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Digital River, Inc. (DRIV)

Q4 2008 Earnings Call

January 29, 2009 4:45 pm ET


Ed Merritt - Vice President of Investor Relations

Joel Ronning - Chief Executive Officer, Director

Thomas Donnelly - Chief Financial Officer, Secretary


Phil Winslow - Credit Suisse

Daniel Ives - Friedman, Billings, Ramsey & Co., Inc.

Carter Malloy - Stephens, Inc.

Colin Sebastian - Lazard Capital Markets

Robert Breza - RBC Capital Markets

[Shiam Patel - Raymond James]

Rod Radcliffe - Sanford Group

Tim Klasell - Thomas Weisel Partners

Matt Schindler - Bank of America

Craig Nankervis - First Analysis

Sameet Sinal - J&P Securities



Good day, my name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Digital River Fourth Quarter 2008 earnings conference call. (Operator Instructions)

Mr. Ed Merritt, you may begin your conference.

Ed Merritt

Thank you and welcome everyone to this afternoon’s fourth quarter 2008 earnings call. I’m Ed Merritt, Digital River’s Vice President and Investor Relations. And, on the call with us today is Joel Ronning, our Chief Executive Officer, and Tom Donnelly, our Chief Financial Officer.

I’d like to remind you that statements made during the course of this conference call that are not historical facts are forward looking in nature, including statements regarding the company’s future growth and financial results, as well as any statement containing the words believes, anticipates, expects, and similar words. These statements involve known and unknown risks, uncertainties and other factors which may cause actual results to differ materially from expectations. For a detailed discussion of these risk factors and uncertainties, please refer to the company’s filings with the Securities and Exchange Commission.

A webcast of our call today will be available for a period of two weeks on the Investor Relations section of Digital River’s corporate website.

With that, I would like to turn the call over Joel Ronning. Joel.

Joel Ronning

Thanks, Ed, and thanks to all of you for joining our call today.

I’m pleased to report our results for the fourth quarter. Total revenue was $95.5 million, in line with our expectations. GAAP EPS was $0.41, which is above our guidance range. And, non-GAAP EPS was $0.48, at the high end of our guidance. During the fourth quarter, we continued to make progress growing our client base and deepening client relationships in our core markets. We believe several factors are contributing to our success.

First, tight economic times are driving companies in our direction and away from the complex e-commerce demand that they don't understand. In addition, they are moving away from high fixed cost and large infrastructure investments. We saw this happen in early 2000 and are seeing the same behavior today.

Second, ongoing changes in the retail channel are causing more companies to go direct to consumer. With some retailers declaring bankruptcy and others selling more private label brands, companies are less concerned about channel conflict today and more focused on opening new revenue streams.

And, finally, our clients are more motivated than ever in acquiring and retaining customers and generating more revenue from their products. Helping companies successfully manage through these market forces is where we excel and have clearly demonstrated industry leadership. Our continued progress in consumer electronics provides a strong case in point.

We had a successful fourth quarter, winning new opportunities or launching stores for companies including Samsung, Seagate, Phillips, Watchguard, Cables Unlimited, Logitech and Hewlett Packard. Games is another market where we expanded our presence. In the fourth quarter we won business from Square Enix, Smith & Tinker, as well as signed a new multi-year international agreement InVidia.

In software, we expanded our relationship with Business Objects, a division of SAP; as well as Adobe Systems. For Adobe, we launched a new business-to-business site to support their volume license purchases in North America. This site provides a good example of our expanded focus on the business-to-business market. Our intent is to help our software clients monetize their products online in new ways via volume licenses, subscriptions, renewals, and maintenance programs. In 2009, we intend to roll out new products and services to support the small and medium business market for software and other related product offerings.

I’m also pleased to report that Microsoft awarded us the e-commerce business for the next version of Office and various other Office-related programs. In addition, we will be working with Microsoft to support the launch of other specialized programs targeted at specific vertical markets. We will provide more information about upcoming projects once they are made public by Microsoft.

Our partnership with Symantec is also strong and healthy. In the fourth quarter, we successful launched a new payment method called Alipay on Symantec’s China store and are seeing sales gains. In addition, we worked on several projects to help Symantec further optimize the consumer experience during the renewal and upgrade process. Early results have shown some big wins on high volume sites.

In 2009, we expect to significantly expand our support of Symantec’s new customer acquisition efforts. To further support these and other clients in our core markets, in the fourth quarter we rolled out some new products and services. We launched what we believe to be the e-commerce industry’s first comprehensive automated regulatory fee management solution. This solution enables clients that are selling products online in Europe and North America to collect and remit fees in compliance with complicated copyright and recycling regulations. Failure to meet these regulations can result in fines, prosecution and other penalties including restrictions on selling. In fact, some of our clients have said that they would not be selling in Europe without this solution and Digital River’s expertise.

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