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Executives

Chris Keller -

Thomas Carson - Chief Executive Officer, President and Director

James W. Budge - Chief Financial Officer and Chief Operating Officer

Peter C. Halt - Chief Accounting Officer

Analysts

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

Michael J. Olson - Piper Jaffray Companies, Research Division

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

Robert W. Stone - Cowen and Company, LLC, Research Division

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

Perry Huang - Goldman Sachs Group Inc., Research Division

Jeff Rath - Canaccord Genuity, Research Division

Ryan Fiftal - Morgan Stanley, Research Division

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

Rovi (ROVI) Q1 2012 Earnings Call May 3, 2012 4:30 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Rovi First Quarter 2012 Earnings Conference Call. [Operator Instructions] I'd now like to turn the conference over to Mr. Chris Keller, Vice President of Investor Relations. Please go ahead, sir.

Chris Keller

Welcome, ladies and gentlemen, to Rovi Corporation's First Quarter 2012 Earnings Conference Call. I'm Chris Keller, and I'm joined today by Tom Carson, our President and CEO; James Budge, our CFO and COO; and Peter Halt, our SVP of Finance and Chief Accounting Officer.

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

First, I would like to remind you that all statements made during our conference call that are not statements of historical fact, including, but not limited to, statements regarding the company's forecast of future revenues, expenses and earnings, as well as business strategies and product plans, constitute forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could vary materially from those contained in these forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in our Form 10-Q for the period ended March 31, 2012, and other filings with the SEC that are filed from time to time.

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

We have presented and are discussing adjusted pro forma combined company information because this is how we have and will evaluate our business. We believe that this presentation may be meaningful to our investors in analyzing the company's results of operations. This presentation is not intended to be a substitute for our financial results presented in conformity with generally accepted accounting principles in the United States, and investors and potential investors are encouraged to review the reconciliation of adjusted pro forma financial measures included in our earnings press release.

And as a final piece of housekeeping, the webcast of this conference call will be available on our Investor Relations web page until our next quarterly earnings call.

I would now like to turn the call over to Tom.

Thomas Carson

Thank you, Chris. Thanks, everyone, for joining us today for our quarterly conference call. As you have may seen in today's earnings press release, we recorded adjusted pro forma revenue of $175 million in Q1. Similar to previous quarters, our business benefited from new license agreements, increases in device shipments that incorporate our products or are licensed under our patents, the continued conversion of analog TV subscribers to digital and advertising growth. Adjusted pro forma EPS for the quarter totaled $0.56. I'm pleased with our financial results, as well as the significant progress we've made securing customer wins for our new solutions across our verticals.

I'll discuss our progress in more depth shortly, but first, I'd like to announce that James Budge will be leaving Rovi in mid-May and Peter Halt will be named Chief Financial Officer. Peter has been working closely with James for over 4 years, and he is highly qualified for the job. I personally worked with Peter since 2006, and I'm delighted to be working with him in this new role. I believe that many of you have met Peter at investor conferences with James, and I am confident that he is the right person at the right time for this important position of CFO. James has been at Rovi for nearly 7 years, and I've enjoyed working with him and wish him well with his new opportunity. James will make a few comments now and then Peter will review some of the financial metrics for the company. James?

James W. Budge

Thank you, Tom. Let me just say that the past 7 years at Rovi and the past 4 years working with outstanding management talent like Tom and Peter have been the most rewarding years of my career. While I'm excited for the new opportunity that I have, it was certainly hard to make the decision to leave Rovi. But having worked with Tom and Peter, I could not be leaving the hand -- or the company in the hands of 2 more capable professionals. I very much enjoyed my association with each member of the investment community, and I'm confident that you will continue to see great things come from Rovi.

With that, I'd like to turn the call over to Peter.

Peter C. Halt

Thanks, James, for your comments, and thank you, Tom, for your expressions of confidence in leadership. I, too, look forward to continuing the solid financial stewardship here at Rovi. As Tom mentioned, the recorded adjusted pro forma revenue of $175 million in Q1. On a consolidated basis, revenue for our digital products grew $17 million. However, this growth was offset by the expected delays from our analog products.

