SOURCE: KIT digital, Inc.

KIT digital, Inc.

November 19, 2009 10:11 ET

KIT digital Reports Record Operating Results and New Client Contracts in Third Quarter 2009

Revenue Up 104% Year-Over-Year to $11 Million, Operating EBITDA of $927,000, or $0.14 per Share

NEW YORK, NY and PRAGUE, CZECH REPUBLIC--(Marketwire - November 19, 2009) - KIT digital, Inc. (NASDAQ: KITD), a leading global provider of on-demand software solutions for managing and monetizing Internet Protocol (IP)-based video assets, reported record financial results and new client contracts for the third quarter ended September 30, 2009. (Financial results are quoted in U.S. dollars, although a material portion of the company's revenue is earned in other currencies.)

Revenue in the third quarter of 2009 increased 5% to a record $11.0 million from $10.5 million in the previous quarter, and increased 104% from $5.4 million in the same quarter a year ago. The company's revenues are primarily comprised of software license and maintenance fees, software set-up fees, and technical integration and creative service charges.

After recognizing the non-cash accounting impact of accounting standard ASC 815-40, net loss for the third quarter of 2009 was $11.1 million or $(1.65) per basic and diluted share, compared to an adjusted net loss in the previous quarter of $1.6 million or $(0.37) per basic and diluted share, and a net loss in the third quarter of 2008 of $2.6 million or $(0.78) per basic and diluted share (please see the important discussion about the new accounting standard in the section, "About New Accounting Standard," below). Net loss for the third quarter 2009 included a non-cash derivative expense of $8.4 million resulting from the application of the new accounting standard, $1.5 million in non-cash charges (including $536,000 in stock-based compensation); $981,000 in restructuring and non-recurring charges primarily related to employee termination, acquisition-related facility closing costs, and other costs related to the reorganization and integration of acquired companies; and $522,000 in merger and acquisitions and investor relation related expenses. It is important to note that the application of the new accounting standard resulted in adjusted non-cash derivative income of $10.2 million in the first quarter of 2009, which will be recognized in the company's full-year 2009 reporting.

Operating EBITDA, a non-GAAP term, increased 38% in the third quarter of 2009 to a record $927,000 or $0.14 per basic and diluted share from $671,000 or $0.16 per basic and diluted share in the previous quarter, and improved from an operating EBITDA loss of $1.6 million or ($0.48) per basic and diluted share in the third quarter of 2008. The company defines operating EBITDA as earnings before non-cash derivative income/loss; non-cash stock based compensation; acquisition-related restructuring costs and other non-recurring charges; impairment of property and equipment; merger and acquisition expenses; and depreciation and amortization (see important discussion of operating EBITDA in "About the Presentation of Operating EBITDA," below).

Cash and cash equivalents at September 30, 2009 totaled $13.5 million, as compared to $5.9 million at December 31, 2008. As of November 16, 2009, the company had an estimated net outflow of $5.7 million in purchase consideration and subsequent restructuring charges related the acquisitions of Nunet A.G. and The FeedRoom, Inc. In October 2009, KIT digital acquired Nunet and The FeedRoom, which added more than 100 global enterprise clients and are expected to add $17.5 million of current, annualized revenues from core IP video-based services, and more than $4.5 million in annualized EBITDA.

Simultaneous with the acquisitions of Nunet and The FeedRoom, KIT digital reached an agreement to extinguish past and future contingent earn-out obligations related to the May 2008 acquisitions of Kamera Content AB comprising a total cash payment of $1.7 million and the issuance of 110,805 restricted shares to the former shareholders of Kamera. An additional cash payment of $0.3 million and issuance of 52,632 shares were made to the former shareholders of Visual Connection, a.s., in fulfillment of earn-outs related to the October 2008 acquisition of Visual. Neither the Nunet nor The FeedRoom acquisitions involved any earn-out or contingent liabilities.

As of November 16, 2009 and after giving full effect for all equity issuances related to the acquisitions of Nunet and The FeedRoom, earn-out payments and settlements as described above, and the exercise of certain warrants by investors, the company had approximately 10.7 million common shares outstanding.

