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SAN DIEGO, Aug 09, 2007 (BUSINESS WIRE) --
DivX, Inc. (NASDAQ:DIVX) today announced results for the second quarter ended June 30, 2007.
Revenue for the second quarter was $18.3 million, an increase of 39 percent compared to revenue of $13.2 million reported in the second quarter of last year. GAAP net income in the second quarter of 2007 was $1.0 million, or $0.03 per diluted share and includes (1) non-cash share-based compensation of approximately $2.1 million, ($1.2 million, or $0.03, per diluted share, net of related taxes), and (2) operating costs directly attributable to Stage6 of approximately $2.4 million ($1.4 million, or $0.04 per diluted share, net of related taxes). Excluding the effect of these two items, DivX generated non-GAAP net income of $3.6 million, or $0.10 per diluted share.
On July 24, DivX announced plans to increase focus on its high margin, fast-growing technology licensing business by seeking to separate Stage6. As such, to provide clarity and more information on the financial results, this quarter, in addition to excluding non-cash share-based compensation, the Company is excluding operating costs directly attributable to Stage6 from the non-GAAP net income and EPS calculations in the reconciliation included in this release.
Kevin Hell, Acting Chief Executive Officer of DivX, Inc., said, "We believe our second quarter results demonstrate both the top-line growth and earnings potential of our core licensing business. With our industry leading position in digital media and increasing momentum with consumer electronics brands in all regions worldwide, we continue to strengthen our competitive position and drive significant consumer uptake. Our plan to separate Stage6 from DivX, Inc. will allow us to narrow our focus and move forward aggressively on three key areas: expanding our core licensing business in DVD players and emerging device categories; building a platform for the connected home through DivX Connected; and extending our content licensing partnerships to enable the next generation of high quality digital media."
Dan Halvorson, Executive Vice President and Chief Financial Officer of DivX, Inc., commented, "The core DivX business model generates high gross margins and strong operating results. Coupled with a strong balance sheet, I believe we are well-positioned to execute on our core growth strategy and to maximize the value of Stage6 as we determine the best strategy for that asset. We look forward to keeping investors apprised of our progress."
Q3 and Q4 Outlook
The following table summarizes the Company's financial guidance for the third and fourth quarters of 2007. These estimates are based on the Company's current business outlook as of the date of this press release and are based on a projected tax rate of 40 percent, anticipated non-cash share-based compensation of approximately $2.5 million ($1.5 million net of related taxes) for each of the third and fourth quarters, and anticipated operating costs directly attributable to Stage6 of approximately $4.5 million ($2.7 million net of related taxes) and $5.5 million ($3.3 million net of related taxes) for the third and fourth quarters, respectively.
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Q2 (as
reported) Q3 outlook Q4 outlook FY07 outlook
--------------------------------------------------------
Revenue (in
millions) $18.3 $20.0 - $21.0 $22.0 - $23.0 $80.5 - $82.5
GAAP Earnings
Per Share $0.03 ($0.01) - $0.00 $0.00 - $0.02 $0.12 - $0.15
Adjustments:
Non-cash
share-based
compensation
expense, net
of income
taxes $0.03 $0.04 $0.04 $0.13
Stage6
related
costs, net
of income
taxes $0.04 $0.08 $0.09 $0.23
--------------------------------------------------------
DivX Core
Non-GAAP
Earnings Per
Share,
Diluted $0.10 $0.11 - $0.12 $0.13 - $0.15 $0.48 - $0.51
========================================================
Quarterly Conference Call
DivX, Inc. will discuss its quarterly and annual results via teleconference at 1:30 p.m. PDT today, August 9, 2007. To access the call, please dial (800) 811-8845, or outside the U.S. (913) 981-4905, 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 4:30 p.m. PDT on August 9, 2007 until 9:00 p.m. PDT August 16, 2007 by dialing (719) 457-0820 or (888) 203-1112 with the replay pass code 3422055.
About DivX, Inc.
