Digital Generation Management Discusses Q2 2012 Results - Earnings Call Transcript

Digital Generation (DGIT)

Q2 2012 Earnings Call

August 09, 2012 5:00 pm ET

Executives

Neil H. Nguyen - Chief Executive Officer, President, Director and Member of Executive Committee

Omar A. Choucair - Consultant

Analysts

Robert Coolbrith - ThinkEquity LLC, Research Division

Darren Aftahi - Northland Capital Markets, Research Division

Richard Ingrassia - Roth Capital Partners, LLC, Research Division

Jed Kelly - Oppenheimer & Co. Inc., Research Division

Richard Fetyko - Janney Montgomery Scott LLC, Research Division

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2012 Digital Generation, Inc. Earnings Conference Call. My name is Claire, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Neil Nguyen, Chief Executive Officer. Please proceed, sir.

Neil H. Nguyen

Good afternoon, everyone. Thank you for joining us on our second quarter 2012 earnings call. With me today is Omar Choucair, Chief Financial Officer. Before we start, I would like to have Omar read the Safe Harbor disclosure.

Omar A. Choucair

Good afternoon. 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 among certain clients for digital, audio and video media services. These statements are based on economic market conditions as of August 9, 2012, and assume no material changes from conditions that exist today.

The company can give no assurances 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 this information, 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. Such risks and uncertainties include, among other things, our potential and ability to further identify, develop, achieve commercial success for new products; risks associated with integrating the Peer39, MediaMind, and EyeWonder and other acquisitions with our existing operations and personnel, including consolidating our digital segment acquisitions into a single online platform; the possibility of delays in product development; fluctuations in currency exchange rates; risks of new and changing and competitive technologies; potential shift of advertising spending by our customers to online and nontraditional media from television and radio; risks related to potential impairment of our goodwill and other long-lived assets; our ability to successfully transition customers from our previous online acquisitions to our MediaMind digital platform for ad delivery; the development of competing distribution products; and other risks related to DG's business, which 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 measure calculated and presented in accordance with GAAP, can be found in today's press release.

At this time, I'll turn the back -- call back to Neil.

Neil H. Nguyen

Thank you, Omar. We continue to make progress in the quarter towards executing our vision as the first global multi-screen advertising platform for agencies and advertisers. But our second quarter financial performance was below our expectation due primarily to the underperformance of our online segment.

The substantial deceleration of business in Europe in the back half of the quarter as well as an FX impact, accounted for the majority of our revenue pressure in Q2. In the TV segments, revenues were relative -- were largely in line with plan, with HD penetrations growing to 26% of deliveries, and HD revenue is up 19%. Despite this disappointing near-term results, I remain confident in our long-term strategy supported by industry trends and a few key company prove points.

First, to the industry trends supporting our strategy. 70% of all Internet users globally watch video online according to the Nielsen's latest report. 63% of all U.S. TV viewers browse the Internet while watching TV, providing for a greater opportunity for advertisers to further engage with their audiences. Consumers are now watching, on average, 21 hours of digital video a week. Video advertising spend, as a category, will reach $5.6 billion by 2016, for roughly $2 billion according to Forrester Research; Second, we continue to receive positive feedback from both TV and online advertisers and agencies regarding our products and innovation roadmap, supported by several major customer deals; third, the completion of several strategic technology partnerships and alliances; and finally, one of my goals for the past few quarters has been to deepen the executive team at DG to infuse the company with leadership and experience to execute our vision and strategic objectives.

I'm delighted to welcome several new members who have all joined the company due to their belief in our vision and strategy. First, Ricky Liversidge, our Chief Marketing Officer came to DG from a successful career at Adobe, where he held product marketing leadership positions for some of Adobe's flagship solutions and products. At DG, Ricky will be responsible for all product management, marketing and corporate communications. He will be working closely with our clients and technology partners to bring to market our product roadmap.

Also in the quarter, we successfully recruited and hired a Chief Technology Officer. Noam Sharon brings several decades of experience for Mercury Interactive and most recently, Hewlett-Packard, where he was GM and Head of Global R&D. At DG, he is responsible for all of our research and development and engineering teams around the road. He joined Andy Ellenthal, who I noted on our last call, is now leading global sales and operations.

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