DDD Group PLC: Half yearly results for six months to 30 June 2013

LOS ANGELES, Sept. 24, 2013 (GLOBE NEWSWIRE) -- DDD Group plc (AIM: DDD; OTCQX: DDDGY; 'DDD' or the 'Group' ), the 3D solutions company, announces its half yearly results for the six months ended 30 June 2013.

Financial Overview

• Revenue of $2,356,000 (June 2012: $4,032,000) – decline expected due to continued contraction in PC market
• Gross margin of 99% (June 2012: 96%)
• Adjusted* EBITDA loss of $132,000 (June 2012: adjusted EBITDA profit of $1,569,000)
• Loss before tax, before non-cash share based payments, of $807,000 (June 2012: profit $991,000)
• Net loss after tax of $1,345,000 (June 2012: profit $86,000)
• Loss per share of $0.01 (June 2012: earnings $0.00)
• Cash generated from operating activities of $22,000 (June 2012: $213,000)
• Net cash at 30 June 2013 $2,946,000 (June 2012: $2,455,000) – the Group has no debt
*Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortisation adjusted for the non-cash share based payment expense required under IFRS.

Operational Highlights

• 6.71m units of DDD TriDef 2D to 3D conversion solutions shipped by TV, PC and mobile licensees in period; cumulative total TriDef unit shipments over 33m at 30 June 2013

  • First half 3D TV unit shipments up 16% over prior year same period
  • 3D PC unit shipments down 76%
  • New market for glasses-free 3D tablet shipments commenced in June

    • Extended TV technology license agreement with Samsung until December 2015
    • Signed first two license agreements for next generation glasses-free 3D tablet PCs
    • Expanded scope of patent license agreement with Samsung
    • Continued progress on initiative to secure partner to assert patent rights
    • Applied for patents relating to innovative band-width optimisation techniques for HD and UHD streaming 2D video suited to Smart TV and mobile devices

    Subsequent to Period End

    • As announced on 17 September 2013, the Group signed a joint development agreement with a subsidiary of InterDigital Corporation (Nasdaq: IDCC) to combine DDDs latest 2D video image processing technology with InterDigital's user adaptive video streaming technologies to explore the feasibility of the combined solution for applications in streaming video to mobile devices and Smart TVs
    • Additionally, as announced 17 September, a subsidiary of InterDigital Corporation (Nasdaq: IDCC) purchased 7,039,680 ordinary 1p shares of the Company in an equity placing at a placing price of 8.175p per share raising approximately £575,500 before expenses
    • Signed third license agreement for next generation glasses-free 3D tablet PCs

    Chris Yewdall, Chief Executive said:

    "The shortfall in first half revenue is due to the decline of shipments of our TriDef 3D software in the PC market as the global PC market continues to shrink. Whilst the extent of the decline in PC shipments is disappointing, we continue to see growth in shipments of our TriDef 2D to 3D conversion solutions in the TV market which is the single largest global market for 3D consumer devices. We are also seeing emerging demand for our 3D solutions in the continually expanding tablet market. As a consequence of the slowdown in PC shipments, however, we are downgrading our forecast for the full year.

    "We are continuing to make progress on maximizing the value of our 3D patent library in order to enhance our technology licensing revenue with additional patent license revenue. Our recently announced joint development agreement with InterDigital to combine our latest 2D video processing technology with InterDigital's adaptive streaming technologies provides further new potential revenue options.

    "Having established market leadership and a high margin, scaleable business, we are well positioned to address demand for our leading edge solutions across a range of opportunities."

    About DDD

    DDD transforms the visual experience by bringing 3D to the consumer. Its TriDef®3D solutions convert 2D to 3D automatically, and enable delivery to 3D TVs, PCs and mobile devices. Leading brands including Samsung, LG Electronics, Lenovo and Sony license these solutions. Over 33 million TriDef 3D products have been shipped by DDD's licensees worldwide. DDD's Yabazam® label delivers 3D everywhere with its online content portal and Smart TV apps. DDD's shares are quoted on the London Stock Exchange's AIM Market (AIM: DDD) and in the United States on the OTCQX® marketplace (OTCQX: DDDGY). For more information please visit www.DDD.com.


    DDD has established a market leadership position in 3D technology licensing, and the Group has made good progress in developing a plan to maximize the value of its 3D patent library with the goal of augmenting the technology licensing revenue with additional patent license revenue. The Group continues to invest in R &D and is delivering new patent filings to provide the basis for patent protected solutions for licensing opportunities in streaming 2D HD and UHD video for Smart TVs and tablets.

