Digital River Reports 71 Percent Revenue and 84 Percent Net Income Growth, Raises Full Year Guidance

CFO announces retirement plans

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

MINNEAPOLIS, April 27, 2005-- 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.”