrangements, the Company allocates the transaction price between the release for past patent infringement claims and the future license. In determining the stand-alone selling price of the release for past patent infringement claims and the future license, the Company considers such factors as the number of units shipped in the past and in what geographies these units were shipped, the number of units expected to be shipped in the future and in what geographies these units are expected to be shipped, as well as the licensing rate the Company generally receives for units shipped in the same geographies. As the release from past patent infringement claims is generally satisfied at execution of the agreement, the transaction price allocated to the release from past patent infringement claims is generally recognized in the period the agreement is executed and the amount of transaction price allocated to the future license is recognized ratably over the future license term.
The Company recognizes revenue from per-unit royalty licenses in the period in which the licensee's sales are estimated to have occurred, which results in an adjustment to revenue when actual sales are subsequently reported by the licensees, which is generally in the month or quarter following usage or shipment. The Company generally recognizes revenue from per-unit royalty licenses on a per-subscriber per-month model for licenses with service providers and a per-unit shipped model for licenses with CE manufacturers.
Arrangements with Multiple System Operators for the TiVo Service
The Company's arrangements with multiple system operators ("MSOs") typically include software customization and set-up services, associated maintenance and support, limited training, post-contract support, TiVo-enabled DVRs, non-DVR STBs and the TiVo service.
The Company has two types of arrangements with MSOs that include technology deployment and engineering services. In instances where the Company hosts the TiVo service, non-refundable payments received for customization and set-up services are deferred and recognized as revenue over the contractual term. The related cost of such services is capitalized to the extent it is deemed recoverable and amortized to cost of revenues over the same period as the related TiVo service revenue is recognized. The Company estimates the stand-alone selling prices for training, DVRs, non-DVR STBs and maintenance and support based on the price charged in stand-alone sales of the promised good or service. The stand-alone selling price for the TiVo service is determined considering the size of the MSO and expected volume of deployment, market conditions, competitive landscape, internal costs and total gross margin objectives. For a term license to the TiVo service, the Company receives license fees for the hosted TiVo service on either a per-subscriber per-month basis or a fixed fee. The Company recognizes revenue from per-subscriber per-month licenses during the month the TiVo service is provided to the customer and recognizes revenue from fixed fee licenses ratably over the license period.
In arrangements where the Company does not host the TiVo service and that include engineering services that are essential to the functionality of the licensed technology or involve significant customization or modification of the software, the Company recognizes revenue as progress toward completion is made using an input method based on the ratio of costs incurred to date to total estimated costs of the project. Project costs are primarily labor related to the specific activities required for the project. Costs related to general infrastructure or uncommitted platform development are not included in the project cost estimates and are expensed as incurred. Estimating project costs requires forecasting costs, tracking progress toward completion and projecting the remaining effort to complete the project. These estimates are reassessed throughout the term of the arrangement, and revisions to estimates are recognized on a cumulative catch-up basis when the changed conditions become known. Provisions for losses are recorded when estimates indicate it is probable that a loss will be incurred for the contract. The Company generally recognizes revenue from license fees for the TiVo service that it does not host on a per-subscriber per-month basis due to the recognition constraint on intellectual property usage-based royalties.
Subscription Services
Subscription services revenues primarily consist of fees to provide customers with access to one or more of the Company's hosted products such as its i-Guide IPG, advanced search and recommendations, metadata and analytics products, including routine customer support. The Company generally receives per-subscriber per-month fees for its i-Guide IPG and search and recommendations service and revenue is recorded in the month the customer uses the service. The Company generally receives a monthly or quarterly fee from its metadata or analytics licenses for the right to use its metadata or access its analytics platform and to receive regular updates. Revenue from the Company's metadata and analytics service is recognized ratably over the subscription period.
Passport Software
The Company licenses its Passport IPG software to pay TV providers in North and South America. The Company generally receives per-subscriber per-month fees for licenses to its Passport IPG software and support. Due to the usage-based royalty provisions of the revenue recognition guidance, revenue is generally recognized in the month the customer uses the software.
Advertising
The Company generates advertising revenue through its IPGs. Advertising revenue is recognized when the related advertisement is provided. Advertising revenue is recorded net of agency commissions and revenue shares with service providers and CE manufacturers.
TiVo-enabled DVRs and TiVo Service
The Company sells TiVo-enabled DVRs and the related service directly to customers through sales programs via the TiVo.com website and licenses the sale of TiVo-enabled DVRs through a limited number of retailers. For sales through the TiVo.com website, the customer receives a DVR and commits to either a minimum subscription period of one year or for the lifetime of the DVR. After the initial subscription period, customers have various pricing options when they renew their subscription. Customers have the right to return the DVR within
30
days of purchase. Customers have the right to cancel their subscription to the TiVo service within
30 days
of subscription activation for a full refund. For licensed sales of TiVo-enabled DVRs through retailers, the customer commits to either a minimum subscription period of one year or for the lifetime of the DVR.
The stand-alone selling price for the TiVo service is established based on stand-alone sales of the service and varies by the length of the service period. The stand-alone selling price of the DVR is determined based on the price for which the Company would sell the DVR without any service commitment from the customer.
The transaction price allocated to the DVR is recognized as revenue on delivery and the transaction price allocated to the TiVo service is recognized as revenue ratably over the service period. Subscription revenues from lifetime subscriptions are recognized ratably over the estimated useful life of the DVR associated with the subscription. The estimated useful life for a DVR depends on a number of assumptions, including, but not limited to, customer retention rates, the timing of new product introductions and historical experience. As of
September 30, 2018
, the Company recognizes revenue for lifetime subscriptions over a
66
-month period. The Company periodically reassesses the estimated useful life of a DVR. When the actual useful life of the DVR materially differs from the Company's estimate, the estimated useful life of the DVR is adjusted, which could result in the recognition of revenue over a longer or shorter period of time.
Shipping and handling costs associated with outbound freight after control of a DVR has transferred to a customer are accounted for as a fulfillment cost and are included in
Cost of hardware revenues, excluding depreciation and amortization of intangible assets
as incurred.
Recent Accounting Pronouncements
Standards Recently Adopted
In January 2017, the Financial Accounting Standards ("FASB") clarified the definition of a business. The clarified guidance provides a more defined framework to use in determining when a set of assets and activities constitute a business. The clarified definition was effective for the Company on January 1, 2018 and was applied using a prospective transition approach. Application of this guidance did not have an effect on the
Condensed Consolidated Financial Statements
.
In October 2016, the FASB amended its guidance on the tax effects of intra-entity transfers of assets other than inventory. The amended guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendment was effective for the Company on January 1, 2018 and was applied using a modified retrospective transition approach. Application of this guidance did not have an effect on the
Condensed Consolidated Financial Statements
.
In August 2016, the FASB issued clarifying guidance on the presentation of eight specific cash flow issues for which previous guidance was either unclear or not specific. The clarified guidance was effective for the Company on January 1, 2018 and was applied using a retrospective transition approach. Application of this guidance did not have an effect on the
Condensed Consolidated Financial Statements
.
In March 2016, the FASB provided guidance for the derecognition of prepaid stored-value product liabilities, such as gift cards. Pursuant to this guidance, among other criteria, prepaid stored-value product liabilities are eligible to be derecognized when the likelihood of redemption becomes remote. The guidance was effective for the Company on January 1, 2018 and was applied using a modified retrospective transition approach. On adoption, the Company recorded a cumulative effect adjustment, net of tax effects, of
$2.2 million
that reduced
Accumulated deficit
for prepaid stored-value product liabilities where the likelihood of redemption was deemed to be remote at the adoption date.
In May 2014, the FASB issued an amended accounting standard for revenue recognition. The core principle of the amended revenue recognition guidance is for an entity to recognize revenue to depict the transfer of
promised
goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in
exchange for those goods or services. The amendments also require enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. In addition, the FASB amended its guidance related to the capitalization and amortization of the incremental costs of obtaining a contract with a customer. The Company adopted the amended revenue and cost recognition guidance on January 1, 2018 using the modified retrospective transition approach. On adoption, the Company recorded a cumulative effect adjustment, net of tax effects, that reduced
Accumulated deficit
by
$27.9 million
for the effects of the amended revenue recognition guidance and reduced
Accumulated deficit
by
$1.3 million
for the effects of capitalizing incremental costs to obtain contracts with customers. The significant differences giving rise to the cumulative effect adjustments are described in
Note 5
. Results for periods beginning after
December 31, 2017
are presented under the amended revenue and cost recognition guidance, while prior period amounts were not restated and continue to be reported in accordance with the Company's previous revenue and cost recognition policies.
Standards Pending Adoption
In August 2018, the FASB modified the requirements for capitalizing costs incurred to implement a hosting arrangement that is a service contract. The modified requirements were intended to align the cost capitalization requirements for hosting arrangements with the cost capitalization requirements for internal-use software. The modified guidance is effective for the Company beginning on January 1, 2020, with early adoption permitted. The guidance can be applied prospectively to all arrangements entered into or materially modified after the effective date or using a retrospective transition approach. The Company does not expect application of the modified requirements for capitalizing costs incurred to implement a hosting arrangement to have a material effect on its
Condensed Consolidated Financial Statements
.
In March 2017, the FASB shortened the amortization period for certain investments in callable debt securities held at a premium to the earliest call date. Application of the shortened amortization period is effective for the Company beginning on January 1, 2019 on a modified retrospective basis, with early application permitted. The Company does not expect application of the shortened amortization period to have a material effect on its
Condensed Consolidated Financial Statements
.
In June 2016, the FASB issued updated guidance that requires entities to use a current expected credit loss model to measure credit-related impairments for financial instruments held at amortized cost. The current expected credit loss model is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability. Current expected credit losses, and subsequent adjustments, represent an estimate of lifetime expected credit losses that are recorded as an allowance deducted from the amortized cost of the financial instrument. The updated guidance also amends the other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments for credit-related losses through an allowance and eliminating the length of time a security has been in an unrealized loss position as a consideration in the determination of whether a credit loss exists. The updated guidance is effective for the Company beginning on January 1, 2020 and is effective using a modified retrospective transition approach for the provisions related to application of the current expected credit loss model to financial instruments and using a prospective transition approach for the provisions related to credit losses on available-for-sale debt
securities. Early application is permitted. The Company is evaluating the effect of application on its
Condensed Consolidated Financial Statements
.
In February 2016, the FASB issued a new accounting standard for leases. The new lease accounting standard generally requires the recognition of operating and financing lease liabilities and corresponding right-of-use assets on the statement of financial position. For operating leases, a lessee recognizes its total lease expense as an operating expense over the lease term. For financing leases, a lessee recognizes amortization of the right-of-use asset as an operating expense over the lease term separately from interest on the lease liability. On transition, the difference between the right-of-use asset and lease liabilities, net of any previously recognized lease-related assets and liabilities and any resulting deferred tax impact, is recognized as an adjustment to retained earnings.
The new lease accounting standard is effective for the Company beginning on January 1, 2019 using a modified retrospective transition approach, with early application permitted. The Company is evaluating the effect of application on its
Condensed Consolidated Financial Statements
and expects to apply the package of practical expedients permitted under the transition guidance within the new lease accounting standard, which among other things, permits the historical lease classification to carryforward. The Company also expects to apply a practical expedient to combine lease and non-lease components within a lease and to apply the transition alternative to record the cumulative effect of adoption on the date of initial application (i.e., January 1, 2019). Adoption of the new lease accounting standard is expected to result in the recognition of the present value of the Company's existing minimum lease payments as lease liabilities and a corresponding right-of-use asset, which may be material to the
Condensed Consolidated Balance Sheets
. The new lease accounting standard is not expected to materially affect the
Condensed Consolidated Statements of Operations
, Condensed Consolidated Statements of Comprehensive Loss or the Condensed Consolidated Statements of Cash Flows.
(2) Acquisitions
TiVo Acquisition
On
September 7, 2016
,
Rovi
completed its acquisition of
TiVo Solutions
, a global leader in next-generation video technology and innovative cloud-based software-as-a-service solutions.
TiVo Solutions
' results of operations and cash flows have been included in the
Condensed Consolidated Financial Statements
for periods subsequent to
September 7, 2016
.
In November 2016, holders of
9.1 million
shares of
TiVo Solutions
common stock outstanding at the
TiVo Acquisition Date
who did not vote to approve the
TiVo Acquisition
("Dissenting Holders") filed a petition for appraisal pursuant to Section 262 of the Delaware General Corporation Law in the Court of Chancery of the State of Delaware (In re Appraisal of TiVo, Inc., C.A. No. 12909-CB (Del. Ch.)). On March 27, 2017,
TiVo Corporation
executed a settlement agreement with the Dissenting Holders to settle their claims for
$117.0 million
, which was paid in cash in April 2017. In connection with the settlement, in March 2017, the exchange agent in the
TiVo Acquisition
returned
$25.1 million
in cash related to the Dissenting Holders to
TiVo Corporation
. As the amount paid to Dissenting Holders resulted from a settlement other than a judgment from the Delaware Court of Chancery, a
TiVo Acquisition litigation
loss of
$12.9 million
was recognized in the
Condensed Consolidated Statements of Operations
for the
nine months ended September 30, 2017
.
