Macrovision Corporation Reports Record Revenue and Cash Performance

Macrovision Corporation (NASDAQ:MVSN) announced today record fourth quarter revenues of $74.1 million compared to $61.0 million for the fourth quarter of 2005. US GAAP net income was $16.6 million compared to $4.5 million for the fourth quarter of 2005. Diluted GAAP earnings per share for the quarter were $0.31, compared to $0.09 for the fourth quarter of 2005. Non-GAAP net income was $22.6 million, compared to $18.5 million in the fourth quarter of 2005. Non-GAAP diluted earnings per share were $0.43, compared to $0.36 in the same quarter of 2005. Fourth quarter revenue, non-GAAP net income and non-GAAP diluted earnings per share were all record numbers for any quarter. Non-GAAP net income excludes non-cash and one-time items such as amortization of intangibles from acquisitions, impairment on investments, equity-based compensation charges, in process research and development charges, and restructuring charges, as applicable. A reconciliation between net income on a GAAP and non-GAAP basis is provided in tables below. The Company generated $29.7 million of cash from operations in the fourth quarter compared to $19.3 million of cash from operations in the fourth quarter of 2005. The Company’s liquid cash and investments at the end of the fourth quarter were $438.7 million. "As we did throughout each quarter of 2006, we successfully executed Q4 and are pleased with the results. We delivered against our estimates and are confident in our ability to deliver again in 2007,” said Fred Amoroso, President and CEO of Macrovision. "In addition, we further implemented our strategy of helping to protect, enhance and distribute various forms of content across different channels to different devices by acquiring Mediabolic, a leading provider of software solutions for connected consumer electronics devices such as televisions, set-top boxes and digital video recorders, which closed effective January 1, 2007.” "We are pleased with our record results in the fourth quarter and in 2006. Our outlook for 2007 is that our revenue will fall between $280 million and $290 million and that our diluted non-GAAP earnings per share will range between $1.22 and $1.30,” added James Budge, Chief Financial Officer. "In the first quarter of 2007, we expect revenue between $63 million and $66 million and diluted non-GAAP earnings per share within the range between $0.20 and $0.24. Finally, we are pleased to announce that the US Attorney’s Office has withdrawn its subpoena issued to us in connection with its review of our stock option practices. With the Securities and Exchange Commission having already notified us that it terminated its investigation into the matter without recommending that enforcement action be taken, we believe our work on the matter with these agencies is now completed.” GAAP to Non-GAAP Reconciliation Macrovision provides non-GAAP financial information to assist investors in assessing its current and future operations in the way that Macrovision’s management evaluates those operations. Non-GAAP net income and non-GAAP diluted earnings per share are supplemental measures of Macrovision’s performance that are not required by, and are not presented in accordance with, GAAP. The non-GAAP information does not substitute for any performance measure derived in accordance with GAAP. Macrovision believes that this non-GAAP information provides useful information to investors by excluding the effect of some non-cash expenses that are required to be recorded under GAAP but that Macrovision believes are not indicative of Macrovision’s core operating results, or that are expected to be incurred over a limited period of time. Macrovision’s management evaluates and makes operating decisions about its business operations primarily based on revenue and the core costs of those business operations. Management does not consider as "core costs” and therefore does not use the amortization of intangibles from acquisitions, impairment on investments, and equity-based compensation charges when making business decisions. Therefore, management presents non-GAAP financial measures, along with GAAP measures, in this earnings release by excluding these items and other significant unusual items from the period expenses. The income statement line items involved in the adjustment from GAAP to non-GAAP presentation in this earnings release are amortization of intangibles; and the following items that include equity-based compensation charges: (1) cost of revenues; (2) operating expenses, research and development; (3) operating expenses, selling and marketing; and (4) operating expenses, general and administrative. These items in turn affect (1) total cost of revenues; (2) total costs and expenses; (3) operating income; (4) income before income taxes; (5) provision for income taxes; (6) net income; (7) diluted shares for EPS; (8) basic earnings per share and (9) diluted earnings per share. To determine its non-GAAP provision for income taxes, Macrovision recalculates tax based on non-GAAP income before income taxes and adjusts accordingly. For each such non-GAAP financial measure, the adjustment provides management with information about Macrovision’s underlying operating performance that enables a more meaningful comparison of its financial results in different reporting periods. For example, since Macrovision does not acquire businesses on a predictable cycle, management excludes amortization of intangibles from acquisitions in order to make more consistent and meaningful evaluations of