DivX Loses CFO – Red Flags or Signs of Evolution?
DivX announced Tuesday, that John Tanner, their Chief Financial Officer, has resigned for “personal reasons” and will be leaving the company at the end of May. Tanner has spent the last 2 and a half years working for DivX and to see him leave, less then a year after the company went public, does comes as a bit of a surprise. 
Understandably, the market is concerned over the development. Shenandoah Capital calls the event a “legitimate red flag.”
“Irrespective, upper-echelon management leaving is a legitimate fundamental red flag. In the specific case of a CFO change, a decline in results is a reasonable expectation. It is the “unexpected†change, rather than the planned change that produces the warning.”
It’s hard to argue that the loss of Tanner is a positive catalyst for DivX’s stock, but other then whatever lingering regrets, Tanner might now have about getting that DivX tattoo 
I’m not convinced that this news is really bad for anyone.
DivX of course, has not publically shared the details behind Tanner’s “personal reasons” for leaving, but the lack of things like facts and details, rarely stops us pesky bloggers from speculating on what we think is really going on, so here is my take on the news.
I think that DivX originally brought Tanner on, specifically to take them public and that “personal reasons” is really code for the Pacific Ocean.
When DivX first hired Tanner, the company was very much focused on trying to get the company to the next level. DivX CEO Jordan Greenhall described Tanner as being an “eminently qualified, intelligent and experienced CFO who brings extremely relevant expertise guiding technology companies through growth periods.”
DivX knew that they had the potential to go public, but they also knew that they needed help, so they brought in Tanner, who has been a proven rainmaker in raising funds. DivX was the fourth company that he helped to take public, the second as a CFO.
Before joining DivX, Tanner helped to take the company AdForce from a 35 person start up to a Nasdaq registrant that eventually sold itself to CMGI in a $1.7 billion buyout. Prior to AdForce, Tanner helped oversee the financial turnaround of NCD, Inc. and prior that he helped to grow revenues at Aspect Communications from $11 million to over $300 million. Since joining DivX, Tanner saw the company go from $16 million a year in revenue, to over $59 million for all of 06. During that time, earnings went from -$4.3 million in 2004 to $16.4 million in 06′.
It’s important to consider Tanner’s recent move in a historical context because the DivX of today is a very different animal then the DivX Tanner joined at the end of 04′. Tanner helped to successfully take DivX public, but now that DivX has access to $150 million in cash, the company needs a CFO with a different skillset then an IPO specialist.
For the pessimists out there, you can look at this change as an early signal of problems at the company, but as an optimist I see this as an opportunity for management to strengthen their team with a CFO better suited for managing a growing public company.
Even before Tanner left, DivX has been making changes to their staff. On March 27th, they promoted Kevin Hell to be the President of the company and a week before that they announced that they hired Patrice Lagrange (formerly with Adobe) and Mark Viken (a Sony Electronics veteran).
DivX has done a great job of attracting highly skilled employees, even from the start. Check out WebTVWire’s interview with CXO Darrius Thompson and you can tell that these guys understand digital technology.
In Tanner’s case though, DivX has also shown, that they know when it’s important to bring someone in from the outside. We will know more about DivX’s plans for finding a new CFO, when they report earnings next week, but I think that Wall St. will eventually want to see someone in the CFO position that they feel is looking out for their interests.
Tanner had experience in the public markets and was the perfect Yin to Greenhall’s Yang. Greenhall is a great visionary, but it was Tanner who knew what Wall St loved to hear. He would always bring investors back to DivX’s commitment to growing their business, but to do it as fiscally responsibly as possible. Tanner will be missed of course, but it’s hard to tell if this really will be a negative until we know who DivX plans on replacing him with.
Posted on April 25th, 2007 by Davis
Filed under: DivX
Your argument certainly sounds plausible, and if I was an investor I could accept that line of reasoning with no qualms.
Certainly, if I were the Venture Capital that remains in the business, I would want to promote the idea of an evolution within management to demonstrate that I was in control of the situation and this was simply one step in the ongoing business strategy.
Unfortunately, nothing of the sort seems to have occurred.
The CFO is leaving, suddenly, no replacement has as yet been announced, and in addition there has been a further flurry of management stock sales.
It’s all been played out in different stock market cycles, and, invariably a situation such as this has presaged financial turmoil.
Of course, “this time it could be different”
jog on
grant
this seems abrupt and not well coordinated, which leads one to correctly assume their are issues here. if this is part of a transitioned plan, DIVX would have been better served announcing this along w/ their earnings release next week. this approach has been successfully used by many companies that are dealing w/ a CFO departure/transition.