Exhibit 99.1
Digital River Reports Second Quarter Financial Results
MINNEAPOLIS--(BUSINESS WIRE)--July 27, 2006--Digital River, Inc.
(NASDAQ:DRIV):
-- Q2 revenue up 39 percent year-over-year
-- Q2 GAAP diluted EPS up 15 percent year-over-year
-- Q2 non-GAAP diluted EPS up 41 percent year-over-year
Digital River, Inc. (NASDAQ:DRIV), a global leader in e-commerce
outsourcing, today reported its second quarter 2006 financial results.
Q2 Revenue
Second quarter revenue totaled $71.3 million, an increase of 39
percent from revenue of $51.1 million in the second quarter of 2005.
Q2 GAAP Results
Second quarter GAAP net income was $13.3 million, or $0.30 per
diluted share, including $3.5 million of stock-based compensation
expense. This compared to net income of $10.2 million, or $0.26 per
diluted share, including no stock-based compensation expense in the
second quarter of 2005. These results represent a year-over-year
increase of 30 percent in GAAP net income and 15 percent in GAAP
diluted net income per share.
Q2 Non-GAAP Results
Based on the Company's non-GAAP measurements, second quarter
non-GAAP net income was $18.7 million, or $0.41 per diluted share,
compared to net income, on a similar basis, of $12.1 million, or $0.29
per diluted share in the second quarter of 2005. This represents a
year-over-year increase of 54 percent in non-GAAP net income and 41
percent in non-GAAP diluted net income per share.
Non-GAAP net income is computed by starting with GAAP pre-tax
income as reported on the Company's statement of operations, adding
back amortization of acquisition-related intangibles, and beginning in
2006, stock-based compensation expense, to calculate non-GAAP pre-tax
income. This figure is then taxed at 31 percent, the Company's
anticipated 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 announcement.
Six Months Ended June 30, 2006, Revenue:
In the first half of 2006, the Company reported revenue of $149.3
million. This represents a 41 percent increase from revenue of $105.7
million in the similar period of the prior year.
Six Months Ended June 30, 2006, GAAP Results:
In the first half of 2006, GAAP net income was $29.7 million, or
$0.70 per diluted share, including $6.9 million of stock-based
compensation expense. This compared to net income of $24.3 million, or
$0.61 per diluted share, including no stock-based compensation expense
in the first half of 2005.
Six Months Ended June 30, 2006, Non-GAAP Results:
Based on the Company's non-GAAP measurements, non-GAAP net income
in the first half of 2006 was $39.4 million, or $0.91 per diluted
share, compared to net income on a similar basis of $26.8 million, or
$0.65 per diluted share in the first half of 2005.
"We are pleased with our solid second quarter results," said Joel
Ronning, Digital River's CEO. "During last quarter, we continued to
excel in global online markets, winning new business, and expanding
our footprint and infrastructure. The ability to manage complex global
online operations and our expertise in marketing to local online
shoppers in worldwide geographies have proven to be the most
compelling differentiators for Digital River in the market today.
"We have secured significant incremental business from major
clients and expect to be awarded more. We plan to provide additional
details on these wins in the near future," continued Ronning. "We
believe this new business represents a strong endorsement of our value
proposition and core business model, and will fuel growth in 2007 and
beyond."
Q3 2006 Guidance
Forward-looking guidance for the third quarter ending September
30, 2006, is as follows:
-- Revenue of $74.0 million;
-- GAAP diluted net income per share of $0.31, including
stock-based compensation expense of $3.6 million; and
-- Non-GAAP diluted net income per share of $0.38.
Full Year 2006 Guidance
Forward-looking guidance for the full year ending December 31,
2006, is as follows:
-- Revenue of $305 million;
-- GAAP diluted net income per share of $1.37, including
stock-based compensation expense of $14.1 million; and
-- Non-GAAP diluted net income per share of $1.74.
Digital River will hold a second quarter conference call today at
4:45 p.m. Eastern Daylight Time. A live webcast of the conference call
can be accessed from http://www.digitalriver.com/2006q2earnings/.
Alternatively, a live broadcast of the call may be heard by using
conference ID # 7600156 and dialing 888-896-0863 inside the United
States or Canada, or by calling 973-582-2741 from international
locations. A webcast replay of the call will be archived on the
Company's corporate Web site.
About Digital River, Inc.
