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| 8-K - DIGITAL RIVER, INC. 8-K - DIGITAL RIVER INC /DE | a50047105.htm |
Exhibit 99.1
Digital River Reports Third Quarter 2011 Financial Results
Revenue increased 12% on a year-over-year basis
MINNEAPOLIS--(BUSINESS WIRE)--October 27, 2011--Digital River, Inc. (NASDAQ: DRIV), a leading provider of global e-commerce solutions, reports its third quarter financial results.
Third Quarter Ended Sept. 30, 2011
GAAP Results
Third
quarter revenue totaled $95.4 million, slightly ahead of management’s
guidance of $94.0 million and over 12 percent above last year’s third
quarter revenue of $85.0 million.
Third quarter GAAP net income was $5.5 million, or $0.15 per diluted share, which compared to a GAAP net income of $5.9 million, or $0.15 per diluted share, in the third quarter of 2010. These results exceeded management’s third quarter guidance for net income of $0.09 per diluted share.
Non-GAAP Results
Third quarter non-GAAP net income was
$8.9 million, or $0.23 per diluted share. This compared to non-GAAP net
income of $8.3 million, or $0.22 per diluted share, in the third quarter
of 2010. The company’s results were slightly lower than management’s
third quarter earnings guidance of $0.24 per diluted share, primarily
due to foreign exchange.
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.
“We delivered good results in the third quarter, with revenue increasing over 12 percent from last year, and continue to see solid performance across our enterprise commerce business,” said Joel Ronning, Digital River’s CEO. “While we have tempered our fourth quarter guidance due to the softening in the economy, we remain confident in our global cloud commerce strategy. During the last decade, we’ve developed an international footprint second to none in the industry. Our global reach, combined with a proven payments solution and world class marketing services will continue to drive our revenue going forward.”
On Sept. 7, 2011, the company announced a $100 million share repurchase program. During the third quarter, the company repurchased 2,334,042 shares of common stock at an average price of $21.43 per share.
2011 Guidance
Management’s forward-looking financial
expectations for the fourth quarter ending Dec. 31, 2011:
- Revenue of $103 to $105 million;
- GAAP diluted earnings per share in the range of $0.18 and $0.21, assuming a 17 percent tax rate; and
- Non-GAAP diluted earnings per share in the range of $0.32 and $0.35, assuming a 21 percent tax rate.
For the full year ending Dec. 31, 2011, management currently expects:
- Revenue of $389 to $391 million;
- GAAP diluted earnings per share in the range of $0.52 and $0.55, assuming a 6 percent tax rate; and
- Non-GAAP diluted earnings per share in the range of $1.03 and $1.06, assuming a 21 percent tax rate.
A detailed table providing a reconciliation of the company’s GAAP and non-GAAP guidance estimates can be found accompanying this press release.
Digital River will hold a conference call today at 4:45 p.m. EDT to discuss third 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 #14028165 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 Oct. 27, 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. | ||||||||||
| Third Quarter Results | ||||||||||
| (Unaudited, in thousands) | ||||||||||
| Subject to reclassification | ||||||||||
| Consolidated Balance Sheets | ||||||||||
| September 30, | December 31, | |||||||||
| 2011 | 2010 | |||||||||
|
Assets |
||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | $ | 457,121 | $ | 565,086 | ||||||
| Short-term investments | 207,108 | 163,029 | ||||||||
| Accounts receivable, net of allowance of $4,375 and $4,902 | 56,281 | 50,922 | ||||||||
| Deferred tax assets | 10,719 | 10,628 | ||||||||
