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E-business
services segment records first quarter of EBITDA profitability
MINNEAPOLIS, July 23, 2003--Digital
RiverŽ, Inc. (NASDAQ: DRIV), a global leader in e-commerce
outsourcing, today reported revenue of $22.8 million
for the quarter ended June 30, 2003. This represents
a year-over-year increase of 18 percent from revenue
of $19.3 million in the second quarter of 2002. This
performance exceeded the company's second quarter 2003
guidance of $22.5 million. Gross margins were 83.3 percent
in the second quarter of 2003, a 72 basis point increase
from the same period in 2002.
For
the second quarter of 2003, net income as reflected
under U.S. Generally Accepted Accounting Principles
(GAAP) was $2.8 million, or $0.09 per share on a dilutive
basis. This compared to a net loss of $348,000, or $0.01
per basic share in the second quarter of 2002. These
results exceeded guidance previously given by the company.
Digital River's net income for the second quarter of
2003, prior to the amortization of acquisition-related
expenses, was $4.0 million, or $0.13 per share, on a
dilutive basis. This compares to net income, on a similar
basis, of $1.3 million, or $0.05 per share, in the second
quarter of last year.
"We are pleased with the financial and operational performance
of the company," said Joel Ronning, Digital River's
CEO. "We reached two important financial milestones
during the second quarter when we achieved our fourth
consecutive quarter of GAAP profitability and drove
our e-business services segment to EBITDA profitability
for the first time. During the quarter, we more than
tripled our year-over-year pro forma net income, while
making significant progress on strategic initiatives
that will be important for our future growth."
For the six months ended June 30, 2003, revenue totaled
$47.4 million, a 27 percent increase from $37.4 million
in the same period last year. On a GAAP basis, through
June 30th, net income totaled $6.8 million, or $0.22
per share on a dilutive basis, as compared to a net
loss of $3.9 million, or $0.15 per basic share, in the
prior year. For the first six months of 2003, net income,
prior to the amortization of acquisition-related expenses
was $9.3 million, or $0.30 per share on a dilutive basis.
This compares to a net loss, on a similar basis, of
$678,000, or $0.03 per basic share, for the first six
months of 2002.
"We believe we have established a strong foundation
for the second half of the year," said Ronning. "We
are well positioned to take advantage of momentum from
new client growth, expand our footprint into new geographies,
and execute on business strategies targeted at new market
opportunities. Our focused marketing and development
efforts are already producing positive results in the
areas of digital rights management, enterprise software
license management and expanded global online distribution."
As of June 30, 2003, Digital River's cash and investments
totaled $57.9 million, an $8.7 million increase from
March 31, 2003, and an increase of $25.7 million from
the same period in the prior year. Net working capital
grew $7.8 million from first-quarter levels to $26.4
million as of June 30, 2003.
Segmented
Results
The e-business services segment generated $4.1 million
in revenue in the second quarter. This performance was
relatively flat to revenue of $4.2 million in the second
quarter of 2002. The segment's second quarter financial
performance was also marked by an important milestone.
Digital River recorded the segment's first quarter of
positive earnings before interest, taxes, depreciation
and amortization (EBITDA). The segment contributed $96,000
of EBITDA in the second quarter of 2003, compared to
a significant loss in the second quarter of 2002.
The software services segment generated $18.7 million
in revenue in the second quarter, a nearly 24 percent
improvement from revenue of $15.1 million in the second
quarter of 2002. The segment contributed EBITDA of $5.3
million for the quarter.
"Our sales pipeline continues to look strong," said
Jay Kerutis, Digital River's president of software and
digital commerce services. "Our sales activities have
produced new contracts with industry-leading companies
and expanded relationships with existing clients in
new markets and territories. By further augmenting our
international sales force and customer service center,
adding a European data center to our two existing U.S.
sites and expanding our e-commerce service offering,
we continue to maximize our capacity to meet our future
growth objectives."
Future
Expectations
For
the third quarter of 2003, Digital River expects to
generate revenue of $23.0 - $23.5 million, a 22 - 25
percent improvement over the third quarter of 2002.
The software services segment is expected to comprise
approximately 80 - 85 percent of revenue in the quarter.
The company expects earnings per share for the third
quarter of $0.09 - $0.10 on a GAAP basis and $0.12 -
$0.13 prior to the amortization of acquisition-related
costs.
