DG Reports Third Quarter 2012 Results
Third Quarter Revenue Increases 11% to 93.8 Million
DALLAS, TX, Nov 08, 2012 (Menafn - MARKETWIRE via COMTEX) --DG(R) DGIT, the world's leading ad management anddistribution platform, today reported financial results for the thirdquarter of 2012. Consolidated revenue for the three months endedSeptember 30, 2012 increased 11% to 93.8 million, compared to 84.6million in the same period of 2011. DG's third quarter loss fromcontinuing operations, which includes a goodwill impairment chargerelated to the online segment of 208.2 million, was 219.7 million,or 7.96 per diluted share, compared to a loss of 2.7 million, or0.10 per diluted share, in the year earlier period. Third quarterAdjusted EBITDA was 27.6 million, compared to 30.7 million in thethird quarter of 2011.
"In the short term, we saw improvement of the online business thisquarter, continued increased shift towards HD in TV and greateropportunities to help our clients make the move to video across allscreens," noted Neil Nguyen, President and CEO of Digital Generation."It is clear from conversations with large advertisers that videoconvergence is a disruptive force that is now gaining acceptance andmomentum with DG uniquely positioned to benefit. But it is also clearthat we need to stay focused and execute with even more urgency toovercome current trends."
In July 2012, we announced that our Board of Directors was undergoinga strategic review of the feasibility and relative merits of variousfinancial strategies for the Company, which may include partnerships,strategic business model alternatives, a sale or other transaction.In connection therewith, we engaged Goldman Sachs to assist us inexploring strategic alternatives. The Board established a SpecialCommittee composed of independent directors who are exercising thefull power of the Board regarding, and are controlling, the Company'sstrategic alternatives process. The strategic review process underwayby the Special Committee is continuing and we do not intend todisclose developments in this process until such time as the Board ofDirectors approves or has a transaction or transactions to recommendto stockholders, or otherwise deems further disclosure appropriate.
Third quarter financial highlights include:
--DG generated consolidated revenue in the quarter of 93.8 million, an
increase of 11% over the same period a year ago.
--The television segment generated revenue of 60.1 million, a decrease
of 1% from the year earlier period. HD advertising revenue increased
15% to 36.5 million from the year earlier period.
--The online segment generated revenue of 33.7 million, an increase of
40% from the year earlier period, due to DG's acquisitions of
MediaMind and EyeWonder during the 3rd quarter of 2011.
--As of September 30, 2012, DG reported 68.6 million of cash and
short-term investments and reported 455.0 million outstanding under
its long-term credit facility.
Online Segment Goodwill Charge
During the third quarter, the Company conducted a goodwill impairmenttest of our online reporting unit. We estimated the fair value of theonline reporting unit using a weighting of fair values derived froman income approach and market approach. Upon estimating the fairvalue of the online unit's goodwill, we determined it was less thanits carrying value. As a result, DG's third quarter operating resultsinclude a 208.2 million non-cash charge before income taxes relatedto the write-down of our online reporting unit's goodwill.
Third Quarter 2012 Financial Results Webcast
The Company's third quarter conference call will be broadcast live onthe Internet at 5:00 p.m. ET on November 8, 2012. The webcast is opento the general public and all interested parties may access the livewebcast on the Internet at the Company's web site at www.dgit.com.Please allow 15 minutes to register and download or install anynecessary software.
Acquisitions / Dispositions / Discontinued Operations
The Company has completed several acquisitions that have impacted thecomparability of the operating results presented. The results ofoperations for each of the following entities have been included inthe Company's results since the acquisition date.
--MIJO Corporation ("MIJO") on April 1, 2011 (included in television
segment)
--MediaMind Technologies, Inc. ("MediaMind") on July 26, 2011 (included
in online segment)
--EyeWonder LLC, a Delaware LLC, and the equity interests of Chors GmbH,
a German LLC (collectively, "EyeWonder") on September 1, 2011
(included in online segment)
--Peer 39, Inc. ("Peer 39") on April 30, 2012 (included in online
segment)
--NCMG, Inc. ("North Country") on July 31, 2012 (included in television
segment)
We sold the net assets of our Springbox unit effective June 1, 2012 forestimated proceeds of 0.9 million, resulting in an after tax loss of0.6 million. Results of our Springbox unit have been included indiscontinued operations for both 2012 and 2011.