All the warrants applied to the new accounting standard, as described above, are cash-exercise in nature. The company is considering repurchasing or otherwise eliminating these warrants in order to ameliorate or eliminate the effect of future applications of the standard.

Q3 2009 Selected Client Wins, By Region

Europe, Middle East & Africa (EMEA):

  • MSN, Microsoft's global Internet portal, renewed its IP video contracts with KIT digital in Turkey, Greece and Finland for an additional 12 months.

  • Vodafone selected the company to implement and operate its fully converged movie rental store in an additional eight countries, including Spain, UK and Italy.

  • Sweden's largest newspaper, Dagens Nyheter, engaged KIT digital for the management and delivery of IP video content.

  • Czech TV, the government-owned broadcaster in the Czech Republic, appointed KIT digital to complete a high-definition enhancement of their IP video playout system, using KIT VX capabilities.

  • TV Prima, a leading Central European broadcaster, contracted KIT digital to implement an IP-based broadcast archiving system utilizing KIT VX capabilities.

Asia-Pacific:

  • Mercedes-Benz engaged KIT digital and its VX system for marketing its vans and trucks divisions.

  • Sky Racing engaged KIT digital to deploy a live digital video and audio broadcasting platform.

  • Johnson & Johnson, one of the world's leading consumer goods and pharmaceutical companies, appointed KIT digital to develop online campaigns for their Daktarin brand.

  • Fox Sports together with IMG, one of the world's largest sports licensing organizations, engaged the company to provision live, English Premier League video-on-demand content for the Australian marketplace, using KIT VX.

  • A leading global pharmaceutical company selected KIT VX for the development of an online, video-based environment for recipients of a major vaccine.

The Americas:

  • Verizon expanded its relationship with KIT digital by deploying additional features of VX across their network of consumer-facing websites.

  • Johnson & Johnson appointed the company in the U.S. to support high-quality video, as well as publishing workflow, security, community building and viewer interaction for "InsightsOut," a robust support platform for Johnson & Johnson companies' global marketing professionals.

  • Tyco International contracted the company to implement a corporate communications solution that allows Tyco to utilize IP video to communicate with staff and stakeholders globally.

  • The National High School Coaches Association selected KIT digital to form the backbone of an online video portal for delivery of high school sports content.

  • Hilti, a global leader of value-added products for professional customers in the construction and building maintenance industries, engaged the company to implement a global IP video corporate communications solution.

Management Commentary

"These record results marked our fourth quarter of sequential revenue and operating EBITDA growth," said Kaleil Isaza Tuzman, KIT digital's chairman and CEO. "It is also a particularly good indication that Q3 2009 exceeded the prior quarter despite the historical seasonality of our business, where Q3 revenues have decreased relative to Q2 for the last two years consecutively as the result of lower end-customer usage levels and lower new business during the Northern Hemisphere's summer months.

"The regional and industry segment diversity of our incoming clients -- the financial impact of which we expect to see in Q4 2009 and Q1 2010 -- underscores our global leadership in providing enterprise-class IP video management solutions," continued Isaza Tuzman. "The nature of these new KIT VX deployments reveals the difference between the front-end video player provisioning segment of the industry and the deeper IP video asset management solutions provided by KIT digital.

"Our accelerating operating margins and current free cash flow profitability also demonstrates the leverage in our business model. We continue to see strong new contract and cash flow growth in Q4, and have begun to take advantage of cross-selling opportunities within the Nunet and FeedRoom client base. Since over 75% of our revenues are long-term contract-based and we have been experiencing virtually no client attrition, we enjoy fairly high visibility into our future financial performance."

Gavin Campion, president of KIT digital, added: "Our strong financial performance this quarter is a result of our continued focus on revenue growth coupled with operating margin expansion. Our new client wins reflect our device and network agnostic approach, as well as the breadth of functionality available through our enterprise-class KIT VX IP video management platform. Our business has clearly hit its stride, and we're in the right place at the right time to deliver 'video ERP' solutions to major enterprises that are looking to take advantage of IP video across the '3 screens' of the computer browser, mobile handset, and the IPTV-enabled television set. We see significant growth potential in the BRIC countries, particularly in China, which will be a strategic focus for us in 2010."