(3) Discontinued Operations
In the
three and nine months ended September 30, 2018
, the Company recognized
Income from discontinued operations, net of tax
of
$0.1 million
and
$3.7 million
, respectively, as a result of the expiration of certain indemnification obligations and the execution of settlement agreements during the period associated with previous business disposals, partially offset by an increase in legal defense costs.
(4) Financial Statement Details
Inventory
(in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Raw materials
|
$
|
1,042
|
|
|
$
|
1,846
|
|
Finished goods
|
6,921
|
|
|
9,735
|
|
Inventory
|
$
|
7,963
|
|
|
$
|
11,581
|
|
Property and equipment, net
(in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Computer software and equipment
|
$
|
158,490
|
|
|
$
|
150,098
|
|
Leasehold improvements
|
45,303
|
|
|
44,981
|
|
Furniture and fixtures
|
9,971
|
|
|
9,137
|
|
Property and equipment, gross
|
213,764
|
|
|
204,216
|
|
Less: Accumulated depreciation and amortization
|
(163,075
|
)
|
|
(148,972
|
)
|
Property and equipment, net
|
$
|
50,689
|
|
|
$
|
55,244
|
|
Accounts payable and accrued expenses
(in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Accounts payable
|
$
|
10,828
|
|
|
$
|
10,517
|
|
Accrued compensation and benefits
|
33,566
|
|
|
47,886
|
|
Other accrued liabilities
|
48,163
|
|
|
77,449
|
|
Accounts payable and accrued expenses
|
$
|
92,557
|
|
|
$
|
135,852
|
|
(5) Revenues
Adoption of Amended Revenue and Cost Recognition Guidance
The Company adopted the provisions of the amended revenue recognition guidance described in
Note 1
using the modified retrospective transition approach on January 1, 2018. As such, the amended revenue recognition guidance was applied to those contracts which were not completed as of
December 31, 2017
. Results for periods beginning after
December 31, 2017
are presented under the amended revenue recognition guidance, while prior period amounts were not restated and continue to be reported in accordance with the previous revenue recognition guidance.
In addition, the Company adopted amended guidance related to the capitalization and amortization of incremental costs to obtain a contract with a customer and guidance for the de-recognition of prepaid stored-value product liabilities, such as gift cards, each as described in
Note 1
using the modified retrospective transition approach on January 1, 2018.
The cumulative effect of these changes on the
Condensed Consolidated Balance Sheets
on adoption was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts with Customers
|
|
Costs to Obtain Contracts with Customers
|
|
De-recognition of Prepaid Stored Value Product Liabilities
|
|
|
|
December 31, 2017
|
|
|
|
|
January 1, 2018
|
Accounts receivable, net
|
$
|
180,768
|
|
|
$
|
24,177
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
204,945
|
|
Prepaid expenses and other current assets
|
40,719
|
|
|
(2,705
|
)
|
|
525
|
|
|
—
|
|
|
38,539
|
|
Other long-term assets
|
65,673
|
|
|
(4,419
|
)
|
|
819
|
|
|
—
|
|
|
62,073
|
|
Accounts payable and accrued expenses
|
(135,852
|
)
|
|
—
|
|
|
—
|
|
|
2,155
|
|
|
(133,697
|
)
|
Unearned revenue
|
(55,393
|
)
|
|
11,208
|
|
|
—
|
|
|
—
|
|
|
(44,185
|
)
|
Deferred tax liabilities, net
|
(50,356
|
)
|
|
(348
|
)
|
|
—
|
|
|
—
|
|
|
(50,704
|
)
|
Accumulated deficit
|
1,392,651
|
|
|
(27,913
|
)
|
|
(1,344
|
)
|
|
(2,155
|
)
|
|
1,361,239
|
|
The most significant impact of the amended revenue recognition guidance relates to the accounting for software arrangements. Under prior industry-specific software revenue recognition guidance, when the Company concluded it did not have vendor-specific objective evidence ("VSOE") of fair value for the undelivered elements of an arrangement, revenue was deferred until the last element without VSOE was delivered. The amended revenue recognition guidance eliminated the concept of VSOE of fair value. The amended revenue recognition guidance requires an evaluation of whether the undelivered elements are distinct performance obligations and, therefore, should each be recognized separately when delivered. On adoption of the amended revenue recognition guidance, the Company accounted for the software and support elements of the
TiVo Solutions
international MSO agreements as
two
distinct performance obligations. These agreements contain minimum guarantees, and on adoption of the amended revenue recognition guidance,
$34.4 million
of these minimums were recorded as an increase in
Accounts receivable, net
and a reduction to
Accumulated deficit
as the software was delivered prior to the date of adoption.
The amended revenue recognition guidance also requires the Company to record revenue related to fixed-fee patent licensing agreements that do not provide the right to future patented technologies acquired by the Company during the term of the license when access to the existing patented technology is granted to the licensee. Under prior revenue recognition guidance, the Company recognized revenue from this type of fixed-fee license agreement on a straight-line basis over the term of the agreement. On adoption of the amended revenue recognition guidance, the Company recorded a
$10.2 million
reduction in
Unearned revenue
and
Accumulated deficit
for this type of fixed-fee license agreement.
The amended revenue recognition guidance includes specific guidance for contract modifications. Based on the nature of the modification, the revenue recognized for the contract may be updated on a cumulative catch-up basis on execution of the modification or updated prospectively as a result of the modification. For certain contract modifications, this accounting treatment differs from the accounting treatment in accordance with previous revenue recognition guidance.
Prior to the adoption of the amended revenue recognition guidance, the Company recognized revenue from per-unit royalty licenses with certain CE manufacturers and third party IPG providers in the period the licensee reported its sales to the Company, which was generally in the month or quarter after the underlying sales by the licensee occurred. On adoption of the amended revenue recognition guidance, revenue from per-unit royalty licenses is recognized in the period in which the licensee's sales are estimated to have occurred, limited to the amount of revenue that is not subject to a significant risk of reversal, which results in an adjustment to revenue when actual amounts are subsequently reported by the Company's licensees.
Pursuant to the amended cost capitalization guidance, incremental costs to obtain a contract with a customer are capitalized and amortized over a period of time commensurate with the expected period of benefit, which may exceed the contract term. Prior to the adoption of the amended cost capitalization guidance, the Company expensed incremental costs to obtain a contract with a customer as incurred.
The impact of adoption of the amended revenue and cost recognition guidance on the
Condensed Consolidated Statements of Operations
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
As Reported
|
|
As If Applying Prior Guidance
|
|
Effect of Change
Higher/(Lower)
|
Total Revenues, net
|
$
|
164,709
|
|
|
$
|
170,868
|
|
|
$
|
(6,159
|
)
|
Cost of licensing, services and software revenues, excluding depreciation and amortization of intangible assets
|
40,749
|
|
|
41,512
|
|
|
(763
|
)
|
Selling, general and administrative
|
39,867
|
|
|
40,195
|
|
|
(328
|
)
|
Loss from continuing operations before income taxes
|
(18,223
|
)
|
|
(13,155
|
)
|
|
(5,068
|
)
|
Income tax expense
|
4,769
|
|
|
5,143
|
|
|
(374
|
)
|
Loss from continuing operations, net of tax
|
(22,992
|
)
|
|
(18,298
|
)
|
|
(4,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
As Reported
|
|
As If Applying Prior Guidance
|
|
Effect of Change
Higher/(Lower)
|
Total Revenues, net
|
$
|
527,406
|
|
|
$
|
543,871
|
|
|
$
|
(16,465
|
)
|
Cost of licensing, services and software revenues, excluding depreciation and amortization of intangible assets
|
126,547
|
|
|
128,458
|
|
|
(1,911
|
)
|
Selling, general and administrative
|
133,906
|
|
|
134,232
|
|
|
(326
|
)
|
Loss from continuing operations before income taxes
|
(51,569
|
)
|
|
(37,341
|
)
|
|
(14,228
|
)
|
Income tax expense
|
13,305
|
|
|
14,460
|
|
|
(1,155
|
)
|
Loss from continuing operations, net of tax
|
(64,874
|
)
|
|
(51,801
|
)
|
|
(13,073
|
)
|
Practical Expedients and Exemptions
The Company applies a practical expedient to not perform an evaluation of whether a contract includes a significant financing component when the timing of revenue recognition differs from the timing of cash collection by one year or less.
The Company applies a practical expedient to expense costs to obtain a contract with a customer as incurred as a component of
Selling, general and administrative
expenses when the amortization period would have been one year or less.
The Company applies a practical expedient when disclosing revenue expected to be recognized from unsatisfied performance obligations to exclude contracts with customers with an original duration of less than one year, contracts for which revenue is recognized based on the amount which the Company has the right to invoice for services performed and amounts attributable to variable consideration arising from (i) a sales-based or usage-based royalty of an intellectual property license or (ii) when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.
Revenue Details
The following tables depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors by disaggregating revenue by product offering (in
Note 15
), significant customer, contract-type and geographic area. These tables include revenue recognized from contracts with customers and revenue from other sources, including out-of-license settlements. As noted above, amounts for the
three and nine months ended September 30, 2017
have not been adjusted to reflect adoption of the amended revenue recognition guidance.
Customers representing 10% or more of
Total Revenues, net
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
AT&T Inc. ("AT&T")
|
11
|
%
|
|
14
|
%
|
|
10
|
%
|
|
14
|
%
|
Substantially all revenue from AT&T is reported in the
Intellectual Property Licensing
segment.
By segment, the pattern of revenue recognition was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Product
|
|
Intellectual Property Licensing
|
|
Total Revenues, net
|
Goods and services transferred at a point in time
|
$
|
22,093
|
|
|
$
|
26,528
|
|
|
$
|
48,621
|
|
Goods and services transferred over time
|
72,519
|
|
|
39,768
|
|
|
112,287
|
|
Out-of-license settlements
|
—
|
|
|
3,801
|
|
|
3,801
|
|
Total Revenues, net
|
$
|
94,612
|
|
|
$
|
70,097
|
|
|
$
|
164,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Product
|
|
Intellectual Property Licensing
|
|
Total Revenues, net
|
Goods and services transferred at a point in time
|
$
|
79,569
|
|
|
$
|
81,977
|
|
|
$
|
161,546
|
|
Goods and services transferred over time
|
224,682
|
|
|
125,212
|
|
|
349,894
|
|
Out-of-license settlements
|
—
|
|
|
15,966
|
|
|
15,966
|
|
Total Revenues, net
|
$
|
304,251
|
|
|
$
|
223,155
|
|
|
$
|
527,406
|
|
Total Revenues, net
by geographic area was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Nine Months Ended September 30, 2018
|
United States
|
$
|
115,312
|
|
|
$
|
351,423
|
|
United Kingdom
|
9,131
|
|
|
56,361
|
|
Rest of the world
|
40,266
|
|
|
119,622
|
|
Total Revenues, net
|
$
|
164,709
|
|
|
$
|
527,406
|
|
Revenue by geography is predominately based on the end user's location. Other than the United States, no country accounted for more than 10% of revenue for the
three months ended September 30, 2018
. Other than the United States and the United Kingdom, no country accounted for more than 10% of revenue for the
nine months ended September 30, 2018
.
Accounts receivable, net
(in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Accounts receivable, gross
|
$
|
176,499
|
|
|
$
|
183,343
|
|
Less: Allowance for doubtful accounts
|
(2,750
|
)
|
|
(2,575
|
)
|
Accounts receivable, net
|
$
|
173,749
|
|
|
$
|
180,768
|
|
Customers representing 10% or more of
Accounts receivable, net
were as follows.
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
AT&T
|
16
|
%
|
|
28
|
%
|
Virgin Media
|
11
|
%
|
|
(a)
|
|
(a) Customer below 10% of
Accounts receivable, net
as of the date presented.
Contract Balances
Contract assets primarily consist of revenue recognized in excess of the amount billed to the customer, limited to net realizable value and deferred engineering costs for significant software customization or modification and set-up services to the extent deemed recoverable. Contract assets also include the incremental costs of obtaining a contract with a customer, principally sales commissions when the renewal commission is not commensurate with the initial commission. Following adoption of the amended revenue recognition guidance, contract assets were recorded in the
Condensed Consolidated Balance Sheets
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
January 1, 2018
|
Accounts receivable, net
|
$
|
46,154
|
|
|
$
|
68,858
|
|
Prepaid expenses and other current assets
|
1,527
|
|
|
1,167
|
|
Other long-term assets
|
7,988
|
|
|
6,783
|
|
Total contract assets, net
|
$
|
55,669
|
|
|
$
|
76,808
|
|
No
impairment losses were recognized with respect to contract assets for the
three and nine months ended September 30, 2018
.
