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SAN DIEGO, Nov 05, 2007 (BUSINESS WIRE) -- DivX, Inc. (NASDAQ:DIVX) today announced results for the third quarter ended September 30, 2007.
The Company reported record revenue for the third quarter of $21.9 million, an increase of 42% compared to revenue of $15.4 million reported in the third quarter of last year. GAAP net income in the third quarter of 2007 was approximately $800,000, or $0.02 per diluted share. DivX generated non-GAAP net income of $5.9 million, or $0.17 per diluted share. Non-GAAP EPS excludes (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) operating costs directly attributable to Stage6 of approximately $4.0 million ($2.4 million, or $0.07 per diluted share, net of related taxes), and (3) an asset impairment charge of approximately $2.2 million ($1.3 million, or $0.04 per diluted share, net of related taxes).
"This quarter DivX made outstanding progress toward its vision to transform the digital media experience for consumers," commented Kevin Hell, Chief Executive Officer for DivX. "We strengthened relationships with our major OEM partners, added key partners to support our move into new product categories, and continued to grow consumer adoption and overall penetration in our core licensing business. We launched DivX Connected and are looking forward to the rollout of the first DivX Connected devices in the fourth quarter in Europe. In our new mobile initiative, we announced an exciting new agreement with Qualcomm and extended an existing relationship with Samsung. We also signed a multi-year renewal license with LG Electronics covering a broad portfolio of digital media products, including DVD Players, digital televisions, and mobile handsets. Overall, we are very confident that our strategy is gaining momentum and we are well-positioned to execute successfully."
"We generated strong cash from operations in the quarter, further strengthening our balance sheet that has more than $4.70 per share in cash and investments," said Dan Halvorson, Executive Vice President and Chief Financial Officer of DivX. "Our third quarter results demonstrate the earnings power of the DivX core business that will continue to support our growth strategy in the future. Our commitment to profitable growth is evidenced by our increased DivX core EPS guidance in the fourth quarter."
Halvorson added, "As we shared with you in our second quarter earnings call, we continue to believe that Stage6 has value to DivX and we are exploring a number of alternatives for this asset. We will keep investors informed of our progress in the coming months."
Q4 and 2007 Outlook
The following table summarizes the Company's financial guidance for the fourth quarter and fiscal 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%, anticipated non-cash share-based compensation of approximately $5.6 million ($3.4 million, or $0.10 per diluted share, net of related taxes, refer to (1) in the table below), and anticipated operating costs directly attributable to Stage6 of approximately $6.0 million ($3.6 million, or $0.10 per diluted share, net of related taxes).
Add to Briefcase
As Reported
-----------------
Q1 Q2 Q3 Q4 Guidance
------------------------------------
Revenue (in millions) $20.2 $18.3 $21.9 $22.0 - $23.0
------------------------------------
GAAP Earnings Per Share $0.10 $0.03 $0.02 ($0.04) - ($0.02)
Adjustments:
---------------------------------
Non-cash share-based
compensation, net of income tax
(1) $0.02 $0.03 $0.04 $ 0.10
Stage6 related costs, net of
income tax $0.02 $0.04 $0.07 $ 0.10
Impairment of acquired
intangibles, net of income tax $ - $ - $0.04 $ -
------------------------------------
DivX Core Non-GAAP EPS, Diluted $0.14 $0.10 $0.17 $0.16 - $0.18
====================================
FY07 Guidance
(provided on
August 9,
FY07 Guidance 2007)
---------------------------
Revenue (in millions) $82.4 - $83.4 $80.5 - $82.5
---------------------------
GAAP Earnings Per Share $0.11 - $0.13 $0.12 - $0.15
Adjustments:
------------------------------------------
Non-cash share-based compensation, net of
income tax (1) $0.19 $0.13
Stage6 related costs, net of income tax $0.23 $0.23
Impairment of acquired intangibles, net of
income tax $0.04 $ -
---------------------------
DivX Core Non-GAAP EPS, Diluted $0.57 - $0.59 $0.48 - $0.51
===========================
(1) Included in the Q4 FAS 123R expense guidance is an accounting
charge of approximately $3.2 million ($1.9 million or $0.06 per
share, net of related taxes) resulting from the cancellation of
unvested stock options for Jordan Greenhall, the Company's former
CEO, upon his resignation as an employee effective October 1, 2007.
(2) Summation of quarterly amounts may not equal year-to-date amounts
due to rounding.
Quarterly Conference Call
DivX, Inc. will discuss its quarterly and annual results via teleconference at 4:30 p.m. ET or 1:30 p.m. PT today, November 5, 2007. To access the call, please dial (877) 419-6594, or outside the U.S. (719) 325-4862, 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 November 5, 2007 until midnight November 13, 2007 by dialing (888) 203-1112 or (719) 457-0820 with the replay passcode 2430865.
