Digital River Reports Fourth Quarter and Full Year 2012 Financial Results

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,

2012

2011

Assets

Current assets

Cash and cash equivalents

$

542,851

$

497,193

Short-term investments

162,794

223,349

Accounts receivable, net of allowance of $5,400 and $4,613

60,656

64,811

Deferred tax assets

457

8,532

Prepaid expenses and other

33,714

35,719

Total current assets

800,472

829,604

Property and equipment, net

53,265

51,537

Goodwill

108,960

281,858

Intangible assets, net of accumulated amortization of $91,059 and $85,542

11,718

18,324

Long-term investments

71,735

99,047

Deferred income taxes

1,724

21,433

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 payroll

11,630

17,523

Deferred revenue

13,426

8,633

Other accrued liabilities

51,640

42,577

Total current liabilities

282,073

312,143

Non-current liabilities

Convertible senior notes

309,909

353,805

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 issued

489

472

Treasury stock at cost; 13,581,889 and 11,741,310 shares

(368,721

)

(340,946

)

Additional paid-in capital

737,500

708,941

Retained earnings

75,900

271,769

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 ended

Twelve months ended

December 31,

December 31,

2012

2011

2012

2011

Revenue

$

101,335

$

112,024

$

386,222

$

398,140

Costs and expenses (exclusive of depreciation and amortization expense shown separately below):

Direct cost of services

2,990

3,809

12,661

15,491

Network and infrastructure

14,459

12,327

53,562

49,433

Sales and marketing

41,403

44,831

162,201

162,564

Product research and development

16,414

16,355

63,510

66,862

General and administrative

19,552

11,729

58,383

43,093

Goodwill impairment

175,241

-

175,241

-

Depreciation and amortization

5,049

5,550

20,307

22,207

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 income

912

1,307

3,820

6,100

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 - basic

32,752

34,757

33,224

36,778

Shares used in per share calculation - diluted

32,752

35,185

33,224

37,510

Calculation of GAAP Diluted Net Income (Loss) Per Share

Three months ended

Twelve months ended

December 31,

December 31,

2012

2011

2012

2011

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 - diluted

32,752

35,185

33,224