Conference Call

Management will hold a conference call to discuss results for the third quarter ended September 30, 2009 today at 10:30 a.m. Eastern time.

Date: Thursday, November 19, 2009
Time: 10:30 a.m. Eastern time (7:30 a.m. Pacific time)
Dial-in # (North America): +1-800-862-9098
Dial-in # (outside North America): +1-785-424-1051
Conference ID: 7KITDIGITAL

The conference call will be broadcast simultaneously and available for replay via the Investor Relations section of the company's website at www.kitd.com.

Please call the conference telephone number at least 5-10 minutes before the scheduled start to allow for processing time. If there is any difficulty connecting with the conference call, please contact the Liolios Group at +1-949-574-3860.

A replay of the call will be available after 1:30 p.m. Eastern time on the same day and until December 19, 2009:

Toll-free replay # (North America): +1-800-723-2156
International replay # (outside of North America): +1-402-220-2660
(No passcode required)

About the Presentation of Operating EBITDA
Management uses operating EBITDA for forecasting and budgeting, and as a proxy for operating cash flow. Operating EBITDA is not a financial measure calculated in accordance with U.S. generally accepted accounting principles (GAAP) and should not be considered in isolation, or as an alternative to net income, operating income or other financial measures reported under GAAP. The company defines operating EBITDA as earnings before: non-cash derivative income/loss, non-cash stock based compensation; acquisition-related restructuring costs and other non-recurring charges; impairment of property and equipment; merger and acquisition expenses; and depreciation and amortization. Other companies (including the company's competitors) may define operating EBITDA differently. The company presents operating EBITDA because it believes it to be an important supplemental measure of performance that is commonly used by securities analysts, investors and other interested parties in the evaluation of companies in a similar industry. Management also uses this information internally for forecasting, budgeting and performance-based executive compensation. It may not be indicative of the historical operating results of KIT digital nor is it intended to be predictive of potential future results. See "GAAP to non-GAAP Reconciliation" table below for further information about this non-GAAP measure and reconciliation of operating EBITDA to net loss for the periods indicated. Shares used in the calculation of GAAP diluted earnings per share are the same as the shares used in the calculation of diluted adjusted operating income/(loss) per share except when the company reports a GAAP loss.

GAAP to non-GAAP Reconciliation                        Three months ended
(amounts in thousands)                                    September 30,
                                                      --------------------
                                                        2009       2008
                                                      ---------  ---------
Consolidated Statement of Operations Reconciliation

Net loss on a GAAP basis                              $ (11,134) $  (2,555)
       Non-cash stock-based compensation                    536        188
       Merger and acquisition and investor relations
        expenses                                            522          -
       Depreciation and amortization                        977        434
       Restructuring charges                                340        162
       Other non-recurring charges                          641        200
       Impairment of property and equipment                   -          -
       Interest income                                      (27)       (37)
       Interest expense                                     124         31
       Amortization of deferred financing costs             562          -
       Derivative expense (income)                        8,449          -
       Other income                                         (65)        (8)
       Registration rights liquidated damages                 -          -
       Income tax expense                                     2          1
       Minority interest                                      -         15
                                                      ---------  ---------
Operating EBITDA (loss)                               $     927  $  (1,569)
                                                      =========  =========

Consolidated Statement of Operations Reconciliation
 per Share

Net income (loss) per share on a GAAP basis           $   (1.65) $   (0.78)
       Non-cash stock-based compensation                   0.08       0.06
       Merger and acquisition and investor relations
        expenses                                           0.08          -
       Depreciation and amortization                       0.14       0.13
       Restructuring charges                               0.05       0.05
       Other non-recurring charges                         0.10       0.06
       Impairment of property and equipment                   -          -
       Interest income                                        -      (0.01)
       Interest expense                                    0.02       0.01
       Amortization of deferred financing costs            0.08          -
       Derivative expense (income)                         1.25          -
       Other income                                       (0.01)         -
       Registration rights liquidated damages                 -          -
       Income tax benefit (expense)                           -          -
       Minority interest                                      -          -
                                                      ---------  ---------
Operating EBITDA (loss) per share                     $    0.14  $   (0.48)
                                                      =========  =========

