8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

Current Report Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 7, 2008

DivX, Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-33029	33-0921758
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

4780 Eastgate Mall San Diego, California	92121
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (858) 882-0600

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02  Results of Operations and Financial Condition.

On August 7, 2008, the Company announced unaudited financial results for the quarter ended June 30, 2008. A copy of the press release is included herewith as Exhibit 99.1.

Item 9.01  Financial Statements and Exhibits.

(d) Exhibits.

99.1 Press release of DivX, Inc. dated August 7, 2008.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DIVX, INC.
Dated: August 7, 2008	By:	/s/    Dan L. Halvorson
	Name:	Dan L. Halvorson
	Title:	Executive Vice President and Chief Financial Officer

INDEX TO EXHIBITS

Exhibit Number	Description
99.1	Press release of DivX, Inc. dated August 7, 2008.

EX-99.1

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 Second Quarter 2008 Financial Results

Second Quarter Revenue Increased 17% Year-Over-Year

DivX Continues to Expand Footprint into Emerging Product Categories

SAN DIEGO, CA – August 7, 2008—DivX, Inc. (NASDAQ:DIVX), a digital media company, today announced results for the second quarter ended June 30, 2008.

The Company reported revenue for the second quarter of $21.3 million, an increase of 16.6% compared to revenue of $18.3 million reported in the second quarter of last year.

GAAP net income in the second quarter of 2008 was approximately $1.7 million, or $0.05 per diluted share. DivX generated non-GAAP net income of $3.5 million, or $0.11 per diluted share. Non-GAAP net income excludes the following expenses: (1) non-cash share-based compensation of approximately $2.4 million ($1.5 million, or $0.04 per diluted share, net of related taxes); (2) the scheduled amortization of purchased intangible assets related to MainConcept of approximately $500,000 ($300,000, or $0.01 per diluted share, net of related taxes); and (3) asset impairment charges of $250,000 ($150,000, or $0.01 per diluted share, net of related taxes).

“We delivered strong financial and business results in the second quarter of 2008 and made progress toward achieving our mission of powering a seamless, high-quality digital media experience on any device,” said Kevin Hell, Chief Executive Officer of DivX, Inc. “We are especially pleased with both the partner and product traction we are experiencing in emerging device categories, such as mobile, gaming, and digital televisions that we believe will drive our growth into the future.”

The following table represents the Company’s second quarter guidance provided on May 5, 2008 as compared with second quarter actual results:

	Q2 Actual		Q2 '08 Guidance (Provided on May 5, 2008)
Revenue (in millions)	$	21.3	$	20.5 - $21.5
GAAP earnings per share, diluted	$	0.05	$	0.03 - $0.05
Adjustments:
Non-cash share-based compensation expense, net of income taxes	$	0.04	$	0.04
Impairment of intangible asset, net of income taxes	$	0.01	$	0.01
Amortization of purchased intangibles, net of income taxes	$	0.01	$	0.01
Non-GAAP earnings per share, diluted	$	0.11	$	0.09 - $0.11

The Company reported revenue for the six months ended June 30, 2008 of $46.3 million, an increase of 20.4% compared to revenue of $38.5 million reported in the same period of 2007. GAAP net income for the six months ended June 30, 2008 was approximately $4.2 million, or $0.12 per diluted share. DivX generated non-GAAP net income of $9.7 million, or $0.28 per diluted share. Non-GAAP net income for the six month period excludes the following expenses: (1) non-cash share-based compensation of approximately $4.4 million ($2.6 million, or $0.08 per diluted share, net of related taxes); (2) Stage6 operating costs of $3.3 million ($2.0 million, or $0.06 per diluted share, net of related taxes), (3) the scheduled amortization of purchased intangible assets related to MainConcept of approximately $1.1 million ($600,000, or $0.02 per diluted share, net of related taxes), (4) asset impairment charges of approximately $1.3 million ($750,000, or $0.02 per diluted share, net of related taxes); and (5) a foreign exchange gain on an intercompany loan of approximately $500,000 ($300,000, or $0.01 per diluted share, net of related taxes).