Turning to our verticals. Revenue in our service provider vertical, which is primarily comprised of guide products and patents licensed to cable, satellite and telecom companies, grew 9% year-over-year to $79.4 million in the first quarter. This growth was driven by the continued conversion of analog subscribers to digital, the addition of new international license fees and growth in our service provider product revenues. It is worth noting that our service provider product revenue grew 24% versus the same quarter last year, marking the seventh consecutive quarter of 20-plus percent product growth year-on-year. The strength in service provider products was achieved by improved pricing on contract renewals, new applications and advertising. Subscribers worldwide receiving a license or Rovi-provided set-top box-based guide rose to 140 million at the end of Q1 2012, up from 130 million in Q1 2011. Excluding prepaid licensees, primarily Comcast and Dish, total Rovi license subscribers are now approximately 96 million versus 90 million in the year-ago period. Subscribers receiving a Rovi-provided set-top box-based guide rose 7% from a year-ago to 18.3 million at the end of Q1 2012.

Adjusted pro forma revenue in our CE vertical, which includes guidance, products, and patents licensed to device manufacturers, DivX and ACP for hardware was $75.7 million in Q1 2012. While we [indiscernible] benefit from growth and shipments of guide-enabled devices, as well as strong DivX penetration, this growth has been offset by the continued decline in our analog product line. This decline has been a headwind that we have discussed for a couple of years now.

Adjusted pro forma revenue in our other vertical was $20 million in Q1 2012. Drop-off is primarily attributable to the continued decline in demand for our analog technology. Additionally, the growth at our Rovi Entertainment Store business has been slower than we anticipated, not resulting from a lack of demand for this offering, but because of the continued investment required to bring the service of the carrier class performance and scalability. This has delayed the launch of some storefronts. However, as Tom will discuss later, we remain optimistic about the future of this business.

Turning to adjusted pro forma profit measures. SG&A cost of $33.3 million represent a 16% reduction from a year ago. This is due to our continued focus on operating efficiencies and the resulting synergies from the Sonic Solutions transaction. In regards to R&D cost, as we have mentioned before, we've experienced an uptick due to the investment we are making in the Rovi Entertainment Store. We anticipate this level of spend declining in the latter part of the year.

As we disclosed on March 29, we increased our senior secured credit facility by approximately $500 million. In doing so, we extended the average maturity of our overall debt, took advantage of favorable interest rates and favorable terms overall and reduced our overall cost of capital. Having this long-term piece of capital in place will also help us maintain balance sheet flexibility. We have been and will continue to be opportunistic when it comes to stock buyback. We currently have $363 million and $210 million remaining on our stock and debt repurchase authorizations, respectively. Cash and investment balances at the end of the quarter were $973 million. With regard to our full year 2012 expectation, we reaffirm our previous estimates that adjusted pro forma revenue will be between $755 million and $785 million for 2012. Additionally, we continue to expect the adjusted pro forma EPS of between $2.35 and $2.65.

And now, I'll turn the call back over to Tom.

Thomas Carson

Thank you, Peter. At this point, I'll review some of our recent business highlights. Overall, we continue to see strong interest in and support of our strategy to aid the industry's transition to a connected entertainment experience. This strategy encompasses all of our current products, including our TotalGuide solutions, which are now seeing initial deployment; our Rovi Cloud Services, which include our advertising, metadata and search and recommendation services, which allow customers to tailor the consumer's experience, as well as our DivX Plus Streaming and Rovi Entertainment Store offering. These offerings will address the consumer's desire to search, discover, acquire and playback content, including advanced streaming features from both broadcast and on-demand sources.

In CE, we performed well and had a solid quarter benefiting from the continued growth of our DivX technology. However, as we have discussed in recent quarters, the continued decline in analog revenues negatively impact our CE results. On the DivX front, demand continues to be strong. Adjusted pro forma revenue related to our DivX offering grew 13%. Overall, shipments of hardware devices, license for our DivX technology grew about 39% year-over-year and there are now approximately 679 million devices enabled by our DivX technology. We renewed DivX licenses with both Samsung and Sharp on the AV side of their businesses, demonstrating the continued strength and demand for this key technology. The Sharp renewal also included an expansion of coverage to include our DivX Plus Streaming technology. As we discussed last quarter, this technology will significantly improve the experience for consumers viewing over-the-top streaming video content. We expect to see our first customer deployments using DivX Plus Streaming in the third quarter.

