Digital River (DRIV) 8-K Digital River Reports Second Quarter 2011 Financial Results

Exhibit 99.1

Digital River Reports Second Quarter 2011 Financial Results

MINNEAPOLIS--(BUSINESS WIRE)--July 28, 2011--Digital River, Inc. (NASDAQ: DRIV), a leading provider of global e-commerce solutions, reports its second quarter financial results.

Second Quarter Ended June 30, 2011
GAAP Results
Second quarter revenue totaled $92.5 million, in line with management’s guidance. This compared to revenue of $81.8 million during the same period in 2010.

Second quarter GAAP net income was $291 thousand, or $0.01 per diluted share, which compared to a GAAP net loss of $2.5 million, or $0.07 per share, in the second quarter of 2010. These results exceeded management’s second quarter guidance of a net loss of $0.01 per share.

Non-GAAP Results
Second quarter non-GAAP net income was $6.4 million, or $0.17 per diluted share. This compared to non-GAAP net income of $3.3 million, or $0.09 per diluted share, in the second quarter of 2010. The company’s results exceeded management’s second quarter earnings guidance of $0.15 per diluted share.

Non-GAAP net income 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, unrealized investment gain or loss and restructuring costs, 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 7,022,027, 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.

“I am pleased to report we delivered a solid second quarter, significantly improving all earnings measures compared to last year,” said Joel Ronning, Digital River’s CEO. “While we have a cautious outlook for the second half of the year, we remain optimistic about our long-term growth opportunities. We have not seen a time of greater industry transformation or opportunity. We fully intend to leverage this period to our advantage by expanding existing client relationships, pursuing new markets and capitalizing on new product innovation.”

2011 Guidance
Management’s forward-looking financial expectations for the remainder of the 2011 fiscal year are as follows:

For the third quarter ending Sept. 30, 2011, management currently expects:

• Revenue of $94 million;
• GAAP diluted net income per share of $0.09, using GAAP weighted average diluted shares outstanding of 38.4 million and assuming a 19 percent tax rate; and
• Non-GAAP diluted net income per share of $0.24, using non-GAAP weighted average diluted shares outstanding of 45.6 million and assuming a 21 percent tax rate.

For the fourth quarter ending Dec. 31, 2011, management currently expects:

• Revenue of $108 million;
• GAAP diluted net income per share of $0.26, using GAAP weighted average diluted shares outstanding of 46.1 million and assuming a 19 percent tax rate; and
• Non-GAAP diluted net income per share of $0.39, using non-GAAP weighted average diluted shares outstanding of 46.1 million and assuming a 21 percent tax rate.

For the full year ending Dec. 31, 2011, management currently expects:

• Revenue of $393 million, which compares to previous guidance of $405.5 million;
• GAAP diluted net income of $0.56 per share, using GAAP weighted average diluted shares outstanding of 38.6 million and assuming a 19 percent tax rate. This compares to previous guidance of $0.58 per share and a 21 percent tax rate; and
• Non-GAAP diluted net income of $1.12 per share, using non-GAAP weighted average diluted shares outstanding of 45.6 million and assuming a 21 percent tax rate. This compares to previous guidance of $1.15 per share.

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 #77845628 and dialing (877) 303-3145 inside the United States or Canada, or by calling +1 (408) 427-3861 from international locations. A webcast replay of the call will be archived on Digital River’s corporate website.

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 website, follow the company on Twitter 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 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, 2010. 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 report on Form 10-K, each as it may be amended from time-to-time.

The forward-looking statements for the remainder of fiscal 2011 reflect management’s expectations as of July 28, 2011. 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.
Second Quarter Results
(Unaudited, in thousands)
Subject to reclassification
Consolidated Balance Sheets
	June 30,			December 31,
	2011			2010
Assets
Current assets
Cash and cash equivalents	$	432,454		$	565,086
Short-term investments		276,200			163,029
Accounts receivable, net of allowance of $4,347 and $4,902		55,803			50,922
Deferred tax assets		10,730			10,628
Prepaid expenses and other		36,578			30,375
Total current assets		811,765			820,040
Property and equipment, net		48,063			49,599
Goodwill		297,222			283,940
Intangible assets, net of accumulated amortization of $86,211 and $80,106		33,199			37,911
Long-term investments		109,055			110,736
Deferred income taxes		17,699			17,721
Other assets		11,315			13,820
Total assets	$	1,328,318		$	1,333,767
Liabilities and stockholders' equity
Current liabilities
Accounts payable	$	172,049		$	188,915
Accrued payroll		14,402			21,117
Deferred revenue		10,045			10,446
Accrued acquisition liabilities		-			1,615
Other accrued liabilities		39,958			58,083
Total current liabilities		236,454			280,176
Non-current liabilities
Convertible senior notes		353,805			353,805
Other liabilities		14,868			16,038
Total non-current liabilities		368,673			369,843
Total liabilities		605,127			650,019
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; 47,150,551 and 46,323,799 shares issued		471			463
Treasury stock at cost; 7,466,085 and 7,297,174 shares		(260,952	)		(255,196	)
Additional paid-in capital		696,775			683,307
Retained earnings		261,912			254,602
Accumulated other comprehensive income		24,985			572
Total stockholders' equity		723,191			683,748
Total liabilities and stockholders' equity	$	1,328,318		$	1,333,767

