DG Systems Fourth Quarter Revenues Increase 38% to $18.5 Million, Ahead of Previously Issued Guidance; Fourth Quarter EBITDA Increases 55% to $4.8 Million.DALLAS Dallas, city (1990 pop. 1,006,877), seat of Dallas co., N Tex., on the Trinity River near the junction of its three forks; inc. 1871. The second largest Texas city, after Houston, and the eighth largest U.S. -- 2004 Adjusted Net Income Per Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. Share Rises to $0.08 on 8% Revenue Increase, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become up 11% DG Systems, Inc. (Nasdaq: DGIT), the leading provider of digital media distribution services to the advertising and broadcast industries, today reported operating results for the three-months and year ended December December: see month. 31, 2004. The table below summarizes the financial results:
Summary of Fiscal 2004 Fourth Quarter and Year-End Results
(in thousands, except per-share data)
----------------------------------------------------------------------
Three Months Ended Year Ended
December 31, December 31,
----------------------------------------------------------------------
2004 2003 2004 2003
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Revenues $18,481 $ 13,380 $62,366 $57,687
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EBITDA (1) 4,843 3,121 15,073 13,549
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Operating income (loss) (2) (5,823) 1,053 145 5,653
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Net Income (loss) (2) (245) 415 3,208 4,199
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Diluted income per share (2) 0.00 0.01 0.04 0.06
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Weighted average shares - Diluted 73,256 74,707 73,299 74,891
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(1) EBITDA is earnings before interest, taxes, impairment,
depreciation and amortization.
(2) In the three months ended December 31, 2004, DG Systems recorded
three non-cash charges totaling $2.4 million that reduced
operating income, net income and diluted income per share.
Excluding the effect of these items for the three months ended
December 31, 2004, DG Systems would have reported adjusted net
income of approximately $2.2 million and adjusted net income per
diluted share of $0.03. When excluding these items for the year
ended December 31, 2004, DG Systems would have reported adjusted
net income of approximately $5.6 million and adjusted net income
per diluted share of approximately $0.08. A table summarizing the
effect of these charges follows:
Summary of Adjustments to Fiscal 2004 Fourth Quarter and
Year-End Results
(in thousands, except per share data)
----------------------------------------------------------------------
Three Months Ended Year Ended
December 31, December 31,
----------------------------------------------------------------------
2004 2003 2004 2003
----------------------------------------------------------------------
Net Income (loss) $ (245) $ 415 $ 3,208 $ 4,199
----------------------------------------------------------------------
Add back:
----------------------------------------------------------------------
DG network equipment
impairment (1) 1,048 - 1,048 -
----------------------------------------------------------------------
StarGuide goodwill
impairment (2) 8,083 - 8,083 -
----------------------------------------------------------------------
Deferred tax asset allowance
reversal (3) (6,724) - (6,724) (1,404)
----------------------------------------------------------------------
----------------------------------------------------------------------
Adjusted Net Income $2,162 $ 415 $ 5,615 $ 2,795
----------------------------------------------------------------------
----------------------------------------------------------------------
Adjusted Net Income per diluted
share $ 0.03 $ 0.01 $ 0.08 $ 0.04
----------------------------------------------------------------------
(1) Network equipment impairment related to the write off of the first
generation DVPS servers located in TV stations and cable
network/systems, resulting from the Company's network upgrade and
related deployment of the new DGSpot Box.
(2) Goodwill impairment related to the annual assessment performed by
the Company whereby it determined the fair value of the StarGuide
division was less than the carrying value of the StarGuide
investment.
(3) Deferred tax asset valuation allowance reversal relates to the
Company's determination that it is more likely than not that DG
will utilize its deferred tax assets and therefore not require a
full valuation allowance on its deferred tax assets.