In addition to the Sharp deal, we signed our first DivX Plus Streaming deal in the silicon space, bringing on Freescale, Renaissance and Panasonic's IC group. Silicon manufacturers are an important audience as their adoptions speed [ph] adoption by device manufacturers. We view these deals as an indication of the value the CE ecosystem places on this technology solution.

In terms of our CE guidance business, we renewed our relationship with Sony and, in the process, expanded the reach of both our IP and technology with this key customer. This new agreement allows Sony to provide mobile and online technology under the Rovi patents to its customers and gives Sony access to Rovi data across its product portfolio, including PlayStation products and the Sony Entertainment Network, their new cloud-based video services platform. It also gives Sony access to Rovi advertising products and Rovi guides.

We continue to work on supporting the disc-to-digital projects, which enable consumers to access digital copies of film and television content they previously acquired on DVD and Blu-ray. In particular, we are supporting the Samsung disc-to-digital enabled Blu-ray players, which we expect to see in stores soon.

Now, our service provider vertical. Our basic fundamentals remain positive. As we discussed in recent quarters, while basic video cable subscriber growth is stagnant in North America, the conversion of analog to digital subscribers continues to fuel a need for additional set-top box-based guides. As such, our legacy set-top box guide products continue to create value for our customers. Additionally, as MSOs enhance their products by offering more and more HD channels, their demand for robust guide capability is increased. Internationally, our subscriber base continues to grow as we benefit from both lower relative digital penetration and our growing penetration for new licensees.

In terms of renewals, we renewed 18 MSO agreements in Q1 with the resulting 30%-plus average rate increase based upon the value we've added to our offerings. In addition, we demonstrated progress across several key initiatives such as the upsell of incremental applications to our customers, including multiroom DVR, remote DVR recording, Switched Digital Video support, EBIF User Agent, as well as from the professional services fees associated with implementing these new capabilities. As we have discussed in the past, while i-Guide and Passport deployments drive growth today, these solutions can provide the platforms upon which we transition customers to a TotalGuide solution for service providers.

In recent quarters, we have highlighted our progress with TotalGuide customers, including set-top box, mobile and online applications. On that front, Armstrong Communication, BendBroadband and Blue Ridge Communication have now completed their testing, are moving into the trial phase, and we expect them to deploy TotalGuide to consumers in the coming months. While we expect to see more customers' success stories like these in 2012, it is still early days, and we do not expect meaningful TotalGuide-related revenue until 2013.

I would also like to update you on the progress of some of the other customers who are in line for TotalGuide. As I mentioned last quarter, Mediacom renewed its agreement with us and added TotalGuide to their license. Since our last call, Mediacom has begun preparing for field trials. Other service providers, including Cogeco, Suddenlink, and Buckeye, are in or are entering into trials and testing the underlying enablers that include the EBIF User Agent and/or remote DVR application this year. It's also important to remember that while operators are keen to migrate to next-generation guides, there are still many low-end set-top boxes which will likely remain deployed with Rovi's legacy guides for years to come. While our TotalGuide Solution will target some of these legacy devices, others don't have the capacity to handle the advanced capabilities. To avoid the untenable cost to replace all of those boxes with new hardware in the short- to mid-term, we anticipate service providers opting for a cost-effective solution. We expect this will typically mean investing to add incremental functionality through apps such as the ones I mentioned earlier. When added on top of our legacy guides, service providers gain additional mileage out of their existing investment in these low-end boxes. This has the potential to result in a widespread deployment of multiple incremental apps across the vast majority of these older set-top boxes, which equates to a steady incremental revenue source during the transition period to next-generation guides, such as TotalGuide. I am confident that as we demonstrate success with our early adopting operators and through our various field trials, MSOs will increasingly view our solution as the most cost-effective approach to integrate and deploy next-generation guide alongside legacy guide thereby providing the best long-term answer to retain customers, grow revenues, control branding, and minimize disruption while achieving a rapid rollout.

