Digital River, Inc. (NASDAQ: DRIV), the revenue growth experts in global cloud commerce, reports its first quarter financial results.
First Quarter Ended March 31, 2012
GAAP
Results
First quarter revenue totaled $102.4 million,
compared to $98.2 million during the same period in 2011. This result
exceeded management’s first quarter revenue guidance of $99 to $101
million.
First quarter GAAP net income was $4.7 million, or $0.14 per diluted share, which compared to GAAP net income of $7.0 million, or $0.18 per diluted share in the first quarter of 2011. These results also exceeded management’s first quarter earnings guidance of $0.09 to $0.13 per diluted share.
Non-GAAP Results
First quarter non-GAAP net income
was $11.0 million, or $0.30 per diluted share. This compared to non-GAAP
net income of $12.6 million, or $0.31 per diluted share, in the first
quarter of 2011. These results were in line with management’s first
quarter non-GAAP earnings guidance of $0.27 to $0.30 per diluted share.
“We’re pleased with our results in the quarter, beating our revenue target and coming in at the top-end of our earnings range,” said Joel Ronning, Digital River’s CEO. “While we are maintaining a slightly cautious outlook on the European economy, we continue to invest for the future, developing some great products in cloud-based subscriptions and building out our catalog of APIs to simplify the process of onboarding new clients. Our mission is to continually strengthen our position as the revenue growth experts in global cloud commerce.”
Guidance
Management’s
forward-looking financial expectations for the second quarter are as
follows:
- Revenue, ranging from $92 to $94 million;
- GAAP EPS, ranging from break-even to a loss of $0.02 per diluted share using an 18 percent tax rate;
- Non-GAAP EPS, ranging from $0.17 to $0.19 per diluted share.
A detailed table providing a reconciliation of the company’s GAAP and non-GAAP earnings 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 first 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 #67901992 and dialing +1 (408) 427-3861. A webcast replay of the call will be archived on Digital River’s corporate website.
About Digital River, Inc.
Digital River, Inc., the revenue
growth experts in global cloud commerce, builds and manages online
businesses for software and game publishers, consumer electronics
manufacturers, distributors, online retailers and affiliates. Its
multi-channel 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 a global
commerce operation. The company’s comprehensive platform offers site
development and hosting, order management, global payments, cloud-based
billing, 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, call +1 952-253-1234, or follow the company on Twitter.
Non-GAAP Net Income Calculation
Digital River’s 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,
intangible impairments, 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.
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,” “expects,” or “guidance” 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 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, 2011. 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 for the remainder of fiscal 2012 reflect management’s expectations as of May 3, 2012. 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. | ||||||||||
| First Quarter Results | ||||||||||
| (Unaudited, in thousands) | ||||||||||
| Subject to reclassification | ||||||||||
| Consolidated Balance Sheets | ||||||||||
| March 31, | December 31, | |||||||||
| 2012 | 2011 | |||||||||
Assets | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | $ | 475,355 | $ | 497,193 | ||||||
| Short-term investments | 225,669 | 223,349 | ||||||||
| Accounts receivable, net of allowance of $4,870 and $4,613 | 58,147 | 64,811 | ||||||||