DivX creates products and services designed to improve the experience of media. Our first product offering was a video compression-decompression software library, or codec, which has been actively sought out and downloaded over 240 million times since January 2003, including over 80 million times during the last twelve months. We have since built on the success of our codec with other consumer software, including the DivX Player application, which is distributed from our website, www.divx.com. We also license our technologies to consumer hardware device manufacturers and certify their products to ensure the interoperable support of DivX-encoded content. In addition to technology licensing to consumer hardware device manufacturers, we currently generate revenue from software licensing, advertising and content distribution.
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, statements regarding the potential separation of Stage6 into a private company, the anticipated timing and benefits of the transaction, 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 third and fourth quarters of 2007. 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 the contemplated separation of Stage6 into a private company may not be completed when expected, or at all; the risk that definitive documentation for any such transaction may not contain terms and conditions as favorable to DivX as anticipated; risks related to the inability to obtain, or meet conditions imposed for, any approvals required for the proposed transaction; risks related to the implementation of the proposed transaction; risks related to any uncertainty surrounding the proposed transaction; the risk that the anticipated benefits of the proposed transaction may not materialize to the extent expected, or at all; 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 in the third and fourth quarters of 2007 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 quarterly report on Form 10-Q filed with the SEC on May 15, 2007. 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.
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 FAS 123R share-based compensation expense and costs related to the operation of Stage6. 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 FAS 123R share-based compensation expense, which is not consistent from period to period. Also, DivX believes that the exclusion of Stage6 expenses provides useful comparative data by reflecting DivX's business operations in a manner that is consistent with expected future operations. 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 FAS 123R share-based compensation expense and accruals for income tax expense. The FAS 123R 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)
December 31, June 30,
------------ ------------
2006 2007
------------ ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 86,310 $ 27,322
Restricted cash 270 -
Short-term investments 62,331 126,384
Accounts receivable, net of allowance of
$1,424 and $1,580, respectively 6,939 7,436
Prepaid expenses 1,419 1,299
Deferred tax assets, current 937 937
Other current assets 615 1,207
------------ ------------
Total current assets 158,821 164,585
Property and equipment, net 3,488 4,150
Deferred tax assets, long term 1,363 1,319
Other assets 714 4,246
------------ ------------
Total assets $ 164,386 $ 174,300
============ ============
Liabilities and stockholders'equity
Current liabilities:
Accounts payable $ 2,189 $ 2,130
Accrued liabilities 1,038 2,180
Accrued compensation and benefits 2,279 3,421
Accrued patent royalties 742 1,261
Income taxes payable 486 671
Deferred revenue, current 4,654 4,631
Current portion of capital lease
obligations 36 37
Notes payable, current portion 378 145
------------ ------------
Total current liabilities 11,802 14,476
Capital lease, net of current portion 73 54
Notes payable, net of current portion 15 -
Deferred revenue, long term 768 995
Deferred rent 461 378
Liability for unvested portion of early
stock option exercises 356 177
------------ ------------
Total liabilities 13,475 16,080
Stockholders' equity 150,911 158,220
------------ ------------
Total liabilities and stockholders'
equity $ 164,386 $ 174,300
============ ============
DivX, Inc.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
------------------------ ----------------------
2006 2007 2006 2007
---------- ----------- ----------- --------
