ROVI

Rovi Corporation (ROVI)

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Rovi Corporation (ROVI)

Analyst & Investor Meeting & Demo Showcase at CES Conference Call

January 09, 2013, 05:30 pm ET

Executives

Peter Halt - CFO

Tom Carson - President & CEO

Samir Armaly - EVP, Intellectual Property & Licensing

Matt Milne - EVP, Worldwide Sales & Marketing

Analysts

John Bright - Avondale Partners

Presentation

Peter Halt

Okay, hello everybody and welcome to Rovi’s Investor and ANALYST Day. I am Peter Halt; I am the CFO for Rovi Corporation. I appreciate those in the room making it here in person for those of you listening to our webcast thank you for joining us too. We are going to cover some brief highlights from 2012. We are going to get into 2013; give you some estimates, but also kind of talk about the company and then at the end we will show you some of our financials.

First slide, I am sure you've all seen; it’s in the books, it’s online the Safe Harbor statements. I won't go into detail on it. But second for those of you who follow us I'm sure you are very familiar with us for any of the people online who maybe looking at this for the first time do take a moment and look at this. We do report on non-GAAP information; vis-à-vis called APF information and what we are trying to do with this information is approximate cash flow for the company. The details are on the slide.

In terms of the themes for us and as we go through the deck today, Tom Carson, our CEO will be coming up on stage; we’ll also have Samir Armaly who heads up our advertising business and Matt Milne, our overseas, both sales and product and product management. We are going to talk about 2012. As everyone is familiar, new management in the company getting under the hood and looking at the business, taking assessment of where we are and making sure that we are set up to go forward. In ’13 we are going to be really building the business and setting us up for ’14; we are going to see a period of sustainable growth going forward once again for the company.

2012, we provided some estimates last week when we announced that we were planning to divest ourselves to the Rovi Entertainment Store. We tightened up the reins for revenue and EPS after taking into account the disposition of the Rovi Entertainment Store. A couple of things to note for 2012, a couple of key deals here; end of the year we got a deal in place with Vizio; not much of an impact financially, but we do want to call attention to it; good to have a deal with them, get them back into license. They are one of the larger CE companies and in candor if you look at their product they don't have that much in terms of guidance products they are providing themselves. They have a lot of third party product that does also play on our patents and as a result of the deal we still have recourse against those third parties.

On the service provider deal, two deals to call out. We talked about a couple of quarters ago, Google Fiber; well it’s interesting to me is with the Google Fiber initiative into the homes and either the Kansas City is getting Google Fiber service are going to be getting a tablet too. So the TV everywhere license as well as a television license. Also like to call attention to the deal with KBW. We haven't announced it yet, it’s a very recent deal with the licensing of KBW, we know how two of the three top service providers in Germany under license.

Finally, if you recall last quarter we talked about the product rationalization and cost reduction efforts the company had taken in this past year. We talked about $31 million of annual run rate costs having been removed. Now that we are divesting ourselves to the Rovi Entertainment Store moving into discontinued operations, its $26 million in terms of the ongoing business, so the $26 million as compared to the $31 million, it’s the $31 million stands rest.

2013, of course we are providing this guidance without the Rovi Entertainment Store. Year-on-year our revenues are basically flat, but we would like to call attention to it and we go into much more detail when we get back in the financial section. In terms of our service provider business, which is both discovery and advertising and in terms of our CE business, the components that relate to discovery and advertising, we’re up over 10% year-on-year for the estimates for next year. These are being tempered by headwinds of ACP which we talked about quite a bit over the last couple of years and in addition as we talked about last quarter, we’ve got some headwinds in the DivX business. We will talk more about that later.

