Posts Tagged ‘Kaleil Isaza Tuzman’

Report: KIT Digital Founder Arrested, Charged With Accounting Fraud

broadcast technology market research | Posted by Joe Zaller
Sep 10 2015

An interesting side note on the first day of the 2015 IBC Show….

The Wall Street Journal reported that Kaleil Isaza Tuzman, the founder of KIT Digital was arrested in Monday, and “charged with market manipulation and accounting fraud related to a later company he founded, KIT Digital.”Kalil

The KIT Digital story is long and complex.

The company, which acquired a large number of online video technology properties eventually filed for voluntary bankruptcy protection in April 2013 “to cleanse itself of legacy issues, including financial, legal and regulatory matters.”

At that time, the company filed a Reorganization Plan with the Court under which it would go into bankruptcy, be recapitalized by a “plan sponsor group” of investors, and emerge as profitable, debt-free business.

According to the Reorganization Plan, the company entered Chapter 11 with the intention of closing at least eight loss-making subsidiaries, while retaining four of its profitable subsidiaries: Ioko 365, Polymedia, KIT digital France and KIT digital Americas.  In its filings with the Court, Kit disclosed that the aggregate revenue generated in 2012 by these four remaining business was approximately $134.5 million.

KIT Digital emerged from Chapter 11 in 2013, and rebranded the remaining assets of the business as Piksel, which remains a leader in on-line video technology..

 

Here is the text from the WSJ article:

Star of “Startup.com” Charged With Accounting Fraud

Kaleil Isaza Tuzman, star of the 2001 documentary “Startup.com” that chronicled the rise and fall of his company govWorks Inc., was arrested in Colombia on Monday, charged with market manipulation and accounting fraud related to a later company he founded, KIT Digital.

The charges against Mr. Tuzman were announced on Tuesday by Manhattan U.S. Attorney Preet Bharara. KIT Digital’s former chief financial officer, Robin Smyth, was also charged with accounting fraud and was arrested in Australia. Messrs. Tuzman and Smyth are both being held pending extradition proceedings. Both were also sued by the Securities and Exchange Commission.

A call to Mr. Tuzman’s cell phone was answered by a woman identifying herself only as “Amanda,” who claimed to be his lawyer, but who declined to comment. Mr. Smyth couldn’t immediately be reached for comment.

The indictment alleges that Mr. Tuzman engaged in a scheme with an outside hedge fund to artificially inflate the share price and trading volume of KIT Digital shares. It also alleges that both Messrs. Tuzman and Smyth falsely inflated KIT’s sales by recognizing revenue for products the company hadn’t fully delivered and by using the company’s own cash to pay off customer invoices that were uncollectible.

KIT Digital, its name derived from the initials of its founder, sought to become an online video technology powerhouse by rapidly acquiring 19 companies. It raised more than $250 million via stock sales to help fund the deals and enjoyed positive recommendations from some Wall Street analysts whose firms also sponsored those stock sales.

The Wall Street Journal first raised questions about KIT Digital in November 2011, noting a rapid increase in accounts receivable that suggested customers weren’t paying their bills. The story also noted a run-in Mr. Tuzman had with Dubai police after getting into a fight with a lawyer there.

Mr. Tuzman stepped down in March 2012 and a subsequent Wall Street Journal story noted additional troubles facing the company and quoted his successor, Barak Bar-Cohen, saying he would like to “control-alt-delete the past.” KIT Digital filed for bankruptcy in 2013.

Mr. Tuzman now runs an investment firm called KIT Capital that focuses on asset sales, growth equity and real estate. He has been seeking investors for his latest project, a resort in Cartegena that hopes to be “Colombia’s 1st 6-star hotel,” according to the project’s website. The resort has its own Instagram account, @cartagenaviceroy, and Mr. Tuzman posed for a group photo in a hard hat last week.

Mr. Tuzman recently sent an invitation to the “7th Annual Colombia Celebration” sponsored by KIT Capital, which is leading the resort project, according to an Aug. 25 email reviewed by the Journal. The 10-day event in Cartagena and Medellin in November “straddles local independent day celebrations, island trips, world-class parties and the Miss Colombia coronation,” according to the invite. “We hope you will think of KIT Capital as your Colombian ‘connection.’”

Mr. Tuzman gained fame during the tech boom and bust for being featured in Startup.com, which is considered by some to be the quintessential eye-witness account of dot-com mania. Mr. Tuzman, who is Harvard educated, left a banking job at Goldman Sachs to become CEO of GovWorks, which struggled after raising large amounts of venture capital.