Digital River, Inc.
Second Quarter Results
(Unaudited, in thousands, except per share amounts)
Subject to reclassification
Consolidated Statements of Operations
	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Revenue	$	92,520		$	81,832		$	190,705		$	180,558
Costs and expenses (exclusive of depreciation and
amortization expense shown separately below):
Direct cost of services		3,856			4,356			8,019			8,993
Network and infrastructure		12,477			12,118			25,089			23,550
Sales and marketing		39,492			36,159			77,198			77,209
Product research and development		18,106			16,221			33,726			31,910
General and administrative		10,867			10,766			21,623			21,595
Depreciation and amortization		5,559			6,095			10,964			11,576
Amortization of acquisition-related intangibles		2,205			1,612			4,327			3,093
Total costs and expenses		92,562			87,327			180,946			177,926
Income (loss) from operations		(42	)		(5,495	)		9,759			2,632
Interest income		1,753			608			3,228			1,372
Interest expense		(2,243	)		(55	)		(4,500	)		(122	)
Other income, net		672			55			538			907
Income (loss) before income taxes		140			(4,887	)		9,025			4,789
Income tax expense (benefit)		(151	)		(2,407	)		1,715			302
Net income (loss)	$	291		$	(2,480	)	$	7,310		$	4,487
Net income (loss) per share - basic	$	0.01		$	(0.07	)	$	0.20		$	0.12
Net income (loss) per share - diluted	$	0.01		$	(0.07	)	$	0.19		$	0.12
Shares used in per share calculation - basic		37,436			37,577			37,415			37,548
Shares used in per share calculation - diluted		37,981			37,577			38,105			38,345
Calculation of GAAP Diluted Net Income Per Share
	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
GAAP net income (loss)	$	291		$	(2,480	)	$	7,310		$	4,487
Add back debt interest expense and issuance cost
amortization, net of tax benefit		-			-			-			42
Adjusted net income (loss) for GAAP EPS calculation	$	291		$	(2,480	)	$	7,310		$	4,529
Net income (loss) per share - diluted	$	0.01		$	(0.07	)	$	0.19		$	0.12
Shares used in per share calculation - diluted		37,981			37,577			38,105			38,345

Digital River, Inc.
Second Quarter Results
(Unaudited, in thousands)
Subject to reclassification
Consolidated Statements of Cash Flows
	Six months ended June 30,
	2011			2010
Operating Activities
Net income	$	7,310		$	4,487
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of acquisition-related intangibles		4,327			3,093
Provision for doubtful accounts		684			1,769
Depreciation and amortization		10,964			11,576
Debt issuance cost amortization		998			-
Stock-based compensation expense		10,686			9,998
Excess tax benefits from stock-based compensation		(1,474	)		(502	)
Deferred and other income taxes		1,151			(231	)
Change in operating assets and liabilities (net of acquisitions):
Accounts receivable		(3,754	)		8,347
Prepaid and other assets		(2,236	)		1,555
Accounts payable		(23,684	)		(49,686	)
Deferred revenue		(675	)		(14	)
Income tax payable		(1,939	)		2,680
Other accrued liabilities		(29,241	)		(15,264	)
Net cash used in operating activities		(26,883	)		(22,192	)
Investing Activities
Purchases of investments		(191,634	)		(33,155	)
Sales of investments		83,646			20,150
Cash paid for acquisitions, net of cash received		-			(8,950	)
Purchases of equipment and capitalized software		(9,136	)		(10,291	)
Net cash used in investing activities		(117,124	)		(32,246	)
Financing Activities
Debt issuance costs		(342	)		-
Exercise of stock options		315			866
Sales of common stock under employee stock purchase plan		1,251			1,138
Repurchase of restricted stock to satisfy tax withholding obligation		(5,756	)		(3,119	)
Excess tax benefits from stock-based compensation		1,474			502
Net cash used in financing activities		(3,058	)		(613	)
Effect of exchange rate changes on cash		14,433			(25,866	)
Net decrease in cash and cash equivalents		(132,632	)		(80,917	)
Cash and cash equivalents, beginning of period		565,086			392,704
Cash and cash equivalents, end of period	$	432,454		$	311,787
Cash paid for interest on convertible senior notes	$	3,505		$	55
Cash paid for income taxes	$	2,275		$	2,754