Digital River, Inc., a global leader in e-commerce outsourcing,
builds and manages online businesses for more than 40,000 software
publishers, manufacturers, distributors and online retailers. 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; and
Tokyo, Japan. 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 the expansion of its global business infrastructure, and
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; 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, 2005. 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 third quarter 2006 and
full year 2006 reflect Digital River's expectations as of July 27,
2006. 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 and other factors. The guidance assumes,
among other things, that there are no changes to stock-based
compensation expense and anticipated tax rates, and that no additional
intangible assets are recorded. 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
Condensed Consolidated Balance Sheets As of
June 30, December 31,
-------------------------
2006 2005
------------ ------------
Assets
- ------
Current assets
Cash and cash equivalents $300,449 $131,770
Short-term investments 236,766 220,569
Accounts receivable, net 38,116 34,883
Deferred income taxes 18,065 22,251
Prepaid expenses and other 7,581 3,741
------------ ------------
Total current assets 600,977 413,214
Property and equipment, net 26,212 17,955
Goodwill 237,025 195,299
Intangible assets, net 26,644 20,054
Deferred income taxes 4,132 10,444
Other assets 12,001 12,174
------------ ------------
Total assets $906,991 $669,140
============ ============
Liabilities and stockholders' equity
- ------------------------------------
Current liabilities
Accounts payable $120,298 $127,846
Accrued payroll 7,724 8,866
Deferred revenue 6,825 5,403
Accrued acquisition costs 7,312 5,651
Other accrued liabilities 32,697 21,210
------------ ------------
Total current liabilities 174,856 168,976
Non-current liabilities
Convertible senior notes 195,000 195,000
Deferred income taxes - 22
------------ ------------
Total non-current liabilities 195,000 195,022
------------ ------------
Total liabilities 369,856 363,998
------------ ------------
Stockholders' equity
Common stock 397 350
Additional paid-in capital 508,809 315,489
Deferred compensation - (1,942)
Retained earnings/(accumulated deficit) 23,342 (6,324)
Accumulated other comprehensive
income/(loss) 4,587 (2,431)
------------ ------------
Total stockholders' equity 537,135 305,142
------------ ------------
Total liabilities and stockholders' equity $906,991 $669,140
============ ============
Digital River, Inc.
Second Quarter Results
(Unaudited, in thousands, except per share amounts)
Subject to reclassification
Condensed Consolidated Statements of Operations
Three months ended Six months ended
June 30, June 30,
------------------ -------------------
2006 2005 2006 2005
--------- -------- --------- ---------
Revenue $71,277 $51,143 $149,291 $105,672
Costs and expenses:
Direct cost of services 1,914 1,187 3,777 2,488
Network and infrastructure 6,298 4,738 13,741 9,216
Sales and marketing 27,628 15,740 54,567 32,116
Product research and
development 7,488 5,127 15,090 9,585
General and administrative 8,247 5,301 16,497 10,917
Depreciation and amortization 2,475 2,375 4,728 4,497
Amortization of acquisition-
related intangibles 3,038 2,110 5,878 4,506
--------- -------- --------- ---------
Total costs and expenses 57,088 36,578 114,278 73,325
--------- -------- --------- ---------
Income from operations 14,189 14,565 35,013 32,347
--------- -------- --------- ---------
Other income, net 6,392 891 9,327 2,046
--------- -------- --------- ---------
Income before income tax
expense 20,581 15,456 44,340 34,393
Income tax expense 7,292 5,230 14,674 10,130
--------- -------- --------- ---------
Net income $13,289 $10,226 $29,666 $24,263
========= ======== ========= =========
Net income per share - basic $0.34 $0.30 $0.79 $0.71
========= ======== ========= =========
Net income per share - diluted $0.30 $0.26 $0.70 $0.61
========= ======== ========= =========
Shares used in per share
calculation - basic 39,452 34,176 37,386 34,097
Shares used in per share
calculation - diluted 45,458 41,154 43,319 41,347
Calculation of GAAP Diluted Net Income Per Share
Three months ended Six months ended
June 30, June 30,
------------------ -------------------
2006 2005 2006 2005
--------- -------- --------- ---------
GAAP net income $13,289 $10,226 $29,666 $24,263
Add back debt interest expense
and issuance cost
amortization, net of tax
benefit 435 457 870 969
--------- -------- --------- ---------
Adjusted net income for GAAP
EPS calculation $13,724 $10,683 $30,536 $25,232
========= ======== ========= =========
Net income per share - diluted $0.30 $0.26 $0.70 $0.61
========= ======== ========= =========
Shares used in per share
calculation - diluted 45,458 41,154 43,319 41,347
Digital River, Inc.
