Macrovision Corporation Reports Second Quarter Financial Performance Record Second Quarter Revenue

Macrovision Corporation (NASDAQ:MVSN) announced today record second quarter revenues of $58.3 million compared to $44.4 million for the second quarter of 2005. US GAAP net income was $6.2 million compared to $6.1 million for the second quarter of 2005. Diluted GAAP earnings per share for the quarter were $0.12, the same as the comparable quarter in 2005.

Non-GAAP earnings were $14.2 million, compared to $8.0 million in the second quarter of 2005. Non-GAAP diluted earnings per share were $0.27, compared to $0.16 in the same quarter of 2005. Second quarter revenue, non-GAAP earnings and non-GAAP diluted earnings per share were all record numbers for a second quarter. Non-GAAP earnings exclude non-cash items such as amortization of intangibles from acquisitions, impairment on investments, and stock-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 $28 million of cash from operations and its liquid cash and investments at the end of the second quarter were $261 million. The cash from operations were a record for any quarter in the Company's history.

"We are pleased with our second quarter financial results. We successfully executed another quarter against our financial plan and we remain confident with our full year revenue estimates provided in our first quarter earnings call in May," said Fred Amoroso, President and CEO of Macrovision. "As we further expanded our security and licensing solutions into digital distribution, commerce and hardware, we gained notable traction with our existing customers and new prospects."

"We continue to believe that full year 2006 revenue will range between $239 million and $249 million and that non-GAAP operating margins will range between 28 and 30 percent. We are realizing even more profits than previously expected in low tax paying jurisdictions so we are lowering our full year and remainder of the year non-GAAP tax rate to 22%. As a result of the overachievement in non-GAAP operating profits in the second quarter and the lower tax rates in the second quarter through the balance of the year, we are raising our full year fully diluted non-GAAP earnings estimate and now expect a range between $1.10 and $1.14 per share. In the third quarter of 2006, we believe that our revenue will be within a range of $56 million and $58 million and that fully diluted non-GAAP earnings per share will range between $0.19 and $0.21," added James Budge, Chief Financial Officer. "The fully diluted non-GAAP earnings per share range estimate includes the costs incurred or currently anticipated to be incurred by us in connection with the SEC and US Attorney requests for information regarding our stock option practices that we received. At this point, we do not anticipate any delay in regulatory filings as a result of either of these matters."

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 earnings is a supplemental measure of Macrovision's performance that is not required by, and is 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 believes that the amortization of intangibles from acquisitions, impairment on investments, and equity-based compensation charges are not core operating costs of its business operations. 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, including both internal targets and publicly announced 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 August 1, 2006, at 5:00 p.m. ET. Investors and analysts interested in participating in the conference are welcome to call 800-240-5318 (or international [phone]) 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 August 1, 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 [phone]) and enter passcode 11065813#. Access to the replay is available through August 2, 2006.

About Macrovision

Macrovision provides distribution, commerce and consumption solutions for software and entertainment content to the home video, PC games, music, cable/satellite, consumer software, and enterprise software industries, Macrovision holds a total of more than 235 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.

(C)Macrovision 2006. 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, the business strategies and product plans of the Company and the impact of certain government reviews of the Company's stock option practices.