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Related Content:

WSJ Article: Star of “Startup.com” Charged With Accounting Fraud

Bankruptcy Court Approves Kit Digital Restructuring, Company to Rebrand as “Piksel” Before IBC 2013

KIT Digital SEC Filing: Heiland Takes Over CEO Role from Barak Bar-Cohen

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

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

KIT Digital Chairman Resigns, Cites Differences With Board of Directors Over Strategic Sales Process

Streaming Media.Com Article: What’s Going on with KIT Digital?

Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

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KIT Digital Article © Wall Street Journal.

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Former KIT Digital CEO Blasts Company for “Attempt to Scapegoat Previous Management” and “Recent Record of Deficient Management and Poor Business Execution”

Broadcast technology vendor financials, Broadcast Vendor M&A, SEC Filings | Posted by Joe Zaller
Nov 26 2012

In a letter to the Board of Directors of KIT Digital, former chairman & CEO, Kaleil Isaza Tuzman, strongly criticized the company for “effectively blam[ing] prior management for the Company’s delayed filing of third quarter results and the Company’s intent to restate its financial statements for the 2009-2011 period, among other issues.”

Tuzman, who oversaw an aggressive M&A program at KIT Digital stepped down from the position of CEO as part of a management shake-up, which also involved the resignation of four directors from the company’s board.

Tuzman resigned from the position of chairman in April 2012 after clashing with the board over strategic issues.  In his resignation letter to KIT Digital’s board of directors, Tuzman said: “I have separately discussed my concerns with some of you regarding the manner in which the Company has been viewed by the public market over the years. Based in part on my concerns, I have made a wholly personal decision to step back from a formal role with the Company. As you know, I have not always agreed with other members of the Board of Directors (the “Board”) or, specifically, with all of the decisions or processes followed by the Strategic Transaction Committee of the Board with reference to the current strategic sale process. Although I will no longer be a member of the Board, I intend to stay involved as a shareholder of the Company, and I will also have greater flexibility to independently consider other strategic alternatives for the Company. I also think my departure from a formal role with the Company will give the Company greater flexibility to evolve in its next, post-consolidation stage of development independent of my personality and role as a founder.”

Tuzman was replaced as CEO on an interim basis by Barak Bar-Cohen, but Bar-Cohen’s tenure was short-lived. Bar-Cohen resigned from KIT Digital in August 2012 and was replaced as CEO by  activist investor Peter Heiland of JEC Capital Partners.

In his letter to KIT Digital’s board, Tuzman cites a litany of instances where he says the company’s “current management has shown disregard for the underlying business,” and goes on to provide a list of action items that company management must do immediately in order to “right its ship.”

Tuzman also says he is “prepared to lead a bidding group to buy the Company at a reasonable and substantial cash premium to the current traded price of the Company’s common stock.”

 

The full text of Tuzman’s letter follows:

 

Board of Directors
KIT digital, Inc.
26 West 17th Street, 2nd Floor
New York, NY
10011

Attention: Bill Russell, Chairman

Dear KIT digital Board of Directors,

KIT digital, Inc.’s (“KITD” or the “Company”) November 21, 2012 8-K (the “8-K”) effectively blamed prior management for the Company’s delayed filing of third quarter results and the Company’s intent to restate its financial statements for the 2009-2011 period, among other issues.  The Company’s attempt to attribute its current problems to prior management is spurious.

As one of KITD’s largest shareholders and the Company’s former chairman and CEO, I have kept my opinions on the Company’s trajectory confidential since my departure in April 2012, in deference to the efforts being expended by current management and to avoid unnecessary discord.  However, I can no longer silently abide the Company’s attempt to scapegoat previous management or tolerate the recent record of deficient management and poor business execution.  KITD shareholders deserve to be leveled with on what has occurred at the Company to date, and shown a path forward to success and enhancement of share value, as we have set forth below.

First, some clarifications concerning some implications contained in the Company’s recent 8-K.  During my tenure at the Company, all revenue recognition decisions were made in consultation with and approved by the Company’s independent accounting firm, and approved by your audit committee. We have no reason to believe any of those decisions were improper.  Since my departure, it is possible that your new audit committee members have elected, in consultation with the firm’s outside auditors, to apply different revenue recognition policies. That is not prior management’s responsibility, and a change in revenue recognition policies and application may reflect your recently insinuated decision to further separate the “software” and “services” lines of the Company’s business.  As shareholders, we cannot yet opine on the merit of your decision, since your 8-K lacked details on the matter.

