Digital River (DRIV) 8-K Digital River Meets Fourth Quarter and Full Year Earnings Expectations

Exhibit 99.1

Digital River Meets Fourth Quarter and Full Year Earnings Expectations

MINNEAPOLIS--(BUSINESS WIRE)--Digital River, Inc. (NASDAQ: DRIV), a leading provider of global e-commerce solutions, reports its fourth quarter and full year 2007 financial results.

Fourth Quarter and Full Year Ended Dec. 31, 2007

GAAP Results

Fourth quarter revenue totaled $96.9 million, an increase of 17 percent from the same period in 2006 and was in line with management’s guidance. In the fourth quarter of 2006, revenue was $83.0 million. For full year 2007, revenue was $349.3 million, an increase of 14 percent from revenue of $307.6 million in 2006.

Fourth quarter GAAP net income was $20.3 million, or $0.46 per diluted share and compared to GAAP net income of $16.4 million or $0.36 per diluted share in the fourth quarter of 2006. On a per share basis, net income increased 28 percent from 2006. For the full year, GAAP net income was $70.8 million, or $1.58 per diluted share, slightly ahead of management’s guidance. This compared to GAAP net income of $60.8 million, or $1.40 per diluted share during the same period in 2006.

Non-GAAP Results

Fourth quarter non-GAAP net income was $24.0 million or $0.53 per diluted share and compared to net income of $21.6 million, or $0.47 per diluted share in the fourth quarter of 2006. Non-GAAP net income for the full year was $85.8 million, or $1.87 per diluted share. This compared to non-GAAP net income of $79.7 million, or $1.79 per diluted share in 2006.

Non-GAAP net income is computed by starting with GAAP pre-tax income as reported on the Company’s statement of operations, 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 31 percent, the Company’s current estimated effective tax rate, to arrive at non-GAAP net income. This amount is then divided by fully-diluted GAAP shares outstanding, which includes the impact of the Company’s contingent convertible 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.

“For the fourth quarter and full year 2007, we reported financial results clearly in line with our expectations. Our core software business continues to deliver strong growth across a more diversified base of global clients,” said Joel Ronning, Digital River’s CEO. “In 2008, we intend to advance our e-commerce leadership position by making investments in our company. These investments will improve the efficiency of our business and accelerate growth in complementary markets where we see substantial opportunities.”

In 2008, Digital River plans to re-invest in its business incremental profits of approximately $20 million, and an additional $10 million in capital. By making these investments, the company intends to advance its core software business; accelerate growth in consumer electronics and games; and enhance technologies in reporting, payments and subscriptions.

“These investments, which are reflected in today’s initial 2008 outlook, will take place throughout the year and are expected to begin to provide leverage in the third and fourth quarters,” Ronning added. “With a solid financial position, strong core business and significant prospects in new vertical markets, this is an opportune time to make these investments.”

2008 Guidance

Forward-looking guidance for the period ending Mar. 31, 2008, is as follows:

First Quarter

• Revenue of $98.5 million;
• GAAP diluted net income per share of $0.40, including stock-based compensation expense of $3.4 million; and
• Non-GAAP diluted net income per share of $0.48.

Forward-looking guidance for the period ending Dec. 31, 2008, is as follows:

Full Year

• Revenue of $395 million;
• GAAP diluted net income per share of $1.58, including stock-based compensation expense of $14.0 million; and
• Non-GAAP diluted net income per share of $1.88.

