Digital River Reports Fourth Quarter And Full Year 2013 Financial Results

Digital River, Inc. (NASDAQ: DRIV), a leading global provider of Commerce-as-a-Service solutions, reported financial results for the fourth quarter and full year of 2013.

Fourth Quarter and Full-Year Ended December 31, 2013 GAAP Results Fourth quarter revenue totaled $101.2 million, exceeding management’s fourth quarter revenue guidance of $96.5 to $100.5 million. For the full year 2013, revenue was $389.7 million, exceeding management’s full year 2013 revenue guidance of $385 to $389 million. In 2012, fourth quarter revenue from continuing operations was $98.1 million, and full year revenue from continuing operations was $370.5 million.

Fourth quarter 2013 GAAP net loss from continuing operations was $0.1 million or $0.00 per share, exceeding management’s fourth quarter GAAP guidance of a net loss from continuing operations of $0.10 to $0.03 per share. For the full year 2013, GAAP net loss from continuing operations was $18.5 million or a net loss of $0.58 per share, exceeding management’s full year 2013 GAAP guidance of a net loss from continuing operations of $0.67 to $0.60 per share. In 2012, fourth quarter GAAP net loss from continuing operations was $188.8 million or $5.77 per share, and full year GAAP net loss from continuing operations was $183.6 million or $5.53 per share.

Non-GAAP Results Fourth quarter 2013 non-GAAP diluted net income from continuing operations was $8.3 million or $0.22 per diluted share, which was at the high end of management’s fourth quarter non-GAAP guidance of $0.17 to $0.22 per diluted share. For the full year 2013, non-GAAP diluted net income from continuing operations was $20.0 million or $0.61 per diluted share, at the high end of management’s non-GAAP guidance of $0.56 to $0.61 per diluted share. In 2012, fourth quarter non-GAAP diluted net income from continuing operations was $12.9 million or $0.32 per diluted share, and full year non-GAAP diluted net income from continuing operations was $41.4 million or $1.02 per diluted share.

“I am pleased to report that we closed the year with solid results. Our revenue performance was driven by strong holiday sales through our customers’ commerce channels and the continued, strong organic growth of our global payments offerings,” said David Dobson, Digital River’s CEO. “We remain committed to creating more value for our customers and shareholders. The strategic transformation framework, which we initiated in 2013, is driving our execution priorities. As a result of the progress we have made, we have increased customer retention, expanded our business with existing customers, and started to win new customers in selected segments. As a result, we are going to redeploy some of the financial capacity we created in the fourth quarter to accelerate our technology transformation, continue to expand our global footprint and increase our investment in payments to sustain the rapid growth of this part of our business.”

Share RepurchaseDuring the fourth quarter, the company repurchased approximately $7.3 million of common stock. All transactions took place in the open market.

First Quarter and Full Year 2014 GuidanceManagement’s forward-looking financial expectations for the first quarter of 2014 are as follows:
  • Revenue, ranging from $92.0 to $95.0 million
  • GAAP EPS, ranging from a net loss of $0.15 to a net loss of $0.09 per share
  • Non-GAAP EPS, ranging from $0.07 to $0.11 per diluted share, using a 21 percent tax rate

Management’s forward-looking financial expectations for the full year 2014 are as follows:
  • Revenue, ranging from $365 to $378 million, representing a revenue decline of 3 percent to 6 percent compared to revenue from continuing operations in 2013
  • GAAP EPS, ranging from a net loss of $0.53 to a net loss of $0.39 per share
  • Non-GAAP EPS, ranging from $0.35 to $0.45 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 host an open-access audio webcast and conference call today at 4:45 p.m. EST to discuss fourth quarter and full year 2013 financial results. The live audio webcast can be accessed on the Investor Relations ( www.digitalriver.com/investorrelations) section of its corporate website. Alternatively, to listen to the live broadcast of the call, dial +1 (408) 427-3861 and use conference ID # 31354966. A webcast and audio replay of the presentation will be archived on Digital River’s corporate website.