Weighted average common shares outstanding            6,739,934  3,273,079
                                                      =========  =========

About New Accounting Standard
The new accounting standard ASC 815-40 was implemented at the beginning of 2009 and requires companies to calculate the fair value of warrants containing reset provisions and classify them as derivative liabilities. Therefore, under the terms of the standard, increases in the trading price of the company's common stock and increases in fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases in the trading price of the company's common stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income.

Due primarily to an increase in the company's stock price from $7.37 at June 30, 2009 to $9.91 at September 30, 2009, net loss for the third quarter of 2009 included a non-cash derivative expense of $8.4 million. The valuation was adjusted to take into account an increased number of shares as at January 1, 2009 for warrants that should have been included in the original valuation as well as the anti-dilution effect based on a lower share price than the strike price of the warrants as of that date. It is important to note that the application of the new accounting standard adjustment resulted in $10.2 million of derivative income in the first quarter of 2009. Taking into account the aggregate amounts that would have been recorded in Q1 and Q2 for this adjustment, the company had an accumulated amount of $2.2 million in non-cash derivative income for the nine months ending September 30, 2009.

About KIT digital
KIT digital (NASDAQ: KITD) is a leading, global provider of on-demand, Internet Protocol (IP)-based video asset management solutions. KIT VX, the company's end-to-end software platform, enables enterprise clients to acquire, manage and distribute video assets across the three screens of today's world: the personal computer, mobile device, and IPTV-enabled television set. The application of VX ranges from commercial video distribution to internal corporate deployments, including corporate communications, human resources, training, security and surveillance. KIT digital's client base includes more than 600 enterprise customers across 30+ countries, including The Associated Press, Best Buy, Bristol-Myers Squibb, Disney-ABC, General Motors, Google, IMG Worldwide, Intel, McDonald's, News Corp, Telefonica, the U.S. Department of Defense, Verizon and Vodafone. KIT digital maintains principal offices in Prague, Cologne, Dubai, London, Melbourne (Australia), New York, Stockholm and Toronto. For additional information, please visit www.kitd.com.

KIT digital Forward-Looking Statement
This press release contains certain "forward-looking statements" related to the businesses of KIT digital, Inc., which can be identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties, including uncertainties relating to product development and commercialization, the ability to obtain or maintain patent and other proprietary intellectual property protection, market acceptance, future capital requirements, regulatory actions or delays, competition in general and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our public filings with the U.S. Securities and Exchange Commission. KIT digital is not under obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

                         KIT DIGITAL, INC. AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS
                     (Amounts in Thousands, Except Share Data)




                                                 September 30, December 31,
                                                     2009         2008
                                                  -----------  -----------
                                                  (Unaudited)
Assets:
Current assets:
  Cash and cash equivalents                       $    13,451  $     5,878
  Investments                                             215            -
  Receivable from FeedRoom                              4,636            -
  Accounts receivable, net                             18,602        8,331
  Inventory, net                                        1,300        2,130
  Other current assets                                  1,698        1,539
                                                  -----------  -----------
Total current assets                                   39,902       17,878
                                                  -----------  -----------

  Property and equipment, net                           2,791        2,928
  Deferred tax assets                                      81           64
  Software, net                                         3,097        2,265
  Customer list, net                                    2,597        2,988
  Domain names, net                                        11           19
  Goodwill                                             16,559       15,167
                                                  -----------  -----------
Total assets                                      $    65,038  $    41,309
                                                  ===========  ===========

Liabilities and Stockholders' Equity:
Current liabilities:
  Bank overdraft                                  $       717  $     1,456
   Capital lease and other obligations                    263          395
   Secured notes payable                                1,603          966
   Senior secured notes payable, net of debt
    discount                                                -          950
  Accounts payable                                      5,739        5,775
  Accrued expenses                                      7,246        2,240
  Income tax payable                                      193          160
  Acquisition liability - Kamera                        2,583        3,000
  Acquisition liability - Visual                        1,075        2,218
  Derivative liability                                 13,503            -
  Other current liabilities                             2,274        3,818
                                                  -----------  -----------
Total current liabilities                              35,196       20,978

