E-commerce outsource provider Digital River
Digital River turned in another quarter of remarkable growth. Sales jumped 35% to $83 million, while surging 40% for the full year to $307.6 million. However, sales and marketing expenses in the quarter grew nearly 50%, while overall expenses grew 52%, dropping operating margins from 30% down to 21% in the quarter.
Net income was $16.4 million, or $0.36 per share, compared to $18.1 million, or $0.45 per share, last year. If you back out the stock-option expenses, as Digital River likes to do, net profits were $21.6 million, or $0.47 per share, versus $15.4 million, or $0.37 per share, a 40% gain.
Now, while some additional adjustments were made to derive those non-GAAP results (such as the $0.16-per-share one-time tax benefit the company made last year), those were appropriate adjustments to make, whereas the dilutive effects of Digital River's stock-option granting practices don't seem appropriate to this Fool.
Between stock-option grants and secondary offerings, which it uses to make its acquisitions, Digital River's share count continues to rise. Digital River relies on its stock to make the payments, rather than taking on debt. While the company's long-term debt consists solely of $195 million of convertible senior notes, its share count has expanded by more than 11% over the past year.
It's also had to restate its numbers and take a charge of $9.4 million (spread out over nine years) because of backdating some stock options. It cleared its management team of knowingly abusing accounting laws, as most companies seem to like to do when completing their internal probes, but the SEC is still investigating and there may be additional charges to come.
With more than 40,000 businesses using Digital River's services, including Symantec