About Digital River, Inc.Backed by 20 years of e-commerce 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, 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 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 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.

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; 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 reflect management’s expectations as of February 5, 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.

 
Digital River, Inc.
Fourth Quarter Results
(Unaudited, in thousands, except share data)
Subject to reclassification
       
Consolidated Balance Sheets
December 31, December 31,
2013 2012

Assets
Current assets
Cash and cash equivalents $ 483,868 $ 542,851
Short-term investments 115,652 162,794
Accounts receivable, net of allowance of $3,206 and $4,834 70,865 55,192
Deferred tax assets 1,479 457
Prepaid expenses and other 27,878 31,813
Assets of discontinued operations   -     7,561  
Total current assets 699,742 800,668
Property and equipment, net 53,770 53,098
Goodwill 139,318 108,960
Intangible assets, net of accumulated amortization of $87,865 and $78,757 29,217 11,718
Long-term investments 56,023 71,735
Deferred income taxes 1,037 1,792
Other assets   2,067     4,313  
Total assets $ 981,174   $ 1,052,284  

Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 165,438 $ 201,826
Accrued payroll 20,058 11,294
Deferred revenue 6,904 13,119
Other current liabilities 78,096 50,149
Liabilities of discontinued operations   -     5,753  
Total current liabilities 270,496 282,141
Non-current liabilities
Convertible senior notes 295,795 309,909
Other liabilities   21,452     18,236  
Total non-current liabilities   317,247     328,145  
Total liabilities   587,743     610,286  
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding - -
Common stock, $.01 par value; 120,000,000 shares authorized; 50,074,977 and 48,941,402 shares issued 501 489
Treasury stock at cost; 16,910,883 and 13,581,889 shares (424,416 ) (368,721 )
Additional paid-in capital 761,560 737,499
Retained earnings 51,254 75,901

Accumulated other comprehensive income (loss)
  4,532     (3,170 )
Stockholders' equity   393,431     441,998  
Total liabilities and stockholders' equity $ 981,174   $ 1,052,284  
 

 
Digital River, Inc.
Fourth Quarter Results
(Unaudited, in thousands, except per share amounts)
Subject to reclassification
 
Consolidated Statements of Operations
               
Three months ended Twelve months ended
December 31, December 31,
2013 2012 2013 2012
Revenue $ 101,235 $ 98,119 $ 389,679 $ 370,496
Costs and expenses (exclusive of depreciation and amortization expense shown separately below):
Direct cost of services 18,233 18,946 73,505 66,756
Network and infrastructure 14,987 14,242 59,036 52,564
Sales and marketing 26,539 23,223 106,954 97,816
Product research and development 19,392 15,918 72,359 61,550
General and administrative 12,239 18,738 56,279 55,763
Goodwill impairment - 175,241 21,249 175,241
Depreciation and amortization 6,332 5,021 22,080 20,192
Amortization of acquisition-related intangibles   2,183     1,174     8,543     4,700  
Total costs and expenses   99,905     272,503     420,005     534,582  
Income (loss) from operations   1,330     (174,384 )   (30,326 )   (164,086 )
Interest income 522 912 2,451 3,820
Interest expense (1,938 ) (2,212 ) (7,822 ) (8,968 )
Other income (expense), net   (457 )   4,675     16,260     4,799  
Income (loss) from continuing operations before income taxes (543 ) (171,009 ) (19,437 ) (164,435 )
Income tax expense (benefit)   (500 )   17,759     (908 )   19,203  
Income (loss) from continuing operations (43 ) (188,768 ) (18,529 ) (183,638 )
Income (loss) from discontinued operations, net of tax   120     (11,303 )   (6,118 )   (12,230 )
Net Income (loss) $ 77   $ (200,071 ) $ (24,647 ) $ (195,868 )
 
Income (loss) per share - basic
Income (loss) from continuing operations $ 0.00 $ (5.77 ) $ (0.58 ) $ (5.53 )
Income (loss) from discontinued operations   0.00     (0.35 )   (0.19 )   (0.37 )
Net income (loss) per share - basic $ 0.00   $ (6.11 ) $ (0.77 ) $ (5.90 )
 
