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Rovi (NASDAQ:ROVI)

Q2 2013 Earnings Call

July 31, 2013 5:00 pm ET

Executives

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

Lori Barker

Thomas Carson - Chief Executive Officer, President and Director

Analysts

John F. Bright - Avondale Partners, LLC, Research Division

Michael J. Olson - Piper Jaffray Companies, Research Division

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

Heather Bellini - Goldman Sachs Group Inc., Research Division

Todd T. Mitchell - Brean Capital LLC, Research Division

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

James Medvedeff - Cowen and Company, LLC, Research Division

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Rovi Second Quarter 2013 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, July 31, 2013. I would now like to turn the conference over to Lori Barker, Vice President, Investor Relations. Please go ahead, Lori.

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 second 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, the sales of its Rovi Entertainment Store and Consumer Website business, possible outcomes of litigation, 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 these forward-looking statements are described in our Form 10-Q for the quarter ended June 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, July 31, 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 Q2 2013 earnings press release, which has been furnished to the SEC on 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 second quarter. On today's call, I'll give you the financial highlights and some context around our results and our revised expectations, then Tom will discuss some of the key drivers for the quarter, including growth in our service provider vertical, product updates in the NCTA cable show and the continuing expansion of our data business. Tom will also address the recent litigation news, including clarifying some aspects of the recent Netflix ruling, and discuss our revised expectations. Finally, we'll open the call up for Q&A.

In regard to this quarter, we continue to make good progress in our realignment around our core businesses by entering into an agreement to sell 2 non-core operations. Additionally as Tom will speak to in greater detail, revenue growth in our core service provider vertical was strong. All of this positions us for second half growth when compared to the first half of 2013.

With that said, while we expect improved performance from the first half of 2013, we are reducing our fiscal year 2013 estimate to take into account uncertainties about how quickly we can close certain deals we are currently negotiating on appropriate terms. I'll talk more about that in a couple minutes.

Before we get into specifics on the quarter, I'd like to provide you with an update on our efforts to shed non-core businesses. In July, we entered into an agreement to sell both the Rovi Entertainment Store and our Consumer Website businesses. Both of these businesses will be the key businesses that did not fit into the business model we are building for the future. As you all know, we put the Rovi Entertainment Store for sale at the beginning of the year. As for our Consumer Web properties, it includes the SideReel business and certain other consumer-facing websites. As we discussed this past quarter, the SideReel business is a headwind to revenue. These websites are also not core to our go-forward strategy, and accordingly, we put them up for sale and entered into a sales transaction, all within a 3-month period. We expect both transactions to close in Q3 2013. Both of these businesses are classified as discontinued operations and are not included in adjusted pro forma or APF results we'll discuss today.

Now turning to our results for the quarter. Revenues were $146.4 million, down $8.3 million or 5% from the second quarter of 2012. The decline was driven by declines in our CE verticals, most notably, our CE video delivery and display sales verticals. The declines in our 2 CE verticals were partially offset by strong growth in our service provider vertical. Our service provider vertical grew 10%, fueled by growth in our product revenues, plus 2 new IP licenses. Our licensee, or AT&T, expanded their relationship with us to include the TV Everywhere offering and the VUDU-branded over-the-top video service. Tom will provide greater color on these 2 deals later in our call.

In our CE vertical, CE discovery and advertising revenue was down $5.8 million or 18%. Contributing to this decrease was lower reporting from CE companies who pay us on a per-unit basis and a lack of new deals in the quarter. While we were working on a couple of new agreements in this vertical, we did not close any within the quarter. CE video delivery and display revenues were down $11.7 million or 36% from the second quarter in 2012. This anticipated decline was largely the result of continued DivX headwinds. DivX continues to suffer from lower per-unit reporting from device manufacturers who pay us on a per-unit basis. However, there was good news in the quarter for DivX as we signed our second major renewal of the year with Philips, Samsung for their mobile devices.

Finally, our other revenue vertical grew $1.5 million or 11% year-over-year, driven by the continued expansion of our metadata licensing business. Like with our service provider vertical, we continue to believe our data business offers us an excellent opportunity for growth. Tom will speak more about our focus on growing this business.

With respect to the cost of our continuing operations, APF cost of goods sold, plus operating expenses, were down 4% or $3.1 million from the comparable period 1 year ago. This is primarily due to a reduction in IP-related litigation expenses, last year's product rationalization efforts and our continuing focus on cost reductions. For the full year, we still anticipate the aggregate spend on cost of goods sold and operating expenses will be relatively flat year-on-year as we fund our new initiatives out of our continuing cost reduction efforts. In that regard, we stated during our Investor Day that we were targeting an additional $14 million in cost reductions in 2013 from our existing business to provide us the funds to reinvest in such initiatives. We have already achieved or in the process of acting on cost reductions in excess of $14 million, which allows us to invest in our sales force, as Tom will talk about later today, and increase our focus in some of our organic initiatives that drive growth in the future.

We continue to have significant cash flow and generated $47 million in net cash from operations this quarter. Our cash and investments at the end of the quarter were approximately $835 million. We continue to take a very thoughtful approach to our balance sheet. On that front, we repurchased 2.8 million shares for $65 million during this quarter. That brings total stock bought back in 2013 to 5 million shares for approximately $107 million. We now have approximately $116 million remaining under our existing share buyback authorization.

