Highlights From DIVX's Q3 Conference Call; Licensing Business Transitioning to New Growth Categories; Guides Above for Q4 EPS
November 10, 2009 2:55 PM EST
DIVX Inc. (NASDAQ: DIVX) reports Q3 loss of $0.01, versus the analyst estimate of a $0.01 loss. Revenue for the quarter was $16.6 million, which compares to the estimate of $15.58 million. Shares are down 4.22% today.
Highlights From DIVX's Q3 Conference Call:
DIVX sees a Q4 EPS of $0.01-$0.03, versus the consensus of $0.00. Sees Q4 sales of $17.5-$18.5 million, versus the consensus of $18.5 million.
(CEO) We have a healthy licensing business that is rapidly transitioning to new growth categories, we also have a transformative opportunity to redefine the consumer experience for television as we know it.
We reported total revenue of 16.6 million, comprised of 14.6 million of technology and licensing and 2 million of media and other distribution and services revenue.
Although traditional standard definition DVD licensing continues to be our primary revenue source, there is a consistent quarter-over-quarter increase in the percent of revenues coming from our emerging product categories.
We estimate the DivX ecosystem of devices to be on an equivalent scale to that of Apple's when considering reported cumulative shipments of iPhones, Video iPods and Apple TVs.
At the end of the quarter, revenue contribution from emerging products increased to approximately 16% of our total technology licensing revenue, a 24% sequential increase from our Q2.
And we anticipate that licensing revenue from emerging products will be approximately 25% of our total technology licensing revenue in the fourth quarter, further evidence of our successful transition beyond DVD players.
In Q3, we certified an additional 200 new Blu-ray and DTV models and over 10 new mobile phone models. To-date, we have now certified close to 1,100 digital television models from leading CE
manufacturers like Samsung, Philips and Toshiba.
20% of the certified models support DivX HD playback and we expect this percentage to grow in the future, particularly with DivX Plus HD certification.
The number of DivX certified Blu-ray models now stands at nearly 350, with approximately 30% capable of high-definition DivX playback.
Of course, the world's leading Blu-ray platform is the DivX certified PlayStation 3 and we are encouraged to see the recent growth in PS3 sales.
Our penetration of the mobile phone market continues to grow as well. We now have certified approximately 55 mobile devices, including the first DivX certified Android-powered smartphone, the LG-GW620 and two high volume phones from LG and Samsung, the LG Chocolate and the Samsung Jet. In addition, MtekVision announced the first DivX certified chip for Mobile Theater, allowing data playback of higher resolution DivX video files.
We now have agreements with 11 integrated circuit partners worldwide giving us a broad range of silicon options for our OEM partners.
We now have multiyear format agreements with four of the top Hollywood studios including Warner Brothers, Sony Pictures, Paramount Pictures and Lionsgate. Altogether, these studios were responsible for nearly 60% of new releases in 2008 and some of the highest grossing films to-date in 2009 including
Transformers: Revenge of the Fallen, Star Trek and The Hangover.
Several Internet stores around the world now offer download-to-own major Hollywood movies to consumers in the DivX format. In the US, filmfresh.com now offers over 1000 movies including film classics and recent blockbusters from all four major studios.
In Europe, Warner Brothers Live has been delivering premium DivX content to consumers in France since April, while FilmOn in the United Kingdom just launched, and Entertainment Retail Group and Play4film will launch shortly.
We continue to see positive feedback from our community on our software tools and have received tremendous enthusiasm for offering the world's first Windows 7 support for native MKV H.264 power playback and the world's first Browser Plug-In for MKV files. As a result, consumer engagement with our software continues to increase. There have been an impressive 1.2 billion launches of the DivX Player and Web Player by consumers since January with nearly 450 million launches in the third quarter.
In particular, with the increasing popularity of streaming, users of the Web Player grew over 150% year-over-year.
(CFO) Breaking the quarter down further, technology and licensing revenue for the quarter decreased 23% over the same quarter last year to 14.6 million.
Technology and licensing to hardware manufacturing partners was approximately 67% of our total revenues for the quarter. Technology licensing for software, which includes the MainConcept revenue, was 21% of total revenues for the quarter.
We had three customers over 10% in the quarter; those are Google, Samsung and Sony who together accounted for approximately 37% of revenue.
Media and distribution and service revenue for the quarter was 2 million reflecting the first full quarter of contribution from our distribution agreement with Google.
The mix across geographies for the quarter was 68% for Asia Pacific, 24% for the Americas and 8% for EMEA.
We ended the quarter with total cash, short and long-term investments of approximately 143 million or $4.38 per share.
We reported a GAAP tax expense of 1.9 million in the quarter, which represented a tax rate of approximately 32%. Included in the income tax rate for Q3 is a 700,000 benefit for certain items reconciling provision to the tax return.
We anticipate technology licensing revenue will make up approximately 85 to 90% of revenue for the fourth quarter, and media and distribution and service revenue is expected to be approximately 10 to 15%. Gross margins for Q4 are expected to be approximately 85%.
While we are not providing 2010 guidance at this time, it is worth nothing that based on our discussions with our partners, our industry and market analysis as well as last week's announcement of a 10% unemployment rate we believe consumer spending will continue to be under pressure in the near term.
Consequently we do not expect the typical strong seasonal increase in spending this holiday season.
Since we recognize revenue a quarter in arrears, we do not expect a strong and sequential increase in licensing revenue in the first quarter of 2010. We'll continue to diligently manage expenses as we move into next year, while making investments in the business to support our core licensing business as well as our Internet TV initiatives.
(Q&A) Can you just remind us how the partnerships with the premium content providers actually work; are Warner Brothers, Lionsgate, etcetera, actually buying the DivX authoring tools from you? (A)The way - the way this works is we have format approval from four of the major studios, Paramount, Lionsgate, Sony and Warner Brothers for distribution of their movies in the DivX format with our underlying compression technology and our DRAM technology for securing the files. We then look to distributors around the world like Film Fresh that we saw launched here in the US this quarter as well as several other retailers, FilmOn, it was just launched in the UK as well as Warner Brothers' Live in France. Then sell that content to end consumers. And we have the relationships with distributors to allow them to then use our technology, distribute those movies to end consumers. We're looking at a power buy model, where we're looking to expand the number of DivX offerings in the marketplace so that you can get DivX format content from a variety of online retail locations.
And then if you could just explain the typical use case for DivX on a mobile handset and how it's differentiated from the use of Adobe Flash? (A)Yeah, the typical use case is that there are literally billions of files in the DivX format. The majority of those are downloaded through the Internet. They're sitting on your PC and you want to be able to take those with you on the go. And so you do what's called
side-loading where you can simply side-load those into your mobile phone, take them with you so you can watch them on the train. In addition, now that we have a number of premium retailers selling Hollywood content online. We're also looking at a lot of initiatives that would allow that content to then be purchased for playback on a mobile phone as well. So not only the Internet content that people have downloaded, but also premium content that they will purchase going forward. So that's a new area that
we're seeing a lot of traction in going forward.
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