    Research from leading market research organisations indicates that the 3D market will continue to grow over the coming years. According to recently published NPD DisplaySearch data, the market for 3D consumer products, including 3D televisions and tablets, is slated to have average compound annual growth of 20% per year for the next three years. In the same report, the 3D TV market is projected to comprise over 30% of all televisions shipped in Q3 2013 and rise to approximately 70% penetration by 2018.

    The Group recorded revenues of $2.4 million in the first six months of 2013, a decline of $1.68 million compared to the same period of 2012. This was caused primarily by the continuing downturn in shipments of 3D PC market products by existing licensees as tablets continue to replace desktop and portable PCs. At the same time, licensees shipped an increasing number of TVs including the TriDef 3D patented technologies. New glasses-free 3D tablets incorporating the Group's TriDef 3D mobile technologies began production in June. Shipments of technologies based on DDD's unique intellectual property ("IP") in the period totaled approximately 6.71 million units, bringing the cumulative total to over 33 million at 30 June 2013.

    Shipments of the Group's patented technologies for use in chips for 3D televisions and Blu-ray players improved 16% by volume and represented the largest market.
    Shipments of the Group's PC software declined, as anticipated, as the PC industry is affected by competition from the growing tablet market and issues related to end user acceptance of Windows 8. Approximately 260,000 copies of the Group's 3D software were shipped with 3D laptops, PC monitors and All-In-One PCs by licensees. Mobile device technology shipments comprised less than 1% of first half volumes as LG's Optimus handset was discontinued in late 2012, whilst new tablet models from license agreements signed during the period only began production in June 2013.

    As the installed base of 3D televisions, personal computers and mobile devices continues to grow, the Group is broadening its focus to include digital delivery of 3D content to internet connected Smart TVs and personal computers through its Yabazam 3D portal. This will allow the Group to participate in the revenue derived from content consumption to supplement its established technology royalties.

    In response to the continued decline in the PC market, DDD reduced headcount by approximately 15% to 30 staff during the first half and the Group continues to maintain tight control over expenditures.

    Based on the greater than expected decline in PC market shipments and the timing of the introduction of the next generation 3D tablets and the Group's patent licensing program, the Group is adjusting down its full year forecasts for 2013.

    Financial Review

    Revenue for the period ended 30 June 2013 declined 42% to $2,356,000 (June 2012: $4,032,000).

    Total technology revenue, including licensing, royalties and software sales, decreased by 42% to $2,350,000, representing 99.7% of total revenues (June 2012: $4,030,000 or 99.9% of total revenues). High margin OEM royalty revenues decreased to $2,222,000 (June 2012: $3,917,000), primarily resulting from the downturn in shipments of 3D PC market products by existing licensees. During the first half of 2013, nine licensees were shipping into the PC market (H1 2012: 10). Additionally, direct-to-consumer PC software sales contributed $95,000 (June 2012: $98,000). Other licensing royalty revenues were $33,000 (June 2012: $15,000).

    Other revenues were $6,000 (June 2012: $2,000).

    Gross profit reduced by 39.6% to $2,331,000 (June 2012: $3,857,000) while gross margin improved to 99% (June 2012: 96%).

    Administrative expenses were up 7.7% to $2,499,000 (June 2012: $2,321,000) but down 14.5% compared to H2 2012 ($2,921,000) as headcount was reduced in the period and expenditure was controlled in light of the continued decline in the PC market.

    Depreciation and amortisation expenses totalled $679,000 (June 2012: $595,000). The increase is due to the increase in IFRS qualifying R &D activities.

    The non-cash share-based incentive cost is $246,000 (June 2012: $328,000).

    Adjusted Group loss before tax and before share-based incentive costs, was a loss of $807,000 (June 2012: profit $991,000). Reported pre-tax loss was $1,053,000 (June 2012: profit $663,000).

    Group taxation expenses decreased with the reduction in revenue. The majority of taxation is due to foreign withholding taxes that are deducted at source from royalty revenues by certain non-treaty territories such as Korea and Taiwan. These foreign withholding taxes are available as tax credits in the US for future periods and are therefore included in the taxation line item. Taxation for the period was $292,000 or 12.4% of gross revenues (June 2012: $577,000 or 14.3% of gross revenues) reflecting the mix in revenues from tax treaty jurisdictions during the first half of 2013 offset by a favorable deferred tax liability adjustment of $48,000 as a result of recently enacted UK tax rates.