Turning to our full year 2013 expectations. Adjusting our estimates to reflect the sale of our Consumer Website business will result in full year expectations of between $623 million and $651 million. Additionally, although it is still our goal to reach the midpoint of this range, we believe it is prudent to further reduce expectations for 2013, in part due to the continued softness in our DivX business. We have lowered our expectations on the DivX front and are now looking to fill the gap primarily from OTT licensing opportunities. However, while we are in the midst of negotiations with several OTT and international companies, the timing of closing these deals is difficult to forecast. The soft international economy and the fact that most OTT providers are new to licensing means these deals are taking longer to close. While we firmly believe we will close these deals, given the timing uncertainty associated with [indiscernible] we get the appropriate pricing, we think it's best to lower expectations for 2013. That said, the midpoint of our revised expectations for the back half of the year represented 5% increase in revenue over the first half of the year. When comparing the first half to the second half of each year over the past 3 fiscal years, this 5% growth will be the best first half and second half growth in over 3 years. We believe this places us on a good trajectory to increase growth in 2014.

Lastly, as a result of our revised revenue expectations, we now expect APF income per common share of between $1.80 and $2.10 for 2013.

With that, I'll turn it over to Tom.

Thomas Carson

Thanks, Peter, and thank you to everyone joining us on this call today. As Peter noted, we are making good progress in realigning the business around our core assets and the divestitures this quarter were important in that regard. We also show good growth in our service provider vertical and added a couple key licensees in the strategic areas of TV Everywhere and OTT. Additionally, the new product prototypes we demonstrated at the NCTA's cable show were very well-received, and our data business growth reflects the wisdom of investing and expanding our data offerings.

I will also address the recent Netflix ruling and speak about our revised expectations. Let me start by talking about the tremendous progress we made this past quarter in our core service provider vertical. We continue to expand deployments and gain momentum for our TotalGuide xD application. Two more service providers submitted their xD applications to the Apple store in Q2, giving us 3 service providers with xD deployed: Cogeco, BendBroadband and Eastlink. As we announced earlier this month, the Eastlink deployment means that our xD product is now available with North American service providers who have more than 1 million digital subscribers. We anticipate 2 more North American service providers deploying xD in Q3 and perhaps as many as 5 more by year-end. Additionally, the xD application, which is currently only available on the iPad, will become available on the Android platform and on iPhones in the second half of 2013. We are very excited about our progress here.

On the TotalGuide for set-top box front, we continue to progress toward our first commercial deployment. We currently have TotalGuide for set-top boxes in field trials with BendBroadband and Eastlink. We are also in lab trials with Buckeye and Suddenlink. We anticipate our first commercial deployments by the end of September. As I mentioned on last quarter's call, deployments are moving slower than we would like, primarily due to our customers' dependencies on third parties for things such as integration with their VOD offerings. However, we believe that first commercial deployment will help create momentum to step up the pace of deployments. We continue to be optimistic about the incremental revenue contribution for 2014 from our TotalGuide products.

In terms of our other service provider product initiatives, I'd like to spend a few minutes discussing the enthusiasm shown for the products and prototypes we demonstrated at the NCTA cable show. We demonstrated how our connected guide platform strategy could enable our customers to scale their experiences across a wide range of platforms and ecosystems. The technology showcase included TotalGuide xD, Rovi's first-generation connected solution now in the market, as well as a new generation of solutions designed to drive the migration to IP video delivery. For instance, one new generation solution enables cloud-powered guidance applications to remotely interface with legacy set-top boxes, regardless of whether it's a Rovi or a third-party operated guide for functions like linear channel access, legacy VOD and DVR control. This solution allows operators to cost-effectively move their consumer experience into the cloud while capitalizing on the capabilities of the existing set-top boxes for basic video services. This is a cost-effective way to dramatically improve the consumer discovery experience by blending both legacy and IP-based technologies into a dynamic IT-based navigation experience for the consumer. We also demonstrated a full end-to-end TV Everywhere platform with support for live content streaming and providing a foundation for catch-up services and cloud DVR. This prototype presented a highly personalized multiscreen video experience enabled by the integration of several cloud-based discovery and delivery capabilities. We expect this solution will ultimately be available both as an end-to-end TV Everywhere platform and as a portfolio of solutions that can be integrated with the existing functionality or a third-party product at an MSO.

Finally, in terms of new prototypes, we also demonstrated the version of TotalGuide fully implemented in HTML and powered by Rovi's connected guide platform, integrated with SeaChange's Nucleus RDK platform. It was another example of the flexibility of our architecture and our push to launch tomorrow's ecosystem using a cloud-driven platform. The reception to these prototypes was very encouraging and supports further investments in these strategic initiatives. We believe these types of solutions are critical to offering a full range of IT discovery services to our customers, in addition to the great set-top box products we provide today.

In terms of IP licensing, Peter mentioned 2 exciting second quarter licensing deals in our service provider vertical. We expanded our AT&T relationship to include their U-verse TV Everywhere offering online and across mobile devices. This brings a number of service providers now covered for TV Everywhere based upon their digital subs to almost 45% of North American digital subs. Additionally, we entered into an IP license during the quarter with the VUDU-branded OTT video service. This is a strategically important deal for Rovi. Having now signed up Apple, Hulu and VUDU, we think we have created enough momentum with OTT provider to step up the pace of our licensing on that front.

In regards to the momentum with OTT providers, I'd like to discuss the recent ITC Netflix ruling and address some misconceptions. To understand the ITC's recent decision and a limited effect of the ruling, it is important to understand the type of cases which go before the ITC. The ITC, or International Trade Commission, is intended to protect the United States from imported goods which infringe on valid U.S. patents. The ITC looks at whether or not a product is infringing at the time it is imported into the U.S. We argued that there was an infringing application embedded offshore and being imported into the U.S. The matter was confined solely to the limited functionality of the application embedded on certain devices produced offshore, such as a Roku device, at the time they were imported into the U.S. This matter did not focus on Netflix entire service offerings or functionalities that were added after the devices were imported and the service activated. Ultimately, the ITC found that the application embedded offshore had very limited functionality at the time it was imported into the U.S., and therefore, what was imported was not infringing.