On the European service provider and TV Everywhere front, last week we announced a key renewal with the NDS group. This 5-year extension allows NDS to continue to provide guides and related technologies under Rovi patents to its customers. As with the Sony renewal I mentioned earlier, Rovi benefits from further expansion of the IPB end license. NDS is now licensing additional rights from Rovi, including secondary screens such as mobile devices, tablets and online applications. This agreement enables NDS to expand its license product offerings and provide its digital pay-TV customers with more options in licensing guides for use across multiple devices. We are pleased to work with NDS and their customers to help them deliver a world-class TV experience to their viewers.

We also recently signed a license agreement with Mediacom that covers their online and mobile platforms. Mediacom, a long-time i-Guide customer whose recent progress with TotalGuide I just discussed, is now licensing Rovi patents for online and mobile environments. The recent NDS, Sony and Mediacom agreements in the TV Everywhere space highlight the importance of the Rovi patents outside of the traditional, linear television space.

Turning to the Rovi Entertainment Store. As Peter mentioned earlier, while revenues to date haven't met our expectations, we continue to see significant demand for our advanced video delivery solutions. As we have discussed in prior quarters, our ability to meet the demand for this platform and our customers' expectations remains dependent on continuing to increase the platform's functionality and bringing the service up to carrier class performance and scalability. This has been more of a challenge than we anticipated, but we remain focused on developing a platform that can meet the opportunity that exists today. It is also worth noting that although we have not yet met our own high standards, we continue to be on the leading edge of IP video delivery. In that regard, we anticipate announcing several significant retailers in Q2 who have very strong loyalty programs and the marketing expertise necessary to succeed in this space, and we expect success with each.

As for advertising, Q1 continued our significant growth in both footprint and revenue. Our advertising key performance indicators continue to show solid increases across all of Rovi's advertising categories. We grew our number of new conventional advertisers worldwide by 250% and conventional advertising campaign similarly posted triple-digit increases. Additionally, our Q1 web advertising business enjoyed accelerated growth realizing a 40% growth year-over-year, and we enjoyed nice increases from our entertainment and direct response advertisers as well. We continue to expand the Rovi advertising footprint in Q1 with advances in distribution on both the guide and connected devices, which will enable us to sell an increasingly larger audience to advertisers moving forward.

In addition to footprint growth, Rovi continues to offer advertisers unique ways to reach consumers and engage with viewers through interactive and immersive brand experiences. With the launch of Twitter feeds, we can now amplify the results of advertising campaigns utilizing the viral power of social networking. With the new Twitter feature, viewers can watch realtime Twitter feeds and tweet themselves about the service or product. This new feature provides the brand with an even greater opportunity to capture feedback on their product or service via Twitter.

With social media changing brand awareness and outreach, it gives Rovi advertising network an even greater reach to engaging advertisers with their customers. As pioneers in the Connected TV space, Rovi continues to conduct worldwide studies, recently completing field trials in the U.K. to quantitatively evaluate consumer use, attitudes and ad effectiveness. As they were in the United States, results are overwhelmingly positive. Findings include 68% noticing the advertisement's brand, users being twice as likely to be favorable toward the brand when exposed to advance TV advertising and 86% had higher brand association after seeing the ad. Additionally, this interactive medium drove consumers to take action: 33% researched the brand, while 31% visited the brand's website. These results are even more impressive when you realize this offering targets the highly sought-after demographic of affluent 18- to 44-year-old males.

One of the key tenets of the Rovi Ad Network is delivering campaign measurement, making it easier for advertisers to measure ROI, the newly minted Rovi analytics is now available for post and custom studies. Advertisers can now receive census-level measurement for connected devices within the Rovi Ad Network, with key performance metrics that include, but are not limited to, uniques, impression, clicks, user actions in micro sites, time spent and video views. As an ad network that delivers metrics on both service providers and Connected TV and Blu-ray device footprints, Rovi is providing greater campaign accountability to clients.

Overall, we've seen measurement and analytics as an increasingly important part of our business overall and our unique position in collecting set-top box data enhances the results we can share with our customers. The combination of enhanced measurement, additional reach and scale, plus advanced functionality continue to drive advertiser wins for us in multiple categories. Some notable categories that continue to show growth for us include: automotive, beverage, pharmaceutical, consumer packaged goods, financial and tourism.

