DG FastChannel, Inc. (DGIT)
Investor Day Conference
May 16, 2013 9:00 am ET
Craig E. Holmes - Chief Financial Officer and Principal Accounting Officer
Neil H. Nguyen - Chief Executive Officer, President, Director and Member of Executive Committee
Ricky Liversidge - Chief Marketing Officer
Gregory Michael Smith - Former Chief Technology Officer
Andrew Ellenthal - Executive Vice President of Sales and Ad Operations
Andrew Bloom - Senior Vice President of Strategic Business Development
Darren Herman - Chief Digital Media Officer
Craig E. Holmes
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Let me start out by going through the agenda. So in a minute, I'll hand it off to Neil and he'll cover his opening comments and the industry overview. Neil will be followed by Ricky, he'll talk about product strategy. Andy will follow Ricky, and we'll talk about our sales strategy, go-to market strategy. After that, we'll have a break. And during the break, what we'll do is we'll split up into 3 groups. I guess each of you have a letter on your -- where's Jamie? If you have a letter on your name tags, what we'll do is we'll split up into 3 groups and then we'll complete a tour of our production facilities.
Following the break, we have a customer panel roundtable discussion, and I think that promises to be a great program. That will be facilitated by Ricky, and I think you'll enjoy that. After the industry panel, we'll have a financial overview and then we'll round up with some Q&A. We do believe that most of your questions will be answered over the course of the presentations. So please, if you have questions, write them down, save them until the end. We'll bring the management team back up and we'll have a question-and-answer period.
Now before I get -- before I go any further, what I'd like to do is introduce a couple of people. We have Scott Ginsburg, our Chairman of the Board, Executive Chairman of the Board; and we have Melissa Fisher. She's just recently joined our Board. So we appreciate having both of them here today.
We also have a couple of people that have been actively involved in our Investor Relations activities. So JoAnn Horne, many of you know her from Market Street Partners, and Elaine Locke. You -- many of you have talked to Elaine Locke. She's the VP in our finance organization, responsible for Investor Relations and Treasury Services. And we certainly appreciate the efforts of those and others that have been involved in putting on this program today.
So I have one more administrative item to cover. Where did the Safe Harbor disclosure go? So hopefully that would be in the web deck that's included on the website. Interim the course of these presentations, we will make some forward-looking statements. And for purposes of evaluating those statements, we do recommend that you look at our Risks and Uncertainties section of our SEC documents that are filed with the SEC and available on our website. Also, we may make reference to some non-GAAP financial measures. For purposes of evaluating those, we recommend that you look at the reconciliations that will be included and attached to the presentation included on our website at the last page.
So without further ado, let me introduce Neil.
Neil H. Nguyen
Thanks, Craig. Good morning, everyone. Thank you for joining us today. Let me -- I want to start out by articulating our vision to all of you. As one company, DG is uniquely positioned to help our costumers win through powerful technology, stellar service and the delivery of innovative and multiscreen advertising. I've been at the company for over the past 8 years, and through this period of time, we bought a number of innovations to the marketplace, and we firmly believe today that we have a portfolio of products and services that will help our clients navigate the challenging advertising landscape.
So I was searching for a couple of imagery to articulate and convey how pervasive and digital technology has become a part of our lives. So this is a picture of the Vatican square in 2005. An anxious group awaiting the announcement and the election of the new Pope. Here's a similar audience picture in 2013. So as you can see, 2005, 2013. It's amazing what -- how much technology has become a part of our daily lives, and with this comes a significant amount of challenges for advertisers and agencies to deliver the right message to their audience. So there will be beans of fragmentation, beans of personalized message are great opportunities in how DG will be positioned to help our clients to execute these campaigns.
