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Digital River Reports Third Quarter 2013 Financial Results

  • Third quarter revenue of $90.3 million, including contributions from divested businesses
  • Organic payments revenue increased 47 percent year-over-year
  • Completed divestitures of two supporting businesses
  • Provided updated 2013 revenue growth, excluding divested businesses, of 4 percent to 5 percent and non-GAAP EPS, ranging from $0.56 to $0.61

MINNEAPOLIS – October 30, 2013Digital River, Inc. (NASDAQ: DRIV) reported financial results for its third quarter of 2013.

Third Quarter Ended September 30, 2013

GAAP Results
Third quarter revenue totaled $90.3 million, including the contribution from the company’s recently divested businesses. This result was consistent with management’s third quarter revenue guidance of $88 to $92 million. Excluding the contribution from the divested businesses, third quarter revenue was $87.3 million, compared to $87.1 million during the same period last year.

Third quarter GAAP net loss, including the contribution from the company’s divested businesses, was $12.5 million or a net loss of $0.40 per share. Third quarter GAAP net loss, excluding the contribution from the divested businesses, was $7.6 million or a net loss of $0.24 per share. These results compared to a GAAP net loss of $0.7 million or a net loss of $0.02 per share in the third quarter of 2012, both including and excluding the contribution from the divested businesses.

Non-GAAP Results
Third quarter non-GAAP net loss, both including and excluding the contribution from the divested businesses, was $1 million or a loss of $0.03 per share. These results exceeded management’s third quarter non-GAAP guidance, which ranged from a net loss of $0.10 to a net loss of $0.05 per share. This compared to previously reported non-GAAP net income in the third quarter of 2012, including the contribution from the divested businesses, of $6.6 million and $0.20 per diluted share. Excluding the contribution from the divested businesses, non-GAAP net income was $6.1 million or $0.19 per diluted share in the third quarter of 2012.

“We reported solid financial results in the third quarter. We met revenue and exceeded earnings guidance, with payments continuing to be an important driver behind our top line growth,” said David Dobson, Digital River’s CEO. “We continue to take actions to accelerate our strategic transformation and deliver even more competitive products and services to our customers. We recently divested two of our non-core businesses. In addition, we appointed two new senior leaders to help drive our technology evolution and product innovation strategy, grow our core commerce, payments and marketing businesses, and increase our operational efficiency.”

Divestitures
During the third quarter, Digital River divested CustomCD, a provider of on-demand back-up media services, and Digital River Education Services, a reseller of software and hard goods for the U.S. education market. The businesses were previously included in the company’s Supporting Business line. The transactions closed on September 30, 2013, and October 1, 2013, respectively. The terms of the transactions are not material to the company’s financial position.

In accordance with applicable accounting standards, Digital River is presenting the CustomCD and Digital River Education Services businesses within discontinued operations in the consolidated statements of operations for all periods presented. The company’s historical consolidated financial statements and operating results have been updated to reflect this change.

Workforce Reduction
Subsequent to the third quarter, the company reduced global headcount by 7 percent in connection with the strategic transformation and rebalancing of skills and experience.

Share Repurchase
During the third quarter, the company repurchased approximately $12.7 million of common stock. All transactions took place in the open market.

Fourth Quarter and Full Year 2013 Guidance
Management’s forward-looking financial expectations for the fourth quarter of 2013, excluding the contribution of the divested businesses, are as follows:

  • Revenue ranging from $96.5 to $100.5 million;
  • GAAP EPS ranging from a net loss of $0.10 to a net loss of $0.03 per share; and finally
  • Non-GAAP EPS ranging from $0.17 to $0.22 per diluted share, using a 21 percent tax rate.

Management’s forward-looking financial expectations for the full year 2013, excluding the contribution of the divested businesses, are as follows:

  • Revenue ranging from $385 to $389 million, representing revenue growth of 4 percent to 5 percent compared to 2012;
  • GAAP EPS ranging from a net loss of $0.67 to a net loss of $0.60 per share; and finally
  • Non-GAAP EPS ranging from $0.56 to $0.61 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. A historical presentation of the company’s 2012 and 2013 continuing operating results as well as the new financial presentation reflecting the change in revenue categories from enterprise commerce and supporting revenues, to commerce and payments revenues can be accessed on the Investor Relations section of its corporate website.

Access the Q3 2013 Financial Tables.

Digital River will host an open-access webcast presentation and conference call today at 4:45 p.m. EDT to discuss third quarter financial results. A live audio webcast can be accessed on the Investor Relations section of its corporate website. Alternatively, to listen only to the live broadcast of the call, dial +1 (408) 427-3861 and use conference ID # 84237268. A webcast and audio replay of the presentation will be archived on Digital River’s corporate website.

About Digital River, Inc.
Digital River, Inc. 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, physical and digital product fulfillment, multi-lingual customer service, advanced reporting and strategic marketing services.

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) from continuing operations is computed by adjusting GAAP pre-tax income from continuing operations as reported on the company’s statement of operations by adding back, when applicable, amortization of acquisition-related intangibles, stock-based compensation expense, intangible impairments, restructuring related costs, litigation settlement related costs, acquisition and integration costs, realized and unrealized investment gains or losses, and goodwill impairments, net of a 21 percent tax rate. Non-GAAP diluted earnings per share from continuing operations is calculated using the “if-converted” method with respect to the issuance of the company’s 2004 and 2010 convertible notes. In computing non-GAAP diluted earnings per share from continuing operations, if an increase in earnings per share will not result, 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 from continuing operations 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 and 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 and payments markets; challenges associated with international expansion; our ability to execute on the 2013 holiday readiness program; 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 technical initiatives; 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, 2012. 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 fiscal 2013 reflect management’s expectations as of October 30, 2013. 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 online payments, progress with key partners, and other factors. The guidance assumes, among other things, that there are no material 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 or future guidance 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.

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