Income (loss) per share - diluted
Income (loss) from continuing operations $ 0.00 $ (5.77 ) $ (0.58 ) $ (5.53 )
Income (loss) from discontinued operations   0.00     (0.35 )   (0.19 )   (0.37 )
Net income (loss) per share - diluted $ 0.00   $ (6.11 ) $ (0.77 ) $ (5.90 )
Shares used in per share calculation - basic 30,759 32,752 32,065 33,224
Shares used in per share calculation - diluted 30,759 32,752 32,065 33,224
 
 
Calculation of GAAP Diluted Net Income (Loss) Per Share
 
Three months ended Twelve months ended
December 31, December 31,
2013 2012 2013 2012
GAAP net income (loss) $ 77 $ (200,071 ) $ (24,647 ) $ (195,868 )
Add back debt interest expense and issuance cost amortization, net of tax benefit   -     -     -     -  
Adjusted net income (loss) for GAAP EPS calculation $ 77   $ (200,071 ) $ (24,647 ) $ (195,868 )
 
Net income (loss) per share - diluted $ 0.00   $ (6.11 ) $ (0.77 ) $ (5.90 )
Shares used in per share calculation - diluted 30,759 32,752 32,065 33,224
 

Digital River, Inc.
Fourth Quarter Results
(Unaudited, in thousands)
Subject to reclassification
 
Consolidated Statements of Cash Flows
    Twelve months ended
December 31,
2013     2012

Operating Activities:
Net income (loss) $ (24,647 ) $ (195,868 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss on disposal of discontinued operations 1,894 -
Amortization of acquisition-related intangibles 8,543 6,832
Provision for doubtful accounts 1,661 2,031
Depreciation and amortization 22,163 20,307
Impairment of goodwill 21,249 175,241
Impairment of intangibles - 235
Debt issuance cost amortization 1,701 1,953
Amortization of investment premiums 2,837 -
Loss on sale of equipment 88 85
Gain on sale of investment (17,526 ) (3,178 )
Gain on business divestiture - (246 )
Stock-based compensation expense 20,568 29,517
Excess tax benefits from stock-based compensation - (505 )
Deferred and other income taxes (150 ) 23,349
Change in operating assets and liabilities (net of acquisitions):
Accounts receivable (15,278 ) 2,715
Prepaid and other assets 9,744 (8,392 )
Accounts payable (42,669 ) (40,333 )
Deferred revenue (7,288 ) 8,265
Income tax payable (1,679 ) 10,948
Other accrued liabilities   3,499     5,884  
Net cash provided by (used in) operating activities   (15,290 )   38,840  
 

Investing Activities:
Purchases of investments (140,900 ) (98,658 )
Sales of investments 184,978 185,750
Cash received for cost method investments 39,636 2,700
Cash paid for acquisitions, net of cash received (55,843 ) -
Cash received from divestitures 120 500
Purchases of equipment and capitalized software   (23,334 )   (22,035 )
Net cash provided by (used in) investing activities   4,657     68,257  
 

Financing Activities:
Repurchase of senior convertible notes (5,354 ) (43,896 )
Exercise of stock options 1,273 1,567
Sales of common stock under employee stock purchase plan 2,233 2,552
Repurchase of common stock (51,208 ) (22,667 )
Repurchase of restricted stock to satisfy tax withholding obligation (4,487 ) (5,108 )
Excess tax benefits from stock-based compensation   -     505  
Net cash provided by (used in) financing activities   (57,543 )   (67,047 )
Effect of exchange rate changes on cash   9,193     5,608  
Net increase (decrease) in cash and cash equivalents (58,983 ) 45,658
Cash and cash equivalents, beginning of period 542,851 497,193
   
Cash and cash equivalents, end of period $ 483,868   $ 542,851  
   
Cash paid for interest on convertible senior notes $ 6,081   $ 7,123  
Cash paid for income taxes $ 4,292   $ 3,272  
 