Macrovision’s operating expenses. Management also excludes the effect of impairments on investments for the same reason. Management excludes the impact of equity-based compensation to help it compare current period operating expenses against the operating expenses for prior periods and to eliminate the effects of this non-cash item, which, because it is based upon estimates on the grant dates may bear little resemblance to the actual values realized upon the future exercise, expiration, termination or forfeiture of the stock-based compensation, and which, as it relates to stock options and stock purchase plan shares, is required for GAAP purposes to be estimated under valuation models, including the Black-Scholes model used by Macrovision. Management uses these measures to help it make budgeting decisions between those expenses that affect operating expenses and operating margin (such as research and development, sales and marketing, and general and administrative expenses), and those expenses that affect cost of revenue and gross margin. Further, the availability of non-GAAP financial information helps management track actual performance relative to financial targets. Making this non-GAAP financial information available to investors, in addition to the GAAP information, also helps investors compare Macrovision’s performance with the performance of other companies in our industry, which use similar financial measures to supplement their GAAP financial information. Management recognizes that the use of these non-GAAP measures has limitations, including the fact that management must exercise judgment in determining which types of charges should be excluded from the non-GAAP financial information. Because other companies, including companies similar to Macrovision, may calculate their non-GAAP earnings differently than Macrovision, non-GAAP measures may have limited usefulness in comparing companies. Management believes, however, that providing this non-GAAP financial information, in addition to the GAAP information, facilitates consistent comparison of Macrovision’s financial performance over time. Macrovision has provided non-GAAP results to the investment community, not as an alternative but as an important supplement to GAAP information, to enable investors to evaluate Macrovision’s core operating performance in the same way that management does. The tables below present the differences between non-GAAP earnings and GAAP net income on an absolute and per share basis. Dial-in Information Macrovision will hold an investor conference call on February 13, 2007, at 5:00 p.m. ET. Investors and analysts interested in participating in the conference are welcome to call 800-218-0204 (or international +1 303-262-2075) and reference the Macrovision call. The conference call can also be accessed via live Webcast at www.macrovision.com or www.fulldisclosure.com (or www.streetevents.com for subscribers) on February 13, 2007 at 5:00 p.m. ET. The on-demand audio Webcast of Macrovision’s earnings conference call can be accessed approximately 1-2 hours after the live Webcast ends. Investors and analysts interested in listening to a recorded replay of the conference are welcome to call 800-405-2236 (or international +1 303-590-3000) and enter passcode 11082287#. Access to the replay is available through February 14, 2007. About Macrovision Macrovision provides distribution, commerce and consumption solutions for software, entertainment and information content to the home video, PC games, music, cable/satellite, consumer software, enterprise software and information publishing industries. Macrovision holds a total of more than 250 issued or pending United States patents and more than 1,200 issued or pending international patents, and continues to increase its patent portfolio with new and innovative technologies in related fields. Macrovision is headquartered in Santa Clara, California, U.S.A. with other offices across the United States and around the world. More information about Macrovision can be found at www.macrovision.com. © Macrovision 2007. Macrovision is a registered trademark of Macrovision Corporation. All other brands and product names and trademarks are the registered property of their respective companies. All statements contained herein, including the quotations attributed to Mr. Amoroso and Mr. Budge, as well as oral statements that may be made by the Company or by officers, directors or employees of the Company acting on the Company’s behalf, that are not statements of historical fact, including statements that use the words "will,” "believes,” "anticipates,” "estimates,” "expects,” "intends” or "looking to the future” or similar words that describe the Company’s or its management’s future plans, objectives, or goals, are "forward-looking statements” and are made pursuant to the Safe-Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, the Company’s forecast of future revenues and earnings and the business strategies and product plans of the Company. