EX-99.1 2 a6481441ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

Digital River Reports Third Quarter 2010 Financial Results

Exceeds revenue and earnings guidance

MINNEAPOLIS--(BUSINESS WIRE)--October 25, 2010--Digital River, Inc. (NASDAQ: DRIV), a leading provider of global e-commerce solutions, reports its third quarter financial results.

Third Quarter Ended Sept. 30, 2010
GAAP Results
Third quarter revenue totaled $85.0 million, compared to $99.4 million during the same period in 2009. These results exceeded management’s third quarter revenue guidance of $77.6 million.

Third quarter GAAP net income was $5.9 million, or $0.15 per diluted share. This compared to GAAP net income of $11.0 million, or $0.29 per diluted share, in the third quarter of 2009. These results exceeded management’s third quarter guidance of a net loss of $0.02 per share.

Non-GAAP Results
Third quarter non-GAAP net income was $7.7 million, or $0.20 per diluted share. This compared to non-GAAP net income of $15.9 million, or $0.42 per diluted share, in the third quarter of 2009. These results exceeded management’s third quarter earnings guidance of $0.13 per diluted share.

Non-GAAP net income is computed by starting with GAAP pre-tax income as reported on the company’s statement of operations, then adding back amortization of acquisition-related intangibles, stock-based compensation expense, unrealized investment gain or loss, and one-time restructuring costs, to calculate non-GAAP pre-tax income. This amount is then taxed at 27 percent to arrive at non-GAAP net income. This amount is then divided by fully-diluted GAAP shares outstanding, which includes shares underlying the company’s convertible senior notes, to derive non-GAAP diluted net income per share. To provide further clarity, a detailed reconciliation on the comparability of the GAAP and non-GAAP data has been provided in table form following the financial statements accompanying this release.

“Our third quarter revenue and earnings results exceeded our expectations,” said Joel Ronning, Digital River’s CEO. “Since the loss of a major client last October, we have made tremendous progress delivering on our commitment to replace lost revenue and drive growth. We have won major new business in software, consumer electronics and games, adding industry-leading clients to our portfolio. We are in the process of launching more stores for more clients than at any other time in the history of the company and remain very optimistic about Digital River’s future prospects.”

2010 Guidance
Digital River’s forward-looking guidance for the quarter and full year ending Dec. 31, 2010, is as follows:

Fourth Quarter

  • Revenue of approximately $95 - $98 million;
  • GAAP diluted net income per share of $0.15 - $0.18, assuming a 28 percent tax rate; and
  • Non-GAAP diluted net income per share of $0.28 - $0.31, assuming a 27 percent tax rate.

Full Year

  • Revenue of approximately $360.5 - $363.5 million;
  • GAAP diluted net income per share of $0.43 - $0.45; and
  • Non-GAAP diluted net income per share of $0.87 - $0.90, assuming a 27 percent tax rate.

Digital River will hold a conference call today at 4:45 p.m. EDT to discuss third quarter financial results. A live webcast of Digital River’s earnings conference call can be accessed at http://www.digitalriver.com/investorrelations/. Alternatively, a live broadcast of the call may be heard by using conference ID # 16935571 and dialing (877) 303-3145 inside the United States or Canada, or by calling +1 (408) 427-3861 from international locations. A webcast replay of the call will be archived on Digital River’s corporate website on Wednesday, Oct. 27, 2010.

About Digital River, Inc.
Digital River, Inc., a leading provider of global e-commerce solutions, builds and manages online businesses for software and game publishers, consumer electronics manufacturers, distributors, online retailers and affiliates. Its multi-channel e-commerce solution, which supports both direct and indirect sales, is designed to help companies of all sizes maximize online revenues as well as reduce the costs and risks of running an e-commerce operation. The company’s comprehensive platform offers site development and hosting, order management, fraud management, export controls, tax management, physical and digital product fulfillment, multi-lingual customer service, advanced reporting and strategic marketing services.

Founded in 1994, Digital River is headquartered in Minneapolis with offices across the U.S., Asia, Europe and South America. For more details about Digital River, visit the corporate website, call +1 952-253-1234, or follow the company on Twitter.

Forward-Looking Statements
This press release contains forward-looking statements, including statements regarding the company’s anticipated future growth, including future financial performance, as well as statements containing the words “anticipates,” “believes,” “plans,” “will,” or “expects” and similar words. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the company, or industry results, to differ materially from those expressed or implied by such forward-looking statements. Such factors include, among others: the company’s operating history and variability of operating results; competition in the e-commerce market; challenges associated with international expansion; the variability of foreign exchange rates; our ability to achieve favorable tax rates in our international operations; and other risk factors referenced in the company’s public filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the year ended Dec. 31, 2009. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Digital River’s most recent reports on Form 10-K and Form 10-Q, each as it may be amended from time-to-time.

