Digital River Management Discusses Q1 2014 Results - Earnings Call Transcript

|
 |  About: Digital River, Inc. (DRIV)
by: SA Transcripts

Digital River (NASDAQ:DRIV)

Q1 2014 Earnings Call

April 30, 2014 4:45 pm ET

Executives

Melissa Fisher - Vice President of Corporate Development, Investor Relations & Treasury

David C. Dobson - Chief Executive Officer and Director

Stefan B. Schulz - Chief Financial Officer, Principal Accounting Officer and Treasurer

Analysts

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

Charles Eugene Munster - Piper Jaffray Companies, Research Division

Ned Davis - Wm Smith & Co.

Operator

Good day, ladies and gentlemen, and welcome to the Digital River First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Melissa Fisher. Please go ahead.

Melissa Fisher

Thank you, and welcome to Digital River's First Quarter 2014 Earnings Call. Here with me today are Dave Dobson, our CEO; and Stefan Schulz, our Chief Financial Officer.

During the call today, Dave will provide brief highlights for the first quarter and give an update on our transformation. Stefan will go into more details on our financial results, and then we'll open up the call for questions.

Before we begin, 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.

With that, I'll turn the call over to Dave Dobson.

David C. Dobson

Thank you, Melissa, and good afternoon, everyone, and thank you for joining us on our call today. I'm pleased to report that we started the year with solid results. In the first quarter, we exceeded our guidance with revenue of $97.8 million and non-GAAP earnings were $0.20 per share, well above the guidance we had provided.

In our commerce business, which serves digital product companies and branded manufacturers, our first quarter results were driven by successful eCommerce marketing campaigns and strong product performance among some of our largest customers. In addition, our large base of Tier 2 or mid-market Enterprise Commerce customers also outperformed our expectations. In commerce, our gross transaction volume for the trailing 12 months ended March 14 grew to $2.4 billion, up from $2.3 billion for the trailing 12 months ending in December of last year.

As we discussed in previous quarters, our first half commerce revenue is being impacted by some large year-over-year comparables related to previously announced client attrition. Despite these tough compares, we are seeing strong volume growth in our existing customer base. We believe this reflects the success of our customers -- are having and growing significant direct-to-consumer online businesses and we are committed to continued investment to maintain this momentum.

In our payments business, we grew revenue 16% year-over-year in the first quarter. This growth can get be attributed largely to recent client wins for our high-value ISO line, where we provide acquiring services and the geographic expansion and organic growth of some of our key payment customers. Our trailing 12-month growth transaction volume in payments increased sequentially 7% to $30 billion compared to the volumes processed at the end of December 2013.

As we've communicated previously, the objectives of our strategic transformation are to drive sustainable, profitable growth and create value for our customers. We will achieve these objectives by executing our 3-part strategic growth framework, which includes investing in our technology, executing against a targeted growth strategy and improving our operational efficiency. We are seeing the progress of our transformation in the results we're announcing today.

Let me start with a brief update on our technology initiatives, then I'll shift into a growth update for the quarter. We are nearing the completion of our infrastructure investments for our commerce business, which were designed to improve capacity, scalability and performance and, ultimately, drive the throughput of our world-class private cloud. And we're seeing evidence of success. In the first quarter, the number of critical incidents related to our Global Commerce platform decreased almost 50% on a year-over-year basis. This quarter, we will complete the remaining infrastructure investments as we finalize our readiness plan for this year's holiday season. These infrastructure investments were made as part of our strategy to increase customer satisfaction and retention and we are seeing clear indicators of this through our loyalty metrics. In fact, in the first quarter, our commerce loyalty metric for the trailing 12 months ended March 2014 increased to 96% from 93% last quarter.

Our loyalty metric for our enterprise payments business remained at 100%. Beginning this quarter, we're also going to include our SMB payments business, previously known as LML, in our loyalty metric for payments, which, when combined, was 99% in the first quarter.