Contract liabilities are mainly comprised of unearned revenue related to consumer lifetime subscriptions for the TiVo service and multi-period licensing or cloud-based services and other offerings for which the Company is paid in advance of when control of the promised good or service is transferred to the customer.
Unearned revenue
also includes amounts related to professional services to be performed in the future. For the
three and nine months ended September 30, 2018
, the Company recognized
$10.3 million
and
$33.3 million
, respectively, of revenue that had been included in
Unearned revenue
as of
December 31, 2017
.
As of
September 30, 2018
, approximately
$818.6 million
of revenue is expected to be recognized from remaining performance obligations that are primarily related to fixed-fee intellectual property and software-as-a-service agreements, which is expected to be recognized as follows:
7.2%
in the remainder of 2018,
25.6%
in 2019,
18.5%
in 2020,
13.0%
in 2021,
9.5%
in 2022, and
26.1%
thereafter.
(6) Investments
The amortized cost and fair value of cash, cash equivalents and marketable securities by significant investment category were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Amortized Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Value
|
Cash
|
$
|
45,530
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45,530
|
|
Cash equivalents - Money market funds
|
104,125
|
|
|
—
|
|
|
—
|
|
|
104,125
|
|
Cash and cash equivalents
|
$
|
149,655
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
149,655
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
115,765
|
|
|
$
|
4
|
|
|
$
|
(420
|
)
|
|
$
|
115,349
|
|
U.S. Treasuries / Agencies
|
117,298
|
|
|
—
|
|
|
(278
|
)
|
|
117,020
|
|
Marketable securities
|
$
|
233,063
|
|
|
$
|
4
|
|
|
$
|
(698
|
)
|
|
$
|
232,369
|
|
Cash, cash equivalents and marketable securities
|
|
|
|
|
|
|
$
|
382,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Amortized Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Value
|
Cash
|
$
|
38,996
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38,996
|
|
Cash equivalents - Money market funds
|
89,969
|
|
|
—
|
|
|
—
|
|
|
89,969
|
|
Cash and cash equivalents
|
$
|
128,965
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
128,965
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
$
|
10,800
|
|
|
$
|
—
|
|
|
$
|
(216
|
)
|
|
$
|
10,584
|
|
Corporate debt securities
|
102,794
|
|
|
—
|
|
|
(397
|
)
|
|
102,397
|
|
Foreign government obligations
|
2,249
|
|
|
—
|
|
|
(4
|
)
|
|
2,245
|
|
U.S. Treasuries / Agencies
|
108,781
|
|
|
—
|
|
|
(430
|
)
|
|
108,351
|
|
Marketable securities
|
$
|
224,624
|
|
|
$
|
—
|
|
|
$
|
(1,047
|
)
|
|
$
|
223,577
|
|
Cash, cash equivalents and marketable securities
|
|
|
|
|
|
|
$
|
352,542
|
|
As of
September 30, 2018
, the amortized cost and fair value of marketable securities, by contractual maturity, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Fair Value
|
Due in less than 1 year
|
$
|
162,530
|
|
|
$
|
162,073
|
|
Due in 1-2 years
|
70,533
|
|
|
70,296
|
|
Total
|
$
|
233,063
|
|
|
$
|
232,369
|
|
As of
September 30, 2018
and
December 31, 2017
, the
Condensed Consolidated Balance Sheets
include equity securities accounted for under the equity method with a carrying amount of
$1.7 million
and
$1.1 million
, respectively, and equity securities without a readily determinable fair value with a carrying amount of
$1.5 million
and
$1.5 million
, respectively. The carrying amount of the Company's equity securities without a readily determinable fair value is measured as cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical, or a similar, security of the same issuer. No impairments or adjustments to the carrying amount of the Company's equity securities without a readily determinable fair value were recognized for the
three and nine months ended September 30, 2018 and 2017
.
(7) Fair Value Measurements
Fair Value Hierarchy
The Company uses valuation techniques that are based on observable and unobservable inputs to measure fair value. Observable inputs are developed using publicly available information and reflect the assumptions market participants would use, while unobservable inputs are developed using the best information available about the assumptions market participants would use. Fair value measurements are classified in a hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. Assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety:
|
|
•
|
Level 1.
Quoted prices in active markets for identical assets or liabilities.
|
|
|
•
|
Level 2.
Inputs other than Level 1 inputs that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or market-corroborated inputs.
|
|
|
•
|
Level 3.
Unobservable inputs for the asset or liability.
|
The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. For the
three and nine months ended September 30, 2018 and 2017
, there were no transfers between levels of the fair value hierarchy.
Recurring Fair Value Measurements
Assets and liabilities reported at fair value on a recurring basis in the
Condensed Consolidated Balance Sheets
were classified in the fair value hierarchy as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Total
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
Money market funds
|
$
|
104,125
|
|
|
$
|
104,125
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term marketable securities
|
|
|
|
|
|
|
|
Corporate debt securities
|
85,785
|
|
|
—
|
|
|
85,785
|
|
|
—
|
|
U.S. Treasuries / Agencies
|
76,288
|
|
|
—
|
|
|
76,288
|
|
|
—
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
Interest rate swaps
|
231
|
|
|
—
|
|
|
231
|
|
|
—
|
|
Long-term marketable securities
|
|
|
|
|
|
|
|
Corporate debt securities
|
29,564
|
|
|
—
|
|
|
29,564
|
|
|
—
|
|
U.S. Treasuries / Agencies
|
40,732
|
|
|
—
|
|
|
40,732
|
|
|
—
|
|
Other long-term assets
|
|
|
|
|
|
|
|
Interest rate swaps
|
440
|
|
|
—
|
|
|
440
|
|
|
—
|
|
Total Assets
|
$
|
337,165
|
|
|
$
|
104,125
|
|
|
$
|
233,040
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
(145
|
)
|
|
$
|
—
|
|
|
$
|
(145
|
)
|
|
$
|
—
|
|
Total Liabilities
|
$
|
(145
|
)
|
|
$
|
—
|
|
|
$
|
(145
|
)
|
|
$
|
—
|
|
The Company's interest rate swaps are subject to master netting arrangements and have been presented on a net basis in the
Condensed Consolidated Balance Sheets
where applicable. As of
September 30, 2018
, interest rate swaps in an asset position with a fair value of
$0.7 million
that mature in 2021 were netted against interest rate swaps in a liability position with a fair value of
$0.2 million
that mature in 2021 in the
Condensed Consolidated Balance Sheets
and in the table above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Total
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
Money market funds
|
$
|
89,969
|
|
|
$
|
89,969
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term marketable securities
|
|
|
|
|
|
|
|
Corporate debt securities
|
49,396
|
|
|
—
|
|
|
49,396
|
|
|
—
|
|
Foreign government obligations
|
2,245
|
|
|
—
|
|
|
2,245
|
|
|
—
|
|
U.S. Treasuries / Agencies
|
89,225
|
|
|
—
|
|
|
89,225
|
|
|
—
|
|
Long-term marketable securities
|
|
|
|
|
|
|
|
Auction rate securities
|
10,584
|
|
|
—
|
|
|
—
|
|
|
10,584
|
|
Corporate debt securities
|
53,001
|
|
|
—
|
|
|
53,001
|
|
|
—
|
|
U.S. Treasuries / Agencies
|
19,126
|
|
|
—
|
|
|
19,126
|
|
|
—
|
|
Total Assets
|
$
|
313,546
|
|
|
$
|
89,969
|
|
|
$
|
212,993
|
|
|
$
|
10,584
|
|
Liabilities
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
|
Cubiware contingent consideration
|
$
|
(2,234
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2,234
|
)
|
Other long-term liabilities
|
|
|
|
|
|
|
|
Interest rate swaps
|
(9,735
|
)
|
|
—
|
|
|
(9,735
|
)
|
|
—
|
|
Total Liabilities
|
$
|
(11,969
|
)
|
|
$
|
—
|
|
|
$
|
(9,735
|
)
|
|
$
|
(2,234
|
)
|
Rollforward of Level 3 Fair Value Measurements
Changes in the fair value of assets and liabilities classified in Level 3 of the fair value hierarchy were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2018
|
|
2017
|
|
Cubiware Contingent Consideration
|
|
Auction Rate Securities
|
|
Cubiware Contingent Consideration
|
Balance at beginning of period
|
$
|
(3,599
|
)
|
|
$
|
10,584
|
|
|
$
|
(5,715
|
)
|
Settlements
|
1,874
|
|
|
—
|
|
|
2,650
|
|
Transfers out (a)
|
1,700
|
|
|
—
|
|
|
—
|
|
Gain (loss) included in earnings
|
25
|
|
|
—
|
|
|
(386
|
)
|
Balance at end of period
|
$
|
—
|
|
|
$
|
10,584
|
|
|
$
|
(3,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
Auction Rate Securities
|
|
Cubiware Contingent Consideration
|
|
Auction Rate Securities
|
|
Cubiware Contingent Consideration
|
Balance at beginning of period
|
$
|
10,584
|
|
|
$
|
(2,234
|
)
|
|
$
|
10,368
|
|
|
$
|
(5,273
|
)
|
Sales
|
(10,715
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlements
|
—
|
|
|
1,874
|
|
|
—
|
|
|
2,650
|
|
Transfers out (a)
|
—
|
|
|
1,700
|
|
|
—
|
|
|
—
|
|
Gain (loss) included in earnings
|
(85
|
)
|
|
(1,340
|
)
|
|
—
|
|
|
(828
|
)
|
Unrealized loss reclassified on sale
|
216
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Unrealized gains included in other comprehensive income
|
—
|
|
|
—
|
|
|
216
|
|
|
—
|
|
Balance at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,584
|
|
|
$
|
(3,451
|
)
|
|
|
(a)
|
During the
three and nine months ended September 30, 2018
,
$1.7 million
related to the
Cubiware contingent consideration
was reclassified to a contingent liability that is not measured at fair value.
|
For the
three and nine months ended September 30, 2018
, the
Gain (loss) included in earnings
related to the
Cubiware contingent consideration
liability is included in
Selling, general and administrative
expense related to remeasurement of the liability as a
$0.1 million
gain and a
$1.1 million
loss, respectively, and in
Interest expense
related to accretion of the liability to future value of less than
$0.1 million
and
$0.2 million
, respectively. For the
three and nine months ended September 30, 2017
, the
Gain (loss) included in earnings
related to the
Cubiware contingent consideration
liability is included in
Selling, general and administrative
expense related to remeasurement of the liability as a
$0.2 million
and
$0.3 million
loss, respectively, and in
Interest expense
related to accretion of the liability to future value of
$0.1 million
and
$0.5 million
, respectively.
Valuation Techniques
The fair value of marketable securities, other than auction rate securities, is estimated using observable market-corroborated inputs, such as quoted prices in active markets for similar assets or independent pricing vendors, obtained from a third-party pricing service.
The fair value of contingent consideration liabilities related to acquisitions is estimated utilizing a probability-weighted discounted cash flow analysis based on the terms of the underlying purchase agreement. The significant unobservable inputs used in calculating the fair value of contingent consideration liabilities related to acquisitions include financial performance scenarios, the probability of achieving those scenarios and the risk-adjusted discount rate.
The fair value of interest rate swaps is estimated using a discounted cash flow analysis that considers the expected future cash flows of each interest rate swap. This analysis reflects the contractual terms of the interest rate swap, including the remaining period to maturity, and uses market-corroborated inputs, including forward interest rate curves and implied interest rate volatilities. The fair value of an interest rate swap is estimated by netting the discounted future fixed cash payments against the discounted expected variable cash receipts. The variable cash receipts are estimated based on an expectation of future interest rates derived from forward interest rate curves. The fair value of an interest rate swap also incorporates credit valuation adjustments to reflect the nonperformance risk of the Company and the respective counterparty. In adjusting the fair value of its interest rate swaps for the effect of nonperformance risk, the Company considers the effect of its master netting agreements.
Other Fair Value Disclosures
The carrying amount and fair value of debt issued or assumed by the Company were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Carrying Amount
|
|
Fair Value (a)
|
|
Carrying Amount
|
|
Fair Value (a)
|
2020 Convertible Notes
|
$
|
322,849
|
|
|
$
|
328,412
|
|
|
$
|
311,766
|
|
|
$
|
326,888
|
|
2021 Convertible Notes
|
48
|
|
|
48
|
|
|
48
|
|
|
48
|
|
Term Loan Facility B
|
666,904
|
|
|
668,574
|
|
|
671,281
|
|
|
679,722
|
|
Total Long-term debt
|
$
|
989,801
|
|
|
$
|
997,034
|
|
|
$
|
983,095
|
|
|
$
|
1,006,658
|
|
|
|
(a)
|
The fair value of debt issued or assumed by the Company is estimated using quoted prices for the identical instrument in a market that is not active and considers interest rates currently available to companies of similar credit standing for similar terms and remaining maturities and considers the nonperformance risk of the Company. If reported at fair value in the
Condensed Consolidated Balance Sheets
, debt issued or assumed by the Company would be classified in Level 2 of the fair value hierarchy.
|
(8) Goodwill and Intangible Assets, Net
Goodwill
Goodwill allocated to the reportable segments and changes in the carrying amount of goodwill by reportable segment were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
Intellectual Property Licensing
|
|
Total
|
December 31, 2017
|
$
|
521,895
|
|
|
$
|
1,291,332
|
|
|
$
|
1,813,227
|
|
Foreign currency translation
|
(44
|
)
|
|
—
|
|
|
(44
|
)
|
September 30, 2018
|
$
|
521,851
|
|
|
$
|
1,291,332
|
|
|
$
|
1,813,183
|
|
Goodwill at each reporting unit is evaluated for potential impairment annually, as of the beginning of the fourth quarter, and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable.
