Digital River Reports Second Quarter 2013 Financial Results

Digital River Reports Second Quarter 2013 Financial Results

Announces Investor Day on September 19th in New York City

  • Delivered second quarter revenue of $92.5 million, exceeding expectations;

  • Grew organic payments revenue at a 60-plus percent growth rate for the third consecutive quarter;

  • Reiterated 2013 full year revenue growth of two percent to five percent and non-GAAP EPS ranging from $0.55 to $0.65; raises full year GAAP guidance;

  • Continued to win and expand key customer relationships in commerce and payments; and

  • Made progress on strategic transformation to drive sustainable growth and value creation.

MINNEAPOLIS--(BUSINESS WIRE)-- Digital River, Inc. (NASDAQ: DRIV) today reported financial results for its second quarter of 2013.


Second Quarter Ended June 30, 2013
GAAP Results
Second quarter revenue totaled $92.5 million, compared to $90.8 million during the same period in 2012. This result exceeded management's second quarter revenue guidance of $89 to $92 million.

Second quarter GAAP net loss was $0.9 million or a net loss of $0.03 per share, which compared to GAAP net income of $0.2 million or $0.01 per diluted share in the second quarter of 2012. These results were improved by a realized gain from the sale of an investment and exceeded management's second quarter GAAP guidance, which ranged from a net loss of $0.31 to a net loss of $0.27 per share.

Non-GAAP Results
Second quarter non-GAAP net income was $1.4 million or $0.04 per diluted share, compared to $6.9 million, or $0.20 per diluted share in the second quarter of 2012. These results were in line with management's second quarter non-GAAP earnings guidance, which ranged from $0.01 to $0.04 per diluted share.

"We reported solid financial results in the second quarter, exceeding revenue expectations and delivering earnings at the high end of our guidance range. Our payments revenue continues to be a major contributor to our top line growth," said David Dobson, Digital River's CEO. "In addition, we made good progress on our strategic transformation, advancing toward an open API-driven commerce-as-a-service, expanding our partner ecosystem and preparing for the launch of a state-of-the-art data center to better serve our global customers. Our transformation is on track, and increasing the value we deliver for our customers and shareholders remains our top priority."

During the second quarter, the company repurchased approximately $20.1 million of common stock and $4.0 million of its two percent convertible notes. All transactions took place in the open market.

Third Quarter and Full Year 2013 Guidance
Management's forward-looking financial expectations for the third quarter of 2013 are as follows:

  • Revenue, ranging from $88 to $92 million;

  • GAAP net loss, ranging from a net loss of $0.38 to a net loss of $0.31 per share; and finally

  • Non-GAAP net loss, ranging from a net loss of $0.10 to a net loss of $0.05 per share, including a tax rate benefit of 21 percent.

Management's forward-looking financial expectations for the full year 2013 are as follows:

  • Revenue growth of two percent to five percent;

  • GAAP net loss, ranging from a net loss of $0.67 to a net loss of $0.54 per share. This is an improvement compared to the company's previous guidance, which ranged from a net loss of $0.90 to a net loss of $0.77 per share; and finally

  • Non-GAAP EPS, ranging from $0.55 to $0.65 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. EDT to discuss second quarter 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 15758804 and dialing +1 (408) 427-3861. A webcast replay of the call will be archived on Digital River's corporate website.

Investor Day
Digital River will host an investor day Thursday, Sept. 19, 2013, in New York City. Key members of Digital River's management team will deliver presentations beginning at 1:00 p.m. EDT. A live webcast of the event can be accessed at Digital River's website. A replay will be available after the event. Those interested in attending are asked to pre-register with Digital River. Space for the event is limited.

About Digital River, Inc.
Digital River, Inc. 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.

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, when applicable, amortization of acquisition-related intangibles, stock-based compensation expense, intangible impairments, restructuring related costs, litigation settlement related costs, acquisition and integration costs, realized and unrealized investment gains or losses, 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. In computing non-GAAP diluted earnings per share, if an increase in earnings per share will not result, 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 and payments markets; challenges associated with international expansion; 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, 2012. 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 July 30, 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 online payments, progress with key partners and other factors. The guidance assumes, among other things, that there are no material 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 or future guidance 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.

