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Rovi Corporation (NASDAQ:ROVI)

Q4 2012 Earnings Call

February 13, 2013 05:00 pm ET

Executives

Tom Carson – President & Chief Executive Officer

Peter Halt – Chief Financial Officer

Chris Keller – Investor Relations

Analysts

Sterling Auty – JP Morgan

Ralph Schackart – William Blair & Co.

Perry Huang – Goldman Sachs

Todd Mitchell – Brean Murray, Carret & Co.

Rob Stone – Cowen and Company

Jim Goss – Barrington Research

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to the Rovi Q4 2012 Earnings Conference Call. (Operator instructions.) As a reminder this conference is being recorded today, Wednesday, February 13, 2013. And I would now like to turn the conference over to Chris Keller of Rovi Investor Relations. Please go ahead, sir.

Chris Keller

Good afternoon 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 Q4 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 forecasted future revenues, expenses, and earnings, as well as 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 those forward-looking statements are described in our Form 10(k) for the year ended December 31, 2012, 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 our statements are made as of today, February 13, 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 Q4 2012 Earnings Press Release which has been furnished to the SEC on Form 8(k) and is available in the Investor Relations section of our webpage at www.rovicorp.com.

Finally, the live webcast of this conference call is available on the Investor Relations section of our webpage 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 Halt

Thanks, Chris. Good afternoon, everyone. Hopefully you’ve had a chance to see the earnings release we issued today with our results for Q4. As we did last quarter, we have included a listing of the quarter’s business and operating highlights in our earnings release. In the past we’ve provided much of this detail during this call. Now, in response to feedback from many of you, we are providing this information in the release so we can focus this call on key events in the quarter and have plenty of time for Q&A.

Additionally, as previously introduced in our investor presentation last month we will be breaking out the way we report our CE revenue verticals. The new format consists of two verticals – CE Discovery and Advertising and CE Video Delivery and Display. We believe this new reporting format provides much greater detail and increased strength [clarity] about our business which CE manufactures.

Finally, I would like to remind everyone that as we disclosed on January 3, we are now actively pursuing the sale of the Rovi Entertainment Store business. We took this action as a part of our ongoing strategic efforts to focus the company on growth opportunities related to our core enabling technologies and services. As such, the results for the Rovi Entertainment Store for 2012 and 2011 have been reclassified into discontinued operations. This means our discussion of adjusted pro forma results excludes the Rovi Entertainment Store operations.

With that in mind I’ll give you the financial highlights and some context around our results. Then Tom will look back at our accomplishments in 2012, address some of the larger trends we’re seeing in our business for 2013 and assess the progress we are making on the operational initiatives we outlined at CES. Now, let me get on to the results.

Q4 revenues were $157 million, down $17.3 million or 10% from Q4 2011. The year-over-year change was driven by declines in revenue from our two CE revenue verticals – CE Discovery and Advertising and CE Video Delivery and Display. These declines were partially offset by an increase in service provider revenue. CE Discovery and Advertising was down $5.2 million or 13% from Q4 2011, while CE Video Delivery and Display was down $15 million or 37% from Q4 2011.

On the Discovery and Advertising front, 2011 benefited from a new deal with Toshiba and 2012 saw fewer units shipped by CE manufacturers that pay us on a per-device basis. On the CE Video Delivery and Display front we experienced DivX headwinds as projected last quarter and we continued to experience the ongoing decline in ACC revenues. The year-over-year decline was partially offset by increased revenues from service providers which were up 4% year-over-year, primarily the result of subscriber growth.

I would note that CE Discovery and Advertising as well as service providers were up over Q3 2012. CE Discovery and Advertising was up $6.9 million or 25% in part due to our successful resolution of litigation matters with both Visio and Philips. Service providers were up $2.7 million or 3% over Q3 as we benefited from both subscriber growth and the seasonal increase in advertising revenues.

