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PRESS RELEASE
Digital River Reports Third Quarter Revenue Up 15 Percent From Prior Quarter and 89 Percent Year-Over-Year Growth
Also announces company-wide reporting on a net revenue basis
MINNEAPOLIS, October 19, 2000 -- Digital River, Inc. (Nasdaq: DRIV), the world’s largest Commerce Service Provider (CSP), today reported net revenue of $7.6 million for the quarter ended September 30, 2000. This represents a sequential increase of 15 percent from net revenue of $6.6 million in the second quarter, and a year-over-year increase of 89 percent from net revenue of $4.0 million in the third quarter of 1999.
The company also announced that, based on the consensus reached by the Emerging Issues Task Force of the Financial Accounting Standards Board regarding net versus gross revenue recognition which resulted in revised accounting standards, it would commence reporting all revenues on a net basis with the quarter ending September 30, 2000. This change will have no impact on the company’s net income, either historically or in the future, as the change simply reflects a new presentation format. Historical information in the new reporting format has been provided by the company as an attachment to this press release. While Digital River no longer manages its business on a gross revenue basis nor will the company report this metric going forward, it said that gross revenues in the third quarter were between $34 and $35 million.
The net loss prior to goodwill amortization and acquisition-related costs was $5.5 million, or $0.25 per share, in the third quarter, a 34 percent improvement from the second quarter net loss of $8.3 million, or $0.39 per share, and significantly better than analyst expectations. The net loss for the quarter, including goodwill amortization and acquisition-related costs was $8.1 million, or $0.37 per share, compared with a net loss of $12.6 million, or $0.60 per share, in the second quarter.
For the nine months ended September 30, 2000, net revenue totaled $21.1 million, a 135 percent increase from $9.0 million in the same period last year. Through the first nine months of this year, the net loss, prior to the amortization of goodwill and acquisition-related costs was $ 20.3 million, or $0.96 per share. The net loss for the period, including the amortization of goodwill and acquisition-related costs, totaled $32.7 million, or $1.55 per share, compared with a net loss of $20.7 million, or $1.03 per share in the first nine months of 1999.
“I am very pleased with our performance in the third quarter and the momentum generated by each of our businesses,” said Joel Ronning,chief executive officer. “Digital River was able to deliver solid results in what was perceived to be a challenging environment for the technology and Internet sectors. We have demonstrated prudence in managing our business and decreased our cash utilization this quarter to $6.8 million, resulting in $32.5 million in cash and investments at September 30th, and we anticipate that our cash utilization in the fourth quarter will be cut in half.”
“We believe we are well capitalized to achieve our profitability targets,” Ronning continued. “We look forward to achieving our first profitability milestone for the Software Services division in December, as this will send a clear message to the financial community regarding the strength of the business model Digital River has built,” concluded Mr. Ronning.
Execution of E-Business Services Strategy
Digital River’s E-Business Services division had 15 new client contracts in the third quarter, resulting in a total of 49 client contracts, at September 30, 2000. New contracts since the end of the second quarter included Polaris, Giga Information Group, S3, Xircom and several new divisions of current clients, such as 3M, Fujitsu and Siemens. The E-Business division generated $1.7 million in revenue for the company in the quarter, a sequential increase of 49 percent, from $1.2 million in the second quarter.
"We're seeing substantial growth opportunities among mid-to-large manufacturing companies as they take their businesses to the Internet," said Perry Steiner, president. "Our E-Business clients are generally mature, profitable companies who sell their products through both direct and indirect sales channels. These types of companies are turning to Digital River to help them build and manage a complex sell-side e-commerce system that supports both channel partners and end customers. As we grow our business just as we have this past quarter, we're committed to enhancing our commerce system and our service offerings to support the needs of our clients."
Industry-Leading Software and Digital Commerce Services
The Software Services division generated $5.9 million in net revenue for the company in the quarter, versus revenues of $5.4 million in the second quarter. New clients added since the second quarter included Novell, Network Ice, Harvard Graphics and Havas. The division also added several business-to-education clients as well as game publishers. Also in the quarter Digital River acquired the software services business of NetSales, Inc.
“The performance of our Software Services division in the third quarter demonstrates that Digital River has regained its momentum and is the clear market leader in this category,” said Mr. Steiner. “We expect to continue to take advantage of the inevitable shift to selling and delivering software via the Internet. We expect to see high growth in this market from attracting new top-tier clients and from new opportunities as we help to grow our current clients,” he concluded.
Future Expectations
The company also announced its expectations for the fourth quarter. Sequential revenue growth is expected to be between 25 and 30 percent over the third quarter. The net loss per share, prior to goodwill amortization and acquisition related expenses, is expected to be approximately $0.21. The company also announced that it anticipates that the cash utilization in the fourth quarter will be approximately half of the third quarter level, at $3.4 million. Based on the revised presentation format for net revenue, the company also announced its revised long-term operating targets. It expects long-term gross margins to be 70-75 percent of net revenue and long-term operating margins to be 25-30 percent of net revenue.
About Digital River
Digital River (NASDAQ: DRIV) is the world’s largest Commerce Service Provider (CSP), providing over 8,000 companies with complete, outsourced commerce solutions. The Company’s e-commerce services include site development and hosting, order and transaction management, system integration, product fulfillment, fraud prevention, e-marketing and customer service. Digital River’s clients include Fujitsu, 3M, Siemens, Hewlett-Packard, Novell, Autodesk, Adaptec, Block Financial, Staples.com, CompUSA, Fox Interactive and Egghead.com. For more details about Digital River, visit the corporate web site at www.digitalriver.com or call 952-253-1234.
Digital River will sponsor a third quarter conference call today, at 3:45 pm (cdt). Investors are invited to listen to the conference call via Digital River’s Website, www.digitalriver.com. Please go to the “Investor” page to access the call and install any necessary audio software.
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. 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 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. |
