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Q2 2013 Earnings Call Transcript

Published: 31 Jul 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Digital River Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference call, Stephan Schulz, you may begin.

[Stephan B. Schulz:]

Thank you, Kevin. Welcome to Digital River's Second Quarter 2013 Earnings Call. I'm Stephan Schulz, Digital River's CFO. Joining us today are David Dobson, our Chief Executive Officer; and Melissa Fisher, our new Vice President of Investor Relations, Treasury and Corporate Development. Melissa is an experienced investment banker who focused on advising technology clients at Goldman Sachs and Bank of America. Please join me in welcoming her to Digital River.

[Melissa Fisher:]

Thanks, Stephan. I'm excited to join the team at Digital River and look forward to an active dialogue with our investors and analysts during the coming months. With that, let's get started with the call. I'd like to remind you that there may be statements made during the course of this conference call that are not historical facts and are forward-looking in nature. These statements may relate to the company's future growth and financial results and contain the words believe, anticipate, expect, guidance and similar words. These forward-looking statements involve both known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from expectations. For a detailed review of these risks, please refer to the company's filings with the Securities and Exchange Commission. Also, a webcast of this call will be available on the Investor Relations section of Digital River's corporate website. Now I'll turn the call over to Dave Dobson.

[David C. Dobson:]

Well, great. Thank you, Melissa, and thanks to all of you for joining us this afternoon. With my first quarter at Digital River complete, I'd like to start out today's call by talking about my impressions from my first 100 days. Then I'll review highlights from the second quarter, provide an update on our strategic transformation and share some insights into our future growth plans. Following my opening comments, I'll turn the call back over to Stephan, who will provide more details on the quarter's financial performance. And before we close, we'll open up the call to take your questions. So in my first 100 days, I've continued to meet with customers from around the world. I spent time with our industry research analysts and talked to a number of our shareholders. These meetings have reinforced the significant opportunity before us. And that, while we still have work to do, our strategic transformation is on track. These meetings have affirmed that our commerce expertise, global footprint and ability to grow our customer's online business is core to our value proposition. Our global payments offering is a significant differentiator for us, enabling us to offer a truly integrated commerce plus payment solution for some customers while participating in the commerce value chain as a stand-alone payment solution for others. Our global payments footprint, ability to offer value-added services like fraud prevention and tax management and the broad knowledge base that we've built as a merchant of record for international customers -- customer networks set us apart in the marketplace. The meetings have also reinforced that our multi-tenant Software as a Service-based commerce platform is squarely aligned with where the market is headed, and our customers are looking to continue to innovate and advance the platform. Secondly, our strategic transformation is targeted in the right areas, including our technology infrastructure, our pricing model, our partnership ecosystem and go-to-market strategy. And finally, as we transform our company, we're making the kind of investments that are needed to deliver even more value to our customers and shareholders over time. With that, let me turn to the second quarter and talk about the steady progress we continue to make. I'm pleased to report that second quarter revenue grew to $92.5 million, just topping our guidance range of $89 million to $92 million. We also reported non-GAAP earnings per share of $0.04, which was at the high end of our guidance. Our solid top line performance in the second quarter can be primarily attributed to the continued organic growth of our Payments business, which, excluding the acquisition of LML, grew by more than 60% for the third quarter in a row. In the second quarter, we signed a number of new clients and expanded existing client agreements, demonstrating the competitiveness of our offerings. In the Digital Commerce space, we extended Kaspersky's online business into the Japan marketplace. We expanded our relationship with McAfee, winning their small and medium business commerce business, which is an important growth area, enabling some of our large software customers to extend beyond their consumer segment that they participate in today. And we renewed our contract with Ubisoft, a major game player. We also continue to extend our -- expand our strategic relationship with Microsoft. During the quarter, we worked with Microsoft to launch several of the remaining global markets for microsoftstore.com, extending Microsoft's online presence to more than 230 geographies around the world. In addition, we supported the Xbox One preorder program in more than 20 markets and updated the site design in top locales. In the current quarter, we look forward to continuing to support Microsoft's Xbox One pre-orders and their back-to-school season. As a part of our overall strategic transformation, we are committed to helping Microsoft deliver a world-class customer-buying experience and executing on their recently announced One Microsoft vision. In the Physical Commerce space, we grew our business with GE Healthcare, Jawbone, Kensington, LG and Samsung. We added Quantum to our customer portfolio, and we signed an important renewal with Lenovo, which included 13 global locations. In the Payments space, we signed new agreements with Bioventus, Blackbaud, LifeVantage and Manu-Tec. We expanded our existing business with Active Network, Vistaprint and Skullcandy, Ticketmaster and Spotify, where we launched 7 new locales. And we renewed our significant relationship with PayPal, signing a multi-year contract extension. Importantly, some of our newer solutions are also gaining traction with our customers. Our private store solution, which enables merchants to offer special discounts to an exclusive group of buyers through restricted sites, has been deployed by brand leaders such as Jawbone, Nuance, Samsung and Western Digital. Our channel partner solution is helping companies, such as Siemens, manage and engage their partners in the online sales process. This business-to-business solution automatically tracks and attributes direct sales to channel partners and then commissions them for completed orders. And finally, we launched a very exciting mobile point-of-sale solution for our SMB Payments business. The solution includes a new mobile app for Android tablets and smartphones, which complements our existing iPad and iPhone apps. It also includes a new mobile point-of-sale credit card reader that plugs into smartphones and tablets. This portable device allows our SMB merchants to capture and process credit cards and our channel partners, such as First Data in Canada to offer a white label service for their merchants. The solution is available as a value-added service to our payments gateway and physical client merchants. It's currently being used by more than 1,500 SMB merchants in North America. Together, these 2 elements enable a mobile point-of-sale solution that is being marketed through our payments reseller in Canada. We plan to expand into the U.S. and into the U.K. in future months, which is part of our growth investment case around LML acquisition and the expansion into the SMB segment. Our product strategy is based on continuing to offer customers more advanced and convenient ways to integrate and manage multi-channel strategies across multiple platforms, an approach that we are committed to advancing as part of our strategic transformation and growth plan. During my first earnings call in May, I introduced our strategic transformation plan and our three-pronged approach, which included

