DivX, Inc. (NASDAQ:DIVX), a digital media company, today announced
results for the first quarter ended March 31, 2008. The Company
reported revenue for the first quarter of $25.0 million, an
increase of 24% compared to revenue of $20.2 million reported in
the first quarter of last year. �We continue to deliver profitable
results while building what we believe is a strong foundation in
key growth areas like DivX Connected, emerging products such as
Blu-ray DVD players and digital TV�s, and content and services,�
said Kevin Hell, Chief Executive Officer of DivX, Inc. �From the TV
in the living room to mobile phones on the go, DivX is emerging as
a bridge for consumers to find, enjoy, and share high-quality
digital video from the Internet on any device from any
manufacturer.� GAAP net income in the first quarter of 2008 was
approximately $2.5 million, or $0.07 per diluted share. DivX
generated non-GAAP net income of $6.2 million, or $0.18 per diluted
share. Non-GAAP net income excludes the following expenses: (1)
non-cash share-based compensation of approximately $2.0 million
($1.2 million, or $0.03 per diluted share, net of related taxes);
(2) Stage6 operating and related accruals of approximately $3.3
million ($2.0 million, or $0.06 per diluted share, net of related
taxes); (3) asset impairment charges of approximately $1.0 million
($600,000, or $0.02 per diluted share, net of related taxes); and
(4) amortization of purchased intangible assets related to
MainConcept of approximately $500,000 ($300,000, or $0.01 per
diluted share, net of related taxes). Non-GAAP net income also
excludes the positive impact of foreign currency exchange related
to the Euro-based intercompany loan of approximately $500,000
($300,000, or a $0.01 gain per diluted share, net of related
taxes). Q1 Actual � Q1 '08 Guidance (Provided on March 11, 2008) �
Revenue (in millions) $25.0 $24.5 - $25.5 � GAAP earnings per share
$0.07 ($0.01) - $0.01 � Adjustments: � Non-cash share-based
compensation expense, net of income taxes $0.03 $0.04 � Stage6
related expenses, net of income taxes $0.06 $0.07 � Impairment of
intangible asset, net of income taxes $0.02 $0.02 � Amortization of
purchased Intangibles, net of income taxes $0.01 $0.01 � FX (gain)
/ loss on intercompany loan, net of income taxes ($0.01) - � � �
DivX non-GAAP earnings per share, diluted $0.18 $0.13 - $0.15 �DivX
delivered a solid quarter,� said Dan Halvorson, Chief Financial
Officer. �We posted strong earnings growth which generated
approximately $5.0 million in EBITDA which resulted in a 33%
operating income. Our balance sheet is sound with approximately
$132 million in cash and investments or $4.00 per share.
Additionally, we repurchased approximately 1.4 million shares
during the quarter and a total of 2.5 million shares to date which
we believe will deliver incremental value to our shareholders.� Q2
and 2008 Outlook The following table summarizes the Company�s
financial guidance for the second quarter and the full 2008 fiscal
year. These estimates are based on the Company�s current business
outlook as of the date of this press release and are based on: 1. A
projected effective tax rate of 40% for the full 2008 fiscal year
which is dependent on the effective tax rates in various domestic
and foreign jurisdictions; 2. Anticipated non-cash share-based
compensation of approximately $2.5 million ($1.5 million, or $0.04
per diluted share, net of related taxes) for the second quarter,
and approximately $9.5 million ($5.7 million, or $0.16 per diluted
share, net of related taxes) for the full 2008 fiscal year; 3.
Stage6 operating and related accruals of approximately $3.3 million
($2.0 million, or $0.06 per diluted share, net of related taxes)
for the full 2008 fiscal year which were incurred during the first
quarter; 4. Impairment of acquired intangible assets attributable
to the write-off of additional milestones related to Veatros of
approximately $300,000 ($180,000, or $0.01 per diluted share, net
of related taxes) for the second quarter, and approximately $1.3
million ($800,000 or $0.03 per diluted share, net of related taxes)
for the full 2008 fiscal year; 5. Amortization of purchased
intangible assets related to MainConcept of approximately $500,000
($300,000, or $0.01 per diluted share, net of related taxes) for
the second quarter, and approximately $2.2 million ($1.3 million,
or $0.04 per diluted share, net of related taxes) for the full 2008
fiscal year; 6. Foreign currency exchange impact on the Euro-based
intercompany loan between MainConcept and DivX of approximately
$500,000 ($300,000, or $0.01 gain per diluted share, net of income
taxes) for the full 2008 fiscal year which was recognized during
the first quarter; 7. Expected revenue for technology licensing of
approximately 75% to 85% of total revenue for the balance of the
2008 fiscal year; media and distribution services will be in the
range of 15% and 25% of total revenue for the balance of the 2008
fiscal year. � Q2 Guidance � UpdatedFY '08Guidance � FY '08
Guidance(Provided onMarch 11, 2008) � Revenue (in millions) $20.5 -
$21.5 $95 - $100 $95 - $100 � GAAP earnings per share $0.03 - $0.05
$0.24 - $0.30 $0.14 - $0.22 � Adjustments: � Non-cash share-based
compensation expense, net of income taxes $0.04 $0.16 $0.16 �
Stage6 related expenses, net of income taxes - $0.06 $0.07 �
Impairment of intangible asset, net of income taxes $0.01 $0.03
$0.03 � Amortization of purchased Intangibles, net of income taxes
$0.01 $0.04 $0.04 � FX (gain) / loss on intercompany loan, net of
income taxes - ($0.01)a - � � � � � � � DivX non-GAAP earnings per
share, diluted � $0.09 - $0.11 � $0.52 - $0.58 � $0.44 - $0.52 � a
No further impact is assumed for Euro FX fluctuation at this time.
