DivX, Inc. (NASDAQ:DIVX), a digital media company, today announced
results for the second quarter ended June 30, 2008. The Company
reported revenue for the second quarter of $21.3 million, an
increase of 16.6% compared to revenue of $18.3 million reported in
the second quarter of last year. GAAP net income in the second
quarter of 2008 was approximately $1.7 million, or $0.05 per
diluted share. DivX generated non-GAAP net income of $3.5 million,
or $0.11 per diluted share. Non-GAAP net income excludes the
following expenses: (1) non-cash share-based compensation of
approximately $2.4 million ($1.5 million, or $0.04 per diluted
share, net of related taxes); (2) the scheduled amortization of
purchased intangible assets related to MainConcept of approximately
$500,000 ($300,000, or $0.01 per diluted share, net of related
taxes); and (3) asset impairment charges of $250,000 ($150,000, or
$0.01 per diluted share, net of related taxes). �We delivered
strong financial and business results in the second quarter of 2008
and made progress toward achieving our mission of powering a
seamless, high-quality digital media experience on any device,�
said Kevin Hell, Chief Executive Officer of DivX, Inc. �We are
especially pleased with both the partner and product traction we
are experiencing in emerging device categories, such as mobile,
gaming, and digital televisions that we believe will drive our
growth into the future.� The following table represents the
Company�s second quarter guidance provided on May 5, 2008 as
compared with second quarter actual results: � Q2 Actual � Q2 '08
Guidance (Provided on May 5, 2008) � Revenue (in millions) $21.3
$20.5 - $21.5 � GAAP earnings per share, diluted $0.05 $0.03 -
$0.05 � Adjustments: � Non-cash share-based compensation expense,
net of income taxes $0.04 $0.04 � Impairment of intangible asset,
net of income taxes $0.01 $0.01 � Amortization of purchased
intangibles, net of income taxes $0.01 $0.01 � � Non-GAAP earnings
per share, diluted $0.11 $0.09 - $0.11 � The Company reported
revenue for the six months ended June 30, 2008 of $46.3 million, an
increase of 20.4% compared to revenue of $38.5 million reported in
the same period of 2007. GAAP net income for the six months ended
June 30, 2008 was approximately $4.2 million, or $0.12 per diluted
share. DivX generated non-GAAP net income of $9.7 million, or $0.28
per diluted share. Non-GAAP net income for the six month period
excludes the following expenses: (1) non-cash share-based
compensation of approximately $4.4 million ($2.6 million, or $0.08
per diluted share, net of related taxes); (2) Stage6 operating
costs of $3.3 million ($2.0 million, or $0.06 per diluted share,
net of related taxes), (3) the scheduled amortization of purchased
intangible assets related to MainConcept of approximately $1.1
million ($600,000, or $0.02 per diluted share, net of related
taxes), (4) asset impairment charges of approximately $1.3 million
($750,000, or $0.02 per diluted share, net of related taxes); and
(5) a foreign exchange gain on a intercompany loan of approximately
$500,000 ($300,000, or $0.01 per diluted share, net of related
taxes). �DivX continues to deliver solid financial results, even in
the face of a challenging consumer spending environment,� said Dan
Halvorson, Executive Vice President and Chief Financial Officer.
�Our business model is structured to maintain high gross margins
and strong cash flow from operations which has enabled us to post
positive earnings.� Commenting further on the Company�s cash
position, Halvorson stated, �We completed the Board-approved $20
million share repurchase program during the quarter with
approximately 1.4 million shares repurchased this quarter for a
total of 2.8 million shares repurchased since March 2008. Taking
into consideration this use of cash, our balance sheet is solid
with approximately $118 million in cash and investments or $3.66
per share. In addition, we generated approximately $5.6 million in
cash from operations during the second quarter. Including working
capital changes, cash used in operating activities was
approximately $2.7 million, primarily due to a $6.0 million
decrease in accrued expenses and payable balances, and an increase
of approximately $1.6 million for our deferred tax asset.� 2008
Fiscal Outlook The following table summarizes the Company�s
financial guidance for the full fiscal year 2008: � FY '08 Guidance
� Revenue (in millions) $95-$100 � GAAP earnings per share, diluted
$0.24 - $0.30 � Adjustments: � Non-cash share-based compensation
expense, net of income taxes $0.16 � Stage6 related expenses, net
of income taxes $0.06 � Impairment of intangible asset, net of
income taxes $0.03 � Amortization of purchased intangibles, net of
income taxes $0.04 � FX (gain) / loss on intercompany loan, net of
income taxes ($0.01)a � Non-GAAP earnings per share, diluted $0.52
- $0.58 � a No further impact is assumed for Euro FX fluctuation at
this time. 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 approximately 41% (up
from the 40% previously projected) 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 expense of approximately $9.5 million ($5.5 million,
or $0.16 per diluted share, net of related taxes) for the full 2008
fiscal year; � 3. Stage6 related expenses 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 intangible asset attributable to
the write-off of milestones related to the acquisition of Veatros
of approximately $1.3 million ($800,000 or $0.03 per diluted share,
net of related taxes) for the full 2008 fiscal year; � 5. The
scheduled amortization of a purchased intangible asset related to
the acquisition of MainConcept of 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; expected revenue for media
and distribution services of approximately 15% to 25% of total
revenue for the balance of the 2008 fiscal year. � �We believe the
fundamental growth drivers of our business remain strong, and
notwithstanding the projected lower interest income on our
investments and a higher effective tax rate, we are reiterating our
full 2008 fiscal year revenue and earnings per share estimates,�
added Halvorson. Quarterly Conference Call DivX management will
host a conference call and simultaneous audio webcast to discuss
its second quarter 2008 results on August 7, 2008 at 1:30 p.m.