[Stephan B. Schulz:]

Thanks, Dave, and good afternoon, everyone. As Dave mentioned, our second quarter revenue was $92.5 million, an increase of 2% over last year. International commerce revenue in the quarter accounted for about 49% of total revenue, up from 47% last year. The shift to a larger portion of revenue in the international region was largely associated with recently launched international stores for Microsoft. Within our revenues, Enterprise Commerce was $77.7 million, up 9% from last year's results of $71.3 million. Payments revenue was the driver to the Enterprise Commerce growth in the quarter. In total, Payments grew 187% year-over-year. Excluding LML, Payments revenue grew 70%. This was the third consecutive quarter where our organic Payments revenue grew at a 60-plus percent growth rate. Our Digital and Physical Commerce revenues declined by 6% and 10%, respectively. These declines are consistent with our Q2 expectations and were largely caused by the loss of revenue from a small number of clients who decided to pursue solutions outside of Digital River. To be clear, the negative impact I'm referring to in the second quarter does not reflect an increase in client attrition. We have not experienced any further meaningful attrition beyond those that were communicated on our Q3 call last year. Now let me take a few minutes to explain this further. During the third quarter last year, a handful of clients told us of their intentions to move their commerce traffic away from Digital River's commerce application. These announcements were represented a spike in attrition that we had not seen in previous quarters. We lost these clients because we did not make the right level of investments in the platform. Our pace of innovation had slowed, and our pricing approach was rigid. Since the third quarter of last year, we have increased our investment in the platform and are identifying ways in which we can flex our offering to price more competitively. While we still have more investments to make and need to offer more ways to meet our clients' needs, we are clearly seeing positive results from our changes so far. On the supporting line, revenue in the quarter was $14.8 million, down 24% from $19.5 million last year. Now shifting to expenses. Total cost and expenses increased $9.3 million from last year, including $6.9 million of expenses related to the LML acquisition. The remaining increase was primarily attributable to $3.8 million in incremental investments related to our technology innovation and transformation initiatives that Dave discussed in his earlier comments and expenses related to severance, lease termination on closed facilities and litigation that accounted for about $1.5 million. Now these increases were partially offset by $1.3 million in reduced expenses associated with our supporting businesses and $1.4 million in lower variable costs associated with our commerce revenues. Moving on to earnings. The GAAP net loss for the second quarter totaled $900,000 or a loss of $0.03 per share. Last year, we earned $0.01 per share in Q2. On a non-GAAP basis, net income totaled $1.4 million or $0.04 per share, which matched the top end of our guidance range. Last year, we earned $0.20 per share. The decline in earnings per share is primarily due to $0.09 related to the technology and transformation investments I referenced earlier and $0.03 in dividend income received from last year but not received this year. We've included a table at the end of our earnings release, which reconciles our GAAP and non-GAAP results. Now turning to cash and cash flow. Our net cash used by operations for the 6 months ended June 30 was $63.9 million as compared to net cash used by operations of $51.8 million in the same period last year. Lower net income was the driver to the reduction in cash used in operations. As you may recall, our operating cash flow in Q1 was higher than typical first quarters, as commerce activity was strong towards the end of the quarter. As a result, we held a relatively large amount of client payable balances at the end of Q1. These client payable balances were paid in the second quarter, which negatively impacted working capital in the second quarter but normalized our first half cash used in operations. Excluding the impact of working