KIT Digital Posts $102.6 Million GAAP Loss in Q2 2012, Sells Sezmi and Content Solutions Businesses at Steep Loss

Posted by Joe Zaller
Aug 15 2012

KIT digital, who last week announced that it had signed a standstill agreement with two activist shareholders in exchange for seats on the company’s board of directors, reported that its revenue for the second quarter of 2012 was $51.1m, up 14% versus the same period a year ago, and down 9% versus the previous quarter.  

The company attributed the sequential sales decline to lower revenue from its broadcast systems integration business, which was down approximately $3.6m versus the previous quarter.  Revenue from large scale broadband media deployments was $28.1m in the quarter, up 9% sequentially.

KITs Q2 results exclude revenue from the company’s “content solutions business,” and the assets of Sezmi Corporation, both of which were divested at the end of the quarter (see below).  KIT took a $55.7m impairment charge as a result of these actions, and is now treating these businesses as discontinued operations.

The GAAP net loss from continuing operations for the quarter was $102.6m or $1.99 per share, compared GAAP los of $19.8m or $0.47 per share last year, and a GAAP net loss $21.5m, or  $0.46 per share last quarter. The GAAP net loss includes the $55.7m impairment charge mentioned above, along with restructuring charges, a reversal in M&A expenses, and other expenses.

The company’s non-GAAP operating loss for the quarter was $18.2m, compared to a non-GAAP operating loss of $4.8m in the preceding quarter and positive non-GAAP operating income of $8.7m in the second quarter of 2011. The non-GAAP operating loss includes $6.5m in bad-debt expense and approximately $3.8m from legal and other professional fees.

Free cash flow the quarter was negative $14.7m, comprised of negative $10m for continuing operations, and negative $4.7m from discontinued operations.

The company ended the quarter with an order backlog of approximately $74.6m, and $35.9m in cash, equivalents, and restricted cash.  KIT’s cash balance increased by about $10.6m since the end of the previous  quarter thanks to the sale of 7 million shares of stock, which netted the company $27.2m after expenses.

 

Assets of Sezmi and “Content Solutions Business” Sold for Steep Losses

During the quarter, KIT sold off the assets of Sezmi Corporation, for $2.9m.  KIT acquired Sezmi at the beginning of 2012 for approximately $27m.  At that time, KIT management said that it expected Sezmi contribute revenue of at least $20m, and earnings of approximately $4m in 2012, and be “immediately accretive on a revenue, cash flow, and cash earnings basis.”  Instead, less than 8 months after closing the Sezmi acquisition, KIT has sold off the business at a loss of $28.6m.  

When pressed for an explanation on the company’s conference call with equity analysts, KIT’s new CFO Fabrice Hamaide said that the forecast for Sezmi “did not turn out the way previous management had believed Sezmi customers and the Sezmi platform would be able to actually deliver.”

The company also said that it sold its “content solutions business” for $1m in cash. The loss associated with the transaction was $15.5m million.

 

“Despite reporting lower sequential revenue, the quality of our revenue mix continues to improve quarter over quarter,” said KIT Digital CEO Barak Bar-Cohen. “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.”

.

.

Related Content:

Press Release: KIT Digital Reports Q2 2012 Results, Improved Revenue Mix, and Strategic, Operational Progress

KIT digital Q2 2012 Earnings Conference Call Transcript

Previous Quarter: KIT Digital Posts GAAP Loss of $24.9 Million in Q1 2012, Issues Updated Guidance

Previous Year: Kit Digital Reports Wider Losses as Revenue Doubles in Q2 2011  

Activist Investors Claim Board Seats at KIT Digital, Will Refrain From Adverse Actions Against KIT Digital’s Board

Text of Standstill Agreement Between KIT Digital, JEC Capital Partners, and Costa Brava

KIT Digital Exploring Strategic Options for Company Sale, Fails to Reach Agreement with JEC Capital

.

© Devoncroft Partners. All Rights Reserved.

.

Comments are closed.

%d bloggers like this: