Exhibit 99.1
Digital River Reports Third Quarter Financial Results
Q3 revenue up 42 percent year-over-year
MINNEAPOLIS--(BUSINESS WIRE)--Oct. 26, 2006--Digital River, Inc.
(NASDAQ:DRIV), a global leader in e-commerce outsourcing, today reported its
third quarter 2006 financial results.
Q3 Revenue
Third quarter revenue totaled $75.3 million, an increase of 42 percent from
revenue of $53.2 million in the third quarter of 2005.
Q3 GAAP Results
Third quarter GAAP net income was $14.8 million, or $0.33 per diluted
share, including $3.5 million of stock-based compensation expense. This compared
to net income of $12.4 million, or $0.31 per diluted share, including no
stock-based compensation expense in the third quarter of 2005. These results
represent a year-over-year increase of 20 percent in GAAP net income and 6
percent in GAAP diluted net income per share.
Q3 Non-GAAP Results
Based on the Company's non-GAAP measurements, third quarter non-GAAP net
income was $18.7 million, or $0.41 per diluted share, compared to net income, on
a similar basis, of $13.2 million, or $0.31 per diluted share in the third
quarter of 2005. This represents a year-over-year increase of 42 percent in
non-GAAP net income and 32 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 long-term 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.
"Our ability to execute on our business objectives contributed to our solid
third quarter financial performance and strong cash flows," said Joel Ronning,
Digital River's CEO. "The announcements this week of our expanded relationships
with Symantec and Microsoft serve as further testimony to our ability to grow
our business and deliver a compelling value proposition for our clients. We
believe we are well positioned to capitalize on growth opportunities before us
in 2007."
Nine Months Ended September 30, 2006, Revenue
For the nine month period ended September 30, 2006, the Company reported
revenue of $224.6 million. This represents a 41 percent increase from revenue of
$158.9 million in the similar period of the prior year.
Nine Months Ended September 30, 2006, GAAP Results
For the nine month period ended September 30, 2006, GAAP net income was
$44.5 million, or $1.04 per diluted share, including $10.4 million of
stock-based compensation expense. This compared to net income of $36.6 million,
or $0.92 per diluted share, including no stock-based compensation expense for
the same period in 2005.
Nine Months Ended September 30, 2006, Non-GAAP Results
Through September 30, 2006, based on the Company's non-GAAP measurements,
non-GAAP net income was $58.2 million, or $1.32 per diluted share, compared to
net income on a similar basis of $40.1 million, or $0.96 per diluted share for
the same period in 2005.
Q4 2006 Guidance
Forward-looking guidance for the fourth quarter ending December 31, 2006,
is as follows:
-- Revenue of $82.4 million;
-- GAAP diluted net income per share of $0.35, including stock-based
compensation expense of $3.6 million and a quarterly GAAP tax rate of
33 percent; and
-- Non-GAAP diluted net income per share of $0.46.
Full Year 2006 Guidance
Forward-looking guidance for the full year ending December 31, 2006, is as
follows:
-- Revenue of $307 million;
-- GAAP diluted net income per share of $1.39, including stock-based
compensation expense of $14.0 million; and
-- Non-GAAP diluted net income per share of $1.78.
Full Year 2007 Guidance
Forward-looking guidance for the full year ending December 31, 2007, is as
follows:
-- Revenue of $380 million;
-- GAAP diluted net income per share of $1.74, including stock-based
compensation expense of $15.3 million and an annual effective tax rate
of 32 percent; and
-- Non-GAAP diluted net income per share of $2.14.
Digital River will hold a third 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/2006q3earnings/. Alternatively, a live
broadcast of the call may be heard by using conference ID # 7953094 and dialing
800-922-0755 inside the United States or Canada, or by calling 973-935-2406 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 fourth quarter 2006 and full year
2006 and 2007 reflect Digital River's expectations as of October 26, 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.
