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Company
records GAAP net income of $0.13, a $0.26 improvement
from the prior year net loss
MINNEAPOLIS, April 23, 2003--Digital
River, Inc. (NASDAQ: DRIV), a global leader in e-commerce
outsourcing, today reported revenue of $24.6 million
for the quarter ended March 31, 2003. This represents
a year-over-year increase of 36 percent from revenue
of $18.1 million in the first quarter of last year,
and a more than 14 percent sequential increase from
the $21.5 million in net revenue generated in the fourth
quarter of 2002. This performance exceeded the Company's
previous first quarter 2003 guidance of $21.5 million.
Gross margins were 84.2 percent in the first quarter
2003, approximately 260 basis points higher than the
same period last year, and 54 basis points higher than
the fourth quarter of 2002.
In
the first quarter, net income totaled $4.0 million,
or $0.13 per share, as reflected under U.S. Generally
Accepted Accounting Principles (GAAP). This compares
to a net loss of $3.5 million, or $0.13 per share for
the same period last year, and net income of $3.3 million,
or $0.11 per share for the fourth quarter of 2002. These
results exceeded guidance previously provided by the
Company.
"We had a tremendous first quarter, exceeding both revenue
and earnings-per-share expectations," said Joel Ronning,
Digital River's CEO. "Digital River continues to demonstrate
strong revenue growth and maximize savings from cost
efficiency initiatives. We managed record-breaking transaction
levels through our data centers, capitalized on our
e-marketing services, rolled out new enterprise software
and e-subscription service offerings, and completed
two small but strategic acquisitions. We are pleased
with the solid performance and the direction of the
company. With a strong balance sheet and increasing
profitability, we believe we are well-positioned for
the remainder of 2003."
In prior periods, Digital River has reported pro forma
measures, which excluded certain expenses from net income
to provide information regarding our core operating
results. For purposes of comparison to historical information,
Digital River's net income in the first quarter of 2003,
prior to the amortization of acquisition-related expenses
was $5.2 million, or $0.17 per share. This compares
to net income, prior to the amortization of acquisition-related
expenses and litigation and other charges of $519,000,
or $0.02 per share for the first quarter of 2002. This
also compares to net income, prior to the amortization
of acquisition-related expenses, of $4.5 million or
$0.15 per share in the fourth quarter of 2002.
As of March 31, 2003, cash and investments totaled $49.2
million, an $8.4 million increase from December 31,
2002, and an $18.4 million increase from the same period
in the prior year. Net working capital grew $4.1 million
from year-end levels to $18.6 million as of March 31,
2003.
Segmented
Financial Results
Digital River's software services segment generated
$21.0 million in revenue in the first quarter, a 43
percent increase over the first quarter of last year
and a 17 percent sequential increase over revenue of
$18.0 million in the fourth quarter of 2002. The segment
had earnings before interest, taxes, depreciation and
amortization (EBITDA) of $7.4 million for the quarter.
"Digital River continues to leverage growing market
opportunities," said Jay Kerutis, president of Digital
River's software and digital commerce services. "In
the first quarter, our company's growth was generated
through new client contracts and expanded relationships
with existing clients. In the near term, we plan to
intensify our sales efforts in the channel and in the
international arena, particularly in the APAC region.
We also plan to expand into the enterprise software
and subscription markets with new e-commerce offerings."
The e-business services segment generated $3.6 million
in revenue in the quarter. This represents a six percent
increase over revenue of $3.4 million in the same period
last year and a slight sequential increase over revenue
of $3.5 million in the fourth quarter of 2002. The e-business
services segment's EBITDA loss was $598,000 for the
quarter, down from a loss of $1.3 million in the prior
quarter.
"As anticipated, the performance of the e-business services
segment continues to improve primarily due to the previously
announced operations consolidation and increased efficiencies,"
said Carter Hicks, Digital River's CFO. "This consolidation
is unifying the organization in its delivery of e-commerce
solutions. In addition, we are moving away from complex
custom development projects in favor of our templated,
revenue-share model. As a result, the expenses attributable
to the e-business services segment have declined."