In the last quarter, we also delivered against our product innovation roadmap, making several enhancements to the self-service capabilities of our Global Commerce platform. New merchandising and marketing features will make it more efficient for our customers not only to manage their catalogs and promote their products to end customers but also convert more shoppers into buyers and drive more revenue in our online stores.

As part of our roadmap work, we also introduced a new set of APIs that enable third parties to more easily connect to our payment methods and we launched new order management features to help branded manufacturers manage low-volume fulfillment in-house. Finally, we continue to make progress on our software platform evolution initiative, which is designed to improve system performance, make it easier to innovate and launch new features for our customers and enable systems integrator partners to extend and customize our platform for their customers.

Our software platform investments, which are on track to be largely completed by the end of 2015, will primarily be focused on optimizing and enhancing our core commerce modules. These modules include our administrative tool set, shopper experience, subscriptions and ordering catalog management. In Q1, we completed the foundational work needed to advance these modules and we estimate that 15% of the platform evolution initiative is complete as of today.

Now moving on to our growth initiatives. In the first quarter, we continued to win new business and grow our existing customer relationships in commerce. In our Digital Commerce market, which includes software and games, we signed a new contract with NCSOFT, a major Korean game developer, to support North America and European sales of its massively multiplayer online role-playing games, Aion and Lineage II. While NCSOFT represents a new win for us, we recently enabled commerce for a separate subsidiary, ArenaNet. We were delighted our previous work with ArenaNet supported our selection as NCSOFT's new commerce partner.

During the first quarter, we also expanded our business with AVAST by launching in-app purchasing and grew our relationship with software leader, Uniblue, by adding a locale in Russia. The strength of our business in our targeted markets among customers like NCSOFT and AVAST is a testament to our product innovation related to in-app gaming and commerce in general.

During the first quarter, our business with Microsoft also performed well as it continued to benefit from the strong performance of the Microsoft Store. In the quarter, we supported several new product launches in the store, including the Xbox One Titanfall game and the sale of console bundles.

Outside of software, we continue to expand our commerce business among branded manufacturers, which we believe is an important future growth engine. In the first quarter, we signed new contracts with notable brands such as Whirlpool and Bosch, who will be leveraging our channel lead management and smart channel solutions to strengthen their commerce partnerships and direct-to-consumer business strategies. We continue to see companies strategically using these partner management solutions to build a direct online sales models that engage and reward their channel partners, mitigating channel conflict issues in the process.

Now moving on to our payments business. Payments continues to be another important future growth engine for Digital River. In the first quarter, we signed new acquiring agreements with MOO Inc, a global designer and printer of business and notecards and other business materials. Arthur Middleton Capital Holdings, the world's largest private provider of U.S. coins and currency and Reima, one of the Nordic's leading manufacturers of children's clothes. We also grew business with PayPal, enabling processing of AmEx card-present transactions in the U.K., Australia, Japan, Canada and Hong Kong. And we expanded into new markets with some of our existing clients, including Expedia in Japan and Spotify in 25 different geographies.

Additionally, to further expand our global payments footprint, we launched our first channel partnership in the U.K. with Volusion. We expanded our Brazilian payments capabilities, enabling internationally domiciled merchants to process several different local Brazilian payment methods.

Lastly, our marketing services business continues to see strong growth. Our direct-response marketing agency won meaningful new business in the first quarter. We expanded our agreements with Trend Micro, VMWare, Logitech to include new site optimization services. We grew our relationship with Sennheiser, providing a full marketing suite that includes analytics to drive new customer acquisition and optimize online media spend. And lastly, we're expanding our direct marketing efforts with Rosetta Stone in Japan to include new search, e-mail, display advertising and affiliate marketing programs.

Our e-mail services business unit also won several new contracts. This included a new agreement with CBS Interactive to provide e-mail platform for their various properties. We also launched new e-mail marketing solutions for New Peak Media, Columbia Sportswear, a leading branded manufacturer and retailer.

