Digital River Reports 71 Percent Revenue and 84 Percent Net Income Gro

Digital River Reports 71 Percent Revenue and 84 Percent Net Income Growth, Raises Full Year Guidance; CFO Announces Retirement Plans

    Business Editors

    MINNEAPOLIS--(BUSINESS WIRE)--April 27, 2005--Digital River, Inc. (NASDAQ:DRIV):

--	Q1 Revenue - $54.5 million
--	Q1 GAAP Diluted EPS - $0.35
--	Q1 Pro Forma Diluted EPS - $0.54

    Digital River, Inc. (NASDAQ:DRIV), a global leader in e-commerce outsourcing, today reported record revenue of $54.5 million for the quarter ended March 31, 2005. This represents a year-over-year increase of 71 percent from revenue of $31.9 million in the first quarter of 2004, and a nearly 14 percent sequential increase from the $48.0 million in revenue generated in the fourth quarter of 2004. This performance exceeded the Company's revised first quarter 2005 revenue guidance of $53.5 million, announced on March 17, 2005.
    Q1 GAAP Results: In the first quarter, net income was $14.0 million, or $0.35 per share on a diluted basis, including $4.9 million of tax expense. This compared to net income of $7.6 million, or $0.22 per diluted share in the first quarter of 2004, and $12.8 million, or $0.33 per diluted share in the fourth quarter of 2004. These results also exceeded the revised GAAP diluted net income per share guidance of $0.33 previously provided by the Company.
    Q1 Pro Forma Results: Digital River's net income for the first quarter of 2005, prior to the amortization of acquisition-related expenses and $3.7 million of non-cash income taxes, was $20.1 million, or $0.54 per diluted share, excluding the effects of EITF 04-08. This compared to pro forma net income on the same basis of $9.2 million, or $0.26 per diluted share in the first quarter of 2004, and $15.7 million, or $0.43 per diluted share, in the fourth quarter of 2004. These results also exceeded the revised pro forma diluted net income per share guidance of $0.50 previously provided by the Company.
    "Digital River started 2005 with a record revenue and earnings performance," said Joel Ronning, Digital River's CEO. "Our ability to consistently execute against our strategic plan continues to translate into revenue and profit growth for our clients, increased income and cash flow for our company, and value for our shareholders. With an economic model that is built to scale and the resources to invest in our business, we believe we are well positioned to lead the industry in the global online sales and delivery of digital products."
    As of March 31, 2005, Digital River's cash and investments totaled $315.6 million. This is a $165.1 million increase from March 31, 2004, and a $23.5 million increase from December 31, 2004.
    "Business integration efforts, ongoing cost control and increased revenue enabled us to reduce operating costs as a percent of revenue, contributing to our record earnings in the first quarter of 2005," said Carter Hicks, Digital River's CFO. "This performance further reflects the scalability of our business model and strength of our acquisition strategy."

    Q2 2005 Guidance

    Forward-looking guidance for the second quarter ending June 30, 2005, is as follows:

    -- Revenue is expected to be $49.0 million;

    -- GAAP diluted net income per share is expected to be $0.19,
    reflecting the company's first full quarter of taxation;

    -- Pro forma diluted net income per share, prior to the
    amortization of acquisition-related costs and non-cash income
    taxes, is expected to be $0.41, excluding the effects of EITF
    04-08.

    Full Year 2005 Guidance

    Forward-looking guidance for the full-year ending December 31, 2005, is as follows:

    -- Revenue is expected to be $209.0 million; up from the
    Company's previous guidance of $195.0 million;

    -- GAAP diluted net income per share is expected to be $1.02; up
    from the Company's previous guidance of $0.93. This
    expectation reflects full taxation in the Company's second,
    third and fourth quarters.

    -- Pro forma diluted net income per share, prior to the
    amortization of acquisition-related costs and non-cash income
    taxes, is expected to be $1.81, excluding the effects of EITF
    04-08. This is up from the Company's previous guidance of
    $1.63 and can be compared to pro forma diluted net income per
    share of $1.24 achieved in 2004.

    The estimated effective tax rates and tax expense assumed in Digital River's 2005 full year guidance may significantly vary based on actual operating results and tax elections available to the Company.
    Digital River's pro forma net income and per share results exclude the effects, if any, of the amortization of acquisition-related expenses, non-cash taxes and EITF 04-08. A detailed reconciliation to provide clarity on the comparability of the GAAP and pro forma data has been provided in table form following the condensed financial statements accompanying this announcement. In addition, the calculation of GAAP diluted net income per share, which includes the effects of EITF 04-08, also is provided in the table. Further information regarding the Company's use of pro forma financial data has been included in the Company's Form 8-K filed with the SEC on April 27, 2005.

    Management Changes

    Digital River today also announced the retirement of Carter Hicks, the Company's chief financial officer, effective July 1, 2005. As part of its succession plan, Digital River expects to appoint Thomas Donnelly, the Company's current vice president of finance and treasurer, as its new chief financial officer. Donnelly has worked for more than 20 years in senior financial positions, primarily in the technology sector. Prior to joining Digital River, Donnelly served as COO and CFO of Net Perceptions, Inc. Hicks, who is 58 years old, will assist with the succession process. Hicks has been with Digital River for almost five years.
    "I will miss Digital River and working with our great team of professionals," Hicks said. "However, it's time for me to move to a new chapter in my life."
    "I want to thank Carter for his tremendous contributions and leadership in managing Digital River to profitability," said Ronning. "Carter, our board of directors and I have built a solid succession plan for our finance organization. Since Tom joined Digital River, he has proven himself as a capable leader, and we have full confidence in his ability to guide Digital River forward."
    Digital River will hold a first quarter conference call today at 4:45 p.m. Eastern Daylight Time. To access the call, please dial 877-422-0170 inside the United States or Canada, or 706-679-5647 from international locations. In addition, the call can be heard via webcast at http://phx.corporate-ir.net/phoenix.zhtml?c=94762&p=irol-irhome. Please install any necessary audio software.