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, 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, the Company's plans for its software bundling partnership with Yahoo!, 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 fourth quarter 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 fourth quarter 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 August 14, 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, 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 FAS 123R share-based compensation expense, costs related to the operation of Stage6 and acquired intangible impairment charges. 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 and the acquired intangible impairment charges 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 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, September 30,
------------ -------------
2006 2007
------------ -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 86,580 $ 38,970
Marketable securities 62,331 124,124
Accounts receivable, net 6,939 3,215
Deferred tax assets, net 937 937
Prepaid expenses and other current assets 2,034 4,214
------------ -------------
Total current assets 158,821 171,460
Property and equipment, net 3,488 5,564
Deferred tax assets, net 1,363 1,319
Other assets 714 4,113
------------ -------------
Total assets $ 164,386 $ 182,456
============ =============
Liabilities and stockholders'equity
Current liabilities:
Accounts payable $ 2,189 $ 3,770
Accrued expenses 4,959 7,942
Deferred revenue 4,654 6,489
------------ -------------
Total current liabilities 11,802 18,201
Long-term liabilities 1,673 1,429
------------ -------------
Total liabilities 13,475 19,630
Stockholders' equity 150,911 162,826
------------ -------------
Total liabilities and stockholders'
equity $ 164,386 $ 182,456
============ =============
DivX, Inc.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2006 2007 2006 2007
------------- -------- ------------- --------
Net
revenues:
Technology
licensing $12,446 $17,070 $33,891 $48,001
Media and other
distribution
and services 2,949 4,825 8,777 12,391
-------- -------- ---------- --------
Total
net
revenues 15,395 21,895 42,668 60,392
Cost of
revenue:
Cost of
technology
licensing 746 874 2,238 2,542
Cost of media and
other
distribution and
services (1) 222 134 678 552
-------- -------- ---------- --------
Total cost of
revenues 968 1,008 2,916 3,094
-------- -------- ---------- --------
Gross margin 14,427 20,887 39,752 57,298
Operating
expenses:
Selling, general
and
administrative
(1) (2) 6,673 15,144 18,374 38,947
Product
development
(1) (2) 4,106 4,299 11,033 13,091
Impairment of
acquired
intangibles - 2,223 - 2,223
-------- -------- ---------- --------
Total
operating
expenses 10,779 21,666 29,407 54,261
-------- -------- ---------- --------
Income (loss)
from
operations 3,648 (779) 10,345 3,037
Interest
income 489 2,028 1,149 5,956
Interest
expense and
other (16) - (58) (1)
-------- -------- ---------- --------
Income before
income taxes 4,121 1,249 11,436 8,992
Income tax
provision 1,021 433 2,394 3,513
-------- -------- ---------- --------
Net income $ 3,100 $ 816 $ 9,042 $ 5,479
======== ======== ========== ========
Basic net
income per
share $ 0.12 $ 0.02 $ 0.36 $ 0.16
======== ======== ========== ========
Diluted net
income per
share $ 0.10 $ 0.02 $ 0.28 $ 0.15
======== ======== ========== ========
Shares used to compute
basic net income per
share 11,050 34,073 9,245 33,721
======== ======== ========== ========
Shares used to compute
diluted net income per
share 13,563 35,180 11,775 35,393
======== ======== ========== ========
----------------------------------------------------------------------
(1) Includes stock-
based compensation as
follows:
Cost of
revenues $ 1 $ - $ 2 $ 2
Selling, general
and administrative 357 1,986 1,017 4,061
Product
development 168 371 435 1,328
-------- -------- ---------- --------
Total stock-based
compensation $ 526 $ 2,357 $ 1,454 $ 5,391
======== ======== ========== ========
(2) Includes Stage6
operating costs as
follows:
Selling, general
and administrative $ - (a) $ 3,666 $ - (a) $ 6,817
Product
development - (a) 316 - (a) 560
-------- -------- ---------- --------
Total Stage6
operating
costs $ - $ 3,982 $ - $ 7,377
======== ======== ========== ========
(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 Nine months ended
September 30, September 30,
---------------------- ----------------------
2006 2007 2006 2007
------------- -------- ------------- --------
Net
Income:
GAAP
net
income $ 3,100 $ 816 $ 9,042 $ 5,479
Share-based
compensation 526 2,357 1,454 5,391
Stage6
operating
costs - 3,982 - 7,377
Impairment of
acquired
intangibles - 2,223 - 2,223
Income
tax
effects (214) (3,481) (593) (6,096)
-------- -------- ---------- --------
Non-GAAP net
income $ 3,412 $5,897 $ 9,903 $14,374
======== ======== ========== ========
Diluted
earnings per
share:
GAAP diluted
earnings per
share $ 0.10 $ 0.02 $ 0.28 $ 0.15
Share-based
compensation 0.04 0.07 0.12 0.15
Stage6
operating
costs - 0.11 - 0.21
Impairment of
acquired
intangibles - 0.07 - 0.07
Income
tax
effects (0.02) (0.10) (0.05) (0.17)
-------- -------- ---------- --------
Non-GAAP diluted
earnings per
share $ 0.12 $ 0.17 $ 0.35 $ 0.41
======== ======== ========== ========
GAAP shares used to
compute diluted net
income per share 13,563 35,180 11,775 35,393
======== ======== ========== ========
DivX, Inc.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
2006 2007 2006 2007
--------- ------- --------- ---------
(unaudited) (unaudited)
Net cash provided by
operating activities $ 3,515 $10,329 $ 12,422 $ 17,922
Net cash (used in) provided
by investing activities (633) 131 (1,684) (67,547)
Net cash provided by
financing activities 110,893 1,188 110,620 2,285
--------- ------- --------- ---------
Net increase (decrease) in
cash and cash equivalents 113,775 11,648 121,358 (47,340)
Cash and cash equivalents at
beginning of period 32,618 27,322 25,035 86,310
--------- ------- --------- ---------
Cash and cash equivalents at
end of periods $146,393 $38,970 $146,393 $ 38,970
========= ======= ========= =========
SOURCE: DivX, Inc.
DivX, Inc. Tom Huntington, 858-882-0672 (Media) thuntington@divxcorp.com Karen Fisher, 858-882-6415 (Investor) kfisher@divxcorp.com or The Blueshirt Group Todd Friedman, 415-217-7722 todd@blueshirtgroup.com Stacie Bosinoff, 415-217-7722 stacie@blueshirtgroup.com
Copyright Business Wire 2007
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