DRIV

Digital River, Inc. (DRIV)

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Digital River, Inc. (DRIV)

Q4 2009 Earnings Call

January 28, 2010 4:45 pm ET

Executives


Ed Merritt – Vice President of Investor Relations

Joel A. Ronning – Chief Executive Officer & Director

Thomas M. Donnelly – Chief Financial Officer

Analysts

Philip Winslow – Credit Suisse

Robert Breza - RBC Capital Markets

Gene Munster – Piper Jaffray

Nat Schindler – Bank of America Merrill Lynch

Tim Klasell – Thomas Weisel Partners

Analyst for Jeetil Patel – Deutsche Bank Securities

Daniel Ives – FBR Capital Markets

Srinivas Anantha – Oppenheimer & Co.

Analyst for Colin Sebastian – Lazard Capital Markets

Carter Malloy – Stephens, Inc.

Shyam Patil – Raymond James

Sameet Sinha – JMP Securities

Kerry Rice – Wedbush Morgan Securities, Inc.

Presentation

Operator

Welcome to today’s Digital River Q4 2009 earnings conference call. Today’s conference is being recorded. At this time, I’d like to introduce your host, Mr. Ed Merritt. Please go ahead sir.

Ed Merritt

Welcome to Digital River's fourth quarter 2009 earnings call. I’m Ed Merritt, Digital River’s Vice President of Investor Relations. On the call 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. These statements relate to the company’s future growth and financial results and may contain the words believes, anticipates, expects, and similar words. These statements involve known and unknown risks, uncertainties, and other factors that 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 & Exchange Commission. A webcast of our call today will be available for a period of two weeks on the investor relations section of Digital Rivers’ corporate website. With that I’d like to turn the call over to Joel Ronning.

Joel A. Ronning

I’m pleased to report we closed 2009 with a tremendous fourth quarter. Our results are just one of the reasons why I continue to be very bullish about the future growth and profitability of the company. We have a solid strategy in place that continues to prove successful. Our core top line growth is returning to historical levels. We have a strong pipeline of new clients and new products and we have a great team in place committed to executing against our 2010 operating plan.

During the call today I will touch on each of these points as part of a larger discussion on our fourth quarter performance in the 2010 plan. Then I will turn the call over to Tom for an update on our financial results. To start off, I’m pleased to report we not only did a great job growing revenue in the fourth quarter, we hit a record level nearly $105 million. We increased our core revenue which excludes Symantec 26% year-over-year exceeding our guidance of 16% to 18% growth.

For the first time since the recession hit, we’re seeing growth rates return to our business that are in line with the 2007, 2008 organic growth rates. This is a strong testament to the actions we began taking several quarters ago when the global recession hit. I’d like to personally thank our associates who have been committed to this objective, which is deliver on our strategy and accelerated growth in our business.

We are particularly pleased with these results given that we managed this growth while Symantec began to move its business in house. We expected Symantec would be fully transitioned off our platform by June 30th when our contract expires. Tom will provide some financial details around this transition in a few minutes.

We’ve taken this shift in our relationship with Symantec as an opportunity to thoroughly review our business. During the past several quarters our executive team has been formulated our 2010 operating plan which focuses on two key areas, revenue growth and operational excellence and stability. I’d like to spend a few minutes talking about our business plan and progress to date in each of these areas.

As I just mentioned, the first goal of our business plan is to grow revenue. In essence, replacing anticipated loss revenues as quickly as possible. In 2010, we intend to accomplish this by strengthening and expanding existing client relationships and signing new deals. We will continue to emphasize our core vertical markets including software, consumer electronics, and games on a global basis. In 2009, some of our sales successes in these markets included new and expanded relationships with companies such as Microsoft, Citrix, Electronic Arts, Kodak, Pentax, Rim, Samsung, THQ, UbiSoft, and Western Digital just to name a few.

We also plan to accelerate our emphasis on a new vertical markets for certain product offerings to maintain our growth profile well beyond 2010. We already have a plan in place to support our growth. Late last year, we increased the size of our sales force adding new seasoned sales professionals in key markets. In addition, we enhanced our sales methodology and marketing support materials and expect to see increased production from this sales team beginning in the first half of 2010.

To further support our growth objective we will also continue to emphasize new product development particularly as it relates to driving new revenue streams for existing clients. Our strategy in 2009 was to leap frog competitive product offerings by developing functionality that drives client revenue. While launching over 20 new or enhanced capabilities we both achieved our objective, expanded our opportunities in new and complimentary markets. Essentially, what we have done is frozen the competitive markets; that’s what we believe.

The role out of our new products set has caused many prospects and clients to pause on commerce decisions. They are now considering the expanded functionality of our offering in place of competitive products or a less advanced more expensive in house solutions. In 2009, we launched important new business-to-business solutions. We rolled out Business Direct which enables our clients to sell directly to their enterprise clients in large volume through private online portals. We also went live with our channel partner network which allows resellers to automate the sales of multiple licenses to their business buyers through publishers’ stores.

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