DivX, Inc. (NASDAQ:DIVX), a digital media company, today announced
results for the first quarter ended March 31, 2008.
The Company reported revenue for the first quarter of $25.0 million, an
increase of 24% compared to revenue of $20.2 million reported in the
first quarter of last year.
“We continue to deliver profitable results
while building what we believe is a strong foundation in key growth
areas like DivX Connected, emerging products such as Blu-ray DVD players
and digital TV’s, and content and services,”
said Kevin Hell, Chief Executive Officer of DivX, Inc. “From
the TV in the living room to mobile phones on the go, DivX is emerging
as a bridge for consumers to find, enjoy, and share high-quality digital
video from the Internet on any device from any manufacturer.”
GAAP net income in the first quarter of 2008 was approximately $2.5
million, or $0.07 per diluted share. DivX generated non-GAAP net income
of $6.2 million, or $0.18 per diluted share. Non-GAAP net income
excludes the following expenses: (1) non-cash share-based compensation
of approximately $2.0 million ($1.2 million, or $0.03 per diluted share,
net of related taxes); (2) Stage6 operating and related accruals of
approximately $3.3 million ($2.0 million, or $0.06 per diluted share,
net of related taxes); (3) asset impairment charges of approximately
$1.0 million ($600,000, or $0.02 per diluted share, net of related
taxes); and (4) amortization of purchased intangible assets related to
MainConcept of approximately $500,000 ($300,000, or $0.01 per diluted
share, net of related taxes). Non-GAAP net income also excludes the
positive impact of foreign currency exchange related to the Euro-based
intercompany loan of approximately $500,000 ($300,000, or a $0.01 gain
per diluted share, net of related taxes).
Q1 Actual
Q1 '08 Guidance (Provided on March
11, 2008)
Revenue (in millions)
$25.0
$24.5 - $25.5
GAAP earnings per share
$0.07
($0.01) - $0.01
Adjustments:
Non-cash share-based compensation expense, net of income taxes
$0.03
$0.04
Stage6 related expenses, net of income taxes
$0.06
$0.07
Impairment of intangible asset, net of income taxes
$0.02
$0.02
Amortization of purchased Intangibles, net of income taxes
$0.01
$0.01
FX (gain) / loss on intercompany loan, net of income taxes
($0.01)
-
DivX non-GAAP earnings per share, diluted
$0.18
$0.13 - $0.15
“DivX delivered a solid quarter,”
said Dan Halvorson, Chief Financial Officer. “We
posted strong earnings growth which generated approximately $5.0 million
in EBITDA which resulted in a 33% operating income. Our balance sheet is
sound with approximately $132 million in cash and investments or $4.00
per share. Additionally, we repurchased approximately 1.4 million shares
during the quarter and a total of 2.5 million shares to date which we
believe will deliver incremental value to our shareholders.”
Q2 and 2008 Outlook
The following table summarizes the Company’s
financial guidance for the second quarter and the full 2008 fiscal year.
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 40% 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 $2.5
million ($1.5 million, or $0.04 per diluted share, net of related taxes)
for the second quarter, and approximately $9.5 million ($5.7 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
($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 acquired intangible assets attributable to the
write-off of additional milestones related to Veatros of approximately
$300,000 ($180,000, or $0.01 per diluted share, net of related taxes)
for the second quarter, and approximately $1.3 million ($800,000 or
$0.03 per diluted share, net of related taxes) for the full 2008 fiscal
year;
5. Amortization of purchased intangible assets related to MainConcept of
approximately $500,000 ($300,000, or $0.01 per diluted share, net of
related taxes) for the second quarter, and 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; media and
distribution services will be in the range of 15% and 25% of total
revenue for the balance of the 2008 fiscal year.
Q2 Guidance
UpdatedFY '08Guidance
FY '08 Guidance(Provided onMarch 11,
2008)
Revenue (in millions)
$20.5 - $21.5
$95 - $100
$95 - $100
GAAP earnings per share
$0.03 - $0.05
$0.24 - $0.30
$0.14 - $0.22
Adjustments:
Non-cash share-based compensation expense, net of income taxes
$0.04
$0.16
$0.16
Stage6 related expenses, net of income taxes
-
$0.06
$0.07
Impairment of intangible asset, net of income taxes
$0.01
$0.03
$0.03
Amortization of purchased Intangibles, net of income taxes
$0.01
$0.04
$0.04
FX (gain) / loss on intercompany loan, net of income taxes
-
($0.01)a
-
DivX non-GAAP earnings per share, diluted
$0.09 - $0.11
$0.52 - $0.58
$0.44 - $0.52
a No further impact is assumed for Euro
FX fluctuation at this time.
Quarterly Conference Call
DivX, Inc. will discuss its first quarter results via teleconference at
4:30 p.m. ET or 1:30 p.m. PT today, May 5, 2008. To access the call,
please dial (877) 604-9674, or outside the U.S. (719) 325-4855, 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 May 5, 2008 until
midnight May 12, 2008 by dialing (888) 203-1112 or (719) 457-0820 with
the replay passcode 4439731.