| Prepaid expenses and other | 34,926 | 30,375 | ||||||||
| Total current assets | 766,155 | 820,040 | ||||||||
| Property and equipment, net | 51,157 | 49,599 | ||||||||
| Goodwill | 288,581 | 283,940 | ||||||||
| Intangible assets, net of accumulated amortization of $86,953 and $80,106 | 30,186 | 37,911 | ||||||||
| Long-term investments | 109,864 | 110,736 | ||||||||
| Deferred income taxes | 18,137 | 17,721 | ||||||||
| Other assets | 10,205 | 13,820 | ||||||||
| Total assets | $ | 1,274,285 | $ | 1,333,767 | ||||||
|
Liabilities and stockholders' equity |
||||||||||
| Current liabilities | ||||||||||
| Accounts payable | $ | 181,833 | $ | 188,915 | ||||||
| Accrued payroll | 13,438 | 21,117 | ||||||||
| Deferred revenue | 9,356 | 10,446 | ||||||||
| Accrued acquisition liabilities | - | 1,615 | ||||||||
| Other accrued liabilities | 42,138 | 58,083 | ||||||||
| Total current liabilities | 246,765 | 280,176 | ||||||||
| Non-current liabilities | ||||||||||
| Convertible senior notes | 353,805 | 353,805 | ||||||||
| Other liabilities | 11,487 | 16,038 | ||||||||
| Total non-current liabilities | 365,292 | 369,843 | ||||||||
| Total liabilities | 612,057 | 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; 47,140,392 and 46,323,799 shares issued | 471 | 463 | ||||||||
| Treasury stock at cost; 9,805,251 and 7,297,174 shares | (311,109 | ) | (255,196 | ) | ||||||
| Additional paid-in capital | 702,295 | 683,307 | ||||||||
| Retained earnings | 267,430 | 254,602 | ||||||||
| Accumulated other comprehensive income | 3,141 | 572 | ||||||||
| Total stockholders' equity | 662,228 | 683,748 | ||||||||
| Total liabilities and stockholders' equity | $ | 1,274,285 | $ | 1,333,767 | ||||||
| Digital River, Inc. | ||||||||||||||||||||
| Third Quarter Results | ||||||||||||||||||||
| (Unaudited, in thousands, except per share amounts) | ||||||||||||||||||||
| Subject to reclassification | ||||||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||||||
| Revenue | $ | 95,411 | $ | 84,987 | $ | 286,116 | $ | 265,545 | ||||||||||||
| Costs and expenses (exclusive of depreciation and amortization expense shown separately below): | ||||||||||||||||||||
| Direct cost of services | 3,663 | 4,548 | 11,682 | 13,541 | ||||||||||||||||
| Network and infrastructure | 12,017 | 11,146 | 37,106 | 34,696 | ||||||||||||||||
| Sales and marketing | 40,535 | 33,558 | 117,733 | 110,767 | ||||||||||||||||
| Product research and development | 16,781 | 14,018 | 50,507 | 45,928 | ||||||||||||||||
| General and administrative | 9,741 | 10,965 | 31,364 | 32,560 | ||||||||||||||||
| Depreciation and amortization | 5,693 | 6,086 | 16,657 | 17,662 | ||||||||||||||||
| Amortization of acquisition-related intangibles | 2,184 | 2,188 | 6,511 | 5,281 | ||||||||||||||||
| Total costs and expenses | 90,614 | 82,509 | 271,560 | 260,435 | ||||||||||||||||
| Income from operations | 4,797 | 2,478 | 14,556 | 5,110 | ||||||||||||||||
| Interest income | 1,565 | 660 | 4,793 | 2,032 | ||||||||||||||||
| Interest expense | (2,264 | ) | (32 | ) | (6,764 | ) | (153 | ) | ||||||||||||
| Other income (expense), net | (511 | ) | (2,013 | ) | 27 | (1,107 | ) | |||||||||||||
| Income before income taxes | 3,587 | 1,093 | 12,612 | 5,882 | ||||||||||||||||
| Income tax benefit | (1,931 | ) | (4,768 | ) | (216 | ) | (4,466 | ) | ||||||||||||
| Net income | $ | 5,518 | $ | 5,861 | $ | 12,828 | $ | 10,348 | ||||||||||||
| Net income per share - basic | $ | 0.15 | $ | 0.16 | $ | 0.34 | $ | 0.28 | ||||||||||||
| Net income per share - diluted | $ | 0.15 | $ | 0.15 | $ | 0.34 | $ | 0.27 | ||||||||||||
| Shares used in per share calculation - basic | 37,294 | 37,688 | 37,416 | 37,613 | ||||||||||||||||
| Shares used in per share calculation - diluted | 37,799 | 38,504 | 38,177 | 38,389 | ||||||||||||||||