See, there are a couple of key trends that I've selected to highlight as part of the marketplace that's important to DG today. The first is programmatic buying. And for those of you who aren't familiar with programmatic media buying, it is the use of technology to help connect buyers and sellers over an exchange in the marketplace. And some data points here, in 2010, roughly $350 million was transacted in the marketplace. In 2012, over $3 billion of media is bought and sold over electronic marketplace. So this represents a rapidly growing segment within the advertising ecosystem. So how does DG fit in here? We have 2 product lines that have grown over 100% in the past year-over-year. So both from our trading services and our data and analytics products help power some of these marketplaces. It also represents a great growth opportunity for some of our core products, which dynamic creative, standard banner ads, as well as rich media.
The next growth trend that is near and dear and absolutely critical to DG is the rapid expansion of online video in the digital media marketplace. So In 2011, roughly $3 billion to $4 billion was the amount of media allocated to video as a format within the digital media marketplace. We expect it to grow to over $9 billion by 2017. So that's media spend inside of the online advertising marketplace.
As you all know, we invented the delivery of video in the traditional media space, so we sit on a vast amount of video assets and we see a great opportunity for us to help free these assets across multiple screens.
A couple of data points I want to share with you based on some industry reports. In March alone, U.S. consumers or Americans, watched over 13 billion online video ads, which equated to almost 5 billion minutes. Those are data extracted from comScore. That's a single month. So video is one of the most dynamic, pervasive way to deliver a branding message on behalf of the advertiser, and we're pretty excited about the trend as a whole.
So one other data point that is -- that I've been tracking is the connect-to-TV marketplace. So by 2011 -- or by 2017, there'll be over 600 million TV sets on a global basis that will be connected to -- that will be considered a connected device. The U.S. will represent 25% of that. So going back to my earlier slides, technology, IP-enabled devices, creates a massive opportunity for our clients to really deliver a personalized advertising message to their target audience. But this also creates a significant amount of challenges for agencies who have to execute on these campaigns.
So I debated heavily whether or not to throw up this slide of just logos, but it was the only infographic I could find that expressed the fragmentation in the marketplace, and this is just the display ecosystem alone.
So on the left-hand side, let me share level set. On the left-hand side, you have your advertisers, and then the agencies who are our clients. You have content aggregators, like publishers, who are also clients of our company, and ultimately, the audience, which is the consumer. So in between those 2 ends, you have close to 270 companies that are vying to sell services to agencies and advertisers. No agency can execute a campaign when you're dealing with, at scale, with 5 or 6 technology vendors. So where do we come in?
So over the past 5 years, as part of the acquisition at MediaMind, they were down the path of building a global ad serving campaign management platform. So with that, today, we help media agencies, creative shops, help reach their audience through a common platform. One of the big differentiators for us as a company is that we are an open platform. It's very important. Andy will dive a little bit deeper in this when we discuss the comparative differentiation between us and some of our competitors. So our clients can access some of the best technologies on this slide through our platform.
So one additional point on this slide. My view is that we believe that we can pull in the television marketplace as part of a channel across this campaign management platform. We know that their secular shifts in traditional advertising. It's true, really driven by consumer behaviors across-the-board as they consume content over IP-enabled devices, and that number continues to grow.
So where do we play? So these are the pockets or these are the technology sets that DG participates today. So our platform is modular. So we have client clients that will buy verification services from us. They'll buy just the display, ad service solutions from us, or they'll buy the entire solution and therefore, we call them, really, a platform customer as a whole.
So in summary for me today, I want to introduce DG for those of you who are new to our story. So today, we operate in 46 offices, 1,800 employees, and I spend a lot of time talking about the U.S. trends and U.S. marketplaces, but we're winning globally. So in Q1, we, our APAC business grew over 30%. Our Latin American markets grew over 80%. In North America, we returned to growth and grew over 20%. You take out some of the macro headwinds that we're faced in EMEA alone, our digital business grew over 20% organically. We've also demonstrated, for the past 3 to 4 quarters, our ability to protect our margins on the TV side, which is growing through a transitional process, but it's a critical part of our technology strategy, partly because we have the plumbing system and the linear side of the house, as well as all the video assets. And Ricky's going to walk you through some of our product strategy. Greg will highlight some of our technology strategy.