For 2003, the company is slightly increasing its revenue
guidance range to $95 - $98 million. The software services
segment revenue is expected to comprise approximately
80 - 85 percent of total company revenue for 2003. The
company is also slightly increasing its earnings per
share range to $0.42 - $0.45 on a GAAP basis, and $0.58
- $0.61, prior to the amortization of acquisition-related
expenses.
"Digital River continues to grow at a strong and steady
pace," said Carter Hicks, Digital River's CFO. "We continue
to benefit from not only the increasing acceptance of
e-commerce outsourcing, but also a highly scalable,
low-risk business model that can handle increasing transaction
levels with minimal incremental expense. We believe
that these favorable market and operational factors,
combined with our strong capital position will help
to further strengthen our leadership position in the
e-commerce market."
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 July 23, 2003.
Digital River will hold a second 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://www.digitalriver.com/corporate/company03.shtml.
Please go to the investor relations 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 online businesses for nearly 34,000
companies worldwide. Its e-commerce solution and infrastructure
are designed to help companies of all sizes 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 3M, ACT!, Autodesk,
H&R Block, Major League Baseball Advanced Media, Motorola,
Novell, Staples.com and Symantec.
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. |
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| Second Quarter Results |
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| (Unaudited, in thousands, except per share amounts) |
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| Condensed Consolidated Balance Sheets |
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As of |
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June 30, 2003 |
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December 31, 2002 |
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| Assets |
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| Current assets |
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| Cash and investments |
$ 57,895 |
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$ 40,801 |
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| Other current assets |
8,987 |
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12,204 |
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| Total current assets |
66,882 |
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53,005 |
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| Property and equipment, net |
15,527 |
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15,637 |
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| Goodwill, intangibles and other assets |
28,239 |
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27,051 |
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| Total assets |
$ 110,648 |
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$ 95,693 |
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| Liabilities and stockholders' equity |
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| Current liabilities |
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| Accounts payable |
$ 31,033 |
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$ 31,126 |
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| Deferred revenue |
2,080 |
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1,865 |
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| Accrued payroll and other liabilities |
7,408 |
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5,516 |
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| Total current liabilities |
40,521 |
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38,507 |
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| Stockholders' equity |
70,127 |
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57,186 |
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| Total liabilities and stockholders' equity |
$ 110,648 |
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$ 95,693 |
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| Condensed Consolidated Statements of Operations |
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Three months ended June 30, |
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Six months ended June 30, |
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2003 |
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2002 |
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2003 |
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2002 |
| Revenue |
$ 22,764 |
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$ 19,347 |
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$ 47,364 |
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$ 37,417 |
| Costs and expenses: |
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| Direct cost of services |
939 |
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556 |
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1,881 |
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1,171 |
| Network and infrastructure |
2,857 |
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2,810 |
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5,803 |
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5,522 |
| Sales and marketing |
8,978 |
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8,402 |
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18,250 |
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16,415 |
| Product research and development |
2,594 |
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3,289 |
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4,982 |
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6,563 |
| General and administrative |
1,978 |
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1,708 |
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4,269 |
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3,323 |
| Litigation and other charges |
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- |
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2,500 |
| Earnings before interest, taxes, |
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| depreciation and amortization |
5,418 |
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2,582 |
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12,179 |
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1,923 |
| Depreciation and amortization |
1,652 |
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1,436 |
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3,240 |
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2,810 |
| Amortization of acquisition related costs |
1,246 |
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1,651 |
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2,467 |
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3,200 |
| Earnings (loss) from operations |
2,520 |
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(505) |
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6,472 |
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(4,087) |
| Interest income |
247 |
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157 |
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317 |
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209 |
| Net earnings (loss) |
$ 2,767 |
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$ (348) |
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$ 6,789 |
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$ (3,878) |
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| Net earnings (loss) per share - basic |
$ 0.10 |
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$ (0.01) |
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$ 0.24 |
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$ (0.15) |
| Net earnings (loss) per share - diluted |
$ 0.09 |
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$ (0.01) |
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$ 0.22 |
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$ (0.15) |
| Weighted average shares outstanding - basic |
28,195 |
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26,688 |
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27,903 |
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26,569 |
| Weighted average shares outstanding - diluted |
31,790 |
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26,688 |
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31,101 |
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26,569 |
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| Note: Earnings before interest, taxes, depreciation and amortization ("EBITDA") is a non-GAAP financial measure. The |
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| presentation of this measure should be considered in addition to, not as a substitute, or superior to, operating income, |
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| cash flows, or other measures of financial performance prepared in accordance with GAAP. |
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