Digital River will hold a conference call today at 4:45 p.m. EST to discuss 2007 financial results, initial 2008 guidance, and its strategic investment plan. A live webcast of the conference call can be accessed from http://www.digitalriver.com/2007/q4earnings/. Alternatively, a live broadcast of the call may be heard by using conference ID #30605189 and dialing (888) 218-6314 inside the United States or Canada, or by calling (706) 634-9714 from international locations. 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 more than 40,000 software publishers, consumer technology 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 prevention, 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 in major U.S. cities as well as Cologne, Germany; London, England; Shannon, Ireland; Luxembourg, Luxembourg; Taipei, Taiwan; Tokyo, Japan; and Shanghai, China. For more details about Digital River, visit the corporate Web site at www.digitalriver.com or call 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 limited operating history and variability of operating results; competition in the e-commerce market; challenges associated with international expansion; potential consequences surrounding findings of our internal investigation, investigation by a committee of our independent directors and informal SEC inquiry into our stock option granting practices; any potential civil litigation relating to our stock option granting practices; our ability to successfully manage our business while undertaking significant internal investments; 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 December 31, 2006. 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 regarding first quarter and full year 2008 reflect Digital River’s expectations as of January 31, 2008. Results may be materially affected by many factors, such as changes in global economic conditions 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
(Unaudited, in thousands)
Subject to reclassification
Condensed Consolidated Balance Sheets	As of
	December 31,		December 31,
	2007		2006
Assets
Current assets
Cash and cash equivalents	$	381,788	$	390,243
Short-term investments		315,636		235,699
Accounts receivable, net		64,914		52,392
Deferred income taxes		7,899		19,687
Prepaid expenses and other		4,577		6,025
Total current assets		774,814		704,046
Property and equipment, net		31,102		24,079
Goodwill		261,885		243,799
Intangible assets, net		32,382		21,106
Deferred income taxes		15,606		1,276
Other assets		11,955		11,957
Total assets	$	1,127,744	$	1,006,263
Liabilities and stockholders' equity
Current liabilities
Accounts payable	$	180,386	$	141,386
Accrued payroll		12,704		12,097
Deferred revenue		10,384		7,040
Accrued acquisition liabilities		399		5,654
Other accrued liabilities		41,229		39,982
Total current liabilities		245,102		206,159
Non-current liabilities
Convertible senior notes		195,000		195,000
Other liabilities		11,362		1,345
Total non-current liabilities		206,362		196,345
Total liabilities		451,464		402,504
Stockholders' equity
Common stock		405		404
Additional paid-in capital		576,529		546,758
Retained earnings		68,413		44,989
Accumulated other comprehensive income		30,933		11,608
Stockholders' equity		676,280		603,759
Total liabilities and stockholders' equity	$	1,127,744	$	1,006,263

Digital River, Inc.
Fourth Quarter Results
(Unaudited, in thousands, except per share amounts)
Subject to reclassification
Condensed Consolidated Statements of Operations
	Three months ended December 31,						Twelve months ended December 31,
	2007			2006			2007			2006
Revenue	$	96,878		$	83,004		$	349,275		$	307,632
Costs and expenses:
Direct cost of services		2,245			2,020			10,243			7,709
Network and infrastructure		9,497			7,748			32,309			29,250
Sales and marketing		34,474			30,444			134,401			113,462
Product research and development		12,122			8,913			39,179			32,341
General and administrative		10,226			9,607			38,937			34,158
Depreciation and amortization		3,437			3,312			12,706			10,983
Amortization of acquisition-related intangibles		1,622			2,943			7,586			12,134
Total costs and expenses		73,623			64,987			275,361			240,037
Income from operations		23,255			18,017			73,914			67,595
Interest income		8,191			7,191			32,167			22,836
Other expense, net		(1,558	)		(435	)		(3,006	)		(949	)
Income before income tax expense		29,888			24,773			103,075			89,482
Income tax expense		9,572			8,417			32,261			28,672
Net income	$	20,316		$	16,356		$	70,814		$	60,810
Net income per share - basic	$	0.51		$	0.41		$	1.75		$	1.58
Net income per share - diluted	$	0.46		$	0.36		$	1.58		$	1.40
Shares used in per share calculation - basic		40,164			40,024			40,444			38,593
Shares used in per share calculation - diluted		45,401			46,138			45,914			44,642
Calculation of GAAP Diluted Net Income Per Share
	Three months ended December 31,						Twelve months ended December 31,
	2007			2006			2007			2006
GAAP net income	$	20,316		$	16,356		$	70,814		$	60,810
Add back debt interest expense and issuance cost amortization, net of tax benefit		435			434			1,739			1,739
Adjusted net income for GAAP EPS calculation	$	20,751		$	16,790		$	72,553		$	62,549
Net income per share - diluted	$	0.46		$	0.36		$	1.58		$	1.40
Shares used in per share calculation - diluted		45,401			46,138			45,914			44,642