In terms of operating costs, R&D expenses were $26.5 million, down 13% from last quarter and 16% from the same quarter one year ago. R&D expenses benefited from our recent product rationalization efforts. SG&A costs of $31.3 million in the quarter were basically flat year-on-year as savings from our recent cost reduction efforts were offset by the timing of certain marketing spending. One more note on the cost side: cost of goods sold was up $4.4 million from the same quarter last year. This increase was in part a function of the timing of patent litigation and prosecution costs.

Looking forward to 2013, consistent with the information we provided at the company’s Investor Day in early January, we anticipate F2013 revenue of between $630 million and $660 million, and adjusted pro forma income per share of between $1.90 and $2.20. With that I’ll turn it over to Tom.

Tom Carson

Thanks, Peter, and thank you to everyone joining us today. Before I get started we realize many of you either attended or listened to the webcast of our investor presentation at CES just a few weeks ago. Because we discussed our 2012 performance as well as our future outlook in some detail then, we’re going to focus today’s presentation on a few key updates and leave the rest of the time for Q&A. For those of you who missed the event, I encourage you to visit the Investor Relations section of our website to listen to the webcast and view the slide deck.

As you know, 2012 was a very active transition year for Rovi. I am pleased with the progress we made in a number of areas. Over the course of the past year we undertook a lengthy and detailed product-by-product review of our businesses and went through a comprehensive strategic planning process. We thought long and hard about where to best concentrate our time, attention, and financial resources going forward. As a result, we refined our strategic focus and reorganized the business around Rovi’s core strategic assets.

In particular, we realigned our portfolio of Discovery, Advertising, and Video Delivery and Display assets around our service provider vertical in a manner that allows us to utilize what we develop for service providers with our CE and other customers. We also removed over $25 million in annualized costs through product rationalizations and targeted cost reductions, and we made significant strides in terms of improving our organizational structure, accountability, business reviews and product execution.

We discussed each of these initiatives in detail at our investor event at CES and again, I encourage those of you who may have missed it to listen to the webcast and view the slides on our IR website.

While 2012 was about adjusting core, 2013 will be about strengthening our core business, moving into adjacent market spaces and creating a solid base for sustainable growth beginning in 2014. As CES we talked about some of the things that are important for the Rovi business (inaudible) in 2013 in order to position ourselves for growth in 2014 and beyond. I am going to provide updates with respect to some of those items but I would like to remind everyone that, as Peter mentioned earlier, we have included a more comprehensive list of business and operating highlights from Q4 in today’s earnings release.

The supplement to today’s earnings release includes a number of highlights relating to our licensing business as we reached settlements with Philips and Visio during the quarter, continued to sign up new service providers outside the US and continued to license new platforms. On the licensing front, we entered into ten renewals or license agreements in Q4 and 69 for the full year of 2012. We are pleased with the progress made during Q4 and are continuing talks with a number of potential licensees.

We’ve also made some good early progress in 2013 in reaching a settlement with Mitsubishi. We also have a couple of milestones coming up on the IP litigation front. We are scheduled for litigation proceedings again in Q2 of this year with LG in the United States in front of the ITC and with TP Vision in Germany. We would like to see commercially reasonable terms reached with both parties outside the courts. That said, as we have shared at our investor event at CES we are not including them in our 2013 estimates until the back half of the year.

During Q4 we also renewed guide product agreements with 32 North American cable operators and added several cable operators outside of North America. With respect to TotalGuide there are now 11 cable operators that have signed up for TotalGuide set top boxes and/or TotalGuide XD for tablets and we expect six of these to begin deployments in the first half of 2013. We expect to start seeing revenue from the TotalGuide deployments in the latter half of 2013.

On the CE front we also delivered an HTML version of TotalGuide to Panasonic in Q4. While we’re out of the heavy, code-embedded TotalGuide business for CE this lighter version of TotalGuide for CE is much easier to deploy and has crafted a way for CE manufacturers to incorporate an enhanced guidance experience.

