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DG FastChannel Touts HD Growth, Web Prospects

Advertising and syndicated-content distributor DG FastChannel reported record revenues for the second quarter of fiscal-year 2008, as the company began to feel the benefits of its $129 million acquisition of Vyvx’s ad business -- a deal that closed June 5 -- as well as a ramp-up in its HD revenues.

In its second-quarter earnings announced Thursday, the Dallas-based company recorded consolidated revenue of $34.5 million compared with $21.7 million in the same period of 2007. The total revenue figure reflects about $3 million contributed by the former Vyvx advertising unit in the month of June and $6.7 million from the delivery of HD commercials, a big increase from $1.4 million in the same period of 2007.

DG recorded second-quarter-2008 net income of $4.1 million, or $0.23 per diluted share, compared with $3.8 million ($0.23) in the same period of 2007. Q2 2008 normalized net income was $8 million, or $0.43 per diluted normalized share, versus $5.1 million ($0.31) in the same period of 2007.

DG deployed new “HD Xtreme” edge servers to replace standard-definition Spot Boxes across about 40% of its customer base, chairman and CEO Scott Ginsburg said during the Q2 earnings call, and it expects the HD units to be fully deployed “in the next few weeks.”

DG said it will spend about $4 million in 2008 on new HD Xtreme edge servers and another $4 million building a redundant HD network-operations center in Atlanta.

While DG is busy rolling out HD edge servers to capture HD commercials, only about 10% of its customers have the necessary playout servers and automation servers to play them out in HD, Ginsburg said. But he expects that number to increase dramatically between now and the turnoff of analog signals in February 2009, by which time HD commercials are expected to become far more prevalent.

“HD’s been a long story,” he added. “I like to think of it as a rocket ship. First you see it take off, then you see stage one, then stage two, then stage three. We’re still in stage one.”

Besides delivering HD commercials, another growth area for DG could be distributing Web advertising. In May, the company proposed a merger with Web-advertising specialist Enliven Marketing Technologies in a stock-for-stock transaction that valued Enliven at some $98 million.

Ginsburg said the Enliven deal was a unique opportunity for DG to get traction in the Web-advertising market and diversify its business, and he urged DG shareholders to support the deal, while acknowledging that he has heard a lot of dissent from shareholders about the proposed transaction.

After the two biggest Web-advertising concerns, aQuantive and DoubleClick, were scooped up by Microsoft and Google, respectively, a handful of “tier-two” players including Enliven were left.

Ginsburg said combining DG’s existing TV-advertising infrastructure and blue-chip customer base with Enliven’s “Unicast” technology should allow it to become the leader among those second-tier players.

“We believe this is our opportunity,” he added. “We don’t believe there are a whole lot of other companies we can go to.”

Enliven reported its second-quarter results Friday, recording total revenue of $5.6 million, a 46% increase from $3.8 million in Q2 2007, and a net loss of $3.6 million, or $0.04 per share, versus $5.2 million ($0.07) in the second quarter of 2007.

“We expect improvement in sales and EBITDA [earnings before interest, taxes, debt and amortization] performance in the second half, which will truly provide the foundation for future growth,” Enliven CEO Patrick Vogt said in a statement. “We look forward to our merger with DG FastChannel announced in May. We believe the combined companies will meet a wider set of customer needs and enable us to grow and expand in both the online and traditional advertising market."