“DivX continues to deliver solid financial results, even in the face of a challenging consumer spending environment,” said Dan Halvorson, Executive Vice President and Chief Financial Officer. “Our business model is structured to maintain high gross margins and strong cash flow from operations which has enabled us to post positive earnings.”

Commenting further on the Company’s cash position, Halvorson stated, “We completed the Board-approved $20 million share repurchase program during the quarter with approximately 1.4 million shares repurchased this quarter for a total of 2.8 million shares

repurchased since March 2008. Taking into consideration this use of cash, our balance sheet is solid with approximately $118 million in cash and investments or $3.66 per share. In addition, we generated approximately $5.6 million in cash from operations during the second quarter. Including working capital changes, cash used in operating activities was approximately $2.7 million, primarily due to a $6.0 million decrease in accrued expenses and payable balances, and an increase of approximately $1.6 million for our deferred tax asset.”

2008 Fiscal Outlook

The following table summarizes the Company’s financial guidance for the full fiscal year 2008:

	FY '08 Guidance
Revenue (in millions)	$	95-$100
GAAP earnings per share, diluted	$	0.24 - $0.30
Adjustments:
Non-cash share-based compensation expense, net of income taxes	$	0.16
Stage6 related expenses, net of income taxes	$	0.06
Impairment of intangible asset, net of income taxes	$	0.03
Amortization of purchased intangibles, net of income taxes	$	0.04
FX (gain) / loss on intercompany loan, net of income taxes	($	0.01	)*
Non-GAAP earnings per share, diluted	$	0.52 - $0.58
*  No further impact is assumed for Euro FX fluctuation at this time.

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 approximately 41% (up from the 40% previously projected) 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 expense of approximately $9.5 million ($5.5 million, or $0.16 per diluted share, net of related taxes) for the full 2008 fiscal year;

3. Stage6 related expenses 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 intangible asset 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 a purchased intangible asset 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 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; expected revenue for media and distribution services of approximately 15% to 25% of total revenue for the balance of the 2008 fiscal year.

“We believe the fundamental growth drivers of our business remain strong, and notwithstanding the projected lower interest income on our investments and a higher effective tax rate, we are reiterating our full 2008 fiscal year revenue and earnings per share estimates,” added Halvorson.

Quarterly Conference Call

DivX management will host a conference call and simultaneous audio webcast to discuss its second quarter 2008 results on August 7, 2008 at 1:30 p.m. Pacific Time or 4:30 p.m. Eastern Time. To participate in the call, please dial 877-397-0235 or outside the U.S. 719-325-4894 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 at http://investors.divx.com.

In addition, an audio replay of the call will be available between 7:30 p.m. Eastern Time August 7, 2008 and Midnight, Eastern Time August 13, 2008 by calling 888-203-1112 or 719-457-0820, with passcode 9429748.

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 Company’s position in the digital media space and progress in emerging device categories, 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 fiscal year 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 report filed with the Securities and Exchange Commission on May 12, 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 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 the 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 earnings 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.

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)

	June 30, 2008		December 31, 2007
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	28,785	$	14,532
Short-term investments		71,562		126,503
Accounts receivable, net		16,148		10,397
Deferred tax assets, current		4,254		2,699
Prepaid expenses and other current assets		3,227		5,318
Total current assets		123,976		159,449
Property and equipment, net		5,108		5,402
Long-term investments		17,645		—
Deferred tax assets, long-term		7,499		5,354
Purchased intangible assets, net		14,309		14,261
Goodwill		11,358		11,000
Other assets		5,908		5,422
Total assets	$	185,803	$	200,888
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	1,158	$	2,808
Accrued expenses		7,332		11,061
Deferred revenue		8,679		7,170
Total current liabilities		17,169		21,039
Long-term liabilities		3,691		4,409
Total liabilities		20,860		25,448
Stockholders' equity		164,943		175,440
Total liabilities and stockholders' equity	$	185,803	$	200,888