That said, we believe the majority of the findings are actually very positive for Rovi. The ITC rules that 3 out of the 4 Rovi patents involved in the action are valid and agree with Rovi's interpretation of the scope of what the patents cover. The ITC finding even specifically states that leading OTT services offered by others such as Apple's iTunes and Samsung devices with [indiscernible] applications practice Rovi patents. This will come as no surprise to these 2 companies as both recognized the validity of Rovi's patents and have taken a patent license. These findings were all laid out in a detailed opinion, which only recently became publicly available.

What does all these mean? Well, it means that the ITC decision was much more limited and much more positive for Rovi than the initial coverage suggested. The ITC decision turned on the implication issue. In the U.S. district court where we have a case currently staved until the ITC matter is resolved, Netflix entire service offering will be reduced, and implication will not be an issue. As such, in that venue, we believe similar findings on claims construction and validity shall result in a favorable verdict on infringement. We believe the initial coverage negatively impacted our closing at least one meaningful licensing deal during Q2. However, now that the detailed ruling is available, we've restarted these negotiations and anticipate successfully bringing them to closure.

In terms of next step, both parties set a decision that full ITC commissions review the finding. Final decision after this review is expected in Q4. We will then restart as quickly as possible our currently staved litigation against Netflix in the U.S. district court where Netflix full service offerings will be at issue and unique ITC factors such as importation will not apply. We hope the ITC's validity findings will convince Netflix, as well as others that commercial negotiation should be used to resolve matters. However, if this doesn't prove feasible, we will continue to pursue all of our remedies to protect our IP, including litigation.

Before I discuss our revised expectations for 2013, I would like to briefly touch base on 2 other areas of our business: DivX and our data licensing business. Moving on to DivX. While we continue to make progress, we've also continued to experience challenges commercially with this business. On the positive side, as Peter mentioned earlier, we renewed our agreement with Samsung covering DivX in their mobile devices. We are also on track to launch DivX 10 later in Q3, less than 1 year after our DivX 9 release. DivX 10 will include high-efficiency video coding or HEVC, which we see as a game changer for video distribution and consumption as it supports ultrahigh definition and also enables significantly reduced storage and bandwidth costs.

We also continue to build out the ecosystem for DivX Plus Streaming. We now have agreements with most of the major chipset manufacturers and are focused on selling DivX Plus Streaming into device manufacturers. As we discussed last quarter, content encoded in DivX Plus Streaming is also now being included in OTT offerings in Europe and Asia. An important next step is to expand this content distribution to include the U.S. in some larger OTT providers. We hope that our recent resolution of IP matters with a couple notable U.S. OTT providers will help open up this content distribution for us. While there's still a lot to do here, we believe that DivX Plus Streaming can play a meaningful role in the emerging TV Everywhere and OTT markets by providing the highest-quality video delivery and consumer experience.

Turning to our data business. As Peter mentioned, this business fueled double-digit growth in our other sales vertical. As I said before, we are investing in expanding our offering in key territories, as well as expanding the number of countries where we provide data. The result has been that our data offerings are very much in demand by major CE manufacturers. Additionally, we are seeing increased demand from key online players. For instance, this past quarter, we signed a major international retailer up for our data to support both their online store and their over-the-top video service.

While we will continue to invest in our geographical expansion, we will also be making ongoing investments in expanding this business opportunity through actions such as improving our search and recommendation tools. On that front, I anticipate us making improved search and recommendation functionality available by year-end.

Finally, I would like to discuss our overall results for Q2 and our revised expectations for 2013, as well as certain actions we are taking. Frankly, Q2 results were not what I hoped they would be. We had several meaningful deals and negotiations, of which we anticipated at least one, if not more, closing in Q2. Our results would have been in line with our internal expectations had that occurred. In addition to the licensing deal we believe was negatively impacted by publicities around the Netflix ruling, we had a couple of deals we are working on with international companies slipped out of the quarter 2. Had the timing been different for any of these deals, we would have met our internal expectations for the quarter. We are finding that it takes longer to close deals in the OTT space and in part due to the economy overseas with new international licensees. We are also finding that many of these companies look for price concessions to close late in the quarter. Because our ongoing objective is to reap the right terms in our licensing negotiations rather than compromise solely due to timing considerations, we believe it is prudent to revise our expectations for the second half of 2013 to account for timing uncertainty around the international and OTT licensing discussions. That said, we still believe we have a path to reach our original estimates as adjusted for the divestiture of the Consumer Web property. The entire Rovi management team is committed to that goal.

In that regard, I want to tell you about a couple of actions we are taking to do all we can to close these sales opportunities. Matt Milne, who, you'll recall presented our Investor and Analyst Day at CES, has overseen product management, product sales and marketing, will now be fully dedicated to our sales and marketing efforts. More and more of Matt's time is being called on to help our IP sales team, as well as to help close major product deals. I believe having Matt solely focus on sales and marketing will increase our ability to be successful.

To free up some of Matt's time, I am promoting Michael Bucheim to oversee product management. Michael has had engineering, operation and professional services roles here at Rovi and was previously Group Vice President of Product Management for Gartner.

Additionally, this month, we hired a senior sales executive in Europe to help us focus on our European IP opportunities. We are also recruiting 2 more senior international sales executives to help us realize our international sales opportunities in a timely way.

