I'm some of you I'm sure will be happy to hear this, given that I'm kind of sometimes a lightning rod personality, and it's a love him or hate him type of dynamic -- from a public market perspective, I'm going to take a step back in some of that interaction, and I think really enable the Company to get to its next level of development from a communications perspective in the market.
Over the last four years or so Tuzman built KIT Digital into an important player in the exploding multiscreen video management and delivery market through a string of acquisitions. Through the assembled platform, KIT Digital powers everything from AT&T's (NYSE:T) UVerse offering to German pay television provider Sky Deutschland's "TV Everywhere."
However, the news reports at KIT have often swarmed around Tuzman's personality, such as his alleged arrest in Dubai, according to a Wall Street Journal article and KIT Digital's subsequent denial. Tuzman's colorful personality had found its way into drama as early as the first dot-com era, when he starred in the movie "Startup.com".
Tuzman put together KIT Digital through a formidable set of acquisitions of video management players across the globe, many of them, like Ioko, already with notable commercial success under their belt. With his departure, we hope that investor attention can return to KIT Digital, the company, its significant customer list and technology assets, and its large market opportunity rather than Kaleil Isaza Tuzman, the person. But what is the company without Tuzman?
KIT Digital has been on a rapid acquisition and consolidation mode. Here is a list of its acquisitions just in the last 2 years:
Value of shares
Effective KITD Share Price
Source: KIT Digital 2011 and 2010 10-K filings. $'s in thousands except price per share. Fine print such as incentive clauses, acquired liabilities and holdbacks impact final determination of the cost of acquisition. Some of these are included in these numbers, so treat this table as representative and approximate.
The total value at which these companies were acquired tops $250 million and this is just for the last two years. There were several acquisitions in the years 2008-2009 as well that we have not counted in this figure. It is worth noting that these companies were acquired when the stock markets were still recovering from the 2008-2009 crash and practically all of these were acquired through a combination of cash and stock with the stock price higher than the price is today. At today's market cap of about $300 million, we are getting all these assets at a relative discount at about 1x their annualized revenue run rate, with projected organic growth of 25-30%.
A question that has always swirled around KIT Digital, given Tuzman's colorful persona, is whether Tuzman is reliable and, by extension, are the numbers at KIT Digital reliable. We went over this here. Other than Grant Thornton's vouching for the 2011 annual report numbers, another reason that we find the revenue numbers believable is that KIT Digital literally acquired this revenue through its string of acquisitions, many of which were already generating significant revenue.
From the likes of it, Tuzman is reputed to be a master salesman and a shrewd negotiator and there is little reason to believe KIT Digital significantly overpaid for these companies at a time when the market was generally buyer-friendly.
So with Tuzman gone from KIT Digital, what do we have left? A company that has over 2,450 paying customers with monthly recurring revenue per client of $6,600 and growing. Revenue churn for Q4-2011 was a mere 0.2% and over 70% of the revenue is predictably recurring. The traditional broadcasting world is in a tectonic change with IP-based video, multi-screen, multi-format, on-demand delivery. Everyone, from Comcast (NASDAQ:CMCSA) to AT&T and from Walt Disney to The Philippines' TV5 is scrambling to get a piece of the action.
As in every gold rush, it is those that are selling shovels and tools that are the surest best and KIT Digital is handing these out to the whole spectrum of players in this rush. Tuzman saw this as he assembled this portfolio of acquisitions to positioning KIT Digital as a major player in this space.
Wayne Walker, independent director at KIT Digital, noted on Tuzman's departure:
…our management team … continues to focus on operations, cash flow growth and overall execution in what we consider to be a post-consolidation phase of KIT digital's lifecycle.
The first phase was the portfolio of assets that KIT Digital assembled under Tuzman. His departure marks the end of that beginning and it is time for all the entrepreneurial talent that was acquired into KIT Digital's umbrella to take responsibility for the next phase.
Time for the builders to take over from the investment banker. And time, finally, for the news to be about the company's innovative product offerings and partnerships, like the one with IBM announced yesterday, rather than the dramatic script starring Kaleil Isaza Tuzman.