Future
Expectations
Based
on Digital River's first quarter performance, the Company
is increasing its 2003 guidance. The Company currently
expects total revenue for the year to be approximately
$94 - $98 million. This is a $3 - $5 million increase
over its previous guidance. The Company expects its
software services segment revenue to comprise approximately
80-85 percent of total company revenue for the year.
Based on the new revenue projection, the Company currently
expects earnings per share to be $0.41 - $0.45 on a
GAAP basis, and $0.57 - $0.61, prior to the amortization
of acquisition-related expenses. The Company's previous
guidance was $0.35 - $0.37 on a GAAP basis and $0.50
- $0.52, prior to the amortization of acquisition-related
expenses.
"While we are very encouraged by the seasonal activity
and transaction levels in the first quarter and we are
raising our annual revenue and earnings per share guidance,
we still believe it is prudent to remain guarded about
the economy and technology spending patterns over the
next few quarters," said Ronning. "Our revised guidance
continues to reflect guarded optimism."
Consistent with historical seasonal patterns, for the
second quarter Digital River currently expects to generate
revenue of $22.5 million, a 16 percent improvement over
the second quarter of 2002. The software services segment
revenue is expected to comprise approximately 80 - 85
percent of revenue in the quarter. The Company currently
expects earnings per share for the second quarter of
$0.08 on a GAAP basis and $0.12, prior to the amortization
of acquisition-related costs.
Note: A reconciliation of the pro forma measurement
data above is provided as a table following the condensed
financial statements accompanying this announcement.
Further information regarding the Company's use of non-GAAP
financial data has been included in the Company's Form
8-K filed with the Securities and Exchange Commission
on April 23, 2003.
Digital River will hold a first quarter conference call
today at 4:45 p.m. Eastern Daylight Time. To access
the call, please dial 877-422-0170, or listen to the
webcast at http://drhome.digitalriver.com/livehtml/newsite/dr_invest_000.html.
Please go to the investor page to access the call and
install any necessary audio software.
About Digital River, Inc.
Digital River, Inc., a global leader in e-commerce outsourcing,
builds and manages profitable online businesses for
nearly 34,000 companies worldwide. Its comprehensive
e-commerce solution and world-class infrastructure are
designed to help companies of all sizes quickly maximize
online revenues as well as cut the costs and reduce
the risks associated with running an e-commerce operation.
Digital River's international e-commerce services include
site development and hosting, order management, fraud
prevention, site merchandising, reporting and analytics,
product fulfillment, e-marketing and multi-lingual customer
service. Digital River's clients include Symantec, Motorola,
3M, Major League Baseball Advanced Media, H&R Block,
Novell, Autodesk, ACT! and Staples.com.
Founded in 1994, Digital River is headquartered in Minneapolis
with offices throughout the United States and in Europe.
For more details about Digital River, visit the corporate
Web site at www.digitalriver.com or call 952-253-1234.
Digital River is a registered trademark of Digital
River, Inc. All other company and product names are
trademarks, registrations or copyrights of their respective
owners.
Forward-Looking
Statements
Except for the historical information contained herein,
this press release contains forward-looking statements,
including statements containing the words, "believes,"
"anticipates," "expects," and similar words. Forward-looking
statements, such as statements about the company's expectation
of future financial performance, 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
any future results, performance or achievements 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 electronic commerce market; and other
risk factors referenced in the Company's public filings
with the Securities and Exchange Commission (the "SEC").
More specific information about potential factors that
could affect the Company's business and financial results
is included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2002, including
(without limitation) under the captions, "Risk Factors"
and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which is on file
with the SEC and available at the SEC's website at www.sec.gov.
Additional information will also be set forth in those
sections in Digital River's Quarterly Report on Form
10-Q for the six month period ended June 30, 2003, which
will be filed with the SEC in the third quarter of 2003.
Digital River, Inc.
