Exhibit 99.1
Digital River Reports Third Quarter Financial Results
Exceeds revenue and meets earnings expectations
MINNEAPOLIS--(BUSINESS WIRE)--Oct. 25, 2007--Digital River, Inc.
(NASDAQ:DRIV), a leading provider of global e-commerce solutions,
reported its third quarter financial results.
Third Quarter and Nine Months Ended Sept. 30, 2007
GAAP Results
Third quarter revenue totaled $82.5 million. This is an increase
of 10 percent from revenue of $75.3 million in the third quarter of
2006. For the nine months ended Sept. 30, 2007, the Company reported
revenue of $252.4 million. This represents a 12 percent increase from
revenue of $224.6 million in the similar period of the prior year.
Third quarter GAAP net income was $15.3 million, or $0.35 per
diluted share. This compared to net income of $14.8 million, or $0.33
per diluted share, in the third quarter of 2006. These results
represent a year-over-year increase of 3 percent in GAAP net income
and 6 percent in GAAP diluted net income per share. For the first nine
months of 2007, GAAP net income was $50.5 million, or $1.12 per
diluted share. This compared to net income of $44.5 million, or $1.04
per diluted share, in the similar period of 2006.
Non-GAAP Results
Based on the Company's non-GAAP measurements, third quarter
non-GAAP net income was $18.8 million, or $0.41 per diluted share.
This compared to net income on a similar basis of $18.7 million, or
$0.41 per diluted share, in the third quarter of 2006. Non-GAAP net
income for the first nine months of 2007 was $61.9 million, or
$1.34 per diluted share. This compared to net income on a similar
basis of $58.2 million, or $1.32 per diluted share, during the first
nine months of 2006.
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 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 announcement.
"Overall we are pleased with our third quarter financial
performance," said Joel Ronning, Digital River's CEO. "Our business
continues to be fueled by growth in international markets, and our
software and shareware businesses. In addition, we continue to sign
key clients in the consumer electronics and game markets, where our
expertise in managing global commerce and e-marketing services
continues to drive wins with industry leaders."
2007 Guidance
Forward-looking guidance for the period ending Dec. 31, 2007, is
as follows:
Fourth Quarter
-- Revenue of $96 million;
-- GAAP diluted net income per share of $0.45, including
stock-based compensation expense of approximately $3.4
million; and
-- Non-GAAP diluted net income per share of $0.53.
Full Year
-- Revenue of $348 million;
-- GAAP diluted net income per share of $1.57, including
stock-based compensation expense of approximately $13.9
million; and
-- Non-GAAP diluted net income per share of $1.87.
Management will issue 2008 earnings guidance in conjunction with
the Company's fourth quarter earnings release in January 2008.
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/2007/q3earnings/.
Alternatively, a live broadcast of the call may be heard by using
conference ID # 9318373 and dialing (888) 603-6873 inside the United
States or Canada, or by calling (973) 582-2706 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; 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 fourth quarter 2007
reflect Digital River's expectations as of October 25, 2007. 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, 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,
--------------------------
2007 2006
------------- ------------
Assets
- --------------------------------------------
Current assets
Cash and cash equivalents $ 371,100 $ 390,243
Short-term investments 267,352 235,699
Accounts receivable, net 64,549 52,392
Deferred income taxes 15,399 19,687
Prepaid expenses and other 7,583 6,025
------------- ------------
Total current assets 725,983 704,046
Property and equipment, net 25,497 24,079
Goodwill 273,361 243,799
Intangible assets, net 15,992 21,106
Deferred income taxes 17,403 1,276
Other assets 12,018 11,957
------------- ------------
Total assets $1,070,254 $1,006,263
============= ============
Liabilities and stockholders' equity
- --------------------------------------------
Current liabilities
Accounts payable $ 146,770 $ 141,386
Accrued payroll 13,992 12,097
Deferred revenue 8,980 7,040
Accrued acquisition liabilities 1,255 5,654
Other accrued liabilities 52,605 39,982
------------- ------------
Total current liabilities 223,602 206,159
Non-current liabilities
Convertible senior notes 195,000 195,000
Other liabilities 10,125 1,345
------------- ------------
Total non-current liabilities 205,125 196,345
------------- ------------
Total liabilities 428,727 402,504
------------- ------------
Stockholders' equity
Common stock 403 404
Additional paid-in capital 567,837 546,758
Retained earnings 48,108 44,989
Accumulated other comprehensive income 25,179 11,608
------------- ------------
Stockholders' equity 641,527 603,759
------------- ------------
Total liabilities and stockholders' equity $1,070,254 $1,006,263
============= ============
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,
------------------- ------------------
2007 2006 2007 2006
--------- --------- --------- --------
Revenue $82,539 $75,337 $252,397 $224,628
Costs and expenses:
Direct cost of services 3,009 1,912 7,998 5,689
Network and infrastructure 7,983 7,761 22,812 21,502
Sales and marketing 32,945 28,451 99,927 83,018
Product research and
development 10,170 8,338 27,057 23,428
General and administrative 9,055 8,054 28,711 24,551
Depreciation and amortization 3,120 2,943 9,269 7,671
Amortization of acquisition-
related intangibles 1,611 3,313 5,964 9,191
--------- --------- --------- --------
Total costs and expenses 67,893 60,772 201,738 175,050
--------- --------- --------- --------
Income from operations 14,646 14,565 50,659 49,578
--------- --------- --------- --------
Other income, net 7,528 5,804 22,528 15,131
--------- --------- --------- --------
Income before income tax
expense 22,174 20,369 73,187 64,709
Income tax expense 6,875 5,581 22,689 20,255
--------- --------- --------- --------
Net income $15,299 $14,788 $ 50,498 $ 44,454
========= ========= ========= ========
Net income per share - basic $ 0.38 $ 0.37 $ 1.25 $ 1.17
========= ========= ========= ========
Net income per share - diluted $ 0.35 $ 0.33 $ 1.12 $ 1.04
========= ========= ========= ========
Shares used in per share
calculation - basic 40,078 39,619 40,555 38,126
Shares used in per share
calculation - diluted 45,386 45,666 46,099 44,107
Calculation of GAAP Diluted Net Income Per Share
Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
2007 2006 2007 2006
--------- --------- --------- --------
GAAP net income $15,299 $14,788 $ 50,498 $ 44,454
Add back debt interest expense
and issuance cost
amortization, net of tax
benefit 434 435 1,304 1,305
--------- --------- --------- --------
Adjusted net income for GAAP EPS
calculation $15,733 $15,223 $ 51,802 $ 45,759
========= ========= ========= ========
Net income per share - diluted $ 0.35 $ 0.33 $ 1.12 $ 1.04
========= ========= ========= ========
Shares used in per share
calculation - diluted 45,386 45,666 46,099 44,107
Digital River, Inc.
