ROVI

Rovi Corporation (ROVI)

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Rovi (ROVI)

Q3 2013 Earnings Call

October 30, 2013 5:00 pm ET

Executives

Lori Barker

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

Thomas Carson - Chief Executive Officer, President and Director

Analysts

Ralph Schackart - William Blair & Company L.L.C., Research Division

Michael J. Olson - Piper Jaffray Companies, Research Division

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

James Medvedeff - Cowen and Company, LLC, Research Division

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

Todd T. Mitchell - Brean Capital LLC, Research Division

San Phan

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

Shateel Alam - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good afternoon. My name is Ariel, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Rovi Corporation 2013 Q3 Results Conference Call. [Operator Instructions] Thank you. Ms. Lori Barker, Vice President of Investor Relations, you may begin your conference.

Lori Barker

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

Before we discuss our third quarter results, which were released earlier today, I would like to start with some housekeeping items.

First, during our conference call, we will be making forward-looking statements, including statements regarding Rovi's forecast of future revenues, expenses and earnings, share buybacks and debt pay downs, as well as possible outcomes and timings of contract negotiations, litigation reviews, strategic alternative, business strategies and product plans.

These forward-looking statements are subject to risks and uncertainties that may cause actual results to vary materially from today's forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements are described in our Form 10-Q for the quarter ended September 30, 2013, and other SEC reports and filings made from time to time. And we encourage you to review the discussion of those factors in those reports and filings.

All of our statements are made as of today, October 30, 2013, based on information available to us as of today. And except as required by law, we assume no obligation to update any such statements.

Second, this presentation includes non-GAAP financial measures. 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 release. The most directly comparable GAAP information and a reconciliation between the non-GAAP and GAAP figures are included in our Q3 2013 earnings press release, which has been furnished to the SEC in Form 8-K and is available on the Investor Relations section of our web page at www.rovicorp.com.

Finally, the live webcast of this conference call is available in the Investor Relations section of our web page, and a replay of the audio webcast will be available on the website shortly after this webcast ends, and will remain on the website until our next quarterly earnings call.

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

Peter C. Halt

Thank you, Lori. Good afternoon, everyone, and thanks for joining our call. Hopefully, everyone has had a chance to see the earnings release we issued today with our results for the third quarter.

On today's call, I'll give you our financial highlights and some context around our results and our revised expectations. Then Tom will discuss some of the key events in the quarter, as well as provide some insight into our current contract negotiation process. Tom will also address the actions we are taking to drive growth and improve profitability.

Finally, he will cover a few points relative to our capital allocation.

As for the results for the quarter, revenues were $143 million, down $20.7 million or 13% from the third quarter of 2012. The decline was driven by a reduction in revenues from our CE verticals, most notably by the continuing and anticipated decline in our CE video delivery and display sales vertical.

That said, we had expected to do better. The quarter was also impacted by the lack of significant new licensing agreements. It continues to take longer than anticipated to close certain deals, particularly overseas and with the over-the-top video providers. While we are still actively negotiating the deals we mentioned slipping out last quarter and we still believe we will ultimately reach agreement on commercially-reasonable terms, we are disappointed that none closed during quarter 3. Tom will speak in greater detail about the status of these deals.

Even without a significant license agreement in the quarter, our service provider vertical grew 7%, fueled by growth in both our licensing and guide product revenues. Our core service provider business is strong and continues to be the key to our growth in the future.

The growth in our service provider vertical was, however, offset by declines in our CE verticals, most notably, CE video delivery and display revenues were down $24.8 million or 55% from the third quarter of 2012. This decline was largely the result of continued ACP and DivX headwinds.

Additionally, the prior year benefited from approximately $5 million one time connect-to-platform revenues in conjunction with our retiring this product last year.

Additionally, CE discovery and advertising revenues were down $1.3 million or 5%. Contributing to this decrease was lower reporting from smaller CE companies who pay us on a per-unit basis.

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