| Deferred tax assets | 8,495 | 8,532 | ||||||||
| Prepaid expenses and other | 41,035 | 35,719 | ||||||||
| Total current assets | 808,701 | 829,604 | ||||||||
| Property and equipment, net | 48,674 | 51,537 | ||||||||
| Goodwill | 286,431 | 281,858 | ||||||||
| Intangible assets, net of accumulated amortization of $88,174 and $85,542 | 16,818 | 18,324 | ||||||||
| Long-term investments | 96,059 | 99,047 | ||||||||
| Deferred income taxes | 23,007 | 21,433 | ||||||||
| Other assets | 7,743 | 8,973 | ||||||||
| Total assets | $ | 1,287,433 | $ | 1,310,776 | ||||||
Liabilities and stockholders' equity | ||||||||||
| Current liabilities | ||||||||||
| Accounts payable | $ | 202,265 | $ | 243,410 | ||||||
| Accrued payroll | 15,128 | 17,523 | ||||||||
| Deferred revenue | 7,072 | 8,633 | ||||||||
| Other accrued liabilities | 49,888 | 42,577 | ||||||||
| Total current liabilities | 274,353 | 312,143 | ||||||||
| Non-current liabilities | ||||||||||
| Convertible senior notes | 353,805 | 353,805 | ||||||||
| Other liabilities | 12,390 | 12,556 | ||||||||
| Total non-current liabilities | 366,195 | 366,361 | ||||||||
| Total liabilities | 640,548 | 678,504 | ||||||||
| 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; 48,846,879 and 47,248,765 shares issued | 488 | 472 | ||||||||
| Treasury stock at cost; 11,937,440 and 11,741,310 shares | (344,378 | ) | (340,946 | ) | ||||||
| Additional paid-in capital | 713,717 | 708,941 | ||||||||
| Retained earnings | 276,506 | 271,769 | ||||||||
| Accumulated other comprehensive income (loss) | 552 | (7,964 | ) | |||||||
| Stockholders' equity | 646,885 | 632,272 | ||||||||
| Total liabilities and stockholders' equity | $ | 1,287,433 | $ | 1,310,776 | ||||||
| Digital River, Inc. | ||||||||||
| First Quarter Results | ||||||||||
| (Unaudited, in thousands, except per share amounts) | ||||||||||
| Subject to reclassification | ||||||||||
| Consolidated Statements of Operations | ||||||||||
| Three months ended | ||||||||||
| March 31, | ||||||||||
| 2012 | 2011 | |||||||||
| Revenue | $ | 102,443 | $ | 98,185 | ||||||
| Costs and expenses (exclusive of depreciation and amortization expense shown separately below): | ||||||||||
| Direct cost of services | 3,628 | 4,163 | ||||||||
| Network and infrastructure | 12,757 | 12,612 | ||||||||
| Sales and marketing | 43,026 | 37,706 | ||||||||
| Product research and development | 16,003 | 15,620 | ||||||||
| General and administrative | 12,666 | 10,756 | ||||||||
| Depreciation and amortization | 5,339 | 5,405 | ||||||||
| Amortization of acquisition-related intangibles | 1,849 | 2,122 | ||||||||
| Total costs and expenses | 95,268 | 88,384 | ||||||||
| Income from operations | 7,175 | 9,801 | ||||||||
| Interest income | 1,139 | 1,475 | ||||||||
| Interest expense | (2,240 | ) | (2,257 | ) | ||||||
| Other income (expense), net | (297 | ) | (134 | ) | ||||||
| Income before income taxes | 5,777 | 8,885 | ||||||||
| Income tax expense | 1,040 | 1,866 | ||||||||
| Net income | $ | 4,737 | $ | 7,019 | ||||||
| Net income per share - basic | $ | 0.14 | $ | 0.19 | ||||||
| Net income per share - diluted | $ | 0.14 | $ | 0.18 | ||||||
| Shares used in per share calculation - basic | 33,608 | 37,230 | ||||||||
| Shares used in per share calculation - diluted | 34,010 | 38,254 | ||||||||
| Calculation of GAAP Diluted Net Income Per Share | ||||||||||
| Three months ended | ||||||||||
| March 31, | ||||||||||
| 2012 | 2011 | |||||||||
| GAAP net income | $ | 4,737 | $ | 7,019 | ||||||
| Add back debt interest expense and issuance cost amortization, net of tax benefit | 20 | 20 | ||||||||
| Adjusted net income for GAAP EPS calculation | $ | 4,757 | $ | 7,039 | ||||||
| Net income per share - diluted | $ | 0.14 | $ | 0.18 | ||||||
| Shares used in per share calculation - diluted | 34,010 | 38,254 | ||||||||
| Digital River, Inc. | ||||||||||
| First Quarter Results | ||||||||||
| (Unaudited, in thousands) | ||||||||||
| Subject to reclassification | ||||||||||
| Consolidated Statements of Cash Flows | ||||||||||
Three months ended March 31, | ||||||||||
| 2012 | 2011 | |||||||||
Operating Activities: | ||||||||||
| Net income | $ | 4,737 | $ | 7,019 | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||
| Amortization of acquisition-related intangibles | 1,849 | 2,122 | ||||||||
| Provision for doubtful accounts | 476 | (97 | ) | |||||||
| Depreciation and amortization | 5,339 | 5,405 | ||||||||
| Debt issuance cost amortization | 494 | 505 | ||||||||
| Stock-based compensation expense | 5,961 | 4,955 | ||||||||
| Excess tax benefits from stock-based compensation | (46 | ) | (1,418 | ) | ||||||
| Deferred and other income taxes | (2,578 | ) | 1,152 | |||||||
| Change in operating assets and liabilities (net of acquisitions): | ||||||||||
| Accounts receivable | 6,833 | (1,399 | ) | |||||||
| Prepaid and other assets | (4,197 | ) | (3,938 | ) | ||||||
| Accounts payable | (44,238 | ) | (6,733 | ) | ||||||
| Deferred revenue | (1,637 | ) | 629 | |||||||
| Income tax payable | 2,887 | (419 | ) | |||||||
| Other accrued liabilities | 1,051 | (19,099 | ) | |||||||
| Net cash used in operating activities | (23,069 | ) | (11,316 | ) | ||||||
Investing Activities: | ||||||||||
| Purchases of investments | (62,213 | ) | (109,115 | ) | ||||||
| Sales of investments | 60,614 | 37,799 | ||||||||
| Purchases of equipment and capitalized software | (2,413 | ) | (4,507 | ) | ||||||
| Net cash used in investing activities | (4,012 | ) | (75,823 | ) | ||||||
Financing Activities: | ||||||||||
| Debt issuance costs | - | (342 | ) | |||||||
| Exercise of stock options | 1,457 | 214 | ||||||||
| Repurchase of restricted stock to satisfy tax withholding obligation | (3,432 | ) | (5,563 | ) | ||||||
| Excess tax benefits from stock-based compensation | 46 | 1,418 | ||||||||
| Net cash used in financing activities | (1,929 | ) | (4,273 | ) | ||||||
| Effect of exchange rate changes on cash | 7,172 | 10,552 | ||||||||
| Net decrease in cash and cash equivalents | (21,838 | ) | (80,860 | ) | ||||||
| Cash and cash equivalents, beginning of period | 497,193 | 565,086 | ||||||||
| Cash and cash equivalents, end of period | $ | 475,355 | $ | 484,226 | ||||||
| Cash paid for interest on convertible senior notes | $ | 55 | $ | 55 | ||||||
| Cash paid for income taxes | $ | 496 | $ | 832 | ||||||
| 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, | |||||||||||||||||
| 2011 | 2011 | 2011 | 2011 | 2011 | |||||||||||||||||
| GAAP pre-tax income | $ | 8,885 | $ | 140 | $ | 3,587 | $ | 2,999 | $ | 15,611 | |||||||||||
| Add back amortization of acquisition-related intangibles | 2,122 | 2,205 | 2,184 | 11,529 | 18,040 | ||||||||||||||||
| Add back stock-based compensation expense | 4,955 | 5,731 | 5,549 | 5,879 | 22,114 | ||||||||||||||||
| Add back unrealized investment gain/loss | - | - | - | 1,995 | 1,995 | ||||||||||||||||
| Subtotal | 15,962 | 8,076 | 11,320 | 22,402 | 57,760 | ||||||||||||||||
| Income tax expense @ 21% | 3,352 | 1,696 | 2,377 | 4,705 | 12,130 | ||||||||||||||||
| Non-GAAP net income | 12,610 | 6,380 | 8,943 | 17,697 | 45,630 | ||||||||||||||||
| Add back debt interest expense and issuance cost amortization, net of tax benefit | 1,420 | 20 | 1,413 | 1,413 | 5,659 | ||||||||||||||||
| Adjusted net income for non-GAAP EPS calculation | $ | 14,030 | $ | 6,400 | $ | 10,356 | $ | 19,110 | $ | 51,289 | |||||||||||
| Non-GAAP net income per share - diluted | $ | 0.31 | $ | 0.17 | $ | 0.23 | $ | 0.45 | $ | 1.15 | |||||||||||
| Shares used in per share calculation - diluted | 45,276 | 38,181 | 44,821 | 42,207 | 44,532 | ||||||||||||||||
| Three months | |||||||||||||||||||||
| ended | |||||||||||||||||||||
| March 31, | |||||||||||||||||||||
| 2012 | |||||||||||||||||||||
| GAAP pre-tax income | $ | 5,777 | |||||||||||||||||||
| Add back amortization of acquisition-related intangibles | 1,849 | ||||||||||||||||||||
| Add back stock-based compensation expense | 5,961 | ||||||||||||||||||||
| Add back restructuring related costs | 395 | ||||||||||||||||||||
| Subtotal | 13,982 | ||||||||||||||||||||
| Income tax expense @ 21% | 2,936 | ||||||||||||||||||||
| Non-GAAP net income | 11,046 | ||||||||||||||||||||
| Add back debt interest expense and issuance cost amortization, net of tax benefit | 1,409 | ||||||||||||||||||||
| Adjusted net income for non-GAAP EPS calculation | $ | 12,455 | |||||||||||||||||||
| Non-GAAP net income per share - diluted | $ | 0.30 | |||||||||||||||||||
| Shares used in per share calculation - diluted | 41,032 | ||||||||||||||||||||
| Breakdown of stock-based compensation expense | |||||||||||||||||||||
| Three months | |||||||||||||||||||||
| ended | |||||||||||||||||||||
| March 31, | |||||||||||||||||||||
| 2012 | |||||||||||||||||||||
| Direct cost of services | $ | 60 | |||||||||||||||||||
| Network and infrastructure | 364 | ||||||||||||||||||||
| Sales and marketing | 2,168 | ||||||||||||||||||||
| Product research and development | 735 | ||||||||||||||||||||
| General and administrative | 2,634 | ||||||||||||||||||||
| Total | $ | 5,961 | |||||||||||||||||||
| Digital River, Inc. | |||||||||||||||||||
| Non-GAAP Guidance | |||||||||||||||||||
| (Unaudited, in millions except per share amounts) | |||||||||||||||||||
| Revenue Guidance Table | |||||||||||||||||||
| 2011 Actual | |||||||||||||||||||
| Three months ended |
Twelve Months | ||||||||||||||||||
| March 31, | June 30, | September 30, | December 31, | December 31, | |||||||||||||||
| 2011 | 2011 | 2011 | 2011 | 2011 | |||||||||||||||
| Commerce | $ | 74.6 | $ | 70.1 | $ | 72.5 | $ | 89.6 | $ | 306.8 | |||||||||
| Support Business | 23.6 | 22.4 | 22.9 | 22.4 | 91.3 | ||||||||||||||
| Total Revenue | $ | 98.2 | $ | 92.5 | $ | 95.4 | $ | 112.0 | $ | 398.1 | |||||||||
| 2012 Actual | |||||||||||||||||||
Three months | |||||||||||||||||||
| March 31, | |||||||||||||||||||
| 2012 | |||||||||||||||||||
| Commerce | $ | 82.1 | |||||||||||||||||
| Support Business | 20.3 | ||||||||||||||||||
| Total Revenue | $ | 102.4 | |||||||||||||||||
| 2012 Guidance | |||||||||||||||||||
| Q2 2012 | |||||||||||||||||||
| Low Guidance | High Guidance | ||||||||||||||||||
| Commerce | $ | 72.4 | $ | 73.9 | |||||||||||||||
| Support Business | 19.6 | 20.1 | |||||||||||||||||
| Total Expected Revenue | $ | 92.0 | $ | 94.0 | |||||||||||||||
| Non-GAAP Guidance Reconciliation | |||||||||||||||||||
| Q2 2012 | |||||||||||||||||||
| Low Guidance | High Guidance | ||||||||||||||||||
| Expected GAAP net income (loss) per share - diluted | $ | (0.02 | ) | $ | - | ||||||||||||||
| Add back amortization of acquisition-related costs, net of tax | 0.04 | 0.04 | |||||||||||||||||
| Add back stock-based compensation expense, net of tax | 0.15 | 0.15 | |||||||||||||||||
| Tax Variability | - | - | |||||||||||||||||
| Expected non-GAAP diluted net income per share | $ | 0.17 | $ | 0.19 | |||||||||||||||
| Projected Shares Used in Per Share Calculation | |||||||||||||||||||
| Q2 2012 | |||||||||||||||||||
| Low Guidance | High Guidance | ||||||||||||||||||
| Shares used in per share calculation - GAAP diluted | 34.0 | 34.0 | |||||||||||||||||
| Shares used in per share calculation - non-GAAP diluted | 34.5 | 34.5 | |||||||||||||||||
Investor Relations Contact:
Ed Merritt, 952-225-3362
Vice President, Investor Relations
investorrelations@digitalriver.com
or
Media Relations Contact:
Gerri Dyrek, 952-225-3719
Group Vice President, Corporate Communications
gdyrek@digitalriver.com