Third Quarter Results
(Unaudited, in thousands)
Subject to reclassification
Condensed Consolidated Balance Sheets As of
September 30, December 31,
--------------------------
2006 2005
------------- ------------
Assets
- --------------------------------------------
Current assets
Cash and cash equivalents $335,676 $131,770
Short-term investments 240,643 220,569
Accounts receivable, net 39,698 34,883
Deferred income taxes 13,068 22,251
Prepaid expenses and other 5,380 3,741
------------- ------------
Total current assets 634,465 413,214
Property and equipment, net 24,127 17,955
Goodwill 238,305 195,299
Intangible assets, net 23,222 20,054
Deferred income taxes 4,132 10,444
Other assets 11,912 12,174
------------- ------------
Total assets $936,163 $669,140
============= ============
Liabilities and stockholders' equity
- --------------------------------------------
Current liabilities
Accounts payable $128,082 $127,846
Accrued payroll 12,848 8,866
Deferred revenue 7,012 5,403
Accrued acquisition costs 6,004 5,651
Other accrued liabilities 28,097 21,210
------------- ------------
Total current liabilities 182,043 168,976
Non-current liabilities
Convertible senior notes 195,000 195,000
Deferred income taxes - 22
------------- ------------
Total non-current liabilities 195,000 195,022
------------- ------------
Total liabilities 377,043 363,998
------------- ------------
Stockholders' equity
Common stock 398 350
Additional paid-in capital 513,718 315,489
Deferred compensation - (1,942)
Retained earnings/(accumulated deficit) 38,128 (6,324)
Accumulated other comprehensive
income/(loss) 6,876 (2,431)
------------- ------------
Stockholders' equity 559,120 305,142
------------- ------------
Total liabilities and stockholders' equity $936,163 $669,140
============= ============
Digital River, Inc.
Third Quarter Results
(Unaudited, in thousands, except per share amounts)
Subject to reclassification
Condensed Consolidated Statements of Operations
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
2006 2005 2006 2005
---------- -------- --------- ---------
Revenue $75,337 $53,179 $224,628 $158,851
Costs and expenses: -
Direct cost of services 1,912 1,050 5,689 3,538
Network and infrastructure 7,761 4,983 21,502 14,199
Sales and marketing 28,451 16,713 83,018 48,829
Product research and
development 8,338 5,210 23,428 14,796
General and administrative 8,054 5,294 24,551 16,210
Depreciation and amortization 2,943 2,308 7,671 6,805
Amortization of acquisition-
related intangibles 3,313 2,089 9,191 6,595
---------- -------- --------- ---------
Total costs and expenses 60,772 37,647 175,050 110,972
---------- -------- --------- ---------
Income from operations 14,565 15,532 49,578 47,879
---------- -------- --------- ---------
Other income, net 5,804 1,526 15,131 3,572
---------- -------- --------- ---------
Income before income tax
expense 20,369 17,058 64,709 51,451
Income tax expense 5,581 4,700 20,255 14,830
---------- -------- --------- ---------
Net income $14,788 $12,358 $44,454 $36,621
========== ======== ========= =========
Net income per share - basic $0.37 $0.35 $1.17 $1.07
========== ======== ========= =========
Net income per share - diluted $0.33 $0.31 $1.04 $0.92
========== ======== ========= =========
Shares used in per share
calculation - basic 39,619 34,824 38,126 34,342
Shares used in per share
calculation - diluted 45,666 41,972 44,107 41,558
Calculation of GAAP Diluted Net
Income Per Share
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
2006 2005 2006 2005
---------- -------- --------- ---------
GAAP net income $14,788 $12,358 $44,454 $36,621
Add back debt interest expense
and issuance cost
amortization, net of tax
benefit 435 501 1,305 1,470
---------- -------- --------- ---------
Adjusted net income for GAAP
EPS calculation $15,223 $12,859 $45,759 $38,091
========== ======== ========= =========
Net income per share - diluted $0.33 $0.31 $1.04 $0.92
========== ======== ========= =========
Shares used in per share
calculation - diluted 45,666 41,972 44,107 41,558
Digital River, Inc.