    The Group's loss per share after taxation was $0.01 per share (June 2012: earnings of $0.0006 per share).

    Cash generated from operations (before tax payments and interest received) was $359,000 (June 2012: $702,000). Net cash generated from operating activities remained positive at $22,000 (June 2012: $213,000). Capitalised expenditure was $949,000 (June 2012: $940,000). $303,000 was raised from the exercise of employee stock options in the period, resulting in cash of $2,946,000 at the end of June 2013 (June 2012: $2,455,000).

    Business Review

    DDD is a 3D solutions company that both licenses patented 3D technologies to a broad range of 3D consumer devices and also provides a 3D content portal to consumers to bring high quality, diverse content directly to 3D televisions, PCs and mobile devices.

    DDD Technology Licensing refers to the licensing of DDD's patented stereoscopic TriDef 3D software, hardware and content conversion/creation solutions as one technology licensing business segment across three main consumer markets as follows:

    Television Market refers to flat screen HDTV displays, Blu-ray players and set top boxes being developed and marketed by major consumer electronics companies, where DDD's automatic 2D to 3D embedded content conversion solution allows 2D television shows, DVDs, Blu-ray discs and console games to be presented in 3D.

    PC Market refers primarily to 3D notebook and desktop PCs and monitors bundled with DDD's automatic 2D to 3D conversion software, allowing users to play games and view movies and photos in 3D.

    Mobile Device Market refers to the market for 3D mobile telephones and tablet PCs, where TriDef 3D software can be used to play popular games and to convert, present, download and share popular mobile content such as photos, animations and video in glasses-free 3D.

    A brief description of the Group's progress by platform follows.

    Television Market

    During the first half of the year, the Group renewed its license agreement with Samsung for inclusion of the TriDef 2D to 3D conversion solution in the chipsets incorporated in the majority of Samsung's 3D TVs, Blu-ray players and PC monitors. Another licensee prepared sample chips with the TriDef conversion solution for marketing to its customers and is now adding additional features for the latest UHD televisions prior to introducing the chip to its customers.

    One of the main initiatives during the first half has been to develop the TriDef 2D to 3D conversion capabilities as Apps for Smart TVs, now that more powerful chipsets are being used in these latest models. The porting was completed as two separate software solutions, TriDef Video Conversion App and TriDef Game Conversion App, and has been introduced to a number of Chinese TV manufacturers who are beginning to adopt the new reprogrammable chips.

    The Group's lower cost, higher quality software solution is intended to compete directly with the existing low-quality 2D to 3D conversion chip solutions that have been adopted by price conscious TV manufacturers in China. As a software solution, the business model is expected to broaden to include the existing IP on a chipset as well as the new software Apps which can be preinstalled by OEMs or downloaded from SmartTV App stores directly by consumers.

    Shipments in the TV market grew 16% to 6.44 million up from 5.56 million in the first half of 2012, with the majority by Samsung Electronics.

    PC Market

    The Group generates revenue from the sale of software for 3D PC applications in two ways:

    • Licensing of software to OEM partners for inclusion with 3D PC products (royalties)
    • Direct sales of software to end users via the Group's online website store (software)

    TriDef 3D PC software is fully supported, Windows software available in 37 languages and compatible with the latest PC processors from AMD, Intel and nVIDIA. The video software, which converts any 2D video or photo automatically to 3D while the gaming solution enables over 800 of the most popular PC games (including top Chinese titles) to be played in high quality 3D, even though the games have not been developed with 3D presentation in mind. TriDef works with virtually all 3D displays and is therefore agnostic to whether the display requires active glasses, passive polarised glasses or delivers a glasses-free 3D experience.

    The PC market has experienced an unprecedented quarter on quarter decline as tablets continue to be adopted by consumers to replace larger desktop and notebook PCs. While the 3D PC market was unaffected by this during 2012, it has now begun to impact shipments of 3D PC products. The 3D PC market was further impacted by the introduction of Windows 8 in late 2012 and requires larger 3D touch screen displays. 3D display makers have been focusing their R &D initiatives for touch-screen, glasses-free 3D products on the 7-10" tablet market at the expense of 3D displays for the new Windows 8 PCs.

    While the new Windows 8.1 will offer the more familiar Windows features it is unclear at this stage whether OEMs will redirect their efforts back to 3D for the PC market in the future as they continue to focus on stabilizing their traditional business.

