DivX, Inc. (NASDAQ:DIVX), a digital media company, today announced results for the fourth quarter and fiscal year ended December 31, 2007.

The Company reported record revenue for the fourth quarter of $24.5 million, an increase of 47% compared to revenue of $16.7 million reported in the fourth quarter of last year. GAAP net income in the fourth quarter of 2007 was approximately $3.7 million, or $0.11 per diluted share. DivX generated non-GAAP net income of $5.6 million, or $0.16 per diluted share. Non-GAAP net income and EPS excludes (1) non-cash share-based compensation of approximately $6.4 million ($3.8 million, or $0.11 per diluted share, net of related taxes); (2) Stage6 operating costs of approximately $3.5 million ($2.1 million, or $0.06 per diluted share, net of related taxes); (3) impairment of acquired intangible assets attributable to the write-off of additional milestones related to Veatros of approximately $750,000 ($450,000, or $0.01 per diluted share, net of related taxes); and (4) amortization of purchased intangible assets related to MainConcept of $271,000 ($163,000, net of related taxes). These four items were offset by an income tax benefit during the fourth quarter from the release of valuation allowances of approximately $4.6 million, or $0.13 per diluted share.

“During 2007, we experienced significant growth across all areas of our business and made real strides toward creating a global standard for high-quality digital video on any device or platform,” said Kevin Hell, Chief Executive Officer of DivX. “Specifically, we extended our footprint into key emerging product categories including Blu-ray and mobile devices, launched DivX Connected, and secured format approval from a major Hollywood studio. In 2008, our focus will be on execution as we prudently invest to extend these exciting wins while closely managing profitability. DivX is emerging as the open alternative to Apple, giving consumers the freedom and control to enjoy digital video anywhere they choose.”

“2007 was a solid year for DivX, highlighted by strong revenue growth and record operating cash flows,” said Dan Halvorson, DivX’s Chief Financial Officer. “The focus for 2008 will be our highly profitable core licensing business and other key growth strategies balanced with managing our investments for growth and delivering shareholder value.”

For the fiscal year ended December 31, 2007, the Company reported record revenue of $84.9 million, an increase of 43% compared to revenue of $59.3 million reported in the 2006 fiscal year. GAAP net income for the 2007 fiscal year was approximately $9.2 million, or $0.26 per diluted share. DivX generated non-GAAP net income in the 2007 fiscal year of $20.1 million, or $0.57 per diluted share. Non-GAAP EPS excludes (1) non-cash share-based compensation of approximately $11.8 million ($7.1 million, or $0.20 per diluted share, net of related taxes); (2) Stage6 operating costs of approximately $10.9 million ($6.5 million, or $0.18 per diluted share, net of related taxes); (3) impairment of acquired intangible assets attributable to the write-off of additional milestones related to Veatros of approximately $3.0 million ($1.8 million, or $0.05 per diluted share, net of related taxes); and (4) amortization of purchased intangible assets related to MainConcept of $271,000 ($163,000, net of related taxes). These four items were offset by an income tax benefit during the fourth quarter from the release of valuation allowances of approximately $4.6 million, or $0.13 per diluted share.

Q1 and 2008 Outlook

“Let me address guidance for the first quarter 2008, as well as guidance for the full year,” said Halvorson. “We have less visibility in the back half of the year and therefore are taking a measured approach toward our annual guidance, but we do expect our non-GAAP projected EBITDA to be approximately 25 to 30 percent for the full year 2008.”

The following table summarizes the Company's financial guidance for the first 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:

The full 2008 fiscal year guidance does not include any impact from the Company’s recently announced stock repurchase program which allows for the Company to repurchase up to $20 million of its common stock.

Added Halvorson, “We anticipate that product development expenses in 2008 will increase as a percentage of revenue given our investment in new emerging product categories. In addition, we expect revenue and deferred revenue to fluctuate from quarter-to-quarter as we integrate and adjust the form of MainConcept’s customer terms to traditional DivX terms and conditions.”

Quarterly Conference Call

DivX, Inc. will discuss its fourth quarter and annual 2007 results via teleconference at 4:30 p.m. ET or 1:30 p.m. PT today, March 11, 2008. To access the call, please dial (877)-548-7914, or outside the U.S. (719) 325-4934, 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 March 11, 2008 until midnight March 25, 2008 by dialing (888) 203-1112 or (719) 457-0820 with the replay passcode 8353481.

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, reference to the Company’s focus for 2008, 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 first 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 in the first 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 quarterly report on Form 10-Q filed with the SEC on November 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 non-cash share-based compensation expense, costs related to the operation of Stage6, asset impairment charges, amortization of purchased intangible assets and income tax benefits on adjustments to tax reserves and the elimination of the valuation allowance on deferred tax assets. 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 income tax benefits 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.