Net revenues:
Technology licensing $ 10,377 $ 14,229 $ 21,445 $ 30,931
Media and other
distribution and
services 2,797 4,050 5,828 7,566
---------- ----------- ----------- --------
Total net revenues 13,174 18,279 27,273 38,497
Cost of revenue:
Cost of technology
licensing 760 820 1,491 1,668
Cost of media and
other distribution
and services (1) 235 157 456 418
---------- ----------- ----------- --------
Total cost of
revenue 995 977 1,947 2,086
---------- ----------- ----------- --------
Gross margin 12,179 17,302 25,326 36,411
Operating expenses:
Selling, general and
administrative (1)
(2) 5,772 13,007 11,701 23,803
Product development
(1) (2) 3,701 4,636 6,926 8,792
---------- ----------- ----------- --------
Total operating
expenses 9,473 17,643 18,627 32,595
---------- ----------- ----------- --------
Income (loss) from
operations 2,706 (341) 6,699 3,816
Interest income 370 2,019 660 3,928
Interest expense and
other (18) 5 (41) (1)
---------- ----------- ----------- --------
Income before income
taxes 3,058 1,683 7,318 7,743
Income tax provision 392 680 1,373 3,080
---------- ----------- ----------- --------
Net income $ 2,666 $ 1,003 $ 5,945 $ 4,663
========== =========== =========== ========
Basic net income per
share $ 0.11 $ 0.03 $ 0.26 $ 0.14
========== =========== =========== ========
Diluted net income
per share $ 0.09 $ 0.03 $ 0.20 $ 0.13
========== =========== =========== ========
Shares used to
compute basic net
income per share 8,472 33,754 8,335 33,454
========== =========== =========== ========
Shares used to
compute diluted net
income per share 10,979 35,401 10,769 35,409
========== =========== =========== ========
----------------------------------------------------------------------
(1) Includes stock-based
compensation as follows:
Cost of revenues $ 1 $ 1 $ 2 $ 2
Selling, general and
administrative 384 1,562 659 2,075
Product development 177 527 267 957
---------- ----------- ----------- --------
Total stock-based
compensation $ 562 $ 2,090 $ 928 $ 3,034
========== =========== =========== ========
(2) Includes Stage6 operating
costs as follows:
Selling, general and
administrative $ -(a)$ 2,209 $ -(a)$ 3,151
Product development -(a) 148 -(a) 244
---------- ----------- ----------- --------
Total Stage6
operating costs $ - $ 2,357 $ - $ 3,395
========== =========== =========== ========
(a) Stage6 operating costs
during the 2006 periods were
not material.
DivX, Inc.
UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
(in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
------------------------ ----------------------
2006 2007 2006 2007
---------- ----------- ----------- --------
Net Income:
GAAP net income $ 2,666 $ 1,003 $ 5,945 $ 4,663
Share-based
compensation 562 2,090 928 3,034
Stage6 operating
costs - 2,357 - 3,395
Income tax effects (229) (1,802) (378) (2,605)
---------- ----------- ----------- --------
Non-GAAP net income $ 2,999 $ 3,648 $ 6,495 $ 8,487
========== =========== =========== ========
Diluted earnings per
share:
GAAP diluted
earnings per share $ 0.09 $ 0.03 $ 0.20 $ 0.13
Share-based
compensation 0.05 0.05 0.09 0.08
Stage6 operating
costs - 0.07 - 0.10
Income tax effects (0.02) (0.05) (0.04) (0.07)
---------- ----------- ----------- --------
Non-GAAP diluted
earnings per share $ 0.12 $ 0.10 $ 0.25 $ 0.24
========== =========== =========== ========
GAAP shares used to
compute diluted
net income per
share 10,979 35,401 10,769 35,409
========== =========== =========== ========
DivX, Inc.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
Six months ended
June 30,
---------------------
2006 2007
--------- ---------
(unaudited)
Net cash provided by operating activities $ 8,907 $ 7,593
Net cash used in investing activities (1,051) (67,678)
Net cash (used in) provided by financing
activities (273) 1,097
--------- ---------
Net increase (decrease) in cash and cash
equivalents 7,583 (58,988)
Cash and cash equivalents at beginning of period 25,035 86,310
--------- ---------
Cash and cash equivalents at end of periods $ 32,618 $ 27,322
========= =========
SOURCE: DivX, Inc.
DivX, Inc. Media Contact: Tom Huntington, 858-882-0672 thuntington@divxcorp.com or The Blueshirt Group Investor Contacts: Todd Friedman or Stacie Bosinoff, 415-217-7722 todd@blueshirtgroup.com stacie@blueshirtgroup.com
Copyright Business Wire 2007
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