Intangible Assets, Net
Intangible assets, net
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Finite-lived intangible assets
|
|
|
|
|
|
Developed technology and patents
|
$
|
1,034,085
|
|
|
$
|
(742,956
|
)
|
|
$
|
291,129
|
|
Existing contracts and customer relationships
|
402,896
|
|
|
(190,692
|
)
|
|
212,204
|
|
Content databases and other
|
57,157
|
|
|
(50,433
|
)
|
|
6,724
|
|
Trademarks / Tradenames
|
8,300
|
|
|
(8,300
|
)
|
|
—
|
|
Total finite-lived intangible assets
|
1,502,438
|
|
|
(992,381
|
)
|
|
510,057
|
|
Indefinite-lived intangible assets
|
|
|
|
|
|
TiVo Tradename
|
14,000
|
|
|
—
|
|
|
14,000
|
|
Total intangible assets
|
$
|
1,516,438
|
|
|
$
|
(992,381
|
)
|
|
$
|
524,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Finite-lived intangible assets
|
|
|
|
|
|
Developed technology and patents
|
$
|
1,034,458
|
|
|
$
|
(676,465
|
)
|
|
$
|
357,993
|
|
Existing contracts and customer relationships
|
403,244
|
|
|
(139,289
|
)
|
|
263,955
|
|
Content databases and other
|
57,053
|
|
|
(49,077
|
)
|
|
7,976
|
|
Trademarks / Tradenames
|
8,300
|
|
|
(8,300
|
)
|
|
—
|
|
Total finite-lived intangible assets
|
1,503,055
|
|
|
(873,131
|
)
|
|
629,924
|
|
Indefinite-lived intangible assets
|
|
|
|
|
|
TiVo Tradename
|
14,000
|
|
|
—
|
|
|
14,000
|
|
Total intangible assets
|
$
|
1,517,055
|
|
|
$
|
(873,131
|
)
|
|
$
|
643,924
|
|
Patent Acquisition
In the
nine months ended September 30, 2017
, the Company purchased a portfolio of patents for
$2.0 million
in cash. The Company accounted for the patent portfolio purchase as an asset acquisition and is amortizing the purchase price over a weighted average period of
five years
.
Future Amortization of Finite-Lived Intangible Assets
As of
September 30, 2018
, future estimated amortization expense for finite-lived intangible assets was as follows (in thousands):
|
|
|
|
|
Remainder of 2018
|
$
|
27,763
|
|
2019
|
109,855
|
|
2020
|
109,109
|
|
2021
|
66,341
|
|
2022
|
38,602
|
|
Thereafter
|
158,387
|
|
Total
|
$
|
510,057
|
|
(9) Restructuring and Asset Impairment Charges
Components of
Restructuring and asset impairment charges
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Facility-related costs
|
$
|
99
|
|
|
$
|
3,034
|
|
|
$
|
387
|
|
|
$
|
4,244
|
|
Severance costs
|
2,822
|
|
|
220
|
|
|
5,606
|
|
|
4,260
|
|
Share-based payments
|
—
|
|
|
456
|
|
|
2,575
|
|
|
2,374
|
|
Contract termination costs
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Asset impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
6,741
|
|
Restructuring and asset impairment charges
|
$
|
2,921
|
|
|
$
|
3,710
|
|
|
$
|
8,568
|
|
|
$
|
17,623
|
|
Components of
accrued restructuring costs
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Facility-related costs
|
$
|
459
|
|
|
$
|
693
|
|
Severance costs
|
3,337
|
|
|
584
|
|
Contract termination costs
|
—
|
|
|
37
|
|
Accrued restructuring costs
|
$
|
3,796
|
|
|
$
|
1,314
|
|
The Company expects a substantial portion of the
accrued restructuring costs
to be paid by the end of 2018.
Profit Improvement Plan
In February 2018, the Company announced its intention to explore strategic alternatives. In connection with exploring strategic alternatives, the Company initiated certain cost saving actions (the "
Profit Improvement Plan
"). As a result of the
Profit Improvement Plan
, the Company expects to move certain positions to lower cost locations, eliminate layers of management and rationalize facilities resulting in severance costs and the termination of certain leases and other contracts. Restructuring activities for the
Profit Improvement Plan
for the
nine months ended September 30, 2018
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
Restructuring Expense
|
|
Cash Settlements
|
|
Non-Cash Settlements
|
|
Other
|
|
Balance at End of Period
|
Facility-related costs
|
$
|
—
|
|
|
$
|
47
|
|
|
$
|
(47
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Severance costs
|
—
|
|
|
5,478
|
|
|
(2,276
|
)
|
|
—
|
|
|
(11
|
)
|
|
3,191
|
|
Share-based payments
|
—
|
|
|
2,575
|
|
|
—
|
|
|
(2,575
|
)
|
|
—
|
|
|
—
|
|
Total
|
$
|
—
|
|
|
$
|
8,100
|
|
|
$
|
(2,323
|
)
|
|
$
|
(2,575
|
)
|
|
$
|
(11
|
)
|
|
$
|
3,191
|
|
The Company expects to incur material restructuring costs in connection with the
Profit Improvement Plan
through the middle of 2019.
TiVo Integration Restructuring Plan
Following completion of the
TiVo Acquisition
,
TiVo Corporation
began implementing integration plans that were intended to realize operational synergies between
Rovi
and
TiVo Solutions
(the "
TiVo Integration Restructuring Plan
"). As a result of these integration plans, the Company eliminated duplicative positions resulting in severance costs and the termination of certain leases and other contracts. Restructuring activities related to the
TiVo Integration Restructuring Plan
for the
nine months ended September 30, 2018
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
Restructuring Expense
|
|
Cash Settlements
|
|
Other
|
|
Balance at End of Period
|
Facility-related costs
|
$
|
111
|
|
|
$
|
280
|
|
|
$
|
(165
|
)
|
|
$
|
(39
|
)
|
|
$
|
187
|
|
Severance costs
|
448
|
|
|
127
|
|
|
(564
|
)
|
|
1
|
|
|
12
|
|
Total
|
$
|
559
|
|
|
$
|
407
|
|
|
$
|
(729
|
)
|
|
$
|
(38
|
)
|
|
$
|
199
|
|
As of
September 30, 2018
, the
TiVo Integration Restructuring Plan
is substantially complete.
Legacy
Rovi
and
TiVo Solutions
Restructuring Plans
Prior to the
TiVo Acquisition
,
Rovi
and
TiVo Solutions
had each initiated restructuring plans. As of
September 30, 2018
, the Legacy
Rovi
Restructuring Plan and the Legacy
TiVo Solutions
Restructuring Plan are complete. For the
nine months ended September 30, 2018
,
Restructuring and asset impairment charges
of
$0.1 million
were recognized in the
Condensed Consolidated Statements of Operations
related to these plans. As of
September 30, 2018
,
accrued restructuring costs
of
$0.4 million
are included in the
Condensed Consolidated Balance Sheets
related to the Legacy
Rovi
Restructuring Plan.
(10) Debt and Interest Rate Swaps
A summary of debt issued by or assumed by the Company was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Stated Interest Rate
|
Issue Date
|
Maturity Date
|
Outstanding Principal
|
Carrying Amount
|
|
Outstanding Principal
|
Carrying Amount
|
2020 Convertible Notes
|
0.500%
|
March 4, 2015
|
March 1, 2020
|
$
|
345,000
|
|
$
|
322,849
|
|
|
$
|
345,000
|
|
$
|
311,766
|
|
2021 Convertible Notes
|
2.000%
|
September 22, 2014
|
October 1, 2021
|
48
|
|
48
|
|
|
48
|
|
48
|
|
Term Loan Facility B
|
Variable
|
July 2, 2014
|
July 2, 2021
|
670,250
|
|
666,904
|
|
|
675,500
|
|
671,281
|
|
Total Long-term debt
|
|
|
|
$
|
1,015,298
|
|
989,801
|
|
|
$
|
1,020,548
|
|
983,095
|
|
Less: Current portion of long-term debt
|
|
|
|
|
7,000
|
|
|
|
7,000
|
|
Long-term debt, less current portion
|
|
|
|
|
$
|
982,801
|
|
|
|
$
|
976,095
|
|
2020 Convertible Notes
Rovi
issued
$345.0 million
in aggregate principal of
0.500%
Convertible Senior Notes that mature March 1, 2020 (the “
2020 Convertible Notes
”) at par pursuant to an Indenture dated
March 4, 2015
(as supplemented, the "
2015 Indenture
"). The
2020 Convertible Notes
were sold in a private placement and bear interest at an annual rate of
0.500%
payable semi-annually in arrears on March 1 and September 1 of each year, commencing September 1, 2015. In connection with the
TiVo Acquisition
,
TiVo Corporation
and
Rovi
entered into a supplemental indenture under which
TiVo Corporation
became a guarantor of the
2020 Convertible Notes
and the notes became convertible into
TiVo Corporation
common stock.
The
2020 Convertible Notes
were convertible at an initial conversion rate of
34.5968
shares of
TiVo Corporation
common stock per $1,000 of principal of notes, which was equivalent to an initial conversion price of
$28.9044
per share of
TiVo Corporation
common stock. The conversion rate and conversion price are subject to adjustment pursuant to the
2015 Indenture
, including as a result of dividends paid by
TiVo Corporation
. As of
September 30, 2018
, the
2020 Convertible Notes
are convertible at a conversion rate of
37.4422
shares of
TiVo Corporation
common stock per
$1,000
principal of notes, which is equivalent to a conversion price of
$26.7078
per share of
TiVo Corporation
common stock.
Holders may convert the
2020 Convertible Notes
, prior to the close of business on the business day immediately preceding
December 1, 2019
, in multiples of
$1,000
of principal under the following circumstances:
|
|
•
|
during any calendar quarter commencing after the calendar quarter ending on June 30, 2015 (and only during such calendar quarter), if the last reported sale price of
TiVo Corporation
's common stock for at least
20
trading days (whether or not consecutive) during the period of
30
consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to
130%
of the conversion price on each applicable trading day;
|
|
|
•
|
during the
five
business day period after any
ten
consecutive trading day period in which the trading price per
$1,000
of principal of
2020 Convertible Notes
for each trading day was less than
98%
of the product of the last reported sale price of
TiVo Corporation
’s common stock and the conversion rate on each such trading day; or
|
|
|
•
|
on the occurrence of specified corporate events.
|
On or after
December 1, 2019
until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert the
2020 Convertible Notes
, in multiples of
$1,000
of principal, at any time. In addition, during the
35
-day trading period following a Merger Event, as defined in the
2015 Indenture
, holders may convert the
2020 Convertible Notes
, in multiples of
$1,000
of principal.
On conversion, a holder will receive the conversion value of the
2020 Convertible Notes
converted based on the conversion rate multiplied by the volume-weighted average price of
TiVo Corporation
’s common stock over a specified observation period. On conversion,
Rovi
will pay cash up to the aggregate principal of the
2020 Convertible Notes
converted and deliver shares of
TiVo Corporation
’s common stock in respect of the remainder, if any, of the conversion obligation in excess of the aggregate principal of the
2020 Convertible Notes
being converted.
The conversion rate is subject to adjustment in certain events, including certain events that constitute a "Make-Whole Fundamental Change" (as defined in the
2015 Indenture
). In addition, if
Rovi
undergoes a "Fundamental Change" (as defined in the
2015 Indenture
) prior to March 1, 2020, holders may require
Rovi
to repurchase for cash all or a portion of the
2020 Convertible Notes
at a repurchase price equal to
100%
of the principal of the repurchased
2020 Convertible Notes
, plus accrued and unpaid interest. The conversion rate is also subject to customary anti-dilution adjustments.
The
2020 Convertible Notes
are not redeemable prior to maturity by
Rovi
and no sinking fund is provided. The
2020 Convertible Notes
are unsecured and do not contain financial covenants or restrictions on the payment of dividends, the incurrence of indebtedness or the repurchase of other securities by
Rovi
. The
2015 Indenture
includes customary terms and covenants, including certain events of default after which the
2020 Convertible Notes
may be due and payable immediately.
