DivX Delivers Another Solid Quarter with 11% Year-Over-Year Growth
and Continues to Expand into Emerging Product Categories SAN DIEGO,
Oct. 30 /PRNewswire-FirstCall/ -- DivX, Inc. (NASDAQ:DIVX), a
digital media company, today announced results for the third
quarter ended September 30, 2008. The Company reported revenue for
the third quarter of $24.4 million, an increase of 11% compared to
revenue of $21.9 million reported in the third quarter of last
year. GAAP net income in the third quarter of 2008 was
approximately $3.3 million, or $0.10 per diluted share. DivX
generated non-GAAP net income of $5.4 million, or $0.16 per diluted
share. Non-GAAP net income excludes the following expenses: (1)
non-cash share-based compensation of approximately $2.4 million
($1.4 million, or $0.04 per diluted share, net of related taxes);
(2) the scheduled amortization of purchased intangible assets
related to MainConcept of $594,000 ($341,000, or $0.01 per diluted
share, net of related taxes); and (3) the foreign exchange impact
on a Euro-denominated intercompany loan of $662,000 ($380,000, or
$0.01 per diluted share, net of related taxes). "We have made
significant progress across all our key business initiatives, from
expanding our footprint in key device categories, such as digital
televisions and mobile phones, to establishing relationships with
premium content providers such as Warner Brothers," said Kevin
Hell, Chief Executive Officer of DivX, Inc. "In addition, we have
developed and are now ready to release our next-generation,
cutting-edge H.264 technology solutions to our global community of
users and our hardware and software partners worldwide. We have
accomplished these impressive results while staying focused on
managing our business efficiently and delivering consistent,
profitable results." Dan Halvorson, Executive Vice President and
Chief Financial Officer, said, "The fundamental earnings drivers of
our business remain strong. With that said, consumer spending
continues to face increasing headwinds. As a result, we are
narrowing our revenue guidance, but increasing our fiscal 2008
non-GAAP earnings per share estimates to $0.58 to $0.60, even as we
project lower interest income on our investments." The Company
reported revenue for the nine months ended September 30, 2008 of
$70.8 million, an increase of 17% compared to revenue of $60.4
million reported in the same period of 2007. GAAP net income for
the nine months ended September 30, 2008 was approximately $7.4
million, or $0.22 per diluted share. DivX generated non-GAAP net
income of $15.1 million, or $0.45 per diluted share for the nine
months ended September 30, 2008. Non-GAAP net income for the nine
month period excludes the following expenses: (1) non-cash
share-based compensation of approximately $6.8 million ($3.9
million, or $0.12 per diluted share, net of related taxes); (2)
Stage6 operating costs of $3.3 million ($1.9 million, or $0.06 per
diluted share, net of related taxes); (3) intangible asset
impairment charges of approximately $1.3 million ($719,000, or
$0.02 per diluted share, net of related taxes); (4) the scheduled
amortization of purchased intangible assets related to MainConcept
of approximately $1.7 million ($950,000, or $0.03 per diluted
share, net of related taxes); and (5) the foreign exchange impact
on a Euro-denominated intercompany loan of approximately $204,000
($117,000, or less than one cent per diluted share, net of related
taxes). "DivX continues to deliver positive financial results,
demonstrating the strength of our model and our rigorous cost
controls and cash management," said Halvorson. "Our business model
is designed to maintain high gross margins and strong cash flow
from operations which enables us to post solid earnings. We
generated $14.5 million in cash from operating activities during
the third quarter and our balance sheet continues to be sound with
$130 million in cash and short- and long-term investments or over
$4.00 per share." 2008 Fiscal Outlook The following estimates are
based on the Company's current business outlook as of the date of
this press release: FY '08 Guidance (Provided on FY '08 Guidance
August 7, 2008) --------------- --------------- Revenue (in
millions) $95 - $97 $95 - $100 GAAP earnings per share, diluted
$0.29 - $0.31 $0.24 - $0.30 Adjustments: Non-cash share-based
compensation expense, net of income taxes $0.16 $0.16 Stage6
related expenses, net of income taxes $0.06 $0.06 Impairment of
intangible asset, net of income taxes $0.03 $0.03 Amortization of
purchased intangibles, net of income taxes $0.04 $0.04
FX(gain)/loss on Euro-based intercompany loan, net of income taxes
$0.00* ($0.01) ------------- ------------- Non-GAAP earnings per
share, diluted $0.58 - $0.60 $0.52 - $0.58 -------------
------------- * No further impact is assumed for Euro FX
fluctuation at this time. These estimates are based on: 1. A
projected effective tax rate of approximately 41% 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 $9.5 million ($5.6