Third Quarter Results
(Unaudited, in thousands)
Subject to reclassification
Condensed Consolidated Statements of Cash Flows
Nine months ended
September 30,
-------------------
2006 2005
--------- ---------
Operating Activities:
- ---------------------------------------------------
Net income $44,454 $36,621
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of acquisition-related intangibles 9,191 6,595
Change in accounts receivable allowance, net of
acquisitions 426 (257)
Depreciation and amortization 7,671 6,715
Stock-based compensation expense related to
stock-based compensation plans 10,389 -
Tax benefit of stock-based compensation - 10,496
Excess tax benefit from stock-based
compensation (3,032) -
Deferred and other income taxes 17,676 3,030
Change in operating assets and liabilities (net
of acquisitions):
Accounts receivable (2,351) (2,431)
Prepaid and other assets (291) (987)
Accounts payable (7,028) 499
Deferred revenue 881 527
Income tax payable 1,022 4,064
Accrued payroll and other accrued liabilities 5,679 (569)
--------- ---------
Net cash provided by operating activities 84,687 64,303
--------- ---------
Investing Activities:
- ---------------------------------------------------
Purchases of investments (135,911) (144,509)
Sales of investments 116,446 97,427
Cash paid for acquisitions, net of cash received (37,998) (9,482)
Purchases of property, equipment and capitalized
software (12,825) (7,318)
--------- ---------
Net cash used in investing activities (70,288) (63,882)
--------- ---------
Financing Activities:
- ---------------------------------------------------
Proceeds from sale of common stock 172,700 -
Exercise of stock options 10,579 22,154
Sales of common stock under employee stock
purchase plan 933 1,488
Excess tax benefit from stock-based compensation 3,032 -
Repurchase of common stock - (3,205)
--------- ---------
Net cash provided by financing activities 187,244 20,437
--------- ---------
Effect of exchange rate changes on cash 2,263 (3,524)
--------- ---------
Net increase in cash and cash equivalents 203,906 17,334
Cash and cash equivalents, beginning of period 131,770 127,734
--------- ---------
Cash and cash equivalents, end of period $335,676 $145,068
========= =========
--------- ---------
Cash paid for interest on Convertible Senior Notes $2,438 $2,641
========= =========
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
Twelve
months
Three months ended ended
------------------------------------- ----------
March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
2005 2005 2005 2005 2005
------------------------------------- ----------
GAAP pre-tax income $18,937 $15,456 $17,058 $20,229 $71,680
Add back:
amortization of
acquisition-related
intangibles 2,396 2,110 2,089 2,135 8,730
Add back: stock-based
compensation expense - - - - -
------------------------------------- ----------
Non-GAAP pre-tax
income 21,333 17,566 19,147 22,364 80,410
Income tax expense @
31% 6,613 5,445 5,936 6,933 24,927
------------------------------------- ----------
Non-GAAP net income $14,720 $12,121 $13,211 $15,431 $55,483
===================================== ==========
Non-GAAP net income
per share - diluted $0.36 $0.29 $0.31 $0.37 $1.34
===================================== ==========
Shares used in per
share calculation -
diluted 41,454 41,154 41,972 41,244 41,448
Nine
months
Three months ended ended
----------------------------- ----------
March 31, June 30, Sept. 30, Sept. 30,
2006 2006 2006 2006
----------------------------- ----------
GAAP pre-tax income $23,759 $20,581 $20,369 $64,709
Add back:
amortization of
acquisition-related
intangibles 2,840 3,038 3,313 9,191
Add back: stock-based
compensation expense 3,413 3,519 3,456 10,388
----------------------------- ----------
Non-GAAP pre-tax
income 30,012 27,138 27,138 84,288
Income tax expense @
31% 9,304 8,413 8,413 26,129
----------------------------- ----------
Non-GAAP net income $20,708 $18,725 $18,725 $58,159
============================= ==========
Non-GAAP net income
per share - diluted $0.50 $0.41 $0.41 $1.32
============================= ==========
Shares used in per
share calculation -
diluted 41,154 45,458 45,666 44,107
Breakdown of stock-
based compensation
expense
Nine
months
Three months ended ended
----------------------------- ----------
March 31, June 30, Sept. 30, Sept. 30,
2006 2006 2006 2006
----------------------------- ----------
Direct cost of
services $214 $218 $197 $629
Network and
infrastructure 86 84 78 248
Sales and marketing 1,289 1,323 1,268 3,880
Product research and
development 585 591 556 1,732
General and
administrative 1,239 1,303 1,357 3,899
----------------------------- ----------
Total $3,413 $3,519 $3,456 $10,388
============================= ==========
Non-GAAP Guidance
Reconciliation
Q4 - 2006 FY-2006 FY-2007
Guidance Guidance Guidance
--------- ---------- ----------
Expected GAAP net
income per share -
diluted $0.35 $1.39 $1.74
Add back amortization
of acquisition-
related costs 0.07 0.28 0.26
Add back stock-based
compensation expense 0.08 0.31 0.33
Tax variability (0.03) (0.16) (0.15)
Deduct impact of
contingent
convertible notes (0.01) (0.04) (0.04)
--------- ---------- ----------
Expected non-GAAP
diluted net income
per share $0.46 $1.78 $2.14
========= ========== ==========
CONTACT: Digital River, Inc.
Investor Contact:
Bob Kleiber, 952-540-3024
Vice President, Investor Relations
bkleiber@digitalriver.com
or
Media Contact:
Gerri Dyrek, 952-253-8396
Director, Public Relations
gdyrek@digitalriver.com