First Quarter Results
(Unaudited, in thousands, except per share amounts)
Condensed Consolidated Balance Sheets
As of
--------------------------------
March 31, 2003 December 31, 2002
-------------- -----------------
Assets
------
Current assets
Cash and investments $49,189 $40,801
Other current assets 12,650 12,204
-------------- -----------------
Total current assets 61,839 53,005
Property and equipment, net 15,154 15,637
Goodwill and other assets 28,245 27,051
-------------- -----------------
Total assets $105,238 $95,693
============== =================
Liabilities and stockholders' equity
------------------------------------
Current liabilities
Accounts payable $35,339 $31,126
Deferred revenue 1,428 1,865
Accrued payroll and other
liabilities 6,510 5,516
-------------- -----------------
Total current liabilities 43,277 38,507
Stockholders' equity 61,961 57,186
-------------- -----------------
Total liabilities and stockholders'
equity $105,238 $95,693
============== =================
Condensed Consolidated Statements of Operations
Three months ended March 31,
--------------------------------
2003 2002
-------------- -----------------
Revenue $24,600 $18,070
Costs and expenses:
-------------------
Direct cost of services 942 615
Network and infrastructure 2,946 2,712
Sales and marketing 9,272 8,013
Product research and development 2,388 3,274
General and administrative 2,291 1,615
Litigation and other charges - 2,500
-------------- -----------------
Earnings (loss) before interest,
taxes, depreciation and
amortization 6,761 (659)
Depreciation and amortization 1,588 1,374
Amortization of acquisition related
costs 1,221 1,549
-------------- -----------------
Earnings (loss) from operations 3,952 (3,582)
Interest income 70 52
-------------- -----------------
Net earnings (loss) $4,022 $(3,530)
============== =================
Net earnings (loss) per share - basic $0.15 $(0.13)
============== =================
Net earnings (loss) per share -
diluted $0.13 $(0.13)
============== =================
Weighted average shares outstanding -
basic 27,609 26,449
Weighted average shares outstanding -
diluted 30,410 26,449
Note: Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a non-GAAP financial measure. The presentation of this
measure should be considered in addition to, not as a substitute, or
superior to, operating income, cash flows, or other measures of
financial performance prepared in accordance with GAAP.
Digital River, Inc.
Pro Forma Reconciliations
Unaudited, in thousands, except per share amounts
-------------------------------------------------
Three months ended Three Months
March 31, Ended
------------------- December 31,
2003 2002 2002
-------- ---------- ------------
Pro Forma Financial Reconciliations:
------------------------------------
Net earnings (loss) per GAAP $4,022 $(3,530) $3,270
Add back amortization of acquisition
related costs 1,221 1,549 1,182
Add back litigation and other charges - 2,500 -
-------- ---------- ------------
Pro Forma earnings $5,243 $519 $4,452
======== ========== ============
Pro Forma net earnings per share -
diluted $0.17 $0.02 $0.15
======== ========== ============
Pro Forma weighted average shares
outstanding - diluted 30,410 29,978 30,192
Segment EBITDA Reconciliations:
-------------------------------
Software E-Business
Segment Segment Consolidated
-------- ---------- ------------
Three months ended 3/31/03
--------------------------
Revenue $21,037 $3,563 $24,600
Expenses 13,678 4,161 17,839
-------- ---------- ------------
EBITDA $7,359 $(598) $6,761
======== ========== ============
Software E-Business
Segment Segment Consolidated
-------- ---------- ------------
Three months ended 12/31/02
---------------------------
Revenue $17,964 $3,530 $21,494
Expenses 10,653 4,822 15,475
-------- ---------- ------------
EBITDA $7,311 $(1,292) $6,019
======== ========== ============
Software E-Business
Segment Segment Consolidated
-------- ---------- ------------
Three months ended 3/31/02
--------------------------
Revenue $14,697 $3,373 $18,070
Expenses 10,322 5,907 16,229
Unallocated litigation and other
charges - - 2,500
-------- ---------- ------------
EBITDA $4,375 $(2,534) $(659)
======== ========== ============
Note: Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a non-GAAP financial measure. The presentation of this
measure should be considered in addition to, not as a substitute, or
superior to, operating income, cash flows, or other measures of
financial performance prepared in accordance with GAAP.
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