DG FastChannel®, No Longer “Executing” on its “Strategies”

“The company continues to execute on its strategic business plan.”

—DG FastChannel® CEO Scott Ginsburg, August 4, 2010

We admit we know next-to-nothing about DG FastChannel® except that it has an “R” with a circle in its name in the headlines to its press releases.

Oh, sure, DG FastChannel® calls itself “a leading provider of digital media services to the advertising, entertainment and broadcast industries.” But what that actually means we here at NotMakingThisUp have no clue.

And, following yesterday’s drama—a nearly 40% collapse in DG FastChannel® stock on the heels of a press release from the company announcing a $30 million stock repurchase program—we strongly suspect that more than a few of Wall Street’s Finest have no clue either.

Now, you might think news of a $30 million stock repurchase would be good news.

And it would be good news, unless, of course, the placement of the happy headline at the top of the press release was meant to dilute some less happy news contained further down on the same page…which is something we have seen more than a few companies do in our day.

Sure enough, while the press release started with three paragraphs devoted to the $30 million share repurchase (described by the aforementioned Scott Ginsburg as “a good use of our cash, reflecting our strong belief in the value and opportunity…”), it then delivered the less welcome news that the company was guiding Q3 earnings expectations (actually EBITDA expectations, for DG FastChannel® is one of those companies that waves non-GAAP numbers in front of Wall Street’s Finest) somewhat lower than Wall Street’s Finest had been expecting.

Like, 15% lower, according to one such Finest.

Now, one might wonder what Wall Street’s Finest were thinking, running around with earnings expectations so far from reality that shares of DG FastChannel® would give up 40% in a few hours of trading.

The answer, of course, is that DG FastChannel® boasted of good things to come in a conference call with Wall Street’s Finest not so long ago.

And by “not so long ago” we mean just about three weeks ago.

That’s right: as quoted above, it was August 4, 2010 when DG FastChannel® reported “Record Second Quarter 2010 Results” and bragged right there in the press release that which forever makes our skin crawl: “The company continues to execute on its strategic business plan.”

In fact, so successfully was DG FastChannel® “executing” on its “strategy” that Chairman and CEO Scott Sinsburg used his prepared remarks in the ensuing earnings call to offer the following ebullient outlook:

“As you continue to follow our results for the year 2010, you might consider the following — 2010 has been a better year for advertising than 2009 and will continue to be according to all the people who look at this, the sooth sayers who look at where we are in 2010, and as we look at the balance of the year we would look at continuing positive results from the markets, the video markets. “Second, we know that TV spot advertising demand has rebounded from 2009 levels. We look at up front acquisitions in the TV network market. We look at cable, we look at broadcast TV, we look at both national and scatter markets, and they look very healthy at this time. Next, as you know this is a mid-term election and both for issue advertising and political advertising DG FastChannel represents the gold standard and we expect to get more than our fair share of that particular vertical.

“Finally, the adoption curve for HD advertising continues to increase. We expect our revenues and deliveries to improve throughout the year as well as our standard definition business as well. We have a robust business and expect it to continue for the balance of this year and in future periods. With that, operator, I would like to open up the dialogue and take some questions at this time.” —Scott Ginsburg, CEO

That was August 4th: by August 30th, however, the outlook had gotten murkier.

Precisely how it got so much murkier so suddenly is hard to say. Yesterday’s release cited “normal seasonality” in one aspect of its business—apparently the company had not bothered to check the calendar last time around—and a “shift in our customer mix” that has “put short term pressure on revenues.”

Naturally, despite the SNAFU, the company declares “We remain confident” in double-digit growth in revenue and EBITDA for the full year.

Don’t they always?

As we here at NotMakingThisUp wrote not long ago—August 16, to be precise, in “My Dog Charles, Executing His Yadda-Yadda”—we have never seen a strategy that was not executed on.

And “strategies” are “executed on” until they are not.

As shareholders of DG FastChannel® just found out.

P.S. For the record, my dog Charles® continues “executing” his “strategies” quite successfully—sometimes two at a time. Just yesterday he a) jumped into a car, b) curled up on the back seat and went to sleep.

Despite that strong track record of “successful execution,” however, I would not buy stock in Charles®. He recently “executed” a different “strategy”—the one involving eating grass until he throws up. And then, he, well, let’s just say, as dogs will, Charles® decided to execute a very different strategy…

Jeff Matthews I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.