Quarterly Conference Call DivX, Inc. will discuss its first quarter
results via teleconference at 4:30 p.m. ET or 1:30 p.m. PT today,
May 5, 2008. To access the call, please dial (877) 604-9674, or
outside the U.S. (719) 325-4855, at least five minutes prior to the
start time. A live webcast and replay will also be available at
http://investors.divx.com. An audio replay of today�s conference
call will be available from 7:30 p.m. ET or 4:30 p.m. PT on May 5,
2008 until midnight May 12, 2008 by dialing (888) 203-1112 or (719)
457-0820 with the replay passcode 4439731. About DivX DivX, Inc. is
a digital media company that enables consumers to enjoy a
high-quality video experience across any kind of device. DivX
creates, distributes and licenses digital video technologies that
span the "three screens" comprising today's consumer media
environment -- the PC, the television and mobile devices. Over 100
million DivX Certified� devices have shipped into the market from
leading consumer electronics manufacturers. DivX also offers
content providers and publishers a complete solution for the
distribution of secure, high-quality digital video content. Driven
by a globally recognized brand and a passionate community of
hundreds of millions of consumers, DivX is simplifying the video
experience to enable the digital home. Forward-Looking Statements
Statements in this press release that are not strictly historical
in nature constitute �forward-looking statements.� Such statements
include, but are not limited to, the top-line growth and earnings
potential of the core DivX business, the Company�s position in the
digital media space, plans for expanding the Company�s core
licensing business, expectations for DivX Connected�, plans for
extending the Company�s content licensing partnerships, and
anticipated financial results for the second quarter and full year
2008. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause DivX�s
actual results to be materially different from historical results
or from any results expressed or implied by such forward-looking
statements. These factors include, but are not limited to: the risk
that customer use of DivX technology may not grow as anticipated;
the risk that anticipated market opportunities may not materialize
at expected levels, or at all; the risk that the Company�s
activities may not result in the growth of profitable revenue; the
risk that the Company�s financial performance for the second
quarter and full year 2008 may not meet expectations; risks and
uncertainties related to the maintenance and strength of the DivX
brand; DivX�s ability to penetrate existing and new markets; the
effects of competition; DivX�s dependence on its licensees and
partners; the effect of intellectual property rights claims; and
other factors discussed in the �Risk Factors� section of DivX�s
annual report on Form 10-K filed with the SEC on March 17, 2008.
All forward-looking statements are qualified in their entirety by
this cautionary statement. DivX is providing this information as of
the date of this release and does not undertake any obligation to
update any forward-looking statements contained in this release as
a result of new information, future events or otherwise, other than
as required under applicable securities laws. Non-GAAP Financial
Measures; GAAP EPS DivX has provided in this release financial
information that has not been prepared in accordance with GAAP.
This information includes non-GAAP net income and diluted earnings
per share, which excludes non-cash share-based compensation
expense, costs related to the operation of Stage6, asset impairment
charges, amortization of purchased intangible assets and foreign
currency impact on the Euro-based intercompany loan. This non-GAAP
information is provided to enhance the reader's overall
understanding of the Company�s current financial performance and
prospects for the future. Specifically, DivX believes this
information provides useful comparative data by excluding non-cash
share-based compensation expense, which is not consistent from
period-to-period. Also, DivX believes that the exclusion of Stage6
expenses, asset impairment charges, amortization of purchased
intangible assets and foreign currency impact on the Euro-based
intercompany loan provides useful comparative data by reflecting
DivX�s business operations in a manner that is consistent with
expected future operations. Management has historically used
non-GAAP net income and non-GAAP net income per share when
evaluating operating performance because we believe the exclusion
of the items described above provides an additional measure of our
core operating results and facilitates comparisons of our core
operating performance against prior periods and our business model
objectives. The presentation of this additional information should
not be considered in isolation or as a substitute for results
prepared in accordance with accounting principles generally
accepted in the United States. The Company continues to evaluate
the factors that might impact non-cash share-based compensation
