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DG FastChannel, Inc. (DGIT)

Q4 2008 Earnings Call

February 12, 2009 11:00 am ET

Executives

Scott Ginsburg - Chairman and CEO

Omar Choucair - CFO

Analysts

Richard Fetyko - MCF

Mitch Bartlett - Craig-Hallum

Jarod Schram - Roth Capital Partners

Jason Helfstein - Oppenheimer

Carter Malloy - Stephens Incorporated

Murray Arenson - Janco Partners

William Morrison - ThinkEquity

Presentation

Operator

Good day ladies and gentlemen and welcome to the DG FastChannel Q4, 2008 Earnings Call. My name is Jen, and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference.

As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s conference Mr. Scott Ginsburg, Chairman and Chief Executive Officer. Please proceed, sir.

Scott Ginsburg

Thank you, operator. Good morning everyone and thank you for joining us for our fourth quarter and full year 2008 earnings call. As you know there is some disclosures we need to make and with that let me introduce to you Omar Choucair, the company’s Chief Financial Officer.

Omar Choucair

Thank you, Scott. Before we begin, I would like to remind listeners that today’s discussion may contain certain forward-looking statements related to the company including the expansion of our digital distribution network and demand amongst certain clients the digital audio, video media services and other expectations for, Vyvx ad transaction as well as the Unicast and Springbox.

These statements are based on economic and market conditions as of February 12, ‘09 and assume no material changes from those conditions that exist today. 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 provide its outlook and 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 SEC.

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

At this time, I would like to turn it back over to Scott.

Scott Ginsburg

Thank you, Omar and again thank you everyone for joining us today. I am pleased to announce that we met our 2008 revenue and EBITDA forecast, which resulted in record results for the fourth quarter and full year 2008.

During the fourth quarter, we delivered revenue of $52 million and adjusted EBITDA of $20.2 million representing growth over last year of 68% and 97% respectively. Adjusted EBITDA margin was strong at 38.9% a significant improvement over the year ago period and on par with last quarter.

For the full year 2008, revenue was $157 million and adjusted EBITDA was $60.3 million representing year-over-year growth of 61% and 86% respectively. Adjusted EBITDA margin of 38.4% to the year was 530 basis points higher than the full year 2007, driven by realizing our operating synergies, continued growth in HD revenue and increasing mix of electronic deliveries.

Importantly we continue to post exceptional results in HD advertising revenue, a key business driver for our company. For the quarter HD revenue grew 365% to $12 million bringing the full year HD revenue to $31.7 million up 415% over 2007.

These are strong to be sure, but particularly impressive in light of the current economic environment. While we would be naïve to say that we are immune to the broader economic headwinds, we are getting our stride at the right time and benefiting from sustainable trends in our industry right now. They give us confidence in our ability to continue performing to a maximum level.

The most critical of the transits the migration towards HD advertising, today HD advertising has remain resilient in spite of the broader economic condition, which is reflected in our exceptional growth in HD revenue. We believe that tremendous market opportunities still lie in front of us and the advertisers increasingly will transition to new standards as we move fully into the digital switch during this year.

As most of you have seen congress recently voted to delay the nation's transition to digital television by four months to June 12th from its prior schedule date of February 17th. This has had a little effect if any in our business; in fact one could argue that this will benefit us and the industry as triggers an additional $650 million in government fund to help ad risk consumers and high no awareness and visibility of the conversion.

In addition, you may have read in the Wall Street Journal that a number of TV stations on February 17th will be making the switch and while this may create some confusion, in terms of the HD broadcasting initiative, it certainly will continue to bring attention to it, it will bring a spotlight on the changeover and certainly by the middle of this year, all stations will have made the transition.

We are making this transition in light of the fact and in view of the fact that $4 billion in investments have been made for this digital conversion. And advertisers and distributors are already migrating in mass to HD ready formats. HD capacity among media alert has increased to less than 5% in early 2008 to over 10% at the end of the year. But most importantly this 10% includes the most important, top tier broadcasters, and TV and cable networks, which are providing us and do will provide us with the lion share of growth opportunities during this year.

We believe that all markets will ultimately convert to HD enabled formats this year, but in addition to that, their TV platform other network platform will be able to ingest an HD format during this year and over a very short time in the future year.

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