In the CE Delivery and Display vertical we launched DivX 9.0 in November and saw substantial uptick in use of the DivX format by consumers shortly thereafter. We believe there is still significant demand for DivX and DivX 10.0 development is underway. We plan to release DivX 10.0 in less than one year from the anniversary of DivX 9.0, a marked improvement over the timeliness of getting DivX 9.0 out and into the market.

DivX 10.0 will include high-efficiency video coding, also known as HEVC or H.265 which enables the same high-level playback quality at almost half the bandwidth. This means we’re not only back on track with providing timely updates for the DivX and to market demands but we’re also putting out releases with substantial feature upgrades.

We have a number of other milestones upcoming for DivX this year. We have a major CE contract up for renewal in each of the first three quarters of 2013 and several contracts up for renewal in Q4. Renewal negotiations are underway and I will update you on these renewals throughout the year. We also made good progress with DivX Plus Streaming in Q4. We signed up Qualcomm and Novatech in Q4 bringing the total integrated circuit manufacturers onboard to ten. We also added five more OEMs in the quarter, giving us 13 licensed OEMs.

Additionally, DivX Plus Streaming was approved for use by the UV Consortium and perhaps most exciting of all, DivX Plus Streaming debuted on two (inaudible) fronts in Q4. [Distance] launched their know-how movie service on the Android platform in the UK and [MayOg] Digital in collaboration with China Mobile Hong Kong Company Ltd. Launched a mobile storefront on Android devices in Hong Kong. These are critical steps in seeding the ecosystem in order to make DivX Plus Streaming a value-add for hardware manufacturers.

As we look ahead we are particularly excited about the shift to IP video delivery and TV Everywhere, or TVE. The number of paid TV operators offering multiscreen TV services is estimated to grow considerably in the future, from roughly 75 operators worldwide at the beginning of this past year to over 250 by the end of 2016. Based on an industry report, by 2016, 114 million paid TV subscribers in North America alone or 95% of total North American subscribers will have access to TV Everywhere in its various forms. This brand presents significant long-term opportunities for Rovi. The proliferation of consumer electronics devices and changing viewing habits show providers are looking for ways to expand their service offerings to stay competitive while also managing their capital investments.

Internet protocol delivery significantly lowers the barrier to providing services and products to service providers. Services and products grown around internet protocol delivery can allow service providers and others to deliver robust video offerings and next generation guide technology for a rapidly growing number of devices without requiring heavy code or roll out new set top boxes.

Additionally, TVE services require superior screen quality and other advanced features in order to provide a quality consumer experience. Now that initial deployments are in place, many operators are shifting focus to making improvements and adding advanced features such as metadata, enhanced search and recommendation services, remote access via mobile devices, and content discovery on second screen. We see this as part of the opportunity, too.

As we discussed at CES we also believe there are exciting opportunities for Rovi around interactive advertising. As we said there, we look to establish the Rovi Advertising Solutions as the leading vehicle for the monetization of video across entertainment devices. In that regard we are focused on improving our video advertising and audience measurement abilities to drive higher value advertising products. We will be investing in creating an analytics offering around guide recurrent path data and improving our video and in-app offerings.

In terms of investing in such initiatives I would like to remind everyone that we are continuing to actively manage and reduce costs through ongoing product rationalizations and other efforts to fund initiatives. As we eliminate costs we are reinvesting the proceeds to fund strategic initiatives, particularly around TVE and our advertising capabilities such as analytics as part of our plan to drive future growth.

As the digital media landscape continues to evolve we believe Rovi is well positioned to provide our customers with the products and services they need in order to meet consumer demand, efficiently move into internet protocol-based paid TV services, and better monetize their own business in the changing environment. Our service provider relationships, patents, guidance experience and metadata give us a unique competitive advantage to do so. We believe Rovi should be a leader in this new value chain.

We are excited with our progress over the past year, the traction we are demonstrating with our current initiatives we have in place for 2013, and how we are positioned for sustainable growth in 2014 and beyond. I look forward to providing further updates on our progress as we continue throughout the year. With that let’s open it up for questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator instructions.) Our first question comes from the line of Sterling Auty with JP Morgan. Please go ahead.