Second Quarter Results

(In thousands, except share data)

Subject to reclassification

Consolidated Balance Sheets

(Unaudited)

June 30,

December 31,

2013

2012

Assets

Current assets

Cash and cash equivalents

$

422,847

$

542,851

Short-term investments

147,351

162,794

Accounts receivable, net of allowance of $6,159 and $5,400

64,787

60,656

Deferred tax assets

416

457

Prepaid expenses and other

34,092

33,714

Total current assets

669,493

800,472

Property and equipment, net

56,200

53,265

Goodwill

138,307

108,960

Intangible assets, net of accumulated amortization of $94,765 and $91,059

33,747

11,718

Long-term investments

52,575

71,735

Deferred income taxes

888

1,724

Other assets

2,942

4,342

Total assets

$

954,152

$

1,052,216

Liabilities and stockholders' equity

Current liabilities

Accounts payable

$

134,553

$

205,377

Accrued payroll

14,140

11,630

Deferred revenue

13,550

13,426

Other accrued liabilities

61,717

51,640

Total current liabilities

223,960

282,073

Non-current liabilities

Convertible senior notes

304,555

309,909

Other liabilities

23,146

18,236

Total non-current liabilities

327,701

328,145

Total liabilities

551,661

610,218

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; 50,023,146 and 48,941,402 shares issued

500

489

Treasury stock at cost; 15,771,730 and 13,581,889 shares

(404,220

)

(368,721

)

Additional paid-in capital

751,898

737,499

Retained earnings

63,664

75,901

Accumulated other comprehensive loss

(9,351

)

(3,170

)

Stockholders' equity

402,491

441,998

Total liabilities and stockholders' equity

$

954,152

$

1,052,216

Digital River, Inc.

Second Quarter Results

(Unaudited, in thousands, except per share amounts)

Subject to reclassification

Consolidated Statements of Operations

Three months ended

Six months ended

June 30,

June 30,

2013

2012

2013

2012

Revenue

$

92,471

$

90,774

$

206,164

$

193,217

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

Direct cost of services

17,585

16,125

40,525

34,547

Network and infrastructure

14,490

12,932

29,751

25,689

Sales and marketing

27,222

27,204

58,056

55,932

Product research and development

18,156

15,416

35,955

31,419

General and administrative

14,293

11,414

32,921

23,584

Goodwill impairment

-

-

21,249

-

Depreciation and amortization

5,088

4,950

10,118

10,289

Amortization of acquisition-related intangibles

2,283

1,743

4,211

3,592

Total costs and expenses

99,117

89,784

232,786

185,052

Income (loss) from operations

(6,646

)

990

(26,622

)

8,165

Interest income

780

996

1,376

2,135

Interest expense

(1,964

)

(2,254

)

(3,942

)

(4,494

)

Other income (expense), net

6,100

1,030

17,014

733

Income (loss) before income taxes

(1,730

)

762

(12,174

)

6,539

Income tax expense (benefit)

(858

)

562

63

1,602

Net income (loss)

$

(872

)

$

200

$

(12,237

)

$

4,937

Net income (loss) per share - basic

$

(0.03

)

$

0.01

$

(0.37

)

$

0.15

Net income (loss) per share - diluted

$

(0.03

)

$

0.01

$

(0.37

)

$

0.15

Shares used in per share calculation - basic

32,478

33,453

32,816

33,629

Shares used in per share calculation - diluted

32,478

33,561

32,816

33,821

Calculation of GAAP Diluted Net Income (Loss) Per Share

Three months ended

Six months ended

June 30,

June 30,

2013

2012

2013

2012

GAAP net income (loss)

$

(872

)

$

200

$

(12,237

)

$

4,937

Add back debt interest expense and issuance cost amortization, net of tax benefit

-

-

-

-

Adjusted net income (loss) for GAAP EPS calculation

$

(872

)

$

200

$

(12,237

)

$

4,937

Net income (loss) per share - diluted

$

(0.03

)

$

0.01

$

(0.37

)

$

0.15

Shares used in per share calculation - diluted

32,478

33,561

32,816

33,821

Digital River, Inc.

Second Quarter Results

(Unaudited, in thousands)

Subject to reclassification

Consolidated Statements of Cash Flows

Six months ended

June 30,