Rovi Management Discusses Q2 2012 Results - Earnings Call Transcript

Rovi (ROVI)

Q2 2012 Earnings Call

August 02, 2012 5:00 pm ET

Executives

Chris Keller

Peter C. Halt - Chief Financial Officer and Chief Accounting Officer

Thomas Carson - Chief Executive Officer, President and Director

Analysts

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Michael J. Olson - Piper Jaffray Companies, Research Division

Heather Bellini - Goldman Sachs Group Inc., Research Division

Todd T. Mitchell - Brean Murray, Carret & Co., LLC, Research Division

James Medvedeff

Andy Hargreaves - Pacific Crest Securities, Inc., Research Division

Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division

James C. Goss - Barrington Research Associates, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Rovi Corporation Second Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, August 2, 2012.

I would now like to turn the conference over to our host, Mr. Chris Keller, Vice President of Investor Relations. Please go ahead, sir.

Chris Keller

Good afternoon, ladies and gentlemen, and thank you for joining us today. I'm joined today by Tom Carson, our President and CEO; and Peter Halt, our Chief Financial Officer.

Before we discuss our second quarter results, which were released earlier today, I would like to start with some housekeeping items. First, I would 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 forecasts of future revenues, expenses and earnings, 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, 2012, and other filings with the SEC that are filed from time to time.

Second, our results released earlier today, as well as our discussion on this call, include non-GAAP adjusted pro forma information, which exclude, as applicable, noncash items and items that impact comparability. Examples of such items include amortization, equity-based compensation and discrete tax items and the tax effect of all non-GAAP adjustments. Depreciation expense, while a noncash item, is included in adjusted pro forma operating results as a proxy for capital expenditures to demonstrate recurring cash-based earnings. Adjusted pro forma combined company information assumes the Sonic Solutions acquisition and the Roxio consumer software disposition were both effective on January 1, 2010. Adjusted pro forma reconciliations for historical results, including Sonic Solutions and excluding the Roxio consumer software business, 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 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 webpage at www.rovicorp.com.

Now I would like to turn the call over to Peter.

Peter C. Halt

Thanks, Chris. Good afternoon, everyone. Hopefully, you've had a chance to see the press release we issued today with our results for the second quarter ended June 30, 2012.

As we disclosed a couple of weeks ago, the second quarter was a disappointment to us. Adjusted pro forma revenues were down approximately $21 million or 12% from the second quarter of 2011, primarily due to a drop in revenues in our CE vertical. CE was down this quarter by $21 million or 24% from the second quarter of 2011.

As we said when we announced preliminary results, softness in CE was primarily due to anticipated declines in ACP revenues, which we've been talking about for a number of quarters now. Remaining decline was mostly due to the lack of new CE licensing deals during the quarter. But we had hoped to sign at least one of the CE manufacturers that is out of license. It did not happen in the quarter for reasons Tom will discuss. By comparison, in the second quarter of 2011, we've benefited from entering into a license agreement with Toshiba.

Our CE products were also adversely impacted by the macroeconomic factors that appears have been headwinds for many companies involved with the CE industry. Many device manufacturers reported a year-over-year reduction in royalty-bearing unit sales, and some of our CE partners have been incorporating next-generation guides more slowly than we anticipated.

Additionally, activations for connected devices are not meeting either our expectations or, we understand, expectations of the device manufacturers. We believe the lower-than-expected activations also reflect the macro environment as CE device makers are not currently making the kind of investments in marketing that would encourage consumer awareness and activation. As a result, our anticipated advertising revenues were impacted by the resulting smaller-than-anticipated guide footprint in CE.

Additionally, DivX revenues, while slightly up on a year-over-year basis, did not grow as anticipated. DivX growth was impacted by the CE industry's headwinds, as well as by delays in our rolling out new content creation solution software. We are actively addressing such delays as Tom will discuss.

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