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DG FastChannel Inc. (DGIT)

Q3 2007 Earnings Call

November 12, 2007 8:00 am ET


Scott K. Ginsburg - Chairman of the Board, Chief Executive Officer

Omar A. Choucair - Chief Financial Officer, Director


Rich Ingrassia - Roth Capital Partners

David Cohen - Midwood Capital

Darren Aftahi - ThinkEquity Partners

Swaraj Chowdhury - Dalton Investments

Thomas Eagan - Oppenheimer



Ladies and gentlemen, thank you for standing by and welcome to the DG FastChannel third quarter conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Scott Ginsburg, Chairman and CEO. Please go ahead, sir.

Scott K. Ginsburg

Thank you, Operator and welcome, everyone, to the call. Before we proceed further, I would like to ask Omar to read the Safe Harbor language.

Omar A. Choucair

Our discussion with you today may contain certain forward-looking statements relating to the company, including the expansion of its digital distribution network and the demand among certain clients for digital, audio, and video media services and its expectations for the merger with the Point.360 ads media services business, the acquisition of GTN, and the strategic alliance with Viewpoint Corporation. These statements are based on the economic and market conditions as of November 11, 2007 and assume no material changes in economic conditions or other major world events. The company can give no assurance as to whether these conditions will continue or if they change, how such changes may affect the company’s current expectations.

While the company may from time to time revise its outlook or issue updated guidance, it assumes no obligation to do so. Listeners are further cautioned that these forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those projected. These and other risks relating to DG FastChannel are set forth in the company’s filings with the Securities and Exchange Commission.

Today’s call and webcast include non-GAAP financial measures with the meaning of SEC Regulation G. A reconciliation of all non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in today’s press release.

Scott K. Ginsburg

Okay, Omar, thank you and thank you everyone for participating in this morning’s call. We are hosting our call a little earlier than usual as we are presenting at Oppenheimer’s third annual digital media conference a little later this morning.

As outlined in today’s release, DG FastChannel reported excellent third quarter 2007 results that reflect continued business success as we serve the advertising, syndication, news, and video news release communities with digital media solutions. We have quickly developed best-of-breed media solutions and made them available to more advertisers and agencies, content providers in general. Additionally, we are pursuing significant operating synergies and cost efficiencies from our recent acquisitions.

Today we reported record third quarter revenues, EBITDA, operating income, and EPS. As we look at our consolidation of the two new businesses into our current operating model, it indicates today that we have acted on $6.3 million of annual operating synergies and we expect to realize the upper end of our $6 million to $8 million of projected annual operating synergies.

The growth and the success brought to the company through the recent corporate activities drove the seventh consecutive quarter of year-over-year EBITDA growth. We are reaffirming our 2007 and 2008 financial guidance. Ongoing significant upgrades to our information systems and software development departments and systems continue to be made and we continue to work on our rollout of a new interactive online advertising service with our strategic partnership with Viewpoint.

We will discuss all these efforts in greater detail shortly but first let me ask Omar to review the second quarter ’07 financial results in some detail.

Omar A. Choucair

Good morning. I want to join Scott in thanking everyone for today, participating in today’s early call. For the three months ended September ’07, DG FastChannel reported consolidated revenues of $25.1 million compared to consolidated revenues of $18.8 million in the year-ago quarter.

As mentioned in today’s press release, we closed on Point.360 Ads effective on August 14th and GTN Ads on August 31st during the most recent quarter.

Third quarter 2007 reported consolidated EBITDA with $7.8 million versus 2006 Q3 EBITDA of $4.6 million, representing a 71% increase on a year-over-year basis. In the third quarter of ’07, we reported net income of $2.1 million, or $0.12 per net income per share versus a net loss of $4.5 million or $0.35 loss per share in Q3 of ’06.

Gross margins in the second quarter were approximately 56% compared to Q306 margins of 50%. This achievement highlights our continued operating leverage from our business as we drive higher revenue and the progress we’ve made in executing our integration plan.

Q3 EBITDA margins were 31%, again reflecting the fixed cost nature of our digital network and our ability to drive significant EBITDA through incremental revenue growth. Interest expense during Q3 of ’07 was $932,000 versus interest expense of 762 in the year-ago quarter.

We reported non-cash stock compensation expense of $122,000 during Q3, which reduced our EBITDA for the period.

Turning to the balance sheet, our outstanding debt of $53.8 million was comprised of both term and revolving bank debt. We currently have approximately $31 million of unused revolver capacity and we have approximately $17.9 million of cash at the end of September 30, 2007 quarter.

We incurred CapEx totaling approximately $1 million during Q3 of ’07.

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