DIVX Divx, Inc. (MM)

DivX Delivers Solid Year with 11% Year-Over-Year Revenue Growth; Cash and Investments Increased to $135 Million as Company Continues Expansion into Emerging Product Categories SAN DIEGO, March 9 /PRNewswire-FirstCall/ -- DivX, Inc. (NASDAQ:DIVX), a digital media company, today announced results for the fourth quarter and full year ended December 31, 2008. (Logo: http://www.newscom.com/cgi-bin/prnh/20081124/LA48153LOGO ) Highlights in 2008 include: -- $0.59 non-GAAP earnings per share for 2008, up from $0.57 a year earlier -- $29.0 million non-GAAP operating income for full year 2008 -- $19.7 million non-GAAP net income for full year 2008 -- EBITDA margins at 34% for full year 2008 "Despite a slowing economy, DivX continued to deliver positive business results in Q4, as well as for the full year 2008," stated Kevin Hell, Chief Executive Officer of DivX. "In addition, we simultaneously developed the products and markets that we believe will enable future growth, including new device categories such as mobile and digital televisions, and an entirely new, high definition H.264 hardware and software offering. The economic headwinds will likely continue in 2009. However, we feel given our strong strategic assets and financial condition, we are uniquely positioned to deliver on the full promise of digital media where consumers have the freedom to enjoy high-quality digital content from any service on any device from any brand." The Company reported revenue for the fourth quarter of $23.2 million, a decrease of 5% compared to revenue of $24.5 million reported in the fourth quarter of last year. GAAP net income in the fourth quarter of 2008 was approximately $2.6 million, or $0.08 per diluted share. DivX generated non-GAAP net income of $4.6 million, or $0.14 per diluted share. Non-GAAP net income and earnings per share exclude the following expenses: (1) non-cash share-based compensation of approximately $2.2 million ($1.3 million, or $0.04 per diluted share, net of related taxes); (2) the scheduled amortization of purchased intangible assets related to MainConcept of $476,000 ($285,000, or $0.01 per diluted share, net of related taxes); and (3) intangible asset impairment charges of $632,000 ($379,000, or $0.01 per diluted share, net of related taxes). The Company reported revenue for the twelve months ended December 31, 2008 of $93.9 million, an increase of 11% compared to revenue of $84.9 million reported in the same period of 2007. GAAP net income for the twelve months ended December 31, 2008 was approximately $10.0 million, or $0.30 per diluted share. DivX generated non-GAAP net income of $19.7 million, or $0.59 per diluted share for the twelve months ended December 31, 2008. Non-GAAP net income and earnings per share for the twelve month period excludes the following expenses: (1) non-cash share-based compensation of approximately $9.0 million ($5.4 million, or $0.16 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) intangible asset impairment charges of approximately $1.9 million ($1.1 million, or $0.03 per diluted share, net of related taxes); (4) the scheduled amortization of purchased intangible assets related to MainConcept of approximately $2.1 million ($1.3 million, or $0.04 per diluted share, net of related taxes); and (5) the foreign exchange impact on a Euro-denominated intercompany loan of approximately $236,000 ($142,000, or less than one cent per diluted share, net of related taxes). The Company ended the full year 2008 with $135 million in cash and investments. Dan Halvorson, Executive Vice President and Chief Financial Officer, added, "The fundamental earnings drivers of our business remain strong, although we expect to see the continued impact from lower spending on consumer electronics in 2009. We will continue to develop the products and markets that are critical to our long-term success, but also stay focused on our core operating principles of delivering high gross margins and positive cash flow." First Quarter 2009 Fiscal Outlook The following table summarizes the Company's financial guidance for the first quarter of 2009. The following estimates are based on the Company's current business outlook as of the date of this press release: Q1'09 Guidance Revenue (in millions) $17.5 - $18.5 GAAP earnings per share, diluted ($0.04) - ($0.02) Adjustments: Non-cash share-based compensation expense, net of income taxes $0.04 Amortization of purchased intangibles, net of income taxes $0.01 Non-GAAP earnings per share, diluted $0.01 - $0.03 