    The other main PC market initiative is the integration of TriDef software for the internet café (iCafe) market in China. The technologies were fully integrated and a small initial rollout to approximately 1,000 cafes has been completed with the initial partner ShunWang Technology Co. Ltd. DDD continues to invest in developing the iCafe market with ShunWang and other iCafe partners in China.

    Since 30 June 2013, the Group has signed a new license agreements for its PC software with China's Chongqing JOMVS Photoelectricity Company Limited (JOMVS) for use with a new range of glasses-free 3D PC products.

    Shipments in the PC market by nine active licensees declined to 260,000 units in the first half of 2013 from nearly 1.1 million units in the first half of 2012 (10 active PC licensees).

    Mobile Device Market

    Improvements in glasses-free 3D display technologies have spurred OEM interest in 3D mobile devices including smartphones and tablets. Since 2012, 3D display makers have been focused on technology for larger 7-10" displays given growing consumer adoption of tablet devices. A number of 3D tablet displays are now available and these are being adopted by early entrants to the market such as Qingyuan Gadmei Electronics Technology Co. Ltd and Hampoo Science & Technology Co. Ltd, two of DDD's China-based tablet licensees. The price and yield of current 3D displays remain a barrier to entry for larger OEMs but progress continues to be made and it is anticipated that these issues will be resolved in 2014, with recent market data from NPD DisplaySearch indicating that annual 3D tablet shipments are expected to increase by over 180% from 2013 to 2014.

    Since 30 June 2013, the Group has signed a new license agreements for its TriDef mobile software, with China's Chongqing JOMVS Photoelectricity Company Limited (JOMVS).

    Mobile device shipments represented less than 1% of unit shipment volume during the first half of 2013 (June 2012: 4%).

    Emerging business segments:

    3D Content Publishing refers to the distribution of original 3D content made by third parties to end users with 3D PCs, TVs and mobile devices. DDD serves as an aggregator of this content through its Yabazam! 3D content portal, acquiring the distribution rights and sharing income with the third party copyright holders.Yabazam is now available to the TV, PC and mobile device markets. During the period, the number of customers has continued to grow and as of today, over 100 independent film and television titles have been licensed for the platform under revenue sharing arrangements with the content producers.

    For the SmartTV market, Yabazam is an App available on LG and Samsung 3D Smart TVs. The App is a free download by consumers (also pre-installed on certain devices) which unlocks access to the growing library or ioriginally made 3D movies. The end user registers a user account, including payment details, which unlocks access to view the full content as a subscription for US customers or on a video on demand basis elsewhere. The App has now achieved over 500,000 downloads. The video on demand service was introduced in September 2012 and the US subscription capabiity became available at the beginning of 2013. Approximately 1% of downloads convert to registered user accounts.

    The Yabazam Smart TV App is now available in 17 countries and the platform is expected to expand further this year once improvements including mobile payment methods and local language support are incorporated. Yabazam is also planned to expand onto additional 3D Smart TV platforms later this year.

    For the PC market, Yabazam is available on the web and is also supported by OEMs with trailers and icons on many 3D products that have been shipping since 2009. Given the decline in PC OEM shipments, the Group expects to place more emphasis on development of Smart TV and tablet PC apps.

    For the mobile device market, Yabazam is generating interest among OEMs considering 3D tablet launches and has now been made available in the Google Play store for consumer download to new and existing 3D Android devices.

    Given the growth in the library and Yabazam's reach, discussions have commenced with distributors of brand name 3D content with a view to introducing higher profile 3D content to further expand the service.

    Patent Licensing refers to the licensing of the Group's international patents to organizations that create products or deliver services that use the claims contained in the patents. The patents cover a number of inventions including methods and systems used to convert content from 2D to 3D both automatically and offline using human control.

    In 2012, the Group signed its first patent license agreement with Samsung allowing Samsung to use the patents to perform offline conversion of 2D video content into 3D content for distribution to 3D consumer devices for which the Group receives a royalty based upon the amount of 2D content that is converted to 3D. In the first half of 2013, the Group expanded the scope of this patent license to allow Samsung to perform the 3D conversion and to present the results on 3D cinema screens.

    As the 3D market has evolved, the Group has observed a number of products and services being marketed by unlicensed third parties that appear to perform the claims of the Group's patents. In order to preserve the value of the Group's technology licensing business, it is important that the Group ensures that unlicensed use of the Group's intellectual property is appropriately dealt with.