| Calculation of GAAP Diluted Net Income Per Share | ||||||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||||||
| GAAP net income | $ | 5,518 | $ | 5,861 | $ | 12,828 | $ | 10,348 | ||||||||||||
|
Add back debt interest expense and issuance cost amortization, net of tax benefit |
20 | 21 | 59 | 63 | ||||||||||||||||
| Adjusted net income for GAAP EPS calculation | $ | 5,538 | $ | 5,882 | $ | 12,887 | $ | 10,411 | ||||||||||||
| Net income per share - diluted | $ | 0.15 | $ | 0.15 | $ | 0.34 | $ | 0.27 | ||||||||||||
| Shares used in per share calculation - diluted | 37,799 | 38,504 | 38,177 | 38,389 | ||||||||||||||||
| Digital River, Inc. | ||||||||||
| Third Quarter Results | ||||||||||
| (Unaudited, in thousands) | ||||||||||
| Subject to reclassification | ||||||||||
| Consolidated Statements of Cash Flows | ||||||||||
| Nine months ended September 30, | ||||||||||
| 2011 | 2010 | |||||||||
|
Operating Activities |
||||||||||
| Net income | $ | 12,828 | $ | 10,348 | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||
| Amortization of acquisition-related intangibles | 6,511 | 5,281 | ||||||||
| Provision for doubtful accounts | 916 | 2,703 | ||||||||
| Depreciation and amortization | 16,657 | 17,662 | ||||||||
| Debt issuance cost amortization | 1,492 | - | ||||||||
| Stock-based compensation expense | 16,235 | 15,278 | ||||||||
| Excess tax benefits from stock-based compensation | (1,517 | ) | (620 | ) | ||||||
| Deferred and other income taxes | 1,121 | (499 | ) | |||||||
| Impairment of equity investment | - | 1,561 | ||||||||
| Change in operating assets and liabilities (net of acquisitions): | ||||||||||
| Accounts receivable | (5,342 | ) | (6,204 | ) | ||||||
| Prepaid and other assets | 651 | (906 | ) | |||||||
| Accounts payable | (9,212 | ) | (36,402 | ) | ||||||
| Deferred revenue | (1,198 | ) | (1,247 | ) | ||||||
| Income tax payable | (5,525 | ) | (4,469 | ) | ||||||
| Other accrued liabilities | (28,562 | ) | (2,513 | ) | ||||||
| Net cash provided by (used in) operating activities | 5,055 | (27 | ) | |||||||
|
|
||||||||||
|
Investing Activities |
||||||||||
| Purchases of investments | (207,790 | ) | (65,889 | ) | ||||||
| Sales of investments | 172,288 | 40,199 | ||||||||
| Cash paid for cost method investments | (10,000 | ) | - | |||||||
| Funding of restricted cash | - | (2,156 | ) | |||||||
| Cash paid for acquisitions, net of cash received | - | (14,585 | ) | |||||||
| Purchases of equipment and capitalized software | (17,744 | ) | (13,666 | ) | ||||||
| Net cash used in investing activities | (63,246 | ) | (56,097 | ) | ||||||
|
Financing Activities |
||||||||||
| Debt issuance costs | (342 | ) | - | |||||||
| Exercise of stock options | 365 | 1,909 | ||||||||
| Sales of common stock under employee stock purchase plan | 1,251 | 1,138 | ||||||||
| Repurchase of restricted stock to satisfy tax withholding obligation | (5,905 | ) | (3,175 | ) | ||||||
| Repurchase of common stock | (50,008 | ) | - | |||||||
| Excess tax benefits from stock-based compensation | 1,517 | 620 | ||||||||
| Net cash provided by (used in) financing activities | (53,122 | ) | 492 | |||||||
| Effect of exchange rate changes on cash | 3,348 | (7,558 | ) | |||||||
| Net decrease in cash and cash equivalents | (107,965 | ) | (63,190 | ) | ||||||
| Cash and cash equivalents, beginning of period | 565,086 | 392,704 | ||||||||
| Cash and cash equivalents, end of period | $ | 457,121 | $ | 329,514 | ||||||
| Cash paid for interest on convertible senior notes | $ | 3,560 | $ | 110 | ||||||
| Cash paid for income taxes | $ | 3,361 | $ | 5,130 | ||||||
| Digital River, Inc. | |||||||||||||||||||||||||
| GAAP to non-GAAP Reconciliations | |||||||||||||||||||||||||
| (Unaudited, in thousands, except per share amounts) | |||||||||||||||||||||||||
|
UTILIZING 21% EFFECTIVE INCOME TAX RATE |