 
Digital River, Inc.
GAAP to non-GAAP Reconciliations
(Unaudited, in thousands, except per share amounts)

UTILIZING 21% EFFECTIVE INCOME TAX RATE
                   

Twelve months
Three months ended

ended
March 31, June 30, September 30, December 31, December 31,
2012 2012 2012 2012 2012
GAAP pre-tax income (loss) from continuing operations $ 6,476 $ 1,533 $ (1,435 ) $ (171,009 ) $ (164,435 )
Add back amortization of acquisition-related intangibles 1,257 1,151 1,118 1,174 4,700
Add back stock-based compensation expense 5,961 6,231 6,063 11,262 29,517
Add back restructuring related costs 331 - - 1,354 1,685
Add back litigation settlement related costs - - 750 - 750
Add back acquisition and integration costs - - 622 175 797
Add back unrealized investment loss (gain) - - 627 (3,568 ) (2,941 )
Add back goodwill impairment   -     -     -     175,241     175,241  
Subtotal 14,025 8,915 7,745 14,629 45,314
Income tax expense @ 21%   2,945     1,872     1,626     3,072     9,516  
Non-GAAP income from continuing operations   11,080     7,043     6,119     11,557     35,798  
 
Add back debt interest expense and issuance cost amortization, net of tax benefit   1,409     1,412     20     1,382     5,618  
Adjusted income from continuing operations for non-GAAP EPS calculation $ 12,489   $ 8,455   $ 6,139   $ 12,939   $ 41,416  
 
Non-GAAP income from continuing operations per share - diluted $ 0.30   $ 0.21   $ 0.19   $ 0.32   $ 1.02  
 
Shares used in per share calculation - diluted 41,032 40,783 33,150 40,163 40,719
 
 
Three months ended

Twelve monthsended
March 31, June 30, September 30, December 31, December 31,
2013 2013 2013 2013 2013
GAAP pre-tax income (loss) from continuing operations $ (9,766 ) $ (887 ) $ (8,241 ) $ (543 ) $ (19,437 )
Add back amortization of acquisition-related intangibles 1,928 2,283 2,149 2,183 8,543
Add back stock-based compensation expense 5,575 6,379 4,341 4,273 20,568
Add back restructuring related costs 2,808 424 395 2,164 5,791
Add back litigation settlement related costs - 312 - 45 357
Add back acquisition and integration costs 4,532 269 94 806 5,701
Add back realized investment loss (gain) (11,067 ) (6,459 ) - - (17,526 )
Add back goodwill impairment   21,249     -     -     -     21,249  
Subtotal 15,259 2,321 (1,262 ) 8,928 25,246
Income tax expense (benefit) @ 21%   3,204     487     (264 )   1,875     5,302  
Non-GAAP income (loss) from continuing operations   12,055     1,834     (998 )   7,053     19,944  
 
Add back debt interest expense and issuance cost amortization, net of tax benefit   1,233     -     -     1,214     79  
Adjusted income (loss) from continuing operations for non-GAAP EPS calculation $ 13,288   $ 1,834   $ (998 ) $ 8,267   $ 20,023  
 
Non-GAAP income (loss) from continuing operations per share - diluted $ 0.33   $ 0.06   $ (0.03 ) $ 0.22   $ 0.61  
 
Shares used in per share calculation - diluted 39,767 32,739 31,487 37,709 32,744
 

 
Digital River, Inc.
Non-GAAP Reconciliations
(Unaudited, in thousands)
                   
Breakdown of stock-based compensation expense
Three months ended

Twelve monthsended
March 31, June 30, September 30, December 31, December 31,
2013 2013 2013 2013 2013
Direct cost of services $ 42 $ 47 $ 35 $ 34 $ 158
Network and infrastructure 415 327 341 370 1,453
Sales and marketing 1,832 1,799 1,718 1,382 6,731
Product research and development 925 846 782 856 3,409
General and administrative   2,361   3,360     1,465     1,631   8,817
Total $ 5,575 $ 6,379   $ 4,341   $ 4,273 $ 20,568
 