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, 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 second
quarter and 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 second quarter and 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
annual report on Form 10-K filed with the SEC on March 17, 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 the
operation of Stage6, asset impairment charges, amortization of purchased
intangible assets and foreign currency impact on the Euro-based
intercompany loan. 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 non-cash share-based compensation expense, which is
not consistent from period-to-period. Also, DivX believes that the
exclusion of Stage6 expenses, asset impairment charges, amortization of
purchased intangible assets and foreign currency impact on the
Euro-based intercompany loan 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 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 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)
March 31,
December 31,
2008
2007
(unaudited)
Assets
Current assets:
Cash and cash equivalents
$
23,082
$
14,532
Short-term investments
90,371
126,503
Accounts receivable, net
15,423
10,397
Deferred tax assets, current
2,699
2,699
Prepaid expenses and other current assets
4,616
5,318
Total current assets
136,192
159,449
Property and equipment, net
5,192
5,402
Long-term investments
19,214
-
Deferred tax assets, long-term
5,354
5,354
Purchased intangible assets, net
14,870
14,261
Goodwill
12,628
11,000
Other assets
5,090
5,422
Total assets
$
198,540
$
200,888
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
$
1,721
$
2,808
Accrued expenses
12,951
11,061
Deferred revenue
9,288
7,170
Total current liabilities
23,960
21,039
Long-term liabilities
3,778
4,409
Total liabilities
27,739
25,448
Stockholders' equity
170,801
175,440
Total liabilities and stockholders' equity
$
198,540
$
200,888
DivX, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended March 31,
2008
2007
Net revenues:
Technology licensing
$
19,078
$
16,702
Media and other distribution and services
5,944
3,516
Total net revenues
25,022
20,218
Cost of revenue:
Cost of technology licensing
1,036
848
Cost of media and other distribution and services (1)
172
261
Total cost of revenues
1,208
1,109
Gross margin
23,814
19,109
Operating expenses:
Selling, general and administrative (1) (2)
15,977
10,796
Product development (1) (2)
5,425
4,156
Impairment of acquired intangibles
1,000
-
Total operating expenses
22,402
14,952
Income from operations
1,412
4,157
Interest income (expense), net
1,657
1,903
Other income
517
-
Income before income taxes
3,586
6,060
Income tax provision
1,105
2,400
Net income
$
2,481
$
3,660
Basic net income per share
$
0.07
$
0.11
Diluted net income per share
$
0.07
$
0.10
Shares used to compute basic net income per share
34,696
33,151
Shares used to compute diluted net income per share
35,356
35,413
(1) Includes stock-based compensation as follows:
Cost of revenue
$
-
$
1
Selling, general and administrative
1,518
513
Product development
489
430
2,007
944
(2) Includes Stage6 operating costs and related accruals as follows:
Selling, general and administrative
$
3,103
$
942
Product development
230
96
$
3,333
$
1,038
DivX, Inc.
UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
(in thousands, except per share data)
Three Months Ended March 31,
2008
2007
Net Income:
GAAP net income
$
2,481
$
3,660
Share-based compensation
2,007
944
Stage6 operating costs and related accruals
3,333
1,038
Impairment of acquired intangibles
1,000
-
Amortization of purchased intangible assets
527
-
Fx impact on intercompany loan
(465
)
-
Income tax effects of pre-tax adjustments
(2,651
)
(803
)
Non-GAAP net income
$
6,231
$
4,839
Diluted earnings per share:
GAAP diluted earnings per share
$
0.07
$
0.10
Share-based compensation
0.06
0.03
Stage6 operating costs and related accruals
0.09
0.03
Impairment of acquired intangibles
0.03
-
Amortization of purchased intangible assets
0.01
-
Fx impact on intercompany loan
(0.01
)
Income tax effects of pre-tax adjustments
(0.07
)
(0.02
)
Non-GAAP diluted earnings per share
$
0.18
$
0.14
Non-GAAP shares used to compute diluted net income per share
35,356
35,413
The following table sets forth the computation of Non-GAAP basic
and diluted net income per share:
Numerator:
Net income
$
6,231
$
4,839
Denominator:
Weighted-average common shares outstanding (basic)
34,696
33,151
Weighted-average common shares outstanding (diluted)
35,356
35,413
Basic net income per share
$
0.18
$
0.15
Diluted net income per share
$
0.18
$
0.14
DivX, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(in thousands)
Three Months Ended
March 31,
2008
2007
Net cash provided by operating activities
$
4,070
$
7,239
Net cash provided by (used in) investing activities
14,252
(47,183
)
Net cash (used in) provided by financing activities
(9,818
)
925
Effect of exchange rate changes on cash
46
-
Net increase (decrease) in cash and cash equivalents
8,550
(39,019
)
Cash and cash equivalents at beginning of period
14,532
86,310
Cash and cash equivalents at end of period
$
23,082
$
47,291
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