Digital River, Inc.
GAAP to non-GAAP Reconciliations
(Unaudited, in thousands, except per share amounts)
UTILIZING 21% EFFECTIVE INCOME TAX RATE
										Twelve months
	Three months ended									ended
	March 31,		June 30,			September 30,		December 31,		December 31,
	2010		2010			2010		2010		2010
GAAP pre-tax income (loss)	$	9,676	$	(4,887	)	$	1,093	$	7,391	$	13,273
Add back amortization of acquisition-related intangibles		1,481		1,612			2,188		2,564		7,845
Add back stock-based compensation expense		4,476		5,522			5,280		5,495		20,773
Add back unrealized investment gain/loss		-		-			1,562		626		2,188
Add back restructuring related costs		-		1,870			443		-		2,313
Non-GAAP pre-tax income		15,633		4,117			10,566		16,076		46,392
Income tax expense @ 21%		3,283		865			2,218		3,376		9,742
Non-GAAP net income		12,350		3,252			8,348		12,700		36,650
Add back debt interest expense and issuance cost
amortization, net of tax benefit		21		21			21		937		1,000
Adjusted net income for non-GAAP EPS calculation	$	12,371	$	3,273		$	8,369	$	13,637	$	37,650
Non-GAAP net income per share - diluted	$	0.32	$	0.09		$	0.22	$	0.32	$	0.95
Shares used in per share calculation - diluted		38,220		38,351			38,504		43,085		39,512
										Six months
	Three months ended									ended
	March 31,		June 30,							June 30,
	2011		2011							2011
GAAP pre-tax income	$	8,885	$	140						$	9,025
Add back amortization of acquisition-related intangibles		2,122		2,205							4,327
Add back stock-based compensation expense		4,955		5,731							10,686
Subtotal		15,962		8,076							24,038
Income tax expense @ 21%		3,352		1,696							5,048
Non-GAAP net income		12,610		6,380							18,990
Add back debt interest expense and issuance cost
amortization, net of tax benefit		1,420		20							2,833
Adjusted net income for non-GAAP EPS calculation	$	14,030	$	6,400						$	21,823
Non-GAAP net income per share - diluted	$	0.31	$	0.17						$	0.48
Shares used in per share calculation - diluted		45,276		38,181							45,327
Breakdown of stock-based compensation expense
										Six months
	Three months ended									ended
	March 31,		June 30,							June 30,
	2011		2011							2011
Direct cost of services	$	115	$	118						$	233
Network and infrastructure		247		345							592
Sales and marketing		1,760		2,116							3,876
Product research and development		710		781							1,491
General and administrative		2,123		2,371							4,494
Total	$	4,955	$	5,731						$	10,686

Digital River, Inc.
Non-GAAP Guidance
(Unaudited, in thousands, except per share amounts)
Non-GAAP Guidance Reconciliation
	Q3 - 2011			Full Year 2011
	Guidance			Guidance
Expected GAAP net income per share - diluted	$	0.09		$	0.56
Add back amortization of acquisition-related costs, net of tax		0.05			0.18
Add back stock-based compensation expense, net of tax		0.12			0.45
Convertible debt dilution impact, net of tax		(0.02	)		(0.07	)
Expected non-GAAP diluted net income per share	$	0.24		$	1.12
Projected Shares Used in Per Share Calculation
	Three months			Twelve months
	ended			ended
	September 30,			December 31,
	2011			2011
Shares used in per share calculation - GAAP diluted		38,427			38,555
Shares used in per share calculation - non-GAAP diluted		45,649			45,577

CONTACT:
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
Group Vice President, Corporate Communications
gdyrek@digitalriver.com