Non-GAAP Financial Measure
In addition to providing financial measurements based on generallyaccepted accounting principles in the United States of America(GAAP), the Company has historically provided additional financialmeasures that are not prepared in accordance with GAAP (non-GAAP).Legislative and regulatory changes discourage the use of and emphasison non-GAAP financial measures and require companies to explain whynon-GAAP financial measures are relevant to management and investors.We believe that the inclusion of Adjusted EBITDA as a non-GAAPfinancial measure in this press release helps investors to gain ameaningful understanding of our past performance and futureprospects, consistent with how management measures and forecasts ourperformance, especially when comparing such results to previousperiods or forecasts. Our management uses Adjusted EBITDA as anon-GAAP financial measure, in addition to GAAP financial measures,as the basis for measuring our core operating performance andcomparing such performance to that of prior periods and to theperformance of our competitors.
We use Adjusted EBITDA to measure the operating performance of oursegments. This measure also is used by management in its financialand operational decision-making. There are limitations associatedwith reliance on any non-GAAP financial measures because they arespecific to our operations and financial performance, which makescomparisons with other companies' financial results more challenging.By providing both GAAP and non-GAAP financial measures, we believethat investors are able to compare our GAAP results to those of othercompanies while also gaining a better understanding of our operatingperformance as evaluated by management.
The Company considers Adjusted EBITDA to be an important indicator ofthe overall performance of the Company because it eliminates theeffects of events that are non-cash, or are not expected to recur asthey are not part of our ongoing operations.
The Company defines "Adjusted EBITDA" as income from operations,before depreciation and amortization, share-based compensation,acquisition and integration expenses, and restructuring / impairmentcharges and benefits. The Company considers Adjusted EBITDA to be animportant indicator of the Company's operational strength andperformance and a good measure of the Company's historical operatingtrends.
Adjusted EBITDA eliminates items that are either not part of our coreoperations, such as acquisition and integration expenses or do notrequire a cash outlay, such as share-based compensation andimpairment charges. Adjusted EBITDA also excludes depreciation andamortization expense, which is based on the Company's estimate of theuseful life of tangible and intangible assets. These estimates couldvary from actual performance of the asset, are based on historicalcosts, and may not be indicative of current or future capitalexpenditures.
Adjusted EBITDA should be considered in addition to, not as asubstitute for, the Company's operating income, as well as othermeasures of financial performance reported in accordance with GAAP.
Reconciliation of Non-GAAP Financial Measures
In accordance with the requirements of Regulation G issued by theSecurities and Exchange Commission, the Company is presenting themost directly comparable GAAP financial measure and reconciling thenon-GAAP financial measure to the comparable GAAP measure.
About DG
DG connects over 11,000 global advertisers and agencies with theirtargeted audiences through an expansive network of over 6,000television broadcast stations and over 11,500 web publishers in 75countries. The Company's television division utilizes best-in-classnetwork and content management technologies, creative and productionresources, digital asset management and syndication services thatenable advertisers and agencies to work faster, smarter and morecompetitively. The Company's online division, MediaMind, allowsmarketers to benefit from optimized management of online advertisingcampaigns while maximizing data driven advertising. For moreinformation, visit www.DGit.com.
Forward-Looking Statements
This release contains forward-looking statements relating to theCompany. These forward-looking statements involve risks anduncertainties, which could cause actual results to differ materiallyfrom those projected. Such risks and uncertainties include, amongother things;
--our ability to further identify, develop and achieve commercial
success for new products;
--delays in product development;
--the development of competing distribution and online services and
products, and the pricing of competing services and products;
--our ability to protect our proprietary technologies;
--the shift of advertising spending by our customers to online and
non-traditional media from television and radio;
--the demand for High Definition (HD) ad delivery by our customers;
--integrating MediaMind and other acquisitions with our operations,
systems, personnel and technologies;
--our ability to successfully transition customers from our previous
online acquisitions to our MediaMind digital platform for ad
delivery;
--operating in a variety of foreign jurisdictions;
--fluctuations in currency exchange rates;
--adaption to new, changing, and competitive technologies;
--potential additional impairment of our goodwill and potential
impairment our other long-lived assets;
and other risks relating to DG's business which are set forth in theCompany's filings with the Securities and Exchange Commission. DGassumes no obligation to publicly update or revise anyforward-looking statements.