Commenting on the results, Scott K. Ginsburg Gins·burg , Ruth Bader Born 1933. American jurist who was appointed an associate justice of the U.S. Supreme Court in 1993. , Chairman and Chief Executive Officer of DG Systems, stated, "Fourth quarter revenue growth of 38% to $18.5 million exceeds the Company's guidance from late November November: see month. , and we are extremely pleased with the results. Revenue has escalated year over year with EBITDA showing marked growth. Fourth quarter EBITDA rose to $4.8 million, an increase of 55% over the prior year. For the full year, EBITDA rose to $15.1 million, an increase of 11% over the prior year. EBITDA margins for the fourth quarter rose to 26%. "We have moved from a company sitting on an essential idea -- digital and electronic distribution of commercial advertising material -- and transformed DG's legacy businesses and technologies into quite a different entity," commented Mr. Ginsburg. "For example, we made significant progress on our plan to upgrade DG's first generation network infrastructure and at the same time expanded its presence in TV and radio stations, cable systems and cable and television networks. The DG network was rejuvenated re·ju·ve·nate tr.v. re·ju·ve·nat·ed, re·ju·ve·nat·ing, re·ju·ve·nates 1. To restore to youthful vigor or appearance; make young again. 2. with the new and powerful DG Spot Box, which we successfully deployed to over 3,100 media outlets throughout the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . "We have achieved 95% market penetration Noun 1. market penetration - the extent to which a product is recognized and bought by customers in a particular market penetration - the act of entering into or through something; "the penetration of upper management by women" at the top TV stations in the largest 100 markets, and intend to continue to make significant progress on our Universal Deployment strategy. The good news is that one of the leading national television station groups has declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. they want all spots to be delivered electronically and soon, will no longer accept copy on any videotape videotape Magnetic tape used to record visual images and sound, or the recording itself. There are two types of videotape recorders, the transverse (or quad) and the helical. format. Even better news is that this station group on February February: see month. 15, 2005, stated in a letter to agencies that the DG network is the 'system they recognize as having the best process and quality,' and further named DG Systems as their 'preferred vendor.' Digital, electronic advertising traffic is expected to increase dramatically in the near future, and DG is extremely well positioned to handle these higher volumes. "On another front, DG added Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the delivery technology to its time proven core satellite delivery pathway pathway /path·way/ (path´wa) 1. a course usually followed. 2. the nerve structures through which an impulse passes between groups of nerve cells or between the central nervous system and an organ or muscle. in the past year. This unique dual delivery mechanism enables DG to send media assets electronically to radio and television stations, cable systems, and national networks with greater speed and reliability. DG's multiple delivery channels promote the interests of our customers and, in so doing, also create a new business model for advertising distribution networks. "Technology innovations are now a part of our culture, and this has culminated in launching the new DGConnect(TM) web portal See portal. ," Mr. Ginsburg noted. "This revolutionary order entry and management tool delivers on the promise of a simplified interface between customers and the DG network using the world wide web as our information exchange conduit conduit /con·du·it/ (kon´doo-it) channel. ileal conduit the surgical anastomosis of the ureters to one end of a detached segment of ileum, the other end being used to form a stoma on the . DGConnect will make it easier for advertisers and broadcasters to distribute, monitor and manage their valuable advertising content. Moreover, the system makes our network more transparent so customers can see the status of their commercials as they move from endpoint to endpoint - from the time it leaves their possession until it arrives at the media outlet outlet /out·let/ (-let) a means or route of exit or egress. pelvic outlet the inferior opening of the pelvis. ." DG finished the year with net debt of $10.3 million, comprised of debt totaling $18.4 million and cash of $8.1 million - a decrease from the $11.9 million net debt level we reported on September September: see month. 30, 2004. Additionally, the Company repurchased approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 456,000 shares of its common stock in the quarter ended December 31, 2004. "We intend to use our free cash flow to improve the balance sheet in 2005, pursue investment strategies that propel pro·pel tr.v. pro·pelled, pro·pel·ling, pro·pels To cause to move forward or onward. See Synonyms at push. [Middle English propellen, from Latin DG's opportunities for growth, and to purchase our own securities as may be prudent and dictated dic·tate v. dic·tat·ed, dic·tat·ing, dic·tates v.tr. 1. To say or read aloud to be recorded or written by another: dictate a letter. 2. a. by market conditions," stated Mr. Ginsburg. "With network enhancements largely completed and the Company's success with the Universal Deployment initiative, our top priority will be to identify new and complementary brand extensions. There are tremendous opportunities for DG to bundle To sell hardware and software as a combined product or to combine several software packages for sale as a single unit. Contrast with unbundle. See bundled software and bundling. its current offerings with other services that simplify the creation, production, storage, distribution, and airplay air·play n. The broadcasting of an audio or audiovisual recording on the air over radio or television. airplay Noun the broadcast performances of a record on radio verification of advertising content. As we continue to pursue strategic alliances that pair DG's industry leading network and service platforms with technologies that improve the customer experience, we have the opportunity to expand our revenue base. DG Systems' existing media asset management applications, including last year's acquisition of SourceTV, give us a strong foothold foot·hold n. 1. A place providing support for the foot in climbing or standing. 2. A firm or secure position that provides a base for further advancement. foothold Noun 1. to move forward with new and exciting products, particularly those that leverage the Company's core competencies A core competency is something that a firm can do well and that meets the following three conditions specified by Hamel and Prahalad (1990):