Similarly, the 8K’s vague reference to a lack of disclosure concerning certain undisclosed “related party transactions” is misleading and inappropriate.  During my tenure with KITD, all related party transactions were vetted by KITD’s outside counsel and relevant disclosures in KITD financial statements were reviewed and approved by the Company’s independent accounting firm.  For instance, as you know, my affiliate investment companies, KIT Media and KIT Capital, supported the Company by investing on four different occasions between 2008 and 2011 in public share issuances alongside other public shareholders.  These transactions were “related party transactions” in nature and were disclosed in great detail in press releases and Company financial statements at the time.  The transactions were very positive for the Company (and included two successfully completed financings during the depth of the 2008-2009 financial crisis) and were broadly lauded by KITD’s shareholder base at the time as demonstrating management’s “skin in the game.”  In addition, stock options and restricted stock grants over time to me or KIT Capital for services rendered were also described in detail in the Company’s public filings.  Accordingly, these transactions were all appropriately disclosed and benefited the Company and its shareholders—and, in fact, neither myself nor KIT Capital has ever exercised or sold any of these stock grants or options, nor have I received a single dollar or share in severance.

By comparison, you granted former CEO Barak Bar-Cohen a $250,000 “success bonus” for an extremely dilutive, death-spiral financing concluded after my departure and JEC Capital (the New York hedge fund which currently controls the Company and for which current KITD CEO Peter Heiland serves as Managing Director) recently lent $2.5 million to the Company without a concomitant press release—and the mention of this related party transaction received only cursory mention in an indirectly related SEC filing.

Given the 8-K’s emphasis on the dire current liquidity situation of the Company, it appears to us that you, in conjunction with the Company’s senior creditors, may be conspiring to artificially decrease the Company’s stock price so as to acquire the Company at a fire sale price that is unfair to shareholders.  Indeed, the 8-K’s disclosure regarding covenant breaches of current lender agreements could be interpreted as a lead-in to a pre-arranged, sweetheart deal with the Company’s  lenders.

Previous management presided over a period between December 2007 and March 2012 during which monthly revenues expanded over 20x, operating results went from huge losses to small gains, and the Company’s shares appreciated from $2.90 to over $9.00. Despite your attempt to blame past management for your current results, those close to the Company report that current management has shown disregard for the underlying business—including key clients, employees and vendors. Most startlingly, you seem to have presided over the Company burning more cash from operations in the seven months since I left than the Company had burned from operations in the prior two fiscal years.

Adding to KITD’s problems, the Company’s current management has:

  • failed to visit many, if not most key clients
  • failed to visit more than a handful of Company field locations
  • lost many, if not most, of the Company’s key salespeople
  • disassembled the Company’s core engineering team
  • demonstrated a lack of sufficient understanding of the Company’s core technology, products and capabilities, and failed to make material progress in product development
  • moved the Company headquarters from its low-cost European center of Prague to a high-cost NYC office—despite over 50% of the Company’s revenues being European in origin
  • incurred ballooning operating losses
  • poorly executed on an ill-conceived idea of stripping down and selling individual pieces of the Company—without sufficient comprehension of how software and services units complement each other in serving clients
  • failed to attract significant new talent to the business
  • failed to add material new client contracts
  • failed to communicate a coherent vision for the future to staff, clients and industry observers
  • left an impression with staff, clients, vendors and competitors alike that KITD is under “temporary”, “hedge fund”, “Wall Street-focused” management.

 

Ignoring these poor managerial decisions, the Company instead seeks to scapegoat prior management in describing its current condition.  It is time to redress this situation.

I originally resigned from my post as CEO of KITD in March 2012 (and subsequently resigned from his role as Chairman in April, 2012) because I had come to irreconcilable differences with the Board at the time concerning strategic decisions and the future of the Company.  As a major shareholder, I ultimately felt I could make a greater positive impact on the Company’s development from the outside than from within, especially considering that the Board formed a Special Strategic Committee (the “Special Committee”) in January 2012 which had effectively taken control of all CEO-level decisions.

By way of background, in December 2011, my core management team had recommended to the Board that the Company complete a major restructuring and consolidation of operations (a plan that you finally began to implement about two months ago).  We also recommended to the Board at such time that the Company pursue two competing strategic transactions, each with the potential to be a homerun for shareholders (one a private equity buy-out and the other a merger-of-equals).  Instead, the Board rejected management’s suggested approach and formed the Special Committee with a broad mandate to oversee “any and all strategic decisions” at the Company.  The Special Committee was comprised of two board members—Wayne R. Walker and Santo Politi—and immediately shut down or irreparably delayed the discussions with the strategic transaction counterparties.  KITD’s management-by-special-committee was predictably dysfunctional.  After months of wrestling with the Special Committee to no avail, myself and several members of the core management team eventually resigned.

In connection with my resignation I issued a letter—which was publicly filed by the Company as an 8-K at the time—stating that I intended to independently consider strategic alternatives for the Company.  After my resignation, a bidding group (led by a large private equity firm which I had introduced to the Company), endeavored to obtain approval from the Special Committee to share information with me so that I could participate in connection with a potential offer for KITD.  Unfortunately, the Special Committee refused this request, to the detriment of all shareholders.

