| [November 03, 2009] |
 |
Digital River Announces Third Quarter 2009 Financial Results
MINNEAPOLIS --(Business Wire)--
Digital River (News - Alert), Inc. (NASDAQ: DRIV), a leading provider of global e-commerce solutions, reports its third quarter financial results.
Third Quarter Ended Sept. 30, 2009
GAAP ResultsThird quarter revenue totaled $99.4 million, compared to $96.3 million during the same period in 2008. These results exceeded management's third quarter revenue guidance of $96.5 - $98.5 million.
Third quarter GAAP net income was $11.0 million, or $0.29 per diluted share. This compared to GAAP net income of $15.6 million, or $0.39 per diluted share, in the third quarter of 2008. These results were consistent with management's third quarter earnings guidance of $0.26 - $0.29 per diluted share.
Non-GAAP ResultsThird quarter non-GAAP net income was $15.9 million, or $0.42 per diluted share. This compared to non-GAAP net income of $19.2 million, or $0.46 per diluted share, in the third quarter of 2008. These results exceeded management's third quarter earnings guidance of $0.38 - $0.41 per diluted share.
Non-GAAP net income is computed by starting with GAAP pre-tax income as reported on the company's statement of income, then adding back amortization of acquisition-related intangibles and stock-based compensation expense, 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. "Our performance was supported by accelerating top-line growth in software, consumer electronics and games - markets where we continue to expand existing client relationships and close new business. While Symantec's (News - Alert) decision to move its e-commerce platform in-house was disappointing, we believe these third quarter results continue to demonstrate the strength of our overall business and value proposition. We remain confident in the future prospects for our business and in our ability to take the actions necessary to continue to drive growth and profitability."
2009 GuidanceDigital River continues to work on its business plans in response to Symantec's decision to not renew its e-commerce contract, which expires on June 30, 2010. While Digital River does not have complete visibility into Symantec's transition plans and is still assessing the impact to its business, Digital River's expectation for forward-looking guidance for the quarter ending Dec. 31, 2009, is as follows:
Fourth Quarter
Total revenue of $94 - $98 million;
Revenue related to Symantec products is expected to be between $19 - $22 million;
Revenue, excluding Symantec, is expected to be approximately $75 - $76 million, representing year-over-year growth rates of 16 - 18 percent;
GAAP diluted net income per share of $0.18 - $0.22, assuming a 25 percent tax rate; and
Non-GAAP diluted net income per share of $0.30 - $0.34, assuming a 27 percent tax rate.
Full Year
Revenue of approximately $393 - $397 million.
GAAP diluted net income per share of $1.23 - $1.27, assuming a 25.5 percent tax rate; and
Non-GAAP diluted net income per share of $1.69 - $1.73, assuming a 27 percent tax rate.
Digital River will hold a conference call today at 4:45 p.m. EST to discuss third quarter financial results. A live webcast of Digital River's earnings conference call can be accessed at http://www.digitalriver.com/2009/investorrelations/.
Alternatively, a live broadcast of the call may be heard by dialing (888) 218-6314 inside the United States or Canada, or by calling +1 (706) 634-9714 from international locations and using conference ID # 35972613. A webcast replay of the call will be archived on Digital River's corporate Web site.
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 Web site at www.digitalriver.com or call +1 952-253-1234.
Forward-Looking StatementsThis 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 extent and timing by Symantec of the migration of business to its in-house solution; the variability of foreign exchange rates; our ability to successfully manage our business while undertaking significant internal investments; 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 and Form 10-K/A for the year ended Dec. 31, 2008. 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, Form 10-K/A and Form 10-Q, each as it may be amended from time-to-time.