Sterling Auty – JP Morgan

Yeah thanks, hi guys. I apologize – I’m juggling multiple calls. I wasn’t quite clear on the Philips TP Vision settlement, is this a global or is this a big agreement that you were hoping to get with them? And can you give us a sense, was there catch up revenue and did that fall in Q4, Q1, and kind of how that lays out as we think about estimates here for the year and the back half of the year.

Peter Halt

Sterling, the Philips deal was with Philips, the company that’s no longer in the business and that was the one we talked about at CES. We’re still out there working and negotiating with Philips TP Vision, with the TP Vision entity and as we had talked about at CES we currently have that in our second half of the year guidance.

Sterling Auty – JP Morgan

Okay, so that one’s in but I wasn’t clear – LG is not? We’re thinking about what’s going to be needed.

Peter Halt

Both LG and TP Vision are in our second half guidance. What we had talked about at CES is it means we do have a skew towards the second half of the year in our CE Discovery and Advertising Bucket.

Sterling Auty – JP Morgan

Okay. And both of those agreements are still being worked on, and what’s the latest I guess in terms of how we should track those?

Peter Halt

As Tom had mentioned in his prepared remarks there’ll be some good proof points coming in Q2 this year. In the LG litigation we’ll be in front of the ITC in Q2 and for TP Vision we’ll be in front of the German courts in Q2. So we’re involved in conversations with both parties. We’d like to negotiate beforehand but if it goes through the court process so be it and we’re comfortable that we’ve got the revenue in the second half of the year.

Sterling Auty – JP Morgan

Alright, great. Last question in terms of the work you’re doing on the expense front, in terms of any headcount changes, etc. – are all the headcount changes already done or is there still further savings that we could see flow through to the next one or two quarters?

Tom Carson

You know, we are always, Sterling, monitoring and looking at our costs. Basically we will continue to have cost initiatives built into our plan this year which won’t be looking at headcount reductions in the same way we did last year with the kind of one-time significant thing. But there are certain areas in the business we’re continuing to look at and we’d certainly expect some cost reductions in those areas as we go through the year. Basically they’re the kinds of things that already go into our budget.

Sterling Auty – JP Morgan

Okay, great. Thank you.

Operator

Thank you. Our next question comes from the line of Ralph Schackart with William Blair & Company. Please go ahead.

Ralph Schackart – William Blair & Co.

Good afternoon. Peter, I had a question on the LG and TP Vision movement through the court process. Was that expected at CES or is that a new development from CES?

Peter Halt

No, that was expected. We actually tried to call that out at CES to make sure people understood that our second half revenue in the CE Discovery and Advertising bucket would have a skew off of Q1.

Ralph Schackart – William Blair & Co.

Oh, I understood that part but specifically though the court process – was that called out at CES as well?

Peter Halt

I don’t think we actually called the specific court dates out at CES but we did try to give more visibility to people toward the milestones we’ll be hitting this year. We’re letting people know the stakes now.

Ralph Schackart – William Blair & Co.

Okay. And then just in terms of TotalGuide for operators, can you give us sort of an update on the operators that you’re chasing now or trying to get the sign-ups, or to give us some color on how those conversations are going?

Tom Carson

Yeah, I think it’s on the sales front for new discussions, I think they continue to go well. I think the desire for that kind of navigation experience that we have with TotalGuide for service providers is absolutely resonating. A big part of what we’re doing today is actually starting to roll out into the service providers that we’ve identified, whether it’s for TotalGuide for set top box or the tablet application which is XD; and we’re kind of in that mode of doing the initial deployments and testing, whether it’s in a lab environment or a field environment.

And that’s kind of the two steps you have to get through before you actually go through a more significant deployment which we would expect really in the second half of the year with the operators we’ve talked about before. So basically it’s going well.

Ralph Schackart – William Blair & Co.

