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Digital River Inc. (DRIV)

Q1 2009 Earnings Call

April 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


Carter Malloy – Stephens, Inc.

Colin Sebastian – Lazard Capital Markets

Jeetil Patel – Deutsche Bank Securities

[Gene Munster] – Piper Jaffrey

Robert Breza – RBC Capital Markets

Shyam Patil – Raymond James

Daniel Ives – Friedman, Billings, Ramsey & Co.

Matt Schindler – Bank of America

Tim Klasell – Thomas Weisel Partners

Craig Nankervis – First Analysis

Sandeep Aggarwal – Collins Stewart



Welcome to the first quarter 2009 Digital River earnings conference call. (Operator Instructions) At this time I will turn the call over to the Vice President of Investor Relations, Ed Merritt for opening remarks.

Ed Merritt

I am Ed Merritt, Digital River's Vice President of Investor Relations. On the call 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 statements 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'd like to turn the call over to Joel Ronning.

Joel Ronning

I'm pleased to report that we exceeded both our revenue and earnings guidance in the first quarter. Total revenue was $102.9 million, GAAP EPS was $0.45 and non-GAAP EPS was $0.56. Overall, our results were supported by strong performance across the business, which is very encouraging given the challenges in the broader economy.

In the first quarter we continue to execute against our plan. We focused on product development and sales execution goals, which are definitely producing results. During the first quarter, we saw a moderate sequential in year-over-year increase in e-commerce sales when adjusted for foreign exchange.

In addition, on the last day of the quarter and the first couple of days of the second quarter, we saw a slight uptick in sales from the Conficker virus. The more significant news in the quarter came in the form of client wins.

In the first quarter we launched a BlackBerry application store for Research in Motion, also known as RIM. Consumers can shop in the mobile store from their smartphones to buy and download popular applications. This is particularly exciting because it opened up new opportunities for us in mobile commerce.

In addition, we significantly expanded our relationship with Eastman Kodak. Currently we manage B2B sites for Kodak's document imaging and print on demand groups. Now, based on the new global agreement, we will also be managing North American and European online consumer sales for their digital cameras, picture frames, inkjet printers, film and accessories.

The new consumer sites are expected to go live in the third quarter. BenQ is another current client that is expanding into global markets. This $1.5 billion manufacture of computers, CE and communication products recently expanded their existing U.S. agreement to launch e-commerce operations in 13 additional countries.

To drive more CE wins, we recently expanded our global sales force. A growing number of CE companies are looking outside of their domestic markets for growth. As they look to expand globally, we can help them enter markets faster and with less risk.

Our relationships with Symantec and Microsoft are also healthy. In the first quarter we continue to work with Symantec to optimize the consumer renewal and upgrade experiences for their OEM and retail programs. We also support the launch of several new versions of Symantec products, including Norton 360, Norton Online Backup and Norton Utilities.

For Microsoft, we rolled out online stores to support the sales of Office for the Mac. We also continued the global launch of specialized stores for Microsoft's home use and student hero programs. These stores offer enterprise customers and students discounts on select Microsoft titles including Office.

During the first quarter, clients also continued to take advantage of our managed marketing programs. We saw strong interest in paid search and affiliate marketing and added several key clients to our search engine program. As budgets tighten, more clients are looking for pay for performance e-marketing programs, a trend which aligns directly with our market force value proposition.

Another great indicator of the health of our business is the growth we have seen in our prospect pipeline. Our revenue pipelines in software, games and consumer electronics has increased on average well in excess of three times compared to last year's numbers. We are especially excited about the consumer electronics market, which today shows the most revenue potential.

Outside of our sales force investment, we believe the consolidation in the retail market and the general economy are key drivers for pipeline activity. Publishers and CE companies continue to be squeezed by retailers who are demanding deeper margins, selling more private label brands, or in some instances, just going out of business.

When you combine these factors with current economic pressures, direct to consumer channels are offering companies an attractive way to offset declining retail revenues. The macro economy is also working in our favor as we pursue business development opportunities.

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