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 ($1.9 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 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 purchased
intangible assets 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 a Euro-denominated intercompany
loan between MainConcept and DivX of approximately $200,000
($100,000, or less than one cent per diluted share, net of related
taxes) for the full 2008 fiscal year; and 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 will be approximately 15% to 25% of total
revenue for the 2008 fiscal year. Quarterly Conference Call DivX
management will host a conference call and simultaneous audio
webcast to discuss its third quarter 2008 results on October 30,
2008 at 1:30 p.m. Pacific Time or 4:30 p.m. Eastern Time. To
participate in the call, please dial 877-397-0297 or outside the
U.S. 719-325-4865 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 October 30,
2008 and Midnight, Eastern Time November 6, 2008 by calling
888-203-1112 or 719-457-0820, with passcode 6647389. 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 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 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 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 most recent reports filed with
the SEC. 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 assets 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 net income per diluted 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) September 30, December 31,
2008 2007 ------------- ------------ (unaudited) Assets Current
assets: Cash and cash equivalents $39,982 $14,532 Short-term
investments 73,068 126,503 Accounts receivable, net 7,690 10,397
Deferred tax assets, current 5,258 2,699 Prepaid expenses and other
current assets 3,653 5,318 ------------- ------------ Total current
assets 129,651 159,449 Property and equipment, net 4,498 5,402
Long-term investments 17,207 - Deferred tax assets, long-term 7,499
5,354 Purchased intangible assets, net 12,230 14,261 Goodwill
10,317 11,000 Other assets 5,672 5,422 ------------- ------------
Total assets $187,074 $200,888 ============= ============
Liabilities and stockholders' equity Current liabilities: Accounts
payable $1,314 $2,808 Accrued expenses 7,058 11,061 Deferred
revenue 8,645 7,170 ------------- ------------ Total current
liabilities 17,017 21,039 Long-term liabilities 2,320 4,409
------------- ------------ Total liabilities 19,337 25,448
Stockholders' equity 167,737 175,440 ------------- ------------
Total liabilities and stockholders' equity $187,074 $200,888
============= ============ DivX, Inc. CONSOLIDATED CONDENSED
STATEMENTS OF INCOME (in thousands, except per share data)
(unaudited) Three Months Ended Nine Months Ended September 30,
September 30, ------------------ ----------------- 2008 2007 2008
2007 --------- ------- ------- -------- Net revenues: Technology
licensing $19,108 $17,070 $54,596 $48,001 Media and other
distribution and services 5,301 4,825 16,154 12,391 ---------
------- ------- -------- Total net revenues 24,409 21,895 70,750
60,392 Cost of revenue: Cost of technology licensing 963 874 2,955
2,542 Cost of media and other distribution and services (1) 190 134
548 552 --------- ------- ------- -------- Total cost of revenues
1,153 1,008 3,503 3,094 --------- ------- ------- -------- Gross
margin 23,256 20,887 67,247 57,298 Operating expenses: Selling,
general and administrative (1) (2) 13,299 15,144 41,849 38,947
Product development (1) (2) 4,642 4,299 15,433 13,091 Impairment of
acquired intangibles - 2,223 1,250 2,223 --------- ------- -------
-------- Total operating expenses 17,941 21,666 58,532 54,261
--------- ------- ------- -------- Income (loss) from operations
5,315 (779) 8,715 3,037 Interest income (expense), net 908 2,028
3,675 5,945 Other income (expense) (677) - (175) 10 ---------
------- ------- -------- Income before income taxes 5,546 1,249
12,215 8,992 Income tax provision 2,265 433 4,776 3,513 ---------
------- ------- -------- Net income $3,281 $816 $7,439 $5,479
========= ======= ======= ======== Basic net income per share $0.10
$0.02 $0.22 $0.16 ========= ======= ======= ======== Diluted net
income per share $0.10 $0.02 $0.22 $0.15 ========= ======= =======
======== Shares used to compute basic net income per share 32,312
34,073 33,133 33,721 ========= ======= ======= ======== Shares used
to compute diluted net income per share 32,818 35,180 33,688 35,393
========= ======= ======= ======== (1) Includes stock-based
compensation as follows: Cost of revenue $- $- $- $2 Selling,
general and administrative 1,851 1,986 5,221 4,061 Product
development 539 371 1,602 1,328 --------- ------- ------- --------
2,390 2,357 6,823 5,391 ========= ======= ======= ======== (2)
Includes Stage6 operating costs and related accruals as follows:
Selling, general and administrative $- $3,666 $3,103 $6,817 Product
development - 316 230 560 --------- ------- ------- -------- $-
$3,982 $3,333 $7,377 ========= ======= ======= ======== DivX, Inc.
UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS (in thousands,
except per share data) Three Months Ended Nine Months Ended
September 30, September 30, ------------------ -----------------
2008 2007 2008 2007 -------- ------ ------ ------ Net Income: GAAP
net income $3,281 $816 $7,439 $5,479 Share-based compensation 2,390
2,357 6,823 5,391 Stage6 operating costs and related accruals -
3,982 3,333 7,377 Impairment of acquired intangibles - 2,223 1,250
2,223 Amortization of purchased intangible assets 594 - 1,652 - Fx
impact on intercompany loan 662 - 204 Income tax effects of pre-tax
adjustments (1,556) (3,481) (5,638) (6,096) -------- ------ ------
------ Non-GAAP net income $5,371 $5,897 $15,063 $14,374 ========
====== ======= ======= Diluted earnings per share: GAAP diluted
earnings per share $0.10 $0.02 $0.22 $0.15 Share-based compensation
0.07 0.07 0.20 0.15 Stage6 operating costs and related accruals -
0.11 0.10 0.21 Impairment of acquired intangibles - 0.07 0.04 0.07
Amortization of purchased intangible assets 0.02 - 0.05 - FX impact
on intercompany loan 0.02 - 0.01 - Income tax effects of pre-tax
adjustments (0.05) (0.10) (0.17) (0.17) -------- ------ ------
------ Non-GAAP diluted earnings per share $0.16 $0.17 $0.45 $0.41
======== ====== ====== ====== Non-GAAP shares used to compute
diluted net income per share 32,818 35,180 33,688 35,393 ========
====== ====== ====== The following table sets forth the computation
of Non-GAAP basic and diluted net income per share: Numerator: Net
income $5,371 $5,897 $15,063 $14,374 Denominator: Weighted-average
common shares outstanding (basic) 32,312 34,073 33,133 33,721
======== ====== ====== ====== Weighted-average common shares
outstanding (diluted) 32,818 35,180 33,688 35,393 ======== ======
====== ====== Basic net income per share $0.17 $0.17 $0.45 $0.43
======== ====== ====== ====== Diluted net income per share $0.16
$0.17 $0.45 $0.41 ======== ====== ====== ====== DivX, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (in thousands)
(unaudited) Three Months Ended Nine Months Ended September 30,
September 30, ------------------ ----------------- 2008 2007 2008
2007 --------- ------ ------ ------- Net cash provided by operating
activities $14,504 $10,329 $15,896 $17,922 Net cash (used in)
provided by investing activities (3,169) 131 29,019 (67,547) Net
cash (used in) provided by financing activities (76) 1,188 (19,458)
2,285 Effect of exchange rate changes on cash (62) - (7) -
--------- ------ ------ ------- Net increase (decrease) in cash and
cash equivalents 11,197 11,648 25,450 (47,340) Cash and cash
equivalents at beginning of period 28,785 27,322 14,532 86,310
--------- ------ ------ ------- Cash and cash equivalents at end of
period $39,982 $38,970 $39,982 $38,970 ========= ======= =======
======== DATASOURCE: DivX, Inc. CONTACT: investor relations, Karen
Fisher, +1-858-882-6415, , or media, Tom Huntington,
+1-858-882-0672, , both of DivX, Inc. Web site:
http://www.divx.com/
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