    Approaches have been developed to assess these unlicensed products and services and a number of these products and services were evaluated by the Group, confirming that patent licenses are indeed required by a range of consumer products and professional services. Having established the presence of unlicensed use of intellectual property, the Group has commenced discussions with a number of organizations who specialize in patent licensing and the assertion of patent rights.

    The goal of the patent licensing initiative is to ensure that the value of the current licensing technology business is not diminished through unauthorized use of the patent claims and also to augment the existing licensing revenue through patent license and royalty fees from unlicensed users.

    2D Video Signal Processing refers to the latest technologies developed by the Group to address the rapidly growing markets of streaming 2D video and higher resolution television and tablet displays. In mid 2011, the Group expanded the Research & Development team with video signal processing specialists and began an initiative to identify and develop innovative solutions that leverage the Group's market leading 3D expertise to deliver patent protected solutions for emerging, sizeable 2D growth markets.

    During the period, the Group applied for patent protection on the first of these inventions that uses the Group's 3D image processing techniques to pre-process 2D video before it is encoded and streamed to the viewer. Testing of the new solution indicates that the pre-processing can save between 7% and 30% of the bitrate required to deliver the equivalent unprocessed video. In testing, this has enabled full 1080 HD versions of content to be delivered where conventional encoding techniques would reduce the picture quality to 720 HD resolution based on the available bandwidth.

    Importantly, since this approach involves the pre-processing of video, it is backwards compatible with existing and emerging video streaming standards such as MPEG, H.264 and H.265 HEVC and does not require any changes to or additional technology to be included in the existing video decoders already available in consumer televisions or tablets, greatly simplifying the route to market.

    Having completed the patent applications, the Group has begun to market the new solution to a number of prospective content and technology partners and is receiving a positive response to demonstrations and tests. The Group's recently announced joint collaboration agreement with wireless IP licensing specialist InterDigital seeks to combine these newly developed technologies with InterDigital's adaptive video streaming technologies. Subject on further business development work, the Group expects to be in a position to deliver products and services based on this innovative new solution that can be added to the Group's technology licensing business in 2014.


    Based on the greater than expected decline in PC market shipments and the timing of the introduction of the next generation 3D tablets and the Group's patent licensing program, the Group is adjusting down its full year forecasts for 2013.

    Despite the expected slow down in the 3D PC market, the overall market for 3D consumer devices, in particular televisions, continues to show growth according to the recent data from leading research organisations like NPD DisplaySearch. The Group's licensees continue to invest in and ship 3D products as evidenced by the increase in royalty-bearing TV shipments. The continued popularity of 3D movies in the cinema market indicates sustained demand for the 3D experience.

    Advances in technology, such as retinal tablet displays and Ultra HD televisions, are expected to create further opportunities for 3D as the enhanced resolutions are able to deliver the glasses-free experience for tablets and televisions over 42" in size.

    DDD expects to deliver further growth in its IP licensing business through the renewal of existing license agreements, securing further license agreements in emerging consumer markets such as 3D tablets and through the introduction of a patent licensing program for companies that wish to license the claims of the Group's internationally registered 3D patent library for their products and services.

    The Group's latest patent and development efforts are intended to leverage its leadership position in the 3D market to address the larger opportunities in the more sizeable 2D markets for HD and UHD streaming video. As the Group conducts further business and technical development, it is expected that these efforts will result in additional solutions that can be included in the current technology licensing program. The Group's recently announced joint collaboration agreement with wireless IP licensing specialist InterDigital seeks to combine these newly developed technologies with InterDigital's adaptive video streaming technologies. InterDigital has also invested £575,500 in DDD Group plc, acquiring a 4.9% interest in the Group and becoming the fifth largest shareholder, underscoring the commercial potential of these new innovations.

    The Group remains committed to the successful introduction and growth of the Yabazam streaming video platform for SmartTVs and tablets and will continue to develop the range of available 3D movies and the range of products on which the service is available. As the next generation video processing solutions become available, the Group also anticipates that streaming video content processed with these new technologies will be made available on Yabazam.

    Having established a growing high margin, scaleable business, the balance sheet remains healthy and the Group is well positioned to take advantage of additional opportunities as they arise without the need for significant increases in headcount and operating expense.

    C M Yewdall
    Chief Executive Officer
    24 September 2013

    Link to full results and financials
CONTACT:DDD: Michelle LaPaglia mlapaglia@ddd.com 310 566 3346Source: DDD