TiVo Corporation
has separately accounted for the liability and equity components of the
2020 Convertible Notes
. The initial carrying amount of the liability component was calculated by estimating the value of the
2020 Convertible Notes
using
TiVo Corporation
’s estimated non-convertible borrowing rate of
4.75%
at the time the instrument was issued. The carrying amount of the equity component, representing the value of the conversion option, was determined by deducting the liability component from the principal of the
2020 Convertible Notes
. The difference between the principal of the
2020 Convertible Notes
and the liability component is considered a debt discount which is being amortized to interest expense using the effective interest method over the expected term of the
2020 Convertible Notes
. The equity component of the
2020 Convertible Notes
was recorded as a component of
Additional paid-in capital
in the
Condensed Consolidated Balance Sheets
and will not be remeasured as long as it continues to meet the conditions for equity classification. Related to the
2020 Convertible Notes
, the
Condensed Consolidated Balance Sheets
included the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Liability component
|
|
|
|
Principal outstanding
|
$
|
345,000
|
|
|
$
|
345,000
|
|
Less: Unamortized debt discount
|
(19,622
|
)
|
|
(29,499
|
)
|
Less: Unamortized debt issuance costs
|
(2,529
|
)
|
|
(3,735
|
)
|
Carrying amount
|
$
|
322,849
|
|
|
$
|
311,766
|
|
|
|
|
|
Equity component
|
$
|
63,854
|
|
|
$
|
63,854
|
|
Components of interest expense related to the
2020 Convertible Notes
included in the
Condensed Consolidated Statements of Operations
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Stated interest
|
$
|
431
|
|
|
$
|
431
|
|
|
$
|
1,294
|
|
|
$
|
1,294
|
|
Amortization of debt discount
|
3,331
|
|
|
3,179
|
|
|
9,877
|
|
|
9,428
|
|
Amortization of debt issuance costs
|
412
|
|
|
374
|
|
|
1,206
|
|
|
1,093
|
|
Total interest expense
|
$
|
4,174
|
|
|
$
|
3,984
|
|
|
$
|
12,377
|
|
|
$
|
11,815
|
|
Rovi
incurred
$9.3 million
in transaction costs related to the issuance of the
2020 Convertible Notes
which were allocated to liability and equity components based on the relative amounts calculated for the
2020 Convertible Notes
at the date of issuance. Transaction costs of
$7.6 million
attributable to the liability component were recorded in
Long-term debt, less current portion
in the
Condensed Consolidated Balance Sheets
and are being amortized to interest expense using the effective interest method over the expected term of the
2020 Convertible Notes
. Transaction costs of
$1.7 million
attributable to the equity component were recorded as a component of
Additional paid-in capital
in the
Condensed Consolidated Balance Sheets
.
Purchased Call Options and Sold Warrants related to the
2020 Convertible Notes
Concurrent with the issuance of the
2020 Convertible Notes
in 2015,
Rovi
paid
$64.8 million
to purchase call options with respect to its common stock. The call options gave
TiVo Corporation
the right, but not the obligation, to purchase up to
11.9 million
shares of
TiVo Corporation
's common stock at an exercise price of
$28.9044
per share, which corresponds to the initial conversion price of the
2020 Convertible Notes
, and are exercisable by TiVo Corporation on conversion of the
2020 Convertible Notes
. The exercise price is subject to adjustment, including as a result of dividends paid by
TiVo Corporation
. As of
September 30, 2018
, the call options give
TiVo Corporation
the right, but not the obligation, to purchase up to
12.9 million
shares of
TiVo Corporation
's common stock at an exercise price of
$26.7078
per share. The call options are intended to reduce the potential dilution from conversion of the
2020 Convertible Notes
. The purchased call options are separate transactions from the
2020 Convertible Notes
and holders of the
2020 Convertible Notes
do not have any rights with respect to the purchased call options.
Concurrent with the issuance of the
2020 Convertible Notes
in 2015,
Rovi
received
$31.3 million
from the sale of warrants that provide the holder of the warrant the right, but not the obligation, to purchase up to
11.9 million
shares of TiVo Corporation common stock at an exercise price of
$40.1450
per share. The exercise price is subject to adjustment, including as a result of dividends paid by
TiVo Corporation
. As of
September 30, 2018
,
12.5 million
warrants were outstanding with an exercise price of
$37.0942
per share. The warrants are exercisable beginning June 1, 2020 and can be settled in cash or shares at
TiVo Corporation
's election. The warrants were entered into to offset the cost of the purchased call options. The warrants are separate transactions from the
2020 Convertible Notes
and holders of the
2020 Convertible Notes
do not have any rights with respect to the warrants.
The amounts paid to purchase the call options and received to sell the warrants were recorded in
Additional paid-in capital
in the
Condensed Consolidated Balance Sheets
.
2021 Convertible Notes
TiVo Solutions
issued
$230.0 million
in aggregate principal of
2.0%
Convertible Senior Notes that mature
October 1, 2021
(the "
2021 Convertible Notes
") at par pursuant to an Indenture dated September 22, 2014 (as supplemented, "the
2014 Indenture
"). The
2021 Convertible Notes
bear interest at an annual rate of
2.0%
, payable semi-annually in arrears on April 1 and October 1 of each year, commencing April 2015. On
October 12, 2016
,
TiVo Solutions
repaid
$229.95 million
of the par value of the
2021 Convertible Notes
.
The
2021 Convertible Notes
were convertible at an initial conversion rate of
56.1073
shares of
TiVo Solutions
common stock per
$1,000
principal of notes, which was equivalent to an initial conversion price of
$17.8230
per share of
TiVo Solutions
common stock. Following the
TiVo Acquisition
, the
2021 Convertible Notes
were convertible at a conversion rate of
21.6181
shares of
TiVo Corporation
common stock per
$1,000
principal of notes and
$154.30
per
$1,000
principal of notes, which was equivalent to a conversion price of
$39.12
per share of
TiVo Corporation
common stock. The conversion rate and conversion price are subject to adjustment pursuant to the
2014 Indenture
, including as a result of dividends paid by
TiVo Corporation
. As of
September 30, 2018
, the
2021 Convertible Notes
are convertible at a conversion rate of
23.4025
shares of
TiVo Corporation
common stock per
$1,000
principal of notes and
$154.30
per
$1,000
principal of notes, which is equivalent to a conversion price of
$36.1372
per share of
TiVo Corporation
common stock.
TiVo Solutions
can settle the
2021 Convertible Notes
in cash, shares of common stock, or any combination thereof pursuant to the
2014 Indenture
. Subject to certain exceptions, holders may require
TiVo Solutions
to repurchase, for cash, all or part of their
2021 Convertible Notes
upon a “Fundamental Change” (as defined in the
2014 Indenture
) at a price equal to
100%
of the principal amount of the
2021 Convertible Notes
being repurchased plus any accrued and unpaid interest up to, but excluding, the “Fundamental Change Repurchase Date” (as defined in the
2014 Indenture
). In addition, on a “Make-Whole Fundamental Change” (as defined in the
2014 Indenture
) prior to the maturity date of the
2021 Convertible Notes
,
TiVo Solutions
will, in some cases, increase the conversion rate for a holder that elects to convert its
2021 Convertible Notes
in connection with such Make-Whole Fundamental Change.
Senior Secured Credit Facility
On July 2, 2014, Rovi Corporation, as parent guarantor, and
two
of its wholly-owned subsidiaries, Rovi Solutions Corporation and Rovi Guides, Inc., as borrowers, and certain of its other subsidiaries, as subsidiary guarantors, entered into a Credit Agreement (the “
Credit Agreement
”). After the completion of the
TiVo Acquisition
,
TiVo Corporation
became a guarantor under the
Credit Agreement
. The
Credit Agreement
provided for a (i)
five
-year
$125.0 million
term loan A facility (“
Term Loan Facility A
”), (ii)
seven
-year
$700.0 million
term loan B facility (“
Term Loan Facility B
” and together with
Term Loan Facility A
, the “
Term Loan Facility
”) and (iii)
five
-year
$175.0 million
revolving credit facility (including a letter of credit sub-facility) (the "
Revolving Facility
” and together with the
Term Loan Facility
, the “
Senior Secured Credit Facility
”). In September 2015,
Rovi
made a voluntary principal prepayment to extinguish
Term Loan Facility A
and elected to terminate the
Revolving Facility
.
Prior to the refinancing described below, loans under
Term Loan Facility B
bore interest, at the Company's option, at a rate equal to either LIBOR, plus an applicable margin equal to
3.00%
per annum (subject to a
0.75%
LIBOR floor) or the prime lending rate, plus an applicable margin equal to
2.00%
per annum.
On
January 26, 2017
,
TiVo Corporation
, as parent guarantor, two of its wholly-owned subsidiaries, Rovi Solutions Corporation and Rovi Guides, Inc., as borrowers, and certain of
TiVo Corporation
’s other subsidiaries, as subsidiary guarantors, entered into
Refinancing Agreement No. 1
with respect to
Term Loan Facility B
. The
$682.5 million
in proceeds from
Refinancing Agreement No. 1
was used to repay existing loans under
Term Loan Facility B
in full. The borrowing terms for
Refinancing Agreement No. 1
are substantially similar to the borrowing terms of
Term Loan Facility B
. However, loans under
Refinancing Agreement No. 1
bear interest, at the borrower's option, at a rate equal to either LIBOR, plus an applicable margin equal to
2.50%
per annum (subject to a
0.75%
LIBOR floor) or the prime lending rate, plus an applicable margin equal to
1.50%
per annum.
Refinancing Agreement No. 1
requires quarterly principal payments of
$1.75 million
through June 2021, with any remaining balance payable in July 2021.
Refinancing Agreement No. 1
is part of the
Senior Secured Credit Facility
.
The refinancing of
Term Loan Facility B
resulted in a
Loss on debt extinguishment
of $
0.1 million
and a
Loss on debt modification
of
$0.9 million
for the
nine months ended September 30, 2017
. Creditors in
Term Loan Facility B
that elected not to participate in
Refinancing Agreement No. 1
were extinguished. Creditors in
Term Loan Facility B
that elected to participate in
Refinancing Agreement No. 1
and for which the present value of future cash flows was not substantially different were accounted for as a debt modification.
The
Credit Agreement
contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, and dividends and other distributions. The
Credit Agreement
is secured by substantially all of the Company's assets. The Company may be required to make an additional payment on the
Term Loan Facility
each February. This payment is calculated as a percentage of the prior year's "Excess Cash Flow" as defined in the
Credit Agreement
.
No
additional payment was required in February 2018.
Debt Maturities
As of
September 30, 2018
, aggregate expected principal payments on long-term debt, including the current portion of long-term debt, were as follows (in thousands):
|
|
|
|
|
Remainder of 2018
|
$
|
1,750
|
|
2019 (a)
|
352,000
|
|
2020
|
7,000
|
|
2021
|
654,548
|
|
Total
|
$
|
1,015,298
|
|
|
|
(a)
|
While the
2020 Convertible Notes
are scheduled to mature on March 1, 2020, future principal payments are presented based on the date the
2020 Convertible Notes
can be freely converted by holders, which is
December 1, 2019
. However, the
2020 Convertible Notes
may be converted by holders prior to
December 1, 2019
in certain circumstances.
|
Interest Rate Swaps
The Company issues long-term debt denominated in U.S. dollars based on market conditions at the time of financing and may enter into interest rate swaps to achieve a primarily fixed interest rate. Alternatively, the Company may choose not to enter into an interest rate swap or may terminate a previously executed interest rate swap if it believes a larger proportion of floating-rate debt would be beneficial. The Company has not designated any of its interest rate swaps as hedges for accounting purposes. The Company records interest rate swaps in the
Condensed Consolidated Balance Sheets
at fair value with changes in fair value recorded as
Gain (loss) on interest rate swaps
in the
Condensed Consolidated Statements of Operations
. Amounts are presented in the
Condensed Consolidated Balance Sheets
after considering the right of offset based on its master netting agreements. During the
three months ended September 30, 2018 and 2017
, the Company recorded gains of
$1.0 million
and losses of
$39.0 thousand
, respectively, from adjusting its interest rate swaps to fair value. During the
nine months ended September 30, 2018 and 2017
, the Company recorded gains of
$7.2 million
and losses of
$1.4 million
, respectively, from adjusting its interest rate swaps to fair value.
Details of the Company's interest rate swaps as of
September 30, 2018
and
December 31, 2017
were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
Contract Inception
|
Contract Effective Date
|
Contract Maturity
|
September 30, 2018
|
December 31, 2017
|
Interest Rate Paid
|
Interest Rate Received
|
Senior Secured Credit Facility
|
|
|
|
|
June 2013
|
January 2016
|
March 2019
|
$
|
250,000
|
|
$
|
250,000
|
|
2.23%
|
One-month USD-LIBOR
|
September 2014
|
January 2016
|
July 2021
|
$
|
125,000
|
|
$
|
125,000
|
|
2.66%
|
One-month USD-LIBOR
|
September 2014
|
March 2017
|
July 2021
|
$
|
200,000
|
|
$
|
200,000
|
|
2.93%
|
One-month USD-LIBOR
|
(11) Commitments and Contingencies
Purchase Commitments
During the normal course of business, the Company orders finished goods from a third party with advanced lead times that allow the third party to procure component supplies necessary to satisfy the Company
’
s purchase orders. A significant portion of the Company’s purchase commitments consist of firm, non-cancelable and unconditional purchase commitments. In certain instances, the Company has the option to cancel, reschedule or adjust its purchase commitments based on business needs prior to the purchase order becoming non-cancelable. As of
September 30, 2018
, the Company had total purchase
commitments for finished-goods inventory of
$4.4 million
, of which
$0.7 million
was accrued in the
Condensed Consolidated Balance Sheets
.
