Record Third Quarter Revenue; Sec Ends Inquiry Into Macrovision Stock Option Practices
SANTA CLARA, CA - Nov 2, 2006 - Macrovision Corporation (NASDAQ: MVSN) announced today record third quarter revenues of $58.1 million compared to $46.6 million for the third quarter of 2005. US GAAP net income was $6.4 million compared to $6.1 million for the third quarter of 2005. Diluted GAAP earnings per share for the quarter were $0.12, same as the comparable quarter in 2005.
Non-GAAP net income was $11.9 million, compared to $7.0 million in the third quarter of 2005. Non-GAAP diluted earnings per share were $0.23, compared to $0.14 in the same quarter of 2005. Third quarter revenue, non-GAAP net income and non-GAAP diluted earnings per share were all record numbers for a third quarter. Non-GAAP net income excludes non-cash items such as amortization of intangibles from acquisitions, impairment on investments, and equity-based compensation charges, as applicable. A reconciliation between net income on a GAAP and non-GAAP basis is provided in tables below.
The Company generated $11 million of cash from operations in the third quarter compared to $4 million of cash from operations in the third quarter of 2005. The Company's liquid cash and investments at the end of the third quarter were $444 million.
"As in the past three quarters, we successfully executed against our financial plan and are pleased with the results." said Fred Amoroso, President and CEO of Macrovision. "Looking at our full year estimates, we are confident in our enhanced capability to deliver security and licensing solutions for customers who are broadening their businesses in the areas of digital distribution, hardware and commerce."
"We have narrowed our full year 2006 revenue range between $243 million and $247 million, in line with previous estimates. Our cash balances are significantly higher at the end of September as a result of the debt financing in August. As a result of the debt financing and simultaneous share repurchase, we are raising our full year fully diluted non-GAAP earnings estimate by three cents and now expect a range between $1.13 and $1.17 per share. In the fourth quarter of 2006, we believe that our revenue will be within a range of $70 million and $74 million and that fully diluted non-GAAP earnings per share will range between $0.39 and $0.43." added James Budge, Chief Financial Officer. "Furthermore, we are pleased to announce that the Securities and Exchange Commission has notified us that its inquiry into our stock option practices has been terminated and that no enforcement action has been recommended to the Commission. As previously announced, we will continue to cooperate with the U.S. Attorney's Office in its review of such practices."
GAAP to Non-GAAP Reconciliation
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.
Macrovision will hold an investor conference call on November 2, 2006, at 5:00 p.m. ET. Investors and analysts interested in participating in the conference are welcome to call 800-257-1836 (or international +1 303-205-0033) and reference the Macrovision call.
The conference call can also be accessed via live Webcast at http://www.macrovision.com/ or http://www.fulldisclosure.com/ (or http://www.streetevents.com/ for subscribers) on November 2, 2006 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 11073571#. Access to the replay is available through November 3, 2006.
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