Digital River Reports Fourth Quarter and Full Year 2012 Financial Results

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Digital River Reports Fourth Quarter and Full Year 2012 Financial Results

MINNEAPOLIS--(BUSINESS WIRE)-- Digital River, Inc. (NASDAQ: DRIV), the revenue growth experts in global cloud commerce, today reported financial results for its fourth quarter and full year 2012.

Fourth Quarter and Full Year Ended Dec. 31, 2012, Financial Results
GAAP Results
In 2012 fourth quarter revenue was $101.3 million, exceeding management's fourth quarter revenue guidance of $96 to $100 million. For the full year 2012, revenue was $386.2 million, also exceeding full year revenue guidance of $381 to $385 million. In 2011, the company reported fourth quarter revenue of $112 million and full year revenue of $398.1 million.


In 2012, the company reported a GAAP net loss of $200.1 million, or $6.11 per share, for the fourth quarter, and a GAAP net loss of $195.9 million, or $5.90 per share, for the full year. The net loss includes a non-cash goodwill impairment charge of $161.1 million net of tax and a non-cash valuation allowance against deferred tax assets of $43.5 million. The goodwill impairment and tax valuation allowance were both non-cash charges and are not expected to impact future company performance. In 2011, the company reported GAAP net income of $4.3 million, or $0.12 per diluted share, in the fourth quarter, and GAAP net income of $17.2 million, or $0.46 per diluted share, for the full year.

Non-GAAP Results
In 2012 on a non-GAAP basis, which excludes the non-cash goodwill impairment and tax valuation allowance, the company reported net income of $11.2 million, or $0.31 per diluted share, in the fourth quarter, and $35.9 million, or $1.02 per diluted share, for the full year. In 2011, the company reported non-GAAP net income of $17.7 million, or $0.45 per diluted share, in the fourth quarter, and non-GAAP net income of $45.6 million, or $1.15 per diluted share, for the full year.

"Our fourth quarter revenue and non-GAAP earnings performance was in line with our expectations," said Tom Madison, Digital River's chairman and interim CEO. "We continue to focus the organization on initiatives that drive revenue for clients. In addition during the quarter, we divested some non-core assets, reduced expenses in certain areas, as well as repurchased some of our outstanding convertible debt and common stock. In early January, we also completed our acquisition of LML Payment Systems. We plan to accelerate growth across our payments solution this year as we extend LML's services to Europe and other geographies."

Madison continued, "During 2013, we'll be making some important investments to advance our technology toward an even more modular, cloud-based service, which is where we see the market moving. We believe these investments will solidify the foundation we need to return to increasing top-line growth in the future."

During the quarter, the company repurchased approximately $44 million of its two percent, 2010 convertible notes in open market transactions. Additionally, the company repurchased approximately $2.4 million of common stock.

First Quarter 2013 Guidance
Management's forward-looking financial expectations for the first quarter of 2013 are as follows:

  • Revenue, ranging from $101 to $104 million;
  • GAAP EPS, ranging from a loss of $0.14 to a loss of $0.09 per share, using a 17 percent tax rate; and
  • Non-GAAP EPS, ranging from $0.18 to $0.22 per diluted share, using a 21 percent tax rate.

A detailed table providing a reconciliation of the company's GAAP and non-GAAP earnings guidance estimates can be found accompanying this press release.

Digital River will hold a conference call today at 4:45 p.m. EST to discuss fourth quarter and full year 2012 financial results. A live webcast of Digital River's earnings conference call can be accessed on the Investor Relations section of its corporate website. Alternatively, a live broadcast of the call may be heard by using conference ID #87094625 and dialing +1 (408) 427-3861. A webcast replay of the call will be archived on Digital River's corporate website.

About Digital River, Inc.
Digital River, Inc., the revenue growth experts in global cloud commerce, builds and manages online businesses for software and game publishers, consumer electronics manufacturers, distributors, online retailers and affiliates. Its multi-channel 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 a global commerce operation. The company's comprehensive platform offers site development and hosting, order management, global payments, cloud-based billing, 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.

Non-GAAP Net Income Calculation
Digital River's non-GAAP net income (loss) is computed by adjusting GAAP pre-tax income as reported on the company's statement of operations by adding back amortization of acquisition-related intangibles, stock-based compensation expense, intangible impairments, restructuring costs, litigation settlements, acquisition and integration costs, unrealized investment gain or loss, and goodwill impairments, net of a 21 percent tax rate. Non-GAAP diluted earnings per share is calculated using the "if-converted" method with respect to the issuance of the company's 2004 and 2010 convertible notes, which includes shares reserved upon conversion of 199,828 and 6,128,581, respectively. In computing non-GAAP diluted earnings per share, adjust non-GAAP net income to add back debt interest and issuance cost amortization expenses, net of the tax benefit, and then divide this amount by fully diluted shares outstanding. This amount, representing the fully diluted earnings computation, is selected to represent non-GAAP diluted earnings per share for each period presented. 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.