Digital River, Inc.
Fourth Quarter Results
(Unaudited, in thousands)
Subject to reclassification
Condensed Consolidated Statements of Cash Flows
	Twelve months ended December 31,
	2007			2006
Operating Activities:
Net income	$	70,814		$	60,810
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of acquisition-related intangibles		7,586			12,134
Change in accounts receivable allowance, net of acquisitions		(174	)		1,215
Depreciation and amortization		12,706			10,983
Stock-based compensation expense		13,742			13,904
Excess tax benefits from stock-based compensation		(12,030	)		(8,980	)
Deferred and other income taxes		27,522			19,583
Change in operating assets and liabilities (net of acquisitions):
Accounts receivable		(6,863	)		(14,678	)
Prepaid and other assets		1,325			(1,293	)
Accounts payable		32,181			3,701
Deferred revenue		3,046			811
Income tax payable		(7,076	)		8,126
Other accrued liabilities		3,609			11,190
Net cash provided by operating activities		146,388			117,506
Investing Activities:
Purchases of investments		(436,806	)		(193,609	)
Sales of investments		358,470			179,296
Cash paid for acquisitions, net of cash received		(31,625	)		(37,800	)
Purchases of equipment and capitalized software		(18,722	)		(15,907	)
Net cash used in investing activities		(128,683	)		(68,020	)
Financing Activities:
Proceeds from sales of common stock		-			172,780
Exercise of stock options		13,510			21,118
Sales of common stock under employee stock purchase plan		2,483			2,109
Repurchase of common stock		(62,968	)		-
Repurchase of restricted stock to satisfy tax withholding obligation		(528	)		(426	)
Excess tax benefits from stock-based compensation		12,030			8,980
Net cash (used in)/ provided by financing activities		(35,473	)		204,561
Effect of exchange rate changes on cash		9,313			4,426
Net (decrease)/ increase in cash and cash equivalents		(8,455	)		258,473
Cash and cash equivalents, beginning of period		390,243			131,770
Cash and cash equivalents, end of period	$	381,788		$	390,243
Cash paid for interest on Convertible Senior Notes	$	2,438		$	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
	Three months ended										Twelve months ended
	March 31,			June 30,		September 30,			December 31,		December 31,
	2006			2006		2006			2006		2006
GAAP pre-tax income	$	23,759		$	20,581	$	20,369		$	24,773	$	89,482
Add back: amortization of acquisition-related intangibles		2,840			3,038		3,313			2,943		12,134
Add back: stock-based compensation expense		3,413			3,519		3,456			3,516		13,904
Non-GAAP pre-tax income		30,012			27,138		27,138			31,232		115,520
Income tax expense @ 31%		9,304			8,413		8,413			9,682		35,812
Non-GAAP net income	$	20,708		$	18,725	$	18,725		$	21,550	$	79,708
Non-GAAP net income per share - diluted	$	0.50		$	0.41	$	0.41		$	0.47	$	1.79
Shares used in per share calculation - diluted		41,154			45,458		45,666			46,138		44,642
	Three months ended										Twelve months ended
	March 31,			June 30,		September 30,			December 31,		December 31,
	2007			2007		2007			2007		2007
GAAP pre-tax income	$	30,008		$	21,005	$	22,174		$	29,888	$	103,075
Add back: amortization of acquisition-related intangibles		2,746			1,607		1,611			1,622		7,586
Add back: stock-based compensation expense		3,476			3,649		3,411			3,206		13,742
Non-GAAP pre-tax income		36,230			26,261		27,196			34,716		124,403
Income tax expense @ 31%		11,231			8,141		8,431			10,762		38,565
Non-GAAP net income	$	24,999		$	18,120	$	18,765		$	23,954	$	85,838
Non-GAAP net income per share - diluted	$	0.54		$	0.39	$	0.41		$	0.53	$	1.87
Shares used in per share calculation - diluted		46,348			46,637		45,386			45,401		45,914
Breakdown of stock-based compensation expense
	Three months ended										Twelve months ended
	March 31,			June 30,		September 30,			December 31,		December 31,
	2007			2007		2007			2007		2007
Direct cost of services	$	195		$	225	$	223		$	164	$	807
Network and infrastructure		72			61		58			79		270
Sales and marketing		1,268			1,350		1,230			1,180		5,028
Product research and development		552			466		391			327		1,736
General and administrative		1,389			1,547		1,509			1,456		5,901
Total	$	3,476		$	3,649	$	3,411		$	3,206	$	13,742
Non-GAAP Guidance Reconciliation
	Q1 - 2008					FY - 2008
	Guidance					Guidance
Expected GAAP net income per share - diluted	$	0.40				$	1.58
Add back amortization of acquisition-related costs		0.05					0.18
Add back stock-based compensation expense		0.07					0.30
Tax variability		(0.03	)				(0.15	)
Deduct impact of contingent convertible notes		(0.01	)				(0.03	)
Expected non-GAAP diluted net income per share	$	0.48				$	1.88

CONTACT:
Digital River, Inc.
Investor Relations Contact:
Ed Merritt, 952-540-3362
Vice President, Investor Relations
emerritt@digitalriver.com
or
Media Relations Contact:
Gerri Dyrek, 952-253-8396
Director, Public Relations
gdyrek@digitalriver.com