Breakdown of restructuring related costs
Three months ended

Twelve monthsended
March 31, June 30, September 30, December 31, December 31,
2013 2013 2013 2013 2013
Direct cost of services $ - $ - $ - $ 109 $ 109
Network and infrastructure 271 - (6 ) 287 552
Sales and marketing 1,279 220 305 1,120 2,924
Product research and development 275 64 96 478 913
General and administrative   983   140     -     170   1,293
Total $ 2,808 $ 424   $ 395   $ 2,164 $ 5,791
 
Breakdown of litigation settlement related costs
Three months ended

Twelve monthsended
March 31, June 30, September 30, December 31, December 31,
2013 2013 2013 2013 2013
Direct cost of services $ - $ - $ - $ - $ -
Network and infrastructure - - - - -
Sales and marketing - - - - -
Product research and development - - - - -
General and administrative   -   312     -     45   357
Total $ - $ 312   $ -   $ 45 $ 357
 
Breakdown of acquisition and integration costs
Three months ended

Twelve monthsended
March 31, June 30, September 30, December 31, December 31,
2013 2013 2013 2013 2013
Direct cost of services $ - $ - $ - $ - $ -
Network and infrastructure - - - - -
Sales and marketing 90 (57 ) 38 22 93
Product research and development 66 68 101 678 913
General and administrative   4,376   258     (45 )   106   4,695
Total $ 4,532 $ 269   $ 94   $ 806 $ 5,701
 

 
Digital River, Inc.
Non-GAAP Guidance
(Unaudited, in millions except per share amounts)
                 
Revenue Guidance Table
2012 Actual
Three months ended

Twelve monthsended
March 31, June 30, September 30, December 31, December 31,
2012 2012 2012 2012 2012
Commerce $ 92.9 $ 81.6 $ 81.0 $ 90.1 $ 345.6
Payments   5.3     5.5     6.1     8.0     24.9
Total Revenue $ 98.2   $ 87.1   $ 87.1   $ 98.1   $ 370.5
 
 
2013 Actual
Three months ended

Twelve monthsended
March 31, June 30, September 30, December 31, December 31,
2013 2013 2013 2013 2013
Commerce $ 96.7 $ 74.3 $ 72.5 $ 84.7 $ 328.2
Payments   14.3     15.9     14.8     16.5     61.5
Total Revenue $ 111.0   $ 90.2   $ 87.3   $ 101.2   $ 389.7
 
 
2014 Guidance
Q1 2014 FY 2014
Low Guidance High Guidance Low Guidance High Guidance
Commerce $ 76.1 $ 78.3 $ 292.0 $ 302.0
Payments   15.9     16.7     73.0     76.0  
Total Expected Revenue $ 92.0   $ 95.0   $ 365.0   $ 378.0  
 
 
Non-GAAP Guidance Reconciliation
Q1 2014 FY 2014
Low Guidance High Guidance Low Guidance High Guidance
Expected GAAP net income (loss) per share from continuing operations - diluted $ (0.15 ) $ (0.09 ) $ (0.53 ) $ (0.39 )
Add back amortization of acquisition-related intangibles, net of tax 0.06 0.06 0.23 0.23
Add back stock-based compensation expense, net of tax 0.12 0.12 0.51 0.51
Add back restructuring related costs, net of tax - - 0.01 0.01
Tax variability   0.04     0.02     0.13     0.09  
Expected non-GAAP diluted net income (loss) per share $ 0.07   $ 0.11   $ 0.35   $ 0.45  
 
 
Projected Shares Used in Per Share Calculation
Q1 2014 FY 2014
Low Guidance High Guidance Low Guidance High Guidance
 
Shares used in per share calculation - GAAP diluted 30.9 30.9 30.0 30.0
Shares used in per share calculation - non-GAAP diluted 31.4 31.4 30.5 30.5
 

Copyright Business Wire 2010

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