Great, one last one and then I’ll turn it over. On the R&D sort of step down Q3 over Q4, is that sort of the new good baseline or was there any sort of extra cuts or one-time in Q4 that sort of wouldn’t occur again in 2013?

Peter Halt

No, what you saw was some reductions related to our product rationalization efforts coming through. That is, as we’ve tried to tell people, we are funding some new initiatives, and Tom talked about some other reductions we’ve built into the year to fund those but you know, that’s close to our run rate for R&D.

Tom Carson

The only other thing I would add, and this is kind of essentially what we’re working on is as you guys probably know, we as a company because of the acquisitions we’ve done have ended up with a number of different engineering sites around the globe and there’s been a pretty active effort internally here to take a really hard look at all the sites and where we want to have centers of excellence. So we have a program being worked with our Engineering Team to see if we can optimize them better than what we’re doing today.

So certainly we continue to look at R&D spend pretty diligently and the hope would be that we focus on a couple of key centers as opposed to multiple centers and that will help us overall reduce costs as well.

Ralph Schackart – William Blair & Co.

Great, thank you.

Operator

Thank you. Our next question comes from the line of Perry Huang with Goldman Sachs. Please go ahead.

Perry Huang – Goldman Sachs

Hi, thank you for taking the question. I guess one question around the patent license agreement with Visio – is there any more color you can provide here? For example, was there an increase in the number of patents licensed versus the prior agreement?

Peter Halt

Now, keep in mind that our licensing program typically does not license on a patent-by-patent basis. We license the entire portfolio. What typically changes the economics is the scope to the license, which could either be (inaudible) geographical scope or what products are being covered. So that’s usually the determinant, but they get a license for the entire portfolio.

Perry Huang – Goldman Sachs

Gotcha, okay. And then I guess for the service providers segment, I guess in the press release you mentioned you renewed 32 North American MSOs. Is there any color you can provide around the contract renewal value that you achieved from those?

Peter Halt

Yeah, that they were all positive to us in terms of the rate; however, they were all very small service providers again if they (inaudible).

Perry Huang – Goldman Sachs

Got it, thank you.

Operator

Thank you. (Operator instructions.) Our next question comes from the line of Todd Mitchell with Brean Capital. Please go ahead.

Todd Mitchell – Brean Murray, Carret & Co.

Hi, thank you. Just a couple of questions here. First of all on the segmentation of CE into these two groups, can you real fast just run through what businesses are in each of these two segments? And it also seems that versus the financials you put out just before the CES meeting there’s a little bit of a change, and what was that change?

Peter Halt

No change in the financials that we put out. What we did do is we took the CE bucket that we’ve been reporting and just basically split it into two components. In the Discovery and Advertising bucket we included our CE licensing business, our CE guide products, the IPG and CE data sales and then our advertising revenues on the CE platform. In the CE Video Delivery and Display bucket it’s primarily DivX and ACP. There’s a couple of the small little businesses that we talked about last year getting out of in terms of connected platform and media recognition.

Todd Mitchell – Brean Murray, Carret & Co.

Okay. I mean not to belabor the point, but it seems like the [elements were restated] but that’s not the case – that’s what you’re telling me.

Peter Halt

No, no.

Todd Mitchell – Brean Murray, Carret & Co.

Okay. And then my second question is, okay, so now that you’ve segmented CE into two different groups and you’ve talked about the headwinds at DivX, can you tell us is DivX up for strategic consideration and if so what are the metrics we’d be looking at to sort of gauge how you’re thinking about that?

Tom Carson

Right now DivX is an important part of the company, and there’s two different parts of DivX, right? There’s kind of the traditional DivX business which I would characterize as kind of disconnected playback which is actually still doing reasonably well; actually it’s increasing in the mobile segment quite significantly on a per-unit basis. So the business in kind of the traditional DivX business is still good going forward although recognize it’s in segments like mobile that maybe don’t have the same kind of RPU that you would have on some of these traditional consumer electronics products.