Wrapping things up, as you can see, despite the long-forecasted drop-off in our analog products and the short-term headwinds for our CE vertical, we have many reasons to be optimistic about our future. Our business today remains quite strong, and I believe we are well-positioned to take advantage of the opportunities ahead of us.

And with that, I'll turn it back over to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Ralph Schackart.

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

A couple of questions if I could, please. Just first on the debt raise, just curious what's your thoughts were with the buyback capabilities here and where the stock is today vis-à-vis any sort of M&A opportunities that we may see in the space?

Peter C. Halt

Ralph, we always look for opportunistic opportunities, as I mentioned in the script, to repurchase stock. We have been active in that regards and we'll continue to be. In regards to the cash we have and M&A activity, as the company has enunciated in the past and to the extent that there are deals out there that are accretive to us, we're excited about those opportunities. They're both accretive and strategic. And on occasions, we look at very small deals, tuck-ins where it helps us in terms of the build versus buy analysis in the products we have today.

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

Okay, great. And then just in terms of the prepared remarks on the 30% rate increase on the service provider renewals. Can you give us a sense of the split there between increased pricing on IP renewals versus -- or the mix in terms of how many new customers took the product?

Thomas Carson

Yes, I mean, I think, generally speaking, when we have those kind of increases particularly in the service provider market, some of that is rate increase related to product and our IP. So it's a combination of 2. If I had to put a number on it, it's probably a 50-50 split. But some of that increase is actually coming from putting advanced functionality and applications in there as well. So we see pretty nice overall rate increases primarily because we added additional functionalities too.

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

One more and I'll turn it over. Just in terms of TotalGuide for consumer electronics rollout, has there been any major shifts or changes in that timeline that you provided at the Consumer Electronic Show earlier this year?

Thomas Carson

I think on the CE side, actually, we've -- when you look at TotalGuide for the CE environment, it's everything from our fully embedded guides that we have to some of the supporting things like building our ad network into devices, which we've done and also the use by the consumer manufacturers for Rovi Cloud Services. And in all fronts, we're in a better position this year than we were last year just because we have probably 5 of the top CE manufacturers using some or all of the TotalGuide components.

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

But would you say it's generally on-track for where you thought you were beginning of the year...

Thomas Carson

Yes, yes, definitely.

Operator

Our next question comes from the line of Mike Olson.

Michael J. Olson - Piper Jaffray Companies, Research Division

[indiscernible] We know TotalGuide technology has been shipping on Samsung TVs for a while and it's, I guess, now also fair to say that maybe it's actively shipping on Panasonic and Toshiba and Sharp coming later this year. Is that correct, or is there anything incorrect about that or anything to add?

Thomas Carson

Yes. I think basically we are or will be shipping on Samsung, Sony, Toshiba and Panasonic. They're the key clients that we have. And again, they use different parts of the TotalGuide Solution. So at Toshiba, as an example, we use the, what I would say is, the full solution. Companies like Sony may use a combination but certainly use our ad network. So it's really on, I'd say, probably the top 5 CE manufacturers that exist.

Michael J. Olson - Piper Jaffray Companies, Research Division

Okay. And then as far as ACP revenue in Q1, can you just say what that was and how you expect that it's going to trend throughout the remainder of the year? And are you still expecting about $20 million for the full year for ACP?

Peter C. Halt

Mike, the full year expectation of $20 million is right. We haven't gone into the detail by quarters. But as we previously said, that the first quarter of last year was the hardest compare for this year as the ACP revenue has reduced, needless to say, because the limited demand now for the analog product.

Operator

Our next question comes from the line Sterling Auty.

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

JPMorgan. Let me switch over to, given the extension of NDS, the signing of Sony and the other things that you mentioned, how should we think about the balance of the full year revenue, first half versus second half?

Peter C. Halt

The compare on the first half and second half, it'll be right in line with the guidance we kind of gave for how our year rolls. We don't expect a change in that regard.

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

Okay. And you announced a couple more litigations with LG and Vizio and Mitsubishi, can you give us an update in terms of the number of litigations you have, and how should we think about the litigation expenses and how that might impact cost of revenue as we go forward?