Now to support the continued expansion of our business on a global basis, you'll recall last quarter, we said we plan to make incremental investments to expand our sales and marketing footprints in Europe and Asia. I'm very pleased to announce 2 new executive appointments. First, Humphrey Chan joined us in March as the General Manager and Vice President of Asia-Pacific. Humphrey will direct our APAC expansion efforts in commerce, payments and marketing services, managing sales, marketing and day-to-day operations in Hong Kong, Beijing, Shanghai, Taipei and Tokyo. Humphrey joined Digital River after building a fast-growing, multimillion dollar business at SafeNet Software. I'm also very pleased to announce Marco Vergani, who joined us in April as General Manager and Vice President of our EMEA region. He is leading our Global Commerce expansion strategy in the region and managing operations across Austria, England, Germany, Ireland, Luxembourg, Russia and Sweden. Before joining Digital River, Marco had a successful 25-year career at IBM.

In summary, while we're now approaching the midpoint of our strategic transformation, we are pleased that our first quarter performance demonstrates the progress we're making with our existing and new customers and the strong value proposition that Digital River offers as we begin to compete in new, very large and rapidly growing customer markets.

With that, let me turn the call over to Stefan, who will provide more details on our first quarter financial performance and second quarter and full year expectations.

Stefan B. Schulz

Okay. Thank you, Dave, and good afternoon, everyone. As Dave mentioned earlier, our first quarter revenue came in at $97.8 million, exceeding the top end of our guidance range of $95 million and representing a 12% decrease from last year's first quarter revenue from continuing operations. Coming into this quarter, we knew the year-over-year comparable was going to be tough due to onetime customer product launches in our commerce group in 2013 and the continued impact of attrition that occurred in 2012.

Please note that we discontinued some of our operations in 2013 and all comparisons with historical periods relate only to continuing operations. Within our revenues, commerce was $81.2 million, which exceeded top end of our commerce revenue guidance by $2.9 million. Specifically, we saw some successful promotional campaigns and strong product demand in our Tier 1 accounts that drove the predominant overachievement within the quarter. First quarter commerce revenue represents a 16% decline versus last year's commerce revenues of $96.7 million. The decline, albeit slightly better than our expectations, was largely driven by prior client attrition and onetime product launches previously discussed. International commerce revenue in the quarter accounted for about 48% of total revenue, slightly up from 47% last year.

Our payments revenue was $16.6 million, an increase of 16% from last year's payments revenues of $14.3 million, which was in line with the high end of our guidance for the quarter.

Now shifting to expenses. Total non-GAAP operating costs and expenses decreased $5.5 million from the same quarter last year, including variable cost reductions of $3.8 million and another $3.7 million related to planned expense reductions that occurred in sales and marketing and general and administrative areas. The expense reductions were primarily driven by our operational excellence initiatives. These decreases were partially offset by $1.4 million of increased investments in platform development initiatives and another $1.4 million of additional depreciation, driven by our technology investments.

Now moving on to earnings. The GAAP net loss for the first quarter totaled approximately $5.7 million, representing a $0.19 loss per share. The loss on the repurchase of a portion of our convertible notes more than offset our GAAP income from operations. This resulted in a GAAP net loss in the quarter. Last year, the loss was $0.33 per share in the first quarter.

On a non-GAAP basis, diluted net income for the first quarter was $6.2 million or $0.20 per diluted share, significantly exceeding our guidance range. Last year, we earned $0.33 per diluted share in the same period. Non-GAAP EBITDA was $15.5 million for Q1 compared to $21.8 million in the same period last year. As in previous quarters, we have included a table at the end of our earnings release, which reconciles our GAAP and non-GAAP results.