Indemnifications
In the normal course of business, the Company provides indemnifications of varying scopes and amounts to certain of its licensees against claims made by third parties arising out of the use and / or incorporation of the Company's products, intellectual property, services and / or technologies into the licensees' products and services.
TiVo Solutions
has also indemnified certain customers and business partners for, among other things, the licensing of its products, the sale of its DVRs, and the provision of engineering and consulting services. The Company’s obligation under its indemnification agreements with customer and business partners would arise in the event a third party filed a claim against one of the parties that was covered by the Company’s indemnification. Pursuant to these agreements, the Company may indemnify the other party for certain losses suffered or incurred by the indemnified party in connection with various types of claims, which may include, without limitation, intellectual property infringement, advertising and consumer disclosure laws, certain tax liabilities, negligence and intentional acts in the performance of services and violations of laws.
In some cases, the Company may receive tenders of defense and indemnity arising from products, intellectual property services and / or technologies that are no longer provided by the Company due to having divested certain assets, but which were previously licensed or provided by the Company.
The term of the Company's indemnification obligations is generally perpetual. The Company's indemnification obligations are typically limited to the cumulative amount paid to the Company by the licensee under the license agreement; however, some license agreements, including those with the Company's largest MSO and digital broadcast satellite providers, have larger limits or do not specify a limit on amounts that may be payable under the indemnity arrangements.
The Company cannot reasonably estimate the possible range of losses that may be incurred pursuant to its indemnification obligations, if any. Variables affecting any such assessment include but are not limited to: the nature of the claim asserted; the relative merits of the claim; the financial ability of the party suing the indemnified party to engage in protracted litigation; the number of parties seeking indemnification; the nature and amount of damages claimed by the party suing the indemnified party; and the willingness of such party to engage in settlement negotiations. Due to the nature of the Company's potential indemnity liability, the
Condensed Consolidated Financial Statements
could be materially adversely affected in a particular period by one or more of these indemnities.
Under certain circumstances,
TiVo Solutions
may seek to recover some or all amounts paid to an indemnified party from its insurers.
TiVo Solutions
does not have any assets held either as collateral or by third parties that, on the occurrence of an event requiring it to indemnify a customer, that could be obtained and liquidated to recover all or a portion of the amounts paid pursuant to its indemnification obligations.
Legal Proceedings
The Company may be involved in various lawsuits, claims and proceedings, including intellectual property, commercial, securities and employment matters that arise in the normal course of business. The Company accrues a liability when management believes information available prior to the issuance of the financial statements indicates it is probable a loss has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. The Company adjusts its accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Legal costs are expensed as incurred.
On June 15, 2011, TNS Media Research, LLC (d/b/a Kantar Media Audiences, or Kantar) brought a claim for declaratory judgment against TRA Global Inc. (which was acquired by TiVo Inc. in July 2012 and renamed TiVo Research and Analytics, Inc. or TiVo Research) in U.S. District Court alleging non-infringement of a TiVo Research patent, among other claims. TiVo Research responded by alleging affirmative defenses as well as counterclaims alleging infringement by Kantar of the TiVo Research patent at issue and one other patent. On February 22, 2016, the District Court granted Kantar's summary judgment motion on invalidity under Section 101 as to each of TiVo Research's asserted patent claims. On May 18, 2018, the District Court granted Kantar’s motion for attorneys' fees and expenses related to TiVo Research’s patent claims in this action. During the three months ended June 30, 2018, TiVo Research recorded a
$4.5 million
loss and agreed to transfer of ownership of the
two
patents at issue to Kantar as part of a settlement agreement. TiVo Research paid the settlement during the
three and nine months ended September 30, 2018
.
The Company believes it has recorded adequate provisions for any such matters and, as of
September 30, 2018
, it was not reasonably possible that a material loss had been incurred in excess of the amounts recognized in the
Condensed Consolidated Financial Statements
. Based on its experience, the Company believes that damage amounts claimed in these matters are not meaningful indicators of potential liability. Some of the matters pending against the Company involve potential compensatory, punitive or treble damage claims or sanctions, that, if granted, could require the Company to pay damages or make other expenditures in amounts that could have a material adverse effect on its
Condensed Consolidated Financial Statements
. Given the inherent uncertainties of litigation, the ultimate outcome of the ongoing matters described herein cannot be predicted with certainty. While litigation is inherently unpredictable, the Company believes it has valid defenses with respect to the legal matters pending against it. Nevertheless, the
Condensed Consolidated Financial Statements
could be materially adversely affected in a particular period by the resolution of one or more of these contingencies.
(12) Stockholders' Equity
Earnings (Loss) Per Share
Basic earnings per share ("EPS") is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the period, except for periods of a loss from continuing operations. In periods of a loss from continuing operations, no common share equivalents are included in Diluted EPS because their effect would be anti-dilutive.
The number of shares used to calculate Basic and Diluted EPS were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Weighted average shares used in computing basic per share amounts
|
123,459
|
|
|
120,935
|
|
|
122,756
|
|
|
119,994
|
|
Dilutive effect of equity-based compensation awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average shares used in computing diluted per share amounts
|
123,459
|
|
|
120,935
|
|
|
122,756
|
|
|
119,994
|
|
Weighted average potential shares excluded from the calculation of Diluted EPS as their effect would have been anti-dilutive were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Restricted awards
|
5,401
|
|
|
5,234
|
|
|
4,153
|
|
|
4,444
|
|
Stock options
|
1,907
|
|
|
2,544
|
|
|
2,238
|
|
|
3,004
|
|
2020 Convertible Notes (a)
|
12,918
|
|
|
12,294
|
|
|
12,918
|
|
|
12,294
|
|
2021 Convertible Notes (a)
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Warrants related to 2020 Convertible Notes (a)
|
12,525
|
|
|
12,079
|
|
|
12,424
|
|
|
12,079
|
|
Weighted average potential shares excluded from the calculation of Diluted EPS
|
32,752
|
|
|
32,152
|
|
|
31,734
|
|
|
31,822
|
|
|
|
(a)
|
See
Note 10
for additional details.
|
For the
three months ended September 30, 2018 and 2017
,
0.6 million
and
0.5 million
weighted average performance-based restricted awards, respectively, were excluded from the calculation of Diluted EPS as the performance metric had yet to be achieved. For the
nine months ended September 30, 2018 and 2017
,
0.9 million
and
0.5 million
weighted average performance-based restricted awards, respectively, were excluded from the calculation of Diluted EPS as the performance metric had yet to be achieved.
Effect of the 2020 Convertible Notes and related transactions on Diluted EPS
In periods when the Company reports income from continuing operations, the potential dilutive effect of additional shares of common stock that may be issued on conversion of the
2020 Convertible Notes
are included in the calculation of Diluted EPS if the price of the Company’s common stock exceeds the conversion price. The
2020 Convertible Notes
have no impact on Diluted EPS until the price of the Company's common stock exceeds the conversion price of
$26.7078
per share because the principal of the
2020 Convertible Notes
is required to be settled in cash. Based on the closing price of the Company's common stock of
$12.45
per share on
September 30, 2018
, the if-converted value of the
2020 Convertible Notes
was less than the outstanding principal.
The
2020 Convertible Notes
would be dilutive if the Company’s common stock closed at or above
$26.7078
per share. However, on conversion, no economic dilution is expected from the
2020 Convertible Notes
as the exercise of call options purchased by the Company with respect to its common stock described in
Note 10
is expected to eliminate any potential dilution from the
2020 Convertible Notes
that would have otherwise occurred. The call options are always excluded from the calculation of Diluted EPS as they are anti-dilutive under the treasury stock method.
The warrants sold by the Company with respect to its common stock in connection with the
2020 Convertible Notes
described in
Note 10
have an effect on Diluted EPS when the Company’s share price exceeds the warrant’s strike price of
$37.0942
per share. As the price of the Company’s common stock increases above the warrant strike price, additional dilution would occur.
Changes in Shareholders Equity
Changes in stockholders' equity for the
three and nine months ended September 30, 2018
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
Treasury stock
|
Additional paid-in capital
|
Accumulated other comprehensive loss
|
Accumulated deficit
|
Total stockholders’ equity
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Balance as of June 30, 2018
|
124,528
|
|
$
|
125
|
|
(1,557
|
)
|
$
|
(28,925
|
)
|
$
|
3,257,093
|
|
$
|
(4,233
|
)
|
$
|
(1,399,526
|
)
|
$
|
1,824,534
|
|
Net loss
|
|
|
|
|
|
|
(22,849
|
)
|
(22,849
|
)
|
Other comprehensive income, net of tax
|
|
|
|
|
|
(64
|
)
|
|
(64
|
)
|
Issuance of common stock under employee stock purchase plan
|
511
|
|
—
|
|
|
|
5,278
|
|
|
|
5,278
|
|
Issuance of restricted stock, net
|
590
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
Equity-based compensation
|
|
|
|
|
9,526
|
|
|
|
9,526
|
|
Dividends
|
|
|
|
|
(22,282
|
)
|
|
|
(22,282
|
)
|
Withholding taxes related to net share settlement of restricted stock units
|
|
|
(197
|
)
|
(2,570
|
)
|
|
|
|
(2,570
|
)
|
Balance as of September 30, 2018
|
125,629
|
|
$
|
126
|
|
(1,754
|
)
|
$
|
(31,495
|
)
|
$
|
3,249,615
|
|
$
|
(4,297
|
)
|
$
|
(1,422,375
|
)
|
$
|
1,791,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
Treasury stock
|
Additional paid-in capital
|
Accumulated other comprehensive loss
|
Accumulated deficit
|
Total stockholders’ equity
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Balance as of December 31, 2017
|
123,385
|
|
$
|
123
|
|
(1,269
|
)
|
$
|
(24,740
|
)
|
$
|
3,273,022
|
|
$
|
(2,738
|
)
|
$
|
(1,392,651
|
)
|
$
|
1,853,016
|
|
Cumulative effect adjustment (a)
|
|
|
|
|
|
|
31,412
|
|
31,412
|
|
Net loss
|
|
|
|
|
|
|
(61,136
|
)
|
(61,136
|
)
|
Other comprehensive income, net of tax
|
|
|
|
|
|
(1,559
|
)
|
|
(1,559
|
)
|
Issuance of common stock under employee stock purchase plan
|
1,150
|
|
2
|
|
|
|
12,852
|
|
|
|
12,854
|
|
Issuance of restricted stock, net
|
1,094
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
Equity-based compensation
|
|
|
|
|
30,252
|
|
|
|
30,252
|
|
Dividends
|
|
|
|
|
(66,511
|
)
|
|
|
(66,511
|
)
|
Withholding taxes related to net share settlement of restricted stock units
|
|
|
(485
|
)
|
(6,755
|
)
|
|
|
|
(6,755
|
)
|
Balance as of September 30, 2018
|
125,629
|
|
$
|
126
|
|
(1,754
|
)
|
$
|
(31,495
|
)
|
$
|
3,249,615
|
|
$
|
(4,297
|
)
|
$
|
(1,422,375
|
)
|
$
|
1,791,574
|
|
(a) See
Note 1
and
Note 5
for additional information.
Share Repurchase Program
On
February 14, 2017
,
TiVo Corporation
's Board of Directors approved an increase to the share repurchase program authorization to
$150.0 million
. The February 2017 authorization includes amounts which were outstanding under previously authorized share repurchase programs. During the
three and nine months ended September 30, 2018 and 2017
,
no
shares were repurchased under the share repurchase program. As of
September 30, 2018
, the Company had
$150.0 million
of share repurchase authorization remaining.
The Company issues restricted stock and restricted stock units (collectively, "restricted awards") as part of the equity-based compensation plans described in
Note 13
. For the majority of restricted stock units, shares are withheld to satisfy required withholding taxes at the vesting date. Shares withheld to satisfy required withholding taxes in connection with the vesting of restricted awards are treated as common stock repurchases in the
Condensed Consolidated Financial Statements
because they reduce the number of shares that would have been issued on vesting. However, these withheld shares are not considered common stock repurchases under the Company's authorized share repurchase plan. During the
three months ended September 30, 2018 and 2017
, the Company withheld
0.2 million
and
0.1 million
shares of common stock to satisfy
$2.6 million
and
$1.5 million
of required withholding taxes, respectively. During the
nine months ended September 30, 2018 and 2017
, the Company withheld
0.5 million
and
0.7 million
shares of common stock to satisfy
$6.8 million
and
$12.8 million
of required withholding taxes, respectively.