In terms of year-on-year cost, one thing we would like to highlight to folks, in terms of our cost of goods sold and our operating expenses on an APF basis, basically for the last two years we’ve kept those cost flat. In the current year, we are targeting an additional $14 million in cost reductions. We are doing this while we continue to invest in areas that we believe will drive strategic growth. Two things I would like to comment on, and I will call up your attention. From 2011 to 2012, we increased our investment spend in intellectual property by about $18 million. We're keeping that level of spend in to 2013. In addition, as we talked about in the previous quarter’s call, we're also using the reductions that we have as a result of product rationalization to go on and hire the right talent in engineering, development and product management and to be investing in some strategic initiatives which Tom and Matt will get into more later.

Finally, just a comment on the Rovi Entertainment Store; we’ve talked for the last couple of years while have been watching this business closely. We put them in to a business unit a little over six months ago. They actually made great progress the last half of the year. As we sat down and we looked at the strategic direction we wanted the company to move in, where we wanted our focus on customers such as service providers who pay us a meaningful amount to provide them products and services that differentiate their offerings and we looked at the time that Tom, myself and other members of senior management spend with the Rovi Entertainment Store business and we kind of related it to where our core focus was. We didn’t believe this was the right home for it. We think it’s a good business, but a good business for someone else and we have put it up for sale. In terms of any proceeds in the sale, we will be using those proceeds to pay down debt.

With that, that’s a quick overview I am going to bring Tom Carson up on stage and I will be back later to go to the financials in more detail. Thank you.

Tom Carson

I want to take a couple of minutes and just try to take you through a little bit of a perspective on 2012; because I think it sets the stage for where we are going as a company in terms of us trying to solidify the base of our business. So when we look at 2012, it was certainly a pretty active year for us on a number of fronts.

One of the first things we did that I felt was really, really important for our company was to go through a strategic planning process and the process I think was really relevant for us in terms of being able to say, hey, with all the different technologies that Rovi has and in the aftermath of all the acquisition that’s been done how are we going to focus our time and attention and how are we going to focus our financial resources? And I think that exercise helped us get through a process and allow us to really identify what was really going to be relevant for us.

Part of what we came through that process with is an understanding is to the things that we wanted to pay attention to as a company and it led us down a path where we said we are going to deemphasize certain business lines and we are also going to divest others; very earlier in the year, and if you recall kind of last January as a matter of fact we announced it here at the Consumer Electronic Show we divested the Roxio pack of software; it was a business that was really not relevant to where we were going at the time.

We also made the decision as Peter mentioned about the Rovi Entertainment Store. Well, I think that business has made great strides when we really look at what we want to be and where we want to go in the play and the retail environment and the time and attention and the money that's going to be required to support that business, it just didn't make sense for us.

Part of this process was also looking at a lot of different products that Rovi had. Peter mentioned we went through an exercise to reduce cost in our company and it wasn't your typical cost reduction exercise in the sense of saying, hey let's take out 10% of our cost base. It was really an exercise where we looked at every piece of our business in terms of the products we are working on and we decided to deemphasize a number of them. So when you look at our business a year ago versus where we are today we are certainly deemphasizing the heavy embedded guide that we had in the CD space. We are deemphasizing the support that we have for things like analogue content protection. We are deemphasizing RipGuard connective platform etcetera. Again, I think that was a very meaningful thing for us in terms of getting us focused on what's important as a company.

The other thing I felt was very important for us in 2012 was just going through a reorganization of the company. I think everybody realizes that we've come together via acquisition and that acquisition spree that we are on certainly put us in a kind of a complicated environment particularly related to the organization. I didn't feel like things like sales, marketing and product management were well aligned. So we aligned them. I didn't feel like engineering was well aligned with what we are trying to do on the product and the sales side either, so we aligned them.

So that was a very important step for us in trying to identify a much more accountable organization, and again to try to get people focused on things very important. So when we look at 2012 on balance, it was a pretty busy year for us in terms of trying to clean up a lot of things that frankly myself and the management team just didn't feel like were well organized. So for up to a year a lot of things done in terms of trying to get a very, very solid base for us going into 2013.

Read the rest of this transcript for free on seekingalpha.com