These estimates are based on: 1. The assumption that no toolbar revenue will be received by the Company for the first quarter of 2009; 2. A projected effective tax rate of approximately 41% for the first quarter of 2009 which is dependent on the effective tax rates in various domestic and foreign jurisdictions; 3. Anticipated non-cash share-based compensation of approximately $2.3 million ($1.4 million, or $0.04 per diluted share, net of related taxes) for the first quarter of 2009; and 4. The scheduled amortization of purchased intangible assets related to the acquisition of MainConcept of approximately $500,000 ($300,000, or $0.01 per diluted share, net of related taxes) for the first quarter of 2009. Quarterly Conference Call DivX management will host a conference call and simultaneous audio webcast to discuss its fourth quarter and fiscal 2008 results on March 9, 2009 at 1:30 p.m. Pacific Time or 4:30 p.m. Eastern Time. To participate in the call, please dial (877) 723-9522 or outside the U.S. (719) 325-4839 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 of the Company's web site at http://investors.divx.com/. In addition, an audio replay of the call will be available between 7:30 p.m. Eastern Time March 9, 2009 and 11:59 p.m. Eastern Time March 16, 2009 by calling (888) 203-1112, or (719) 457-0820, with passcode 1080246. 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(R) 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 growth and earnings potential of the DivX business, the Company's position in the digital media space, uncertainties contributing to the macroeconomic climate in 2009, and anticipated financial results for the first quarter of 2009. 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(R) 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 uncertainties surrounding the macroeconomic climate, the risk that the Company's financial performance for the first quarter of 2009 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 the operation of Stage6, asset impairment charges and amortization of purchased intangible assets and the foreign exchange impact on a Euro-denominated 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, of asset impairment charges and of amortization of purchased intangible assets and the foreign exchange impact of a Euro-denominated 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) December 31, December 31, 2008 2007 ---- ---- (unaudited) Assets Current assets: Cash and cash equivalents $43,442 $14,532 Short-term investments 73,897 126,503 Accounts receivable, net 7,263 10,397 Deferred tax assets, current 1,841 2,699 Prepaid expenses and other current assets 4,732 5,318 ----- ----- Total current assets 131,175 159,449 Property and equipment, net 3,811 5,402 Long-term investments 17,968 - Deferred tax assets, long-term 10,547 5,354 Purchased intangible assets, net 10,968 14,261 Goodwill 10,358 11,000 Other assets 8,574 5,422 ----- ----- Total assets $193,401 $200,888 ======== ======== Liabilities and stockholders' equity Current liabilities: Accounts payable $1,319 $2,808 Accrued expenses 7,909 11,061 Deferred revenue 6,185 7,170 ----- ----- Total current liabilities 15,413 21,039 Long-term liabilities 3,888 4,409 ----- ----- Total liabilities 19,301 25,448 Stockholders' equity 174,100 175,440 -------- -------- Total liabilities and stockholders' equity $193,401 $200,888 ======== ======== DivX, Inc. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited) Three Months Twelve Months Ended December Ended December 31, 31, --------------- --------------- 2008 2007 2008 2007 ---- ---- ---- ---- Net revenues: Technology licensing $20,476 $18,344 $75,072 $66,345 Media and other distribution and services 2,679 6,126 18,833 18,517 ----- ----- ------ ------ Total net revenues 23,155 24,470 93,905 84,862 Cost of revenue: Cost of technology licensing 927 1,236 3,882 3,778 Cost of media and other distribution and services (1) 166 149 714 701 --- --- --- --- Total cost of revenues 1,093 1,385 4,596 4,479 ----- ----- ----- ----- Gross margin 22,062 23,085 89,309 80,383 Operating expenses: Selling, general and administrative (1)(2) 12,748 19,368 54,597 58,315 Product development (1)(2) 4,751 5,647 20,184 18,738 Impairment of acquired intangibles 632 750 1,882 2,973 --- --- ----- ----- Total operating expenses 18,131 25,765 76,663 80,026 ------ ------ ------ ------ Income (loss) from operations 3,931 (2,680) 12,646 357 Interest income (expense), net 770 1,927 4,445 7,835 Other income (expense) (304) (5) (479) 42 ---- -- ---- -- Income (loss) before income taxes 4,397 (758) 16,612 8,234 Income tax provision (benefit) 1,828 (4,487) 6,604 (974) ----- ------ ----- ---- Net income $2,569 $3,729 $10,008 $9,208 ====== ====== ======= ====== Basic net income per share $0.08 $0.11 $0.30 $0.27 ===== ===== ===== ===== Diluted net income per share $0.08 $0.11 $0.30 $0.26 ===== ===== ===== ===== Shares used to compute basic net income per share 32,392 34,587 32,946 33,939 ====== ====== ====== ====== Shares used to compute diluted net income per share 32,774 35,476 33,458 35,415 ====== ====== ====== ====== (1) Includes share-based compensation as follows: Cost of revenue $- $- $- $2 Selling, general and administrative 1,518 5,700 6,739 9,761 Product development 680 667 2,282 1,995 --- --- ----- ----- $2,198 $6,367 $9,021 $11,758 ====== ====== ====== ======= (2) Includes Stage6 operating costs and related accruals as follows: Selling, general and administrative $- $3,006 $3,103 $9,824 Product development - 476 230 1,036 --- --- --- ----- $- $3,482 $3,333 $10,860 === ====== ====== ======= DivX, Inc. UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS (in thousands, except per share data) Three Months Twelve Months Ended Ended December December 31, 31, ------------- --------------- 2008 2007 2008 2007 ---- ---- ---- ---- Net Income: GAAP net income $2,569 $3,729 $10,008 $9,208 Share-based compensation 2,198 6,367 9,021 11,758 Stage6 operating costs and related accruals - 3,482 3,333 10,860 Impairment of acquired intangibles 632 750 1,882 2,973 Amortization of purchased intangible assets 476 271 2,128 271 Fx impact on intercompany loan 32 - 236 - Income tax benefit on adjustments to tax reserves and the elimination of the valuation allowance on deferred tax assets - (4,630) - (4,630) Income tax effects of pre-tax adjustments (1,284) (4,348) (6,922) (10,345) ------ ------ ------- ------- Non-GAAP net income $4,623 $5,621 $19,686 $20,095 ====== ====== ======= ======= Diluted earnings per share: GAAP diluted earnings per share $0.08 $0.11 $0.30 $0.26 Share-based compensation 0.07 0.18 0.27 0.33 Stage6 operating costs and related accruals - 0.10 0.10 0.31 Impairment of acquired intangibles 0.02 0.02 0.06 0.08 Amortization of purchased intangible assets 0.01 0.01 0.06 0.01 Fx impact on intercompany loan - - 0.01 - Income tax benefit on adjustments to tax reserves and the elimination of the valuation allowance on deferred tax assets - (0.13) - (0.13) Income tax effects of pre-tax adjustments (0.04) (0.12) (0.21) (0.29) ----- ----- ----- ----- Non-GAAP diluted earnings per share $0.14 $0.16 $0.59 $0.57 ===== ===== ===== ===== Non-GAAP shares used to compute diluted net income per share 32,774 35,476 33,458 35,415 ====== ====== ====== ====== The following table sets forth the computation of Non-GAAP basic and diluted net income per share: Numerator: Net income $4,623 $5,621 $19,686 $20,095 Denominator: Weighted- average common shares outstanding (basic) 32,392 34,587 32,946 33,939 ====== ====== ====== ====== Weighted- average common shares outstanding (diluted) 32,774 35,476 33,458 35,415 ====== ====== ====== ====== Basic net income per share $0.14 $0.16 $0.60 $0.59 ===== ===== ===== ===== Diluted net income per share $0.14 $0.16 $0.59 $0.57 ===== ===== ===== ===== DivX, Inc. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (in thousands) (unaudited) Three Months Twelve Months Ended Ended December December 31, 31, ------------- --------------- 2008 2007 2008 2007 ---- ---- ---- ---- Net cash provided by operating activities $7,576 $452 $23,472 $18,374 Net cash (used in) provided by investing activities (3,505) (25,191) 25,514 (92,738) Net cash (used in) provided by financing activities (481) 301 (19,939) 2,586 Effect of exchange rate changes on cash (130) - (137) - ----- ------- ------ ------- Net increase (decrease) in cash and cash equivalents 3,460 (24,438) 28,910 (71,778) Cash and cash equivalents at beginning of period 39,982 38,970 14,532 86,310 ------ ------ ------ ------ Cash and cash equivalents at end of period $43,442 $14,532 $43,442 $14,532 ======= ======= ======= ======= http://www.newscom.com/cgi-bin/prnh/20081124/LA48153LOGO http://photoarchive.ap.org/ DATASOURCE: DivX, Inc. CONTACT: Investor Relations Contact, Karen Fisher, +1-858-882-6415, , or Media Contact, Jennifer Baumgartner, +1-503-901-5371, , both of DivX, Inc.; or Todd Friedman, , or Stacie Bosinoff, , both of The Blueshirt Group, +1-415-217-7722, for DivX, Inc. Web Site: http://www.divx.com/

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