"KIT digital Reports Q2 2012 Results, Improved Revenue Mix, and Strategic, Operational Progress
Aug 14, 2012 (Marketwire via COMTEX) --KIT digital, Inc. (NASDAQ: KITD), a leading video management software and services company, today reported results for the second quarter ended June 30, 2012.
Total revenue from continuing operations for the period was $51.1 million, compared to $56.1 million in the preceding quarter and $45.0 million for the second quarter of 2011. Cash, equivalents, and restricted cash were approximately $35.9 million, up from $25.3 million at the end of the first quarter. The company also reported an impairment to goodwill of $55.7 million.
The company's operating results for the second quarter and for comparable periods exclude the Content Solutions business and the assets of Sezmi Corporation, both of which were divested at the end of the quarter. These businesses are being treated as discontinued operations.
The decrease in revenue was due primarily to lower revenue from Broadcast Systems Integration (or BSI), which was down approximately $3.6 million sequentially. In addition, the delayed acquisition of Hyro represented nearly $2.0 million in foregone revenues. Revenue from large scale broadband media deployments rose from approximately 46% of overall revenue in the first quarter to approximately 55% of overall revenue in the second quarter.
"Despite reporting lower sequential revenue, the quality of our revenue mix continues to improve quarter over quarter," said Barak Bar-Cohen, Chief Executive Officer of KIT digital. "Revenue from large scale broadband media deployments, including Cosmos software license fees and professional and managed services, increased during the second quarter on both an absolute and percentage basis, and we anticipate that trend will continue."
The company's non-GAAP operating loss for the quarter was $18.2 million, compared to a non-GAAP operating loss of $4.8 million in the preceding quarter and positive non-GAAP operating income of $8.7 million in the second quarter of 2011. The non-GAAP operating loss includes $6.5 million in bad-debt expense and approximately $3.8 million from legal and other professional fees necessitated by Board and corporate requirements. (See table "MATERIAL ITEMS IN NON-GAAP OPERATING INCOME (LOSS)")
The GAAP net loss from continuing operations for the quarter was $102.6 million or $1.99 per share, compared to losses of $21.5 million or $0.46 per share in the preceding quarter and $19.8 million or $0.47 per share in the second quarter of 2011. The GAAP net loss included $55.7 million of impairment to goodwill, along with restructuring charges, a reversal in M&A expenses, other expenses, and the other elements that comprised the non-GAAP operating loss discussed above. (See table "MATERIAL ITEMS IN GAAP NET INCOME (LOSS)")
Operational Progress
The results come as KIT digital, with revitalized management and a reconstituted board of directors, has taken the following significant steps with respect to operations, strategy, governance, and capitalization:
•Completed the divestiture of our non-core Content Solutions business;
•Reduced low-margin hardware business in the broadcast space;
•Completed the acquisition of Hyro, providing essential strength to the AsiaPac team;
•Raised over $29 million in equity capital;
•Moved the corporate headquarters to New York City;
•Hired a new CFO with strong turnaround and financial operating experience;
•Appointed a new CTO with strong platform and broadband media deployment expertise;
•Implemented a new system for cash management and budgeting;
•Signed several major new clients around the world; and
•Added four new Board members including a new Non-Executive Chairman, a new Audit Committee Chairman, and representatives of two major shareholders.
"We accomplished a great deal in the past quarter by taking actions that reinforced our organization's key principles of a commitment to cutting edge technology, a customer-focused service mentality, and a belief in the power of video," Mr. Bar-Cohen continued. "This quarter illustrates the continuing transformation of our business and sharper focus on our core value proposition of delivering IP-video software and services to leading broadband media companies around the world."
Q2 Commentary
During the quarter, KIT digital raised $29.2 million in gross proceeds ($27.2 million net). Prior to a price adjustment, the company issued a total of 7.0 million shares. The impact of that price adjustment, which occurred after the close of the quarter, is not reflected in the cash and share calculations for the second quarter but has been accounted for on the company's balance sheet.
As of June 30, 2012, KIT digital had $15.4 million outstanding under its debt facility with WTI, down from $18.3 million at the end of the first quarter. The company is paying both interest and principal on these notes. The company is in compliance with all covenants governing the WTI debt.
The total free cash flow from continuing operations and from discontinued operations was negative $14.7 million for the quarter. Free cash flow from continuing operations for the quarter was negative $10.0 million, which included $1.7 million in one-time compensation payments and $3.8 million in professional and legal fees. In addition, free cash flow from discontinued operations was negative $4.7. (See table "CHANGES IN CASH POSITION")
As of the end of the second quarter, KIT digital has a backlog of approximately $74.6 million, which represents the amount of revenue for the second half of the year that is related to signed contracts and/or ongoing projects.
"In the short time since I joined KIT digital," said Fabrice Hamaide, Chief Financial Officer of KIT digital, "we have worked together and made great strides toward implementing best practices across the finance and accounting operation, including significantly improved financial controls, and a more robust budgeting and forecasting process."
Mr. Hamaide continued: "We disclosed data related to our backlog for the first time, and we also made some necessary cost reductions and significant non-cash adjustments. Our actions this past quarter reflect significantly improved controls and processes within our organization, and our ongoing transformation to a streamlined and cash-flow-oriented business."
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