We also continue to monitor our cost structure and actively pursue cost reduction opportunities. That said, we do need to continue to invest if we are to grow. So as Peter mentioned earlier, we are committed to funding our new initiatives out of these cost reduction efforts.

In summary, while we see some timing risks for the deals we are working on for the back half of the year, we are still actively adding new licensees and seeing strong growth in the service provider segment, including in the TV Everywhere area. Our recent product prototypes were very well-received at the cable show and demonstrate that our focused product development is on the right track. We are signing up new over-the-top customers, growing our data business and focusing on turning around our DivX business. We also entered into agreement to divest 2 non-core businesses to allow our management's time and attention, as well as the company's financial resources to be dedicated to our core business. While there's still plenty of hard work to be done in the second half of the year, I am confident that we are on the right path. Our transformation continued during the first half of 2013, and we are positioning ourselves for improving revenue growth in the future.

With that, let's open it up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is from the line of John Bright with Avondale Partners.

John F. Bright - Avondale Partners, LLC, Research Division

Tom, Peter, the service provider revenues seem to perform in line, maybe a little bit better than expectations in the quarter. When I look at the subscriber count on the total 127, I think, then you do the math, are we seeing some uplift in ASP?

Peter C. Halt

We're seeing a slight uplift in the ASP. That said, in terms of the contract, it varies, of course, John, by region. But yes, you've got the contribution that we're getting for -- that the U.S. remains very strong. As we expand into some of the other countries, we get a little less than the U.S. But so far, we're holding or getting a little bit up in our prices.

John F. Bright - Avondale Partners, LLC, Research Division

And the weakness in the quarter, it looked like it was in CE discovery and advertising relative to certainly higher expectations. And I think you talked about lower reporting and no new deals. Is that the order in which we're talking about, lower reporting and then deals? Or was it more you didn't get the deals associated with that segment and that's really why that was lag within the quarter?

Peter C. Halt

Well, those are 2 different things in terms of our expectations that we expected a little bit more in that section, and we didn't get a new deal into the quarter. So in terms of our expectations of what we wanted, that's the driver, John. In terms of the year-on-year compare, the biggest difference against last year is lower reporting from folks who report on a per-unit basis. In addition, last year, we did have a couple new deals. All were very small. And so all involved very small catch-ups, but there were no [indiscernible] catch-ups in the current quarter.

John F. Bright - Avondale Partners, LLC, Research Division

When I look at the guidance for '13 for the adjustments or the lowering portion in your guidance to be conservative, you mentioned 2 items, DivX weak, OTT deals, I think. Break it down, which ones -- is it 50-50, 60-40? How should we think about that?

Peter C. Halt

Yes, John, I'll actually give you some detailed numbers. Usually, we don't go into detail for sections of the year but given that we've changed our estimates for the year. At the midpoint of our guidance for the full year, it's now $615 million. We're looking out of that $615 million as a midpoint to have $335 million provided in our service provider section. We're looking for $146 million to be provided in the CE discovery and advertising section. We're looking for $76 million to be delivered in the CE delivery and display sales vertical. And then finally, we're looking for $58 million to be delivered out of our other section.

John F. Bright - Avondale Partners, LLC, Research Division

Okay. Two other questions. One, the sale of the assets, I think there's liabilities held for sale of around $13.5 million, and then assets held for sale of $4 million on your balance sheet. Is there a sales price that you're going to give us for those 2 assets?

Peter C. Halt

If you look in our 10-Q, you'll be able to work into it. I'd point you to 2 different footnotes: Footnote 4, which talks about our asset sales; and Footnote 13 on subsequent events, since both were sold out at the end of the -- after the end of the quarter.

John F. Bright - Avondale Partners, LLC, Research Division

Okay. Final question. At the last Analyst Day, you talked about '14 growth, I think, 7% to 12%. How is that guidance impacted by today's call?

Peter C. Halt

Well, given what we're doing -- what we're talking about for our midpoint of our guidance, we still believe that those expectations, as a range for 2014, hold true off of the numbers we shared as our estimate for 2013 now.

Operator

Our next question is from the line of Mike Olson with Piper Jaffray.

Michael J. Olson - Piper Jaffray Companies, Research Division

Does the guidance for fiscal '13 and all the segments that you just ran through assume that the businesses that you're selling in Q3 were not in the results for Q1 and Q2? Or does it assume that those businesses become discontinued at the time of sale sometime later in Q3?

Peter C. Halt

Well, Mike, they all assume that they've been removed from January 1. So having been put into discontinued operations, they're not included in the full year results.

Michael J. Olson - Piper Jaffray Companies, Research Division

Okay. And then you've been kind of shutting some of these underperforming non-core businesses. And given recent challenges with the DivX business, would that segment fall into the category of underperforming non-core business as well and perhaps kind of be less critical to the overall business going forward?

Thomas Carson

So I was certainly disappointed. If I had one area that in the quarter was not as good as we would have liked, it was certainly the DivX business. What we've been trying to do is to press pretty hard on getting the next version of DivX 10 released and also to get seated in a -- in the ecosystem, things like HEVC with DivX and DivX Plus Streaming, which we both think are pretty good technologies for that business. That being said, we pretty regularly, as you guys know pretty well by now, Peter and I and my management team, look at every asset we have and really press the teams on where is the growth going to come from and how are these things going to perform. And like we did with Consumer Web businesses during the quarter, we felt that one was going to perform, so we took steps. We're not at that point with DivX, obviously. We're still trying to manage it and work it. But if there's not a strong prospect for growth in that particular business, we'll have to take much harder look at it for the future.

