Rovi (ROVI)

Q2 2011 Earnings Call

August 09, 2011 4:30 pm ET

Executives

Alfred Amoroso - Chief Executive Officer, President and Director

Lauren Landfield - Vice President of Corporate Finance and Investor Relations

James Budge - Chief Financial Officer

Analysts

James Goss - Barrington Research Associates, Inc.

Ingrid Chung - Goldman Sachs Group Inc.

Ryan Fiftal - Morgan Stanley

Corey Barrett

Edward Maguire - Credit Agricole Securities (USA) Inc.

Jason Cheu

John Vinh - Collins Stewart LLC

Michael Olson - Piper Jaffray Companies

Robert Stone - Cowen and Company, LLC

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Rovi's Q2 Earnings Release Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, August 9 of 2011. I would now like to turn the conference over to our host, Mr. Lauren Landfield, Senior Vice President of Corporate Finance. Please go ahead, sir.

Lauren Landfield

Thank you, and welcome, everybody, to Rovi Corporation's Second Quarter 2011 Earnings Conference Call. I'm Lauren Landfield, and I'm joined today by Fred Amoroso, our CEO; and James Budge, our CFO.

Before we discuss our results and estimates released earlier today, I'd like to start with some housekeeping items. First, I'd like to remind you that all statements made during our conference call that are not statements of historical fact, including, but not limited to, statements regarding the company's forecast of future revenues and earnings, the integration of the Sonic acquisition as well as business strategies and product plans constitute forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could vary materially from those contained in these forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in our Form 10-Q for the period ended June 30, 2011, and other filings with the SEC that are filed from time to time.

Second, our results and estimates released earlier today, as well as our discussion on this call, include non-GAAP adjusted pro forma information, which exclude, as applicable, non-cash items and items that impact comparability such as amortization, equity-based compensation and discrete tax items and the tax effect of all non-GAAP adjustments. Depreciation expense, while a non-cash item, is included in adjusted pro forma operating results as a proxy for capital expenditures to demonstrate recurring cash-based earnings results. Adjusted pro forma combined company information assumes the Sonic Solutions acquisition was effective on January 1, 2010. Adjusted pro forma reconciliations for historical results including Sonic Solutions are in our press release. We have presented and are discussing adjusted pro forma combined company information because this is how we have and will evaluate our business. We believe that this presentation may be meaningful to our investors in analyzing the company's results of operations.

This presentation is not intended to be a substitute for our financial results presented in conformity with the Generally Accepted Accounting Principles in the United States, and investors and potential investors are encouraged to review the reconciliation of adjusted pro forma financial measures included in our earnings press release.

And as the final piece of housekeeping, the webcast of this conference call will be available on our Investor Relations web page until our next quarterly earnings call. I'd now like to turn the call over to Fred.

Alfred Amoroso

Well, thank you, Lauren. And thanks, everyone, for joining us today for our quarterly conference call. As you may have seen in our earnings press release, we grew adjusted pro forma revenue to $193 million in Q2. Similar to previous quarters, our business continued to grow due to new license agreements, increases in device shipments that incorporate our products or are licensed under our patents, the continued conversion of analog TV subscribers to digital, as a well as advertising growth. When combined with operating efficiencies, this resulted in a 20% year-over-year increase in adjusted pro forma EPS to $0.61. I'm pleased with our successful financial results, as well as the significant progress we've made securing customer wins for our new solutions across our verticals. I'll discuss our progress in more depth shortly but first, James will review some of the financial metrics. James?

James Budge

Thank you, Fred, and hello, everyone. As Fred mentioned, we grew adjusted pro forma revenue to $193 million in Q2. Revenue in our service provider vertical, which is primarily comprised of IPG products and patents licensed to cable satellite and telecom companies, grew 17% year-over-year to $74 million in the second quarter. This growth was driven by the continued conversion of analog subscribers to digital, the addition of new international licensees and accelerating growth in our service provider product revenues.

It's worth noting that our service provider product revenues rose 39% year-over-year, marking the fourth consecutive quarter of 20-plus percent product growth. The strength in products was achieved by improved pricing on contract renewals, continued convergence of SARA guide to Passport, new applications and advertising.

Subscribers worldwide receiving a license through our Rovi-provided set-top box based IPG rose to $133 million at the end of Q2 2011, up from $124 million in Q2 2010. Excluding prepaid licensees, primarily Comcast and Dish, total Rovi licensed subscribers are now approximately 91 million versus 85 million in the year-ago period. Subscribers receiving a Rovi-provided set-top box based IPG, either a Passport or i-Guide, rose 29% to $18 million at the end of Q2 2011.

Adjusted pro forma revenue in our CE vertical, which includes guidance products and patents licensed to device manufacturers DivX and ACP for hardware, was $86 million in Q2 2011, up 15% from $74 million in Q2 2010.

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