Thomas Carson

I mean, the litigation and the licensing business is relatively normal from our perspective. Those are the kinds of things that happen when you have an active licensing business like we do. I'm not sure we have any significant increases from where we were last year in terms of the number of litigations going on. Certainly, some of them may be a little bit more high-profile and got a little bit more press than in the past. But from a total expense perspective, on a year-over-year basis, it might be up slightly, but it's not material.

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

Okay. And then the last one I want to ask is, I don't know if you answered an early one, the Rovi entertainment storefront, what are some of the harder features that you're bumping up against? Or what are some of the missing features that you need to get a couple of these storefronts up and running?

Thomas Carson

There's a couple of things. I mean, first on the Rovi Entertainment Store, I mean, the one thing we are pleased with there is that the demand with the key retailers remains pretty strong. I think the challenge that we have has been that, in this kind of a business model, you're providing a white label service for various retailers, and they all want some level of tailoring which gets to be a little challenging at times depending on what they want. So I wouldn't say it's one individual feature or function. I think the other piece of it really has to do with the fundamental infrastructure. I think the infrastructure wasn't quite as robust, frankly, as we would have liked it to have been to scale with the number of transactions that we're starting to do. So we're having some challenges on that front. But I think, generally speaking, the business from a demand perspective is still pretty strong, and it's going to be a lot of focus on trying to get the infrastructure to a point where we can deal with the level of transactions without any kind of disruptions.

Operator

Your next question comes from the line of Rob Stone.

Robert W. Stone - Cowen and Company, LLC, Research Division

Cowen & Company. A couple of questions, if I may. One, could you comment on how much DivX contributed in the quarter? I mean, [indiscernible], but do you have a dollar figure?

Peter C. Halt

We haven't given the breakout on DivX as a component, but DivX was up. And DivX has been very positive for us, and it gave us a nice part of uptick.

Thomas Carson

So just some color maybe on the DivX business. I think as we look at it, that was a business that has come to the company as very solid and has done well kind of year-over-year. And it certainly benefited from just the fact that there's an explosion in CE devices, and there has been an opportunity for us to get more devices. So I think that's kind of what's driving the DivX side of things.

Robert W. Stone - Cowen and Company, LLC, Research Division

That was actually my follow-up. It was traditionally associated with optical disc platforms, but I know it's been spreading out on to other connected devices especially smartphones, for instance. Can you give us some sense of how the traditional optical disc platforms versus other connected devices are driving the proportion of the revenue?

Thomas Carson

Yes. I think if you look at the business, I mean certainly, what's happened here is that probably early on there was part of it in optical. But today, when we look at DivX, we're really spread across a lot of different devices and now it's including things like digital television and a lot of digital televisions. I don't have an exact percent on what the split is there, but we kind of play across all of those product categories, digital TV being a big one and devices like mobile and tablet also becoming big.

Robert W. Stone - Cowen and Company, LLC, Research Division

I'm going to fish for a couple more specific numbers, and maybe you'll give one. One is, how many homes does the advertising network reach right now, approximately?

James W. Budge

We're basically at about 50 million.

Robert W. Stone - Cowen and Company, LLC, Research Division

And can you say how many conventional campaigns happened in the first quarter? I know it's something like 27 all last year?

James W. Budge

It was roughly 15, give or take.

Robert W. Stone - Cowen and Company, LLC, Research Division

Wow, that's a nice number. The last question, kind of a housekeeping one, given how you managed to extend and rejigger the debt, can you give us a sense of what you think the interest expense run rate that should be going forward? What you got to jumble the whole [ph] quarter of the new structure?

Peter C. Halt

We're looking at about a weighted average debt percent of 3%.

Operator

Our next question comes from the line of Ed Maguire.

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

It's from CLSA. I have a question on -- since NDS has been acquired by Cisco, does that alter at all the dynamics or open up any new opportunities in the future?

Thomas Carson

Potentially, yes. Interestingly enough, we've had relationships and really a good one with both of those companies before they came together. So it could open up some more opportunities certainly, but we have had historically relationships with both anyway.

