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Digital River, Inc. (NASDAQ: DRIV),
the revenue growth experts in global cloud commerce, today reported
financial results for its fourth quarter and full year 2012.
Fourth Quarter and Full Year Ended Dec. 31,
2012, Financial Results GAAP Results In
2012 fourth quarter revenue was $101.3 million, exceeding management’s
fourth quarter revenue guidance of $96 to $100 million. For the full
year 2012, revenue was $386.2 million, also exceeding full year revenue
guidance of $381 to $385 million. In 2011, the company reported fourth
quarter revenue of $112 million and full year revenue of $398.1 million.
In 2012, the company reported a GAAP net loss of $200.1 million, or
$6.11 per share, for the fourth quarter, and a GAAP net loss of $195.9
million, or $5.90 per share, for the full year. The net loss includes a
non-cash goodwill impairment charge of $161.1 million net of tax and a
non-cash valuation allowance against deferred tax assets of $43.5
million. The goodwill impairment and tax valuation allowance were both
non-cash charges and are not expected to impact future company
performance. In 2011, the company reported GAAP net income of $4.3
million, or $0.12 per diluted share, in the fourth quarter, and GAAP net
income of $17.2 million, or $0.46 per diluted share, for the full year.
Non-GAAP Results In 2012 on a non-GAAP basis, which
excludes the non-cash goodwill impairment and tax valuation allowance,
the company reported net income of $11.2 million, or $0.31 per diluted
share, in the fourth quarter, and $35.9 million, or $1.02 per diluted
share, for the full year. In 2011, the company reported non-GAAP net
income of $17.7 million, or $0.45 per diluted share, in the fourth
quarter, and non-GAAP net income of $45.6 million, or $1.15 per diluted
share, for the full year.
“Our fourth quarter revenue and non-GAAP earnings performance was in
line with our expectations,” said Tom Madison, Digital River’s chairman
and interim CEO. “We continue to focus the organization on initiatives
that drive revenue for clients. In addition during the quarter, we
divested some non-core assets, reduced expenses in certain areas, as
well as repurchased some of our outstanding convertible debt and common
stock. In early January, we also completed our acquisition of LML
Payment Systems. We plan to accelerate growth across our payments
solution this year as we extend LML’s services to Europe and other
geographies.”
Madison continued, “During 2013, we’ll be making some important
investments to advance our technology toward an even more modular,
cloud-based service, which is where we see the market moving. We believe
these investments will solidify the foundation we need to return to
increasing top-line growth in the future.”
During the quarter, the company repurchased approximately $44 million of
its two percent, 2010 convertible notes in open market transactions.
Additionally, the company repurchased approximately $2.4 million of
common stock.
First Quarter 2013 Guidance Management’s
forward-looking financial expectations for the first quarter of 2013 are
as follows:
Revenue, ranging from $101 to $104 million;
GAAP EPS, ranging from a loss of $0.14 to a loss of $0.09 per share,
using a 17 percent tax rate; and
Non-GAAP EPS, ranging from $0.18 to $0.22 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. EST to
discuss fourth quarter and full year 2012 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 #87094625 and
dialing +1 (408) 427-3861. A webcast replay of the call will be archived
on Digital River’s corporate website.
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, restructuring costs,
litigation settlements, acquisition and integration costs, unrealized
investment gain or loss, and goodwill impairments, 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 6,128,581, 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 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 market; challenges
associated with international expansion; our ability to successfully
complete senior management succession plans; 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 fiscal 2013 reflect management’s
expectations as of Feb. 6, 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 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.
Digital River, Inc.