Second Quarter Results
(Unaudited, in thousands)
Subject to reclassification
Condensed Consolidated Statements of Cash Flows
Six months ended June 30,
-------------------------
2006 2005
------------ ------------
Operating Activities:
- ---------------------
Net income $29,666 $24,263
Adjustments to reconcile net income to
net cash provided by operating
activities:
Amortization of acquisition-related
intangibles 5,878 4,506
Change in accounts receivable
allowance, net of acquisitions 126 (390)
Depreciation and amortization 4,728 4,497
Stock-based compensation expense
related to stock-based compensation
plans 6,932 -
Tax benefit of stock-based
compensation - 6,269
Excess tax benefit from stock-based
compensation (2,705) -
Deferred and other income taxes 12,679 3,870
Change in operating assets and
liabilities (net of acquisitions):
Accounts receivable (622) 1,392
Prepaid and other assets (2,538) (475)
Accounts payable (14,263) (6,705)
Deferred revenue 553 633
Income tax payable 919 3,651
Accrued payroll and other accrued
liabilities 2,624 (3,056)
------------ ------------
Net cash provided by operating
activities 43,977 38,455
------------ ------------
Investing Activities:
- ---------------------
Purchases of investments (103,413) (69,089)
Sales of investments 86,913 53,227
Cash paid for acquisitions, net of cash
received (37,235) (7,825)
Purchases of property, equipment and
capitalized software (9,162) (6,021)
------------ ------------
Net cash used in investing
activities (62,897) (29,708)
------------ ------------
Financing Activities:
- ---------------------
Proceeds from sale of common stock 172,700 -
Exercise of stock options 9,616 10,453
Sales of common stock under employee
stock purchase plan 933 1,488
Excess tax benefit from stock-based
compensation 2,705 -
Repurchase of common stock - (3,205)
------------ ------------
Net cash provided by financing
activities 185,954 8,736
------------ ------------
Effect of exchange rate changes on cash 1,645 (2,996)
------------ ------------
Net increase in cash and cash equivalents 168,679 14,487
Cash and cash equivalents, beginning of
period 131,770 127,734
------------ ------------
Cash and cash equivalents, end of period $300,449 $142,221
============ ============
------------ ------------
Cash paid for interest on Convertible
Senior Notes $1,219 $1,422
============ ============
Digital River, Inc.
GAAP to non-GAAP Reconciliations
(Unaudited, in thousands, except per share amounts)
Calculation of Historical non-GAAP Diluted Net Income Per Share
Three months ended
----------------------------------------------------
March 31, June 30, September 30, December 31,
2005 2005 2005 2005
----------------------------------------------------
GAAP pre-tax
income $18,937 $15,456 $17,058 $20,229
Add back:
amortization
of
acquisition-
related
intangibles 2,396 2,110 2,089 2,135
Add back:
stock-based
compensation
expense - - - -
----------------------------------------------------
Non-GAAP pre-tax
income 21,333 17,566 19,147 22,364
Income tax
expense @ 31% 6,613 5,445 5,936 6,933
----------------------------------------------------
Non-GAAP net
income $14,720 $12,121 $13,211 $15,431
====================================================
Non-GAAP net
income per share
- diluted $0.36 $0.29 $0.31 $0.37
====================================================
Shares used in
per share
calculation -
diluted 41,454 41,154 41,972 41,244
Twelve months
ended
-------------
December 31,
2005
-------------
GAAP pre-tax income $71,680
Add back: amortization of acquisition-related
intangibles 8,730
Add back: stock-based compensation expense -
-------------
Non-GAAP pre-tax income 80,410
Income tax expense @ 31% 24,927
-------------
Non-GAAP net income $55,483
=============
Non-GAAP net income per share - diluted $1.34
=============
Shares used in per share calculation - diluted 41,448
Three months ended Six months ended
------------------------- ----------------
March 31, June 30, June 30,
2006 2006 2006
------------------------- ----------------
GAAP pre-tax
income $23,759 $20,581 $44,340
Add back:
amortization
of
acquisition-
related
intangibles 2,840 3,038 5,878
Add back:
stock-based
compensation
expense 3,413 3,519 6,932
------------------------- ----------------
Non-GAAP pre-tax
income 30,012 27,138 57,150
Income tax
expense @ 31% 9,304 8,413 17,717
------------------------- ----------------
Non-GAAP net
income $20,708 $18,725 $39,433
========================= ================
Non-GAAP net
income per share
- diluted $0.50 $0.41 $0.91
========================= ================
Shares used in
per share
calculation -
diluted 41,154 45,458 43,319
Breakdown of
stock-based
compensation
expense
Three months ended Six months ended
------------------------- ----------------
March 31, June 30, June 30,
2006 2006 2006
------------------------- ----------------
Direct cost of
services $214 $218 $432
Network and
infrastructure 86 84 170
Sales and
marketing 1,289 1,323 2,612
Product
research and
development 585 591 1,176
General and
administrative 1,239 1,303 2,542
------------------------- ----------------
Total $3,413 $3,519 $6,932
========================= ================
Non-GAAP Guidance Reconciliation
Q3 - 2006 FY-2006
Guidance Guidance
-------------- --------------
Expected GAAP net income per
share - diluted $0.31 $1.37
Add back amortization of
acquisition-related costs 0.07 0.27
Add back stock-based
compensation expense 0.08 0.32
Tax benefit of amortization and
stock-based compensation (0.07) (0.18)
Deduct impact of contingent
convertible notes (0.01) (0.04)
-------------- --------------
Expected non-GAAP diluted net
income per share $0.38 $1.74
============== ==============
CONTACT: Digital River, Inc., Minneapolis
Investor Contact:
Bob Kleiber, 952-540-3024
bkleiber@digitalriver.com
or
Media Contact:
Gerri Dyrek, 952-253-8396
gdyrek@digitalriver.com