Michael J. Olson - Piper Jaffray Companies, Research Division

Okay. And then -- maybe you said this, but are the international licensing deals that are impacting the back half guidance so that you're being more conservative related to on the back half guidance? Are they all service provider-related where you basically have a service provider infringing on your core interactive guide patents?

Thomas Carson

There's a couple of international deals, and they're really split, I'd say. There's mix between consumer electronics and service provider. And the deals are a combination of both intellectual property and/or products. So, really, the international are really a mix of both CE and service provider and also IP end product. The things we get into, particularly in some of the international markets, particularly markets that maybe we don't have that strong of a presence in terms of what we've done in the past, particularly in areas like Latin America, deals just take longer to get done. And I've been personally involved in a number of them. So I can tell you that they're absolutely ongoing. And what we're trying to make sure we do is not rush to do a bad deal in the spirit of trying to get to a quarter close, right? These deals are pretty big, pretty material, and we want to make sure we get the best possible deal for the company and the shareholders. Saying all that, I think from my perspective, while we've adjusted guidance, we still have a plan as a management team that we're driving towards, which is effectively our original guidance. And that's what we're trying to deliver. So I'm confident we're going to get the deals done. It's just a matter of the timing. And frankly, we try to be transparent with you guys give you the best view at any point in time, and that's what we're trying to do this time.

Operator

Our next question is from the line of Sterling Auty with JPMorgan.

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

So I just want to be perfectly clear. In terms of the new guidance that you've got for the full year, have you totally removed the deals that has a timing risk out of 2013 completely? Or is there some portion that's still left in the new guidance?

Thomas Carson

Yes, I mean, there's still some portion of it that's left in the guidance. It was basically trying to derisk having to get all the deals done. So we basically scaled back the number of deals that we said we were going to try to get done in the second half. Now saying that Sterling and all of them are still pretty active, pretty much at work. So this is more about the risk adjustment more than anything.

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

And you talked about negotiations. But is there risk in terms of timing that these will have to turn into litigations to get them over the finish line?

Thomas Carson

The ones that we're actively involved in, they're both a combination right now of still in, I would say, patent discussion, in combination with patent and product discussion. So it doesn't look like that, and that's not the path that we're going down. And 2 of the entities are pretty well-known to us from past business. So while there's always that possibility, right now, that's not what we're planning on.

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

And when you look at the full year, setting those aside, is there still any assumption in that guidance that there's deals that you'll close that are currently in litigation?

Peter C. Halt

We still have -- we're still in conversations with TV vision and still litigating with TV vision. The nice thing about the revised expectations is, as Tom mentioned, we have some deals at risk such as that and in some that are not. And so now we have the ability to -- if we close a different deal and something else will slip out, we can still keep to the revised expectations.

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

Got it. On DivX, how much of the disappointment in DivX is not having DivX included in certain products going out the door because of waiting for the new version versus how much of it is just poor consumer electronic unit sales volumes given the economy?

Peter C. Halt

Well, it's a comment. I wouldn't say in the former that it's anyone waiting for the new DivX version. Some folks are just putting us in less units as they manufacture. And then there's also just the poor performance within the CE section. And so both of those hit us.

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

But I think one of the questions [indiscernible] and myself have is, if they're deciding to not put them in as many units, is there a risk even with the new version that comes out, that they continue to go down that path where they come up with some alternative or just bypass putting DivX in all together?

Thomas Carson

I think there's some risk to that. But what we've been saying particularly with some of the bigger renewals is that technology is like DPS do resonate, with a lot of CE manufacturers issue have those kind of devices go much more into being used in a streaming environment. So we absolutely think that things like DPS and HEVC give us a pretty good opportunity to do the renewal. That said, you always have -- I spent a lot of my career in the consumer electronics industry. It's very cost-sensitive type of industry, and they take a really hard look at where you need certain things and where you don't. So I think whatever you do in the CE space, you always have that risk. But I think at least on the big renewals that we've done and certainly the discussions we have on the 4 lap in the second half of the year, we feel pretty good about what things like DPS can bring to the party.

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

Last question. How much incremental revenue got moved into discontinued operations from the moves that you made, meaning for -- how much higher would revenue in the quarter have been if you didn't move the incremental items into discontinued ops? And same thing for year-to-date.

Peter C. Halt

The only thing that got moved into discontinued ops was the Consumer Web business, and it's about $2 million for the quarter, Sterling.

Operator

Our next question is from the line of Heather Bellini with Goldman Sachs.

Heather Bellini - Goldman Sachs Group Inc., Research Division

I guess I'm just trying to get a sense, listening to all these other questions, what stops the people, who tried to get better pricing at the end of the quarter where you guys didn't want to agree to it, what stops them from doing that at the end of the September quarter? And I guess the other question I would have is just weakness of the CE business, kind of what do you think changes that if you kind of look at what the trajectory of consumer PCs are doing and low-end tablet sales and, actually, tablet shipments starting to slow? What changes the trajectory of the CE business?

Thomas Carson

Let me maybe do the first one in terms of kind of the deal flow. Certainly, it's [indiscernible] just about every business I've ever been associated with where people try to press to the end of the quarter, I don't -- there's certainly that aspect of what we deal with. But I think part of our success in being able to get deals done is to show some element of resolve that we're not just going to take a deal at the end of the quarter, and frankly, that's why we derisk. There's also -- depending on the type of deal, if it's product deal, certainly, there is usually a need for what we're offering, and they want that at some point in time. So it's not a perpetual delay that can go on and on. And frankly, in the -- if it's pure patent intellectual property licensing deal, there's a point in time where we try to do it without a litigation. But if you have to do litigation, that's forcing functions, certainly, that can help. So there's a variety of things we try to do to mitigate that, but I think part of the results are not from our perspective, meaning too anxious to try to get a deal done. And maybe just clarify from myself and Peter. On the second part of the question, was it specifically related to DivX on CE or...