  Capital lease and other obligations, net of
   current                                                398          949
  Secured notes payable, net of current                     -          236
  Acquisition liability - Visual, net of current            -        1,075
                                                  -----------  -----------
 Total liabilities                                     35,594       23,238
                                                  -----------  -----------

Equity:
 Stockholders' equity:
  Common stock, $0.0001 par value: authorized
   30,000,000 shares; issued and outstanding
   8,891,623 and 4,183,280, respectively                    1            -
  Additional paid-in capital                          108,145      101,057
  Accumulated deficit                                 (78,351)     (82,499)
  Accumulated other comprehensive (loss) income          (351)        (250)
                                                  -----------  -----------
  Total stockholders' equity                           29,444       18,308
                                                  -----------  -----------
  Non-controlling interest                                            (237)
                                                  -----------  -----------
  Total equity                                         29,444       18,071
                                                  -----------  -----------
Total liabilities and equity                      $    65,038  $    41,309
                                                  ===========  ===========




                           KIT DIGITAL, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
               (Amounts in Thousands, Except Share and Per Share Data)
                                     (Unaudited)


                                                       Three months ended
                                                          September 30,
                                                      --------------------
                                                        2009       2008
                                                      ---------  ---------
Revenue                                               $  11,036  $   5,381
                                                      ---------  ---------

Variable and direct third party costs:
  Cost of goods and services                              4,550          -
  Hosting, delivery and reporting                           331        499
  Content costs                                             287        866
  Direct third party creative production costs              583        759
                                                      ---------  ---------
Total variable and direct third party costs               5,751      2,124
                                                      ---------  ---------

Gross profit                                              5,285      3,257

General and administrative expenses:
  Compensation, travel and associated costs (exclusive
   of non-cash stock-based compensation)                  3,310      3,701
  Non-cash stock-based compensation                         536        188
  Legal, accounting, audit and other professional
   service fees                                             154        291
  Office, marketing and other corporate costs               894        834
  Merger and acquisition and investor relations
   expenses                                                 522          -
  Depreciation and amortization                             977        434
  Restructuring charges                                     340        162
  Other non-recurring charges                               641        200
  Impairment of property and equipment                        -          -
                                                      ---------  ---------
Total general and administrative expenses                 7,374      5,810
                                                      ---------  ---------
Loss from operations                                     (2,089)    (2,553)
  Interest income                                            27         37
  Interest expense                                         (124)       (31)
  Amortization of deferred financing costs and debt
   discount                                                (562)         -
  Derivative (expense) income                            (8,449)         -
  Other income                                               65          8
                                                      ---------  ---------
Net loss before income taxes                            (11,132)    (2,539)
  Income tax expense                                         (2)        (1)
                                                      ---------  ---------
Net loss                                                (11,134)    (2,540)
  Plus: Net income attributable to the non-controlling
   interest                                                   -        (15)
                                                      ---------  ---------
Net loss available to common shareholders             $ (11,134) $  (2,555)
                                                      =========  =========

Basic and diluted net loss per common share           $   (1.65) $   (0.78)
                                                      =========  =========
Basic and diluted weighted average common shares
 outstanding                                          6,739,934  3,273,079
                                                      =========  =========

Comprehensive loss:
Net loss                                              $ (11,134) $  (2,555)
  Foreign currency translation                             (530)      (219)
  Change in unrealized gain on investments, net              15          -
                                                      ---------  ---------
Comprehensive loss                                    $ (11,649) $  (2,774)
                                                      =========  =========

Contact Information

  • KIT digital Media Contact:
    Daniel Goodfellow
    Vice President, Marketing and Communications
    Tel. +1-646-873-3086
    Email Contact

    KIT digital Investor Relations Contact:
    Matt Glover
    Liolios Group, Inc.
    Tel. +1-949-574-3860
    Email Contact