Pacific Time or 4:30 p.m. Eastern Time. To participate in the call,
please dial 877-397-0235 or outside the U.S. 719-325-4894 to access
the conference call at least five minutes prior to the start time.
A live audio webcast will be available on the Events and
Presentations page at http://investors.divx.com. In addition, an
audio replay of the call will be available between 7:30 p.m.
Eastern Time August 7, 2008 and Midnight, Eastern Time August 13,
2008 by calling 888-203-1112 or 719-457-0820, with passcode
9429748. About DivX, Inc. 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
Company�s position in the digital media space and progress in
emerging device categories, and anticipated financial results for
the 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
full 2008 fiscal year 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
most recent report filed with the Securities and Exchange
Commission on May 12, 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 Stage6, asset impairment charges, amortization of purchased
intangible assets and foreign currency impact on a Euro-based
intercompany loan. This non-GAAP information is provided to enhance
the reader's overall understanding of our current financial
performance and prospects for the future. Specifically, we believe
this information provides useful comparative data by excluding
non-cash share-based compensation expense, which is not consistent
from period-to-period. Also, we believe that the exclusion of
Stage6 expenses, asset impairment charges, amortization of
purchased intangible asset and foreign currency impact on a
Euro-based intercompany loan provides useful comparative data by
reflecting our business operations in a manner that is consistent
with expected future operations. Management has historically used
non-GAAP net income and non-GAAP earnings 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. We will continue 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 our deferred tax
assets are expected to vary from period-to-period, also making our
effective tax rate difficult to estimate. DivX, Inc. CONSOLIDATED
CONDENSED BALANCE SHEETS (in thousands) � � � June 30, December 31,
2008 2007 (unaudited) Assets Current assets: Cash and cash
equivalents $ 28,785 $ 14,532 Short-term investments 71,562 126,503
Accounts receivable, net 16,148 10,397 Deferred tax assets, current
4,254 2,699 Prepaid expenses and other current assets � 3,227 �
5,318 Total current assets 123,976 159,449 � Property and
equipment, net 5,108 5,402 Long-term investments 17,645 - Deferred
tax assets, long-term 7,499 5,354 Purchased intangible assets, net
14,309 14,261 Goodwill 11,358 11,000 Other assets � 5,908 � 5,422
Total assets $ 185,803 $ 200,888 � Liabilities and stockholders'
equity Current liabilities: Accounts payable $ 1,158 $ 2,808
Accrued expenses 7,332 11,061 Deferred revenue � 8,679 � 7,170
Total current liabilities 17,169 21,039 � Long-term liabilities �
3,691 � 4,409 Total liabilities 20,860 25,448 � Stockholders'
equity � 164,943 � 175,440 Total liabilities and stockholders'
equity $ 185,803 $ 200,888 DivX, Inc. CONSOLIDATED CONDENSED
STATEMENTS OF INCOME (in thousands, except per share data)
(unaudited) � � � � Three Months EndedJune 30, � Six Months
EndedJune 30, � 2008 � � � 2007 � � 2008 � � � 2007 � � Net
revenues: Technology licensing $ 16,410 $ 14,229 $ 35,488 $ 30,931
Media and other distribution and services � 4,909 � � 4,050 � �
10,853 � � 7,566 � Total net revenues 21,319 18,279 46,341 38,497 �
Cost of revenue: Cost of technology licensing 956 820 1,992 1,668
Cost of media and other distribution and services (1) � 186 � � 157
� � 358 � � 418 � Total cost of revenues � 1,142 � � 977 � � 2,350
� � 2,086 � � Gross margin 20,177 17,302 43,991 36,411 � Operating
expenses: Selling, general and administrative (1) (2) 12,573 13,007
