As you all know, Money McBags has thoroughly covered KITD on When Genius Prevailed over the past several months as it is a small, controversial company that Money McBags believes has big potential and yet is extremely cheap because it is fundamentally a bit weird and simply misunderstood.
Money McBags posted several questions for CEO Kaleil Tuzman after KITD’s last Q and after trading emails, wrestling with his legal department, and apparently never seeing the Bad Idea Jeans commercials, Mr. Tuzman was kind enough to take some time away from diluting shareholders (I keed, I keed) for a few minutes to answer those questions. So below are Mr. Tuzman’s unedited responses (and yes, they are really from him, links and everything. Money McBags jokes about much on this site but he would never cross an ethical boundary, unless that boundary were related to Alice Eve and the ethical dilemma were whether to tell her about the rodeo he was holding).
The questions are bolded, Mr. Tuzman’s answers are italicized, and so it goes…
1. The competition. Yeah, you can make fun of the online video platform providers for having a commodity business, but what about your business isn’t a commodity? What is it that you do better than others? Or is this really a land grab game and you are in the best position to grab the land given your balance sheet and brand equity. You have talked about this in generalities, but Money McBags would like to better understand. For instance, you said you grew your relationship with GM by 3x once you acquired that customer relationship. What services/solutions did you sell them to grow that relationship that the previous provider could not offer them?
First, I would never make fun of anybody (except maybe this guy). We see online video platform (OVP) providers as fulfilling an important place in the market: the provision of easy-to-use and easy-to-deploy tools for publishing video primarily on websites. By our count, there are over 50 OVP companies in the market that are commercially active—and that doesn’t take into account corporate initiatives to provide free or near-free online video solutions at large companies like Google and Adobe. I don’t think there’s a real debate at this point as to whether we’re seeing commoditization of the traditional OVP market from a technical perspective, but that doesn’t mean companies can’t differentiate by providing better client service and support, integrating content and other value-added services (but not these kinds of services, Money), or focusing on certain specific geographies and client verticals.
Actually our entry-level product, VX Media Suite, could be qualified as an OVP, but we’re not focused on reselling bandwidth and storage like so many OVPs are, and VX Media Suite is geared towards complex corporate (non-media company) deployments where the value proposition to the client has more to do with realizing internal efficiencies and integration with CMS and ERP systems than straight over-the-top (OTT) video publishing (not to be confused with this Over-the-Top). VX Media Suite is also 3-screen capable, and tends to support a lot of live broadcasting (for internal corporate communications, investor relations, staff training, “closed circuit” community broadcasts, etc.)—something you see almost none of with the traditional OVP providers. Clients using our OTT-oriented solution include FedEx, Bristol-Myers Squibb, Home Depot, Intel and General Motors. As GM was going through their Chapter 11 and associated massive cost-cutting process they substantially increased their usage (and consequent spend) on our IP video communications platform, as part of their movement away from expensive, traditional closed circuit internal communications systems—which involve dedicated satellite carriage, Ka-band dishes and dedicated classroom environments in distributed locations.
Our higher-end VX Enterprise offering is what we describe as a video asset management system (VAMS), supporting large content originators and network operators (Vodafone, Telefonica, Telecom Argentina, Associated Press and others) for all of the content management and syndication needs related to OTT distribution, “on-deck” mobile TV and IPTV/hybrid IPTV cable systems. VX Enterprise is often deployed at operators’ head-ends, and in all cases integrates with operators’ CRM and identity management systems, various DRM solutions and payment gateways; it supports over 70 different ingestion protocols and video publishing to over 400 different end device types—including Smartphones, so-called “fortress devices” (Nokia and Ericsson, primarily), STBs, gameboxes, and connected TVs. VX Enterprise is highly differentiated, it is to a typical OVP offering as Madonna is to Tila Tequila.
2. If the market is growing 40% per some industry reports, how the fuck are you able to pay the low multiples you have been for acquisitions? Why would those companies not hold out for more, or just grow 40% with the market? Again, what is it that you do to these businesses to energize growth?
Oy vey (for an Irish mope, that’s Yiddish for “oh, grief”, not to be confused with the related “vey iz mir”, which is what Woody Allen said when news of his interesting tastes first emerged). Do I have to answer this one? OK, so the politically correct response is that smaller companies (particularly those overseas in less developed M&A markets) have less access to liquidity and can do better by combining with KIT digital (not that kind of combining) and realizing gains in our stock over the long-term. We look for sellers with good underlying businesses but with some sort of capital structure tension or balance sheet issue that is likely to spell a better price for us as a buyer. Now, the politically incorrect response: we’re stingy (yes even cheap, but if you try to make some sort of connection between that comment and my Yiddishkeit above beware that I actually am Jewish and have a nasty left hook—especially for a hermaphrodite) and we wear down counterparties with relentless repetition of the same offer in windowless conference rooms.
Seriously speaking we find that companies, like people, get fatigued, and half of the battle in “energizing growth” in acquired companies is refreshing entrepreneurial enthusiasm (which is as abnormal as this kind of refreshment, but vastly more pleasant) and client relationships to realize sales synergies. Balancing this with the necessary cost-cutting we do after acquisitions to extract G&A synergies is always a challenge. Since our acquisitions have been focused on adding clients by geographical and sales vertical expansion—as opposed to technology and product addition—the challenge has been straightforward and ultimately achievable.
3. What the fuck is going on with even hinting at a share buy back after you diluted Money McBags and other shareholders the other month because you saw such great opportunities and wanted to have a war chest for presumably when Brightcove goes public? Money McBags gets that your stock is cheap (just re-read his analysis), but WTF?I have learned as of late that the concept of a share buyback is...READ THE FULL INTERVIEW...
Disclosure: Long KITD