Non-GAAP Reconciliation EBITDA is defined as earnings before interest, taxes, impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. , depreciation and amortization. Although EBITDA is not a measure of performance or liquidity calculated in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , the Company believes that it may be useful to an investor in evaluating its performance. However, investors should not consider this measure in isolation or as substitutes for operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. In addition, because EBITDA is not calculated in accordance with generally accepted accounting principles, it may not necessarily be comparable to similarly titled measures employed by other companies. A reconciliation of the EBITDA figures included herein can be made by deducting operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , excluding impairment, depreciation and amortization from the Company's revenues (see attached financial table). Adjusted Net Income is defined as Net Income plus the impact of the three non-cash and non-recurring charges related to the network equipment impairment, StarGuide goodwill impairment, and the reversal reversal n. the decision of a court of appeal ruling that the judgment of a lower court was incorrect and is reversed. The result is that the lower court which tried the case is instructed to dismiss the original action, retry the case, or is ordered to change its of the deferred tax asset valuation allowance. The Company believes it to be useful to an investor in evaluating the performance of the Company to report Adjusted Net Income which excludes the impact of the three non-cash and non-recurring charges. About DG Systems, Inc. DG Systems and the Company's AGT-Broadcast and StarGuide divisions provide the standard in Digital Media Exchange services for the advertising and broadcast industries, featuring dependable satellite and Internet transmission technology and a suite of digital media asset management tools. DG's extensive digital network is the largest in the advertising and broadcasting industries, reaching more than 5,000 advertisers and agencies, over 3,100 television, cable, and network broadcast destinations and over 10,000 radio stations with innovative delivery and management solutions for short-and long-form audio and video content. More information is available at www.dgsystems.com. The Company's fourth quarter and fiscal year 2004 conference call will be broadcast live on the Internet at 11:00 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy today, Thursday Thursday: see week. , February 17, 2005. The webcast is open to the general public. Interested parties may access the live call on the Internet via the Company's web site at www.dgsystems.com or www.fulldisclosure.com. Please allow 15 minutes to register and download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. and install any necessary software. This release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the Company, including the expansion of its digital distribution network, and the demand among certain clients for digital audio and video delivery services. 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 Systems' business are set forth in the company's Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. filed with the Securities and Exchange Commission on March 12, 2004.
Digital Generation Systems, Inc.
Condensed Consolidated Balance Sheet
(In thousands)
December 31, December 31,
2004 2003
------------ ------------
Cash $ 8,059 $ 7,236
Accounts receivable 12,559 9,288
Inventories 1,475 2,114
Property and equipment 12,453 9,736
Goodwill 34,974 48,759
Deferred tax assets 17,973 4,355
Other 20,024 11,445
------------ ------------
TOTAL ASSETS $ 107,517 $ 92,933
============ ============
Accounts payable and accrued liabilities 6,998 $ 6,656
Deferred revenue 2,694 5,155
Debt and capital leases 18,393 5,647
------------ ------------
TOTAL LIABILITIES 28,085 17,458
TOTAL STOCKHOLDERS' EQUITY 79,432 75,475
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 107,517 $ 92,933
============ ============
Digital Generation Systems, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31,
----------------- -----------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenues $18,481 $13,380 $62,366 $57,687
Operating expenses, excluding
depreciation & amortization 13,638 10,259 47,293 44,138
-------- -------- -------- --------
EBITDA 4,843 3,121 15,073 13,549
Depreciation & amortization 1,535 2,068 5,797 7,896
Impairment charges 9,131 - 9,131 -
-------- -------- -------- --------
Operating income (loss) $(5,823) $ 1,053 $ 145 $ 5,653
Interest expense and other, net 392 200 1,284 963
-------- -------- -------- --------
Income (loss) before income taxes (6,215) 853 (1,139) 4,690
Provision (benefit) for income
taxes (5,970) 438 (4,347) 491
-------- -------- -------- --------
Net income (loss) $ (245) $ 415 $ 3,208 $ 4,199
======== ======== ======== ========
Basic net income per common share $ 0.00 $ 0.01 $ 0.04 $ 0.06
======== ======== ======== ========
Diluted net income per common
share $ 0.00 $ 0.01 $ 0.04 $ 0.06
======== ======== ======== ========
Weighted average outstanding
shares -
Basic 73,094 72,054 72,768 71,367
======== ======== ======== ========
Weighted average outstanding
shares -
Diluted 73,256 74,707 73,299 74,891
======== ======== ======== ========
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