Heather Bellini - Goldman Sachs Group Inc., Research Division

Yes, that would be helpful, exactly.

Peter C. Halt

So on DivX, as we talked about on previous quarterly calls, we get paid much less in the mobile sector on a per device for tablets and smartphones than we do for traditional devices such as televisions, Blu-ray players, home theater. So it's a good news story for us that we're growing in terms of incorporations within the mobile space on tablets and smartphones, and that those are areas of growth in CE. However, at the current pricing, we haven't reached a point where an increase in those units at a lower rate offsets the decrease in the higher-paying units.

Heather Bellini - Goldman Sachs Group Inc., Research Division

And is there any way you could share with us kind of the delta in pricing?

Peter C. Halt

We haven't gotten into that kind of details, Heather.

Operator

Our next question is from the line of Todd Mitchell with Brean Capital.

Todd T. Mitchell - Brean Capital LLC, Research Division

Following up kind of on these DivX questions, can you talk to us a little bit about where the footprint is geographically? I think you put a number of 67 million devices. Where is DivX getting deployed?

Peter C. Halt

The largest deployments for DivX and where DivX has a really strong brand recognition is in Europe. We also have done DivX deployed in Asia and in the States, but its strongest foothold is in Europe. And...

Todd T. Mitchell - Brean Capital LLC, Research Division

And has that changed anything in any sort of magnitude? I noticed you had deals in Asia. I mean, is Asia becoming a bigger part of the mix? Or is it still pretty much dominated by Europe?

Peter C. Halt

We're seeing, I believe, some improvement in Asia, but Europe is still far and away where the strength of the DivX brand resonates. And given what DivX is today in terms of disconnect to playback, that's where the consumers have the heaviest files. And so they look for DivX on the packaging of devices purchased. That used to be really the strength of the DivX business. Our expectations are that, as DivX Plus Streaming rolls out, that you're going to see then the DivX brand be more relevant in Asia and in the United States.

Todd T. Mitchell - Brean Capital LLC, Research Division

Okay. And also, you've talked about how you'd like to take DivX out of the service -- out of just the CE market and into the service provider market as part of your cloud-based solution for TV Everywhere. Can you tell us if you -- in your negotiations with any service providers, either as part of their renewal in TV Everywhere [indiscernible] you've engaged anybody in discussions about DivX yet?

Peter C. Halt

No, Todd. It's an ecosystem playing it. As Tom was talking about in our prepared remarks, the next step really is about getting content distributed over-the-top, and that's what we're focused on right now. Needless to say, the second step after that then becomes a service provider. So this is our point we're trying to make to emphasize to folks that as an ecosystem play, you start off by getting, as we have, DRM approval from the studios, then we got the DECE sign-off for use in ultraviolet. Then we've been getting all the chip manufacturers in place, and we're primarily covered there. Now we're starting to get it undone with some CE devices. And we're also starting to get it into over-the-top stores. We talked about last quarter, [indiscernible], a provider in France that actually does provide VOD services to some service providers in France, kind of being our first step in there. But really, the next big step for us is we need to get more extended content distribution in the format. And we believe that and [indiscernible] once you have over-the-top content being distributed in DivX Plus Streaming and consumers get to see a much better experience in terms of their over-the-top experience, the trick plays fast forward and rewind, it feels like a Blu-ray player. They get the chaptering, they have the multiple language tracks, which allow them to have a director's cut, and it feels like a Blu-ray player, we -- our belief is, strongly, the service providers are not going to want the over-the-top to have a better experience for consumers. They want to hold on to those consumers. And that's what we need in order to be able to sell it into the service provider section.

Todd T. Mitchell - Brean Capital LLC, Research Division

Okay. And then moving over to the other side of the CE business, can you talk to us a little bit about what percentage of your CE deals for IPG licensing are currently fixed rate? And what are variable to some magnitude? And can you also tell us when the fixed-rate deals start to come up for renewal?

Peter C. Halt

On the CE side, we've said before, and I'll remind you, is that we moved a couple years ago. The major players, we moved to flat fee deals. So they pay us a fixed amount on a quarterly basis. That fixed amount, of course, differs by CE manufacturer. It's based upon the anticipated volume they have in terms of sales. And that's where we've gone with the large manufacturers. And we've done that in order to ensure that we're kind of being covered by the home office. That also gives us the opportunity, as we've talked about in the past, to up-sell them on data, to get our ad platform and stuffs like that. That's been our approach with the major manufacturers. I think if you kind of look at CE distribution and assume the major manufacturers are at a fixed fee, you're going to kind of get the right weighting. It's the smaller manufacturers where we're primarily on the per-unit-produced basis.

Todd T. Mitchell - Brean Capital LLC, Research Division

And when did you start doing that?

Peter C. Halt

A couple of years ago.

Todd T. Mitchell - Brean Capital LLC, Research Division

And I believe, at the time, it was said that the first of those deals were about 2 years. I mean, are those -- some of those deals coming up for renewal at this point?

Peter C. Halt

If you look at our investor deck, I think we said that we're -- that most, not all, but most are under contract until the end of 2014.

Todd T. Mitchell - Brean Capital LLC, Research Division

Okay. And would you consider doing DivX deals at fixed rates?

Peter C. Halt

We've consider doing DivX deals at fixed rates, yes.