Turning to cash and cash flow. Our net cash used by operations for the quarter was $10.4 million as compared to net cash used by operations of $10.2 million in the first quarter of 2013. Excluding the impact of working capital changes, our operating cash flow was $12.6 million in the quarter, representing a $400,000 increase compared to cash generated in the same period last year. Cash expenditures totaled $4.1 million in the quarter compared to $7 million of capital expenditures last year.

As you may recall, our investment surge in technical architecture improvements began in Q1 of 2013. We anticipate our 2014 capital spend to be below our 2013 spend of $23 million.

Under our current buyback authorization, we repurchased $14 million of common stock in Q1 at an average price of $17.19 per share. As of March 31, there were $32 million remaining under the current authorization.

During the first quarter, we also repurchased $169.3 million of our outstanding convertible debt, consisting of the redemption of $8.7 million of our 1.25% convertible notes and the repurchase of $160.6 million of our 2% convertible notes. Concurrent with the repurchases, we recorded a onetime pretax charge of approximately $5.6 million related to settlement and acceleration of deferred financing costs. These onetime costs have been excluded from our non-GAAP earnings. Excluding the onetime charge, we realized pretax savings of $400,000 and anticipate full year savings of $3.6 million. We decided to opportunistically repurchase a portion of our debt given the impending put date and the lower level of return we expected to generate with the debt proceeds.

As of March 31, cash and non-equity investments totaled $434.8 million. This was a decrease of $207 million from the end of last year and the primary drivers of this change were the cash use of $173.3 million to repurchase that outstanding convertible debt, excluding the accrued interest; the repurchase of another $14 million of common stock; as well as the use of cash in operations I just mentioned.

In order to increase our financial flexibility, we also repatriated $125 million of cash from foreign subsidiaries to the United States in a cost-effective manner subsequent to the end of the quarter. Company cash, which we define as cash and non-equity investments less our client cash, was $339 million.

Now moving on to our guidance for Q2 and for the full year. For the second quarter, we expect revenues to be between $84 million and $87 million. Within that range, commerce would account for about $68 million to $70 million. Now we expect our commerce revenues to experience high-single-digit declines in the second quarter. This is better than we signaled on our last earnings call due to the continued strong performance we're seeing in some of our Tier 1 clients through the spring season.

Payments revenues are expected to be between $16 million and $17 million. This represents single-digit growth versus the same period last year. The lower growth rate in comparison to both historical and expected periods is largely driven by 3 factors. First, Q2 2013 is a tough comp, where year-over-year organic growth was 71%. That quarter also included nonrecurring service fees. Second, we exited a small check processing operation acquired in the LML acquisition in the second quarter of this year. And finally, we're seeing a slower ramp in volume from new clients. As you'll hear in a few moments, though, we remain confident in our full year payments forecast, as communicated last quarter.

Second quarter GAAP EPS is expected to range between a net loss of $0.33 to a net loss of $0.28 per share. And non-GAAP EPS per share is expected to range between a net loss of $0.07 to a net loss of $0.03 per share, using a non-GAAP tax rate of 21%. Non-GAAP EBITDA is projected to be between $5.2 million and $6.8 million, a 6% to 8% margin.

Moving on to the full year. Our guidance has been revised as follows. We're increasing our revenue guidance to be between $372 million and $382 million. Within that range, we expect commerce revenue to land between $299 million and $306 million and payments revenue to land between $73 million and $76 million. We expect our payments revenue growth to accelerate in the second half, with a greater degree of strength in the fourth quarter, as our client volumes ramp and the expansion of geographies and partners, as well as the improved product offerings, will drive new client wins. For the full year, we expect payments growth to be in line with the current payments market growth rate of up to 20%.

Full year GAAP results are now projected to range from a net loss of $0.65 to a net loss of $0.52 per share. And finally, full year diluted non-GAAP EPS is projected to still be between $0.41 and $0.51 per share and our non-GAAP EBITDA is projected to be between $47 million and $51 million, a 13% margin.

We intend to manage our profitability such that incremental profits, driven by higher revenue, will be reinvested in the execution on our platform evolution and we still believe the transformation efforts will yield the long-term target financial model we shared with you at our last Investor Day.