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

Great. And just had a question on the renewals with the service providers, the cost increases are certainly a positive indicator. Can you comment on which services may have stood out, in particular, as helping to drive some of the increases in renewals?

Thomas Carson

Yes, I mean, I think basically what we're seeing is a lot of demand just kind of generally for continuing a lot of what we have in our current guide platform. So the base guides, they're actually pretty fully featured, and I think are received well, and people want to pay for those. But certainly what's given us an opportunity for increased rates are applications, things like remote DVR recording and those kinds of things. But certainly, I think what is pushing some pretty significant rate increases on the subside has to do with the fact that TotalGuide being deployed is helping quite a bit. So I'd say it's heavily driven by the TotalGuide's deployments in those contracts. But it's also fueled by some of the basic apps that we're putting in. The other thing we see is actually in the tablet world with our xD solution, that's kind of an interesting play too, and that's also helping us on the revenue front.

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

Great. And then the last one is, just on the advertising network, intriguing the analytics that you're rolling out. And of course, we're in an election year. Have you seen any indication that there's upward trends in broader pricing that you're going to be able to lever to use the analytics to drive CPM higher?

Thomas Carson

Yes, I think when you're looking at the advertising environment this year, generally speaking, that we have -- gives us a little bit of comfort that there could be some pricing opportunity, you have 2 material things happening in the world: you've got, obviously, the elections that are happening, which is important, and you also have Olympics. And so we're certainly seeing pretty good CPMs across all of our businesses because of those 2 events.

Operator

Our next question comes from the line of Perry Huang.

Perry Huang - Goldman Sachs Group Inc., Research Division

Goldman Sachs. Just one question. I had a question about operating expenses. The quarter came in, nice margins at 40%. With the investments needed for the Rovi Entertainment Stores, should we think about SG&A maybe slightly pulling back a bit to offset this increase?

Peter C. Halt

Yes, I think that if you look at our rate being -- in our guidance that we have given, our expenses are in line with those. We are down on the SG&A percent, as I commented, by 16% year-on-year. And we continue to be very focused on those costs. In regards to R&D, as I've mentioned, we are running a bit higher as we invest in the Rovi Entertainment Store. But we anticipate that investment tailoring down in the latter part of the year.

Operator

Our next question comes from the line of Jeff Rath with Canaccord Genuity.

Jeff Rath - Canaccord Genuity, Research Division

Just a couple of questions for me, if I can. Maybe, Peter, as you think about -- or what assumptions are implied in your guidance for Smart TV shipments, both with TotalGuide and just IP royalty. So how should we think about that?

Peter C. Halt

We're looking at -- we look at the world of smart connected televisions, $5 million to $10 million in shipments with TotalGuide for the year.

Jeff Rath - Canaccord Genuity, Research Division

And then do you have any assumptions for some non-TotalGuide royalty payments?

Peter C. Halt

No, we anticipate those kind of stay in line with what they have been in the past, last year.

Jeff Rath - Canaccord Genuity, Research Division

Okay. And then maybe one for Tom. Tom, you talked about the applicability or growing applicability of some of your patents and products in some of these cloud video services. How should we think about the scope of that opportunity? It seems like on a daily basis, there are more and more companies, both some of your customers, traditional service providers and new entrants is looking to enter into sort of cloud-based video services. How do we define which ones would be potential or required licensees for your IP, and which services might not require sort of a royalty agreement?

Thomas Carson

I think when you look at the business, I mean, the patent portfolio we have is applicable to well beyond what we'd say traditional businesses for Rovi. I know we've historically done things like set-top boxes and TVs and anything that had a guidance application or an advertising application. But really, any device that have that kind of search and discovery, whether it's on a tablet, whether it's in an online environment, web environment, et cetera, are certainly areas that we think are open for us. So we've announced, as an example, in the past, agreements with some of the cable operators that had very heavy web and mobile emphasis, and they're the kind of clients that we've gone after. But also some of the newer companies that are doing things like Hulu, as an example, we certainly think there are areas that infringe our intellectual property and areas like Netflix as well. So there's pretty broad applicability in kind of the traditional sense of TV and set-top box, but also it applies to mobile and online world as well.

