Digital River Shows A Profit

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Digital River reported a $1.1 million profit, excluding goodwill amortization and acquisition related costs, for its fourth quarter.

The company beat First Call estimates of 3 cents per share by reporting a profit of 4 cents per share prior to the goodwill amortization and acquisition-related costs.

Without the exclusions, Digital River had a loss of $3.5 million, or 14 cents per share, on sales of $17.7 million. That compares with a loss of $5.4 million, or 24 cents per share, on sales of $10 million for the year-ago quarter.

With the help of several acquisitions, some giving Digital River up to 3,000 new customers, the e-commerce/marketing ASP currently has 13,000 customers.

Digital River's customer base, which consists mainly of software publishers and retailers, is being switched to a revenue sharing payment model.

"If [our customers don't make money, we don't make money. The revenue sharing model has worked well with our [software publisher clients and we believe that it will now work well with our e-business customers," said Joel Ronning, CEO of Digital River.

During a call with analysts, Ronning said businesses are "cautiously" opening their wallets again and although he sees little activity in the first quarter, he expects business to pick up moving into the second quarter. He was also optimistic about the company's growth over the next year as he announced higher revenue guidance for 2002.

The company expects to end 2002 with $80 million to $85 million in revenue and a net income of $11 million to $12 million, prior to acquisition-related costs.

This compares with a loss of $19.2 million, or 9 cents per share, on sales of $58 million for 2001.

Ronning said Digital River's acquisition spree will continue in 2002. The company announced its intention to acquire the eStores and government-related customer assets of earlier this week. The deal is pending the approval of bankruptcy court, since also filed for Chapter 11 protection earlier this week.

If Digital River acquires the assets, it will mark its 10th acquisition in the past three years, many of which happened in 2001.

Broken out, Digital River's software services division generated $14.3 million of the $17.7 million in revenue it made for the quarter. The e-business side of its business has been relatively flat over the past few quarters, increasing by 2 percent to $3.4 million over third quarter and by $1.1 million over fourth quarter last year.

Digital River also filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission. If that is approved, Digital River expects to issue up to $100 million in common stock, preferred stock, debt securities and warrants.

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