Thomas Carson

Another point to keep in mind. We talked about fixed deals, too, and I think it's an important point to raise. Typically, when you do a fixed deal, it's not the same fixed deal for everybody, right? It's typically based on the volume of products that, that particular company happens to be shipping and is anticipated to ship. So even though it could be a flat deal, it's certainly based on the unit volume we would anticipate and actually even grow. So even in a fixed deal, it's not the same price necessarily year-over-year. So I just wanted to make that clarification just so you understand.

Todd T. Mitchell - Brean Capital LLC, Research Division

Got it. And you consider doing that for DivX. Do you get -- when you do resign with DivX customers, do you get catch-up on those or not?

Peter C. Halt

No, because the DivX deals really haven't gone out of contract. And if they did, I imagine they would just seize incorporating the unit. There would be nothing to catch up for. It's not like a patent license agreement.

Todd T. Mitchell - Brean Capital LLC, Research Division

Okay. And then one more sort of avenue here. In your guidance for next year or not the deck that you put up for kind of the 2014 growth rates, you talked to sort of 10% to 20% growth in the service provider segment. And you've also sort of alluded that it's taking longer to get some of these over-the-top deals done. I guess -- and you said here nothing's changed in terms of our outlook resetting the base. Can you talk to us a little bit in terms of that 10% to 20% growth in service provider revenue in 2014, what the component would be from up-sell to traditional service providers for your TV Everywhere or renewal system, the core IP, and what would have been -- what would be incremental from over-the-top?

Thomas Carson

Yes. So, again, maybe just a little context on the service provider space because there is a couple of things that run through the numbers. There is service provider products. There is licensing. There is data deals and advertising that go through the service provider segment. So there's a variety of pieces that play in there. So first, on the product side, actually, when we look at what's happening from a data perspective and also from a guidance perspective, even with our core guides of Passport and i-Guides and then TotalGuide book for set-top box and for xD, we feel pretty good about the direction we're going. With those products, we've seen pretty nice growth. Renewals are good in terms of the average rate per sub. It's a lot more interesting than what we're doing in the data products. So I think, overall, on the service provider product side, we feel pretty good about it. We certainly feel like in the licensing side of the business, particularly in over-the-top, there's a good opportunity there because we have not really hit everything that we feel like we can get yet. And there's the deals that we've been talking about that are still actively being worked. So there's a variety of things in play. The ones that might be a little more lumpy and unpredictable are probably the licensing deals in the over-the-top space. But, again, I think just like I mentioned earlier, I still think it's a good opportunity to get them done. It's just more of a timing matter. The product business for us has a tendency to be a little bit more stable and predictable from that perspective.

Todd T. Mitchell - Brean Capital LLC, Research Division

Okay. But what about sort of the incremental revenue that would be in that year from basically TV Everywhere up-sell to service provider licenses versus new over-the-top licensing deals? Can you sort of break out what the magnitude would be between those 2 in terms of the growth?

Thomas Carson

We haven't gone to the level of detail. Keep in mind, we really look to provide detail for the current year estimates. What we've tried to do has been to give a range for '14 so people could have an expectation as to what we're looking to manage the business to, as we kind of bring it back to its basic and reestablish it and set it back on a path to growth. When we give our guidance for '14 and get into that, we'll get into that much more detail at that point in time.

Todd T. Mitchell - Brean Capital LLC, Research Division

Okay. Last question then. I saw the TotalGuide integration with SeaChange's RDK. Can you give us any color about -- I mean, you made some -- well-received in the market. I mean, where -- is there anybody that you've actually gotten, I guess, into an RFP with that particular combination at this point?

Thomas Carson

In terms of the specifics at this point, we're not able to go into that, but I'll just put a little color commentary around what we're thinking about in the business. As we take a look at what we're trying to do, particularly in a -- in TotalGuide, TotalGuide xD, and what we're trying to do with our cloud-based services, we do think there are opportunities for us to be able to help expand our footprint by having third-party relationships. And particularly coming out of the cable show, there was a lot of interest in what Rovi was trying to do with all of its guidance products, and there were a number of manufacturers that have approached us in the aftermath of that show and before that show, frankly, about doing the kinds of things that we're doing with SeaChange. So we think at the reasonable avenue for us to be pursuing, we're doing a little bit of work right now, as you know, with SeaChange, but we're looking at that as a possibility for broader distribution for us as a company. So still mostly in its infancy, so don't read a lot into at this point, but it's certainly an angle that we think has some interest for us.

Todd T. Mitchell - Brean Capital LLC, Research Division

So basically letting the device -- the set-top box manufacturer or the gateway manufacturer pitch you as part of an overall solution to the service provider?

Thomas Carson

Right. Yes. Correct.

Todd T. Mitchell - Brean Capital LLC, Research Division

And if that was to happen, would you -- I mean, you sort of talked about the pricing differential on TotalGuide versus a license versus the legacy guide. Does that change anything in that equation?

Thomas Carson

It's still in the works, so I wouldn't go too far down a path and talk about it at this point. It's something that we've done the 1 thing with SeaChange, but certainly, we're taking a pretty hard look at what we think that business model could be. But at the end of the day, we're only going to do it if it's going to be beneficial for us from a revenue perspective.

Operator

Our next question comes from the line of Andy Hargreaves with Pacific Crest Securities.

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

Just on the service provider segment, were there any significant catch-up payments in the quarter? And then was there a nonpaying licensee that resigned a paying license? And I ask because the deck said you added 7 million paying subs but only 3 million total subs. So I'm just wondering how that worked.

Peter C. Halt

If you look at the growth for us in the service provider section, about half of the growth came from the 2 new deals that Tom mentioned, AT&T and VUDU. VUDU being in the over-the-top space, it's a small deal. So the AT&T deal did involve some catch-up in terms of the TV Everywhere space.