Since that time, KIT Capital and other prospective bidders have been repeatedly delayed or stonewalled in our continued efforts to create shareholder value, while the indecision and delay of new management and board continues to result in value destruction.  For example, although KITD’s current management and board finally adopted the staff reduction and office consolidation plan prior management first put forward almost a year ago, the delay has caused KITD to effectively run out of money and may put the Company into the pockets of its lenders.

KITD must right its ship. From an operational perspective, KITD management must immediately:

  • Articulate a vision of the “new” KIT digital, with the focus being on clients, employees and vendors—and away from capital markets
  • Halve executive management costs
  • Tour the top 30 clients globally to ensure contract compliance and renewal
  • Implement a program to re-invigorate the core team of top 50-performing employees globally
  • Complete our original cost reduction and office consolidation plan—including keeping headquarters in Prague, consolidating engineering team into two locations, consolidating New York and Atlanta office into one location and shutting down six other locations globally (including Dubai), while expanding sales and business development staff by one-third
  • Cease the “divide-and-sell” approach to assets
  • Clearly articulate a balance sheet-fortification strategy, centered on a significant private equity minority investment and concomitant restructuring of existing debt, while conducting an open and transparent auction of the Company (engaging both private equity and strategic buyer prospects), with a publicly announced minimum price of $3.75 per share.

 

We do not believe that current management is capable of the actions listed in this letter.  As a result, we are prepared to lead a bidding group to buy the Company at a reasonable and substantial cash premium to the current traded price of the Company’s common stock.  Since May 2012, we have repeatedly requested that the board engage with us and certain other private equity firms regarding a strategic transaction for the Company.  In light of KITD’s mismanagement and the Company’s current circumstances, the Board can no longer afford to ignore these overtures.

Based on our analysis of publicly available information, and subject to due diligence and the execution of a mutually acceptable definitive agreement, we are prepared to lead a bidding group to buy the Company at $3.75 per share in cash, which represents an 81% premium to the closing price of KITD common stock on Wednesday, November 21, 2012 (and an approximately 750% premium to the reported after-market trading price of KITD common stock on that date).  We have reviewed this transaction with two large private equity groups who are interested in participating with us, and believe we have the backing of the Company’s prior and current executives, salespeople and senior engineers who would be key to execute on our plan to right the KITD ship.   We believe we can finalize financing and business terms with respect to this acquisition very quickly if the Board responds forthwith.

For the benefit of all the shareholders, we ask that you to cease and desist from defamatory and inaccurate descriptions of KITD’s prior management and immediately engage in an open dialogue with us on this offer.

Regards,

Kaleil Isaza Tuzman

On behalf of:
KIT Capital, LLC

 

 

Related Content:

Press Release: Former Chairman and CEO Kaleil Isaza Tuzman Sends Letter to KIT digital Board of Directors

KIT Digital to Restate Historical Financial Statements Due to “Errors and Irregularities”

Reuters: TIMELINE-Management woes roil Kit Digital    http://dcft.co/10BEkdZ

KIT Digital To Cut 300 Jobs in Effort to Right Size Operations

Former KIT Digital CEO Bar-Cohen Resigns After Activist Investor Takes Control

KIT Digital SEC Filing: Heiland Takes Over CEO Role from Barak Bar-Cohen

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

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

KIT Digital Chairman Resigns, Cites Differences With Board of Directors Over Strategic Sales Process

Streaming Media.Com Article: What’s Going on with KIT Digital?

Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

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KIT Digital to Restate Historical Financial Statements Due to “Errors and Irregularities”

Broadcast technology vendor financials, Quarterly Results, SEC Filings | Posted by Joe Zaller
Nov 25 2012

KIT digital said that “because of errors and irregularities identified by the Company in its historical financial statements, the financial statements for (1) the years ended December 31, 2009, 2010 and 2011 and (2) each of the three quarters in 2009, 2010 and 2011 will be restated.”

This decision was reached after discussions with the Company’s senior management and outside advisors. The Audit Committee discussed the matters described in this report with Grant Thornton LLP, the Company’s independent registered public accounting firm.

The company said that investors should no longer rely on KIT’s previously issued financial statements for these periods, any earnings releases or other communications relating to these periods, or projections or estimates for any future periods.

As a result, the Company will not timely file its Quarterly Report on Form 10-Q for the three months ended September 30, 2012 and will not issue an earnings release or host an earnings conference call. The company also cancelled its 2012 Annual Meeting of Stockholders.