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to be materially different from the historical results and/or from any future results or outcomes expressed or implied by such forward-looking statements. Among the important factors that could cause results to differ materially are the following: the failure of markets for home video, consumer or enterprise software value management, or markets for the technological protection of copyrighted materials contained in such products, to continue, develop or expand, and the failure of the Company’s products to achieve or sustain market acceptance or to meet, or continue to meet, the changing demands of content or software providers. Other factors include those outlined in the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2006, as amended, and such other documents as are filed with the Securities and Exchange Commission from time to time (available at www.sec.gov). These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Company operates in a continually changing business environment and new factors emerge from time to time. The Company cannot predict such factors, nor can it assess the impact, if any, of such factors on the Company or its results. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company assumes no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release. MACROVISION CORPORATION GAAP CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)   Three Months Ended Twelve Months Ended December 31, 2006 December 31, 2005 December 31, 2006 December 31, 2005   Revenues: Licenses $ 58,479  $ 49,884  $ 191,205  $ 166,345  Services 15,597  11,085  56,385  36,885  Total revenues 74,076  60,969  247,590  203,230    Cost of revenues: License fees 2,679  1,640  10,447  5,937  Service fees (1) 9,516  5,382  31,999  17,608  Amortization of intangibles from acquisitions 3,092  3,137  12,975  10,986  Total cost of revenues 15,287  10,159  55,421  34,531    Gross profit 58,789  50,810  192,169  168,699    Operating expenses: Research and development (1) 13,234  9,168  52,832  34,373  Selling and marketing (1) 18,343  16,367  68,512  56,065  General and administrative (1) 9,923  8,215  36,778  32,906  Restructuring charge -  2,531  -  2,531  In-process research and development -  -  -  500  Total operating expenses 41,500  36,281  158,122  126,375  Operating income 17,289  14,529  34,047  42,324    Impairment losses on investments -  -  -  (5,822) Gains on strategic investments -  -  -  174  Interest and other income, net 2,858  1,699  9,258  4,927    Income before income taxes 20,147  16,228  43,305  41,603  Income taxes 3,549  11,738  10,262  19,488    Net income $ 16,598  $ 4,490  $ 33,043  $ 22,115    Basic net earnings per share $ 0.32  $ 0.09  $ 0.64  $ 0.44  Shares used in calculating basic net earnings per share 51,432  51,182  51,840  50,708    Diluted net earnings per share $ 0.31  $ 0.09  $ 0.63  $ 0.43  Shares used in calculating diluted net earnings per share 52,978  51,526  52,731  51,373    (1) Equity-based compensation by category is as follows: Cost of revenue $ 534  $ 11  $ 1,899  $ 11  Research and development $ 1,322  $ 38  $ 5,991  $ 38  Selling and marketing $ 1,803  $ 132  $ 7,569  $ 132  General and administrative $ 2,010  $ 40  $ 6,706  $ 40  MACROVISION CORPORATION RECONCILIATION OF GAAP to NON-GAAP FINANCIAL MEASURES (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)     Three Months Ended Twelve Months Ended December 31, 2006 December 31, 2005 December 31, 2006 December 31, 2005     GAAP Gross profit $ 58,789  $ 50,810  $ 192,169  $ 168,699  Amortization of intangibles from acquisitions 3,296  3,421  13,908  11,958  Equity-based compensation 534  11  1,899  11  Non-GAAP Gross profit $ 62,619  $ 54,242  $ 207,976  $ 180,668    GAAP Operating income $ 17,289  $ 14,529  $ 34,047  $ 42,324  Amortization of intangibles from acquisitions 3,296  3,421  13,908  11,958  Equity-based compensation 5,669  221  22,165  221  In process research and development -  -  -  500  Restructuring charge -  2,531  -  2,531  Non-GAAP Operating income $ 26,254  $ 20,702  $ 70,120  $ 57,534    GAAP Net income $ 16,598  $ 4,490  $ 33,043  $ 22,115  Amortization of intangibles from acquisitions 3,296  3,421  13,908  11,958  Equity-based compensation 5,669  221  22,165  221  In-process research and development -  -  -  500  Restructuring charge -  2,531  -  2,531  Impairment charge, net of gains -  -  -  5,648  Income tax effect of Non-GAAP adjustments (2,936) 7,807  (7,201) 1,699  Non-GAAP Net income $ 22,627  $ 18,470  $ 61,915  $ 44,672    GAAP Diluted EPS $ 0.31  $ 0.09  $ 0.63  $ 0.43  Amortization of intangibles from acquisitions 0.06  0.07  0.26  0.23  Equity-based compensation 0.11  -  0.42  0.01  In-process research and development -  -  -  0.01  Restructuring charge -  0.05  -  0.05  Impairment charge, net of gains -  -  -  0.11  Income tax effect of Non-GAAP adjustments (0.05) 0.15  (0.14) 0.03  Non-GAAP Diluted EPS $ 0.43  $ 0.36  $ 1.17  $ 0.87    Shares used in calculating diluted net earnings per share 52,978  51,526  52,731  51,373  MACROVISION CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS   December 31, December 31, 2006  2005  ASSETS Cash and cash equivalents 159,666  135,625  Advance payments for acquisition 40,241  -  Short-term investments 121,559  99,039  Accounts receivable, net 66,723  45,254  Prepaid expenses and other assets 14,402  7,508  Total Current Assets 402,591  287,426    Property and equipment, net 21,818  13,398  Long-term marketable investment securities 175,165  15,040  Restricted cash and investments 12,000  12,000  Goodwill 136,049  107,329  Other intangibles from acquisitions, net 25,368  32,755  Deferred tax assets 28,730  18,895  Patents and other assets 17,894  11,082  TOTAL ASSETS 819,615  497,925    LIABILITIES Accounts payable 4,378  5,380  Accrued expenses 73,325  40,174  Deferred revenue 33,831  23,262  Total Current Liabilities 111,534  68,816    Convertible senior notes 240,000  -  Other liabilities 3,559  959  TOTAL LIABILITIES 355,093  69,775    STOCKHOLDERS’ EQUITY 464,522  428,150  TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY 819,615  497,925