Dividends
For the
three months ended September 30, 2018 and 2017
, the Company declared and paid dividends of
$0.18
and
$0.18
per share, respectively, for aggregate cash payments of
$22.3 million
and
$21.9 million
, respectively. For the
nine months ended September 30, 2018 and 2017
, the Company declared and paid dividends of
$0.54
and
$0.54
per share, respectively, for aggregate cash payments of
$66.7 million
and
$65.2 million
, respectively.
Section 382 Transfer Restrictions
On
September 7, 2016
, upon the effective time of the
TiVo Acquisition
, the Company’s certificate of incorporation was amended and restated to include certain transfer restrictions intended to preserve tax benefits related to the net operating loss carryforwards (“NOLs”) of the Company pursuant to Section 382 of Internal Revenue Code of 1986, as amended (the “Code”), that apply to transfers made by 5% stockholders, transferees related to a 5% stockholder, transferees acting in coordination with a 5% stockholder, or transfers that would result in a stockholder becoming a 5% stockholder. If the Company experiences an “ownership change,” as defined in Section 382 of the Code, its ability to fully utilize the NOLs on an annual basis will be substantially limited, and the timing of the usage of the NOLs could be substantially delayed, which could therefore significantly impair the value of those benefits. These transfer restrictions are intended to act as a deterrent to any person (an “Acquiring Person”) acquiring (together with all affiliates and associates of such person) beneficial ownership of 5% or more of the Company's outstanding common stock within the meaning of Section 382 of the Code, without the approval
of the Company's Board of Directors. Such transfer restrictions will expire on the earlier of (i) the repeal of Section 382 or any successor statute if the Company’s Board of Directors determines that such restrictions are no longer necessary or desirable for the preservation of certain tax benefits, (ii) the beginning of a taxable year to which the Company’s Board of Directors determines that no tax benefits may be carried forward or (iii) the end of the day on September 7, 2019, three years from the effective time of the TiVo Acquisition when the Company’s certificate of incorporation was amended and restated to include certain transfer restrictions. The Company conducted a stockholder advisory vote with respect to the maintenance of such transfer restrictions in its certificate of incorporation at its 2017 Annual Meeting of Stockholders and the stockholders approved of such transfer restrictions.
(13) Equity-based Compensation
Restricted Awards and Stock Options
The Company grants equity-based compensation awards from the Rovi 2008 Equity Incentive Plan (the “
Rovi 2008 Plan
”). The
Rovi 2008 Plan
permits the grant of restricted awards, stock options and similar types of equity awards to employees, officers, directors and consultants of the Company. Restricted stock is considered outstanding at the time of the grant as holders are entitled to voting rights. Restricted awards are generally subject to a
four
-year graded vesting period. Stock options generally have vesting periods of
four
years with one quarter of the grant vesting on the first anniversary of the grant, followed by monthly vesting thereafter. Stock options generally have a contractual term of
seven
years. As of
September 30, 2018
, the Company had
30.0 million
shares of common stock reserved and
10.8 million
shares of common stock available for issuance under the
Rovi 2008 Plan
.
On
September 7, 2016
, the Company assumed the
TiVo Inc.
Amended and Restated 2008 Equity Incentive Award Plan (the “
TiVo 2008 Plan
”). The Company amended and restated the
TiVo 2008 Plan
effective as of the closing of the
TiVo Acquisition
to be the
TiVo Corporation
Titan Equity Incentive Award Plan for purposes of awards granted following the
TiVo Acquisition Date
. The
TiVo 2008 Plan
permits the grant of restricted awards, stock options and similar types of equity awards to employees, officers, directors and consultants of the Company. Restricted stock is considered outstanding at the time of the grant as holders are entitled to voting rights. Restricted awards assumed from the
TiVo 2008 Plan
are generally subject to a
three
-year vesting period, with semiannual vesting. Restricted awards issued by the Company from the
TiVo 2008 Plan
are generally subject to a
four
-year graded vesting period. Stock options assumed from the
TiVo 2008 Plan
generally have a
four
-year vesting period with one quarter of the grant vesting on the first anniversary of the grant followed by monthly vesting thereafter. Stock options assumed from the
TiVo 2008 Plan
generally have a contractual term of
seven
years. As of
September 30, 2018
, there were
3.9 million
shares of common stock reserved for future issuance as outstanding awards vest under the
TiVo 2008 Plan
. The
TiVo 2008 Plan
expired in August 2018, and
no
further shares of common stock are available for future grant under the
TiVo 2008 Plan
.
The Company also grants performance-based restricted stock units to certain of its senior officers for
three
-year performance periods. Vesting in the performance-based restricted stock units is subject to a market condition, as well as a service condition. Depending on the level of achievement, the maximum number of shares that could be issued on vesting generally could be up to
200%
of the target number of performance-based restricted stock units granted. For awards subject to a market vesting condition, the fair value per award is fixed at the grant date and the amount of compensation expense is not adjusted during the performance period regardless of changes in the level of achievement of the market condition.
Employee Stock Purchase Plan
The Company’s 2008 Employee Stock Purchase Plan (“ESPP”) allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP consists of up to
four
consecutive
six
-month purchase periods within a
twenty-four
-month offering period. Employees purchase shares each purchase period at the lower of
85%
of the market value of the Company’s common stock at either the beginning of the offering period or the end of the purchase period. As of
September 30, 2018
, the Company had
4.7 million
shares of common stock reserved and
4.7 million
shares available for issuance under the ESPP.
Valuation Techniques and Assumptions
The Company's restricted awards are generally not eligible for dividend protection. Prior to and including February 14, 2017, the fair value of restricted awards subject to service conditions was estimated as the price of the Company's common stock at the close of trading on the date of grant. Subsequent to February 14, 2017, the fair value of restricted awards subject to service conditions is estimated as the price of the Company's common stock at the close of trading on the date of grant, less the present value of dividends expected to be paid during the vesting period.
A Monte Carlo simulation is used to estimate the fair value of restricted awards subject to market conditions with expected volatility estimated using the historical volatility of the Company's common stock.
The Company uses the Black-Scholes-Merton option-pricing formula to estimate the fair value of stock options and ESPP shares. The Black-Scholes-Merton option-pricing formula uses complex and subjective inputs, such as the expected volatility of the Company's common stock over the expected term of the grant and projected employee exercise behavior. Expected volatility is estimated using a combination of historical volatility and implied volatility derived from publicly-traded options on the Company's common stock. The expected term is estimated by calculating the period the award is expected to be outstanding based on historical experience and the terms of the grant. The risk-free interest rate is estimated based on the yield on U.S. Treasury zero-coupon bonds with remaining terms similar to the expected term at the grant date. For stock options and ESPP shares granted prior to and including February 14, 2017, the Company assumed an expected dividend yield of zero as it had not historically paid a dividend. For stock options and ESPP shares granted subsequent to February 14, 2017, the Company assumes a constant dividend yield commensurate with the dividend yield on the grant date.
Weighted-average assumptions used to estimate the fair value of equity-based compensation awards granted during the period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Restricted stock units subject to market conditions
|
|
|
|
|
|
|
|
Expected volatility
|
39.2
|
%
|
|
53.1
|
%
|
|
39.2
|
%
|
|
53.1
|
%
|
Expected term
|
2.5 years
|
|
|
2.5 years
|
|
|
2.5 years
|
|
|
2.5 years
|
|
Risk-free interest rate
|
2.6
|
%
|
|
1.5
|
%
|
|
2.6
|
%
|
|
1.5
|
%
|
Expected dividend yield
|
5.5
|
%
|
|
3.9
|
%
|
|
5.5
|
%
|
|
3.9
|
%
|
ESPP shares
|
|
|
|
|
|
|
|
Expected volatility
|
44.3
|
%
|
|
42.2
|
%
|
|
43.5
|
%
|
|
42.0
|
%
|
Expected term
|
1.3 years
|
|
|
1.3 years
|
|
|
1.3 years
|
|
|
1.3 years
|
|
Risk-free interest rate
|
2.5
|
%
|
|
1.3
|
%
|
|
2.2
|
%
|
|
1.1
|
%
|
Expected dividend yield
|
6.1
|
%
|
|
3.9
|
%
|
|
5.7
|
%
|
|
2.4
|
%
|
The number of awards expected to vest during the requisite service period is estimated at the time of grant using historical data and equity-based compensation is only recognized for awards for which the requisite service is expected to be rendered. Forfeiture estimates are revised during the requisite service period and the effect of changes in the number of awards expected to vest during the requisite service period is recognized on a cumulative catch-up basis in the period estimates are revised.
The weighted-average grant date fair value of equity-based awards (per award) and pre-tax equity-based compensation expense (in thousands) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Weighted average grant date fair value
|
|
|
|
|
|
|
|
Restricted awards
|
$
|
11.55
|
|
|
$
|
17.05
|
|
|
$
|
11.72
|
|
|
$
|
17.48
|
|
ESPP shares
|
$
|
3.67
|
|
|
$
|
5.78
|
|
|
$
|
3.94
|
|
|
$
|
5.70
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
|
|
|
|
|
|
|
Pre-tax equity-based compensation, excluding amounts included in restructuring expense
|
$
|
9,471
|
|
|
$
|
13,007
|
|
|
$
|
28,226
|
|
|
$
|
38,781
|
|
Pre-tax equity-based compensation, included in restructuring expense
|
$
|
—
|
|
|
$
|
456
|
|
|
$
|
2,575
|
|
|
$
|
2,374
|
|
As of
September 30, 2018
, there was
$76.2 million
of unrecognized compensation cost, net of estimated forfeitures, related to unvested equity-based awards which is expected to be recognized over a remaining weighted average period of
2.5 years
.
Equity-Based Compensation Award Activity
Activity related to the Company's restricted awards for the
nine months ended September 30, 2018
was as follows:
|
|
|
|
|
|
|
|
|
Restricted Awards (In Thousands)
|
|
Weighted-Average Grant Date Fair Value
|
Outstanding as of beginning of period
|
5,899
|
|
|
$
|
17.78
|
|
Granted
|
3,339
|
|
|
$
|
11.72
|
|
Vested
|
(1,552
|
)
|
|
$
|
20.41
|
|
Forfeited
|
(2,135
|
)
|
|
$
|
15.02
|
|
Outstanding as of end of period
|
5,551
|
|
|
$
|
14.46
|
|
As of
September 30, 2018
,
5.4 million
restricted stock units were unvested, which includes
0.3 million
performance-based restricted stock units. As of
September 30, 2018
,
0.2 million
shares of restricted stock were unvested. The aggregate fair value of restricted awards vested during the
three months ended September 30, 2018 and 2017
was
$8.6 million
and
$5.0 million
, respectively. The aggregate fair value of restricted awards vested during the
nine months ended September 30, 2018 and 2017
was
$21.5 million
and
$41.6 million
, respectively.
Activity related to the Company's stock options for the
nine months ended September 30, 2018
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options (In Thousands)
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value (In Thousands)
|
Outstanding as of beginning of period
|
2,368
|
|
|
$
|
27.16
|
|
|
|
|
|
Forfeited and expired
|
(497
|
)
|
|
$
|
36.45
|
|
|
|
|
|
Outstanding as of end of period
|
1,871
|
|
|
$
|
24.69
|
|
|
1.2 years
|
|
$
|
—
|
|
Vested and expected to vest as of September 30, 2018
|
1,871
|
|
|
$
|
24.69
|
|
|
1.2 years
|
|
$
|
—
|
|
Exercisable as of September 30, 2018
|
1,825
|
|
|
$
|
24.71
|
|
|
1.2 years
|
|
$
|
—
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that option holders would have received had all option holders exercised their options at the end of the last trading day in the period. The aggregate intrinsic value is the difference between the closing price of the Company's common stock on the last trading day of the period and the exercise price of the stock option, multiplied by the number of in-the-money stock options.
The aggregate intrinsic value of stock options exercised is the difference between the market price of the Company's common stock at the time of exercise and the exercise price of the stock option multiplied by the number of stock options exercised. No stock options were exercised during the
three and nine months ended September 30, 2018
. The aggregate intrinsic value of stock options exercised during the
three and nine months ended September 30, 2017
was less than
$0.1 million
and
$2.0 million
, respectively.
(14) Income Taxes
Due to the fact that the Company has significant net operating loss carryforwards and has recorded a valuation allowance against a significant portion of its deferred tax assets, foreign withholding taxes are the primary driver of
Income tax expense
.