The forward-looking statements regarding fourth quarter and full year 2010 reflect Digital River’s expectations as of Oct. 25, 2010. Results may be materially affected by many factors, such as changes in global conditions in the financial services markets and consumer spending, fluctuations in foreign currency rates, the rate of growth of online commerce and the Internet, progress with key partners and other factors. The guidance assumes, among other things, that there are no changes to stock-based compensation expense and anticipated tax rates. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as of the date hereof. The company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that may arise after the date hereof.

Digital River is a registered trademark of Digital River, Inc. All other trademarks and registered trademarks are trademarks of their respective owners.

     
 
Digital River, Inc.
Third Quarter Results
(Unaudited, in thousands)
Subject to reclassification
 
Condensed Consolidated Balance Sheets
September 30, December 31,
2010 2009

Assets

Current assets
Cash and cash equivalents $ 329,514 $ 392,704
Short-term investments 43,661 15,228
Accounts receivable, net 57,665 50,657
Deferred income taxes 9,899 9,901
Prepaid expenses and other   19,774     14,899  
Total current assets 460,513 483,389
Property and equipment, net 50,519 54,343
Goodwill 291,970 279,538
Intangible assets, net 34,699 25,605
Long-term investments 112,573 119,581
Deferred income taxes 23,890 22,416
Other assets   748     770  
Total assets $ 974,912   $ 985,642  

Liabilities and stockholders' equity

Current liabilities
Accounts payable $ 165,800 $ 192,301
Accrued payroll 15,549 16,131
Deferred revenue 16,489 17,879
Accrued acquisition liabilities 1,375 2,001
Other accrued liabilities   38,555     38,801  
Total current liabilities 237,768 267,113
Non-current liabilities
Convertible senior notes 8,805 8,805
Other liabilities   19,105     15,505  
Total non-current liabilities   27,910     24,310  
Total liabilities   265,678     291,423  
Stockholders' equity
Common stock 460 449
Treasury stock (220,055 ) (216,880 )
Additional paid-in capital 671,770 653,956
Retained earnings 249,215 238,867
Accumulated other comprehensive income (loss)   7,844     17,827  
Stockholders' equity   709,234     694,219  
Total liabilities and stockholders' equity $ 974,912   $ 985,642  
 
 
Digital River, Inc.
Third Quarter Results
(Unaudited, in thousands, except per share amounts)
Subject to reclassification
         
Condensed Consolidated Statements of Operations
 
Three months ended Nine months ended
September 30, September 30,
2010 2009 2010 2009
Revenue $ 84,987 $ 99,419 $ 265,545 $ 298,914
Costs and expenses:
Direct cost of services 4,548 4,582 13,541 12,475
Network and infrastructure 11,146 11,786 34,696 33,062
Sales and marketing 33,558 38,073 110,767 115,709
Product research and development 14,018 14,134 45,928 39,605
General and administrative 10,965 9,319 32,560 28,280
Depreciation and amortization 6,086 5,162 17,662 13,635
Amortization of acquisition-related intangibles   2,188     1,800   5,281     5,719  
Total costs and expenses   82,509     84,856   260,435     248,485  
Income from operations   2,478     14,563   5,110     50,429  
Interest income 660 557 2,032 2,508
Other income (expense), net   (2,045 )   264   (1,260 )   (5,217 )
Income before income taxes 1,093 15,384 5,882 47,720
Income tax expense (benefit)   (4,768 )   4,341   (4,466 )   11,588  
Net income $ 5,861   $ 11,043 $ 10,348   $ 36,132  
 
Net income per share - basic $ 0.16   $ 0.30 $ 0.28   $ 0.98  
Net income per share - diluted $ 0.15   $ 0.29 $ 0.27   $ 0.96  
Shares used in per share calculation - basic 37,688 37,151 37,613 36,899
Shares used in per share calculation - diluted 38,504 38,093 38,389 37,599
 
 
 
Calculation of GAAP Diluted Net Income Per Share
 
Three months ended Nine months ended
September 30, September 30,
2010 2009 2010 2009
GAAP net income $ 5,861 $ 11,043 $ 10,348 $ 36,132
Add back debt interest expense and issuance cost
amortization, net of tax benefit   21     21   63     63  
Adjusted net income for GAAP EPS calculation $ 5,882   $ 11,064 $ 10,411   $ 36,195  
 
Net income per share - diluted $ 0.15   $ 0.29 $ 0.27   $ 0.96  
Shares used in per share calculation - diluted 38,504 38,093 38,389 37,599
 
 
Digital River, Inc.
Third Quarter Results
(Unaudited, in thousands)
Subject to reclassification
     
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30,
2010 2009

Operating Activities:

Net income $ 10,348 $ 36,132
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of acquisition-related intangibles 5,281 5,719
Change in accounts receivable allowance, net of acquisitions 2,703 216
Depreciation and amortization 17,662 13,635
Debt financing costs - write-off - 5,208
Stock-based compensation expense 15,278 13,256
Excess tax benefits from stock-based compensation (620 ) (615 )
Deferred and other income taxes (499 ) 2,466
Impairment of equity investment 1,561 -
Change in operating assets and liabilities (net of acquisitions):
Accounts receivable (6,204 ) 2,141
Prepaid and other assets (906 ) 20,601
Accounts payable (36,402 ) 10,219
Deferred revenue (1,247 ) 3,833
Income tax payable (4,469 ) (37 )
Other accrued liabilities   (2,513 )   (6,568 )
Net cash provided by (used in) operating activities   (27 )   106,206  
 

