Digital River Meets Fourth Quarter and Full Year Earnings Expectations

Paul Demery

MINNEAPOLIS, Jan. 31, 2008 - Digital River, Inc. (NASDAQ: DRIV), a leading provider of global e-commerce solutions, reports its fourth quarter and full year 2007 financial results.

Fourth Quarter and Full Year Ended Dec. 31, 2007
GAAP Results
Fourth quarter revenue totaled $96.9 million, an increase of 17 percent from the same period in 2006 and was in line with management’s guidance. In the fourth quarter of 2006, revenue was $83.0 million. For full year 2007, revenue was $349.3 million, an increase of 14 percent from revenue of $307.6 million in 2006.

Fourth quarter GAAP net income was $20.3 million, or $0.46 per diluted share and compared to GAAP net income of $16.4 million or $0.36 per diluted share in the fourth quarter of 2006. On a per share basis, net income increased 28 percent from 2006. For the full year, GAAP net income was $70.8 million, or $1.58 per diluted share, slightly ahead of management’s guidance. This compared to GAAP net income of $60.8 million, or $1.40 per diluted share during the same period in 2006.

Non-GAAP Results
Fourth quarter non-GAAP net income was $24.0 million or $0.53 per diluted share and compared to net income of $21.6 million, or $0.47 per diluted share in the fourth quarter of 2006. Non-GAAP net income for the full year was $85.8 million, or $1.87 per diluted share. This compared to non-GAAP net income of $79.7 million, or $1.79 per diluted share in 2006.

Non-GAAP net income is computed by starting with GAAP pre-tax income as reported on the Company’s statement of operations, then adding back amortization of acquisition-related intangibles and stock-based compensation expense, to calculate non-GAAP pre-tax income. This amount is then taxed at 31 percent, the Company’s current estimated effective tax rate, to arrive at non-GAAP net income. This amount is then divided by fully-diluted GAAP shares outstanding, which includes the impact of the Company’s contingent convertible notes, to derive non-GAAP diluted net income per share. 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.

“For the fourth quarter and full year 2007, we reported financial results clearly in line with our expectations. Our core software business continues to deliver strong growth across a more diversified base of global clients,” said Joel Ronning, Digital River’s CEO. “In 2008, we intend to advance our e-commerce leadership position by making investments in our company. These investments will improve the efficiency of our business and accelerate growth in complementary markets where we see substantial opportunities.”

In 2008, Digital River plans to re-invest in its business incremental profits of approximately $20 million, and an additional $10 million in capital. By making these investments, the company intends to advance its core software business; accelerate growth in consumer electronics and games; and enhance technologies in reporting, payments and subscriptions.

“These investments, which are reflected in today’s initial 2008 outlook, will take place throughout the year and are expected to begin to provide leverage in the third and fourth quarters,” Ronning added. “With a solid financial position, strong core business and significant prospects in new vertical markets, this is an opportune time to make these investments.”

2008 Guidance
Forward-looking guidance for the period ending Mar. 31, 2008, is as follows:

First Quarter

• Revenue of $98.5 million;
• GAAP diluted net income per share of $0.40, including stock-based compensation expense of $3.4 million; and
• Non-GAAP diluted net income per share of $0.48.

Forward-looking guidance for the period ending Dec. 31, 2008, is as follows:

Full Year

• Revenue of $395 million;
• GAAP diluted net income per share of $1.58, including stock-based compensation expense of $14.0 million; and
• Non-GAAP diluted net income per share of $1.88.

Digital River will hold a conference call today at 4:45 p.m. EST to discuss 2007 financial results, initial 2008 guidance, and its strategic investment plan. A live webcast of the conference call can be accessed from http://www.digitalriver.com/2007/q4earnings/. Alternatively, a live broadcast of the call may be heard by using conference ID #30605189 and dialing (888) 218-6314 inside the United States or Canada, or by calling (706) 634-9714 from international locations. A webcast replay of the call will be archived on Digital River’s corporate Web site.

About Digital River, Inc.
Digital River, Inc., a leading provider of global e-commerce solutions, builds and manages online businesses for more than 40,000 software publishers, consumer technology manufacturers, distributors, online retailers and affiliates. 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. cities as well as Cologne, Germany; London, England; Shannon, Ireland; Luxembourg, Luxembourg; Taipei, Taiwan; Tokyo, Japan; and Shanghai, China. 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, including future financial performance, as well as statements containing the words “anticipates,” “believes,” “plans,” “will,” 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; challenges associated with international expansion; potential consequences surrounding findings of our internal investigation, investigation by a committee of our independent directors and informal SEC inquiry into our stock option granting practices; any potential civil litigation relating to our stock option granting practices; our ability to successfully manage our business while undertaking significant internal investments; 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 December 31, 2006. 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 regarding first quarter and full year 2008 reflect Digital River’s expectations as of January 31, 2008. Results may be materially affected by many factors, such as changes in global economic conditions 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.


Amortization, business, Economics, Financial statements, United States law