Components of
Income tax expense
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Foreign withholding tax
|
$
|
3,566
|
|
|
$
|
4,106
|
|
|
$
|
10,635
|
|
|
$
|
11,118
|
|
State income tax
|
42
|
|
|
(992
|
)
|
|
221
|
|
|
143
|
|
Foreign income tax
|
18
|
|
|
252
|
|
|
578
|
|
|
996
|
|
Change in net deferred tax liabilities
|
213
|
|
|
691
|
|
|
(277
|
)
|
|
1,372
|
|
Change in unrecognized tax benefits
|
62
|
|
|
(64
|
)
|
|
59
|
|
|
(8
|
)
|
Transition Tax
|
868
|
|
|
—
|
|
|
868
|
|
|
—
|
|
Change in indefinite reinvestment assertion
|
—
|
|
|
—
|
|
|
1,221
|
|
|
—
|
|
Release of deferred tax asset valuation allowance
|
—
|
|
|
348
|
|
|
—
|
|
|
195
|
|
Income tax expense
|
$
|
4,769
|
|
|
$
|
4,341
|
|
|
$
|
13,305
|
|
|
$
|
13,816
|
|
The Company believes it has provided adequate reserves for all tax deficiencies or reductions in tax benefits that could result from U.S. federal, state and foreign tax audits. The Company regularly assesses the potential outcomes of these audits in order to determine the appropriateness of its tax positions. Adjustments to accruals for unrecognized tax benefits are made to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular income tax audit. However, income tax audits are inherently unpredictable and there can be no assurance the Company will accurately predict the outcome of these audits. The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously recognized, and therefore the resolution of one or more of these uncertainties in any particular period could have a material adverse impact on the
Condensed Consolidated Financial Statements
.
Tax Act of 2017
On December 22, 2017, the Tax Cuts and Jobs Act (the “
Tax Act of 2017
”) was signed into law. The
Tax Act of 2017
enacted comprehensive tax reform that made broad and complex changes to the U.S. federal income tax code which affect 2017, including, but not limited to requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years (the "
Transition Tax
"). The Tax Act of 2017 also establishes new tax laws which affect 2018 and later years, including, but not limited to, a reduction of the U.S. federal income tax rate from 35% to 21%, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries and a new provision designed to tax global intangible low-taxed income (“GILTI”), a limitation of the deductibility of interest expense, a limitation of the deduction for newly generated net operating losses to 80% of current year taxable income and the elimination of net operating loss carrybacks.
On December 22, 2017, the SEC Staff issued guidance to address the application of U.S. GAAP in situations where a registrant does not have the necessary information to complete the accounting for certain effects of the
Tax Act of 2017
. As of
September 30, 2018
, the Company had not completed its accounting for the income tax effects of the
Tax Act of 2017
. Where the Company has made reasonable estimates of the effect, but for which the analysis is not yet complete, the Company has recorded provisional amounts based on information available as of
September 30, 2018
. During the
three and nine months ended September 30, 2018
, the provisional amounts recognized as of
December 31, 2017
were adjusted as described below. Where the Company has not been able to make reasonable estimates of the effect the
Tax Act of 2017
, no amounts have been recognized and the Company has continued to account for those items based on the tax laws in effect immediately prior to enactment of the
Tax Act of 2017
. The items described below, including the provisional items, are subject to change as additional information becomes available, limited to a measurement period of one year from enactment of the
Tax Act of 2017
.
The
Transition Tax
on unrepatriated foreign earnings is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of the Company’s foreign subsidiaries. Based on the amount of post-1986 E&P of the Company's foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings, during the
nine months ended September 30, 2018
, the Company revised its estimate of the
Transition Tax
to
$33.7 million
. The Company expects to use
$32.8 million
of available tax credits to offset the majority of the
Transition Tax
. As of
September 30, 2018
, the Company estimates the
Transition Tax
for U.S. states that have enacted laws to conform with the
Tax Act of 2017
to be less than
$0.1 million
, which is substantially offset by U.S. state net operating losses, resulting in no net estimated U.S. state
Transition Tax
. Accordingly, during the
three and nine months ended September 30, 2018
, the Company recognized
$0.9 million
of
Transition Tax
expense that is not expected to be offset by available tax credits. To complete its estimate of the
Transition Tax
, the Company must complete its calculation of the effects on U.S. states whose laws conform with the
Tax Act of 2017
.
The
Tax Act of 2017
requires that certain income (i.e., GILTI) earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. Due to the complexity of the GILTI rules and the lack of clear guidance on federal and state application of the GILTI rules, as of
September 30, 2018
, the Company has not completed its analysis of the tax impacts of the GILTI. However, the Company has recorded provisional tax expense that is not material to the Company's financial statements for the
three and nine months ended September 30, 2018
. The tax effect of GILTI is fully offset by the Company’s net operating losses, resulting in no net U.S. federal income tax expense from GILTI. To complete its estimate of GILTI, the Company must complete its calculation of the effects on U.S. states whose laws conform with the Tax Act of 2017. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a component of current income tax expense when incurred or to factor such amounts into the Company’s measurement of its deferred tax expense. The Company has made an accounting policy election to treat GILTI as a component of current income tax expense.
The
Tax Act of 2017
created a minimum tax on corporations for payments to related foreign persons (referred to as the base erosion and anti-abuse tax ("BEAT")). Due to the complexity of the BEAT rules and the lack of clear guidance on federal and U.S. state application of the BEAT rules, including rules on the ability to use loss carryovers to offset BEAT liability, the Company has not completed its analysis of the effects of the BEAT as of
September 30, 2018
. During the
three and nine months ended September 30, 2018
, the Company provisionally estimated it has no BEAT liability.
As a result of the
Tax Act of 2017
, during the
nine months ended September 30, 2018
, the Company changed its assertion regarding the indefinite reinvestment of undistributed foreign earnings. In the
year ended December 31, 2017
, the Company accrued a
Transition Tax
liability for U.S. federal and certain U.S. state income taxes on its non-U.S. subsidiaries’ previously undistributed foreign earnings. The nature of the
Transition Tax
is that undistributed foreign earnings are now considered previously taxed income ("PTI") for U.S. federal income tax purposes. However, because the PTI was previously taxed, any repatriation of PTI is not subject to additional U.S. federal income tax. The Company determined that a distribution of PTI would be subject to tax, and provisionally recorded
$1.2 million
in foreign withholding taxes during the
nine months ended September 30, 2018
. The Company's revised assertion regarding indefinite reinvestment of undistributed earnings is that only undistributed earnings in excess of PTI are indefinitely reinvested. The Company previously asserted that all of its foreign undistributed earnings were indefinitely reinvested.
(15) Segment Information
Reportable segments are identified based on the Company's organizational structure and information reviewed by the Company’s chief operating decision maker ("CODM") to evaluate performance and allocate resources. The Company's operations are organized into
two
reportable segments for financial reporting purposes:
Product
and
Intellectual Property Licensing
. The
Product
segment consists primarily of licensing Company-developed UX products and services to multi-channel video service providers and CE manufacturers, in-guide advertising, data analytics and licensing the TiVo service, licensing metadata and selling TiVo-enabled devices. The
Product
segment also includes legacy Analog Content Protection, VCR Plus+ and media recognition products. The
Intellectual Property Licensing
segment consists primarily of licensing the Company's patent portfolio to U.S. and international pay TV providers (directly and through their suppliers), mobile device manufacturers, CE manufacturers and OTT video providers.
Segment results are derived from the Company's internal management reporting system. The accounting policies used to derive segment results are substantially the same as those used by the consolidated company. Intersegment revenues and expenses have been eliminated from segment financial information as transactions between reportable segments are excluded from the measure of segment profitability reviewed by the CODM. In addition, certain costs are not allocated to the segments as they are considered corporate costs. Corporate costs primarily include general and administrative costs such as corporate management, finance, legal and human resources. The CODM uses an Adjusted EBITDA (as defined below) measure to evaluate the performance of, and allocate resources to, the segments. Segment balance sheets are not used by the CODM to allocate resources or assess performance.
Segment results were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Product
|
|
|
|
|
|
|
|
Platform Solutions
|
$
|
73,147
|
|
|
$
|
82,244
|
|
|
$
|
241,295
|
|
|
$
|
253,398
|
|
Software and Services
|
19,851
|
|
|
20,718
|
|
|
57,949
|
|
|
65,739
|
|
Other
|
1,614
|
|
|
628
|
|
|
5,007
|
|
|
3,859
|
|
Revenues, net
|
94,612
|
|
|
103,590
|
|
|
304,251
|
|
|
322,996
|
|
Adjusted Operating Expenses (1)
|
79,347
|
|
|
91,307
|
|
|
250,280
|
|
|
280,314
|
|
Adjusted EBITDA (2)
|
15,265
|
|
|
12,283
|
|
|
53,971
|
|
|
42,682
|
|
Intellectual Property Licensing
|
|
|
|
|
|
|
|
US Pay TV Providers
|
44,474
|
|
|
63,288
|
|
|
143,606
|
|
|
195,365
|
|
CE Manufacturers
|
8,859
|
|
|
15,479
|
|
|
26,754
|
|
|
38,296
|
|
New Media, International Pay TV Providers and Other
|
16,764
|
|
|
15,541
|
|
|
52,795
|
|
|
55,563
|
|
Revenues, net
|
70,097
|
|
|
94,308
|
|
|
223,155
|
|
|
289,224
|
|
Adjusted Operating Expenses (1)
|
23,461
|
|
|
24,243
|
|
|
73,790
|
|
|
69,247
|
|
Adjusted EBITDA (2)
|
46,636
|
|
|
70,065
|
|
|
149,365
|
|
|
219,977
|
|
Corporate
|
|
|
|
|
|
|
|
Adjusted Operating Expenses (1)
|
14,825
|
|
|
15,851
|
|
|
45,385
|
|
|
47,084
|
|
Adjusted EBITDA (2)
|
(14,825
|
)
|
|
(15,851
|
)
|
|
(45,385
|
)
|
|
(47,084
|
)
|
Consolidated
|
|
|
|
|
|
|
|
Total Revenues, net
|
164,709
|
|
|
197,898
|
|
|
527,406
|
|
|
612,220
|
|
Adjusted Operating Expenses (1)
|
117,633
|
|
|
131,401
|
|
|
369,455
|
|
|
396,645
|
|
Adjusted EBITDA (2)
|
47,076
|
|
|
66,497
|
|
|
157,951
|
|
|
215,575
|
|
Depreciation
|
5,338
|
|
|
5,015
|
|
|
16,252
|
|
|
15,869
|
|
Amortization of intangible assets
|
37,242
|
|
|
41,722
|
|
|
119,463
|
|
|
125,100
|
|
Restructuring and asset impairment charges
|
2,921
|
|
|
3,710
|
|
|
8,568
|
|
|
17,623
|
|
Equity-based compensation
|
9,471
|
|
|
13,007
|
|
|
28,226
|
|
|
38,781
|
|
Transition and integration costs
|
(148
|
)
|
|
3,394
|
|
|
9,303
|
|
|
15,701
|
|
Earnout amortization
|
—
|
|
|
958
|
|
|
1,494
|
|
|
2,875
|
|
CEO transition cash costs
|
—
|
|
|
—
|
|
|
(975
|
)
|
|
—
|
|
Remeasurement of contingent consideration
|
(67
|
)
|
|
243
|
|
|
1,104
|
|
|
317
|
|
Gain on settlement of acquired receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,537
|
)
|
Operating (loss) income
|
(7,681
|
)
|
|
(1,552
|
)
|
|
(25,484
|
)
|
|
1,846
|
|
Interest expense
|
(12,436
|
)
|
|
(10,990
|
)
|
|
(36,241
|
)
|
|
(31,827
|
)
|
Interest income and other, net
|
861
|
|
|
1,059
|
|
|
2,971
|
|
|
3,819
|
|
Gain (loss) on interest rate swaps
|
1,033
|
|
|
(39
|
)
|
|
7,185
|
|
|
(1,374
|
)
|
TiVo Acquisition litigation
|
—
|
|
|
(1,100
|
)
|
|
—
|
|
|
(14,006
|
)
|
Loss on debt extinguishment
|
—
|
|
|
—
|
|
|
—
|
|
|
(108
|
)
|
Loss on debt modification
|
—
|
|
|
—
|
|
|
—
|
|
|
(929
|
)
|
Loss from continuing operations before income taxes
|
$
|
(18,223
|
)
|
|
$
|
(12,622
|
)
|
|
$
|
(51,569
|
)
|
|
$
|
(42,579
|
)
|
|
|
(1)
|
Adjusted Operating Expenses is defined as operating expenses excluding
Depreciation
,
Amortization of intangible assets
,
Restructuring and asset impairment charges
,
Equity-based compensation
,
Transition and integration costs
, retention earn-outs payable to former shareholders of acquired businesses,
CEO transition cash costs
,
Remeasurement of contingent consideration
and
Gain on settlement of acquired receivable
.
|
|
|
(2)
|
Adjusted EBITDA is defined as operating income excluding
Depreciation
,
Amortization of intangible assets
,
Restructuring and asset impairment charges
,
Equity-based compensation
,
Transition and integration costs
, retention earn-outs payable to former shareholders of acquired businesses,
CEO transition cash costs
,
Remeasurement of contingent consideration
and
Gain on settlement of acquired receivable
.
|