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| 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 | ||||||||||||||||||||
| Nine months | |||||||||||||||||||||||||
| Three months ended | ended | ||||||||||||||||||||||||
| March 31, | June 30, | September 30, | September 30, | ||||||||||||||||||||||
| 2011 | 2011 | 2011 | 2011 | ||||||||||||||||||||||
| GAAP pre-tax income | $ | 8,885 | $ | 140 | $ | 3,587 | $ | 12,612 | |||||||||||||||||
| Add back amortization of acquisition-related intangibles | 2,122 | 2,205 | 2,184 | 6,511 | |||||||||||||||||||||
| Add back stock-based compensation expense | 4,955 | 5,731 | 5,549 | 16,235 | |||||||||||||||||||||
| Subtotal | 15,962 | 8,076 | 11,320 | 35,358 | |||||||||||||||||||||
| Income tax expense @ 21% | 3,352 | 1,696 | 2,377 | 7,425 | |||||||||||||||||||||
| Non-GAAP net income | 12,610 | 6,380 | 8,943 | 27,933 | |||||||||||||||||||||
| Add back debt interest expense and issuance cost amortization, net of tax benefit | 1,420 | 20 | 1,413 | 4,246 | |||||||||||||||||||||
| Adjusted net income for non-GAAP EPS calculation | $ | 14,030 | $ | 6,400 | $ | 10,356 | $ | 32,179 | |||||||||||||||||
| Non-GAAP net income per share - diluted | $ | 0.31 | $ | 0.17 | $ | 0.23 | $ | 0.71 | |||||||||||||||||
| Shares used in per share calculation - diluted | 45,276 | 38,181 | 44,821 | 45,199 | |||||||||||||||||||||
| Breakdown of stock-based compensation expense | |||||||||||||||||||||||||
| Nine months | |||||||||||||||||||||||||
| Three months ended | ended | ||||||||||||||||||||||||
| March 31, | June 30, | September 30, | September 30, | ||||||||||||||||||||||
| 2011 | 2011 | 2011 | 2011 | ||||||||||||||||||||||
| Direct cost of services | $ | 115 | $ | 118 | $ | (16 | ) | $ | 217 | ||||||||||||||||
| Network and infrastructure | 247 | 345 | 345 | 937 | |||||||||||||||||||||
| Sales and marketing | 1,760 | 2,116 | 2,265 | 6,141 | |||||||||||||||||||||
| Product research and development | 710 | 781 | 698 | 2,189 | |||||||||||||||||||||
| General and administrative | 2,123 | 2,371 | 2,257 | 6,751 | |||||||||||||||||||||
| Total | $ | 4,955 | $ | 5,731 | $ | 5,549 | $ | 16,235 | |||||||||||||||||
| Digital River, Inc. | ||||||||||||||||||||
| Non-GAAP Guidance | ||||||||||||||||||||
| (Unaudited, in thousands, except per share amounts) | ||||||||||||||||||||
| Non-GAAP Guidance Reconciliation | ||||||||||||||||||||
| Q4 2011 | Full Year 2011 | |||||||||||||||||||
| Low Guidance | High Guidance | Low Guidance | High Guidance | |||||||||||||||||
| Expected GAAP net income per share - diluted | $ | 0.18 | $ | 0.21 | $ | 0.52 | $ | 0.55 | ||||||||||||
| Add back amortization of acquisition-related costs, net of tax | 0.05 | 0.04 | 0.19 | 0.19 | ||||||||||||||||
| Add back stock-based compensation expense, net of tax | 0.12 | 0.11 | 0.46 | 0.46 | ||||||||||||||||
| Convertible debt dilution impact, net of tax | (0.02 | ) | - | (0.06 | ) | (0.06 | ) | |||||||||||||
| Tax Variability | (0.01 | ) | (0.01 | ) | (0.08 | ) | (0.08 | ) | ||||||||||||
| Expected non-GAAP diluted net income per share | $ | 0.32 | $ | 0.35 | $ | 1.03 | $ | 1.06 | ||||||||||||
| Projected Shares Used in Per Share Calculation | ||||||||||||||||||||
| Q4 2011 | Full Year 2011 | |||||||||||||||||||
| Low Guidance | High Guidance | Low Guidance | High Guidance | |||||||||||||||||
| Shares used in per share calculation - GAAP diluted | 35,598 | 42,620 | 37,407 | 37,407 | ||||||||||||||||
| Shares used in per share calculation - non-GAAP diluted | 42,620 | 42,620 | 44,429 | 44,429 | ||||||||||||||||
CONTACT:
Digital River, Inc.
Investor Relations Contact:
Ed
Merritt
Vice President, Investor Relations
investorrelations@digitalriver.com
952-225-3362
or
Media
Relations Contact:
Gerri Dyrek
Group Vice President, Corporate
Communications
gdyrek@digitalriver.com
952-225-3719