So to wrap up, we're very pleased with our Q1 results, as well as our upwardly revised full year revenue outlook. We realize we still have a lot of work ahead, but we're pleased with the progress of our transformation plan to date.

With that, I'll turn the call back over to Dave for his closing remarks.

David C. Dobson

Thank you, Stefan. So before we move to Q&A, I want to recap some of the key points that you heard today. First, we had a solid quarter with stronger-than-expected performance in our commerce business and payments delivering strong double-digit top line growth. Second, we are seeing the progress of our transformation reflected in the improved performance of our business. Our growth transaction volume continues to grow in both commerce and payments. In addition, the investments we have made in our commerce platform are delivering increased capacity, performance and stability and we're seeing the direct benefit in sustained increases in customer retention, a key milestone of our strategic transformation.

And finally, as we continue to improve our execution capabilities and build momentum with our customers, we are pleased to increase our full year revenue guidance. As we have done before, because of our confidence in the strength of our selected markets and positioning, we have chosen to increase the investment in our core commerce and payments offerings over the remainder of the year. We believe these sustained investments will improve our ability to meet the software platform milestones we have set and give us the opportunity to deliver more function to our existing and new customers more quickly.

With that, let's move on to Q&A. Operator, can you please open up the lines?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will be coming from the line of Nat Schindler from BoA.

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

How much was Microsoft in the quarter? And I know in -- you did mention it, but can you -- if you can't tell me exactly, can you tell me -- characterize its growth and how much of the beat came from the Microsoft side? And secondly, can you talk about the FX impact in the quarter and on your guidance and how that is affecting you right now?

Stefan B. Schulz

Sure. So Nat, this is Stefan. I'll take those questions. First of all, as you know, we've disclosed our concentration on the Microsoft relationship on an annual basis. We do not do that on a quarterly basis and we do that just out of respect for their operations and their business. And so we're going to stick to that and not really provide the color. Obviously, Microsoft is a fantastic client of ours. We're very happy to have them, but beyond that, we really would rather not comment any further than that. When it comes to the currency impacts, we had -- when you look at the quarter, the impact to our bottom line was somewhat minimal. And as you might expect, we have some natural hedges that take place between our revenue and our cost basis internationally that diffuses any sort of big-time hit from currency on the revenue side. And from a revenue perspective, the impact was minimal, I would say less than 1%. And then as you look forward, as we project forward, as we look at 2014, we have basically assumed no change in currency rates from where we are right now and basically, what we experienced in Q1. So that is always a caveat. Sometimes, we don't always mention it, but it's a caveat that we should mention more often, so thanks for mentioning it, that we are assuming consistent currency rates and so any significant change in that could have an impact on our guidance when we go forward. But that's how we've modeled it.

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

Okay. And just finally, if I look at kind of your upside in your operating income, basically, it's equal to your upside in revenue from your guidance. You have basically no marginal cost on increased revenue except for payment processing, credit card fees. Is that a good way to think about it? If you beat, it's a drop straight to the operating income line?

Stefan B. Schulz

Well, not exactly. You're right. There are payment processing fees that are attached to most of the revenue that we generate just because of the nature of the business we do. And depending on the type of revenue you're talking about, that could range anywhere from 20% to 80%, depending on whether it's payments revenue or commerce revenue. So the way we've looked at it, Nat, is -- and I'll just tell you, the way we've modeled it is that if you take the midpoint change in our revenue guidance, it's about $5.5 million. And we're basically saying that is going to be impacted by about $2 million, so the mix is between payments -- I'm sorry, yes, the mix is between payments and commerce, actually, more commerce. And so we've applied about a 30% factor to that and so we're looking at about $4 million that would go to the bottom line. And what Dave has mentioned and I also mentioned in my prepared remarks is that we would be reinvesting that to essentially de-risk the transformation plan and put additional resources to ensure the successful completion of what we're aiming to do by the end of 2015.

