Digital River, Inc. (NASDAQ: DRIV), a leading provider of global e-commerce solutions, reports its third quarter financial results.
Third Quarter Ended Sept. 30, 2009
GAAP Results
Third 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 Results
Third 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 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 Guidance
Digital
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 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 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 | ||||||||||||||||
Contacts:
Digital River, Inc.
Investor Relations Contact:
Ed
Merritt, 952-540-3362
Vice President, Investor Relations
investorrelations@digitalriver.com
or
Media
Relations Contact:
Gerri Dyrek, 952-253-1234, ext. 38396
Senior
Director, Public Relations
gdyrek@digitalriver.com