Jeff Rath - Canaccord Genuity, Research Division

And just one follow-up, if I may. When you think about the economics of the sort of -- let's say, the online players, and you called out Hulu and similar, versus your more traditional MSO economics on a per-subscriber basis, should we think about them similarly? Or how should we think about sort of, maybe an online service economics versus a more traditional rate card?

Peter C. Halt

We look at it as being somewhat similar. I mean, needless to say, the metrics around a purely online player are different in terms of their own economics with subscribers, but it's roughly the same model.

Operator

Our next question comes from the line of Ben Swinburne.

Ryan Fiftal - Morgan Stanley, Research Division

It's Ryan Fiftal in for Ben, Morgan Stanley. So maybe we can dig into some of the drivers of the CE business. So I have 2 questions on that front. First, I know you can't speak to the specific contracts, but can you broadly give us an update on how far along you think you are in monetizing the patent portfolio as CE makers? I mean, we've seen a number of press releases with new deals, and I know you have some litigations going on. And so any help you can give maybe on the percentage of the addressable market you think you have under license or just broadly what inning you think you're in?

Peter C. Halt

So in terms of the patent portfolio, as Tom commented earlier, we've got 2 CE manufacturers, large manufacturers, that are still open. I think everyone's well aware of those. Otherwise, we're pretty far down the road in terms of CE players and patent. But it's product that we see tremendous amount of upside.

Ryan Fiftal - Morgan Stanley, Research Division

Okay, understood. And then also sticking on the CE side. I know you have a combination of fixed fee and variable per unit deals. Can you give us any sense of the relative magnitude of the percentage of revenues that's fixed versus variable?

Peter C. Halt

In terms of our CE contracts, they're about 50-50 between fixed and variable.

Operator

The next question comes from the line of Rob Stone.

Robert W. Stone - Cowen and Company, LLC, Research Division

Just wanted to touch on gross margin, and if you had any comments on the impact of legacy analog going away, usually cash cows are pretty good vis-a-vis the cost of [indiscernible] it while it lasts. And I guess Rovi Entertainment Store as it grows has maybe a little bit lower-margin. So any directional commentary from the margin that you just put in for Q1?

Peter C. Halt

No. I mean, Rob, you're on-line in terms of -- ACP as we've mentioned in the past has a fairly high-margin on it. The Rovi Entertainment Store, as we get it launched and get it scaled in terms of volume of transactions, has a lower-margin. That said, all that's been taken into consideration in providing the guidance that we have for the relationship between revenue and earnings per share.

Robert W. Stone - Cowen and Company, LLC, Research Division

And my final question, another housekeeping one, the tax rate was lower than I was expecting. Can you say what you think the effective tax rate will be for the cash -- the non-GAAP share?

Thomas Carson

Our cash tax rate, we anticipate to be between 8% and 7%, probably closer to 7%.

Operator

Our next question comes from the line of Todd Mitchell.

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

Brean Murray. I just have a quick question on NDS. I just want to confirm a couple of things. Your relationship with NDS in the way that they pay you, do their subs -- the subs that they represent, they don't sell on a reoccuring basis. Do you get a one-time payment from them as opposed to a reoccurring revenue stream? That's the first question. And the second is, if so, how do we think about the net present value of that? And is there an impact from them joining Cisco in terms of the total footprint which that would be applicable to?

Peter C. Halt

We've got a good revenue stream with NDS and the various customers that relate or covers, and it's part of what we look at in terms of our run rate for the business.

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

But it's basically your billing with their gross ads or their customers' gross ads. Is that correct?

Peter C. Halt

It varies in terms of the NDS relationship with them on a customer by customer basis. Some of them are on subs, some of them are on boxes.

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

Okay. And up front as they're added though?

Peter C. Halt

Correct.

Operator

There are no further questions in the queue at this time, I'd now like to turn the conference back over to management for closing remarks.

Thomas Carson

All right. Thank you very much, everybody. Appreciate the time, and also I'd like to thank James for all his great support, and we wish him well in his future. And thank you, everybody, for your participation today.

Operator

Ladies and gentlemen, that concludes Rovi's First Quarter Earnings Conference. ACP would like to thank you for your participation. You may now disconnect.

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