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, audio CDs, consumer or enterprise software value management, or markets for the technological protection of copyrighted materials contained in such products, to continue, develop or expand, 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 and the impact of certain government reviews of our stock option practices. Other factors include those outlined in the Company's Annual Report on Form 10-K for the year ended December 31, 2005, 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. -0- MACROVISION CONDENSED CONSOLIDATED STATEMENTS OF INCOME RECONCILIATION OF GAAP TO NON-GAAP QUARTER ENDED JUNE 30, 2006 Three Months Ended June 30, ---------------------------------------------------- 2006 2006 2006 2005 2005 2005 ------- -------- -------- ------- ------- ------- US Non-GAAP Non- US Non-GAAP Non- GAAP Adjustments GAAP GAAP Adjustments GAAP ------ -------- -------- ------ --------- ------ Net Revenues: 58,349 58,349 44,414 44,414 Cost and expenses: Cost of revenues 10,947 (807) (a) 10,140 4,999 (231) 4,768 Amortization of intangibles 3,490 (3,490) - 2,466 (2,466) - ------- -------- ------- ------- ------- ------- Total cost of revenues 14,437 (4,297) 10,140 7,465 (2,697) 4,768 Research and development 14,082 (2,025) (a) 12,057 7,925 - 7,925 Selling and marketing 17,005 (2,437) (a) 14,568 13,027 - 13,027 General and administrative 8,634 (1,695) (a) 6,939 7,461 - 7,461 ------- -------- ------- ------- ------- ------- Total costs and expenses 54,158 (10,454) 43,704 35,878 (2,697) 33,181 Operating income 4,191 10,454 14,645 8,536 2,697 11,233 Interest and other income (expense), net 2,106 - 2,106 974 - 974 ------- -------- ------- ------- ------- ------- Income before income taxes 6,297 10,454 16,751 9,510 2,697 12,207 Provision for income taxes 52 2,530 2,582 3,440 771 4,211 ------- -------- ------- ------- ------- ------- Net income $6,245 $7,924 $14,169 $6,070 $1,926 $7,996 ======= ======== ========= ======= ======= ======= Pro Forma Shares for EPS: Basic 52,262 - 52,262 50,502 - 50,502 Diluted 53,090 269 53,359 51,263 - 51,263 Basic EPS $ 0.12 $ 0.15 $ 0.27 $ 0.12 $ 0.04 $ 0.16 Diluted EPS $ 0.12 $ 0.15 $ 0.27 $ 0.12 $ 0.04 $ 0.16 (a) Equity-based compensation during the second quarter of 2006 totalled $6.7 million. There was no equity-based compensation recorded in 2005. MACROVISION CONDENSED CONSOLIDATED STATEMENTS OF INCOME RECONCILIATION OF GAAP TO NON-GAAP SIX MONTHS ENDED JUNE 30, 2006 Six Months Ended June 30, ---------------------------------------------------- 2006 2006 2006 2005 2005 2005 ------- -------- -------- ------- ------- ------- US Non-GAAP Non- US Non-GAAP Non- GAAP Adjustments GAAP GAAP Adjustments GAAP ------ -------- -------- ------ --------- ------ Net Revenues: 115,367 115,367 95,671 95,671 Cost and expenses: Cost of revenues 19,475 (1,428) (b) 18,047 10,377 (467) 9,910 Amortization of intangibles 6,733 (6,733) - 4,882 (4,882) - ------- -------- ------- ------- ------- ------- Total cost of revenues 26,208 (8,161) 18,047 15,259 (5,349) 9,910 Research and development 26,524 (3,500) (b) 23,024 16,622 - 16,622 Selling and marketing 33,471 (4,117) (b) 29,354 25,949 - 25,949 General and administrative 17,353 (3,117) (b) 14,236 15,887 - 15,887 Impairment charges, net of gains - - - 5,726 (5,726) - ------- -------- ------- ------- ------- ------- Total costs and expenses 103,556 (18,895) 84,661 79,443 (11,075) 68,368 Operating income 11,811 18,895 30,706 16,228 11,075 27,303 Interest and other income (expense), net 4,155 - 4,155 1,911 - 1,911 ------- -------- ------- ------- ------- ------- Income before income taxes 15,966 18,895 34,861 18,139 11,075 29,214 Provision for income taxes 6,818 677 7,495 6,602 3,477 10,079 ------- -------- ------- ------- ------- ------- Net income $9,148 $18,218 $27,366 $11,537 $7,598 $19,135 ======= ======== ========= ======= ======= ======= Pro Forma Shares for EPS: Basic 51,985 - 51,985 50,426 - 50,426 Diluted 52,679 221 52,900 51,298 - 51,298 Basic EPS $ 0.18 $ 0.35 $ 0.53 $ 0.23 $ 0.15 $ 0.38 Diluted EPS $ 0.17 $ 0.35 $ 0.52 $ 0.22 $ 0.15 $ 0.37 (b) Equity-based compensation during 2006 totalled $11.7 million. There was no equity-based compensation recorded in 2005. MACROVISION CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 2006 2005 -------- -------- ASSETS Cash and cash equivalents 120,441 135,625 Short-term investments 126,024 99,039 Accounts receivable, net 41,910 45,254 Prepaid expenses and other assets 10,524 7,508 -------- -------- Total Current Assets 298,899 287,426 Property and equipment, net 19,320 13,398 Long-term marketable investment securities 26,966 15,040 Restricted cash and investments 12,000 12,000 Goodwill 136,687 107,329 Other intangibles from acquisitions, net 31,553 32,755 Deferred tax assets 22,573 18,895 Patents and other assets 11,250 11,082 -------- -------- TOTAL ASSETS 559,248 497,925 -------- -------- LIABILITIES Accounts payable 3,933 5,380 Accrued expenses 55,571 40,174 Deferred revenue 28,808 23,262 -------- -------- Total Current Liabilities 88,312 68,816 Other liabilities 2,944 959 -------- -------- TOTAL LIABILITIES 91,256 69,775 -------- -------- STOCKHOLDERS' EQUITY 467,992 428,150 -------- -------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 559,248 497,925 -------- --------