According to a KIT Digital filing with the SEC, “the accounting errors and irregularities relate primarily to recognition of revenue related to certain perpetual software license agreements entered into by the prior management team in 2010 and 2011. These errors and irregularities were discovered in connection with the Audit Committee’s previously disclosed investigation of certain transactions that resulted in impairment charges. The Audit Committee has also determined that certain transactions entered into by the Company under the prior management team during fiscal years ended December 31, 2008 through 2011 were related party transactions and that additional disclosure with respect to those transactions should have been included in the footnotes to the relevant financial statements.  Because of the timing of the completion of the Audit Committee investigation and the Company’s ongoing review and investigation of certain transactions, the Company requires additional time to complete an analysis of the accounting treatment for the software licenses and to determine the extent of the corrections that may be required to its historical financial statements. Other effects on previous financial statements are also possible. Accordingly, the Company cannot currently quantify the potential impact of the restatement.

KIT also reiterated it has “experienced substantial losses this year, including costs related to previously disclosed litigations and restructuring expenses and will also incur additional costs related to the restatement discussed above. As a result of these circumstances, and based on the Company’s forecast, the Company expects to continue to incur significant cash expenditures.”

As a result of its ongoing turmoil, KIT said that it is “considering a broad set of strategic alternatives including financing transactions as well as other strategic transactions including a sale of the company or its assets.”

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Related Content:

Press Release: KIT digital, Inc. Announces Restatement of Prior Period Financial Statements and Postponement of Third Quarter 2012 Results

KIT Digital 8K Filing — Restating Financials – November 15 2012

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© Devoncroft Partners. All Rights Reserved.

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Activist Investor Heiland Become CEO at KIT Digital

SEC Filings | Posted by Joe Zaller
Aug 30 2012

 

KIT Digital said in a filing with the SEC that activist investor Peter Heiland has been appointed CEO of the company. 

Heiland, the managing director of JEC Capital Partners, replaces interim CEO Barak Bar-Cohen, who became CEO of KIT Digital in April 2012 following the departure of Kaleil Isaza Tuzman, who in his resignation letter cited difference with the company’s board of directors over strategic issues.

This is the second time in recent months that Heiland’s JEC Capital Partners has become involved with a broadcast technology company.  Earlier this year, JEC created activist shareholder drama at Miranda Technologies, which was ultimately sold to Belden – resulting in a tidy profit for JEC.

JEC Capital Partners, which owns 8 percent of KIT Digital, recently signed a “standstill agreement” with KIT.   Under the terms of the standstill agreement, Heiland and another activist investor were given KIT Digital board seats in exchange for supporting KIT digital’s Board, and refraining from taking “certain adverse actions” against KIT digital’s Board.

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KIT Digital SEC Filing: Heiland Takes Over CEO Role from Barak Bar-Cohen

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

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

KIT Digital Chairman Resigns, Cites Differences With Board of Directors Over Strategic Sales Process

Streaming Media.Com Article: What’s Going on with KIT Digital?

Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

Activist Shareholder Drama Continues at Miranda Technologies

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

Broadcast technology vendor financials, Quarterly Results | Posted by Joe Zaller
May 16 2012

KIT Digital announced that its revenue for the first quarter of 2012 was $59m, down 16% from the previous quarter.

The GAAP net loss in the quarter was $24.9m, compared to GAAP net income of $400,000 last quarter and a GAAP net loss of $12.5m last year.

The non-GAP operating loss for the quarter was $8m, compared to non-GAAP operating income of $16.5m in the preceding quarter and a non-GAAP operating loss of $7.1m for the first quarter of 2011.

The results, which were in line with the KIT’s company’s negative pre-announcement earlier this month, are substantially lower than the company’s previously issued guidance of “at least $72m for the first quarter of 2012”, and full year 2012 revenue in the range of $320m to $330m, with a non-GAAP operating margin in the range of 23.5% to 25.5%.  Based on this guidance, the consensus estimates of equity analysts for the quarter had been revenue of $72.4m and earnings of 3 cents per share.

The poor results are the latest in a series of issues that have roiled the company recently. 

Former KIT Digital CEO Kaleil Isaza Tuzman resigned from his position as the company’s non-executive chairman, citing differences with the company’s board of directors regarding KIT’s strategic sales process.

Tuzman, who oversaw an aggressive M&A program at KIT Digital, recently stepped down as down as the company’s CEO as part of a management shake-up, which also involved the resignation of four directors from the company’s board.

In response to the company’s recent problems, KIT Digital says it has undertaken a number of initiatives aimed at corrective action.  These include:

  • Hiring a new Corporate Controller based in New York;
  • Hiring a new Head of Internal Audit based in New York;
  • Retaining one of the Big Four accounting firms to advise on the implementation of best-practice governance and monthly close policies, as well as to provide advice on the ongoing implementation of Netsuite to manage financial controls and processes; and
  • Appointing HSBC as global financial services partner to implement cash management and pooling functions.
  • Planned divestiture of non-core business lines: content solutions, digital marketing, and lower-margin broadcast systems integration; and
  • Transition of company’s current CFO, Robin Smyth, into a Corporate Development role, and the initiation of a search for a new CFO.