The forward-looking statements regarding fourth quarter and full year 2009 reflect Digital River's expectations as of Nov. 3, 2009. 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
As of
September 30,
December 31,
2009
2008
Assets
Current assets
Cash and cash equivalents
$
396,421
$
490,335
Short-term investments
14,939
10,000
Accounts receivable, net
51,574
53,216
Deferred income taxes
7,654
7,613
Prepaid expenses and other
16,000
42,522
Total current assets
486,588
603,686
Property and equipment, net
54,420
41,733
Goodwill
278,682
273,788
Intangible assets, net
27,697
32,222
Long-term investments
94,335
93,213
Deferred income taxes
23,063
24,824
Other assets
2,459
786
Total assets
$
967,244
$
1,070,252
Liabilities and stockholders' equity
Current liabilities
Convertible senior notes
$
-
$
186,195
Accounts payable
196,969
184,361
Accrued payroll
14,968
14,841
Deferred revenue
17,693
13,651
Accrued acquisition liabilities
43
3,278
Other accrued liabilities
37,365
41,336
Total current liabilities
267,038
443,662
Non-current liabilities
Convertible senior notes
8,805
8,805
Other liabilities
15,001
15,712
Total non-current liabilities
23,806
24,517
Total liabilities
290,844
468,179
Stockholders' equity
Common stock
448
432
Treasury stock
(216,738
)
(216,163
)
Additional paid-in capital
641,811
623,778
Retained earnings
228,499
189,096
Accumulated other comprehensive income
22,380
4,930
Stockholders' equity
676,400
602,073
Total liabilities and stockholders' equity
$
967,244
$
1,070,252
Digital River, Inc.
Third Quarter Results
(Unaudited, in thousands, except per share amounts)
Subject to reclassification
Condensed Consolidated Statement of Income
Three months ended
Nine months ended
September 30,
September 30,
2009
2008
2009
2008
Revenue
$
99,419
$
96,301
$
298,914
$
298,309
Costs and expenses (exclusive of depreciation
and amortization expense shown separately below):
Direct cost of services
4,582
3,913
12,475
12,557
Network and infrastructure
11,786
10,552
33,062
31,136
Sales and marketing
38,073
35,419
115,709
114,396
Product research and development
14,134
12,993
39,605
38,737
General and administrative
9,319
9,861
28,280
30,939
Depreciation and amortization
5,162
4,047
13,635
11,838
Amortization of acquisition-related intangibles
1,800
2,001
5,719
6,347
Total costs and expenses
84,856
78,786
248,485
245,950
Income from operations
14,563
17,515
50,429
52,359
Interest income
557
4,513
2,508
15,057
Other income (expense), net
264
(1,387
)
(9
)
(3,789
)
Income before income tax expense
15,384
20,641
52,928
63,627
Income tax expense
4,341
5,007
13,525
16,491
Net income
$
11,043
$
15,634
$
39,403
$
47,136
Net income per share - basic
$
0.30
$
0.43
$
1.07
$
1.27
Net income per share - diluted
$
0.29
$
0.39
$
1.05
$
1.15
Shares used in per share calculation - basic
37,151
36,495
36,899
37,186
Shares used in per share calculation - diluted
38,093
41,620
37,599
42,203
Calculation of GAAP Diluted Net Income Per Share
Three months ended
Nine months ended
September 30,
September 30,
2009
2008
2009
2008
GAAP net income
$
11,043
$
15,634
$
39,403
$
47,136
Add back debt interest expense and issuance cost
amortization, net of tax benefit
21
435
63
1,304
Adjusted net income for GAAP EPS calculation
$
11,064
$
16,069
$
39,466
$
48,440
Net income per share - diluted
$
0.29
$
0.39
$
1.05
$
1.15
Shares used in per share calculation - diluted
38,093
41,620
37,599
42,203
Digital River, Inc.