capital changes, our operating cash flow for the first half of 2013 was $19.4 million, down from last year's cash flow of $32.8 million. Capital expenditures were $13.2 million in the first 6 months of 2013 compared to $6.2 million last year, as we continued making improvements to our technical architecture in the second quarter. As of June 30, 2013, cash and non-equity investments totaled $610 million. This was down about $75 million from the end of the first quarter, and the primary drivers of this change were the seasonal use of cash from operations in the second quarter, up $54 million; and the repurchase of $20.1 million of common stock and $4 million of convertible debt. Under our current buyback authorization, we have repurchased $34 million in common stock at an average price of $16.35 per share. As of June 30, there were $66 million remaining under the current authorization. Company cash, which we define as cash and non-equity investments less client cash, was $522 million. Now moving on to our guidance for the third quarter and the full year. For the fourth -- for the quarter, we expect revenue between $88 million and $92 million. At the top end of the range, Enterprise Commerce would account for about $75.3 million, and the supporting line would account for about $16.7 million. Expenses are expected to increase $7 million to $9 million above last year's level in the third quarter. This reflects $7 million to $8 million in increased investments in key technology and infrastructure areas and the inclusion of LML operations, which accounted for an additional $8 million. Now these were offset by approximately $3 million of lower variable costs associated with our commerce revenues, $2 million of reduced spending in our supporting businesses and $2 million of onetime expenses in the third quarter of 2012. Accordingly, third quarter GAAP EPS is expected to be a loss between $0.38 and a loss of $0.31 per share, and non-GAAP net loss per share is expected to be in the range of a loss of $0.10 to a loss of $0.05 per share, assuming a non-GAAP tax rate benefit of 21%. Our views on the full year have not changed much, with guidance assuming the following

[David C. Dobson:]

That's great. Thank you, Stephan. So before we move on to your questions, I want to recap some of the key points you heard today. First, we delivered a strong quarter and continue to benefit from steady organic revenue growth across our Payments business. We have a strong base of global commerce assets that's been affirmed by customers and industry analysts. We fully intend to leverage these assets in combination with our transformation plan to strengthen our market position and create more value for our customers and our shareholders over time. While we are still early in our transformation, we are on track and making meaningful progress, especially on the technology and operational fronts as we advance our infrastructure and commerce platform and drive efficiencies across the organization. We continue to believe that this transformation effort will stand 2014, and that we will see financial benefits, including top line growth and margin expansion, in the second half of next year as we execute our longer-term growth strategy. And finally, we look forward to providing a more detailed update on the progress we're making at our Investor Day on September 19 in New York City. Now let's move to Q&A. [Operator Instructions] So Kevin, can you please open up the lines?

[Operator:]

[Operator Instructions] Our first question comes from Gene Munster with Piper Jaffray.

[Charles Eugene Munster:]

Congratulations on getting the customer retention rate -- increase in the customer retention rate. One question on that, I just want to make sure I understood what you said is that we could see some of that attrition happening through kind of the third quarter of 2014. Is that correct?

[Stephan B. Schulz:]

So Gene, this is Stephan. No, what we're saying is that the impact of the attrition really will be felt through the third quarter of this year. But the year-over-year impact that affects growth rates will impact us through the third quarter of next year. But to be clear, the attrition that's going to impact directly our revenue results will extend through the third quarter of this year.