 

Completed Capital Raise
The company also announced that it has raised gross proceeds of approximately $29.2m through the sale of common stock. Cannacord Genuity acted as sole placement agent.

 

FY 2012 Updated Outlook
KIT said that it now expects its revenue for the full year 2012 to be approximately $250m with non-GAAP operating income margins “trending toward previous levels” in the second half of the year. The company’s previous guidance was for full year 2012 revenue in the range of $320m to $330m, with a non-GAAP operating margin in the range of 23.5% to 25.5%. 

 

“During my first 45 days as CEO we have conducted a thorough strategic and operational review of our business,” said Barak Bar-Cohen, CEO. Based on this assessment, we have thus far taken definitive steps to support our operating plan and improve financial controls. This includes raising capital to support our updated operational plan and global commercial strategy. Going forward, we intend to sharpen our focus on tier one video management software and services, which we believe will result in significantly higher cash flow levels by the end of 2012.”

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Related Content:

Press Release: KIT digital Reports Q1 2012 Results In Line With Preliminary Q1 2012 Announcement

Pre-Announcement: KIT Digital Says Q1 2012 Revenue Will Be Substantially Lower Than Previous Guidance

KIT Digital 8-K Filing – details new capital raised

WSJ Article: Investors Need First Aid KIT

KIT Digital Chairman Resigns, Cites Differences With Board of Directors Over Strategic Sales Process

Resignation Letter to KIT Digital Board from Kaleil Isaza Tuzman

Streaming Media Article: What’s Going on with KIT Digital?

Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

Previous Year: KIT digital Revenues Jump 98% in Q1 2011, Says M&A Phase is Over and Company Will Now Focus on Organic Growth Strategy

Previous Quarter: Kit digital Says its Revenue Doubled in 2011, Forms Strategic Transaction Committee

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KIT Digital Says Q1 2012 Revenue Will Be Substantially Lower Than Previous Guidance

Broadcast technology vendor financials, Quarterly Results | Posted by Joe Zaller
May 03 2012

KIT digital said today that it expects to report revenue for the first quarter of 2012 of approximately $59m, and a non-GAAP operating loss in the first quarter of 2012 of approximately $8m.

These results are substantially lower than the company’s previously issued guidance of “at least $72m for the first quarter of 2012”, and full year 2012 revenue in the range of $320m to $330m, with a non-GAAP operating margin in the range of 23.5% to 25.5%.  Based on this guidance, the consensus estimates of equity analysts for the quarter was revenue of $72.4m and earnings of 3 cents per share. 

Investors did not like the news, and sent the stock down almost 30% to its lowest level in more than three years.

The company attributed the poor results to longer than anticipated sales cycles for a number of larger opportunities, increased personnel costs associated with deployments in future quarters, payments of assumed liabilities arising from the acquisition of Sezmi, and higher than expected legal and advisory fees.

“Over the last several weeks, the management team and I have performed a detailed review of our lines of business and their cash flow contributions, and have determined that previous guidance was too high,” said Barak Bar-Cohen, KIT digital’s CEO. “During our quarterly earnings call, we will present a revised operating plan and financial outlook for a growing, cash-generative software business.”

The negative pre-announcement is the latest in a series of issues that have roiled the company recently. 

Former KIT Digital CEO Kaleil Isaza Tuzman resigned from his position as the company’s non-executive chairman, citing differences with the company’s board of directors regarding KIT’s strategic sales process.

Tuzman, who oversaw an aggressive M&A program at KIT Digital, recently stepped down as down as the company’s CEO as part of a management shake-up, which also involved the resignation of four directors from the company’s board.

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Related Content:

Press Release: KIT digital Announces Preliminary Q1 2012 Results   

WSJ Article: Investors Need First Aid KIT

KIT Digital Chairman Resigns, Cites Differences With Board of Directors Over Strategic Sales Process

Resignation Letter to KIT Digital Board from Kaleil Isaza Tuzman

Streaming Media Article: What’s Going on with KIT Digital?

Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

Previous Year: KIT digital Revenues Jump 98% in Q1 2011, Says M&A Phase is Over and Company Will Now Focus on Organic Growth Strategy

Previous Quarter: Kit digital Says its Revenue Doubled in 2011, Forms Strategic Transaction Committee

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© Devoncroft Partners. All Rights Reserved.

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KIT Digital Chairman Resigns, Cites Differences With Board of Directors Over Strategic Sales Process

Broadcast Vendor M&A | Posted by Joe Zaller
Apr 25 2012

Former KIT Digital CEO Kaleil Isaza Tuzman resigned from his position as the company’s non-executive chairman.  The announcement was made last week, on the first day of the NAB trade show.