Fourth Quarter Results
(In thousands, except share data)
Subject to reclassification
Consolidated Balance Sheets
(Unaudited)
December 31,
December 31,
2012
2011
Assets
Current assets
Cash and cash equivalents
$
542,851
$
497,193
Short-term investments
162,794
223,349
Accounts receivable, net of allowance of $5,400 and $4,613
60,656
64,811
Deferred tax assets
457
8,532
Prepaid expenses and other
33,714
35,719
Total current assets
800,472
829,604
Property and equipment, net
53,265
51,537
Goodwill
108,960
281,858
Intangible assets, net of accumulated amortization of $91,059 and
$85,542
11,718
18,324
Long-term investments
71,735
99,047
Deferred income taxes
1,724
21,433
Other assets
4,342
8,973
Total assets
$
1,052,216
$
1,310,776
Liabilities and stockholders' equity
Current liabilities
Accounts payable
$
205,377
$
243,410
Accrued payroll
11,630
17,523
Deferred revenue
13,426
8,633
Other accrued liabilities
51,640
42,577
Total current liabilities
282,073
312,143
Non-current liabilities
Convertible senior notes
309,909
353,805
Other liabilities
18,236
12,556
Total non-current liabilities
328,145
366,361
Total liabilities
610,218
678,504
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;
48,941,402 and 47,248,765 shares issued
489
472
Treasury stock at cost; 13,581,889 and 11,741,310 shares
(368,721
)
(340,946
)
Additional paid-in capital
737,500
708,941
Retained earnings
75,900
271,769
Accumulated other comprehensive loss
(3,170
)
(7,964
)
Stockholders' equity
441,998
632,272
Total liabilities and stockholders' equity
$
1,052,216
$
1,310,776
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,
2012
2011
2012
2011
Revenue
$
101,335
$
112,024
$
386,222
$
398,140
Costs and expenses (exclusive of depreciation and amortization
expense shown separately below):
Direct cost of services
2,990
3,809
12,661
15,491
Network and infrastructure
14,459
12,327
53,562
49,433
Sales and marketing
41,403
44,831
162,201
162,564
Product research and development
16,414
16,355
63,510
66,862
General and administrative
19,552
11,729
58,383
43,093
Goodwill impairment
175,241
-
175,241
-
Depreciation and amortization
5,049
5,550
20,307
22,207
Amortization of acquisition-related intangibles
1,766
11,529
7,067
18,040
Total costs and expenses
276,874
106,130
552,932
377,690
Income (loss) from operations
(175,539
)
5,894
(166,710
)
20,450
Interest income
912
1,307
3,820
6,100
Interest expense
(2,212
)
(2,254
)
(8,968
)
(9,018
)
Other income (expense), net
4,669
(1,948
)
4,796
(1,921
)
Income (loss) before income taxes
(172,170
)
2,999
(167,062
)
15,611
Income tax expense (benefit)
27,901
(1,340
)
28,806
(1,556
)
Net income (loss)
$
(200,071
)
$
4,339
$
(195,868
)
$
17,167
Net income (loss) per share - basic
$
(6.11
)
$
0.12
$
(5.90
)
$
0.47
Net income (loss) per share - diluted
$
(6.11
)
$
0.12
$
(5.90
)
$
0.46
Shares used in per share calculation - basic
32,752
34,757
33,224
36,778
Shares used in per share calculation - diluted
32,752
35,185
33,224
37,510
Calculation of GAAP Diluted Net Income (Loss) Per Share
Three months ended
Twelve months ended
December 31,
December 31,
2012
2011
2012
2011
GAAP net income (loss)
$
(200,071
)
$
4,339
$
(195,868
)
$
17,167
Add back debt interest expense and issuance cost amortization, net
of tax benefit
-
19
-
78
Adjusted net income (loss) for GAAP EPS calculation
$
(200,071
)
$
4,358
$
(195,868
)
$
17,245
Net income (loss) per share - diluted
$
(6.11
)
$
0.12
$
(5.90
)
$
0.46
Shares used in per share calculation - diluted
32,752
35,185
33,224
37,510
Digital River, Inc.
Fourth Quarter Results
(Unaudited, in thousands)
Subject to reclassification
Consolidated Statements of Cash Flows
Twelve months ended
December 31,
2012
2011
Operating Activities:
Net income (loss)
$
(195,868
)
$
17,167
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Amortization of acquisition-related intangibles
6,832
8,689
Provision for doubtful accounts
2,031
1,317
Depreciation and amortization
20,307
22,207
Impairment of goodwill
175,241
-
Impairment of intangibles
235
9,351
Debt issuance cost amortization
1,953
1,986
Loss on sale of equipment
85
-
Gain on investment
(3,178
)
-
Gain on business divestiture
(246
)
-
Stock-based compensation expense
29,517
22,114
Excess tax benefits from stock-based compensation
(505
)
(1,985
)
Deferred and other income taxes
23,349
(2,649
)
Impairment of equity investment
-
2,198
Change in operating assets and liabilities (net of acquisitions):
Accounts receivable
2,715
(15,292
)
Prepaid and other assets
(8,392
)
2,635
Accounts payable
(40,333
)
57,162
Deferred revenue
8,265
(1,782
)
Income tax payable
10,948
(4,061
)
Other accrued liabilities
5,884
(24,289
)
Net cash provided by (used in) operating activities
38,840
94,768
Investing Activities:
Purchases of investments
(98,658
)
(254,536
)
Sales of investments
185,750