Digital Generation, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share amounts)
Three Months EndedNine Months Ended
September 30,September 30,
----------------------------------------
2012201120122011
------------------------------------
Revenues93,81884,594 283,003 215,956
Cost of revenues34,21228,292101,54872,741
Sales and marketing15,6519,61943,78615,844
Research and development5,1685,54617,01310,891
General and administrative11,16310,39433,04525,003
------------------------------------
Operating expenses, excluding
depreciation and amortization,
share-based compensation,
acquisition and integration
expenses and goodwill
impairment66,19453,851195,392124,479
------------------------------------
Adjusted EBITDA27,62430,74387,61191,477
Depreciation and amortization14,54211,31841,40325,702
Share-based compensation4,4394,38213,8167,592
Acquisition and integration
expenses1,37910,5715,55613,776
Goodwill impairment208,166--208,166--
------------------------------------
Operating income (loss)(200,902)4,472(181,330)44,407
Interest expense7,8356,47723,7666,709
Other, net346284700162
------------------------------------
Interest expense and other, net8,1816,76124,4666,871
------------------------------------
Income (loss) before income
taxes from continuing
operations(209,083)(2,289)(205,796)37,536
Provisionfor income taxes10,64440812,13416,847
------------------------------------
Income (loss) from continuing
operations(219,727)(2,697)(217,930)20,689
Loss from discontinued
operations--(134)(1,080)(628)
Net income (loss)(219,727) (2,831) (219,010) 20,061
====================================
Basic earnings (loss) per share:
Continuing operations(7.96) (0.10) (7.95) 0.75
Discontinued operations----(0.04)(0.03)
------------------------------------
Total(7.96) (0.10) (7.99) 0.72
====================================
Diluted earnings (loss) per
share:
Continuing operations(7.96) (0.10) (7.95) 0.74
Discontinued operations----(0.04)(0.02)
------------------------------------
Total(7.96) (0.10) (7.99) 0.72
====================================
Weighted average common shares
outstanding:
Basic27,60027,49127,42327,568
Diluted27,60027,49127,42327,861
Digital Generation, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended
September 30,
------------------------
20122011
----------------------
Cash flows from operating activities:
Net income (loss)(219,010) 20,061
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Goodwill impairment208,166--
Depreciation of property and equipment19,11712,635
Amortization of intangibles22,28613,611
Deferred income taxes7,167(6,873)
Provision for accounts receivable losses2,5101,833
Share-based compensation13,8167,592
Loss on sale of Springbox unit1,000--
Other672553
Changes in operating assets and liabilities:
Accounts receivable8,20412,008
Other assets3,504(247)
Accounts payable and other liabilities(14,592)(8,133)
Deferred revenue(852)497
----------------------
Net cash provided by operating activities51,98853,537
----------------------
Cash flows from investing activities:
Purchases of property and equipment(17,166)(6,910)
Capitalized costs of developing software(9,491)(5,491)
Acquisitions, net of cash acquired(10,089)(499,945)
Long-term investment(1,017)--
Proceeds from sale of short-term investments10,390--
Other(141)(1,257)
----------------------
Net cash used in investing activities(27,514)(513,603)
----------------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of
costs174383
Purchases of treasury stock--(16,571)
Payment of tax withholding obligation in
exchange for shares tendered--(1,129)
Proceeds from issuance of long-term debt--485,100
Payment of debt issuance costs--(12,019)
Repayments of capital leases(398)(298)
Repayments of long-term debt(28,675)(1,225)
----------------------
Net cash provided by (used in) financing
activities(28,899)454,241
----------------------
Effect of exchange rate changes on cash and cash
equivalents451(502)
----------------------
Net decrease in cash and cash equivalents(3,974)(6,327)
Cash and cash equivalents at beginning of year72,57573,409
----------------------
Cash and cash equivalents at end of period68,60167,082
======================
Supplemental disclosures of cash flow information:
Cash paid for interest20,9165,445
Cash (received) paid for income taxes(1,184) 25,327
Non-cash component of purchase price to acquire
a business5,645--
Landlord lease incentives5,599--
Digital Generation, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
September 30,December 31,
20122011
------------- -------------
Unaudited
Cash and short-term investments68,601 82,965
Accounts receivable, net90,767100,719
Property and equipment, net68,54154,159
Goodwill380,950580,229
Deferred income taxes--4,796
Intangibles, net187,554201,405
Other32,37833,204
Assets of discontinued operations--766
------------- -------------
Total assets828,791 1,058,243
============= =============
Accounts payable and accrued liabilities36,291 48,234
Deferred revenue1,9002,474
Deferred income taxes12,2369,477
Debt454,983483,033
Other15,2447,239
------------- -------------
Total liabilities520,654550,457
Total stockholders' equity308,137507,786
------------- -------------
Total liabilities and stockholders' equity828,791 1,058,243
============= =============
For more information contact:
Omar Choucair
Chief Financial Officer
DG
972/581-2000
JoAnn Horne
Market Street Partners
415/445-3233
SOURCE: DG
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