Tuzman, who oversaw an aggressive M&A program at KIT Digital, recently stepped down as down as the company’s CEO as part of a management shake-up, which also involved the resignation of four directors from the company’s board.

In his resignation letter to KIT Digital’s board of directors, Tuzman said: “I have separately discussed my concerns with some of you regarding the manner in which the Company has been viewed by the public market over the years. Based in part on my concerns, I have made a wholly personal decision to step back from a formal role with the Company.

 “As you know, I have not always agreed with other members of the Board of Directors (the “Board”) or, specifically, with all of the decisions or processes followed by the Strategic Transaction Committee of the Board with reference to the current strategic sale process. Although I will no longer be a member of the Board, I intend to stay involved as a shareholder of the Company, and I will also have greater flexibility to independently consider other strategic alternatives for the Company. I also think my departure from a formal role with the Company will give the Company greater flexibility to evolve in its next, post-consolidation stage of development independent of my personality and role as a founder.”

It has certainly been interesting to watch KIT Digital over the past several years as it has grown through a roll-up of vendors in the online video space.  The company has attracted both admiration and criticism from a variety sources, and the company’s stock price has been a roller coaster.  For more information, I can recommend this article from StreamingMedia.com, which details some of the trials and tribulations at KIT Digital.

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Related Content:

Press Release: KIT digital’s Chairman Resigns

Resignation Letter to KIT Digital Board from Kaleil Isaza Tuzman http://bit.ly/HXXEYk

Streaming Media Article: What’s Going on with KIT Digital?

Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

Kit digital Says its Revenue Doubled in 2011, Forms Strategic Transaction Committee

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More Broadcast Vendor M&A: Buyout Speculation Drives Kit Digital Higher

Broadcast Vendor M&A | Posted by Joe Zaller
Mar 29 2012

The stock price of IPTV video delivery specialist KIT Digital continues to be a roller coaster.  Last week the  company’s stock dropped more than 22% in one day following the disclosure that four directors had resigned from the company’s board, and that Kaleil Isaza Tuzman will step down as CEO and become chairman on March 31st.

Today the company’s shares soared after Roth Capital said in a note to investors that KIT Digital is preparing to be sold, with the likely buyers being a private equity firm.

KIT Digital is no stranger to M&A, having bought and rolled up more than a dozen companies over the past few years.  KIT hinted that it might be acquired earlier this month when it announced that it had formed a strategic transaction committee to vet potential offers.

It will be interesting to watch this play out.

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Related Content:

Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

Kit digital Says its Revenue Doubled in 2011, Forms Strategic Transaction Committee

KIT digital Revenues Jump 98% in Q1 2011, Says M&A Phase is Over and Company Will Now Focus on Organic Growth Strategy

More Broadcast Vendor M&A: Kit Digital Buys ioko for $79.4m, Completes Buying Spree

More Broadcast Vendor M&A: Kit Digital Buys Three Companies for $77m, Says Larger Acquisition is Coming

More Broadcast vendor M&A: Kit digital Acquires Polymedia for $34.4 Million

KIT digital Reports Q4 and Fiscal 2010 Results, Raises Guidance, Says Big M&A Deal Still on Track

Kit digital buys KickApps, Kewego, and Kyte

Kit digital sells $100m of stock, says proceeds will be used to fund broadcast industry M&A activities.

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Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

Broadcast technology vendor financials, Broadcast Vendor M&A | Posted by Joe Zaller
Mar 23 2012

There were some major changes to the management and board of directors at IPTV video delivery specialist KIT Digital, including the replacement of the company’s CEO and four resignations from its board of directors.

The company said that CEO Kaleil Isaza Tuzman will step down from his position on March 31, 2012 and assume the role of chairman.  He will be replaced as CEO on an interim basis by Barak Bar-Cohen, KIT’s current chief administrative officer.

KIT says it will conduct a search for a permanent CEO.

The company also disclosed in a filing with securities regulators that board member Santo Politi, who chaired the KIT Digital’s compensation committee and served as a member of its M&A committee, resigned from the KIT Digital board “because of differences of opinion with other members of the Board over issues related to the Company’s operations, policies and management.”

KIT also announced the resignation from the company’s board of directors by three members of its management team: Gavin Campion (KIT’s President), Robin Smyth (KIT’s CFO), and Chris Williams (KIT’s CTO).  The company said that Campion, Smyth and Williams “submitted their resignations in order to support the company’s efforts to rebalance its board towards non-management members.  All three will remain in their positions as officers of the company.

For his part, Tuzman said that the move had been planned and will enable him to focus on strategic transactions. “The shift to full-time chairman is a step I have been contemplating for some time. The strategic transaction process, which is underway at the direction of the board’s Special Transaction Committee, is at a pace that requires my dedicated focus and energy, separate to the day-to-day running of the company and investor relations responsibilities. By moving forward today with Barak as our interim CEO, we have built in some structural flexibility over the coming months as we assess strategic options.”