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

Is that half of the growth sequentially or year-over-year? Maybe it doesn't matter that much.

Peter C. Halt

Year-over-year.

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

Okay. And just -- I know you guys don't want to give quarterly guidance or anything, but we should expect that number to be up sequentially? It looks like we should just based on the guidance.

Peter C. Halt

You're looking at the third quarter and the fourth quarter?

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

Q2 to Q3.

Peter C. Halt

Q2 to Q3. I mean, we've got some deals we're working on. As we've said, a couple of them we pushed out of the year. A couple of the ones that we're keeping in there are going to take a while, too. There might be -- I would anticipate that some of the deals might take a little bit longer. And so I'd suggest that, as you look at the year, you might think that some of that might be a little bit more back-weighted. But, again, we're not going to give specifics on quarters.

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

Yes, yes. And then just on CE, IPG. Thinking about the seasonality there to your midpoint, I mean, it takes a really strong rebound in the second half to get there. Would that be unit growth? Or is there significant fixed fee and catch-up revenue that would come from closing the deal that slipped out of Q2?

Peter C. Halt

Well -- so one of the things that we're doing in the CE space, just as we're doing in the service provider space, if you see the CE companies get into the second screen, the use case -- the license to them is a television use case, and so it was a service providers. So there are some deals that -- relationships we have that we're looking to expand, and there can be a catch-up involved in that. In addition, there's some small players who have gotten bigger in the market, and that has come to our attention in terms of markets where we have patents in place.

Operator

Next question is from the line of James Medvedeff with Cowen and Company.

James Medvedeff - Cowen and Company, LLC, Research Division

A lot of great questions and most of mine have been answered. Let me just ask a little bit about the balance sheet. It seems cash is down to a little bit north of $200 million. And I'm just wondering what the sort of criteria that -- what is the sort of total cash that you'd like to -- that you need to operate the business, in your mind?

Peter C. Halt

So James, I looked at it. It's the next line on the balance sheet. Right after cash and cash equivalents is short-term investments. We like to keep [indiscernible]. So you'll see we've got another $0.5 million -- $0.5 billion, I'm sorry, in short-term investments there. And then in addition, you'll see we have some long-term marketable investment securities that are also available to us, too. So you kind of add those up and you're looking at about $835 million in cash, on cash equivalents, long and short term. So we feel very comfortable with our cash position right now.

James Medvedeff - Cowen and Company, LLC, Research Division

So in terms of ongoing share repurchases, what's the -- that's kind of where I was going with the question. Just -- could you just remind us how much is left on the authorization and what criteria you use in terms of deciding how active to be in the market?

Peter C. Halt

Yes. In the prepared remarks, I had mentioned that we have about $116 million left under our current authorization for share buybacks. 2 things I'll remind you of in terms of share buyback. I mean, historically, we've always said we look to be opportunistic. That said, as we entered this year, we talked about in our guidance that we gave folks at the Investor Day that we're looking to do is to take out dilution. At that point in time, we had talked about in a slide there, you showed about 2 million shares coming into EPS and 2 million being retired. We came out last quarter and bought more than the 2 million and told folks and talking with our board, we would take out all potential dilution. We've now taken out 5 million shares for the year. We started to take out potential dilutions. So we don't have any current plans to be buying back. With that said, we'll continue to be opportunistic if it's warranted.

James Medvedeff - Cowen and Company, LLC, Research Division

Great. And then just one more, back to the guidance. Typically, in the last few years, the third quarter has been a little stronger, and the fourth quarter has been either sort of flattish or even down a little from the third quarter. Would we expect that same sort of trajectory this year?

Peter C. Halt

We're working on it. As I just mentioned in answering Andy's questions, we've got a couple, as Tom said, meaningful deals that we're working on. A couple of them we've removed, a couple of them we've kept in. I wouldn't anticipate they'd all close in Q3. I think you're going to probably see some of them slip into Q4. So the expectations might be more prudent to have it a little bit back-weighted.

Operator

Ladies and gentlemen, that's all the time we have for questions today. At this time, I'd like to turn the conference back to Mr. Carson for any closing remarks.

Thomas Carson

Yes. Thank you very much, and I do want to thank everybody for joining us on the call today. Just maybe a couple of comments from my perspective. I think while we've adjusted the guidance from what we have previously had, that doesn't take away at all in my mind from what I believe is a very strong company and a real good opportunity for growth in the future. I look at what we've been doing with my management team. There's been a lot of work on trying to get this business more focused. And I think the disposition that some of the assets that we've talked about on this call are important in terms of helping us do that. We have a really good process in place to really take a hard look now at all the businesses and also to look at strategic investments going forward. But fundamentally, we just have a lot of really good assets in the company. I mean, we have great IP, we have very good data guidance, just a lot of really good things that I believe we can capitalize on. So I'm very bullish on where the company can go in the future. So I just want to make sure, based on the changing guidance, just put a little bit of context around that. I think this is more about the timing of getting deals done and not that deals aren't going to get done. And you can rest assure that myself and with my management team, we're very focused on actually trying to get to our original guidance number, and that's our plan of record internally. So with that, I want to thank everybody for their time. I appreciate the time and attention today. Thank you very much.

Operator

Thank you, sir. Ladies and gentlemen, if you like to listen to a replay of today's conference, please dial 1 (800) 406-7325; internationally, (303) 590-3030, using the access code of 4629796 followed by the pound key. This does conclude the Rovi Corporation Second Quarter 2013 Results Conference Call. Thank you very much for your participation. You may now disconnect.

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