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Small Company Update: Lets get KIT Digital, let me hear your VAMS talk

|Includes:KIT digital, Inc. (KITD)

KITD reported their Q2 earnings the other day and as promised, Money McBags is here to break it down for you with the good (EBITDA), the bad (share buyback talk? ugh), and the ugly (the actual video presentation where management talked in front of a wall of TVs, one of which was showing a hot chick model what looked like a wedding dress right above the CEO's head in his initial overview, one of which looked like it was showing a snuff film during KITD's CFO's financial overview (check out the second TV from the bottom left of the screen), and one of which had someone doing the WWE suck it motion right above the President's head on the right side of the screen about 2 to 3 minutes in to his company overview.  Seriously, Money McBags was more interested in what was playing in the background than management's analysis, though he only laments that he didn't have a remote control to put some of market mover Jodie Fisher's greatest works on one of the TVs.  That said, it was much better than the video presentation from a couple of quarters ago that looked like it was shot in someone's basement and was just missing management holding up a newspaper with the current date to make it look like a ransom video).

Anyway, here is the analysis:


The Numbers: KITD's revenue was up 33% sequentially and 120% Y/Y to $23.1MM which was slightly above their pre-announced $22.7MM from the other week and was hurt by ~4% due to the decline of the Euro during the Q.  Gross margin was ~63% and operating costs were ~$12.3MM ex one-timers and non-cash stock comp charges which yielded ~$2.15MM in operating profit and since the company pays less in taxes than Wesley Snipes does, that would have equaled ~$.10 operating EPS for the quarter in contrast to the announced $(.02) GAAP EPS.  The company also had $4.2MM in EBITDA for an EBITDA margin >18% which was above their target though had ~1% help from the declining Euro as their costs in Euros are slightly more than revenues.  They now have $67MM cash on their balance sheet for an EV of ~$150MM.

The Good:

1.  Revenue continues to grow and they said even without acquisitions, they are on pace to beat full year guidance which Money McBags was delighted to hear, almost as delighted as he would be to hear "what time should I be over and can I bring some friends?" from Jenn Sterger.  Guidance was for at least $75MM in revenue with acquisitions to add another ~$20MM so that should get them to around $100M in revenue in 2010 which would be up 100% from last year and for those of you keeping score at home, 100% growth is good, unless we're talking about sales of Chuck Klosterman books or anal warts.


2.  They added 23 new clients including a top ten pharma company, Delta Airlines intranet, and Vivid Video (ok, the last one is made up, especially as "I P video" likely has a much different connotation for Vivid Video fans, but whatever).  And the company isn't just adding clients, but they are also able to grow with their current/acquired clients.  The CEO pointed to their ability to grow a relationship with GM which they initially got through an acquisition and how they were able to sell GM additional services so that account is now 3x what it was before they acquired them.  KITD's ability to offer more integrated solutions by going "deeper into the stack" than competitors seems to be paying off (and "deeper in to the stack" also seems like a great title for a potential porn movie starring Peter North as a stern librarian).

3.  DSOs came back down.  DSOs were down from a ridonkulous 128 to a more manageable 89 as they focused on collections to some degree to show the street they have it under control after the company must have received some hella nasty phone calls from large investors wondering if they were going to need to call in Vinnie and Sal to collect for KITD.

4.   KITD is differentiated from most competition by being able to have technology that goes to all three screens and offering more enterprise type solutions.  In the best part of the phone call, CEO Tuzman essentially dropped his drawers and took a massive dump all over the Brightcoves of the world by calling that business a commodity that is really just selling storage and bandwidth.  Tuzman labeled that...READ ALOT MORE....INCLUDING VALUATION....

Disclosure: Long KITD
Stocks: KITD