[Charles Eugene Munster:]

Okay. I'm going to try to keep this to one question, I guess, one theme. But on that topic is that some of the improvements you mentioned, some of those -- the pricing lever being more flexible in pricing, I guess, is that -- as you look in kind of aggregate impact to the business, the retention is improving, but is -- how -- what's the trade-off been in terms of total value of a customer?

[David C. Dobson:]

Gene, it's Dave. Yes, I mean, they're related. But quite frankly, they're not -- we're not seeing improvements in retention because of dramatic changes in price. We're actually seeing improvements in the retention based on what we're communicating, what we're delivering around our technology platform, the reliability, how we're opening up the platform and being able to integrate other third-party components. And in some cases, we've modified our pricing to reflect what I'd call platform economics where, as you look at large customers and they continue to grow their volumes, I think we're sharing some of the economic benefit and growth with them. But the big drivers of the retention -- positive retention change that we're seeing and expect to see are really the results of our executing our technology investments in the platform and then opening up our platform to be able to tap into third-party applications or internal applications that they use.

[Operator:]

Our next question comes from Tim Klasell with Northland Securities.

[Tim Klasell:]

First question has to do on guidance. You're guiding to sort of sequentially flat Q2 to Q3 and historically, it's been up a bit as e-commerce activities pick up into the second half of the year. Is that conservatism or were some of the churn that you experienced last year, customers who had stronger end of the years? Or maybe you can help walk us through that guidance point?

[Stephan B. Schulz:]

So yes, Tim, this is Stephan. You're right. Seasonally, we typically see a Q3 bump primarily because of the back-to-school selling season. And we do factor that into our guidance. However, you'll think your latter point, pointed out that we are commenting on some of the attrition that we'll be realizing as a result of those that were announced on our Q3 call last year. And so that is going to mute some of that growth to some extent and cause us to have a flattish Q2 to Q3 sequential revenue number.

[Tim Klasell:]

Okay. Great. And then obviously, continued impressive performance on the Payments business, and I think you guys are substantially outgrowing the market. Who do you think you're taking share from? And with the new payment device, and particularly as you come down to the U.S., will you start bumping into Square or Intuit? Or how should we think about who you're competing up against now and in the future?

[David C. Dobson:]

Tim, because of this stellar performance leading our Payments business, I've invited Souheil Badran to be with us today. So Souheil, do you want to answer those questions?

[Souheil Badran:]

Tim, this is Souheil Badran. Good to speak with you. I think the simple answer is we're really not going down market like the Square. We're really focused on, as a B2B provider, on offering our solution to businesses like First Data in Canada, who's going to white label the solution and have that brand, their brand, front and center in front of their SMB business. So we don't look at Square necessarily as a direct competitor. We look at it as serving another segment in the market.

[Tim Klasell:]

Okay. Great. And then I guess then, who are you competing up against in the market right now?

[Souheil Badran:]

In that segment, really, not a lot of providers. I mean, you have the direct providers like an Intuit, like a Square. But when it comes to the overall payments business, there are definitely some players out there like Chase Paymentech, Worldpay that are out there offering similar global payment solutions

[Operator:]

Our next question comes from Robert Breza with RBC Capital Markets.

[Robert P. Breza:]

Dave, I was wondering if you could comment maybe more on the kind of shareware business. I know that's been historically a large part of Digital River's core software download business. Have you seen kind of the impact there, decline in PCs, et cetera, and changes in buying behavior? How that's affected that part of the market?

[David C. Dobson:]

Rob, thanks for the question. Well, software continues to be, as we look at our own business, we talk about commerce, and software clearly continues to be a large part of where we're focused and where we get our revenue today. And what we're seeing fundamentally is the market shifts. And a great example of -- 2 things that I'll highlight in how we're innovating to deliver solutions to our customers. The first is a lot of our customers deliver what we call business-to-consumer applications, and we're seeing significant growth in business-to-business. So customers, we announced McAfee coming back to Digital River, where we're supporting and deliver a platform to support their B2B opportunity. We're seeing that across all of our customers. The many that were traditionally B2C vendors are moving quickly into the mid-market and up the food chain into B2B clientele. The second is, look, we've been in the subscription business a long time as software, and think of some of the large antivirus and security companies. Obviously, we're seeing cloud-based applications and cloud-delivered software grow very rapidly. And we're at the forefront of innovation and delivering our subscription capabilities, and probably the best example is Adobe. We provide the e-commerce infrastructure for the Creative Cloud business for Adobe in many of the markets around the world. So those are 2 things that we're seeing. So as PCs decline, as we look at our customer roster and how they're being impacted, we don't see a direct correlation in aggregate across our customers from PCs because they continue to innovate into the B2B marketplace and delivering their Software as a Service.