Investors were unimpressed with the news.  KIT’s stock traded down as much as 26% during the day trading and closed down 22.3%, prompting a series of articles about KIT’s performance, including this overview from Yahoo Finance, which highlights some previous drama at the company.

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Related Content:

Press Release: KIT digital Implements Management and Board Changes, Aligns Company for Strategic Opportunities and Operational Success

Kit Digital 8-K filing

Yahoo Finance Article: KIT digital Sinks More Than 20% After Management Shakeup

Kit digital Says its Revenue Doubled in 2011, Forms Strategic Transaction Committee

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Kit digital Says its Revenue Doubled in 2011, Forms Strategic Transaction Committee

Broadcast technology vendor financials, Quarterly Results | Posted by Joe Zaller
Feb 28 2012

IP video specialist KIT digital announced that it expects to report Q4 2011 revenue of $70m, 4% higher than the company’s previous guidance, 82% higher than the same period a year ago, and 12% higher than the previous quarter.    Non-GAAP operating income for the fourth quarter is expected to be approximately $16.4m versus previously issued guidance of $17.5m, representing an increase of 15% sequentially and 145% over the fourth quarter of 2010.

The company said it expects to report full year 2011 revenue of $215m, up 102% from 2010, and full year non-GAAP operating income of approximately $47.3m, up 158% from 2010.

“The organic growth in our business is reflected in these preliminary record results,” said KIT digital’s chairman and CEO, Kaleil Isaza Tuzman. “The quarter’s non-GAAP operating income is expected to come in marginally lower than originally targeted, due to increased internal staffing and third-party resources for additional tier 1 deployments in the quarter. However, we were pleased with the bottom-line results, and the investments we are making now add to our conviction that we have set the stage for a strong 2012 and beyond.”

 

Outlook for Q1 and Full Year
The company said that it expects to report revenues of at least $72 million for the first quarter of 2012, and full year 2012 revenue in the range of $320m to $330m, versus previously issued full year 2012 guidance of $320m.

For 2012, management expects the company’s non-GAAP operating income margin to be within a range of 23.5% to 25.5%. This full year margin is inclusive of the following expected investments and charges during the course of 2012: (a) approximately $5m of additional investment in sales and marketing, including solution design and channel sales programs; (b) approximately $3m of additional investment in R&D; (c) approximately $4.5m for performance management initiatives, including the replacement of poor performers, as well as the recruitment of additional direct sales, partnerships, and engineering personnel in the company’s AsiaPac and LatAm regional operations, areas of strong growth opportunities in 2012 and 2013; and (d) approximately $3.5m for office consolidation and relocation of certain client service centers to lower cost jurisdictions.

“The sales and R&D investments are aimed at seizing the opportunity presented by the launch schedule of premium content OTT offerings by service providers globally, as well as rapid growth in emerging markets such as Latin America, the Middle East, and Southeast Asia,” said KIT digital’s president, Gavin Campion. “We expect increased investments in sales and marketing, R&D, and client services capabilities to lead to enhanced growth rates in 2013 and beyond, and the rationalization of certain offices and client service centers to lead to savings of up to $10 million in 2013.” The majority of these investments and expenditures are expected to occur during the first half of 2012. As such, KIT digital expects to finish the year with a run-rate non-GAAP operating income margin in the range of 27% to 29%.

 

Strategic Transaction Committee Formed:

Commenting on speculation that the company may be an acquisition target, Tuzman said “As we have previously disclosed, we have from time to time received expressions of interest concerning significant investment in, and possible purchase of, our company. Due to recent inquiries and conversations, in January our board established a strategic transaction committee of independent directors to allow for responsible and efficient review of such opportunities as they arise. The company has not made a decision to pursue a strategic transaction nor has it entered into any agreement with a prospective purchaser with regard to any such transaction, and the establishment of the board committee should not be considered indicative of any pending or future transaction.”

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Related Content:

Press Release: KIT digital Announces Record Preliminary Q4 and Full Year 2011 Results, Updates Guidance for 2012

Previous Quarter: KIT digital Reports Record Q3 2011 Results, Issues Strong Guidance

More Broadcast Vendor M&A: Kit Digital Buys ioko for $79.4m, Completes Buying Spree

Previous Year: KIT digital Reports Q4 and Fiscal 2010 Results, Raises Guidance, Says Big M&A Deal Still on Track

More Broadcast Vendor M&A: KIT digital Acquires Polymedia for $34.4m

More Broadcast Vendor M&A: Kit Digital Buys Three Companies for $77m, Says larger Acquisition is Coming

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