Investing Activities:

Purchases of investments (65,889 ) (17,279 )
Sales of investments 40,199 17,600
Change in restricted cash (2,156 ) -
Cash paid for acquisitions, net of cash received (14,585 ) (4,445 )
Purchases of equipment and capitalized software   (13,666 )   (26,143 )
Net cash provided by (used in) investing activities   (56,097 )   (30,267 )
 

Financing Activities:

Cash paid for convertible senior notes - (186,660 )
Exercise of stock options 1,909 9,133
Sales of common stock under employee stock purchase plan 1,138 1,336
Repurchase of restricted stock to satisfy tax withholding obligation (3,175 ) (575 )
Excess tax benefits from stock-based compensation   620     615  
Net cash provided by (used in) financing activities   492     (176,151 )
Effect of exchange rate changes on cash   (7,558 )   6,298  
Net increase (decrease) in cash and cash equivalents (63,190 ) (93,914 )
Cash and cash equivalents, beginning of period 392,704 490,335
   
Cash and cash equivalents, end of period $ 329,514   $ 396,421  
   
Cash paid for interest on convertible senior notes $ 110   $ 1,274  
 
           
Digital River, Inc.
GAAP to non-GAAP Reconciliations
(Unaudited, in thousands, except per share amounts)
 
Calculation of non-GAAP Diluted Net Income (Loss) Per Share
 
Twelve months
Three months ended ended
March 31, June 30, September 30, December 31, December 31,
2009   2009   2009   2009 2009
 
GAAP pre-tax income (loss) $ 17,551 $ 14,785 $ 15,384 $ 14,076 $ 61,796
Add back debt financing costs on convertible notes 5,208 - - - 5,208
Add back amortization of acquisition-related intangibles 2,003 1,916 1,800 1,842 7,561
Add back stock-based compensation expense   3,711       4,887       4,658       5,014   18,270
Non-GAAP pre-tax income (loss) 28,473 21,588 21,842 20,932 92,835
Income tax expense @ 27%   7,688       5,829       5,897       5,652   25,065
Non-GAAP net income (loss) $ 20,785     $ 15,759     $ 15,945     $ 15,280 $ 67,770
 
Non-GAAP net income (loss) per share - diluted $ 0.56     $ 0.42     $ 0.42     $ 0.40 $ 1.80
 
Shares used in per share calculation - diluted 37,227 37,781 38,093 38,026 37,704
 
Nine months
Three months ended ended
March 31, June 30, September 30, September 30,
2010   2010   2010 2010
GAAP pre-tax income (loss) $ 9,676 $ (4,887 ) $ 1,093 $ 5,882
Add back amortization of acquisition-related intangibles 1,481 1,612 2,188 5,281
Add back stock-based compensation expense 4,476 5,522 5,280 15,278
Add back unrealized investment gain/loss - - 1,562 1,562
Add back restructuring related costs   -       1,870       443     2,313
Non-GAAP pre-tax income (loss) 15,633 4,117 10,566 30,316
Income tax expense @ 27%   4,221       1,112       2,852     8,185
Non-GAAP net income (loss) $ 11,412     $ 3,005     $ 7,714   $ 22,131
 
Non-GAAP net income (loss) per share - diluted $ 0.30     $ 0.08     $ 0.20     0.58
 
Shares used in per share calculation - diluted 38,220 38,351 38,504 38,389
 
Breakdown of stock-based compensation expense
Nine months
Three months ended ended
March 31, June 30, September 30, September 30,
2010   2010   2010 2010
Direct cost of services $ 138 $ 161 $ 168 $ 467
Network and infrastructure 198 270 268 736
Sales and marketing 1,373 1,876 1,866 5,115
Product research and development 725 908 675 2,308
General and administrative   2,042       2,307       2,303     6,652
Total $ 4,476     $ 5,522     $ 5,280   $ 15,278
 
Non-GAAP Guidance Reconciliation
Q4 - 2010 Guidance
Low High
Expected GAAP net income (loss) per share - diluted $ 0.15 $ 0.18
Add back amortization of acquisition-related costs 0.05 0.05
Add back stock-based compensation expense 0.13 0.13
Tax variability   (0.05 )   (0.05 )
Expected non-GAAP diluted net income (loss) per share $ 0.28   $ 0.31  

CONTACT:
Digital River, Inc.
Investor Relations Contact:
Ed Merritt, +1 952-540-3362
Vice President, Investor Relations
investorrelations@digitalriver.com
or
Media Relations Contact:
Gerri Dyrek, +1 952-253-1234, ext. 38396
Group Vice President, Corporate Marketing
gdyrek@digitalriver.com