expense and accruals for income tax expense. The non-cash
share-based compensation expense is expected to vary depending on
the number of new grants issued to both current and new employees,
and changes in the Company�s stock price, stock market volatility,
expected option life, and risk-free interest rates (all of which
are difficult to estimate). In addition, the factors that impact
the Company�s deferred tax assets are expected to vary from
period-to-period, also making the Company's effective tax rate
difficult to estimate. DivX, Inc. CONSOLIDATED CONDENSED BALANCE
SHEETS (in thousands) � � � March 31, � December 31, 2008 2007
(unaudited) Assets Current assets: Cash and cash equivalents $
23,082 $ 14,532 Short-term investments 90,371 126,503 Accounts
receivable, net 15,423 10,397 Deferred tax assets, current 2,699
2,699 Prepaid expenses and other current assets � 4,616 � 5,318
Total current assets 136,192 159,449 � Property and equipment, net
5,192 5,402 Long-term investments 19,214 - Deferred tax assets,
long-term 5,354 5,354 Purchased intangible assets, net 14,870
14,261 Goodwill 12,628 11,000 Other assets � 5,090 � 5,422 Total
assets $ 198,540 $ 200,888 � Liabilities and stockholders' equity
Current liabilities: Accounts payable $ 1,721 $ 2,808 Accrued
expenses 12,951 11,061 Deferred revenue � 9,288 � 7,170 Total
current liabilities 23,960 21,039 � Long-term liabilities � 3,778 �
4,409 Total liabilities 27,739 25,448 � Stockholders' equity �
170,801 � 175,440 � Total liabilities and stockholders' equity $
198,540 $ 200,888 DivX, Inc. CONSOLIDATED CONDENSED STATEMENTS OF
INCOME (in thousands, except per share data) (unaudited) � � � �
Three Months Ended March 31, 2008 � 2007 � Net revenues: Technology
licensing $ 19,078 $ 16,702 Media and other distribution and
services � 5,944 � � 3,516 � Total net revenues 25,022 20,218 �
Cost of revenue: Cost of technology licensing 1,036 848 Cost of
media and other distribution and services (1) � 172 � � 261 � Total
cost of revenues � 1,208 � � 1,109 � � Gross margin 23,814 19,109 �
Operating expenses: Selling, general and administrative (1) (2)
15,977 10,796 Product development (1) (2) 5,425 4,156 Impairment of
acquired intangibles � 1,000 � � - � Total operating expenses �
22,402 � � 14,952 � Income from operations 1,412 4,157 � Interest
income (expense), net 1,657 1,903 Other income � 517 � � - � Income
before income taxes 3,586 6,060 Income tax provision � 1,105 � �
2,400 � Net income $ 2,481 � $ 3,660 � � � Basic net income per
share $ 0.07 � $ 0.11 � Diluted net income per share $ 0.07 � $
0.10 � � Shares used to compute basic net income per share � 34,696
� � 33,151 � Shares used to compute diluted net income per share �
35,356 � � 35,413 � � � � (1) Includes stock-based compensation as
follows: Cost of revenue $ - $ 1 Selling, general and
administrative 1,518 513 Product development � 489 � � 430 � �
2,007 � � 944 � � (2) Includes Stage6 operating costs and related
accruals as follows: Selling, general and administrative $ 3,103 $
942 Product development � 230 � � 96 � $ 3,333 � $ 1,038 � � �
DivX, Inc. UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS (in
thousands, except per share data) � � Three Months Ended March 31,
2008 2007 Net Income: GAAP net income $ 2,481 $ 3,660 Share-based
compensation 2,007 944 Stage6 operating costs and related accruals
3,333 1,038 Impairment of acquired intangibles 1,000 - Amortization
of purchased intangible assets 527 - Fx impact on intercompany loan
(465 ) - Income tax effects of pre-tax adjustments � (2,651 ) �
(803 ) � Non-GAAP net income $ 6,231 � $ 4,839 � � Diluted earnings
per share: GAAP diluted earnings per share $ 0.07 $ 0.10
Share-based compensation 0.06 0.03 Stage6 operating costs and
related accruals 0.09 0.03 Impairment of acquired intangibles 0.03
- Amortization of purchased intangible assets 0.01 - Fx impact on
intercompany loan (0.01 ) Income tax effects of pre-tax adjustments
(0.07 ) (0.02 ) � � Non-GAAP diluted earnings per share $ 0.18 � $
0.14 � � � Non-GAAP shares used to compute diluted net income per
share � 35,356 � � 35,413 � � � The following table sets forth the
computation of Non-GAAP basic and diluted net income per share: �
Numerator: Net income $ 6,231 $ 4,839 � Denominator:
Weighted-average common shares outstanding (basic) � 34,696 � �
33,151 � � Weighted-average common shares outstanding (diluted) �
35,356 � � 35,413 � � Basic net income per share $ 0.18 � $ 0.15 �
� Diluted net income per share $ 0.18 � $ 0.14 � DivX, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (in thousands) � �
Three Months Ended March 31, 2008 � 2007 Net cash provided by
operating activities $ 4,070 $ 7,239 � Net cash provided by (used
in) investing activities 14,252 (47,183 ) � Net cash (used in)
provided by financing activities (9,818 ) 925 � Effect of exchange
rate changes on cash 46 - � � Net increase (decrease) in cash and
cash equivalents 8,550 (39,019 ) Cash and cash equivalents at
beginning of period � 14,532 � � 86,310 � � Cash and cash
equivalents at end of period $ 23,082 � $ 47,291 �
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