Saying that, I think what we look very heavily at particularly given our TV Everywhere focus is technologies like DPS which is really the streaming technology is part of DivX that allows anybody that uses the technology to have a much better streaming experience for a movie. So we are pretty bullish on that and working very hard to try to get this seeded in the ecosystem and we think that that still has an opportunity to grow. So as we look to next year, despite the headwinds we had with DivX last year we certainly think there’s an opportunity for some growth in that category.

Todd Mitchell – Brean Murray, Carret & Co.

Do you expect to take a step down in the RPU on your renewals? And as part of that question also, you mentioned that the HVEC codec is part of the DivX 10.0. Is there a chance to monetize that before DivX 10.0 comes out?

Tom Carson

I think on the RPU question in terms of the discussions we’re having today, again the contracts are typically being talked about in two ways – one is kind of the legacy stuff and then going forward the DPS. And the discussions to date have really been positive towards getting an overall increase in the overall dollars because you’re putting additional technology into the agreement.

Todd Mitchell – Brean Murray, Carret & Co.

Okay, one last question, I’m sorry, totally separate. Also on the HVEC codec, are you going to be selling encoders before DivX 10.0?

Tom Carson

I don’t think so.

Todd Mitchell – Brean Murray, Carret & Co.

Okay, just one other question. Can you flesh out for us some details on your relationship with Liberty Global and UPC? Do you have an ongoing licensing relationship with them and is it on a per-sub basis or is it a pass through with their common equipment suppliers, their CPE suppliers?

Tom Carson

So we have kind of an umbrella agreement is probably the best way to describe it with Liberty Global which gives their entities the opportunity to opt into the agreement. So the opportunity for us with Liberty Global and the relationship is actually pretty good.

Todd Mitchell – Brean Murray, Carret & Co.

Okay, can you tell me what opt-in means a little bit more?

Peter Halt

There’s predefined terms in the global agreement that the local carrier under the Liberty umbrella can opt into. So for instance, we picked up [Kabel] in Germany this past quarter and they were opting in under the Liberty umbrella agreement.

Tom Carson

Generally Liberty doesn’t necessarily force their operating entities around the globe to necessarily do everything that they assign as an agreement, so the local management has to agree to it which in most cases with us they have.

Todd Mitchell – Brean Murray, Carret & Co.

Okay, so for instance if they were to acquire Virgin, Virgin would have a preset deal if they wanted to opt into it.

Tom Carson

Yeah, that’s correct.

Todd Mitchell – Brean Murray, Carret & Co.

Okay, thank you very much for clarifying that.

Operator

Thank you. Our next question comes from the line of Rob Stone with Cowen and Company. Please go ahead.

Rob Stone – Cowen and Company

Hi guys. First question, what does it mean for you guys that Intel wants to be in the service provider business?

Tom Carson

Not sure. There’s a lot of people that want to be in the service provider or the CE business and they certainly all can have an impact. From where we sit, generally speaking what we typically say is that for us it comes down to is somebody going to use our product or is somebody going to use and pay for our intellectual property? So that’s really what it boils down to for us. So generally speaking when we get those kinds of questions, some of the people will be a customer of ours for our products and services or somebody could be a licensee of ours.

So I’m not sure exactly what they want to do or how they want to do it, or where they’ll go with it but they’d probably fall into the licensing category would be my guess if it’s the type of things that we do in the guidance space. In which case they’ll end up like Google with the Google Fiber Initiative, and that’s very exciting for us. They’re a customer [that we would like to reveal].

Rob Stone – Cowen and Company

Okay. A couple of housekeeping questions for Peter: how many service provider subs did you have at the end of the year if you could break those down between the paying and prepaid?

Peter Halt

We have that actually, Rob, on the investor deck that should be posting on our website shortly. You’ll see all the details. It’ll have a global schedule; it’ll have it by region and it’ll list you both the paid and the prepaid.

Rob Stone – Cowen and Company

Okay, good stuff, thanks. The tax rate was slightly higher in Q4 than we were thinking. Any color you can provide and how should we be thinking about the non-GAAP rate for this year?

