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Digital River, Inc. (DRIV)

Q4 2012 Earnings Call

February 6, 2013 4:45 PM ET


Ed Merritt – VP, Business Development, Treasury and IR

Tom Madison – Interim CEO and Lead Director

Tom Donnelly – President and COO

Stefan Schulz – CFO


Gene Munster – Piper Jaffray

Harris Heyer – Credit Suisse

Rob Breza – RBC Capital Markets

Shyam Patil – Raymond James

Craig Nankervis – First Analysis

Greg Schauer – Robert W Baird



Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Digital River Fourth Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce our host for today, Mr. Ed Merritt, Vice President of Investor Relations. Sir, please go ahead.

Ed Merritt

Thanks and welcome, everyone, to Digital River’s fourth quarter 2012 earnings call. I am Ed Merritt, Digital River’s Vice President of Treasury, Investor Relations and Business Development. And joining us on the call today from Digital River is Tom Madison, our Chairman and Interim CEO; Tom Donnelly, our President and Chief Operating Officer; and Stefan Schulz, our Chief Financial Officer.

I’d like to remind you that there may be statements made during the course of this conference call that are not historical facts and are forward-looking in nature. These statements may relate to the company’s future growth and financial results and contain the words believe, anticipate, expect, guidance, and similar words. These forward-looking statements involve both known and unknown risks, uncertainties, and other factors which may cause actual results to differ materially from expectations.

For a detailed review of these risks, please refer to the company’s filings with the Securities and Exchange Commission. Also a webcast of our call today will be available on the Investor Relations section of Digital River’s corporate website.

With that, I’ll turn the call over to Tom Madison.

Tom Madison

Thanks, Ed, and thanks to all of you for joining us today. In a few minutes, I’ll turn the call over to Tom Donnelly to provide a recap of our 2012 business results and details on our plans as we enter 2013, then Stefan Schulz will discuss our fourth-quarter financial results and give you some guidance on the first quarter of 2013.

To begin, I’d like to provide a brief review of our fourth quarter performance and then spend a few minutes updating you on some key initiatives we discussed during our last earnings call. Overall, we had a great fourth quarter, delivering revenue of $101 million and non-GAAP EPS of $0.31 per share. These results were above our guidance for revenue, which was $96 million to $100 million, and we ended the quarter at the top end of our guidance for non-GAAP EPS, which was $0.25 to $0.31 per share.

Regarding the fourth quarter, I also want to mention the goodwill impairment we recognized. As part of our required annual review of goodwill, it was determined that a non-cash impairment was warranted due to the variance between our enterprise value and our book value. It’s important to point out, however, that this is a non-cash charge and will not affect our future operations. Stefan will provide more details on this in his comments.

Despite solid results in the fourth quarter, we continue to face some headwinds as we move into ‘13. These include continuing uncertain macroeconomic conditions, such as the fiscal cliff discussions in the U.S. and relatively high unemployment globally. Additionally, we have identified some investments we believe are necessary to bring our technology infrastructure to where we want and need it to be.

To be clear, we know we have work to do in order to make our business more flexible in a rapidly changing marketplace, and the Board and management are clearly aligned and focused on the execution of our plan to address this. As you know, we’ve engaged in a search for a permanent CEO and we’ve been working intensely with Spencer Stuart, a leading executive search firm. We’re considering external and internal candidates and have made significant progress. This is the Board’s top priority, and we look forward to having more to say on this topic in the not-too-distant future.

While a new CEO will obviously play a key role in Digital River’s long-term strategy, our team is working diligently to ensure that we don’t miss a beat in the meantime, continuing to deliver on our commitments to our existing customers in our efforts to further strengthen the business.

We have a platform that currently manages over $13 billion in transactions. It’s a dependable global solution that has grown our business to where we are today. But now it’s time to take this solution to the next level, and it’s critical for us to make some key changes and investments, ensuring we’re well positioned for the long term.

On last quarter’s call, we discussed the key actions we’re taking. Importantly, we’ve already made significant progress in these areas. Tom Donnelly will provide more detail, but to recap, the first action we talked about was continuing to re-architect our core global commerce platform and underlying databases to further increase stability and performance. To that end, we’ve begun moving more of our technology into the cloud and we have re-architected some of our data centers.

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