[Operator:]

Our next question comes from Craig Nankervis with First Analysis.

[Craig Nankervis:]

My first question, just to go back on the attrition. I guess I'd like to be a little clearer on the trends. It sounds like there is considerable improvement from where you were in Q3 last year. But if you were to compare it to some less intense periods, maybe say 2 years or 3 years ago, can you comment on how your attrition is trending versus what it was a little while ago?

[Stephan B. Schulz:]

Yes, Craig, this is Stephan. So what we saw in Q3 was a basically, an unusual spike. And when we look back several quarters prior to that to your point, and then we look since -- the periods of times since Q3 of last year, we've seen attrition rates that are very similar to those days that were in the quarters preceding Q3 of last year. We just had a, like I said before, a handful of clients that notified us in that time period. Now the amount of -- the exact time of when that attrition takes place is varied amongst the quarters, but it was announced and told to us in Q3 of last year. Since then, the rate has been very, very good. And so that's why we feel like we've got this covered, and that's why we felt like it was good to give you some color on when we started to see the end of the attrition headwind.

[David C. Dobson:]

And Craig, it's Dave. Just to comment a little bit on that. I mean, there are -- and again, this is me coming into the organization in the last 2 quarters and kind of doing a bit of a retrospective look at what caused that spike in Q3 of last year. I mean, there was an event, and the event was caused by an outage. The company had an issue that was driven by a technology platform that wasn't necessarily at the level that our customers expected. And I think that is what we've corrected. We've gone and made a substantial investment in our platform. We believe that we have to have a technology platform that is far superior to what our customers could implement on their own. And that's what we've said is a strategic direction, and we're in the process of implementing that. And quite frankly, from a technology platform, we think we'll be through most of that as we approach the fall of this year.

[Craig Nankervis:]

Okay. That's helpful color. My second question and a follow-up is on the Payments side and for Souheil. I just wondered, my understanding was that like maybe through much of last year, you guys increased the sales headcount on the Payments side. So if that's true, I'm sure that's driving a lion's share of the improvement in organic growth. Are you performing ahead of your plan internally? Or just how is this playing out with the larger sales force versus your expectations?

[Souheil Badran:]

So a great question, Gene. Good to speak with you again. A couple of things happened. One is -- sorry, Craig, I mean, not Gene. We did increase our sales force. We actually made some changes, but we also changed the way that we look at our existing client base. We focused a lot on working with our existing clients and growing the core, if you will. And then second, we focused, as part of what Dave has talked about, on our channel strategy. So if you look at our channels today, we have about 400 partners out there taking our solutions to market and offering it to their customers. So a combination of focusing on our core, extending our direct sales footprint to different regions, as well as focusing on our channels helped with our growth.

[David C. Dobson:]

And the only color I'll add to that, Craig, is one, I talked a bit about in the script our organization changes. We use the opportunity with the introduction and inclusion of LML Payments, of Beanstream into the Digital River company and family. They were very focused on mid market. And we have what I think is an untapped opportunity to really grow our business in the mid markets. We've asked Souheil not only to [indiscernible] lead our Payments business globally, but he's also picked up responsibility for leading our mid-market efforts. So we've taken our commerce platform that is predominantly it's branded MyCommerce, which is a very easy-to-use, very quick to sign-up capability. And we've combined that with our Payments business in the mid-market. And the importance of that is the whole go-to-market is predicated on building a world-class channel organization, which they've done in Payments for a long time, and we're now going to extend that to what we're doing at the mid-market for our overall commerce business. So Souheil leads that. John Strosahl, who is also here with us in the room, is focused, obviously, on our global commerce business, but he also focuses predominantly on our enterprise class accounts.

[Operator:]

Our next question comes from Colin Sebastian with Robert W. Baird.

[Rohit Kulkarni:]

This is Rohit Kulkarni. I'm in for Colin. Quick question on Microsoft and Xbox One. Can you elaborate your thought process around what sort of incrementality are you assuming as you go further into the shopping season and the launch of Xbox One?