Operator

Our next question will be coming from the line of Gene Munster from Piper Jaffray.

Charles Eugene Munster - Piper Jaffray Companies, Research Division

Just in terms of the -- first, maybe starting with the evolution platform. Is that the piece that's going to be modularized? And I know you talked about that in your prepared remarks, but can you go over that again as where are we in that process? And do you have any perspective on how that's going to impact the business, whether it be a potential headwind as some customers may downsize or could it be an opportunity as it kind of lowers the bar and you can get new customers in the door? So I guess a 2-part question. I have a follow-up to this, too, but where we at in that process and what's your latest thinking on how to think about that impact?

David C. Dobson

Right. Yes, it's a good question. It's obviously important, one we're spending a lot of time working through. So let me just describe the progress we've made. As we looked at this, we really broke our technology strategy into a few components. The first was our infrastructure. We wanted to invest to make sure that we minimized the instability of the platform. We've made great progress and we commented on that. And as we said, we're pretty much through our fairly significant investments in the infrastructure. Then we move on to, from a software platform perspective, stability. And when Ted Cahall arrived around November of last year, he really increased our focus on stability and directed our engineering teams to focus on what are the areas of our platform that are causing either customers not being able to do what they want to do with our platform or we had instability. And we've made great progress on that. Now we're on the third phase, which is really addressing the modularization, from a software perspective of our platform, which really gets into, Gene, how do we deliver more functionality more quickly to our customers, how do we actually add new features to the capability and how do we do it all more quickly and deliver more quickly into the marketplace. And what we indicated is we're 15% of the way through that, that software work. We expect to be complete by the end of next year, by the end of '15. Now to your question about how it impacts the business. We're already starting to see the positive impact of the investments we've made, primarily measured in reduction in critical incidents, which is leading to customers staying with us. And you heard us report a 96% retention rate, which basically means we had virtually no meaningful attrition. And that's been consistent now over the last 3 quarters. Now we don't expect -- the fact that we're only 15% of the way through creates headwinds for us. The guidance we provide you for fiscal '14 and even some of the discussions we've had beyond '14, we're reflecting the progress we're making in that platform. So as we accelerate that, if we have the opportunity to accelerate that, that could further bring in new wins that we'd like to get outside of what we're currently forecasting in the information we've provided to you. Now the final part of your question, you asked about customer downside. No, we don't see it that way. The whole focus on what we're doing with our platform is think of modularization beyond just a platform, think of how we're pricing to our customers and offering modularization. We're finding that as our -- this is really predominant or really only evident with our largest customers, so think of a small handful of customers. We feel like what we're doing and what we're delivering, we've mitigated the risk of those customers leaving us. It's going from all on or all off. We're now in a mode, with what we're delivering and what we've communicated, that we think we can be a smaller percent of revenue of a much larger eCommerce pipeline that we're processing. So we think you will not see growth commensurate with necessarily what they're putting through their eCommerce channels, but for us, it does not lead to lower revenue. And then as we continue to deliver functionality, we believe we'll start to open up new markets like our branded manufacturing segment and start to see commensurate growth not only in the second part of this year but as we go into 2015. Hopefully, that answers your question, Gene.

Charles Eugene Munster - Piper Jaffray Companies, Research Division

Yes, it does. Another question just in terms of the comps. I know that we've had some headwinds with the comps. Can you outline when the comps start to get easier?

David C. Dobson

Yes. In commerce, we've just gone through -- the way it works is we just went through the toughest quarter in Q1. It's similar difficulty in Q2 and then it starts to mitigate in Q3. So all of the significant customer attrition we announced was basically beginning in Q3 of last year through the middle of Q3 of this year. So we've got -- we said the first half would be our trough. We did better than we said we would do. And as you can tell from our Q2 guidance on revenue, we think we'll continue to see momentum and be better as we come out of the tail end of that trough. But by midpoint third quarter, we're done. We believe we've got the significant attrition behind us.

