Exhibit 99.1
Investor Relations Contact:
Karen Fisher
DivX, Inc.
858-882-6415
kfisher@divxcorp.com
Media Contact:
Tom Huntington
DivX, Inc.
858-882-0672
thuntington@divxcorp.com
DivX, Inc. Reports Third Quarter 2008 Financial Results
DivX Delivers Another Solid Quarter with 11% Year-Over-Year Growth
and Continues to Expand into Emerging Product Categories
Cash and Investments Increased to $130 Million; Company
Increases Profitability Guidance for the Year
SAN DIEGO, CA – October 30, 2008 — 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 | FY ’08 Guidance (Provided on 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 athttp://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, 2008 | December 31, 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 September 30, | Nine Months Ended 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 September 30, | Nine Months Ended 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 September 30, | Nine Months Ended 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 | |||||||