Digital River Reports Third Quarter 2014 Financial Results
- Returns to revenue growth; third quarter revenue of $88.8 million, up 2 percent year-over-year
- Reports third quarter GAAP EPS of $0.13 per diluted share; and break-even, non-GAAP EPS
- Recently announced agreement to be acquired by investor group led by Siris Capital Group for $26.00 per share in cash
MINNEAPOLIS — Oct. 29, 2014 — Digital River, Inc. (NASDAQ: DRIV), a leading global provider of Commerce-as-a-Service solutions, reported financial results for the third quarter of 2014.
Third Quarter Ended September 30, 2014
Third quarter revenue totaled $88.8 million, an increase of 2 percent over revenue in the third quarter of 2013, and within management’s third quarter revenue guidance range.
Third quarter 2014 GAAP net income from continuing operations was $4.0 million or $0.13 per diluted share, exceeding management’s third quarter GAAP guidance of a net loss from continuing operations of $0.31 to a net loss of $0.26 per share. Third quarter 2014 GAAP net income from continuing operations benefited from the inclusion of $9.1 million in tax benefits. In 2013, third quarter GAAP net loss from continuing operations was $7.6 million or a net loss of $0.24 per share.
On a non-GAAP basis, results from continuing operations and earnings per share were break-even for the third quarter of 2014. These results exceeded management’s third quarter non-GAAP guidance of a net loss from continuing operations of $0.05 to a net loss of $0.02 per share. In 2013, third quarter non-GAAP net loss from continuing operations was $1.0 million or a net loss of $0.03 per share.
“I am pleased to report that we delivered a solid third quarter. The company has returned to revenue growth, representing another important transformation milestone. Our revenue growth was driven by the continued expansion of existing client relationships as well as new business in our core commerce and payments markets,” said David Dobson, Digital River’s CEO. “We also recently announced a definitive merger agreement to be acquired by Siris Capital. We believe that this transaction, in addition to providing significant value to our stockholders, will allow Digital River to continue to accelerate our transformation, sharpen our focus on long-term global opportunities and deliver more value to our clients more quickly.”
Definitive Merger Agreement
On October 23, 2014, Digital River announced that it entered into a definitive merger agreement to be acquired by an investor group led by Siris Capital Group, LLC (collectively,“Siris”) in a transaction valued at approximately $840 million. Under the terms of the agreement, Siris would acquire all of the outstanding common shares of Digital River for $26.00 per share in cash.
The agreement was approved by Digital River’s Board of Directors, which recommended that Digital River’s stockholders adopt the agreement with Siris. The transaction is subject to customary closing conditions and is expected to close in the first quarter of 2015. Following the date of execution of the merger agreement, Digital River may solicit alternative acquisition proposals from third parties during a 45-day “go-shop” period.
Fourth Quarter and Full Year 2014 Guidance
Management’s forward-looking financial expectations for the fourth quarter of 2014 are as follows:
- Revenue, ranging from $101 to $104 million;
- GAAP EPS, ranging from $0.11 to $0.16 per diluted share; and
- Non-GAAP EPS, ranging from $0.31 to $0.35 per diluted share, using a 21 percent tax rate.
Management’s forward-looking financial expectations for the full year 2014 are as follows:
- Revenue, updated to range from $375 to $378 million, within the previous guidance range;
- GAAP EPS, updated to range from a net loss of $0.19 to a net loss of $0.14 per share, an increase from previous guidance; and
- Non-GAAP EPS, ranging from $0.49 to $0.54 per diluted share, using a 21 percent tax rate, an increase from previous guidance.
A detailed table providing a reconciliation of the company’s GAAP and non-GAAP earnings guidance estimates can be found accompanying this press release. Supplemental information on Digital River’s earnings results is included in an earnings overview presentation, which is available on the Investor Relations page of Digital River’s corporate website at http://phx.corporate-ir.net/phoenix.zhtml?c=94762&p=irol-irhome.
In light of the pending acquisition by Siris, Digital River does not intend to hold a conference call to discuss third quarter earnings.
About Digital River, Inc.
Backed by 20 years of ecommerce experience, Digital River is recognized as a leading global provider of Commerce-as-a-Service solutions. Companies of all sizes rely on Digital River’s multi-tenant, SaaS commerce, payments and marketing services to manage and grow their online businesses. In 2013, Digital River processed more than $30 billion in online transactions, connecting B2B and B2C digital products and cloud service companies as well as branded manufacturers with buyers across multiple devices and channels, and nearly every country in the world.
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, read our Digital River blog, follow the company on Twitter or call +1 952-253-1234.
Non-GAAP Net Income Calculation
Digital River’s non-GAAP net income (loss) from continuing operations is computed by adjusting GAAP pre-tax income (loss) 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, investment gains or losses, goodwill impairments, and one-time impacts of debt repurchases, 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 Senior 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 from continuing operations 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.
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; 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 and transformational 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; the nature, cost and outcome of pending and future litigation and other legal proceedings; the risk that the merger may not be consummated in a timely manner, if at all; the risk that the merger agreement may be terminated in circumstances that require Digital River to pay Siris a termination fee or other expenses; risks related to the diversion of management’s attention from Digital River’s ongoing business operations; risks regarding the failure of the relevant Siris affiliate to obtain the necessary financing to complete the merger; the effect of the announcement of the merger on Digital River’s business relationships (including, without limitation, customers and suppliers), operating results and business generally; risks related to satisfying the conditions to the merger, including the failure of Digital River’s stockholders to approve the merger, timing (including possible delays) and receipt of regulatory approvals from various governmental entities (including any conditions, limitations or restrictions placed on these approvals) and the risk that one or more governmental entities may deny approval; the ability to recognize the benefits of the merger and the nature, cost and outcome of pending and future litigation and other legal proceedings, including any such proceedings related to the proposed merger; 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, 2013. 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 reflect management’s expectations as of Oct. 29, 2014. 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.
This press release may be deemed to be solicitation material in respect of the proposed acquisition of Digital River. In connection with the proposed merger, Digital River intends to file relevant materials with the Securities and Exchange Commission (the “SEC”), including a preliminary proxy statement on Schedule 14A. Following the filing of the definitive proxy statement with the SEC, Digital River will mail the definitive proxy statement and a proxy card to each stockholder entitled to vote at the special meeting relating to the proposed merger. INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ THESE MATERIALS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS IN CONNECTION WITH THE MERGER THAT DIGITAL RIVER WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT DIGITAL RIVER AND THE PROPOSED MERGER. The preliminary proxy statement, the definitive proxy statement and other relevant materials in connection with the proposed merger (when they become available), and any other documents filed by Digital River with the SEC, may be obtained free of charge at the SEC’s website at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC at Digital River’s website, www.digitalriver.com, or by contacting Investor Relations by directing a request to Digital River, Inc., Attention: Investor Relations, 10380 Bren Road West, Minnetonka, MN 55343, or by calling 952-225-3351.
Digital River and its directors and executive officers may be deemed to be participants in the solicitation of proxies from Digital River’s stockholders with respect to the proposed merger. Information about Digital River’s directors and executive officers and their ownership of Digital River’s common stock is set forth in the proxy statement for Digital River’s 2014 Annual Meeting of Shareholders, which was filed with the SEC on April 11, 2014. Information regarding the identity of the potential participants, and their direct or indirect interests in the merger, by security holdings or otherwise, will be set forth in the proxy statement and other materials to be filed with the SEC in connection with the proposed merger.