Forward-Looking Statements
This press release contains forward-looking statements, including statements regarding the company's anticipated future growth and future financial performance, as well as statements containing the words "anticipates," "believes," "plans," "will," "expects," or "guidance" 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 commerce market; challenges associated with international expansion; our ability to successfully complete senior management succession plans; the variability of foreign exchange rates; any breach or compromise of the company's security systems; our ability to successfully manage our business while undertaking significant internal investments; our ability to execute upon our payments strategy and expand our business in this sector; 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, 2011. 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 for fiscal 2013 reflect management's expectations as of Feb. 6, 2013. 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.
Fourth Quarter Results
(In thousands, except share data)
Subject to reclassification
    
Consolidated Balance Sheets(Unaudited)
December 31,December 31,
20122011

Assets

Current assets
Cash and cash equivalents$542,851$497,193
Short-term investments162,794223,349
Accounts receivable, net of allowance of $5,400 and $4,61360,65664,811
Deferred tax assets4578,532
Prepaid expenses and other 33,714  35,719 
Total current assets800,472829,604
Property and equipment, net53,26551,537
Goodwill108,960281,858
Intangible assets, net of accumulated amortization of $91,059 and $85,54211,71818,324
Long-term investments71,73599,047
Deferred income taxes1,72421,433
Other assets 4,342  8,973 
Total assets$1,052,216 $1,310,776 

Liabilities and stockholders' equity

Current liabilities
Accounts payable$205,377$243,410
Accrued payroll11,63017,523
Deferred revenue13,4268,633
Other accrued liabilities 51,640  42,577 
Total current liabilities282,073312,143
Non-current liabilities
Convertible senior notes309,909353,805
Other liabilities 18,236  12,556 
Total non-current liabilities 328,145  366,361 
Total liabilities 610,218  678,504 
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding--
Common stock, $.01 par value; 120,000,000 shares authorized; 48,941,402 and 47,248,765 shares issued489472
Treasury stock at cost; 13,581,889 and 11,741,310 shares(368,721)(340,946)
Additional paid-in capital737,500708,941
Retained earnings75,900271,769
Accumulated other comprehensive loss (3,170) (7,964)
Stockholders' equity 441,998  632,272 
Total liabilities and stockholders' equity$1,052,216 $1,310,776 
 

 
Digital River, Inc.
Fourth Quarter Results
(Unaudited, in thousands, except per share amounts)
Subject to reclassification
        
Consolidated Statements of Operations
 
Three months endedTwelve months ended
December 31,December 31,
2012201120122011
Revenue$101,335$112,024$386,222$398,140
Costs and expenses (exclusive of depreciation and amortization expense shown separately below):
Direct cost of services2,9903,80912,66115,491
Network and infrastructure14,45912,32753,56249,433
Sales and marketing41,40344,831162,201162,564
Product research and development16,41416,35563,51066,862
General and administrative19,55211,72958,38343,093
Goodwill impairment175,241-175,241-
Depreciation and amortization5,0495,55020,30722,207
Amortization of acquisition-related intangibles 1,766  11,529  7,067  18,040 
Total costs and expenses 276,874  106,130  552,932  377,690 
Income (loss) from operations (175,539) 5,894  (166,710) 20,450 
Interest income9121,3073,8206,100
Interest expense(2,212)(2,254)(8,968)(9,018)
Other income (expense), net 4,669  (1,948) 4,796  (1,921)
Income (loss) before income taxes(172,170)2,999(167,062)15,611
Income tax expense (benefit) 27,901  (1,340) 28,806  (1,556)
Net income (loss)$(200,071)$4,339 $(195,868)$17,167 
 
Net income (loss) per share - basic$(6.11)$0.12 $(5.90)$0.47 
Net income (loss) per share - diluted$(6.11)$0.12 $(5.90)$0.46 
Shares used in per share calculation - basic32,75234,75733,22436,778
Shares used in per share calculation - diluted32,75235,18533,22437,510
 
 
Calculation of GAAP Diluted Net Income (Loss) Per Share
 
Three months endedTwelve months ended
December 31,December 31,
2012201120122011
GAAP net income (loss)$(200,071)$4,339$(195,868)$17,167
Add back debt interest expense and issuance cost amortization, net of tax benefit -  19  -  78 
Adjusted net income (loss) for GAAP EPS calculation$(200,071)$4,358 $(195,868)$17,245 
 
Net income (loss) per share - diluted$(6.11)$0.12 $(5.90)$0.46 
Shares used in per share calculation - diluted32,75235,18533,224
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