DivX, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008		2007
Net revenues:
Technology licensing	$	16,410		$	14,229		$	35,488	$	30,931
Media and other distribution and services		4,909			4,050			10,853		7,566
Total net revenues		21,319			18,279			46,341		38,497
Cost of revenue:
Cost of technology licensing		956			820			1,992		1,668
Cost of media and other distribution and services (1)		186			157			358		418
Total cost of revenues		1,142			977			2,350		2,086
Gross margin		20,177			17,302			43,991		36,411
Operating expenses:
Selling, general and administrative (1) (2)		12,573			13,007			28,550		23,803
Product development (1) (2)		5,366			4,636			10,791		8,792
Impairment of acquired intangibles		250			—			1,250		—
Total operating expenses		18,189			17,643			40,591		32,595
Income (loss) from operations		1,988			(341	)		3,400		3,816
Interest income (expense), net		1,110			2,024			2,767		3,927
Other income (expense)		(15	)		—			502		—
Income before income taxes		3,083			1,683			6,669		7,743
Income tax provision		1,406			680			2,511		3,080
Net income	$	1,677		$	1,003		$	4,158	$	4,663
Basic earnings per share	$	0.05		$	0.03		$	0.12	$	0.14
Diluted earnings per share	$	0.05		$	0.03		$	0.12	$	0.13
Shares used to compute basic earnings per share		32,399			33,754			33,548		33,454
Shares used to compute diluted earnings per share		32,907			35,401			34,132		35,409
(1) Includes share-based compensation expense as follows:
Cost of revenue	$	—		$	1		$	—	$	2
Selling, general and administrative		1,852			1,562			3,370		2,075
Product development		574			527			1,063		957
	$	2,426		$	2,090		$	4,433	$	3,034
(2) Includes Stage6 related expenses as follows:
Selling, general and administrative	$	—		$	2,209		$	3,103	$	3,151
Product development		—			148			230		244
	$	—		$	2,357		$	3,333	$	3,395

DivX, Inc.
UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
(in thousands, except per share data)
	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net Income:
GAAP net income	$	1,677		$	1,003		$	4,158		$	4,663
Share-based compensation expense		2,426			2,090			4,433			3,034
Stage6 related expenses		—			2,357			3,333			3,395
Impairment of intangible asset		250			—			1,250			—
Amortization of purchased intangibles		531			—			1,058			—
Fx (gain) / loss on intercompany loan		7			—			(458	)
Income tax effects of pre-tax adjustments		(1,431	)		(1,802	)		(4,082	)		(2,605	)
Non-GAAP net income	$	3,460		$	3,648		$	9,692		$	8,487
Diluted earnings per share:
GAAP diluted earnings per share	$	0.05		$	0.03		$	0.12		$	0.13
Share-based compensation expense		0.07			0.05			0.13			0.08
Stage6 related expenses		—			0.07			0.09			0.10
Impairment of intangible asset		0.01			—			0.04			—
Amortization of purchased intangibles		0.02			—			0.03			—
Fx (gain) / loss on intercompany loan		0.00			—			(0.01	)		—
Income tax effects of pre-tax adjustments		(0.04	)		(0.05	)		(0.12	)		(0.07	)
Non-GAAP diluted earnings per share	$	0.11		$	0.10		$	0.28		$	0.24
Non-GAAP shares used to compute diluted earnings per share		32,907			35,401			34,132			35,409
The following table sets forth the computation of Non- GAAP basic and diluted earnings per share:
Numerator:
Net income	$	3,460		$	3,648		$	9,692		$	8,487
Denominator:
Weighted-average common shares outstanding (basic)		32,399			33,754			33,548			33,454
Weighted-average common shares outstanding (diluted)		32,907			35,401			34,132			35,409
Basic earnings per share	$	0.11		$	0.11		$	0.29		$	0.25
Diluted earnings per share	$	0.11		$	0.10		$	0.28		$	0.24

DivX, Inc.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW

(in thousands)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net cash provided by (used in) operating activities	$	(2,678	)	$	354		$	1,392		$	7,593
Net cash provided by (used in) investing activities		17,936			(20,495	)		32,188			(67,678	)
Net cash (used in) provided by financing activities		(9,564	)		172			(19,382	)		1,097
Effect of exchange rate changes on cash		9			—			55			—
Net increase (decrease) in cash and cash equivalents		5,703			(19,969	)		14,253			(58,988	)
Cash and cash equivalents at beginning of period		23,082			47,291			14,532			86,310
Cash and cash equivalents at end of period	$	28,785		$	27,322		$	28,785		$	27,322