So before I wrap up, my goals for our investors and our analysts today is to take away 3 key things at the end of the session. One, gain deeper insights to our product and technology strategy; two, see how we compete and why we win in the marketplace; and then lastly, to highlight the team that I've built over the last 12 months. That's the most tenured person, is roughly 12 months here.
And with that, I'm going to turn the mic over to our Chief Marketing Officer, Ricky Liversidge, and he'll take you through our product and marketing strategy.
Thank you, Neil. Good morning, everyone. You seem a pretty lively bunch. Let's get going here. So let me first welcome you, all, to our facility here at -- in New York. This houses many of our operations across all our businesses, so it's great to have you here and it's great to be able to show you some of the things that we do here at DG. Clearly, for those people on the phone, they don't get quite the same experience, but we look forward to housing you here some time in the future.
Let me first introduce myself. Neil -- I've known Neil for a little while now. I actually joined DG about 9 months ago, and it's certainly been a very interesting 9 months. And I've been getting my feet wet, really, with the products and the technologies and the opportunity. Neil and I have spent a lot of time sort of talking about where we need to go, the things we need to focus on. And one of the things I wanted to do in starting at the company was to build a 3-year strategy that we can get on board with and start to drive forward. Because there is no doubt in my mind that here at DG, there's plenty of opportunity.
And I'm a pretty animated guy. So if I get a little bit animated and get a little ahead of myself from a talking point of view, just slow me down because I do get passionate about the technologies and the things that we talk about. I'm actually going to host this session with Greg Smith, our CTO. And what we'll do is I'll take you through a little bit of the product. We'll talk about some of our -- the way we're going to develop it from a technology point of view, and then I'll come back and talk a little bit about the positioning. But I've spent a lot of years, some would say far too many years, at Adobe. I spent 17 years at Adobe, working my way through many of the different business groups, flipping from marketing into product, never really could decide which one I like to do the most. And so here at DG, I'd get to do both. So whilst I'm CMO, I also actually get to head up product and some of our product strategy, which I team up with some of the other people.
But what I really wanted to do before we get really sort of deep into the strategy and the future is I just wanted to do a little bit of level setting and build off the back of what Neil has been talking about. Because I think when you think about DG and you look at it on paper at first sight, it all looks fairly obvious, it all looks fairly straightforward. It's obvious were your competitors are. It's obvious the markets that you play in. But I think there are some really hidden gems in there that really do need to be drawn out from an online perspective and a TV perspective. So what I do is I use this particular chart, and as Neil said, and he showed you using the chart, is basically, our job is to connect advertisers to our broadcasters and publishers, and we do that through technology and we do that through services. And that gives us an incredible, incredible relationship with many of the customers that we actually deal with. So on the TV side, this is specifically around our TV business, quite often, when I started at DG, people would say to me, "Oh, you're the ad distribution company, aren't you?" And I'd say, "Yes, but we do a little bit more than that." Let me be really clear. From an advertiser, I'm a marketing guy. There is no more valuable asset that you build than your TV ad. Quite often from a campaign perspective, it kicks off all the big campaigns and we saw that at the Super Bowl this year. DG actually delivered 123 of 150 actual TV ads. But that was just a tip of the iceberg. Those ads, every one of those 123 ads would cost something like $4 million from a placement point of view. There is no one dealing with that amount of value from an asset perspective. But the tip of the iceberg is the TV campaign or the TV ad kicks off a whole wrath of online and multiscreen experience. And so what you see is you see advertising, certainly from a TV perspective, capturing people's attention and then really driving the sales home from an online perspective. And that's really where our opportunity sits. So when people say to me, "Oh, you're the ad distribution company." I say, "No, it's a little bit more than that." Because in dealing with this process, what we do is we do post-production services and we also do asset management. So we have to take every TV commercial and ingest it to our own system. If we ingest that ad into our own system, we can do so many things with that ad from a multiscreen perspective. And that is where the would opportunity lies for us moving forward.