US EPG and Metadata specialist Rovi posted its Q4 and full year results, and has significantly cut its quarterly and full year losses. Writing off its discontinued operations is still hitting its bottom line, and its ongoing litigation against Netflix won’t be generating revenue in 2015 (even if it’s successful). Rovi also announced Evolution and Roku as the first reseller customers for its API delivered metadata, search and recommendations service.
Q4 revenue was $134.2 million, down 12% compared to Q4 2013’s $152 million. Rovi said the decrease was expected as the previous year’s period included additional and non-repeatable revenue (including deals with Samsung for mobile, and adding Toshiba to a licensing agreement following a lawsuit), as well as the continuing decline in the old Macrovision analog copy protection revenues.
The Q4 loss from continuing operations was $5.9 million compared to the Q4 2013 income of $10.6 million. But the actual reported net loss for Q4 of was only slightly different at $5.8 million, but last year reporting this way yielded a net loss of $60.8 million. This comparison seems to have inspired an uptake in the Rovi stock, as Barron’s has upgraded its rating to Outperform – whipping up the financial press.
Rovi’s full year results stand at $542.3 million in revenue, up just under 1% from 2013, yielding a net loss of $13.5 million, significantly down on the $21.3 million net income that would have been posted in the previous year. Rovi adds that once discontinued operations are taken into consideration (DivX and Main Concept, and the Rovi Entertainment Store business, which are in the process of being written off), the net loss increases to $69.6 million, compared to 2013’s net loss of $172.1 million – hence the sudden increase in the popularity of the stock.
“I am pleased to announce better-than-expected results, above the mid-point of our initial and raised estimates. During Q4, Rovi made progress on a number of initiatives to fuel future growth, including expanding a number of IP licensing agreements, deploying Rovi guides, and acquiring Fanhattan to advance our cloud-based discovery initiatives,” said CEO Tom Carson.
Carson added that Rovi expects double-digit revenue growth with expanding margins in both 2016 and 2017, following “the upcoming big-four (US pay TV) intellectual property license renewals, demand for our growing portfolio of discovery and analytics services,” as well as the company’s attempts to remove costs from the business and invest in appropriate areas – and also hinted at future acquisitions.
Q4 saw Rovi acquire Fanhattan for its Fan TV product, a $150 net top that flopped rather spectacularly. The venture-backed startup was purchased in an all-cash transaction, which CEO Carson says “advances our next generation cloud-based discovery initiative, with additional value for IP.” Carson added that the Fan TV system has generated significant customer interest, and that Rovi’s metadata service will be fully integrated into Fan TV in the second half of 2015.
Fanhattan’s Fan TV deployments continued in Q4 with Time Warner Cable, and the Fan TV product was successfully integrated with Rovi’s advanced search and recommendation engine. Carson said the advanced search’s foundation was secured by the acquisition of Veveo, which was acquired for $62 million in cash at the end of February 2014, with an additional $7 million promised in performance milestone rewards.
Rovi’s CFO, Peter Halt, explained that most segment losses were attributable to the exceptional 2013 quarter, with IP licensing down 19%, consumer electronics down 32%, and the Other segment (including the falling analog copy protection business) down 39% compared to Q4 2013. Halt noted that the other segments were flat, but that service provider revenues were up 6%. Renewal rates were also said to be up in the quarter.
Later on the call, CEO Carson announced that Rovi had signed Evolution as its first customer for its API delivered metadata, search, and recommendations for user guides. He added that the Rovi Knowledge Graph, the product of Veveo, would be used to improve its recommendations by mapping search terms to contextual reference points, in order to provide better results and recommendations.
Q4 also saw Rovi sign a paid trial of its Ad Optimizer platform with A+E Networks, as well as a larger deal with Mediacom for Rovi’s Operator Insights, Ad Optimizer, and Subscriber Analytics.
Rovi’s EVP for IP and Licensing, Samir Armaly, was on hand to answer questions about upcoming court events, and noted that pre-trial actions related to the Netflix case would playout during 2015, with the judge hoping to begin the trial proper no later than Q1 2016.
Rovi’s case against Netflix’s recommendations and EPG system was initially shot down in 2013, but the lengthy appeals process means that the case will rumble on for many quarters to come as Netflix asserts that the Rovi patents don’t pass the Alice Test (established in the Alice vs. CLS Bank International case), which establishes whether something is concretely patentable or abstract and untenable.
The latest update on the case saw the presiding judge declare Netflix’s Alice motion improperly filed, and that it wouldn’t be considered until both parties make claim construction arguments. Netflix has been vocally hostile about the legitimacy of Rovi’s patent portfolio, and won’t be backing down.
In terms of deployments, Rovi believes that approximately 178 million global households use its guide products, with 129 million Rovi subscribers excluding the pre-paid licensees. Rovi now provides metadata services in 70 countries, and claims to cover more than any other major commercial metadata provider. Rival Gracenote might argue with that.