Digital River Reports Third Quarter 2012 Financial Results

MINNEAPOLIS — Nov. 1, 2012 — Digital River, Inc. (NASDAQ: DRIV), the revenue growth experts in global cloud commerce, reports its third quarter financial results.

Third Quarter Ended Sept. 30, 2012

GAAP Results

Third quarter revenue totaled $91.7 million, compared to $95.4 million during the same period in 2011. This result exceeded management’s third quarter revenue guidance of $88 to $91 million.

Third quarter GAAP net loss was $734 thousand or $0.02 per share, which compared to GAAP net income of $5.5 million, or $0.15 per diluted share in the third quarter of 2011. These results were at the top end of management’s third quarter GAAP earnings guidance, which ranged from a loss of $0.09 to a loss of $0.02 per share.

Non-GAAP Results

Third quarter non-GAAP net income was $6.6 million, or $0.20 per diluted share. This compared to non-GAAP net income of $8.9 million, or $0.23 per diluted share, in the third quarter of 2011. These results also exceeded management’s third quarter non-GAAP earnings guidance of $0.12 to $0.18 per diluted share.

“We’re pleased with both the revenue and earnings results we delivered in the third quarter. It was a busy quarter for our teams as we prepared for some exciting product launches from key clients and we executed very well throughout this period,” said Tom Madison, Digital River’s lead director and interim CEO. “We also announced our intent to acquire LML Payment Systems. This acquisition will further strengthen our online payments and transaction processing solutions, which are showing continued rapid growth. We have a lot of work ahead of us and face some challenges, but are confident we have the right strategy and team in place to execute to our plan and deliver attractive and sustainable shareholder value over time.”

Fourth Quarter and Full Year 2012 Guidance

Management’s forward-looking financial expectations for the fourth quarter are as follows:

Revenue, ranging from $96 to $100 million;
GAAP EPS, ranging from $0.08 to $0.15 per diluted share, using a 17 percent tax rate; and
Non-GAAP EPS, ranging from $0.25 to $0.31 per diluted share, using a 21 percent tax rate.

Management’s revised forward-looking financial expectations for the full year 2012 are as follows:

Revenue, ranging from $381 to $385 million;
GAAP EPS, ranging from $0.20 to $0.27 per diluted share, using a 17 percent tax rate; and
Non-GAAP EPS, ranging from $0.96 to $1.01 per diluted share, using a 21 percent tax rate.

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 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 #37432540 and dialing +1 (408) 427-3861. A webcast replay of the call will be archived on Digital River’s corporate website.

Access the Q3 2012 Financial Tables.

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 (loss) 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, restructuring costs, litigation settlement and acquisition-related 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; our ability to successfully complete senior management succession plan; 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 Nov. 1, 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.