213,302
Cash received (paid) for cost method investments
2,700
(9,490
)
Cash received from divestitures
500
-
Purchases of equipment and capitalized software
(22,035
)
(23,860
)
Net cash provided by (used in) investing activities
68,257
(74,584
)
Financing Activities:
Debt issuance costs
-
(342
)
Repurchase of senior convertible notes
(43,896
)
-
Exercise of stock options
1,567
364
Sales of common stock under employee stock purchase plan
2,552
2,466
Repurchase of common stock
(22,667
)
(79,758
)
Repurchase of restricted stock to satisfy tax withholding obligation
(5,108
)
(5,992
)
Excess tax benefits from stock-based compensation
505
1,985
Net cash provided by (used in) financing activities
(67,047
)
(81,277
)
Effect of exchange rate changes on cash
5,608
(6,800
)
Net increase (decrease) in cash and cash equivalents
45,658
(67,893
)
Cash and cash equivalents, beginning of period
497,193
565,086
Cash and cash equivalents, end of period
$
542,851
$
497,193
Cash paid for interest on convertible senior notes
$
7,123
$
7,010
Cash paid for income taxes
$
3,272
$
5,085
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,
2011
2011
2011
2011
2011
GAAP pre-tax income
$
8,885
$
140
$
3,587
$
2,999
$
15,611
Add back amortization of acquisition-related intangibles
2,122
2,205
2,184
11,529
18,040
Add back stock-based compensation expense
4,955
5,731
5,549
5,879
22,114
Add back unrealized investment gain/loss
-
-
-
1,995
1,995
Subtotal
15,962
8,076
11,320
22,402
57,760
Income tax expense @ 21%
3,352
1,696
2,377
4,705
12,130
Non-GAAP net income
12,610
6,380
8,943
17,697
45,630
Add back debt interest expense and issuance cost amortization, net
of tax benefit
1,420
20
1,413
1,413
5,659
Adjusted net income for non-GAAP EPS calculation
$
14,030
$
6,400
$
10,356
$
19,110
$
51,289
Non-GAAP net income per share - diluted
$
0.31
$
0.17
$
0.23
$
0.45
$
1.15
Shares used in per share calculation - diluted
45,276
38,181
44,821
42,207
44,532
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)
$
5,777
$
762
$
(1,431
)
$
(172,170
)
$
(167,062
)
Add back amortization of acquisition-related intangibles
1,849
1,743
1,709
1,766
7,067
Add back stock-based compensation expense
5,961
6,231
6,063
11,262
29,517
Add back restructuring related costs
395
49
73
1,508
2,025
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
13,982
8,785
8,413
14,214
45,394
Income tax expense @ 21%
2,936
1,845
1,767
2,985
9,533
Non-GAAP net income
11,046
6,940
6,646
11,229
35,861
Add back debt interest expense and issuance cost amortization, net
of tax benefit
1,409
1,412
1,414
1,382
5,617
Adjusted net income for non-GAAP EPS calculation
$
12,455
$
8,352
$
8,060
$
12,611
$
41,478
Non-GAAP net income per share - diluted
$
0.30
$
0.20
$
0.20
$
0.31
$
1.02
Shares used in per share calculation - diluted
41,032
40,783
40,172
40,163
40,719
Breakdown of stock-based compensation expense
Twelve months
Three months ended
ended
March 31,
June 30,
September 30,
December 31,
December 31,
2012
2012
2012
2012
2012
Direct cost of services
$
60
$
58
$
26
$
41
$
185
Network and infrastructure
364
368
408
436
1,576
Sales and marketing
2,168
2,129
1,949
2,037
8,283
Product research and development
735
953
999
998
3,685
General and administrative
2,634
2,723
2,681
7,750
15,788
Total
$
5,961
$
6,231
$
6,063
$
11,262
$
29,517
Digital River, Inc.
Non-GAAP Guidance
(Unaudited, in millions except per share amounts)
Revenue Guidance Table
2011 Actual
Twelve months
Three months ended
ended
March 31,
June 30,
September 30,
December 31,
December 31,
2011
2011
2011
2011
2011
Commerce
$
74.6
$
70.1
$
72.5
$
89.6
$
306.8
Support Business
23.6
22.4
22.9
22.4
91.3
Total Revenue
$
98.2
$
92.5
$
95.4
$
112.0
$
398.1
2012 Actual
Twelve months
Three months ended
ended
March 31,
June 30,
September 30,
December 31,
December 31,
2012
2012
2012
2012
2012
Commerce
$
82.1
$
71.3
$
71.7
$
82.5
$
307.6
Support Business
20.3
19.5
20.0
18.8
78.6
Total Revenue
$
102.4
$
90.8
$
91.7
$
101.3
$
386.2
2013 Guidance
Q1 2013
Low Guidance
High Guidance
Commerce
$
84.2
$
86.9
Support Business
16.8
17.1
Total Expected Revenue
$
101.0
$
104.0
Non-GAAP Guidance Reconciliation
Q1 2013
Low Guidance
High Guidance
Expected GAAP net income (loss) per share - diluted
$
(0.14
)
$
(0.09
)
Add back amortization of acquisition-related intangibles, net of tax
0.06
0.06
Add back stock-based compensation expense, net of tax
0.16
0.16
Add back restructuring related costs, net of tax
0.07
0.07
Add back litigation settlement related costs, net of tax
-
-
Add back acquisition and integration costs, net of tax
0.02
0.02
Add back unrealized investment loss, net of tax
-
-
Convertible debt dilution impact, net of tax
(0.01
)
(0.01
)
Tax Variability
0.02
0.01
Expected non-GAAP diluted net income (loss) per share
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