Charles Eugene Munster - Piper Jaffray Companies, Research Division

And that was for the whole business, or is that just commerce that you just went through?

David C. Dobson

Just commerce. It was just commerce. We do not have -- I mean, we're running at close to 100% customer loyalty in payments and so we have no significant attrition issues in that part of the business at all. We never did.

Charles Eugene Munster - Piper Jaffray Companies, Research Division

Okay. We just had a big growth quarter, I guess, in Q2 of 2013 in payments, so that's a difficult comp in the June quarter. Is that one way to think about it?

Stefan B. Schulz

Gene, yes. That's exactly right.

Charles Eugene Munster - Piper Jaffray Companies, Research Division

Did that start to -- I guess, on that front, did we start to see some easier comps in Q3 and Q4 in payments as well?

Stefan B. Schulz

We do, yes. And so that, combined with what we see in terms of our pipeline and the -- in not only the pipeline but deals we've already signed in getting those clients live, we actually see the revenue accelerating both sequentially and year-over-year, to your point. But yes, the hardest comp for us was Q2 when you looked at year-over-year because we had that 71% organic growth rate that occurred last year. That was kind of the height of our hype in terms of growth last year.

David C. Dobson

This is Dave. Let me just -- a little bit more detail, Gene, on why that occurred. This was a very positive thing last year. Our payments team under Souheil's leadership, they really started ramping up our ISO, our independent sales organization offering, where we're -- effectively, it's our highest-value offering. And so we saw that offering really hit stride. We saw significant growth off a very small base. So we continue to win new customers. In fact, we continue to win new customers at pretty much the same rate, taking a little longer to ramp, but we start -- as we get through the second quarter of this year and we've provided some guidance for you, we'll start to see it accelerate again in the second half in the payments business. And as we said, overall, we think that marketplace for payments, where we compete primarily in cross-border and international payments for card not present, so eCommerce payments, we see the market somewhere between 15% and 19% growth, so in that range. And we think we'll be at or above market growth rate for the foreseeable future on a full year basis.

Operator

[Operator Instructions] Our next question will be coming from the line of Ned Davis from William Smith & Company.

Ned Davis - Wm Smith & Co.

On the cash, interesting that you could repatriate, I think you said $125 million. Bring us up-to-date. At the end of March, how much cash, excluding customer cash, do you have that would be subject to repatriation tax and what would that tax be if you repatriate it? And then I have one other quick question.

Stefan B. Schulz

Sure, sure. No problem. Let me make sure I understood your question. Your question is as of -- at the end of March -- by the way, the repatriation we did actually did not occur in the quarter. It occurred just after the quarter, so it was a subsequent event that we did in, actually, the early part of Q2 that we felt was meaningful enough to disclose. So that's the first point. But I'm assuming you're asking the question of after we did the repatriation, how much cash do we have sitting overseas that we could repatriate and how much would that cost.

Ned Davis - Wm Smith & Co.

Yes. And obviously, leaving out customer cash reserve or client cash, whatever you call it.

Stefan B. Schulz

Yes, yes. Absolutely. So if you -- we have somewhere between, call it, $60 million and $70 million overseas. And honestly, if we were to repatriate that, that would come at a pretty high tax cost, not to mention we need to have some cash sitting over there for working capital needs. And so we feel, just to be honest with you, we feel very good about what we were able to accomplish with this repatriation and thank you for the comment about how difficult that can be. I must say, I was very happy to see how our treasury tax and accounting departments work together to...

Ned Davis - Wm Smith & Co.

Well, if you let me know, there are some other big companies that we could really help out if we could teach them how to do it. On another question, you mentioned in the presentation, I believe, that you had completed about 15% of the evolutionary spending. I just want to make sure I know what you're referring to or what the total of that is. Is that about $70 million total that you've done 15% of?