    About Digital River, Inc.

    Digital River, Inc., a global leader in e-commerce outsourcing, builds and manages online businesses for more than 40,000 software publishers, manufacturers, distributors and online retailers. Its multi-channel e-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 an e-commerce operation. The company's comprehensive platform offers site development and hosting, order management, fraud prevention, 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 in major U.S. and European cities. For more details about Digital River, visit the corporate Web site at www.digitalriver.com or call 952-253-1234.

    Forward-Looking Statements

    This press release contains forward-looking statements, including statements regarding the Company's anticipated future growth and financial performance as well as statements containing the words "anticipates" or "expects," 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 limited operating history and variability of operating results; competition in the e-commerce market; 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 filed on March 16, 2005, for the year ended Dec. 31, 2004.

    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. First Quarter Results (Unaudited, in thousands, except per share amounts)

Condensed Consolidated Balance Sheets As of ------------------------- March 31, December 31, 2005 2004 ------------ ------------ Assets ------ Current assets Cash and investments $315,612 $292,136 Other current assets 28,795 23,363 ------------ ------------ Total current assets 344,407 315,499 Property and equipment, net 18,999 17,367 Goodwill, intangibles and other assets 177,692 171,655 ------------ ------------ Total assets $541,098 $504,521 ============ ============ Liabilities and stockholders' equity ------------------------------------ Current liabilities Accounts payable $97,549 $88,052 Deferred revenue 4,702 3,901 Accrued payroll and other liabilities 25,987 24,799 ------------ ------------ Total current liabilities 128,238 116,752 Convertible senior notes 195,000 195,000 Stockholders' equity 217,860 192,769 ------------ ------------ Total liabilities and stockholders' equity $541,098 $504,521 ============ ============

Condensed Consolidated Statements of Operations Three months ended March 31, ------------------------- 2005 2004 ------------ ------------ Revenue $54,529 $31,855 Costs and expenses: Direct cost of services 1,301 618 Network and infrastructure 4,479 3,300 Sales and marketing 16,376 11,468 Product research and development 4,458 2,924 General and administrative 5,615 2,837 Depreciation and amortization 2,122 1,611 Amortization of acquisition-related costs 2,396 1,579 ------------ ------------ Total costs and expenses 36,747 24,337 ------------ ------------ Income from operations 17,782 7,518 ------------ ------------ Other income, net 1,155 97 ------------ ------------ Income before income tax expense 18,937 7,615 Income tax expense (4,900) - ------------ ------------ Net Income $14,037 $7,615 ============ ============

Net income per share - basic $0.41 $0.24 ============ ============ Net income per share - diluted $0.35 $0.22 ============ ============ Weighted average shares outstanding - basic 33,932 31,620 Weighted average shares outstanding - diluted 41,454 35,059

Digital River, Inc. Reconciliations Unaudited, in thousands, except per share amounts -------------------------------------------------

Calculation of GAAP diluted net income per share ------------------------------------------------

Three months ended -------------------------------------- March 31, March 31, December 31, 2005 2004 2004 ------------ ------------ ------------ GAAP net income $14,037 $7,615 $12,828 Add back debt interest expense and issuance cost amortization, net of tax benefit 511 - 691 ------------ ------------ ------------ Adjusted net income for GAAP EPS calculation $14,548 $7,615 $13,519 ============ ============ ============

Net income per share - diluted $0.35 $0.22 $0.33 ============ ============ ============ Weighted average shares outstanding - diluted 41,454 35,059 41,396

Pro Forma Financial Reconciliations -----------------------------------

Three months ended -------------------------------------- March 31, March 31, December 31, 2005 2004 2004 ------------ ------------ ------------ Pro Forma Financial Reconciliation: ---------------------------------- GAAP net income $14,037 $7,615 $12,828 Add back amortization of acquisition-related costs 2,396 1,579 1,989 Add back non-cash taxes 3,700 - 1,079 Remove litigation reserve credit - - (162) ------------ ------------ ------------ Pro forma net income $20,133 $9,194 $15,734 ============ ============ ============

Pro forma net income per share - diluted $0.54 $0.26 $0.43 ============ ============ ============ Pro forma weighted average shares outstanding - diluted 37,029 35,059 36,971

Q2 Full Year 2005 2005 Guidance Guidance ------------ ------------ Pro Forma Guidance Reconciliation: --------------------------------- Expected GAAP diluted net income per share $0.19 $1.02 Expected impact of amortization of acquisition-related costs 0.06 0.23 Expected impact of non-cash taxes 0.15 0.50 Expected impact of EITF 04-08 0.01 0.06 ------------ ------------ Expected pro forma diluted income per share $0.41 $1.81 ============ ============

--30--SH/ms*

CONTACT: Digital River, Inc., Minneapolis Investor Contact: Carter Hicks, 952-253-8406 investorrelations@digitalriver.com or Media Contact: Gerri Dyrek, 952-253-8396 publicrelations@digitalriver.com

KEYWORD: MINNESOTA INDUSTRY KEYWORD: HARDWARE SOFTWARE NETWORKING INTERNET E-COMMERCE EARNINGS CONFERENCE CALLS SOURCE: Digital River, Inc.

Copyright Business Wire 2005