Third Quarter Results
(Unaudited, in thousands)
Subject to reclassification
Condensed Consolidated Statements of
Cash Flows
Nine months ended September 30,
-------------------------------
2007 2006
--------------- ---------------
Operating Activities:
- ---------------------------------------
Net income $ 50,498 $ 44,454
Adjustments to reconcile net income to
net cash provided by operating
activities:
Amortization of acquisition-related
intangibles 5,964 9,191
Change in accounts receivable
allowance, net of acquisitions 628 426
Depreciation and amortization 9,269 7,671
Stock-based compensation expense 10,536 10,389
Excess tax benefits from stock-based
compensation (11,297) (3,032)
Deferred and other income taxes 17,337 17,676
Change in operating assets and
liabilities (net of acquisitions):
Accounts receivable (8,373) (2,351)
Prepaid and other assets (1,652) (291)
Accounts payable 810 (7,028)
Deferred revenue 1,782 881
Income tax payable 3,314 1,022
Other accrued liabilities 5,912 5,679
--------------- ---------------
Net cash provided by operating
activities 84,728 84,687
--------------- ---------------
Investing Activities:
- ---------------------------------------
Purchases of investments (228,342) (135,911)
Sales of investments 197,645 116,446
Cash paid for acquisitions, net of
cash received (30,573) (37,998)
Purchases of equipment and capitalized
software (9,752) (12,825)
--------------- ---------------
Net cash used in investing
activities (71,022) (70,288)
--------------- ---------------
Financing Activities:
- ---------------------------------------
Proceeds from sales of common stock - 172,700
Exercise of stock options 11,244 10,579
Sales of common stock under employee
stock purchase plan 1,244 933
Repurchase of common stock (62,968) -
Repurchase of restricted stock to
satisfy tax withholding obligation (382) -
Excess tax benefits from stock-based
compensation 11,297 3,032
--------------- ---------------
Net cash (used in)/ provided by
financing activities (39,565) 187,244
--------------- ---------------
Effect of exchange rate changes on cash 6,716 2,263
--------------- ---------------
Net (decrease)/ increase in cash and
cash equivalents (19,143) 203,906
Cash and cash equivalents, beginning of
period 390,243 131,770
--------------- ---------------
Cash and cash equivalents, end of
period $ 371,100 $ 335,676
=============== ===============
--------------- ---------------
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
Twelve
months
Three months ended ended
---------------------------------- ---------
March June September December December
31, 30, 30, 31, 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
Nine
months
Three months ended ended
------------------------- ---------
March June September September
31, 30, 30, 30,
2007 2007 2007 2007
------------------------- ---------
GAAP pre-tax income $30,008 $21,005 $22,174 $ 73,187
Add back: amortization
of acquisition-related
intangibles 2,746 1,607 1,611 5,964
Add back: stock-based
compensation expense 3,476 3,649 3,411 10,536
------------------------- ---------
Non-GAAP pre-tax income 36,230 26,261 27,196 89,687
Income tax expense @ 31% 11,231 8,141 8,431 27,803
------------------------- ---------
Non-GAAP net income $24,999 $18,120 $18,765 $ 61,884
========================= =========
Non-GAAP net income per
share - diluted $ 0.54 $ 0.39 $ 0.41 $ 1.34
========================= =========
Shares used in per share
calculation - diluted 46,348 46,637 45,386 46,099
Breakdown of stock-based
compensation expense
Nine
months
Three months ended ended
------------------------- ---------
March June September September
31, 30, 30, 30,
2007 2007 2007 2007
------------------------- ---------
Direct cost of services $ 195 $ 225 $ 223 $ 643
Network and
infrastructure 72 61 58 191
Sales and marketing 1,268 1,350 1,230 3,848
Product research and
development 552 466 391 1,409
General and
administrative 1,389 1,547 1,509 4,445
------------------------- ---------
Total $ 3,476 $ 3,649 $ 3,411 $ 10,536
========================= =========
Non-GAAP Guidance
Reconciliation
Q4 - 2007 FY - 2007
Guidance Guidance
--------- ---------
Expected GAAP net income
per share - diluted $ 0.45 $ 1.57
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 $ 0.53 $ 1.87
========= =========
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