Peter Halt

Our non-GAAP tax rate is the biggest item we have is the withholding taxes in certain foreign countries. And we skewed a little higher in terms of a couple of territories that paid us (inaudible) withholding. So if you look at our guidance for this coming year we’re anticipating about a point higher in effective tax rate than we had the year before.

Rob Stone – Cowen and Company

Which translates, so one point higher than 2012?

Peter Halt

Yes.

Rob Stone – Cowen and Company

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Jim Goss with Barrington Research. Please go ahead.

Jim Goss – Barrington Research

Thank you. I’m wondering with regard to the CE Discovery and Advertising grouping, are the revenues you’re generating in that category, are the sort of disparate products grouped or does the economic model tend to work that you’d be getting a license fee for a certain box for example and then you would also have a revenue share with whatever is developed on that device? Or are they groupings of two separate systems?

Tom Carson

As Peter said there’s a couple things that have actually gone into that category. Of course we have our normal patent licensing business that goes through that particular category for the CE customers. There’s also some products like the HTML guide that I talked about which generally speaking is on a per-unit basis when the product ships, and then there is some advertising that goes through there for the CE piece which is a revenue share model with the CE guys. It’s heavily driven by what’s happening on the CE licensing side but it’s basically those three components: it’s our licensing, it’s guide products and advertising is predominantly going through there.

Jim Goss – Barrington Research

And they’re typically on separate products, not ones that might have components of both.

Tom Carson

I’m not exactly sure what you mean when you say “separate products.” It’s typically a license arrangement, if it’s a product of ours like a guide, the license fee for the product is based on a per-unit for whatever the product is embedded in. So that’s basically the way that works.

Jim Goss – Barrington Research

Okay. And on the service provider side, where do you see the opportunity in terms of geography? Is there a lot you think you can do in North America or do you think it would be more of an either Asian or European sort of opportunity you think you’d be pursuing?

Tom Carson

I think there’s a couple ways to look at it. Certainly some of the things, I think first, stepping back, our service provider business is pretty heavily today North America-centric and South America-centric. That’s a lot of where our subscriber base is. But saying that, we still think as we do products like TotalGuide and some of our other strategic types of products that we showed at the Consumer Electronics Show I still think there’s an opportunity for an overall rate increase in North America, South America on the existing contracts we have just because I think we can do more.

I think longer term as we look at the TV Everywhere space and try to branch out more into IP-delivered services for service providers, I think then that opens up a bigger opportunity for us on the products side of the business in Asia and in Europe, and that’s absolutely something we’re working towards. On the licensing side as it relates to service providers that is pretty much a global business today, so we do licensing agreements around the globe with a number of service provider licensees.

Jim Goss – Barrington Research

Okay, and lastly, once RES is sold will you still have different elements of involvement in the Ultraviolet Initiative, say as sort of the technology behind [Flixture] or that sort of thing?

Peter Halt

For (inaudible) in terms of our involvement with the Ultraviolet Initiative, one of the things we’ve pointed out on this call is DivX Plus Streaming. Our streaming solution has been certified by the Ultraviolet Initiative as being one of their endorsed DRMs. So we do have involvement through DivX and DivX Plus Streaming but we are out of the storefront business in terms of with our Rovi Entertainment Store.

Jim Goss – Barrington Research

Okay, alright thank you.

Operator

Thank you. At this time there are no further questions. I would like to turn the conference over to Mr. Carson for any closing remarks.

Tom Carson

I appreciate everybody taking the time to talk to us today. Hopefully the information we covered was helpful to everybody, and certainly Peter and myself are available for calls in the not-too-distant future. So if there’s any additional information that you need from us don’t hesitate to contact us. But again, thank you very much. I appreciate everybody’s time.

Operator

Thank you. Ladies and gentlemen, that concludes the Rovi Q4 2012 earnings call.

Analyst - Company

Thanks!

Executive

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