28,550 23,803 Product development (1) (2) 5,366 4,636 10,791 8,792
Impairment of acquired intangibles � 250 � � - � � 1,250 � � - �
Total operating expenses � 18,189 � � 17,643 � � 40,591 � � 32,595
� Income (loss) from operations 1,988 (341 ) 3,400 3,816 � Interest
income (expense), net 1,110 2,024 2,767 3,927 Other income
(expense) � (15 ) � - � � 502 � � - � Income before income taxes
3,083 1,683 6,669 7,743 Income tax provision � 1,406 � � 680 � �
2,511 � � 3,080 � Net income $ 1,677 � $ 1,003 � $ 4,158 � $ 4,663
� � � Basic earnings per share $ 0.05 � $ 0.03 � $ 0.12 � $ 0.14 �
Diluted earnings per share $ 0.05 � $ 0.03 � $ 0.12 � $ 0.13 � �
Shares used to compute basic earnings per share � 32,399 � � 33,754
� � 33,548 � � 33,454 � Shares used to compute diluted earnings per
share � 32,907 � � 35,401 � � 34,132 � � 35,409 � � � � � � � � � �
� � � � (1) Includes share-based compensation expense as follows:
Cost of revenue $ - $ 1 $ - $ 2 Selling, general and administrative
1,852 1,562 3,370 2,075 Product development � 574 � � 527 � � 1,063
� � 957 � $ 2,426 � $ 2,090 � $ 4,433 � $ 3,034 � � (2) Includes
Stage6 related expenses as follows: Selling, general and
administrative $ - $ 2,209 $ 3,103 $ 3,151 Product development � -
� � 148 � � 230 � � 244 � $ - � $ 2,357 � $ 3,333 � $ 3,395 � �
DivX, Inc. UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS (in
thousands, except per share data) � Three Months EndedJune 30, Six
Months EndedJune 30, � 2008 � � 2007 � � 2008 � � 2007 � Net
Income: GAAP net income $ 1,677 $ 1,003 $ 4,158 $ 4,663 Share-based
compensation expense 2,426 2,090 4,433 3,034 Stage6 related
expenses - 2,357 3,333 3,395 Impairment of intangible asset 250 -
1,250 - Amortization of purchased intangibles 531 - 1,058 - FX
(gain) / loss on intercompany loan 7 - (458 ) Income tax effects of
pre-tax adjustments (1,431 ) (1,802 ) (4,082 ) (2,605 ) � � � �
Non-GAAP net income $ 3,460 � $ 3,648 � $ 9,692 � $ 8,487 � �
Diluted earnings per share: GAAP diluted earnings per share $ 0.05
$ 0.03 $ 0.12 $ 0.13 Share-based compensation expense 0.07 0.05
0.13 0.08 Stage6 related expenses - 0.07 0.09 0.10 Impairment of
intangible asset 0.01 - 0.04 - Amortization of purchased
intangibles 0.02 - 0.03 - FX (gain) / loss on intercompany loan
0.00 - (0.01 ) - Income tax effects of pre-tax adjustments (0.04 )
(0.05 ) (0.12 ) (0.07 ) � � � � Non-GAAP diluted earnings per share
$ 0.11 � $ 0.10 � $ 0.28 � $ 0.24 � � � Non-GAAP shares used to
compute diluted earnings per share � 32,907 � � 35,401 � � 34,132 �
� 35,409 � � � The following table sets forth the computation of
Non-GAAP basic and diluted earnings per share: � Numerator: Net
income $ 3,460 $ 3,648 $ 9,692 $ 8,487 � Denominator:
Weighted-average common shares outstanding (basic) � 32,399 � �
33,754 � � 33,548 � � 33,454 � � Weighted-average common shares
outstanding (diluted) � 32,907 � � 35,401 � � 34,132 � � 35,409 � �
Basic earnings per share $ 0.11 � $ 0.11 � $ 0.29 � $ 0.25 � �
Diluted earnings per share $ 0.11 � $ 0.10 � $ 0.28 � $ 0.24 �
DivX, Inc. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (in
thousands) (unaudited) � � � � Three Months EndedJune 30, Six
Months EndedJune 30, � 2008 � � 2007 � � 2008 � � 2007 � � � Net
cash provided by (used in) operating activities $ (2,678 ) $ 354 $
1,392 $ 7,593 � Net cash provided by (used in) investing activities
17,936 (20,495 ) 32,188 (67,678 ) � Net cash (used in) provided by
financing activities (9,564 ) 172 (19,382 ) 1,097 � Effect of
exchange rate changes on cash � 9 � � - � � 55 � � - � � Net
increase (decrease) in cash and cash equivalents 5,703 (19,969 )
14,253 (58,988 ) Cash and cash equivalents at beginning of period �
23,082 � � 47,291 � � 14,532 � � 86,310 � � Cash and cash
equivalents at end of period $ 28,785 � $ 27,322 � $ 28,785 � $
27,322 �
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