Stefan B. Schulz

Yes. So the 15% wasn't really a financial metric. It was more of a metric designed to talk about where we are in the platform evolution work. So it was more of percent-complete measure, if you will, in terms of where we are on that project.

Ned Davis - Wm Smith & Co.

In terms of the work itself, okay.

David C. Dobson

Yes. This is Dave. We felt it's pretty important -- we've talked a lot about our strategic transformation with our technology investments being a key part. And we felt it was important to provide our investors with very clear communication on our progress. So we've talked a lot about our infrastructure. We have not provided a very discrete metric and we want to be very transparent on where we are. And each quarter, we plan on providing an update on our software platform evolution.

Ned Davis - Wm Smith & Co.

Okay. Well, my question then, really, stemming from that is you indicated that you have a big penalty in Q2 from this type of spending and, I guess, also in Q3 and then it's kind of smoother sailing after that, which implies a very strong Q4. But I guess I'm trying to get at how much spending is there from here in dollar terms, in rough dollar terms, to complete this whole process that you identified on Investor Day last year and you've talked about in some detail.

Stefan B. Schulz

Let me make sure I answer your question. But what we've talked about is -- we've talked about a number of times about the incremental spend that we saw happening. It was around $22 million in '13 and we saw that number slightly coming down in '14. But when you put the whole thing together, you almost have to add in all the work that we do within our engineering department and even some within our technology group, which is some of the work that we're doing to make our data centers more efficient and the things of that nature. And so one of the numbers that we disclosed a couple of quarters ago is that we spend, on an annualized basis, about $100 million on our technology and infrastructure. And so if you were just to take those 2 numbers and put those 2 together, you're looking at $200 million. Now that is not just for rebuilding the platform. That also includes running the day-to-day business and the operations, as well as building some other new roadmap items for our existing clients. So it's a little hard to break out and say exactly how much it's going to be specifically for this initiative because, quite honestly, some of the same resources are doing multiple things. But we are confident that we have enough resources built into our plan and enough incremental resources to accomplish what we need to accomplish by the end of 2015 relative to our platform evolution.

Ned Davis - Wm Smith & Co.

Finally, in commenting on the payments comparison, that you had a tough comparison against last year's quarter, you mentioned that the ramp in revenue or volume wasn't quite as fast as you thought it would be from new customers. Is this a temporary phenomenon that we shouldn't be too worried about? In other words, if you add 20% annualized per quarter in annual volume in the payments sector, you'll pick up 20% incremental revenue as well going forward, if I could discuss it that way?

Stefan B. Schulz

I mean, it's not quite that linear, right? You do have what we call platform economics, where as clients grow, they do receive better pricing points. But yes, on average, you're about right, yes. So for every dollar and volume we process, we should be also seeing an increase in our revenue. It's not quite one-for-one, but yes, you're correct in that. And to answer your first question, what we saw was anytime we launch a particular client, the rate and pace at which the product is rolled out is dependent upon, one, us providing the platform; but two, our clients adopting the platform and proliferating it in their environment. And last year, when we were looking at 60s and 70% growth rates, we were actually seeing the proliferation at much higher levels than what we were even expecting. And so as much as I'd like to see a nice, steady, consistent 20% to 25% quarter-in and quarter-out, but instead what we do get is we get some 70s when they're really doing well and then we see some single digits or mid-teens in the other times. But as Dave pointed out, overall, when you put it on the balance and you look at the full year, we feel very comfortable with something that's at the market or slightly above the market, which gets you to around 20%. So yes, so I think the short answer to your question is yes. We feel confident that was a short-term thing and we'll see better growth rates in the future.

Operator

[Operator Instructions] And at this time, I'm not showing any further questions. I would now like to turn the call back over to Melissa Fisher for any closing remarks.

Melissa Fisher

Thank you, everyone, for participating in today's call. This concludes Digital River's First Quarter 2014 Earnings Call.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!