[David C. Dobson:]

[indiscernible] the short answer is no, I can't. And the reason why is my relationship and our relationship with Microsoft is so important that I would not do anything to communicate one way or the other what's happening with Xbox. Although I'll leave it at this

[Rohit Kulkarni:]

Okay. All right. And can you remind us this kind of seasonality of LML that you mentioned, whether it is different from your other Payment business?

[Souheil Badran:]

Not really. I mean, we see consistent growth. And it depends on the travel segment, for example. You're going to see more uptick in the travel vertical in general depending on the seasonality. But overall, it's very consistent growth.

[Operator:]

Our next question comes from Phil Winslow with Crédit Suisse.

[Harris Heyer:]

This is Harry Heyer for Phil. I was just wondering, in terms of your guidance, what are your expectations for gross margins?

[Stephan B. Schulz:]

In -- so Harry, let me go back to -- in terms of how are you looking at gross margins today with our numbers, because we really don't disclose a gross profit number?

[Harris Heyer:]

I guess if you could just give some color in terms of direct costs of services and network infrastructure. If not, I can ask another question.

[Stephan B. Schulz:]

Yes. No. I guess let me answer it this way. We're not expecting any significant change beyond what we have -- the percentages we've normally seen in that area.

[Harris Heyer:]

Okay. So if you don't mind me just asking a quick follow-up, for the ranges that you gave for the support business, can you just give us a little bit of a, I guess, qualitative sense for how you work to the high end and low end of that range for the full year?

[Stephan B. Schulz:]

So as it relates to our supporting businesses?

[Harris Heyer:]

Yes.

[Stephan B. Schulz:]

Okay. Well, I mean, when we go through our guidance, we look at a number of scenarios that can -- that we believe are plausible scenarios that can be played out. We spend quite a bit of time with our senior leaders, including Souheil, who's been on this call as well. And we build a model that we believe is very achievable and one that we feel like is indicative of where we want to be for the year. Now if you're asking another question, which is are we -- do we have any other plans for our supporting businesses. The numbers that we're giving you are assuming that we're moving forward with all the supporting businesses as they are today, with no changes in the scope or -- of the deliverables. Does that answer your question?

[Harris Heyer:]

Yes.

[David C. Dobson:]

And just Harry and for others on the call, this is Dave, that we are -- I mentioned this at the end of Q1, I'll mention it again now, that we're taking a very close look -- I mean, clearly, we're not satisfied with the type of growth and headwinds that those supporting businesses create for Digital River, and we're doing a very focused and disciplined assessment of what businesses will be core going forward. And we hope over the course of the next 2 quarters to provide more color on what our plans are with businesses that are not core to our future going forward.

[Operator:]

We have time for one more question, and that question comes from Nat Schindler with Bank of America.

[Nathaniel H. Schindler:]

Just quickly, you've talked about how much your payment system has grown in revenue. What's that growth on an aggregate number, if you could tell us that? And then also, how much of that is from LM -- LLM -- LML? Sorry. And as a unrelated but somewhat related question, what is the percentage of Microsoft in the quarter? Or did I miss that?

[David C. Dobson:]

Yes, Nat, it's Dave. Let me just talk about that and if I missed it, I'll have Souheil or Stephan bounce in. Our Payments business, we talk about in the script that excluding LML, continues to grow at north of 60%. And when you think about aggregate, if you're trying to get a sense for how big is Payments in our overall revenue, I -- we could tell you that it's approaching 20% of our business. So as it continues to grow, it's getting to be a pretty meaningful part of our overall revenue.

[Nathaniel H. Schindler:]

Sorry, is that 20% of commerce or 20% of total? Overall?

[David C. Dobson:]

Overall.

[Nathaniel H. Schindler:]

Great. And did you mention the size of Microsoft in the quarter?

[David C. Dobson:]

Oh, yes. No, we didn't. I think, Stephan, go ahead.

[Stephan B. Schulz:]

Yes. So Nat, we typically only provide that on an annual basis, and we did at the end of 2012 and it was 29.6%, I believe.

[Operator:]

I just want to let you know that there were no further questions.

[David C. Dobson:]

Great. Thank you.

[Melissa Fisher:]

Well, before we close today, I want to remind everyone that our Investor Day is on September 19 at the Omni Berkshire Hotel in Midtown Manhattan. For more details, please refer to the Investor Relations page at digitalriver.com or today's earnings press release. This concludes Digital River's Second Quarter 2013 Earnings Call. Thank you for joining us.