Third Quarter Results
(Unaudited, in thousands)
Subject to reclassification
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30,
2009
2008
Operating Activities:
Net income
$
39,403
$
47,136
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of acquisition-related intangibles
5,719
6,347
Change in accounts receivable allowance, net of acquisitions
216
632
Depreciation and amortization
13,635
11,838
Stock-based compensation expense
13,256
10,161
Excess tax benefits from stock-based compensation
(615
)
(1,685
)
Deferred and other income taxes
2,466
6,927
Change in operating assets and liabilities (net of acquisitions):
Accounts receivable
2,141
10,204
Prepaid and other assets
20,601
(7,819
)
Accounts payable
10,219
1,310
Deferred revenue
3,833
1,789
Income tax payable
1,900
(10,289
)
Other accrued liabilities
(6,568
)
39
Net cash provided by operating activities
106,206
76,590
Investing Activities:
Purchases of investments
(17,279
)
(460,549
)
Sales of investments
17,600
516,108
Cash paid for acquisitions, net of cash received
(4,445
)
(22,221
)
Purchases of equipment and capitalized software
(26,143
)
(15,169
)
Net cash (used in)/provided by investing activities
(30,267
)
18,169
Financing Activities:
Cash paid for convertible senior notes
(186,660
)
-
Exercise of stock options
9,133
6,841
Sales of common stock under employee stock purchase plan
1,336
1,446
Repurchase of common stock
-
(137,858
)
Repurchase of restricted stock to satisfy tax withholding obligation
(575
)
(387
)
Excess tax benefits from stock-based compensation
615
1,685
Net cash used in financing activities
(176,151
)
(128,273
)
Effect of exchange rate changes on cash
6,298
(3,025
)
Net decrease in cash and cash equivalents
(93,914
)
(36,539
)
Cash and cash equivalents, beginning of period
490,335
381,788
Cash and cash equivalents, end of period
$
396,421
$
345,249
Cash paid for interest on convertible senior notes
$
1,274
$
2,438
Digital River, Inc.
GAAP to non-GAAP Reconciliations
(Unaudited, in thousands, except per share amounts)
Calculation of non-GAAP Diluted Net Income Per Share
Twelve months
Three months ended
ended
March 31,
June 30,
September 30,
December 31,
December 31,
2008
2008
2008
2008
2008
GAAP pre-tax income
$
26,114
$
16,872
$
20,641
$
22,644
$
86,271
Add back: amortization of acquisition-related intangibles
2,176
2,170
2,001
2,044
8,391
Add back: stock-based compensation expense
3,031
3,507
3,623
2,387
12,548
Non-GAAP pre-tax income
31,321
22,549
26,265
27,075
107,210
Income tax expense @ 27%
8,457
6,088
7,092
7,310
28,947
Non-GAAP net income
$
22,864
$
16,461
$
19,173
$
19,765
$
78,263
Non-GAAP net income per share - diluted
$
0.53
$
0.40
$
0.46
$
0.48
$
1.86
Shares used in per share calculation - diluted
43,506
41,647
41,620
41,395
42,106
Nine months
Three months ended
ended
March 31,
June 30,
September 30,
September 30,
2009
2009
2009
2009
GAAP pre-tax income
$
22,759
$
14,785
$
15,384
$
52,928
Add back: amortization of acquisition-related intangibles
2,003
1,916
1,800
5,719
Add back: stock-based compensation expense
3,711
4,887
4,658
13,256
Non-GAAP pre-tax income
28,473
21,588
21,842
71,903
Income tax expense @ 27%
7,688
5,828
5,897
19,413
Non-GAAP net income
$
20,785
$
15,760
$
15,945
$
52,490
Non-GAAP net income per share - diluted
$
0.56
$
0.42
$
0.42
$
1.40
Shares used in per share calculation - diluted
37,227
37,781
38,093
37,599
Breakdown of stock-based compensation expense
Nine months
Three months ended
ended
March 31,
June 30,
September 30,
September 30,
2009
2009
2009
2009
Direct cost of services
$
169
$
172
$
160
$
501
Network and infrastructure
113
207
215
535
Sales and marketing
1,517
1,643
1,704
4,864
Product research and development
456
622
670
1,748
General and administrative
1,456
2,243
1,909
5,608
Total
$
3,711
$
4,887
$
4,658
$
13,256
Non-GAAP Guidance Reconciliation
Q4 - 2009 Guidance
Low
High
Expected GAAP net income per share - diluted
$
0.18
$
0.22
Add back amortization of acquisition-related costs
0.05
0.05
Add back stock-based compensation expense
0.12
0.12
Tax variability
(0.05
)
(0.05
)
Expected non-GAAP diluted net income per share
$
0.30
$
0.34
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